---




SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D. C. 20549





FORM 10-Q





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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF


THE SECURITIES EXCHANGE ACT OF 1934





FOR QUARTER
ENDED:    SEPTEMBER 30, 2001





COMMISSION FILE NUMBER:    0-11108





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SUMMIT BANCSHARES, INC.





STATE OF CALIFORNIA





2969 BROADWAY, OAKLAND CALIFORNIA 94611


(510) 839-8800





I.R.S. IDENTIFICATION NUMBER


94-2767067





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





The number of shares
outstanding of the registrants common stock was 1,850,492 shares of no par value common stock issued as of SEPTEMBER 30, 2001


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PagePART IFINANCIAL INFORMATIONITEM 1SUMMIT BANCSHARES, INC. AND SUBSIDIARY FINANCIAL STATEMENTSConsolidated Balance Sheets

3Consolidated Statements of Income

4Consolidated Statement of Cash Flows

5Consolidated Statement of Changes in Shareholders Equity

6Notes to Financial Statements

7-8Interest Rate Risk Reporting Schedule

9ITEM 2Managements Discussion and Analysis of Financial Condition and Results of Operations

10-14ITEM 3Quantitative and Qualitative Disclosures About Market Risk

15PART IIOTHER INFORMATIONITEMS 1-6

16




2


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SUMMIT BANCSHARES, INC. AND SUBSIDIARY  CONSOLIDATED BALANCE SHEETS  SEPTEMBER 30, 2001 AND DECEMBER 31, 200009/30/01

12/31/00(Unaudited)

(Audited)ASSETSCash and due from banks

$     8,224,981

$   10,754,372Federal funds sold

17,485,000

8,055,000Cash and cash equivalents

$   25,709,981

$   18,809,372Time deposits with other financial institutions

20,462,613

26,349,023Investment securities held to maturity (fair value of $2,081,558 at September 30,      2001
and $12,450,018 at December 31, 2000)

2,033,778

12,465,000Loans, net of allowance for loan losses of $1,502,533 at September 30, 2001 and
     $1,468,393 at December 31, 2000

87,317,105

83,716,482Other real estate owned

0

0Premises and equipment, net

856,469

726,236Interest receivable and other assets

4,867,837

3,636,418Total
Assets

$141,247,783

$145,702,531LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Demand

$   39,340,194

$   43,685,937Interest-bearing transaction accounts

41,968,706

41,551,449Savings

2,755,568

2,993,922Time certificates $100,000 and over

30,654,731

32,071,157Other time certificates

6,922,307

7,784,304Total
Deposits

$121,641,506

$128,086,769Interest payable and other liabilities

1,410,776

780,638Total
Liabilities

$123,052,282

$128,867,407Shareholders EquityPreferred Stock, no par value:2,000,000 shares authorized, no shares
outstanding

0

0Common Stock, no par value:3,000,000 shares authorized;1,850,492 shares outstanding at
September 30, 2001 and                    1,837,548 shares outstanding at December 31, 2000

3,752,486

3,699,018Retained Earnings

14,443,015

13,136,106Total
Shareholders Equity

$   18,195,501

$   16,835,124Total
Liabilities and Shareholders Equity

$141,247,783

$145,702,531





The accompanying notes are an integral part of these consolidated financial
statements




3


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SUMMIT BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF INCOME





FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000





Three Months Ended 9-30-2001

Three Months Ended 9-30-2000

Nine Months Ended 9-30-2001

Nine Months Ended 9-30-2000Interest income:Interest and fees on loans


$1,951,328



$2,052,021


$6,262,870

$5,383,703Interest on time deposits with other financial
               institutions


285,890



540,458


1,043,180

1,378,595Interest on U.S. government treasury securities


25,823



252,013


176,429

787,338Interest on federal funds sold


239,743



220,927


909,598

742,070Total
interest income


2,502,784



3,065,419


8,392,077

8,291,706Interest expense:Interest on deposits


661,361



838,656


2,265,931

2,157,444Total interest expense


661,361



838,656


2,265,931

2,157,444Net interest income


1,841,423



2,226,763


6,126,146

6,134,262Provision for loan losses


3,000



90,000


135,000

120,000Net
interest income after provision for loan                         losses


1,838,423



2,136,763


5,991,146

6,014,262Non-interest income:Service charges on deposit accounts


86,391



90,370


249,605

267,604Other customer fees and charges


3,434



1,248


15,073

5,614Total
non-interest income


89,825



91,618


264,678

273,218Non-interest expense:Salaries and employee benefits


651,835



701,668


2,031,503

1,980,442Occupancy expense


86,620



99,890


280,530

308,485Equipment expense


73,554



69,042


193,185

205,674Other


318,923



245,454


899,791

816,154Total
non-interest expense


1,130,932



1,116,054


3,405,009

3,310,755Income before income taxes


797,316



1,112,327


2,850,815

2,976,725Provision for income taxes


339,020



462,522


1,196,858

1,246,962Net Income


$    458,296



$    649,805


$1,653,957

$1,729,763Earnings per share:Earnings per common share


$            0.25



$            0.35


$            0.90

$            0.94Earnings per common share assuming dilution



$            0.25



$            0.35


$            0.89

$            0.93Weighted average shares outstanding


1,850,492



1,831,952


1,844,750

1,833,272Weighted avg. shrs. outsdg. assuming dilution


1,865,695



1,852,964


1,864,177

1,854,280





The accompanying notes are an integral part of these consolidated financial
statements




4


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SUMMIT BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF CASH FLOWS





FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000


(UNAUDITED)





Nine Months Ended 9-30-01

Nine Months Ended 9-30-00Cash flows from operating activities:Interest received

$   7,928,890


$   7,772,032Fees received

874,106


731,101Interest paid

(2,236,809
)

(2,187,072
)Cash paid to suppliers and employees

(3,615,679
)

(2,850,636
)Income taxes paid

(1,588,765
)

(1,250,962
)Net cash provided by
operating activities

1,361,743


2,214,463Cash flows from investing activities:(Increase) decrease in time deposits with other financial
institutions

5,886,410


(5,729,002
)Maturity of investment securities

12,465,000


2,000,133Purchase of investment securities

(2,033,778
)

0Net (increase) decrease in loans to customers

(3,758,715
)

(12,215,793
)Recoveries on loans previously charged-off

17,000


21,000(Increase) decrease in premises and equipment

(298,208
)

(78,677
)Net cash provided by
(used in) investing activities

12,277,709


(16,002,339
)Cash flows from financing activities:Increase (decrease) in demand, interest bearing transaction,
and savings                deposits

(4,166,840
)

(11,307,151
)Net increase (decrease) in time deposits

(2,278,423
)

13,987,523Exercise of stock options

53,468


50,810Repurchase of common stock (decrease)

0


(95,014
)Dividends paid (decrease)

(347,048
)

(344,249
)Net cash provided by
(used in) financing activities

(6,738,843
)

2,291,919Net increase (decrease) in cash and cash equivalents

6,900,609


(11,495,957
)Cash and cash equivalents at the beginning of the period

18,809,372


27,635,500Cash and cash equivalents at the end of period

$25,709,981


$16,139,543Reconciliation of net income to net cash provided by operating activities:Net Income

$   1,653,957


$   1,729,763Adjustments to reconcile net income to net cash provided by
operating                activities:Depreciation and amortization

167,975


206,677Provision
for loan losses and OREO losses

135,000


120,000(Increase) decrease in interest receivable

(1,231,419
)

(146,650
)Increase
(decrease) in unearned loan fees

6,092


75,974Increase
(decrease) in Int Pay and Other Liab

630,138


227,699Total
adjustments

(292,214
)

483,700Net cash provided by
operating activities

1,361,743


$   2,213,463





The accompanying notes are an integral part of these consolidated financial
statements




5


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SUMMIT BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY





FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000





Number of Shares Outstanding

Common Stock

Retained Earnings

TotalBalance at December 31, 2000


1,837,548



$3,699,018


$13,136,106


$16,835,124Stock Options Exercised


12,944



53,468


0


53,468Repurchase of Common Stock


0



0


0


0Issuance of cash dividends of $.1875 per share


0



0


(347,048
)

(347,048
)Net Income


0



0


1,653,957


1,653,957Balance at September 30, 2001


1,850,492



$3,752,486


$14,443,015


$18,195,501Balance at December 31, 1999


1,832,084



$3,741,923


$11,411,204


$15,153,127Stock Options Exercised


15,120



50,810


0


50,810Repurchase of Common Stock


(10,048
)


(95,014
)

0


(95,014
)Issuance of cash dividends of $.1875 per share


0



0


(344,249
)

(344,249
)Net Income


0



0


1,729,763


1,729,763Balance at September 30, 2000


1,837,156



$3,697,719


$12,796,718


$16,494,437








The accompanying notes
are an integral part of these consolidated financial statements.




6


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SUMMIT BANCSHARES, INC. AND SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





1.    Consolidated Financial Statements





In the opinion of management, the unaudited interim consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Companys financial position at September 30, 2001 and the results of operations for the three months and nine months ended September 30, 2001 and
2000 and cash flows for the three months and nine months ended September 30, 2001 and 2000.





Certain information and footnote disclosures presented in the Companys annual consolidated financial statements are not included in these interim financial statements.
Accordingly, the accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys 2000 Annual Report to Shareholders, which is
incorporated by reference in the Companys 2000 annual report on Form 10-K. The results of operations for the three months and nine months ended September 30, 2001 are not necessarily indicative of the operating results for the full year.





2.    Comprehensive Income





The Company had no items of other comprehensive income for the three month and nine-month periods ended September 30, 2001 and 2000.
Accordingly, total comprehensive income was equal to net income for each of those periods





3.    Segment
Reporting





The Company is principally engaged in community
banking activities through the three banking offices of its subsidiary bank. The community banking activities include accepting deposits, providing loans and lines of credit to local individuals and businesses, and investing in investment securities
and money market instruments. The three banking offices have been aggregated in to a single reportable segment. Because the Companys financial information is internally evaluated as a single operating segment, no separate segment information
is presented. The combined results are reflected in these financial statements.




7


---








4.    Earnings Per Share





The following table reconciles the numerator and denominator of the basic and diluted
earnings per share computations:





Net Income (Loss)

Weighted Avg. Shares

Per Share AmountFor the quarter ended September 30, 2001Basic Earnings (Loss) per share


$    458



1,850,492



$.25Stock Options






15,203Diluted Earnings (Loss) per share


$    458



1,865,695



$.25Net Income (Loss)

Weighted Avg. Shares

Per Share AmountFor the quarter ended September 30, 2000Basic Earnings (Loss) per share


$    650



1,831,952



$.35Stock Options






21,012Diluted Earnings (Loss) per share


$    650



1,852,964



$.35Net Income (Loss)

Weighted Avg. Shares

Per Share AmountFor the nine months ended September 30, 2001Basic Earnings (Loss) per share


$1,654



1,844,750



$.90Stock Options






19,427Diluted Earnings (Loss) per share


$1,654



1,864,177



$.89Net Income (Loss)

Weighted Avg. Shares

Per Share AmountFor the nine months ended September 30, 2000Basic Earnings (Loss) per share


$1,730



1,833,272



$.94Stock Options






21,008Diluted Earnings (Loss) per share


$1,730



1,854,280



$.93





For the periods
reported, the Company had no reconciling items between net income (loss) and income (loss) available to common shareholders.





5.    New Accounting Prounouncements





The Financial Accounting Standards Board Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS 138, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at
its fair value. The Company adopted SFAS 133 on January 1, 2001. The implementation of this statement did not have a material impact on the Companys financial position or result of operations.




8


---




INTEREST RATE SENSITIVITY/INTEREST RATE RISK ANALYSIS





The following table provides an interest rate sensitivity and interest rate risk analysis for the quarter ended September 30, 2001. The table presents each major category of
interest-earning assets and interest bearing-liabilities.





INTEREST RATE RISK REPORTING SCHEDULE





|REPORTING INSTITUTION: SUMMIT BANK REPORTING DATE: 9-30-01
|----------------------------------------------------------




Remaining Time Before Maturity or Interest Rate Adjustment($000.00) Omitted Total

Up 3 Mo.

>3Mo. <1Yrs.

>1Yrs. <3Yrs.

>3Yrs. <5Yrs.

>5Yrs. <10Yrs.

Over 10 YearsI.

Earning assetsA.  Investments:1.  U. S. Treasuries


$          0


$         0

$         0


$         0

$         0

$         0


$         02.  U. S. Agencies


2,034


0

0


2,034

0

0


03.  Fed funds sold


17,485


17,485

0


0

0

0


04.  Purchased cds


20,462


1,188

5,722


13,552

0

0


0Total investments


$  39,981


$18,673

$  5,722


$15,586

$         0

$         0


$         0B.  Loans


$  85,775


$68,887

$  2,958


$  2,445

$  5,980

$  5,505


$         0Total loans


$  85,775


$68,887

$  2,958


$  2,445

$  5,980

$  5,505


$         0C.  Total earning assets


$125,756


$87,560

$  8,680


$18,031

$  5,980

$  5,505


$         0II.

Cost of funds (deposits)A.  Certificate of deposits


$  37,577


$26,734

$10,599


$     244

$         0

$         0


$         0B.  Money market accounts


35,670


7,134

14,862


13,674

0

0


0C.  Transaction accounts


8,034


344

1,033


2,723

1,958

1,976


0D.  Savings accounts


2,755


118

354


934

672

677


0Total cost of funds


$  84,036


$34,330

$26,848


$17,575

$  2,630

$  2,653


$         0III.

Interest sensitive assets


$125,756


$87,560

$  8,680


$18,031

$  5,980

$  5,505


$         0IV.

Interest sensitive liabilities


$  84,036


$34,330

$26,848


$17,575

$  2,630

$  2,653


$         0V.

Gap


$  41,720


$53,230

($ 18,168
)

$     456

$  3,350

$  2,852


$         0VI.

Cumulative gap


$  41,720


$53,230

$35,062


$35,518

$38,868

$41,720


$41,720VII.

Gap ratio


1.50


2.55

0.32


1.03

2.27

2.08


0.00VIII.

Cumulative ratio


1.50


2.55

1.57


1.45

1.48

1.50


1.50IX.

Gap as a % of total assets


30.34


38.72

(13.21
)

0.33

2.44

2.08X.

Cumulative gap as a % of total assets


30.34


38.72

25.50


25.83

28.27

30.34


30.34




9


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ITEM 2.





MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND


RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001





The registrant, Summit Bancshares, Inc. (the Company) is a bank holding company whose only operating subsidiary is Summit Bank (the Bank). The following
discussion primarily concerns the financial condition and results of operations of the Company on a consolidated basis including the subsidiary Bank. All adjustments made in the compilation of this information are of a normal recurring nature.





FINANCIAL CONDITION





Liquidity Management





The
consolidated loan-to-deposit ratio at September 30, 2001 was 71.8%, which was an increase from 52.9% for the same period in 2000. Net outstanding loans as of September 30, 2001 increased $22,452,000 compared to the same period a year ago while total
deposits decreased $1,036,000 versus the same time last year. The increase in loans was mainly due to Summits effort in marketing its products and the formation of the Real Estate Capital Markets Group. The average loan-to-deposit ratio at the
end of the third quarter of 2001 was 64.1%, an increase from 52.3% for the same period last year. This increase was caused by an increase in average total deposits of $4,208,000 or 3.3% while average total loans increased $20,479,000 or 30.4%.





One of the Companys customers manages accounts for medical
offices and physicians. This customer has brought approximately 80 of the accounts they manage to the Company. As of September 30, 2001 the aggregate monthly average balance in these accounts was approximately $12,000,000.





This customer has notified the Bank that due to the expiration of a contract, one of
the companies they manage funds for will be taking control of their own accounts. This is expected to result in a further decrease of interest bearing deposits of approximately $4,000,000 as well as a corresponding decrease in Federal Funds Sold by
January, 2002. Over the past three months this customer moved approximately $5,000,000 to its firm down south.





Net liquid assets, which consists primarily of cash, due from banks, interest-bearing deposits with other financial institutions, investment securities and federal funds sold
totaled $48,206,000 on September 30, 2001. This amount represented 39.6% of total deposits in comparison to the liquidity ratio of 54.8% as of September 30, 2000. This decrease is primarily a result of a rise in loan growth, which caused a decrease
in investments. It is managements belief that the current liquidity level is appropriate given current economic conditions and is sufficient to meet current needs.





The following table sets forth book value of investments by category and the percent of total investments at the dates specified.





Investment Comparative


($000.00 Omitted)





9-30-01

%

12-31-00

%

9-30-00

%Fedfunds sold

$17,485

44
%

$   8,055

17
%

$   8,985

15
%Interest bearing deposits

20,463

51
%

26,349

56
%

33,618

56
%Securities

2,034

5
%

12,465

27
%

17,465

29
%





Interest bearing
deposits are comprised of Time Certificates of Deposit with other banks and savings and loan institutions with no more than $100,000 in any institution.





Securities on September 30, 2001 were comprised of U.S. Govt agencies.




10


---




Changes in Financial Position





As of September 30, 2001, total deposits decreased $6,445,000 from December 31, 2000 while at the same
time net loans outstanding increased $3,601,000. Total deposits as of September 30, 2001 were $121,642,000, a decrease of .8% from $122,678,000 as of September 30, 2000. Net loans as of September 30, 2000 were $87,317,000, an increase of 28.3% from
$68,070,000 as of September 30, 2000.





The following table sets
forth the amount of deposits by each category and the percent of total deposits at the dates specified.





Deposit
Comparative


($000.00 Omitted)





9-30-01

%

12-31-00

%

9-30-00

%Demand

$39,340

34
%

$43,686

34
%

$42,095

34
%Savings

2,756

2
%

2,994

2
%

2,482

2
%Interest bearing Trans. Deposits

41,969

28
%

41,551

33
%

34,236

28
%Other time

37,577

36
%

39,855

31
%

43,865

36
%





The following table
sets forth the amount of loans outstanding by category and the percent of total loans outstanding at the dates specified.





Loan Comparative


($000.00 Omitted)





9-30-01

%

12-31-99

%

9-30-00

%Commercial

$27,845

52
%

$28,027

33
%

$34,459

52
%Real estate-const

23,952

21
%

18,032

21
%

14,230

21
%Real estate-other

30,089

15
%

31,634

37
%

10,109

15
%Installment/other

6,933

12
%

7,491

9
%

7,481

12
%





Non-Performing Assets





The following table provides information with respect to the Banks past due loans and components
for non-performing assets at the dates indicated.





Non-Performing Assets($000.00 Omitted)9-30-01

12-31-00

9-30-00Loans 90 days or more past due & still accruing

$   535


$     45


$        0Non-accrual loans

0


0


16Other real estate owned

0


0


0Total non-performing assets

$   535


$     45


$     16Non-performing assets to period end loans plus other real estate owned

.61
%

0.005
%

1.02
%Allowance to non-performing loans

280.9
%

3,262
%

8,838
%





The Banks
policy is to recognize interest income on an accrual basis unless the full collectibility of principal and interest is uncertain. Loans that are delinquent 90 days as to principal or interest are placed on a non-accrual basis, unless they are well
secured and in the process of collection, and any interest earned but uncollected is reversed from income. Collectibility is determined by considering the borrowers financial condition, cash flow, quality of management, the existence of
collateral or guarantees and the state of the local economy.




11


---




Other real estate owned
(OREO)is comprised of properties acquired through foreclosure. These properties are carried at the lower of the recorded loan balance or their estimated fair market value based on appraisal, less estimated costs to sell. When the loan
balance plus accrued interest exceeds the fair value of the property less disposal costs, the difference is charged to the allowance for loan losses at the time of foreclosure. Subsequent declines in value from the recorded amount, if any, and gains
or losses upon disposition are included in noninterest expense. Operating expenses related to other real estate owned are charged to non-interest expense in the period incurred.





The increase in non-performing assets from September 30, 2000 to September 30, 2001 is due primarily to an increase in loans 90 days or
more past due and still accruing. These loans are all secured by real estate.





Capital Position





As of September 30, 2001, Shareholders Equity was $18,196,000. This represents
an increase of $1,703,000 or 10.3% over the same period last year. Since the inception of the repurchase program in 1989, the Company has authorized the repurchase of $3,500,000 of its stock. As of September 30, 2001, the Company has repurchased a
total of 668,680 shares of the Company stock constituting 31.1% of the Companys original stock prior to the repurchase program, at a total cost of $2,667,714, or an average price per share of $3.99. The Company plans to continue its repurchase
program as an additional avenue for liquidity for its shareholders. The program has not significantly affected the Companys liquidity or capital position or its ability to operate as the Companys capital growth has exceeded its asset
growth. In addition, the Companys subsidiary Bank remains more than well-capitalized under current regulations.





The following table shows the risk-based capital and leverage ratios as well as the minimum regulatory requirements for the same as of September 30, 2001:





Capital Ratio

Minimum Regulatory RequirementTier 1 Capital


16.69
%



4.00
%Total Capital


17.89
%



8.00
%Leverage Ratio


12.81
%



4.00
%





RESULTS OF OPERATIONS





Net Interest Income





Total interest income including loan fees increased from $8,292,000 for the first nine months of 2000 to $8,392,000 for the same period in 2001.





The increase in loan income was due primarily to the increase in outstanding loans.
Average outstanding loans increased from $61,626,000 in 2000 to $82,105,000 in 2001. The yield on loans and fees decreased from 11.65% in 2000 to 10.17% in 2001. This decrease was directly related to the decrease in the prime lending rate from the
beginning of the year figure of 9.50% to the current prime rate of 5.50%





The decrease in interest income from investments was due to a decrease in the yield of 32 basis points compared to the same period in 2000. Average total investments were
$17,309,000 lower than the same period last year.





Interest expense
increased from $2,157,000 at the end of the first nine months of 2000 to $2,266,000 in 2001. This increase was due to an increase in average interest-bearing deposit accounts of $8,876,000 during the first nine months of 2001 versus the same period
last year. The average cost of funds for the period ending




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September 30, 2001 was 42 basis points more than the same period last year. As a result of these factors, net interest margin for the first nine months of 2001 was 5.94% compared to 6.22% for the
same period last year.





For the third quarter, total interest
income including loan fees decreased from $3,065,000 in 2000 to $2,503,000 for the same period in 2001. This decrease is due to a decrease in loan income and interest on time deposits with other institutions. Average loan volume for the third
quarter of 2001 showed an increase of $20,288,000 from the same period last year. Yield on loans for the third quarter of 2001 was 10.01% compared to 12.12% for the same period last year. For the third quarter of 2000, total interest income on
investments decreased $462,000. This decrease was attributable to an average investment volume decrease of $17,250,000 along with an interest yield decrease from 6.21% in the third quarter of 2000 to 4.55% for the same period in 2001.





For the third quarter of 2001, interest expense increased $108,000 compared to
the same period in 2000. Average outstanding interest bearing deposits increased from $84,581,000 in the third quarter of 2000 to $90,923,000 in the third quarter of 2001. Average cost of funds for the same period was 3.62% in 2001 compared to 3.97%
in 2000. As a result of these factors, net interest income for the third quarter of 2001 decreased $386,000, or 17.3%, compared to the same period in 2000.





Other Operating Income





Service charges on deposit accounts as of the end of the first nine months of 2001 decreased to $250,000 versus $268,000 for the same period in 2000. The decrease was due to
decreased fees collected in service charges related to NSF fees on commercial accounts.





Other customer fees and charges for the first nine months increased $9,000.





Service charges on deposit accounts for the third quarter of 2001 decreased $4,000 compared to the same period last year due to decreased collection of fees
related to NSF fees on commercial accounts.





Loan Loss Provision





The allowance for loan losses is maintained at a level that management of the Company considers adequate
for losses that are inherent in the loan portfolio. The allowance is increased by charges to operating expenses and reduced by net-charge-offs. The level of the allowance for loan losses is based on managements evaluation of losses in the loan
portfolio, as well as prevailing economic conditions.





Management
employs a systematic methodology on a monthly basis to determine the adequacy of the allowance for current loan losses. The credit administrator grades each loan at the time of extension or renewal. Gradings are assigned a risk factor, which is
calculated to assess the adequacy of the allowance for loan losses. Further, management considers other factors such as overall portfolio quality, trends in the level of delinquent and classified loans, specific problem loans, and current economic
conditions.




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The following table summarizes the
activity in the Banks allowance for credit losses for the nine months ended September 30, 2001 and 2000.





Nine months ended9/30/01

9/30/00(000.00 Omitted)Balance, beginning of the period

$1,468

$1,273Provision for loan losses

135

120Recoveries

17

21Loans Charged-off

117

0$1,503

$1,414





The balance in the
allowance for loan losses at September 30, 2001 was 1.72% of loans compared to 2.08% of loans at September 30, 2000. This level is considered appropriate and is slightly greater than the industry average.





Other Operating Expenses





Total other operating expenses increased $94,000 as of the end of the first nine months of 2001 compared to the same period last year. This increase was primarily due to an
increase in staff expense, consulting fees and business development expenses.





For the third quarter of 2001, operating expenses increased $15,000 compared to the same period last year primarily due to consulting fees and expenses related to business
development.





Provision for Income Taxes





The Companys provision for income taxes as of the end of the first nine months of 2001 decreased from $1,247,000 in 2000 to
$1,197,000. This decrease is attributable to decreased profits from operations as a result of the decrease in the prime lending rate. For the same period in 2001 the Companys total effective tax rate was 42.0% compared to 41.9% in 2000.





For the third quarter of 2001, the provision for income taxes
decreased $124,000 compared to the third quarter of 2000 for the same reason stated above. The effective tax rate for this period was 42.5% versus 41.6% for the same period last year.





Net Income





Net income for the first nine months of 2001 decreased to $1,654,000 from $1,730,000 for the same period in 2000, or a decrease of 4.4%. Third quarter net income decreased $191,000
or 29.5% over the same period last year.




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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Interest rate and credit risks are the most significant market risks impacting the Companys performance. Other types of market risk, such as foreign currency exchanges rate
risk and the commodity price risk, do not arise in the normal course of the Companys business activities. The Company relies on loan reviews, prudent loan underwriting standards and an adequate allowance for loan losses to mitigate credit
risk.





Interest rate risk is managed by subjecting the
Companys balance sheet to hypothetical interest rate shocks. The Companys primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Companys net interest income and
capital, while structuring the Companys asset/liability position to obtain the maximum yield-cost spread on that structure.





Rate shock is an instantaneous and complete adjustment in market rates of various magnitudes on a static or level balance sheet to determine the effect such a change in rates would
have on the Companys net interest income for the succeeding twelve months, and the fair values of financial instruments.





Management has assessed these risks and has implemented an investment policy, a new loan program and decreased interest rates it pays on deposit accounts commensurate with the
marketplace to help mitigate the downward pressure on its net interest margin.





CERTAIN FACTORS THAT MAY AFFECT FUTURE
RESULTS





The primary factor, which may affect future results,
is the fluctuation of interest rates in the market place more commonly referred to as interest rate risk. Interest rate risk is the exposure of a banks current and future earnings and equity capital arising from adverse movements in interest
rates. It results from the possibility that changes in interest rates may have an adverse effect on a banks earnings and its underlying economic value. Changes in interest rates affect a banks earnings by changing its net interest income
and the level of other interest-sensitive income and operating expenses. As mentioned previously, the potential decrease in a declining interest rate environment would be minimized by an increase in assets. In addition, earnings and growth of the
company are and will be affected by general economic conditions, both domestic and international, and by monetary and fiscal policies of the United States Government, particularly the Federal Reserve Bank.




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PART IIOTHER INFORMATION





ITEM 1LEGAL PROCEEDINGS





From time to time the Company is a party to claims and legal proceedings arising in
the ordinary course of business. Currently, the Company has no outstanding suits brought against it.





ITEM 2CHANGES IN
SECURITIES AND USE OF PROCEEDS





None





ITEM 3DEFAULTS UPON SENIOR SECURITIES





None





ITEM 4SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS





None





ITEM 5OTHER INFORMATION





None





ITEM 6EXHIBITS AND
REPORTS ON FORM 8-K





(a)  Exhibits





(b)  Reports on Form 8-K





None




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SIGNATURES





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





SUMMIT BANCSHARES, INC.Registrant/s/SHIRLEY W. NELSONDATE: November 13, 2001

By:Shirley W. NelsonChairman and CEO(Principal Executive Officer)/s/    KIKUO
NAKAHARADATE: November 13, 2001

By:Kikuo NakaharaChief Financial Officer (Principal Financial Officer)





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