<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, 1999; 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, 1999 was 6,422,497 shares.
<PAGE>

                            SUMMIT BANCSHARES, INC.



                                     INDEX


PART I - FINANCIAL INFORMATION                                  Page No.


Item 1. Financial Statements

        Consolidated Balance Sheets at September 30, 1999
        and 1998 and at December 31, 1998                               4

        Consolidated Statements of Income for the Three Months
        and Nine Months Ended September 30, 1999 and 1998
        and for the Year Ended December 31, 1998                        5-6

        Consolidated Statements of Changes in Shareholders'
        Equity for the Nine Months Ended September 30, 1999
        and 1998 and for the Year Ended December 31, 1998               7

        Consolidated Statements of Cash Flows for the Nine
        Months Ended September 30, 1999 and 1998 and for
        the Year Ended December 31, 1998                                8-9

        Notes to Consolidated Financial Statements for the Nine
        Months Ended September 30, 1999 and 1998 and for the
        Year Ended December 31, 1998                                    10-21


The September 30, 1999 and 1998 and the December 31, 1998 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, 1999 and 1998                               22-29

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,
                                                           1999            1998              1998
                                                        ----------      ----------        -----------
ASSETS                                                                (In Thousands)

<S>                                                    <C>             <C>               <C>
CASH AND DUE FROM BANKS  NOTE 1                         $   21,982      $   20,127        $    26,735
FEDERAL FUNDS SOLD                                          14,135          37,135             38,706
INVESTMENT SECURITIES  NOTE 2
 Securities Available-for-Sale, at fair value              126,461          74,787            121,417
 Securities Held-to-Maturity, at cost (fair value of        29,329          46,036             26,595
   $28,956,000, $46,803,000, and $26,959,000
   September 30, 1999 and 1998 and December 31, 1998,
   respectively)
LOANS  NOTE 3
  Loans, Net of Unearned Discount                          344,952         301,972            305,833
      Allowance for Loan Losses                             (5,044)         (4,663)            (4,724)
                                                          --------        --------           --------
            LOANS, NET                                     339,908         297,309            301,109

PREMISES AND EQUIPMENT  NOTE 4                               8,926           7,960              9,082
ACCRUED INCOME RECEIVABLE                                    4,410           3,835              3,823
OTHER REAL ESTATE  NOTE 5                                    1,494              71                281
OTHER ASSETS                                                 5,671           4,969              5,016
                                                          --------        --------           --------

     TOTAL ASSETS                                       $  552,316      $  492,229        $   532,764
                                                           =======         =======            =======


LIABILITIES AND SHAREHOLDERS' EQUITY

DEPOSITS  NOTE 6
  Noninterest-Bearing Demand                            $  135,973      $  117,982        $   141,170
  Interest-Bearing                                         336,633         306,452            324,330
                                                           -------         -------            -------

     TOTAL DEPOSITS                                        472,606         424,434            465,500

SHORT TERM BORROWINGS  NOTE 7                               28,310          18,838             17,839
ACCRUED INTEREST PAYABLE                                       560             676              1,037
OTHER LIABILITIES                                            2,877           3,276              2,153
                                                            ------          ------             ------

     TOTAL LIABILITIES                                     504,353         447,224            486,529
                                                           -------         -------            -------
COMMITMENTS AND CONTINGENCIES  NOTE 12

SHAREHOLDERS' EQUITY  NOTES 13, 15 AND 19
  Common Stock - $1.25 Par Value; 20,000,000 shares
  authorized; 6,422,497, 6,514,694 and 6,471,827 shares
  issued and outstanding at September 30, 1999 and 1998
  and at December 31, 1998, respectively                     8,028           8,144              8,090
Capital Surplus                                              6,452           6,285              6,329
Retained Earnings                                           34,633          30,429             31,271
Accumulated Other Comprehensive Income  Unrealized Gain
  (Loss) on Available for Sale Investment Securities,
    Net of Tax                                                (571)            661                560
 Treasury Stock at Cost (30,700 shares at September 30,
   1999)                                                      (579)           (514)               (15)
                                                            ------          ------             ------

     TOTAL SHAREHOLDERS' EQUITY                             47,963          45,005             46,235
                                                           -------         -------            -------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY              $  552,316      $  492,229        $   532,764
                                                           =======         =======            =======
</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,
                                                      1999                 1998                    1998
                                                --------------        --------------          --------------
                                                          (In Thousands, Except Per Share Data)

<S>                                                 <C>                   <C>                  <C>
INTEREST INCOME
  Interest and Fees on Loans                          $ 22,387              $ 20,789              $ 28,000
  Interest and Dividends on Investment Securities:
    Taxable                                              6,313                 5,026                 6,963
    Exempt from Federal Income Taxes                        27                    38                    50
  Interest on Federal Funds Sold                           610                 1,535                 2,052
                                                       -------              --------               -------

     TOTAL INTEREST INCOME                              29,337                27,388                37,065
                                                       -------              --------               -------
INTEREST EXPENSE
  Interest on Deposits                                   9,307                 9,500                12,786
  Interest on Short Term Borrowings                        551                   496                   692
  Interest on Note Payable                                   5                   -0-                   -0-
                                                       -------              --------               -------

     TOTAL INTEREST EXPENSE                              9,863                 9,996                13,478
                                                       -------              --------               -------
     NET INTEREST INCOME                                19,474                17,392                23,587


LESS: PROVISION FOR LOAN LOSSES  NOTE 3                    778                   539                   785
                                                       -------              --------               -------
     NET INTEREST INCOME AFTER
     PROVISION FOR LOAN LOSSES                          18,696                16,853                22,802
                                                       -------              --------               -------
NON-INTEREST INCOME
  Service Charges and Fees on Deposits                   1,489                 1,504                 2,018
  Gain on Sale of Investment Securities                    -0-                   -0-                    35
  Other Income                                           1,338                 1,235                 1,797
                                                       -------              --------               -------
     TOTAL NON-INTEREST INCOME                           2,827                 2,739                 3,850
                                                       -------              --------               -------
NON-INTEREST EXPENSE
  Salaries and Employee Benefits                         6,801                 6,302                 8,576
  Occupancy Expense - Net                                  825                   692                   928
  Furniture and Equipment Expense                          904                   882                 1,150
  Other Real Estate Owned (Income) Expense - Net            15                    11                    (1)
  Other Expense  NOTE 9                                  2,753                 2,594                 3,520
                                                       -------              --------               -------

     TOTAL NON-INTEREST EXPENSE                         11,298                10,481                14,173
                                                       -------              --------               -------

     INCOME BEFORE INCOME TAXES                         10,225                 9,111                12,479

APPLICABLE INCOME TAXES  NOTE 10                         3,535                 3,149                 4,333
                                                       -------              --------               -------

     NET INCOME                                     $    6,690             $   5,962             $   8,146
                                                       =======              ========               =======

     NET INCOME PER SHARE  NOTE 15
        Basic                                       $     1.04             $    .92              $    1.25
        Diluted                                           1.00                  .87                   1.20

</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,
                                                      --------------------------
                                                        1999              1998
                                                      --------          --------
                                               (In Thousands, Except Per Share Data)

<S>                                                 <C>             <C>
INTEREST INCOME
  Interest and Fees on Loans                          $  7,841         $   7,136
  Interest and Dividends on Investment Securities:
   Taxable                                               2,222             1,754
   Exempt from Federal Income Taxes                          8                12
 Interest on Federal Funds Sold                            151               546
                                                      --------          --------

     TOTAL INTEREST INCOME                              10,222             9,448
                                                      --------          --------

INTEREST EXPENSE
  Interest on Deposits                                   3,213             3,270
  Interest on Short Term Borrowings                        237               189
  Interest on Note Payable                                   2               -0-
                                                      --------          --------

     TOTAL INTEREST EXPENSE                              3,452             3,459
                                                      --------          --------

     NET INTEREST INCOME                                 6,770             5,989


LESS: PROVISION FOR LOAN LOSSES  NOTE 3                    140               131
                                                      --------          --------

     NET INTEREST INCOME AFTER

      PROVISION FOR LOAN LOSSES                          6,630             5,858
                                                      --------          --------

NON-INTEREST INCOME
  Service Charges and Fees on Deposits                     522               500
  Loss on Sale of Investment Securities                    -0-               -0-
  Other Income                                             372               413
                                                      --------          --------

     TOTAL NON-INTEREST INCOME                             894               913
                                                      --------          --------

NON-INTEREST EXPENSE
  Salaries and Employee Benefits                         2,310             2,200
  Occupancy Expense - Net                                  275               221
  Furniture and Equipment Expense                          314               298
  Other Real Estate Owned Expense - Net                    (10)               11
  Other Expense                                            993               810
                                                      --------          --------

     TOTAL NON-INTEREST EXPENSE                          3,882             3,540
                                                      --------          --------

     INCOME BEFORE INCOME TAXES                          3,642             3,231


APPLICABLE INCOME TAXES  NOTE 10                         1,259             1,136
                                                      --------          --------

     NET INCOME                                       $  2,383          $  2,095
                                                      ========          ========

     NET INCOME PER SHARE  - NOTE 15
         Basic                                        $    .37          $    .33
         Diluted                                           .36               .31

</TABLE>

The accompanying Notes should be read with these financial statements.

6
<PAGE>

                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
                 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                         CONSOLIDATED AND COMPANY ONLY
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                   AND FOR THE YEAR ENDED DECEMBER 31, 1998
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                        Accumulated
                                                                                           Other
                                                                                       Comprehensive
                                                                                         Income  -
                                                                                       Net Unrealized
                                             Common Stock                              Gain (Loss) on                    Total
                                           -----------------    Capital    Retained      Investment       Treasury     Shareholders'
                                           Shares     Amount    Surplus    Earnings      Securities         Stock        Equity
------------------------------------------------------------------------------------------------------------------------------------
                                                                 (Dollars in Thousands, Except Per Share Data)
<S>                                       <C>          <C>      <C>        <C>         <C>                <C>          <C>
BALANCE AT
JANUARY 1, 1998                           6,501,332    $8,127    $6,251     $26,491         $ 243         $   -0-         $41,112

Purchases of Stock Held
 in Treasury                                                                                               (1,422)         (1,422)
Retirement of Stock
 Held in Treasury                           (45,000)      (56)                 (852)                          908             -0-
Stock Options Exercised                      58,362        73        34                                                       107
Cash Dividend -
 $.18 Per Share                                                              (1,172)                                       (1,172)
Net Income for the
 Nine Months Ended
 September 30,1998                                                            5,962                                         5,962
Securities Available-
 for-Sale Adjustment                                                                          418                             418
                                                                                                                          -------
Total Comprehensive
 Income                                                                                                                     6,380
                                          ---------    ------    ------     -------         -----         -------         -------

BALANCE AT
 SEPTEMBER 30, 1998                       6,514,694     8,144     6,285      30,429           661            (514)         45,005

Purchases of Stock Held
 in Treasury                                                                                                 (526)           (526)
Retirement of Stock
 Held in Treasury                           (56,700)      (71)                 (954)                        1,025             -0-
Stock Options Exercised                      13,833        17        44                                                        61
Cash Dividend -
 $.06 Per Share                                                                (388)                                         (388)
Net Income for the
 Three Months Ended
 December 31, 1998                                                            2,184                                         2,184
Securities Available-
 for-Sale Adjustment                                                                         (101)                           (101)
                                                                                                                          -------
Total Comprehensive
 Income                                                                                                                     2,083
                                          ---------    ------    ------     -------         -----         -------         -------

BALANCE AT
 DECEMBER 31, 1998                        6,471,827     8,090     6,329      31,271           560             (15)         46,235

Purchases of Stock Held
 in Treasury                                                                                               (2,481)         (2,481)
Retirement of Stock
 Held in Treasury                          (106,000)     (133)               (1,784)                        1,917             -0-
Stock Options Exercised                      56,670        71       123                                                       194
Cash Dividend -
 $.24 Per Share                                                              (1,544)                                       (1,544)
Net Income for the
 Nine Months Ended
 September 30, 1999                                                           6,690                                         6,690
Securities Available-
 for-Sale Adjustment                                                                       (1,131)                         (1,131)
                                                                                                                          -------
Total Comprehensive
 Income                                                                                                                     5,559
                                          ---------    ------    ------     -------         -----         -------         -------

BALANCE AT
 SEPTEMBER 30, 1999                       6,422,497    $8,028    $6,452     $34,633         $(571)        $  (579)        $47,963
                                          =========    ======    ======     =======         =====         =======         =======

</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, 1999 AND 1998
                   AND FOR THE YEAR ENDED DECEMBER 31, 1998


<TABLE>
<CAPTION>

                                                                  (Unaudited)
                                                                 September 30,           (Unaudited)
                                                            ----------------------       December 31,
                                                              1999          1998            1998
                                                            --------      --------       -----------
                                                                         (In Thousands)
<S>                                                       <C>           <C>               <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Net Income                                                $  6,690      $  5,962          $  8,146
                                                            --------      --------          --------
  Adjustments to Reconcile Net Income to Net
   Cash Provided by Operating Activities:
    Depreciation and Amortization                                808           775             1,037
    Net Premium Amortization (Accretion)
      of Investment Securities                                    57            85               (31)
    Provision for Loan Losses                                    778           539               785
    Deferred Income Taxes (Benefit)                             (230)         (364)             (465)
    Gain on Sale of Investment Securities                         (1)          -0-               (35)
    Net Gain From Sale of Other Real Estate                      (20)           (2)               (2)
    Net Gain From Sale of Premises and Equipment                 -0-            (3)               (3)
    Increase in Accrued Income and Other Assets                 (151)         (683)             (523)
    Increase in Accrued Expenses and Other Liabilities           246         1,683               921
                                                            --------      --------          --------

     Total Adjustments                                         1,487         2,030             1,684
                                                            --------      --------          --------
     NET CASH PROVIDED BY OPERATING ACTIVITIES                 8,177         7,992             9,830
                                                            --------      --------          --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  (Increase) Decrease in Federal Funds Sold                   24,571        (1,375)           (2,946)
  Proceeds from Matured and Prepaid Investment Securities
    Held-to-Maturity                                           3,280        17,627            21,627
    Available-for-Sale                                        61,571        33,727            63,334
  Proceeds from Sales of Investment Securities                12,084           -0-            11,992
  Purchase of Investment Securities
    Held-to-Maturity                                          (6,037)      (17,617)          (20,644)
    Available-for-Sale                                       (80,445)      (48,385)         (118,148)
  Loans Originated and Principal Repayments, Net             (41,207)      (26,165)          (30,482)
  Recoveries of Loans Previously Charged-Off                     136           198               217
  Proceeds from Sale of Premises and Equipment                   -0-             3                 6
  Proceeds from Sale of Other Real Estate                         23            82                82
  Purchases of Premises and Equipment                           (652)         (819)           (2,206)
                                                            --------      --------          --------

     NET CASH USED BY INVESTING ACTIVITIES                   (26,676)      (42,724)          (77,168)
                                                            --------      --------          --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net Increase in Demand Deposits, Savings
   Accounts and Interest Bearing Transaction Accounts          1,093        21,095            60,585
  Net Increase in Certificates of Deposit                      6,013         1,615             3,191
  Net Increase in Repurchase Agreements                       10,471         4,149             3,150
  Payments of Cash Dividends                                  (1,544)       (1,172)           (1,560)
  Proceeds from Stock Options Exercised                          194           107               168
  Purchase of Treasury Stock                                  (2,481)       (1,422)           (1,948)
                                                            --------      --------          --------

     NET CASH PROVIDED BY FINANCING ACTIVITIES                13,746        24,372            63,586
                                                            --------      --------          --------

NET DECREASE IN CASH AND DUE FROM BANKS                       (4,753)      (10,360)           (3,752)

CASH AND DUE FROM BANKS AT BEGINNING
  OF PERIOD                                                   26,735        30,487            30,487
                                                            --------      --------          --------

CASH AND DUE FROM BANKS AT END OF PERIOD                    $ 21,982      $ 20,127          $ 26,735
                                                            ========      ========          ========
</TABLE>

8
<PAGE>

                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                   AND FOR THE YEAR ENDED DECEMBER 31, 1998

                                  (Unaudited)



SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:

<TABLE>
<CAPTION>
                                                                   (Unaudited)
                                                                  September 30,        (Unaudited)
                                                               -------------------     December 31,
                                                                  1999       1998           1998
                                                               --------   --------     -----------
                                                                 (In Thousands)
<S>                                                          <C>         <C>           <C>
(1)  Interest Paid                                             $ 10,340    $ 9,998       $ 13,120
(2)  Income Taxes Paid                                            3,773      3,649          4,815
(3)  Other Real Estate Acquired in Settlement of Loans            1,216        -0-            210

</TABLE>

                                                                               9
<PAGE>

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
       FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
             AND FOR THE YEAR ENDED DECEMBER 31, 1998 (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 and Summit Community Bank, National Association (the "Subsidiary
         Banks") and Summit Bancservices, Inc., a wholly-owned operations
         subsidiary. All significant intercompany balances and transactions have
         been eliminated in consolidation.

         Use of Estimates
         ----------------

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the reporting periods. Actual results could differ
         from those estimates.

         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 1999 the average cash balance maintained at the
         Federal Reserve Bank was $978,000. Compensating balances held at
         correspondent banks, to minimize service charges, averaged
         approximately $17,797,000 during the same period.

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

         The Corporation has adopted Statement of Financial Accounting Standards
         No. 115, Accounting for Certain Investments in Debt and Equity
         Securities ("SFAS 115"). At the date of purchase, the Corporation is
         required to classify debt and equity securities into one of three
         categories: held-to-maturity, trading or available-for-sale. At each
         reporting date, the appropriateness of the classification is
         reassessed. Investments in debt securities are classified as held-to-
         maturity and measured at amortized cost in the financial statements
         only if management has the positive intent and ability to hold those
         securities to maturity. Securities that are bought and held principally
         for the purpose of selling them in the near term are classified as
         trading and measured at fair value in the financial statements with
         unrealized gains and losses included in earnings. Investments not
         classified as either held-to-maturity or trading are classified as
         available-for-sale and measured at fair value in the financial
         statements with unrealized gains and losses reported, net of tax, in a
         separate component of shareholders' equity until realized.

         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. In the periods reported for 1999 and 1998 the
         Corporation held no securities that would have been classified as
         trading securities.

         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.

10
<PAGE>

NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
------

         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 simple interest method. Generally, loan origination and commitment
         fees are recognized at the time of funding and are considered
         adjustments to interest income. Related direct costs are not separately
         allocated to loans but are charged to non-interest expense in the
         period incurred. The net effect of not recognizing such fees and
         related costs over the life of the related loan is not considered to be
         material to the financial statements. 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. After loans are placed on non-accrual all payments received are
         applied to principal and no interest income is recorded until the loan
         is returned to accrual status or the principal has been reduced to
         zero.

         The Corporation has adopted Statement of Financial Accounting Standards
         No. 114, "Accounting by Creditors for Impairment of a Loan," as amended
         by Statement of Financial Accounting Standards No. 118, "Accounting by
         Creditors for Impairment of a Loan - Income Recognition and
         Disclosure." Under this 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.

         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 charged against the
         allowance for loan losses when management believes that the
         collectibility of the principal is unlikely.

         The evaluation of the adequacy of loan collateral is often based upon
         estimates and appraisals. Because of changing economic conditions, the
         valuations determined from such estimates and appraisals may also
         change. Accordingly, the Corporation may ultimately incur losses which
         vary from management's current estimates. Adjustments to the allowance
         for loan losses will be reported in the period such adjustments become
         known or are reasonably estimable.

         Premises and Equipment
         ----------------------

         Premises and equipment are stated at cost less accumulated depreciation
         and amortization. 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 non-
         interest expenses. Renewals and betterments are added to the asset
         accounts and depreciated over the periods benefited. 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, less estimated
         costs to sell, of the real estate acquired is less than the
         Corporation'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.

         Realization of net deferred tax assets is dependent on generating
         sufficient future taxable income. Although realization is not assured,
         management believes it is more likely than not that all of the net
         deferred tax assets will be realized. The amount of the net deferred
         tax asset considered realizable, however, could be reduced in the near
         term if estimates of future taxable income are reduced.

         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."

                                                                              11
<PAGE>

NOTE 1 - Summary of Significant Accounting Policies (cont'd.)
------

         Reclassification
         ----------------

         Certain reclassifications have been made to the 1998 financial
         statements to conform to the 1999 presentation.

         Earnings Per Common and Common Equivalent Share
         -----------------------------------------------

         Earnings per common and common equivalent share is calculated by
         dividing net income by the weighted average number of common shares and
         common share equivalents. Stock options are regarded as common share
         equivalents and are therefore considered in earnings per share
         calculations, if dilutive. The number of common share equivalents is
         determined using the treasury stock method.

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

         The consolidated balance sheet as of December 31, 1998, and the
         consolidated statements of income, changes in shareholders' equity and
         cash flows for the year ended December 31, 1998 are headed "unaudited"
         in these financial statements. These statements were reported in the
         Securities Exchange Commission Form 10-K as of December 31, 1998 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, 1999
                                                   -----------------------------------------------------
                                                                   Gross            Gross
                                                   Amortized      Unrealized       Unrealized      Fair
                                                      Cost           Gains           Losses       Value
                                                   ---------      ----------       ----------    -------
<S>                                                <C>            <C>             <C>           <C>
Investment Securities - Held-to-Maturity
  U.S. Treasury Securities                           $ 8,993       $      76        $    -0-     $ 9,069
  U.S. Government Agencies and Corporations           20,048             -0-            (449)     19,599
 Obligations of States and Political Subdivisions        288             -0-             -0-         288
                                                     -------         -------         -------     -------

    Total Held-to-Maturity Securities                 29,329              76            (449)     28,956
                                                     -------         -------         -------     -------

Investment Securities - Available-for-Sale
  U.S.  Treasury Securities                           24,206             126             (24)     24,308
  U.S. Government Agencies
    and Corporations                                  87,361              30            (857)     86,534
  U.S. Government Agency Mortgage
    Backed Securities                                 14,207              35            (177)     14,065
  Obligations of States and Political Subdivisions       350               2             -0-         352
  Federal Reserve and Federal Home Loan Bank Stock     1,202             -0-             -0-       1,202
                                                     -------         -------         -------     -------

     Total Available-for-Sale Securities             127,326             193          (1,058)    126,461
                                                     -------         -------         -------     -------

        Total Investment Securities                 $156,655         $   269        $ (1,507)   $155,417
                                                     =======         =======         =======     =======

</TABLE>

         In the above schedule the amortized cost of Total Held-to-Maturity
                                   --------------
Securities of $29,329,000 and the fair value  of Total Available-for-Sale
                                  ----------
Securities of $126,461,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 1999 for a total of $155,790,000.
A net unrealized loss of $865,000 is included in the Available-for-Sale
Investment Securities balance.  The unrealized loss, net of tax, is included in
Shareholders' Equity.

         Investment securities with carrying value of $48,055,000 at September
30, 1999 were pledged to secure federal, state and municipal deposits for other
purposed as required or permitted by law. The fair value of these pledged
securities totaled $47,888,000 at September 30, 1999.

12
<PAGE>

NOTE 2 - Investment Securities (cont'd.)
------

         A summary of amortized cost and estimated fair values of investment
securities is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                   September 30, 1998
                                                      ----------------------------------------------
                                                                     Gross       Gross
                                                      Amortized   Unrealized  Unrealized     Fair
                                                         Cost        Gains      Losses       Value
                                                      ---------   ----------  ----------    --------
<S>                                                   <C>         <C>         <C>           <C>
Investment Securities - Held-to-Maturity
  U.S. Treasury Securities                             $ 13,991     $  319       $ -0-      $ 14,310
  U.S. Government Agencies and Corporations              25,377        401         (2)        25,776
  U.S. Government Agency Mortgage Backed Securities       5,636         40         (3)         5,673
  Obligations of States and Political Subdivisions        1,032         12         -0-         1,044
                                                       --------     ------       ----       --------

    Total Held-to-Maturity Securities                    46,036        772         (5)        46,803
                                                       --------     ------       ----       --------
Investment Securities - Available-for-Sale
  U.S.  Treasury Securities                              38,045        701         -0-        38,746
  U.S. Government Agencies
    and Corporations                                     25,149        278         (6)        25,421
  U.S. Government Agency Mortgage
    Backed Securities                                     9,531         31         (2)         9,560
  Obligations of States and Political Subdivisions
  Federal Reserve and Federal Home Loan Bank Stock        1,060         -0-        -0-         1,060
                                                       --------     ------       ----       --------

     Total Available-for-Sale Securities                 73,785      1,010         (8)        74,787
                                                       --------     ------       ----       --------

        Total Investment Securities                    $119,821     $1,782       $(13)      $121,590
                                                       ========     ======       ====       ========
</TABLE>

     In the above schedule the amortized cost of Total Held-to-Maturity
                               --------------
Securities of $46,036,000 and the fair value  of Total Available-for-Sale
                                  ----------
Securities of $74,787,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 1998 for a total of $120,823,000.
A net unrealized gain of $1,002,000  is included in the Available-for-Sale
Investment Securities balance.  The unrealized gain, net of tax, is included in
Shareholders' Equity.

     Effective October 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards Board No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133") which establishes accounting and reporting
standards for derivative instruments and requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. At the effective date, the Corporation
transferred approximately $ 17,448,000 of securities from Held-to-Maturity to
Available-for-Sale classification. At the time of transfer the securities had an
approximate unrealized gain of $349,000.

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

     The book values of loans by major type follow (in thousands):

                                 September  30,
                              --------------------   December 31,
                                1999        1998        1998
                                ----        ----     -----------

Commercial                    $152,975    $130,780     $133,066
Real Estate Mortgage           117,033      99,191      100,421
Real Estate Construction        42,303      40,067       40,456
Loans to Individuals            32,861      32,473       32,388
Less:  Unearned Discount          (220)       (539)        (498)
                              --------    --------     --------

                               344,952     301,972      305,833

Allowance for Loan Losses       (5,044)     (4,663)      (4,724)
                              --------    --------     --------

 Loans - Net                  $339,908    $297,309     $301,109
                              ========    ========     ========

                                                                              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,
                                                 1999           1998             1998
                                             ------------   ------------     ------------
<S>                                        <C>              <C>              <C>
Balance, Beginning of Period                    $4,724         $4,065           $4,065
Provisions, Charged to Income                      778            539              785
Loans Charged-Off                                 (594)          (139)            (343)
Recoveries of Loans Previously
 Charged-Off                                       136            198              217
                                                ------         ------           ------

          Net Loans (Charged-Off) Recovered       (458)            59             (126)
                                                ------         ------           ------

Balance, End of Period                          $5,044         $4,663           $4,724
                                                ======         ======           ======
</TABLE>

     The provisions for loan losses charged to operating expenses during the
nine months ended September 30, 1999 and September 30,1998 of $778,000 and
$539,000, respectively, were considered adequate to maintain the allowance in
accordance with the policy discussed in Note 1. For the year ended December 31,
1998, a provision of $785,000 was recorded.

     At September 30, 1999, the recorded investment in loans that are considered
to be impaired under Statement of Financial Accounting Standards No. 114 was
$2,757,000 (of which $ 2,757,000 were on non-accrual status).  The related
allowance for loan losses for these loans was $913,000.  The average recorded
investment in impaired loans during the nine months ended September 30, 1999 was
approximately $3,253,000.  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,
                                                          1999        1998         1998
                                                        -------     -------    ------------
<S>                                                     <C>         <C>        <C>
Land                                                    $ 2,783     $ 1,446      $ 2,783
Buildings and Improvements                                7,610       7,811        7,537
Furniture & Equipment                                     7,755       7,000        7,234
                                                        -------     -------      -------
    Total Cost                                           18,148      16,257       17,554

Less:  Accumulated Amortization and Depreciation         (9,222)     (8,297)      (8,472)
                                                        -------     -------      -------

    Net Book Value                                      $ 8,926     $ 7,960      $ 9,082
                                                        =======     =======      =======
</TABLE>

NOTE 5 - Other Real Estate
------

     The carrying value of other real estate is as follows (in thousands):

                                            September 30,
                                         -------------------    December 31,
                                           1999        1998         1998
                                         -------     -------    ------------

Other Real Estate                        $ 1,494      $   71        $ 281
Valuation Reserve                            -0-         -0-          -0-
                                         -------      ------        -----


    Net Other Real Estate                $ 1,494      $   71        $ 281
                                         =======      ======        =====

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,
                                           1999                    1998                    1998
                                         -------                 -------               ------------
<S>                                      <C>                     <C>                   <C>
Balance, Beginning of Period              $-0-                    $ 34                     $ 34
Provisions Charged to Income               -0-                     -0-                      -0-
Reductions from Sales                      -0-                     (34)                     (34)
                                          ----                    ----                     ----

Balance, End of Period                    $-0-                    $-0-                     $-0-
                                          ====                    ====                     ====
</TABLE>

     There were no direct writedowns of other real estate charged to income for
the nine months ended September 30, 1999 or September 30,1998, respectively, or
for the year ended December 31, 1998.

NOTE 6 - Deposits
------

     The book values of deposits by major type follow (in thousands):

<TABLE>
<CAPTION>
                                                    September 30,
                                                -------------------  December 31,
                                                  1999       1998        1998
                                                --------   --------  ------------
<S>                                             <C>        <C>       <C>
Noninterest-Bearing Demand Deposits             $135,973   $117,982    $141,170
                                                --------   --------    --------
Interest-Bearing Deposits:
  Interest-Bearing Transaction
     Accounts and Money Market Funds             155,398    148,277     151,557
  Savings                                         83,951     68,480      81,503
  Savings Certificates - Time                     58,614     52,489      53,394
  Certificates of Deposits $100,000 or more       37,892     36,328      37,099
  Other                                              778        878         777
                                                --------   --------    --------
   Total                                         336,633    306,452     324,330
                                                --------   --------    --------
       Total Deposits                           $472,606   $424,434    $465,500
                                                ========   ========    ========
</TABLE>

NOTE 7  Short Term Borrowings
------

     Securities sold under repurchase agreements generally represent borrowings
with maturities ranging from one to thirty days.  Information relating to these
borrowings is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                Nine Months Ended September 30,                Year Ended
                                                -------------------------------               December 31,
                                                  1999                    1998                    1998
                                                -------                 -------               ------------
<S>                                             <C>                     <C>                   <C>
Securities Sold Under Repurchase Agreements:
    Average                                     $17,444                 $14,450                  $15,742
    Period-End                                   24,310                  18,838                   17,839
    Maximum Month-End Balance During Period      24,310                  18,838                   19,354

Interest Rate

    Average                                        3.89%                   4.59%                    4.40%
    Period-End                                     4.26                    4.59                     3.83
</TABLE>

     The Corporation, through one of its subsidiaries, has available a line of
credit with the Federal Home Loan Bank of Dallas which allows the subsidiary to
borrow on a collateralized basis at a fixed term. At September 30, 1999, the
subsidiary had borrowed $4,000,000, bearing an interest rate of 5.43% and having
a maturity of April 2000 under the line of credit.

NOTE 8 - Notes Payable
------

     On July 15, 1999, the Corporation obtained lines of credit from a bank
under which the Corporation may borrow $9,000,000 at prime rate. The lines of
credit are secured by stock of one of the Subsidiary Banks and mature in July
2000, whereupon, if balances are outstanding, the lines convert to term notes
having five year terms. The Corporation will not pay a fee for any unused
portion of the lines. As of September 30, 1999, there were no borrowings
outstanding.

                                                                              15
<PAGE>

NOTE 9 - 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,
                                    1999                   1998         1998
                                  --------               --------    ------------
<S>                               <C>                    <C>         <C>
Business Development               $  417                 $  459       $  611
Legal and Professional Fees           468                    362          511
Printing and Supplies                 286                    305          387
Regulatory Fees and Assessments       137                    123          169
Other                               1,445                  1,345        1,842
                                   ------                 ------       ------
  Total                            $2,753                 $2,594       $3,520
                                   ======                 ======       ======
</TABLE>

NOTE 10 - Income Taxes
-------

     Federal income taxes included in the consolidated balance sheets were as
follows (in thousands):

                                       September 30,
                                   --------------------     December 31,
                                    1999          1998         1998
                                   ------        ------     ------------

Current Tax Asset (Liability)      $   18        $  129       $   10
Deferred Tax Asset                  1,786           820          973
                                   ------        ------       ------


  Total Included in Other Assets   $1,804        $  949       $  983
                                   ======        ======       ======

     The deferred tax asset at September 30, 1999 of $1,786,000 included
$294,000 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,
                                    1999                   1998         1998
                                  --------               --------    ------------
<S>                               <C>                    <C>         <C>
Federal Income Tax Expense
 Current                           $3,765                 $3,513       $4,798
 Deferred                            (230)                  (364)        (465)
                                   ------                 ------       ------

  Total Federal Income Tax Expense $3,535                $3,149        $4,333
                                   ======                ======        ======

  Effective Tax Rates               34.6%                 34.6%         34.7%
                                   ======                ======        ======
</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,
                                          1999                   1998         1998
                                        --------               --------    ------------
<S>                                    <C>                    <C>         <C>
Federal Income Taxes at Statutory
 Rate of 34.3%                           $3,507                 $3,114        $4,278
Effect of Tax Exempt Interest Income         (9)                   (15)          (19)
Non-deductible Expenses                      39                     39            58
Other                                        (2)                    11            16
                                         ------                 ------        ------
 Income Taxes Per Income Statement       $3,535                 $3,149        $4,333
                                         ======                 ======        ======
</TABLE>

16
<PAGE>

NOTE 10 - Income Taxes (con't)
-------

     Deferred income tax expense (benefit) results from differences between
amounts of assets and liabilities as measured for income tax return and
financial reporting purposes. The significant components of federal deferred tax
assets and liabilities are in the following table (in thousands):

<TABLE>
<CAPTION>
                                                            Nine Months Ended
                                                              September 30,         Year Ended
                                                          --------------------     December 31,
                                                           1999          1998         1998
                                                          ------        ------     ------------
<S>                                                       <C>           <C>        <C>
Federal Deferred Tax Assets:
  Allowance for Loan Losses                               $1,290        $  991        $1,107
  Valuation Reserves - Other Real Estate                       1             1             1
  Interest on Non-accrual Loans                              202           206           199
  Deferred Compensation                                      426           385           414
  Unrealized Losses on Available-for-Sale Securities         294           -0-           -0-
  Other                                                       24            27            18
                                                          ------        ------        ------

 Gross Federal Deferred Tax Assets                         2,237         1,610         1,739
                                                          ------        ------        ------

Federal Deferred Tax Liabilities:
 Depreciation and Amortization                               287           263           301
 Accretion                                                    54            75            78
 Unrealized Gains on Available-for-Sale Securities           -0-           341           289
 Other                                                       110           111            98
                                                          ------        ------        ------

 Gross Federal Deferred Tax Liabilities                      451           790           766
                                                          ------        ------        ------

 Net Deferred Tax Asset                                   $1,786        $  820        $  973
                                                          ======        ======        ======
</TABLE>

NOTE 11 - 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 $2,848,000 at December 31, 1998.

NOTE 12 - 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, 1999, outstanding documentary and standby letters of
credit totaled $4,189,000 and commitments to extend credit totaled $111,732,000.

NOTE 13 - Stock Option Plans
-------

     The Corporation has two Incentive Stock Option Plans, the 1993 Plan and the
1997 Plan, ("the Plans").  Each Plan has reserved 600,000 shares (adjusted for
two-for-one stock splits in 1993, 1995 and 1997) of common stock for grants
thereunder.  The Plans provide for the granting to executive management and
other key employees of Summit Bancshares, Inc. and subsidiaries incentive stock
options, as defined under the current tax law.  The options under the Plans will
be exercisable for ten years from the date of grant and generally vest ratably
over a five year period.  Options will be and have been granted at prices which
will not be 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.
Had compensation cost for these plans been determined consistent with Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" the Corporation's net income and earnings per share would have
been reduced by insignificant amounts on a proforma basis for the year ended
December 31, 1998, and the nine months ended September 30, 1999.

                                                                              17
<PAGE>

NOTE 13 - Stock Option Plans  (con't)
-------

     The following is a summary of transactions during the periods presented:

<TABLE>
<CAPTION>
                                                Shares Under Option
                                     ----------------------------------------
                                      Nine Months Ended        Year Ended
                                     September  30, 1999    December 31, 1998
                                     -------------------    -----------------
<S>                                  <C>                    <C>
Outstanding, Beginning of Period           461,717               543,112
Additional Options Granted During
  the Period                                49,500                 3,000
Forfeited During the Period                 (2,400)               (5,400)
Exercised During the Period                (56,670)              (78,995)
                                           -------               -------

  Outstanding, End of Period               452,147               461,717
                                           =======               =======
</TABLE>

     Options outstanding at September 30, 1999 ranged in price from $3.00 to
$19.25 per share with a weighted average exercise price of $8.29 and 337,685
shares exercisable.  At September 30, 1999, there remained 484,800 shares
reserved for future grants of options under the 1997 Plan.

NOTE 14 - Employee Benefit Plans
-------

Pension Plan
------------

     The Corporation had a defined benefit pension plan covering substantially
all of its employees. Effective August 31, 1998, the accrual of benefits under
this plan were suspended.  In February 1999, the Board of Directors chose to
terminate the plan effective April 15, 1999.  The assets held in trust have been
distributed to the plan participants under terms of the plan.

     Funding for the plan was provided by employer contributions to trust funds
in amounts determined by actuarial assumptions and valuation of the plan.  The
market value of plan assets at  the time of the termination of the plan was
$2,146,000. There has not been a contribution to the plan during 1999.

401(k) Plan
-----------

     The Corporation established a 401(k) plan in December 1997 covering
substantially all employees.  The Corporation did not match the employee's
contributions in 1997, 1998  nor to date in 1999.

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 $156,000 and $183,000 during the first nine months of 1999 and
1998, respectively, and $237,000 for the year 1998.

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 15 - Earnings per Share
-------

     The following data shows the amounts used in computing earnings per share
and the weighted average number of shares of dilutive potential common stock.

                                          September 30,
                                        ----------------     December 31,
                                        1999        1998        1998
                                        ----        ----        ----

Net income                           $    6,690  $    5,962  $    8,146
                                     ==========  ==========  ==========
Weighted average number of common
 shares used in Basic EPS             6,425,897   6,503,876   6,496,595
Effect of dilutive stock options        244,071     329,947     316,702
                                     ----------  ----------  ----------
Weighted number of common shares
 and dilutive potential common
 stock used in Diluted EPS            6,669,968   6,833,823   6,813,297
                                     ==========  ==========  ==========

NOTE 16 - 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):

                                                     September 30,
                                                ----------------------
                                                  1999          1998
                                                --------      --------

Financial Instruments Whose Contract Amounts
 Represent Credit Risk:
  Commitments to Extend Credit                  $111,732      $105,247
  Documentary and Standby Letters of Credit        4,189         2,868

     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 17 - 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. The
Board of Directors of each Subsidiary Bank monitors concentrations of credit by
purpose, collateral and industry at least quarterly. Certain limitations for
concentration are set by the Boards. Additional loans in excess of these limits
must have prior approval of the bank's directors' loan committee. 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 18 - Litigation
-------

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

                                                                              19
<PAGE>

NOTE 19 - Stock Repurchase Plan
-------

     On April 20, 1999, the Board of Directors approved a stock repurchase plan.
The plan authorized management to purchase up to 322,232 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 the nine months of 1999, 135,900 shares were purchased in the open
market by the Corporation through a similar repurchase plan and subsequently
105,200 shares have been canceled.

NOTE 20 - Subsequent Event
-------

     On October 19, 1999, the Board of Directors of the Corporation approved a
quarterly dividend of $.08 per share to be paid on November 15, 1999 to
shareholders of record on November 1, 1999.

NOTE 21 - 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.

     The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):

                                               September 30,
                                 -----------------------------------------
                                         1999                  1998
                                 -------------------   -------------------

                                 Carrying      Fair    Carrying      Fair
                                  Amount      Value     Amount      Value
                                 --------     -----    --------     -----

Financial Assets
 Cash and due from banks         $ 21,982   $ 21,982   $ 20,127   $ 20,127
 Federal funds sold                14,135     14,135     37,135     37,135
 Securities                       155,790    155,417    120,823    121,590
 Loans                            344,952    344,185    301,972    301,548
 Reserve for loan losses           (5,044)    (5,044)    (4,663)    (4,663)

Financial Liabilities
 Deposits                         472,606    472,691    424,434    424,776
 Short Term Borrowings             28,310     28,309     18,838     18,838

Off-balance Sheet Financial
Instruments
 Loan commitments                            111,732               105,247
 Letters of credit                             4,189                 2,868

20
<PAGE>

NOTE 22 - Comprehensive Income
-------

     The Corporation has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income". This new standard requires an entity to report and display
comprehensive income and its components. Comprehensive income is as follows (in
thousands):

<TABLE>
<CAPTION>
                                         For the Nine Months Ended September 30,
                                         ---------------------------------------     Year Ended
                                                1999                      1998    December 31, 1998
                                               -------                   -------  -----------------
<S>                                      <C>                            <C>       <C>
  Net Income                                   $ 6,690                   $ 5,962       $ 8,146
  Other Comprehensive Income:
   Unrealized gain (loss) on securities
   available-for-sale, net of tax               (1,131)                      418           317
                                               -------                   -------       -------

    Comprehensive Income                       $ 5,559                   $ 6,380       $ 8,463
                                               =======                   =======       =======
</TABLE>

                                                                              21
<PAGE>

Item 2 - Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------

Summary
-------

Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Corporation analyzes the major elements of the Corporation's
consolidated balance sheets and statements of income.  This discussion should be
read in conjunction with the consolidated financial statements and accompanying
notes.

     Net income for the third quarter of 1999 was $2,383,000, or $. 36 diluted
earnings per share, compared with $2,095,000, or $.31 diluted earnings per
share, for the third quarter of 1998.  Net income for the first nine months of
1999 was $6,690,000, or $1.00 diluted earnings per share, compared with
$5,962,000, or $.87 diluted earnings per share, for the first nine months of the
prior year. On a per share basis, diluted earnings per share increased 16.1%
over the third quarter of the prior year. Per share amounts are based on average
shares outstanding of 6,669,968 for the first nine months of 1999 and 6,833,823
for the comparable period of 1998 adjusted to reflect stock options granted.

     Outstanding loans at September 30, 1999 of $345.0 million represented an
increase of $43.0 million, or 14.2%, over September 30,1998 and an increase of
$39.1 million, or 12.8%, from December 31, 1998.

     Total deposits at September 30, 1999 of $472.6 million represented an
increase of $48.2 million, or 11.4%, over September 30,1998 and an increase of
$7.1 million, or 1.5%, from December 31, 1998.

     In the third quarter, net interest income increased 13.0% over the previous
year.  Non-interest expense increased 9.7% in the third quarter over that of the
same period in the prior year.

     The following table summarizes the Corporation's performance for the three
months and nine months ended September 30, 1999 and 1998 (tax equivalent basis
and dollars in thousands).

                                 Three Months Ended        Nine Months Ended
                                    September 30,            September 30,
                                --------------------      --------------------
                                  1999         1998         1999         1998
                                -------      -------      -------      -------

Interest Income                 $10,226      $ 9,454      $29,350      $27,410
Interest Expense                  3,452        3,459        9,863        9,996
                                -------      -------      -------      -------
 Net Interest Income              6,774        5,995       19,487       17,414
Provision for Loan Loss             140          131          778          539
                                -------      -------      -------      -------

 Net Interest Income After
   Provision for Loan Loss        6,634        5,864       18,709       16,875

Non-Interest Income                 894          913        2,827        2,739
Non-Interest Expense              3,882        3,540       11,298       10,481
                                -------      -------      -------      -------

 Income Before Income Tax         3,646        3,237       10,238        9,133
Income Tax Expense                1,263        1,142        3,548        3,171
                                -------      -------      -------      -------

   Net Income                   $ 2,383      $ 2,095      $ 6,690      $ 5,962
                                =======      =======      =======      =======

Net Income per Share-
 Basic                          $   .37      $   .33      $  1.04      $   .92
 Diluted                            .36          .31         1.00          .87

Return on Average Assets          1.76%        1.71%        1.70%        1.70%

Return on Average Stockholders'
Equity                           19.84%        18.75%      19.19%       18.54%

22
<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 1999 and 1998 (rates on tax equivalent basis).

<TABLE>
<CAPTION>
                                                         Three Months Ended September 30,
                                        -------------------------------------------------------------------
                                                      1999                               1998
                                        --------------------------------   --------------------------------
                                         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 & Due Fr Time        $ 17,326    $   151        5.14%   $ 38,743     $  546        5.57%
 Investment Securities (Taxable)          145,401      2,222        5.87     115,539      1,754        6.03
 Investment Securities (Tax-exempt)           709         12        7.01       1,101         18        6.81
 Loans, Net of Unearned Discount(1)       337,034      7,841        9.23     296,573      7.136        9.55
                                         --------    -------                --------     ------
  Total Earning Assets                    500,470     10,226        8.11     451,956      9.454        8.30
                                         --------    -------                --------     ------

Non-interest Earning Assets:
 Cash and Due From Banks                   24,402                             21,926
 Other Assets                              18,789                             15,651
 Allowance for Loan Losses                 (4,947)                            (4,547)
                                         --------                           --------
  Total Assets                           $538,714                           $484,986
                                         ========                           ========

Interest-Bearing Liabilities:
 Interest-Bearing Transaction
  Accounts and Money Market Funds        $159,643      1,290        3.21    $146,627      1,369        3.70
 Savings                                   81,952        823        3.98      65,542        731        4.43
 Savings Certificates                      56,051        643        4.55      52,098        664        5.06
 Certificates of Deposit
  $100,000 or more                         36,925        447        4.80      36,645        494        5.35
 Other Time                                   778         10        4.97         868         12        5.59
 Other Borrowings                          21,947        239        4.32      16,395        189        4.57
                                         --------    -------                --------     ------
  Total Interest-Bearing Liabilities      357,296      3,452        3.83     318,175      3,459        4.31
                                                     -------                             ------

Non-interest Bearing Liabilities:
 Demand Deposits                          131,650                            119,965
 Other Liabilities                          2,760                              2,542
 Shareholders' Equity                      47,008                             44,304
                                         --------                           --------
  Total Liabilities and
   Shareholders' Equity                  $538,714                           $484,986
                                         ========                           ========

Net Interest Income and Margin
(Tax-equivalent Basis)(2)                            $ 6,774        5.37                 $5,995        5.26
                                                     =======                             =====
</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 34.3% in both years.

                                                                              23
<PAGE>

     The following schedule presents average balance sheets that highlight
earning assets and interest-bearing liabilities and their related rates earned
and paid for the nine months ended September 30, 1999 and 1998 (rates on tax
equivalent basis).

<TABLE>
<CAPTION>
                                                            Nine Months Ended September 30,
                                          -------------------------------------------------------------------
                                                        1999                               1998
                                          --------------------------------   --------------------------------
                                           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 & Due Fr Time         $ 18,524     $   682        4.92%  $ 36,993     $1, 535        5.55%
 Investment Securities (Taxable)           143,059       6,240        5.83    109,895       5,026        6.12
 Investment Securities (Tax-exempt)            781          41        7.06      1,126          60        6.93
 Loans, Net of Unearned Discount(1)        326,443      22,386        9.17    288,200      20,789        9.65
                                          --------     -------               --------     -------
  Total Earning Assets                     488,807      29,349        8.03    436,214      27,410        8.40
                                                       -------                            -------

Non-interest Earning Assets:
 Cash and Due From Banks                    23,596                             22,087
 Other Assets                               19,820                             15,546
 Allowance for Loan Losses                  (4,819)                            (4,333)
                                          --------                           --------
  Total Assets                            $527,404                           $469,514
                                          ========                           ========

Interest-Bearing Liabilities:
 Interest-Bearing Transaction
  Accounts & Money Market Funds           $155,884       3,689        3.16   $141,124       3,867        3.66
 Savings                                    82,464       2,430        3.94     65,273       2,169        4.44
 Savings Certificates                       53,994       1,854        4.59     51,878       1,972        5.08
 Certificates of Deposit
  $100,000 or more                          35,918       1,303        4.85     36,447       1,454        5.33
 Other Time                                    778          30        5.08        909          38        5.63
 Other Borrowings                           18,601         556        4.00     14,450         496        4.59
                                          --------     -------               --------     -------
  Total Interest-Bearing Liabilities       347,639       9,862        3.79    310,081       9,996        4.31
                                                       -------                            -------

Non-interest Bearing Liabilities:
 Demand Deposits                           129,470                            114,024
 Other Liabilities                           3,674                              2,409
 Shareholders' Equity                       46,621                             43,000
                                          --------                           --------
  Total Liabilities and
   Shareholders' Equity                   $527,404                           $469,514
                                          ========                           ========

Net Interest Income and Margin
(Tax-equivalent Basis)(2)                              $19,487        5.33                $17,414        5.34
                                                       =======                            =======
</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 34.3% in both years.

24
<PAGE>

Net Interest Income
-------------------

     Net interest income (tax equivalent) for the third quarter of 1999 was
$6,774,000 which represented an increase of $779,000, or 13.0%, over the third
quarter of 1998. This increase was heavily contributed to by a 13.6% increase in
average loans for the third quarter of 1999 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 periods ended September 30, 1999 and
1998.

<TABLE>
<CAPTION>
                                                         ANALYSIS OF CHANGES IN NET INTEREST INCOME
                                                                   (Dollars in Thousands)

                                         3rd Qtr. 1999 vs. 3rd Qtr. 1998     Nine Months 1999 vs. Nine Months 1998
                                               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                      $ (283)     $   (39)      $(322)    $ (696)        $  (157)        $ (853)
 Investment Securities (Taxable)            694         (299)        395      1,598            (384)         1,214
 Investment Securities (Tax-exempt)         (10)           4          (6)       (21)              2            (19)
 Loans, Net of Unearned Discount          2,090       (1,385)        705      3,177          (1,580)         1,597
                                         ------      -------       -----     ------         -------         ------

 Total Interest Income                    2,491       (1,719)        772      4,058          (2,119)         1.939
                                         ------      -------       -----     ------         -------         ------

Interest-Bearing Liabilities:
 Deposits                                 1,444       (1,501)        (57)     1,384          (1,578)          (194)
 Other Borrowings                           114          (64)         50        160            (100)            60
                                         ------      -------       -----     ------         -------         ------

 Total Interest Expense                   1,558       (1,565)         (7)     1,544          (1,678)          (134)
                                         ------      -------       -----     ------         -------         ------

Net Interest Income                      $  933      $  (154)      $ 779     $2,514         $  (441)        $2,073
                                         ======      =======       =====     ======         =======         ======
</TABLE>

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

     The Corporation's allowance for loan losses was $5,044,000, or 1.46% of
total loans, as of September 30, 1999 compared to $4,663,000, or 1.54% of total
loans, as of September 30,1998.

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

                                  Three Months Ended        Nine Months Ended
                                     September 30,            September 30,
                                  ------------------       --------------------
                                   1999        1998         1999          1998
                                  ------      ------       ------        ------

Balance, Beginning of Period      $4,895      $4,413       $4,724        $4,065
Provisions, Charged to Income        140         131          778           539

Loans Charged-Off                    (35)        (24)        (594)         (139)
Recoveries of Loans Previously
  Charged-Off                         44         143          136           198
                                  ------      ------       ------        ------

    Net Loans (Charged-Off)
      Recovered                        9         119         (458)           59
                                  ------      ------       ------        ------

Balance, End of Period            $5,044      $4,663       $5,044        $4,663
                                  ======      ======       ======        ======

     For the nine months ended September 30, 1999 and 1998, net charge-offs
(recoveries) were .13% and (.02)% of average loans, respectively, not
annualized.

                                                                              25
<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,
                                  1999        1999       1999         1998          1998
                              -------------  --------  ---------  ------------  -------------
<S>                           <C>            <C>       <C>        <C>           <C>

Non-Accrual Loans                $2,899       $3,278     $4,207       $5,049       $6,213
Other Real Estate Owned           1,494        1,467      1,711          281           71
                                 ------       ------     ------       ------       ------

  Total Non-Performing Assets    $4,393       $4,745     $5,918       $5,330       $6,284
                                 ======       ======     ======       ======       ======

As a Percent of:
   Total Assets                    .80%         .90%      1.14%        1.00%        1.48%
   Total Loans and Other Assets   1.26         1.39       1.85         1.74         2.36

Loans Past Due 90 days or
   More and Still Accruing        $-0-         $17         $7           $3           $6
</TABLE>

     Non-accrual loans to total loans were .84% at September 30, 1999 and non-
performing assets were 1.26% of loans and other real estate owned at the same
date.

     As of September 30, 1999, loans to four borrowers represent approximately
88% of the loans on non-accrual and two of these borrowers are current as to
payment of principal and interest on their loans. The Corporation does not see
the increase in non-accrual loans in mid 1998 as a signal of a weakened local
economy or a change in the Corporation's lending standards, rather this is the
enforcement of the Corporation's strict policy of identifying problem loans as
soon as any difficulty a borrower may be experiencing is noted.

     The following table summarizes the relationship between non-performing
loans, criticized loans and the allowance for loan losses (dollars in
thousands).

<TABLE>
<CAPTION>
                              September 30,  June 30,  March 31,  December 31,  September 30,
                                  1999        1999       1999         1998          1998
                              -------------  --------  ---------  ------------  -------------
<S>                           <C>            <C>       <C>        <C>           <C>

Non-Performing Loans             $2,899       $3,278     $4,207      $ 5,049       $ 6,213
Criticized Loans                  9,196        9,755      9,597       10,468        11,524
Allowance for Loan Losses         5,044        4,895      4,749        4,724         4,663
Allowance for Loan Losses
  as a Percent of:
    Non-Performing Loans           174%         149%       129%          94%           72%
    Criticized Loans                55           50         50           45            40
</TABLE>

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,
                                        1999    1998   % Change     1999    1998   % Change
                                        ----    ----   --------     ----    ----   --------
<S>                                    <C>     <C>     <C>         <C>     <C>      <C>
Service Charges on Deposit Accounts     $522    $500       4.4%    $1,489  $1,504    (1.0)%
Non-recurring Income                      26      32        --        270     186      --
Other Non-interest Income                346     381      (9.2)     1,068   1,049     1.8
                                        ----    ----               ------  ------

  Total Non-interest Income             $894    $913      (2.1)    $2,827  $2,739     3.2
                                        ====    ====               ======  ======
</TABLE>

     Non-recurring income is primarily franchise tax refunds, interest recovered
on loans charged-off in prior years and gains on sales of assets taken in
satisfaction of debt in prior years.

26
<PAGE>

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

     Non-interest expenses include all expenses other than interest expense,
provision for loan losses 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,
                                    --------------------------------    ---------------------------------
                                     1999        1998       % Change     1999        1998        % Change
                                    ------      ------      --------    ------      ------       --------
<S>                                <C>          <C>         <C>        <C>          <C>          <C>

Salaries & Employee Benefits        $2,310      $2,200         5.0%     $ 6,801     $ 6,302         7.9%
Occupancy Expense - Net                275         221        24.4          825         692        19.2
Furniture and Equipment Expense        314         298         5.4          904         882         2.5
Other Real Estate Expense - Net        (10)         11          --           15          11          --
Other Expenses:
 Business Development                  148         156        (5.1)         417         459        (9.2)
 Insurance - Other                      25          27        (7.4)          96          73        31.5
 Legal & Professional Fees             180         110        63.6          468         362        29.3
 Taxes - Other                          29          70       (58.6)         141         237       (40.5)
 Postage & Courier                      78          73         6.9          236         214        10.3
 Printing & Supplies                    90         103       (12.6)         286         305        (6.2)
 Regulatory Fees & Assessments          46          39        18.0          137         123        11.4
 Other Operating Expenses              397         232        71.1          972         821        18.4
                                    ------      ------                  -------     -------

  Total Other Expenses                 993         810        22.6        2,753       2,594         6.1
                                    ------      ------                  -------     -------

  Total Non-interest Expense        $3,882      $3,540         9.7      $11,298     $10,481         7.8
                                    ======      ======                  =======     =======
</TABLE>

     Total non-interest expense increased 9.7% in the third quarter of 1999 over
1998, reflecting increases primarily in salaries and benefits, occupancy expense
and other operating expenses. As a percent of average assets, non-interest
expenses were 2.86% in the third quarter of 1999 and 2.90% in the same period of
1998. The "efficiency ratio" (non-interest expenses divided by total non-
interest income plus net interest income) was 50.6% for the third quarter of
1999. 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
1999 is due to salary merit increases and additions to staff. The average number
of full-time equivalent employees for the nine months increased by seven to an
average full-time equivalent of 173 from the level of the prior year. This
increase in number of employees was required because of the increase in assets
over the past year.

     The increase in occupancy expense is primarily due to increased repairs,
increased property taxes and increased rent as a result of one branch office
relocating from temporary quarters to a permanent facility.

     Other operating expenses increased in the third quarter of 1999 due to
increases in various miscellaneous operating costs.

                                                                              27
<PAGE>

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, 1999 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        31-180     181 to   One Year    Non-interest
                                       or Less         Days     One Year   or Less      Sensitive    Total
                                       --------      --------   --------  ---------   ------------  --------
<S>                                   <C>            <C>        <C>       <C>         <C>           <C>

Earning Assets:
  Loans                                $189,020      $ 17,616   $ 18,190   $224,826      $120,126   $344,952
  Investment Securities                  16,995        21,024     10,763     48,782       107,008    155,790
  Federal Funds Sold                     14,135           -0-        -0-     14,135           -0-     14,135
                                       --------      --------   --------   --------      --------   --------

   Total Earning Assets                 220,150        38,640     28,953    287,743       227,134    514,877
                                       --------      --------   --------   --------      --------   --------

Interest Bearing Liabilities:
  Interest-Bearing Transaction
    Accounts and Savings                239,349           -0-        -0-    239,349           -0-    239,349
  Certificate of Deposits
    (greater than)$100,000                5,153        16,313     14,788     36,254         1,638     37,892
  Other Time Deposits                     4,084        28,492     20,880     53,456         5,936     59,392
  Repurchase Agreements                  24,310           -0-        -0-     24,310           -0-     24,310
  FHLB Borrowings                         4,000           -0-        -0-      4,000           -0-      4,000
                                       --------      --------   --------   --------      --------   --------

 Total Interest Bearing
 Liabilities                            276,896        44,805     35,668    357,369         7,574    364,943
                                       --------      --------   --------   --------      --------   --------

Interest Sensitivity
Gap                                    $(56,746)     $ (6,165)  $ (6,715)  $(69,626)    $219,560   $149,934
                                       ========      ========   ========   ========     ========   ========
Cumulative Gap                         $(56,746)     $(62,911)  $(69,626)
                                       ========      ========   ========

Cumulative Gap to
Total Earning Assets                    (11.02%)      (12.22%)   (13.52%)

Cumulative Gap to
Total Assets                            (10.27%)      (11.39%)   (12.61%)
</TABLE>

     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 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 (12.61%) was reversed to a positive 8.92% "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,

28
<PAGE>

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.
Capital (con't)
---------------

     At September 30, 1999, total capital to total assets was 8.68%.

     The Federal Reserve Board and Comptroller of the Currency also have risk-
adjusted capital adequacy guidelines.  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, 1999, the Corporation's Tier I
capital represented 13.61% of risk weighted assets and total qualifying capital
(Tier I and Tier II) represented  8.85% of risk weighted assets.  Both ratios
are well above current regulatory guidelines.

     Also, as of September 30, 1999, the Corporation and its Subsidiary Banks
met the criteria for classification as a "well-capitalized" institution under
the rules of the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA").

Impact of the Year 2000 Issue
-----------------------------

     The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Corporation's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in normal business activities.

     Based on assessments, the Corporation determined that it would be required
to modify or replace portions of its software so that its computer systems will
properly utilize dates beyond December 31, 1999.  The Corporation presently
believes that with modifications made to existing software, the Year 2000 Issue
will be mitigated.

     The Corporation has utilized both internal and external resources to
correct and test the software for Year 2000 modifications. The Corporation has
substantially completed the Year 2000 project. The remaining work on the project
includes finalization of the Corporation's contingency plans should any area not
function as tested or any external event impact the operation of the
Corporation. The total cost of the Year 2000 project has not been material to
the financial condition of the Corporation.

Forward-Looking Statements
--------------------------

     The Corporation may from time to time make forward-looking statements
(within the meaning of the Private Securities Litigation Reform Act of 1995)
with respect to earnings per share, credit quality, expected Year 2000
compliance program, corporate objectives and other financial and business
matters. The Corporation cautions the reader that these forward-looking
statements are subject to numerous assumptions, risks and uncertainties,
including economic conditions; actions taken by the Federal Reserve Board;
legislative and regulatory actions and reforms; competition; as well as other
reasons, all of which change over time. Actual results may differ materially
from forward-looking statements.

                                                                              29
<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, 1999

30
<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: October 30, 1999              By: /s/  Philip E. Norwood
      ----------------                 ----------------------------------------
                                    Philip E. Norwood, Chairman


Date: October 30, 1999              By: /s/  Bob G. Scott
      ----------------                 ----------------------------------------
                                    Bob G. Scott, Executive Vice President
                                        and Chief Operating Officer
                                         (Chief Accounting Officer)

                                                                              31
<PAGE>

                                 EXHIBIT INDEX


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

11              Computation of Earnings Per Common Share

27              Financial Data Schedule