<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, 1997; 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, 1997 was 3,243,846 shares.
<PAGE>
 
                            SUMMIT BANCSHARES, INC.



                                     INDEX


PART I - FINANCIAL INFORMATION                                        PAGE NO.

Item 1.  Financial Statements
 
         Consolidated Balance Sheets at September 30, 1997
         and 1996 and at December 31, 1996                                 4
 
         Consolidated Statements of Income for the Three Months
         and Nine Months Ended September 30, 1997 and 1996
         and for the Year Ended December 31, 1996                        5-6
 
         Consolidated Statements of Changes in Shareholders'
         Equity for the Nine Months Ended September 30, 1997
         and 1996 and for the Year Ended December 31, 1996                 7
 
         Consolidated Statements of Cash Flows for the Nine
         Months Ended September 30, 1997 and 1996 and for
         the Year Ended December 31, 1996                                8-9
 
         Notes to Consolidated Financial Statements for the Nine
         Months Ended September 30, 1997 and 1996 and for
         the Year Ended December 31, 1996                              10-21

The September 30, 1997 and 1996 and the December 31, 1996 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, 1997 and 1996                             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,  
                                                                     1997            1996          1996
                                                                --------------  --------------  -----------
                                                                                (In Thousands)
<S>                                                             <C>             <C>             <C>
ASSETS          
CASH AND DUE FROM BANKS - NOTE 1                                     $ 33,060        $ 24,962     $ 28,339
FEDERAL FUNDS SOLD                                                     23,485           8,330       20,350
INVESTMENT SECURITIES - NOTE 2
 Securities Available-for-Sale, at fair value                          58,595          60,069       58,576
 Securities Held-to-Maturity, at cost (fair value of                   47,712          62,950       58,437
 47,908,000, $62,472,000, and $58,629,000
   September 30, 1997 and 1996 and December 31, 1996,
   respectively)
LOANS - NOTE 3
  Loans, Net of Unearned Discount                                     262,784         213,962      220,006
      Allowance for Loan Losses                                        (3,682)         (3,008)      (2,972)
                                                                     --------        --------     --------
      LOANS, NET                                                      259,102         210,954      217,034
 
PREMISES AND EQUIPMENT - NOTE 4                                         7,797           7,159        7,105
ACCRUED INCOME RECEIVABLE                                               3,368           3,281        3,189
OTHER REAL ESTATE - NOTE 5                                                151             169          166
OTHER ASSETS                                                            2,928           2,020        2,052
                                                                     --------        --------     --------
 
      TOTAL ASSETS                                                   $436,198        $379,894     $395,248
                                                                     ========        ========     ========
LIABILITIES AND SHAREHOLDERS' EQUITY
 
DEPOSITS - NOTE 6
  Noninterest-Bearing Demand                                         $114,198        $ 91,528     $103,695
  Interest-Bearing                                                    270,025         238,270      241,328
                                                                     --------        --------     --------
      TOTAL DEPOSITS                                                  384,223         329,798      345,023
 
SECURITIES SOLD UNDER
 AGREEMENTS TO REPURCHASE - NOTE 7                                     10,284          14,453       13,209
ACCRUED INTEREST PAYABLE                                                  653             589          638
OTHER LIABILITIES                                                       1,511           1,711        1,298
                                                                     --------        --------     --------
 
      TOTAL LIABILITIES                                               396,671         346,551      360,168
                                                                     --------        --------     --------
 
COMMITMENTS AND CONTINGENCIES - NOTE 11
 
SHAREHOLDERS' EQUITY - NOTES 12, 14 AND 18
  Common Stock - $1.25 Par Value; 20,000,000 shares
   authorized; 3,243,846, 3,234,186 and 3,233,036 shares
   issued and outstanding at September 30, 1997 and 1996 and
   at December 31, 1996, respectively                                   4,055           4,043        4,041
  Capital Surplus                                                       4,222           4,130        4,167
  Retained Earnings                                                    30,996          25,386       26,644
  Unrealized Gain (Loss) on Investment Securities
    Available for Sale, Net of Tax                                        254             (59)         228
  Treasury Stock at cost (9,000 shares at
    September 30, 1996)                                                   -0-            (157)         -0-
                                                                     --------        --------     --------
 
      TOTAL SHAREHOLDERS' EQUITY                                       39,527          33,343       35,080
                                                                     --------        --------     --------
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $436,198        $379,894     $395,248
                                                                     ========        ========     ========
</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,    
                                                                   1997                 1996                    1996
                                                             ---------------       -----------------   -----------------------
                                                                          (In Thousands, Except Per Share Data)
<S>                                                          <C>                   <C>                 <C>
INTEREST INCOME
  Interest and Fees on Loans                                      $17,594              $14,051                   $19,274
  Interest and Dividends on Investment Securities:
    Taxable                                                         5,243                5,559                     7,405
    Exempt from Federal Income Taxes                                   15                    1                         1
  Interest on Federal Funds Sold                                      593                  672                       897
                                                                  -------              -------                   -------
 
      TOTAL INTEREST INCOME                                        23,445               20,283                    27,577
                                                                  -------              -------                   -------
INTEREST EXPENSE
  Interest on Deposits                                              7,836                6,833                     9,243
  Interest on Securities Sold Under
   Agreements to Repurchase                                           369                  381                       528
                                                                  -------              -------                   -------

      TOTAL INTEREST EXPENSE                                        8,205                7,214                     9,771
                                                                  -------              -------                   -------

      NET INTEREST INCOME                                          15,240               13,069                    17,806
LESS: PROVISION FOR LOAN LOSSES - NOTE 3                              633                  480                       819
                                                                  -------              -------                   -------
      NET INTEREST INCOME AFTER
       PROVISION FOR LOAN LOSSES                                   14,607               12,589                    16,987
                                                                  -------              -------                   -------
NON-INTEREST INCOME
  Service Charges and Fees on Deposits                              1,389                1,210                     1,645
  Loss on Sale of Investment Securities                                (1)                 (15)                      (14)
  Other Income                                                      1,019                1,050                     1,345
                                                                  -------              -------                   -------

      TOTAL NON-INTEREST INCOME                                     2,407                2,245                     2,976
                                                                  -------              -------                   -------
NON-INTEREST EXPENSE
  Salaries and Employee Benefits                                    5,470                5,043                     6,753
  Occupancy Expense - Net                                             573                  566                       772
  Furniture and Equipment Expense                                     668                  606                       800
  Other Real Estate Owned Expense - Net                               (29)                  12                        10
  Other Expense                                                     2,368                2.040                     2,582
                                                                  -------              -------                   -------
 
      TOTAL NON-INTEREST EXPENSE                                    9,050                8,267                    10,917
                                                                  -------              -------                   -------
 
      INCOME BEFORE INCOME TAXES                                    7,964                6,567                     9,046
 
APPLICABLE INCOME TAXES - NOTE 9                                    2,738                2,253                     3,103
                                                                  -------              -------                   -------
 
      NET INCOME                                                  $ 5,226              $ 4,314                   $ 5,943
                                                                  =======              =======                   =======
 
      NET INCOME PER SHARE - NOTE 14                              $  1.61              $  1.35                   $  1.86
                                                                  =======              =======                   =======
</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,
                                                      ---------------------------------------
                                                             1997                1996
                                                      ------------------  -------------------
                                                       (In Thousands, Except Per Share Data)
<S>                                                   <C>                 <C>
INTEREST INCOME
  Interest and Fees on Loans                                     $6,264               $4,991
  Interest and Dividends on Investment Securities:
     Taxable                                                      1,705                1,893
     Exempt from Federal Income Taxes                                 6                  -0-
  Interest on Federal Funds Sold                                    274                  180
                                                                 ------               ------
 
      TOTAL INTEREST INCOME                                       8,249                7,064
                                                                 ------               ------
INTEREST EXPENSE
  Interest on Deposits                                            2,840                2,345
  Interest on Securities Sold Under Agreements
    to Repurchase                                                   112                  145
                                                                 ------               ------
 
      TOTAL INTEREST EXPENSE                                      2,952                2,490
                                                                 ------               ------
 
      NET INTEREST INCOME                                         5,297                4,574
LESS: PROVISION FOR LOAN LOSSES - NOTE 3                            281                  192
                                                                 ------               ------
      NET INTEREST INCOME AFTER
        PROVISION FOR LOAN LOSSES                                 5,016                4,382
                                                                 ------               ------
NON-INTEREST INCOME
  Service Charges and Fees on Deposits                              489                  423
  Loss on Sale of Investment Securities                              (1)                  (8)
  Other Income                                                      337                  370
                                                                 ------               ------
 
      TOTAL NON-INTEREST INCOME                                     825                  785
                                                                 ------               ------
NON-INTEREST EXPENSE
  Salaries and Employee Benefits                                  1,895                1,691
  Occupancy Expense - Net                                           186                  179
  Furniture and Equipment Expense                                   237                  206
  Other Real Estate Owned Expense - Net                             (21)                  (4)
  Other Expense                                                     831                  615
                                                                 ------               ------
 
      TOTAL NON-INTEREST EXPENSE                                  3,128                2,687
                                                                 ------               ------
 
      INCOME BEFORE INCOME TAXES                                  2,713                2,480
 
APPLICABLE INCOME TAXES - NOTE 9                                    931                  846
                                                                 ------               ------
 
      NET INCOME                                                 $1,782               $1,634
                                                                 ======               ======
 
      NET INCOME PER SHARE  - NOTE 14                              $.55                 $.51
                                                                 ======               ======
</TABLE>
The accompanying Notes should be read with these financial statements.

6
<PAGE>
 
                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                   AND FOR THE YEAR ENDED DECEMBER 31, 1996
                                  (Unaudited)
<TABLE>
<CAPTION>
 
 
                                                                                   
                                                                                   Unrealized
                                     Common Stock                                  Gain (Loss) 
                                 -------------------    Capital     Retained     on Investment    Treasury
                                   Shares     Amount    Surplus     Earnings     Securities-Net     Stock       Total
                                 ---------   -------    -------   ------------   --------------   --------    --------- 
                                                  (Dollars in Thousands, Except Per Share Data)
<S>                              <C>         <C>        <C>       <C>            <C>              <C>         <C>
BALANCE AT
 JANUARY 1, 1996                 3,149,886   $3,937     $ 4,109      $  21,745          $ 334     $  -0-       $30,125
                                                                                                        
Purchases of Stock Held in                                                                              
 Treasury                                                                                           (157)         (157)
                                                                                                        
Net Income for the                                                                                      
 Nine Months Ended                                                                                      
 September 30, 1996                                                      4,314                                   4,314
                                                                                                        
Stock Options Exercised             84,300      106          21                                                    127
                                                                                                        
Cash Dividend $.21                                                                                      
 Per Share                                                                (673)                                   (673)
                                                                                                        
Securities Available-for-                                                                               
 Sale Adjustment                                                                         (393)                    (393)
                                 ---------    ------    -------      ---------      ---------     ------       -------
BALANCE AT                                                                                              
 SEPTEMBER 30, 1996              3,234,186     4,043      4,130         25,386            (59)       -0-        33,343
                                                                                                        
Net Income for the                                                                                      
 Three Months Ended                                                                                     
 December 31, 1996                                                       1,629                                   1,629
                                                                                                        
Stock Options Exercised              7,850         9         37                                                     46
                                                                                                        
                                                                                                        
Retirement of Stock Held                                                                                
  In Treasury                       (9,000)      (11)                     (146)                      157           -0-
                                                                                                        
Cash Dividend $.07                                                                                      
 Per Share                                                                (225)                                   (225)
                                                                                                        
Securities Available-for-                                                                               
 Sale Adjustment                                                                          287                      287
                                 ---------    ------    -------      ---------      ---------     ------       -------
BALANCE AT                                                                                              
 DECEMBER 31, 1996               3,233,036     4,041      4,167         26,644            228        -0-        35,080
                                                                                                        
Net Income for the                                                                                      
 Nine Months Ended                                                                                      
 September 30, 1997                                                      5,226                                   5,226
                                                                                                        
Stock Options Exercised             10,810        14         55                                                     69
                                                                                                        
Cash Dividend $.27                                                                                      
 Per Share                                                                (874)                                   (874)
                                                                                                        
Securities Available-for-                                                                               
 Sale Adjustment                                                                           26                       26
                                 ---------    ------    -------      ---------      ---------     ------       -------
BALANCE AT                                                                                                
 SEPTEMBER 30, 1997              3,243,846    $4,055    $ 4,222      $  30,996          $ 254     $  -0-       $39,527
                                 =========    ======    =======      =========      =========     ======       =======
 
</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, 1997 AND 1996
                    AND FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
                                                                     (Unaudited)            
                                                                      September 30,         (Unaudited)   
                                                             -----------------------------  December 31,   
                                                                  1997           1996          1996
                                                             --------------  -------------  ------------
                                                                           (In Thousands)
<S>                                                          <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income                                                      $  5,226       $  4,314     $  5,943
  Adjustments to Reconcile Net Income to Net
   Cash Provided by Operating Activities:
    Depreciation and Amortization                                      604            565          762
    Net Premium Amortization of Investment Securities                   76            253          310
    Provision for Loan Losses                                          633            480          819
    Deferred Income Taxes (Benefit)                                    114           (115)        (137)
    Loss on Sale of Investment Securities                                1             15           14
    Writedown of Other Real Estate                                       4              9           12
    Net Gain on Sale of Other Real Estate                              (21)           -0-          -0-
    Net (Gain) Loss on Sale of Premises and Equipment                   12              1           (1)
    Increase in Accrued Income and Other Assets                     (1,230)          (223)        (270)
    Increase in Accrued Expenses and Other Liabilities                 228            645          280
                                                                  --------       --------     --------
 
      Total Adjustments                                                421          1,631        1,767
                                                                  --------       --------     --------
 
      NET CASH PROVIDED BY OPERATING ACTIVITIES                      5,647          5,945        7,710
                                                                  --------       --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net (Increase) Decrease in Federal Funds Sold                     (3,135)        17,350        5,330
  Proceeds from Matured and Prepaid Investment Securities
    . Held-to-Maturity                                              14,362         16,560       20,001
    . Available-for-Sale                                            11,709         15,600       20,486
  Proceeds from Sales of Investment Securities                       4,506         12,524       14,527
  Purchase of Investment Securities
    . Held-to-Maturity                                              (8,285)       (18,183)     (19,174)
    . Available-for-Sale                                           (11,622)       (31,016)     (33,969)
  Loans Originated and Principal Repayments, Net                   (42,932)       (35,738)     (42,171)
  Recoveries of Loans Previously Charged-Off                           277             97          115
  Proceeds from Sale of Other Real Estate                               32            -0-          -0-
  Proceeds from Sale of Premises and Equipment                           1              1            1
  Purchases of Premises and Equipment                               (1,309)          (569)        (710)
                                                                  --------       --------     --------
 
      NET CASH USED BY INVESTING ACTIVITIES                        (36,396)       (23,374)     (35,564)
                                                                  --------       --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net Increase in Demand Deposits, Savings
   Accounts and Interest Bearing Transaction Accounts               25,734         20,574       36,011
  Net Increase (Decrease) in Certificates of Deposit                13,466           (885)      (1,097)
  Net Increase (Decrease) in Repurchase Agreements                  (2,925)           925         (319)
  Payments of Cash Dividends                                          (874)          (673)        (898)
  Purchase of Treasury Stock                                           -0-           (157)        (157)
  Proceeds from Stock Options Exercised                                 69            127          173
                                                                  --------       --------     --------
 
       NET CASH PROVIDED BY FINANCING ACTIVITIES                    35,470         19,911       33,713
                                                                  --------       --------     --------
 
NET INCREASE IN CASH AND DUE FROM BANKS                              4,721          2,482        5,859
 
CASH AND DUE FROM BANKS AT BEGINNING
  OF PERIOD                                                         28,339         22,480       22,480
                                                                  --------       --------     --------
 
CASH AND DUE FROM BANKS AT END OF PERIOD                          $ 33,060       $ 24,962     $ 28,339
                                                                  ========       ========     ========
</TABLE>

8
<PAGE>
 
                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                   AND FOR THE YEAR ENDED DECEMBER 31, 1996
                                  (Unaudited)

SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
<TABLE>
<CAPTION>
 
                                                                   (Unaudited)          (Unaudited)
                                                                  September 30,         December 31,
                                                          ----------------------------  ------------
                                                               1997           1996         1996
                                                          --------------  ------------  ------------
                                                                       (In Thousands)
<S>                                                       <C>             <C>           <C>
(1)  Interest Paid                                               $8,190         $7,261      $9,769
(2)  Income Taxes Paid                                            2,885          2,331       3,285
(3)  Other Real Estate Acquired in Settlement of Loans              -0-             65          65
</TABLE>

                                                                               9
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
       FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
             AND FOR THE YEAR ENDED DECEMBER 31, 1996 (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 1997 the average cash balance maintained at the Federal
     Reserve Bank was $4,209,000. Compensating balances held at correspondent
     banks, to minimize service charges, averaged approximately $14,677,000
     during the same period.

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

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

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

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

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

     The Corporation has the ability and intent to hold to maturity its
     investment securities classified as held-to-maturity; accordingly, no
     adjustment has been made for the excess, if any, of amortized cost over
     market.  In determining the investment category classifications, management
     considers its asset/liability strategy, changes in interest rates and
     prepayment risk, the need to increase capital and other factors.  Under
     certain circumstances (including the deterioration of the issuer's
     creditworthiness, a change in tax law, or statutory or regulatory
     requirements), the Corporation may change the investment security
     classification.  In 1997 and 1996 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 accrual of
     interest on a loan is discontinued when, in the opinion of management,
     there is doubt about the ability of the borrower to pay interest or
     principal. Interest previously earned, but uncollected on such loans, is
     written off. When loans are put on non-accrual all payments received are
     applied to the principal and no interest income is recorded until the loan
     is returned to accrual status or the principal has been reduced to zero.

     The Corporation follows 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 placed on non-accrual status when management
     believes that the borrower's financial condition, after giving
     consideration to economic and business conditions and collection efforts,
     is such that collection of interest is doubtful.  Loans are charged against
     the allowance for loan losses when management believes that the
     collectibility of the principal is unlikely.

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

     Premises and equipment are stated at cost less accumulated depreciation.
     Depreciation expense is computed on the straight-line method based upon the
     estimated useful lives of the assets ranging from three to forty years.
     Maintenance and repairs are charged to operating expenses.  Renewals and
     betterments are added to the asset accounts and depreciated over the
     periods benefitted.  Depreciable assets sold or retired are removed from
     the asset and related accumulated depreciation accounts and any gain or
     loss is reflected in the income and expense accounts.

     Other Real Estate
     -----------------

     Other real estate is foreclosed property held pending disposition and is
     valued at the lower of its fair value or the recorded investment in the
     related loan.  At foreclosure, if the fair value of the real estate
     acquired is less than the bank's recorded investment in the related loan, a
     writedown is recognized through a charge to the allowance for loan losses.
     Any subsequent reduction in value is recognized by a charge to income.
     Operating expenses of such properties, net of related income, and gains and
     losses on their disposition are included in non-interest expense.

     Federal Income Taxes
     --------------------

     The Corporation joins with its Subsidiaries in filing a consolidated
     federal income tax return.  The Subsidiaries pay to the parent a charge
     equivalent to their current federal income tax based on the separate
     taxable income of the Subsidiaries.

     The Corporation and the Subsidiaries maintain their records for financial
     reporting and income tax reporting purposes on the accrual basis of
     accounting.  Deferred income taxes are provided in accordance with
     Statement of Financial Accounting Standards No. 109, "Accounting for Income
     Taxes".  Deferred income taxes are provided for accumulated temporary
     differences due to basic differences for assets and liabilities for
     financial reporting and income tax purposes.

     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."

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

     Certain reclassifications have been made to the 1996 financial statements
     to conform to the 1997 presentation.

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

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

     The consolidated balance sheet as of December 31, 1996, and the
     consolidated statements of income, changes in shareholders' equity and cash
     flows for the year ended December 31, 1996 are headed "unaudited" in these
     financial statements.  These statements were reported in the Securities
     Exchange Commission Form 10-K as of December 31, 1996 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, 1997
                                                      ---------------------------------------------
                                                                   Gross        Gross
                                                      Amortized  Unrealized  Unrealized     Fair
                                                        Cost       Gains       Losses       Value
                                                      ---------  ----------  -----------  ---------
<S>                                                   <C>        <C>         <C>          <C>
Investment Securities - Held-to-Maturity
  U.S. Treasury Securities                             $ 22,980        $160       $ (23)   $ 23,117
  U.S. Government Agencies
   and Corporations                                      15,217          31         (16)     15,232
  U.S. Government Agency Mortgage
   Backed Securities                                      8,925          48          (8)      8,965
  Obligations of States and
   Political Subdivisions                                   590           4         -0-         594
                                                       --------        ----       -----    --------
 
    Total Held-to-Maturity Securities                    47,712         243         (47)     47,908
                                                       --------        ----       -----    --------
Investment Securities - Available-for-Sale
  U.S.  Treasury Securities                              52,466         377         (53)     52,790
  U.S. Government Agencies
    and Corporations                                      2,991          12         -0-       3,003
  U.S. Government Agency Mortgage
    Backed Securities                                     1,838          49         -0-       1,887
  Federal Reserve and Federal Home Loan Bank Stock          915         -0-         -0-         915
                                                       --------        ----       -----    --------
 
     Total Available-for-Sale Securities                 58,210         438         (53)     58,595
                                                       --------        ----       -----    --------
 
        Total Investment Securities                    $105,922        $681       $(100)   $106,503
                                                       ========        ====       =====    ========
</TABLE>

     In the above schedule the amortized cost of Total Held-to-Maturity
                               --------------                          
Securities of $47,712,000 and the fair value  of Total Available-for-Sale
                                  ----------                             
Securities of $58,595,000 are reflected in Investment Securities on the
consolidated balance sheet as of September 30, 1997 for a total of $106,307,000.
A net unrealized gain of $385,000 is included in the Available-for-Sale
Investment Securities balance.  The unrealized gain, net of tax, is included in
Shareholders' Equity.

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

     Investment securities with carrying value of $33,707,000 at September 30,
1997, were pledged to secure federal, state and municipal deposits and for other
purposes as required or permitted by law.  The fair value of these pledged
securities totaled $33,772,000 at September 30, 1997.
<TABLE>
<CAPTION>
                                                           September 30, 1996
                                              ---------------------------------------------
                                                           Gross        Gross
                                              Amortized  Unrealized  Unrealized     Fair
                                                Cost       Gains       Losses       Value
                                              ---------  ----------  -----------  ---------
<S>                                           <C>        <C>         <C>          <C>
Investment Securities - Held-to-Maturity
  U.S. Treasury Securities                     $ 28,014        $103       $(173)   $ 27,944
  U.S. Government Agencies
   and Corporations                              23,774         -0-        (301)     23,473
  U.S. Government Agency Mortgage
   Backed Securities                             11,162          11        (118)     11,055
                                               --------        ----       -----    --------
 
    Total Held-to-Maturity Securities            62,950         114        (592)     62,472
                                               --------        ----       -----    --------
Investment Securities - Available-for-Sale
  U.S.  Treasury Securities                      51,975         152        (297)     51,830
  U.S. Government Agencies
    and Corporations                              4,489          26         (15)      4,500
  U.S. Government Agency Mortgage
    Backed Securities                             3,440          54          (9)      3,485
  Federal Reserve Bank Stock                        254         -0-         -0-         254
                                               --------        ----       -----    --------
 
     Total Available-for-Sale Securities         60,158         232        (321)     60,069
                                               --------        ----       -----    --------
 
        Total Investment Securities            $123,108        $346       $(913)   $122,541
                                               ========        ====       =====    ========
</TABLE>

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

     Proceeds from sales of securities were $4,506,000 and $12,524,000 during
the first nine months of 1997 and 1996, respectively and $14,527,000 during the
year 1996.  In the nine months ended September 30, 1997, gains of $2,000 and
losses of $3,000 were realized.  In the nine months ended September 30, 1996,
gains of $11,000 and losses of $26,000 were realized.  For the year ended
December 31, 1996, losses from sales of securities of $27,000 were realized, but
were partially offset by gains of $13,000.


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

     The book values of loans by major type follow (in thousands):
<TABLE>
<CAPTION>
                                       September 30,         
                                  -----------------------    December 31,
                                    1997           1996          1996
                                  --------------  -------    ------------
<S>                               <C>             <C>            <C>
 
Commercial                        $122,643       $ 99,963    $103,414
Real Estate Mortgage                85,084         73,686      76,771
Real Estate Construction            24,725         15,140      12,862
Loans to Individuals                31,094         25,893      27,674
Less:  Unearned Discount              (762)          (720)       (715)
                                  --------       --------    --------
                                   262,784        213,962     220,006
Allowance for Loan Losses           (3,682)        (3,008)     (2,972)
                                  --------       --------    --------
 
     Loans - Net                  $259,102       $210,954    $217,034
                                  ========       ========    ========
</TABLE>

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

     Transactions in the allowance for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
                                                  Nine Months Ended September 30,     Year Ended 
                                                  -------------------------------    December 31, 
                                                      1997            1996               1996
                                                  --------------    -------------    ------------
<S>                                               <C>               <C>              <C>
Balance, Beginning of Period                         $2,972            $2,500           $2,500
Provisions, Charged to Income                           633               480              819
                                                                              
Loans Charged-Off                                      (200)              (69)            (462)
Recoveries of Loans Previously                                                
 Charged-Off                                            277                97              115
                                                     ------            ------           ------
                                                                              
          Net Loans (Charged-Off) Recovered              77                28             (347)
                                                     ------            ------           ------
                                                                              
Balance, End of Period                               $3,682            $3,008           $2,972
                                                     ======            ======           ======
</TABLE>

    The provisions for loan losses charged to operating expenses during the nine
months ended September 30, 1997 and September 30, 1996 of $633,000 and $480,000,
respectively, were considered adequate to maintain the allowance in accordance
with the policy discussed in Note 1.  For the year ended December 31, 1996, a
provision of $819,000 was recorded.

    At September 30, 1997, the recorded investment in loans that are considered
to be impaired under Statement of Financial Accounting Standards No. 114 was
$359,000 (of which $359,000 were on non-accrual status).  The related allowance
for loan losses for these loans was $146,000.  The average recorded investment
in impaired loans during the nine months ended September 30, 1997 was
approximately $337,000.  For this period the Corporation recognized interest
income of $2,000 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>
                                                  Nine Months Ended September 30,     Year Ended 
                                                  -------------------------------    December 31, 
                                                      1997            1996               1996
                                                  --------------    -------------    ------------
<S>                                               <C>               <C>              <C> 
 
Land                                                  $ 2,170         $ 1,446           $ 1,446
Buildings and Improvements                              7,448           7,367             7,375
Furniture & Equipment                                   5,664           5,168             5,182
                                                      -------         -------           -------
                                                                              
    Total Cost                                         15,282          13,981            14,003
Less:  Accumulated Amortization and Depreciation       (7,485)         (6,822)           (6,898)
                                                      -------         -------           -------
                                                                              
    Net Book Value                                    $ 7,797         $ 7,159           $ 7,105
                                                      =======         =======           =======
</TABLE>

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

    The carrying value of other real estate is as follows (in thousands):
<TABLE>
<CAPTION>
                                                  Nine Months Ended September 30,     Year Ended 
                                                  -------------------------------    December 31, 
                                                      1997            1996               1996
                                                  --------------    -------------    ------------
<S>                                               <C>               <C>              <C> 
Other Real Estate                                     $ 186            $ 204             $ 201
Valuation Reserve                                       (35)             (35)              (35)
                                                      -----            -----             -----
                                                                             
    Net Other Real Estate                             $ 151            $ 169             $ 166
                                                      =====            =====             =====
</TABLE>

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

    Transactions in the valuation reserve are summarized as follows (in
thousands):
<TABLE>
<CAPTION>

                                                   Nine Months Ended September 30,  Year Ended 
                                                   -------------------------------  December 31, 
                                                       1997               1996          1996
                                                   ------------       ------------  ------------
<S>                                                <C>                <C>           <C>
 
Balance, Beginning of Period                           $  35             $  35         $  35
Provisions Charged to Income                             -0-               -0-           -0-
Reductions from Sales                                    -0-               -0-           -0-
                                                       -----             -----         -----
                                                                               
Balance, End of Period                                 $  35             $  35         $  35
                                                       =====             =====         =====
 
</TABLE>

    Direct writedowns of other real estate charged to income were $4,000 or the
nine months ended September 30, 1997 and $9,000 for the nine months ended
September 30, 1996 and $12,000 for the year ended December 31, 1996.


NOTE 6 - Deposits
------           

    The book values of deposits by major type follow (in thousands):
<TABLE>
<CAPTION>
                                                            September 30,
                                                   -------------------------------    December 31, 
                                                       1997               1996            1996
                                                   ------------       ------------    ------------
<S>                                                <C>                <C>             <C>
Noninterest-Bearing Demand Deposits                  $114,198           $ 91,528         $103,695
                                                     --------           --------         --------
Interest-Bearing Deposits:                                                       
 Interest-Bearing Transaction                                                    
     Accounts and Money Market Funds                  132,619            115,365          119,316
 Savings                                               51,480             50,233           49,048
 Savings Certificates - Time                           51,926             47,741           47,025
 Certificates of Deposits $100,000 or more             33,295             24,426           25,434
 Other                                                    705                505              505
                                                     --------           --------         --------
   Total                                              270,025            238,270          241,328
                                                     --------           --------         --------
       Total Deposits                                $384,223           $329,798         $345,023
                                                     ========           ========         ========
</TABLE>

NOTE 7 - Securities Sold Under Repurchase Agreements
------                                              

  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, 
                                                       1997               1996          1996
                                                   ------------       ------------  ------------
<S>                                                <C>                <C>           <C>
Securities Sold Under Repurchase Agreements:
    Average                                          $11,050            $11,880        $12,181
    Period-End                                        10,284             14,453         13,209
    Maximum Month-End Balance During Period           13,212             14,453         14,453
Interest Rate                                                                     
    Average                                             4.35%              4.32%          4.33%
    Period-End                                          4.51               4.28           4.35
 
</TABLE>

                                                                              15
<PAGE>
 
NOTE 8 - 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, 
                                                       1997               1996          1996
                                                   ------------       ------------  ------------
<S>                                                <C>                <C>           <C>
Business Development                                  $  459             $  318       $  426
Legal and Professional Fees                              400                309          442
Printing and Supplies                                    267                236          303
Regulatory Fees and Assessments                          123                154          134
Other                                                  1,119              1,023        1,277
                                                      ------             ------       ------
                                                                                  
  Total                                               $2,368             $2,040       $2,582
                                                      ======             ======       ======
</TABLE>

NOTE 9 - Income Taxes
------               

  Federal income taxes included in the consolidated balance sheets were as
follows (in thousands):
<TABLE>
<CAPTION>
                                                             September 30,       
                                                   -------------------------------  December 31, 
                                                       1997               1996          1996
                                                   ------------       ------------  ------------
<S>                                                <C>                <C>           <C>
Current Tax Asset                                      $  61             $ (26)       $  26
Deferred Tax Asset                                       547               552          449
                                                       -----             -----        -----
                                                                               
  Total Included in Other Assets                       $ 608             $ 526        $ 475
                                                       =====             =====        =====
</TABLE>
  The deferred tax asset at September 30, 1997 of $547,000 included $131,000
related to unrealized gains 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, 
                                                       1997               1996          1996
                                                   ------------       ------------  ------------
<S>                                                <C>                <C>           <C>
Federal Income Tax Expense
 Current                                              $2,852            $2,368         $3,240
 Deferred                                               (114)             (115)          (137)
                                                      ------            ------         ------
                                                                
   Total Federal Income Tax Expense                   $2,738            $2,253         $3,103
                                                      ======            ======         ======
                                                                
   Effective Tax Rates                                  34.4%             34.3%          34.3%
                                                      ======            ======         ======
</TABLE>

  The reasons for the difference between income tax expense and the amount
computed by applying the statutory federal income tax rate to operating earnings
are as follows (in thousands):
<TABLE>
<CAPTION>
                                                   Nine Months Ended September 30,     Year Ended 
                                                   -------------------------------     December 31, 
                                                       1997               1996             1996
                                                   ------------       ------------     ------------
<S>                                                <C>                <C>              <C>
Federal Income Taxes at Statutory
 Rate of 34%                                          $2,708              $2,233          $3,076
Effect of Tax Exempt Interest Income                      (9)                 (7)             (8)
Non-deductible Expenses                                   36                  27              39
Other                                                      3                   0              (4)
                                                      ------              ------          ------
                                                                                       
 Income Taxes Per Income Statement                    $2,738              $2,253          $3,103
                                                      ======              ======          ======
</TABLE>

16
<PAGE>
 
NOTE 10 - Related Party Transactions
-------                             

  The Subsidiary Banks have transactions made in the ordinary course of business
with certain of its officers, directors and their affiliates.  All loans
included in such transactions are made on substantially the same terms,
including interest rate and collateral, as those prevailing at the time for
comparable transactions with other persons.  Total loans outstanding to such
parties amounted to approximately $3,819,000 at December 31, 1996.


NOTE 11 - 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, 1997, outstanding documentary and standby letters of credit
totaled $3,970,000 and commitments to extend credit totaled $90,164,000.


NOTE 12 - Stock Option Plans
-------                     

  The Corporation adopted an Incentive Stock Option Plan ("1993 Plan") with
300,000 shares (adjusted for the April 1993 and December 1995 two-for-one stock
splits) of common stock reserved for grants thereunder.  The Board of Directors
and the Shareholders have approved a new plan, the 1997 Incentive Stock Option
Plan ("1997 Plan").  The 1997 Plan reserved 300,000 shares for grants
thereunder.   These plans provide for the granting to management employees of
Summit Bancshares, Inc. and Subsidiaries, incentive stock options, as defined
under the current tax law.  The options will be exercisable for ten years from
the date of grant and generally vest ratably over a five year period.

  Options under both plans will be 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, 1996, or the nine months ended September 30, 1997.

 The following is a summary of transactions during the periods presented:
<TABLE>
<CAPTION>
                                               Shares Under Option
                                     ---------------------------------------
                                         Nine Months
                                            Ended             Year Ended
                                     September 30, 1997   December 31, 1996
                                     -------------------  ------------------
<S>                                  <C>                  <C>
Outstanding, Beginning of Period           232,050             301,400
Additional Options Granted During          
  the Period                                36,076              29,800
Forfeited During the Period                   (640)             (1,000)
Exercised During the Period                (10,810)            (98,150)
                                           -------             -------
                                           
  Outstanding, End of Period               256,676             232,050
                                           =======             =======
</TABLE>

     Options outstanding at September 30, 1997 ranged in price from $6.00 to
$26.38 per share with a weighted average exercise price of $11.93 and with
184,415 shares exercisable.  At September 30, 1997, there remained 334 shares
reserved for future grants of options under the 1993 Plan and 288,750 shares
reserved for future grants of options under the 1997 Plan.

NOTE 13 - Employee Benefit Plans
-------                         

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

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

                                                                              17
<PAGE>
 
NOTE 13 - Employee Benefit Plans (cont'd.)
-------                                   

     The table below sets forth the plan's funded status and amounts recognized
in the Corporation's consolidated balance sheets at December 31 (in thousands):
<TABLE>
<CAPTION>
                                                              1996      1995
                                                             -------   ------
<S>                                                          <C>       <C>
Actuarial present value of benefit obligations:              
 Accumulated benefit obligation, including vested            
  benefits of $1,647 in 1996 and $1,152 in 1995              $1,762    $1,183
                                                             ======    ======
Projected benefit obligation for service rendered            
 to date                                                     $1,997    $1,912
Plan assets at fair value, primarily listed stocks           
 and U.S. bonds                                               2,192     1,786
                                                             ------    ------
Plan assets in excess of (less than) projected               
 benefit obligation                                             195      (126)
Unrecognized net loss from past experience                   
 different from that assumed and effect of                   
 changes in assumptions                                          21       197
Prior service cost not yet recognized in net                 
 periodic pension cost                                           15        17
                                                             ------    ------
                                                             
Net pension cost included in other assets/                   $  231    $  (88)
 (other liabilities)                                         ======    ======
 
Prepaid (accrued) pension cost included the following components (in thousands):

                                                         Year Ended December 31,
                                                         -----------------------
                                                              1996      1995
                                                         -----------  ----------
                                                             
Service Cost - benefits earned during the period             $  195    $  154
Interest cost on projected benefit obligation                   131       140
Less: Actual return on plan assets                             (153)     (260)
Net amortization and deferral                                    (2)      145
                                                             ------    ------
                                                             
   Net periodic pension cost                                 $  171    $  179
                                                             ======    ======
</TABLE>

     The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligation
were 8 percent and 5 percent, respectively.  The expected long-term rate of
return on plan assets was 8 percent.

     The market value of plan assets at September 30, 1997 was $2,830,000.
There was a contribution to the plan during 1997 of $370,000 and prepaid pension
cost at September 30, 1997 was $446,000.

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

     In 1992, the Corporation established a Management Security Plan to provide
key employees with retirement, death or disability benefits in addition to those
provided by the Pension Plan.  The expense charged to operations for such future
obligations was $243,000 and $170,000 during the first nine months of 1997 and
1996, respectively, and $239,000 for the year 1996.

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 14 - Earnings per Share
-------                     

     Earnings per share of common stock are based on the weighed average number
of shares outstanding during the periods as follows:
<TABLE>
<CAPTION>
                                  Shares
                                 ---------
<S>                              <C>
Periods of Nine Months Ended:
 
  September 30, 1997             3,237,171
  September 30, 1996             3,189,359
 
Year Ended December 31, 1996     3,199,480
 
</TABLE>

NOTE 15 - Financial Instruments with Off-Balance Sheet Risk
-------                                                    

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

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

  The total contractual amounts of financial instruments with off-balance sheet
risk are as follows (in thousands):
<TABLE>
<CAPTION>
 
                                        September 30,
                                     ------------------
                                       1997      1996
                                     --------  --------
<S>                                  <C>       <C>     
 
Financial Instruments Whose
  Contract Amounts Represent
     Credit Risk:

     Commitments to Extend Credit     $90,164   $76,542  
     
     Documentary and Standby
       Letters of Credit                3,970     4,665
</TABLE>

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

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

NOTE 16 - 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 17 - 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 18 - Stock Repurchase Plan
-------                        

    On April 15, 1997, the Board of Directors approved a stock repurchase plan.
The plan authorized management to purchase up to 161,782 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 1996, 9,000 shares were purchased by the Corporation through a similar
repurchase plan through the open market.  Such shares were canceled and returned
to authorized and unissued status.  In the first nine months of 1997, no shares
were purchased.


NOTE 19 - Subsequent Event
-------                   

    On October 21, 1997, the Board of Directors of the Corporation approved a
quarterly dividend of $.09 per share to be paid on November 14, 1997 to
shareholders of record on October 31, 1997.

    On October 21, 1997, the Board of Directors of the Corporation approved a
two for one (2 for 1) stock split to be effected as a 100% stock dividend.  The
stock split is to be payable on December 9, 1997 to holders of record of the
Company's common stock as of the close of business on November 19, 1997.


NOTE 20 - 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.

20
<PAGE>
 
NOTE 20 - Fair Values of Financial Instruments (cont'd.)
-------                                                 

     The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
                                                          September 30,
                                              -------------------------------------
                                                    1997                1996
                                              -----------------  ------------------
                                              Carrying   Fair    Carrying    Fair
                                               Amount    Value    Amount    Value
                                              --------  -------  --------  --------
<S>                                           <C>       <C>      <C>       <C>
   Financial Assets
     Cash and due from banks                  $ 33,060   33,060  $ 24,962  $ 24,962
     Federal funds sold                         23,485   23,485     8,330     8,330
     Securities                                106,307  106,503   123,019   122,541
     Loans                                     262,784  261,734   213,962   214,543
 
   Financial Liabilities
     Deposits                                  384,223  384,451   329,798   329,910
     Securities sold under repurchase
      agreements                                10,284   10,284    14,453    14,453
 
   Off-balance Sheet Financial Instruments
     Loan commitments                                    90,164              76,542
     Letters of credit                                    3,970               4,665
</TABLE>

                                                                              21
<PAGE>
 
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------

Summary
-------

     Net income for the third quarter of 1997 was $1,782,000, or $.55 per share,
compared with $1,634,000, or $.51 per share, for the third quarter of 1996.  On
a per share basis, net income increased 7.8% over the third quarter of the prior
year.

     Net income for the first nine months of 1997 was $5,226,000, or $1.61 per
share, compared with $4,314,000, or $1.35 per share for the first nine months of
1996.  Per share amounts are based on average shares outstanding of 3,237,171
for the first nine months of 1997 and 3,189,359 for the first nine months of
1996.

     Outstanding loans at September 30, 1997 of $262.8 million represented an
increase of $48.8 million, or 22.8%, over September 30, 1996 and an increase of
$42.8 million, or 19.4%, from December 31, 1996.

     Total deposits at September 30, 1997 of $384.2 million represented an
increase of $54.4 million, or 16.5%, over September 30, 1996 and an increase of
$39.2 million, or 11.4%, from December 31, 1996.
 
     In the third quarter, net interest income increased 15.8% over the previous
year.  An increase in non-interest expense of 16.4% partially offset the
increase in net interest income.

     The following table summarizes the Corporation's performance for the nine
months ended September 30, 1997 and 1996 (tax equivalent basis and dollars in
thousands).
<TABLE>  
<CAPTION>
                                  Three Months Ended    Nine Months Ended
                                     September 30,        September 30,
                                  ------------------    ----------------- 
                                    1997      1996        1997      1996
                                  --------  --------    --------  -------
<S>                               <C>       <C>       <C>        <C>
Interest Income                    $8,254    $7,067    $23,458    $20,293
Interest Expense                    2,952     2,490      8,205      7,214
                                   ------    ------    -------    -------
 Net Interest Income                5,302     4,577     15,253     13,079
Provision for Loan Loss               281       192        633        480
                                   ------    ------    -------    -------
                                  
 Net Interest Income After        
   Provision for Loan Loss          5,021     4,385     14,620     12,599
Non-Interest Income                   825       785      2,407      2,245
Non-Interest Expense                3,128     2,687      9,050      8,267
                                   ------    ------    -------    -------
                                  
 Income Before Income Tax           2,718     2,483      7,977      6,577
Income Tax Expense                    936       849      2,751      2,263
                                   ------    ------    -------    -------
                                  
   Net Income                      $1,782    $1,634    $ 5,226    $ 4,314
                                   ======    ======    =======    =======
                                  
Net Income per Share               $  .55    $  .51    $  1.61    $  1.35
                                  
Return on Average Assets             1.68%     1.73%      1.73%      1.58%
 
Return on Average Stockholders' 
 Equity*                            18.17%    19.97%     18.74%     18.30%
</TABLE>
*  Before adjustment for unrealized gains and losses on Available-for-Sale
securities.

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 1997 and 1996 (rates on tax equivalent basis).
<TABLE>
<CAPTION>
 
 
                                                            Three Months ended September 30,
                                          --------------------------------------------------------------------
                                                              1997                               1996
                                          ---------------------------------------------  ---------------------
                                           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                       $ 19,432     $  273        5.58%   $ 13,083     $  185        5.37%
  Investment Securities (Taxable)           110,201      1,705        6.14     124,332      1,888        6.04
  Investment Securities (Tax-exempt)            592         10        6.55         -0-        -0-         -0-
  Loans, Net of Unearned Discount/(1)/      254,428      6,266        9.77     208,236      4,994        9.54
                                           --------     ------                --------     ------
    Total Earning Assets                    384,653      8,254        8.51     345,651      7,067        8.13
                                                        ------                             ------
 
Non-interest Earning Assets:
  Cash and Due From Banks                    26,317                             21,350
  Other Assets                               13,656                             12,549
  Allowance for Loan Losses                  (3,545)                            (2,882)
                                           --------                           --------
    Total Assets                           $421,081                           $376,668
                                           ========                           ========
 
Interest-Bearing Liabilities:
  Interest-Bearing Transaction
    Accounts and Money Market Funds        $131,601      1,211        3.65    $118,321        985        3.31
  Savings                                    50,514        548        4.30      48,770        495        4.04
  Savings Certificates                       51,080        646        5.02      47,738        562        4.68
  Certificates of Deposit
    $100,000 or more                         31,719        424        5.30      24,253        300        4.92
  Other Time                                    705         10        5.54         487          5        4.18
  Other Borrowings                            9,890        113        4.52      13,505        143        4.33
                                           --------     ------                --------     ------
    Total Interest-Bearing Liabilities      275,509      2,952        4.25     253,074      2,490        3.91
                                                        ------                             ------
 
Non-interest Bearing Liabilities:
  Demand Deposits                           104,482                             88,637
  Other Liabilities                           2,171                              2,405
  Shareholders' Equity                       38,919                             32,552
                                           --------                           --------
    Total Liabilities and
      Shareholders' Equity                 $421,081                           $376,668
                                           ========                           ========
 
Net Interest Income and Margin
 (Tax-equivalent Basis)/(2)/                            $5,302        5.47                 $4,577        5.27
                                                        ======                             ======
 
</TABLE>
(1)  Loan interest income includes fees and loan volumes include loans on non-
     accrual.
(2)  Presented on a tax equivalent basis ("T/E") using a federal income tax rate
     of 34% in both years.

                                                                              23
<PAGE>
 
The following schedule presents average balance sheets that highlight earning
assets and interest-bearing liabilities and their related rates earned and paid
for the first nine months of 1997 and 1996 (rates on tax equivalent basis).
<TABLE>
<CAPTION>
                                                                                      Nine Months ended September 30,
                                                                  ------------------------------------------------------------------

                                                                               1997                              1996
                                                                  -------------------------------  ---------------------------------

                                                                  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                                             $ 14,239    $   589        5.53%   $ 16,576    $   677        5.35%

  Investment Securities (Taxable)                                 113,676      5,243        6.17     122,880      5,553        6.04
  Investment Securities (Tax-exempt)                                  473         23        6.51          32          2        8.15
  Loans, Net of Unearned Discount/(1)/                            242,215     17,599        9.71     195,727     14,061        9.57
                                                                 --------    -------                --------    -------
    Total Earning Assets                                          370,603     23,454        8.46     335,215     20,293        8.09
                                                                             -------                            -------
Non-interest Earning Assets:
  Cash and Due From Banks                                          24,283                             20,778
  Other Assets                                                     13,144                             12,209
  Allowance for Loan Losses                                        (3,365)                            (2,715)
                                                                 --------                           --------
    Total Assets                                                 $404,665                           $365,487
                                                                 ========                           ========
Interest-Bearing Liabilities:
  Interest-Bearing Transaction
    Accounts & Money Market Funds                                $127,444      3,380        3.55    $115,572      2,837        3.28
  Savings                                                          50,248      1,562        4.16      45,053      1,359        4.03
  Savings Certificates                                             48,414      1,773        4.90      48,226      1,723        4.77
  Certificates of Deposit
    $100,000 or more                                               28,672      1,103        5.14      24,350        900        4.94
  Other Time                                                          594         23        5.27         402         14        4.63
  Other Borrowings                                                 11,107        360        4.33      11,880        381        4.32
                                                                 --------    -------                --------    -------
    Total Interest-Bearing Liabilities                            266,479      8,201        4.11     245,483      7,214        3.93
                                                                             -------                            -------
Non-interest Bearing Liabilities:
  Demand Deposits                                                  98,766                             86,264
  Other Liabilities                                                 2,147                              2,245
  Shareholders' Equity                                             37,273                             31,495
                                                                 --------                           --------
    Total Liabilities and
      Shareholders' Equity                                       $404,665                           $365,487
                                                                 ========                           ========
Net Interest Income and Margin
 (Tax-equivalent Basis)/(2)/                                                 $15,253        5.50                $13,079        5.21
                                                                             =======                            =======
 
</TABLE>
(1)  Loan interest income includes fees and loan volumes include loans on non-
     accrual.
(2)  Presented on a tax equivalent basis ("T/E") using a federal income tax rate
     of 34% in both years.

24
<PAGE>
 
Net Interest Income
-------------------

    Net interest income (tax equivalent) for the third quarter of 1997 was
$5,302,000 which represented an increase of $725,000, or 15.8%, over the third
quarter of 1996.  This increase was heavily contributed to by a 22.2% increase
in average loans for the third quarter of 1997 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, 1997 and
1996.
<TABLE>
<CAPTION>
                                    ANALYSIS OF CHANGES IN NET INTEREST INCOME
                                              (Dollars in Thousands)
 
                              3rd Qtr. 1997 vs. 3rd Qtr.   Nine Mos. 1997 vs. Nine Mos.
                                         1996                          1996
                                 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            $   81     $  7     $   88    $ (119)    $ 31      $  (88)  
 Investment Securities 
  (Taxable)                      (377)     194       (183)     (489)     179        (310)
 Investment Securities
  (Tax-exempt)                     10      -0-         10        22       (1)         21
 Loans, Net of Unearned
  Discount                      1,147      125      1,272     3,333      205       3,538
                               ------     ----     ------    ------     ----      ------
 
 Total Interest Income            861      326      1,187     2,747      414       3,161
                               ------     ----     ------    ------     ----      ------
 
Interest-Bearing
 Liabilities:
 Deposits                         272      220        492       653      355       1,008   
Other Borrowings                  (70)      40        (30)      (23)       2         (21)
                               ------     ----     ------    ------     ----      ------
                               
 Total Interest Expense           202      260        462       630      357         987
                               ------     ----     ------    ------     ----      ------
 
Net Interest Income            $  659     $ 66     $  725    $2,117     $ 57      $2,174
                               ======     ====     ======    ======     ====      ======
</TABLE>

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

  The Corporation's allowance for loan losses was $3,682,000, or 1.40% of total
loans, as of September 30, 1997 compared to $3,008,000, or 1.41% of total loans,
as of September 30, 1996.

 Transactions in the allowance for loan losses are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
                                 Three Months Ended      Nine Months Ended
                                    September 30,           September 30,
                                 ------------------      -----------------
                                  1997       1996         1997       1996
                                 ------     ------       ------     ------
<S>                              <C>        <C>          <C>        <C>
Balance, Beginning of Period     $3,512     $2,829       $2,972     $2,500
Provisions, Charged to Income       281        192          633        480
Loans Charged-Off                  (129)       (42)        (200)       (69)
Recoveries of Loans Previously                         
  Charged-Off                        18         29          277         97
                                 ------     ------       ------     ------
    Net Loans (Charged-Off)                            
      Recovered                    (111)       (13)          77         28
                                 ------     ------       ------     ------
                                                       
Balance, End of Period           $3,682     $3,008       $3,682     $3,008
                                 ======     ======       ======     ======
</TABLE>

                                                                              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,
                                1997         1997      1997         1996          1996
                            -------------  --------  ---------  ------------  -------------
<S>                         <C>            <C>       <C>        <C>           <C>
Non-Accrual Loans              $1,245       $  901     $1,005      $1,102         $1,282
Other Real Estate Owned           151          151        163         166            169
                               ------       ------     ------      ------         ------
  Total Non-Performing                                           
    Assets                     $1,396       $1,052     $1,168      $1,268         $1,451
                               ======       ======     ======      ======         ======
</TABLE>
     Non-accrual loans to total loans were .47% at September 30, 1997 and non-
performing assets were .53% of loans and other real estate owned at the same
date.

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

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

     The following table reflects the changes in non-interest income during the
periods presented (dollars in thousands).
<TABLE>
<CAPTION>
                                              Three Months Ended            Nine Months Ended
                                                 September 30,                September 30,
                                          -------------------------  ------------------------------
                                           1997    1996   % Change     1997      1996     % Change
                                          ------  ------  ---------  --------  --------  ----------
<S>                                       <C>     <C>     <C>        <C>       <C>       <C>
Service Charges on Deposit Accounts       $ 489   $ 423       15.6%   $1,389    $1,210        14.8%
Loss on Sale of Investment  Securities       (1)     (8)        --        (1)      (15)         --
Non-recurring Income                         33      88         --       120       157       (23.6)
Other Non-interest Income                   304     282        7.8       899       893         1.0
                                          -----   -----               ------    ------       
                                                                                             
  Total Non-interest Income               $ 825   $ 785        5.1    $2,407    $2,245         7.2
                                          =====   =====               ======    ======
</TABLE>

   Non-recurring income is primarily interest recovered on loans charged-off in
prior years.  The decrease in other non-interest income for the nine months
ended September 30, 1997 was primarily due to decreases in fees earned from
investment brokerage services and issuances of letters of credit.

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,
                                   -----------------------------------  ---------------------------------
                                      1997        1996      % Change       1997       1996      % Change
                                   ----------  ----------  -----------  ----------  ---------  ----------
<S>                                <C>         <C>         <C>          <C>         <C>        <C>
 
Salaries & Employee Benefits          $1,895      $1,691         12.1%     $5,470      $5,043        8.5%
Occupancy Expense - Net                  186         179          3.9         573         566        1.2
Furniture and Equipment Expense          237         206         15.1         668         606       10.2
Other Real Estate Expense - Net          (21)         (4)          --         (29)         12         --
Other Expenses:
 Business Development                    186         100         86.0         459         318       44.3
 Insurance - Other                        25          25           --          72          76       (5.3)
 Legal & Professional Fees               152         104         14.4         400         309       29.5
 Taxes - Other                            54          27        200.0         127          74       71.2
 Postage & Courier                        77          68         13.2         209         198        5.6
 Printing & Supplies                      93          82         13.4         267         236       13.1
 Regulatory Fees & Assessments            38          52        (26.9)        123         154      (20.1)
 Other Operating Expenses                206         157         31.2         711         675        5.3
                                      ------      ------                   ------      ------
 
   Total Other Expenses                  831         615         35.1       2,368       2,040       16.1
                                      ------      ------                   ------      ------
 
   Total Non-interest Expense         $3,128      $2,687         16.4      $9,050      $8,267        9.5
                                      ======      ======                   ======      ======
</TABLE>

26
<PAGE>
 
  Total non-interest expense increased 16.4% in the third quarter of 1997 over
1996, reflecting increases in salaries and benefits, furniture and equipment
expenses, business development, legal and professional expense, taxes-other and
printing and supplies.  As a percent of average assets, non-interest expenses
were 2.97% in the third quarter of 1997, an increase from 2.85% in the third
quarter of 1996.  The "efficiency ratio" (non-interest expenses divided by total
non-interest income plus net interest income) was 51.1% for the third quarter of
1997.  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 1997
is due to salary merit increases, incentive compensation accrual increases, and
an increase in pension plan expense.  Also, the average number of full-time
equivalent employees increased by seven in the third quarter of 1997 to an
average full-time equivalent of 142 compared to the same quarter last year.

  The increase in furniture and equipment expense is primarily a result of
increased depreciation for new furniture and equipment acquired in the past
year.

  Business development expense increased as a result of increased advertising
expenses related to the new name for Summit Community Bank and advertising
expenses related to new products.

  Legal and professional fees increased due to increased miscellaneous legal
fees and other miscellaneous professional fees.

  Taxes-other increased due to additional state franchise taxes paid on
increased levels of capital and additional taxes due as a result of audits of
franchise tax returns of all SBI entities for the four years prior to 1996.

  The increase in printing and supplies was also primarily related to the
expenses of the Summit Community Bank name change and new product brochures.

  Other operating expenses increased in the third quarter of 1997 due to
increases in various miscellaneous operating costs including extraordinary
expenses related to merchant credit card account relationships.

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.

                                                                              27
<PAGE>
 
    The following table, commonly referred to as a "static gap report",
indicates the interest rate sensitivity position at September 30, 1997 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                             $151,158     $ 17,388      $15,636     $184,182       $ 78,602   $262,784
  Investment Securities                4,243       20,633       24,487       49,363         56,944    106,307
  Federal Funds Sold                  23,485          -0-          -0-       23,485            -0-     23,485
                                    --------     --------      -------     --------       --------   --------
 
   Total Earning Assets              178,886       38,021       40,123      257,030        135,546    392,576
                                    --------     --------      -------     --------       --------   --------
Interest Bearing Liabilities:
  Interest-Bearing Transaction
    Accounts and Savings             184,100          -0-          -0-      184,100            -0-    184,100
  Certificate of Deposits
    greater than $100,000              6,875       13,561        7,569       28,005          5,290     33,295
  Other Time Deposits                  5,315       21,809       15,048       42,172         10,458     52,630
  Repurchase Agreements               10,284          -0-          -0-       10,284            -0-     10,284
                                    --------     --------      -------     --------       --------   --------
   Total Interest Bearing
    Liabilities                      206,574       35,370       22,617      264,561         15,748    280,309
                                    --------     --------      -------     --------       --------   --------
Interest Sensitivity
 Gap                                $(27,688)    $  2,651      $17,506     $ (7,531)      $119,798   $112,267
                                    ========     ========      =======     ========       ========   ========
Cumulative Gap                      $(27,688)    $(25,037)     $(7,531)
                                    ========     ========      =======
Cumulative Gap to
 Total Earning Assets                   (7.1%)       (6.4%)       (1.9%)
 
Cumulative Gap to
 Total Assets                           (6.3%)       (5.7%)       (1.7%)
</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 of assets liabilities
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 six
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 (1.7%) was reversed to a positive 20.1% "beta adjusted" gap position.

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

Capital
-------

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

    At September 30, 1997, total capital to total assets was 8.94%.

28
<PAGE>
 
    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, 1997,  the Corporation's Tier I
capital represented 14.09% of risk weighted assets and total qualifying capital
(Tier I and Tier II) represented 15.34% of risk weighted assets.  Both ratios
are well above current regulatory guidelines.

                                                                              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, 1997




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: November 7, 1997              By: /s/  Philip E. Norwood
      -----------------                -----------------------------------------
                                       Philip E. Norwood, President and
                                       Chief Executive Officer

Date: November 7, 1997              By: /s/  Bob G. Scott
      -----------------                 ----------------------------------------
                                        Bob G. Scott, Senior Vice President
                                        and Chief Financial Officer




                                                                              31


<PAGE>
 
                                 EXHIBIT INDEX

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


11             Computation of Earnings Per Common Share

27             Financial Data Schedule