**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10 - Q**

**QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(D)**

**OF      THE SECURITIES EXCHANGE ACT OF 1934**

**For      the quarterly period ended June 30, 2006**

**STATE      NATIONAL BANCSHARES, INC.**

| **Texas**                                                                                   |   | **75-2641879**                                      |
|---------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                or other jurisdiction ofincorporation                or organization) |   | (I.R.S.                Employer Identification No.) |
|                                                                                        |   |                                                |
|                                                                                        |   |                                                |
| 4500                Mercantile Plaza Drive                                                  |
| Suite                300                                                                    |
| Fort                Worth, Texas 76137                                                      |
| (Address                of principal executive offices, including zip code)                 |
|                                                                                        |
| (817)                547-1150                                                               |
| (Registrant’s                telephone number, including area code)                   |
|                                                                                        |

----

**STATE      NATIONAL BANCSHARES, INC.**

|                                                      |  PAGE                                                                             |
|-----------------------------------------------------------|----------------------------------------------------------------------------------------|
|                                                      |                                                                                   |
| **PART                  I****-****FINANCIAL INFORMATION** |                                                                                        |
| ITEM                  1.                             | FINANCIAL                  STATEMENTS                                                  |   |
|                                                      | Consolidated                  Balance Sheets                                           | 1 |
|                                                      | Consolidated                  Statements of Operations                                 | 2 |
|                                                      | Consolidated                  Statements of Changes in Shareholders' Equity            | 3 |
|                                                      | Consolidated                  Statements of Cash Flows                                 | 4 |
|                                                      | Notes                  to Interim Consolidated Financial Statements                    | 5 |
|                                                      |                                                                                   |   |
| ITEM                  2.                             | MANAGEMENT’S                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |   |
|                                                      | RESULTS                  OF OPERATIONS                                                 | 10 |
|                                                      |                                                                                   |   |
| ITEM                  3.                                  | QUANTITATIVE                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK            | 27 |
|                                                      |                                                                                   |   |
| ITEM                  4.                             | CONTROLS                  AND PROCEDURES                                               | 27 |
|                                                      |                                                                                   |   |
| **PART                  II -****OTHER INFORMATION**       |                                                                                        |
| ITEM                  1.                             | LEGAL                  PROCEEDINGS                                                     | 27 |
|                                                      |                                                                                   |   |
| ITEM                  1A.                            | RISK                  FACTORS                                                          | 27 |
|                                                      |                                                                                   |   |
| ITEM                  2.                             | UNREGISTERED                  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS           | 28 |
|                                                      |                                                                                   |   |
| ITEM                  3.                             | DEFAULTS                  UPON SENIOR SECURITIES                                       | 28 |
|                                                      |                                                                                   |   |
| ITEM                  4.                             | SUBMISSION                  OF MATTERS TO A VOTE OF SECURITY HOLDERS                   | 28 |
|                                                      |                                                                                   |   |
| ITEM                  5.                             | OTHER                  INFOMATION                                                      | 29 |
|                                                      |                                                                                   |   |
| ITEM                  6.                                  | EXHIBITS                                                                               | 29 |

----

**PART      I - **
**FINANCIAL      INFORMATION**

**ITEM      1. **
**Financial      Statements**

**STATE      NATIONAL BANCSHARES, INC. AND SUBSIDIARIES**

**Consolidated      Balance Sheets**

**June      30, 2006 and December 31, 2005**

**(Unaudited**)****

|                                                                                                                                                                                          |   |   | **June                  30,****2006**                                   |   |   | **December                  31, 2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------------|--------|--------|---------------------------------------------|--------|
| **Assets:**                                                                                                                                                                              |   |   | (Dollars                in thousands, except share                data) |   |
| Cash                and cash equivalents:                                                                                                                                                     |   |   |                                                                    |   |   |                                        |   |
| Cash                and due from banks                                                                                                                                                        |   | $      | 77,228                                                                  |   | $      | 72,922                                      |   |
| Federal                funds sold                                                                                                                                                             |   |   | —                                                                 |   |   | 36,950                                      |   |
| Interest-bearing                deposits in other banks                                                                                                                                       |   |   | 3,301                                                                   |   |   | 44,763                                      |   |
| Total                cash and cash equivalents                                                                                                                                                |   |   | 80,529                                                                  |   |   | 154,635                                     |   |
| Securities                available-for-sale, at fair value (amortized cost of $236,127 and                $208,797                at June 30, 2006 and December 31, 2005, respectively) |   |   | 231,660                                                                 |   |   | 206,787                                     |   |
| Federal                Reserve Bank stock and other investments, at cost                                                                                                                      |   |   | 7,619                                                                   |   |   | 8,094                                       |   |
| Loans                held-for-sale                                                                                                                                                            |   |   | 6,949                                                                   |   |   | 11,584                                      |   |
| Loans                held for investment:                                                                                                                                                     |   |   |                                                                    |   |   |                                        |   |
| Total                loans held for investment                                                                                                                                                |   |   | 1,098,559                                                               |   |   | 1,074,611                                   |   |
| Less                allowance for loan losses                                                                                                                                                 |   |   | 13,122                                                                  |   |   | 12,591                                      |   |
| Net                loans held for investment                                                                                                                                                  |   |   | 1,085,437                                                               |   |   | 1,062,020                                   |   |
| Premises                and equipment, net                                                                                                                                                    |   |   | 51,897                                                                  |   |   | 48,769                                      |   |
| Goodwill                                                                                                                                                                                      |   |   | 99,354                                                                  |   |   | 100,486                                     |   |
| Other                intangible assets, net                                                                                                                                                   |   |   | 16,332                                                                  |   |   | 17,936                                      |   |
| Accrued                interest receivable                                                                                                                                                    |   |   | 9,018                                                                   |   |   | 8,919                                       |   |
| Other                real estate and other repossessed assets                                                                                                                                 |   |   | 601                                                                     |   |   | 935                                         |   |
| Other                assets                                                                                                                                                                   |   |   | 45,206                                                                  |   |   | 42,712                                      |   |
| **Total                assets**                                                                                                                                                               |   | $      | 1,634,602                                                               |   | $      | 1,662,877                                   |   |
| **Liabilities                and shareholders' equity:**                                                                                                                                 |   |   |                                                                    |   |   |                                        |   |
| Deposits:                                                                                                                                                                                     |   |   |                                                                    |   |   |                                        |   |
| Noninterest                bearing deposits                                                                                                                                                   |   | $      | 479,610                                                                 |   | $      | 487,369                                     |   |
| Interest-bearing                demand deposits                                                                                                                                               |   |   | 492,570                                                                 |   |   | 523,857                                     |   |
| Interest-bearing                time deposits                                                                                                                                                 |   |   | 339,269                                                                 |   |   | 345,852                                     |   |
| Total                deposits                                                                                                                                                                 |   |   | 1,311,449                                                               |   |   | 1,357,078                                   |   |
| Federal                funds purchased and securities sold under agreement to                repurchase                                                                                       |   |   | 43,150                                                                  |   |   | 28,597                                      |   |
| Accrued                interest payable                                                                                                                                                       |   |   | 1,781                                                                   |   |   | 1,645                                       |   |
| Other                liabilities                                                                                                                                                              |   |   | 10,191                                                                  |   |   | 10,459                                      |   |
| Junior                subordinated debentures                                                                                                                                                 |   |   | 47,000                                                                  |   |   | 47,000                                      |   |
| Notes                payable                                                                                                                                                                  |   |   | 1,270                                                                   |   |   | 5,841                                       |   |
| **Total                liabilities**                                                                                                                                                          |   |   | 1,414,841                                                               |   |   | 1,450,620                                   |   |
|                                                                                                                                                                                          |   |   |                                                                    |   |   |                                        |   |
| Minority                interest in consolidated subsidiary                                                                                                                                   |   |   | 1,186                                                                   |   |   | —                                     |   |
|                                                                                                                                                                                          |   |   |                                                                    |   |   |                                        |   |
| **Shareholders'                equity:**                                                                                                                                                 |   |   |                                                                    |   |   |                                        |   |
| Common                stock, $1 par value;                                                                                                                                                    |   |   |                                                                    |   |   |                                        |   |
| Authorized                shares—40,000,000;                                                                                                                                            |   |   |                                                                    |   |   |                                        |   |
| Issued                and outstanding shares—12,014,083 and 11,971,107,                respectively                                                                                     |   |   | 12,014                                                                  |   |   | 11,971                                      |   |
| Additional                paid-in capital                                                                                                                                                     |   |   | 178,560                                                                 |   |   | 177,428                                     |   |
| Retained                earnings                                                                                                                                                              |   |   | 30,904                                                                  |   |   | 24,164                                      |   |
| Accumulated                other comprehensive loss                                                                                                                                           |   |   | (2,903                                                                  | )      |   | (1,306                                      | )      |
| **Total                shareholders' equity**                                                                                                                                                 |   |   | 218,575                                                                 |   |   | 212,257                                     |   |
| **Total                liabilities and shareholders' equity**                                                                                                                                 |   | $      | 1,634,602                                                               |   | $      | 1,662,877                                   |   |

----

**STATE      NATIONAL BANCSHARES, INC. AND SUBSIDIARIES**

**Consolidated      Statements of Operations**

**Three      Months and Six Months Ended June 30, 2006 and 2005**

**(Unaudited)**

|                                                                                                    |   |                                                     | **Three                  Months****Ended                June 30,** |   |   | **Six                  Months****Ended                June 30,** |   |
|---------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------------------------------------------------------------------|--------|--------|------------------------------------------------------------------|--------|
|                                                                                                    |   |                                                     | **2006**                                                           |   |   | **2005**                                                         |   |   | **2006** |   |   | **2005** |   |
| Interest                income:                                                                         |   | **(In                thousands, except per share data)** |
| Loans,                including fees                                                                    |   | $                                                        | 22,170                                                             |   | $      | 16,989                                                           |   | $ | 42,955 |   | $ | 32,791 |   |
| Securities                                                                                              |   |                                                     | 2,632                                                              |   |   | 1,342                                                            |   |   | 4,952 |   |   | 2,823 |   |
| Deposits                in other banks                                                                  |   |                                                     | 111                                                                |   |   | 57                                                               |   |   | 537 |   |   | 110 |   |
| Federal                funds sold                                                                       |   |                                                     | 350                                                                |   |   | 184                                                              |   |   | 705 |   |   | 284 |   |
| Total                interest income                                                                    |   |                                                     | 25,263                                                             |   |   | 18,572                                                           |   |   | 49,149 |   |   | 36,008 |   |
| Interest                expense:                                                                        |   |                                                     |                                                               |   |   |                                                             |   |   |   |   |   |   |   |
| Deposits                                                                                                |   |                                                     | 4,631                                                              |   |   | 2,471                                                            |   |   | 8,846 |   |   | 4,405 |   |
| Federal                funds purchased and securities sold under agreement to                repurchase |   |                                                     | 367                                                                |   |   | 124                                                              |   |   | 671 |   |   | 209 |   |
| Subordinated                notes payable                                                               |   |                                                     | 1,010                                                              |   |   | 780                                                              |   |   | 1,952 |   |   | 1,482 |   |
| Notes                payable                                                                            |   |                                                     | 23                                                                 |   |   | 10                                                               |   |   | 74 |   |   | 21 |   |
| Total                interest expense                                                                   |   |                                                     | 6,031                                                              |   |   | 3,385                                                            |   |   | 11,543 |   |   | 6,117 |   |
| Net                interest income                                                                      |   |                                                     | 19,232                                                             |   |   | 15,187                                                           |   |   | 37,606 |   |   | 29,891 |   |
| Provision                for loan losses                                                                |   |                                                     | 320                                                                |   |   | 300                                                              |   |   | 800 |   |   | 600 |   |
| Net                interest income after provision for loan losses                                      |   |                                                     | 18,912                                                             |   |   | 14,887                                                           |   |   | 36,806 |   |   | 29,291 |   |
| Non-interest                income:                                                                     |   |                                                     |                                                               |   |   |                                                             |   |   |   |   |   |   |   |
| Service                charges on deposit accounts                                                      |   |                                                     | 2,799                                                              |   |   | 2,435                                                            |   |   | 5,494 |   |   | 4,815 |   |
| Gain                on sale of loans                                                                    |   |                                                     | 651                                                                |   |   | 776                                                              |   |   | 1,284 |   |   | 1,349 |   |
| Bank                owned life insurance                                                                |   |                                                     | 326                                                                |   |   | 319                                                              |   |   | 653 |   |   | 634 |   |
| Net                realized (loss)/gain on sale of investment securities                                |   |                                                     | (79                                                                | )      |   | —                                                          |   |   | (79 | ) |   | 1 |   |
| Other                                                                                                   |   |                                                     | 1,302                                                              |   |   | 978                                                              |   |   | 2,344 |   |   | 2,073 |   |
| Total                non-interest income                                                                |   |                                                     | 4,999                                                              |   |   | 4,508                                                            |   |   | 9,696 |   |   | 8,872 |   |
| Non-interest                expenses:                                                                   |   |                                                     |                                                               |   |   |                                                             |   |   |   |   |   |   |   |
| Salaries                and employee benefits                                                           |   |                                                     | 8,054                                                              |   |   | 7,248                                                            |   |   | 16,305 |   |   | 14,317 |   |
| Net                occupancy and equipment expense                                                      |   |                                                     | 2,461                                                              |   |   | 2,139                                                            |   |   | 5,005 |   |   | 4,307 |   |
| Amortization                of intangibles                                                              |   |                                                     | 997                                                                |   |   | 823                                                              |   |   | 2,019 |   |   | 1,647 |   |
| Communication                expense                                                                    |   |                                                     | 325                                                                |   |   | 276                                                              |   |   | 645 |   |   | 556 |   |
| Data                processing expense                                                                  |   |                                                     | 235                                                                |   |   | 199                                                              |   |   | 456 |   |   | 419 |   |
| Advertising                                                                                             |   |                                                     | 423                                                                |   |   | 312                                                              |   |   | 722 |   |   | 533 |   |
| Professional                fees                                                                        |   |                                                     | 587                                                                |   |   | 336                                                              |   |   | 1,091 |   |   | 691 |   |
| Supplies                                                                                                |   |                                                     | 195                                                                |   |   | 219                                                              |   |   | 380 |   |   | 421 |   |
| Net                costs applicable to other real estate and other repossessed                assets    |   |                                                     | 135                                                                |   |   | 27                                                               |   |   | 204 |   |   | 43 |   |
| Merger                expenses                                                                          |   |                                                     | 755                                                                |   |   | 40                                                               |   |   | 758 |   |   | 40 |   |
| Other                                                                                                   |   |                                                     | 2,594                                                              |   |   | 2,050                                                            |   |   | 4,960 |   |   | 4,120 |   |
| Total                noninterest expenses                                                               |   |                                                     | 16,761                                                             |   |   | 13,669                                                           |   |   | 32,545 |   |   | 27,094 |   |
| Income                before income taxes and minority interest in subsidiaries                         |   |                                                     | 7,150                                                              |   |   | 5,726                                                            |   |   | 13,957 |   |   | 11,069 |   |
| Income                tax expense                                                                       |   |                                                     | 2,586                                                              |   |   | 1,866                                                            |   |   | 4,866 |   |   | 3,772 |   |
| Minority                interest in consolidated subsidiary’s net (income)/loss                   |   |                                                     | (12                                                                | )      |   | —                                                          |   |   | 48 |   |   | — |   |
| Net                income                                                                               |   | $                                                        | 4,552                                                              |   | $      | 3,860                                                            |   | $ | 9,139 |   | $ | 7,297 |   |
| Basic                income per share                                                                   |   | $                                                        | 0.38                                                               |   | $      | 0.38                                                             |   | $ | 0.76 |   | $ | 0.73 |   |
| Diluted                income per share                                                                 |   |                                                     | 0.37                                                               |   |   | 0.37                                                             |   |   | 0.75 |   |   | 0.71 |   |
| Dividends                per share                                                                      |   |                                                     | 0.10                                                               |   |   | —                                                          |   |   | 0.20 |   |   | — |   |

----

**STATE      NATIONAL BANCSHARES, INC. AND SUBSIDIARIES**

**C**
**onsolidated**
**      Statements of Change in Shareholders’ Equity**

**(Unaudited)      **

|                                                                                                                   |   | **Common                Stock**                                      |       | **Additional****Paid-In** |   |       | **Retained** |   |        | **Accumulated****Other****Comprehensive** |   |         |   |   |                                 |
|------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|------------|---------------------------|--------|------------|--------------|--------|-------------|-------------------------------------------|--------|--------------|--------|--------|--------------------------------------|
|                                                                                                                   |   |                                                                 | **Shares** |                      |   | **Amount** |         |   | **Capital** |                                      |   | **Earnings** |   |   | **Income                (Loss**)**** |   |   |   | **Total** |   |
|                                                                                                                        |   | **(Dollars                  in thousands, except number of shares)** |
| **Balance,                January 1, 2005**                                                                            |   |                                                                 | 10,054,582 |                      | $      | 10,055     |         | $      | 133,519     |                                      | $      | 7,482        |   | $      | 304                                  |   |   | $ | 151,360 |   |
| Comprehensive                income:                                                                                   |   |                                                                 |       |                      |   |       |         |   |        |                                      |   |         |   |   |                                 |   |   |   |   |   |
| Net                income                                                                                              |   |                                                                 | —    |                      |   | —    |         |   | —     |                                      |   | 16,682       |   |   | —                              |   |   |   | 16,682 |   |
| Change                in unrealized gain on available-for-sale securities, net of deferred                income taxes |   |                                                                 | —    |                      |   | —    |         |   | —     |                                      |   | —      |   |   | (1,609                               | ) |   |   | (1,609 | ) |
| Reclassification                adjustment for gains included in net income                                            |   |                                                                 | —    |                      |   | —    |         |   | —     |                                      |   | —      |   |   | (1                                   | ) |   |   | (1 | ) |
| Total                comprehensive income                                                                              |   |                                                                 |       |                      |   |       |         |   |        |                                      |   |         |   |   |                                 |   |   |   | 15,072 |   |
| Issuance                of new stock                                                                                   |   |                                                                 | 1,907,692  |                      |   | 1,907      |         |   | 43,279      |                                      |   | —      |   |   | —                              |   |   |   | 45,186 |   |
| Stock                option award expense                                                                              |   |                                                                 | —    |                      |   | —    |         |   | 486         |                                      |   | —      |   |   | —                              |   |   |   | 486 |   |
| Stock                options exercised                                                                                 |   |                                                                 | 8,833      |                      |   | 9          |         |   | 144         |                                      |   | —      |   |   | —                              |   |   |   | 153 |   |
|                                                                                                                   |   |                                                                 |       |                      |   |       |         |   |        |                                      |   |         |   |   |                                 |   |   |   |   |   |
| **Balance,                December 31, 2005**                                                                          |   |                                                                 | 11,971,107 |                      |   | 11,971     |         |   | 177,428     |                                      |   | 24,164       |   |   | (1,306                               | ) |   |   | 212,257 |   |
| Comprehensive                income:                                                                                   |   |                                                                 |       |                      |   |       |         |   |        |                                      |   |         |   |   |                                 |   |   |   |   |   |
| Net                income                                                                                              |   |                                                                 | —    |                      |   | —    |         |   | —     |                                      |   | 9,139        |   |   | —                              |   |   |   | 9,139 |   |
| Change                in unrealized gain on available-for-sale securities, net of deferred                income taxes |   |                                                                 | —    |                      |   | —    |         |   | —     |                                      |   | —      |   |   | (1,676                               | ) |   |   | (1,676 | ) |
| Reclassification                adjustment for losses included in net income                                           |   |                                                                 | —    |                      |   | —    |         |   | —     |                                      |   | —      |   |   | 79                                   |   |   |   | 79 |   |
| Total                comprehensive income                                                                              |   |                                                                 |       |                      |   |       |         |   |        |                                      |   |         |   |   |                                 |   |   |   | 7,542 |   |
| Dividends                - $0.20 per share                                                                             |   |                                                                 | —    |                      |   | —    |         |   | —     |                                      |   | (2,399       | )      |   | —                              |   |   |   | (2,399 | ) |
| Stock                option award expense                                                                              |   |                                                                 | —    |                      |   | —    |         |   | 251         |                                      |   | —      |   |   | —                              |   |   |   | 251 |   |
| Stock                issued for directors fees                                                                         |   |                                                                 | 7,576      |                      |   | 8          |         |   | 182         |                                      |   | —      |   |   | —                              |   |   |   | 190 |   |
| Stock                options exercised                                                                                 |   |                                                                 | 35,400     |                      |   | 35         |         |   | 699         |                                      |   | —      |   |   | —                              |   |   |   | 734 |   |
|                                                                                                                   |   |                                                                 |       |                      |   |       |         |   |        |                                      |   |         |   |   |                                 |   |   |   |   |   |
| **Balance,                June 30, 2006**                                                                              |   |                                                                 | 12,014,083 |                      | $      | 12,014     |         | $      | 178,560     |                                      | $      | 30,904       |   | $      | (2,903                               | ) |   | $ | 218,575 |   |

----

**STATE      NATIONAL BANCSHARES, INC. AND SUBSIDIARIES**

**C**
**onsolidated**
**      Statements of Cash Flows**

**(Unaudited)**

|                                                                                                                                   |   | **Six                Months Ended June 30,**  |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|
|                                                                                                                                   |   |                                               | **2006** |   |   | **2005** |   |
|                                                                                                                                        |   | **(Dollars                in thousands****)**      |
| Operating                Activities:                                                                                                   |   |                                               |   |   |   |   |   |
| Net                income                                                                                                              |   | $                                                  | 9,139 |   | $ | 7,297 |   |
| Adjustments                to reconcile net income to net cash provided by operating activities:                                       |   |                                               |   |   |   |   |   |
| Provision                for loan losses                                                                                               |   |                                               | 800 |   |   | 600 |   |
| Depreciation                and amortization                                                                                           |   |                                               | 3,796 |   |   | 3,158 |   |
| Stock                compensation expense                                                                                              |   |                                               | 251 |   |   | 241 |   |
| Loans                originated for sale                                                                                               |   |                                               | (53,285 | ) |   | (61,830 | ) |
| Proceeds                from sales of loans held-for-sale                                                                              |   |                                               | 59,204 |   |   | 62,796 |   |
| Gain                on sale of loans                                                                                                   |   |                                               | (1,284 | ) |   | (1,349 | ) |
| Gain                on sale of premises and equipment                                                                                  |   |                                               | (7 | ) |   | — |   |
| Net                loss (gain) on sale of investment securities                                                                        |   |                                               | 79 |   |   | (1 | ) |
| Net                loss (gain) on sale of other real estate and repossessed                assets                                      |   |                                               | 30 |   |   | (28 | ) |
| Deferred                income tax benefit                                                                                             |   |                                               | (689 | ) |   | (577 | ) |
| Minority                interest in consolidated subsidiary’s net loss                                                      |   |                                               | (48 | ) |   | — |   |
| Write-down                of premises and equipment                                                                                    |   |                                               | 2 |   |   | 23 |   |
| Net                amortization of premium on securities                                                                               |   |                                               | 39 |   |   | 355 |   |
| Net                change in other assets and liabilities                                                                              |   |                                               | (1,180 | ) |   | 4,825 |   |
| Net                cash provided by operating activities                                                                               |   |                                               | 16,847 |   |   | 15,510 |   |
| Investing                Activities:                                                                                                   |   |                                               |   |   |   |   |   |
| Purchase                Price adjustment for Heritage acquisition                                                                      |   |                                               | 720 |   |   | — |   |
| Purchases                of securities available-for-sale                                                                              |   |                                               | (98,211 | ) |   | (7,966 | ) |
| Purchases                of Federal Reserve Bank stock and other investments                                                           |   |                                               | (1,007 | ) |   | (47 | ) |
| Proceeds                from sales, maturities and calls of securities                available-for-sale                               |   |                                               | 71,769 |   |   | 31,447 |   |
| Proceeds                from maturities and calls of Federal Reserve Bank Stock & other                investments                 |   |                                               | 476 |   |   | 417 |   |
| Net                increase in loans                                                                                                   |   |                                               | (24,213 | ) |   | (20,667 | ) |
| Proceeds                from sale of premises and equipment                                                                            |   |                                               | 349 |   |   | — |   |
| Proceeds                from sales of other real estate and other repossessed                assets                                    |   |                                               | 300 |   |   | 686 |   |
| Purchase                of premises and equipment                                                                                      |   |                                               | (5,248 | ) |   | (2,755 | ) |
| Net                cash (used in) provided by investing activities                                                                     |   | $                                                  | (55,065 | ) | $ | 1,115 |   |
| Financing                Activities:                                                                                                   |   |                                               |   |   |   |   |   |
| Net                (decrease) increase in deposits                                                                                     |   |                                               | (45,629 | ) |   | 1,188 |   |
| Stock                issued through exercise of stock options & warrants                                                           |   |                                               | 734 |   |   | 95 |   |
| Stock                issued for directors fees                                                                                         |   |                                               | 190 |   |   | — |   |
| Net                increase in federal funds purchased and securities sold under agreement                to                repurchase |   |                                               | 14,553 |   |   | 2,743 |   |
| Principal                payments on FHLB note                                                                                         |   |                                               | (4,682 | ) |   | (59 | ) |
| Proceeds                from Note                                                                                                      |   |                                               | 111 |   |   | — |   |
| Proceeds                from minority interest                                                                                         |   |                                               | 1,234 |   |   | — |   |
| Payment                of cash dividends                                                                                               |   |                                               | (2,399 | ) |   | — |   |
| Net                cash (used in) provided by financing activities                                                                     |   |                                               | (35,888 | ) |   | 3,967 |   |
| Net                (decrease) increase in cash and cash equivalents                                                                    |   |                                               | (74,106 | ) |   | 20,592 |   |
| Cash                and cash equivalents, beginning of period                                                                          |   |                                               | 154,635 |   |   | 89,467 |   |
| Cash                and cash equivalents, end of period                                                                                |   | $                                                  | 80,529 |   | $ | 110,059 |   |
|                                                                                                                                   |   |                                               |   |   |   |   |   |
| Supplemental                disclosures of cash flow information:                                                                      |   |                                               |   |   |   |   |   |
| Cash                paid during the period for:                                                                                        |   |                                               |   |   |   |   |   |
| Interest                                                                                                                               |   | $                                                  | 11,407 |   | $ | 5,861 |   |
| Income                taxes paid, net of refunds                                                                                       |   |                                               | 4,462 |   |   | 2,656 |   |
| Noncash                transactions:                                                                                                   |   |                                               |   |   |   |   |   |
| Transfer                of loans to other real estate owned, net                                                                       |   |                                               | 101 |   |   | 905 |   |

----

**STATE      NATIONAL BANCSHARES, INC. AND SUBSIDIARIES**

**Notes      to Interim Consolidated Financial Statements**

**(Unaudited)**

**1.**
**Nature      of Operations and Basis of Presentation**

**2.**
**Merger      Announcement**

----

**3.**
**Earnings      Per Share **

|                                                                                                                                                               |   |                                                                   | **Three                Months Ended****June                  30,**   |   |   | **Six                  Months Ended****June                  30,**  |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|--------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                                                                               |   |                                                                   | **2006**                                                                       |   |   | **2005**                                                                 |   |   | **2006** |   |   | **2005** |   |
|                                                                                                                                                               |   | **(Dollars                in thousands, except per share data)**  |
| Reported                net income                                                                                                                                 |   | $                                                                      | 4,552                                                                          |   | $      | 3,860                                                                    |   | $ | 9,139 |   | $ | 7,297 |   |
| Add:                Stock-based employee compensation expense included in reported net                income,                net of tax                            |   |                                                                   | 81                                                                             |   |   | 79                                                                       |   |   | 163 |   |   | 157 |   |
| Deduct:                Total stock-based employee compensation expense determined under                fair                value method for all awards, net of tax |   |                                                                   | (81                                                                            | )      |   | (82                                                                      | )      |   | (163 | ) |   | (164 | ) |
| Pro                forma net income                                                                                                                                |   | $                                                                      | 4,552                                                                          |   | $      | 3,857                                                                    |   | $ | 9,139 |   | $ | 7,290 |   |
| Earnings                per share:                                                                                                                                 |   |                                                                   |                                                                           |   |   |                                                                     |   |   |   |   |   |   |   |
| Basic—as                reported                                                                                                                             |   | $                                                                      | 0.38                                                                           |   | $      | 0.38                                                                     |   | $ | 0.76 |   | $ | 0.73 |   |
| Basic—pro                forma                                                                                                                               |   |                                                                   | 0.38                                                                           |   |   | 0.38                                                                     |   |   | 0.76 |   |   | 0.72 |   |
| Diluted—as                reported                                                                                                                           |   |                                                                   | 0.37                                                                           |   |   | 0.37                                                                     |   |   | 0.75 |   |   | 0.71 |   |
| Diluted—pro                forma                                                                                                                             |   |                                                                   | 0.37                                                                           |   |   | 0.37                                                                     |   |   | 0.75 |   |   | 0.71 |   |

**4.**
**Adoption      of Accounting Standards**

*,      "Share-Based Payment (Revised 2004)"*

*Accounting      for Uncertainty in Income Taxes - an interpretation of FASB Statement No.      109*

*Accounting      for Servicing of Financial Assets*
*Accounting      for Transfers and Servicing of Financial Assets and Extinguishments of      Liabilities*

----

**5.**
**Initial      Public Offering**

**6.**
**Recent      Acquisitions**

**7.**
**Regulatory      Matters**

----

|                                                  |   |                                            | **June 30,**  |   |   | **December                31,** |   |   | **Minimum****Capital** |   |   | **Well-****Capitalized** |   |
|-------------------------------------------------------|--------|-------------------------------------------------|-------------------------|--------|--------|---------------------------------|--------|--------|------------------------|--------|--------|--------------------------|--------|
|                                                  |   |                                            | **2006**                |   |   | **2005**                        |   |   | **Ratios**             |   |   | **Ratios**               |   |
|                                                  |   | **(Dollars                in thousands)**  |                    |   |   |                            |   |   |
| Tier                1 capital                         |   | $                                               | 152,100                 |   | $      | 142,690                         |   |   |                   |   |   |                     |   |
| Total                capital                          |   |                                            | 165,222                 |   |   | 155,281                         |   |   |                   |   |   |                     |   |
| Total                risk-weighted assets             |   |                                            | 1,222,740               |   |   | 1,191,030                       |   |   |                   |   |   |                     |   |
| Adjusted                quarterly average assets      |   |                                            | 1,535,491               |   |   | 1,525,043                       |   |   |                   |   |   |                     |   |
| **Capital                ratios:**               |   |                                            |                    |   |   |                            |   |   |                   |   |   |                     |   |
| Leverage                ratio                         |   |                                            | 9.91                    | %      |   | 9.36                            | %      |   | 4.00                   | %      |   | 5.00                     | %      |
| Tier                1 capital to risk-weighted assets |   |                                            | 12.44                   |   |   | 11.98                           |   |   | 4.00                   |   |   | 6.00                     |   |
| Total                capital to risk-weighted assets  |   |                                            | 13.51                   |   |   | 13.04                           |   |   | 8.00                   |   |   | 10.00                    |   |

|                                                  |   |   | **Minimum                Ratios for****Well-Capitalized                Banks**  |   |   | **Actual                Ratios at****June                30, 2006** |   |
|-------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------|--------|
| Leverage                ratio                         |   |   | 5.00                                                                                 | %      |   | 8.51                                                                | %      |
| Tier                1 capital to risk-weighted assets |   |   | 6.00                                                                                 |   |   | 10.70                                                               |   |
| Total                capital to risk-weighted assets  |   |   | 10.00                                                                                |   |   | 11.78                                                               |   |

| **8.  ** | **Stock-Based                Compensation** |
|--------------------|---------------------------------------------|

*Accounting      for Stock Issued to Employees"*
*Accounting      for Stock-Based Compensation"*

*Adoption      of Accounting Standards*

----

| **9.  ** | **Minority** **Interest** |
|--------------------|--------------------------------|

----

**ITEM      2. **
**Management’s      Discussion and Analysis of Financial Condition and Results of      Operations**

**MANAGEMENT’S      DISCUSSION AND ANALYSIS**

**OF      FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

| ·   | we                may be unable to satisfy the shareholder approval, regulatory approval                and                other conditions to closing the planned merger with                BBVA; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | contingencies                related to the announcement and pendency of the Merger may impact                our                employees and customers; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | any                termination of the Merger Agreement may result in costs and disruptions                to                our business and relationships with employees and                customers; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | if                a significant number of our customers fail to perform under their                loans,                our business, profitability, and financial condition would be adversely                affected; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our                current level of interest rate spread may decline in the future,                and any                material reduction in our interest spread could have a material impact                on                our business and profitability; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                modification of the Federal Reserve Board’s current position on the                capital treatment of our junior subordinated debt and trust preferred                securities could have a material adverse effect on our financial                condition                and results of operations; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | adverse                changes in domestic or global economic conditions could have a material                adverse effect on our business, growth, and                profitability; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | we                could be liable for breaches of security in our online banking services,                and fear of security breaches could limit the growth of our online                services; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | maintaining                or increasing our market share depends on market acceptance and regulatory                approval of new products and                services; |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | significant                reliance on loans secured by real estate may increase our vulnerability                to                downturns in the real estate market and other variables impacting                the                value of real estate; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | if                we fail to retain our key employees, growth and profitability could                be                adversely affected; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | we                may be unable to manage our future                growth; |
|--------------------|-----------------------------------------------------------------------------|

| ·   | increases                in our allowance for loan and lease losses could                materially adversely affect our earnings; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------|

----

| ●   | our                directors and executive officers beneficially own a significant portion                of                our outstanding common stock; and |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●   | we                face substantial competition in our primary market                area. |
|---------------------|-------------------------------------------------------------------------------------------|

**Executive      Overview**

***Introduction***

***Merger      Agreement***

----

***Critical      Accounting Policies***

*Loans      and Allowance for Loan Losses*

*Accounting      for Contingencies*
*Accounting      by Creditors for Impairment of a Loan*
*Accounting      by Creditors for Impairment of a Loan — Income Recognition and      Disclosures*

----

*Other      Real Estate Owned and Repossessed Assets*

**Results      of Operations for the**
**      Three Months and Six Months Ended June 30, 2006 and 2005**

***Net      Interest Income and Net Interest Margin***

----

|                                                                                           |   | **Three                  Months Ended June 30,** |
|------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|
|                                                                                           |   |                                             | **2006** |   |   | **2005**  |   |
|                                                                                           |   |                                             | **Average****Balance** |   |   | **Interest****Income/****Expense** |   |   | **Yield/****Rate****(1)** | **)** |   | **Average****Balance** |   |   | **Interest****Income/****Expense** |  |   | **Yield/****Rate****(1)** | **)** |
|                                                                                           |   | **(Dollars                  in thousands)**      |
| ASSETS:                                                                                        |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                earning assets:                                                        |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,                net of unearned income                                                   |   | $                                                | 1,097,418 |   | $ | 22,199 |   |   | 8.09 | % | $ | 964,792 |   | $ | 16,989 |   |   | 7.04 | % |
| Securities                                                                                     |   |                                             | 238,968 |   |   | 2,749 |   |   | 4.60 |   |   | 137,497 |   |   | 1,355 |   |   | 3.94 |   |
| Time                deposits in other banks                                                    |   |                                             | 9,297 |   |   | 111 |   |   | 4.78 |   |   | 8,985 |   |   | 57 |   |   | 2.54 |   |
| Fed                funds sold                                                                  |   |                                             | 29,449 |   |   | 350 |   |   | 4.75 |   |   | 25,626 |   |   | 184 |   |   | 2.87 |   |
| Total                interest-earning assets                                                   |   |                                             | 1,375,132 |   |   | 25,409 |   |   | 7.39 |   |   | 1,136,900 |   |   | 18,585 |   |   | 6.54 |   |
|  Noninterest-earning                assets:                                               |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                and due from banks                                                         |   |                                             | 67,390 |   |   |   |   |   |   |   |   | 61,063 |   |   |   |   |   |   |   |
| Intangible                assets                                                               |   |                                             | 116,107 |   |   |   |   |   |   |   |   | 85,009 |   |   |   |   |   |   |   |
| Premises                and equipment, net                                                     |   |                                             | 51,497 |   |   |   |   |   |   |   |   | 34,994 |   |   |   |   |   |   |   |
| Accrued                interest receivable and other assets                                    |   |                                             | 53,100 |   |   |   |   |   |   |   |   | 46,470 |   |   |   |   |   |   |   |
| Allowance                for loan losses                                                       |   |                                             | (13,303 | ) |   |   |   |   |   |   |   | (11,438 | ) |   |   |   |   |   |   |
| Total                noninterest-earning assets                                                |   |                                             | 274,791 |   |   |   |   |   |   |   |   | 216,098 |   |   |   |   |   |   |   |
| TOTAL                ASSETS                                                                    |   | $                                                | 1,649,923 |   |   |   |   |   |   |   | $ | 1,352,998 |   |   |   |   |   |   |   |
| LIABILITIES                AND SHAREHOLDERS’ EQUITY:                                     |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                liabilities:                                                   |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand,                savings and money market deposits                                       |   | $                                                | 521,286 |   | $ | 1,796 |   |   | 1.38 | % | $ | 443,461 |   | $ | 982 |   |   | 0.89 | % |
| Time                deposits                                                                   |   |                                             | 337,065 |   |   | 2,836 |   |   | 3.37 |   |   | 274,642 |   |   | 1,489 |   |   | 2.17 |   |
| Fed                funds purchased and securities under agreement                to repurchase |   |                                             | 33,905 |   |   | 366 |   |   | 4.32 |   |   | 20,871 |   |   | 124 |   |   | 2.38 |   |
| Junior                subordinated debentures                                                  |   |                                             | 47,000 |   |   | 1,010 |   |   | 8.60 |   |   | 47,000 |   |   | 780 |   |   | 6.64 |   |
| Note                payable                                                                    |   |                                             | 2,071 |   |   | 23 |   |   | 4.44 |   |   | 850 |   |   | 10 |   |   | 4.71 |   |
| Total                interest-bearing liabilities                                              |   |                                             | 941,327 |   |   | 6,031 |   |   | 2.56 |   |   | 786,824 |   |   | 3,385 |   |   | 1.72 |   |
| Noninterest-bearing                liabilities:                                                |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand                deposits                                                                 |   |                                             | 476,571 |   |   |   |   |   |   |   |   | 397,852 |   |   |   |   |   |   |   |
| Accrued                interest payable and other liabilities                                  |   |                                             | 12,409 |   |   |   |   |   |   |   |   | 9,141 |   |   |   |   |   |   |   |
| Total                noninterest-bearing liabilities, net                                      |   |                                             | 488,980 |   |   |   |   |   |   |   |   | 406,993 |   |   |   |   |   |   |   |
| TOTAL                LIABILITIES                                                               |   |                                             | 1,430,307 |   |   |   |   |   |   |   |   | 1,193,817 |   |   |   |   |   |   |   |
| Minority                interest in unconsolidated subsidiary                                  |   |                                             | 975 |   |   |   |   |   |   |   |   | — |   |   |   |   |   |   |   |
| SHAREHOLDERS'                EQUITY                                                            |   |                                             | 218,641 |   |   |   |   |   |   |   |   | 159,181 |   |   |   |   |   |   |   |
| TOTAL                LIABILITIES AND SHAREHOLDERS' EQUITY                                      |   | $                                                | 1,649,923 |   |   |   |   |   |   |   | $ | 1,352,998 |   |   |   |   |   |   |   |
| Net                interest income                                                             |   |                                             |   |   | $ | 19,378 |   |   |   |   |   |   |   | $ | 15,200 |   |   |   |   |
| Net                interest spread(2)                                                     |   |                                             |   |   |   |   |   |   | 4.83 | % |   |   |   |   |   |   |   | 4.82 | % |
|                                                                                                |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                interest margin(3)                                                          |   |                                             |   |   |   |   |   |   | 5.64 |                % |   |   |   |   |   |   |   | 5.35 |                % |

----

| (1) | Yields on tax-exempt loans and securities              are              calculated on a fully taxable equivalent basis assuming a 35% tax              rate. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Represents                the average rate earned on interest-earning assets less the average                rate                paid on interest-bearing                liabilities. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Represents                net interest income on a fully taxable equivalent basis as a percentage                of                average interest-earning assets. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                           |   |                                            | **Six                Months Ended June 30,**  |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|----------------------------------------------------|--------|
|                                                                                           |   |                                            | **2006**                                           |   |   | **2005** |   |
|                                                                                           |   |                                            | **Average****Balance**                        |   |   | **Interest****Income/****Expense** |   |   | **Yield/****Rate****(1)** | **)** |   | **Average****Balance** |   |   | **Interest****Income/****Expense** |   |   | **Yield/****Rate****(1)** | **)** |
|                                                                                           |   | **(Dollars                in thousands)**  |
| ASSETS:                                                                                        |   |                                            |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                earning assets:                                                        |   |                                            |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,                net of unearned income                                                   |   | $                                               | 1,090,394                                          |   | $ | 43,015 |   |   | 7.89 | % | $ | 956,056 |   | $ | 32,791 |   |   | 6.86 | % |
| Securities                                                                                     |   |                                            | 227,907                                            |   |   | 5,192 |   |   | 4.56 |   |   | 144,107 |   |   | 2,851 |   |   | 3.96 |   |
| Time                deposits in other banks                                                    |   |                                            | 24,712                                             |   |   | 537 |   |   | 4.35 |   |   | 9,415 |   |   | 110 |   |   | 2.34 |   |
| Fed                funds sold                                                                  |   |                                            | 30,902                                             |   |   | 705 |   |   | 4.56 |   |   | 21,060 |   |   | 284 |   |   | 2.70 |   |
| Total                interest-earning assets                                                   |   |                                            | 1,373,915                                          |   |   | 49,449 |   |   | 7.20 |   |   | 1,130,638 |   |   | 36,036 |   |   | 6.37 |   |
|  Noninterest-earning                assets:                                               |   |                                            |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                and due from banks                                                         |   |                                            | 68,755                                             |   |   |   |   |   |   |   |   | 61,080 |   |   |   |   |   |   |   |
| Intangible                assets                                                               |   |                                            | 116,894                                            |   |   |   |   |   |   |   |   | 85,423 |   |   |   |   |   |   |   |
| Premises                and equipment, net                                                     |   |                                            | 50,474                                             |   |   |   |   |   |   |   |   | 34,464 |   |   |   |   |   |   |   |
| Accrued                interest receivable and other assets                                    |   |                                            | 52,730                                             |   |   |   |   |   |   |   |   | 45,993 |   |   |   |   |   |   |   |
| Allowance                for loan losses                                                       |   |                                            | (13,058                                            | )      |   |   |   |   |   |   |   | (11,453 | ) |   |   |   |   |   |   |
| Total                noninterest-earning assets                                                |   |                                            | 275,795                                            |   |   |   |   |   |   |   |   | 215,507 |   |   |   |   |   |   |   |
| TOTAL                ASSETS                                                                    |   | $                                               | 1,649,710                                          |   |   |   |   |   |   |   | $ | 1,346,145 |   |   |   |   |   |   |   |
| LIABILITIES                AND SHAREHOLDERS’ EQUITY:                                     |   |                                            |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                liabilities:                                                   |   |                                            |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand,                savings and money market deposits                                       |   | $                                               | 520,483                                            |   | $ | 3,365 |   |   | 1.29 | % | $ | 445,009 |   | $ | 1,664 |   |   | 0.75 | % |
| Time                deposits                                                                   |   |                                            | 340,311                                            |   |   | 5,481 |   |   | 3.22 |   |   | 276,630 |   |   | 2,741 |   |   | 1.98 |   |
| Fed                funds purchased and securities under agreement                to repurchase |   |                                            | 32,777                                             |   |   | 671 |   |   | 4.09 |   |   | 19,444 |   |   | 209 |   |   | 2.15 |   |
| Junior                subordinated debentures                                                  |   |                                            | 47,000                                             |   |   | 1,952 |   |   | 8.31 |   |   | 47,000 |   |   | 1,482 |   |   | 6.31 |   |
| Note                payable                                                                    |   |                                            | 3,137                                              |   |   | 74 |   |   | 4.72 |   |   | 865 |   |   | 21 |   |   | 4.86 |   |
| Total                interest-bearing liabilities                                              |   |                                            | 943,708                                            |   |   | 11,543 |   |   | 2.45 |   |   | 788,948 |   |   | 6,117 |   |   | 1.55 |   |
|  Noninterest-bearing                liabilities:                                          |   |                                            |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand                deposits                                                                 |   |                                            | 476,319                                            |   |   |   |   |   |   |   |   | 392,854 |   |   |   |   |   |   |   |
| Accrued                interest payable and other liabilities                                  |   |                                            | 12,364                                             |   |   |   |   |   |   |   |   | 8,110 |   |   |   |   |   |   |   |
| Total                noninterest-bearing liabilities, net                                      |   |                                            | 488,683                                            |   |   |   |   |   |   |   |   | 400,964 |   |   |   |   |   |   |   |
| TOTAL                LIABILITIES                                                               |   |                                            | 1,432,391                                          |   |   |   |   |   |   |   |   | 1,189,912 |   |   |   |   |   |   |   |
| Minority                interest in unconsolidated subsidiary                                  |   |                                            | 632                                                |   |   |   |   |   |   |   |   | — |   |   |   |   |   |   |   |
| SHAREHOLDERS'                EQUITY                                                            |   |                                            | 216,687                                            |   |   |   |   |   |   |   |   | 156,233 |   |   |   |   |   |   |   |
| TOTAL                LIABILITIES AND SHAREHOLDERS' EQUITY                                      |   | $                                               | 1,649,710                                          |   |   |   |   |   |   |   | $ | 1,346,145 |   |   |   |   |   |   |   |
| Net                interest income                                                             |   |                                            |                                               |   | $ | 37,906 |   |   |   |   |   |   |   | $ | 29,919 |   |   |   |   |
| Net                interest spread(2)                                                     |   |                                            |                                               |   |   |   |   |   | 4.75 | % |   |   |   |   |   |   |   | 4.82 | % |
| Net                interest margin(3)                                                     |   |                                            |                                               |   |   |   |   |   | 5.52 | % |   |   |   |   |   |   |   | 5.29 | % |

----

|  (1) | Yields on tax-exempt loans and securities are calculated              on a fully taxable equivalent basis assuming a 35% tax              rate. |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Represents                the average rate earned on interest-earning assets less the average                rate                paid on interest-bearing                liabilities. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Represents                net interest income on a fully taxable equivalent basis as a percentage                of                average interest-earning assets. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                    |   | **Three                Months Ended June 30,**  | **Six                Months Ended June 30,**   |
|---------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|------------------------------------------------|
|                                                                                                    |   | **2006                Over 2005**               | **2006                Over 2005**              |
|                                                                                                    |   | **Increase                Due To Changes In:**  | **Increase                Due To Changes In:** |
|                                                                                                    |   |                                                 | **Volume**                                |   |   | **Rate** |   |   | **Total** |   |   | **Volume** |   |   | **Rate** |   |   | **Total** |   |
|                                                                                                    |   | **(In                thousands)**               |
| Interest-earning                assets:                                                                 |   |                                                 |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,                net of unearned income                                                            |   | $                                                    | 2,335                                          |   | $ | 2,875 |   | $ | 5,210 |   | $ | 4,607 |   | $ | 5,617 |   | $ | 10,224 |   |
| Securities                                                                                              |   |                                                 | 1,000                                          |   |   | 394 |   |   | 1,394 |   |   | 1,658 |   |   | 683 |   |   | 2,341 |   |
| Time                deposits in other banks                                                             |   |                                                 | 2                                              |   |   | 52 |   |   | 54 |   |   | 179 |   |   | 248 |   |   | 427 |   |
| Federal                funds sold                                                                       |   |                                                 | 27                                             |   |   | 139 |   |   | 166 |   |   | 133 |   |   | 288 |   |   | 421 |   |
| Total                interest income                                                                    |   |                                                 | 3,364                                          |   |   | 3,460 |   |   | 6,824 |   |   | 6,577 |   |   | 6,836 |   |   | 13,413 |   |
| Interest-bearing                liabilities:                                                            |   |                                                 |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand,                savings and money market deposits                                                |   |                                                 | 172                                            |   |   | 642 |   |   | 814 |   |   | 282 |   |   | 1,419 |   |   | 1,701 |   |
| Time                deposits                                                                            |   |                                                 | 338                                            |   |   | 1,009 |   |   | 1,347 |   |   | 631 |   |   | 2,109 |   |   | 2,740 |   |
| Federal                funds purchased and securities sold under agreement to                repurchase |   |                                                 | 77                                             |   |   | 165 |   |   | 242 |   |   | 143 |   |   | 319 |   |   | 462 |   |
| Junior                subordinated debentures                                                           |   |                                                 | —                                        |   |   | 230 |   |   | 230 |   |   | — |   |   | 470 |   |   | 470 |   |
| Notes                payable                                                                            |   |                                                 | 14                                             |   |   | (1 | ) |   | 13 |   |   | 55 |   |   | (2 | ) |   | 53 |   |
| Total                interest expense                                                                   |   |                                                 | 601                                            |   |   | 2,045 |   |   | 2,646 |   |   | 1,111 |   |   | 4,315 |   |   | 5,426 |   |
| Increase                in net interest income                                                          |   | $                                                    | 2,763                                          |   | $ | 1,415 |   | $ | 4,178 |   | $ | 5,466 |   | $ | 2,521 |   | $ | 7,987 |   |

***Provision      for Loan Losses***

*Critical      Accounting Policies—Loans and Allowance for Loan Losses.*
*”*

***Noninterest      Income***

----

|                                                   |   |                                            | **Three                Months Ended June                30,** |   |   |   | **Six                Months Ended June 30,** |   |
|--------------------------------------------------------|--------|-------------------------------------------------|---------------------------------------------------------------|--------|--------|--------|----------------------------------------------|--------|
|                                                   |   |                                            | **2006**                                                      |   |   |   | **2005**                                     |   |   |   | **2006** |   |   |   | **2005** |   |
|                                                   |   |                                            | **Amount**                                                    |        |   | **%**  | ** **                                   |   | ** ** | **Amount** |   | ** ** | **%** | ** ** |   | ** ** | **Amount** |   | ** ** | **%** | ** ** |   | ** ** | **Amount** |   | ** ** | **%** |   |
|                                                   |   | **(Dollars                in thousands)**  |
| Service                charges on deposit accounts     |   | $                                               | 2,799                                                         |   |   | 56.0   | %                                            |   | $ | 2,435 |   |   | 54.0 | % |   | $ | 5,494 |   |   | 56.7 | % |   | $ | 4,815 |   |   | 54.3 | % |
| Gain                on sale of loans                   |   |                                            | 651                                                           |   |   | 13.0   |                                         |   |   | 776 |   |   | 17.2 |   |   |   | 1,284 |   |   | 13.2 |   |   |   | 1,349 |   |   | 15.2 |   |
| Bank                owned life insurance               |   |                                            | 326                                                           |   |   | 6.5    |                                         |   |   | 319 |   |   | 7.1 |   |   |   | 653 |   |   | 6.7 |   |   |   | 634 |   |   | 7.1 |   |
| Net                realized gain on sale of securities |   |                                            | (79                                                           | )      |   | (1.6   | )                                            |   |   | — |   |   | — |   |   |   | (79 | ) |   | (0.8 | ) |   |   | 1 |   |   | — |   |
| Other                                                  |   |                                            | 1,302                                                         |   |   | 26.1   |                                         |   |   | 978 |   |   | 21.7 |   |   |   | 2,344 |   |   | 24.2 |   |   |   | 2,073 |   |   | 23.4 |   |
| Total                noninterest income                |   | $                                               | 4,999                                                         |   |   | 100.0  | %                                            |   | $ | 4,508 |   |   | 100.0 | % |   | $ | 9,696 |   |  | 100.0 | % |   | $ | 8,872 |   |   | 100.0 | % |

***Noninterest      Expense***

|                                                |   |                                            | **Three                Months Ended June 30,**  |   |
|-----------------------------------------------------|--------|-------------------------------------------------|------------------------------------------------------|--------|
|                                                |   |                                            | **2006**                                             |   |   |   | **2005** |   |
|                                                |   |                                            | **Amount**                                           |        |   | **%** | ** ** |   | ** ** | **Amount** |   | ** ** | **%** |   |
|                                                |   | **(Dollars                in thousands)**  |
| Salaries                and employee benefits:      |   |                                            |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Salaries                                            |   | $                                               | 6,699                                                |   |   | 40.0 | % |   | $ | 6,001 |   |   | 43.9 | % |
| Medical                and other benefits           |   |                                            | 565                                                  |   |   | 3.4 |   |   |   | 560 |   |   | 4.1 |   |
| Pension                                             |   |                                            | 335                                                  |   |   | 2.0 |   |   |   | 272 |   |   | 2.0 |   |
| Payroll                taxes                        |   |                                            | 455                                                  |   |   | 2.7 |   |   |   | 415 |   |   | 3.0 |   |
| Total                salaries and employee benefits |   |                                            | 8,054                                                |   |   | 48.1 |   |   |   | 7,248 |   |   | 53.0 |   |
| Net                occupancy and equipment expense  |   |                                            | 2,461                                                |   |   | 14.7 |   |   |   | 2,139 |   |   | 15.6 |   |
| Amortization                of intangibles          |   |                                            | 997                                                  |   |   | 5.9 |   |   |   | 823 |   |   | 6.0 |   |
| Professional                fees                    |   |                                            | 587                                                  |   |   | 3.5 |   |   |   | 336 |   |   | 2.5 |   |
| Communication                expense                |   |                                            | 325                                                  |   |   | 1.9 |   |   |   | 276 |   |   | 2.0 |   |
| Advertising                                         |   |                                            | 423                                                  |   |   | 2.5 |   |   |   | 312 |   |   | 2.3 |   |
| Supplies                                            |   |                                            | 195                                                  |   |   | 1.2 |   |   |   | 219 |   |   | 1.6 |   |
| Data                processing                      |   |                                            | 235                                                  |   |   | 1.4 |   |   |   | 199 |   |   | 1.5 |   |
| Courier                                             |   |                                            | 223                                                  |   |   | 1.3 |   |   |   | 210 |   |   | 1.5 |   |
| Postage                                             |   |                                            | 199                                                  |   |   | 1.2 |   |   |   | 166 |   |   | 1.2 |   |
| Merger                and one-time expenses         |   |                                            | 755                                                  |   |   | 4.5 |   |   |   | 40 |   |   | 0.3 |   |
| OREO                                                |   |                                            | 135                                                  |   |   | 0.8 |   |   |   | 27 |   |   | 0.2 |   |
| Other                                               |   |                                            | 2,172                                                |   |   | 13.0 |   |   |   | 1,674 |   |   | 12.3 |   |
| Total                noninterest expense            |   | $                                               | 16,761                                               |   |   | 100.0 | % |   | $ | 13,669 |   |  | 100.0 | % |

----

|                                                |   |                                            | **Six                Months Ended June 30,** |   |
|-----------------------------------------------------|--------|-------------------------------------------------|----------------------------------------------|--------|
|                                                |   |                                            | **2006**                                     |   |   |   | **2005** |   |
|                                                |   |                                            | **Amount**                                   |        |   | **%** | ** ** |   | ** ** | **Amount** |   | ** ** | **%** |   |
|                                                |   | **(Dollars                in thousands)**  |
| Salaries                and employee benefits:      |   |                                            |                                         |   |   |   |   |   |   |   |   |   |   |   |
| Salaries                                            |   | $                                               | 13,420                                       |   |   | 41.2 | % |   | $ | 11,769 |   |   | 43.4 | % |
| Medical                and other benefits           |   |                                            | 1,217                                        |   |   | 3.7 |   |   |   | 1,115 |   |   | 4.1 |   |
| Pension                                             |   |                                            | 665                                          |   |   | 2.0 |   |   |   | 527 |   |   | 2.0 |   |
| Payroll                taxes                        |   |                                            | 1,003                                        |   |   | 3.1 |   |   |   | 906 |   |   | 3.3 |   |
| Total                salaries and employee benefits |   |                                            | 16,305                                       |   |   | 50.0 |   |   |   | 14,317 |   |   | 52.8 |   |
| Net                occupancy and equipment expense  |   |                                            | 5,005                                        |   |   | 15.4 |   |   |   | 4,307 |   |   | 15.9 |   |
| Amortization                of intangibles          |   |                                            | 2,019                                        |   |   | 6.2 |   |   |   | 1,647 |   |   | 6.1 |   |
| Professional                fees                    |   |                                            | 1,091                                        |   |   | 3.4 |   |   |   | 691 |   |   | 2.6 |   |
| Communication                expense                |   |                                            | 645                                          |   |   | 2.0 |   |   |   | 556 |   |   | 2.1 |   |
| Advertising                                         |   |                                            | 722                                          |   |   | 2.2 |   |   |   | 533 |   |   | 2.0 |   |
| Supplies                                            |   |                                            | 380                                          |   |   | 1.2 |   |   |   | 421 |   |   | 1.6 |   |
| Data                processing                      |   |                                            | 456                                          |   |   | 1.4 |   |   |   | 419 |   |   | 1.5 |   |
| Courier                                             |   |                                            | 440                                          |   |   | 1.4 |   |   |   | 399 |   |   | 1.5 |   |
| Postage                                             |   |                                            | 375                                          |   |   | 1.2 |   |   |   | 332 |   |   | 1.2 |   |
| Merger                and one-time expenses         |   |                                            | 758                                          |   |   | 2.3 |   |   |   | 40 |   |   | 0.1 |   |
| OREO                                                |   |                                            | 204                                          |   |   | 0.6 |   |   |   | 43 |   |   | 0.1 |   |
| Other                                               |   |                                            | 4,145                                        |   |   | 12.7 |   |   |   | 3,389 |   |   | 12.5 |   |
| Total                noninterest expense            |   | $                                               | 32,545                                       |   |   | 100.0 | % |   | $ | 27,094 |   |   | 100.0 | % |

----

***Provision      for Income Taxes***

**Financial      Condition**
**      as of June 30, 2006 and December 31, 2005**

***Investment      Securities***

|                                                            |   |                                    | **Available-for-Sale**  |   |   | **Held-to-Maturity**                       |   |   | **Total**        |   |
|-----------------------------------------------------------------|--------|-----------------------------------------|------------------------------|--------|--------|--------------------------------------------|--------|--------|-----------------------|--------|
|                                                            |   |                                    | **Amortized****Cost**        |   |   | **Estimated****Fair                Value** |   |   | **Amortized****Cost** |   |   | **Estimated****Fair                Value** |   |   | **Amortized****Cost** |   |   | **Estimated****Fair                Value** |   |
|                                                            |   | **(In                thousands)**  |
| **June                30, 2006:**                          |   |                                    |                         |   |   |                                       |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| U.S.                treasury securities                         |   | $                                       | 6,986                        |   | $      | 6,909                                      |   | $      | —               |   | $ | — |   | $ | 6,986 |   | $ | 6,909 |   |
| U.S.                government agencies obligations             |   |                                    | 145,644                      |   |   | 143,637                                    |   |   | —               |   |   | — |   |   | 145,644 |   |   | 143,637 |   |
| Collateralized                mortgage obligations              |   |                                    | 143                          |   |   | 142                                        |   |   | —               |   |   | — |   |   | 143 |   |   | 142 |   |
| Mortgage-backed                securities                       |   |                                    | 57,002                       |   |   | 55,004                                     |   |   | —               |   |   | — |   |   | 57,002 |   |   | 55,004 |   |
| State                and municipal obligations                  |   |                                    | 23,904                       |   |   | 23,591                                     |   |   | —               |   |   | — |   |   | 23,904 |   |   | 23,591 |   |
| Federal                Reserve Bank stock and other investments |   |                                    | 2,448                        |   |   | 2,377                                      |   |   | 7,619                 |   |   | 7,619 |   |   | 10,067 |   |   | 9,996 |   |
| Total                                                           |   | $                                       | 236,127                      |   | $      | 231,660                                    |   | $      | 7,619                 |   | $ | 7,619 |   | $ | 243,746 |   | $ | 239,279 |   |
| **December                31, 2005:**                      |   |                                    |                         |   |   |                                       |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| U.S.                treasury securities                         |   | $                                       | 7,051                        |   | $      | 6,969                                      |   | $      | —               |   | $ | — |   | $ | 7,051 |   | $ | 6,969 |   |
| U.S.                government agencies obligations             |   |                                    | 109,516                      |   |   | 108,622                                    |   |   | —               |   |   | — |   |   | 109,516 |   |   | 108,622 |   |
| Collateralized                mortgage obligations              |   |                                    | 165                          |   |   | 166                                        |   |   | —               |   |   | — |   |   | 165 |   |   | 166 |   |
| Mortgage-backed                securities                       |   |                                    | 64,357                       |   |   | 63,292                                     |   |   | —               |   |   | — |   |   | 64,357 |   |   | 63,292 |   |
| State                and municipal obligations                  |   |                                    | 26,294                       |   |   | 26,348                                     |   |   | —               |   |   | — |   |   | 26,294 |   |   | 26,348 |   |
| Federal                Reserve Bank stock and other investments |   |                                    | 1,414                        |   |   | 1,390                                      |   |   | 8,094                 |   |   | 8,094 |   |   | 9,508 |   |   | 9,484 |   |
| Total                                                           |   | $                                       | 208,797                      |   | $      | 206,787                                    |   | $      | 8,094                 |   | $ | 8,094 |   | $ | 216,891 |   | $ | 214,881 |   |

----

*Investment      Portfolio — Maturity and Yields*

|                                                                                       |   |                                            | **As                of June 30, 2006** |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------------------|----------------------------------------|--------|
|                                                                                       |   |                                            | **Within****One                Year**  |   |   |   | **After                One but****Within                Five****Years** |   |   |   | **After                Five but****Within****Ten                Years**  |   |   |   | **After****Ten                Years**  |   |   |   | **Total**  |   |
|                                                                                       |   |                                            | **Amount**                             |   |   | **Yield** |   |   |   | **Amount** |   |   | **Yield** |   |   |   | **Amount** |   |   | **Yield** |   |   |   | **Amount** |   |   | **Yield** |   |   |   | **Amount** |   |   | **Yield** |   |
|                                                                                       |   | **(Dollars                in thousands)**  |
| Investments                available-for-sale(1)(2):                                  |   |                                            |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.                treasury obligations                                                   |   | $                                               | 3,992                                  |   |   | 2.31 | % |   | $ | 2,917 |   |   | 3.77 | % |   | $ | — |   |   | — | % |   | $ | — |   |   | — | % |   | $ | 6,909 |   |   | 2.93 | % |
| U.S.                government agencies obligations                                        |   |                                            | 36,624                                 |   |   | 3.65 |   |   |   | 107,013 |   |   | 4.93 |   |   |   | — |   |   | — |   |   |   | — |   |   | — |   |   |   | 143,637 |   |   | 4.60 |   |
| Mortgage                backed securities and collateralized mortgage obligations(3)  |   |                                            | 688                                    |   |   | 4.49 |   |   |   | 53,627 |   |   | 4.52 |   |   |   | 828 |   |   | 4.89 |   |   |   | 3 |   |   | 6.75 |   |   |   | 55,146 |   |   | 4.52 |   |
| State                and municipal obligations                                             |   |                                            | 3,080                                  |   |   | 3.27 |   |   |   | 13,675 |   |   | 3.40 |   |   |   | 5,922 |   |   | 3.90 |   |   |   | 914 |   |   | 5.32 |   |   |   | 23,591 |   |   | 3.62 |   |
| Other                securities                                                            |   |                                            | —                                |   |   | — |   |   |   | — |   |   | — |   |   |   | — |   |   | — |   |   |   | 2,377 |   |   | 4.60 |   |   |   | 2,377 |   |   | 4.60 |   |
| Total                investments available-for-sale                                        |   |                                            | 44,384                                 |   |   | 3.52 |   |   |   | 177,232 |   |   | 4.67 |   |   |   | 6,750 |   |   | 4.02 |   |   |   | 3,294 |   |   | 4.80 |   |   |   | 231,660 |   |   | 4.43 |   |
| Other                investments:                                                          |   |                                            |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLB                stock and other investments                                            |   |                                            | —                                |   |   | — |   |   |   | — |   |   | — |   |   |   | — |   |   | — |   |   |   | 7,619 |   |   | 5.25 |   |   |   | 7,619 |   |   | 5.25 |   |
| Total                other investments                                                     |   |                                            | —                                |   |   | — |   |   |   | — |   |   | — |   |   |   | — |   |   | — |   |   |   | 7,619 |   |   | 5.25 |   |   |   | 7,619 |   |   | 5.25 |   |
| Total                investments                                                           |   | $                                               | 44,384                                 |   |   | 3.52 | % |   | $ | 177,232 |   |   | 4.67 | % |   | $ | 6,750 |   |   | 4.02 | % |   | $ | 10,913 |   |   | 5.11 | % |   | $ | 239,279 |   |   | 4.46 | % |

----

|                                                 |   |                                    | **Available-For-Sale                Securities** |   |
|------------------------------------------------------|--------|-----------------------------------------|--------------------------------------------------|--------|
|                                                 |   |                                    | **Less                than 12 months**           |   |   | **12                months or longer** |   |   | **Total** |   |
|                                                 |   |                                    | **Fair                Value**               |   |   | **Unrealized****Losses** |   |   | **Fair                Value** |   |   | **Unrealized****Losses** |   |   | **Fair                Value** |   |   | **Unrealized****Losses** |   |
|                                                 |   | **(In                thousands)**  |
| Treasury/Agency(1)                              |   | $                                       | 89,628                                           |   | $ | 1,365 |   | $ | 47,654 |   | $ | 839 |   | $ | 137,282 |   | $ | 2,204 |   |
| Mortgage-backed                securities (2)   |   |                                    | 23,699                                           |   |   | 700 |   |   | 30,789 |   |   | 1,303 |   |   | 54,488 |   |   | 2,003 |   |
| Other                                                |   |                                    | 23,771                                           |   |   | 416 |   |   | 502 |   |   | 6 |   |   | 24,273 |   |   | 422 |   |
| Total                temporarily impaired securities |   | $                                       | 137,098                                          |   | $ | 2,481 |   | $ | 78,945 |   | $ | 2,148 |   | $ | 216,043 |   | $ | 4,629 |   |

----

*U.S.      Treasury/Agency Debt Securities*
*** ***

*Mortgage-Backed      Securities*

----

***Loans***

|                                           |   |   | **June                30, 2006**            |   |   | **December                31, 2005**                              |   |
|------------------------------------------------|--------|--------|---------------------------------------------|--------|--------|-------------------------------------------------------------------|--------|
|                                           |   |   | **Amount**                                  |   |   | **Loan                Category****to                Total Loans** |   |   | **Amount** |   |   | **Loan                Category****to                Total Loans** |   |
|                                           |   |   | **(Dollars                  in thousands)** |   |
| Real                estate—construction  |   | $      | 189,369                                     |   |   | 17.2                                                              | %      | $ | 144,721 |   |   | 13.5 | % |
| Real                estate—1-4 family    |   |   | 119,091                                     |   |   | 10.9                                                              |   |   | 125,901 |   |   | 11.7 |   |
| Real                estate—other         |   |   | 415,447                                     |   |   | 37.8                                                              |   |   | 415,047 |   |   | 38.6 |   |
| Lease                financing                 |   |   | 2,142                                       |   |   | 0.2                                                               |   |   | — |   |   | — |   |
| Commercial                                     |   |   | 257,163                                     |   |   | 23.4                                                              |   |   | 263,975 |   |   | 24.6 |   |
| Agricultural                and other          |   |   | 74,487                                      |   |   | 6.8                                                               |   |   | 84,646 |   |   | 7.9 |   |
| Consumer                                       |   |   | 40,860                                      |   |   | 3.7                                                               |   |   | 40,321 |   |   | 3.7 |   |
| Total                loans held for investment |   | $      | 1,098,559                                   |   |   | 100.0                                                             | %      | $ | 1,074,611 |   |   | 100.0 | % |
| Allowance                for loan losses       |   |   | (13,122                                     | )      |   |                                                              |   |   | (12,591 | ) |   |   |   |
| Loans                held for investment, net  |   | $      | 1,085,437                                   |   |   |                                                              |   | $ | 1,062,020 |   |   |   |   |

----

|                                           |   | **As                of June 30, 2006** |
|------------------------------------------------|--------|----------------------------------------|
|                                           |   |                                   | **One                Year and Less**  |   |   | **One                to Five Years** |   |   | **Over                Five Years** |   |   | **Total****Carrying                Value** |   |
|                                           |   |                                   | **(In                thousands)**  |   |
| Real                estate—construction  |   | $                                      | 136,711 |   | $ | 36,524 |   | $ | 16,134 |   | $ | 189,369 |   |
| Real                estate—1-4 family    |   |                                   | 24,103 |   |   | 47,304 |   |   | 47,684 |   |   | 119,091 |   |
| Real                estate—other         |   |                                   | 52,092 |   |   | 231,334 |   |   | 132,021 |   |   | 415,447 |   |
| Lease                financing                 |   |                                   | — |   |   | — |   |   | 2,142 |   |   | 2,142 |   |
| Commercial                loans                |   |                                   | 133,961 |   |   | 91,350 |   |   | 31,852 |   |   | 257,163 |   |
| Consumer                loans                  |   |                                   | 19,174 |   |   | 17,573 |   |   | 4,113 |   |   | 40,860 |   |
| Agriculture                and other loans     |   |                                   | 64,900 |   |   | 6,611 |   |   | 2,976 |   |   | 74,487 |   |
| Total                loans held for investment |   | $                                      | 430,941 |   | $ | 430,696 |   | $ | 236,922 |   | $ | 1,098,559 |   |
| With                fixed interest rates       |   | $                                      | 99,483 |   | $ | 223,403 |   | $ | 72,538 |   | $ | 395,424 |   |
| With                variable interest rates    |   |                                   | 331,458 |   |   | 207,293 |   |   | 164,384 |   |   | 703,135 |   |
| Total                loans held for investment |   | $                                      | 430,941 |   | $ | 430,696 |   | $ | 236,922 |   | $ | 1,098,559 |   |

***Nonperforming      Assets***

|                                                                           |   |   | **June                30,**          |   |   |   | **December                31,**  |   |
|--------------------------------------------------------------------------------|--------|--------|-------------------------------------------|--------|--------|--------|---------------------------------------|--------|
|                                                                           |   |   | **2006**                                  |   |   |   | **2005**                              |   |
|                                                                           |   |   | **(Dollars                in thousands)** |   |
| Nonaccrual                loans                                                |   | $      | 8,658                                     |   |   | $      | 8,654                                 |   |
| Accruing                loans past due over 90 days                            |   |   | 13                                        |   |   |   | —                               |   |
| Restructured                loans                                              |   |   | 74                                        |   |   |   | 88                                    |   |
| OREO                                                                           |   |   | 593                                       |   |   |   | 927                                   |   |
| Other                repossessed assets                                        |   |   | 8                                         |   |   |   | 8                                     |   |
| Total                nonperforming assets                                      |   | $      | 9,346                                     |   |   | $      | 9,677                                 |   |
| Total                nonperforming assets to total loans and other real estate |   |   | 0.85                                      | %      |   |   | 0.90                                  | %      |

***Allowance      for Loan***
**      Losses**

----

|                                                                                                           |   |   | **Six                months ended June 30,** |   |   | **Year                Ended****December                31,** |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------|--------|--------|--------------------------------------------------------------|--------|
|                                                                                                           |   |   | **2006**                                          |   |   | **2005**                                                     |   |
|                                                                                                           |   |   | **(Dollars                in thousands)**         |   |
| Analysis                of allowance for loan losses:                                                          |   |   |                                              |   |   |                                                         |   |
| Balance,                beginning of period                                                                    |   | $      | 12,591                                            |   | $      | 11,383                                                       |   |
| Provision                for loan losses                                                                       |   |   | 800                                               |   |   | 900                                                          |   |
| Loan                loss reserves of acquired banks                                                            |   |   | —                                           |   |   | 1,670                                                        |   |
| Loans                charged-off:                                                                              |   |   |                                              |   |   |                                                         |   |
| Real                estate—construction                                                                  |   |   | 18                                                |   |   | 72                                                           |   |
| Real                estate—1-4 family                                                                    |   |   | 102                                               |   |   | 96                                                           |   |
| Commercial                loans                                                                                |   |   | 267                                               |   |   | 1,067                                                        |   |
| Consumer                loans                                                                                  |   |   | 240                                               |   |   | 820                                                          |   |
| Agriculture                and other loans                                                                     |   |   | 19                                                |   |   | 500                                                          |   |
| Total                charge-offs                                                                               |   |   | 646                                               |   |   | 2,555                                                        |   |
|                                                                                                           |   |   |                                              |   |   |                                                         |   |
| Recoveries                of loans previously charged-off:                                                     |   |   |                                                   |   |   |                                                         |   |
| Real                estate—construction                                                                  |   |   | —                                           |   |   | 45                                                           |   |
| Real                estate—1-4 family                                                                    |   |   | 3                                                 |   |   | 18                                                           |   |
| Real                estate—other                                                                         |   |   | 6                                                 |   |   | 12                                                           |   |
| Commercial                loans                                                                                |   |   | 196                                               |   |   | 535                                                          |   |
| Consumer                loans                                                                                  |   |   | 108                                               |   |   | 573                                                          |   |
| Agriculture                and other loans                                                                     |   |   | 64                                                |   |   | 10                                                           |   |
| Total                recoveries                                                                                |   |   | 377                                               |   |   | 1,193                                                        |   |
| Net                loans charged-off                                                                           |   |   | 269                                               |   |   | 1,362                                                        |   |
| Balance,                end of period                                                                          |   | $      | 13,122                                            |   | $      | 12,591                                                       |   |
| Average                loans outstanding, net of unearned income, for the period                ended          |   | $      | 1,090,394                                         |   | $      | 989,406                                                      |   |
| Ratio                of net loan charge-offs to average loans, net of unearned income                (1)  |   |   | 0.05                                              | %      |   | 0.14                                                         | %      |
| Ratio                of allowance for loan losses to total loans, net of unearned                income        |   |   | 1.19                                              | %      |   | 1.17                                                         | %      |

----

***Nonearning      Assets***

----

***Deposits***

|                                                                      |   | **Six                Months Ended**             |                         | **Year                Ended**        |
|---------------------------------------------------------------------------|--------|-------------------------------------------------|------------------------------|--------------------------------------|
|                                                                      |   | **June                30, 2006**                |                         | **December                31, 2005** |
|                                                                      |   |                                            | **Average****Balance**  |                                 |   | **Percent                of****Deposits** |   |   |   | **Average****Rate** |   |   |   | **Average****Balance** |   |   | **Percent                of****Deposits** |   |   |   | **Average****Rate** |   |
|                                                                      |   | **(Dollars                in thousands)**  |
| Noninterest-bearing                demand deposits                        |   | $                                               | 476,319                      |                                 |   | 35.6 | % |   |   | — | % |   | $ | 416,168 |   |   | 35.4 | % |   |   | — | % |
| Interest-bearing                demand, savings and money market deposits |   |                                            | 520,896                      |                                 |   | 38.9 |   |   |   | 1.29 |   |   |   | 463,836 |   |   | 39.4 |   |   |   | 0.91 |   |
| Time                deposits of less than $100,000                        |   |                                            | 189,504                      |                                 |   | 14.2 |   |   |   | 3.02 |   |   |   | 167,646 |   |   | 14.3 |   |   |   | 2.18 |   |
| Time                deposits of $100,000 or more                          |   |                                            | 150,807                      |                                 |   | 11.3 |   |   |   | 3.48 |   |   |   | 127,973 |   |   | 10.9 |   |   |   | 2.65 |   |
| Total                deposits                                             |   | $                                               | 1,337,526                    |                                 |   | 100.0 | % |   |   | 1.32 | % |   | $ | 1,175,623 |   |   | 100.0 | % |   |   | 0.96 | % |

|                                               |   |                              | **June                30, 2006** |   |   | **December                31, 2005** |   |
|----------------------------------------------------|--------|-----------------------------------|----------------------------------|--------|--------|--------------------------------------|--------|
|                                               |   | **(In                thousands)** |
| Noninterest-bearing                demand deposits |   | $                                 | 479,610                          |   | $      | 487,369                              |   |
| Interest-bearing                deposits:          |   |                              |                             |   |   |                                 |   |
| NOW                and Money Market                |   |                              | 415,828                          |   |   | 448,762                              |   |
| Savings                                            |   |                              | 76,742                           |   |   | 75,095                               |   |
| Time                deposits                       |   |                              | 339,269                          |   |   | 345,852                              |   |
| Total                interest-bearing deposits:    |   |                              | 831,839                          |   |   | 869,709                              |   |
| Total                Deposit                       |   | $                                 | 1,311,449                        |   | $      | 1,357,078                            |   |

|                                                   |   |                                    | **June                30, 2006** |   |   | **December                31, 2005** |   |
|--------------------------------------------------------|--------|-----------------------------------------|----------------------------------|--------|--------|--------------------------------------|--------|
|                                                   |   | **(In                thousands)**  |
| Three                months or less                    |   | $                                       | 30,847                           |   | $      | 37,958                               |   |
| Over                three through six months           |   |                                    | 20,747                           |   |   | 24,918                               |   |
| Over                six through 12 months              |   |                                    | 45,157                           |   |   | 36,452                               |   |
| Over                12 months                          |   |                                    | 59,284                           |   |   | 55,266                               |   |
| Total                time deposits of $100,000 or more |   | $                                       | 156,035                          |   | $      | 154,594                              |   |

----

***Borrowings***

*Long-Term      Debt*

*Other      Borrowings*

*Junior      Subordinated Debentures*

***Capital      Resources and Capital Adequacy Requirements***

***Liquidity      Management***

----

***Aggregate      Contractual Obligations***

|                                          |   | **As                of June 30, 2006** |                                                          |
|-----------------------------------------------|--------|----------------------------------------|---------------------------------------------------------------|
|                                          |   |                                   | **Less                than****One                Year**  |   |   | **One                Year to****Three                Years** |   |   | **Over                Three Years****to                Five Years** |   |   | **Over                Five Years** |   |   | **Total** |   |
|                                          |   | **(In                thousands)**      |
| FHLB                advances                  |   | $                                      | 209                                                           |   | $ | 367 |   | $ | 537 |   | $ | 156 |   | $ | 1,269 |   |
| Junior                subordinated debentures |   |                                   | —                                                       |   |   | — |   |   | — |   |   | 47,000 |   |   | 47,000 |   |
| Operating                leases               |   |                                   | 1,454                                                         |   |   | 2,654 |   |   | 1,566 |   |   | 587 |   |   | 6,261 |   |
| Total                                         |   | $                                      | 1,663                                                         |   | $ | 3,021 |   | $ | 2,103 |   | $ | 47,743 |   | $ | 54,530 |   |

***Off-Balance      Sheet Arrangements***

|                                        |   | **As                of June 30, 2006** |
|---------------------------------------------|--------|----------------------------------------|
|                                        |   |                                   | **Total                Notional****Amounts****Committed** |   |   | **Less                than****1                year** |   |   | **1-3                years** |   |   | **4-5                years** |   |   | **Over                5****years** |   |
|                                        |   | **(In                thousands)**      |
| Commitments                to extend credit |   | $                                      | 319,337 |   | $ | 240,867 |   | $ | 64,015 |   | $ | 2,960 |   | $ | 11,495 |   |
| Standby                letters of credit    |   |                                   | 17,100 |   |   | 11,970 |   |   | 5,130 |   |   | — |   |   | — |   |
| Total                commercial commitments |   | $                                      | 336,437 |   | $ | 252,837 |   | $ | 69,145 |   | $ | 2,960 |   | $ | 11,495 |   |

----

**ITEM      3. **
**Quantitative      and Qualitative Disclosures about Market Risk**

**ITEM      4. **
**Controls      and Procedures**

| **PART              II -  ** | **OTHER                INFORMATION** |
|----------------------------------------|--------------------------------------|

**ITEM      1. **
**Legal      Proceedings**

**ITEM      1A. Risk Factors **

***Risks      Related to the Proposed Merger***

***Failure      to consummate the Merger could negatively impact our stock price and our future      business and financial results.***

----

| ·   | being                required, under certain circumstances, including if the Merger Agreement                is terminated in favor of an alternative offer from another potential                buyer, to pay a termination fee of $19.2                million; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | being                required, under certain circumstances, including if our Board does                not                recommend in the proxy statement that our shareholders vote in favor                of                the merger or if an alternative proposal has been announced and the                Merger                Agreement is not approved by our shareholders, to reimburse BBVA                for its                costs and expenses in connection with the Merger Agreement; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | having                incurred certain costs relating to the proposed Merger that are payable                whether or not the Merger is completed, including legal, accounting,                financial advisor and printing fees; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | having                had the focus of management directed toward the proposed Merger and                integration planning instead of on our core business and other                opportunities that could have been beneficial to us;                and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                market price of our common stock may decline to the extent that the                current market price reflects a market belief that the Merger will                be                completed. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Provisions      of the Merger Agreement may deter alternative business combinations that could      be more advantageous to our shareholders than the Proposed Merger.***

**ITEM      2. **
**Unregistered      Sales of Equity Securities and Use of Proceeds**

**ITEM      3. **
**Defaults      Upon Senior Securities**

**ITEM      4. **
**Submission      of Matters to a vote of Security Holders**

----

| Name                of Nominee | Total                Votes For | Total                Votes Withheld |
|--------------------------------|--------------------------------|-------------------------------------|
| Larry                G. Autrey | 10,603,727                     | 43,560                              |
| Rick                Calhoon    | 10,549,847                     | 97,440                              |
| James                Cardwell  | 10,612,540                     | 34,747                              |
| Don                E. Cosby    | 10,043,616                     | 603,671                             |
| Gary                Fletcher   | 10,611,817                     | 35,470                              |
| Mark                Merlo      | 10,613,537                     | 33,750                              |
| H.                Gil Moutray  | 10,611,817                     | 35,470                              |
| Tom                C. Nichols  | 10,581,160                     | 66,127                              |
| Ben                Stribling   | 10,611,817                     | 35,470                              |
| Lucinda                Vargas  | 10,611,817                     | 35,470                              |
| F.                James Volk   | 10,617,455                     | 29,832                              |

**ITEM      5. **
**Other      Information**

**ITEM      6.        **
**Exhibits**

| **Exhibit                Number** |   | **Description                of Exhibit**                                                                                                                                                                                                                                                                                                             |
|-----------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                          |   | Agreement                and Plan of Merger, dated as of June 12, 2006, by and between Banco                Bilbao                Vizcaya Argentania, S.A. and State National Bancshares, Inc. is                incorporated by reference from Exhibit 2.1 to the Registrant’s Form 8-K                filed with the SEC on June 16, 2006.(1) |
| 10.1                         |   | Employment                Agreement for Tom C. Nichols, dated as of June 12, 2006, with State                National Bancshares, Inc. is incorporated by reference from Exhibit                10.1                to the Registrant’s Form 8-K filed with the SEC on June 16,                2006.                                            |
| 10.2                         |   | Employment                Agreement for Don E. Cosby, dated as of June 12, 2006, with State                National                Bancshares, Inc. is incorporated by reference from Exhibit 10.2 to                the                Registrant’s Form 8-K filed with the SEC on June 16,                2006.                               |
| 10.3                         |   | Employment                Agreement for F. James Volk, dated as of June 12, 2006, with State                National Bancshares, Inc. is incorporated by reference from Exhibit                10.3                to the Registrant’s Form 8-K filed with the SEC on June 16,                2006.                                             |
| 10.4                         |   | Tax                Gross Up Agreement for Tom C. Nichols, dated as of June 12, 2006,                with                State National Bancshares, Inc. is incorporated by reference from                Exhibit                10.4 to the Registrant’s Form 8-K filed with the SEC on June 16,                2006.                           |
| 10.5                         |   | Tax                Gross Up Agreement for Don E. Cosby, dated as of June 12, 2006, with                State                National Bancshares, Inc. is incorporated by reference from Exhibit                10.5                to the Registrant’s Form 8-K filed with the SEC on June 16,                2006.                             |
| 10.6                         |   | Tax                Gross Up Agreement for F. James Volk, dated as of June 12, 2006,                with                State National Bancshares, Inc. is incorporated by reference from                Exhibit                10.6 to the Registrant’s Form 8-K filed with the SEC on June 16,                2006.                            |
| 31.1                              |   | Rule                13a-14(a) Certification of Chief Executive Officer.                                                                                                                                                                                                                                                                               |
| 31.2                              |   | Rule                13a-14(a) Certification of Chief Financial                Officer.                                                                                                                                                                                                                                                                |

----

| 32.1  |   | Certification                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted                pursuant to Section 906 of the Sarbanes-Oxley Act of                2002.                |
|------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 32.2  |   | Certification                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as                adopted                pursuant to Section 906 of the Sarbanes-Oxley Act of                2002. |

----

----

|                                    |                                                                                                                                                                                           |         |
|-----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|
|                                    | STATE              NATIONAL              BANCSHARES, INC.                                                                                                                                      |
|                               |                                                                                                                                                                                      |    |
| Date: August              11, 2006 | By:                                                                                                                                                                                  |         |
|                                    | Don                E. CosbyExecutive                Vice President, Chief Financial Officer,                Secretary and Treasurer (PrincipalFinancial                and Accounting Officer) |
|                                    |                                                                                                                                                                                           |

----