<PAGE>

                                UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549

                                  FORM 10-Q

(Mark One)

/X/  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934.


FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997


                                      OR

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

For the transition period from                 to 
                               ---------------    ----------------


                       Commission file number 0-17937



                      PINNACLE FINANCIAL SERVICES, INC.
            (Exact name of registrant as specified in its charter)


             MICHIGAN                                    38-2671129
 (State or other jurisdiction             (I.R.S. Employer Identification No.)
of incorporation or organization)

830 PLEASANT STREET, ST. JOSEPH, MICHIGAN                   49085
 (Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code:    (616) 983-6311


Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days. Yes [X]  No [ ]

The number of common shares, no par value, outstanding was 5,981,132 at 
June 30, 1997.

<PAGE>

PINNACLE FINANCIAL SERVICES, INC.


FORM 10-Q
June 30, 1997






                           TABLE OF CONTENTS
                                                                  PAGE
PART I                   FINANCIAL INFORMATION

Item 1.      Financial Statements

         Consolidated Balance Sheets
         June 30, 1997; June 30, 1996; December 31, 1996           3
                                                                  --

         Consolidated Statements of Income
         Six Months Ended June 30, 1997 and 1996                   4
                                                                  --

         Consolidated Statements of Stockholders' Equity
         Six Months Ended June 30, 1997 and 1996                   5
                                                                  --

         Consolidated Statements of Cash Flows
         Six Months Ended June 30, 1997, 1996 and 1995             6
                                                                  --

         Notes to Consolidated Financial Statements                7
                                                                  --

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operation                        9
                                                                  --


PART II                        OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K                         34
                                                                  --

         Signatures                                               35
                                                                  --


                                      2

<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     (UNAUDITED)    (UNAUDITED)
(Dollars in thousands, except per share data)                          6/30/97        6/30/96       12/31/96
--------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>            <C>
ASSETS:

   Cash and cash equivalents:
      Cash and due from banks                                        $    25,193    $    21,423    $    30,290
      Federal funds sold                                                   3,500              -         15,750
                                                                     -----------------------------------------
         Total cash and cash equivalents                                  28,693         21,423         46,040

   Interest-bearing deposits with financial institutions                     905          2,051          3,223
   Securities available-for-sale:
      Taxable                                                            366,953        322,755        350,685
      Tax-exempt                                                          34,808         18,892         21,472
   Loans, net of unearned income:
      Real estate                                                        268,311        284,926        276,941
      Commercial                                                         225,700        179,098        210,315
      Tax-exempt                                                           7,124          2,494          8,196
      Consumer                                                           117,862         99,865        114,112
                                                                     -----------------------------------------
         Subtotal Loans                                                  618,997        566,383        609,564
      Less allowance for loan losses                                       5,726          5,815          5,643
                                                                     -----------------------------------------
      Net loans                                                          613,271        560,568        603,921
   Premises and equipment, net                                            13,577         12,685         12,686
   Accrued interest receivable and other assets                           33,346         31,230         31,094
                                                                     -----------------------------------------
      Total assets                                                   $ 1,091,553    $   969,604    $ 1,069,121
                                                                     -----------------------------------------
                                                                     -----------------------------------------

LIABILITIES:
   Deposits:
      Noninterest bearing demand                                     $    66,146    $    55,418    $    78,365
      Interest-bearing demand                                             73,220         75,852         76,665
      Savings                                                            271,787        261,054        260,689
      Time                                                               355,575        344,528        344,242
                                                                     -----------------------------------------
         Total deposits                                                  766,728        736,852        759,961
   Federal Home Loan Bank advances                                       185,021        121,063        159,489
   Securities sold under repurchase agreements and other borrowings       54,874         34,548         67,180
   Accrued interest payable and other liabilities                          4,656          5,247          4,442
                                                                     -----------------------------------------
      Total liabilities                                                1,011,279        897,710        991,072

STOCKHOLDERS' EQUITY:
   Common Stock; no par value; 15,000,000 shares authorized;
      5,981,132 shares issued and outstanding at June 30, 1997; 
      5,977,548 shares issued and outstanding at December 31, 1996; 
      and 5,873,558 shares issued and outstanding at June 30, 1996        19,110         19,110         19,110
   Additional paid in capital                                             44,588         43,915         44,526
   Retained earnings                                                      18,059         13,150         14,789
   Net unrealized gain (loss) on securities available-for-sale            (1,483)        (4,281)          (376)
                                                                     -----------------------------------------
      Total stockholders' equity                                          80,274         71,894         78,049
                                                                     -----------------------------------------
      Total liabilities and stockholders' equity                     $ 1,091,553    $   969,604    $ 1,069,121
                                                                     -----------------------------------------
                                                                     -----------------------------------------
</TABLE>


                                       3
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                 QUARTER ENDED               SIX MONTHS ENDED
                                                                                    JUNE 30,                      JUNE 30,
(Dollars in thousands, except per share data)                                 1997           1996           1997           1996
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>            <C>            <C>
INTEREST INCOME:
   Interest and fees on loans:
      Taxable                                                             $    13,522    $    12,286    $    26,547    $    23,863
      Tax-exempt                                                                  116             42            238             86
   Interest and dividends on securities:
      Available-for-sale
         Taxable                                                                7,081          5,373         13,652         10,140
         Tax-exempt                                                               298            260            571            524
   Interest on federal funds sold                                                  18             15             61            105
   Interest on interest-bearing deposits with financial institutions               13             29             44            445
                                                                          --------------------------------------------------------
      Total interest income                                                    21,048         18,005         41,113         35,163

INTEREST EXPENSE:
   Interest on deposits                                                         7,892          7,467         15,639         14,848
   Interest on Federal Home Loan Bank advances                                  2,889          1,627          5,413          3,097
   Interest on securities sold under repurchase and other borrowings              886            471          1,630            909
                                                                          --------------------------------------------------------
      Total interest expense                                                   11,667          9,565         22,682         18,854
                                                                          --------------------------------------------------------
      Net interest income                                                       9,381          8,440         18,431         16,309
   Provision for loan losses                                                      325             70            560            150
                                                                          --------------------------------------------------------
      Net interest income, after provision for loan losses                      9,056          8,370         17,871         16,159
                                                                          --------------------------------------------------------

NONINTEREST INCOME:
   Service charges on deposit accounts                                            796            485          1,546            936
   Trust income                                                                   165            176            330            320
   Securities gains and losses, net                                               178             36            237            270
   Other income                                                                 1,308          1,299          2,225          2,054
                                                                          --------------------------------------------------------
      Total noninterest income                                                  2,447          1,996          4,338          3,580

NONINTEREST EXPENSES:
   Salaries and benefits                                                        2,886          2,707          5,651          5,229
   Occupancy expense                                                              537            479          1,148          1,001
   Equipment expense                                                              410            376            831            756
   FDIC insurance premiums                                                         53            227            149            446
   Other expense                                                                2,672          2,363          4,968          4,471
                                                                          --------------------------------------------------------
      Total noninterest expenses                                                6,558          6,152         12,747         11,903
                                                                          --------------------------------------------------------
Income before federal income tax expense                                        4,945          4,214          9,462          7,836
Income tax expense                                                              1,834          1,634          3,381          2,812
                                                                          --------------------------------------------------------
      Net income                                                          $     3,111    $     2,580    $     6,081    $     5,024
                                                                          --------------------------------------------------------
                                                                          --------------------------------------------------------
Net income per common share                                               $      0.52    $      0.44    $      1.02    $      0.86
                                                                          --------------------------------------------------------
                                                                          --------------------------------------------------------
Weighted average shares outstanding                                         5,980,873      5,873,516      5,979,763      5,873,438
                                                                          --------------------------------------------------------
                                                                          --------------------------------------------------------
Cash dividends declared per common share                                  $     0.235    $      0.21    $      0.47    $      0.40
                                                                          --------------------------------------------------------
                                                                          --------------------------------------------------------
</TABLE>


                                       4
<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                              NET UNREALIZED
                                                                                              GAINS (LOSSES)
                                                              ADDITIONAL                      ON SECURITIES
                                                COMMON         PAID-IN          RETAINED      AVAILABLE-FOR
(Dollars in thousands)                          STOCK          CAPTITAL         EARNINGS           SALE             TOTAL
--------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>               <C>            <C>                 <C>
BALANCE, JANUARY 1, 1996                        19,110           44,174           10,475            1,137           74,896
Net income                                           -                -            5,024                -            5,024
Common stock issuance, net of stock
  offering costs                                     -             (259)               -                -             (259)
Cash dividends declared,  $.40 per share             -                -           (2,349)               -           (2,349)
Change in unrealized losses for securities
  available-for-sale, net of tax effect
  of $(2,917)                                        -                -                -           (5,418)          (5,418)
                                             -----------------------------------------------------------------------------

BALANCE, JUNE 30, 1996                          19,110           43,915           13,150           (4,281)          71,894
Net income                                           -                             4,128                -            4,128
Common stock issuance                                -              611                -                -              611
Cash dividends declared,  $.635 per share            -                            (2,489)               -           (2,489)
Change in unrealized gains for securities
  available-for-sale, net of tax effect
  of $466                                            -                                 -            3,905            3,905
                                             -----------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1996                      19,110           44,526           14,789             (376)          78,049
Net income                                           -                             6,081                -            6,081
Common stock issuance                                -               62                -                -               62
Cash dividends declared,  $.47 per share             -                            (2,811)               -           (2,811)
Change in unrealized gains for securities
  available-for-sale, net of tax effect
  of $(757)                                          -                                 -           (1,107)          (1,107)
                                             -----------------------------------------------------------------------------

BALANCE, JUNE 30, 1997                          19,110           44,588           18,059           (1,483)          80,274
                                             -----------------------------------------------------------------------------
                                             -----------------------------------------------------------------------------
</TABLE>


                                        5

<PAGE>

PINNACLE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                             SIX MONTHS ENDED
                                                                                                  JUNE 30,
(Dollars in thousands)                                                            1997             1996            1995
                                                                                ------------------------------------------
<S>                                                                             <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                    $  6,081         $  5,024         $  3,007
  Adjustments to reconcile net income to net cash
  provided by operating activities:
     Depreciation and amortization                                                 1,295            1,292              581
     Net amortization on loans and securities                                        480              733              610
     Provision for loan losses                                                       560              150              125
     Deferred federal income taxes                                                     -               35             (153)
     Mortgage loans originated for sale                                           (7,578)         (40,759)          (1,961)
     Proceeds from sales of loans                                                 39,405           30,220            6,846
     Gain on sale of securities, net                                                (237)            (270)            (181)
     Gain on sale of loans, net                                                     (593)            (480)             (51)
     Increase in interest receivable and other assets                             (2,131)            (407)            (945)
     Increase in interest payable and other liabilities                              214           (1,167)             268
                                                                                ------------------------------------------
     NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES                          37,496           (5,629)           8,146
                                                                                ------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net (increase) decrease in loans, excluding loan sales,
     purchases, and originated for sale                                          (34,185)         (15,286)         (14,828)
  Purchases of loans                                                              (7,276)         (22,415)          (7,129)
  Purchases of securities available-for-sale                                     (92,319)        (131,404)         (49,293)
  Purchases of securities held-to-maturity                                             -                -             (494)
  Proceeds from sales of securities available-for-sale                            50,453           47,996           37,502
  Proceeds from maturities and paydowns of securities
     available-for-sale                                                           10,475           21,231            3,253
  Proceeds from maturities and paydowns of securities
     held-to-maturity                                                                  -                -            6,126
  Net increase in interest-bearing deposits with financial institutions            2,318           39,460            1,026
  Capital expenditures                                                            (1,553)            (779)            (370)
                                                                                ------------------------------------------
     NET CASH USED BY INVESTING ACTIVITIES                                       (72,087)         (61,197)         (24,207)
                                                                                ------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase (decrease) in deposits                                              6,767           35,129           16,476
  Net increase in securities sold under repurchase agreements
     and other borrowings                                                         13,226           27,080            6,549
  Common stock issued                                                                 62             (259)               -
  Dividends paid                                                                  (2,811)          (2,232)          (1,338)
                                                                                ------------------------------------------
     NET CASH USED BY FINANCING ACTIVITIES                                        17,244           59,718           21,687
                                                                                ------------------------------------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                        (17,347)          (7,108)           5,626
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    46,040           28,531           14,750
                                                                                ------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      $ 28,693         $ 21,423         $ 20,376
                                                                                ------------------------------------------
                                                                                ------------------------------------------
SUPPLEMENTAL DISCLOSURES:
     Interest paid                                                              $ 22,517         $ 18,741         $  7,733
     Federal income taxes paid                                                  $  3,315         $  2,895         $  1,862
     Loans transferred to other real estate owned                               $    751            $  74         $    516
</TABLE>

       See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:  BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements of
    Pinnacle Financial Services, Inc. (together with its subsidiary, the
    "Company") have been prepared in conformity with generally accepted
    accounting principles for interim financial information and with the
    instruction for Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly,
    they do not include all the information and footnotes required by generally
    accepted accounting principles for complete financial statements.

         In the opinion of management, all necessary adjustments (consisting of
    normal recurring adjustments) considered necessary for a fair presentation
    have been included.  The operating results for the six month period ended
    June 30, 1997 are not necessarily indicative of the results to be expected
    for the year ending December 31, 1997.

         For further information, refer to the consolidated financial
    statements and the notes thereto included in the Company's Annual Report on
    Form 10-K for the year ended December 31, 1996 as filed with the Securities
    and Exchange Commission.

NOTE 2:  ACCOUNTING FOR IMPAIRED LOANS

         Effective January 1, 1995, the Company adopted Statement of Financial
    Accounting Standard SFAS No. 114 (as amended by SFAS No. 118), "Accounting
    by Creditors for Impairment of a Loan".

         Impaired loans under SFAS 114 and SFAS 118 are nonaccrual loans and
    restructured loans.  All nonaccrual loans are considered as impaired loans.
    Additionally, loans are considered impaired if principal and/or interest is
    considered at risk, even if the loan is current with all payments of
    principal and interest.  Impaired loans follow the same criteria as other
    loans with valuation reserves established at the period deemed to be
    impaired.

         Nonperforming loans are comprised of loans which the accrual of
    interest has been discontinued, loans contractually past due 90 days or
    more as the interest and/or principal and not included in nonaccrual loans.
    Loans are generally placed on a nonaccrual basis when, in the opinion of
    management, collection of principal or interest payments is unlikely.
    Income on such loans is then recognized only to the extent that cash is
    received and where future collection of principal is probable.

NOTE 3:  ACCOUNTING FOR TRANSFERS AND SERVICING FINANCIAL ASSETS AND
         EXTINGUISHMENT OF LIABILITIES

         The Financial Accounting Standards Board has issued Statement No. 125,
    "Accounting for Transfers and Servicing of Financial Assets and
    Extinguishment of Liabilities" which is effective, in part, for
    transactions occurring after December 31, 1996.  This statement provides
    accounting and reporting standards for transfers and servicing of financial
    assets and extinguishments of liabilities based on consistent application
    of a financial components approach that focuses on control.  The Company
    adopted this statement on January 1, 1997, and it did not have a material
    effect on the Company's financial condition, results of operations, or
    liquidity.


                                          7

<PAGE>

NOTE 4:  COMMITMENTS - PROPOSED ACQUISITIONS

         On November 14, 1996, the Company entered into a definitive agreement
    with Indiana Federal Corporation ("IFC") which will add approximately $837
    million in total assets.  The transaction is contemplated as a merger of
    equals through the issuance of one share of Pinnacle Common Stock for each
    share of IFC Common Stock and it is to be accounted for using the pooling
    of interests method.  The acquisition has received shareholder and
    regulatory approval and was closed on August 1, 1997.

         On March 3, 1997, the Company announced the execution of a definitive
    agreement to acquire CB Bancorp, Inc. ("CB") of Michigan City, Indiana,
    which will add approximately $227 million in total assets.  The fixed
    purchase price is equal to $35.00 per CB share, payable in shares of
    Pinnacle Common Stock, and it is to be accounted for using the
    pooling-of-interests method.  The final exchange rate was 1.2095 shares of
    Pinnacle Common Stock for each share issued and outstanding of CB Common
    Stock based on an average Pinnacle stock price of $28.938 per share.  The
    acquisition has received shareholder and regulatory approval and was closed
    on August 1, 1997.

NOTE 5:  PER COMMON SHARE DATA

         Earnings per share are calculated by dividing net income by the
    weighted average number of shares of common stock and common stock
    equivalents outstanding during the period.  Common stock equivalents are
    calculated using the treasury stock method.

NOTE 6:  POST PERIOD CLOSING ACQUISITION

         Effective August 1, 1997, the Company acquired 100% of the 
    outstanding common stock of Indiana Federal Corporation located in 
    Valparaiso, Indiana. The acquisition was accounted for as a pooling of 
    interest, with 4,790,736 shares of the Company's common stock issued as 
    consideration.  IFC's main subsidiary, Indiana Federal Savings Bank was 
    merged with and into the Company's subsidiary, Pinnacle Bank, located in 
    St. Joseph, Michigan.

         Effective August 1, 1997, the Company acquired 100% of the 
    outstanding common stock of CB Bancorp, Inc. located in Michigan City, 
    Indiana.  The acquisition was accounted for as a pooling of interest, with 
    1,553,144 shares of the Company's common stock issued as consideration.  
    CB's main subsidiary, Community Bank was merged with and into the 
    Company's subsidiary, Pinnacle Bank, located in St. Joseph, Michigan.

                                          8

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                                RESULTS OF OPERATIONS

         The following discussion provides information regarding the 
    financial condition and results of operations of Pinnacle Financial 
    Services, Inc. (the "Company" or "Pinnacle") for the six month period 
    ended June 30, 1997 and are not necessarily indicative of results to be 
    attained for any other period.  This discussion should be read in 
    conjunction with the consolidated financial statements, results of 
    operations and related notes, and with the statistical information and 
    financial data appearing in this report as well as the 1996 Annual Report 
    on Form 10-K of Pinnacle Financial Services, Inc.

DESCRIPTION OF THE COMPANY

         Pinnacle Financial Services, Inc. ("Pinnacle") is a registered bank 
    holding company that was organized under the laws of the State of 
    Michigan in 1986 in connection with the June 30, 1986 reorganization of 
    Pinnacle Bank, a Michigan state banking corporation then known as "The 
    Peoples State Bank of St. Joseph" ("Pinnacle Bank"), into a wholly-owned 
    subsidiary of Pinnacle. Pinnacle is one of the leading full-service 
    community-banking institutions in southwestern Michigan and northern 
    Indiana.  Pinnacle's principal executive offices are located at 830 
    Pleasant Street, St. Joseph, Michigan 49085, and its telephone number is 
    (616) 983-6311.

         Through Pinnacle Bank, Pinnacle offers financial services products
    which include domestic banking services such as consumer, commercial and
    real estate loans, personal and business checking accounts, savings
    accounts, time deposits, safe deposit services, cash management services,
    and transmission of funds, as well as trust and other fiduciary services,
    full-service brokerage services and insurance products.  Commercial
    customers include retailers, commercial developers, professionals, and
    small manufacturers.  Retail banking customers cover a broad
    spectrum with focus on providing personalized, high quality and
    comprehensive service in order to develop and maintain long-term, multiple
    account relationships with customers.

         Pinnacle Bank, which is headquartered in St. Joseph, Michigan, has two
    non-bank subsidiaries:  Starke's, Inc., an insurance agency, and Brookview
    Real Estate, Ltd., a real estate development company.  Pinnacle Bank
    currently operates through 16 branch offices located throughout
    southwestern Michigan, 14 branch offices located throughout northern
    Indiana, and through two loan production offices that are located in
    Merrillville and Indianapolis, Indiana, respectively.  Pinnacle Bank
    focuses on providing personalized, high-quality and comprehensive service
    in order to develop and maintain long-term, multiple account relationships
    with customers.

         Pinnacle's market, which is adjacent to metropolitan Chicago, Illinois
    and is bisected by Interstate 94 (the primary highway between Chicago and
    Detroit) currently consists of northern Indiana and southwestern Michigan.
    The region's location has facilitated the development of a diverse economy
    based primarily on manufacturing, service and agriculture.  The region's
    proximity to Chicago and the southeastern expansion of metropolitan Chicago
    into Lake County, Indiana, have led to significant commercial and
    residential development and a strong second-home housing market.  The
    region's popularity as a year-round recreational area also has led to a
    tourism-driven economic growth.


                                          9

<PAGE>

         Pinnacle had approximately $1.1 billion in total assets as of June 30,
    1997.  Pinnacle returned 1.14% on average assets for the second quarter of
    1997 as compared to 1.08% for the same period of 1996.  Pinnacle returned
    1.14% on average assets for the six months ended June 30, 1997 as compared
    to 1.07% for the same period of 1996.

         For the second quarter of 1997, Pinnacle's return on average equity
    was 16.30% as compared to 14.17% for the same period of 1996.  Pinnacle's
    return on average equity was 15.94% for the six months ended June 30, 1997
    as compared to 13.63% for the same period of 1996.

         Pinnacle believes its success is in part attributable to a growth
    strategy that, since the beginning of 1995, has (i) increased assets by
    more than 167% (with total assets growing to $1.1 billion by June 30,
    1997), and (ii) increased net loans by more than 115% (with net loans
    growing to approximately $613.3 million at June 30, 1997).  Pinnacle's loan
    to deposit ratio was approximately 80.7% at June 30, 1997.  Pinnacle's
    growth has been generated internally through customer retention and
    cross-selling programs and externally through acquisitions.  Since 1988,
    Pinnacle has consummated seven acquisitions, four of which involved
    thrifts, including the two which closed on August 1, 1997.

         Through its acquisition strategy, Pinnacle seeks to diversify and
    expand both its market area and its asset base, and to increase its
    profitability.

         On December 1, 1995, Pinnacle acquired all of the outstanding capital
    stock of Maco Bancorp, Inc., a Delaware corporation and a registered
    savings and loan holding company ("Maco"), for aggregate consideration of
    $41.9 million (the "Purchase Price"), through the merger of Maco with and
    into Pinnacle (the "Maco Acquisition").  The Purchase Price, which was paid
    to Mr. Cyrus Ansary as the sole stockholder of Maco, consisted of cash, a
    secured, short-term, interest bearing promissory note in the principal
    amount of $18.0 million (the "Acquisition Note"), and shares of Pinnacle
    Common Stock then valued at approximately $21.0 million.  As a result of
    the Maco Acquisition, Pinnacle became the sole stockholder of First Federal
    Savings Bank of Indiana, a federal savings bank that was renamed, "Pinnacle
    Bank" in 1996 and was merged with and into Pinnacle Bank effective December
    31, 1996, and Mr. Ansary became the largest single Pinnacle stockholder.
    Mr. Ansary currently holds approximately 20% of the shares of Pinnacle
    Common Stock outstanding.  On August 1, 1997, with the consummation of the
    two announced acquisitions, Mr. Ansary holds approximately 10% of the
    shares of Pinnacle Common Stock outstanding.  (In connection with the Maco
    Acquisition, Mr. Ansary and Pinnacle entered into certain agreements,
    including a Standstill Agreement dated as of December 31, 1995 (the
    "Standstill Agreement").  The Standstill Agreement obligates Mr. Ansary,
    through December 31, 1999 (unless it is sooner terminated) to vote all
    Pinnacle voting securities of which he is the beneficial owner in
    accordance with the written directions of Pinnacle's management.)

         As a result of the Maco Acquisition, Pinnacle acquired First
    Insurance, Inc., an Indiana corporation engaged primarily in the sale of
    multi-peril homeowners insurance to borrowers of Pinnacle Bank.  On October
    1, 1996, and in exchange for 99,451 shares of Pinnacle Common Stock then
    valued at $2.1 million, Pinnacle Bank acquired Starke's, Inc., a Michigan
    corporation and independent "full-line" insurance agency.  On December 31,
    1996, First Insurance, Inc. was merged with and into Starke's, Inc..


                                          10

<PAGE>

         On November 14, 1996, Pinnacle entered into an Agreement and Plan of
    Merger with Indiana Federal Corporation, a Delaware corporation and a
    registered savings and loan holding company ("IFC").  On March 1, 1997,
    Pinnacle entered into an Agreement and Plan of Merger with CB Bancorp,
    Inc., a Delaware corporation and a registered savings and loan holding
    company ("CB").  The agreements contemplated the merger of each of IFC and
    CB with and into Pinnacle, with Pinnacle being the surviving entity.  These
    transactions qualified as "pooling of interests" for accounting and 
    financial reporting purposes and increased the total assets of Pinnacle by 
    more than $1.0 billion.  Consummation of these transactions was 
    August 1, 1997.

         In addition to expansion through acquisitions, Pinnacle may consider
    establishing branch facilities as a means of expanding its presence into
    new market areas.  Pinnacle may also consider expanding into businesses
    closely related to its banking activities.  Closely related businesses that
    Pinnacle could acquire or organize include, among others, mortgage lending,
    mortgage servicing, investment and financial advisory services, leasing,
    insurance, data processing, management consulting to depository
    institutions, and courier services.

         There can be no assurance that any further acquisitions will be made
    by Pinnacle or, if made, will be successful.  Moreover, there can be no
    assurance that Pinnacle's strategy to achieve growth will be successful.


                                          11

<PAGE>

                           OVERVIEW AND FINANCIAL CONDITION


    NET INCOME

         For the three months ended June 30, 1997, the Company reported net
    income of approximately $3.1 million or $.52 per share, as compared to net
    income of approximately $2.6 million, or $.44 per share for three months
    ended June 30, 1996, an increase in net income of 20.6% and 18.2% on a per
    share basis.  For the six months ended June 30, 1997, the Company reported
    net income of approximately $6.1 million or $1.02 per share, as compared to
    net income of approximately $5.0 million or $.86 per share for the same
    period in 1996.  The increase in net income was largely the result of
    higher levels of net interest income associated with higher levels of
    earning assets, as average earning assets grew by $134.5 million or 15.0%
    in the second quarter of 1997 as compared to the second quarter of 1996.

         Presented below is an income statement analysis, expressed on a
    per-share basis, comparing the quarter and six months ended June 30, 1997,
    to the same period in 1996.  A more detailed discussion and analysis of the
    major factors outlined below is provided in following sections of this
    report.

<TABLE>
<CAPTION>
                                                             Three             Six
                                                          Months Ended     Months Ended
                                                          -------------    ------------
<S>                                                        <C>             <C>
Net income per share - Period ended June 30, 1996            $ .43 (1)       $ .84 (2)

Pre-tax increase (decrease) in 1997, as compared to 1996
resulting from changes in:
     Net interest income (taxable equivalent)                  .17             .38
     Provision for loan losses                                (.04)           (.07)
     Noninterest income                                        .08             .13
     Noninterest expense                                      (.07)           (.14)
                                                             ------          ------
          Pre-tax increase                                     .14             .30

     Income tax expense                                       (.05)           (.12)
                                                             ------         ------
Net income per share - Period ended June 30, 1997            $ .52           $1.02
                                                             ------          ------
                                                             ------          ------
</TABLE>

(1)  Net income per share restated based on 5,980,873 average shares
     outstanding.
(2)  Net income per share restated based on 5,979,763 average shares
     outstanding.


                                          12
<PAGE>

    BALANCE SHEET

         Total assets at June 30, 1997 and at December 31, 1996 were
    approximately $1.1 billion.  Total assets at June 30, 1996 were $969.6
    million.  Average earning assets equaled 94.3% of total average assets for
    the quarter ended June 30, 1997 as compared to 94.2% of total average
    assets for the quarter ended June 30, 1996.  The following table summarizes
    the components of Pinnacle's total assets, loans, net, total deposits and
    stockholders' equity for the time periods indicated.

                        OVERVIEW AND FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                        At June 30,    At June 30,   At December 31,
                                           1997           1996             1996
                                           ----           ----             ----
<S>                                     <C>            <C>           <C>
(Dollars in Thousands)

Total assets                            $1,091,553     $ 969,604       $1,069,121
Loans, net                                 613,271       560,568          603,921
Deposits                                   766,728       736,852          759,961
Stockholders' equity                        80,274        71,894           78,049
</TABLE>

         Loan, net, at June 30, 1997 were approximately $613.3 million, which
    was $9.4 million greater than loans, net, at December 31, 1996 of $603.9
    million.  Commercial and tax exempt loans grew $14.3 million, or 6.5%, to
    $232.8 million at June 30, 1997 as compared to the December 31, 1996 total
    of $218.5 million.  Consumer loans, consisting primarily of home equity
    loans, were $117.9 million at June 30, 1997, an increase of $3.8 million,
    or 3.3% , over the December 31, 1996 total of $114.1 million.  Real estate
    loans declined $8.6 million, or 3.1%, to $268.3 million at June 30, 1997
    from $276.9 million at December 31, 1996.  The decline in real estate loans
    during the second quarter of 1997 reflects management's decision to reduce
    Pinnacle's level of real estate loans as a percentage of total loans
    outstanding.  This reduction was accomplished through the continued sale of
    originated loans in the secondary market.

         Loans, net, at June 30, 1997 were approximately $52.7 million greater
    than loans, net, at June 30, 1996 of $560.6 million, reflecting Pinnacle's
    greater emphasis on commercial and consumer lending in its Indiana markets
    following its December 31, 1995 acquisition of Maco Bancorp, Inc..
    Commercial and tax exempt loans grew $51.2 million to $232.8 million at
    June 30, 1997, or 28.2%, over the June 30, 1996 total of $181.6 million.
    Consumer loans (which consisted primarily of home equity loans) were $117.9
    million at June 30, 1997, an increase of $18.0 million and 18.1% over the
    June 30, 1996 total of $99.9 million.  Real estate loans at June 30, 1997
    totaled $268.3 million as compared to $284.9 million at June 30, 1996.

         Total deposits at June 30, 1997 were $766.7 million as compared to
    $760.0 million at December 31, 1996 and $736.9 million at June 30, 1996.
    The slight increase in total deposits since December 31, 1996 was in the
    savings and time account balances.  Savings deposits increased $11.1
    million (to $271.2 million) and time deposits increased $11.4 million (to
    $355.6 million), while noninterest bearing demand deposits decreased $12.3
    million (to $66.1 million) mainly because of seasonal deposits at December
    31, 1996 were shifted to interest bearing accounts.  The growth in deposits
    since June 30,


                                          13

<PAGE>

    1996 resulted from an $10.7 million increase in noninterest bearing
    deposits, a $10.7 million increase in savings deposits and an $11.1 million
    increase in time deposits.

         Federal Home Loan Bank advances, securities sold under repurchase
    agreements and other borrowings were approximately $239.9 million at June
    30, 1997, as compared to $226.7 million at December 31, 1996 and $155.6
    million at June 30, 1996.  These increases reflect the use of these funding
    sources to match specific investment securities purchases with like
    maturities or pricing terms and to fund strong loan growth during 1996 and
    1997.  Stockholders' equity was approximately $80.3 million at June 30, 
    1997 as compared to $78.0 million at December 31, 1996 and $71.9 million 
    at June 30, 1996.  The increase in stockholders' equity since December 
    31, 1996 resulted from net income earned for 1997 offset by changes in 
    the market values of securities available-for-sale and dividends paid.  
    The increase in stockholders' equity since June 30, 1996 reflects net 
    income earned since that date and changes in the market values of 
    securities available-for-sale offset by dividends paid.

         Pinnacle follows two key financial performance measures.  Pinnacle's
    return on average equity measures how profitably the stockholders' invested
    capital has been deployed.  Pinnacle's return on average equity was 16.30%
    for the second quarter of 1997 compared to 14.17% for the second quarter of
    1996.  Pinnacle's return on average equity was 15.94% for the six months
    ended June 30, 1997 as compared to 13.63% for the same period of 1996.
    Return on average assets measures how profitably the total assets of
    Pinnacle are invested.  Return on average assets was 1.14% for the second
    quarter of 1997 compared to 1.08% for the second quarter of 1996.  Pinnacle
    returned 1.14% on average assets for the six months ended June 30, 1997 as
    compared to 1.07% for the same period of 1996.

         The Company recognizes the importance of maximizing the use of capital
    to provide improved returns to our stockholders.  This has been
    accomplished in the past by the way of growth through acquisition of other
    financial institutions.  While it is management's intention to seize upon
    favorable opportunities which may arise with respect to community banks or
    other financial institutions in the future, at the present time there are
    no ongoing negotiations for any acquisitions.

         On December 1, 1995 the Company acquired Maco Bancorp and its 
    subsidiaries of First Federal Savings Bank of Indiana, Brookview Real 
    Estate, and First Insurance, Inc., headquartered in Merrillville, Indiana 
    and on October 1, 1996 the Company acquired Starke's, Inc., a Michigan 
    corporation and an independent "full-line" insurance agency.  

         Pinnacle's most recent acquisitions occurred on August 1, 1997, when 
    the Company acquired Indiana Federal Corporation, a Delaware corporation 
    and a registered savings and loan holding company and CB Bancorp, Inc., a 
    Delaware corporation and a registered savings and loan holding company.

                                          14

<PAGE>

                                RESULTS OF OPERATIONS


    NET INCOME
         Net income for the three months ended June 30, 1997 was approximately
    $3.1 million, a 20.6% increase as compared to net income of $2.6 million
    for the same period in 1996.  This increase was largely the result of
    higher levels of net interest income associated with higher levels of
    earning assets.


    NET INTEREST INCOME
         Net interest income is Pinnacle's primary source of earnings and
    represents the excess of interest earned on earning assets over interest
    expense associated with the deposits and other funding sources used to
    finance those assets.  Net interest income is influenced primarily by
    changes in the volume and mix of earning assets and sources of funding and
    market rates of interest.  Other external factors, such as the strength of
    credit demands by customers, liquidity and maturity preferences of deposit
    customers, and governmental monetary policy, also can have a significant
    impact on earnings.


                                          15

<PAGE>

The following table sets forth certain information with respect to Pinnacles's
consolidated net-interest income for the quarter ended June 30, 1997, 1996, 
and 1995.

<TABLE>
<CAPTION>
                                              SUMMARY OF CONSOLIDATED NET INTEREST INCOME
----------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED JUNE 30,                                   1997                        1996                         1995
----------------------------------------------------------------------------------------------------------------------------------
                                              AVERAGE            AVERAGE   AVERAGE            AVERAGE  AVERAGE             AVERAGE
(Dollars in thousands)                        BALANCE  INTEREST    RATE    BALANCE  INTEREST   RATE    BALANCE   INTEREST   RATE
----------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>       <C>      <C>       <C>       <C>     <C>        <C>        <C>  
ASSETS
  Federal funds sold                       $    1,355   $    18   5.33%   $  1,099   $    15  5.49%   $  3,048    $    46   6.05%
  Interest-bearing deposits 
   with financial institution                     290        13  17.98%      3,228        29  3.61%      1,691         25   5.93%
  U.S. Treasury and government agencies       293,768     5,450   7.44%    211,161     3,526  6.72%     60,816        971   6.40%
  Other Securities (2)                        116,712     2,069   7.11%    127,575     2,232  7.04%     42,014        701   6.69%
  Loans (1)(2)                                621,624    13,694   8.84%    556,180    12,347  8.93%    305,538      7,147   9.38%
----------------------------------------------------------------------------------------------------------------------------------
    Total interest-earning assets           1,033,749    21,244   8.24%    899,243    18,149  8.12%    413,107      8,890   8.63%
----------------------------------------------------------------------------------------------------------------------------------
  Cash and due from banks                      21,451                       18,666                      13,529
  Premises and equipment, net                  13,344                       12,618                       7,011
  Allowance for loan losses                    (5,637)                      (5,786)                     (5,005)
  Other assets                                 33,539                       30,215                       9,788
----------------------------------------------------------------------------------------------------------------------------------
    Total assets                           $1,096,466   $21,244           $954,956   $18,149          $438,430    $ 8,890
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES 
  Interest-bearing demand                  $   75,389   $   352   1.87%   $ 77,198   $   387  2.02%     44,173    $   214   1.94%
  Savings and money market accounts           268,938     2,549   3.80%    261,610     2,380  3.66%    130,200      1,358   4.18%
  Time deposits of $100,000 or more            69,099       980   5.69%     27,715       395  5.73%     26,403         -    0.00%
  Other time deposits                         286,750     4,011   5.61%    308,557     4,287  5.59%    123,727      2,157   6.99%
----------------------------------------------------------------------------------------------------------------------------------
    Total interest-bearing deposits           700,176     7,892   4.52%    675,080     7,449  4.44%    324,503      3,729   4.61%
----------------------------------------------------------------------------------------------------------------------------------
  Federal Home Loan Bank advances             194,499     2,889   5.96%    114,297     1,627  5.73%     15,505        245   6.34%
  Federal funds purchased and 
   securities sold                             65,286       886   5.44%     39,296       489  5.00%     20,900        242   4.64%
----------------------------------------------------------------------------------------------------------------------------------
    Total interest-bearing liabilities        959,961    11,667   4.87%    828,673     9,565  4.64%    360,908      4,216   4.69%
----------------------------------------------------------------------------------------------------------------------------------
  Noninterest-bearing deposits                 55,639                       47,882                      37,611
  Other liabilities                             4,277                        5,356                       2,702
----------------------------------------------------------------------------------------------------------------------------------
    Total liabilities                       1,019,877                      881,911                     401,221
  Stockholders' equity                         76,569                       73,045                      37,209
----------------------------------------------------------------------------------------------------------------------------------
    Total liabilities and 
      Stockholders' equity                 $1,096,446                     $954,956                    $438,430
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
    Net interest income                                 $ 9,577                      $ 8,584                      $ 4,674
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
    Net interest rate margin (3)                                  3.72%                       3.84%                         4.54%
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) For purposes of these computations, nonaccrual loans and unearned income 
    are included in the daily average loan amount outstanding. 

(2) Income from state and political subdivisions securities and loans are 
    stated on a tax equivalent basis. 

(3) Net interest rate margin is equal to total interest income less total 
    interest expense divided by total average earning assets.


                                          16

<PAGE>

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

<TABLE>
<CAPTION>
                                                             RATE/VOLUME ANALYSIS
--------------------------------------------------------------------------------------------------------------------------
                                                 1997/1996                                        1997/1996
QUARTER ENDED JUNE 30,                   CHANGE IN INTERST DUE TO:                       CHANGE IN INTERST DUE TO:
--------------------------------------------------------------------------------------------------------------------------
                                                        RATE &      NET                                  RATE        NET
(Dollars in thousands)           VOLUME       RATE      VOLUME     CHANGE      VOLUME       RATE         VOLUME     CHANGE
--------------------------------------------------------------------------------------------------------------------------
<S>                            <C>          <C>       <C>        <C>         <C>          <C>         <C>          <C>
ASSETS
  Federal funds sold           $    14      $    (2)  $     (9)  $      3    $   (118)        (17)    $     104    $  (31)
  Interest-bearing deposits
   with financial institution     (106)         464       (374)       (16)         91         (39)          (48)        4
  U.S. Treasury and government
   agencies                      5,551        1,520     (5,147)     1,924       9,622         195        (7,262)    2,555
  Other securites (1)             (765)          89        513       (163)      5,724         147        (4,340)    1,531
  Loans (1)                      5,844         (501)    (3,996)     1,347      23,510      (1,375)      (16,935)    5,200
                               -------------------------------------------------------------------------------------------
    Total interest-earning
     assets                    $10,538      $ 1,570    $(9,013)  $  3,095   $  38,829     $(1,089)     $(28,481)   $9,259
                               -------------------------------------------------------------------------------------------
                               -------------------------------------------------------------------------------------------
LIABILITIES
  Interest-bearing demand      $   (37)     $  (116)   $   118   $    (35)  $     641     $    35      $   (503)   $  173
  Savings and money market
   accounts                        268          366       (465)       169       5,493        (677)       (3,794)    1,022
  Time deposits of $100,000
   or more                       2,371          (11)    (1,775)       585          --       1,513        (1,118)      395
  Other time deposits           (1,219)          62        881       (276)     12,920      (1,732)       (9,058)    2,130
                               -------------------------------------------------------------------------------------------
    Total interest-bearing
     deposits                    1,383          301     (1,241)       443      19,054        (861)      (14,473)    3,720
                               -------------------------------------------------------------------------------------------
  Federal Home Loan Bank
   advances                      4,596          263     (3,597)     1,262       6,263         (95)       (4,786)    1,382
  Federal funds purchased and
   securities sold               1,300          173     (1,076)       397         854          75          (682)      247
                               -------------------------------------------------------------------------------------------
    Total interest-bearing
     Liabilities                 7,279          737     (5,914)     2,102      26,171        (881)      (19,941)    5,349
                               -------------------------------------------------------------------------------------------
                               -------------------------------------------------------------------------------------------
    Net interest income          3,259          833     (3,099)       993      12,658        (208)       (8,540)    3,910
                               -------------------------------------------------------------------------------------------
                               -------------------------------------------------------------------------------------------
</TABLE>

(1) Income from state and political subdivisions securities and loans are 
    stated on a tax equivalent basis.


                                          17
<PAGE>

The following table sets forth certain information with respect to Pinnacle's
consolidated net-interest income for the six months ended June 30, 1997, 1996,
and 1995.

<TABLE>
<CAPTION>
                                                    SUMMARY OF CONSOLIDATED NET INTEREST INCOME
-----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,                    1997                             1996                            1995
-----------------------------------------------------------------------------------------------------------------------------------
                                 AVERAGE               AVERAGE    AVERAGE               AVERAGE    AVERAGE               AVERAGE
(Dollars in thousands)           BALANCE   INTEREST      RATE     BALANCE   INTEREST      RATE     BALANCE   INTEREST     RATE
-----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>         <C>          <C>      <C>        <C>          <C>      <C>       <C>          <C>
ASSETS
  Federal funds sold            $    2,295  $    61      5.36%    $  3,978   $   105      5.31%    $  2,108  $    63      6.03%
  Interest-bearing deposits 
   with financial institution        1,736       44      5.11%      16,275       445      5.50%       1,419       40      5.68%
  U.S. Treasury and government 
   agencies                        283,399   10,438      7.43%     194,449     5,478      6.70%      58,645    1,891      6.50%
  Other securities (2)             115,436    4,044      7.06%     131,289     4,426      6.78%      44,703    1,481      6.68%
  Loans (1)(2)                     614,841   26,895      8.82%     538,979    23,988      8.95%     300,750   13,878      9.31%
                                ---------------------------------------------------------------------------------------------------
    Total interest-earning 
     assets                      1,017,707   41,482      8.22%     884,970    35,442      8.05%     407,625   17,353      8.58%
                                ---------------------------------------------------------------------------------------------------
  Cash and due from banks           22,066                          19,694                           13,172
  Premises and equipment, net       13,097                          12,584                            6,998
  Allowance for loan losses         (5,633)                         (5,811)                          (5,007)
  Other Assets                      32,224                          28,794                            9,911
                                ---------------------------------------------------------------------------------------------------
    Total assets                $1,079,461  $41,482               $940,231   $35,442               $432,699  $17,353
                                ---------------------------------------------------------------------------------------------------
                                ---------------------------------------------------------------------------------------------------
LIABILITIES
  Interest-bearing demand       $   75,688  $   715      1.90%    $ 76,193   $   784      2.07%    $ 44,503  $   426      1.93%
  Savings and money market 
   accounts                        268,600    5,080      3.80%     258,160     4,750      3.70%     132,122    2,717      4.15%
  Time deposits of $100,000 
   or more                          67,667    1,898      5.66%      35,524     1,027      5.81%      24,103      694      5.81%
  Other time deposits              286,126    7,966      5.61%     295,429     8,287      5.64%     119,419    3,168      5.35%
                                ---------------------------------------------------------------------------------------------------
    Total interest-bearing 
     deposits                      698,081   15,639      4.52%     665,306    14,848      4.49%     320,147    7,005      4.41%
                                ---------------------------------------------------------------------------------------------------
  Federal Home Loan Bank 
   advances                        184,010    5,413      5.93%     107,941     3,097      5.77%      13,713      415      6.10%
  Federal funds purchased 
   and securities sold              62,646    1,630      5.25%      39,334       909      4.65%      22,547      575      5.14%
                                ---------------------------------------------------------------------------------------------------
    Total interest-bearing 
     liabilities                   944,737   22,682      4.84%     812,581    18,854      4.67%     356,407    7,995      4.52%
                                ---------------------------------------------------------------------------------------------------
  Noninterest-bearing deposits      53,445                          47,883                           37,193
  Other liabilities                  4,345                           5,641                            2,718
                                ---------------------------------------------------------------------------------------------------
    Total liabilities            1,002,527                         866,105                          396,318
  Stockholders' equity              76,934                          74,126                           36,381
                                ---------------------------------------------------------------------------------------------------
    Total liabilities and 
     stockholders' equity       $1,079,461                        $940,231                         $432,699
                                ---------------------------------------------------------------------------------------------------
                                ---------------------------------------------------------------------------------------------------
    Net interest income                     $18,800                          $16,588                         $ 9,358
                                ---------------------------------------------------------------------------------------------------
                                ---------------------------------------------------------------------------------------------------
    Net interest rate margin (3)                         3.73%                            3.77%                           4.63%
                                ---------------------------------------------------------------------------------------------------
                                ---------------------------------------------------------------------------------------------------
</TABLE>

(1) For purposes of these computations, nonaccrual loans and unearned income 
    are included in the daily average loan amounts outstanding.

(2) Income from state and political subdivisions securities and loans are 
    stated on a tax equivalent basis.

(3) Net interest rate margin is equal to total interest income less total 
interest expense divided by total average earning assets.


                                          18
<PAGE>

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

<TABLE>
<CAPTION>
                                                      RATE/VOLUME ANALYSIS
---------------------------------------------------------------------------------------------------------------------------------
                                                             1997/1996                                1997/1996 
SIX MONTHS ENDED JUNE 30,                            CHANGE IN INTEREST DUE TO:               CHANGE IN INTEREST DUE TO:        
---------------------------------------------------------------------------------------------------------------------------------
                                                               RATE &      NET                               RATE &       NET
(Dollars in thousands)                   VOLUME     RATE       VOLUME     CHANGE     VOLUME     RATE         VOLUME      CHANGE
---------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>        <C>        <C>        <C>        <C>        <C>          <C>         <C>  
ASSETS
  Federal funds sold                     $   (89)   $     2    $    43    $  (44)    $   113        (15)     $    (56)   $    42
  Interest-bearing deposits with 
    financial institution                   (800)       (83)       462      (401)        844         (3)         (436)       405
  U.S. Treasury and government agencies    5,960      1,419     (3,419)    3,960       8,827        117        (4,357)     4,587
  Other securities (1)                    (1,075)       368        325      (382)      5,784         45        (2,884)     2,945
  Loans (1)                                6,790       (701)    (3,182)    2,907      22,179     (1,083)      (10,986)    10,110
                                         ---------------------------------------------------------------------------------------
     Total interest-earning assets       $10,786    $ 1,025    $(5,771)   $6,040     $37,747    $  (939)     $(18,719)   $18,089
                                         ---------------------------------------------------------------------------------------
                                         ---------------------------------------------------------------------------------------
LIABILITIES
  Interest-bearing demand                $   (10)   $  (130)   $    71    $  (69)    $   612    $    62      $   (316)   $   358
  Savings and money market accounts          386        258       (334)      310       5,231       (595)       (2,603)     2,033
  Time deposits of $100,000 or more        1,868        (53)      (944)      871         664        -            (331)       333
  Other time deposits                       (525)       (89)       293      (321)      9,417        346        (4,644)     5,119
                                         ---------------------------------------------------------------------------------------
    Total interest-bearing deposits        1,719        (14)      (914)      791      15,924       (187)       (7,894)     7,843
                                         ---------------------------------------------------------------------------------------
  Federal Home Loan Bank advances          4,389        173     (2,246)    2,316       5,748        (45)       (3,021)     2,682
  Federal funds purchased and 
    securities sold                        1,084        236       (599)      721         863       (110)         (419)       334
                                         ---------------------------------------------------------------------------------------
    Total interest-bearing liabilities   $ 7,192     $  395    $(3,759)   $3,828     $22,535    $  (342)     $(11,334)   $10,859
                                         ---------------------------------------------------------------------------------------
                                         ---------------------------------------------------------------------------------------
    Net interest income                  $ 3,594     $  630    $(2,012)   $2,212     $15,212    $  (597)     $ (7,385)   $ 7,230
                                         ---------------------------------------------------------------------------------------
                                         ---------------------------------------------------------------------------------------
</TABLE>

(1) Income from state and political subdivisions securities and loans are 
    stated on a tax equivalent basis.


                                          19

<PAGE>

Net interest income on a tax-equivalent basis was approximately $9.6 million for
the second quarter of 1997 as compared to $8.6 million for the second quarter of
1996.  The increase of 11.6% was due primarily to the increase in average
earning assets which grew $134.5 million or 15.0% for the quarter ended June 30,
1997 as compared to the same period ended June 30, 1996.  Net interest income
was decreased by the lower net interest margin of 3.72% for the three months
ended June 30, 1997 as compared to 3.84% for the same period of 1996.  Higher
yields associated with the increase in loans and higher yields on investments
increased the yields on interest earning assets by .12% to 8.24% for the second
quarter of 1997 as compared to 8.12% for the second quarter of 1996 while the
cost of funds increased .23% to 4.87% in the second quarter of 1997 as compared
to 4.64% for the same period of 1996.

Net interest income on a tax-equivalent basis was approximately $18.8 million
for the six months ended June 30, 1997 as compared to $16.6 million for the six
months ended June 30, 1996.  The increase of 13.3% was due primarily to the
increase in average earning assets which grew $132.7 million or 15.0% for the
six months ended June 30, 1997 as compared to the same period ended June 30,
1996.  Net interest income was decreased by the lower net interest margin of
3.73% for the six months ended June 30, 1997 as compared to 3.77% for the same
period of 1996.  Higher yields associated with the increase in loans and higher
yields on investments increased the yields on interest earning assets by .17% to
8.22% for the six months ended June 30, 1997 as compared to 8.05% for the six
months ended June 30, 1996 while the cost of funds increased .17% to 4.84% in
the second quarter of 1997 as compared to 4.67% for the same period of 1996.


                                          20

<PAGE>

NONINTEREST INCOME

         The following table reflects various components of noninterest income
    for each time period reported.

    NONINTEREST INCOME

<TABLE>
<CAPTION>
                                        Three Months Ended June 30,   Six Months Ended June 30,
                                              1997        1996             1997        1996
                                              ----        ----             ----        ----
<S>                                     <C>            <C>            <C>           <C> 
                                                          (Dollars in Thousands)

Service charges on deposit accounts        $  796      $  485            $1,546     $  936
Trust fees                                    165         176               330        320
Investment services fees                       60          98               112        158
Merchant and loan service fees                438         414               685        630
Recoveries on distressed assets                39          98               189        126
Gain (loss) on sale of loans, net             416         288               593        480
Investment securities gains, net              178          36               237        270
Other income                                  355         401               646        660
                                           ------      ------            ------     ------
     Total noninterest income              $2,447      $1,996            $4,338     $3,580
                                           ------      ------            ------     ------
                                           ------      ------            ------     ------
</TABLE>

         Noninterest income for the three months ended June 30, 1997 was
    approximately $2.4 million as compared to $2.0 million for the same period
    in 1996.  Service charges on deposit accounts increased $311 million or
    64.1% as fee based deposit accounts were introduced in the Company's
    Indiana market including a new line of checking accounts.  Gain on sale of
    loans, net increased $128,000 or 44.4% as the Company increased loan sale
    activity in the second quarter.  Noninterest income for the six months
    ended June 30, 1997 was approximately $4.3 million as compared to $3.6
    million for the same period in 1996.  Service charges on deposit accounts
    provided most of the increase by growing to $1.5 million as compared to
    $936,000 for the six month period ended June 30, 1996, an increase of
    65.2%.  Gain on sale of loans, net also increased $113,000 or 23.5%.  All
    other areas of noninterest income were consistent with prior years.


                                          21

<PAGE>

    NONINTEREST EXPENSE

         The following table presents the major components of noninterest
    expense for each period reported.

    NONINTEREST EXPENSE

<TABLE>
<CAPTION>
                                           Quarter Ended June 30,      Six Months Ended June 30,
                                              1997         1996            1997         1996    
                                              ----         ----            ----         ----
<S>                                           <C>          <C>             <C>          <C>
                                                                              
                                                            (Dollars in Thousands)
                                                                              
Salaries                                      $2,059       $2,162          $ 4,236      $ 4,142
Benefits                                         827          545            1,415        1,087
                                             -------      -------          -------      -------    

      Total salaries and benefits              2,886        2,707            5,651        5,229
  
Occupancy expense                                537          479            1,148        1,001
Equipment expense                                410          376              831          756
Postage and delivery                             209          146              388          303
Supplies                                         188          290              448          483
Marketing and promotion                          450          364              742          588
Professional services                            275          175              548          288
FDIC insurance                                    53          227              149          446
Amortization of intangibles                      317          312              634          652
Other expense                                  1,233        1,076            2,208        2,157
                                             -------      -------          -------      -------

      Total noninterest expense               $6,558       $6,151          $12,747      $11,903
                                             -------      -------          -------      -------
                                             -------      -------          -------      -------
</TABLE>

         Noninterest expense for the three months ended June 30, 1997 was 
    $6.6 million as compared to $6.2 million for the same period in 1996.  
    Total salaries and benefits increased $179,000 or 6.6% to $2.9 million 
    for the three months ended June 30, 1997 as compared to the same period 
    for 1996. Occupancy expense increased $58,000 for the first quarter of 
    1997 or 12.1% as a new short term lease was written in Indiana at a 
    higher cost and additional space was leased in the Michigan corporate 
    offices.  Postage expense increased $63,000, or 43.2%, primarily from 
    mailing requirements for the new line of checking accounts.  Marketing 
    costs also increased $86,000 for the three months ended June 30, 1997, or 
    23.6%, primarily related to the introduction of the new line of checking 
    accounts in the Indiana market. Professional services expenses increased 
    $100,000 in first quarter of 1997, or 57.1%, as the Company incurred 
    costs associated with a consulting firm to assist in the implementation 
    of an organizational structure to meet the demands of a larger 
    institution after the two mergers as well as to eliminate inefficient 
    processes and procedures.  FDIC insurance expense decreased $174,000 for 
    the second quarter of 1997, or 76.7%, as compared to the same period in 
    1996 as the improvement in the fund balances in the Savings Association 
    Insurance Fund was fully capitalized in 1996 which allowed it to reduce 
    assessments.  Supplies expense decreased $102,000, or 35.2%, primarily 
    because of costs incurred in the second quarter of 1996 associated with 
    the bank name change.

                                          22
<PAGE>

         Noninterest expense for the six months ended June 30, 1997 was $12.7 
    million as compared to $11.9 million for the same period in 1996.  
    Salaries and benefits increased $422,000 or 8.1% to $5.7 million for the 
    six months ended June 30, 1997 as compared to the same period in 1996.  
    Occupancy expense increased $147,000, or 14.7%, for the first six months 
    of 1997, primarily related to new leased property.  Postage expense 
    increased $85,000, or 28.1%, because of additional mailings associated 
    with the checking account products in the Indiana market.  Marketing 
    expenses increased $154,000, or 26.2%, also associated with marketing 
    efforts for the checking program in the Indiana market.  Professional 
    services expenses increased $260,000, or 90.3%, in the first six months 
    of 1997 as a consulting firm was hired in late 1996 to assist in the 
    review of organizational structure and processes and procedures 
    efficiencies.  FDIC insurance expense decreased $297,000, or 66.6%, in 
    the first six months of 1997 as compared to the same period of 1996 as 
    the Savings Association Insurance Fund was fully capitalized and premiums 
    were reduced.

    INCOME TAXES

         Income taxes were approximately $1.8 million for the three months
    ended June 30, 1997 and approximately $1.6 million for the same period in
    1996.  The increase was the result of higher levels of earnings.  The
    effective tax rate was 37.1% for the second quarter of 1997 as compared to
    38.8% for the same period in 1996.  Income taxes were approximately $3.4
    million for the six months ended June 30, 1997 and approximately $2.8
    million for the same period in 1996.  The increase was the result of higher
    levels of earnings.  The effective tax rate was 35.7% for the second
    quarter of 1997 as compared to 35.9% for the same period in 1996.


                           ANALYSIS OF FINANCIAL CONDITION

    EARNING ASSETS

         Average earning assets equaled 94.3% of total average assets for the
    second quarter ended June 30, 1997 as compared to 94.2% of total average
    assets during the same period in 1996.  Generally, the higher earning
    assets are to total assets, the greater the contribution of Pinnacle's net
    interest margin to profitability.

         Average loans outstanding for the second quarter of 1997 were $621.6
    million as compared to $556.2 million for the same period in 1996, an
    increase of $65.4. million, or 11.8%.  The growth was primarily in
    commercial loans and consumer home equity loans as greater emphasis and
    management was placed on this type of lending in the new Indiana market
    entered in 1995.  Average loans outstanding for the six months ended June
    30, 1997 were $614.8 million as compared to $539.0 million for the same
    period in 1996, an increase of $75.8 million, or 14.1%.  The growth was also
    primarily in commercial loans and consumer home equity loans.

         Average investment securities, interest-bearing deposits with
    financial institutions and fed funds sold were $412.1 million for the
    second quarter of 1997 as compared to $343.1 million for the same period in
    1996, an increase of $69.0 million, or 20.1%, as the Company increased the
    level of adjustable rate securities that were matched with short-term FHLB
    advances. Average investment securities, interest-bearing deposits with
    financial institutions and fed funds sold were $402.9 million for the six
    months ended June 30, 1997 as compared to $346.0 million for the same
    period in 1996, an increase of $56.9 million, or 16.4%.


                                          23

<PAGE>

    LIQUIDITY AND FUNDING

         Liquidity is the ability to satisfy demands for extensions of credit,
    deposit withdrawals, and other customer and operational needs.  Traditional
    sources of liquidity include asset maturities and core deposit growth.
    Pinnacle maintains a portion of its assets in liquid form to meet
    anticipated withdrawal requirements and loan demand from customers.  At
    June 30, 1997, cash and due from banks, federal funds sold, and money
    market instruments equaled approximately $29.6 million.  Additional
    liquidity, is provided by the ability to borrow from the Federal Reserve
    Bank and Federal Home Loan Bank of Indianapolis.  As of June 30, 1997,
    Pinnacle had borrowed $185.0 million from the Federal Home Loan Bank of
    Indianapolis to match longer term loans and specific securities with
    matching maturities and repricing features.

         Pinnacle identified investment securities totaling approximately
    $401.8 million and $372.2 million, respectively, as being
    available-for-sale at June 30, 1997 and December 31, 1996, respectively,
    which consequently is available to meet liquidity needs of Pinnacle.

         Proceeds from the sales of securities available-for-sale amounts to
    $33.1 million in the second quarter of 1997 and $25.0 million in the same
    period of 1996, with resulting net gains of $178,000 and $35,000,
    respectively.  Proceeds from the sale of securities available-for-sale
    amounted to $50.5 million in the six month period ended June 30, 1997 and
    $48.0 million in the same period of 1996, with resulting net gains of
    $237,000 and $270,000, respectively.  At June 30, 1997, net unrealized
    losses in Pinnacle's total security portfolio amounted to $1.5 million and
    $4.3 million at June 30, 1996.

         The focus of liquidity management at Pinnacle is to satisfy general
    operating expenses, to service existing debt, and to take advantage of
    investment opportunities which Pinnacle's management believes will result
    in an improved return to stockholders.  As Pinnacle is a legal entity
    separate and distinct from its bank subsidiary, substantially all of
    Pinnacle's revenue results from dividends paid to it by Pinnacle Bank and
    from earnings on investments.  Dividends paid to Pinnacle by Pinnacle Bank
    amounted to $1.4 million for the second quarter of 1997 and $1.3 million
    for the second quarter of 1996.  Dividends paid to Pinnacle by Pinnacle
    Bank amounted to $2.8 million for the six month period ended June 30, 1997
    and $2.0 million for the same period of 1996.  Under current regulations,
    the amount of dividends that Pinnacle Bank can declare in 1997 is limited
    to its 1997 net profits (as defined in the Federal Reserve Act) plus
    retained profits for 1996 and 1995, unless regulatory approval is obtained.

    SHORT-TERM BORROWINGS
         The following table shows short-term borrowings and average interest
    rates for each time period reported.


                                          24

<PAGE>

<TABLE>
<CAPTION>

SHORT TERM BORROWINGS
                                                               FOR THE SIX MONTHS ENDED JUNE 30,
                                                               1997           1996           1995
                                                             --------------------------------------
                                                                   (Dollars in thousands)
<C>                                                          <C>            <C>            <C>
FEDERAL FUNDS PURCHASED:
   Balance at end of period                                  $  9,925       $ 10,425       $      -
   Weighted average interest rate at end of quarter             6.97%          5.50%          0.00%
   Maximum amount outstanding (1)                            $ 16,294       $ 17,632       $  5,189
   Average amount outstanding                                $  9,110       $ 14,413       $  3,498
   Weighted average interest rate during quarter                5.77%          6.15%          6.28%

SECURITIES SOLD UNDER REPURCHASE AGREEMENTS:
   Balance at end of period                                  $ 43,292       $ 22,746       $ 10,431
   Weighted average interest rate at end of quarter             5.03%          3.99%          3.62%
   Maximum amount outstanding (1)                            $ 52,693       $ 24,288       $ 15,431
   Average amount outstanding                                $ 54,611       $ 23,566       $ 16,043
   Weighted average interest rate during quarter                5.17%          3.91%          4.70%

</TABLE>
--------------------------------------
(1)  Based on amount outstanding at month end during quarter


         Federal Home Loan Bank advances, securities sold under repurchase
    agreements and other borrowings increased $84.3 million, or 54.2%, to
    approximately $239.9 million at June 30, 1997.  The increase was primarily
    used to match specific adjustable rate security purchases of approximately
    $40 million and to match fund approximately $30 million in longer term 15
    year home equity loans.


                                    ASSET QUALITY

    ALLOWANCE FOR LOAN LOSSES
         The following table summarizes the loan loss experience and provides a
    breakdown of allowance for loan losses during the quarter and six months
    ended June 30, 1997 and 1996.


                                          25
<PAGE>

                              LOAN LOSS ANALYSIS TABLE

<TABLE>
<CAPTION>
                                                                 QUARTER-TO-DATE               YEAR-TO-DATE
                                                                    JUNE 30,                     JUNE 30,
(Dollars in thousands)                                        1997           1996           1997           1996
------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>            <C>            <C>
Loans Outstanding at end of period,
  net of unearned discount                                                               $  618,997     $  566,383
                                                           -------------------------------------------------------
                                                           -------------------------------------------------------

Average loans for the period                               $  621,624     $  614,841     $  612,474     $  538,979
                                                           -------------------------------------------------------
                                                           -------------------------------------------------------
Allowance for loans losses, 
  beginning of period                                      $    5,651     $    5,803     $    5,643     $    5,852
                                                           -------------------------------------------------------
Charge-offs for period:
    Commercial loans                                               93              -            133             40
    Real Estate loans                                              12              5             12             28
    Home Equity loans                                              19              3             19              3
    Consumer loans                                                176            159            410            317
                                                           -------------------------------------------------------
         Total charge-offs                                        300            167            574            388
                                                           -------------------------------------------------------
Recoveries for period:
    Commercial loans                                                1             64              1            116
    Real Estate loans                                              11             10             19             14
    Consumer loans                                                 38             35             77             71
                                                           -------------------------------------------------------
         Total recoveries                                          50            109             97            201
                                                           -------------------------------------------------------
Net charge-offs for the period                                    250             58            477            187
                                                           -------------------------------------------------------
Allowance recorded for
  acquired loans                                                    -              -              -              -
Provision for loan losses                                         325             70            560            150
                                                           -------------------------------------------------------
Allowance for loan losses,
  end of period                                            $    5,726     $    5,815     $    5,726     $    5,815
                                                           -------------------------------------------------------
                                                           -------------------------------------------------------
Ratio of net charge-offs during the 
  period to average loans outstanding                            0.04%          0.01%          0.08%          0.03%
                                                           -------------------------------------------------------
                                                           -------------------------------------------------------
Allocation of allowance for loan losses:
    Commercial loans                                                                     $    3,038     $    3,245
    Real Estate loans                                                                         1,352          1,461
    Home Equity loans                                                                           737            492
    Consumer loans                                                                              599            617
                                                           -------------------------------------------------------
         Total allowance for loan losses                                                 $    5,726     $    5,815
                                                           -------------------------------------------------------
                                                           -------------------------------------------------------
Percentage of loans to total gross loans:
    Commercial loans                                                                             37%            31%
    Real Estate loans                                                                            43%            50%
    Home Equity loans                                                                            13%            10%
    Consumer loans                                                                                6%             8%
    Economic development bonds and
      other tax exempt loans                                                                      1%             1%
                                                           -------------------------------------------------------
         Total                                                                                  100%           100%
                                                           -------------------------------------------------------
                                                           -------------------------------------------------------
</TABLE>


                                          26
<PAGE>

         For the three months ended June 30, 1997, the provision for loan
    losses totaled $325,000 as compared to $70,000 for the same period in 1996.
    The increase was attributable mainly to loan growth and an increase in net
    charge-offs primarily in consumer loans and lower levels of recoveries in
    real estate loans of $192,000 in the second quarter as compared to the
    second quarter of 1996.  For the six months ended June 30, 1997, the
    provision for loan losses totaled $560,000 as compared to $150,000 for the
    same period in 1996.  Net charge-offs for the period ended June 30, 1997
    was $477,000 as compared to $187,000 for the same period in 1996.  Pinnacle
    management believes the increase in provisions for loan losses is primarily
    from the lending emphasis changing to commercial and home equity lending
    which generally carry higher reserve provisions and not to any general
    decline in credit quality.

         The allowance for loan losses totaled approximately $5.7 million at
    June 30, 1997 as compared to approximately $5.8 million at June 30, 1996
    and the allowance as a percentage of total loans was .93% and 1.03%
    respectively, for such dates indicated.  The allowance for loan losses has
    been allocated according to the amount deemed to be reasonably necessary to
    provide for the possibility of losses being incurred within the above
    categories of loans at the dates indicated.  The allowance is based on
    management's periodic evaluation of the loan portfolio and reflects an
    amount that, in management's opinion, is adequate to absorb losses in the
    existing portfolio.  In evaluating the portfolio, management takes into
    consideration numerous factors, including current economic conditions prior
    loss experience, the composition of loan portfolio, and management's
    evaluation of the collectability of specific loans.







                                 NONPERFORMING ASSETS

         Nonperforming assets include nonaccruing loans, restructured loans,
    contractually past due 90 days or more but still accruing loans, and other
    real estate owned.  The following table presents detailed information
    concerning nonperforming assets at June 30, 1997 and December 31, 1996.



                                          27

<PAGE>

<TABLE>
<CAPTION>
                                                                           JUNE 30,    DECEMBER 31,
(Dollars in thousands)                                                       1997         1996
---------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>
Nonperforming assets  (a) :
  Nonaccruing loans:
     Real estate                                                        $        288   $        293
     Commercial                                                                3,137            388
     Home equity                                                                  27              -
     Other                                                                        64             80
---------------------------------------------------------------------------------------------------
        Total nonaccruing loans                                                3,516            761

  Contractually past due but still accruing loans (a)
     Real estate                                                        $      1,300   $      1,849
     Commercial                                                                2,168          1,773
     Home equity                                                                 263            161
     Other                                                                       141            133
---------------------------------------------------------------------------------------------------
        Total contractually past due but still accruing loans (a)              3,872          3,916

  Restructured loans                                                             177            227
---------------------------------------------------------------------------------------------------
     Total nonperforming loans                                                 7,565          4,904

  Other real estate owned                                                      1,532          1,698
---------------------------------------------------------------------------------------------------
     Total nonperforming assets                                         $      9,097   $      6,602
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------

  Nonperforming loans / loans                                                   1.22%          0.80%
  Nonperforming assets / loans and other real estate owned                      1.47%          1.08%
  Reserve for possible loan losses / nonperforming loans                       75.69%        115.07%
  Reserve for possible loan losses / nonperforming assets                      62.94%         85.47%
---------------------------------------------------------------------------------------------------
</TABLE>

(a)    Accruing loans past due 90 days or more.


         The increase in total nonperforming loans from December 31, 1996 to
    June 30, 1997 is primarily due to an increase in commercial nonaccruing
    loans of $2.7 million.

         Management's determination regarding the accrual of interest on loans
    that were 90 days or more past due but still accruing is based on the
    availability and sufficiency of collateral and the status of collection
    efforts.  In the present lending environment, certain of such loans could
    become nonperforming assets and/or result in charge-offs in the future.

         Management continues to focus on asset quality and its potential
    impact on the provision and the reserve for possible loan losses.  The
    Company believes that it has responded appropriately to the current
    economic environment, and is prepared to forego transactions which do not
    meet is quality standards.


                                          28

<PAGE>

         Effective January 1, 1995, the Company adopted the Financial
    Accounting Standard Board's Statement of Financial Accounting Standards
    ("SFAS") 114, Accounting by Creditors for Impairment of a Loan and SFAS
    118, "Accounting by Creditors for Impairment of a Loan Income Recognition
    and Disclosures".  A loan is considered impaired when, based on current
    information and events, it is probable that a creditor will be unable to
    collect all amounts due.  Under SFAS 114 and SFAS 118, "impaired" loans
    must be measured based on the present value of expected future cash flows,
    discounted at the loan's effective interest rate, or, as a practical
    expedient, at the loan's observable market price, or the fair value of the
    collateral if the loan is collateral-dependent.  SFAS 114 and SFAS 118 do
    not apply to certain groups of small-balance homogeneous loans that are
    collectively evaluated for impairment, loans that are measured at fair
    value or at the lower of cost or fair value, leases, or debt securities,
    Prior to January 1, 1995, the Company's impaired loans were described as,
    and included in, nonaccrual loans.  The adoption of the Statements had no
    effect on the Company's nonperforming assets or financial statements.

         SFAS 114 and SFAS 118 also require additional disclosures.  As a
    result, the Company has expanded its accounting policy regarding the
    recognition of interest income on loans to read as follows:  "Interest
    income is not accrued on loans where management has determined that the
    borrowers may be unable to meet contractual principal and/or interest
    obligations, or where interest or principal is 90 days or more past due,
    unless the loans are adequately secured and in the process of collection.
    When a loan is placed on nonaccrual status (which includes "impaired"
    loans), interest accruals cease and uncollected accrued interest is
    reversed and charged against current income.  Nonaccrual loans are
    generally not returned to accruing status until principal and interest
    payments have been brought current and full collectibility is reasonably
    assured.  Cash receipts on nonaccrual loans are generally applied to the
    principal balance until the remaining balance is considered fully
    collectible, at which time interest income may be recognized according to
    the revised terms."

         As of June 30, 1997, under SFAS 114 and SFAS 118, the Company's
    impaired loans totaled $806,000 (of which $298,000 were on a nonaccrual
    basis).  The related allowance for loan loss on these impaired loans at
    June 30, 1997, was $396,000.  The Company's impaired loans averaged
    $828,000 for the six months ended June 30, 1997.  Interest income of
    approximately $25,000 was recognized, all of which was on an accrual basis,
    on impaired loans for the six months ended June 30, 1997.  Charge-offs of
    approximately $73,000 were recognized on impaired loans during the six
    months ended June 30, 1997.

         The levels of the provision and reserve for possible loan losses are
    based on management's ongoing assessment of the Company's credit exposure
    and consideration of a number of factors, including prevailing and
    anticipated economic conditions, assigned risk ratings on credit exposures,
    the diversification and size of the loan portfolio, the results of the most
    recent regulatory examinations available to the Company, the current and
    projected financial status and creditworthiness of borrowers, certain
    off-balance sheet credit risks, the nature and level of nonperforming
    assets and loans that have been identified as potential problems, the
    adequacy of collateral, past and expected loss experience and other factors
    deemed relevant by management.  The Company's risk rating system and the
    quarterly reporting process for problem and vulnerable credits are utilized
    by management in determining the adequacy of the Company's reserve for
    possible loan losses.


                                          29

<PAGE>

         Net charge-offs were $250,000 in the second quarter of 1997, compared
    to $58,000 in the second quarter of 1996.  In the second quarter of 1997
    and 1996, respectively, net charge-offs included $92,000 and -$64,000
    (recoveries) related to commercial borrowers, $157,000 and $127,000 in
    consumer credits and $1,000 and -$5,000 (recoveries) in real estate
    credits.

         Net charge-offs were $477,000 for the six months ended June 30, 1997,
    compared to $187,000 for the same period of 1996.  For the six month period
    ended June 30, 1997 and 1996, respectively, net charge-offs included
    $132,000 and -$76,000 (recoveries) related to commercial borrowers,
    $352,000 and $249,000 in consumer credits and -$7,000 (recoveries) and
    $14,000 in real estate credits.

    POTENTIAL PROBLEM LOANS

         In addition to the loans classified as nonaccrual or greater than 90
    days delinquent and still accruing interest, there were other loans of
    approximately $3.9 million and $3.6 million at June 30, 1997 and December
    31, 1996, respectively, where management is closely following the
    borrower's ability to continue to comply with loan payment terms.  Current
    conditions do not warrant classification as nonperforming, nor is any
    principal loss on these loans considered likely at this time.

    FOREIGN LOANS

         The Company's loans outstanding to borrowers in foreign countries as
    of June 30, 1997 and 1996 did not exceed 1% of its total assets.

    LOAN CONCENTRATIONS

         As of June 30, 1997 and December 31, 1996, there were no
    concentrations of loans to individual borrowers that exceed 10% of total
    loans.







                                       CAPITAL

    CAPITAL COMPONENTS

         The Federal Reserve Board measures capital adequacy for bank holding
    companies on the basis of a risk-based capital framework and a leverage
    ratio. The Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
    established a capital-based supervisory system of prompt corrective action
    for all depository institutions.  The bank regulatory agencies implementing
    rule under FDICIA defines "well-capitalized" institutions (the highest
    possible rating) as those whose capital ratios equal or exceed all the
    following:  Tier I Risk-Based Ratio, 6.00%, Total Risk-Based Ratio, 10.00%,
    and Tier I Leverage Ratio, 5.00%.  At June 30, 1997 and December 31, 1996,
    the Company and its subsidiary reported capital ratios in excess of these
    well capitalized standards.

    The Company's and the Bank's actual capital amounts and rations are also
    presented in the table.


                                          30

<PAGE>

<TABLE>
<CAPTION>
                                                                                                                TO BE WELL
                                                                                                             CAPITALIZED UNDER
                                                                                  FOR CAPITAL                PROMPT CORRECTIVE
                                                       ACTUAL                  ADEQUACY PURPOSES             ACTION PROVISIONS
                                             -------------------------     -------------------------     -------------------------
                                               AMOUNT           RATIO        AMOUNT           RATIO        AMOUNT           RATIO
                                               ------           -----        ------           -----        ------           -----
<S>                                          <C>                <C>        <C>                <C>        <C>                <C>
AS OF JUNE 30, 1997
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
  Consolidated                               $  75,398          13.92%     $  43,322           8.00%     $  54,153          10.00%
  Pinnacle Bank                                 72,353          13.42         43,119           8.00         53,898          10.00
TIER I CAPITAL (TO RISK WEIGHTED ASSETS):
  Consolidated                               $  69,672          12.87%     $  21,661           4.00%     $  32,492           6.00%
  Pinnacle Bank                                 66,627          12.36         21,559           4.00         32,339           6.00
TIER I CAPITAL (TO AVERAGE ASSETS):
  Consolidated                               $  69,672           6.39%     $  46,379           4.00%     $  57,974           5.00%
  Pinnacle Bank                                 66,627           6.12         43,577           4.00         54,471           5.00
</TABLE>


         Pinnacle accounts for investment securities in accordance with the
    provisions of Statement of Financial Accounting Standards ("SFAS") No. 115,
    Accounting of Certain Investments in Debt and Equity Securities.  The
    unrealized holding gains and losses, net of related tax effect, on
    available-for-sale securities are reportable as a separate component of
    stockholders equity until realized.  However, for determining risk-based
    capital ratios, only unrealized holding losses on equity securities are
    considered as a component of qualifying capital.

    INTEREST RATE SENSITIVITY

         Interest rate sensitivity is measured by analyzing the maturity and
    timing of interest rate changes on assets and liabilities.  The "gap" is
    the amount by which interest-sensitive assets exceed interest-sensitive
    liabilities for any given period.  In periods of increasing interest rates,
    a positive gap will generally result in increased net interest income;
    conversely, a negative gap will result in decreased net interest income in
    such periods.  In periods of decreasing interest rates, a positive gap will
    result in decreased net interest income, and a negative gap will result in
    increased net interest income.

         To manage Pinnacle's exposure to changes in interest rate, management
    of Pinnacle closely monitors its interest rate risk.  An asset/liability
    committee consisting of senior officers meets regularly and reviews
    Pinnacle's interest rate risk position and makes recommendation for
    adjustments to the position.  In addition, the Board of Directors of
    Pinnacle periodically reviews Pinnacle's asset/liability position,
    including simulations of the effect on Pinnacle's earnings and capital of
    various interest rate scenarios.

         In managing its asset/liability mix, and depending on the relationship
    between long- and short-term interest rates, market conditions and consumer
    preference, Pinnacle may place somewhat greater emphasis on maximizing its
    net interest margin than on matching the interest rate sensitivity of its
    assets and liabilities in an effort to increase its net income.  Management
    believes that the increased net income results from a mismatch in the
    maturity of its asset and liability portfolios can, during periods of
    declining or stable interest rates, provide high enough returns to justify
    the increase exposure to sudden and unexpected increases in interest rates
    which can result from such mismatch.  As a result, there may be relatively
    more exposure to rapid increases in interest rates than some other
    institutions which concentrate principally on matching the duration of
    their assets and liabilities.


                                          31

<PAGE>

         Pinnacle is managing its current negative gap position by emphasizing
    variable rate loans, investing in short-term securities, and encouraging
    longer term deposit products through pricing strategies.  The following
    table sets forth management's estimate of the projected maturities and/or
    repricing of Pinnacle's assets and liabilities as of June 30, 1997.  In
    preparing the table, management of Pinnacle has assumed that loans prepay
    to varying degrees based on type, maturity and rate.  Certificates of
    deposit have been entered into the analysis based on contractual maturity.

                          INTEREST RATE SENSITIVITY/GAP ANALYSIS

<TABLE>
<CAPTION>

JUNE 30, 1997                                                 INTEREST RATE SENSITIVITY PERIOD
---------------------------------------------------------------------------------------------------------------------------------
                                               0 - 3          4 - 6          7 - 9        10 - 12         OVER 1
(Dollars in thousands)                         MONTHS         MONTHS         MONTHS        MONTHS           YEAR          TOTAL
---------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>            <C>            <C>           <C>
ASSETS:
  Interest-bearing deposits 
     with financial institutions             $   4,405      $       -      $       -      $       -      $       -     $    4,405
  Securities available for sale                101,258         35,320          9,909          5,693        249,581        401,761
  Loans                                        180,103         32,968         28,251         28,094        349,581        618,997
  Nonearning assets                                  -              -              -              -              -         66,390
                                             ------------------------------------------------------------------------------------
     Total Assets                            $ 285,766      $  68,288      $  38,160      $  33,787      $ 599,162     $1,091,553
                                             ------------------------------------------------------------------------------------
                                             ------------------------------------------------------------------------------------
FUNDING SOURCES:
  Interest-bearing demand                    $       -      $  47,767      $       -      $       -      $  25,453     $   73,220
  Savings and time deposits                    155,679        172,762         26,754         21,599        250,568        627,362
  Federal Home Loan Bank
     advances                                   55,500         10,000         33,900         22,600         63,021        185,021
  Other borrowings                              43,559              -         11,315              -              -         54,874
  Noninterest bearing sources                        -              -              -              -              -        151,076
                                             ------------------------------------------------------------------------------------
     Total funding sources                   $ 254,738      $ 230,529      $  71,969      $  44,199      $ 339,042     $1,091,553
                                             ------------------------------------------------------------------------------------
                                             ------------------------------------------------------------------------------------
REPRICING/MATURITY GAP
  Period                                     $  31,028      $(162,241)     $ (33,809)     $ (10,412)     $ 260,120
  Cumulative                                 $  31,028      $(131,213)     $(165,022)     $(175,434)     $  84,686
Cumulative rate sensitivity
  assets/Cumulative rate 
  sensitivity funding sources                  112.18%         72.96%         70.39%         70.83%        109.00%
                                             ------------------------------------------------------------------------------------
</TABLE>

         Certain shortcomings are inherent in the above analysis.  For example,
    although certain assets and liabilities may have similar maturities or
    periods of repricing, they may react in different degrees to changes in
    market interest rates.  Also, interest rates on certain types of assets and
    liabilities may fluctuate in advance of, or lag behind, changes in market
    rates.  Further, in the event of a change in interest rates, prepayment and
    early withdrawal levels could deviate significantly from those assumed in
    calculating the analysis.  Finally, in the event of rising interest rates,
    management may choose to increase the rates paid on deposit accounts in
    order to retain those accounts.

                          IMPACT OF NEW ACCOUNTING STANDARDS


                                          32

<PAGE>

         In February 1997, the Financial Accounting Standards Board issued
    Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
    (SFAS No. 12).  SFAS No. 128 supersedes APB Opinion 15, "Earnings Per
    Share", and specifies the computation, presentation and disclosure
    requirements for earnings per share (EPS) for entities with publicly held
    common stock or potential common stock.  SFAS No. 128 was issued to
    simplify the computations of EPS and to make the U.S. standard more
    compatible with the EPS standards of the International Accounting Standards
    Committee.  It replaces the presentation of primary and fully-diluted EPS
    with a presentation of basic and diluted EPS, respectively.  It also
    requires dual presentation of basic and diluted EPS on the face of the
    income statement for all entities with complex capital structures and
    requires a reconciliation of the numerator and denominator of the basic EPS
    computation to the numerator and denominator of the diluted EPS
    computation.

         Basic EPS, unlike primary EPS, excludes dilution and is computed by
    dividing income available to common stockholders by the weighted average
    number of common shares of outstanding for the period.  Diluted EPS
    reflects the potential dilution that could occur if securities or other
    contracts to issue common stock were exercised or converted into common
    stock, or resulted in the issuance of common stock that then shared in the
    earnings of the entity.  Diluted EPS is computed similarly to fully-diluted
    EPS under APB 15.

         SFAS No. 128 is effective for financial statements for both interim
    and annual periods ending December 15, 1997 and is not expected to have a
    material impact on the Company.

         In February 1997, the Financial Accounting Standards Board issued
    Statement of Financial Accounting Standards No. 129, "Disclosure of
    Information about Capital Structure" (SFAS No. 129).  SFAS No 129 provides
    required disclosures for the capital structure of both public and nonpublic
    companies and is effective for financial statements for periods ending
    after December 15, 1997.  The required disclosures had been included in a
    number of separate statements and opinions.  As such, the issuance of SFAS
    No. 129 is not expected to require significant revision of prior
    disclosures.

         In June 1997, the Financial Accounting Standards Board issued 
    Statement of Financial Accounting Standards No. 130, "Reporting 
    Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes standards 
    for reporting and the presentation of comprehensive income and its 
    components in a full set of general purpose financial statements. SFAS 
    No. 130 is effective for both interim and annual periods beginning after 
    December 15, 1997 and is not expected to have a material impact on the 
    Company.

         In June 1997, the Financial Accounting Standards Board issued 
    Statement of Financial Accounting Standards No. 131, "Disclosures about 
    Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS 
    No. 131 establishes standards for the way public business enterprises are 
    to report information about operating segments in annual financial 
    statements and requires those enterprises to report selected information 
    about operating segments in interim financial reports issued to 
    shareholders.  SFAS No. 131 is effective for financial periods beginning 
    after December 15, 1997 and is not expected to have a material impact on 
    the Company.

                                          33

<PAGE>

PART II  OTHER INFORMATION


Item 6.   Exhibits and Reports on Form 8-K

    a.   Exhibits

         Exhibit 27 -- Financial Data Schedule

    b.   Reports on Form 8-K

         None

                                          34

<PAGE>

                                      SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                       PINNACLE FINANCIAL SERVICES, INC.


DATE:   August 14, 1997                By: /s/ David W. Kolhagen
                                           -----------------------------------
                                           David W. Kolhagen
                                           Senior Vice President & Chief
                                           Financial Officer



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