10QSB 1 g71060sbe10qsb.txt PINNACLE FINANCIAL PARTNERS, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2001 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 No: 000-31225 Pinnacle Financial Partners, Inc. --------------------------------- (Exact name of registrant as specified in its charter) Tennessee 6711 62-1812853 ------------------------------ --------------------------- ----------------------------------- (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.) incorporation or organization) Classification Code Number)
The Commerce Center, 211 Commerce Street, Suite 300, Nashville, Tennessee 37201 -------------------------------------------------------------------------------- (Address of principal executive offices) (615) 744-3700 -------------- (Issuer's telephone number) Not Applicable -------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 1,910,000 shares of common stock, $1.00 par value per share, issued and outstanding as of August 10, 2001. Transitional Small Business Disclosure Format (check one): YES [ ] NO [X] 2 PINNACLE FINANCIAL PARTNERS, INC. REPORT ON FORM 10-QSB JUNE 30, 2001 TABLE OF CONTENTS
Page No. -------- PART I: Item 1. Consolidated Financial Statements. Balance Sheet as of June 30, 2001..........................................................3 Statements of Operations for the three months ended June 30, 2001 and 2000 and for the six months ended June 30, 2001 and the period from February 28, 2000 (inception) to June 30, 2000......................................................................4 Statements of Cash Flows for the six months ended June 30, 2001 and the period from February 28, 2000 (inception) to June 30, 2000........................................5 Notes to Consolidated Financial Statements.................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................................8 PART II: Item 1. Legal Proceedings....................................................................12 Item 2. Change in Securities and Use of Proceeds.............................................12 Item 3. Defaults Upon Senior Securities......................................................12 Item 4. Submission of Matters to a Vote of Security Holders..................................12 Item 5. Other Information....................................................................13 Item 6. Exhibits and Reports on Form 8-K.....................................................13 SIGNATURES.........................................................................................13
FORWARD-LOOKING STATEMENTS The Company may from time to time make written or oral statements, including statements contained in this report which may constitute forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1934 (the "Exchange Act"). The words "expect", "anticipate", "intend", "plan", "believe", "seek", "estimate", and similar expressions are intended to identify such forward-looking statements, but other statements may constitute forward-looking statements. These statements should be considered subject to various risks and uncertainties. Such forward-looking statements are made based upon management's belief as well as assumptions made by, and information currently available to, management pursuant to "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors, including governmental monetary and fiscal policies, deposit levels, loan demand, loan collateral values, securities portfolio values, interest rate risk management, the effects of competition in the banking business from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market funds and other financial institutions operating in the Company's market area and elsewhere, including institutions operating through the Internet, changes in governmental regulation relating to the banking industry, including regulations relating to branching and acquisitions, failure of assumptions underlying the establishment of reserves for loan losses, including the value of collateral underlying delinquent loans and other factors. The Company cautions that such factors are not exclusive. The Company does not intend to update or reissue any forward-looking statements contained in this report as a result of new information or other circumstances that may become known to the Company. Page 2 3 PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET - UNAUDITED JUNE 30, 2001 ASSETS Cash and due from banks ............................................ $ 5,572,318 Federal funds sold and securities purchased under agreements to resell ............................................ 7,445,295 ------------- Cash and cash equivalents ..................................... 13,017,613 Securities available-for-sale ...................................... 14,872,061 Federal Reserve Bank stock, at cost ................................ 530,300 Loans .............................................................. 69,319,235 Less allowance for loan losses.,............................... (887,000) ------------- Loans, net .................................................... 68,432,235 Premises and equipment, net ........................................ 2,690,859 Other assets ....................................................... 1,644,154 ------------- Total assets .............................................. $ 101,187,222 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing demand .................................... $ 8,185,312 Interest-bearing demand ....................................... 6,704,721 Savings ....................................................... 34,911,505 Time .......................................................... 25,088,463 ------------- Total deposits ............................................ 74,890,001 Securities sold under agreements to repurchase ..................... 5,140,034 Federal funds purchased ............................................ 5,500,000 Other borrowings ................................................... 1,500,000 Other liabilities .................................................. 523,483 ------------- Total liabilities ......................................... 87,553,518 Commitments and contingent liabilities Stockholders' equity: Preferred stock, no par value; 10,000,000 shares authorized; no shares issued and outstanding.............................. -- Common stock, par value $1.00; 10,000,000 shares authorized; 1,910,000 issued and outstanding .......................... 1,910,000 Additional paid-in capital .................................... 16,122,521 Accumulated deficit ........................................... (4,472,229) Accumulated other comprehensive income, net ................... 73,412 ------------- Total stockholders' equity ................................ 13,633,704 ------------- Total liabilities and stockholders' equity ................ $ 101,187,222 =============
The accompanying notes are an integral part of this financial statement. Page 3 4 PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED For the three months ended June 30, 2001 and 2000 and for the six months ended June 30, 2001 and for the period from February 28, 2000 (inception) through June 30, 2000
PERIOD FROM FEBRUARY 28, SIX 2000 THREE MONTHS ENDED MONTHS (INCEPTION) JUNE 30, ENDED THROUGH ----------------------- JUNE 30, JUNE 30, 2001 2000 2001 2000 ----------- -------- ---------- -------- Interest income: Loans, including fees .................................... $ 1,013,379 -- 1,524,830 -- Taxable securities ....................................... 237,602 -- 409,472 -- Federal funds sold and securities purchased under agreements to resell ................................. 47,465 -- 161,222 -- ----------- -------- ---------- -------- Total interest income ................................ 1,298,446 -- 2,095,524 -- ----------- -------- ---------- -------- Interest expense: Deposits ................................................. 572,152 -- 908,782 -- Securities sold under agreements to repurchase ........... 50,354 -- 63,752 -- Federal funds purchased and other borrowings ............. 14,561 6,198 14,561 6,506 ----------- -------- ---------- -------- Total interest expense ............................... 637,067 6,198 987,095 6,506 ----------- -------- ---------- -------- Net interest income (expense) ........................ 661,379 (6,198) 1,108,429 (6,506) Provision for loan losses ..................................... 362,000 -- 724,622 -- ----------- -------- ---------- -------- Net interest income (expense) after provision for loan losses . 299,379 (6,198) 383,807 (6,506) Other income: Service charges on deposit accounts ...................... 15,133 -- 19,896 -- Investment services ...................................... 242,978 -- 407,447 -- Other service charges, commissions and fees .............. 109,780 -- 123,354 -- ----------- -------- ---------- -------- Total other income ................................... 367,891 -- 550,697 -- ----------- -------- ---------- -------- Other expense: Salaries and employee benefits ........................... 1,081,883 114,089 2,161,513 137,747 Equipment and occupancy .................................. 274,111 -- 532,634 -- Marketing and other business development ................. 49,902 -- 90,497 -- Administrative ........................................... 92,964 113,679 175,494 168,175 Postage and supplies ..................................... 31,177 -- 55,995 -- Other operating .......................................... 72,661 63,565 135,411 72,201 ----------- -------- ---------- -------- Total other expense .................................. 1,602,698 291,333 3,151,544 378,123 ----------- -------- ---------- -------- Loss before income taxes ...................................... (935,428) (297,531) (2,217,040) (384,629) Income tax expense ....................................... -- -- -- -- ----------- -------- ---------- -------- Net loss ...................................................... $ (935,428) (297,531) (2,217,040) (384,629) =========== ======== ========== ======== Per share information: Basic and diluted net loss per common share - based on 1,910,000 weighted average shares outstanding in 2001 and 1 share issued and outstanding in 2000 .............................................. $ (0.49) (297,531) (1.16) (384,629) =========== ======== ========== ========
The accompanying notes are an integral part of these financial statements. Page 4 5 PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED For the six months ended June 30, 2001 and for the period from February 28, 2000 (inception) through June 30, 2000
PERIOD FROM FEBRUARY 28, 2000 SIX MONTHS (INCEPTION) ENDED THROUGH JUNE 30, JUNE 30, 2001 2000 ------------ -------- Operating activities: Net loss ............................................... $ (2,217,040) (384,629) Adjustments to reconcile net loss to net cash used in operating activities: Net amortization (accretion) of available-for-sale securities ............ (19,355) -- Depreciation and amortization ................. 294,614 -- Provision for loan losses ..................... 724,622 -- Increase in other assets ...................... (294,766) (90,325) Increase in other liabilities ................. 196,493 45,281 ------------ -------- Net cash used in operating activities .............. (1,315,432) (429,673) ------------ -------- Investing activities: Purchases of securities available-for-sale, net ........ (7,613,872) -- Net increase in loans .................................. (56,912,127) -- Purchases of premises and equipment and software ....... (414,808) -- ------------ -------- Net cash used in investing activities .............. (64,940,807) -- ------------ -------- Financing activities: Net increase in deposits ............................... 52,351,356 -- Net increase in repurchase agreements .................. 4,734,034 -- Net increase in funds purchased and other borrowings ... 7,000,000 472,660 Proceeds from issuance of stock ........................ -- 10 Deferred stock issuance costs .......................... -- (39,500) ------------ -------- Net cash provided by financing activities .......... 64,085,390 433,170 ------------ -------- Net increase (decrease) in cash and cash equivalents (2,170,849) 3,497 Cash and cash equivalents, beginning of period ..... 15,188,462 -- ------------ -------- Cash and cash equivalents, end of period ........... $ 13,017,613 3,497 ============ ======== Supplemental disclosure: Cash paid for interest ................................. $ 987,095 6,506 ============ ======== Cash paid for income taxes ............................. $ -- -- ============ ========
The accompanying notes are an integral part of these financial statements. Page 5 6 PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - Pinnacle Financial Partners, Inc. (the "Company") was formed on February 28, 2000 (inception) and is a bank holding company whose business is conducted by its wholly-owned subsidiary, Pinnacle National Bank (the "Bank"). The Bank is a commercial bank located in Nashville, Tennessee. The Bank provides a full range of banking services in its primary market area of Davidson County and the surrounding counties. The Bank commenced its banking operations on October 27, 2000. Prior to October 27, 2000, the Company was a development stage enterprise as defined by Statement of Financial Accounting Standard No. 7, "Accounting and Reporting by Development Stage Enterprises", and devoted substantially all its efforts to establishing the Bank. ORGANIZATIONAL AND PRE-OPENING COSTS - Substantially all activities prior to the Bank's opening consisted of organizational activities necessary to obtain regulatory approvals and preparation activities to commence business as a commercial bank. Organizational costs were primarily legal fees, consulting fees, and application fees related to the incorporation of the Company and initial organization of the Bank. The organizational and pre-opening costs as incurred by the Company were charged to the Company's operating results. For the period from February 28, 2000 (inception) through June 30, 2000 these costs amounted to approximately $385,000. BASIS OF PRESENTATION - These consolidated financial statements include the accounts of the Company and its subsidiary. Significant intercompany transactions and accounts are eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. 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 adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-KSB for the period ended December 31, 2000 as filed with the Securities and Exchange Commission. Additionally, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and deferred tax assets. COMPREHENSIVE INCOME - Statement of Financial Standards ("SFAS") No. 130 describes comprehensive income as the total of all components of comprehensive income including net income. Other comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. Currently, the Company's other comprehensive income consists of unrealized gains and losses on available-for-sale securities. NOTE 2. INCOME TAXES At June 30, 2001, the Company has available net operating loss carryforwards of approximately $3,583,000 for Federal income tax purposes. If unused, the carryforwards will expire beginning in 2020. There Page 6 7 PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS was no provision (benefit) for income taxes for the three month or six month periods ended June 30, 2001, since a 100% valuation reserve is being maintained for the net operating loss carryforward. NOTE 3. PER SHARE INFORMATION The net loss per share information was computed based on weighted average shares outstanding for the three month and six month periods ended June 30, 2001 of 1,910,000 shares and for the period from February 28, 2000 (inception) to June 30, 2000 of one share as prior to the Company's initial public offering the Company had only one share of common stock outstanding which was redeemed once the initial public offering was concluded on August 23, 2000. The net loss per share computed on a basis of the entire 1,910,000 common shares outstanding for the three-month period ended June 30, 2000 would have been $(0.16) and for the period from February 28, 2000 (inception) to June 30, 2000 the net loss per share would have been $(0.20) per share. Additionally, as of June 30, 2001, the Company had awarded 203,000 warrants to certain directors and others which participated in the founding of the Company. These warrants allow the holder to acquire one share of common stock for $10 per share. The warrants vest in one third increments over a three year period beginning August 18, 2000 and are exercisable until August 18, 2010. As of June 30, 2001, the Company had also issued to employees, 236,200 of incentive stock options which allow the option holder the ability to acquire one share of common stock at prices ranging from $7.64 to $10.00 per share. These options vest in varying increments over a five year period beginning one year from the date of grant and are exercisable for 10 years following the date of grant. As of June 30, 2001, neither the warrants nor the options are exercisable. Since these warrants and options are all antidilutive, they have not been considered in the calculation of the Company's diluted earnings per share for the three-month or six-month period ended June 30, 2001. NOTE 4. NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS #141, "Business Combinations", which requires that all business combinations be accounted for under a single method, the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS #141 requires that the purchase method be used for all business combinations initiated after June 30, 2001. Since this accounting standard applies to business combinations initiated after June 30, 2001, it will have no effect on the Company's financial statements unless the Company enters into a business combination transaction. In July 2001, the FASB issued SFAS #142, "Goodwill and Other Intangible Assets", which requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of SFAS #142, which for most companies, will be January, 2002. As the Company has no goodwill or other intangible assets included in the accompanying consolidated balance sheet, SFAS #142 will not have a material impact on the Company's financial position or results of operations. Page 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following is a discussion of Pinnacle Financial Partners, Inc. (the "Company") and Pinnacle National Bank's (the "Bank") financial condition and results of operations as of and for the three-months and six-months ended June 30, 2001. The purpose of this discussion is to focus on information about the Company's financial condition and results of operations which are not otherwise apparent from the consolidated financial statements. Reference should be made to those statements presented elsewhere in this report for an understanding of the following discussion and analysis. The Company was formed on February 28, 2000 (inception) with the Bank subsequently opening for business on October 27, 2000. For the period from February 28, 2000 through October 27, 2000, the Company's principal activities related to its organization, the conducting of its initial public offering, and the other activities concerning the opening of the Bank, which included the pursuit of approvals from the various banking regulatory authorities, hiring the appropriate personnel and implementing operating procedures. Through June 30, 2000, the Company had incurred approximately $385,000 in expense in pursuit of these activities. FINANCIAL CONDITION The Company has experienced significant growth between December 31, 2000 and June 30, 2001. At June 30, 2001, the Company had total assets of $101.2 million compared to $39.0 million at December 31, 2000. The significant increase in assets was generally reflected in loans and was attributable primarily to the increases in deposits and other funding sources for the first six months of 2001. As the Company is in its first year of operations, the Company anticipates that assets will continue to increase significantly over the next few quarters. At June 30, 2001, the Company's loan portfolio was approximately $69.3 million and consisted primarily of $18.7 million of commercial real estate loans, $44.5 million of commercial loans, and $6.1 million of consumer and home equity loans. This represented an increase in loan balances of approximately $56.9 million from the December 31, 2000 amount of approximately $12.4 million. At June 30, 2001, there were no loans on nonaccrual status or any loans past due 90 days or more. The allowance for loan losses is maintained at a level that is deemed appropriate by management to adequately cover the inherent risks in the loan portfolio. Management's evaluation of the loan portfolio includes a periodic review of loan loss experience, current economic conditions which may affect the borrower's ability to pay and the underlying collateral value of the loans. Management has consistently performed this evaluation since the opening of the Bank on a quarterly basis with no significant changes to the estimation methodology or to any of the assumptions used in the process. At June 30, 2001, the Company's allowance for loan losses was $887,000 which approximated 1.28% of loans outstanding. The balance in the allowance for loan losses at December 31, 2000 was approximately $162,000 which approximated 1.31% of loans outstanding. The increase in the allowance for loan losses was directly attributable to the growth in loans during the period and was not adjusted for any changes to initial allocation assumptions or any new factors which may have come about during the six-month period ended June 30, 2001. The Company anticipates that the allowance for loan losses will continue to increase as loan balances increase. The Company has not charged-off any loan balances to the allowance to date. As the Company has experienced no loan losses and has no nonperforming assets at June 30, 2001 or during the six-month period ended June 30, 2001, the provision recorded was based primarily upon peer industry data of comparable commercial banks. There can be no assurance that loan losses in future periods will not exceed the allowance for loan losses or that additional allocations will not be required. The Company's remaining assets consist primarily of cash and cash equivalents, available-for-sale securities, premises and equipment and other assets. The changes in cash and cash equivalents and available-for-sale securities are primarily based on day-to-day changes in the Company's deposit balances Page 8 9 and are managed pursuant to the Company liquidity management policies as described below. Premises and equipment and other assets increased approximately $373,000 between June 30, 2001 and December 31, 2000 with most of this increase due to the acquisition of equipment and software and increased customer interest accruals due to the larger loan volumes. With the addition of the Green Hills branch location in Nashville, Tennessee scheduled to open during the third quarter of this year, additional capital expenditures will be required to fund construction of this location. At June 30, 2001, the Company had $74.9 million in deposits compared to $22.5 million at December 31, 2000. The Company has also entered into agreements with customers to sell certain of its securities under agreements to repurchase the security the following day. At June 30, 2001, these repurchase agreements amounted to approximately $5.1 million compared to $406,000 at December 31, 2000. Deposit growth has been significant since commencement of operations in both noninterest and interest-bearing deposit categories. Demand and savings accounts approximate $49.8 million compared to approximately $19.0 million at December 31, 2000. At June 30, 2001, approximately 72% of these accounts were commercial related accounts compared to 46% at December 31, 2000. Time deposits amount to approximately $25.1 million at June 30, 2001 compared to approximately $3.5 million at December 31, 2000. Approximately $23.3 million are certificates of deposit in denominations of $100,000 or greater. Additionally, at June 30, 2001, time deposits included $6.7 million of certificates of deposit issued to a public entity which require pledging of certain of the Company's securities portfolio. At June 30, 2001, the Bank had purchased $5.5 million of Federal funds from correspondent banks to fund balance sheet growth during the later part of the period ended June 30, 2001. The Bank has established lines with these correspondents to provide an additional source of liquidity to the Bank. Shortly after June 30, 2001, these funds were sold back to the correspondents in their entirety. Additionally, during the period ended June 30, 2001, the Bank became a member of the Federal Home Loan Bank of Cincinnati ("FHLB") which also represents a source of additional liquidity as the Bank can obtain advances from the FHLB. At June 30, 2001, the Bank had obtained $1.5 million in short-term advances from the FHLB. RESULTS OF OPERATIONS The Company's results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and other losses, to generate non-interest income, and to control operating expenses. Results of operations for the three-month period ended June 30, 2001 reflected a net loss of approximately $935,000 or a net loss per share of $(0.49). The results for the three-month period ended March 31, 2001 reflected a net loss of approximately $1.3 million or $(0.67) per share. The improvement in results of $347,000 was attributable to revenue growth through the accumulation of more interest-earning assets and increased fee income. The results of the Company's operations for the six-month period ended June 30, 2001 was a net loss of approximately $2.2 million or $(1.16) per share. As stated previously, the Company was in the development stage for the periods ended June 30, 2000, thus comparisons of those periods to the current periods are not considered meaningful. NET INTEREST INCOME Interest income for the three-month period ended June 30, 2001 was approximately $1.3 million while interest expense was approximately $637,000. The resulting net interest income was $661,000 for the three-month period ended June 30, 2001, compared to $447,000 for the three-months ended March 31, 2001. The net interest margin for the three-months ended June 30, 2001 was 3.6% compared to 4.3% for the three-month period ended March 31, 2001. During the quarter ended June 30, 2001, short-term interest rates continued to decline in response to the actions of the Federal Reserve. Generally, customers with loans tied to prime or other similar rate indexes received immediate benefit from these rate reductions. Conversely, the rates paid on most of the Company's deposits do not respond in a similar fashion as competitive and other market factors generally slow these rate decreases over a more extended period of time. The Company anticipates that the net interest margin will improve over time as the Company is able to grow and fund its current loans and other assets with lower-priced deposits. Page 9 10 The following table sets forth the amount of the Company's average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities, the average interest rate for total interest-earning assets and total interest-bearing liabilities, and net interest spread and net yield on average interest-earning assets for the six-months ended June 30, 2001 (dollars in thousands):
Average Income/ Average Balances Expense Yield/Rate -------- ------- ---------- Interest-earning assets: Loans ............................................ $39,393 $1,525 7.8% Taxable investment securities, available for sale 12,909 409 6.4 Federal funds sold and securities purchased under agreements to resell ..................... 6,164 161 5.3 ------- ------ ------ Total interest-earning assets ............... 58,466 2,095 7.2 ------ ------ Non interest-earning assets ........................... 5,746 ------- Total assets ..................................... $64,212 ======= Interest-bearing liabilities: Interest-bearing deposits ........................ 39,704 909 4.6 Other interest-bearing liabilities ............... 4,379 78 3.6 ------- ------ ------ Total interest-bearing liabilities ........... 44,083 987 4.5 ------- ------ ------ Demand deposits ....................................... 5,198 Other liabilities ..................................... 401 Stockholders' equity .................................. 14,530 ------- Total liabilities and stockholders' equity ....... $64,212 ======= Net interest income ................................... $ 1,108 ======= Net interest spread ................................... 2.7 Benefit of interest free funding ................. 1.1 ------ Net interest margin ................................... 3.8% ======
---------- Note -- The impact of deferred loan fees or costs was not material to the above results. Yields on all investment securities were computed based on the carrying value of those securities. PROVISION FOR LOAN LOSSES The provision for loan losses was approximately $725,000 for the six-month period ended June 30, 2001. Based upon management's evaluation of the loan portfolio, management believes the reserve for loan losses to be adequate to absorb possible losses on existing loans that may become uncollectible. This evaluation considers past due and classified loans, underlying collateral values, and current economic conditions which may affect the borrower's ability to repay. The amount of the provision taken was based on loan growth during the period. The Company anticipates that the provision for loan losses will continue to increase as loan balances increase. NONINTEREST INCOME AND EXPENSE Noninterest income consists predominately of fees from the sale of investment products. It also includes service charges on deposit accounts and other miscellaneous revenues and fees. During the three-month period ended June 30, 2001, noninterest income increased to approximately $368,000 from $183,000 for the three-month period ended March 31, 2001. Noninterest expense consists primarily of personnel related expenses, occupancy and equipment costs and other administrative related expenses for accounting firms, attorneys and other professional services used during the normal course of banking business. Noninterest expense for the three-month period ended June 30, 2001 was approximately $1.60 million compared to $1.55 million for the three-month period ended March 31, 2001. The Company anticipates that noninterest expense will increase by a modest amount with most of the increase attributable to the addition of its Green Hills location in Nashville, Tennessee in the third quarter of 2001. Page 10 11 INCOME TAX EXPENSE The Company had no income tax expense due to a pre-tax operating loss for the six-month period ended June 30, 2001 of approximately $2,217,000 which can be carried forward to offset any future taxable income. The Company has recorded a full valuation allowance against net deferred tax assets for any benefits that may be realized for this operating loss carryforward. PER SHARE INFORMATION The net loss per share computed on a basis of 1,910,000 common shares outstanding for the three-month period ended June 30, 2001 was $(0.49) per share and for the six-month period ended June 30, 2001, the net loss per share was $(1.16). The net loss per share for the period from February 28, 2000 (inception) to June 30, 2000 was computed on a basis of one share outstanding as prior to the Company's initial public offering, the Company had only one share of common stock outstanding which was redeemed once the initial public offering was concluded on August 23, 2000. The net loss per share computed on a basis of the entire 1,910,000 common shares outstanding for the three-month period ended June 30, 2000 would have been $(0.16) and for the period from February 28, 2000 (inception) to June 30, 2000 the net loss per share would have been $(0.20) per share. LIQUIDITY The purpose of liquidity management is to ensure that there are sufficient cash flows to satisfy loan demand, deposit withdrawals, and other needs of the Company. Traditional sources of liquidity for a bank include asset maturities and growth in core deposits. A bank may achieve its desired liquidity objectives from the management of its assets and liabilities and by internally generated funding through its operations. Funds invested in marketable instruments that can be readily sold and the continuous maturing of other earning assets are sources of liquidity from an asset perspective. The liability base also provides sources of liquidity through attraction of increased deposits and borrowing funds from various other institutions. The Company's consolidated statement of cash flows for the six-months ended June 30, 2001 shows net cash provided or used by operating, investing and financing activities. As noted on this statement the Company used approximately $1.3 million for operations during this period. Net cash used for investing activities amounted to approximately $64.9 million as funds received from financing activities of approximately $64.1 million were deployed in earning assets and premises and equipment. As a result, cash and cash equivalents decreased by $2.2 million during the period. At June 30, 2001, the Company had unfunded loan commitments outstanding of approximately $34.7 million and outstanding standby letters of credit of approximately $1.5 million. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank has the ability to liquidate Federal funds sold or debt securities or on a short-term basis to borrow and purchase Federal funds from other financial institutions. To date, the Bank has been able to fund its ongoing liquidity needs through attraction of additional deposits, borrowing against established lines at correspondents and through the liquidation of Federal funds sold. During the period ended June 30, 2001, the Bank became a member of the FHLB which also represents a source of additional liquidity through obtaining advances from the FHLB. As the loan portfolio of the Bank grows, certain loans and other assets qualify as collateral for these FHLB advances. As a result, this increases the Bank's capacity to borrow from the FHLB, thus enhancing the Bank's overall liquidity position. At June 30, 2001, the Company had no material commitments for capital expenditures. However, the Company is in the process of developing its branch network in Davidson and surrounding counties. As a result, the Company will enter into contracts to buy property or construct branch facilities and/or lease agreements to lease property and/or rent currently constructed facilities. The Company anticipates operating a branch facility in the Green Hills area of Nashville later in 2001. The Company currently Page 11 12 anticipates such a facility to cost approximately $1 million to construct, of which $121,000 has been included in premises and equipment through June 30, 2001. Management believes that the Company has adequate liquidity to meet all known commitments (i.e., loan commitments) and reasonable borrower, depositor, and creditor requirements over the next twelve months. CAPITAL RESOURCES During 2000, the Company completed its initial stock offering and issued 1,910,000 shares of Company common stock. The net proceeds to the Company from the issuance of these shares approximated $18.2 million. Additionally, approximately $179,000 of costs related the issuance of the Company's common stock was also charged to the Company's stockholders' equity during 2000. At June 30, 2001, the Company's and the Bank's capital ratios were substantially greater than regulatory minimum capital requirements. At June 30, 2001, the Bank's Tier 1 leverage ratio was approximately 17%, its Tier 1 risk-based capital ratio was 15% and its total risk-based capital ratio was 16%. The Company's ratios approximate the Bank's. These ratios will decline as asset growth continues, but the Company intends to remain in excess of the regulatory minimum requirements. However, no assurances can be given in this regard, as rapid growth, deterioration in loan quality, unforeseen losses, or a combination of these factors, could change the Company's capital position in a relatively short period of time. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party or of which any of their property is the subject. ITEM 2. CHANGES IN SECURITIES (a) Not applicable (b) Not applicable (c) Not applicable (d) Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of the shareholders of the Company was held on May 15, 2001. (b) The following directors were elected at the meeting to serve until the annual meeting of shareholders in the year 2004:
Votes Votes Broker For Withheld Non-votes --- -------- --------- Sue R. Atkinson ........... 1,852,838 7,000 - Colleen Conway-Welch ...... 1,849,338 10,500 - Clay T. Jackson ........... 1,852,838 7,000 -
In addition, the following directors continue in office until the annual meeting of shareholders in the year indicated: Page 12 13 Gregory L. Burns........2002 John E. Maupin Jr...........2002 Robert E. McCabe, Jr....2002 Robert E. McNeilly, Jr......2002 Dale W. Polley..........2003 M. Terry Turner.............2003 James L. Shaub, II......2003 Reese L. Smith, III.........2003 Linda E. Rebrovick......2002
(c) Other matters voted upon and the results of the voting were as follows: The shareholders voted 1,015,835 in the affirmative and 55,350 in the negative, with 4,050 abstentions and 784,603 broker non-votes, to approve the 2001 Pinnacle Financial Partners, Inc. 2000 Incentive Stock Option Plan. The shareholders voted 1,858,838 in the affirmative and no votes in the negative, with 1,000 abstentions and no broker non-votes, to appoint Arthur Andersen, LLP as auditors of the Company for the fiscal year ending December 31, 2001. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS None. (b) REPORTS ON FORM 8-K None. SIGNATURES Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PINNACLE FINANCIAL PARTNERS, INC. By: /s/ M. Terry Turner ---------------------------------------- M. Terry Turner President and CEO Date: August 10, 2001 By: /s/ Harold R. Carpenter ---------------------------------------- Harold R. Carpenter Chief Financial Officer Date: August 10, 2001 Page 13 14 EXHIBIT INDEX
Exhibit No. Description -------- ----------------------------------- None.
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