content: SECURITIES AND EXCHANGE COMMISSION
  
                            Washington, D.C. 20549
  
                  ---------------------------------------------
  
                                    FORM 8-K
                                 CURRENT REPORT
                         Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
  -------------------------------------------------------------------------------
  
                                                             May 1, 1998
      Date of Report (Date of earliest event reported):      April 17, 1998)
                                                          -----------------------
  
                                CNB BANCSHARES, INC.
                -------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)
  
                                      Indiana
                      --------------------------------------
                  (State or Other Jurisdiction of Incorporation)
  
         0-11510                                         35-1568731
   -----------------------                       -------------------------
   (Commission File Number)                  (IRS Employer Identification No.)
  
                 20 N.W. Third Street, Evansville, Indiana 47739
            ---------------------------------------------------------
             (Address of Principal Executive Offices)     (Zip Code)
  
                                  (812) 456-3400
              -----------------------------------------------------
               Registrant's Telephone Number, Including Area Code
  
                                  Not Applicable
            --------------------------------------------------------------
             (Former Name or Former Address, if Changed Since Last Report)
  
  ===============================================================================
  
  Page
  
  ITEM 2.  ACQUISITION OR DISPOSITION OF ASSETS.
  ------   ------------------------------------
  
       On  April 17,  1998,  CNB Bancshares, Inc., an Indiana  corporation  (the
  "Registrant"), acquired  Pinnacle  Financial  Services,   Inc.,   a   Michigan
  corporation ("Pinnacle"), by means of the merger (the "Merger") of Pinnacle with
  and into the Registrant pursuant to an Agreement and Plan of Merger, dated as of
  October  14, 1997, between the Registrant and Pinnacle (the "Merger Agreement").
  Pursuant  to the Merger Agreement, each issued and outstanding share  of  common
  stock,  no par value per share, of Pinnacle was converted into 1.0365 shares  of
  common  stock, stated  value $1.00 per share, of the Registrant  (approximately
  13,241,070 shares in the aggregate including the assumption by the Registrant of
  Pinnacle's employee stock options) with cash in lieu of fractional shares.  The 
  Merger  was  accounted  for  as  a  "pooling of interests"  for  accounting  and
  financial  reporting  purposes.   A copy of the  press  release  announcing  the
  closing of the Merger is filed as Exhibit 99(a) to this Current Report on Form
  8-K.
  
       Pinnacle was a bank holding company headquartered in St. Joseph, Michigan. 
  At  December 31,  1997, Pinnacle had consolidated assets of  $2.1  billion  and
  shareholders' equity  of  $181 million.  Through its  wholly-owned  subsidiary,
  Pinnacle  Bank,  a Michigan state banking corporation, Pinnacle  conducted  full
  service  and  retail banking through 14 branch offices located  in  southwestern
  Michigan  and  30  branch  offices and two loan production  offices  located  in
  northern Indiana.
  
       The Registrant's Registration Statement of Form S-4 (Registration No. 333 
  46837),  which was declared effective by the Securities and Exchange  Commission
  on  February  26,  1998  (the  "Registration  Statement"),  sets  forth  certain
  information  regarding the Merger, the Registrant and Pinnacle,  including,  but
  not  limited to, the manner of the Merger, a description of the assets involved,
  the  nature  and  amount of consideration paid by the Registrant  therefor,  the
  method used for determining the amount of such consideration, the nature of  any
  material  relationships between Pinnacle and the Registrant or  any  officer  or
  director of the Registrant or any associate of any such officer or director, the
  nature  of  Pinnacle's business and the Registrant's intended use of the  assets
  acquired in the Merger.
  
       Pursuant to the Merger Agreement, on April 22, 1998, the following persons,
  who  were immediately prior thereto serving as members of the Board of Directors
  of  Pinnacle,  became  members  of the Board of  Directors  of  the  Registrant:
  Terrence  A.  Friedman, Chairman of the Board of Trelleborg (a  manufacturer  of
  rubber  components  primarily  for the auto industry);  James  E.  Hutton,  Vice
  President  in  charge  of  operations for Burrell  Professional  Labs,  Inc.  (a
  professional photo processing company); and Alton C. Wendzel, President of  Greg
  Farms,  Inc.  Greg  Orchards  and Produce, Inc. and Coloma  Frozen  Foods,  Inc.
  (growers and processors of fresh and frozen produce).
  
  ITEM 7.  FINANCIAL STATEMENTS AND EXHIBITS.
  ------   ---------------------------------
  
  (a)  Financial Statements of Business Acquired:
       -----------------------------------------
  
       The  following  audited  financial statements of  Pinnacle  are  submitted 
  herewith:
  
       1.   Report of Independent Auditors.
       2.   Consolidated Balance Sheets as of December 31, 1997 and 1996.
       3.   Consolidated  Statements of Income for the Years  Ended  December  31,
            1997, 1996 and 1995.
       4.   Consolidated  Statements of Stockholders' Equity for the  Years  Ended
            December 31, 1997, 1996 and 1995.
       5.   Consolidated Statements of Cash Flows for the Years Ended December 31,
            1997, 1996 and 1995.
       6.   Notes to Consolidated Financial Statements.
  
  (b)  Pro Forma Financial Information:
       -------------------------------
  
       Pro  forma financial information required by Item 7(b) of Form 8-K  giving 
  effect to the acquisition of Pinnacle will be filed not later than 60 days after
  the filing of this Report on Form 8-K.
  
  (c)  Exhibits:
       --------
  
       The following exhibits are incorporated herein by reference:
  
  Exhibit 2(a)  Agreement  and Plan of Merger, dated as of October 14,  1997,  by
                and  between  CNB  Bancshares, Inc., an Indiana corporation,  and 
                Pinnacle  Financial  Services, Inc., a Michigan  corporation,  is 
                incorporated herein by reference from the Registration  Statement 
                on Form S-4 of CNB Bancshares, Inc. (No. 333-46837).
  
  Exhibit 2(b)  Stock Option Agreement, dated as of October 14, 1997, between CNB
                Bancshares, Inc., an Indiana corporation, and Pinnacle  Financial
                Services, Inc., a Michigan corporation, is incorporated herein by 
                reference  from  the Registration Statement on Form  S-4  of  CNB 
                Bancshares, Inc. (No. 333-46837).
  
       The following exhibits are included with this Report:
  
  Exhibit 23(a)  Consent of KPMG Peat Marwick LLP.
  
  Exhibit 99(a)  Press Release dated April 17, 1998.
  
  
                                    SIGNATURE
  
  
       Pursuant  to the requirements of the Securities Exchange Act  of  1934,  as
  amended,  the Registrant has duly caused this report to be signed on its  behalf
  by the undersigned thereunto duly authorized.
  
       Dated:  May 1, 1998
  
                                                 CNB BANCSHARES, INC.
                                            ------------------------------
                                                (Registrant)
  
                                         By:     /s/ John R. Spruill
                                             ------------------------------
                                                 John R. Spruill
                                                 Executive Vice President
  
  
  INDEPENDENT AUDITORS' REPORT
  The Board of Directors
  Pinnacle Financial Services, Inc.
  
  We have audited the accompanying consolidated balance sheet of Pinnacle 
  Financial Services, Inc. and subsidiaries (the Company) as of December 31, 1997
  and the related consolidated statements of income, changes in stockholders'
  equity, and cash flows for the year then ended. These consolidated financial
  statements are the responsibility of the Company's management. Our
  responsibility is to express an opinion on these consolidated financial
  statements based on our audit.
  
  We conducted our audit in accordance with generally accepted auditing standards.
  Those standards require that we plan and perform the audit to obtain reasonable 
  assurance about whether the financial statements are free of material 
  misstatement. An audit includes examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements. An audit also includes
  assessing the accounting principles used and significant estimates made by 
  management, as well as evaluating the overall financial statement presentation. 
  We believe that our audit provides a reasonable basis for our opinion.
  
  In our opinion, the consolidated financial statements referred to above present 
  fairly, in all material respects, the financial position of Pinnacle Financial 
  Services, Inc. and subsidiaries as of December 31, 1997, and the results of 
  their operations and their cash flows for the year then ended in conformity with
  generally accepted accounting principles.
  
  We previously audited and reported on the consolidated balance sheet of Pinnacle
  Financial Services, Inc. and subsidiaries as of December 31, 1996, and the 
  related consolidated statements of income, changes in stockholders' equity, and 
  cash flows for the years ended December 31, 1996, and 1995, prior to their 
  restatement for the 1997 pooling of interests. The contribution of Pinnacle 
  Financial Services, Inc. and subsidiaries to total assets and net income 
  represented 50% and 57% of the respective restated totals for the year ended 
  December 31, 1996 and the contribution of Pinnacle Financial Services, Inc. and 
  subsidiaries to total assets and net income represented 50% and 40% of the 
  respective restated totals for the year ended December 31, 1995. Separate 
  consolidated financial statements of the other companies included in the 
  December 31, 1996 restated consolidated balance sheet and consolidated 
  statements of income, changes in stockholders' equity, and cash flows for the 
  years ended December 31, 1996 and 1995 were audited and reported on separately 
  by other auditors. We also audited the combination of the accompanying 
  consolidated balance sheet as of December 31, 1996 and consolidated statements 
  of income, changes in stockholders' equity, and cash flows for the years ended 
  December 31, 1996 and 1995, after restatement for the 1997 pooling of interests;
  in our opinion, such consolidated statements have been properly combined on the 
  basis described in note 1 of the notes to the consolidated financial statements.
  
                                                        /s/ KPMG Peat Marwick LLP
  
  Chicago, Illinois
  March 30, 1998
  
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  CONSOLIDATED BALANCE SHEETS
  
  DECEMBER 31, 1997 AND 1996
  
  <TABLE>
  <CAPTION>
  (IN THOUSANDS, EXCEPT SHARE DATA)
                                                                           1997          1996
  <S>                                                                  <C>           <C>
  ASSETS:
    Cash and cash equivalents:
      Cash and due from banks......................................    $    49,209   $   60,957
      Federal funds sold...........................................          6,400       15,750
                                                                       -----------   ----------
        Total cash and cash equivalents............................         55,609       76,707
    Interest-bearing deposits with financial institutions..........          1,548       13,171
    Securities available-for-sale:
      Taxable......................................................        386,181      491,039
      Tax-exempt...................................................         33,103       22,447
    Securities held-to-maturity taxable............................             --       14,299
    Mortgage loans held for sale...................................         12,750       11,485
    Loans, net of unearned income..................................      1,508,365    1,415,855
      Less: allowance for loan losses..............................         20,528       14,909
                                                                       -----------   ----------
        Net loans..................................................      1,487,837    1,400,946
    Premises and equipment, net....................................         29,299       26,082
    Interest receivable and other assets...........................        109,168       79,034
                                                                       -----------   ----------
          Total assets.............................................     $2,115,495   $2,135,210
                                                                       -----------   ----------
  LIABILITIES:
    Deposits:
      Noninterest-bearing demand...................................     $   99,262   $  121,235
      Interest bearing demand......................................        186,808      143,821
      Savings......................................................        433,121      437,513
      Time.........................................................        713,917      776,142
                                                                       -----------   ----------
        Total deposits.............................................      1,433,108    1,478,711
    Federal Home Loan Bank advances................................        414,365      369,238
    Securities sold under repurchase agreements and other borrowings        69,511      102,206
    Interest payable and other liabilities.........................         17,516       14,796
                                                                       -----------   ----------
        Total liabilities..........................................      1,934,500    1,964,951
  
  STOCKHOLDERS' EQUITY:
    Common stock; no par value; 15,000,000 shares authorized;
      12,619,499 shares issued and outstanding at December 31,
      1997; and 12,151,514 shares issued and outstanding at 
      December 31, 1996............................................         19,110       19,110
    Additional paid-in capital.....................................         78,094       78,192
    Retained earnings..............................................         81,764       83,599
    Treasury stock.................................................             --      (10,304)
    Guaranteed ESOP obligation.....................................             --         (379)
    Recognition and retention plan obligation......................             --           (4)
    Net unrealized gain on securities available-for-sale...........          2,027           45
                                                                        ----------   ----------
        Total stockholders' equity.................................        180,995      170,259
                                                                       -----------   ----------
        Total liabilities and stockholders' equity.................     $2,115,495   $2,135,210
                                                                        ----------   ----------
  </TABLE>
             See accompanying notes to consolidated financial statements.
  
                                         35
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  CONSOLIDATED STATEMENTS OF INCOME
  
  FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
  
  <TABLE>
  <CAPTION>
  (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                      1997        1996        1995
  <S>                                                              <C>         <C>         <C>
  INTEREST INCOME:
    Interest and fees on loans:
      Taxable...............................................       $ 128,758   $ 114,316   $  90,234
      Tax-exempt............................................             667         404         346
    Interest and dividends on securities:
      Available-for-sale
        Taxable.............................................          35,643      29,424      12,867
        Tax-exempt..........................................           1,480       1,140         159
      Held-to-maturity
        Taxable.........................................    ....          --       1,227       2,500
        Tax-exempt..........................................              --          --         873
    Interest on federal funds sold..........................             166         410         257
    Interest on interest-bearing deposits with
      financial institutions................................             358         982         680
                                                                   ---------   ---------   ---------
          TOTAL INTEREST INCOME.............................         167,072     147,903     107,916
  
  INTEREST EXPENSE:
    Interest on deposits....................................          62,695      60,567      43,556
    Interest on Federal Home Loan Bank advances.............          24,286      15,928       8,821
    Interest on securities sold under repurchase agreements
      and other borrowings..................................           4,505       3,104       2,692
                                                                   ---------   ---------   ---------
          TOTAL INTEREST EXPENSE...............................       91,486      79,599      55,069
                                                                   ---------   ---------   ---------
          NET INTEREST INCOME..................................       75,586      68,304      52,847
    Provision for loan losses..................................       13,320       2,681       1,422
                                                                   ---------   ---------   ---------
          NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..       62,266      65,623      51,425
    Noninterest income:
      Service charges on deposit accounts......................        5,279       4,341       3,653
      Trust income.............................................          912         789         605
      Securities gains and losses, net.........................          813         708         790
      Other income.............................................       11,516       7,015       4,761
                                                                   ---------   ---------   ---------
          TOTAL NONINTEREST INCOME.............................       18,520      12,853       9,809
  
    Noninterest expense:
      Salaries and employee benefits...........................       23,858      21,690      17,599
      Occupancy................................................        4,638       4,123       3,076
      Equipment................................................        3,748       3,473       2,813
      FDIC insurance premiums..................................          681       7,858       1,965
      Other expense............................................       33,086      17,802      13,207
                                                                   ---------   ---------   ---------
          TOTAL NONINTEREST EXPENSES..........................        66,011      54,946      38,660
                                                                   ---------   ---------   ---------
  INCOME BEFORE INCOME TAX EXPENSE............................        14,775      23,530      22,574
  INCOME TAX EXPENSE..........................................         4,559       7,443       6,353
                                                                   ---------   ---------   ---------
  NET INCOME..................................................     $  10,216   $  16,087   $  16,221
                                                                   ---------   ---------   ---------
  </TABLE>
  
                                         36
  
  <PAGE>
  
  <TABLE>
  <S>                                                     <C>         <C>          <C>
  NET INCOME PER SHARE:
    Basic.........................................        $   .83     $   1.33     $   1.60
    Diluted.......................................            .83         1.32         1.58
  AVERAGE SHARES OUTSTANDING:
    Basic.........................................     12,258,265   12,051,935   10,137,302
    Diluted.......................................     12,311,957   12,171,221   10,244,326
  CASH DIVIDENDS DECLARED PER COMMON SHARE........        $  0.94     $   0.82     $   0.76
  </TABLE>
  
         See accompanying notes to consolidated financial statements.
  
                                        37
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
  
  FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
  
  <TABLE>
  <CAPTION>
                                                                                                                Net
                                                                                                             Unrealized
                                                                                                            (Losses) on
                                                         Additional                      Guaranteed         Securities
                                                Common    Paid-in  Retained     Treasury    ESOP           Available-for-
                                                 Stock    Capital  Earnings       Stock  Obligation    RRP     Sale      Total
  (in thousands)                                ------- ---------- --------     -------- ----------  ------- ----------  -----
  <S>                                           <C>       <C>       <C>         <C>         <C>      <C>      <C>       <C>
  Balance, January 1, 1995...............       $19,110   $42,690   $67,351     $(8,900)    $(715)   $ (48)   (3,347)  $116,141
  Net income.............................            --        --    16,221          --        --       --        --     16,221
  Common stock dividends declared:
    Pinnacle Financial Services, Inc.
      $.76 per share.....................            --        --    (3,295)         --        --       --        --    (3,295)
    Pooled companies prior to
      merger.............................            --        --    (4,036)         --        --       --        --    (4,036)
  Issuance of common stock for:
    Employee incentive plan..............            --       636        --          --        --       --        --       636
    Stock offering, net of costs.........            --    13,184        --          --        --       --        --    13,184
    Purchase of Maco Bancorp, Inc........            --    20,985        --          --        --       --        --    20,985
  Purchase of treasury stock.............            --        --        --        (957)       --       --        --      (957)
  Payments made on guaranteed ESOP
    obligation...........................            --        --        --          --       125       --        --       125
  Amortization of RRP contribution.......            --        --        --          --        --       27        --        27
  Issuance of treasury stock.............            --       (79)       --         147        --       --        --        68
  Tax benefit related to stock option
    plans................................            --        70        --          --        --       --        --        70
  Change in unrealized gain(loss) for
    securities available-for-sale,
    net of tax effect of $3,468..........            --        --        --          --        --       --     5,289     5,289
                                                -------   -------    -------    -------     -----    -----    ------  --------
  Balance, December 31, 1995.............        19,110    77,486     76,241     (9,710)     (590)     (21)     1,942  164,458
  Net income.............................            --        --     16,087         --        --       --         --   16,087
  Common stock dividends declared:
    Pinnacle Financial Services, Inc.
      $.82 per share.....................            --        --     (4,838)        --        --       --         --   (4,838)
    Pooled companies prior to
      merger.............................            --        --     (3,891)        --        --       --         --   (3,891)
  Issuance of common stock for:
    Employee incentive plan..............            --       913         --         --        --       --         --      913
    Additional costs related to prior
      year stock offering................            --      (259)        --         --        --       --         --     (259)
  Purchase of treasury stock.............            --        --         --       (612)       --       --         --     (612)
  Payments made on guaranteed ESOP
    obligation...........................            --        --         --         --       211       --         --       211
  Amortization of RRP contribution.......            --        --         --         --        --       17         --        17
  Issuance of treasury stock.............            --       (11)        --         18        --       --         --         7
  Tax benefit related to stock option
    plans.............. .................            --        63         --         --        --       --         --        63
  Change in unrealized gain (loss)
    for securities available-for-sale,
    net of tax effect) of $(1,244).......            --        --         --         --        --       --     (1,897)   (1,897)
                                                -------   -------    -------    -------     -----    -----     ------  --------
  Balance, December 31, 1996.............       $19,110   $78,192    $83,599   $(10,304)    $(379)     $(4)    $   45  $170,259
  Net income.............................            --        --     10,216         --        --       --         --    10,216
  Common stock dividends declared:
    Pinnacle Financial Services, Inc.
      $.94 per share.....................            --        --     (8,675)        --        --       --         --    (8,675)
    Pooled companies prior to
      merger.............................            --        --     (2,583)        --        --       --         --    (2,583)
  Redemption of Shareholder's Rights
    Plan.................................            --        --        (48)        --        --       --         --       (48)
  Common stock issuance upon exercise
    of options...........................            --     7,436         --         --        --       --         --     7,436
  Payments made on guaranteed ESOP
    obligation...........................            --        --         --         --       379       --         --       379
  Tax Benefit Related to stock option
    plans................................            --     1,630         --         --        --       --         --     1,630
  Increase in fair value related to
    allocation of ESOP shares............            --       719         --         --        --       --         --       719
  Amortization of RRP contribution.......            --        --         --         --        --        4         --         4
  Issuance of treasury stock.............            --      (575)        --      1,000        --       --         --       425
  Retirement of treasury stock...........            --    (9,304)        --      9,304        --       --         --        --
  Cash paid in lieu of fractional
    shares...............................            --        (4)        --         --        --       --         --        (4)
  Adjustment for change in fiscal
    year of pooled entity................            --        --       (745)        --        --       --         --      (745)
  Change in unrealized gain (loss)
    for securities available-for-sale, 
    net of tax effect of $...............            --        --         --         --        --       --      1,982     1,982
                                                -------   -------    -------    -------     -----    -----     ------  --------
  Balance, December 31, 1997.............        19,110    78,094     81,764         --        --       --      2,027   180,995
  </TABLE>
  
          See accompanying notes to consolidated financial statements.
  
                                         38
  
  <PAGE>
  
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
  
  FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
  
  <TABLE>
  <CAPTION>
  (in thousands)
                                                                                           1997         1996        1995
                                                                                        ---------    ---------   ---------
  <S>                                                                                   <C>         <C>         <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income.....................................................................     $ 10,216    $  16,087   $  16,221
    Adjustments to reconcile net income to net cash used in operating activities:
      Depreciation and amortization................................................        5,135        4,999       3,756
      Net amortization on loans and securities.....................................        1,116          636       1,088
      Provision for loan losses....................................................       13,320        2,681       1,422
      Deferred federal income taxes................................................       (2,029)      (1,206)       (446)
      Proceeds from sales of trading securities....................................           --       10,154       1,975
      Purchases of trading securities..............................................           --      (10,171)     (1,976)
      Mortgage loans purchased under agreements to resell..........................   (1,448,565)  (1,111,965)   (795,862)
      Proceeds from sale of mortgage loans purchased under agreements to resell....    1,363,517    1,096,721     741,010
      Mortgage loans originated for sale...........................................      (84,502)    (175,118)    (58,845)
      Proceeds from sales of loans.................................................       85,146      136,662      56,800
      Gain on sale of securities...................................................         (813)        (708)       (790)
      Gain on sale of loans........................................................       (3,411)      (1,019)       (545)
      Decrease(increase) in interest receivable and other assets...................       (3,529)      (1,331)     (1,477)
      Decrease in other liabilities................................................          267       (1,920)     (2,899)
                                                                                      ----------   ----------   ---------
  NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES.................................      (64,132)     (35,498)    (40,568)
                                                                                      ----------   ----------   ---------
  
  Net increase in loans, excluding loan sales and purchases......................         35,324      (67,920)     (5,654)
    Purchases of loans.............................................................      (50,269)     (79,642)    (17,723)
    Purchases of securities available-for-sale.....................................     (148,974)    (320,047)   (145,617)
    Purchases of securities held-to-maturity.......................................           --       (4,237)    (11,704)
    Purchases of Company owned life insurance policies.............................      (25,047)      (1,366)         (5)
    Proceeds from sales of securities available-for-sale...........................      205,091      146,580     140,291
    Proceeds from maturities and paydowns of securities available-for-sale.........       56,150       65,200      22,555
    Proceeds from maturities and paydowns of securities held-to-maturity...........           --        5,803      31,036
    Net (increase) decrease in interest-bearing deposits with financial
      institutions.................................................................       11,623       29,825     (24,583)
    Capital expenditures...........................................................       (6,331)      (3,086)     (3,185)
    Purchase of Forrest Holdings Inc. preferred stock..............................           --       (2,500)         --
    Purchase of MACO Bancorp, Inc., net of cash acquired and stock issued..........           --           --     (12,683)
    Purchase of NCB Corp., net of cash acquired....................................           --           --      (6,841)
                                                                                      ----------   ----------   ---------
  NET CASH USED BY INVESTING ACTIVITIES............................................       77,567     (231,390)    (34,113)
                                                                                      ----------   ----------   ---------
  CASH FLOWS FROM FINANCING ACTIVITIES:
    Net increase in deposits.......................................................      (45,603)     105,144      39,740
    Net increase in securities sold under repurchase agreements and other
      borrowings...................................................................       12,432       85,207      53,789
    Net change in obligation to limited partnership................................           --           18          --
    Common stock issued............................................................        7,436          654      13,752
    Contribution to fund ESOP......................................................          379          211         125
    Issuance of treasury stock.....................................................          425            7          68
    Purchase of treasury stock.....................................................           --         (612)       (957)
    Dividends paid.................................................................       (9,550)      (8,590)     (6,826)
    Redemption of shareholders' rights plan........................................          (48)          --          --
    Cash paid for fractional shares................................................           (4)          --          --
                                                                                      ----------   ----------   ---------
  NET CASH USED BY FINANCING ACTIVITIES............................................      (34,533)     282,039      99,691
                                                                                      ----------   ----------   ---------
  NET INCREASE IN CASH AND CASH EQUIVALENTS........................................      (21,098)      15,151      25,010
  Cash and cash equivalents at beginning of year...................................       76,707       61,556      36,546
                                                                                      ----------   ----------   ---------
  CASH AND CASH EQUIVALENTS AT END OF YEAR.........................................    $  55,609    $  76,707   $  61,556
                                                                                      ----------   ----------   ---------
                                                                                      ----------   ----------   ---------
  SUPPLEMENTAL DISCLOSURES:
    Interest paid..................................................................    $  91,353    $  78,987   $  54,079
    Income taxes paid..............................................................    $  11,272    $   7,921   $   7,518
    Loans transferred to other real estate owned...................................    $   4,099    $     756   $     738
    Transfers of securities held-to-maturity to available-for-sale.................    $  14,299    $      --   $ 239,332
                                                                                      ----------   ----------   ---------
  </TABLE>
  
           See accompanying notes to consolidated financial statements.
  
                                        39
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  DECEMBER 31, 1997 AND 1996
  
  NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
      	The accounting and reporting policies of Pinnacle Financial Services, Inc. 
  and subsidiaries conform to generally accepted accounting principles and 
  prevailing practices within the banking industry. The preparation of financial 
  statements in conformity with generally accepted accounting principles requires
  management to make certain estimates and assumptions that effect the reported 
  amounts of assets and liabilities and disclosure of contingent assets and 
  liabilities at the date of the financial statements and the reported amounts, 
  revenues and expenses during the reporting period. Actual results could differ 
  from those estimates.
  
      The following are significant accounting and reporting policies of
  Pinnacle Financial Services, Inc. and subsidiaries.
  
  (a) Consolidation
  
      The consolidated Pinnacle Financial Services, Inc. entity (the "Company")
  was formed on August 1, 1997 through a merger transaction whereby Indiana 
  Federal Corporation and subsidiaries ("IFC") and CB Bancorp, Inc. and 
  subsidiaries ("CB") were merged with and into the then existing Pinnacle 
  Financial Services, Inc. and subsidiaries ("Pinnacle"). The merger transaction 
  was accounted for in accordance with the pooling-of-interests method of 
  accounting for a business combination. Accordingly, the consolidated financial 
  statements included herein reflect the combination of the historical financial 
  results of Pinnacle, IFC and CB and their respective recorded assets and 
  liabilities have been restated at their historical cost as if the combining 
  companies had been consolidated for all periods presented.
  
     	As a result of the merger transaction, the consolidated financial statements
  include the accounts of Pinnacle Financial Services, Inc. and its wholly-owned 
  subsidiaries, Pinnacle Bank (the "Bank"), IndFed Mortgage Company, and Pinnacle
  Financial Consultants. Pinnacle Bank's two wholly-owned subsidiaries are 
  Starkeis, Inc. and Brookview Real Estate, LTD. Effective December 31, 1996, 
  Pinnacle Bank-Indiana (formerly a wholly-owned subsidiary of Pinnacle Financial
  Services, Inc.) was merged with and into Pinnacle Bank-Michigan, now 
  collectively known as Pinnacle Bank. Significant intercompany balances and 
  transactions have been eliminated in consolidation.
  
      Prior to the combination, CB's fiscal year ended March 31. In restating
  the historical consolidated financial statements included herein, the 
  consolidated financial statements as of and for the year ended December 31, 1997
  reflect transactions on a merged basis from January 1, 1997 through December 31,
  1997.  Additionally, CB's financial statements as of March 31, 1997 and 1996 and
  for each of the years in the two year period ended March 31, 1997 were combined 
  with Pinnacle's and IFC's financial statements as of December 31, 1996 and 1995 
  and for each of the years in the two year period ended December 31, 1996. An 
  adjustment of $745,000 was recorded in the consolidated statement of changes in
  stockholders' equity for the year ended December 31, 1997 to remove CB net 
  income from January 1 through March 31, 1997 from retained earnings, which 
  amount is included in December 31, 1996 retained earnings.
  
                                         40
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  (b) Securities
  
     	Securities which management believes could be sold prior to maturity in 
  order to manage interest rate risk, prepayment risk, liquidity risk, or other 
  corporate purposes are classified as available-for-sale and are carried at fair
  value with unrealized gains and losses, net of applicable income taxes, reported
  as a component of stockholders' equity. Securities which management believes are
  held for resale in anticipation of short-term market movements are classified as
  trading securities which are stated at fair value with unrealized holding gains
  and losses recognized in the income statement. Securities, other than the 
  foregoing, which management has the positive ability and intent to hold until 
  maturity are classified as securities held-to-maturity and are accounted for 
  using historical amortized cost. At December 31, 1997, the company had no 
  trading or held-to-maturity securities.
  
     	Premiums and discounts on securities are amortized and accreted over the 
  life of the related security as an adjustment to yield using the effective 
  interest method. Gain or loss on the sale of securities is determined based on 
  the adjusted cost of the specific security sold. A decline in the market value 
  of any available-for-sale or held-to-maturity security below cost that is deemed
  other than temporary results in a charge to earnings thereby establishing a new
  cost basis for the security.
  
  (c)  Mortgage Loans Purchased Under Agreements to Resell
  
      The Company purchases residential mortgage loans from various mortgage
  companies prior to sale of these loans by the mortgage companies in the 
  secondary market. The Company held loans that were purchased under agreements to
  resell from approved mortgage companies as of December 31, 1997. The Company 
  purchases such loans from mortgage companies at par, net of certain fees, and 
  later sells them back to the mortgage companies at the same amount and without 
  recourse provisions. As a result, no gains and losses are recorded at the resale
  of loans. The Company records interest income on the loans during the funding 
  period and fee income received from the mortgage company for each loan when the 
  loan is sold. The Company uses the stated interest rate in the agreement with 
  each mortgage company for interest income recognition, and not the interest 
  rates on individual loans. The Company does not retain servicing of the loans 
  when they are resold. Purchase money and refinancing mortgage loans are 
  generally held no more than 90 days by the Company and typically are resold 
  within 30 days. Construction loan mortgages acquired are held for the duration 
  of the construction loan period, which approximates one year or less.
  
  (d) Mortgage loans Held for Sale
  
     	Loans held for sale are carried at the lower of aggregate cost or market 
  value. Net unrealized losses are recognized in a valuation allowance by charges
  to income.
  
  (e) Allowance for Loan Losses
  
     	The allowance for loan losses is increased by provisions charged to 
  operating expense, is decreased by charge offs, net of recoveries, and is 
  available for losses incurred on loans, including certain accrued interest 
  receivable. The allowance for loan losses is based on management's periodic 
  evaluation of the loan portfolio. In evaluating the portfolio, management takes
  into consideration numerous factors, including current economic conditions, 
  prior loan loss experience, the composition of the loan portfolio, and 
  management's evaluation of the collectibility of specific loans. Management 
  believes that the allowance for loan losses is adequate to absorb potential 
  losses in the portfolio, however, future additions to the allowance may be 
  necessary based on changes in economic conditions. In addition, various 
  regulatory agencies periodically review the provision for loan losses. These 
  agencies may require that additions be made to allowance for loan losses based 
  upon their
  
                                        41
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  judgment of information available to them at the time of their examination.
  
      A loan is considered impaired when it is probable that a creditor will be
  unable to collect contractual principal and interest due according to the 
  contractual terms of the loan agreement. Impaired loans are generally considered
  by the Company to be nonaccrual commercial and commercial real estate loans, 
  restructured loans and commercial and commercial real estate loans for which 
  principal and/or interest is at risk. Impairment is measured by determining the
  fair value of the loans based on the present value of expected cash flows, the 
  market price of the loans, or the fair value of the underlying collateral. If 
  the fair value of the loan is less than the recorded book value, a valuation 
  allowance is established as a component of the allowance for loan losses.
  
  (f) Nonperforming Assets
  
     	Nonperforming assets are comprised of loans for which the accrual of 
  interest has been discontinued, loans contractually past due 90 days or more as
  to interest and/or principal and not included in nonaccrual loans, and other 
  real estate which has been acquired primarily through foreclosure and is 
  awaiting disposition. 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.
  
     	Other real estate is carried at the lower of cost or fair value, less 
  estimated costs to sell. When the property is acquired through foreclosure, any
  excess of the related loan balance over estimated fair value is charged to the 
  allowance for loan losses. Subsequent write-downs, losses upon sale, and 
  expenses related to maintenance of properties are charged to other expense.
  
  (g) Premises and Equipment
  
      Premises and equipment are stated at cost less accumulated depreciation.
  Depreciation, computed on the straight-line and accelerated methods, is charged
  to operations over the estimated useful lives of the properties.
  
  (h) Goodwill and Other Intangibles
  
     	Goodwill, which represents the excess of purchase price over fair value of 
  net assets acquired, is amortized on a straight-line basis up to 15 years
  with a remaining life of approximately 10 years at December 31, 1997. At 
  December 31, 1997 and 1996, goodwill of approximately $13,393,000 and 
  $14,604,000, respectively, is included in other assets in the accompanying 
  consolidated balance sheets.
  
                                        42
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     	Core deposit intangibles, representing the premium associated with the 
  acquisition of certain deposit liabilities, are being amortized to operating 
  expenses on a straight-line basis over the average lives of approximately 7 to 
  10 years of such deposit liabilities, with a remaining life at December 31, 1997
  of approximately 4 years. At December 31, 1997 and 1996, core deposit 
  intangibles of approximately $2,687,000 and $3,368,000, respectively, are 
  included in other assets in the accompanying consolidated balance sheets.
  
     	The Company assesses the recoverability of its goodwill and other 
  intangibles through review of various economic factors on a periodic basis in 
  determining whether impairment, if any, exists.
  
  (i) Loan Servicing Rights
  
      The Company recognizes as a separate asset the right to service loans for
  others which are amortized over the estimated lives of the loans. The Company 
  also evaluates these servicing rights for impairment based on the current fair 
  value of those rights. Impairment is recognized through a valuation allowance 
  established through a charge to expense. Loan servicing rights as of December 
  31, 1997 and 1996 totaled approximately $1,029,000 and $477,000, respectively.
  
  (j) Trust Assets
  
      Assets held by the Company in fiduciary or agency capacity for customers
  are not assets of the Company and as such are not included in the consolidated 
  financial statements. Fee income is recognized on an accrual basis for financial
  reporting purposes.
  
  (k) Employee Stock Ownership Plan
  
     	The Company has established an Employee Stock Ownership Plan (the ESOP) for 
  the former employees of IFC and CB.  The Company recognizes compensation expense
  for the applicable ESOP shares based on the fair value of those shares when 
  committed to be released to employees, rather than based on their original cost 
  in accordance with the American Institute of Certified Public Accountants & 
  Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership 
  Plans (SOP93-6).
  
  (l) Retirement Plans
  
     	Costs for the Company's defined benefit plans, which cover substantially all
  employees of the former Pinnacle and CB entities, are accounted for in 
  accordance with the requirements of Statement of Financial Accounting Standards
  No. 87, "Employers: Accounting for Pensions". The projected unit credit method 
  is utilized for measuring net periodic pension cost over the employees' service
  life. The Company's funding policy is to contribute annually an amount 
  calculated under the minimum ERISA funding requirements.
  
  (m) Postretirement Benefits Other Than Pensions
  
      An accrual for postretirement benefits is charged to current earnings
  based upon the expected cost of providing postretirement benefits to employees 
  during the years that the employees render services.
  
  (n) Stock Option Plan
  
      As of December 31, 1996, the Company adopted the disclosure requirements
  of Financial Accounting Standards Board Statement No. 123, "Accounting for 
  Stock-Based Compensation". The Company applies APB Opinion 25, "Accounting for 
  Employee Benefit Plans" and related interpretations in accounting for its stock 
  option plan.
  
  (o) Income Taxes
  
     	Prior to the merger Pinnacle, IFC and CB and their respective subsidiaries 
  each filed consolidated U.S. income tax returns. The consolidated tax liability 
  is settled between companies generally as if each company had filed a separate 
  return. For the year ended December 31, 1997, the Company and its subsidiaries 
  will file consolidated tax returns.
  
                                       		43
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     	Deferred tax assets and liabilities are recognized for the future tax 
  consequences attributable to differences between the financial statement 
  carrying amounts of existing assets and liabilities and their respective tax 
  bases. Deferred tax assets and liabilities are measured using enacted tax rates
  expected to apply to taxable income in the years in which those temporary 
  differences are expected to be recovered or settled. Under Financial Accounting
  Standards Board Statement No. 109, "Accounting for Income Taxes", the effect on
  deferred tax assets and liabilities of a change in tax rates is recognized in 
  the period that includes the enactment date.
  
  (p) Income Recognition
  
     	The Company uses the accrual basis of accounting for financial reporting 
  purposes. Loans are stated at the principal amount outstanding, net of any 
  unearned income. Loan origination fees and certain direct loan origination costs
  are deferred and recognized over the lives of the related loans as an adjustment
  of the yield.
  
  (q) Statements of Cash Flows
  
      For purposes of reporting cash flows, cash and cash equivalents include
  cash on hand, amounts due from banks and federal funds sold.
  
  (r) Per Share Data
  
     	Basic net income per share is calculated by dividing net income by the 
  weighted average number of shares of common stock outstanding during each 
  period. The diluted net income per share calculation is adjusted for the effects
  of options. Average shares have been increased for the assumed conversion of 
  outstanding options into common shares and is retroactively adjusted for stock 
  splits and stock dividends. Cash dividends declared per share are based upon the
  number of shares outstanding at date of declaration, retroactively adjusted for
  stock splits and stock dividends.
  
  (s) Reclassifications
  
      Certain prior year amounts have been reclassified to conform to current
  year presentation.
  
  NOTE 2 SUPERVISION AND REGULATION
  
     	The Company and its subsidiary bank are subject to supervision, regulation 
  and periodic examination by various federal and state banking regulatory 
  agencies including the Board of Governors of the Federal Reserve Board (the 
  "FRB"), the Federal Deposit Insurance Corporation (the "FDIC"), and the Michigan
  Financial Institutions Bureau (the "FIB"). Since the Company is a bank holding 
  company, the Company's activities are limited to the business of banking and 
  activities closely related to banking.
  
      The following is a summary of certain statutes and regulations affecting
  the Company. This summary is qualified in its entirety by such statutes and 
  regulations, which are subject to change based on pending and future legislation
  and action by regulatory agencies.
  
                                        44
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     	BANK HOLDING COMPANIES.  As a bank holding company, the Company is subject 
  to regulation under the Bank Holding Company Act of 1956, as amended (the 
  "BHCA"), and by the FRB.
  
      Banking laws and regulations restrict transactions by insured banks owned
  by a bank holding company, including loans to and certain purchases from the 
  parent holding company, non-bank and bank subsidiaries of the parent holding 
  company, principal stockholders, officers, directors and their affiliates, and 
  investments by the subsidiary banks in the shares or securities of the parent 
  holding company (or of any other non-bank or bank affiliates), and acceptance of
  such shares or securities as collateral security for loans to any borrower. The
  regulators also review other payments, such as management fees, made by 
  subsidiary banks or affiliated companies.
  
     	Under the BHCA, a bank holding company is prohibited, with certain limited 
  exceptions, from engaging in activities other than those of banking or of 
  managing or controlling banks and from acquiring or retaining direct or indirect
  ownership or control of voting shares or assets of any company which is not a 
  bank or bank holding company, other than subsidiaries engaged in activities 
  which the Federal Reserve Board determines to be so closely related to banking 
  and managing or controlling banks as to be a proper incident thereto.
  
     	BANKS.  The Company's subsidiary bank is subject to regulation, supervision
  and periodic examination by the Michigan FIB. Additionally, as an institution 
  whose deposits are insured by the Bank Insurance Fund (the "BIF") and the 
  Savings Association Insurance Fund (the "SAIF") of the FDIC, Pinnacle Bank is 
  also subject to supervision, regulation and periodic examination by the FDIC.
  
     	The Company and the Bank are subject to various regulatory capital 
  requirements administered by the federal banking agencies. Failure to meet 
  minimum capital requirements can initiate certain mandatory--and possibly 
  additional discretionary--- actions by regulators that, if undertaken, could 
  have a direct material effect on the Company's financial statements. Under 
  capital adequacy guidelines and the regulatory framework for prompt corrective 
  action, the Company and the Bank must meet specific capital guidelines that 
  involve quantitative measures of the Company's and the Bank's assets, 
  liabilities, and certain off-balance-sheet items as calculated under regulatory
  accounting practices. The Company's and the Bank's capital amounts and 
  classification are also subject to qualitative judgments by the regulators about
  components, risk weightings, and other factors.
  
     	Quantitative measures established by regulation to ensure capital adequacy 
  require the Company and the Bank to maintain minimum amounts and ratios (set 
  forth in the table below) of total and Tier I capital (as defined in the 
  regulations) to risk-weighted assets (as defined), and of Tier I capital (as 
  defined) to average assets (as defined). Management believes, as of December 31,
  1997, that the Company and the Bank meet all capital adequacy requirements to 
  which they are subject.
  
     	As of December 31, 1997, the most recent notification from the primary 
  regulator of Pinnacle Bank categorized the Bank as WELL CAPITALIZED under the 
  regulatory framework for prompt corrective action. To be categorized as WELL 
  CAPITALIZED the Bank must maintain minimum total risk-based, Tier I risk-based, 
  Tier I leverage ratios as set forth in the table. This notification occurred 
  prior to the effective date of the pooling. There are no conditions or events 
  since that notification that management believes have changed the institution's 
  category.
  
                                      		45
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      The Company's and the Bank's actual capital amounts and ratios are also
  presented in the tables for 1997 and 1996.
  
  
  <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 DECEMBER 31, 1997
  Total Capital (to Risk Weighted Assets): 
    CONSOLIDATED.................................   $  180,984   14.54%   $  99,611   8.00%   $ 124,513   10.00%
    Pinnacle Bank................................      199,193   12.25%      97,412   8.00%     121,765   10.00%
  Tier 1 Capital (to Risk Weighted Assets):
    CONSOLIDATED.................................   $  165,359   13.28%   $  49,805   4.00%   $  74,708    6.00%
   	Pinnacle Bank................................     	133,907   11.00%      48,706   4.00%      73,059    6.00%
  Tier 1 Capital (to Average Assets):
    CONSOLIDATED.................................   $  165,359    7.29%   $  90,682   4.00%   $ 113,352    5.00%
    Pinnacle Bank................................      133,907    6.44%      83,198   4.00%     103,998    5.00%
  
  AS OF DECEMBER 31, 1996
  Total Capital (to Risk Weighted Assets):
    CONSOLIDATED.................................   $  168,081   13.30%   $ 100,870   8.00%   $ 126,087   10.00%
    Pinnacle Bank................................      145,522   11.61%     100,297   8.00%     125,372   10.00%
  Tier 1 Capital (to Risk Weighted Assets):
    CONSOLIDATED.................................   $  153,172   12.12%   $  50,435   4.00%   $  75,652    6.00%
    Pinnacle Bank................................      130,613   10.42%      50,149   4.00%      75,223    6.00%
  Tier 1 Capital (to Average Assets): 
    CONSOLIDATED.................................   $  153,172    7.41%   $  83,832   4.00%   $ 104,790    5.00%
    Pinnacle Bank................................      130,613    6.27%      83,367   4.00%     104,208    5.00%
  </TABLE>
  
  
  NOTE 3 MERGERS AND ACQUISITIONS
  
    		Effective August 1, 1997, the Company issued 4,790,736 and 1,553,144 shares 
  of its common stock in exchange for all outstanding common stock of Indiana 
  Federal Corporation ("IFC") and CB Bancorp, Inc. ("CB"), respectively, both of 
  which were thrift holding companies located in Valparaiso and Michigan City, 
  Indiana, respectively. Total assets acquired of IFC and CB were $835 million and
  $288 million respectively. The business combinations have been accounted for as 
  pooling-of-interests transactions, and accordingly, the consolidated financial 
  statements for periods prior to the combinations have been restated to include 
  the accounts and results of operations of IFC and CB.
  
                                									46
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
    		The results of the operations previously reported by the separate 
  enterprises and the combined amounts presented in the accompanying consolidated
  financial statements are summarized below (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                   Six Months           Years ended,
                                                                  Ended June 30, December 31, December 31,
                                                                           1997         1996        1995
                                                                        ---------     --------   ---------
  (unaudited)
  <S>                                                                     <C>          <C>         <C>
  Net interest income:
    Pinnacle..........................................................    18,431       34,276      19,344
    IFC...............................................................    13,546       25,674      26,141
    CB................................................................     4,628        8,354       7,362
                                                                          ------       ------      ------
  Consolidated........................................................    36,605       68,304      52,847
                                                                          ------       ------      ------
                                                                          ------       ------      ------
  
  Net income:
    Pinnacle..........................................................     6,081        9,152       6,459
    IFC...............................................................     4,251        4,623       7,304
    CB................................................................     1,619        2,312       2,458
                                                                          ------       ------      ------
  Consolidated........................................................    11,951       16,087      16,221
                                                                          ------       ------      ------
                                                                          ------       ------      ------
  
  </TABLE>
  
      On October 1, 1996, the Company , through Pinnacle Bank, purchased
  Starke's, Inc., a local insurance agency, through the issuance of 99,451 shares 
  of Pinnacle common stock. The assets acquired were $1,241,000 and the 
  transaction was accounted for using the pooling-of-interests method with no 
  restatement of prior periods as amounts involved were not material.
  
      On December 1, 1995, the Company acquired all of the outstanding stock of
  Maco Bancorp, Inc. ("Maco"), a Delaware corporation and registered savings and 
  loan holding company headquartered in Merrillville, Indiana, for a purchase 
  price of $41,944,000 (the "Purchase Price"). Approximately 50% of the Purchase
  Price was paid in cash ($20,959,000) and the balance was paid in Pinnacle common
  stock valued at $20,985,000. The acquisition of Maco was accounted for as a 
  purchase. All assets (approximately $412,800,000) and all liabilities 
  (approximately $384,200,000) of Maco and its subsidiaries (First Federal Savings
  Bank of Indiana, Brookview Real Estate Ltd. and First Insurance, Inc.) were 
  adjusted to fair value as of the effective date creating goodwill in the amount
  of $13,350,000 which is being amortized on a straight line basis over 15 years.
  Premiums and discounts on the fair value adjustments amounted to approximately 
  $3,895,000 and $830,000, respectively. The operating results of Maco have been 
  included in the Company's financial statements since the date of acquisition.
  
  	  	On January 31, 1995, the Company acquired, for $8.2 million, NCB Corporation
  ("NCB"), a bank holding company with total assets of approximately $45.0 million
  with offices in Culver and Granger, Indiana. The operations of NCB are included
  in the Company's financial statements since the date of acquisition and reflect
  the application of the purchase method of accounting. Under this method of 
  accounting, the aggregate cost to the Company of the acquisition was allocated 
  to the assets acquired and liabilities assumed, based on their estimated fair 
  values as of January 31, 1995, creating goodwill in the amount of $1.5
  million which is being amortized on a straight line basis over 15 years.
  
                                        47
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 4 FAIR VALUE OF FINANCIAL INSTRUMENTS
  
      Statement of Financial Accounting Standards No. 107, "Disclosures about
  Fair Value of Financial Instruments" (Statement 107), requires that the Company 
  disclose estimated fair values for its financial instruments in its consolidated
  financial statements. Fair value estimation methods and assumptions are 
  presented below for the Company's consolidated financial statements.
  
      The estimated fair value of the Company's financial instruments at
  December 31, 1997 and 1996 was as follows:
  
  <TABLE>
  <CAPTION>
                                                                           1997                     1996
                                                                -----------------------   -------------------------
                                                                  Carrying       Fair       Carrying       Fair
                                                                   Value         Value        Value        Value
                                                                -----------    ---------   ----------   ----------
  <S>                                                            <C>          <C>          <C>          <C>
  
  Financial Assets:
    Cash and due from banks....................................  $   49,209   $   49,209   $   60,957   $   60,957
    Federal funds sold.........................................       6,400        6,400       15,750       15,750
    Interest-bearing deposits with financial institutions......       1,548        1,548       13,171       13,171
    Securities available-for-sale..............................     419,284      419,284      513,486      513,486
    Securities held-to-maturity................................          --           --       14,299       14,348
    Mortgage loans held for sale...............................      12,750       12,750       11,485       11,491
    Net loans..................................................   1,487,837    1,494,377    1,400,946    1,405,485
    Accrued interest receivable................................      17,282       17,282       15,778       15,778
                                                                 ----------   ----------   ----------   ----------
  
      Total financial assets...................................  $1,994,310   $2,000,850   $2,045,872   $2,050,466
  
  Financial Liabilities:
    Noninterest-bearing deposits...............................  $   99,262   $   99,262   $  121,235   $  121,235
    Interest-bearing deposits..................................   1,333,846    1,335,907    1,357,476    1,361,453
    Federal Home Loan Bank advances, securities sold under
      repurchase agreements, and other borrowings..............     483,876      485,070      471,444      474,376
    Accrued interest payable...................................       5,239        5,239        5,130        5,130
                                                                 ----------   ----------   ----------   ----------
  
      Total financial Liabilities..............................  $1,922,223   $1,925,478   $1,955,285   $1,962,174
  
  </TABLE>
  
   			CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD: The carrying value of cash 
  and due from banks and federal funds sold approximates fair value due to the 
  short term maturity of those instruments.
  
   			INTEREST-BEARING DEPOSITS WITH FINANCIAL INSTITUTIONS AND SECURITIES: Fair 
  values of these instruments are based on quoted market prices, when available. 
  If quoted market prices are not available, fair values are based on quoted 
  market prices of comparable assets.
  
   			MORTGAGE LOANS HELD FOR SALE: Fair value are estimated based on quoted
  market prices.
  
   			NET LOANS: Fair values are estimated for portfolios of loans with similar
  financial characteristics. Loans are segregated by type such as commercial, 
  commercial real estate, residential mortgage, and consumer, including credit 
  card loans. Each loan category is further segmented into fixed and adjustable 
  rate interest terms.
  
                                          48
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
   			The fair value of performing loans, except credit card loans, is
  calculated by discounting scheduled cash flows through the estimated maturity 
  using the current rates at which similar loans would be made to borrowers with 
  similar credit ratings with the same remaining maturities. The estimate of the 
  maturity is based on industry forecast experience with repayments for each loan 
  classification. The fair value of variable rate loans repricing within three 
  months and credit card loans were assumed to be at carrying value.
  
     	Fair value for nonperforming loans is based on recent external appraisals. 
  If appraisals are not available, estimated cash flows are discounted using a 
  rate commensurate with the risk associated with the estimated cash flows. 
  Assumptions regarding credit risk, cash flows, and discount rates are 
  judgmentally determined using available market information and specific borrower
  information.
  
      ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE: The carrying
  value of accrued interest receivable and accrued interest payable approximates 
  fair value due to the relatively short period of time to expected realization.
  
     	NONINTEREST-BEARING AND INTEREST-BEARING DEPOSITS: The fair value of 
  deposits with no stated maturity, such as demand deposits, savings, NOW accounts
  and money market accounts, is equal to the amount payable on demand as of 
  December 31, 1997 and 1996. The fair value of time deposits is based on the 
  discounted value of contractual cash flows. The discount rate is estimated using
  the rates currently offered for similar remaining maturities.
  
  	   FEDERAL HOME LOAN BANK ADVANCES, SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
  AND OTHER BORROWINGS: The carrying amounts for securities sold under
  repurchase agreements and certain other borrowings approximate fair value as 
  they mature in 90 days or less. The fair value of certain other borrowings with
  maturities greater than 90 days are based on the discounted value of contractual
  cash flows. The discount rate is estimated using the rates currently offered for
  similar remaining maturities.
  
     	COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT: The value of commitments
  to extend credit is estimated using the fees currently charged to enter into 
  similar agreements, taking into account the remaining terms of the agreements 
  and the present creditworthiness of the counterparties. For fixed rate loan 
  commitments, fair value also considers the difference between current levels of
  interest rates and the committed rates. The fair value of letters of credit is 
  based on fees currently charged for similar agreements or on the estimated cost
  to terminate them or otherwise settle the obligations with the counterparties.
  
     	LIMITATIONS: Fair value estimates are made at a specific point in time, 
  based on relevant market information and information about the financial 
  instrument. These estimates do not reflect any premium or discount that could 
  result from offering for sale at one time the Company's entire holdings of 
  particular financial instruments. Because no market exists for a significant 
  portion of the Company's financial instruments, fair value estimates are based 
  on judgments regarding future expected loss experience, current economic 
  conditions, risk characteristics of various financial instruments, and other 
  factors. These estimates are subjective in nature and involve uncertainties and
  matters of significant judgment and therefore cannot be determined with 
  precision. Changes in assumptions could significantly affect the estimates.
  
                                							49
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
   			Fair value estimates are based on existing on- and off-balance sheet 
  financial instruments without attempting to estimate the value of anticipated 
  future business and the value of assets and liabilities that are not considered
  financial instruments. For example, the Company has a substantial trust 
  department that contributes net fee income annually. The trust department is not
  considered a financial instrument, and its value has not been incorporated into 
  the fair value estimates. Other significant assets and liabilities that are not 
  considered financial assets or liabilities include the mortgage servicing 
  rights, premises and equipment, and intangible assets. In addition, the tax 
  ramifications related to the realization of the unrealized gains and losses can 
  have a significant effect on fair value estimates and have not been considered 
  in the estimates.
  
  NOTE 5 CASH AND DUE FROM BANKS
  
    			The Bank is required to maintain certain daily reserve balances on hand in 
  accordance with Federal Reserve Board requirements. The reserve balances 
  maintained in accordance with such requirements at December 31, 1997 and 1996, 
  were $12,086,000 and $10,603,000, respectively.
  
  NOTE 6 SECURITIES
  
       The following summarizes the amortized cost, gross unrealized holding
  gains, gross unrealized holding losses and fair value for available-for-sale 
  securities at December 31, 1997.
  
  <TABLE>
  <CAPTION>
                                                                             Gross      Gross
                                                                          Unrealized  Unrealized
                                                               Amortized    Holding    Holding       Fair
                                                                  Cost       Gains     Losses       Value
                                                             ------------ ----------- -----------   ------
                                                                           (in thousands)
  <S>                                                          <C>          <C>       <C>       <C>
  AVAILABLE-FOR-SALE:
    U.S. Treasury and agency securities........................$  156,978   $   881   $  (376)  $  157,483
    Obligations of states and political subdivisions...........    31,728     1,375        --       33,103
    Corporate securities.......................................     2,000        --        (8)       1,992
    Equity securities..........................................    31,130        --       (22)      31,108
    Mortgage backed securities.................................   194,114     1,801      (317)     195,598
                                                               ----------   -------   -------   ----------
  
      Total securities.........................................$  415,950   $ 4,057   $  (723)  $  419,284
                                                               ----------   -------   -------   ----------
                                                               ----------   -------   -------   ----------
  
  </TABLE>
  
                               										50
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      The following summarizes the amortized cost, gross unrealized holding
  gains, gross unrealized holding losses and fair value for available-for-sale 
  securities at December 31, 1996.
  
  
  <TABLE>
  <CAPTION>
                                                                         Gross       Gross
                                                                       Unrealized  Unrealized
                                                             Amortized   Holding    Holding       Fair
                                                                Cost      Gains     Losses        Value
                                                            ----------- --------- -----------   ---------
                                                                          (in thousands)
  <S>                                                        <C>         <C>       <C>         <C>
  AVAILABLE-FOR-SALE:
    U.S. Treasury and agency securities...................   $ 205,608   $   787   $ (1,212)   $ 205,183
    Obligations of states and political subdivisions......      21,873       582         (8)      22,447
    Corporate securities..................................      12,350         4        (33)      12,321
    Equity securities.....................................      23,653       101        (29)      23,725
    Mortgage backed securities............................     249,950     1,327     (1,467)     249,810
                                                             ---------   -------   --------    ---------
      Total securities....................................   $ 513,434   $ 2,801   $ (2,749)   $ 513,486
                                                             ---------   -------   --------    ---------
                                                             ---------   -------   --------    ---------
  
  </TABLE>
  
      The following summarizes the amortized cost, gross unrealized holding
  gains, gross unrealized holding losses and fair value for securities held to 
  maturity at December 31, 1996.
  
  <TABLE>
  <CAPTION>
  
                                                                              Gross      Gross
                                                                           Unrealized  Unrealized
                                                                 Amortized   Holding    Holding      Fair
                                                                    Cost      Gains      Losses     Value
                                                               ------------ ---------  ---------   -------
  <S>                                                             <C>        <C>        <C>       <C>
                                                                             (in thousands)
  HELD-TO-MATURITY:
    U.S. Treasury and agency securities.........................  $  3,000   $   --     $  (48)   $  2,952
    Corporate securities........................................     2,789        6         (2)      2,793
    Mortgage backed securities..................................     8,510      102         (9)      8,603
                                                                  --------   ------     ------    --------
    Total securities..........................................    $ 14,299   $  108     $  (59)   $ 14,348
                                                                  --------   ------     ------    --------
  
  </TABLE>
  
                                          51
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      Maturities of investment securities classified as available-for-sale at
  December 31, 1997 by contractual maturity, are shown below. Expected maturities
  will differ from contractual maturities because borrowers may have the right to
  call or prepay obligations with or without call or prepayment penalties.
  
  <TABLE>
  <CAPTION>
                                                                                                 Available-For-Sale
                                                                                              -------------------------
                                                                                                Amortized      Fair
                                                                                                  Cost         Value
                                                                                              ------------- ----------
                                                                                                    (in thousands)
  <S>                                                                                        <C>           <C>
  No maturity............................................................................    $    31,130   $   31,108
  Due in one year or less................................................................         11,664       11,716
  Due after one year through five years..................................................         16,498       16,763
  Due after five years through ten years.................................................         68,309       69,198
  Due after ten years....................................................................         94,235       94,901
  Mortgage-backed securities.............................................................        194,114      195,598
                                                                                            ------------   ----------
  Total securities.......................................................................    $   415,950   $  419,284
                                                                                            ------------   ----------
                                                                                            ------------   ----------
  
  </TABLE>
  
      Proceeds from sales of securities (excluding trading securities) during
  1997, 1996 and 1995 were $205,901,000, $146,580,000, and $140,291,000, 
  respectively. Gross gains of $1,236,000, $841,000, and $1,599,000 and gross 
  losses of $423,000, $150,000, and $809,000 were realized on those sales for 
  1997, 1996, and 1995, respectively. During 1997, 1996, and 1995 there were no 
  sales of securities classified as held-to-maturity.
  
      On August 1, 1997, securities held-to-maturity were reclassified to
  available-for-sale upon consummation of the CB merger to conform to
  Pinnacle's classification of investment securities. At the date of transfer, the
  securities had an amortized cost and net unrealized gain of $14.0 million and 
  $200,000, respectively.
  
     	Mortgage-backed securities include mortgage-backed securities and 
  collateralized mortgage obligations. The mortgage-backed securities represent 
  participating interest of pools of long-term first mortgage loans originated and
  serviced by the issuers of the securities. Collateralized mortgage obligations 
  are debt securities that are secured by mortgage loans or other mortgage-backed
  securities.
  
    		Securities with an amortized cost of $40,206,000 and $356,602,000 at 
  December 31, 1997 and 1996, respectively, were pledged to secure public deposits
  and securities sold under agreements to repurchase and for other purposes as 
  required by law or contract.
  
      The Company did not have any investment securities that individually
  exceeded 10% of stockholders' equity at December 31, 1997 and 1996.
  
                                       52
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 7 LOANS
  
      The following summarizes loans by classification at December 31 of each
  year.
  
  <TABLE>
  <CAPTION>
                                                            1997        1996
                                                         ---------    ---------
                                                              (in thousands)
  <S>                                                   <C>         <C>
  Commercial loans..................................... $  491,932  $  421,948
  Real estate loans....................................    588,046     650,624
  Consumer loans.......................................    238,427     238,321
  Tax exempt loans.....................................     10,240       9,686
  Mortgage loans purchased under agreements to
    resell.............................................    179,720      95,276
                                                        ----------   ---------
  
  Loans, net.....................................       $1,508,365  $1,415,855
                                                        ----------  ----------
                                                        ----------  ----------
  
  </TABLE>
  
  MORTGAGE LOANS PURCHASED UNDER AGREEMENTS TO RESELL
  
    		The Company has entered into agreements with mortgage companies in which the
  Company purchases, at its discretion, mortgage loans from the mortgage companies
  at par, net of certain fees, and later sells them back to the mortgage companies
  at the same amount and without recourse provisions. The Company records interest
  income on the loans during the funding period and the Company records fee income
  (recorded as noninterest income) received from the mortgage company for each 
  loan when resold. The interest income recorded is based on a rate of interest 
  tied to the prime rate (as established from time to time by a major Chicago-
  based financial institution) during the funding period, and not the rates on 
  individual loans. Such loans are reviewed, prior to purchase, for evidence that 
  the loans are of secondary market quality or meet the Company's internal 
  underwriting guidelines. An assignment of the mortgage to the Company is 
  required. In addition, the Company either takes possession of the original note 
  and forwards such note to the end investor or the Company receives a certified 
  copy of the note and subsequently receives acknowledgment from the end investor 
  of receiving the original note. A commitment to purchase from an end investor is
  generally required prior to purchase by the Company. In the event that the end 
  investor would not honor this commitment and the mortgage companies would not be
  able to honor their repurchase obligations, the Company would then need to sell 
  these loans in the secondary market at the fair value of these loans. Purchase 
  money and refinance loans are generally held no more than 90 days by the Company
  and are typically resold within 30 days. The Company also purchases interim 
  construction loans under this program and holds these loans for the duration of 
  the construction loan period which typically approximates one year or less. The 
  Company had approximately $21,566,000 and $25,407,000 of interim construction 
  loans purchased under agreements to resell at December 31, 1997 and 1996.
  
                                    				53
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 7 LOANS (CONTINUED)
  
     	The following summarizes nonaccrual loans and loans greater than 90 days 
  delinquent which are still accruing interest at December 31 of each year.
  
  <TABLE>
  <CAPTION>
                                                                     1997                   1996
                                                             --------------------    -------------------
                                                              Non-       90 Days      Non-       90 Days
                                                             Accrual     Past Due    Accrual    Past Due
                                                            --------   -----------  ---------  -----------
                                                                             (in thousands)
  <S>                                                       <C>         <C>         <C>         <C>
  Real estate loans.......................................  $   1,027   $   4,040   $   1,742   $   3,459
  Commercial loans........................................      7,665       1,962       4,569       2,239
  Consumer loans..........................................        446       1,036         118         503
  Tax exempt loans........................................         --          --          --          --
  Mortgage repurchase loans...............................      1,629          --       4,700          --
                                                            ---------   ---------   ---------   ---------
  Total loans.............................................  $  10,767   $   7,038   $  11,129   $   6,201
                                                            ---------   ---------   ---------   ---------
                                                            ---------   ---------   ---------   ---------
  </TABLE>
  
     	For the years ended December 31, 1997, 1996 and 1995, if nonaccrual loans 
  had been maintained current in accordance with their original terms, additional
  interest income of $840,000, $1,100,000, and $449,000, respectively, would have 
  been realized.
  
                                 						54
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 7 LOANS (CONTINUED)
  
      The recorded investment in impaired loans at December 31, 1997 and 1996
  totaled $16.5 million and $13.3 million, respectively, for which a specific 
  allowance for loan losses of $2.9 million and $1.6 million, respectively, was 
  required as of and for the years then ended. As of December 31, 1997 and 1996, 
  the average recorded investment in impaired loans approximated $15.4 million and
  $10.9 million, respectively. For the years ended December 31, 1997 and 1996, 
  interest income recorded on such loans totaled $1,031,000 and $688,000, 
  respectively, of which $547,000 and $475,000 respectively has been recorded on a
  cash basis.
  
     	Certain officers, directors, and entities with which they are affiliated 
  have borrowed funds from the Company. These loans were made in the ordinary 
  course of business on substantially the same terms as loans to other persons 
  and, in the opinion of management, do not involve more than the normal risks of 
  collectibility or present other unfavorable features. Such loans at December 31,
  1997 and 1996 aggregated approximately $19,413,000 and $14,903,000, 
  respectively. The net increase of $4,510,000 in such loans resulted from new 
  loans of $5,087,000 and collections on loans of $577,000.
  
                                         55
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     	The following summarizes the activity in the allowance for loan losses for 
  the years ended December 31.
  
  <TABLE>
  <CAPTION>
                                                                                        1997        1996          1995
                                                                                     ---------    ---------    ---------
                                                                                                (in thousands)
  <S>                                                                                <C>          <C>         <C>
  Balance, beginning of year.......................................................  $  14,909    $ 13,853    $  11,787
  Adjustment due to change in fiscal year of pooled entity.........................        501          --           --
  Provisions charged against income................................................     13,320       2,681        1,422
  Recoveries.......................................................................        515         735          335
  Allowance of acquired financial institutions.....................................         --          --        1,855
                                                                                     ---------    --------    ---------
                                                                                        29,245      17,269       15,399
  Loans charged off................................................................     (8,717)     (2,360)      (1,546)
                                                                                     ---------    --------    ---------
  Balance, end of year.............................................................  $  20,528    $ 14,909    $  13,853
                                                                                     ---------    --------    ---------
                                                                                     ---------    --------    ---------
  
  </TABLE>
  
  NOTE 8 PREMISES AND EQUIPMENT, NET
  
      The following summarizes premises and equipment by classification at
  December 31.
  
  <TABLE>
  <CAPTION>
                                                                                                  1997         1996
                                                                                               ---------     --------
                                                                                                    (in thousands)
  <S>                                                                                          <C>          <C>
  Land and land improvements.................................................................. $   4,637    $  4,766
  Buildings...................................................................... ..............  26,704      25,746
  Furniture, fixtures and equipment...........................................................    23,785      18,687
                                                                                               ---------    --------
  Subtotal....................................................................... ..........      55,126      49,199
  Less accumulated depreciation...............................................................    25,827      23,117
                                                                                               ---------    --------
  Premises and equipment, net................................................................. $  29,299    $ 26,082
                                                                                               ---------    --------
                                                                                               ---------    --------
  
  Depreciation expense charged to operations was $3,114,000, $2,856,000, and $2,252,000 in
  	1997, 1996, and 1995, respectively.
  
  </TABLE>
                                        56
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 9 TIME DEPOSITS
  
      The following summarizes time deposits and their remaining maturities,
  included in interest-bearing deposits at December 31.
  
  <TABLE>
  <CAPTION>
                                                                                 1997
                                                                              -----------
  (in thousands)
  <S>                                                                         <C>
  Due within one year....................................................     $ 535,391
  From one to two years..................................................       112,424
  From two to three years................................................        35,275
  From three to four years...............................................         9,456
  From four to five years................................................        11,350
  Over five years........................................................        10,021
                                                                              ---------
  Total..................................................................     $ 713,917
                                                                              ---------
                                                                              ---------
  </TABLE>
  
  NOTE 10 BORROWINGS
  
     	The following is a schedule of securities sold under repurchase agreements 
  and other borrowings at December 31 of each year.
  
  <TABLE>
  <CAPTION>
                                                               1997        1996
                                                            ---------   --------
                                                                (in thousands)
  <S>                                                       <C>        <C>
  Securities sold under repurchase agreements.............  $  69,511  $  32,103
  Federal funds purchased.................................         --     69,900
  Federal Home Loan Bank advances.........................    414,365    369,238
  Other borrowings........................................         --        203
                                                            ---------  ---------
  Total...................................................  $ 483,876  $ 471,444
                                                            ---------  ---------
                                                            ---------  ---------
  </TABLE>
  
      Securities sold under repurchase agreements represent an indebtedness of
  the Company secured by certain securities. At December 31, 1997 and 1996, the 
  interest cost with regard to daily averages was 5.11% and 4.36%, respectively. 
  Securities with an amortized cost of $31.8 million and $29.9 million and an 
  estimated fair value of approximately $ 31.9 million and $29.8 million were 
  pledged as collateral for these agreements at December 31, 1997 and 1996, 
  respectively.
  
                                       57
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      Federal funds purchased, which mature daily, had an interest cost of
  6.24% at December 31, 1996. There were no federal funds purchased at
  December 31, 1997.
  
      Federal Home Loan Bank advances represent borrowings from Federal Home
  Loan Bank. Advances of $927.0 million, and $728.9 million, were drawn upon 
  during 1997, and 1996, respectively. At December 31, 1997, 1996, and 1995, 
  respectively, the interest cost with regard to daily averages was 5.67 %, 5.78%,
  and 6.13%, with maturities of one to ninety-four months. These borrowings are 
  secured by Federal Home Loan Bank stock (carried at $30.9 million), by all 
  eligible first mortgage loans on one-to-four family dwellings held by the Bank 
  (approximately $553.0 million at December 31, 1997) and by specific securities 
  with a carrying value of approximately $269.9 million.
  
      Other borrowings at December 31, 1996 consisted of the guaranteed ESOP
  obligation. The ESOP entered into a loan agreement to borrow up to $1.2 million
  with an unrelated financial institution to purchase shares of common stock in 
  the open market. The balance outstanding as of December 31, 1997 and 1996 was $0
  and $203,000, respectively.
  
  NOTE 11 INCOME TAXES
  
   			Income taxes (benefits) reported in the consolidated statements of income 
  for the years ended December 31, 1997, 1996, and 1995 include the following 
  components.
  
  <TABLE>
  <CAPTION>
                                                                          1997       1996        1995
                                                                       ---------   --------   ---------
                                                                                 (in thousands)
  <S>                                                                   <C>        <C>        <C>
  U.S. Federal
    Current...........................................................  $  7,048   $  7,304   $   5,811
    Deferred..........................................................    (2,596)    (1,267)       (593)
  State
    Current...........................................................       217      1,443       1,190
    Deferred..........................................................      (110)       (37)        (55)
                                                                        --------   --------   ---------
      Total...........................................................  $  4,559   $  7,443   $   6,353
                                                                        --------   --------   ---------
                                                                        --------   --------   ---------
  </TABLE>
  
                                        58
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
   			The following federal income tax expense differs from the amounts computed 
  by applying the federal income tax rate of 35% to pretax income at December 31 
  of each year.
  
  <TABLE>
  <CAPTION>
                                                                          1997       1996       1995
                                                                        --------   --------   --------
                                                                                 (in thousands)
  <S>                                                                   <C>        <C>        <C>
  Computed "expected" tax.............................................  $  5,171   $  8,199   $  7,755
  Tax exempt interest, net............................................      (695)      (478)      (430)
  Low income housing credit...........................................    (1,476)    (1,299)    (1,225)
  Amortization of goodwill............................................       389        327         42
  Acquisition cost....................................................     1,323         --         --
  State income tax, net of federal benefit............................        70        860        768
  Other, net..........................................................      (223)      (166)      (557)
                                                                        --------   --------   --------
  Total...........................................................     $   4,559   $  7,443   $  6,353
                                                                       ---------   --------   --------
                                                                       ---------   --------   --------
  </TABLE>
  
   			The following presents the tax effects of temporary differences that give 
  rise to significant portions of the deferred tax assets and liabilities at 
  December 31 of each year.
  
  <TABLE>
  <CAPTION>
                                                                                1997       1996
                                                                              --------   --------
                                                                                 (in thousands)
  <S>                                                                            <C>        <C>
  Deferred Tax Assets:
    Allowance for loan losses.................................................   7,595      4,740
    Deferred directors compensation...........................................   1,308        395
    Capital loss and tax credit carryforward..................................      --        887
    Other.....................................................................     882      1,520
                                                                              --------   --------
  
      Total gross deferred tax assets.........................................   9,785      7,542
    Less valuation allowance..................................................      --        (61)
                                                                              --------   --------
  
      Net deferred tax assets.................................................   9,785      7,481
                                                                              --------   --------
                                                                              --------   --------
  
  Deferred Tax Liabilities:
    Deposit base premium......................................................    (736)    (1,007)
    Deferred loan fees and costs..............................................  (1,647)      (992)
    Depreciation..............................................................    (390)      (372)
    Pension...................................................................    (463)      (271)
    Purchase discount.........................................................  (1,255)    (1,369)
    Unrealized gains on securities available-for-sale.........................  (1,307)       (16)
    Other.....................................................................    (321)    (1,273)
                                                                              --------   --------
      Total gross deferred tax liabilities....................................  (6,119)    (5,230)
                                                                              --------   --------
  
      Net deferred tax assets.................................................   3,666      2,251
                                                                              --------   --------
                                                                              --------   --------
  </TABLE>
  
   			The valuation allowance for deferred tax assets of $61,000 as of December 
  31, 1996 was reduced to zero during 1997 due to the utilization of the capital 
  loss carry forward.
  
                                  					59
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 12 EMPLOYEE BENEFITS
  
   			The former Pinnacle, IFC and CB entities had various employee benefit 
  programs for which certain plans have remained in place upon consummation of the
  merger transactions on August 1, 1997 and as of December 31, 1997. The details 
  of each plan are described herein.
  
  401(K) PLAN
  
   			The Company sponsors a defined contribution 401(k) plan for the benefit of 
  former Pinnacle employees. The Company matches employee contributions at levels
  dependent upon current operating results. In 1997, 1996, and 1995, the Company 
  contributions amounted to $128,000, $63,000, and $121,000, respectively. 
  Employee contributions to the plan are based upon optional percentages (ranging
  from 2% to 10%) of before tax compensation.
  
  PENSION PLANS
  
   			The Company sponsors a defined benefit pension plan which provides benefits 
  to substantially all full time employees of the former Pinnacle entity. Benefits
  under the plan are based on the employees' years of service and compensation 
  during the five highest paid plan years of the last ten years preceding 
  retirement. The following presents the components of net pension income at 
  December 31 of each year.
  
  <TABLE>
  <CAPTION>
                                                                       1997        1996       1995
                                                                      ------     ------      -----
                                                                             (in thousands)
  <S>                                                                 <C>        <C>        <C>
  Service cost--benefits earned during the year.....................  $  536     $  463     $  333
  Interest cost on projected benefit obligation.....................     379        401        268
  Actual return on plan assets......................................    (735)      (923)    (1,093)
  Net amortization and deferral.....................................    (157)       144        535
                                                                      ------     ------      -----
    Net pension expense (income)....................................      23     $   85     $   43
                                                                      ------     ------     ------
                                                                      ------     ------     ------
  </TABLE>
  
                                      60
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      The following presents the funded status of the former Pinnacle Bank's plan
  and amounts recognized in the consolidated balance sheets at December 31 of each
  year.
  
  <TABLE>
  <CAPTION>
                                                                                        1997       1996         1995
                                                                                     ---------   ---------   ---------
  <S>                                                                                <C>         <C>         <C>
  Actuarial present value of projected benefit obligation:
    Accumulated benefit obligation:
      Vested........................................................................ $  (3,754)  $  (3,440)  $  (2,837)
      Nonvested.....................................................................      (128)       (118)       (109)
    Provision for future salary increases...........................................    (1,976)     (2,580)     (1,969)
                                                                                     ---------   ---------   ---------
    Projected benefit obligation....................................................    (5,858)     (6,138)     (4,915)
  Plan assets at fair value.........................................................     8,625       8,048       7,253
                                                                                     ---------   ---------   ---------
  Excess of plan assets over projected benefit obligation...........................     2,767       1,910       2,338
  Unrecognized net transition asset.................................................      (664)       (731)       (799)
  Unrecognized net (gain)loss.......................................................      (498)         16        (259)
  Unrecognized prior service cost...................................................      (468)        (35)        (36)
                                                                                     ---------   ---------   ---------
  Prepaid pension cost, included in other assets....................................     1,137       1,160       1,244
                                                                                     ---------   ---------   ---------
                                                                                     ---------   ---------   ---------
  Major assumptions used:
    Discount rate...................................................................      7.50%       7.50%       7.75%
    Rate of increase in compensation levels.........................................      5.50%       5.50%       6.00%
    Expected long-term rate on plan assets..........................................     10.00%      10.00%      10.00%
  
  </TABLE>
  
    		The plan assets are invested primarily in a collective investment trust at 
  December 31, 1997, 1996, and 1995.
  
      The Company is also a part of a multi-employer defined benefit pension
  plan covering substantially all former CB employees.  The plan is administered 
  by the directors of the Financial Institutions Retirement Fund. There is no 
  separate actuarial valuation of plan benefits nor segregation of plan assets 
  specifically for the Company.  As of June 30, 1997, the latest actuarial 
  valuation, the total plan assets exceeded the actuarially determined value of 
  total vested benefits.  The plan was terminated and assets transferred to 
  participants in 1997.  There was no pension plan expense or contribution for the
  years ended December 31, 1997, 1996, and 1995. The administrative cost of the 
  plan is charged to expense and amounted to $1,600, 1,052, and $4,815 for the 
  years ended December 31, 1997, 1996, and 1995, respectively.
  
                                       61
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
  
      The Company has a Retiree Medical Plan which provides a portion of retiree 
  medical care premiums for certain former Pinnacle employees. The Company's level
  of contribution is based on age and service formula which provides benefits to 
  substantially all retired participants until December 31, 1997 and will provide 
  benefits to active participants in a 100% co-pay basis until age 65. The 
  components of the 1997, 1996 and 1995 net periodic postretirement benefit cost 
  are shown below:
  
  <TABLE>
  <CAPTION>
                                                                                 1997       1996       1995
                                                                                ------     ------     ------
                                                                                       (in thousands)
  <S>                                                                           <C>        <C>        <C>
  Service cost...............................................................   $   --     $   --     $   --
  Interest cost..............................................................       13         19         21
  Net amortization and deferral..............................................       23         33         33
                                                                                ------     ------     ------
  Net periodic postretirement benefit cost...................................       36     $   52     $   54
                                                                                ------     ------     ------
                                                                                ------     ------     ------
  </TABLE>
  
    		The funded status of the plan and the amounts recognized in the consolidated
  balance sheets are shown below:
  
  <TABLE>
  <CAPTION>
                                                                             1997          1996         1995
                                                                           -------       -------      -------
                                                                                       (in thousands)
  <S>                                                                      <C>           <C>          <C>
  Retired participants and beneficiaries................................   $  (160)      $  (248)     $  (281)
  Active participants...................................................        --            --           --
                                                                           -------       -------      -------
    Accumulated postretirement benefit obligation.......................      (160)         (248)        (281)
  Plan assets at fair value.............................................        --            --           --
  Excess of accumulated postretirement benefit obligation over plan
    assets..............................................................      (160)         (248)        (281)
  Unrecognized transition obligation....................................       160           193          226
  Unrecognized loss(gain)...............................................       (61)           (6)           2
                                                                           -------       -------      -------
    Accrued postretirement benefit obligation...........................   $   (61)      $   (61)     $   (53)
                                                                           -------       -------      -------
                                                                           -------       -------      -------
  </TABLE>
  
    		For measurement purposes, a 8.00%, 9.00%, and 10.00% annual rate of increase
  in the per capita cost of covered benefits (health care cost trend rate) was 
  assumed for 1997, 1996, and 1995, respectively; the rate was further assumed to 
  decline to 4.00% after 7 years. The health care cost trend rate assumption has 
  an increasing effect on the amounts reported. For example, increasing the 
  assumed health care cost trend rates by one percentage point in each year would 
  increase the accumulated postretirement benefit obligation by $18,500 and 
  $25,000 and the aggregate of the service and interest cost components of net 
  periodic postretirement benefit cost by $1,000, $2,000 and $2,000 for years 
  ended December 31, 1997, 1996 and 1995, respectively. The weighted average 
  discount rate used in determining the accumulated postretirement benefit 
  obligation was 7.50% for December 31, 1997 and 1996, and 7.25% for December 31, 
  1995.
  
                                    			62
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  SUPPLEMENTAL RETIREMENT PLANS
  
    		The Company maintains a supplemental retirement plan for executives of the 
  former CB entity. The plan requires acceleration of funding of benefits upon 
  change of control of the former CB entity into the secular trusts already 
  established. The cost of the plan charged to expense was $265,000 for the year 
  ended December 31, 1997 which included the payments to fund the remaining 
  liability under the plan as the merger transaction as described in Note 3 met 
  the change in control provisions per the agreement. The cost of the plan charged
  to expense was $39,000 and $44,000 for the years ended December 31, 1996 and 
  1995, respectively. The Company has purchased corporate-owned life insurance to 
  partially fund its obligation under this plan. The accrued liability to the 
  company was $0 at December 31, 1997 and 1996.
  
    		The Company also maintains a supplemental retirement plan for certain senior
  executives of the former IFC entity. The plan requires acceleration of funding 
  of benefits upon change of control of the former IFC entity for certain 
  executives. The cost of the plan charged to expense was $$1,157,000 for the year
  ended December 31, 1997 which included the payments to fund the remaining 
  liability under the plan for certain executives as the merger transaction 
  described in Note 3 met the change in control provisions per the agreement as 
  well as the annual, actuarially determined amounts for the remaining IFC 
  executives. The cost of the plan charged to expense was $230,000 and $25,000 for
  the years ended December 31, 1996 and 1995, respectively. The Company has 
  purchased corporate-owned life insurance to partially fund its obligation under 
  this plan. The accrued liability to the Company was $1,387,000 and $230,000 at 
  December 31, 1997 and 1996, respectively.
  
  EMPLOYEE STOCK OWNERSHIP PLANS
  
    		The Company has established a leveraged Employee Stock Ownership Plan 
  ("ESOP") in which all former IFC employees who attain minimum age and service
  requirements are eligible to participate. The Company recorded compensation 
  expense related to the plan of $724,335 , $278,000, and $407,000 for the years 
  ended December 31, 1997, 1996, and 1995, respectively. The Company's 1997 
  contribution to the ESOP was $257,995 compared to $350,350 in 1996 and $382,628 
  in 1995. The ESOP plan was terminated in 1997 upon repayment of the ESOP loan 
  and allocation of all remaining shares to participants.
  
                                     			63
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      At December 31, 1997 and 1996, the outstanding ESOP loan balance was
  $0 and $203,096, respectively. The interest incurred on the ESOP loan amounted 
  to $7,507 in 1997, $18,950 in 1996, and $31,250 in 1995.  Dividends paid on the 
  unallocated ESOP shares totaled $14,536 in 1997, $45,519 in 1996, and $50,023 in
  1995. The table below summarizes shares of Company Stock
  held by the ESOP.
  
  <TABLE>
  <CAPTION>
                                                                     December 31,
                                                                 ------------------
                                                                 1997          1996
                                                               --------      --------
  <S>                                                           <C>           <C>
  Shares allocated to participants..........................    225,549       185,171
                                                               --------      --------
  Unallocated shares:
    Grandfathered under SOP 93-6............................         --        10,672
    Unearned ESOP shares....................................         --        29,706
                                                               --------      --------
      Total.................................................         --       225,549
                                                               --------      --------
  </TABLE>
  
  	  	The Company also maintains an ESOP in which all former CB employees who 
  attain minimum age and service requirements are eligible to participate. The 
  Company recorded compensation expense of $192,634 for the year ended December 
  31, 1997 and $64,211 for each of the years ended December 31, 1996 and 1995. The
  Company's contribution to the ESOP was $208,686, $82,993, and $88,772 for the 
  years ended December 31, 1997, 1996, and 1995, respectively. The ESOP
  plan was terminated in 1997 upon repayment of the ESOP loan and the allocation 
  of all remaining shares to participants. At December 31, 1997 and 1996, the 
  outstanding ESOP loan balance was $0 and $176,852, respectively. The interest 
  incurred on the ESOP loan amounted to $16,052, $18,782, and $24,561 for the 
  years ended December 31, 1997, 1996, and 1995, respectively. The table below 
  summarizes shares of Company stock held by the ESOP.
  
  <TABLE>
  <CAPTION>
                                                                  1997         1996
                                                                --------    ---------
  <S>                                                            <C>           <C>
  Shares allocated to participants...........................    108,729       62,260
  Unallocated shares.........................................         --       46,469
                                                                --------     --------
   ..........................................................         --      108,729
                                                                --------     --------
                                                                --------     --------
  </TABLE>
  
                                      		64
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  RECOGNITION AND RETENTION PLANS
  
     	The Company has established the Recognition and Retention Plans (RRP) as a 
  method of providing directors, officers and other key employees of the former CB
  entity with a proprietary interest in the Company in a manner designed to 
  encourage such persons to remain with the Company. The terms of each RRP will be
  identical, only the participants and the number of shares awarded to each 
  participant vary. Eligible directors, officers and other key employees of the 
  Company will earn (i.e., become invested in) shares of common stock covered by 
  the award at a rate of 20% per year. The Company contributed funds to the RRP to
  enable the Plans to acquire in the aggregate 46,600 shares of common stock. An 
  expense of $7,705, $16,475, and $26,968 was recorded for these Plans for the 
  years-ended December 31, 1997, 1996, and 1995.
  
  DIRECTORS COMPENSATION PLANS
  
     	The Company sponsors a stock-based deferred compensation plan for directors 
  of the former IFC entity, in which directors can defer fees and purchase phantom
  units of the Company's common stock at $11.63. The amount charged to expense 
  related to this plan was $925,497, $156,839, and $162,199, in 1997, 1996, and 
  1995, respectively. At December 31, 1997, the directors had purchased 38,523 
  phantom units of which 6,629 were purchased in 1997.
  
     	The Company also sponsors a deferred compensation plan for its Board of 
  Directors of the former CB entity. Under the terms of the plan, directors may 
  elect to defer a portion of their fees which would be retained by the Company 
  with interest being credited to the participant's deferred balance. The plan was
  terminated on August 1, 1997 and directors were paid their accumulated deferred 
  balance which approximated $267,000.
  
     	The former CB Board of Directors adopted the Outside Directors' Consultation
  and Retirement Plan (the "Directors' Consultation Plan"). The purpose of the 
  Directors' Consultation Plan is to provide possible retirement benefits to 
  directors who are not officers or employees of the former CB entity to ensure 
  that the Company will have their continued service and assistance, if annually 
  contracted for by the Board of Directors in the conduct of the Company's 
  business in the future. Effective April 1, 1996, the Board of Directors of the 
  Company approved the Outside Director's Emeritus Plan (the "Directors' Emeritus 
  Plan) to replace the Outside Directors' Consultation and Retirement Plan. The 
  purpose of the Directors' Emeritus Plan is to ensure that the Company may, if 
  the Board so desires, have the continued service and assistance of directors who
  are not officers or employees of the Company in the conduct of the Company's 
  business in the future.
  
                                      		65
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     The resulting liability from the Directors' Emeritus Plan approximates the 
  liability accrued under the Directors' Consultation Plan. An expense of 
  approximately $18,000, 33,000 and $37,000 was recorded for these plans for the 
  years ended December 31, 1997, 1996 and 1995, respectively. The Directors' 
  Emeritus Plan was terminated in 1997 and final payment of $240,000 was made to 
  the directors. Therefore, the  resulting liability to the Company 
  was approximately $0 and $244,000 at December 31, 1997 and 1996, respectively.
  
                                       66
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 13 STOCK OPTION PLANS
  
     	At Pinnacle's 1993 Annual Stockholders Meeting, a non-qualified stock option
  plan (the "Plan") was presented to and approved by the stockholders of the 
  Company. The Compensation Committee of the Board of Directors, none of whom is 
  eligible to participate in the Plan, awarded certain key employees options to 
  purchase shares of the Company's common stock at an exercise price which 
  approximates the fair market value at the date of grant. All stock options have 
  five year terms and vest and become fully exercisable after five years from date
  of grant. The Board of Directors of the former CB entity has adopted the CB 
  Bancorp, Inc. 1992 Stock Option Plan for outside directors (the Directors' 
  Plan") of the former CB entity. Options for the purchase of shares of common 
  stock are authorized under the Directors' Plan. The option exercise price must 
  be at least 100% of the fair market value of the common stock on the date of the
  grant, and the option term cannot exceed 10 years. Eligible directors may 
  exercise 100% of the options awarded to them.
  
     	The Company also awards incentive and non-qualified stock options to certain
  former directors, officers and key employees. All options granted have 10 year 
  terms and vest and become fully exercisable over a 5 year period from the grant 
  date.
  
                                     		67
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     	A summary of the Company's stock options activity and related information 
  for the year ended December 31, is as follows:
  
  <TABLE>
  <CAPTION>
                                                                         1997              1996              1995
                                                                   ---------------   ---------------   ---------------
                                                                       Wtd. Avg.         Wtd. Avg          Wtd. Avg.
                                                                       Exercise          Exercise          Exercise
                                                                   ---------------   ---------------   ---------------
                                                                   Options   Price   Options   Price   Options   Price
                                                                   -------   -----   -------   -----   -------   -----
  <S>                                                              <C>       <C>     <C>       <C>     <C>      <C>
  Outstanding--beginning of year.................................. 537,499   14.14   499,921   11.54   491,327   8.78
    Granted....................................................... 100,000   29.15   121,750   20.90   153,750  16.85
    Exercised..................................................... 471,168   16.86    61,311    6.37   105,239   6.05
    Forfeited or canceled.........................................  11,040   19.59    22,860   13.99    39,917  12.48
    Outstanding--end of year...................................... 155,291   15.17   537,499   14.14   499,921  11.54
    Exercisable--end of year...................................... 155,291   15.17   288,912   11.32   253,738   9.21
  
  </TABLE>
  
      At December 31, 1997, the range of exercise prices and weighted average
  remaining contractual life of outstanding options was $4.62 to $21.16 and
  6.0 years, respectively.
  
   			The Company applies APB Opinion No. 25 in accounting for its Plan and, 
  accordingly, no compensation cost has been recognized for its stock options in 
  the financial statements. Proforma information regarding net income and net 
  income per share has been determined under a fair value method. The per share 
  weighted-average fair value of stock options granted during 1997, 1996 and 1995 
  was $6.63, $4.80, and $3.99, respectively. The fair value for these options was 
  estimated at the date of grant using a Black-Scholes option pricing model with 
  the following weighted average assumptions:
  
  <TABLE>
  <CAPTION>
                                            1997          1996         1995
                                            ----          ----         ----
  <S>                                   <C>           <C>          <C>
  Risk Free Interest rate                   6.50%         6.50%        6.50%
  Dividend yield                            3.75%         3.75%        3.75%
  Volatility                                .306%         .341%        .341%
  Expected Option life                  3.5 years     3.5 years    3.5 years
  </TABLE>
  
   			For purposes of pro forma disclosures, if the estimated fair value of the 
  options is  amortized to expense over the options' vesting period, the effect on
  net income would be (in thousands, except per share data):
  
  <TABLE>
  <CAPTION>
                                                       1997          1996           1995
                                                      ------        ------         ------
  <S>                                                <C>           <C>            <C>
  Net income
      As reported                                    $10,216       $16,087        $16,221
      Pro forma                                        9,539        15,699         15,853
  Basic earnings per share
      As reported                                    $   .83          1.32           1.60
      Pro Forma                                          .78          1.30           1.55
  Diluted earnings per share
      As reported                                    $   .83          1.32           1.58
      Pro forma                                          .78          1.29           1.55
  
  </TABLE>
  
       Pro forma net income and earnings per share reflect only options granted
  since December 31, 1994. Therefore, the full impact of calculating compensation 
  cost for stock options under SFAS No. 123 is not reflected in pro forma net 
  income and earnings per share presented above because compensation cost is 
  reflected over the options' vested period of generally five years and 
  compensation cost for options granted prior to January 1995 is not considered.
  
    		The following table reconciles the denominators for basic and diluted net 
  income per share:
  
  <TABLE>
  <CAPTION>
                                                                1997          1996          1995 
                                                             ----------    ----------    ----------
  <S>                                                        <C>           <C>           <C>
  Denominator
      For basic net income
        per share--average shares
        outstanding                                          12,258,265    12,051,935    10,137,302
      Effect of dilutive securities--
        stock options                                            53,692       119,286       107,024
      For diluted net income per
        share--average shares
        outstanding after assumed
        conversions                                          12,311,957    12.171,221    10,244,326
  
  </TABLE>
  
    		There were no dilutive securities for the years ended December 31, 1997, 
  1996, and 1995 in calculating the numerator for basic and diluted net income per
  share.
  
                                         68
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  
  NOTE 14 SUPPLEMENTARY INCOME STATEMENT INFORMATION
  
    		Other than the items listed below, other noninterest income and other 
  noninterest expenses did not include any accounts that exceeded 1% of total 
  revenue, which is the sum of total interest income and total noninterest income.
  
  <TABLE>
  <CAPTION>
                                                                                           1997        1996         1995
                                                                                        ---------   ---------    ---------
                                                                                                  (in thousands)
  <S>                                                                                   <C>         <C>         <C> 
  Other noninterest income:
    Service charges on deposit accounts................................................ $   5,279   $   4,341   $   3,653
    Trust fees.........................................................................       912         789         605
    Recoveries on distressed assets....................................................       479         250         296
    Gain on sale of loans, net.........................................................     3,411       1,019         545
    Merchant & loan servicing fees.....................................................     1,627       1,716       1,326
    Fees related to mortgage loans purchased under agreements to resell................     1,135         689         369
    Brokerage fees.....................................................................     1,927       1,982       1,263
  Other noninterest expense:
    Salaries and benefits..............................................................    23,858      21,690      17,599
    Occupancy..........................................................................     4,638       4,123       3,076
    Equipment..........................................................................     3,748       3,473       2,813
    Professional and legal fees........................................................     2,486       1,969       1,257
    Amortization of intangibles........................................................     2,021       2,037       1,269
    FDIC Insurance.....................................................................       681       7,858       1,965
    Supplies...........................................................................     1,573       1,434         973
    Postage............................................................................     1,378       1,202         900
    Marketing and promotion............................................................     1,982       2,244       1,469
    Computer processing................................................................     1,934       1,972       1,702
    Restructuring charges..............................................................    11,508          --          --
    Director Fees......................................................................     1,864         702         566
  
  </TABLE>
  
  NOTE 15 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
  
      The Company is a party to financial instruments with off-balance sheet
  risk in the normal course of business to meet the financing needs of its
  customers. These financial instruments are loan commitments to extend credit and
  letters of credit. Those instruments involve, to varying degrees, elements of 
  credit risk in excess of the amounts recognized in the consolidated balance 
  sheets. The contract amount of these instruments reflects the extent of 
  involvement the Company has in these financial instruments.
  
    		The following presents financial instruments with off-balance sheet risk at 
  December 31 of each year.
  
  <TABLE>
  <CAPTION>
                                                                                                1997          1996
                                                                                             ----------    ----------
                                                                                                   (in thousands)
  <S>                                                                                        <C>           <C>
  Financial instruments whose contract amounts represent potential credit risk
    Commitments to extend credit...........................................................  $  131,609    $  148,826
  Letters of credit........................................................................      24,477         5,660
  Undisbursed construction loans in repurchase program.....................................      11,582        12,419
  
  </TABLE>
  
                                    						69
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  
      Loan commitments to extend credit are agreements to lend to a customer as
  long as there is no violation of any condition established in the contract. 
  Commitments generally have fixed expiration dates or other termination clauses 
  and may require payment of a fee. Since many of the commitments are expected to 
  expire without being drawn upon, the total commitment amounts do not necessarily
  represent future cash requirements. The Company evaluates each customer's credit
  worthiness on a case-by-case basis. The amount of collateral obtained if deemed 
  necessary by the Company upon extension of credit is based on management's 
  credit evaluation of the counter party. Collateral held varies but may include 
  accounts receivable, inventory, property, plant and equipment, and income-
  producing commercial properties.
  
    		Letters of credit written are conditional commitments issued by the Company 
  to guarantee the performance of a customer to a third party. All letters of 
  credit are short-term guarantees of one year or less. The credit risk involved 
  in issuing letters of credit is essentially the same as that involved in 
  extending loans to customers. The Company has a secured interest in various 
  assets as collateral supporting those commitments for which collateral is deemed
  necessary. The extent of collateral held on those commitments at December 31, 
  1997 and 1996 is in excess of the committed amount.
  
  NOTE 16 PARENT COMPANY FINANCIAL INFORMATION
  
  CONDENSED PARENT COMPANY ONLY BALANCE SHEETS
  
  <TABLE>
  <CAPTION>
  
                                                                                                     December 31
                                                                                                 --------------------
                                                                                                 1997            1996
                                                                                              ----------      ----------
                                                                                                     (in thousands)
  <S>                                                                                         <C>           <C>
  ASSETS
    Cash and due from banks.................................................................  $    9,901     $    2,121
    Interest-bearing deposits with financial institutions...................................          --          6,076
    Securities available for sale...........................................................          --            217
    Investment in subsidiaries..............................................................     161,882        157,014
    Note receivable.........................................................................          --          1,450
    Other assets............................................................................      13,471          5,433
                                                                                              ----------     ----------
      TOTAL ASSETS..........................................................................  $  185,254     $  172,311
                                                                                              ----------     ----------
                                                                                              ----------     ----------
  
  LIABILITIES
    Notes payable and other liabilities.....................................................  $    4,259     $   2,052
  
  STOCKHOLDERS' EQUITY
    Common stock............................................................................      19,110        19,110
    Additional paid-in capital..............................................................      78,094        78,192
    Retained earnings.......................................................................      81,764        83,599
    Treasury stock at cost..................................................................          --       (10,304)
    Guaranteed ESOP obligation..............................................................          --          (379)
    Recognition and retention plan obligation...............................................          --            (4)
    Net unrealized gain on securities available-for-sale....................................       2,027            45
                                                                                              ----------    ----------
  
      Total stockholders' equity............................................................     180,995       170,259
                                                                                              ----------    ----------
      Total liabilities and stockholders' equity............................................  $  185,254     $ 172,311
                                                                                              ----------    ----------
                                                                                              ----------    ----------
  
  </TABLE>
  
                                  							70
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  
  NOTE 16 PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
  
  CONDENSED PARENT COMPANY ONLY STATEMENTS OF INCOME
  
  <TABLE>
  <CAPTION>
  					                                                                                Years Ended December 31,
                                                                                      ------------------------------
                                                                                        1997	       1996       1995
                                                                                     ---------   ---------   --------
                                                                                              (in thousands)
  <S>                                                                 			            <C>	        <C>        <C>
  Income
    Dividends from subsidiaries....................................................  $  12,805   $ 14,445   $  27,522
    Interest and other income......................................................      1,933      1,200         414
                                                                                     ---------  ---------   ---------
      Total income.................................................................     14,738     15,645      27,936
                                                                                     ---------  ---------   ---------
  Expenses
    Salaries and benefits..........................................................        907        290         222
    Other operating expenses.......................................................      7,137      1,492       1,115
                                                                                     ---------  ---------   ---------
      TOTAL EXPENSES...............................................................      8,044      1,782       1,337
                                                                                     ---------  ---------   ---------
  Income before income tax benefit and undistributed earnings of subsidiaries......      6,694     13,863      26,599
  Income tax benefit...............................................................       (947)      (210)       (342)
  Equity in undistributed earnings of subsidiaries.................................      2,575      2,014     (10,720)
                                                                                     ---------  ---------   ---------
      NET INCOME.................................................................... $  10,216  $  16,087   $  16,221
                                                                                     ---------  ---------   ---------
  
  </TABLE>
  
                                  								71
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  
  NOTE 16 PARENT COMPANY FINANCIAL INFORMATION (CONTINUED) CONDENSED PARENT
          COMPANY ONLY STATEMENTS OF CASH FLOWS
  
  <TABLE>
  <CAPTION>
                                                                                           Years Ended December 31,
                                                                                          --------------------------
                                                                                          1997       1996       1995
                                                                                       ---------  ---------  ---------
  
  <S>                                                                                  <C>        <C>        <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income.....................................................................    $  10,216  $  16,087   $ 16,221
    Equity in undistributed earning of subsidiaries................................       (2,575)    (2,014)    10,720 
    Other, net.....................................................................      (12,137)    (1,188)    (1,056)
                                                                                       ---------  ---------  ---------
      NET CASH PROVIDED BY OPERATING ACTIVITIES....................................       (4,496)    12,885     25,885
                                                                                       ---------  ---------  ---------
  
  CASH FLOWS FROM INVESTING ACTIVITIES:
    Net decrease (increase) in interest-bearing deposits with financial
      institutions.................................................................        6,076     18,108    (17,610)
    Purchase acquisition, net of cash..............................................           --         --    (28,219)
    Borrow funds to IndFed Mortgage Company........................................           --         --       (950)
    Purchase preferred stock of Forrest Holdings, Inc..............................           --     (2,500)        --
    Purchase common stock of IFB Investment Services, Inc..........................           --       (100)      (100)
    Purchase common stock of IndFed Mortgage Company...............................           --         --     (1,000)
    Purchase of available-for-sale securities......................................           --       (507)       (35)
    Proceeds from paydowns of available-for-sale securities........................           --         27         27
    Proceeds from sales and maturities of available-for-sale securities...........         1,089         --         --
                                                                                       ---------  ---------  ---------
      NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES.............................        7,165     15,028    (47,887)
                                                                                       ---------  ---------  ---------
  
  CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of treasury stock.......................................    $     425         --         --
    Proceeds from issuance of common stock.........................................        7,436        662     13,821
    Purchase of treasury shares at cost............................................           --       (613)      (957)
    Contribution to fund ESOP......................................................          379        211        125
    (Repayments) Proceeds from short-term borrowings...............................          396    (18,000)    18,000
    Dividends paid.................................................................       (9,550)    (8,590)    (6,826)
    Redemption of shareholders' rights plan........................................          (48)        --         --
    Cash paid for fractional shares................................................           (4)        --         --
                                                                                       ---------  ---------  ---------
      NET CASH USED (PROVIDED) BY FINANCING ACTIVITIES.............................         (966)   (26,330)    24,163
                                                                                       ---------  ---------  ---------
  Net increase in cash and cash equivalents........................................        1,703      1,583      2,161
  Cash and cash equivalents at beginning of year...................................        8,198      6,615      4,454
                                                                                       ---------  ---------  ---------
  
  CASH AND CASH EQUIVALENTS AT END OF YEAR.........................................    $   9,901  $   8,198   $  6,615
  </TABLE>
  
                                           72
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 17 DIVIDENDS FROM HOLDING COMPANY
  
    		The Company is a legal entity separate and distinct from its subsidiaries. 
  Substantially all of the Company's revenues result from dividends paid to it by
  its subsidiaries and from earnings on investments. There are statutory and 
  regulatory requirements applicable to the payment of dividends by Pinnacle Bank
  as well as by the Company to its stockholders. Under the foregoing dividend 
  restrictions, Pinnacle Bank, without obtaining government approvals, could 
  declare aggregate dividends in 1997 of approximately $33.2 million.
  
  NOTE 18 COMMITMENTS AND CONTINGENT LIABILITIES
  
      There are various other matters of litigation pending against the Company
  that have arisen during the normal course of business. Management is vigorously 
  defending themselves in all matters. Management believes that the impact to the 
  financial statements resulting from the ultimate resolution of these matters 
  will not be significant.
  
                                         73
  
  <PAGE>
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  
  NOTE 19 SUBSEQUENT EVENT- PENDING ACQUISITION
  
      On October 14, 1997, the Company entered into a definitive agreement to
  sell the Company to CNB Bancshares, Inc. (CNB) of Evansville, Indiana ($4.4 
  billion in total assets). The fixed exchange ratio is 1.0365 shares of CNB 
  Common Stock issued for each share issued and outstanding of Pinnacle Common 
  Stock, and it is anticipated to be accounted for using the pooling-of-interests 
  method of accounting. The sale is subject to shareholder approval and is 
  expected to close in the second quarter of 1998.
  
                                       74
  
  <PAGE>
  
  SELECTED QUARTERLY FINANCIAL INFORMATION
  <TABLE>
  <CAPTION>
                                                                March 31      June 30     September 30   December 31
                                                               ----------   -----------   -----------    ----------
  <S>                                                              <C>           <C>           <C>           <C>
                                                                   (in thousands, except per share data stock prices)
  1997
  Interest income...........................................       40,071        41,590        42,671        42,740
  Net interest income.......................................       18,130        18,475        18,953        20,028
  Provision for loan losses.................................          805           865        10,850           800
  Income before income tax expense..........................        8,957         9,134       (10,172)        7,556
  Net income................................................        5,996         5,955        (7,081)        5,346
  
  Net income per share...................................... $       0.49  $        .49        ($0.58) $       0.43
  
  Stock price range......................................... $23.25-28.00  $25.13-29.00  $28.50-36.00  $35.00-49.38
  
  1996
  Interest income...........................................       34,646        35,649        37,452        40,156
  Net interest income.......................................       16,118        16,651        17,383        18,152
  Provision for loan losses.................................          241           520           810         1,110
  Income before income tax expense..........................        6,925         6,329         2,637         7,639
  Net income................................................        4,788         4,208         2,057         5,034
  
  Net income per share...................................... $       0.39  $       0.35   $      0.17  $       0.41
  
  Stock price range......................................... $17.75-20.50  $20.00-21.75  $19.50-24.75  $23.25-25.00
  
  </TABLE>
  
                                  						75
  
  
  
                                     EXHIBIT INDEX
                                     -------------
  
  Exhibit No.                        Description
  ----------                         -----------
  
  2(a)                Agreement  and  Plan  of  Merger,  dated  as  of
                      October  14, 1997, by and between CNB Bancshares,  Inc.,  an
                      Indiana corporation, and Pinnacle Financial Services,  Inc.,
                      a  Michigan corporation, is incorporated herein by reference
                      from the  Registration  Statement  on  Form  S-4  of   CNB
                      Bancshares, Inc. (No. 333-46837).
  
  2(b)                Stock  Option  Agreement,  dated   as   of
                      October  14, 1997, between CNB Bancshares, Inc., an  Indiana
                      corporation,  and  Pinnacle  Financial  Services,  Inc.,   a
                      Michigan  corporation, is incorporated herein  by  reference
                      from the  Registration  Statement  on  Form  S-4  of   CNB
                      Bancshares, Inc. (No. 333-46837).
  
  23(a)               Consent of KPMG Peat Marwick LLP.
  
  99(a)               Press Release dated April 17, 1998.
metadata_documents: [{"type": "8-K", "sequence": "1", "secsgml_size_bytes": 156759}]
metadata_filer: {"company-data": {"conformed-name": "CNB BANCSHARES INC", "cik": "0000724198", "assigned-sic": "6021", "irs-number": "351568731", "state-of-incorporation": "IN", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-11685", "film-number": "98608180"}, "business-address": {"street1": "20 N W THIRD ST", "city": "EVANSVILLE", "state": "IN", "zip": "47739", "phone": "8124643400"}, "mail-address": {"street1": "20 N W THIRD STREET", "city": "EVANSVILLE", "state": "IN", "zip": "47739"}}
text: SECURITIES AND EXCHANGE COMMISSION
  
                            Washington, D.C. 20549
  
                  ---------------------------------------------
  
                                    FORM 8-K
                                 CURRENT REPORT
                         Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
  -------------------------------------------------------------------------------
  
                                                             May 1, 1998
      Date of Report (Date of earliest event reported):      April 17, 1998)
                                                          -----------------------
  
                                CNB BANCSHARES, INC.
                -------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)
  
                                      Indiana
                      --------------------------------------
                  (State or Other Jurisdiction of Incorporation)
  
         0-11510                                         35-1568731
   -----------------------                       -------------------------
   (Commission File Number)                  (IRS Employer Identification No.)
  
                 20 N.W. Third Street, Evansville, Indiana 47739
            ---------------------------------------------------------
             (Address of Principal Executive Offices)     (Zip Code)
  
                                  (812) 456-3400
              -----------------------------------------------------
               Registrant's Telephone Number, Including Area Code
  
                                  Not Applicable
            --------------------------------------------------------------
             (Former Name or Former Address, if Changed Since Last Report)
  
  ===============================================================================
  
  Page
  
  ITEM 2.  ACQUISITION OR DISPOSITION OF ASSETS.
  ------   ------------------------------------
  
       On  April 17,  1998,  CNB Bancshares, Inc., an Indiana  corporation  (the
  "Registrant"), acquired  Pinnacle  Financial  Services,   Inc.,   a   Michigan
  corporation ("Pinnacle"), by means of the merger (the "Merger") of Pinnacle with
  and into the Registrant pursuant to an Agreement and Plan of Merger, dated as of
  October  14, 1997, between the Registrant and Pinnacle (the "Merger Agreement").
  Pursuant  to the Merger Agreement, each issued and outstanding share  of  common
  stock,  no par value per share, of Pinnacle was converted into 1.0365 shares  of
  common  stock, stated  value $1.00 per share, of the Registrant  (approximately
  13,241,070 shares in the aggregate including the assumption by the Registrant of
  Pinnacle's employee stock options) with cash in lieu of fractional shares.  The 
  Merger  was  accounted  for  as  a  "pooling of interests"  for  accounting  and
  financial  reporting  purposes.   A copy of the  press  release  announcing  the
  closing of the Merger is filed as Exhibit 99(a) to this Current Report on Form
  8-K.
  
       Pinnacle was a bank holding company headquartered in St. Joseph, Michigan. 
  At  December 31,  1997, Pinnacle had consolidated assets of  $2.1  billion  and
  shareholders' equity  of  $181 million.  Through its  wholly-owned  subsidiary,
  Pinnacle  Bank,  a Michigan state banking corporation, Pinnacle  conducted  full
  service  and  retail banking through 14 branch offices located  in  southwestern
  Michigan  and  30  branch  offices and two loan production  offices  located  in
  northern Indiana.
  
       The Registrant's Registration Statement of Form S-4 (Registration No. 333 
  46837),  which was declared effective by the Securities and Exchange  Commission
  on  February  26,  1998  (the  "Registration  Statement"),  sets  forth  certain
  information  regarding the Merger, the Registrant and Pinnacle,  including,  but
  not  limited to, the manner of the Merger, a description of the assets involved,
  the  nature  and  amount of consideration paid by the Registrant  therefor,  the
  method used for determining the amount of such consideration, the nature of  any
  material  relationships between Pinnacle and the Registrant or  any  officer  or
  director of the Registrant or any associate of any such officer or director, the
  nature  of  Pinnacle's business and the Registrant's intended use of the  assets
  acquired in the Merger.
  
       Pursuant to the Merger Agreement, on April 22, 1998, the following persons,
  who  were immediately prior thereto serving as members of the Board of Directors
  of  Pinnacle,  became  members  of the Board of  Directors  of  the  Registrant:
  Terrence  A.  Friedman, Chairman of the Board of Trelleborg (a  manufacturer  of
  rubber  components  primarily  for the auto industry);  James  E.  Hutton,  Vice
  President  in  charge  of  operations for Burrell  Professional  Labs,  Inc.  (a
  professional photo processing company); and Alton C. Wendzel, President of  Greg
  Farms,  Inc.  Greg  Orchards  and Produce, Inc. and Coloma  Frozen  Foods,  Inc.
  (growers and processors of fresh and frozen produce).
  
  ITEM 7.  FINANCIAL STATEMENTS AND EXHIBITS.
  ------   ---------------------------------
  
  (a)  Financial Statements of Business Acquired:
       -----------------------------------------
  
       The  following  audited  financial statements of  Pinnacle  are  submitted 
  herewith:
  
       1.   Report of Independent Auditors.
       2.   Consolidated Balance Sheets as of December 31, 1997 and 1996.
       3.   Consolidated  Statements of Income for the Years  Ended  December  31,
            1997, 1996 and 1995.
       4.   Consolidated  Statements of Stockholders' Equity for the  Years  Ended
            December 31, 1997, 1996 and 1995.
       5.   Consolidated Statements of Cash Flows for the Years Ended December 31,
            1997, 1996 and 1995.
       6.   Notes to Consolidated Financial Statements.
  
  (b)  Pro Forma Financial Information:
       -------------------------------
  
       Pro  forma financial information required by Item 7(b) of Form 8-K  giving 
  effect to the acquisition of Pinnacle will be filed not later than 60 days after
  the filing of this Report on Form 8-K.
  
  (c)  Exhibits:
       --------
  
       The following exhibits are incorporated herein by reference:
  
  Exhibit 2(a)  Agreement  and Plan of Merger, dated as of October 14,  1997,  by
                and  between  CNB  Bancshares, Inc., an Indiana corporation,  and 
                Pinnacle  Financial  Services, Inc., a Michigan  corporation,  is 
                incorporated herein by reference from the Registration  Statement 
                on Form S-4 of CNB Bancshares, Inc. (No. 333-46837).
  
  Exhibit 2(b)  Stock Option Agreement, dated as of October 14, 1997, between CNB
                Bancshares, Inc., an Indiana corporation, and Pinnacle  Financial
                Services, Inc., a Michigan corporation, is incorporated herein by 
                reference  from  the Registration Statement on Form  S-4  of  CNB 
                Bancshares, Inc. (No. 333-46837).
  
       The following exhibits are included with this Report:
  
  Exhibit 23(a)  Consent of KPMG Peat Marwick LLP.
  
  Exhibit 99(a)  Press Release dated April 17, 1998.
  
                                    SIGNATURE
  
       Pursuant  to the requirements of the Securities Exchange Act  of  1934,  as
  amended,  the Registrant has duly caused this report to be signed on its  behalf
  by the undersigned thereunto duly authorized.
  
       Dated:  May 1, 1998
  
                                                 CNB BANCSHARES, INC.
                                            ------------------------------
                                                (Registrant)
  
                                         By:     /s/ John R. Spruill
                                             ------------------------------
                                                 John R. Spruill
                                                 Executive Vice President
  
  INDEPENDENT AUDITORS' REPORT
  The Board of Directors
  Pinnacle Financial Services, Inc.
  
  We have audited the accompanying consolidated balance sheet of Pinnacle 
  Financial Services, Inc. and subsidiaries (the Company) as of December 31, 1997
  and the related consolidated statements of income, changes in stockholders'
  equity, and cash flows for the year then ended. These consolidated financial
  statements are the responsibility of the Company's management. Our
  responsibility is to express an opinion on these consolidated financial
  statements based on our audit.
  
  We conducted our audit in accordance with generally accepted auditing standards.
  Those standards require that we plan and perform the audit to obtain reasonable 
  assurance about whether the financial statements are free of material 
  misstatement. An audit includes examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements. An audit also includes
  assessing the accounting principles used and significant estimates made by 
  management, as well as evaluating the overall financial statement presentation. 
  We believe that our audit provides a reasonable basis for our opinion.
  
  In our opinion, the consolidated financial statements referred to above present 
  fairly, in all material respects, the financial position of Pinnacle Financial 
  Services, Inc. and subsidiaries as of December 31, 1997, and the results of 
  their operations and their cash flows for the year then ended in conformity with
  generally accepted accounting principles.
  
  We previously audited and reported on the consolidated balance sheet of Pinnacle
  Financial Services, Inc. and subsidiaries as of December 31, 1996, and the 
  related consolidated statements of income, changes in stockholders' equity, and 
  cash flows for the years ended December 31, 1996, and 1995, prior to their 
  restatement for the 1997 pooling of interests. The contribution of Pinnacle 
  Financial Services, Inc. and subsidiaries to total assets and net income 
  represented 50% and 57% of the respective restated totals for the year ended 
  December 31, 1996 and the contribution of Pinnacle Financial Services, Inc. and 
  subsidiaries to total assets and net income represented 50% and 40% of the 
  respective restated totals for the year ended December 31, 1995. Separate 
  consolidated financial statements of the other companies included in the 
  December 31, 1996 restated consolidated balance sheet and consolidated 
  statements of income, changes in stockholders' equity, and cash flows for the 
  years ended December 31, 1996 and 1995 were audited and reported on separately 
  by other auditors. We also audited the combination of the accompanying 
  consolidated balance sheet as of December 31, 1996 and consolidated statements 
  of income, changes in stockholders' equity, and cash flows for the years ended 
  December 31, 1996 and 1995, after restatement for the 1997 pooling of interests;
  in our opinion, such consolidated statements have been properly combined on the 
  basis described in note 1 of the notes to the consolidated financial statements.
  
                                                        /s/ KPMG Peat Marwick LLP
  
  Chicago, Illinois
  March 30, 1998
  
  PINNACLE FINANCIAL SERVICES, INC.
  
  CONSOLIDATED BALANCE SHEETS
  
  DECEMBER 31, 1997 AND 1996
  (IN THOUSANDS, EXCEPT SHARE DATA)
                                                                           1997          1996
  ASSETS:
    Cash and cash equivalents:
      Cash and due from banks......................................    $    49,209   $   60,957
      Federal funds sold...........................................          6,400       15,750
                                                                       -----------   ----------
        Total cash and cash equivalents............................         55,609       76,707
    Interest-bearing deposits with financial institutions..........          1,548       13,171
    Securities available-for-sale:
      Taxable......................................................        386,181      491,039
      Tax-exempt...................................................         33,103       22,447
    Securities held-to-maturity taxable............................             --       14,299
    Mortgage loans held for sale...................................         12,750       11,485
    Loans, net of unearned income..................................      1,508,365    1,415,855
      Less: allowance for loan losses..............................         20,528       14,909
                                                                       -----------   ----------
        Net loans..................................................      1,487,837    1,400,946
    Premises and equipment, net....................................         29,299       26,082
    Interest receivable and other assets...........................        109,168       79,034
                                                                       -----------   ----------
          Total assets.............................................     $2,115,495   $2,135,210
                                                                       -----------   ----------
  LIABILITIES:
    Deposits:
      Noninterest-bearing demand...................................     $   99,262   $  121,235
      Interest bearing demand......................................        186,808      143,821
      Savings......................................................        433,121      437,513
      Time.........................................................        713,917      776,142
                                                                       -----------   ----------
        Total deposits.............................................      1,433,108    1,478,711
    Federal Home Loan Bank advances................................        414,365      369,238
    Securities sold under repurchase agreements and other borrowings        69,511      102,206
    Interest payable and other liabilities.........................         17,516       14,796
                                                                       -----------   ----------
        Total liabilities..........................................      1,934,500    1,964,951
  
  STOCKHOLDERS' EQUITY:
    Common stock; no par value; 15,000,000 shares authorized;
      12,619,499 shares issued and outstanding at December 31,
      1997; and 12,151,514 shares issued and outstanding at 
      December 31, 1996............................................         19,110       19,110
    Additional paid-in capital.....................................         78,094       78,192
    Retained earnings..............................................         81,764       83,599
    Treasury stock.................................................             --      (10,304)
    Guaranteed ESOP obligation.....................................             --         (379)
    Recognition and retention plan obligation......................             --           (4)
    Net unrealized gain on securities available-for-sale...........          2,027           45
                                                                        ----------   ----------
        Total stockholders' equity.................................        180,995      170,259
                                                                       -----------   ----------
        Total liabilities and stockholders' equity.................     $2,115,495   $2,135,210
                                                                        ----------   ----------
  See accompanying notes to consolidated financial statements.
  
                                         35
  PINNACLE FINANCIAL SERVICES, INC.
  
  CONSOLIDATED STATEMENTS OF INCOME
  
  FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
  (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                      1997        1996        1995
  INTEREST INCOME:
    Interest and fees on loans:
      Taxable...............................................       $ 128,758   $ 114,316   $  90,234
      Tax-exempt............................................             667         404         346
    Interest and dividends on securities:
      Available-for-sale
        Taxable.............................................          35,643      29,424      12,867
        Tax-exempt..........................................           1,480       1,140         159
      Held-to-maturity
        Taxable.........................................    ....          --       1,227       2,500
        Tax-exempt..........................................              --          --         873
    Interest on federal funds sold..........................             166         410         257
    Interest on interest-bearing deposits with
      financial institutions................................             358         982         680
                                                                   ---------   ---------   ---------
          TOTAL INTEREST INCOME.............................         167,072     147,903     107,916
  
  INTEREST EXPENSE:
    Interest on deposits....................................          62,695      60,567      43,556
    Interest on Federal Home Loan Bank advances.............          24,286      15,928       8,821
    Interest on securities sold under repurchase agreements
      and other borrowings..................................           4,505       3,104       2,692
                                                                   ---------   ---------   ---------
          TOTAL INTEREST EXPENSE...............................       91,486      79,599      55,069
                                                                   ---------   ---------   ---------
          NET INTEREST INCOME..................................       75,586      68,304      52,847
    Provision for loan losses..................................       13,320       2,681       1,422
                                                                   ---------   ---------   ---------
          NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..       62,266      65,623      51,425
    Noninterest income:
      Service charges on deposit accounts......................        5,279       4,341       3,653
      Trust income.............................................          912         789         605
      Securities gains and losses, net.........................          813         708         790
      Other income.............................................       11,516       7,015       4,761
                                                                   ---------   ---------   ---------
          TOTAL NONINTEREST INCOME.............................       18,520      12,853       9,809
  
    Noninterest expense:
      Salaries and employee benefits...........................       23,858      21,690      17,599
      Occupancy................................................        4,638       4,123       3,076
      Equipment................................................        3,748       3,473       2,813
      FDIC insurance premiums..................................          681       7,858       1,965
      Other expense............................................       33,086      17,802      13,207
                                                                   ---------   ---------   ---------
          TOTAL NONINTEREST EXPENSES..........................        66,011      54,946      38,660
                                                                   ---------   ---------   ---------
  INCOME BEFORE INCOME TAX EXPENSE............................        14,775      23,530      22,574
  INCOME TAX EXPENSE..........................................         4,559       7,443       6,353
                                                                   ---------   ---------   ---------
  NET INCOME..................................................     $  10,216   $  16,087   $  16,221
                                                                   ---------   ---------   ---------
  36
  NET INCOME PER SHARE:
    Basic.........................................        $   .83     $   1.33     $   1.60
    Diluted.......................................            .83         1.32         1.58
  AVERAGE SHARES OUTSTANDING:
    Basic.........................................     12,258,265   12,051,935   10,137,302
    Diluted.......................................     12,311,957   12,171,221   10,244,326
  CASH DIVIDENDS DECLARED PER COMMON SHARE........        $  0.94     $   0.82     $   0.76
  See accompanying notes to consolidated financial statements.
  
                                        37
  PINNACLE FINANCIAL SERVICES, INC.
  
  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
  
  FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
  Net
                                                                                                             Unrealized
                                                                                                            (Losses) on
                                                         Additional                      Guaranteed         Securities
                                                Common    Paid-in  Retained     Treasury    ESOP           Available-for-
                                                 Stock    Capital  Earnings       Stock  Obligation    RRP     Sale      Total
  (in thousands)                                ------- ---------- --------     -------- ----------  ------- ----------  -----
  Balance, January 1, 1995...............       $19,110   $42,690   $67,351     $(8,900)    $(715)   $ (48)   (3,347)  $116,141
  Net income.............................            --        --    16,221          --        --       --        --     16,221
  Common stock dividends declared:
    Pinnacle Financial Services, Inc.
      $.76 per share.....................            --        --    (3,295)         --        --       --        --    (3,295)
    Pooled companies prior to
      merger.............................            --        --    (4,036)         --        --       --        --    (4,036)
  Issuance of common stock for:
    Employee incentive plan..............            --       636        --          --        --       --        --       636
    Stock offering, net of costs.........            --    13,184        --          --        --       --        --    13,184
    Purchase of Maco Bancorp, Inc........            --    20,985        --          --        --       --        --    20,985
  Purchase of treasury stock.............            --        --        --        (957)       --       --        --      (957)
  Payments made on guaranteed ESOP
    obligation...........................            --        --        --          --       125       --        --       125
  Amortization of RRP contribution.......            --        --        --          --        --       27        --        27
  Issuance of treasury stock.............            --       (79)       --         147        --       --        --        68
  Tax benefit related to stock option
    plans................................            --        70        --          --        --       --        --        70
  Change in unrealized gain(loss) for
    securities available-for-sale,
    net of tax effect of $3,468..........            --        --        --          --        --       --     5,289     5,289
                                                -------   -------    -------    -------     -----    -----    ------  --------
  Balance, December 31, 1995.............        19,110    77,486     76,241     (9,710)     (590)     (21)     1,942  164,458
  Net income.............................            --        --     16,087         --        --       --         --   16,087
  Common stock dividends declared:
    Pinnacle Financial Services, Inc.
      $.82 per share.....................            --        --     (4,838)        --        --       --         --   (4,838)
    Pooled companies prior to
      merger.............................            --        --     (3,891)        --        --       --         --   (3,891)
  Issuance of common stock for:
    Employee incentive plan..............            --       913         --         --        --       --         --      913
    Additional costs related to prior
      year stock offering................            --      (259)        --         --        --       --         --     (259)
  Purchase of treasury stock.............            --        --         --       (612)       --       --         --     (612)
  Payments made on guaranteed ESOP
    obligation...........................            --        --         --         --       211       --         --       211
  Amortization of RRP contribution.......            --        --         --         --        --       17         --        17
  Issuance of treasury stock.............            --       (11)        --         18        --       --         --         7
  Tax benefit related to stock option
    plans.............. .................            --        63         --         --        --       --         --        63
  Change in unrealized gain (loss)
    for securities available-for-sale,
    net of tax effect) of $(1,244).......            --        --         --         --        --       --     (1,897)   (1,897)
                                                -------   -------    -------    -------     -----    -----     ------  --------
  Balance, December 31, 1996.............       $19,110   $78,192    $83,599   $(10,304)    $(379)     $(4)    $   45  $170,259
  Net income.............................            --        --     10,216         --        --       --         --    10,216
  Common stock dividends declared:
    Pinnacle Financial Services, Inc.
      $.94 per share.....................            --        --     (8,675)        --        --       --         --    (8,675)
    Pooled companies prior to
      merger.............................            --        --     (2,583)        --        --       --         --    (2,583)
  Redemption of Shareholder's Rights
    Plan.................................            --        --        (48)        --        --       --         --       (48)
  Common stock issuance upon exercise
    of options...........................            --     7,436         --         --        --       --         --     7,436
  Payments made on guaranteed ESOP
    obligation...........................            --        --         --         --       379       --         --       379
  Tax Benefit Related to stock option
    plans................................            --     1,630         --         --        --       --         --     1,630
  Increase in fair value related to
    allocation of ESOP shares............            --       719         --         --        --       --         --       719
  Amortization of RRP contribution.......            --        --         --         --        --        4         --         4
  Issuance of treasury stock.............            --      (575)        --      1,000        --       --         --       425
  Retirement of treasury stock...........            --    (9,304)        --      9,304        --       --         --        --
  Cash paid in lieu of fractional
    shares...............................            --        (4)        --         --        --       --         --        (4)
  Adjustment for change in fiscal
    year of pooled entity................            --        --       (745)        --        --       --         --      (745)
  Change in unrealized gain (loss)
    for securities available-for-sale, 
    net of tax effect of $...............            --        --         --         --        --       --      1,982     1,982
                                                -------   -------    -------    -------     -----    -----     ------  --------
  Balance, December 31, 1997.............        19,110    78,094     81,764         --        --       --      2,027   180,995
  See accompanying notes to consolidated financial statements.
  
                                         38
  PINNACLE FINANCIAL SERVICES, INC.
  
  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
  
  FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
  (in thousands)
                                                                                           1997         1996        1995
                                                                                        ---------    ---------   ---------
  CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income.....................................................................     $ 10,216    $  16,087   $  16,221
    Adjustments to reconcile net income to net cash used in operating activities:
      Depreciation and amortization................................................        5,135        4,999       3,756
      Net amortization on loans and securities.....................................        1,116          636       1,088
      Provision for loan losses....................................................       13,320        2,681       1,422
      Deferred federal income taxes................................................       (2,029)      (1,206)       (446)
      Proceeds from sales of trading securities....................................           --       10,154       1,975
      Purchases of trading securities..............................................           --      (10,171)     (1,976)
      Mortgage loans purchased under agreements to resell..........................   (1,448,565)  (1,111,965)   (795,862)
      Proceeds from sale of mortgage loans purchased under agreements to resell....    1,363,517    1,096,721     741,010
      Mortgage loans originated for sale...........................................      (84,502)    (175,118)    (58,845)
      Proceeds from sales of loans.................................................       85,146      136,662      56,800
      Gain on sale of securities...................................................         (813)        (708)       (790)
      Gain on sale of loans........................................................       (3,411)      (1,019)       (545)
      Decrease(increase) in interest receivable and other assets...................       (3,529)      (1,331)     (1,477)
      Decrease in other liabilities................................................          267       (1,920)     (2,899)
                                                                                      ----------   ----------   ---------
  NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES.................................      (64,132)     (35,498)    (40,568)
                                                                                      ----------   ----------   ---------
  
  Net increase in loans, excluding loan sales and purchases......................         35,324      (67,920)     (5,654)
    Purchases of loans.............................................................      (50,269)     (79,642)    (17,723)
    Purchases of securities available-for-sale.....................................     (148,974)    (320,047)   (145,617)
    Purchases of securities held-to-maturity.......................................           --       (4,237)    (11,704)
    Purchases of Company owned life insurance policies.............................      (25,047)      (1,366)         (5)
    Proceeds from sales of securities available-for-sale...........................      205,091      146,580     140,291
    Proceeds from maturities and paydowns of securities available-for-sale.........       56,150       65,200      22,555
    Proceeds from maturities and paydowns of securities held-to-maturity...........           --        5,803      31,036
    Net (increase) decrease in interest-bearing deposits with financial
      institutions.................................................................       11,623       29,825     (24,583)
    Capital expenditures...........................................................       (6,331)      (3,086)     (3,185)
    Purchase of Forrest Holdings Inc. preferred stock..............................           --       (2,500)         --
    Purchase of MACO Bancorp, Inc., net of cash acquired and stock issued..........           --           --     (12,683)
    Purchase of NCB Corp., net of cash acquired....................................           --           --      (6,841)
                                                                                      ----------   ----------   ---------
  NET CASH USED BY INVESTING ACTIVITIES............................................       77,567     (231,390)    (34,113)
                                                                                      ----------   ----------   ---------
  CASH FLOWS FROM FINANCING ACTIVITIES:
    Net increase in deposits.......................................................      (45,603)     105,144      39,740
    Net increase in securities sold under repurchase agreements and other
      borrowings...................................................................       12,432       85,207      53,789
    Net change in obligation to limited partnership................................           --           18          --
    Common stock issued............................................................        7,436          654      13,752
    Contribution to fund ESOP......................................................          379          211         125
    Issuance of treasury stock.....................................................          425            7          68
    Purchase of treasury stock.....................................................           --         (612)       (957)
    Dividends paid.................................................................       (9,550)      (8,590)     (6,826)
    Redemption of shareholders' rights plan........................................          (48)          --          --
    Cash paid for fractional shares................................................           (4)          --          --
                                                                                      ----------   ----------   ---------
  NET CASH USED BY FINANCING ACTIVITIES............................................      (34,533)     282,039      99,691
                                                                                      ----------   ----------   ---------
  NET INCREASE IN CASH AND CASH EQUIVALENTS........................................      (21,098)      15,151      25,010
  Cash and cash equivalents at beginning of year...................................       76,707       61,556      36,546
                                                                                      ----------   ----------   ---------
  CASH AND CASH EQUIVALENTS AT END OF YEAR.........................................    $  55,609    $  76,707   $  61,556
                                                                                      ----------   ----------   ---------
                                                                                      ----------   ----------   ---------
  SUPPLEMENTAL DISCLOSURES:
    Interest paid..................................................................    $  91,353    $  78,987   $  54,079
    Income taxes paid..............................................................    $  11,272    $   7,921   $   7,518
    Loans transferred to other real estate owned...................................    $   4,099    $     756   $     738
    Transfers of securities held-to-maturity to available-for-sale.................    $  14,299    $      --   $ 239,332
                                                                                      ----------   ----------   ---------
  See accompanying notes to consolidated financial statements.
  
                                        39
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  DECEMBER 31, 1997 AND 1996
  
  NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
      	The accounting and reporting policies of Pinnacle Financial Services, Inc. 
  and subsidiaries conform to generally accepted accounting principles and 
  prevailing practices within the banking industry. The preparation of financial 
  statements in conformity with generally accepted accounting principles requires
  management to make certain estimates and assumptions that effect the reported 
  amounts of assets and liabilities and disclosure of contingent assets and 
  liabilities at the date of the financial statements and the reported amounts, 
  revenues and expenses during the reporting period. Actual results could differ 
  from those estimates.
  
      The following are significant accounting and reporting policies of
  Pinnacle Financial Services, Inc. and subsidiaries.
  
  (a) Consolidation
  
      The consolidated Pinnacle Financial Services, Inc. entity (the "Company")
  was formed on August 1, 1997 through a merger transaction whereby Indiana 
  Federal Corporation and subsidiaries ("IFC") and CB Bancorp, Inc. and 
  subsidiaries ("CB") were merged with and into the then existing Pinnacle 
  Financial Services, Inc. and subsidiaries ("Pinnacle"). The merger transaction 
  was accounted for in accordance with the pooling-of-interests method of 
  accounting for a business combination. Accordingly, the consolidated financial 
  statements included herein reflect the combination of the historical financial 
  results of Pinnacle, IFC and CB and their respective recorded assets and 
  liabilities have been restated at their historical cost as if the combining 
  companies had been consolidated for all periods presented.
  
     	As a result of the merger transaction, the consolidated financial statements
  include the accounts of Pinnacle Financial Services, Inc. and its wholly-owned 
  subsidiaries, Pinnacle Bank (the "Bank"), IndFed Mortgage Company, and Pinnacle
  Financial Consultants. Pinnacle Bank's two wholly-owned subsidiaries are 
  Starkeis, Inc. and Brookview Real Estate, LTD. Effective December 31, 1996, 
  Pinnacle Bank-Indiana (formerly a wholly-owned subsidiary of Pinnacle Financial
  Services, Inc.) was merged with and into Pinnacle Bank-Michigan, now 
  collectively known as Pinnacle Bank. Significant intercompany balances and 
  transactions have been eliminated in consolidation.
  
      Prior to the combination, CB's fiscal year ended March 31. In restating
  the historical consolidated financial statements included herein, the 
  consolidated financial statements as of and for the year ended December 31, 1997
  reflect transactions on a merged basis from January 1, 1997 through December 31,
  1997.  Additionally, CB's financial statements as of March 31, 1997 and 1996 and
  for each of the years in the two year period ended March 31, 1997 were combined 
  with Pinnacle's and IFC's financial statements as of December 31, 1996 and 1995 
  and for each of the years in the two year period ended December 31, 1996. An 
  adjustment of $745,000 was recorded in the consolidated statement of changes in
  stockholders' equity for the year ended December 31, 1997 to remove CB net 
  income from January 1 through March 31, 1997 from retained earnings, which 
  amount is included in December 31, 1996 retained earnings.
  
                                         40
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  (b) Securities
  
     	Securities which management believes could be sold prior to maturity in 
  order to manage interest rate risk, prepayment risk, liquidity risk, or other 
  corporate purposes are classified as available-for-sale and are carried at fair
  value with unrealized gains and losses, net of applicable income taxes, reported
  as a component of stockholders' equity. Securities which management believes are
  held for resale in anticipation of short-term market movements are classified as
  trading securities which are stated at fair value with unrealized holding gains
  and losses recognized in the income statement. Securities, other than the 
  foregoing, which management has the positive ability and intent to hold until 
  maturity are classified as securities held-to-maturity and are accounted for 
  using historical amortized cost. At December 31, 1997, the company had no 
  trading or held-to-maturity securities.
  
     	Premiums and discounts on securities are amortized and accreted over the 
  life of the related security as an adjustment to yield using the effective 
  interest method. Gain or loss on the sale of securities is determined based on 
  the adjusted cost of the specific security sold. A decline in the market value 
  of any available-for-sale or held-to-maturity security below cost that is deemed
  other than temporary results in a charge to earnings thereby establishing a new
  cost basis for the security.
  
  (c)  Mortgage Loans Purchased Under Agreements to Resell
  
      The Company purchases residential mortgage loans from various mortgage
  companies prior to sale of these loans by the mortgage companies in the 
  secondary market. The Company held loans that were purchased under agreements to
  resell from approved mortgage companies as of December 31, 1997. The Company 
  purchases such loans from mortgage companies at par, net of certain fees, and 
  later sells them back to the mortgage companies at the same amount and without 
  recourse provisions. As a result, no gains and losses are recorded at the resale
  of loans. The Company records interest income on the loans during the funding 
  period and fee income received from the mortgage company for each loan when the 
  loan is sold. The Company uses the stated interest rate in the agreement with 
  each mortgage company for interest income recognition, and not the interest 
  rates on individual loans. The Company does not retain servicing of the loans 
  when they are resold. Purchase money and refinancing mortgage loans are 
  generally held no more than 90 days by the Company and typically are resold 
  within 30 days. Construction loan mortgages acquired are held for the duration 
  of the construction loan period, which approximates one year or less.
  
  (d) Mortgage loans Held for Sale
  
     	Loans held for sale are carried at the lower of aggregate cost or market 
  value. Net unrealized losses are recognized in a valuation allowance by charges
  to income.
  
  (e) Allowance for Loan Losses
  
     	The allowance for loan losses is increased by provisions charged to 
  operating expense, is decreased by charge offs, net of recoveries, and is 
  available for losses incurred on loans, including certain accrued interest 
  receivable. The allowance for loan losses is based on management's periodic 
  evaluation of the loan portfolio. In evaluating the portfolio, management takes
  into consideration numerous factors, including current economic conditions, 
  prior loan loss experience, the composition of the loan portfolio, and 
  management's evaluation of the collectibility of specific loans. Management 
  believes that the allowance for loan losses is adequate to absorb potential 
  losses in the portfolio, however, future additions to the allowance may be 
  necessary based on changes in economic conditions. In addition, various 
  regulatory agencies periodically review the provision for loan losses. These 
  agencies may require that additions be made to allowance for loan losses based 
  upon their
  
                                        41
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  judgment of information available to them at the time of their examination.
  
      A loan is considered impaired when it is probable that a creditor will be
  unable to collect contractual principal and interest due according to the 
  contractual terms of the loan agreement. Impaired loans are generally considered
  by the Company to be nonaccrual commercial and commercial real estate loans, 
  restructured loans and commercial and commercial real estate loans for which 
  principal and/or interest is at risk. Impairment is measured by determining the
  fair value of the loans based on the present value of expected cash flows, the 
  market price of the loans, or the fair value of the underlying collateral. If 
  the fair value of the loan is less than the recorded book value, a valuation 
  allowance is established as a component of the allowance for loan losses.
  
  (f) Nonperforming Assets
  
     	Nonperforming assets are comprised of loans for which the accrual of 
  interest has been discontinued, loans contractually past due 90 days or more as
  to interest and/or principal and not included in nonaccrual loans, and other 
  real estate which has been acquired primarily through foreclosure and is 
  awaiting disposition. 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.
  
     	Other real estate is carried at the lower of cost or fair value, less 
  estimated costs to sell. When the property is acquired through foreclosure, any
  excess of the related loan balance over estimated fair value is charged to the 
  allowance for loan losses. Subsequent write-downs, losses upon sale, and 
  expenses related to maintenance of properties are charged to other expense.
  
  (g) Premises and Equipment
  
      Premises and equipment are stated at cost less accumulated depreciation.
  Depreciation, computed on the straight-line and accelerated methods, is charged
  to operations over the estimated useful lives of the properties.
  
  (h) Goodwill and Other Intangibles
  
     	Goodwill, which represents the excess of purchase price over fair value of 
  net assets acquired, is amortized on a straight-line basis up to 15 years
  with a remaining life of approximately 10 years at December 31, 1997. At 
  December 31, 1997 and 1996, goodwill of approximately $13,393,000 and 
  $14,604,000, respectively, is included in other assets in the accompanying 
  consolidated balance sheets.
  
                                        42
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     	Core deposit intangibles, representing the premium associated with the 
  acquisition of certain deposit liabilities, are being amortized to operating 
  expenses on a straight-line basis over the average lives of approximately 7 to 
  10 years of such deposit liabilities, with a remaining life at December 31, 1997
  of approximately 4 years. At December 31, 1997 and 1996, core deposit 
  intangibles of approximately $2,687,000 and $3,368,000, respectively, are 
  included in other assets in the accompanying consolidated balance sheets.
  
     	The Company assesses the recoverability of its goodwill and other 
  intangibles through review of various economic factors on a periodic basis in 
  determining whether impairment, if any, exists.
  
  (i) Loan Servicing Rights
  
      The Company recognizes as a separate asset the right to service loans for
  others which are amortized over the estimated lives of the loans. The Company 
  also evaluates these servicing rights for impairment based on the current fair 
  value of those rights. Impairment is recognized through a valuation allowance 
  established through a charge to expense. Loan servicing rights as of December 
  31, 1997 and 1996 totaled approximately $1,029,000 and $477,000, respectively.
  
  (j) Trust Assets
  
      Assets held by the Company in fiduciary or agency capacity for customers
  are not assets of the Company and as such are not included in the consolidated 
  financial statements. Fee income is recognized on an accrual basis for financial
  reporting purposes.
  
  (k) Employee Stock Ownership Plan
  
     	The Company has established an Employee Stock Ownership Plan (the ESOP) for 
  the former employees of IFC and CB.  The Company recognizes compensation expense
  for the applicable ESOP shares based on the fair value of those shares when 
  committed to be released to employees, rather than based on their original cost 
  in accordance with the American Institute of Certified Public Accountants & 
  Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership 
  Plans (SOP93-6).
  
  (l) Retirement Plans
  
     	Costs for the Company's defined benefit plans, which cover substantially all
  employees of the former Pinnacle and CB entities, are accounted for in 
  accordance with the requirements of Statement of Financial Accounting Standards
  No. 87, "Employers: Accounting for Pensions". The projected unit credit method 
  is utilized for measuring net periodic pension cost over the employees' service
  life. The Company's funding policy is to contribute annually an amount 
  calculated under the minimum ERISA funding requirements.
  
  (m) Postretirement Benefits Other Than Pensions
  
      An accrual for postretirement benefits is charged to current earnings
  based upon the expected cost of providing postretirement benefits to employees 
  during the years that the employees render services.
  
  (n) Stock Option Plan
  
      As of December 31, 1996, the Company adopted the disclosure requirements
  of Financial Accounting Standards Board Statement No. 123, "Accounting for 
  Stock-Based Compensation". The Company applies APB Opinion 25, "Accounting for 
  Employee Benefit Plans" and related interpretations in accounting for its stock 
  option plan.
  
  (o) Income Taxes
  
     	Prior to the merger Pinnacle, IFC and CB and their respective subsidiaries 
  each filed consolidated U.S. income tax returns. The consolidated tax liability 
  is settled between companies generally as if each company had filed a separate 
  return. For the year ended December 31, 1997, the Company and its subsidiaries 
  will file consolidated tax returns.
  
                                       		43
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     	Deferred tax assets and liabilities are recognized for the future tax 
  consequences attributable to differences between the financial statement 
  carrying amounts of existing assets and liabilities and their respective tax 
  bases. Deferred tax assets and liabilities are measured using enacted tax rates
  expected to apply to taxable income in the years in which those temporary 
  differences are expected to be recovered or settled. Under Financial Accounting
  Standards Board Statement No. 109, "Accounting for Income Taxes", the effect on
  deferred tax assets and liabilities of a change in tax rates is recognized in 
  the period that includes the enactment date.
  
  (p) Income Recognition
  
     	The Company uses the accrual basis of accounting for financial reporting 
  purposes. Loans are stated at the principal amount outstanding, net of any 
  unearned income. Loan origination fees and certain direct loan origination costs
  are deferred and recognized over the lives of the related loans as an adjustment
  of the yield.
  
  (q) Statements of Cash Flows
  
      For purposes of reporting cash flows, cash and cash equivalents include
  cash on hand, amounts due from banks and federal funds sold.
  
  (r) Per Share Data
  
     	Basic net income per share is calculated by dividing net income by the 
  weighted average number of shares of common stock outstanding during each 
  period. The diluted net income per share calculation is adjusted for the effects
  of options. Average shares have been increased for the assumed conversion of 
  outstanding options into common shares and is retroactively adjusted for stock 
  splits and stock dividends. Cash dividends declared per share are based upon the
  number of shares outstanding at date of declaration, retroactively adjusted for
  stock splits and stock dividends.
  
  (s) Reclassifications
  
      Certain prior year amounts have been reclassified to conform to current
  year presentation.
  
  NOTE 2 SUPERVISION AND REGULATION
  
     	The Company and its subsidiary bank are subject to supervision, regulation 
  and periodic examination by various federal and state banking regulatory 
  agencies including the Board of Governors of the Federal Reserve Board (the 
  "FRB"), the Federal Deposit Insurance Corporation (the "FDIC"), and the Michigan
  Financial Institutions Bureau (the "FIB"). Since the Company is a bank holding 
  company, the Company's activities are limited to the business of banking and 
  activities closely related to banking.
  
      The following is a summary of certain statutes and regulations affecting
  the Company. This summary is qualified in its entirety by such statutes and 
  regulations, which are subject to change based on pending and future legislation
  and action by regulatory agencies.
  
                                        44
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     	BANK HOLDING COMPANIES.  As a bank holding company, the Company is subject 
  to regulation under the Bank Holding Company Act of 1956, as amended (the 
  "BHCA"), and by the FRB.
  
      Banking laws and regulations restrict transactions by insured banks owned
  by a bank holding company, including loans to and certain purchases from the 
  parent holding company, non-bank and bank subsidiaries of the parent holding 
  company, principal stockholders, officers, directors and their affiliates, and 
  investments by the subsidiary banks in the shares or securities of the parent 
  holding company (or of any other non-bank or bank affiliates), and acceptance of
  such shares or securities as collateral security for loans to any borrower. The
  regulators also review other payments, such as management fees, made by 
  subsidiary banks or affiliated companies.
  
     	Under the BHCA, a bank holding company is prohibited, with certain limited 
  exceptions, from engaging in activities other than those of banking or of 
  managing or controlling banks and from acquiring or retaining direct or indirect
  ownership or control of voting shares or assets of any company which is not a 
  bank or bank holding company, other than subsidiaries engaged in activities 
  which the Federal Reserve Board determines to be so closely related to banking 
  and managing or controlling banks as to be a proper incident thereto.
  
     	BANKS.  The Company's subsidiary bank is subject to regulation, supervision
  and periodic examination by the Michigan FIB. Additionally, as an institution 
  whose deposits are insured by the Bank Insurance Fund (the "BIF") and the 
  Savings Association Insurance Fund (the "SAIF") of the FDIC, Pinnacle Bank is 
  also subject to supervision, regulation and periodic examination by the FDIC.
  
     	The Company and the Bank are subject to various regulatory capital 
  requirements administered by the federal banking agencies. Failure to meet 
  minimum capital requirements can initiate certain mandatory--and possibly 
  additional discretionary--- actions by regulators that, if undertaken, could 
  have a direct material effect on the Company's financial statements. Under 
  capital adequacy guidelines and the regulatory framework for prompt corrective 
  action, the Company and the Bank must meet specific capital guidelines that 
  involve quantitative measures of the Company's and the Bank's assets, 
  liabilities, and certain off-balance-sheet items as calculated under regulatory
  accounting practices. The Company's and the Bank's capital amounts and 
  classification are also subject to qualitative judgments by the regulators about
  components, risk weightings, and other factors.
  
     	Quantitative measures established by regulation to ensure capital adequacy 
  require the Company and the Bank to maintain minimum amounts and ratios (set 
  forth in the table below) of total and Tier I capital (as defined in the 
  regulations) to risk-weighted assets (as defined), and of Tier I capital (as 
  defined) to average assets (as defined). Management believes, as of December 31,
  1997, that the Company and the Bank meet all capital adequacy requirements to 
  which they are subject.
  
     	As of December 31, 1997, the most recent notification from the primary 
  regulator of Pinnacle Bank categorized the Bank as WELL CAPITALIZED under the 
  regulatory framework for prompt corrective action. To be categorized as WELL 
  CAPITALIZED the Bank must maintain minimum total risk-based, Tier I risk-based, 
  Tier I leverage ratios as set forth in the table. This notification occurred 
  prior to the effective date of the pooling. There are no conditions or events 
  since that notification that management believes have changed the institution's 
  category.
  
                                      		45
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      The Company's and the Bank's actual capital amounts and ratios are also
  presented in the tables for 1997 and 1996.
  To be well-
                                                                                               Capitalized Under
                                                                             For Capital       Prompt Corrective
                                                           Actual         Adequacy Purposes    Action Provisions
                                                     ------------------- -------------------  -------------------
                                                      Amount     Ratio      Amount    Ratio     Amount    Ratio
                                                    ----------   ------  ---------   ------   ----------  ------
  AS OF DECEMBER 31, 1997
  Total Capital (to Risk Weighted Assets): 
    CONSOLIDATED.................................   $  180,984   14.54%   $  99,611   8.00%   $ 124,513   10.00%
    Pinnacle Bank................................      199,193   12.25%      97,412   8.00%     121,765   10.00%
  Tier 1 Capital (to Risk Weighted Assets):
    CONSOLIDATED.................................   $  165,359   13.28%   $  49,805   4.00%   $  74,708    6.00%
   	Pinnacle Bank................................     	133,907   11.00%      48,706   4.00%      73,059    6.00%
  Tier 1 Capital (to Average Assets):
    CONSOLIDATED.................................   $  165,359    7.29%   $  90,682   4.00%   $ 113,352    5.00%
    Pinnacle Bank................................      133,907    6.44%      83,198   4.00%     103,998    5.00%
  
  AS OF DECEMBER 31, 1996
  Total Capital (to Risk Weighted Assets):
    CONSOLIDATED.................................   $  168,081   13.30%   $ 100,870   8.00%   $ 126,087   10.00%
    Pinnacle Bank................................      145,522   11.61%     100,297   8.00%     125,372   10.00%
  Tier 1 Capital (to Risk Weighted Assets):
    CONSOLIDATED.................................   $  153,172   12.12%   $  50,435   4.00%   $  75,652    6.00%
    Pinnacle Bank................................      130,613   10.42%      50,149   4.00%      75,223    6.00%
  Tier 1 Capital (to Average Assets): 
    CONSOLIDATED.................................   $  153,172    7.41%   $  83,832   4.00%   $ 104,790    5.00%
    Pinnacle Bank................................      130,613    6.27%      83,367   4.00%     104,208    5.00%
  NOTE 3 MERGERS AND ACQUISITIONS
  
    		Effective August 1, 1997, the Company issued 4,790,736 and 1,553,144 shares 
  of its common stock in exchange for all outstanding common stock of Indiana 
  Federal Corporation ("IFC") and CB Bancorp, Inc. ("CB"), respectively, both of 
  which were thrift holding companies located in Valparaiso and Michigan City, 
  Indiana, respectively. Total assets acquired of IFC and CB were $835 million and
  $288 million respectively. The business combinations have been accounted for as 
  pooling-of-interests transactions, and accordingly, the consolidated financial 
  statements for periods prior to the combinations have been restated to include 
  the accounts and results of operations of IFC and CB.
  
                                									46
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
    		The results of the operations previously reported by the separate 
  enterprises and the combined amounts presented in the accompanying consolidated
  financial statements are summarized below (in thousands):
  Six Months           Years ended,
                                                                  Ended June 30, December 31, December 31,
                                                                           1997         1996        1995
                                                                        ---------     --------   ---------
  (unaudited)
  Net interest income:
    Pinnacle..........................................................    18,431       34,276      19,344
    IFC...............................................................    13,546       25,674      26,141
    CB................................................................     4,628        8,354       7,362
                                                                          ------       ------      ------
  Consolidated........................................................    36,605       68,304      52,847
                                                                          ------       ------      ------
                                                                          ------       ------      ------
  
  Net income:
    Pinnacle..........................................................     6,081        9,152       6,459
    IFC...............................................................     4,251        4,623       7,304
    CB................................................................     1,619        2,312       2,458
                                                                          ------       ------      ------
  Consolidated........................................................    11,951       16,087      16,221
                                                                          ------       ------      ------
                                                                          ------       ------      ------
  On October 1, 1996, the Company , through Pinnacle Bank, purchased
  Starke's, Inc., a local insurance agency, through the issuance of 99,451 shares 
  of Pinnacle common stock. The assets acquired were $1,241,000 and the 
  transaction was accounted for using the pooling-of-interests method with no 
  restatement of prior periods as amounts involved were not material.
  
      On December 1, 1995, the Company acquired all of the outstanding stock of
  Maco Bancorp, Inc. ("Maco"), a Delaware corporation and registered savings and 
  loan holding company headquartered in Merrillville, Indiana, for a purchase 
  price of $41,944,000 (the "Purchase Price"). Approximately 50% of the Purchase
  Price was paid in cash ($20,959,000) and the balance was paid in Pinnacle common
  stock valued at $20,985,000. The acquisition of Maco was accounted for as a 
  purchase. All assets (approximately $412,800,000) and all liabilities 
  (approximately $384,200,000) of Maco and its subsidiaries (First Federal Savings
  Bank of Indiana, Brookview Real Estate Ltd. and First Insurance, Inc.) were 
  adjusted to fair value as of the effective date creating goodwill in the amount
  of $13,350,000 which is being amortized on a straight line basis over 15 years.
  Premiums and discounts on the fair value adjustments amounted to approximately 
  $3,895,000 and $830,000, respectively. The operating results of Maco have been 
  included in the Company's financial statements since the date of acquisition.
  
  	  	On January 31, 1995, the Company acquired, for $8.2 million, NCB Corporation
  ("NCB"), a bank holding company with total assets of approximately $45.0 million
  with offices in Culver and Granger, Indiana. The operations of NCB are included
  in the Company's financial statements since the date of acquisition and reflect
  the application of the purchase method of accounting. Under this method of 
  accounting, the aggregate cost to the Company of the acquisition was allocated 
  to the assets acquired and liabilities assumed, based on their estimated fair 
  values as of January 31, 1995, creating goodwill in the amount of $1.5
  million which is being amortized on a straight line basis over 15 years.
  
                                        47
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 4 FAIR VALUE OF FINANCIAL INSTRUMENTS
  
      Statement of Financial Accounting Standards No. 107, "Disclosures about
  Fair Value of Financial Instruments" (Statement 107), requires that the Company 
  disclose estimated fair values for its financial instruments in its consolidated
  financial statements. Fair value estimation methods and assumptions are 
  presented below for the Company's consolidated financial statements.
  
      The estimated fair value of the Company's financial instruments at
  December 31, 1997 and 1996 was as follows:
  1997                     1996
                                                                -----------------------   -------------------------
                                                                  Carrying       Fair       Carrying       Fair
                                                                   Value         Value        Value        Value
                                                                -----------    ---------   ----------   ----------
  Financial Assets:
    Cash and due from banks....................................  $   49,209   $   49,209   $   60,957   $   60,957
    Federal funds sold.........................................       6,400        6,400       15,750       15,750
    Interest-bearing deposits with financial institutions......       1,548        1,548       13,171       13,171
    Securities available-for-sale..............................     419,284      419,284      513,486      513,486
    Securities held-to-maturity................................          --           --       14,299       14,348
    Mortgage loans held for sale...............................      12,750       12,750       11,485       11,491
    Net loans..................................................   1,487,837    1,494,377    1,400,946    1,405,485
    Accrued interest receivable................................      17,282       17,282       15,778       15,778
                                                                 ----------   ----------   ----------   ----------
  
      Total financial assets...................................  $1,994,310   $2,000,850   $2,045,872   $2,050,466
  
  Financial Liabilities:
    Noninterest-bearing deposits...............................  $   99,262   $   99,262   $  121,235   $  121,235
    Interest-bearing deposits..................................   1,333,846    1,335,907    1,357,476    1,361,453
    Federal Home Loan Bank advances, securities sold under
      repurchase agreements, and other borrowings..............     483,876      485,070      471,444      474,376
    Accrued interest payable...................................       5,239        5,239        5,130        5,130
                                                                 ----------   ----------   ----------   ----------
  
      Total financial Liabilities..............................  $1,922,223   $1,925,478   $1,955,285   $1,962,174
  CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD: The carrying value of cash 
  and due from banks and federal funds sold approximates fair value due to the 
  short term maturity of those instruments.
  
   			INTEREST-BEARING DEPOSITS WITH FINANCIAL INSTITUTIONS AND SECURITIES: Fair 
  values of these instruments are based on quoted market prices, when available. 
  If quoted market prices are not available, fair values are based on quoted 
  market prices of comparable assets.
  
   			MORTGAGE LOANS HELD FOR SALE: Fair value are estimated based on quoted
  market prices.
  
   			NET LOANS: Fair values are estimated for portfolios of loans with similar
  financial characteristics. Loans are segregated by type such as commercial, 
  commercial real estate, residential mortgage, and consumer, including credit 
  card loans. Each loan category is further segmented into fixed and adjustable 
  rate interest terms.
  
                                          48
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
   			The fair value of performing loans, except credit card loans, is
  calculated by discounting scheduled cash flows through the estimated maturity 
  using the current rates at which similar loans would be made to borrowers with 
  similar credit ratings with the same remaining maturities. The estimate of the 
  maturity is based on industry forecast experience with repayments for each loan 
  classification. The fair value of variable rate loans repricing within three 
  months and credit card loans were assumed to be at carrying value.
  
     	Fair value for nonperforming loans is based on recent external appraisals. 
  If appraisals are not available, estimated cash flows are discounted using a 
  rate commensurate with the risk associated with the estimated cash flows. 
  Assumptions regarding credit risk, cash flows, and discount rates are 
  judgmentally determined using available market information and specific borrower
  information.
  
      ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE: The carrying
  value of accrued interest receivable and accrued interest payable approximates 
  fair value due to the relatively short period of time to expected realization.
  
     	NONINTEREST-BEARING AND INTEREST-BEARING DEPOSITS: The fair value of 
  deposits with no stated maturity, such as demand deposits, savings, NOW accounts
  and money market accounts, is equal to the amount payable on demand as of 
  December 31, 1997 and 1996. The fair value of time deposits is based on the 
  discounted value of contractual cash flows. The discount rate is estimated using
  the rates currently offered for similar remaining maturities.
  
  	   FEDERAL HOME LOAN BANK ADVANCES, SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
  AND OTHER BORROWINGS: The carrying amounts for securities sold under
  repurchase agreements and certain other borrowings approximate fair value as 
  they mature in 90 days or less. The fair value of certain other borrowings with
  maturities greater than 90 days are based on the discounted value of contractual
  cash flows. The discount rate is estimated using the rates currently offered for
  similar remaining maturities.
  
     	COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT: The value of commitments
  to extend credit is estimated using the fees currently charged to enter into 
  similar agreements, taking into account the remaining terms of the agreements 
  and the present creditworthiness of the counterparties. For fixed rate loan 
  commitments, fair value also considers the difference between current levels of
  interest rates and the committed rates. The fair value of letters of credit is 
  based on fees currently charged for similar agreements or on the estimated cost
  to terminate them or otherwise settle the obligations with the counterparties.
  
     	LIMITATIONS: Fair value estimates are made at a specific point in time, 
  based on relevant market information and information about the financial 
  instrument. These estimates do not reflect any premium or discount that could 
  result from offering for sale at one time the Company's entire holdings of 
  particular financial instruments. Because no market exists for a significant 
  portion of the Company's financial instruments, fair value estimates are based 
  on judgments regarding future expected loss experience, current economic 
  conditions, risk characteristics of various financial instruments, and other 
  factors. These estimates are subjective in nature and involve uncertainties and
  matters of significant judgment and therefore cannot be determined with 
  precision. Changes in assumptions could significantly affect the estimates.
  
                                							49
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
   			Fair value estimates are based on existing on- and off-balance sheet 
  financial instruments without attempting to estimate the value of anticipated 
  future business and the value of assets and liabilities that are not considered
  financial instruments. For example, the Company has a substantial trust 
  department that contributes net fee income annually. The trust department is not
  considered a financial instrument, and its value has not been incorporated into 
  the fair value estimates. Other significant assets and liabilities that are not 
  considered financial assets or liabilities include the mortgage servicing 
  rights, premises and equipment, and intangible assets. In addition, the tax 
  ramifications related to the realization of the unrealized gains and losses can 
  have a significant effect on fair value estimates and have not been considered 
  in the estimates.
  
  NOTE 5 CASH AND DUE FROM BANKS
  
    			The Bank is required to maintain certain daily reserve balances on hand in 
  accordance with Federal Reserve Board requirements. The reserve balances 
  maintained in accordance with such requirements at December 31, 1997 and 1996, 
  were $12,086,000 and $10,603,000, respectively.
  
  NOTE 6 SECURITIES
  
       The following summarizes the amortized cost, gross unrealized holding
  gains, gross unrealized holding losses and fair value for available-for-sale 
  securities at December 31, 1997.
  Gross      Gross
                                                                          Unrealized  Unrealized
                                                               Amortized    Holding    Holding       Fair
                                                                  Cost       Gains     Losses       Value
                                                             ------------ ----------- -----------   ------
                                                                           (in thousands)
  AVAILABLE-FOR-SALE:
    U.S. Treasury and agency securities........................$  156,978   $   881   $  (376)  $  157,483
    Obligations of states and political subdivisions...........    31,728     1,375        --       33,103
    Corporate securities.......................................     2,000        --        (8)       1,992
    Equity securities..........................................    31,130        --       (22)      31,108
    Mortgage backed securities.................................   194,114     1,801      (317)     195,598
                                                               ----------   -------   -------   ----------
  
      Total securities.........................................$  415,950   $ 4,057   $  (723)  $  419,284
                                                               ----------   -------   -------   ----------
                                                               ----------   -------   -------   ----------
  50
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      The following summarizes the amortized cost, gross unrealized holding
  gains, gross unrealized holding losses and fair value for available-for-sale 
  securities at December 31, 1996.
  Gross       Gross
                                                                       Unrealized  Unrealized
                                                             Amortized   Holding    Holding       Fair
                                                                Cost      Gains     Losses        Value
                                                            ----------- --------- -----------   ---------
                                                                          (in thousands)
  AVAILABLE-FOR-SALE:
    U.S. Treasury and agency securities...................   $ 205,608   $   787   $ (1,212)   $ 205,183
    Obligations of states and political subdivisions......      21,873       582         (8)      22,447
    Corporate securities..................................      12,350         4        (33)      12,321
    Equity securities.....................................      23,653       101        (29)      23,725
    Mortgage backed securities............................     249,950     1,327     (1,467)     249,810
                                                             ---------   -------   --------    ---------
      Total securities....................................   $ 513,434   $ 2,801   $ (2,749)   $ 513,486
                                                             ---------   -------   --------    ---------
                                                             ---------   -------   --------    ---------
  The following summarizes the amortized cost, gross unrealized holding
  gains, gross unrealized holding losses and fair value for securities held to 
  maturity at December 31, 1996.
  Gross      Gross
                                                                           Unrealized  Unrealized
                                                                 Amortized   Holding    Holding      Fair
                                                                    Cost      Gains      Losses     Value
                                                               ------------ ---------  ---------   -------
  (in thousands)
  HELD-TO-MATURITY:
    U.S. Treasury and agency securities.........................  $  3,000   $   --     $  (48)   $  2,952
    Corporate securities........................................     2,789        6         (2)      2,793
    Mortgage backed securities..................................     8,510      102         (9)      8,603
                                                                  --------   ------     ------    --------
    Total securities..........................................    $ 14,299   $  108     $  (59)   $ 14,348
                                                                  --------   ------     ------    --------
  51
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      Maturities of investment securities classified as available-for-sale at
  December 31, 1997 by contractual maturity, are shown below. Expected maturities
  will differ from contractual maturities because borrowers may have the right to
  call or prepay obligations with or without call or prepayment penalties.
  Available-For-Sale
                                                                                              -------------------------
                                                                                                Amortized      Fair
                                                                                                  Cost         Value
                                                                                              ------------- ----------
                                                                                                    (in thousands)
  No maturity............................................................................    $    31,130   $   31,108
  Due in one year or less................................................................         11,664       11,716
  Due after one year through five years..................................................         16,498       16,763
  Due after five years through ten years.................................................         68,309       69,198
  Due after ten years....................................................................         94,235       94,901
  Mortgage-backed securities.............................................................        194,114      195,598
                                                                                            ------------   ----------
  Total securities.......................................................................    $   415,950   $  419,284
                                                                                            ------------   ----------
                                                                                            ------------   ----------
  Proceeds from sales of securities (excluding trading securities) during
  1997, 1996 and 1995 were $205,901,000, $146,580,000, and $140,291,000, 
  respectively. Gross gains of $1,236,000, $841,000, and $1,599,000 and gross 
  losses of $423,000, $150,000, and $809,000 were realized on those sales for 
  1997, 1996, and 1995, respectively. During 1997, 1996, and 1995 there were no 
  sales of securities classified as held-to-maturity.
  
      On August 1, 1997, securities held-to-maturity were reclassified to
  available-for-sale upon consummation of the CB merger to conform to
  Pinnacle's classification of investment securities. At the date of transfer, the
  securities had an amortized cost and net unrealized gain of $14.0 million and 
  $200,000, respectively.
  
     	Mortgage-backed securities include mortgage-backed securities and 
  collateralized mortgage obligations. The mortgage-backed securities represent 
  participating interest of pools of long-term first mortgage loans originated and
  serviced by the issuers of the securities. Collateralized mortgage obligations 
  are debt securities that are secured by mortgage loans or other mortgage-backed
  securities.
  
    		Securities with an amortized cost of $40,206,000 and $356,602,000 at 
  December 31, 1997 and 1996, respectively, were pledged to secure public deposits
  and securities sold under agreements to repurchase and for other purposes as 
  required by law or contract.
  
      The Company did not have any investment securities that individually
  exceeded 10% of stockholders' equity at December 31, 1997 and 1996.
  
                                       52
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 7 LOANS
  
      The following summarizes loans by classification at December 31 of each
  year.
  1997        1996
                                                         ---------    ---------
                                                              (in thousands)
  Commercial loans..................................... $  491,932  $  421,948
  Real estate loans....................................    588,046     650,624
  Consumer loans.......................................    238,427     238,321
  Tax exempt loans.....................................     10,240       9,686
  Mortgage loans purchased under agreements to
    resell.............................................    179,720      95,276
                                                        ----------   ---------
  
  Loans, net.....................................       $1,508,365  $1,415,855
                                                        ----------  ----------
                                                        ----------  ----------
  MORTGAGE LOANS PURCHASED UNDER AGREEMENTS TO RESELL
  
    		The Company has entered into agreements with mortgage companies in which the
  Company purchases, at its discretion, mortgage loans from the mortgage companies
  at par, net of certain fees, and later sells them back to the mortgage companies
  at the same amount and without recourse provisions. The Company records interest
  income on the loans during the funding period and the Company records fee income
  (recorded as noninterest income) received from the mortgage company for each 
  loan when resold. The interest income recorded is based on a rate of interest 
  tied to the prime rate (as established from time to time by a major Chicago-
  based financial institution) during the funding period, and not the rates on 
  individual loans. Such loans are reviewed, prior to purchase, for evidence that 
  the loans are of secondary market quality or meet the Company's internal 
  underwriting guidelines. An assignment of the mortgage to the Company is 
  required. In addition, the Company either takes possession of the original note 
  and forwards such note to the end investor or the Company receives a certified 
  copy of the note and subsequently receives acknowledgment from the end investor 
  of receiving the original note. A commitment to purchase from an end investor is
  generally required prior to purchase by the Company. In the event that the end 
  investor would not honor this commitment and the mortgage companies would not be
  able to honor their repurchase obligations, the Company would then need to sell 
  these loans in the secondary market at the fair value of these loans. Purchase 
  money and refinance loans are generally held no more than 90 days by the Company
  and are typically resold within 30 days. The Company also purchases interim 
  construction loans under this program and holds these loans for the duration of 
  the construction loan period which typically approximates one year or less. The 
  Company had approximately $21,566,000 and $25,407,000 of interim construction 
  loans purchased under agreements to resell at December 31, 1997 and 1996.
  
                                    				53
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 7 LOANS (CONTINUED)
  
     	The following summarizes nonaccrual loans and loans greater than 90 days 
  delinquent which are still accruing interest at December 31 of each year.
  1997                   1996
                                                             --------------------    -------------------
                                                              Non-       90 Days      Non-       90 Days
                                                             Accrual     Past Due    Accrual    Past Due
                                                            --------   -----------  ---------  -----------
                                                                             (in thousands)
  Real estate loans.......................................  $   1,027   $   4,040   $   1,742   $   3,459
  Commercial loans........................................      7,665       1,962       4,569       2,239
  Consumer loans..........................................        446       1,036         118         503
  Tax exempt loans........................................         --          --          --          --
  Mortgage repurchase loans...............................      1,629          --       4,700          --
                                                            ---------   ---------   ---------   ---------
  Total loans.............................................  $  10,767   $   7,038   $  11,129   $   6,201
                                                            ---------   ---------   ---------   ---------
                                                            ---------   ---------   ---------   ---------
  For the years ended December 31, 1997, 1996 and 1995, if nonaccrual loans 
  had been maintained current in accordance with their original terms, additional
  interest income of $840,000, $1,100,000, and $449,000, respectively, would have 
  been realized.
  
                                 						54
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 7 LOANS (CONTINUED)
  
      The recorded investment in impaired loans at December 31, 1997 and 1996
  totaled $16.5 million and $13.3 million, respectively, for which a specific 
  allowance for loan losses of $2.9 million and $1.6 million, respectively, was 
  required as of and for the years then ended. As of December 31, 1997 and 1996, 
  the average recorded investment in impaired loans approximated $15.4 million and
  $10.9 million, respectively. For the years ended December 31, 1997 and 1996, 
  interest income recorded on such loans totaled $1,031,000 and $688,000, 
  respectively, of which $547,000 and $475,000 respectively has been recorded on a
  cash basis.
  
     	Certain officers, directors, and entities with which they are affiliated 
  have borrowed funds from the Company. These loans were made in the ordinary 
  course of business on substantially the same terms as loans to other persons 
  and, in the opinion of management, do not involve more than the normal risks of 
  collectibility or present other unfavorable features. Such loans at December 31,
  1997 and 1996 aggregated approximately $19,413,000 and $14,903,000, 
  respectively. The net increase of $4,510,000 in such loans resulted from new 
  loans of $5,087,000 and collections on loans of $577,000.
  
                                         55
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     	The following summarizes the activity in the allowance for loan losses for 
  the years ended December 31.
  1997        1996          1995
                                                                                     ---------    ---------    ---------
                                                                                                (in thousands)
  Balance, beginning of year.......................................................  $  14,909    $ 13,853    $  11,787
  Adjustment due to change in fiscal year of pooled entity.........................        501          --           --
  Provisions charged against income................................................     13,320       2,681        1,422
  Recoveries.......................................................................        515         735          335
  Allowance of acquired financial institutions.....................................         --          --        1,855
                                                                                     ---------    --------    ---------
                                                                                        29,245      17,269       15,399
  Loans charged off................................................................     (8,717)     (2,360)      (1,546)
                                                                                     ---------    --------    ---------
  Balance, end of year.............................................................  $  20,528    $ 14,909    $  13,853
                                                                                     ---------    --------    ---------
                                                                                     ---------    --------    ---------
  NOTE 8 PREMISES AND EQUIPMENT, NET
  
      The following summarizes premises and equipment by classification at
  December 31.
  1997         1996
                                                                                               ---------     --------
                                                                                                    (in thousands)
  Land and land improvements.................................................................. $   4,637    $  4,766
  Buildings...................................................................... ..............  26,704      25,746
  Furniture, fixtures and equipment...........................................................    23,785      18,687
                                                                                               ---------    --------
  Subtotal....................................................................... ..........      55,126      49,199
  Less accumulated depreciation...............................................................    25,827      23,117
                                                                                               ---------    --------
  Premises and equipment, net................................................................. $  29,299    $ 26,082
                                                                                               ---------    --------
                                                                                               ---------    --------
  
  Depreciation expense charged to operations was $3,114,000, $2,856,000, and $2,252,000 in
  	1997, 1996, and 1995, respectively.
  56
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 9 TIME DEPOSITS
  
      The following summarizes time deposits and their remaining maturities,
  included in interest-bearing deposits at December 31.
  1997
                                                                              -----------
  (in thousands)
  Due within one year....................................................     $ 535,391
  From one to two years..................................................       112,424
  From two to three years................................................        35,275
  From three to four years...............................................         9,456
  From four to five years................................................        11,350
  Over five years........................................................        10,021
                                                                              ---------
  Total..................................................................     $ 713,917
                                                                              ---------
                                                                              ---------
  NOTE 10 BORROWINGS
  
     	The following is a schedule of securities sold under repurchase agreements 
  and other borrowings at December 31 of each year.
  1997        1996
                                                            ---------   --------
                                                                (in thousands)
  Securities sold under repurchase agreements.............  $  69,511  $  32,103
  Federal funds purchased.................................         --     69,900
  Federal Home Loan Bank advances.........................    414,365    369,238
  Other borrowings........................................         --        203
                                                            ---------  ---------
  Total...................................................  $ 483,876  $ 471,444
                                                            ---------  ---------
                                                            ---------  ---------
  Securities sold under repurchase agreements represent an indebtedness of
  the Company secured by certain securities. At December 31, 1997 and 1996, the 
  interest cost with regard to daily averages was 5.11% and 4.36%, respectively. 
  Securities with an amortized cost of $31.8 million and $29.9 million and an 
  estimated fair value of approximately $ 31.9 million and $29.8 million were 
  pledged as collateral for these agreements at December 31, 1997 and 1996, 
  respectively.
  
                                       57
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      Federal funds purchased, which mature daily, had an interest cost of
  6.24% at December 31, 1996. There were no federal funds purchased at
  December 31, 1997.
  
      Federal Home Loan Bank advances represent borrowings from Federal Home
  Loan Bank. Advances of $927.0 million, and $728.9 million, were drawn upon 
  during 1997, and 1996, respectively. At December 31, 1997, 1996, and 1995, 
  respectively, the interest cost with regard to daily averages was 5.67 %, 5.78%,
  and 6.13%, with maturities of one to ninety-four months. These borrowings are 
  secured by Federal Home Loan Bank stock (carried at $30.9 million), by all 
  eligible first mortgage loans on one-to-four family dwellings held by the Bank 
  (approximately $553.0 million at December 31, 1997) and by specific securities 
  with a carrying value of approximately $269.9 million.
  
      Other borrowings at December 31, 1996 consisted of the guaranteed ESOP
  obligation. The ESOP entered into a loan agreement to borrow up to $1.2 million
  with an unrelated financial institution to purchase shares of common stock in 
  the open market. The balance outstanding as of December 31, 1997 and 1996 was $0
  and $203,000, respectively.
  
  NOTE 11 INCOME TAXES
  
   			Income taxes (benefits) reported in the consolidated statements of income 
  for the years ended December 31, 1997, 1996, and 1995 include the following 
  components.
  1997       1996        1995
                                                                       ---------   --------   ---------
                                                                                 (in thousands)
  U.S. Federal
    Current...........................................................  $  7,048   $  7,304   $   5,811
    Deferred..........................................................    (2,596)    (1,267)       (593)
  State
    Current...........................................................       217      1,443       1,190
    Deferred..........................................................      (110)       (37)        (55)
                                                                        --------   --------   ---------
      Total...........................................................  $  4,559   $  7,443   $   6,353
                                                                        --------   --------   ---------
                                                                        --------   --------   ---------
  58
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
   			The following federal income tax expense differs from the amounts computed 
  by applying the federal income tax rate of 35% to pretax income at December 31 
  of each year.
  1997       1996       1995
                                                                        --------   --------   --------
                                                                                 (in thousands)
  Computed "expected" tax.............................................  $  5,171   $  8,199   $  7,755
  Tax exempt interest, net............................................      (695)      (478)      (430)
  Low income housing credit...........................................    (1,476)    (1,299)    (1,225)
  Amortization of goodwill............................................       389        327         42
  Acquisition cost....................................................     1,323         --         --
  State income tax, net of federal benefit............................        70        860        768
  Other, net..........................................................      (223)      (166)      (557)
                                                                        --------   --------   --------
  Total...........................................................     $   4,559   $  7,443   $  6,353
                                                                       ---------   --------   --------
                                                                       ---------   --------   --------
  The following presents the tax effects of temporary differences that give 
  rise to significant portions of the deferred tax assets and liabilities at 
  December 31 of each year.
  1997       1996
                                                                              --------   --------
                                                                                 (in thousands)
  Deferred Tax Assets:
    Allowance for loan losses.................................................   7,595      4,740
    Deferred directors compensation...........................................   1,308        395
    Capital loss and tax credit carryforward..................................      --        887
    Other.....................................................................     882      1,520
                                                                              --------   --------
  
      Total gross deferred tax assets.........................................   9,785      7,542
    Less valuation allowance..................................................      --        (61)
                                                                              --------   --------
  
      Net deferred tax assets.................................................   9,785      7,481
                                                                              --------   --------
                                                                              --------   --------
  
  Deferred Tax Liabilities:
    Deposit base premium......................................................    (736)    (1,007)
    Deferred loan fees and costs..............................................  (1,647)      (992)
    Depreciation..............................................................    (390)      (372)
    Pension...................................................................    (463)      (271)
    Purchase discount.........................................................  (1,255)    (1,369)
    Unrealized gains on securities available-for-sale.........................  (1,307)       (16)
    Other.....................................................................    (321)    (1,273)
                                                                              --------   --------
      Total gross deferred tax liabilities....................................  (6,119)    (5,230)
                                                                              --------   --------
  
      Net deferred tax assets.................................................   3,666      2,251
                                                                              --------   --------
                                                                              --------   --------
  The valuation allowance for deferred tax assets of $61,000 as of December 
  31, 1996 was reduced to zero during 1997 due to the utilization of the capital 
  loss carry forward.
  
                                  					59
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 12 EMPLOYEE BENEFITS
  
   			The former Pinnacle, IFC and CB entities had various employee benefit 
  programs for which certain plans have remained in place upon consummation of the
  merger transactions on August 1, 1997 and as of December 31, 1997. The details 
  of each plan are described herein.
  
  401(K) PLAN
  
   			The Company sponsors a defined contribution 401(k) plan for the benefit of 
  former Pinnacle employees. The Company matches employee contributions at levels
  dependent upon current operating results. In 1997, 1996, and 1995, the Company 
  contributions amounted to $128,000, $63,000, and $121,000, respectively. 
  Employee contributions to the plan are based upon optional percentages (ranging
  from 2% to 10%) of before tax compensation.
  
  PENSION PLANS
  
   			The Company sponsors a defined benefit pension plan which provides benefits 
  to substantially all full time employees of the former Pinnacle entity. Benefits
  under the plan are based on the employees' years of service and compensation 
  during the five highest paid plan years of the last ten years preceding 
  retirement. The following presents the components of net pension income at 
  December 31 of each year.
  1997        1996       1995
                                                                      ------     ------      -----
                                                                             (in thousands)
  Service cost--benefits earned during the year.....................  $  536     $  463     $  333
  Interest cost on projected benefit obligation.....................     379        401        268
  Actual return on plan assets......................................    (735)      (923)    (1,093)
  Net amortization and deferral.....................................    (157)       144        535
                                                                      ------     ------      -----
    Net pension expense (income)....................................      23     $   85     $   43
                                                                      ------     ------     ------
                                                                      ------     ------     ------
  60
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      The following presents the funded status of the former Pinnacle Bank's plan
  and amounts recognized in the consolidated balance sheets at December 31 of each
  year.
  1997       1996         1995
                                                                                     ---------   ---------   ---------
  Actuarial present value of projected benefit obligation:
    Accumulated benefit obligation:
      Vested........................................................................ $  (3,754)  $  (3,440)  $  (2,837)
      Nonvested.....................................................................      (128)       (118)       (109)
    Provision for future salary increases...........................................    (1,976)     (2,580)     (1,969)
                                                                                     ---------   ---------   ---------
    Projected benefit obligation....................................................    (5,858)     (6,138)     (4,915)
  Plan assets at fair value.........................................................     8,625       8,048       7,253
                                                                                     ---------   ---------   ---------
  Excess of plan assets over projected benefit obligation...........................     2,767       1,910       2,338
  Unrecognized net transition asset.................................................      (664)       (731)       (799)
  Unrecognized net (gain)loss.......................................................      (498)         16        (259)
  Unrecognized prior service cost...................................................      (468)        (35)        (36)
                                                                                     ---------   ---------   ---------
  Prepaid pension cost, included in other assets....................................     1,137       1,160       1,244
                                                                                     ---------   ---------   ---------
                                                                                     ---------   ---------   ---------
  Major assumptions used:
    Discount rate...................................................................      7.50%       7.50%       7.75%
    Rate of increase in compensation levels.........................................      5.50%       5.50%       6.00%
    Expected long-term rate on plan assets..........................................     10.00%      10.00%      10.00%
  The plan assets are invested primarily in a collective investment trust at 
  December 31, 1997, 1996, and 1995.
  
      The Company is also a part of a multi-employer defined benefit pension
  plan covering substantially all former CB employees.  The plan is administered 
  by the directors of the Financial Institutions Retirement Fund. There is no 
  separate actuarial valuation of plan benefits nor segregation of plan assets 
  specifically for the Company.  As of June 30, 1997, the latest actuarial 
  valuation, the total plan assets exceeded the actuarially determined value of 
  total vested benefits.  The plan was terminated and assets transferred to 
  participants in 1997.  There was no pension plan expense or contribution for the
  years ended December 31, 1997, 1996, and 1995. The administrative cost of the 
  plan is charged to expense and amounted to $1,600, 1,052, and $4,815 for the 
  years ended December 31, 1997, 1996, and 1995, respectively.
  
                                       61
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
  
      The Company has a Retiree Medical Plan which provides a portion of retiree 
  medical care premiums for certain former Pinnacle employees. The Company's level
  of contribution is based on age and service formula which provides benefits to 
  substantially all retired participants until December 31, 1997 and will provide 
  benefits to active participants in a 100% co-pay basis until age 65. The 
  components of the 1997, 1996 and 1995 net periodic postretirement benefit cost 
  are shown below:
  1997       1996       1995
                                                                                ------     ------     ------
                                                                                       (in thousands)
  Service cost...............................................................   $   --     $   --     $   --
  Interest cost..............................................................       13         19         21
  Net amortization and deferral..............................................       23         33         33
                                                                                ------     ------     ------
  Net periodic postretirement benefit cost...................................       36     $   52     $   54
                                                                                ------     ------     ------
                                                                                ------     ------     ------
  The funded status of the plan and the amounts recognized in the consolidated
  balance sheets are shown below:
  1997          1996         1995
                                                                           -------       -------      -------
                                                                                       (in thousands)
  Retired participants and beneficiaries................................   $  (160)      $  (248)     $  (281)
  Active participants...................................................        --            --           --
                                                                           -------       -------      -------
    Accumulated postretirement benefit obligation.......................      (160)         (248)        (281)
  Plan assets at fair value.............................................        --            --           --
  Excess of accumulated postretirement benefit obligation over plan
    assets..............................................................      (160)         (248)        (281)
  Unrecognized transition obligation....................................       160           193          226
  Unrecognized loss(gain)...............................................       (61)           (6)           2
                                                                           -------       -------      -------
    Accrued postretirement benefit obligation...........................   $   (61)      $   (61)     $   (53)
                                                                           -------       -------      -------
                                                                           -------       -------      -------
  For measurement purposes, a 8.00%, 9.00%, and 10.00% annual rate of increase
  in the per capita cost of covered benefits (health care cost trend rate) was 
  assumed for 1997, 1996, and 1995, respectively; the rate was further assumed to 
  decline to 4.00% after 7 years. The health care cost trend rate assumption has 
  an increasing effect on the amounts reported. For example, increasing the 
  assumed health care cost trend rates by one percentage point in each year would 
  increase the accumulated postretirement benefit obligation by $18,500 and 
  $25,000 and the aggregate of the service and interest cost components of net 
  periodic postretirement benefit cost by $1,000, $2,000 and $2,000 for years 
  ended December 31, 1997, 1996 and 1995, respectively. The weighted average 
  discount rate used in determining the accumulated postretirement benefit 
  obligation was 7.50% for December 31, 1997 and 1996, and 7.25% for December 31, 
  1995.
  
                                    			62
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  SUPPLEMENTAL RETIREMENT PLANS
  
    		The Company maintains a supplemental retirement plan for executives of the 
  former CB entity. The plan requires acceleration of funding of benefits upon 
  change of control of the former CB entity into the secular trusts already 
  established. The cost of the plan charged to expense was $265,000 for the year 
  ended December 31, 1997 which included the payments to fund the remaining 
  liability under the plan as the merger transaction as described in Note 3 met 
  the change in control provisions per the agreement. The cost of the plan charged
  to expense was $39,000 and $44,000 for the years ended December 31, 1996 and 
  1995, respectively. The Company has purchased corporate-owned life insurance to 
  partially fund its obligation under this plan. The accrued liability to the 
  company was $0 at December 31, 1997 and 1996.
  
    		The Company also maintains a supplemental retirement plan for certain senior
  executives of the former IFC entity. The plan requires acceleration of funding 
  of benefits upon change of control of the former IFC entity for certain 
  executives. The cost of the plan charged to expense was $$1,157,000 for the year
  ended December 31, 1997 which included the payments to fund the remaining 
  liability under the plan for certain executives as the merger transaction 
  described in Note 3 met the change in control provisions per the agreement as 
  well as the annual, actuarially determined amounts for the remaining IFC 
  executives. The cost of the plan charged to expense was $230,000 and $25,000 for
  the years ended December 31, 1996 and 1995, respectively. The Company has 
  purchased corporate-owned life insurance to partially fund its obligation under 
  this plan. The accrued liability to the Company was $1,387,000 and $230,000 at 
  December 31, 1997 and 1996, respectively.
  
  EMPLOYEE STOCK OWNERSHIP PLANS
  
    		The Company has established a leveraged Employee Stock Ownership Plan 
  ("ESOP") in which all former IFC employees who attain minimum age and service
  requirements are eligible to participate. The Company recorded compensation 
  expense related to the plan of $724,335 , $278,000, and $407,000 for the years 
  ended December 31, 1997, 1996, and 1995, respectively. The Company's 1997 
  contribution to the ESOP was $257,995 compared to $350,350 in 1996 and $382,628 
  in 1995. The ESOP plan was terminated in 1997 upon repayment of the ESOP loan 
  and allocation of all remaining shares to participants.
  
                                     			63
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
      At December 31, 1997 and 1996, the outstanding ESOP loan balance was
  $0 and $203,096, respectively. The interest incurred on the ESOP loan amounted 
  to $7,507 in 1997, $18,950 in 1996, and $31,250 in 1995.  Dividends paid on the 
  unallocated ESOP shares totaled $14,536 in 1997, $45,519 in 1996, and $50,023 in
  1995. The table below summarizes shares of Company Stock
  held by the ESOP.
  December 31,
                                                                 ------------------
                                                                 1997          1996
                                                               --------      --------
  Shares allocated to participants..........................    225,549       185,171
                                                               --------      --------
  Unallocated shares:
    Grandfathered under SOP 93-6............................         --        10,672
    Unearned ESOP shares....................................         --        29,706
                                                               --------      --------
      Total.................................................         --       225,549
                                                               --------      --------
  The Company also maintains an ESOP in which all former CB employees who 
  attain minimum age and service requirements are eligible to participate. The 
  Company recorded compensation expense of $192,634 for the year ended December 
  31, 1997 and $64,211 for each of the years ended December 31, 1996 and 1995. The
  Company's contribution to the ESOP was $208,686, $82,993, and $88,772 for the 
  years ended December 31, 1997, 1996, and 1995, respectively. The ESOP
  plan was terminated in 1997 upon repayment of the ESOP loan and the allocation 
  of all remaining shares to participants. At December 31, 1997 and 1996, the 
  outstanding ESOP loan balance was $0 and $176,852, respectively. The interest 
  incurred on the ESOP loan amounted to $16,052, $18,782, and $24,561 for the 
  years ended December 31, 1997, 1996, and 1995, respectively. The table below 
  summarizes shares of Company stock held by the ESOP.
  1997         1996
                                                                --------    ---------
  Shares allocated to participants...........................    108,729       62,260
  Unallocated shares.........................................         --       46,469
                                                                --------     --------
   ..........................................................         --      108,729
                                                                --------     --------
                                                                --------     --------
  64
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  RECOGNITION AND RETENTION PLANS
  
     	The Company has established the Recognition and Retention Plans (RRP) as a 
  method of providing directors, officers and other key employees of the former CB
  entity with a proprietary interest in the Company in a manner designed to 
  encourage such persons to remain with the Company. The terms of each RRP will be
  identical, only the participants and the number of shares awarded to each 
  participant vary. Eligible directors, officers and other key employees of the 
  Company will earn (i.e., become invested in) shares of common stock covered by 
  the award at a rate of 20% per year. The Company contributed funds to the RRP to
  enable the Plans to acquire in the aggregate 46,600 shares of common stock. An 
  expense of $7,705, $16,475, and $26,968 was recorded for these Plans for the 
  years-ended December 31, 1997, 1996, and 1995.
  
  DIRECTORS COMPENSATION PLANS
  
     	The Company sponsors a stock-based deferred compensation plan for directors 
  of the former IFC entity, in which directors can defer fees and purchase phantom
  units of the Company's common stock at $11.63. The amount charged to expense 
  related to this plan was $925,497, $156,839, and $162,199, in 1997, 1996, and 
  1995, respectively. At December 31, 1997, the directors had purchased 38,523 
  phantom units of which 6,629 were purchased in 1997.
  
     	The Company also sponsors a deferred compensation plan for its Board of 
  Directors of the former CB entity. Under the terms of the plan, directors may 
  elect to defer a portion of their fees which would be retained by the Company 
  with interest being credited to the participant's deferred balance. The plan was
  terminated on August 1, 1997 and directors were paid their accumulated deferred 
  balance which approximated $267,000.
  
     	The former CB Board of Directors adopted the Outside Directors' Consultation
  and Retirement Plan (the "Directors' Consultation Plan"). The purpose of the 
  Directors' Consultation Plan is to provide possible retirement benefits to 
  directors who are not officers or employees of the former CB entity to ensure 
  that the Company will have their continued service and assistance, if annually 
  contracted for by the Board of Directors in the conduct of the Company's 
  business in the future. Effective April 1, 1996, the Board of Directors of the 
  Company approved the Outside Director's Emeritus Plan (the "Directors' Emeritus 
  Plan) to replace the Outside Directors' Consultation and Retirement Plan. The 
  purpose of the Directors' Emeritus Plan is to ensure that the Company may, if 
  the Board so desires, have the continued service and assistance of directors who
  are not officers or employees of the Company in the conduct of the Company's 
  business in the future.
  
                                      		65
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     The resulting liability from the Directors' Emeritus Plan approximates the 
  liability accrued under the Directors' Consultation Plan. An expense of 
  approximately $18,000, 33,000 and $37,000 was recorded for these plans for the 
  years ended December 31, 1997, 1996 and 1995, respectively. The Directors' 
  Emeritus Plan was terminated in 1997 and final payment of $240,000 was made to 
  the directors. Therefore, the  resulting liability to the Company 
  was approximately $0 and $244,000 at December 31, 1997 and 1996, respectively.
  
                                       66
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 13 STOCK OPTION PLANS
  
     	At Pinnacle's 1993 Annual Stockholders Meeting, a non-qualified stock option
  plan (the "Plan") was presented to and approved by the stockholders of the 
  Company. The Compensation Committee of the Board of Directors, none of whom is 
  eligible to participate in the Plan, awarded certain key employees options to 
  purchase shares of the Company's common stock at an exercise price which 
  approximates the fair market value at the date of grant. All stock options have 
  five year terms and vest and become fully exercisable after five years from date
  of grant. The Board of Directors of the former CB entity has adopted the CB 
  Bancorp, Inc. 1992 Stock Option Plan for outside directors (the Directors' 
  Plan") of the former CB entity. Options for the purchase of shares of common 
  stock are authorized under the Directors' Plan. The option exercise price must 
  be at least 100% of the fair market value of the common stock on the date of the
  grant, and the option term cannot exceed 10 years. Eligible directors may 
  exercise 100% of the options awarded to them.
  
     	The Company also awards incentive and non-qualified stock options to certain
  former directors, officers and key employees. All options granted have 10 year 
  terms and vest and become fully exercisable over a 5 year period from the grant 
  date.
  
                                     		67
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
     	A summary of the Company's stock options activity and related information 
  for the year ended December 31, is as follows:
  1997              1996              1995
                                                                   ---------------   ---------------   ---------------
                                                                       Wtd. Avg.         Wtd. Avg          Wtd. Avg.
                                                                       Exercise          Exercise          Exercise
                                                                   ---------------   ---------------   ---------------
                                                                   Options   Price   Options   Price   Options   Price
                                                                   -------   -----   -------   -----   -------   -----
  Outstanding--beginning of year.................................. 537,499   14.14   499,921   11.54   491,327   8.78
    Granted....................................................... 100,000   29.15   121,750   20.90   153,750  16.85
    Exercised..................................................... 471,168   16.86    61,311    6.37   105,239   6.05
    Forfeited or canceled.........................................  11,040   19.59    22,860   13.99    39,917  12.48
    Outstanding--end of year...................................... 155,291   15.17   537,499   14.14   499,921  11.54
    Exercisable--end of year...................................... 155,291   15.17   288,912   11.32   253,738   9.21
  At December 31, 1997, the range of exercise prices and weighted average
  remaining contractual life of outstanding options was $4.62 to $21.16 and
  6.0 years, respectively.
  
   			The Company applies APB Opinion No. 25 in accounting for its Plan and, 
  accordingly, no compensation cost has been recognized for its stock options in 
  the financial statements. Proforma information regarding net income and net 
  income per share has been determined under a fair value method. The per share 
  weighted-average fair value of stock options granted during 1997, 1996 and 1995 
  was $6.63, $4.80, and $3.99, respectively. The fair value for these options was 
  estimated at the date of grant using a Black-Scholes option pricing model with 
  the following weighted average assumptions:
  1997          1996         1995
                                            ----          ----         ----
  Risk Free Interest rate                   6.50%         6.50%        6.50%
  Dividend yield                            3.75%         3.75%        3.75%
  Volatility                                .306%         .341%        .341%
  Expected Option life                  3.5 years     3.5 years    3.5 years
  For purposes of pro forma disclosures, if the estimated fair value of the 
  options is  amortized to expense over the options' vesting period, the effect on
  net income would be (in thousands, except per share data):
  1997          1996           1995
                                                      ------        ------         ------
  Net income
      As reported                                    $10,216       $16,087        $16,221
      Pro forma                                        9,539        15,699         15,853
  Basic earnings per share
      As reported                                    $   .83          1.32           1.60
      Pro Forma                                          .78          1.30           1.55
  Diluted earnings per share
      As reported                                    $   .83          1.32           1.58
      Pro forma                                          .78          1.29           1.55
  Pro forma net income and earnings per share reflect only options granted
  since December 31, 1994. Therefore, the full impact of calculating compensation 
  cost for stock options under SFAS No. 123 is not reflected in pro forma net 
  income and earnings per share presented above because compensation cost is 
  reflected over the options' vested period of generally five years and 
  compensation cost for options granted prior to January 1995 is not considered.
  
    		The following table reconciles the denominators for basic and diluted net 
  income per share:
  1997          1996          1995 
                                                             ----------    ----------    ----------
  Denominator
      For basic net income
        per share--average shares
        outstanding                                          12,258,265    12,051,935    10,137,302
      Effect of dilutive securities--
        stock options                                            53,692       119,286       107,024
      For diluted net income per
        share--average shares
        outstanding after assumed
        conversions                                          12,311,957    12.171,221    10,244,326
  There were no dilutive securities for the years ended December 31, 1997, 
  1996, and 1995 in calculating the numerator for basic and diluted net income per
  share.
  
                                         68
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  
  NOTE 14 SUPPLEMENTARY INCOME STATEMENT INFORMATION
  
    		Other than the items listed below, other noninterest income and other 
  noninterest expenses did not include any accounts that exceeded 1% of total 
  revenue, which is the sum of total interest income and total noninterest income.
  1997        1996         1995
                                                                                        ---------   ---------    ---------
                                                                                                  (in thousands)
  Other noninterest income:
    Service charges on deposit accounts................................................ $   5,279   $   4,341   $   3,653
    Trust fees.........................................................................       912         789         605
    Recoveries on distressed assets....................................................       479         250         296
    Gain on sale of loans, net.........................................................     3,411       1,019         545
    Merchant & loan servicing fees.....................................................     1,627       1,716       1,326
    Fees related to mortgage loans purchased under agreements to resell................     1,135         689         369
    Brokerage fees.....................................................................     1,927       1,982       1,263
  Other noninterest expense:
    Salaries and benefits..............................................................    23,858      21,690      17,599
    Occupancy..........................................................................     4,638       4,123       3,076
    Equipment..........................................................................     3,748       3,473       2,813
    Professional and legal fees........................................................     2,486       1,969       1,257
    Amortization of intangibles........................................................     2,021       2,037       1,269
    FDIC Insurance.....................................................................       681       7,858       1,965
    Supplies...........................................................................     1,573       1,434         973
    Postage............................................................................     1,378       1,202         900
    Marketing and promotion............................................................     1,982       2,244       1,469
    Computer processing................................................................     1,934       1,972       1,702
    Restructuring charges..............................................................    11,508          --          --
    Director Fees......................................................................     1,864         702         566
  NOTE 15 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
  
      The Company is a party to financial instruments with off-balance sheet
  risk in the normal course of business to meet the financing needs of its
  customers. These financial instruments are loan commitments to extend credit and
  letters of credit. Those instruments involve, to varying degrees, elements of 
  credit risk in excess of the amounts recognized in the consolidated balance 
  sheets. The contract amount of these instruments reflects the extent of 
  involvement the Company has in these financial instruments.
  
    		The following presents financial instruments with off-balance sheet risk at 
  December 31 of each year.
  1997          1996
                                                                                             ----------    ----------
                                                                                                   (in thousands)
  Financial instruments whose contract amounts represent potential credit risk
    Commitments to extend credit...........................................................  $  131,609    $  148,826
  Letters of credit........................................................................      24,477         5,660
  Undisbursed construction loans in repurchase program.....................................      11,582        12,419
  69
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  
      Loan commitments to extend credit are agreements to lend to a customer as
  long as there is no violation of any condition established in the contract. 
  Commitments generally have fixed expiration dates or other termination clauses 
  and may require payment of a fee. Since many of the commitments are expected to 
  expire without being drawn upon, the total commitment amounts do not necessarily
  represent future cash requirements. The Company evaluates each customer's credit
  worthiness on a case-by-case basis. The amount of collateral obtained if deemed 
  necessary by the Company upon extension of credit is based on management's 
  credit evaluation of the counter party. Collateral held varies but may include 
  accounts receivable, inventory, property, plant and equipment, and income-
  producing commercial properties.
  
    		Letters of credit written are conditional commitments issued by the Company 
  to guarantee the performance of a customer to a third party. All letters of 
  credit are short-term guarantees of one year or less. The credit risk involved 
  in issuing letters of credit is essentially the same as that involved in 
  extending loans to customers. The Company has a secured interest in various 
  assets as collateral supporting those commitments for which collateral is deemed
  necessary. The extent of collateral held on those commitments at December 31, 
  1997 and 1996 is in excess of the committed amount.
  
  NOTE 16 PARENT COMPANY FINANCIAL INFORMATION
  
  CONDENSED PARENT COMPANY ONLY BALANCE SHEETS
  December 31
                                                                                                 --------------------
                                                                                                 1997            1996
                                                                                              ----------      ----------
                                                                                                     (in thousands)
  ASSETS
    Cash and due from banks.................................................................  $    9,901     $    2,121
    Interest-bearing deposits with financial institutions...................................          --          6,076
    Securities available for sale...........................................................          --            217
    Investment in subsidiaries..............................................................     161,882        157,014
    Note receivable.........................................................................          --          1,450
    Other assets............................................................................      13,471          5,433
                                                                                              ----------     ----------
      TOTAL ASSETS..........................................................................  $  185,254     $  172,311
                                                                                              ----------     ----------
                                                                                              ----------     ----------
  
  LIABILITIES
    Notes payable and other liabilities.....................................................  $    4,259     $   2,052
  
  STOCKHOLDERS' EQUITY
    Common stock............................................................................      19,110        19,110
    Additional paid-in capital..............................................................      78,094        78,192
    Retained earnings.......................................................................      81,764        83,599
    Treasury stock at cost..................................................................          --       (10,304)
    Guaranteed ESOP obligation..............................................................          --          (379)
    Recognition and retention plan obligation...............................................          --            (4)
    Net unrealized gain on securities available-for-sale....................................       2,027            45
                                                                                              ----------    ----------
  
      Total stockholders' equity............................................................     180,995       170,259
                                                                                              ----------    ----------
      Total liabilities and stockholders' equity............................................  $  185,254     $ 172,311
                                                                                              ----------    ----------
                                                                                              ----------    ----------
  70
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  
  NOTE 16 PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
  
  CONDENSED PARENT COMPANY ONLY STATEMENTS OF INCOME
  Years Ended December 31,
                                                                                      ------------------------------
                                                                                        1997	       1996       1995
                                                                                     ---------   ---------   --------
                                                                                              (in thousands)
  Income
    Dividends from subsidiaries....................................................  $  12,805   $ 14,445   $  27,522
    Interest and other income......................................................      1,933      1,200         414
                                                                                     ---------  ---------   ---------
      Total income.................................................................     14,738     15,645      27,936
                                                                                     ---------  ---------   ---------
  Expenses
    Salaries and benefits..........................................................        907        290         222
    Other operating expenses.......................................................      7,137      1,492       1,115
                                                                                     ---------  ---------   ---------
      TOTAL EXPENSES...............................................................      8,044      1,782       1,337
                                                                                     ---------  ---------   ---------
  Income before income tax benefit and undistributed earnings of subsidiaries......      6,694     13,863      26,599
  Income tax benefit...............................................................       (947)      (210)       (342)
  Equity in undistributed earnings of subsidiaries.................................      2,575      2,014     (10,720)
                                                                                     ---------  ---------   ---------
      NET INCOME.................................................................... $  10,216  $  16,087   $  16,221
                                                                                     ---------  ---------   ---------
  71
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  
  NOTE 16 PARENT COMPANY FINANCIAL INFORMATION (CONTINUED) CONDENSED PARENT
          COMPANY ONLY STATEMENTS OF CASH FLOWS
  Years Ended December 31,
                                                                                          --------------------------
                                                                                          1997       1996       1995
                                                                                       ---------  ---------  ---------
  CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income.....................................................................    $  10,216  $  16,087   $ 16,221
    Equity in undistributed earning of subsidiaries................................       (2,575)    (2,014)    10,720 
    Other, net.....................................................................      (12,137)    (1,188)    (1,056)
                                                                                       ---------  ---------  ---------
      NET CASH PROVIDED BY OPERATING ACTIVITIES....................................       (4,496)    12,885     25,885
                                                                                       ---------  ---------  ---------
  
  CASH FLOWS FROM INVESTING ACTIVITIES:
    Net decrease (increase) in interest-bearing deposits with financial
      institutions.................................................................        6,076     18,108    (17,610)
    Purchase acquisition, net of cash..............................................           --         --    (28,219)
    Borrow funds to IndFed Mortgage Company........................................           --         --       (950)
    Purchase preferred stock of Forrest Holdings, Inc..............................           --     (2,500)        --
    Purchase common stock of IFB Investment Services, Inc..........................           --       (100)      (100)
    Purchase common stock of IndFed Mortgage Company...............................           --         --     (1,000)
    Purchase of available-for-sale securities......................................           --       (507)       (35)
    Proceeds from paydowns of available-for-sale securities........................           --         27         27
    Proceeds from sales and maturities of available-for-sale securities...........         1,089         --         --
                                                                                       ---------  ---------  ---------
      NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES.............................        7,165     15,028    (47,887)
                                                                                       ---------  ---------  ---------
  
  CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of treasury stock.......................................    $     425         --         --
    Proceeds from issuance of common stock.........................................        7,436        662     13,821
    Purchase of treasury shares at cost............................................           --       (613)      (957)
    Contribution to fund ESOP......................................................          379        211        125
    (Repayments) Proceeds from short-term borrowings...............................          396    (18,000)    18,000
    Dividends paid.................................................................       (9,550)    (8,590)    (6,826)
    Redemption of shareholders' rights plan........................................          (48)        --         --
    Cash paid for fractional shares................................................           (4)        --         --
                                                                                       ---------  ---------  ---------
      NET CASH USED (PROVIDED) BY FINANCING ACTIVITIES.............................         (966)   (26,330)    24,163
                                                                                       ---------  ---------  ---------
  Net increase in cash and cash equivalents........................................        1,703      1,583      2,161
  Cash and cash equivalents at beginning of year...................................        8,198      6,615      4,454
                                                                                       ---------  ---------  ---------
  
  CASH AND CASH EQUIVALENTS AT END OF YEAR.........................................    $   9,901  $   8,198   $  6,615
  72
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
  NOTE 17 DIVIDENDS FROM HOLDING COMPANY
  
    		The Company is a legal entity separate and distinct from its subsidiaries. 
  Substantially all of the Company's revenues result from dividends paid to it by
  its subsidiaries and from earnings on investments. There are statutory and 
  regulatory requirements applicable to the payment of dividends by Pinnacle Bank
  as well as by the Company to its stockholders. Under the foregoing dividend 
  restrictions, Pinnacle Bank, without obtaining government approvals, could 
  declare aggregate dividends in 1997 of approximately $33.2 million.
  
  NOTE 18 COMMITMENTS AND CONTINGENT LIABILITIES
  
      There are various other matters of litigation pending against the Company
  that have arisen during the normal course of business. Management is vigorously 
  defending themselves in all matters. Management believes that the impact to the 
  financial statements resulting from the ultimate resolution of these matters 
  will not be significant.
  
                                         73
  PINNACLE FINANCIAL SERVICES, INC.
  
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  
  NOTE 19 SUBSEQUENT EVENT- PENDING ACQUISITION
  
      On October 14, 1997, the Company entered into a definitive agreement to
  sell the Company to CNB Bancshares, Inc. (CNB) of Evansville, Indiana ($4.4 
  billion in total assets). The fixed exchange ratio is 1.0365 shares of CNB 
  Common Stock issued for each share issued and outstanding of Pinnacle Common 
  Stock, and it is anticipated to be accounted for using the pooling-of-interests 
  method of accounting. The sale is subject to shareholder approval and is 
  expected to close in the second quarter of 1998.
  
                                       74
  SELECTED QUARTERLY FINANCIAL INFORMATION
  March 31      June 30     September 30   December 31
                                                               ----------   -----------   -----------    ----------
  (in thousands, except per share data stock prices)
  1997
  Interest income...........................................       40,071        41,590        42,671        42,740
  Net interest income.......................................       18,130        18,475        18,953        20,028
  Provision for loan losses.................................          805           865        10,850           800
  Income before income tax expense..........................        8,957         9,134       (10,172)        7,556
  Net income................................................        5,996         5,955        (7,081)        5,346
  
  Net income per share...................................... $       0.49  $        .49        ($0.58) $       0.43
  
  Stock price range......................................... $23.25-28.00  $25.13-29.00  $28.50-36.00  $35.00-49.38
  
  1996
  Interest income...........................................       34,646        35,649        37,452        40,156
  Net interest income.......................................       16,118        16,651        17,383        18,152
  Provision for loan losses.................................          241           520           810         1,110
  Income before income tax expense..........................        6,925         6,329         2,637         7,639
  Net income................................................        4,788         4,208         2,057         5,034
  
  Net income per share...................................... $       0.39  $       0.35   $      0.17  $       0.41
  
  Stock price range......................................... $17.75-20.50  $20.00-21.75  $19.50-24.75  $23.25-25.00
  75
  
                                     EXHIBIT INDEX
                                     -------------
  
  Exhibit No.                        Description
  ----------                         -----------
  
  2(a)                Agreement  and  Plan  of  Merger,  dated  as  of
                      October  14, 1997, by and between CNB Bancshares,  Inc.,  an
                      Indiana corporation, and Pinnacle Financial Services,  Inc.,
                      a  Michigan corporation, is incorporated herein by reference
                      from the  Registration  Statement  on  Form  S-4  of   CNB
                      Bancshares, Inc. (No. 333-46837).
  
  2(b)                Stock  Option  Agreement,  dated   as   of
                      October  14, 1997, between CNB Bancshares, Inc., an  Indiana
                      corporation,  and  Pinnacle  Financial  Services,  Inc.,   a
                      Michigan  corporation, is incorporated herein  by  reference
                      from the  Registration  Statement  on  Form  S-4  of   CNB
                      Bancshares, Inc. (No. 333-46837).
  
  23(a)               Consent of KPMG Peat Marwick LLP.
  
  99(a)               Press Release dated April 17, 1998.