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, 2000
                                       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
incorporation or organization)                          Identification No.)

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. $19,055,249.

The aggregate market value of the voting stock held by non-affiliates,  computed
by  reference  to the price ($8.32 per share) at which the Common Stock was sold
on  March  31,  2001,  was  approximately  $13,062,616.  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,  2001,  1,775,384  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, 2000.

Part III:
Portions of the definitive proxy statement for the 2001 Annual Meeting of
Stockholders.

<PAGE>
                                     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,  Vestavia and
Trussville, 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>

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.

                                                            At December 31,
                                                       ------------------------
                                                           2000           1999
                                                           ----           ----
                                                         (Dollars in thousands)
Financial Condition and Other Data:
Total amount of:
   Assets ..........................................      $230,269      $231,032
   Loans, net ......................................       152,021       146,430
   Interest-bearing deposits in other banks ........         1,136         2,177
   Securities ......................................        61,069        64,599
   Loans held for sale .............................         1,337           894
   Deposits ........................................       187,471       187,884
   Borrowed funds ..................................        20,500        21,890
   Stockholders' equity ............................        19,230        17,849

Number of:
   Real estate loans outstanding ...................         3,209         3,419
   Savings accounts ................................        14,962        17,509
   Full service offices open .......................             6             6



                                                      Year Ended December 31,
                                                      -----------------------
                                                         2000      1999
                                                         ----      ----
                                                        (In thousands)
Operating Data:
Interest income ....................................   $17,805   $16,130
Interest expense ...................................    10,573     9,238
                                                       -------   -------
Net interest income before provision for loan losses     7,232     6,892
Provision for loan losses ..........................       530       177
                                                       -------   -------
Net interest income after provision for losses .....     6,702     6,715
Noninterest income .................................     1,250     1,116
Noninterest expense ................................     5,152     5,195
Income tax expense .................................     1,058       958
                                                       -------   -------
Net income .........................................   $ 1,742   $ 1,678
                                                       =======   =======


                                       3
<PAGE>


     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,
                                          --------------------------------------------------------------------------------------
                                                           2000                                         1999
                                          ----------------------------------------    ------------------------------------------
                                            Average                    Average          Average                      Average
                                            Balance      Interest     Yield/Cost        Balance       Interest      Yield/Cost
                                            -------      --------     ----------        -------       --------      ----------
<S>                                       <C>           <C>                <C>        <C>           <C>                  <C>
Interest-earning assets:
Loans receivable, net...............      $  150,019    $  13,895          9.3%       $  135,556    $  12,041            8.9%
Securities available-for-sale.......          62,810        3,800          6.0%           63,896        3,761            5.9%
Other...............................           1,664          110          6.6%            6,725          328            4.9%
                                          ----------    ---------    ----------       ----------    ---------      ----------
Total...............................         214,493       17,805          8.3%          206,177       16,130            7.8%
Non-interest-earning assets.........          15,586                                      14,808
                                          ----------                                  ----------
Total assets........................      $  230,079                                  $  220,985
                                          ==========                                  ==========
Interest-bearing liabilities:
Deposits............................      $  187,950        9,224          4.9%       $  193,331        8,831            4.6%
Borrowings..........................          20,963        1,349          6.4%            6,961          407            5.8%
                                          ----------    ---------    ----------       ----------    ---------      ----------
Total interest-bearing liabilities:.         208,913       10,573          5.1%          200,292        9,238            4.6%
Non-interest-bearing liabilities....           2,715                                       2,933
                                          ----------                                  ----------
Total Liabilities:..................         211,628                                     203,225
   Equity...........................          18,451                                      17,760
                                          ----------                                  ----------
   Total Liabilities and Equity.....      $  230,079                                  $  220,985
                                          ==========                                  ==========
Net interest-earning assets.........      $    5,580                                  $    5,885
                                          ===========                                 ==========

Net interest income.................                    $   7,232                                   $   6,892
                                                        =========                                   =========
Interest rate spread................                                       3.2%                                          3.2%
                                                                     ==========                                    ==========
Net interest margin.................                                       3.4%                                          3.3%
                                                                     ==========                                    ==========
Ratio of average interest-earning assets to interest-bearing
   Liabilities......................
                                                                         102.7%                                        102.9%
                                                                     ==========                                    ==========
</TABLE>
                                       4
<PAGE>

LENDING ACTIVITIES

     GENERAL.  The Bank's net loan portfolio  totaled $152.0 million at December
31, 2000, or 66.1% of its total assets. On that date, $122.1 million,  or 80% 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.

     The Bank's  volume of total loans  originated  to be retained in the Bank's
loan  portfolio  totaled  approximately  $85.7  million  during  the year  ended
December 31, 2000,  and $109.5  million during the year ended December 31, 1999.
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 50% of the single-family residential mortgage loans in
the Bank's loan portfolio,  and 28% of the Bank's net loan portfolio at December
31,  2000.  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.

     The following  table sets forth,  in dollar  amounts and  percentages,  the
major  categories  of the Bank's  loans.  At December 31, 2000,  the Bank had no
concentrations  of loans  exceeding  10% of gross loans other than as  described
below.
<TABLE>
<CAPTION>
                                                        December 31,
                                     --------------------------------------------------------
                                               2000                          1999
                                     -------------------------    ---------------------------
                                         $            %               $             %
                                         -            -               -             -
                                                        (Dollars in thousands)
Type of Loan:
------------
<S>                                  <C>                <C>       <C>                <C>
Real estate mortgage loans......     $   96,592         63.5%     $   94,288         64.4%
Construction loans..............         39,044         25.7%         38,446         26.3%
Commercial loans................         16,798         11.0%         14,364          9.8%
Consumer loans..................         13,099          8.6%         12,442          8.4%
Less --
   Loans in process.............         11,887          7.8%         11,580          7.9%
   Discounts and other..........            286          0.2%            307          0.2%
   Allowance for loan losses....          1,339          0.9%          1,223          0.8%
                                     ----------  ------------     ----------  ------------
     Total......................     $  152,021       100.00%     $  146,430        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, 2000,  approximately 80% 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

                                       5
<PAGE>

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, 2000, the largest amount loaned by the Bank to one borrower
was  $2.5  million  which  was   approximately  13%  of  the  Holding  Company's
stockholders' equity.

     CONSTRUCTION  AND  COMMERCIAL  REAL  ESTATE  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,  2000,  the Bank had  $33.9  million  outstanding  in
residential  construction  loans,  compared with $36.6  million in  construction
loans on residential properties outstanding at December 31, 1999.

     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,  2000,  the Bank had $29.81  million
outstanding  in  commercial  real  estate  loans,   including  $5.1  million  in
commercial   construction   loans.   These  loans  are   typically   limited  to
owner-occupied financings.

     COMMERCIAL  BUSINESS LOANS.  At December 31, 2000 there were  approximately
$16.8 million in commercial  loans  outstanding.  The Bank will consider  making
these types of loans in its local market area.

     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, 2000, the Bank had $13.1 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 and 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,  2000,  the Bank was
servicing  loans  for  others  aggregating   approximately  $66.0  million.  Net
servicing   income  for  the  years  ended   December  31,  2000  and  1999  was
approximately $171,000 and $190,000, respectively.

     During  the  years  ended  December  31,  2000  and  1999,  the  Bank  sold
approximately $36.0 million and $50.0 million,  respectively, in whole loans. As
of  December  31,  2000,  the Bank had  approximately  $500,000  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

                                       6
<PAGE>

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,  which 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  $22.1 million at December
31, 2000. Of these commitments, $20.6 million were for adjustable rate mortgages
and $1.5 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.

     MATURITY OF LOAN PORTFOLIO. The following table sets forth certain
information at December 31, 2000, 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 One Through                Due
                                           Due by              Five Years After         Five Years After
                                      December 31, 2001        December 31, 2000        December 31, 2000         Total
                                      -----------------        -----------------        -----------------         -----

<S>                                   <C>                        <C>                   <C>                     <C>
Real estate mortgage...........       $    6,224,617             $ 38,815,563          $    51,263,016         $96,303,196
Real estate construction.......           27,156,740                       --                       --          27,156,740
Commercial business loans......            7,744,264                7,643,060                1,411,207          16,798,531
Consumer.......................            3,884,576                8,607,987                  606,587          13,099,150
                                    ----------------       ------------------         ----------------       -------------
   Total.......................       $   45,010,197             $ 55,066,610          $    53,280,810       $ 153,357,617
                                      ==============             ============          ===============       =============
</TABLE>

     The following table sets forth the dollar amount of all loans due after one
year at  December  31,  2000 which have  predetermined  interest  rates and have
floating or adjustable interest rates.

                                                                  Floating or
                                         Predetermined Rates    Adjustable Rates
                                         -------------------    ----------------

     Real estate mortgage............      $   49,549,560       $    40,529,019
     Commercial business loans.......           4,667,167             4,387,101
     Consumer........................           9,073,706               140,867
                                           --------------       ---------------
       Total.........................      $   63,290,433       $    45,056,987
                                           ==============       ===============

     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 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

                                       7
<PAGE>

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."

     The  following  table sets  forth  information  with  respect to the Bank's
non-performing assets for the periods indicated.
<TABLE>
<CAPTION>
                                                                    At December 31,
                                                       ------------------------------------------
                                                               2000                 1999
                                                               ----                 ----
                                                                (Dollars in thousands)
Loans accounted for on a nonaccrual basis: (1)
Real Estate:
<S>                                                    <C>                   <C>
   Residential...................................      $       2,036         $         850
   Commercial....................................                298                   172
Consumer.........................................                 37                    70
                                                       -------------         -------------
Total............................................      $       2,371         $       1,092
                                                       =============         =============

Accruing loans which are contractually
   past due 90 days or more: (2)
Real Estate:
   Residential...................................      $          --         $          --
   Commercial....................................                 --                    --
Consumer.........................................                 --                    --
                                                       -------------         -------------
Total............................................      $          --         $          --
                                                       =============         =============
   Total of nonaccrual and 90 days
     past due loans..............................      $       2,371         $       1,092
                                                       =============         =============

Percentage of total loans........................              1.56%                  .75%

Percentage of total assets.......................              1.03%                  .47%

Other non-performing assets(3)...................      $       1,420         $       1,522
</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)  Accruing loans which are contractually past due 90 days or more during 1999
     have been restated in order to be comparable to the 2000 presentation.  The
     Bank changed its policy of calculating delinquent loans.
(3)  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  $2.5
million at December 31, 2000  (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, 2000 and 1999, gross interest income of
$68,824 and $36,733,  respectively,  would have been recorded on loans accounted
for on a nonaccrual  basis if the loans had been current

                                       8
<PAGE>

throughout the period.  The amount of interest income included in current income
for these loans was $87,362  and $23,600 for the years ended  December  31, 2000
and 1999, 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.

     The following table presents an allocation of the allowance for 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,
                                   ------------------------------------------------------------
                                               2000                            1999
                                   -----------------------------    ---------------------------
                                                  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............      $      547           80.3%       $      756          81.7%
Commercial...................             289           11.1%              189           9.8%
Other loans..................             503            8.6%              278           8.5%
                                   ----------   -------------       ----------  -------------
   Total.....................      $    1,339          100.0%       $    1,223         100.0%
                                   ==========   =============       ==========  =============
</TABLE>

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

                                                  Year Ended December 31,
                                            ------------------------------------
                                                   2000              1999
                                                   ----              ----
                                                  (Dollars in thousands)
Balance at beginning of period..........    $       1,223       $     1,201

Loans charged-off:
   Consumer.............................              161                28
   Mortgage.............................              308               199
                                            -------------       -----------

Total charge-offs.......................              469               227

Total recoveries........................               55                72

Net loans charged-off...................              414               155

Provision for loan losses...............              530               177
                                            -------------       -----------

Balance at end of period................    $       1,339       $     1,223
                                            =============       ===========

Ratio of net charge-offs to average
   loans outstanding during the period..             .28%              .10%
                                            =============       ===========

     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.

                                       9
<PAGE>

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, 2000, the Bank's interest-bearing
deposits and securities  portfolio of  approximately  $61.1  million,  excluding
mortgage-backed   securities,   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-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 at the dates indicated.

                                                              At December 31,
                                                          ----------------------
                                                            2000          1999
                                                            ----          ----
                                                               (In thousands)
Securities available-for-sale:
   U.S. Government and agency securities ...........       $46,754       $47,116
   FHLB stock ......................................           975           925
   Mortgage-backed securities ......................        13,311        16,518
   Other securities ................................            29            40
                                                           -------       -------
Total ..............................................       $61,069       $64,599
                                                           =======       =======


                                       10
<PAGE>

     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, 2000.
<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....     $   15,000          5.6%    $   32,000            5.7%     $       --              --%
FHLB of Atlanta stock(1)......             --           --             --             --              --              --
Other securities(2)...........             --           --             --             --              29              --
Mortgage-backed securities (3)             --           --             --             --           2,053             6.6
                                   ----------    ---------     ----------     ----------     -----------     -----------
Total.........................     $   15,000          5.6%    $   32,000            5.7%    $     2,082             6.6%
                                   ==========    =========     ==========     ==========     ===========     ===========
</TABLE>

<TABLE>
<CAPTION>
                                           After Ten Years                          Total
                                  ------------------------------   ---------------------------------------------
                                     Amortized       Weighted       Amortized      Estimated        Weighted
                                       Cost       Average Yield       Cost         Fair Value     Average Yield
                                       ----       -------------       ----         ----------     -------------
                                                              (Dollars in thousands)
<S>                                <C>                            <C>              <C>                  <C>
U.S. government and agency....     $      --             --%      $    47,000      $   46,754           5.7%
FHLB of Atlanta stock(1)......           975            7.8               975             975           7.8
Other securities(2)...........            --             --                29              29            --
Mortgage-backed securities (3)        11,333            7.5            13,386          13,311           7.4
                                   ---------      ---------       -----------     -----------     ---------
Total.........................     $  12,308            7.5%      $    61,390     $    61,069           6.0%
                                   =========      =========       ===========     ===========     =========
</TABLE>
-------------------------
(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 $28,677 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.

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.

                                       11
<PAGE>

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

     As of December 31, 2000, the Bank's total deposits were $187.5 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, 2000.

                                                                Certificates
        Maturity Period                                          of Deposit
        ---------------                                          ----------
                                                               (In thousands)

        Three months or less........................         $     22,501
        Over three through six months...............                7,154
        Over six through twelve months..............               10,703
        Over twelve months..........................               10,259
                                                             ------------
          Total.....................................         $     50,617
                                                             ============

     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,
                                                      -------------------------------------------------------------
                                                                  2000                            1999
                                                      -----------------------------    ----------------------------
                                                          Average        Average          Average        Average
                                                         Deposits         Rate            Deposits        Rate
                                                         --------         ----            --------        ----
                                                                         (Dollars in thousands)
<S>                                                   <C>                              <C>
Non-interest bearing demand deposits............      $      7,238          --%        $      7,526         --%
Interest bearing demand deposits................            24,828         2.5               26,015        2.8
Savings deposits................................            14,639         2.5               15,436        2.6
Time deposits...................................           141,245         5.8              144,354        5.3
                                                      ------------     -------         ------------    -------
   Total deposits...............................      $    187,950         4.9%        $    193,331        4.6%
                                                      ============     =======         ============    =======
</TABLE>

                                       12
<PAGE>

     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.
<TABLE>
<CAPTION>
                                                                                            At or for the
                                                                                       Year Ended December 31,
                                                                                    -------------------------------
                                                                                        2000             1999
                                                                                        ----             ----
                                                                                             (Dollars in thousands)
<S>                                                                               <C>                     <C>
   Amounts outstanding at end of period.....................................      $17,250,000             $18,500,000

   Weighted  average rate paid at period end................................             6.88%                  6.04%

   Maximum amount of borrowings outstanding at any month end................      $22,250,000             $19,500,000

   Approximate average amount outstanding for period........................      $17,690,000             $ 3,550,000

   Approximate weighted average rate paid during period (1).................             6.57%                  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:

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

Return on Assets (Net Income Divided By
Average Total Assets) ......................              0.8%             0.8%
Return on Equity (Net Income Divided By
   Average Equity)..........................             10.6%             9.4%
Equity-to-Assets Ratio (Average Equity
   Divided By Average Total Assets).........              8.0%             8.0%
Dividend Payout Ratio (Dividends
   Declared Per Share Divided By Net
   Income Per Share)........................             40.8%            42.7%


                                       13
<PAGE>

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,
2000, the Bank's interest rate  sensitivity  gap (i.e.,  interest rate sensitive
assets less  interest  rate  sensitive  liabilities)  and the Bank's  cumulative
interest rate sensitivity gap.
<TABLE>
<CAPTION>
                                                         Over One         Over Five
                                         One Year         Through          Through           Over
                                         or Less        Five Years        Ten Years       Ten Years         Total
                                         -------        ----------        ---------       ---------         -----
                                                                      (In thousands)
Interest-Earning Assets: (1)
<S>                                   <C>             <C>              <C>              <C>             <C>
   Loans.......................       $     44,825    $     55,252     $     11,021     $    42,260     $   153,358
   Securities..................             14,938          31,816            2,068          12,247          61,069
Other assets...................              1,136              --               --              --           1,136
                                      ------------    ------------     ------------     -----------     -----------
     Total.....................       $     60,899    $     87,068     $     13,089     $    54,507     $   215,563
                                      ============    ============     ============     ===========     ===========

Interest-Bearing Liabilities:(2)
   Deposits....................       $    152,284    $     35,172     $         15     $        --     $   187,471
   Borrowings..................             17,400             725            1,285           1,090          20,500
                                      ------------    ------------     ------------     -----------     -----------
     Total.....................       $    169,684    $     35,897     $      1,300     $     1,090     $   207,971
                                      ============    ============     ============     ===========     ===========

Interest Sensitivity Gap.......       $   (108,785)   $     51,171     $     11,789     $    53,417     $     7,592
                                      =============   ============     ============     ===========     ===========
Cumulative Interest Sensitivity
   Gap.........................       $   (108,785)   $    (57,614)    $    (45,825)    $     7,592     $    15,184
                                      =============   =============    =============    ===========     ===========
</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.

                                       14
<PAGE>

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,
                                                         1999 vs. 2000                            1998 vs. 1999
                                              ---------------------------------       ------------------------------------
                                                   Increase (Decrease)                       Increase (Decrease)
                                                   -------------------                       -------------------
                                              Volume         Rate         Total         Volume         Rate         Total
                                              ------         ----         -----         ------         ----         -----
                                                                            (In thousands)
Interest Income:
<S>                                           <C>           <C>          <C>           <C>           <C>           <C>
Loans ....................................    $ 1,324       $   530      $ 1,854       $    27       $  (203)      $  (176)
Securities ...............................        (61)          100           39         1,237          (194)        1,043
Other interest-earning assets ............       (413)          195         (218)         (572)          (86)         (658)
                                              -------       -------      -------       -------       -------       -------
Total interest earning assets ............    $   850       $   825      $ 1,675       $   692       $  (483)      $   209
                                              =======       =======      =======       =======       =======       =======
Interest Expense:
Deposits .................................    $  (235)      $   627      $   392       $   400       $  (617)      $  (217)
Borrowed Funds ...........................        897            45          942           200             2           202
                                              -------       -------      -------       -------       -------       -------
Total interest-bearing liabilities .......    $   662       $   672      $ 1,334       $   600       $  (615)      $   (15)
                                              =======       =======      =======       =======       =======       =======
</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. In 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 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,

                                       15
<PAGE>

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.  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 and state banks with the requisite  investment authority 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 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  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.

     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. To date, the GLB Act's financial subsidiary provisions and consumer
protections have not had a material impact 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,  as amended by the  Riegle-Neal  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.

     The Change in Bank Control Act and the  regulations  of the FRB  thereunder
require any person or persons acting in concert  (except for companies  required
to make  application  under the Holding  Company Act), to file a written  notice
with the FRB before such  person or persons  may acquire  control of the Holding
Company the Bank. The Change in Bank Control Act defines "control" as the power,
directly  or  indirectly,  to vote 25% or more of any  voting  securities  or to
direct the management or policies of a bank holding company or an insured bank.

     The Holding Company Act also  prohibits,  with certain  exceptions,  a bank
holding company 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  which, by statute or by FRB regulation or order, have been
identified as activities  closely

                                       16
<PAGE>

related to the  business  of banking  or  managing  or  controlling  banks.  The
non-bank  activities  of the  Holding  Company  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 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.

     The  FDIC  has  adopted  a  risk-based   insurance  assessment  system  for
determining the deposit insurance  assessments to be paid by insured  depository
institutions. The FDIC assigns an institution to one of three capital categories
based on the  institution's  financial  information,  as of the reporting period
ending  seven  months  before  the  assessment  period,  consisting  of (1) well
capitalized,  (2)  adequately  capitalized or (3)  undercapitalized,  and one of
three  supervisory  subcategories  within each capital  group.  The  supervisory
subgroup  to  which  an  institution  is  assigned  is  based  on a  supervisory
evaluation  provided to the FDIC by the institution's  primary federal regulator
and  information  that the FDIC  determines to be relevant to the  institution's
financial  condition  and  the  risk  posed  to  the  deposit  insurance  funds.
Assessment  rates  for  SAIF-member  institutions  like the Bank  depend  on the
capital category and supervisory category to which they are assigned.

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

     The FDI Act requires  the federal  banking  agencies to  prescribe  for all
insured  depository  institutions  standards  relating to,  among other  things,
internal controls,  information  systems and audit systems,  loan documentation,
credit  underwriting,  interest rate risk exposure,  asset growth, asset quality
and  compensation,  fees and benefits and such other  operational and managerial
standards as the agencies deem  appropriate.  The federal

                                       17
<PAGE>

banking  agencies  have adopted final  regulations  and  Interagency  Guidelines
Establishing  Standards  for Safety and  Soundness  ("Guidelines")  to implement
safety and soundness standards pursuant to the statute. The Guidelines set forth
the safety and  soundness  standards  that the federal  banking  agencies use to
identify and address problems at insured depository  institutions before capital
becomes  impaired.  The Guidelines  address  internal  controls and  information
systems;  internal  audit  system;  credit  underwriting;   loan  documentation;
interest  rate  risk  exposure;  asset  growth;  asset  quality;  earnings;  and
compensation,  fees and benefits.  If the  appropriate  federal  banking  agency
determines  that an  institution  fails to meet any standard  prescribed  by the
Guidelines,  the agency may require the  institution  to submit to the agency an
acceptable plan to achieve compliance with the standard,  as required by the FDI
Act.

     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  includable  as  capital  to  1.25%  of  total
risk-weighted assets.

                                       18
<PAGE>

     The  FRB,  the  FDIC  and the  other  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  comprehensive  policies and procedures  for managing  interest
rate risk and setting forth general standards for such internal policies.

     The FDIC has issued final  regulations  that  classify  insured  depository
institutions by capital levels and provide that the applicable  agency will take
various  prompt  corrective  actions to resolve the problems of any  institution
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, 2000, 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, 2000
(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, 2000, the Holding  Company and the Bank had 89 full-time
and 17 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.

                                       19
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
<S>                                       <C>
Name, Age and Position                    Business Experience
----------------------                    -------------------

Robert B. Nolen, Jr., 42 -                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 Officer of the Bank.
                                          As President of each of the Holding Company 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, 48 -                      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, 2000,
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  $6,400,000  at  December  31,  2000.  See Notes to  Consolidated  Financial
Statements for further information.

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 council,
believes that the  liabilities,  if any, arising from such litigation and calins
will not be material to the consolidated financial statements.

                                       20
<PAGE>

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, 2000  (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, 2000 (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, 1999  (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.

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.

                                       21
<PAGE>

         (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 the Registrant and Robert
                         B. Nolen,  Jr. -  Incorporated  by reference to Exhibit
                         10.2 to the Registrant's Registration Statement on Form
                         S-4 (File No. 333-11495)

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

                    13   Annual  Report  to  Stockholders  for  the  year  ended
                         December  31,  2000.  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

         (b)      Not applicable.

                                       22
<PAGE>
                                   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, 2001                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.
<TABLE>
<CAPTION>
<S>                                                           <C>
By:    /s/ Robert B. Nolen, Jr.                               By:
       -------------------------------------                         -------------------------------------
       Robert B. Nolen, Jr.                                          James W. Cannon
       President and Chief Executive Officer                         Director
       (Principal Executive Officer, Principal                Date:
       Financial Officer and Principal Accounting
       Officer)                                               By:    /s/ Max W. Perdue
                                                                     -------------------------------------
Date:  March 30, 2001                                                Max W. Perdue
                                                                     Director
By:    /s/ Albert H. Simmons                                  Date:  March 30, 2001
       -------------------------------------
       Albert H. Simmons
       Chairman of the Board                                  By:    /s/ Greg Batchelor
                                                                     -------------------------------------
Date:  March 30, 2001                                                Greg Batchelor
                                                                     Director
By:    /s/ O. H. Brown                                        Date:  March 30, 2001
       -------------------------------------
       O. H. Brown
       Director                                               By:    /s/ Melvin R. Kacharos
                                                                     -------------------------------------
Date:  March 30, 2001                                                Melvin R. Kacharos
                                                                     Director
By:    /s/ Sam W. Murphy                                      Date:  March 30, 2001
       -------------------------------------
       Sam W. Murphy
       Director
Date:  March 30, 2001

By:    /s/ J. T. Waggoner
       -------------------------------------
       J. T. Waggoner
       Director
Date:  March 30, 2001
</TABLE>

                                       23