<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q
 
Mark One
 
[ X ]      Quarterly report pursuant to section 13 or 15(d) of the 
                        Securities Exchange Act of 1934
 
           For the quarterly period ended September 30, 1996; or
 
[   ]      Transition report pursuant to section 13 or 15(d) of the 
                        Securities Exchange Act of 1934
 
           For the Transition period from              to              
                                          ------------    ------------
                      
                        COMMISSION FILE NUMBER 0-11986


                            SUMMIT BANCSHARES, INC.
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)


            TEXAS                                 75-1694807
       ------------------------               -------------------     
       (State of Incorporation)                (I.R.S. Employer
                                              Identification No.)

                  1300 SUMMIT AVENUE, FORT WORTH, TEXAS 76102
                  -------------------------------------------
                   (Address of principal executive offices)


                                (817) 336-6817
         -------------------------------------------------------------
             (Registrant's telephone number, including area code)


 
                                   NO CHANGE
        --------------------------------------------------------------
        (Former name, former address and former fiscal year if changed 
                              since last report)


Indicate by 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 of common stock, $1.25 par value, outstanding at September
30, 1996 was 3,234,186 shares.
<PAGE>
 
                            SUMMIT BANCSHARES, INC.

                                     INDEX

PART I - FINANCIAL INFORMATION                                          PAGE NO.
 
Item 1.   Financial Statements
 
          Consolidated Balance Sheets at September 30, 1996 and
          1995 and at December 31, 1995                                       4
 
          Consolidated Statements of Income for the Nine Months
          Ended September 30, 1996 and 1995 and for the Year Ended
          December 31, 1995                                                   5
 
          Consolidated Statements of Income for the Three Months
          Ended September 30, 1996 and 1995                                   6
 
          Consolidated Statements of Changes in Shareholders' Equity
          for the Nine Months Ended September 30, 1996 and 1995 and
          for the Year Ended December 31, 1995                                7
 
          Consolidated Statements of Cash Flows for the Nine Months
          Ended September 30, 1996 and 1995 and for the Year Ended
          December 31, 1995                                                  8-9
 
          Notes to Consolidated Financial Statements for the Nine Months
          Ended September 30, 1996 and 1995 and for the Year Ended
          December 31, 1995                                                10-20

The September 30, 1996 and 1995 and the December 31, 1995 financial statements
included herein are unaudited; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments), which are, in
the opinion of management of the registrant, necessary to a fair statement of
the results for the interim periods.

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations for the Nine Months Ended
         September 30, 1996 and 1995                                       21-27

                                                                               2
<PAGE>
 
PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

Item 2.  Change in Securities

Item 3.  Defaults Upon Senior Securities

Item 4.  Submission of Matters to a Vote of Security Holders

Item 5.  Other Information

Item 6.  Exhibits and Reports on Form 8-K

                                                                               3
<PAGE>
 
                        PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
-----------------------------

                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                        (Unaudited)          
                                                       September 30,          (Unaudited) 
                                                -----------------------       December 31, 
                                                   1996           1995            1995
                                                ---------      ---------      ------------
                                                             (In Thousands) 
<S>                                             <C>            <C>            <C> 
ASSETS                               
                                                 
CASH AND DUE FROM BANKS                          $ 24,962       $ 19,197       $ 22,480
FEDERAL FUNDS SOLD                                  8,330         23,890         25,680
INVESTMENT SECURITIES - NOTE 2                  
  (Market Value of $122,541,000 and             
   $112,540,000 at September 30, 1996 and 1995  
   and $119,575,000 at December 31, 1995)         123,019        112,493        119,368
LOANS - NOTE 3                                  
  Loans, Net of Unearned Discount                 213,962        165,720        178,493
     Allowance for Loan Losses                     (3,008)        (2,513)        (2,500)
                                                 --------       --------       --------
      LOANS, NET                                  210,954        163,207        175,993
                                                
PREMISES AND EQUIPMENT - NOTE 4                     7,159          7,034          7,157
ACCRUED INCOME RECEIVABLE                           3,281          2,865          3,288
OTHER REAL ESTATE - NOTE 5                            169            345            113
OTHER ASSETS                                        2,020          1,376          1,338
                                                 --------       --------       --------
                                                
TOTAL ASSETS                                     $379,894       $330,407       $355,417
                                                 ========       ========       ========
LIABILITIES AND SHAREHOLDERS' EQUITY            
                                                
DEPOSITS - NOTE 6                               
  Noninterest-Bearing Demand                     $ 91,528       $ 83,551       $ 89,184
  Interest-Bearing                                238,270        209,483        220,925
                                                 --------       --------       --------
                                                
      TOTAL DEPOSITS                              329,798        293,034        310,109
                                                
SECURITIES SOLD UNDER                           
 AGREEMENTS TO REPURCHASE                          14,453          6,606         13,528
ACCRUED INTEREST PAYABLE                              589            591            635
OTHER LIABILITIES                                   1,711          1,292          1,020
                                                 --------       --------       --------
                                                
      TOTAL LIABILITIES                           346,551        301,523        325,292
                                                 --------       --------       --------
                                                
SHAREHOLDERS' EQUITY - NOTES 11, 13 and 17      
  Common Stock - $1.25 Par Value; 20,000,000    
   shares authorized; 3,234,186, 1,568,041      
   and 3,149,886 shares issued and outstanding  
   at September 30, 1996 and 1995 and at        
   December 31, 1995, respectively                  4,043          1,960          3,937
  Capital Surplus                                   4,130          6,052          4,109
  Retained Earnings                                25,386         20,703         21,745
  Unrealized Gain (Loss) on Investment          
   Securities Available for Sale, Net of Tax          (59)           224            334
  Treasury Stock at Cost (9,000 and 2,298 shares
   at September 30, 1996 and 1995, respectively)     (157)           (55)           -0-
                                                 --------       --------       --------
                                                
      TOTAL SHAREHOLDERS' EQUITY                   33,343         28,884         30,125
                                                 --------       --------       --------
                                                
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $379,894       $330,407       $355,417
                                                 ========       ========       ========
</TABLE>
The accompanying Notes should be read with these financial statements.
 

                                                                               4
<PAGE>
 
                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                           (Unaudited)                 
                                                             For the Nine Months Ended September 30,           (Unaudited)      
                                                           -----------------------------------------     Year Ended December 31,
                                                                    1996                 1995                     1995
                                                           --------------------  -------------------     -----------------------
                                                                           (In Thousands, Except Per Share Data)
<S>                                                        <C>                   <C>                     <C>
INTEREST INCOME
  Interest and Fees on Loans                                      $14,051              $11,081                   $15,331
  Interest and Dividends on Investment Securities:
    Taxable                                                         5,559                4,757                     6,479
    Exempt from Federal Income Taxes                                    1                   20                        23
  Interest on Federal Funds Sold                                      672                  654                     1,096
                                                                  -------              -------                   -------
 
            TOTAL INTEREST INCOME                                  20,283               16,512                    22,929
                                                                  -------              -------                   -------
 
INTEREST EXPENSE
  Interest on Deposits                                              6,833                5,705                     7,936
  Interest on Securities Sold Under Agreements 
   to Repurchase                                                      381                  218                       340
  Interest on Notes Payable                                           -0-                    1                         1
                                                                  -------              -------                   -------
 
            TOTAL INTEREST EXPENSE                                  7,214                5,924                     8,277
                                                                  -------              -------                   -------
 
            NET INTEREST INCOME                                    13,069               10,588                    14,652
LESS: PROVISION FOR LOAN LOSSES - NOTE 3                              480                  136                       236
                                                                  -------              -------                   -------
 
            NET INTEREST INCOME AFTER
             PROVISION FOR LOAN LOSSES                             12,589               10,452                    14,416
                                                                  -------              -------                   -------
 
NON-INTEREST INCOME
  Service Charges and Fees on Deposits                              1,210                1,154                     1,525
  Loss on Sale of Investment Securities                               (15)                 (10)                      (10)
  Other Income                                                      1,050                  959                     1,239
                                                                  -------              -------                   -------
 
            TOTAL NON-INTEREST INCOME                               2,245                2,103                     2,754
                                                                  -------              -------                   -------
 
NON-INTEREST EXPENSE
  Salaries and Employee Benefits                                    5,043                4,301                     5,903
  Occupancy Expense - Net                                             566                  524                       712
  Furniture and Equipment Expense                                     606                  514                       691
  Other Real Estate Owned Expense - Net                                12                  (89)                      (99)
  Other Expense                                                     2,040                2,039                     2,766
                                                                  -------              -------                   -------
 
            TOTAL NON-INTEREST EXPENSE                              8,267                7,289                     9,973
                                                                  -------              -------                   -------
 
            INCOME BEFORE INCOME TAXES                              6,567                5,266                     7,197
 
APPLICABLE INCOME TAXES - NOTE 8                                    2,253                1,804                     2,468
                                                                  -------              -------                   -------
 
            NET INCOME                                            $ 4,314              $ 3,462                   $ 4,729
                                                                  =======              =======                   =======
 
            NET INCOME PER SHARE - NOTE 13                          $1.35                $1.10                     $1.51
                                                                  =======              =======                   =======
</TABLE>

The accompanying Notes should be read with these financial statements.

                                                                               5
<PAGE>
 
                    SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
 
                                                               (Unaudited)
                                                       For the Three Months Ended
                                                              September 30,
                                                      ---------------------------
                                                              1996      1995
                                                      ---------------------------
                                                  (In Thousands, Except Per Share Data)
<S>                                                   <C>              <C>
INTEREST INCOME
 Interest and Fees on Loans                                 $4,991     $3,954
 Interest and Dividends on Investment Securities:            
   Taxable                                                   1,893      1,550
   Exempt from Federal Income Taxes                            -0-          6
 Interest on Federal Funds Sold                                180        426
                                                            ------     ------
                                                             
    TOTAL INTEREST INCOME                                    7,064      5,936
                                                            ------     ------
                                                             
INTEREST EXPENSE                                             
 Interest on Deposits                                        2,345      2,096
 Interest on Securities Sold Under Agreements                
  to Repurchase                                                145         86
                                                            ------     ------
                                                             
    TOTAL INTEREST EXPENSE                                   2,490      2,182
                                                            ------     ------
                                                             
    NET INTEREST INCOME                                      4,574      3,754
LESS: PROVISION FOR LOAN LOSSES - NOTE 3                       192         50
                                                            ------     ------
                                                             
    NET INTEREST INCOME AFTER                                
     PROVISION FOR LOAN LOSSES                               4,382      3,704
                                                            ------     ------
                                                             
NON-INTEREST INCOME                                          
 Service Charges and Fees on Deposits                          423        382
 Loss on Sale of Investment Securities                          (8)       -0-
 Other Income                                                  370        274
                                                            ------     ------
                                                             
    TOTAL NON-INTEREST INCOME                                  785        656
                                                            ------     ------
                                                             
NON-INTEREST EXPENSE                                         
 Salaries and Employee Benefits                              1,691      1,507
 Occupancy Expense - Net                                       179        177
 Furniture and Equipment Expense                               206        193
 Other Real Estate Owned Expense - Net                          (4)        (3)
 Other Expense                                                 615        564
                                                            ------     ------
                                                             
    TOTAL NON-INTEREST EXPENSE                               2,687      2,438
                                                            ------     ------
                                                             
    INCOME BEFORE INCOME TAXES                               2,480      1,922
                                                             
APPLICABLE INCOME TAXES - NOTE 8                               846        665
                                                            ------     ------
                                                             
    NET INCOME                                              $1,634     $1,257
                                                            ======     ======
                                                             
    NET INCOME PER SHARE  - NOTE 13                         $  .51     $  .40
                                                            ======     ======
</TABLE>

The accompanying Notes should be read with these financial statements.

                                                                               6
<PAGE>
 
                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                   AND FOR THE YEAR ENDED DECEMBER 31, 1995
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                              
                                                                                               Unrealized             
                                          Common Stock                                        Gain (Loss)            
                                        --------------------   Capital        Retained       on Investment   Treasury 
                                         Shares      Amount    Surplus        Earnings       Securities-Net    Stock     Total
                                        ---------    ------    -------        --------       --------------  --------   -------
                                                       (Dollars in Thousands, Except Per Share Data)
<S>                                     <C>          <C>       <C>             <C>               <C>         <C>        <C>
BALANCE AT
  JANUARY 1, 1995                       1,578,723    $1,973    $ 6,047         $18,187           $ (873)      $ -0-     $25,334
 
Purchases of Stock Held in
  Treasury                                                                                                     (508)       (508)
 
Retirement of Stock Held in
  Treasury                                (20,482)      (25)                      (428)                         453         -0-
 
Net Income for the
  Nine Months Ended
  September 30, 1995                                                             3,462                                    3,462
 
Stock Options Exercised                     9,800        12          5                                                       17
 
Cash Dividend $.33
  Per Share                                                                       (518)                                    (518)
 
Securities Available-for-
  Sale Adjustment                                                                                 1,097                   1,097
                                        ---------    ------    -------        --------           ------       -----     -------
BALANCE AT
  SEPTEMBER 30, 1995                    1,568,041     1,960      6,052          20,703              224         (55)     28,884
 
Retirement of Stock Held in
  Treasury                                 (2,298)       (4)                       (51)                          55         -0-
 
Net Income for the
  Three Months Ended
  December 31, 1995                                                              1,267                                    1,267
 
Stock Options Exercised                     9,200        12         26                                                       38
 
Cash Dividend $.11
  Per Share                                                                       (174)                                    (174)
 
Two-for-One Stock Split                 1,574,943     1,969     (1,969)                                                     -0-
 
Securities Available-for-
  Sale Adjustment                                                                                   110                     110
                                        ---------    ------    -------        --------           ------       -----     -------
BALANCE AT
  DECEMBER 31, 1995                     3,149,886     3,937      4,109          21,745              334         -0-      30,125
 
Purchases of Stock Held in
  Treasury                                                                                                     (157)       (157)
 
Net Income for the
  Nine Months Ended
  September 30, 1996                                                             4,314                                    4,314
 
Stock Options Exercised                    84,300       106         21                                                      127
 
Cash Dividend $.21
  Per Share                                                                       (673)                                    (673)
 
Securities Available-for-
  Sale Adjustment                                                                                  (393)                   (393)
                                        ---------    ------    -------        --------           ------       -----     -------
BALANCE AT
  SEPTEMBER 30, 1996                    3,234,186    $4,043    $ 4,130        $ 25,386           $  (59)      $(157)    $33,343
                                        =========    ======    =======        ========           ======       =====     =======
</TABLE>
The accompanying Notes should be read with these financial statements.

                                                                               7
<PAGE>
 
                    SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                    AND FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
                                                                          (Unaudited)  
                                                                         September 30,         (Unaudited)  
                                                                -----------------------------  December 31,
                                                                     1996           1995          1995
                                                                --------------  -------------  -----------
                                                                                (In Thousands)
<S>                                                             <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income                                                      $  4,314       $  3,462     $  4,729
  Adjustments to Reconcile Net Income to Net
   Cash Provided by Operating Activities:
    Depreciation and Amortization                                      565            470          652
    Net Premium Amortization of Investment Securities                  253            200          445
    Provision for Loan Losses                                          480            136          236
    Net (Increase) Decrease in Deferred Income Taxes                  (114)           (93)          68
    Loss on Sale of Investment Securities                               15             10           10
    Writedown of Other Real Estate                                       9              8           12
    Net Gain From Sale of Other Real Estate                            -0-            (73)         (78)
    Net Gain on Sale of Premises and Equipment                           1            -0-          -0-
    Increase in Accrued Income and Other Assets                       (223)          (619)      (1,044)
    Increase in Accrued Expenses and Other Liabilities                 645            754          297
                                                                  --------       --------     --------
      Total Adjustments                                              1,631            793          598
                                                                  --------       --------     --------
      NET CASH PROVIDED BY OPERATING ACTIVITIES                      5,945          4,255        5,327
                                                                  --------       --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net (Increase) Decrease in Federal Funds Sold                     17,350        (14,150)     (15,940)
  Proceeds from Matured and Prepaid Investment Securities
    . Held-to-Maturity                                              16,560         13,802       21,154
    . Available-for-Sale                                            15,600          2,457       12,703
  Proceeds from Sales of Investment Securities                      12,524          2,951        2,969
  Purchase of Investment Securities
    . Held-to-Maturity                                             (18,183)       (13,057)     (27,616)
    . Available-for-Sale                                           (31,016)        (2,471)     (12,482)
  Loans Originated and Principal Repayments, Net                   (35,738)       (26,968)     (39,724)
  Recoveries of Loans Previously Charged-Off                            97            176          201
  Proceeds from Sale of Premises and Equipment                           1            -0-          -0-
  Proceeds from Sale of Other Real Estate                              -0-            369          502
  Purchases of Premises and Equipment                                 (569)          (902)      (1,207)
                                                                  --------       --------     --------
      NET CASH USED BY INVESTING ACTIVITIES                        (23,374)       (37,793)     (59,440)
                                                                  --------       --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net Increase in Demand Deposits, Savings
   Accounts and Interest Bearing Transaction Accounts               20,574         29,427       45,230
  Net (Decrease) Increase in Certificates of Deposit                  (885)         4,069        5,338
  Net Increase in Repurchase Agreements                                925          2,078        9,000
  Principal Payments of Notes Payable                                  -0-           (250)        (250)
  Payments of Cash Dividends                                          (673)          (518)        (692)
  Purchase of Treasury Stock                                          (157)          (508)        (508)
  Proceeds from Stock Options Exercised                                127             17           55
                                                                  --------       --------     --------
       NET CASH PROVIDED BY FINANCING ACTIVITIES                    19,911         34,315       58,173
                                                                  --------       --------     --------
NET INCREASE IN CASH AND DUE FROM
 BANKS                                                               2,482            777        4,060
CASH AND DUE FROM BANKS AT BEGINNING
  OF PERIOD                                                         22,480         18,420       18,420
                                                                  --------       --------     --------
CASH AND DUE FROM BANKS AT END OF PERIOD                          $ 24,962       $ 19,197     $ 22,480
                                                                  ========       ========     ========
</TABLE>

                                                                               8
<PAGE>
 
                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                   AND FOR THE YEAR ENDED DECEMBER 31, 1995
                                  (Unaudited)

SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
<TABLE>
<CAPTION>
 
                                                                     (Unaudited)        
                                                                    September 30,       (Unaudited) 
                                                          ----------------------------  December 31, 
                                                               1996           1995         1995
                                                          --------------  ------------  -----------
                                                                 (In Thousands)
<S>                                                       <C>             <C>           <C>
(1)  Interest Paid                                               $7,261         $5,819      $8,129
(2)  Income Taxes Paid                                            2,331          1,670       2,410
(3)  Other Real Estate Acquired in Settlement of Loans               65            -0-         -0-
(4)  Bank Financed Sales of Other Real Estate                       -0-            -0-         100
</TABLE>

                                                                               9
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
       FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
             AND FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)

NOTE 1 - Summary of Significant Accounting Policies
------                                             

         The accounting and reporting policies of Summit Bancshares, Inc. (the
"Corporation") and  Subsidiaries are in accordance with generally accepted
accounting principles.  A summary of the more significant policies follows:

         Basis of Presentation and Principles of Consolidation
         -----------------------------------------------------

         The consolidated financial statements of the Corporation include its
         accounts and those of its wholly-owned subsidiaries, Summit National
         Bank, Alta Mesa National Bank and Camp Bowie National Bank (the
         "Subsidiary Banks") and Summit Bancservices, Inc., a wholly-owned
         operations subsidiary. All significant intercompany balances and
         transactions have been eliminated.

         Cash and Due From Banks
         -----------------------

         The Subsidiary Banks are required to maintain certain balances at the
         Federal Reserve Bank based on their levels of deposits. During the
         first nine months of 1996 the average cash balance maintained at the
         Federal Reserve Bank was $2,873,000. Compensating balances held at
         correspondent banks, to minimize service charges, averaged
         approximately $12,684,000 during the same nine month period of 1996.

         Investment Securities
         ---------------------

         The Corporation follows Statement of Financial Accounting Standards No.
         115, "Accounting for Certain Investments in Debt and Equity Securities"
         in the accounting and reporting for investments in equity securities
         that have readily determined fair values and for all investments in
         debt securities. Those investments are to be classified in three
         categories and accounted for as follows:

         -  Debt securities that the Corporation has the positive intent and
            ability to hold to maturity are classified as held-to-maturity
                                                          ---------------- 
            securities and reported at amortized cost.

         -  Debt and equity securities that are bought and held principally for
            the purpose of selling them in the near term are classified as
            trading securities and reported at fair value, with unrealized gains
            ------- 
            and losses included in earnings.

         -  Debt and equity securities not classified as either held-to-maturity
            securities or trading securities are classified as available-for-
                                                               -------------- 
            sale securities and reported at fair value, with unrealized gains
            ----
            and losses excluded from earnings and reported in a separate
            component of shareholders' equity.

         The Corporation has the ability and intent to hold to maturity its
         investment securities classified as held-to-maturity; accordingly, no
         adjustment has been made for the excess, if any, of amortized cost over
         market. In determining the investment category classifications,
         management considers its asset/liability strategy, changes in interest
         rates and prepayment risk, the need to increase capital and other
         factors. Under certain circumstances (including the deterioration of
         the issuer's creditworthiness, a change in tax law, or statutory or
         regulatory requirements), the Corporation may change the investment
         security classification.

         All investment securities are adjusted for amortization of premiums and
         accretion of discounts. Amortization of premiums and accretion of
         discounts are recorded to income over the contractual maturity or
         estimated life of the individual investment on the level yield method.
         Gain or loss on sale of investments is based upon the specific
         identification method and the gain or loss is recorded in non-interest
         income. Income earned on the Corporation's investments in state and
         political subdivisions is not taxable.

         Loans and Allowance for Loan Losses
         -----------------------------------

         Loans are stated at the principal amount outstanding less unearned
         discount and the allowance for loan losses. Unearned discount on
         installment loans is recognized as income over the terms of the loans
         by a method approximating the interest method. Interest income on all
         other loans is recognized based upon the principal amounts outstanding.
         The accrual of interest on a loan is discontinued when, in the opinion
         of management, there is doubt about the ability of the borrower to pay
         interest or principal. Interest previously earned, but uncollected on
         such loans, is written off. When loans are put on non-accrual all
         payments received are applied to the principal and no interest income
         is recorded until the loan is returned to accrual status or the
         principal has been reduced to zero.

                                                                              10
<PAGE>
 
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
------                                                       

         In January 1995, the Corporation adopted Statement of Financial
         Accounting Standards No. 114, "Accounting by Creditors for Impairment
         of a Loan." Under the new standard, the allowance for loan losses
         related to loans that are identified for evaluation in accordance with
         Statement No. 114 (impaired loans) is based on discounted cash flows
         using the loan's initial effective rate or the fair value of the
         collateral for certain collateral dependent loans. Prior to 1995, the
         allowance for loan losses related to these loans was based on
         undiscounted cash flows or the fair value of the collateral for
         collateral dependent loans.

         The allowance for loan losses is comprised of amounts charged against
         income in the form of a provision for loan losses as determined by
         management. Management's evaluation is based on a number of factors,
         including the Subsidiary Banks' loss experience in relation to
         outstanding loans and the existing level of the allowance, prevailing
         and prospective economic conditions, and management's continuing review
         of the discounted cash flow values of impaired loans and its evaluation
         of the quality of the loan portfolio. Loans are placed on non-accrual
         status when management believes that the borrower's financial
         condition, after giving consideration to economic and business
         conditions and collection efforts, is such that collection of interest
         is doubtful. Loans are charged against the allowance for loan losses
         when management believes that the collectibility of the principal is
         unlikely.
         
         Premises and Equipment
         ----------------------
         
         Premises and equipment are stated at cost less accumulated
         depreciation. Depreciation expense is computed on the straight-line
         method based upon the estimated useful lives of the assets ranging from
         three to forty years. Maintenance and repairs are charged to operating
         expenses. Renewals and betterments are added to the asset accounts and
         depreciated over the periods benefitted. Depreciable assets sold or
         retired are removed from the asset and related accumulated depreciation
         accounts and any gain or loss is reflected in the income and expense
         accounts.
         
         Other Real Estate
         -----------------

         Other real estate is foreclosed property held pending disposition and
         is valued at the lower of its fair value or the recorded investment in
         the related loan. At foreclosure, if the fair value of the real estate
         acquired is less than the bank's recorded investment in the related
         loan, a writedown is recognized through a charge to the allowance for
         loan losses. Any subsequent reduction in value is recognized by a
         charge to income. Operating expenses of such properties, net of related
         income, and gains and losses on their disposition are included in non-
         interest expense.
         
         Federal Income Taxes
         --------------------
         
         The Corporation joins with its Subsidiaries in filing a consolidated
         federal income tax return. The Subsidiaries pay to the parent a charge
         equivalent to their current federal income tax based on the separate
         taxable income of the Subsidiaries.
         
         The Corporation and the Subsidiaries maintain their records for
         financial reporting and income tax reporting purposes on the accrual
         basis of accounting. Deferred income taxes are provided in accordance
         with Statement of Financial Accounting Standards No. 109, "Accounting
         for Income Taxes". Deferred income taxes are provided for accumulated
         temporary differences due to basic differences for assets and
         liabilities for financial reporting and income tax purposes.
         
         State Income Taxes
         ------------------

         The Corporation and each of the Subsidiaries file separate state
         franchise tax returns. As a result of a state franchise tax law, the
         Corporation and the Subsidiaries are subject to a "state income tax."
         Since the basis for the state income tax is "federal income tax taxable
         income", less interest on U.S. Government Obligations, the Corporation
         had no state income tax liability in 1995 or during the first nine
         months of 1996.
           
         Cash and Cash Equivalents
         -------------------------

         For the purpose of presentation in the Statements of Cash Flows, cash
         and cash equivalents are defined as those amounts included in the
         balance sheet caption "Cash and Due from Banks."
         
         Reclassification
         ----------------
         
         Certain reclassifications have been made to the 1995 financial
         statements to conform to the 1996 presentation.

                                                                              11
<PAGE>
 
NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
------                                                       

         Audited Financial Statements
         ----------------------------

         The consolidated balance sheet as of December 31, 1995, and the
         consolidated statements of income, changes in shareholders' equity and
         cash flows for the year ended December 31, 1995 are headed "unaudited"
         in these financial statements. These statements were reported in the
         Securities Exchange Commission Form 10-K as of December 31, 1995 as
         "audited" but are required to be reflected in these statements as
         unaudited because of the absence of an independent auditor's report.


NOTE 2 - Investment Securities
------                        

         A summary of amortized cost and estimated fair values of investment
         securities is as follows (in thousands): 
<TABLE>
<CAPTION>
 
                                                           September 30, 1996
                                              ---------------------------------------------
                                                             Gross         Gross
                                              Amortized    Unrealized   Unrealized    Fair
                                                Cost         Gains        Losses     Value
                                              ---------    ----------   -----------  ------
<S>                                           <C>          <C>          <C>          <C>
 
Investment Securities - Held-to-Maturity
  U.S. Treasury Securities                     $ 28,014        $103       $(173)   $ 27,944
  U.S. Government Agencies
   and Corporations                              23,774         -0-        (301)     23,473
  U.S. Government Agency Mortgage
   Backed Securities                             11,162          11        (118)     11,055
                                               --------        ----       -----    --------
    Total Held-to-Maturity Securities            62,950         114        (592)     62,472
                                               --------        ----       -----    --------
Investment Securities - Available-for-Sale
  U.S.  Treasury Securities                      51,975         152        (297)     51,830
  U.S. Government Agencies
    and Corporations                              4,489          26         (15)      4,500
  U.S. Government Agency Mortgage
    Backed Securities                             3,440          54          (9)      3,485
  Federal Reserve Bank Stock                        254         -0-         -0-         254
                                               --------        ----       -----    --------
     Total Available-for-Sale Securities         60,158         232        (321)     60,069
                                               --------        ----       -----    --------
        Total Investment Securities            $123,108        $346       $(913)   $122,541
                                               ========        ====       =====    ========
</TABLE>

         In the above schedule the amortized cost of Total Held-to-Maturity
                                   --------------                          
Securities of $62,950,000 and the fair value  of Total Available-for-Sale
                                  ----------                             
Securities of $60,069,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 1996 for a total of $123,019,000.
A net unrealized loss of $89,000 is included in the Available-for-Sale
Investment Securities balance.  The unrealized loss, net of tax, is included in
Shareholders' Equity.

                                                                              12
<PAGE>
 
NOTE 2 - Investment Securities (cont'd.)
------                                  

         The carrying value of investment securities totaling $28,518,000 at
September 30, 1996, were pledged to secure federal, state and municipal deposits
and for other purposes as required or permitted by law.  The fair value of these
pledged securities totaled $28,399,000 at September 30, 1996.
<TABLE>
<CAPTION>
                                                           September 30, 1995
                                              ---------------------------------------------
                                                             Gross         Gross
                                              Amortized    Unrealized   Unrealized    Fair
                                                Cost         Gains        Losses      Value
                                              ---------    ----------   -----------  ------
<S>                                           <C>          <C>          <C>          <C>
 
Investment Securities - Held-to-Maturity
  U.S. Treasury Securities                     $ 38,111        $273       $(265)    $ 38,119
  U.S. Government Agencies
   and Corporations                              14,132          45         (13)      14,164
  U.S. Government Agency Mortgage
   Backed Securities                              6,994          28         (23)       6,999
  Obligations of States and
   Political Subdivisions                           321           2         -0-          323
                                               --------        ----       -----     --------
 
    Total Held-to-Maturity Securities            59,558         348        (301)      59,605
                                               --------        ----       -----     --------
 
Investment Securities - Available-for-Sale
  U.S.  Treasury Securities                      45,021         347        (110)      45,258
  U.S. Government Agencies
    and Corporations                              3,994          69          (9)       4,054
  U.S. Government Agency Mortgage
    Backed Securities                             3,327          43          (1)       3,369
  Federal Reserve Bank Stock                        254         -0-         -0-          254
                                               --------        ----       -----     --------
 
     Total Available-for-Sale Securities         52,596         459        (120)      52,935
                                               --------        ----       -----     --------
 
        Total Investment Securities            $112,154        $807       $(421)    $112,540
                                               ========        ====       =====     ========
</TABLE>

         In the above schedule the amortized cost of Total Held-to-Maturity
                                   --------------                          
Securities of $59,558,000 and the fair value of Total Available-for-Sale
                                  ----------                            
Securities of $52,935,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 1995 for a total of $112,493,000.
A net unrealized gain of $339,000 is included in the Available-for-Sale
Investment Securities balance.  The unrealized gain, net of tax benefit, is
included in Shareholders' Equity.

         Proceeds from sales of investment securities were $12,524,000 and
$2,951,000 during the first nine months of 1996 and 1995, respectively and
$2,969,000 during the year 1995.  In the nine months ended September 30, 1996,
gains from sale of securities of $11,000 and losses of $26,000 were realized; a
loss of $10,000 was realized for the nine months ended September 30, 1995 and
for the year ended December 31, 1995.


NOTE 3 - Loans and Allowance for Loan Losses
------                                      

         The book values of loans by major type follow (in thousands):
<TABLE>
<CAPTION>
                                       September 30,                 
                              -----------------------------  December 31,     
                                   1996           1995           1995
                              --------------  -------------  ------------
<S>                           <C>             <C>            <C>
 
Commercial                      $ 99,963        $ 76,413      $ 81,542
Real Estate Mortgage              73,686          60,731        64,200
Real Estate Construction          15,140           6,912        10,189
Loans to Individuals, Less        
  Unearned Discount               25,173          21,664        22,562
                                --------        --------       --------
                                 213,962         165,720       178,493
Allowance for Loan Losses         (3,008)         (2,513)       (2,500)
                                --------        --------      --------
                                
     Loans - Net                $210,954        $163,207      $175,993
                                ========        ========      ========
 
</TABLE>

                                                                              13
<PAGE>
 
NOTE 3 - Loans and Allowance for Loan Losses (cont'd.)
------                                                

         Transactions in the allowance for loan losses are summarized as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                    
                                   Nine Months Ended September 30,   Year Ended  
                                   -------------------------------   December 31, 
                                        1996           1995             1995
                                   -------------------------------   ------------
<S>                                <C>                <C>             <C>
 
Balance, Beginning of Period           $2,500         $2,410           $2,410
Provisions, Charged to Income             480            136              236
Loans Charged-Off                         (69)          (209)            (347)
Recoveries of Loans Previously         
 Charged-Off                               97            176              201
                                       ------         ------           ------
                                       
          Net Loans Charged-Off            28            (33)            (146)
                                       ------         ------           ------
                                       
Balance, End of Period                 $3,008         $2,513           $2,500
                                       ======         ======           ======
</TABLE>

         The provisions for loan losses charged to operating expenses during
the nine months ended September 30, 1996 and September 30, 1995 of $480,000 and
$136,000, respectively, were considered adequate to maintain the allowance in
accordance with the policy discussed in Note 1.  For the year ended December 31,
1995 a provision of $236,000 was recorded.

         At September 30, 1996, the recorded investment in loans that are
considered to be impaired under Statement of Financial Accounting Standards No.
114 was $493,000 (of which $493,000 were on non-accrual status).  The related
allowance for loan losses for these loans was $213,000.  The average recorded
investment in impaired loans during the three months ended September 30, 1996
was approximately $688,000.  For this period the Corporation recognized no
interest income on these impaired loans.


NOTE 4 - Premises and Equipment
------                         

         The investment in premises and equipment stated at cost and net of
accumulated amortization and depreciation is as follows (in thousands):
<TABLE>
<CAPTION>
                                               September 30,        
                                        ------------------------   December 31, 
                                          1996            1995         1995
                                        ---------       --------   ------------
<S>                                     <C>             <C>         <C>
Land                                     $ 1,446        $ 1,264      $ 1,279
Buildings and Improvements                 7,367          7,021        7,115
Furniture & Equipment                      5,168          4,996        5,051
                                         -------        -------      -------
    Total Cost                            13,981         13,281       13,445
Less:  Accumulated Amortization     
  and Depreciation                        (6,822)        (6,247)      (6,288)
                                         -------        -------      -------
    Net Book Value                       $ 7,159        $ 7,034      $ 7,157
                                         =======        =======      =======
</TABLE>
NOTE 5 - Other Real Estate
------                    

         The carrying value of other real estate is as follows (in thousands):
<TABLE>
<CAPTION>
                                       September 30,        
                             -----------------------------  December 31, 
                                  1996           1995           1995
                             --------------  -------------  ------------
<S>                          <C>             <C>            <C>
 
Other Real Estate                $ 204          $ 380           $ 148
Valuation Reserve                  (35)           (35)            (35)
                                 -----          -----           -----
 
    Net Other Real Estate        $ 169          $ 345           $ 113
                                 =====          =====           =====
</TABLE>

                                                                              14
<PAGE>
 
NOTE 5 - Other Real Estate (cont'd.)
------                              

         Transactions in the valuation reserve are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
                                                                 
                                Nine Months Ended September 30,   Year Ended 
                                -------------------------------  December 31, 
                                    1996             1995            1995
                                ------------     --------------  ------------
<S>                             <C>              <C>             <C>
Balance, Beginning of Period       $  35            $  35           $  35
Provisions Charged to Income         -0-              -0-             -0-
Reductions from Sales                -0-              -0-             -0-
                                   -----            -----           -----
 
Balance, End of Period             $  35            $  35           $  35
                                   =====            =====           =====
</TABLE>

         In addition to the above provisions, direct writedowns of other real
estate charged to income were $9,000 for the nine months ended September 30,
1996 and $8,000 for the nine months ended September 30, 1995.

NOTE 6 - Deposits
------           

         The book values of deposits by major type follow (in thousands):
<TABLE>
<CAPTION>
                                           September 30, 
                                -------------------------------  December 31, 
                                    1996             1995            1995
                                ------------     --------------  ------------
<S>                             <C>              <C>             <C>
Noninterest-Bearing Demand 
  Deposits                         $ 91,528        $ 83,551         $ 89,184
                                   --------        --------         --------
Interest-Bearing Deposits:                                 
    Interest-Bearing Transaction                           
     Accounts                       115,365         103,628          110,160
    Savings                          50,233          33,568           36,870
    Savings Certificates - Time      47,741          48,474           49,005
    Certificates of Deposits                               
      $100,000 or more               24,426          23,574           24,551
    Other                               505             239              339
                                   --------        --------         --------
    Total                           238,270         209,483          220,925
                                   --------        --------         --------
      Total Deposits               $329,798        $293,034         $310,109
                                   ========        ========         ========
 
</TABLE>
NOTE 7 - Other Non-Interest Expense
------                             

         The significant components of other non-interest expense are as follows
(in thousands):
<TABLE>
<CAPTION>
                                Nine Months Ended September 30,   Year Ended 
                                -------------------------------  December 31, 
                                    1996             1995            1995
                                ------------     -----------     ------------
<S>                             <C>              <C>             <C> 
Business Development               $  318         $  303            $  443
Legal and Professional Fees           309            319               479
Printing and Supplies                 236            198               289
Regulatory Fees and Assessments       154            355               411
Other                               1,023            864             1,144
                                   ------         ------            ------
 
 Total                             $2,040         $2,039            $2,766
                                   ======         ======            ======
 </TABLE>

                                                                              15
<PAGE>
 
NOTE 8 - Income Taxes
------               

         Federal income taxes included in the consolidated balance sheets were
as follows (in thousands):
<TABLE>
<CAPTION>
                                         September 30,        
                                -------------------------------  December 31, 
                                    1996             1995            1995
                                ------------     --------------  ------------
<S>                             <C>              <C>             <C>
Current Tax Asset (Liability)      $ (26)           $ (59)          $  10
Deferred Tax Asset                   552              284             235
                                   -----            -----           -----
 
 Total Included in Other Assets/
  (Other Liabilities)              $ 526            $ 225           $ 245
                                   =====            =====           =====
</TABLE>
         The deferred tax asset at September 30, 1996 of $552,000 included
$31,000 related to unrealized losses on Available-for-Sale Securities.

         The components of income tax expense were as follows (in thousands):
<TABLE>
<CAPTION>
 
                                                                  
                                Nine Months Ended September 30,   Year Ended  
                                -------------------------------   December 31, 
                                    1996               1995           1995
                                ------------        -----------   ------------
<S>                             <C>                 <C>           <C>
 
Federal Income Tax Expense
 Current                           $2,368              $1,785        $2,400
 Deferred                            (115)                 19            68
                                   ------              ------        ------
 
  Total Federal Income Tax 
    Expense                        $2,253              $1,804        $2,468
                                   ======              ======        ======
 
  Effective Tax Rates                34.3%               34.3%         34.3%
                                   ======              ======        ======
</TABLE>

         The reasons for the difference between income tax expense and the
amount computed by applying the statutory federal income tax rate to operating
earnings are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                  
                                Nine Months Ended September 30,    Year Ended 
                                --------------------------------  December 31, 
                                    1996               1995           1995
                                --------------------------------  ------------
<S>                             <C>                <C>            <C>
Federal Income Taxes at 
 Statutory Rate of 34%             $2,233             $1,790        $2,447
Effect of Tax Exempt 
 Interest Income                       (7)               (17)          (19)
Other                                  27                 31            40
                                   ------             ------        ------
 Income Taxes Per 
  Income Statement                 $2,253             $1,804        $2,468
                                   ======             ======        ======
</TABLE>

NOTE 9 - Related Party Transactions
------                             

         The Subsidiary Banks have transactions made in the ordinary course of
business with certain of its officers, directors and their affiliates.  All
loans included in such transactions are made on substantially the same terms,
including interest rate and collateral, as those prevailing at the time for
comparable transactions with other persons.  Total loans outstanding to such
parties amounted to approximately $3,769,000 at December 31, 1995.

NOTE 10 - Commitments and Contingent Liabilities
-------                                         

          In the normal course of business, there are various outstanding
commitments and contingent liabilities, such as guarantees and commitments to
extend credit, which are not reflected in the financial statements.  No losses
are anticipated as a result of these transactions.  Commitments are most
frequently extended for real estate, commercial and industrial loans.

          At September 30, 1996, outstanding documentary and standby letters of
credit totaled $4,665,000 and commitments to extend credit totaled $76,542,000.

                                                                              16
<PAGE>
 
NOTE 11 - Stock Option Plans
-------                     

          In 1982, the Corporation established an Incentive Stock Option Plan
("1982 Plan") and reserved 30,000 shares of common stock for grant thereunder.
The 30,000 reserved shares were subsequently amended and increased in April 1993
and December 1995 to 240,000 as a result of two-for-one stock splits.  The Plan,
which expired in 1992, provided for the granting to management employees of
Summit Bancshares, Inc. and subsidiaries incentive stock options, as defined
under current tax laws.  There are no outstanding options under this plan.

          In 1993, the Corporation established a similar Incentive Stock Option
Plan ("1993 Plan") and reserved 300,000 shares (adjusted for the April 1993 and
December 1995 two-for-one stock splits) of common stock for grant thereunder.
The 1993 Plan provides for the granting to management employees of Summit
Bancshares, Inc. and subsidiaries, incentive stock options, as defined under the
current tax law.  The options under the 1993 Plan will be exercisable for ten
years from the date of grant and generally vest ratably over a five year period.

          Options under both plans have been granted at prices that are not less
than 100-110% of the fair market value of the underlying common stock at the
date of grant. The Corporation applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Since the option prices are
considered to approximate fair market value at date of grant, no compensation
expense has been reported.

          The following is a summary of transactions during the periods
presented:
<TABLE>
<CAPTION>
                                               Shares Under Option
                                     ---------------------------------------
                                         Nine Months
                                            Ended             Year Ended
                                     September 30, 1996   December 31, 1995
                                     -------------------  ------------------
<S>                                  <C>                  <C>
Outstanding, Beginning of Period          301,400             303,400
Additional Options Granted During
  the Period                                  -0-              38,000
Forfeited During the Period                  (400)                -0-
Exercised During the Period               (90,300)            (40,000)
                                          -------             -------
 
  Outstanding, End of Period              210,700             301,400
                                          =======             =======
</TABLE>

          Options outstanding at September 30, 1996 ranged in price from $1.875
to $13.94 per share with 162,940 shares exercisable. There remain 53,720 shares
reserved for future grants of options under the 1993 Plan.

NOTE 12 - Employee Benefit Plans
-------                         

          The Corporation has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of service
and the employee's compensation history. The employee's compensation used in the
benefit calculation is the highest average for any five consecutive years of
employment within the employee's last ten years of employment.

           Funding for the plan is provided by employer contributions to trust
funds in amounts determined by actuarial assumptions and valuation of the plan.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.

                                                                              17
<PAGE>
 
NOTE 12 - Employee Benefit Plans (cont'd.)
-------                                   

          The table below sets forth the plan's funded status and amounts
recognized in the Corporation's consolidated balance sheets at December 31 (in
thousands):
<TABLE>
<CAPTION>
                                                      1995       1994
                                                   ---------  ---------
<S>                                                <C>        <C>
 
Actuarial present value of benefit obligations:
 Accumulated benefit obligation, including vested
  benefits of $1,152,000 in 1995 and $1,034,000 
  in 1994                                           $(1,183)  $(1,072)
                                                    =======   =======
 
Projected benefit obligation for service rendered
 to date                                            $(1,912)  $(1,731)
Plan assets at fair value, primarily listed stocks
 and U.S. bonds                                       1,786     1,616
                                                    -------   -------
 
Plan assets in excess of projected benefit 
 obligation                                            (126)     (115)
Unrecognized net loss from past experience
 different from that assumed and effect of
 changes in assumptions                                 197        48
Prior service cost not yet recognized in net
 periodic pension cost                                   17        20
                                                    -------   -------
 
Net pension cost included in other assets/
 (other liabilities)                                $    88   $   (47)
                                                    =======   =======
 
 
                                                  Year Ended December 31,
                                                  -----------------------
                                                     1995       1994
                                                  -----------------------
Net pension cost included the following    
 components (in thousands):            
Service Cost - benefits earned during the period    $ 151      $ 111
Interest cost on projected benefit obligation         140        130
Less: Actual return on plan assets                   (260)      (133)
Net amortization and deferral                         148          5
                                                     ----      -----
    Net periodic pension cost                        $179      $ 113
                                                     ====      =====
</TABLE>

          The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 8.5 percent and 5 percent at December 31, 1995 and 1994.  The
expected long-term rate of return on plan assets in 1995 was 9 percent.

          The market value of plan assets at September 30, 1996 was $2,149,000.
There was a contribution to the plan during 1996 of $313,000 and prepaid pension
cost at September 30, 1996 was $230,000.

Management Security Plan
------------------------

          In 1992, the Corporation established a Management Security Plan to
provide key employees with retirement, death or disability benefits in addition
to those provided by the Pension Plan.  The expense charged to operations for
such future obligations was $170,000 and $127,000 during the first nine months
of 1996 and 1995, respectively, and $173,000 for the year 1995.

Other Post Retirement Benefits
------------------------------

          The Corporation provides certain health care benefits for certain
retired employees who bear all costs of these benefits. These benefits are
covered under the "Consolidated Omnibus Budget Reconciliation Act" (COBRA).

                                                                              18
<PAGE>
 
NOTE 13 - Earnings per Share
-------                     

          Earnings per share of common stock are based on the weighed average
number of shares outstanding during the periods as follows:
<TABLE>
<CAPTION>
                                  Shares
                                 ---------
<S>                              <C>
Periods of Nine Months Ended:
 
 September 30, 1996              3,189,359
 September 30, 1995              3,137,598
 
Year Ended December 31, 1995     3,137,598
</TABLE>

NOTE 14 - Financial Instruments with Off-Balance Sheet Risk
------                                                     

          The Corporation is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers.  These financial instruments include loan commitments, standby
letters of credit and documentary letters of credit.  The instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the financial statements.

          The Corporation's exposure to credit loss in the event of non-
performance by the other party of these loan commitments and standby letters of
credit is represented by the contractual amount of those instruments.  The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.

          The total contractual amounts of financial instruments with off-
balance sheet risk are as follows (in thousands):
<TABLE>
<CAPTION>
 
                                    September 30,
                                  ------------------
                                    1996      1995
                                  --------  --------
<S>                               <C>       <C>
Financial Instruments Whose
 Contract Amounts Represent
  Credit Risk:
  Commitments to Extend Credit     $76,542   $61,628
  Documentary and Standby
    Letters of Credit                4,665     4,615
</TABLE>

         Since many of the loan commitments may expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements.  The Corporation evaluates each customer's credit worthiness on a
case-by-case basis.  The amount of collateral obtained, if deemed necessary by
the Corporation upon extension of credit, is based on management's credit
evaluation of the counterparty.  Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, owner occupied real estate
and income-producing commercial properties.

         The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers.


NOTE 15 - Concentrations of Credit Risk
-------                                

         The Subsidiary Banks  grant commercial, consumer and real estate loans
in their direct market  which is defined as Fort Worth and its surrounding area.
Although its Subsidiary Banks have diversified loan portfolios, a substantial
portion of its debtors' abilities to honor their contracts is dependent upon the
strength of the local and state economy.


NOTE 16 - Litigation
-------             

         Certain of the Subsidiary Banks are involved in legal actions arising
in the ordinary course of business.  It is the opinion of legal counsel that the
settlement of these matters will not materially affect the Corporation's
financial position.

                                                                              19
<PAGE>
 
NOTE 17 - Stock Repurchase Plan
-------                        

          On April 16, 1996, the Board of Directors approved a stock repurchase
plan.  The plan authorized management to purchase up to 157,819 shares of the
Corporation's common stock over the next twelve months through the open market
or in privately negotiated transactions in accordance with all applicable state
and federal laws and regulations.

          In 1995, 22,780 shares were purchased by the Corporation through the
open market and canceled.  In the first nine months of 1996, 9,000 shares were
purchased.


NOTE 18 - Subsequent Event
-------                   

          On October 22, 1996, the Board of Directors of the Corporation
approved a quarterly dividend of $.07 per share to be paid on November 15, 1996
to shareholders of record on November 1, 1996.


NOTE 19 - Fair Values of Financial Instruments
-------                                       

          The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:

          Cash and cash equivalents: The carrying amounts reported in the
          balance sheet for cash and due from banks and federal funds sold
          approximate those assets' fair values.

          Investment securities (including mortgage-backed securities): Fair
          values for investment securities are based on quoted market prices,
          where available. If quoted market prices are not available, fair
          values are based on quoted market prices of comparable instruments.

          Loans: For variable-rate loans, fair values are based on carrying
          values. The fair values for fixed rate loans such as mortgage loans
          (e.g., one-to-four family residential) and installment loans are
          estimated using discounted cash flow analysis. The carrying amount of
          accrued interest receivable approximates its fair value.

          Deposit liabilities: The fair value disclosed for interest bearing and
          noninterest-bearing demand deposits, passbook savings, and certain
          types of money market accounts are, by definition, equal to the amount
          payable on demand at the reporting date or their carrying amounts.
          Fair values for fixed-rate certificates of deposit are estimated using
          a discounted cash flow calculation that applies interest rates
          currently being offered on certificates to a schedule of aggregated
          expected monthly maturities on time deposits.

          Short-term borrowings: The carrying amounts of borrowings under
          repurchase agreements approximate their fair values. Notes payable:
          The fair value of the Corporation's note payable is based on its
          carrying amount at the reporting date.

          The estimated fair values of the Corporation's financial instruments
are as follows (in thousands):
<TABLE>
<CAPTION>
 
                                                           September 30,
                                           ------------------------------------------
                                                    1996                  1995
                                           -----------------------  -----------------
                                             Carrying       Fair    Carrying    Fair
                                              Amount       Value     Amount    Value
                                           -------------  --------  --------  -------
<S>                                        <C>            <C>       <C>       <C>
Financial Assets
 Cash and due from banks                    $ 24,962      $ 24,962  $ 19,197  $ 19,197
 Federal funds sold                            8,330         8,330    23,890    23,890
 Securities                                  123,019       122,541   112,493   112,540
 Loans                                       213,962       214,543   165,720   165,780
                                                       
Financial Liabilities                                  
 Deposits                                    329,798       329,910   293,034   293,336
 Securities sold under repurchase                      
  agreements                                  14,453        14,453     6,606     6,606
                                                       
Off-balance Sheet Financial Instruments                
 Loan commitments                                           76,542              61,628
 Letters of credit                                           4,665               4,615
</TABLE>

                                                                              20
<PAGE>
 
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------

Summary
-------

          Net income for the third quarter of 1996 was $1,634,000, or $.51 per
share, compared with  $1,257,000, or $.40 per share, for the third quarter of
1995.  Per share amounts are based on average shares outstanding of 3,220,909
for the third quarter of 1996 and 3,129,640 for the comparable period of 1995
(restated for a two-for-one stock split that occurred in December 1995). On a
per share basis, net income increased 27.5%  over the third quarter of the prior
year.

          Net income for the first nine months of 1996 was $4,314,000, or $1.35
per share, compared with $3,462,000, or $1.10 per share for the first nine
months of 1995.  Per share amounts are based on average shares outstanding of
3,189,359 for the first nine months of 1996 and 3,137,598 for the first nine
months of 1995.

          Outstanding loans at September 30, 1996 of $214.0 million represented
an increase of $48.2 million, or 29.1%, over September 30, 1995 and an increase
of $35.5 million, or 19.9%, from December 31, 1995.

          Total deposits at September 30, 1996 of $329.8 million represented an
increase of $36.8 million, or 12.5%, over September 30, 1995 and a increase of
$19.7 million, or 6.4%, from December 31, 1995.
 
          In the third quarter, net interest income increased 21.8% over the
previous year.  An increase in non-interest expense of 10.2% partially offset
the increase in net interest income.

          The following table summarizes the Corporation's performance for the
three and nine months ended September 30, 1996 and 1995 (tax equivalent basis
and dollars in thousands):
<TABLE> 
<CAPTION> 
                                           Three Months Ended    Nine Months Ended
                                              September 30,        September 30,
                                           ------------------    ------------------
                                             1996      1995        1996      1995
                                           -------    ------     -------    -------
<S>                                        <C>         <C>        <C>        <C>
Interest Income                             $7,067     $5,941    $20,293    $16,524
Interest Expense                             2,490      2,182      7,214      5,924
                                            ------     ------    -------    -------
 
 Net Interest Income                         4,577      3,759     13,079     10,600
Provision for Loan Loss                        192         50        480        136
                                            ------     ------    -------    -------
 
 Net Interest Income After
  Provision for Loan Loss                    4,385      3,709     12,599     10,464
Non-Interest Income                            785        656      2,245      2,103
Non-Interest Expense                         2,687      2,438      8,267      7,289
                                            ------     ------    -------    -------
 
 Income Before Income Tax                    2,483      1,927      6,577      5,278
Income Tax Expense                             849        670      2,263      1,816
                                            ------     ------    -------    -------
 
  Net Income                                  $1,634     $1,257    $ 4,314    $ 3,462
                                            ======     ======    =======    =======
 
Net Income per Share                        $  .51     $  .40    $  1.35    $  1.10
 
Return on Average Assets                      1.73%      1.55%      1.58%      1.54%
 
Return on Average Stockholders' Equity*      19.97%     17.88%     18.30%     17.07%
</TABLE>

*  Before adjustment for unrealized gains and losses on Available-for-Sale
   securities.

                                                                              21
<PAGE>
 
Summary of Earning Assets and Interest-Bearing Liabilities
----------------------------------------------------------

          The following schedule presents average balance sheets that highlight
earning assets and interest-bearing liabilities and their related rates earned
and paid for the third quarter of 1996 and 1995 (rates on tax equivalent basis).
<TABLE>
<CAPTION>
                                                            Three Months ended September 30,
                                          --------------------------------------------------------------------
                                                         1996                               1995
                                          ---------------------------------  ---------------------------------
                                           Average                Average     Average                Average
                                           Balances   Interest  Yield/Rate    Balances   Interest  Yield/Rate
                                          ----------  --------  -----------  ----------  --------  -----------
                                                                 (Dollars in Thousands)
<S>                                       <C>         <C>       <C>          <C>         <C>       <C>
Earning Assets:
  Federal Funds Sold                       $ 13,083     $  185        5.37%   $ 28,932     $  425        5.80%
  Investment Securities (Taxable)           124,332      1,888        6.04     105,179      1,551        5.85
  Investment Securities (Tax-exempt)            -0-        -0-         -0-         321         10       12.06
  Loans, Net of Unearned Discount/(1)/      208,236      4,994        9.54     159,287      3,955        9.85
                                           --------     ------                --------     ------
    Total Earning Assets                    345,651      7,067        8.13     293,719      5,941        8.02
                                                        ------                             ------
 
Non-interest Earning Assets:
  Cash and Due From Banks                    21,350                             18,336
  Other Assets                               12,549                             11,378
  Allowance for Loan Losses                  (2,882)                            (2,494)
                                           --------                           --------
    Total Assets                           $376,668                           $320,939
                                           ========                           ========
 
Interest-Bearing Liabilities:
  Interest-Bearing Transaction
    Accounts & Money Market Funds          $118,321        985        3.31    $104,418        897        3.39
  Savings                                    48,770        495        4.04      29,571        287        3.86
  Savings Certificates                       47,738        562        4.68      48,344        609        5.00
  Certificates of Deposit
    $100,000 or more                         24,253        300        4.92      23,270        300        5.11
  Other Time                                    487          5        4.18         239          3        4.67
  Other Borrowings                           13,505        143        4.33       7,006         86        4.87
                                           --------     ------                --------     ------
    Total Interest-Bearing Liabilities      253,074      2,490        3.91     212,848      2,182        4.07
                                                        ------                             ------
Non-interest Bearing Liabilities:
  Demand Deposits                            88,637                             77,959
  Other Liabilities                           2,405                              2,081
  Shareholders' Equity                       32,552                             28,051
                                           --------                           --------
    Total Liabilities and
      Shareholders' Equity                 $376,668                           $320,939
                                           ========                           ========
Net Interest Income and Margin
 (Tax-equivalent Basis)/(2)/                            $4,577        5.27                 $3,759        5.08
                                                        ======                             ======
</TABLE>
(1)  Loan interest income includes fees and loan volumes include loans on non-
     accrual.
(2)  Presented on a tax equivalent basis ("T/E") using a federal income tax rate
     of 34% in both years.

                                                                              22
<PAGE>
 
<TABLE>
<CAPTION>
                                                             Nine Months ended September 30,
                                          ---------------------------------------------------------------------
                                                         1996                               1995
                                          ----------------------------------  ---------------------------------
                                           Average                 Average     Average                Average
                                           Balances   Interest   Yield/Rate    Balances   Interest  Yield/Rate
                                          ----------  ---------  -----------  ----------  --------  -----------
                                                                 (Dollars in Thousands)
<S>                                       <C>         <C>        <C>          <C>         <C>       <C>
Earning Assets:
  Federal Funds Sold                       $ 16,576     $   677        5.35%   $ 14,815    $   641        5.78%
  Investment Securities (Taxable)           122,880       5,553        6.04     108,483      4,756        5.86
  Investment Securities (Tax-exempt)             32           2        8.15         356         31       11.54
  Loans, Net of Unearned Discount/(1)/      195,727      14,061        9.57     151,241     11,096        9.81
                                           --------     -------                --------    -------
    Total Earning Assets                    335,215      20,293        8.09     274,895     16,524        8.04
                                                        -------                            -------
 
Non-interest Earning Assets:
  Cash and Due From Banks                    20,778                              16,848
  Other Assets                               12,209                              10,944
  Allowance for Loan Losses                  (2,715)                             (2,428)
                                           --------                            --------
    Total Assets                           $365,487                            $300,259
                                           ========                            ========
Interest-Bearing Liabilities:
  Interest-Bearing Transaction
    Accounts & Money Market Funds          $115,572       2,837        3.28    $101,718      2,594        3.41
  Savings                                    45,053       1,359        4.03      22,654        577        3.40
  Savings Certificates                       48,226       1,723        4.77      47,117      1,673        4.74
  Certificates of Deposit
    $100,000 or more                         24,350         900        4.94      23,177        853        4.92
  Other Time                                    402          14        4.63         237          8        4.60
  Other Borrowings                           11,880         381        4.32       5,565        218        5.25
  Notes Payable                                 -0-         -0-         -0-          15          1        9.56
                                           --------     -------                --------    -------
    Total Interest-Bearing Liabilities      245,483       7,214        3.93     200,483      5,924        3.95
                                                        -------                            -------
Non-interest Bearing Liabilities:
  Demand Deposits                            86,264                              70,857
  Other Liabilities                           2,245                               1,997
  Shareholders' Equity                       31,495                              26,922
                                           --------                            --------
    Total Liabilities and
      Shareholders' Equity                 $365,487                            $300,259
                                           ========                            ========
 
Net Interest Income and Margin
 (Tax-equivalent Basis)/(2)/                            $13,079        5.21                $10,600        5.16
                                                        =======                            =======
</TABLE>
(1)  Loan interest income includes fees and loan volumes include loans on non-
     accrual.
(2)  Presented on a tax equivalent basis ("T/E") using a federal income tax rate
     of 34% in both years.

                                                                              23
<PAGE>
 
Net Interest Income
-------------------

          Net interest income (tax equivalent) for the third quarter of 1996 was
$4,577,000 which represented an increase of $818,000, or 22.0%, over the third
quarter of 1995.  This increase was heavily contributed to by a 30.7% increase
in average loans for the third quarter of 1996 versus the same quarter last
year.

          The following table summarizes the effects of changes in interest
rates, average volumes of earning assets and interest bearing liabilities on net
interest income ( tax equivalent) for the three and nine months ended September
30, 1996.
<TABLE>
<CAPTION>
 
                                                   ANALYSIS OF CHANGES IN NET INTEREST INCOME
                                                              (Dollars in Thousands)
 
                                        3rd Qtr. 1996 vs. 3rd Qtr. 1995     Nine Mos. 1996 vs. Nine Mos. 1995
                                              Increase (Decrease)                  Increase (Decrease)
                                              Due to Changes in:                   Due to Changes in:
                                       ---------------------------------   -----------------------------------
                                         Volume       Rate       Total       Volume       Rate        Total
                                       ----------   ---------   --------   ----------   ---------   ----------
<S>                                    <C>          <C>         <C>        <C>          <C>         <C>
Interest Earning Assets:
 Federal Funds Sold                        $ (225)      $ (15)    $ (240)      $  101       $ (65)      $   36
 Investment Securities (Taxable)              293          44        337          647         150          797
 Investment Securities (Tax-exempt)            (5)         (5)       (10)         (22)         (7)         (29)
 Loans, Net of Unearned Discount            1,932        (893)     1,039        3,408        (443)       2,965
                                           ------       -----     ------       ------       -----       ------
 Total Interest Income                      1,995        (869)     1,126        4,134        (365)       3,769
                                           ------       -----     ------       ------       -----       ------
Interest-Bearing Liabilities:
 Deposits                                     689        (438)       251        1,143         (15)       1,128
 Other Borrowings                             119         (62)        57          231         (68)         163
 Notes Payable                                -0-         -0-        -0-           (1)        -0-           (1)
                                           ------       -----     ------       ------       -----       ------
 
 Total Interest Expense                       808        (500)       308        1,373         (83)       1,290
                                           ------       -----     ------       ------       -----       ------
 
Net Interest Income                        $1,187       $(369)    $  818       $2,761       $(282)      $2,479
                                           ======       =====     ======       ======       =====       ======
</TABLE>

Allowance for Loan Losses and Non-Performing Assets
---------------------------------------------------

          The Corporation's allowance for loan losses was $3,008, or 1.41% of
total loans, as of September 30, 1996 compared to $2,513 or 1.52% of total
loans, as of September 30, 1995.

          Transactions in the allowance for loan losses are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
                                   Three Months Ended      Nine Months Ended
                                      September 30,           September 30,
                                  --------------------   ----------------------
                                    1996       1995        1996       1995
                                  ---------  ---------   ---------  -----------
<S>                               <C>        <C>        <C>       <C>
 
Balance, Beginning of Period        $2,829     $2,464      $2,500     $2,410
Provisions, Charged to Income          192         50         480        136
Loans Charged-Off                      (42)       (43)        (69)      (209)
Recoveries of Loans Previously
 Charged-Off                            29         42          97        176
                                    ------     ------      ------     ------
  Net Loans Charged-Off                (13)        (1)         28        (33)
                                    ------     ------      ------     ------
Balance, End of Period              $3,008     $2,513      $3,008     $2,513
                                    ======     ======      ======     ======
</TABLE>

                                                                              24
<PAGE>
 
          The following table summarizes the non-performing assets as of the end
of the last five quarters (in thousands).
<TABLE>
<CAPTION>
                                 September 30,  June 30,  March 31,  December 31,  September 30,
                                     1996         1996      1996         1995          1995
                                 -------------  --------  ---------  ------------  -------------
<S>                              <C>            <C>       <C>        <C>           <C>
 
Non-Accrual Loans                   $1,282        $1,356     $1,066     $  990         $1,247
Other Real Estate Owned                169           172        110        113            345
Renegotiated Loans                     -0-           -0-        -0-        -0-            -0-
                                    ------        ------     ------     ------         ------
                                                                        
  Total Non-Performing Assets       $1,451        $1,528     $1,176     $1,103         $1,592
                                    ======        ======     ======     ======         ======
</TABLE>
          Non-accrual loans to total loans were .60% at September 30, 1996 and
non-performing assets were .68% of loans and other real estate owned at the same
date.

Non-interest Income
-------------------

          The major component of non-interest income is service charges on
deposits.  Other service fees are the majority of other non-interest income.

          The following table reflects the changes in non-interest income during
the periods presented (dollars in thousands).
<TABLE>
<CAPTION>
 
                                          Three Months Ended            Nine Months Ended
                                                 September 30,            September 30,
                                       ------------------------  -----------------------------
                                        1996   1995   % Change     1996      1995    % Change
                                       ------  -----  ---------  --------  --------  ---------
<S>                                    <C>     <C>    <C>        <C>       <C>       <C>
                                       
Service Charges on Deposit Accounts    $ 423   $ 382      10.7%   $1,210    $1,154        4.9%
Gains (Loss) on Sale of Investment     
 Securities                               (8)    -0-        --       (15)      (10)     (27.6)
Non-recurring Income                      88      21        --       157       217         --
Other Non-interest Income                282     253      11.5       893       742       20.4
                                       -----   -----              ------    ------
                                       
  Total Non-interest Income            $ 785   $ 656      19.7%   $2,245    $2,103        6.8%
                                       =====   =====              ======    ======
</TABLE>

          Non-recurring income is primarily interest recovered on loans charged-
off in prior years.  The increase in other non-interest income was primarily due
to increases in letter of credit fees, merchant credit card fees and fees earned
from investment brokerage services.

Non-interest Expense
--------------------

          Non-interest expenses include all expenses other than interest
expense, loan loss provision and income tax expense.

          The following table summarizes the changes in non-interest expense
during the periods presented (dollars in thousands).
<TABLE>
<CAPTION>
 
                                    Three Months Ended September 30,           Nine Months Ended September 30,
                                   ----------------------------------         ---------------------------------
                                     1996        1995        % Change             1996       1995     % Change
                                   ----------  -----------   --------         ---------   --------     --------
<S>                                <C>         <C>           <C>              <C>         <C>          <C>
                                   
Salaries & Employee Benefits          $1,691       $1,507       12.2%           $5,043     $4,301       17.3%
Occupancy Expense - Net                  179          177        1.1               566        524        8.0
Furniture and Equipment Expense          206          193        6.7               606        514       17.9
Other Real Estate Expense - Net           (4)          (3)        --                12        (89)        --
Other Expenses:                       
  Business Development                   100          105       (4.8)              318        303        5.0
  Insurance - Other                       25           25         --                76         73        4.1
  Legal & Professional Fees              104          111       (6.3)              309        319       (3.1)
  Taxes - Other                           27           25        8.0                74         68        8.8
  Postage & Courier                       68           65        4.6               198        186        6.5
  Printing & Supplies                     82           79        3.8               236        198       19.2
  Regulatory Fees &                  
   Assessments                            52           15         --               154        355      (56.6)
  Other Operating Expenses               157          139       12.9               675        537       25.7
                                      ------       ------                       ------     ------
                                      
   Total Other Expenses                  615          564        9.0             2,040      2,039         .1
                                      ------       ------                       ------     ------
                                      
   Total Non-interest                
    Expense                           $2,687       $2,438       10.2%           $8,267     $7,289       13.4%
                                      ======       ======                       ======     ======
</TABLE>

          Total non-interest expense increased 10.2% in the third quarter of
1996 over the same quarter of 1995, primarily reflecting increases in salaries
and benefits, regulatory fees and other operating expenses.  As a percent of
average assets, non-interest

                                                                              25
<PAGE>
 
expenses were 2.85% in the third quarter of 1996 and 3.04% in the same period of
1995.  The "efficiency ratio" (non-interest expenses divided by total non-
interest income plus net interest income) was 50.2% for the third quarter of
1996.  These measures of operating efficiency compare very favorably to other
financial institutions in the Corporation's peer group.

          The increase in salaries and employee benefits for the third quarter
of 1996 is due to salary merit increases, incentive compensation accrual
increases, and an increase in pension plan expense.  Also, the average number of
full-time equivalent employees increased by seven in the third quarter of 1996
over the same period of the prior year to an average full-time equivalent of
135.  The increases for salaries and number of employees include additions for a
branch office opened in August of 1995.

          Regulatory fees and assessments increased in the third quarter of 1996
because of refund credits taken in 1995 on FDIC insurance premiums on deposits.

          The increase in furniture and equipment expense for the nine months is
primarily a result of increased depreciation and service contract expense for a
new communication system installed in mid 1995, furniture acquired in late 1995
for the new branch office, and acceleration of depreciation on certain item
processing equipment.

          Other operating expenses increased in the third quarter and nine
months of 1996 due to an increase in various miscellaneous operating costs.

Interest Rate Sensitivity
-------------------------

          Interest rate sensitivity is the relationship between changes in
market interest rates and net interest income due to the repricing
characteristics of assets and liabilities.

          The following table, commonly referred to as a "static gap report",
indicates the interest rate sensitivity position at September 30, 1996 and may
not be reflective of positions in subsequent periods (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                    
                                                                                     Total       Repriced  
                                      Matures or Reprices within:                     Rate         After   
                                  ---------------------------------------------    Sensitive     1 Year or 
                                    30 Days      31-90      91-180      181 to      One Year    Non-interest
                                    or Less      Days        Days      One Year      or Less      Sensitive       Total
                                  ----------    --------  ---------    ---------    ----------  ------------     --------
<S>                               <C>           <C>       <C>          <C>          <C>          <C>             <C>
Earning Assets:
  Loans                             $116,464    $ 11,029   $ 12,059     $ 22,679      $162,231     $ 51,731      $213,962
  Investment Securities                3,201       4,780      5,904       13,373        27,258       95,761       123,019
  Federal Funds Sold                   8,330         -0-        -0-          -0-         8,330          -0-         8,330
                                    --------    --------   --------     --------      --------     --------      --------
 
   Total Earning Assets              127,995      15,809     17,963       36,052       197,819      147,492       345,311
                                    --------    --------   --------     --------      --------     --------      --------
 
Interest Bearing Liabilities:
  Interest-Bearing Transaction
    Accounts and Savings             165,598         -0-        -0-          -0-       165,598          -0-       165,598
  Certificates of Deposits
    >$100,000                          7,267       4,026      5,569        5,986        22,848        1,579        24,427
  Other Time Deposits                  4,206      10,717     12,550       14,705        42,178        6,067        48,245
  Repurchase Agreements               14,453         -0-        -0-          -0-        14,453          -0-        14,453
                                    --------    --------   --------     --------      --------     --------      --------
 
   Total Interest Bearing
    Liabilities                      191,524      14,743     18,119       20,691       245,077        7,646       252,723
                                    --------    --------   --------     --------      --------     --------      --------
 
Interest Sensitivity
 Gap                                $(63,529)   $  1,066   $   (156)    $ 15,361      $(47,258)    $139,846      $ 92,588
                                    ========    ========   ========     ========      ========     ========      ========
Cumulative Gap                      $(63,529)   $(62,463)  $(62,619)    $(47,258)
                                    ========    ========   ========     ========
 
Cumulative Gap to
 Total Earning Assets                 (18.4%)     (18.1%)    (18.1%)      (13.7%)
 
Cumulative Gap to
 Total Assets                         (16.7%)     (16.4%)    (16.5%)      (12.4%)
</TABLE>

                                                                              26
<PAGE>
 
          The preceding static gap report reflects a cumulative liability
sensitive position during the one year horizon.  An inherent weakness of this
report is that it ignores the relative volatility any one category of assets
liability may have in relation to other categories or market rates in general.
For instance, the rate paid on NOW accounts typically moves slower than the
three month T-Bill.  Management attempts to capture this relative volatility by
utilizing a simulation model with a "beta factor" adjustment which estimates the
volatility of rate sensitive assets and/or liabilities in relation to other
market rates.

          Beta factors are an estimation of the long term, multiple interest
rate environment relation between an individual account and market rates in
general.  For instance, NOW, savings and money market accounts, which are
repriceable within 30 days will have considerably lower beta factors than
variable rate loans and most investment categories.  Taking this into
consideration, it is quite possible for a bank with a negative cumulative gap to
total asset ratio to have a positive "beta adjusted" gap risk position.

          As a result of applying the beta factors established by management to
the earning assets and interest bearing liabilities in the static gap report via
a simulation model, the negative cumulative gap to total assets ratio at one
year of 12.4% was reversed to a positive 10.8% "beta adjusted" gap position.

          Management feels that the "beta adjusted" gap risk technique more
accurately reflects the Corporation's gap position.

Capital
-------

          The Federal Reserve Board has guidelines for capital to total assets
(leverage) and capital standards for bank holding companies.  The Comptroller of
the Currency also has similar guidelines for national banks.  These guidelines
require a minimum level of Tier I capital to total assets of 3 percent.  A
banking organization operating at or near these levels is expected to have well-
diversified risk, excellent asset quality, high liquidity, good earnings and in
general be considered a strong banking organization. Organizations not meeting
these characteristics are expected to operate well above these minimum capital
standards.  Thus, for all but the most highly rated organizations, the minimum
Tier I leverage ratio is to be 3 percent plus minimum additional cushions of at
least 100 to 200 basis points.  At the discretion of the regulatory authorities,
additional capital may be required.

          At September 30, 1996, total capital to total assets was 8.78%.

          Also, the Federal Reserve Board and Comptroller of the Currency
officially announced risk-adjusted capital adequacy guidelines that became
effective in stages at the end of 1990.  Capital under these new guidelines is
defined as Tier I and Tier II.  At Summit Bancshares, Inc. the only components
of Tier I and Tier II capital are shareholders' equity and a portion of the
allowance for loan losses, respectively.

          The guidelines also stipulate that four categories of risk weights (0,
20, 50 and 100 percent), primarily based on the relative credit risk of the
counterparty,  be applied to the different types of balance sheet assets.  Risk
weights for all off-balance sheet exposures are determined by a two-step process
whereby the face value of the off-balance sheet item is converted to a "credit
equivalent amount" and that amount is assigned to the appropriate risk category.

          The regulatory minimum ratio for total qualifying capital is 8.00% of
which 4.00% must be Tier I capital.  At September 30, 1996,  the Corporation's
Tier I capital represented 14.38% of risk weighted assets and total qualifying
capital (Tier I and Tier II) represented 15.63% of risk weighted assets.  Both
ratios are well above current regulatory guidelines.

                                                                              27
<PAGE>
 
                          PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

         Not applicable

Item 2.  Change in Securities

         Not applicable

Item 3.  Defaults Upon Senior Securities

         Not applicable

Item 4.  Submission of Matters to a Vote of Security Holders

         Not applicable

Item 5.  Other Information

         Not applicable

Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits

              11  Computation of Earnings Per Common Share

              27  Financial Data Schedule

         (b)  No Reports on Form 8-K were filed during the period ending
              September 30, 1996

                                                                              28
<PAGE>
 
                                  SIGNATURES



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

                                        SUMMIT BANCSHARES, INC.
                                               Registrant



Date:   November 1, 1996                By: /s/  Philip E. Norwood
     ----------------------                -------------------------------------
                                           Philip E. Norwood, President and
                                           Chief Executive Officer

Date:   November 1, 1996                By: /s/  Bob G. Scott
     ----------------------                -------------------------------------
                                           Bob G. Scott, Senior Vice President
                                           and Chief Financial Officer

                                                                              29
<PAGE>
 
                                 EXHIBIT INDEX

Exhibit                                                              Page No.
-------                                                              --------

11           Computation of Earnings Per Common Share

27           Financial Data Schedule

                                                                              30