<PAGE>   1
                                                                      EXHIBIT 13


                          BALANCE SHEET AND OTHER DATA

<TABLE>
<CAPTION>
                                                       AT DECEMBER 31,
                                                   -----------------------
                                                     1999           1998
                                                   --------       --------
                                                    (Dollars in thousands)
<S>                                                <C>            <C>
TOTAL AMOUNT OF:
    Assets                                         $231,032       $218,086
    Loans, net                                      146,430        128,962
    Interest-bearing deposits in other banks          2,177         30,845
    Securities available-for-sale                    64,599         40,415
    Loans held for sale                                 894          2,986
    Deposits                                        189,175        194,687
    Borrowed funds                                   21,890          3,520
    Stockholders' equity                             17,849         17,612
NUMBER OF:
    Real estate loans outstanding                     3,419          3,589
    Savings accounts                                 17,509         16,136
    Full-service offices open                             6              6
</TABLE>




                          STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
                                                            FOR THE YEARS ENDED DECEMBER 31,
                                                            -------------------------------
                                                             1999        1998        1997
                                                            -------     -------     -------
                                                                    (In thousands)
<S>                                                         <C>         <C>         <C>
INTEREST INCOME                                             $16,130     $15,921     $15,858

INTEREST EXPENSE                                              9,238       9,251       8,903
                                                            -------     -------     -------
   Net interest income before provision for loan losses       6,892       6,670       6,955

PROVISION FOR LOAN LOSSES                                       177         637         400
                                                            -------     -------     -------
   Net interest income after provision for loan losses        6,715       6,033       6,555

NONINTEREST INCOME                                            1,116       1,060       1,359

NONINTEREST EXPENSE                                           5,195       4,813       4,663

INCOME TAX EXPENSE                                              958         778       1,188
                                                            -------     -------     -------
   Net income                                               $ 1,678     $ 1,502     $ 2,063
                                                            =======     =======     =======
</TABLE>






                                       2
<PAGE>   2

                                   OTHER DATA

<TABLE>
<CAPTION>
                                                                                 FOR THE YEARS ENDED
                                                                                    DECEMBER 31,
                                                                              ------------------------
                                                                              1999      1998      1997
                                                                              ----      ----      ----
<S>                                                                           <C>       <C>       <C>
Interest rate spread                                                           3.2%      3.2%      3.5%
Yield on average interest earning assets                                       7.8       8.1       8.4
Return on assets (net income divided by average total assets)                  0.8       0.7       1.0
Return on equity (net income divided by average equity)                        9.4       8.6      12.7
Equity-to-assets ratio (average equity divided by total average assets)        8.0       8.0       8.1
Dividend payout ratio (dividends declared divided
    by net income)                                                            42.7      48.2      34.5
</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.


<TABLE>
<CAPTION>
                                                                    FOR THE YEARS ENDED
                                                                         DECEMBER 31,
                                                                  ------------------------
                                                                  1999      1998      1997
                                                                  ----      ----      ----
<S>                                                               <C>       <C>       <C>
         Weighted average yield on loans........................   8.9%      9.0%      9.1%
         Weighted average yield on securities available-
            for-sale ...........................................   5.9       6.4       6.5
         Weighted average yield on all interest-earning
            assets..............................................   7.8       8.1       8.4
         Weighted average rate paid on deposits.................   4.6       4.9       4.9
         Weighted average rate paid on
            borrowed funds......................................   5.8       5.8       5.7
         Weighted average rate paid on all interest-
            bearing liabilities ................................   4.6       4.9       4.9
         Interest rate spread (spread between weighted
            average rate on all interest-bearing assets and
            all interest bearing-liabilities)...................   3.2       3.2       3.5
         Net yield (net interest income as percentage of
            interest-earning assets)............................   3.3       3.4       3.7
</TABLE>





                                       3
<PAGE>   3

                      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 further expand 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>   4

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
including interest rate swap agreements. 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 loss in fair value
of the underlying instruments of approximately $796,000. This hypothetical loss
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 $5.5 million, to $189.2 million at December 31, 1999 as
compared to $194.7 million at December 31, 1998. This decrease was due primarily
to a decrease in time deposits of $4.1 million as a result of rate competition.
Total assets increased $12.9 million, to $231.0 million at December 31, 1999,
compared to $218.1 million at December 31, 1998. This increase was primarily due
to an increase in net loans receivable of approximately $15.3 million, an
increase in securities available-for-sale of approximately $24.2 million, an
increase in cash of approximately $1.3 million and an increase in all other
assets of approximately $1.3 million. This increase was offset by a decrease in
interest bearing deposits of approximately $28.7 million and a decrease in other
real estate owned of approximately $650,000.

During the fiscal year ended December 31, 1999, the Bank increased its short
term borrowings from the Federal Home Loan Bank of Atlanta ("FHLB") by $18.5
million. The increase in borrowings along with the proceeds from loan repayments
and interest bearing deposits was used to fund lending activities.

The Company's investment portfolio increased to $64.6 million at December 31,
1999 from $40.4 million at December 31, 1998. The increase was partially
attributable to purchases of securities with the proceeds from other interest
bearing deposits. 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 "--Liquidity" and Note 2 of Notes to
Consolidated Financial Statements.

RESULTS OF OPERATIONS

GENERAL. The Company's net earnings are 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 earnings are affected by
the gain and loss on the sale of loans and securities, loan servicing income,
subsidiary earnings, operating expenses, and income taxes. Although changes in
interest rates necessarily lead to changes in net interest margins, 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 approximately $1.7 million, $1.5
million, and $2.1 million for the fiscal years ended December 31, 1999, December
31, 1998, and December 31,1997, respectively. The increase from the fiscal year
ended December 31, 1998 to the fiscal year ended December 31, 1999 was primarily
attributable to two factors: a $460,000 decrease in the provision for loan
losses and a $108,000 decrease in the loss on the sale of other real estate
owned. The decrease from the fiscal year ended December 31, 1997 to the fiscal
year ended December 31, 1998 was due primarily to two factors: an increase in
losses on the sale and writedown of other real estate owned of $560,000 and a
$240,000 increase in the provision for loan losses.





                                       5
<PAGE>   5

INTEREST REVENUE. Interest income on loans and securities increased
approximately $900,000 from the fiscal year ended December 31, 1998 to the
fiscal year ended December 31, 1999. Interest income on loans and securities
decreased by approximately $600,000 from the fiscal year ended December 31, 1997
to the fiscal year ended December 31, 1998. The increase from the fiscal year
ended December 31, 1998 to the fiscal year ended December 31, 1999 was primarily
due to an increase in the average balance of loans and securities outstanding of
approximately $21.7 million which offset the slight decreases in yields earned.
The decrease from fiscal year 1997 to fiscal year 1998 was primarily due to a
decrease in the average balance of loans and securities outstanding of
approximately $5.2 million.

Other interest decreased approximately $700,000 from the fiscal year ended
December 31, 1998 to the fiscal year ended December 31, 1999. Other interest
increased approximately $670,000 from the fiscal year ended 1997 to the fiscal
year ended 1998. The decrease from the fiscal year ended December 31, 1998 to
the fiscal year ended December 31, 1999 was due primarily to a decrease in the
average balance of interest-bearing deposits in other banks of approximately
$11.6 million. The increase from fiscal year 1997 to fiscal year 1998 was due
primarily to an increase in the average balance of interest-bearing deposits in
other banks of approximately $12.4 million. The proceeds from other
interest-bearing deposits were used to fund lending activities.

INTEREST EXPENSE. Interest expense on deposits decreased approximately $200,000
from the fiscal year ended December 31, 1999 compared to the fiscal year ended
December 31, 1998. Interest expense on deposits increased approximately $350,000
from the fiscal year ended December 31, 1997 compared to the fiscal year ended
December 31, 1998. The decrease from fiscal year 1998 to fiscal year ended
December 31, 1999 was due to the combination of a decrease in the weighted
average rate paid on deposits and a decrease in the average balance of deposits.
The increase from fiscal year 1997 to fiscal year 1998 was due primarily to an
increase in the average balance outstanding of approximately $7.0 million.

Interest expense on borrowed funds increased approximately $200,000 from the
fiscal year ended December 31, 1998 to the fiscal year ended December 31, 1999.
Interest expense on borrowed funds decreased approximately $5,000 from the
fiscal year ended December 31, 1997 to the fiscal year ended December 31, 1998.
The increase from fiscal year 1998 to fiscal year 1999 was due primarily to an
increase in the average balance of borrowed funds of approximately $3.4 million.
The decrease from fiscal year 1997 to fiscal year 1998 was due primarily to a
decrease in the average balance outstanding of approximately $120,000.

PROVISIONS FOR LOAN LOSSES. Provisions for loan losses are 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 provisions for losses on loans were $177,000,
$637,000, and $400,000 for the fiscal years ended December 31, 1999, 1998, and
1997, respectively. The decrease from the fiscal year ended December 31, 1998 to
the fiscal year ended December 31, 1999 was primarily due to improved
performance of the loan portfolio as evidenced by the decrease in the level of
charge-offs incurred by the Company. The total charge-offs were $226,000,
$718,000 and $428,000 for fiscal years ended December 31, 1999, 1998 and 1997,
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 each loan 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 $1.1
million and $1.2 million at December 31, 1999 and 1998, respectively.





                                       6
<PAGE>   6

NONINTEREST INCOME. Noninterest income, which includes fees and charges on
deposit accounts and existing loans, service fee income on loans, income on real
estate operations, and gain (loss) on sale of assets increased approximately
$56,000 from the fiscal year ended December 31, 1998 to the fiscal year ended
December 31, 1999 Other noninterest income decreased approximately $299,000 from
the fiscal year ended December 31, 1997 to the fiscal year ended December 31,
1998. The increase from fiscal year 1998 to fiscal year 1999 was due primarily
to an increase in fees and service charges on deposit accounts of approximately
$59,000, a decrease in the loss on sale of real estate owned of approximately
$108,000, an increase in real estate operations, net of approximately $50,000,
and an increase in all other noninterest income of approximately $75,000. This
was offset by a decrease in net gain on sale of mortgage loans of approximately
$206,000, and a decrease in service fee income and other fee income on loans of
approximately $30,000. The decrease from fiscal year 1997 to fiscal year 1998
was due primarily to an increase in loss on the sale of real estate owned of
approximately $564,000, a decrease on real estate operations, net of
approximately $39,000, a decrease in service fee income of approximately $23,000
as well as other slight decreases in other noninterest income, and was offset by
an increase in the gain on sale of mortgage loans of approximately $331,000.

NONINTEREST EXPENSE. Noninterest expense increased $382,000 from the fiscal year
ended December 31, 1998 to the fiscal year ended December 31, 1999. Noninterest
expense increased approximately $150,000 from the fiscal year ended December 31,
1997 to the fiscal year ended December 31, 1998. The increase from the fiscal
year ended December 31, 1999 to the fiscal year ended December 31, 1998, was due
primarily to an increase in compensation expense of approximately $238,000, an
increase in occupancy expense of approximately $119,000, an increase in
marketing and professional expense of approximately $16,000, and an increase in
legal expense of approximately $30,000. This increase was offset by a decrease
in all other noninterest expense of approximately $21,000. The increase from
fiscal year 1997 to fiscal year 1998 was due to an increase in compensation
expense of approximately $100,000, an increase in occupancy expense of
approximately $14,000, an increase in FDIC premiums of approximately $20,000 and
an increase on other expenses of approximately $56,000, and was offset by a
decrease in marketing and professional expense of approximately $40,000.

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 12 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 of
sales of other earning assets including securities. The entire investment
portfolio at December 31, 1999, was classified as available-for-sale, with a
fair value of $64.6 million. See Notes 1 and 2 of Notes to Consolidated
Financial Statements. At December 31, 1999, liquid assets, consisting primarily
of cash on hand, interest-bearing deposits in other banks and short-term
investments totaled approximately $72.1 million, compared to $75.5 million at
December 31, 1998. This decrease of $3.4 million was primarily attributable to
an increase in loan portfolio growth.

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,
1999, the Bank had an approved credit availability of $29.0 million at the FHLB
of Atlanta. At December 31, 1999 the Bank had $18,500,000 in advances on this
credit line. The Bank also has a discount window borrowing agreement of
$5,873,000 with the Federal Reserve Bank of Atlanta. At December 31, 1999 the
Bank has no borrowing on this discount window borrowing agreement.





                                       7
<PAGE>   7

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, 1999 was approximately $17.8
million.

Risk-based capital regulations adopted by the Board of Governors of the Federal
Reserve Board and the FDIC 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, 1999, the
Company and the Bank satisfied the minimum regulatory capital requirement and
was "well-capitalized" within the meaning of federal regulatory requirements.
See Note 12 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. In the current interest rate environment, liquidity and
the maturity structure of the Bank's assets and liabilities are believed to be
critical to the maintenance of desired performance levels. Management considers
the Bank's liquidity sources to be adequate to meet its current and projected
needs.

YEAR 2000

Expenses incurred in preparation for the year 2000 totaled approximately
$34,000, all of which were expensed by December 31, 1999. The Company
experienced no material adverse effects related to the year 2000.





                                       8
<PAGE>   8

                      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, 1999, the Company had 1,792,086 shares of
common stock outstanding and 403 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:

<TABLE>
<CAPTION>
                                                    PRICE RANGE
                                                    COMMON STOCK
                                                 -------------------
                                                   HIGH        LOW
                                                 -------     -------
<S>                                              <C>         <C>
         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

         Fiscal Year Ended December 31, 1998:
             First quarter                       $17-3/4     $ 15-5/8
             Second quarter                       16-1/2       15-1/4
             Third quarter                        13-1/2       11-1/2
             Fourth quarter                       12           11-1/2
</TABLE>


Dividends of $.40 ($.10 in each of the four quarters) were declared and paid
during each of fiscal years 1999 and 1998. 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.




                                       9
<PAGE>   9

                    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, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.


                                     ARTHUR ANDERSEN LLP



Birmingham, Alabama
February 18, 2000



                                       10
<PAGE>   10

                            PINNACLE BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                           DECEMBER 31, 1999 AND 1998



<TABLE>
<CAPTION>
                                                                        1999            1998
                                                                   -------------    ------------
<S>                                                                <C>             <C>
ASSETS:
    Cash on hand and in banks                                      $   5,289,619    $  3,960,991
    Interest-bearing deposits in other banks                           2,177,294      30,845,417
    Securities available-for-sale                                     64,599,164      40,414,788
    Loans held for sale                                                  893,733       2,985,698
    Loans receivable, net of allowance for loan losses
       of $1,222,978 and $1,200,586, respectively                    146,429,690     128,961,641
    Real estate owned, net                                             1,521,533       2,174,956
    Premises and equipment, net                                        6,995,375       6,648,317
    Excess cost over net assets acquired                                 388,220         429,086
    Accrued interest receivable                                        1,982,134       1,386,208
    Other assets                                                         754,801         278,412
                                                                   -------------    ------------
              Total assets                                         $ 231,031,563    $218,085,514
                                                                   =============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY:
    Deposits                                                       $ 189,174,804    $194,687,494
    Borrowed funds                                                    21,890,000       3,520,000
    Official checks outstanding                                        1,529,946       1,140,849
    Other liabilities                                                    588,051       1,125,064
                                                                   -------------    ------------
              Total liabilities                                      213,182,801     200,473,407
                                                                   -------------    ------------
COMMITMENTS AND CONTINGENCIES (NOTES 3 AND 14)

STOCKHOLDERS' EQUITY:
    Preferred stock, par value $.01 per share, no shares issued,
       100,000 authorized                                                      0               0
    Common stock, par $.01 per share, 1,792,086 and 1,789,586
       outstanding, 10,000,000 authorized                                 17,921          17,895
    Additional paid-in capital                                         8,131,746       8,109,740
    Retained earnings                                                 10,414,858       9,453,693
    Accumulated other comprehensive income, net of tax                  (715,763)         30,779
                                                                   -------------    ------------
              Total stockholders' equity                              17,848,762      17,612,107
                                                                   -------------    ------------
              Total liabilities and stockholders' equity           $ 231,031,563    $218,085,514
                                                                   =============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       11
<PAGE>   11

                            PINNACLE BANCSHARES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                               FOR THE YEARS ENDED

                        DECEMBER 31, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
                                                           1999            1998           1997
                                                       ------------    ------------    -----------
<S>                                                    <C>             <C>             <C>
INTEREST REVENUES:
    Interest on loans                                  $ 12,041,424    $ 12,217,381    $12,546,254
    Interest and dividends on securities                  3,760,885       2,717,566      2,991,456
    Other interest                                          328,178         986,139        319,952
                                                       ------------    ------------    -----------
                                                         16,130,487      15,921,086     15,857,662
INTEREST EXPENSE:
    Interest on deposits                                  8,831,557       9,049,314      8,695,821
    Interest on borrowed funds                              406,927         201,961        207,317
                                                       ------------    ------------    -----------
                                                          9,238,484       9,251,275      8,903,138
                                                       ------------    ------------    -----------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES      6,892,003       6,669,811      6,954,524
PROVISION FOR LOAN LOSSES                                   177,000         637,000        400,000
                                                       ------------    ------------    -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES       6,715,003       6,032,811      6,554,524
                                                       ------------    ------------    -----------
NONINTEREST INCOME:
    Fees and service charges on deposit accounts            460,864         401,765        407,042
    Service fee income, net                                 189,954         213,614        236,590
    Fees and charges on loans                               231,524         237,891        233,901
    Real estate operations, net                             121,460          71,731        110,256
    Net gain (loss) on sale or write-down of:
       Loans held for sale                                  484,066         690,311        359,575
       Real estate owned                                   (447,900)       (555,553)         7,975
    Other income                                             76,493             696          4,503
                                                       ------------    ------------    -----------
                                                          1,116,461       1,060,455      1,359,842
                                                       ------------    ------------    -----------
 NONINTEREST EXPENSE:
    Compensation and benefits                             2,908,928       2,671,066      2,570,730
    Occupancy                                             1,148,041       1,029,451      1,015,553
    FDIC insurance premiums                                 113,730         109,870         90,126
    Marketing and professional                              159,730         143,007        182,938
    Legal                                                    71,947          42,098         42,064
    Other                                                   792,846         817,598        761,876
                                                       ------------    ------------    -----------
                                                          5,195,222       4,813,090      4,663,287
                                                       ------------    ------------    -----------
INCOME BEFORE INCOME TAX EXPENSE                          2,636,242       2,280,176      3,251,079
INCOME TAX EXPENSE                                          958,520         778,055      1,188,210
                                                       ------------    ------------    -----------
NET INCOME                                             $  1,677,722    $  1,502,121    $ 2,062,869
                                                       ============    ============    ===========
BASIC EARNINGS PER SHARE                               $       0.94    $       0.84    $      1.16
DILUTED EARNINGS PER SHARE                             $       0.93    $       0.83    $      1.15
CASH DIVIDENDS PER SHARE                               $       0.40    $       0.40    $      0.40
WEIGHTED AVERAGE SHARES OUTSTANDING                       1,791,079       1,780,116      1,780,675
WEIGHTED AVERAGE DILUTED SHARES                           1,796,474       1,804,779      1,795,100
</TABLE>


          See accompanying notes to consolidated financial statements.





                                       12
<PAGE>   12

                            PINNACLE BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                                Common Stock      Additional                                 Other        Total
                                           -------------------     Paid-in       Retained      Treasury  Comprehensive Stockholders'
                                             Shares     Amount     Capital       Earnings       Stock        Income       Equity
                                           ---------   -------    ----------    -----------    ---------   ---------    -----------
<S>                                        <C>         <C>        <C>           <C>            <C>         <C>          <C>
BALANCE, December 31, 1996                 1,864,000   $18,640    $8,366,717    $ 7,315,182    $(345,317)  $ (70,522)   $15,284,700
                                                                                                                        -----------
  Comprehensive Income:
  Net Income                                       0         0             0      2,062,869            0           0      2,062,869
    Change in unrealized gain (loss) on
        securities available-for-sale, net         0         0             0              0            0      84,954         84,954
                                                                                                                        -----------
      Comprehensive Income                                                                                                2,147,823
  Cash dividends ($.40 per share)                  0         0             0       (712,552)           0           0       (712,552)
  Exercise of stock options                    6,940        69        61,088              0            0           0         61,157
  Retirement of treasury stock upon
     formation of Holding Company            (84,354)     (844)     (344,473)             0      345,317           0              0
                                           ---------   -------    ----------    -----------    ---------   ---------    -----------
BALANCE, December 31, 1997                 1,786,586    17,865     8,083,332      8,665,499            0      14,432     16,781,128
                                                                                                                        -----------
  Comprehensive Income:
  Net Income                                       0         0             0      1,502,121            0           0      1,502,121
  Change in unrealized gain (loss) on
       securities available-for-sale, net          0         0             0              0            0      16,347         16,347
                                                                                                                        -----------
     Comprehensive Income                                                                                                 1,518,468
  Cash dividends ($.40 per share)                  0         0             0       (713,927)           0           0       (713,927)
  Exercise of stock options                    3,000        30        26,408              0            0           0         26,438
                                           ---------   -------    ----------    -----------    ---------   ---------    -----------
BALANCE, December 31, 1998                 1,789,586    17,895     8,109,740      9,453,693            0      30,779     17,612,107
                                                                                                                        -----------
  Comprehensive Income:
  Net Income                                       0         0             0      1,677,722            0           0      1,677,722
  Change in unrealized gain (loss) on
       securities available-for-sale, net          0         0             0              0            0    (746,542)      (746,542)
                                                                                                                        -----------
     Comprehensive Income                                                                                                   931,180
  Cash dividends ($.40 per share)                  0         0             0       (716,557)           0           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    $10,414,858    $       0   $(715,763)   $17,848,762
                                           =========   =======    ==========    ===========    =========   =========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.





                                       13
<PAGE>   13

                            PINNACLE BANCSHARES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                     1999            1998            1997
                                                                                 ------------   -------------   -------------
<S>                                                                              <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                                   $  1,677,722   $   1,502,121   $   2,062,869
    Adjustments to reconcile net income to net cash provided by operating
       activities:
       Depreciation                                                                   556,802         470,427         437,453
       Provision for losses on loans                                                  177,000         637,000         400,000
       Provision for losses on real estate owned                                      458,785         536,000               0
       Provision (benefit) for deferred taxes                                         (13,068)       (366,910)        (13,098)
    Net (gain) loss on sale and write-down of:
       Loans held for sale                                                           (484,066)       (690,311)       (359,575)
       Premises and equipment                                                            (500)              0               0
       Securities available-for-sale                                                       93               0          (1,276)
       Real estate owned                                                              (10,885)         19,533          (7,975)
    Amortization, net                                                                (430,375)       (367,383)       (375,488)
    Proceeds from sale of loans                                                    49,910,385      60,270,699      32,690,234
    Loans originated for sale                                                     (47,334,354)    (59,708,591)    (32,745,301)
    Decrease (increase) in accrued interest receivable                               (595,926)        184,115         (50,194)
    Decrease (increase) in other assets                                                (8,877)        168,749        (136,900)
    Increase (decrease) in other liabilities                                         (498,820)        168,975         (71,548)
                                                                                 ------------   -------------   -------------
              Net cash provided by operating activities                             3,403,916       2,824,424       1,829,201
                                                                                 ------------   -------------   -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Principal collected on loans and securities                                    97,634,566     100,013,446      87,426,406
    Loans originated for portfolio                                                (89,578,900)    (93,374,369)   (109,496,846)
    Net change in interest bearing deposits at other banks                         28,668,123     (25,972,064)     (1,004,689)
    Purchase of securities available-for-sale                                     (46,915,405)    (25,000,000)     (8,030,964)
    Proceeds from sale of securities available-for-sale                             4,000,093               0       1,194,724
    Proceeds from maturing and callable securities                                 11,620,700      24,212,289       8,010,000
    Purchases of premises and equipment                                              (913,508)     (1,333,465)     (1,045,742)
    Proceeds from sales of premises and equipment                                      10,148               0               0
    Proceeds from sale of real estate owned                                           823,344       1,240,520         534,124
                                                                                 ------------   -------------   -------------
                 Net cash used in investing activities                            (14,568,785)    (16,418,174)     (6,290,510)
                                                                                 ------------   -------------   -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net increase (decrease) in passbook, NOW, and money market deposit accounts    (1,385,634)      4,913,674         642,744
    Proceeds from sales of time deposits                                           19,999,705      39,317,362      35,186,606
    Payments on maturing time deposits                                            (24,126,761)    (28,920,754)    (29,859,239)
    Net increase in borrowed funds                                                 18,370,000        (120,000)       (110,000)
    Increase (decrease) in official checks and advance payments by borrowers
        for taxes and insurance                                                       330,712         304,466        (879,321)
    Proceeds from stock options exercised                                              22,032          26,438          61,157
    Payments of cash dividends                                                       (716,557)       (713,927)       (712,552)
                                                                                 ------------   -------------   -------------
                 Net cash provided by  financing activities                        12,493,497      14,807,259       4,329,395
                                                                                 ------------   -------------   -------------
NET INCREASE (DECREASE) IN CASH                                                     1,328,628       1,213,509        (131,914)

CASH AT BEGINNING OF PERIOD                                                         3,960,991       2,747,482       2,879,396
                                                                                 ------------   -------------   -------------
CASH AT END OF PERIOD                                                            $  5,289,619   $   3,960,991   $   2,747,482
                                                                                 ============   =============   =============
SUPPLEMENTAL DISCLOSURES:
    Cash payments for interest on deposits and borrowed funds                    $  9,176,467   $   9,281,566   $   8,878,245
    Cash payments for income taxes                                                  1,330,263         837,207       1,327,844
    Real estate owned transferred to mortgage loans, net                                    0         934,107               0
    Real estate acquired through foreclosure                                          617,821       2,765,113       1,296,928
</TABLE>


          See accompanying notes to consolidated financial statements.




                                       14
<PAGE>   14

                            PINNACLE BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998



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 five 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.

         PERVASIVENESS 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.

         SECURITIES

         Securities are classified as available-for-sale and are carried at fair
         value. The unrealized difference between amortized cost and fair value
         on 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 income. 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 market for this stock.

         Amortization of premiums and accretion of discounts are 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.

         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



                                       15
<PAGE>   15

         valuation allowance by charges to income. There were no unrealized
         losses during December 31, 1999, 1998, or 1997.

         LOAN SALES

         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 cost 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 cost 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



                                       16
<PAGE>   16

         alternative method in accordance with Statement of Financial Accounting
         Standards ("SFAS") No. 66, Accounting for Sales of Real Estate.

         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, 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 profits or loss
         resulting therefrom is reflected in the accompanying consolidated
         statement of income.

         The excess of cost over fair value of net assets acquired (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, 1999 and 1998 was
         approximately $602,667 and $561,802, 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.





                                       17
<PAGE>   17

         The following table represents the earnings per share calculations for
         the years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                               NET                   PER SHARE
              FOR THE YEARS ENDED            INCOME       SHARES       AMOUNT
              -------------------          ----------    ---------    --------
<S>                                        <C>           <C>          <C>
         December 31, 1999
             Basic earnings per share      $1,677,722    1,791,079    $   0.94
             Dilutive securities                   --        5,395        0.01
                                           ----------    ---------    --------
             Diluted earnings per share    $1,677,722    1,796,474    $   0.93
                                           ==========    =========    ========
         December 31, 1998
             Basic earnings per share      $1,502,121    1,780,116    $   0.84
             Dilutive securities                   --       24,663        0.01
                                           ----------    ---------    --------
             Diluted earnings per share    $1,502,121    1,804,779    $   0.83
                                           ==========    =========    ========

         December 31, 1997
             Basic earnings per share      $2,062,869    1,780,675    $   1.16
             Dilutive securities                   --       14,425        0.01
                                           ----------    ---------    --------
             Diluted earnings per share    $2,062,869    1,795,100    $   1.15
                                           ==========    =========    ========
</TABLE>

2.       SECURITIES

         The amortized cost, unrealized gross gains and losses, and approximate
         fair value of securities available-for-sale at December 31, 1999 and
         1998 are as follows:

<TABLE>
<CAPTION>
                                                                    December 31, 1999
                                                   ------------------------------------------------------
                                                    Amortized    Unrealized   Unrealized         Fair
                                                      Cost       Gross Gain   Gross Loss         Value
                                                   -----------    --------    -----------     -----------
<S>                                                <C>            <C>         <C>             <C>
         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
                                                   -----------    --------    -----------     -----------
                  Total                            $65,733,416    $710,827    $(1,845,079)    $64,599,164
                                                   ===========    ========    ===========     ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                    December 31, 1998
                                                   ------------------------------------------------------
                                                    Amortized    Unrealized   Unrealized         Fair
                                                      Cost       Gross Gain   Gross Loss         Value
                                                   -----------    --------    -----------     -----------
<S>                                                <C>            <C>         <C>             <C>
         U.S. Treasury Securities                  $ 4,009,635    $ 17,168    $         0     $ 4,026,803
         Securities of U.S. Government Agencies     18,006,838      22,826        (33,859)     17,995,805
         Federal Home Loan Bank Stock                1,472,600           0              0       1,472,600
         Other Securities                               41,853           0              0          41,853
         Mortgage-Backed Securities                 16,837,227     200,019       (159,519)     16,877,727
                                                   -----------    --------    -----------     -----------
                  Total                            $40,368,153    $240,013    $  (193,378)    $40,414,788
                                                   ===========    ========    ===========     ===========
</TABLE>




                                       18
<PAGE>   18

         The amortized cost and estimated fair value of securities
         available-for-sale at December 31, 1999 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.

<TABLE>
<CAPTION>
                                                    AMORTIZED         FAIR
                                                      COST           VALUE
                                                   -----------    -----------
<S>                                                <C>            <C>
         Due in one year or less                   $ 1,000,000    $   998,762
         Due after one year through five years      47,000,000     46,116,750
         Due after five years through ten years         40,695         40,695
                                                   -----------    -----------
                                                    48,040,695     47,156,207
         Federal Home Loan Bank Stock                  925,000        925,000
         Mortgage-Backed Securities                 16,767,721     16,517,957
                                                   -----------    -----------
                                                   $65,733,416    $64,599,164
                                                   ===========    ===========
</TABLE>

         Securities carried at approximately $18,326,000, and $23,681,000 at
         December 31, 1999, and 1998, respectively, were pledged to secure
         deposits. Deposits associated with pledged securities had an aggregate
         balance of approximately $15,153,000 and $15,327,000 at December 31,
         1999 and 1998, respectively. Proceeds from sales of securities
         available-for-sale were $4,000,093, $0 and $1,194,724 in 1999, 1998,
         and 1997, respectively. Gross gains of $0, $0, and $1,276 and gross
         losses of $93, $0, and $0 were realized on those sales.


3.       LOANS RECEIVABLE

         Loans receivable, net, are summarized as follows:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,      DECEMBER 31,
                                                                1999              1998
                                                           -------------     -------------
<S>                                                        <C>               <C>
         Real estate mortgage loans with variable rates    $  42,848,539     $  40,515,083
         Real estate mortgage loans with fixed rates          51,438,830        46,441,117
         Real estate construction loans                       38,446,289        32,262,624
         Commercial loans                                     14,363,880        12,247,791
         Consumer loans                                       12,442,463        10,069,415
                                                           -------------     -------------
                                                             159,540,001       141,536,030
         Allowance for loan losses                            (1,222,978)       (1,200,586)
         Loans in process                                    (11,580,237)      (11,143,030)
         Other unearned amounts                                 (307,096)         (230,773)
                                                           -------------     -------------
                                                           $ 146,429,690     $ 128,961,641
                                                           =============     =============
</TABLE>

         During fiscal years 1999 and 1998, certain executive officers and
         directors of the Bank were loan customers of the Bank. Total loans
         outstanding to these persons at December 31, 1999 and 1998 amounted to
         $345,494 and $426,811, respectively. The change from December 31, 1998
         to December 31, 1999 reflects payments amounting to $486,575, advances
         of $448,911 made during the year, and loans no longer related of
         $43,653.

         The Bank has a credit concentration in residential real estate mortgage
         loans. Approximately $96,000,000 and $86,000,000 at December 31, 1999
         and 1998, 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



                                       19
<PAGE>   19

         obligations is dependent upon local economic conditions. At December
         31, 1999, the largest amount loaned by the Bank to one borrower was
         $2.6 million which was approximately 15% of the Company's stockholders'
         equity.

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

<TABLE>
<CAPTION>
                                                                     For the Years Ended
                                                          -------------------------------------------
                                                              1999            1998            1997
                                                          -----------     -----------     -----------
<S>                                                       <C>             <C>             <C>
         Balance at beginning of year                     $ 1,200,586     $ 1,234,309     $ 1,197,854
             Provision                                        177,000         637,000         400,000
             Less loans charged-off, net of recoveries       (154,608)       (670,723)       (363,545)
                                                          -----------     -----------     -----------
         Balance at end of year                           $ 1,222,978     $ 1,200,586     $ 1,234,309
                                                          ===========     ===========     ===========
</TABLE>

         The Bank was servicing first mortgage loans for others totaling
         $71,206,596 and $79,435,750 at December 31, 1999 and 1998,
         respectively.

         At December 31, 1999, the Bank had outstanding loan commitments of
         $21,747,112 including $11,580,237 in undisbursed construction loans in
         process; $8,995,602 in unused lines and letters of credit and credit
         cards; and $1,171,273 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, 1999 and
         December 31, 1998 was approximately $331,000 and $521,000,
         respectively. There were $66,000 and $75,000 in specific reserves on
         these loans at December 31, 1999 and 1998, respectively. The average
         recorded investment in impaired loans during the year ended December
         31, 1999 and 1998 was approximately $325,088 and $681,000,
         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:


<TABLE>
<CAPTION>
                                            For the Years Ended
                                           ----------------------
                                              1999         1998
                                           ---------     --------
<S>                                        <C>           <C>
         Balance at beginning of year      $ 536,000     $      0
         Provision                           458,785      536,000
         Charge-offs, net of recoveries     (313,005)           0
                                           ---------     --------
         Balance at end of year            $ 681,780     $536,000
                                           =========     ========
</TABLE>

         There was no allowance for losses on real estate owned at December 31,
         1997 and no activity for the year then ended.




                                       20
<PAGE>   20

5.       PREMISES AND EQUIPMENT

         Premises and equipment at December 31, 1999 and 1998 are summarized as
         follows:

<TABLE>
<CAPTION>
                                                     1999           1998
                                                 -----------    -----------
<S>                                              <C>            <C>
         Land                                    $   883,230    $   883,230
         Buildings and leasehold improvements      6,294,008      6,073,018
         Furniture, fixtures, and equipment        4,116,499      3,661,202
         Automobiles                                 114,683        101,158
                                                 -----------    -----------
                                                  11,408,420     10,718,608
         Less accumulated depreciation             4,413,045      4,070,291
                                                 -----------    -----------
                                                 $ 6,995,375    $ 6,648,317
                                                 ===========    ===========
</TABLE>

         The Bank had noncancelable operating leases for the main and branch
         office sites. Office building and equipment expenses for the fiscal
         years ended December 31, 1999, 1998, and 1997, respectively, include
         rental expense under these leases of $84,770, $77,282, and $91,920,
         respectively. Future rental payments subject to periodic renegotiations
         required under these leases are as follows:

<TABLE>
<CAPTION>
                        AT DECEMBER 31, 1999                         Amount
                        --------------------                         ------
<S>                                                                 <C>
                               2000                                 $ 54,383
                               2001                                   54,683
                               2002                                   54,683
                               2003                                   45,300
                               2004                                   45,300
                               Thereafter                            252,300
                                                                    --------
                                        Total                       $505,149
                                                                    ========
</TABLE>

         The Bank had a lease agreement for the building in which the main
         office branch is located that generated income of $85,976, $92,946 and
         $93,277 for the fiscal years ended December 31, 1999, 1998, and 1997,
         respectively. During 1995 the Bank entered into 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, 1999, 1998, and 1997, respectively, and expires December
         31, 2001.





                                       21
<PAGE>   21

6.       DEPOSITS

         Deposits at December 31, 1999 and 1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                                1999            1998
                                                           ------------    ------------
<S>                                                        <C>             <C>
         Passbook accounts                                 $ 14,798,171    $ 15,700,157
         NOW accounts                                        15,068,042      14,180,056
         Money Market deposit accounts                        9,771,744      10,314,237
         Noninterest-bearing accounts                         7,646,537       8,475,679
                                                           ------------    ------------
                                                             47,284,494      48,670,129
         Time deposits
          Fixed-rate certificates less than $100,000         95,933,310      99,923,087
          Fixed-rate certificates greater than $100,000      45,573,456      45,775,840
                                                           ------------    ------------
                                                            141,506,766     145,698,927
                                                           ------------    ------------
             Accrued interest                                   383,544         318,438
                                                           ------------    ------------
                                                           $189,174,804    $194,687,494
                                                           ============    ============
</TABLE>

         The amounts and scheduled maturities of time deposits at December 31,
         1999 are as follows:

<TABLE>
<S>                                                          <C>
                          2000                               $  110,756,172
                          2001                                   21,273,279
                          2002                                    5,563,686
                          2003                                    2,255,118
                          2004 and thereafter                     1,658,511
                                                               ------------
                                                               $141,506,766
                                                               ============
</TABLE>



         Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
                                             FOR THE YEARS ENDED DECEMBER 31,
                                          --------------------------------------
                                             1999          1998          1997
                                          ----------    ----------    ----------
<S>                                       <C>           <C>           <C>
         Passbook accounts                $  398,237    $  432,038    $  449,759
         NOW accounts                        309,081       325,870       305,074
         Money Market deposit accounts       414,692       377,751       417,427
         Time deposits                     7,709,547     7,913,655     7,523,561
                                          ----------    ----------    ----------
                                          $8,831,557    $9,049,314    $8,695,821
                                          ==========    ==========    ==========
</TABLE>




                                       22
<PAGE>   22




7.       BORROWED FUNDS

         Borrowed funds are summarized as follows:

<TABLE>
<CAPTION>
                                                                       1999         1998
                                                                   -----------   ----------
<S>                                                                <C>           <C>
         Warrants payable, maturing March 1, 2013 with a
             weighted-average interest rate of 5.81% at
             December 31, 1999 and 5.79% at December 31, 1998      $ 3,390,000   $3,520,000
                                                                   ===========   ==========
         Short term advances from the Federal Home Loan Bank of
             Atlanta: $7,500,000 with an interest rate of 5.97%
             maturing January 28, 2000; $6,000,000 with an
             interest rate of 5.95% maturing March 15, 2000; and
             $5,000,000 with an interest rate of 6.25% maturing
             October 27, 2000                                      $18,500,000   $       --
                                                                   ===========   ==========
</TABLE>

         The Bank has an approved credit availability of $29,000,000 at the
         Federal Home Loan Bank of Atlanta. During fiscal year 1999 the Bank
         periodically borrowed funds on a short term basis from the Federal Home
         Loan Bank of Atlanta. The maximum amount outstanding under advances
         from the Federal Home Loan Bank of Atlanta during 1999 was $19,500,000
         and the average amount outstanding during 1999 was $3,550,000. There
         were no advances during the fiscal year ended December 31, 1998.

         During fiscal year 1999 the bank established a discount window
         borrowing agreement with the Federal Reserve Bank of Atlanta with a
         maximum credit availability of $5,873,000. During fiscal year 1999
         there were no borrowings on this discount window borrowing agreement.
         Securities carried at $5,851,000 at December 31, 1999 were pledged to
         secure this discount window borrowing agreement.




                                       23
<PAGE>   23

8.       INCOME TAXES

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

<TABLE>
<CAPTION>
                                           FEDERAL         STATE          TOTAL
                                         -----------    -----------    -----------
<S>                                      <C>            <C>            <C>
         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
                                         ===========    ===========    ===========
         Year ended December 31, 1998:
             Current                     $ 1,033,469    $   111,496    $ 1,144,965
             Deferred                       (312,643)       (54,267)      (366,910)
                                         -----------    -----------    -----------
                                         $   720,826    $    57,229    $   778,055
                                         ===========    ===========    ===========
         Year ended December 31, 1997:
             Current                     $ 1,065,889    $   135,419    $ 1,201,308
             Deferred                        (11,656)        (1,442)       (13,098)
                                         -----------    -----------    -----------
                                         $ 1,054,233    $   133,977    $ 1,188,210
                                         ===========    ===========    ===========
</TABLE>

         Total income tax expense differs from the amount determined by
         multiplying income before income taxes by the statutory rate of 34%, as
         follows:
<TABLE>
<CAPTION>
                                                              For the Years Ended
                                                                  December 31,
                                                    ----------------------------------------
                                                       1999            1998           1997
                                                    ---------     -----------     ----------
<S>                                                 <C>           <C>             <C>
         Tax expense at federal income tax rate     $ 896,322     $   775,260     $1,105,367
         Increase (decrease) resulting from:
             Amortization of excess cost over net
                assets acquired                        13,894          13,894         13,894
             Other                                    (48,304)         (9,099)        68,949
                                                    ---------     -----------     ----------
                                                    $ 958,520     $   778,055     $1,188,210
                                                    =========     ===========     ==========
         Effective income tax rate                         36%             34%            37%
                                                    =========     ===========     ==========
</TABLE>





                                       24
<PAGE>   24

         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:

<TABLE>
<CAPTION>
                                                            December 31,   December 31,
                                                                1999           1998
                                                            -----------      ---------
<S>                                                         <C>              <C>
         Allowance for loan losses                          $   462,929      $ 423,552
         Unrealized loss on securities available-for-sale       418,419              0
         Other real estate reserves                             116,489        203,680
         Litigation reserves                                     38,426         90,095
         Other, net                                              15,423         50,073
                                                            -----------      ---------
                       Deferred tax asset                     1,051,686        767,400
                                                            -----------      ---------
         Depreciation                                          (455,822)      (480,573)
         FHLB stock                                            (128,328)      (221,580)
         Unrealized gain on securities available-for-sale             0        (15,856)
         Other, net                                                   0        (29,198)
                                                            -----------      ---------
                       Deferred tax liability                  (584,150)      (747,207)
                                                            -----------      ---------
         Net deferred tax asset                             $   467,536      $  20,193
                                                            ===========      =========
</TABLE>


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 $41,000, $30,000 and $14,000 for the years ended December
         31, 1999, December 31, 1998 and December 31, 1997.

         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. Maximum aggregate liability to the
         company at December 31, 1999 is approximately $359,000.


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. In addition, each option 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.



                                       25
<PAGE>   25

         A summary of the status of the Company's stock option plan at December
         31, 1999, 1998, and 1997 and the changes during the years then ended is
         as follows:

<TABLE>
<CAPTION>
                                                    1999                 1998               1997
                                              ------------------   -----------------  -----------------
                                                       Exercise            Exercise           Exercise
                                              Shares     Price     Shares    Price    Shares    Price
                                              ------    --------   ------   --------  ------   --------
<S>                                           <C>       <C>        <C>      <C>            <C> <C>
         Outstanding at beginning of year     57,060    $   8.81   60,060   $   8.81       0   $      0

         Granted                              48,500       10.13        0          0  67,000       8.81
         Exercised                            (2,500)       8.81   (3,000)      8.81  (6,940)      8.81
                                             -------    --------   ------   --------  ------   --------
         Outstanding at end of year          103,060    $   9.26   57,060   $   8.81  60,060   $   8.81
                                             =======    ========   ======   ========  ======   ========
         Exercisable at end of year           54,560    $   8.81   57,060   $   8.81  60,060   $   8.81
                                             =======    ========   ======   ========  ======   ========
         Fair value of options granted       $  2.07                   NA           $   5.93
                                             =======               ======             ======
</TABLE>

         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 ("APB") 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:

<TABLE>
<CAPTION>
                                                    FISCAL YEAR     FISCAL YEAR     FISCAL YEAR
                                                       Ended           Ended           Ended
                                                    December 31,    December 31,    December 31,
                                                        1999            1998            1997
                                                   -------------   -------------   -------------
<S>                                                <C>             <C>             <C>
         Net income--as reported                   $   1,677,722   $   1,502,121   $   2,062,869
         Net income--pro forma                         1,386,377       1,502,121       1,871,814

         Basic earnings per share--as reported     $        0.94   $        0.84   $        1.16
         Basic earnings per share--pro forma                0.77            0.84            1.05

         Diluted earnings per share--as reported   $        0.93   $        0.83   $        1.15
         Diluted earnings per share--pro forma              0.77            0.83            1.04
</TABLE>

         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:

<TABLE>
<CAPTION>
                                               1999          1998     1997
                                               ----          ----     ----
<S>                                          <C>                     <C>
         Expected dividend yield             $   0.40        N/A     $   0.40
         Expected stock price volatility           27%       N/A          18%
         Risk-free interest rate                 5.59%       N/A        6.36%
         Expected life of option              4 years        N/A      4 years
</TABLE>






                                       26
<PAGE>   26

11.      STOCKHOLDERS' EQUITY

         Dividends are paid by the Company from funds provided by dividends from
         the Bank. However, certain 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, 2000 approximately $1.7
         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, 1999 and
         1998, that the Company and Bank meet all capital adequacy requirements
         imposed by its regulators.

         As of December 31, 1999 and 1998, 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-
                                                                              For Capital        Capitalized
                                                                                                 Under Prompt
                                                                               Adequacy           Corrective
                                                             Actual            Purposes        Action Provisions
                                                         -------------    ----------------    ------------------
                                                         Amount  Ratio    Amount     Ratio    Amount     Ratio
                                                         ------  -----    ------     -----    ------     -----
                                                                        (Dollar Amounts in Thousands)
<S>                                                      <C>      <C>       <C>        <C>    <C>        <C>
         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
                                                                           -          -       -          -
         As of December 31, 1998:
             Total Capital (to Risk Weighted Assets):
                Consolidated                             18,311   14.7     >9,936     >8.0        N/A      N/A
                                                                           -          -
                Pinnacle Bank                            17,490   14.1     >9,936     >8.0    >12,421    >10.0
                                                                           -          -       -          -
             Tier I capital (to Risk Weighted
                Assets):
                Consolidated                             17,110   13.8     >4,968     >4.0        N/A      N/A
                                                                           -          -
                Pinnacle Bank                            16,289   13.1     >4,968     >4.0    > 7,452    > 6.0
                                                                           -          -       -          -
             Tier I Capital (to Average Assets):
                Consolidated                             17,110    7.8     >8,735     >4.0        N/A      N/A
                                                                           -          -
                Pinnacle Bank                            16,289    7.5     >8,735     >4.0    >10,919    > 5.0
                                                                           -          -       -          -
</TABLE>




                                       27
<PAGE>   27

         COMPREHENSIVE INCOME

         Comprehensive income is the change in equity during a period from
         transactions and other events and circumstances from nonowner sources.
         It includes all changes in equity during a period except those
         resulting from investments by owners and distributions to owners.

         In addition to net income, the Company has identified changes related
         to other nonowner transactions in the consolidated statements of
         changes in stockholders' equity. For the Company, changes in other
         nonowner transactions consist entirely of changes in unrealized gains
         and losses on securities available-for-sale.

         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 three
         years ended December 31:

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

<TABLE>
<CAPTION>
                                                                               1998
                                                              -------------------------------------
                                                                Before                      After
                                                                 Tax           Tax           Tax
                                                                Amount        Effect        Amount
                                                              -----------    ---------    ---------
<S>                                                           <C>            <C>          <C>
         Unrealized gains (losses) arising during the         $    25,040    $   8,693    $  16,347
             year
         Less reclassification for adjustments for gains
              (losses) included in net earnings                         0            0            0
                                                              -----------    ---------    ---------
         Net change in unrealized gain/(loss) on securities   $    25,040    $   8,693    $  16,347
                                                              ===========    =========    =========
</TABLE>


<TABLE>
<CAPTION>
                                                                               1997
                                                              -------------------------------------
                                                                Before                      After
                                                                 Tax           Tax           Tax
                                                                Amount        Effect        Amount
                                                              -----------    ---------    ---------
<S>                                                           <C>            <C>          <C>
         Unrealized gains (losses) arising during the         $   130,651    $  44,421    $  86,230
             year
         Less reclassification for adjustments for gains
              (losses) included in net earnings                     1,933          657        1,276
                                                              -----------    ---------    ---------
         Net change in unrealized gain/(loss) on securities   $   128,718    $  43,764    $  84,954
                                                              ===========    =========    =========
</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



                                       28
<PAGE>   28

         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.

         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, 1999    AT DECEMBER 31, 1998
                                           --------------------    --------------------
                                           CARRYING  ESTIMATED     CARRYING  ESTIMATED
                                            AMOUNT   FAIR VALUE     AMOUNT   FAIR VALUE
                                            ------   ----------     ------   ----------
                                                          (In Thousands)
<S>                                        <C>        <C>          <C>        <C>
         ASSETS:
             Cash on hand and in banks     $  5,290   $  5,290     $  3,961   $  3,961
             Interest-bearing deposits        2,177      2,177       30,845     30,845
             Securities                      64,599     64,599       40,415     40,415
             Loans receivable, net          146,430    146,128      128,962    129,008
             Loans held for sale                894        894        2,986      2,986
             Accrued interest receivable      1,982      1,982        1,386      1,386

         LIABILITIES:
             Deposits                      $189,175   $189,471     $194,687   $194,008
             Other borrowed funds            21,890     21,890        3,520      3,520
             Accrued interest payable           447        447          385        385
</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 value of accrued interest in these instruments
         approximates fair value.

         SECURITIES AND LOANS HELD FOR SALE. Substantially all of the Company's
         securities 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 value 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.



                                       29
<PAGE>   29

         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.

         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

         LITIGATION. 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.



                                       30
<PAGE>   30

14.      CONDENSED PARENT COMPANY FINANCIAL STATEMENTS

                             STATEMENTS OF CONDITION

                           DECEMBER 31, 1999 AND 1998

                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                              1999        1998
                                                             -------     -------
<S>                                                          <C>         <C>
ASSETS:
    Cash on hand and in banks                                $     1     $     1
    Interest-bearing deposits in other banks                   1,475         914
    Investment in subsidiaries                                16,419      16,732
                                                             -------     -------
              Total assets                                   $17,895     $17,647
                                                             =======     =======
OTHER LIABILITIES                                            $    46     $    35
STOCKHOLDERS' EQUITY                                          17,849      17,612
                                                             -------     -------
              Total liabilities and stockholders' equity     $17,895     $17,647
                                                             =======     =======
</TABLE>




                            STATEMENTS OF OPERATIONS

                               FOR THE YEARS ENDED

                        DECEMBER 31, 1999, 1998, AND 1997

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                  1999       1998       1997
                                                 ------     ------     ------
<S>                                              <C>        <C>        <C>
INCOME:
    Dividend income, Pinnacle Bank               $1,217     $  179     $2,000
    Interest income                                  45         50         64
                                                 ------     ------     ------
           Total income                           1,262        229      2,064

EXPENSES:                                            17         38         36
                                                 ------     ------     ------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
     INCOME OF SUBSIDIARY                         1,245        191      2,028
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY        433      1,311         35
                                                 ------     ------     ------
           Net income                            $1,678     $1,502     $2,063
                                                 ======     ======     ======
</TABLE>




                                       31
<PAGE>   31

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      1999         1998         1997
                                                                    -------      -------      -------
<S>                                                                 <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                      $ 1,678      $ 1,502      $ 2,063
    Adjustments to reconcile net income to net cash provided by
       operating activities:
       Undistributed income of subsidiaries                            (433)      (1,311)         (35)
       Increase in other liabilities                                     11           17           18
                                                                    -------      -------      -------
              Net cash provided by operating activities               1,256          208        2,046
                                                                    -------      -------      -------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from stock options exercised                                22           26           61
    Cash dividends paid                                                (717)        (714)        (712)
                                                                    -------      -------      -------
              Net cash used in financing activities                    (695)        (688)        (651)
                                                                    -------      -------      -------
INCREASE IN CASH AND CASH EQUIVALENTS                                   561          480        1,395
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                          915        1,395            0
                                                                    -------      -------      -------
CASH AND CASH EQUIVALENTS AT END OF YEAR                            $ 1,476      $   915      $ 1,395
                                                                    =======      =======      =======
</TABLE>








                                       32
<PAGE>   32

SELECTED QUARTERLY INFORMATION  (UNAUDITED)


A summary of unaudited results of operations for each quarter of the years ended
December 31, 1999, and December 31, 1998 follows:

<TABLE>
<CAPTION>
                                                  FIRST         SECOND           THIRD           FOURTH
                                                 QUARTER        QUARTER         QUARTER         QUARTER
                                                ----------     ----------     -----------      ----------
<S>                                             <C>            <C>            <C>              <C>
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 and diluted earnings per share               .22            .23             .27             .22
    Diluted earnings per share                         .21            .23             .27             .22

YEAR ENDED DECEMBER 31, 1998:
    Interest revenue                            $3,933,246     $3,940,113     $ 4,014,797      $4,032,797
    Interest expense                             2,233,647      2,272,188       2,358,450       2,386,990
    Net interest income after provision for
       loan losses                               1,558,599      1,526,925       1,306,347       1,640,940
    Noninterest income                             399,464        404,464          (5,512)        262,039
    Noninterest expense                          1,187,566      1,163,511       1,207,869       1,254,144
    Net income                                     503,093        501,158          77,976         419,894
    Basic earnings per share                           .28            .28             .04             .24
    Diluted earnings per share                         .28            .28             .04             .23
</TABLE>





                                       33
<PAGE>   33

                              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

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

                      OFFICERS -- PINNACLE BANCSHARES, INC.

                              Robert B. Nolen, Jr.
                             President and Treasurer

                                 Mary Jo Gunter
                                 Vice President

                                Thomas L. Sherer
                                    Secretary





                                       34
<PAGE>   34

                            OFFICERS - PINNACLE BANK

                              Robert B. Nolen, Jr.
                                    President

                                Thomas L. Sherer
                                    Secretary

                                 Mary Jo Gunter
                      Senior Vice President Banking Service

                                   John Kirby
                     Senior Vice President Birmingham Region

                                  C. Ray Fowler
                  Vice President - Internal Audit & Compliance

                                Marilyn K. Gober
                         Vice President - Retail Banking

                                  Marie Guthrie
                                   Controller

                            William O. Hairston, Jr.
                 Vice President - Lending & Business Development

                                  Jaye Ottinger
                        Vice President - Mortgage Lending

                                 Carl Schoettlin
                            Vice President - Lending

                                  Carmen Sparks
                         Vice President - Loan Servicing

                                  Brenda Steele
                        Vice President - Deposit Accounts

                                   Pam Elliott
                          Haleyville Regional President

                               Edward A. Davidson
                          Birmingham Regional President

                                   Linda Woods
                              Office Manager - Mall

                                  Susie Roberts
                     Vice President-Office Manager - Sumiton





                                       35
<PAGE>   35

                                     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
                              The Bank of New York.
                               New York, New York

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

                                 SPECIAL COUNSEL
                                   Kutak Rock
                                Washington, D.C.

                                    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
       The2000 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 24, 2000





                                   FORM 10-KSB
                 A COPY OF THE PINNACLE BANCSHARES, INC. ANNUAL
                    REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
                     ENDED DECEMBER 31, 1999, AS FILED WITH
             THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE TO
               STOCKHOLDERS OF RECORD FOR THE 2000 ANNUAL MEETING
                     WITHOUT CHARGE UPON WRITTEN REQUEST TO
                                  MARIE GUTHRIE
                            PINNACLE BANCSHARES, INC.
                              POST OFFICE BOX 1388
                           JASPER, ALABAMA 35502-1388






                                       36