<PAGE>   1

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB
(Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the fiscal year ended  December 31, 1999

                                                         OR

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

For the transition period from ______________ to ______________

Commission file number   1-12707
                        -----------

                            PINNACLE BANCSHARES, INC.
                 (Name of small business issuer in its charter)

           Delaware                                      72-1370314
-------------------------------            ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

1811 Second Avenue, Jasper,  Alabama                       35502-1388
----------------------------------------                   ----------
(Address of principal executive offices)                   (Zip Code)

         Issuer's telephone number, including area code: (205) 221-4111.

           Securities registered pursuant to Section 12(b) of the Act:

                                                          Name of Each Exchange
           Title of Each Class                            on Which Registered
--------------------------------------                  -----------------------
Common Stock, par value $.01 per share                  American Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None.

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year.  $17,246,948.

The aggregate market value of the voting stock held by non-affiliates, computed
by reference to the price ($7.8750 per share) at which the Common Stock was sold
on February 29, 2000, was approximately $12,561,885. For purposes of this
calculation, the term "affiliate" refers to all executive officers and directors
of the registrant and all stockholders beneficially owning more than 10% of the
registrant's Common Stock.

As of the close of business on March 30, 2000, 1,792,086 shares of the
registrant's Common Stock were outstanding.

Transitional Small Business Disclosure Format:  YES [ ] NO [X]

                       Documents Incorporated By Reference
Part II:
Annual Report to Stockholders for the year ended December 31, 1999.

Part III:
Portions of the definitive proxy statement for the 2000 Annual Meeting of
Stockholders.


<PAGE>   2

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         THE HOLDING COMPANY. Pinnacle Bancshares, Inc. (the "Holding Company")
is a bank holding company incorporated under the laws of the State of Delaware.
The Holding Company is registered under the Bank Holding Company Act of 1956, as
amended (the "Holding Company Act"). The Holding Company is the holding company
for Pinnacle Bank (the "Bank"), which was chartered by the State of Alabama and
acquired by the Holding Company on January 31, 1997.

         The Holding Company's executive offices and the main office of the Bank
are located at 1811 Second Avenue, Jasper, Alabama 35502. The Holding Company's
telephone number is (205) 221-4111.

         THE BANK. The Bank is an Alabama-chartered commercial bank with six
offices located in Central and Northwest Alabama. The Bank converted from a
federal stock savings bank to an Alabama-chartered commercial bank on January
31, 1997 in connection with the holding company reorganization. The Bank has its
main office at 1811 Second Avenue, Jasper, Alabama, and also has a branch office
in Jasper, Alabama, with other branch offices in Sumiton, Haleyville, and
Birmingham, Alabama.

         The Bank is primarily engaged in the business of obtaining funds in the
form of savings deposits and investing such funds in mortgage loans on
single-family residential real estate. To a lesser extent the Bank is engaged in
making consumer loans, commercial real estate loans, and other commercial loans.

         The principal sources of funds for the Bank's lending activities are
savings deposits, Federal Home Loan Bank ("FHLB") of Atlanta advances, principal
repayments of loans and sales of loans. The Bank's principal sources of income
are interest on loans, servicing and commitment fees, and interest and dividends
on securities. Its principal expenses are interest on savings accounts and
borrowings, and general and administrative expenses.




                                       2
<PAGE>   3

SELECTED FINANCIAL AND OTHER DATA

         The following data should be read in conjunction with the consolidated
financial statements and accompanying notes thereto, and other financial
information included elsewhere herein.

<TABLE>
<CAPTION>
                                                   At December 31,
                                               ----------------------
                                                  1999        1998
                                                  ----        ----
                                                (Dollars in thousands)
<S>                                             <C>          <C>
FINANCIAL CONDITION AND OTHER DATA:
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 .............................       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>



<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                    -------------------------------
                                                     1999        1998        1997
                                                    -------     -------     -------
                                                            (In thousands)
<S>                                                 <C>         <C>         <C>
OPERATING DATA:
Interest revenue ..............................     $16,130     $15,921     $15,858
Interest expense ..............................       9,238       9,251       8,903
                                                    -------     -------     -------
Net interest income before provision for losses
   on loans ...................................       6,892       6,670       6,955
Provision for losses on loans .................         177         637         400
                                                    -------     -------     -------
Net interest income after provision for losses
   on loans ...................................       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>




                                       3
<PAGE>   4

         The following table sets forth certain information relating to the
Bank's average interest-earning assets and interest-bearing liabilities and
reflects the average yield on assets and average cost of liabilities for the
periods indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of assets or liabilities, respectively,
for the periods presented. During the periods indicated, non-accruing loans, if
any, are included in the net loan category. Average balances are derived from
month-end average balances. Management does not believe that the use of
month-end average balances instead of average daily balances has caused any
material difference in the information presented.

<TABLE>
<CAPTION>
                                                                For the Years Ended December 31,
                                          -----------------------------------------------------------------------
                                                        1999                                   1998
                                          --------------------------------         ------------------------------
                                          Average                Average           Average               Average
                                          Balance     Interest  Yield/Cost         Balance    Interest  Yield/Cost
                                          -------     --------  ----------         -------    --------  ----------
                                                                         (Dollars in thousands)
<S>                                      <C>          <C>            <C>          <C>         <C>           <C>
Interest-earning assets:
Loans receivable, net ..............     $ 135,556    $ 12,041       8.9%         $ 135,254   $ 12,217      9.0%
Securities available-for-sale ......        63,896       3,761       5.9%            42,546      2,718      6.4%
Other ..............................         6,725         328       4.9%            18,296        986      5.4%
                                         ---------    --------    -------         ---------   --------   -------
Total ..............................       206,177      16,130       7.8%           196,096   $ 15,921      8.1%
Non-interest-earning assets ........        14,808                   0.0             13,613                 0.0
                                         ---------                                ---------
Total assets .......................     $ 220,985                                $ 209,709                 0.0
                                         =========                                =========
Interest-bearing liabilities:
Deposits ...........................     $ 193,331       8,831       4.6%         $ 185,944      9,046      4.9%
Borrowings .........................         6,961         407       5.8%             3,539        205      5.8%
                                         ---------    --------    -------         ---------   --------   -------
Total interest-bearing liabilities:        200,292       9,238       4.6%           189,483      9,251      4.9%
Non-interest-bearing liabilities ...         2,933                                               2,742
                                                                                              --------   ------
Total Liabilities: .................       203,225                   0.0            192,225                 0.0
                                         ---------                                ---------
   Equity ..........................        17,760                   0.0             17,454                 0.0
                                                                                              --------   ------
   Total Liabilities and Equity ....     $ 220,985                   0.0          $ 209,679                 0.0
                                         =========                                =========
Net interest-earning assets ........     $   5,885                   0.0          $   6,613                 0.0
                                         =========                                =========
Net interest income ................                  $  6,892       0.0                      $  6,670      0.0
                                                      ========                                ========
Interest rate spread ...............                                 3.2%                                   3.2%
                                                                  =======                                =======
Net interest margin ................                                 3.3%                                   3.4%
                                                                  =======                                =======
Ratio of average interest-earning
   assets to interest-bearing
   liabilities
                                                                   102.9%                                 103.5%
                                                                  =======                                =======
</TABLE>






                                       4
<PAGE>   5

LENDING ACTIVITIES

         GENERAL. The Bank's net loan portfolio totaled $146.4 million at
December 31, 1999, or 63.4% of its total assets. On that date, $119.6 million,
or 81.7% of total net loans outstanding, consisted of loans secured by mortgages
on single family, two-to-four family, multi-family residential properties, and
commercial real estate loans, while the remainder of the loan portfolio
consisted of savings account, home improvement and other consumer and commercial
loans.

         The principal lending activity of the Bank historically has been the
origination of conventional first mortgage single-family loans. The Bank also
makes loans on two-to-four family dwelling units, multi-family dwelling units,
commercial real estate and other improved real estate. The majority of the
Bank's loans have been originated within its primary market area.

         During the year ended December 31, 1999 the Bank increased its
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. During the year
ended December 31, 1998, the Bank funded loan demands with increases in savings
deposits and the proceeds from loan repayments. The Bank did not increase
borrowings during the year ended December 31, 1998.

         The Bank had no securities classified as held-to-maturity as of
December 31, 1999. See Note 1 of Notes to Consolidated Financial Statements.

         The Bank's volume of total loans originated to be retained in the
Bank's loan portfolio totaled approximately $109.5 million during the year ended
December 31, 1999, and $89.6 million during the year ended December 31, 1998.
The Bank directly originates most of its mortgage loans through its existing
branches. These loans have been originated predominantly within the Bank's
geographical lending area of Walker, Jefferson, Shelby, Winston and Fayette
counties, in Alabama. See " -- Loan Solicitation and Processing" and "-- Loan
Originations, Purchases and Sales."

         The Bank seeks to improve the interest rate sensitivity of its mortgage
loan portfolio through the origination of adjustable rate loans, which
constituted approximately 53.0% of the single family residential mortgage loans
in the Bank's loan portfolio, and 29.3% of the Bank's net loan portfolio at
December 31, 1999. Most adjustable rate mortgage loans are held in the Bank's
loan portfolio, while most fixed-rate mortgage loans are either sold as whole
loans to the Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal
National Mortgage Association ("FNMA") or other investors, or converted into
mortgage-backed securities with servicing retained by the Bank.




                                       5
<PAGE>   6

         The following table sets forth, in dollar amounts and percentages, the
major categories of the Bank's loans. At December 31, 1999 the Bank had no
concentrations of loans exceeding 10% of gross loans other than as described
below.

<TABLE>
<CAPTION>
                                            December 31,
                               ----------------------------------------
                                      1999                1998
                               -------------------  -------------------
                                       (Dollars in thousands)
<S>                            <C>            <C>   <C>            <C>
Type of Loan:
Real estate mortgage loans .   $ 94,288       64.4% $ 86,957       67.4%
Construction loans .........     38,446       26.3%   32,263       25.0%
Commercial loans ...........     14,364        9.8%   12,248        9.5%
Consumer loans .............     12,442        8.4%   10,069        7.8%
Less --
   Loans in process ........     11,580        7.9%   11,143        8.6%
   Discounts and other .....        307        0.2%      231        0.2%
   Allowance for loan losses      1,223        0.8%    1,201        0.9%
                               --------   --------  --------   --------
     Total .................   $146,430     100.00% $128,962     100.00%
                               ========   ========  ========   ========
</TABLE>

         RESIDENTIAL LOANS. The primary lending activity of the Bank has been
the granting of conventional mortgage loans to enable borrowers to purchase
existing homes or construct new homes. The Bank's real estate loan portfolio
also includes loans on two-to-four family dwellings, multi-family housing (over
four units), and loans made for the development of unimproved real estate to be
used for residential housing. At December 31, 1999, approximately 81% of the
Bank's total real estate loan portfolio consisted of loans secured by
residential real estate.

         The loan-to-value ratio, maturity and other provisions of the loans
made by the Bank generally have reflected the policy of making less than the
maximum loan permissible under applicable regulations, in accordance with sound
lending practices, market conditions, and underwriting standards established by
the Bank. Mortgage loans made by the Bank are generally long-term loans,
amortized on a monthly basis, with principal and interest due each month. The
initial contractual loan payment period for residential loans typically ranges
from 15 to 30 years. Currently, the Bank offers one-year, adjustable rate loans
based upon the one-year U.S. Treasury Bill rate adjusted to a constant maturity,
with limitations on adjustments of 2% in any one year and 6% over the life of
the loan.

         At December 31, 1999, the largest amount loaned by the Bank to one
borrower was $2.6 million which was approximately 15% of the Holding Company's
stockholders' equity.

         COMMERCIAL REAL ESTATE AND CONSTRUCTION LOANS. Construction loans on
residential properties are made primarily to individuals. The maximum loan to
value ratio is 80% of either the appraisal or the purchase price, whichever is
lower. Residential construction loans are typically made for periods of six
months. At December 31, 1999, the Bank had $36.6 million outstanding in
residential construction loans, compared with $27.1 million in construction
loans on residential properties outstanding at December 31, 1998.

         The Bank has historically originated commercial real estate loans
within its primary market area. The Bank either funded or purchased
participation interests in various large commercial real estate projects, one of
which was outside of its primary market area. See " -- Non-Performing Loans and
Asset Classification" and "Subsidiary Activities." Since 1984, the Bank has
limited its commercial real estate lending activities to smaller commercial real
estate projects located in its primary market area, with the amount loaned
limited to 10% of its net worth. See "-- Nonperforming Loans and Asset
Classification" and "Subsidiary Activities." At December 31, 1999, the Bank had
$25.1 million outstanding in commercial real estate loans, including $2.1
million in commercial construction loans. These loans are typically limited to
owner-occupied financings.

         COMMERCIAL BUSINESS LOANS. At December 31, 1999, there were
approximately $14.3 million in commercial loans outstanding. The Bank will
consider making these types of loans in its local market area.



                                       6
<PAGE>   7

         CONSUMER LOANS. The Bank makes various types of consumer loans,
including the loans made to depositors on the security of their savings
accounts, personal loans, automobile loans, educational loans and loans for home
improvement or other purposes. At December 31, 1999, the Bank had $12.4 million
outstanding in consumer loans.

         LOAN SOLICITATION AND PROCESSING. Loan originations come from a
combination of walk-in customers and real estate brokers. See Notes to
Consolidated Financial Statements.

         LOAN ORIGINATIONS, PURCHASES AND SALES. The Bank has engaged in selling
in the secondary market certain loans it has originated. Such loans sold are
generally fixed-rate, long-term mortgage loans. These sales, the majority of
which do not allow recourse to the Bank, have been made to FHLMC and FNMA, which
purchases residential mortgage loans from federally insured financial
institutions and certain other lenders. Many of the Bank's loans have been
exchanged for FHLMC participation certificates ("PCs") or FNMA mortgage-backed
securities. These PCs or mortgage-backed securities are generally considered to
be a more liquid form of asset and are a more widely accepted form of collateral
than the underlying loans.

         The sale of loans in the secondary mortgage market reduces the Bank's
risk that the interest rates it pays will escalate while holding long-term,
fixed-rate loans in its portfolio and allows the Bank to continue to make loans
during periods when savings flows decline or funds are not otherwise available
for lending purposes. In connection with certain sales the Bank provides
servicing on the loans (i.e., collection of principal and interest payments) for
which it receives a fee payable monthly of 1/4% to 3/8% per annum of the unpaid
balance of each loan. These loan sales will continue as the Bank attempts to
maintain its loan servicing base. As of December 31, 1999, the Bank was
servicing loans for others aggregating approximately $71.2 million. Net
servicing income for the years ended December 31, 1999 and 1998 was
approximately $190,000 and $214,000, respectively.

         During the years ended December 31, 1999 and 1998, the Bank sold
approximately $47.0 million and $59.0 million, respectively, in whole loans. As
of December 31, 1999, the Bank had approximately $700,000 in commitments
outstanding to package or sell additional loans.

         The Bank's loan policy requires that the Bank's loan committee
identify, at the beginning of each quarter, loans which will be held for the
portfolio and loans which will be held for sale. Loans that are designated to be
held for the portfolio may be sold only in unusual circumstances which could not
be reasonably anticipated at the time of their origination or purchase. Loans
held for sale are carried at the lower of cost or market value and are sold as
soon as possible after their origination, as market conditions allow.

         LOAN COMMITMENTS. The Bank issues commitments to prospective borrowers
to make loans conditioned upon the occurrence of certain events. Such
commitments are made on specific terms and conditions, and are honored for 60
days from approval with no additional fees required. The Bank charges a
non-refundable commitment fee equal to 1% of the actual amount of committed
funds on all single-family construction loans. The Bank had outstanding
commitments to originate mortgage loans aggregating $21.7 million at December
31, 1999. Of these commitments, $20.5 million were for adjustable rate mortgages
and $1.2 million were for fixed-rate mortgages.

         Although the Bank originates most fixed-rate loans for resale in the
secondary mortgage market, a certain amount of interest rate risk exists for the
Bank after a loan is closed until a loan is sold.

         LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on
loans, the Bank receives loan origination fees or "points" for originating
loans. Loan points are a percentage of the principal amount of the mortgage loan
which are charged to the borrower for creation of the loan. The Bank accounts
for loan origination fees net of direct costs as a yield adjustment over the
life of the loan. See Notes to Consolidated Financial Statements.



                                       7
<PAGE>   8

         MATURITY OF LOAN PORTFOLIO. The following table sets forth certain
information at December 31, 1999, regarding the dollar amount of loans maturing
in the Bank's portfolio based on their contractual terms to maturity. Demand
loans and overdrafts are reported as due in one year or less. The Bank does not
have any loans with no stated schedule of repayments and no stated maturity.

<TABLE>
<CAPTION>
                                               Due After
                                              One Through        Due After
                                Due by     Five Years After   Five Years After
                              December 31,    December 31,      December 31,
                                 2000            1999               1999            Total
                              -----------     -----------        -----------     ------------
<S>                           <C>             <C>                <C>             <C>
Real estate mortgage ....     $ 6,094,682     $35,521,497        $52,034,849     $ 93,651,028
Real estate construction       26,866,052              --                 --       26,866,052
Commercial business loans       6,326,497       5,955,116          2,082,267       14,363,880
Consumer ................       4,045,632       7,916,340            480,491       12,442,463
                              -----------     -----------        -----------     ------------
   Total ................     $43,332,863     $49,392,953        $54,597,607     $147,323,423
                              ===========     ===========        ===========     ============
</TABLE>

         The following table sets forth the dollar amount of all loans due after
one year at December 31, 1999 which have predetermined interest rates and have
floating or adjustable interest rates.

<TABLE>
<CAPTION>
                                                    Floating or
                                                   Predetermined        Adjustable
                                                       Rates               Rates
                                                    -----------         -----------
<S>                                                 <C>                 <C>
                  Real estate mortgage ....         $46,937,649         $40,618,697
                  Commercial business loans           3,761,706           4,275,677
                  Consumer ................           8,335,713              61,118
                                                    -----------         -----------
                    Total .................         $59,035,068         $44,955,492
                                                    ===========         ===========
</TABLE>

         NON-PERFORMING LOANS AND ASSET CLASSIFICATION. Loans that are 120 days
contractually past due are placed on nonaccrual status and accrued interest
income 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 periodic interest and principal payments has been demonstrated,
in which case the loan is returned to accrual status.

         Real estate acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure is classified as real estate owned until such time as it
is sold. When such property is acquired it is recorded at the lower of the
unpaid principal balance of the related loan or its fair value less estimated
costs of disposition. Any write-down of the property at foreclosure is charged
to the allowance for loan losses. Future declines in fair value of the asset
less costs of disposition below its carrying amount increases a valuation
allowance account. Future increases in fair value of the asset less costs of
disposition above its carrying amount reduces 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 is
dependent upon whether the nature and terms of the sale and future involvement
of the Bank in the property meet certain requirements. If the transaction does
not meet these requirements, income recognition is deferred and recognized under
an alternative method in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 66 -- "Accounting for Sales of Real Estate."




                                       8
<PAGE>   9

         The following table sets forth information with respect to the Bank's
non-performing assets for the periods indicated.

<TABLE>
<CAPTION>
                                                       At December 31,
                                                     -------------------
                                                      1999         1998
                                                     ------       ------
                                                    (Dollars in thousands)
<S>                                                  <C>          <C>
Loans accounted for on a nonaccrual basis: (1)
Real Estate:
   Residential ...............................       $  850        $  521
   Commercial ................................          172           610
Consumer .....................................           70            87
                                                     ------        ------
Total ........................................       $1,092        $1,218
                                                     ======        ======

Accruing loans which are contractually past
   due 90 days or more:
Real Estate:
   Residential ...............................       $2,990        $2,915
   Commercial ................................           --           656
Consumer .....................................           --            --
                                                     ------        ------
Total ........................................       $2,990        $3,571
                                                     ======        ======
   Total of nonaccrual and 90 days
     past due loans ..........................       $4,082        $4,789
                                                     ======        ======

Percentage of total loans ....................         2.79%         3.71%

Percentage of total assets ...................         1.77%         2.20%

Other non-performing assets(2) ...............       $1,522        $2,175
</TABLE>


(1)  Nonaccrual status denotes loans on which accrual of interest has been
     ceased in accordance with the guidelines discussed previously. Payments
     received on a nonaccrual loan are either applied to the outstanding
     principal balance or recorded as interest income, depending on assessment
     of the collectibility of the loan.
(2)  Other non-performing assets represent property acquired by the Bank through
     foreclosure or repossession. The property is carried at the lower of its
     fair value less estimated costs of disposition or the investment balance of
     the related loan, whichever is lower.

         Management has identified certain loans aggregating approximately $3.0
million at December 31, 1999 (including loans identified in the above table)
which it has determined require special attention due to potential weaknesses.
It is management's opinion that the allowance for loan losses (see below) is
adequate to absorb potential losses related to such loans. Aggressive efforts
are made to continue to reduce principal, secure additional collateral and
improve the overall payment status of their loans.

         During the years ended December 31, 1999 and 1998, gross interest
income of $36,733 and $48,845, respectively, would have been recorded on loans
accounted for on a nonaccrual basis if the loans had been current throughout the
period. The amount of interest income included in current income for these loans
was $23,600 and $9,078 for the years ended December 31, 1999 and 1998,
respectively.

         It is management's policy to establish an allowance for estimated
losses on loans and real estate owned based upon prior experience, current
economic conditions in its market area, or when it determines that losses are
expected to be incurred on the ultimate disposition of the underlying
properties. Although management believes that it uses the best information
available to make such determinations, future adjustments to allowances may be
necessary, and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the initial
determinations.



                                       9
<PAGE>   10

         The following table presents an allocation of the allowance for
possible loan losses by the categories indicated and the percentage that all
loans in the category bear to total loans. This allocation is used by management
to qualify its evaluation of the loan portfolio. Allocations are merely
estimates and are subject to revisions as conditions change.

<TABLE>
<CAPTION>
                                        At December 31,
                        -------------------------------------------------
                                 1999                      1998
                        -----------------------   -----------------------
                                   Percent of                 Percent of
                                  Loans in Each             Loans in Each
                                   Category to               Category to
                        Amount     Total Loans    Amount     Total Loans
                        ------    -------------   ------    -------------
                                    (Dollars in thousands)
<S>                     <C>       <C>             <C>         <C>
Real estate loans       $  756         81.7%      $  618         83.7%
Commercial ......          189          9.8%         123         10.1%
Other loans .....          278          8.5%         251          6.2%
Unallocated .....           --            0%         209            0%
                        ------        ------      ------        ------
   Total ........       $1,223        100.0%      $1,201        100.0%
                        ======        ======      ======        ======
</TABLE>

         The following table sets forth an analysis of the Bank's allowance for
possible loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                           Year Ended December 31,
                                           -----------------------
                                              1999          1998
                                             ------        ------
                                            (Dollars in thousands)
<S>                                          <C>           <C>
Balance at beginning of period .......       $1,201        $1,234
                                             ------        ------
Loans charged-off:
   Consumer ..........................           28            67
   Mortgage ..........................          199           651
                                             ------        ------
Total charge-offs ....................          227           718
                                             ------        ------
Total recoveries .....................           72            48
                                             ------        ------
Net loans charged-off ................          155           670
                                             ------        ------
Provision for possible loan losses ...          177           637
                                             ------        ------
Balance at end of period .............       $1,223        $1,201
                                             ======        ======
Ratio of net charge-offs to average
   loans outstanding during the period          .10%          .53%
                                             ======        ======
</TABLE>

         For further information and for an analysis of the Bank's allowances
for loan and real estate losses, see Notes 3 and 4 of Notes to Consolidated
Financial Statements.

INVESTMENT ACTIVITIES

         Interest income from cash deposits and securities generally provide the
second largest source of income for the Bank after interest on loans and loan
servicing fees and other fees. At December 31, 1999, the Bank's interest-bearing
deposits and securities portfolio of approximately $64.6 million, excluding
mortgage-backed securities,



                                       10
<PAGE>   11

consisted primarily of interest-bearing bank deposits, U.S. government and
agency obligations, corporate securities, and FHLB of Atlanta stock.

         It has generally been the Bank's policy to maintain a liquidity
portfolio in excess of regulatory requirements in order to shorten the
maturities of the Bank's investment portfolio to enable the Bank to better match
its short-term investments and interest rate sensitive savings deposit
liabilities. The Bank also increases its liquidity by selling most of its
fixed-rate loans with maturities of greater than 10 years.

         Securities are classified as either trading, available-for-sale or held
to maturity based on management's intent and ability. See Note 1 of Notes to
Consolidated Financial Statements.

         The following table sets forth the carrying value of the Bank's
investment securities and mortgage-backed securities at the dates indicated.

<TABLE>
<CAPTION>
                                                  At December 31,
                                               ---------------------
                                                1999          1998
                                               -------       -------
                                                  (In thousands)
<S>                                            <C>           <C>
Securities available-for-sale:
   U.S. Treasury securities ............       $    --       $ 4,027
   U.S. Government and agency securities        47,116        17,996
   FHLB stock ..........................           925         1,473
   Mortgage-backed securities ..........        16,518        16,877
   Other securities ....................            40            42
                                               -------       -------
Total ..................................       $64,599       $40,415
                                               =======       =======
</TABLE>

         The following table sets forth the scheduled maturities, amortized
cost, estimated fair values and weighted average yields for the Bank's
securities available-for-sale at December 31, 1999.

<TABLE>
<CAPTION>
                                        One Year Or Less        After One Through Five Years      After Five Through Ten Years
                                   --------------------------      --------------------------     ----------------------------
                                   Amortized       Weighted        Amortized       Weighted         Amortized     Weighted
                                      Cost      Average Yield        Cost       Average Yield          Cost     Average Yield
                                      ----      -------------        ----       -------------          ----     -------------
                                                                     (Dollars in thousands)
<S>                                <C>          <C>                <C>          <C>                 <C>         <C>
U.S. government and agency ...       $1,000          6.2%           $47,000          5.7%             $   --          --%
FHLB of Atlanta stock(1) .....           --                              --           --                  --          --
Other securities(2) ..........           --           --                 --           --                  40          --
Mortgage-backed securities(3)            --           --                 --           --               2,510         6.7
                                     ------        -----            -------       ------              ------       -----
Total ........................       $1,000          6.2%           $47,000          5.7%             $2,550         6.7%
                                     ======        =====            =======       ======              ======       =====
</TABLE>


<TABLE>
<CAPTION>
                                     After Ten Years
                                -------------------------    Total
                                Amortized     Weighted     Amortized                    Weighted
                                   Cost     Average Yield     Cost      Fair Value   Average Yield
                                 -------    -------------   -------     ----------   -------------
                                                     (Dollars in thousands)
<S>                             <C>         <C>             <C>         <C>           <C>
U.S. government and agency       $    --       %            $48,000       $47,116         5.7%
FHLB of Atlanta stock(1)..           925         7.7            925           925         7.8
Other securities(2) ......            --          --             40            40          --
Mortgage-backed securities        14,258         6.4         16,768        16,518         6.5
                                 -------       -----        -------       -------       -----
Total ....................       $15,183         6.5%       $65,733       $64,599         5.9%
                                 =======       =====        =======       =======       =====
</TABLE>



                                       11
<PAGE>   12

----------
(1)  FHLB of Atlanta stock is an equity security. The amount of such stock held
     by the Bank is included under "After Ten Years" as the Bank is required to
     hold such stock as a FHLB of Atlanta member.
(2)  Other securities includes the Bank's investment in limited partnerships, at
     cost, of $40,695 whose sole purpose is to hold and operate real estate. The
     Bank has no loans to these real estate partnerships. These investments are
     not readily marketable.
(3)  Mortgage-backed securities are reflected in the above table based on their
     contractual maturity.

SUBSIDIARY ACTIVITIES

         FIRST GENERAL SERVICE(S) CORPORATION. First General Service(s)
Corporation ("First General") was incorporated in August 1978, for the purpose
of having an ownership interest in Savings and Loan Data Corporation,
Cincinnati, Ohio, which provided on-line computer services to the Bank.

         In 1984, First General established an office at 407-9th Avenue in
Jasper, Alabama. At the same time, four employees from the Bank were transferred
to First General for the purpose of servicing the Bank's loans. The scope of
First General's activities included servicing, auditing and quality control of
all loans originated by the Bank and by First General's 40% owned subsidiary,
First General Lending Corporation. In 1990, all employees of First General, and
property and equipment relating to loan servicing, were transferred to the Bank.
At December 31, 1998, First General had a total equity investment of $715 in
First General Insurance Agency.

         FIRST GENERAL VENTURES CORPORATION. As of December 31, 1999, First
General Ventures Corporation had a total investment in joint ventures of
$39,980. The Bank believes that the market value of these investments is in
excess of the book values. The assets of First General Land Corporation, one of
the Bank's wholly-owned subsidiaries, were transferred to First General Ventures
Corporation. First General Land Corporation was dissolved. As of December 31,
1999, the Bank had no loan commitments and does not presently intend to make
loans to these joint ventures.

SOURCES OF FUNDS

         GENERAL. Deposits are the major source of the Bank's funds for lending
and other investment purposes. In addition to deposits, The Bank derives funds
from loan principal repayments, advances from the FHLB of Atlanta and other
borrowings. Loan repayments are a relatively stable source of funds, while
deposit inflows and outflows are significantly influenced by general interest
rates and money market conditions. Borrowings may be used on a short term basis
to compensate for reductions in the availability of other sources of funds. They
may also be used on a longer term basis for general business purposes.

         DEPOSITS. Consumer and commercial deposits are attracted principally
from within the Bank's primary market area through the offering of a broad
selection of deposit instruments including NOW accounts, non-interest bearing
demand deposit accounts, money market accounts, regular savings accounts, term
certificate accounts and retirement savings plans. Deposit account terms vary,
with the principal differences being the minimum balance required, the amount of
time the funds must remain on deposit and the interest rate.

         The Bank offers a full range of accounts including: passbook, money
market, checking, individual retirement accounts ("IRAs") and certificate
accounts. The deregulation of various federal controls on insured deposits has
allowed the Bank to be more competitive in obtaining funds and given it more
flexibility to alleviate the risk of net deposit outflows. While the
deregulation of rates payable on deposits has allowed the Bank to be competitive
in the acquisition and retention of funds, it has also resulted in a more
volatile cost of funds.

         Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Bank on a weekly basis. Determination of rates
and terms are predicated on funds acquisition and liquidity requirements, rates
paid by competitors, growth goals, and federal regulations.

         Marketing of the Bank's savings programs takes a number of different
forms. All branch offices are provided with brochures which outline the rates
and features of the Bank's various accounts. The Bank already



                                       12
<PAGE>   13

offers most of the services provided by other savings and loans. These services
include consumer and commercial loans, limited lines of credit, all types of
checking and deposit accounts, and IRAs.

         As of December 31, 1999, the Bank's total deposits were $189.2 million.

         The following table indicates the amount of the Bank's certificates of
deposit and other time deposits of $100,000 or more by time remaining until
maturity as of December 31, 1999.

<TABLE>
<CAPTION>
                                                                    Certificates
                Maturity Period                                      Of Deposit
                ---------------                                      ----------
                                                                   (In thousands)

<S>                                                                  <C>
                Three months or less........................         $ 23,443
                Over three through six months...............           15,047
                Over six through twelve months..............            6,566
                Over twelve months..........................              517
                                                                     --------
                  Total.....................................         $ 45,573
                                                                     ========
</TABLE>

         The following table sets forth the average balances and average
interest rates based on daily balances for deposits for the periods indicated.

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                           ---------------------------------------------
                                                   1999                     1998
                                           -------------------       -------------------
                                            Average    Average       Average     Average
                                           Deposits      Rate        Deposits      Rate
                                           --------       ---        --------       ---
                                                       (Dollars in thousands)
<S>                                        <C>         <C>           <C>         <C>
Non-interest bearing demand deposits       $  7,526        --%       $  7,342        --%
Interest bearing demand deposits ...         26,015       2.8          23,670       3.0
Savings deposits ...................         15,436       2.6          15,727       2.7
Time deposits ......................        144,354       5.3         139,205       5.7
                                           --------       ---        --------       ---
   Total deposits ..................       $193,331       4.6%       $185,944       4.9%
                                           ========       ===        ========       ===
</TABLE>


         For further information, see Notes to Consolidated Financial
Statements.

         BORROWINGS. The Bank relies upon deposits and loan repayments and sales
as its major sources of funds. However, the Bank makes use of FHLB advances to
expand its lending and short-term investment activities and to meet depositor
withdrawals. Advances have been used to supplement deposit flows and are
particularly used when the Bank determines that it can profitably invest the
advances over their term.




                                       13
<PAGE>   14

         The Bank had no short-term borrowings during 1998.

<TABLE>
<CAPTION>
                                                                        At or for the
                                                                    Year Ended December 31,
                                                                 -----------------------------
                                                                    1999              1998
                                                                 -----------        ----------
                                                                     (Dollars in thousands)
<S>                                                              <C>                <C>
Amounts outstanding at end of period:
   FHLB advances .........................................       $18,500,000        $       --
Weighted average rate paid at period end:
   FHLB advances .........................................              6.04%               --%

Maximum amount of borrowings outstanding at any month end:
   FHLB advances .........................................       $19,500,000        $       --

Approximate average amounts outstanding for period:
   FHLB advances .........................................       $ 3,550,000        $       --
Approximate weighted average rate paid during
   period (1):
   FHLB advances .........................................              6.09%               --%
</TABLE>

(1)  The approximate weighted average rate paid during the period was computed
     by dividing the average amounts outstanding into the related interest
     expense for the period.

         For further information on the Bank's borrowings, see Notes to
Consolidated Financial Statements.

SELECTED FINANCIAL RATIOS

         The following table sets forth selected financial ratios of the Bank
for the periods indicated:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                  ----------------------------------
                                                   1999          1998          1997
                                                  ------        ------        ------
<S>                                               <C>           <C>           <C>
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 Average Total Assets) ...            8.0%          8.0%          8.1%
Dividend Payout Ratio (Dividends
   Declared Per Share Divided By Net
   Income Per Share) ..................           42.7%         48.2%         34.5%
</TABLE>





                                       14
<PAGE>   15

LIQUIDITY AND RATE SENSITIVITY

         The following table sets forth the maturity distribution of the Bank's
interest-earning assets and interest-bearing liabilities as of December 31,
1999, the Bank's interest rate sensitivity gap (i.e., interest rate sensitive
assets less interest rate sensitive liabilities), the Bank's cumulative interest
rate sensitivity gap, the ratio of interest-earning assets to interest-bearing
liabilities, and the Bank's cumulative interest rate sensitivity gap ratio.

<TABLE>
<CAPTION>
                                                Over One   Over Five
                                    One Year     Through    Through       Over
                                    or Less    Five Years  Ten Years   Ten Years   Total
                                   ---------    --------    --------    -------   --------
                                                         (In thousands)
<S>                                <C>          <C>         <C>         <C>       <C>
Interest-Earning Assets: (1)
   Loans .......................   $  43,333    $ 49,393    $  7,266    $47,332   $147,324
   Securities ..................         999      46,117       2,502     14,981     64,599
Other assets ...................       2,177          --          --         --      2,177
                                   ---------    --------    --------    -------   --------
     Total .....................   $  46,509    $ 95,510    $  9,768    $62,313   $214,100
                                   =========    ========    ========    =======   ========
Interest-Bearing Liabilities:(2)
   Deposits ....................   $ 158,424    $ 29,092    $  1,659    $    --   $189,175
   Borrowings ..................      18,640         670       1,490      1,090     21,890
                                   ---------    --------    --------    -------   --------
     Total .....................   $ 177,064    $ 29,762    $  3,149    $ 1,090   $211,065
                                   =========    ========    ========    =======   ========
Interest Sensitivity Gap .......   $(130,555)   $ 65,748    $  6,619    $61,223   $  3,035
                                   =========    ========    ========    =======   ========
Cumulative Interest Sensitivity
   Gap .........................   $(130,555)   $(64,807)   $(58,188)   $ 3,035   $  3,035
                                   =========    ========    ========    =======   ========
</TABLE>


(1)  Fixed-rate loans are distributed based on their contractual maturity
     adjusted for projected or anticipated prepayments, and variable rate loans
     are distributed based on the interest rate reset date and contractual
     maturity adjusted for prepayments. Loan run-off and repricing assumes a
     constant prepayment rate based on coupon rate and maturity.
(2)  Passbook savings and demand deposits are presented in the earliest
     repricing period since amounts in these accounts are subject to withdrawal
     on demand. Savings certificates are distributed assuming no withdrawal
     prior to maturity.




                                       15
<PAGE>   16

RATE/VOLUME ANALYSIS

         The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. The
calculations are based on average month end balances during the respective
periods. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to (1) changes in
volume (changes in volume multiplied by old rate) and (2) changes in rates
(change in rate multiplied by old volume). Changes in rate-volume (change in
rate multiplied by the change in volume) have been allocated to the volume and
rate changes based upon the pro-rata amount that rate and volume are to their
total change, before allocation of the rate/volume amount.

<TABLE>
<CAPTION>
                                          Year ended December        Year Ended December 31,
                                             1998 vs. 1999                1997 vs. 1998
                                          Increase (Decrease)          Increase (Decrease)
                                      --------------------------    ------------------------
                                      Volume     Rate      Total    Volume    Rate     Total
                                      ------     ----      -----    ------    ----     -----
                                                          (In thousands)
<S>                                   <C>        <C>      <C>        <C>      <C>      <C>
Interest Income:
Loans .............................   $    27    $(203)   $  (176)   $(237)   $ (92)   $(329)
Securities ........................     1,237     (194)     1,043     (223)     (51)    (274)
Other interest-earning assets .....      (572)     (86)       686      (20)     666     (658)
                                      -------    -----    -------    -----    -----    -----
Total interest earning assets .....   $   692    $(483)   $   209    $ 226    $(163)   $  63
                                      =======    =====    =======    =====    =====    =====
Interest Expense:
Deposits ..........................   $   400    $(617)   $  (217)   $ 399    $(246)   $ 153
Borrowed Funds ....................       200        2        202       (7)       5       (2)
                                      -------    -----    -------    -----    -----    -----
Total interest-bearing liabilities    $   600    $(615)   $   (15)   $ 392    $(241)   $ 151
                                      =======    =====    =======    =====    =====    =====
</TABLE>

COMPETITION

         The Bank faces strong competition in its primary market area for the
attraction and retention of deposits and in the origination of loans. The Bank's
most direct competition for deposits has historically come from other thrift
institutions and from commercial banks located in its primary market area.
However, in recent years the Bank has had significant competition from money
market mutual funds and other sources which are not subject to federal interest
rate limitations. The Bank's competition for real estate loans comes principally
from other thrift institutions, commercial banks, mortgage banking companies,
insurance companies and other institutional lenders.

         The Bank competes for loans through the interest rates and loan fees it
charges and the efficiency and quality of the services it provides borrowers,
real estate brokers, and home builders. It competes for deposits by offering a
wide variety of accounts, convenient branch locations, tax-deferred retirement
programs, and other miscellaneous services.

REGULATION, SUPERVISION AND GOVERNMENTAL POLICY

         The following is a brief summary of certain statutes, rules and
regulations affecting the Holding Company and the Bank. A number of other
statutes and regulations have an impact on their operations. The following
summary of applicable statutes and regulations does not purport to be complete
and is qualified in its entirety by reference to such statutes and regulations.

         Financial Modernization Legislation. On November 12, 1999, the
Gramm-Leach-Bliley Act of 1999 (the "GLB Act") was signed into law. The GLB Act
includes a number of provisions intended to modernize and to increase
competition in the American financial services industry, including authority for
bank holding companies to engage in a wider range of nonbanking activities,
including securities underwriting and general insurance activities. Under the
GLB Act, a bank holding company that elects to become a financial holding
company may engage in any activity that the FRB, in consultation with the
Secretary of the Treasury, determines by regulation or order is (i) financial in
nature, (ii) incidental to any such financial activity, or (iii) complementary
to any such financial activity and does not pose a substantial risk to the
safety or soundness of depository institutions or the financial system




                                       16
<PAGE>   17

generally. The GLB Act specifies certain activities that are deemed to be
financial in nature, including lending, exchanging, transferring, investing for
others, or safeguarding money or securities; underwriting and selling insurance;
providing financial, investment, or economic advisory services; underwriting,
dealing in or making a market in, securities; and any activity currently
permitted for bank holding companies by the FRB under section 4(c)(8) of the
Holding Company Act. A bank holding company may elect to be treated as a
financial holding company only if all depository institution subsidiaries of the
holding company are and continue to be well-capitalized and well-managed and
have at least a satisfactory rating under the Community Reinvestment Act.

         National banks are also authorized by the GLB Act to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of the
Treasury, in consultation with the FRB, determines is financial in nature or
incidental to any such financial activity, except (i) insurance underwriting,
(ii) real estate development or real estate investment activities (unless
otherwise permitted by law), (iii) insurance company portfolio investments and
(iv) merchant banking. The authority of a national bank to invest in a financial
subsidiary is subject to a number of conditions, including, among other things,
requirements that the bank must be well-managed and well-capitalized (after
deducting from capital the bank's outstanding investments in financial
subsidiaries). The GLB Act also provides that state banks may invest in
financial subsidiaries (assuming they have the requisite investment authority
under applicable state law) subject to the same conditions that apply to
national bank investments in financial subsidiaries.

         The GLB Act also adopts a number of consumer protections, including
provisions intended to protect privacy of bank customers' financial information
and provisions requiring disclosure of ATM fees imposed by banks on customers of
other banks.

         Most of the GLB Act's provisions have delayed effective dates and
require the adoption of implementing regulations to implement the statutory
provisions. At this time, the Holding Company has not determined whether it will
become a financial holding company in order to utilize the expanded powers
offered by the GLB Act, and the Bank is unable to predict the impact of the GLB
Act's financial subsidiary provisions and consumer protections on its
operations.

         Bank Holding Company Regulation. The Holding Company is registered as a
bank holding company under the Holding Company Act and, as such, subject to
supervision and regulation by the Board of Governors of the Federal Reserve
System ("FRB"). A bank holding company is required to furnish to the FRB annual
and quarterly reports of its operations and to furnish such additional
information as the FRB may require pursuant to the Holding Company Act. The
Holding Company is also subject to regular examination by the FRB.

         Under the Holding Company Act, a bank holding company must obtain the
prior approval of the FRB before (i) acquiring direct or indirect ownership or
control of any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (2) acquiring all or substantially all of
the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company. The Holding Company Act
generally permits the FRB to approve interstate bank acquisitions by bank
holding companies without regard to any prohibitions of state law.
See "Competition".

         Under the Holding Company Act, any company must obtain approval of the
FRB prior to acquiring control of the Holding Company or the Bank. For purposes
of the Holding Company Act, "control" is defined as ownership of more than 25%
of any class of voting securities of the Holding Company or the Bank, the
ability to control the election of a majority of the directors, or the exercise
of a controlling influence over management or policies of the Holding Company or
the Bank.

         As a bank holding company, the Holding Company is prohibited under the
BHC Act, with certain exceptions, from acquiring direct or indirect ownership or
control of more than 5% of the voting shares of a company that is not a bank or
a bank holding company, or from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks, or providing
services for its subsidiaries. The principal exceptions to these prohibitions
involve certain non-bank activities that, by statute or by FRB regulation or
order, have been identified as activities closely related to the business of
banking or managing or controlling banks. The



                                       17
<PAGE>   18

activities of the Holding Company and of its non-bank subsidiaries are subject
to these legal and regulatory limitations under the Holding Company Act and the
FRB's regulations thereunder. Notwithstanding the FRB's prior approval of
specific nonbanking activities, the FRB has the power to order a holding company
or its subsidiaries to terminate any activity, or to terminate its ownership or
control of any subsidiary, when it has reasonable cause to believe that the
continuation of such activity or such ownership or control constitutes a serious
risk to the financial safety, soundness or stability of any bank subsidiary of
that holding company.

         The GLB Act greatly expands the scope of business activities
permissible for bank holding companies by creating the new classification of
"financial holding companies." Effective March 11, 2000, the GLBA Act will
permit a bank holding company, upon classification as a financial holding
company and assuming such holding company's subsidiary banks meet certain
requirements, to engage in a broad variety of activities "financial" in nature.
See "Regulation, Supervision and Governmental Policy - Financial Modernization
Legislation."

         The FRB has adopted guidelines regarding the capital adequacy of bank
holding companies, which require bank holding companies to maintain specified
minimum ratios of capital to total assets and capital to risk-weighted assets.
See "--Capital Requirements."

         The FRB has the power to prohibit dividends by bank holding companies
if their actions constitute unsafe or unsound practices. The FRB has issued a
policy statement on the payment of cash dividends by bank holding companies,
which expresses the FRB's view that a bank holding company should pay cash
dividends only to the extent that the company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the company's capital needs, asset quality, and overall
financial condition.

         Bank Regulation. As an Alabama banking institution, the Bank is subject
to regulation, supervision and regular examination by the Banking Department.
Furthermore, as a state bank that is not a member of the Federal Reserve System
(a "state nonmember bank"), the Bank is subject to regulation, supervision and
regular examination by the FDIC under the applicable provisions of the Federal
Deposit Insurance Act (the "FDI Act") and the FDIC's regulations. The deposits
of the Bank are insured by the FDIC to the maximum extent provided by law (a
maximum of $100,000 for each insured depositor). Alabama and federal banking
laws and regulations control, among other things, the Bank's required reserves,
investments, loans, mergers and consolidations, issuance of securities, payment
of dividends, and establishment of branches and other aspects of the Bank's
operations.

         The Bank is required to pay assessments, based on a percentage of its
insured deposits, to the FDIC for insurance of its deposits by the SAIF. The
FDIC has established a risk-based deposit insurance assessment system for
insured depository institutions, under which insured institutions are assigned
assessment risk classifications based upon capital levels and supervisory
evaluations.

         As a federally insured bank, the Bank is required to pay deposit
insurance assessments to the FDIC based on a percentage of its insured deposits.
Under the FDIC's risk-based deposit insurance assessment system, the assessment
rate for an insured bank depends on the assessment risk classification assigned
to the bank. The FDIC has set the 2000 annual insurance assessment rates
applicable to Savings Association Insurance Fund ("SAIF") member banks like the
Bank from $0 for well-capitalized banks in the highest supervisory subgroup to
0.27% of insured deposits for undercapitalized banks in the lowest supervisory
subgroup. The Bank was a "well-capitalized" bank as of December 31, 1999. In
addition to deposit insurance assessments, FDIC-insured institutions are
required to pay assessments to the FDIC at an annual rate of approximately 0.02%
of insured deposits to fund interest payments on certain bonds issued by the
Financing Corporation, an agency of the federal government established to
recapitalize the predecessor to the SAIF.

         Under Alabama law, the approval of the Banking Department 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.

         The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies, including the FDIC's capital
adequacy guidelines for state non-member banks. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators



                                       18
<PAGE>   19

that, if undertaken, could have a direct material effect on the Bank's and the
Company's financial statements. See "--Capital Requirements."

         Supervision, regulation and examination of the Holding Company and the
Bank by the bank regulatory agencies are intended primarily for the protection
of depositors rather than for holders of Holding Company stock or of the Holding
Company as the holder of the stock of the Bank.

         Capital Requirements. The FRB has established guidelines with respect
to the maintenance of appropriate levels of capital by bank holding companies,
and the FDIC has promulgated substantially similar capital adequacy regulations
for state nonmember banks. These capital regulations impose two sets of capital
adequacy requirements: minimum leverage rules, which require bank holding
companies and banks to maintain a specified minimum ratio of capital to total
assets, and risk-based capital rules, which require the maintenance of specified
minimum ratios of capital to "risk-weighted" assets.

         The regulations of the FRB and the FDIC require bank holding companies
and state nonmember banks, respectively, to maintain a minimum leverage ratio of
"Tier 1 capital" (as defined in the risk-based capital guidelines discussed in
the following paragraphs) to total assets of 3.0%. Although setting a minimum
3.0% leverage ratio, the regulations state that only the strongest bank holding
companies and banks, with composite examination ratings of 1 under the rating
system used by the federal bank regulators, would be permitted to operate at or
near such minimum level of capital. All other bank holding companies and banks
are expected to maintain a leverage ratio of at least 1% to 2% above the minimum
ratio, depending on the assessment of an individual organization's capital
adequacy by its primary regulator. Any bank or bank holding company experiencing
or anticipating significant growth would be expected to maintain capital well
above the minimum levels. In addition, the FRB has indicated that whenever
appropriate, and in particular when a bank holding company is undertaking
expansion, seeking to engage in new activities or otherwise facing unusual or
abnormal risks, it will consider, on a case-by-case basis, the level of an
organization's ratio of tangible Tier 1 capital (after deducting all
intangibles) to total assets in making an overall assessment of capital.

         The risk-based capital rules of the FRB and the FDIC require bank
holding companies and state nonmember banks, respectively, to maintain minimum
regulatory capital levels based upon a weighing of their assets and off-balance
sheet obligations according to risk. The risk-based capital rules have two basic
components: a core capital (Tier 1) requirement and a supplementary capital
(Tier 2) requirement. Core capital consists primarily of common stockholders'
equity, certain perpetual preferred stock (which must be noncumulative with
respect to banks), and minority interests in the equity accounts of consolidated
subsidiaries; less intangible assets, primarily goodwill, with limited
exceptions for mortgage servicing rights and purchased credit card
relationships. Supplementary capital elements include, subject to certain
limitations, the allowance for losses on loans and leases; perpetual preferred
stock that does not qualify for Tier 1 and long-term preferred stock with an
original maturity of at least 20 years from issuance; hybrid capital
instruments, including perpetual debt and mandatory convertible securities; and
subordinated debt and intermediate-term preferred stock. The risk-based capital
regulations assign balance sheet assets and credit equivalent amounts of
off-balance sheet obligations to one of four broad risk categories based
principally on the degree of credit risk associated with the obligor. The assets
and off-balance sheet items in the four risk categories are weighted at 0%, 20%,
50% and 100%. These computations result in the total risk-weighted assets.

         The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios: (i) supplementary capital will be limited to no more than 100% of
core capital; and (ii) the aggregate amount of certain types of supplementary
capital will be limited. In addition, the risk-based capital regulations limit
the allowance for loan losses includible as capital to 1.25% of total
risk-weighted assets.

         The FRB, the FDIC and the other federal banking agencies have amended
the risk-based capital standards to take account of a bank's concentration of
credit risk, the risk of nontraditional activities, and a bank's exposure to
declines in the economic value of its capital resulting from changes in interest
rates. The revised capital guidelines do not, however, codify a measurement
framework for assessing the level of a bank's interest rate exposure. The FRB,
the FDIC and the other banking agencies have adopted a joint policy statement
requiring that banks adopt



                                       19
<PAGE>   20

comprehensive policies and procedures for managing interest rate risk and
setting forth general standards for such internal policies.

         The FDIC has issued regulations that classify insured depository
institutions by capital levels and provide that the FDIC will take various
prompt corrective actions to resolve the problems of any state bank it regulates
that fails to satisfy the capital standards. Under such regulations, a
"well-capitalized" bank is one that is not subject to any regulatory order or
directive to meet any specific capital level and that has or exceeds the
following capital levels: a total risk-based capital ratio of 10%, a Tier 1
risk-based capital ratio of 6%, and a leverage ratio of 5%. An "adequately
capitalized" bank is one that does not qualify as "well capitalized" but meets
or exceeds the following capital requirements: a total risk-based capital of 8%,
a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of either (i) 4%
or (ii) 3% if the bank has the highest composite examination rating. A bank not
meeting these criteria is treated as "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized" depending on the extent to
which the bank's capital levels are below these standards. A bank that fails
within any of the three "undercapitalized" categories will be subject to certain
severe regulatory sanctions under the FDIC prompt corrective action regulation.
As of December 31, 1999, the Bank was categorized as "well-capitalized" by the
FDIC.

         See Item 6, "Management's Discussion and Analysis or Plan of
Operation," and Notes to Consolidated Financial Statements contained in the
Holding Company's Annual Report to Stockholders for the year ended December 31,
1999 (Exhibit No. 13) which is incorporated herein by reference.

         Effects of Governmental Policy. The earnings and business of the
Holding Company and the Bank have been and will be affected by the policies of
various regulatory authorities of the United States, particularly the FRB.
Important functions of the FRB, in addition to those enumerated above, include
the regulation of the supply of money in light of general economic conditions
within the United States. The instruments of monetary policy employed by the FRB
for these purposes influence in various ways the overall level of investments,
loans, other extensions of credit and deposits, and the interest rates paid on
liabilities and received on interest-earning assets.

         Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by the Bank on its deposits
and its other borrowings and the interest received by the Bank on loans extended
to customers and securities held in its investment portfolios comprises the
major portion of the Bank's earnings. The earnings and gross income of the Bank
thus have been and will be subject to the influence of economic conditions
generally, both domestic and foreign, and also to monetary and fiscal policies
of the United States and its agencies, particularly the FRB. The nature and
timing of any future changes in such policies and their impact on the Bank are
not predictable.

EMPLOYEES

         As of December 31, 1999, the Holding Company and the Bank had 87
full-time and 15 part-time employees.

         The employees are not represented by a collective bargaining agreement.
The Holding Company and the Bank believe their employee relations are good.




                                       20
<PAGE>   21

EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
Name, Age and Position                                    Business Experience
----------------------                                    -------------------
<S>                                                       <C>
Robert B. Nolen, Jr., 41 -                                Mr. Nolen joined the Bank in 1987 as First Vice
   President of the Holding                               President, Chief Financial Officer and Treasurer.
   Company and the Bank                                   Effective July 1, 1994, Mr. Nolen was appointed
   President and Chief Executive                          As President of each of the Holding Company
   Officer of the Bank.                                   and Bank, Mr. Nolen is responsible for
                                                          ensuring that the overall operations of the
                                                          Holding Company and the Bank are carried out
                                                          in accordance with the policies and procedures
                                                          of the Board of Directors.

Mary Jo Gunter, 47 -                                      Ms. Gunter joined the Bank in September 1976 and
   Vice President of the                                  has served in various lending related positions within
   Holding Company and Senior                             the Bank. She is responsible for branch operations,
   Vice President - Banking Services                      personnel, loan servicing and other customer service
   of the Bank.                                           areas.
</TABLE>

FORWARD-LOOKING STATEMENTS

         This Annual Report on Form 10-KSB, including all documents incorporated
herein by reference, contains forward-looking statements. Additional written or
oral forward-looking statements may be made by the Holding Company from time to
time in filings with the Securities and Exchange Commission or otherwise. The
words "believe," "expect," "seek," and "intend" and similar expressions identify
forward-looking statements, which speak only as of the date the statement is
made. Such forward-looking statements are within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements may include, but
are not limited to, projections of income or loss, expenditures, acquisitions,
plans for future operations, financing needs or plans relating to services of
the Holding Company, as assumptions relating to the foregoing. Forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified. Future events and actual results could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements.

         The Holding Company does not undertake, and specifically disclaims, any
obligation to publicly release the results of revisions which may be made to
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.

ITEM 2.  DESCRIPTION OF PROPERTY

         The Holding Company's principal executive offices and the Bank's main
office are located at 1811 Second Avenue, Jasper, Alabama. At December 31, 1999,
the Bank maintained six branches in Jasper, Haleyville, Sumiton, Vestavia and
Trussville, Alabama. The Haleyville branch is leased. The Bank also leases an
administrative office in Jasper, Alabama, which is currently subleased to
another financial institution.

         For further information on the Bank's lease commitments, see Notes to
Consolidated Financial Statements.

         The total net book value of the Bank's investment in premises and
equipment was $6,700,000 at December 31, 1999. See Notes to Consolidated
Financial Statements for further information.



                                       21
<PAGE>   22

ITEM 3.  LEGAL PROCEEDINGS

         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.


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

         No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Holding Company
through a solicitation of proxies or otherwise.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The information contained under the section captioned "Market Price and
Dividend Information" in the Holding Company's Annual Report to Stockholders for
the year ended December 31, 1999 (Exhibit No. 13), is incorporated herein by
reference.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The information contained in the section captioned "Management's
Discussion and Analysis" in the Annual Report to Stockholders for the year ended
December 31, 1999 (Exhibit No. 13) is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS

         The financial statements contained in the Annual Report to Stockholders
for the year ended December 31, 1998 (Exhibit No. 13) are incorporated herein by
reference.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not applicable.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         For information concerning the Board of Directors of the Holding
Company, the information contained under the section captioned "Proposal I --
Election of Directors" in the Holding Company's definitive proxy statement, to
be filed within 120 days after the end of the fiscal year covered by this Form
10-KSB (the "Proxy Statement"), is incorporated herein by reference. For
information concerning the executive officers of the Holding Company, see "Item
1. Business -- Executive Officers of the Registrant," which is incorporated
herein by reference.

ITEM 10.  EXECUTIVE COMPENSATION

         The information contained under the section captioned "Proposal I --
Election of Directors -- Executive Compensation" in the Proxy Statement is
incorporated herein by reference.



                                       22
<PAGE>   23

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         (a)    Security Ownership of Certain Beneficial Owners

                Information required by this item is incorporated herein by
                reference to the section captioned "Voting Securities and
                Principal Holders Thereof" of the Proxy Statement.

         (b)    Security Ownership of Management

                Information required by this item is incorporated herein by
                reference to the sections captioned "Voting Securities and
                Principal Holders Thereof" and "Proposal I -- Election of
                Directors" of the Proxy Statement.

         (c)    Changes in Control

                Management of the Registrant knows of no arrangements, including
                any pledge by any person of securities of the Registrant, the
                operation of which may at a subsequent date result in a change
                of control of the Registrant.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item is incorporated herein by
reference to the sections captioned "Proposal I -- Election of Directors" and
"Voting Securities and Principal Holders Thereof" of the Proxy Statement.

ITEM 13.  EXHIBITS, LIST AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  3.1      Certificate of Incorporation - Incorporated by
                           reference to Exhibit 3.1 to Registrant's Annual
                           Report on Form 10-KSB for the six months ended
                           December 31, 1996.

                  3.2      Bylaws - Incorporated by reference to Exhibit 3.2 to
                           Registrant's Annual Report on Form 10-KSB for the six
                           months ended December 31, 1996.

                  4        Form of Stock Certificate - Incorporated by reference
                           to Exhibit 4 to Registrant's Annual Report on Form
                           10-KSB for the six months ended December 31, 1996.

                  10.1     Employment Agreement between Registrant and Robert B.
                           Nolen, Jr.

                  10.2     Pinnacle Bank 1996 Stock Option and Incentive Plan -
                           Incorporated by reference to Exhibit 10.4 to
                           Registrant's Registration Statement on Form S-4 (File
                           No. 333-11495).

                  10.3     Pinnacle Bank Profit Sharing Retirement Plan -
                           incorporated by reference to Registrant's
                           Registration Statement on Form S-8 (File No.
                           333-85441).

                  13       Annual Report to Stockholders for the year ended
                           December 31, 1999. Except for the portions of the
                           Annual Report to Stockholders which are expressly
                           incorporated herein by reference, such Annual Report
                           to Stockholders is furnished for the information of
                           the SEC and is not to be deemed "filed" as part of
                           this Report.

                  22       Subsidiaries

                  23       Consent of Independent Accountants

                  27       Financial Data Schedule (SEC use only)

         (b)      Not applicable.




                                       23
<PAGE>   24

                                   SIGNATURES

       In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                    PINNACLE BANCSHARES, INC.



Date:  March 30, 2000               By: /s/ Robert B. Nolen, Jr.
                                        ----------------------------------------
                                        Robert B. Nolen, Jr., President
                                        (Duly Authorized Representative)

       In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.


By: /s/ Robert B. Nolen, Jr.               By:
    --------------------------------           ---------------------------------
    Robert B. Nolen, Jr.                       James W. Cannon
    President and Chief Executive              Director
    Officer (Principal Executive
    Officer, Principal Financial
    Officer and Principal Accounting
    Officer)

Date: March 30, 2000                       Date:  March ___, 2000



By: /s/ Albert H. Simmons                  By: /s/ Max W. Perdue
    --------------------------------           ---------------------------------
    Albert H. Simmons                          Max W. Perdue
    Chairman of the Board                      Director

Date: March 30, 2000                       Date: March 30, 2000



By: /s/ O. H. Brown                        By: /s/ Greg Batchelor
    --------------------------------           ---------------------------------
    O. H. Brown                                Greg Batchelor
    Director                                   Director

Date: March 30, 2000                       Date: March 30, 2000



By: /s/ Sam W. Murphy                      By: /s/ Melvin R. Kacharos
    --------------------------------           ---------------------------------
    Sam W. Murphy                              Melvin R. Kacharos
    Director                                   Director

Date: March 30, 2000                       Date: March 30, 2000



By:
    --------------------------------
    J. T. Waggoner
    Director

Date: March __, 2000