10-Q/A

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q/A

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, 2005
or
o	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.)

3880 Hulen St., Fort Worth, Texas 76107

(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   o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 

Yes   x No   o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   o No   x

The number of shares of common stock, $1.25 par value, outstanding at October 31, 2005 was 12,444,228 shares.

SUMMIT BANCSHARES, INC.

INDEX

			Page No.
PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets at September 30, 2005 and 2004 and at December 31, 2004	3
		Consolidated Statements of Income for the Nine Months Ended September 30, 2005 and 2004 and for the Year Ended December 31, 2004	4
		Consolidated Statements of Income for the Three Months Ended September 30, 2005 and 2004	5
		Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2005 and 2004 and for the Year Ended December 31, 2004	6
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004 and for  the Year Ended December 31, 2004	7
		Notes to Consolidated Financial Statements for the Nine Months Ended September 30, 2005 and 2004 and for the Year Ended December 31, 2004	8-20
	The September 30, 2005 and 2004 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 for a fair statement of the results for the interim periods.  The financial statements for the year ended December 31, 2004 included herein are headed “unaudited.”  These financial statements were reported as “audited” in our Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission but are required to be reflected herein as unaudited because of the absence of an independent auditor’s report.
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21-33
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
	Item 4.	Controls and Procedures	33
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	34
	Item 2.	Unregistered Sales of Equity Securities and Use of  Proceeds	34
	Item 3.	Defaults Upon Senior Securities	34
	Item 4.	Submission of Matters to a Vote of Security Holders	34
	Item 5.	Other Information	34
	Item 6.	Exhibits	34-35

2

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	(Unaudited) September 30,						(Unaudited) December 31, 2004
	2005			2004
	(In Thousands)
ASSETS
CASH AND DUE FROM BANKS – NOTE 1	$	34,967		$	30,836		$	27,219
FEDERAL FUNDS SOLD & DUE FROM TIME		15,671			19,467			5,020
INVESTMENT SECURITIES – NOTE 3
Securities Available-for-Sale, at fair value		236,544			219,264			223,351
LOANS – NOTES 4, 14 AND 20
Loans, Net of Unearned Discount		754,153			689,906			702,619
Allowance for Loan Losses		(11,131	)		(10,079	)		(10,187	)
LOANS, NET		743,022			679,827			692,432
PREMISES AND EQUIPMENT – NOTE 5		15,620			15,643			15,749
GOODWILL – NOTE 6		9,060			7,978			8,042
OTHER INTANGIBLE ASSETS, NET – NOTE 6		2,276			2,560			2,478
ACCRUED INCOME RECEIVABLE		5,651			4,729			4,814
OTHER REAL ESTATE – NOTE 7		-0-			-0-			-0-
OTHER ASSETS		11,450			10,102			10,012
TOTAL ASSETS	$	1,074,261		$	990,406		$	989,117
LIABILITIES AND SHAREHOLDERS’ EQUITY
DEPOSITS – NOTE 8
Noninterest-Bearing Demand	$	258,644		$	232,586		$	235,399
Interest-Bearing		607,384			558,938			556,865
TOTAL DEPOSITS		866,028			791,524			792,264
SHORT TERM BORROWINGS – NOTE 9		111,370			106,733			103,972
NOTES PAYABLE – NOTE 10		150			2,250			1,750
JUNIOR SUBORDINATED DEFERRABLE DEBENTURES – NOTE 11		12,372			12,372			12,372
ACCRUED INTEREST PAYABLE		900			601			601
OTHER LIABILITIES		3,714			3,378			3,668
TOTAL LIABILITIES		994,534			916,858			914,627
COMMITMENTS AND CONTINGENCIES – NOTES 15, 17, 19 AND 21
SHAREHOLDERS’ EQUITY – NOTES 16, 18 AND 22
Common Stock - $1.25 Par Value; 20,000,000 shares authorized; 12,430,116, 12,334,198 and 12,359,232 shares issued and outstanding at September 30, 2005 and 2004 and at December 31, 2004, respectively		15,538			7,709			15,449
Capital Surplus		8,082			7,580			7,705
Retained Earnings		58,362			57,588			51,810
Accumulated Other Comprehensive Income – Unrealized Gain (Loss) on Available-for-Sale Investment Securities, Net of Tax (Benefit)		(2,236	)		671			(474	)
Treasury Stock at Cost (988 shares at September 30, 2005)		(19	)		-0-			-0-
TOTAL SHAREHOLDERS’ EQUITY		79,727			73,548			74,490
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,074,261		$	990,406		$	989,117

The accompanying Notes should be read with these financial statements.

3

SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

	(Unaudited) For the Nine Months Ended September 30,					(Unaudited) Year Ended December 31, 2004
	2005			2004
	(In Thousands, Except Per Share Data)
INTEREST INCOME
Interest and Fees on Loans	$	36,905		$	28,097	$	39,018
Interest and Dividends on Investment Securities:
Taxable		5,912			5,435		7,409
Exempt from Federal Income Taxes		228			191		260
Interest on Federal Funds Sold and Due From Time		182			139		170
TOTAL INTEREST INCOME		43,227			33,862		46,857
INTEREST EXPENSE
Interest on Deposits		8,169			5,474		7,677
Interest on Short Term Borrowings		2,313			1,005		1,423
Interest on Notes Payable		55			41		62
Interest on Junior Subordinated Deferrable Debentures		522			203		344
TOTAL INTEREST EXPENSE		11,059			6,723		9,506
NET INTEREST INCOME		32,168			27,139		37,351
LESS: PROVISION FOR LOAN LOSSES – NOTE 4		765			1,500		1,790
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		31,403			25,639		35,561
NON-INTEREST INCOME
Service Charges and Fees on Deposits		2,964			3,164		4,248
Gain on Sale of Investment Securities		-0-			32		32
Other Income		3,127			2,235		2,962
TOTAL NON-INTEREST INCOME		6,091			5,431		7,242
NON-INTEREST EXPENSE
Salaries and Employee Benefits - NOTE 17		13,296			11,169		15,329
Occupancy Expense - Net		1,988			1,560		2,206
Furniture and Equipment Expense		1,756			1,670		2,261
Other Real Estate Owned Expense - Net		(11	)		38		44
Core Deposit Intangible Amortization		246			137		219
Other Expense – NOTE 12		5,172			4,415		6,131
TOTAL NON-INTEREST EXPENSE		22,447			18,989		26,190
INCOME BEFORE INCOME TAXES		15,047			12,081		16,613
APPLICABLE INCOME TAXES – NOTE 13		5,387			4,238		5,851
NET INCOME	$	9,660		$	7,843	$	10,762
NET INCOME PER SHARE – NOTE 18
Basic	$	0.78		$	0.64	$	0.87
Diluted		0.76			0.62		0.85

The accompanying Notes should be read with these financial statements.

4

SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

	(Unaudited) For the Three Months Ended September 30,
	2005		2004
	(In Thousands, Except Per Share Data)
INTEREST INCOME
Interest and Fees on Loans	$	13,203	$	10,297
Interest and Dividends on Investment Securities:
Taxable		2,072		1,939
Exempt from Federal Income Taxes		86		74
Interest on Federal Funds Sold and Due From Time		115		51
TOTAL INTEREST INCOME		15,476		12,361
INTEREST EXPENSE
Interest on Deposits		3,185		1,996
Interest on Short Term Borrowings		878		385
Interest on Notes Payable		12		25
Interest on Junior Subordinated Deferrable Debentures		188		127
TOTAL INTEREST EXPENSE		4,263		2,533
NET INTEREST INCOME		11,213		9,828
LESS: PROVISION FOR LOAN LOSSES – NOTE 4		315		495
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		10,898		9,333
NON-INTEREST INCOME
Service Charges and Fees on Deposits		992		1,180
Gain on Sale of Investments Securities		-0-		32
Other Income		1,184		929
TOTAL NON-INTEREST INCOME		2,176		2,141
NON-INTEREST EXPENSE
Salaries and Employee Benefits - NOTE 17		4,579		4,029
Occupancy Expense - Net		724		570
Furniture and Equipment Expense		587		610
Other Real Estate Owned Expense - Net		-0-		23
Core Deposit Intangible Amortization		82		82
Other Expense – NOTE 12		1,665		1,795
TOTAL NON-INTEREST EXPENSE		7,637		7,109
INCOME BEFORE INCOME TAXES		5,437		4,365
APPLICABLE INCOME TAXES – NOTE 13		1,981		1,569
NET INCOME	$	3,456	$	2,796
NET INCOME PER SHARE  - NOTE 18
Basic	$	0.28	$	0.23
Diluted		0.27		0.22

The accompanying Notes should be read with these financial statements.

5

SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE  NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
AND FOR THE YEAR ENDED DECEMBER 31, 2004
(Unaudited)

												Accumulated Other Comprehensive Income - Net Unrealized Gain (Loss) on Investment Securities
																		Total Share- Holders’ Equity
	Common Stock
							Capital Surplus		Retained Earnings						Treasury Stock
	Shares			Amount
	(Dollars in Thousands, Except Per Share Data)
Balance at January 1, 2004		6,152,329		$	7,690		$	7,421	$	52,988		$	688		$	(103	)	$	68,684
Stock Options Exercised		38,970			49			159											208
Purchases of Stock Held in Treasury																(581	)		(581	)
Retirement of Stock Held in Treasury		(24,200	)		(30	)				(654	)					684			-0-
Cash Dividend - $.21 Per Share										(2,589	)								(2,589	)
Net Income for the Nine Months Ended September 30, 2004										7,843									7,843
Securities Available- for-Sale Adjustment													(17	)					(17	)
Total Comprehensive Income – NOTE 25																			7,826
Balance at September 30, 2004		6,167,099			7,709			7,580		57,588			671			-0-		$	73,548
Stock Options Exercised		16,300			20			125											145
Purchases of Stock Held in Treasury																(113	)		(113	)
Retirement of Stock Held in Treasury		(3,383	)		(4	)				(109	)					113			-0-
Two-for-One Stock Split		6,179,216			7,724					(7,724	)								-0-
Cash Dividend - $.07 Per Share										(864	)								(864	)
Net Income for the Three Months Ended December 31, 2004										2,919									2,919
Securities Available- for-Sale Adjustment													(1,145	)					(1,145	)
Total Comprehensive Income – NOTE 25																			1,774
Balance at December 31, 2004		12,359,232			15,449			7,705		51,810			(474	)		-0-			74,490
Stock Options Exercised		100,184			126			377											503
Purchases of Stock Held in Treasury																(561	)		(561	)
Retirement of Stock Held in Treasury		(29,300	)		(37	)				(505	)					542			-0-
Cash Dividend - $.21 Per Share										(2,603	)								(2,603	)
Net Income for the Nine Months Ended September 30, 2005										9,660									9,660
Securities Available- for-Sale Adjustment													(1,762	)					(1,762	)
Total Comprehensive Income – NOTE 25																			7,898
Balance at September 30, 2005		12,430,116		$	15,538		$	8,082	$	58,362		$	(2,236	)	$	(19	)	$	79,727

The accompanying Notes should be read with these financial statements.

6

SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
AND FOR THE YEAR ENDED DECEMBER 31, 2004

	(Unaudited) For the Nine Months Ended September 30,						(Unaudited) Year Ended December 31, 2004
	2005			2004
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	9,660		$	7,843		$	10,762
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		1,430			1,204			1,669
Net Premium Amortization of Investment Securities		1,044			1,035			1,429
Amortization of Core Deposit Intangible		246			137			219
Provision for Loan Losses		765			1,500			1,790
Deferred Income Taxes Benefit		(502	)		(493	)		(434	)
Net Gain on Sale of Investment Securites		-0-			(32	)		(32	)
Net Gain From Sale of Other Real Estate & Repossessed Assets		-0-			(69	)		(70	)
Net Gain From Sale of Premises and Equipment		(247	)		(37	)		(37	)
Net Increase in Accrued Income and Other Assets		(1,421	)		(3,146	)		(809	)
Net Increase in Accrued Expenses and Other Liabilities		345			106			397
Total Adjustments		1,660			205			4,122
NET CASH PROVIDED BY OPERATING ACTIVITIES		11,320			8,048			14,884
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold and Due From Time		(10,651	)		5,291			19,738
Proceeds from Matured and Prepaid Investment Securities
· Available-for-Sale		356,758			116,413			120,254
Proceeds from Sales of Investment Securities		-0-			22,306			23,233
Purchase of Investment Securities
· Available-for-Sale		(373,447	)		(162,740	)		(173,730	)
Premium Paid for ANB Financial Corporation
· (Net of Aquired Cash of $3,871)		-0-			(10,538	)		(10,520	)
Net Assets Acquired in the Purchase of ANB Financial Corporation		-0-			(2,039	)		(2,039	)
Net Assets Acquired in the Purchase of Dignum Financial		(976	)		-0-			-0-
Loans Originated and Principal Repayments, Net		(51,534	)		(76,714	)		(89,427	)
Recoveries of Loans Previously Charged-Off		435			289			400
Proceeds from Sale of Premises and Equipment		339			57			48
Proceeds from Sale of Other Real Estate & Repossessed Assets		-0-			638			892
Purchases of Premises and Equipment		(1,397	)		(1,524	)		(4,509	)
NET CASH USED BY INVESTING ACTIVITIES		(80,473	)		(108,561	)		(115,660	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Demand Deposits, Savings Accounts and Interest-Bearing Transaction Accounts		37,647			51,368			52,506
Net Increase in Certificates of Deposit		36,117			15,202			14,803
Net Increase in Short Term Borrowings		7,398			24,499			21,738
Net Increase (Decrease) in Note Payable		(1,600	)		2,250			1,750
Proceeds from Issuance of Junior Subordinated Debentures		-0-			12,372			12,372
Payments of Cash Dividends		(2,603	)		(2,589	)		(3,453	)
Proceeds from Stock Options Exercised		503			208			353
Purchases of Treasury Stock		(561	)		(581	)		(694	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		76,901			102,729			99,375
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS		7,748			2,216			(1,401	)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD		27,219			28,620			28,620
CASH AND DUE FROM BANKS AT END OF PERIOD	$	34,967		$	30,836		$	27,219
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES:
Interest Paid	$	10,760		$	6,506		$	9,199
Income Taxes Paid		5,549			4,821			6,377
Other Real Estate and Other Assets Acquired in Settlement of Loans		-0-			55			321

The accompanying Notes should be read with these financial statements.

7

SUMMIT BANCSHARES, INC. AND SUBSIDIARIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 2004 (UNAUDITED)

NOTE 1 - Summary of Significant Accounting and Reporting Policies

          The accounting and reporting policies of Summit Bancshares, Inc. are in accordance with accounting principles generally accepted in the United States of America and the prevailing practices within the banking industry.  A summary of the more significant policies follows:

Basis of Presentation and Principles of Consolidation

          The consolidated financial statements of Summit Bancshares, Inc. (hereinafter, collectively with its subsidiaries, the “Corporation”), include its accounts and its direct and indirect wholly-owned subsidiaries, Summit Delaware Financial Corporation, Summit Bank, National Association (the “Bank”) and SIA Insurance Agency, Inc. (“SIA”).  All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 materially from those estimates.

Cash and Due From Banks

          The Bank is required to maintain certain noninterest-bearing cash balances at the Federal Reserve Bank based on its level of deposits. During the first nine months of 2005, the average cash balance maintained at the Federal Reserve Bank was $2,696,000.  Compensating balances held at correspondent banks, to minimize service charges, averaged approximately $23,164,000 during the same period.

Investment Securities

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

          The Corporation has the ability and intent to hold to maturity its investment securities classified as held-to-maturity; accordingly, no adjustment has been made for the excess, if any, of amortized cost over market.  In determining the investment category classifications at the time of purchase of securities, management considers its asset/liability strategy, changes in interest rates and prepayment risk, the need to increase capital and other factors.  Under certain circumstances (including the deterioration of the issuer’s creditworthiness, a change in tax law, or statutory or regulatory requirements), the Corporation may change the investment security classification.  In the periods reported for 2005 and 2004, 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.

Loans and Allowance for Loan Losses

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

8

NOTE 1 - Summary of Significant Accounting and Reporting Policies (cont’d.)

          The Corporation has adopted Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by Statement of Financial Accounting Standards No. 118, “Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure.”  Under this standard, the allowance for loan losses related to loans that are identified for evaluation in accordance with Statement No. 114 (impaired loans) is based on discounted cash flows using the loan’s initial effective rate or the fair value of the collateral for certain collateral dependent loans.

          The allowance for loan losses is comprised of amounts charged against income in the form of a provision for loan losses for certain loans when it is probable that all amounts due pursuant to the contractual terms of the loan will not be collected.  In these situations, a reserve is recorded when the carrying amount of the loan exceeds the discounted cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.  Income on impaired loans is recognized based on the collectibility of the principal amount.  Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or are reasonably estimable.

          The amount maintained in the allowance reflects management’s continuing assessment of the potential losses inherent in its loan portfolio based on its evaluation of a number of factors, including the Bank’s loss experience in relation to outstanding loans and the existing level of the allowance, prevailing and prospective economic conditions, and management’s continuing review of the discounted cash flow values of impaired loans and its evaluation of the quality of the loan portfolio.  Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely.

          The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals.  Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change.  Accordingly, the Corporation may ultimately incur losses which vary materially from management’s current estimates. 

Premises and Equipment

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

Other Real Estate

          Other real estate is foreclosed property held pending disposition and is valued at the lower of its fair value or the recorded investment in the related loan.  At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Corporation’s recorded investment in the related loan, a write-down 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 include cash on hand, clearings and exchanges, and balances due from correspondent banks. 

Reclassification

          Certain reclassifications have been made to the 2004 financial statements to conform to the 2005 presentation.

9

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

Stock-Based Compensation

          The Corporation accounts for stock-based compensation in accordance with the intrinsic value based method recommended by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”  Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date over the amount an employee must pay to acquire the stock.  The impact on the financial statements of using this method is disclosed below.

          Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” as amended by Statement of Financial Accounting Standards 148 (“SFAS  123”), requires pro forma disclosures of net income and earnings per share for companies not adopting its fair value accounting method for stock-based compensation.  The pro forma disclosures presented below use the fair value method of SFAS 123 to measure compensation expense for stock-based compensation plans.

          The Corporation accounts for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” under which no compensation cost has been recognized for options granted.  The following table illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation.

		September 30, 2005			December 31, 2004
Net Income, as Reported		$	9,660		$	10,762
Deduct:	Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(196	)		(171	)
Pro Forma Net Income		$	9,464		$	10,591
Earnings Per Share:
Basic - as Reported		$	0.78		$	0.87
Basic - Pro Forma			0.76			0.86
Diluted - as Reported			0.76			0.85
Diluted - Pro Forma			0.74			0.84

          SFAS No. 123(R), “Share-Based Payment (Revised 2004),” among other things, eliminates the ability to account for stock-based compensation  using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the date of the grant.  The Corporation will adopt the provisions of this statement using “modified prospective application” on January 1, 2006. 

Advertising Costs

          Advertising costs are expensed as incurred.

Comprehensive Income

          Comprehensive income includes all changes in shareholders’ equity during a period, except those resulting from investments by and distributions to owners and treasury stock transactions.  Besides net income, the other component of the Corporation’s comprehensive income is the after tax effect of changes in the fair value of securities available-for-sale.  Comprehensive income for the periods ended September 30, 2005 and 2004 and for the year ended December 31, 2004 is reported in Note 25, “Comprehensive Income.”

Audited Financial Statements

          The consolidated balance sheet as of December 31, 2004, and the consolidated statements of income, changes in shareholders’ equity and cash flows for the year ended December 31, 2004 are headed “unaudited” in these financial statements.  These statements were reported as “audited” in our Annual Report of Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission but are required to be reflected in these statements as unaudited because of the absence of an independent auditor’s report.

NOTE 2 – Acquisitions

          On May 3, 2004, the Corporation completed its merger with ANB Financial Corporation and its wholly-owned subsidiary, Arlington National Bank of Arlington, Texas (collectively, “ANB”).  Under the terms of the merger agreement with ANB, the Corporation acquired ANB for approximately $16.0 million in cash.  ANB was privately held and operated four (4) banking offices in Arlington, Texas.  On May 1, 2004, ANB had total assets of $89.0 million, loans of $59.4 million, deposits of $83.6 million and shareholders’ equity of $3.1 million.  This acquisition was partially funded through the formation of SBI Trust and its subsequent issuance of $12.0 million of its floating rate Capital Securities and $372,000 of trust common securities.

          On March 21, 2005, the Corporation completed the acquisition of Dignum Financial Services (“DFS”), a proprietorship engaged in financial planning and management services. Goodwill of $955,000 was recorded in connection with the acquisition.

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NOTE 3 - Investment Securities

A summary of amortized cost and estimated fair values of investment securities as of September 30, 2005 is as follows (in thousands):

	September 30, 2005
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investment Securities - Available-for-Sale
U.S. Government Agencies and Corporations	$	167,840	$	19	$	(2,360	)	$	165,499
U.S. Government Agency Mortgage Backed Securities		53,068		20		(1,074	)		52,014
Obligations of States and Political Subdivisions		10,673		69		(68	)		10,674
Community Reinvestment Act Investment Fund		3,025		5		-0-			3,030
Other Securities		5,327		-0-		-0-			5,327
Total Available-for-Sale Securities	$	239,933	$	113	$	(3,502	)	$	236,544

          All investment securities are carried on the consolidated balance sheet as of September 30, 2005 at fair value.  The net unrealized loss of $3,389,000 is included in the Available-for-Sale Investment Securities balance.  The unrealized loss, net of tax benefit, is included in Shareholders’ Equity.

          Included in the Other Securities category at September 30, 2005 is $4,450,000 of Federal Home Loan Bank Stock and $800,000 of Federal Reserve Stock which are classified as restricted investment securities, carried at cost, and evaluated for impairment.  No impairment losses were recorded as of September 30, 2005.  The Bank is required to have stock holdings of Federal Home Loan Bank Stock equal to .14% of the Bank’s total assets as of the previous year end plus 4.25% of its outstanding advancements from the Federal Home Loan Bank (“FHLB”).  The Bank is also required to have stock holdings of Federal Reserve Stock equal to 6% of its Capital Stock and Surplus.

A summary of amortized cost and estimated fair values of investment securities as of September 30, 2004 is as follows (in thousands):

	September 30, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investment Securities - Available-for-Sale
U.S. Government Agencies and Corporations	$	155,191	$	1,813	$	(512	)	$	156,492
U.S. Government Agency Mortgage Backed Securities		45,967		112		(643	)		45,436
Obligations of States and Political Subdivisions		8,024		168		(17	)		8,175
Community Reinvestment Act Investment Fund		3,000		96		-0-			3,096
Other Securities		6,065		-0-		-0-			6,065
Total Available-for-Sale Securities	$	218,247	$	2,189	$	(1,172	)	$	219,264

          All investment securities were carried on the consolidated balance sheet as of September 30, 2004 at fair value.  The net unrealized gain of $1,017,000 was included in the Available-for-Sale Investment Securities balance.  The unrealized gain, net of tax, was included in Shareholders’ Equity.

          Included in the Other Securities category at September 30, 2004 was $5,189,000 of Federal Home Loan Bank Stock and $800,000 of Federal Reserve Stock which were classified as restricted investment securities, carried at cost, and evaluated for impairment.  No impairment losses were recorded as of September 30, 2004.  The Bank was required at September 30, 2004 to have stock holdings of Federal Home Loan Bank Stock equal to .20% of the Bank’s total assets as of the previous year end plus 4.25% of its outstanding advancements from the FHLB.  The Bank was also required to have stock holdings of Federal Reserve Stock equal to 6% of its Capital Stock and Surplus.

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NOTE 4 - Loans and Allowance for Loan Losses

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

	September 30,
							December 31,
	2005			2004			2004
Commercial and Industrial	$	270,807		$	257,721		$	261,571
Real Estate Mortgage - Commercial		244,966			198,796			224,720
Real Estate Mortgage - Residential		89,487			81,318			82,839
Real Estate - Construction		109,431			111,641			93,558
Loans to Individuals		39,462			40,430			39,931
		754,153			689,906			702,619
Allowance for Loan Losses		(11,131	)		(10,079	)		(10,187	)
Loans - Net	$	743,022		$	679,827		$	692,432

          Loans are net of unearned income of $945,000 and $890,000 at September 30, 2005 and 2004, respectively, and $893,000 at December 31, 2004.

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

	Nine Months Ended September,						Year Ended December 31,
	2005			2004			2004
Balance, Beginning of Period	$	10,187		$	7,784		$	7,784
Balance Acquired in the Arlington National Bank Acquisition		-0-			1,254			1,254
Provisions, Charged to Income		765			1,500			1,790
Loans Charged-Off		(256	)		(748	)		(1,041	)
Recoveries of Loans Previously Charged-Off		435			289			400
Net Loans (Charged-Off) Recovered		179			(459	)		(641	)
Balance, End of Period	$	11,131		$	10,079		$	10,187

          The provisions for loan losses charged to operating expenses during the nine months ended September 30, 2005 and September 30, 2004 of $765,000 and $1,500,000, respectively, were considered adequate to maintain the allowance in accordance with the policy discussed in Note 1.  For the year ended December 31, 2004, a provision of $1,790,000 was recorded.

          At September 30, 2005, the recorded investment in loans that are considered to be impaired under Statement of Financial Accounting Standards No. 114 was $4,410,000 (of which $4,410,000 were on non-accrual status).  The related allowance for loan losses for these loans was $307,000.  The average recorded investment in impaired loans during the nine months ended September 30, 2005 was approximately $4,484,000.  For this period, the Corporation recognized no interest income on these impaired loans.

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NOTE 5 - Premises and Equipment

          The investment in premises and equipment stated at cost and net of accumulated amortization and depreciation is as follows (in thousands):

	September 30,				December 31, 2004
	2005		2004
Land	$	3,296	$	3,038	$	3,038
Buildings and Improvements		12,519		12,056		12,427
Furniture & Equipment		11,208		11,695		11,864
Total Cost		27,023		26,789		27,329
Less:  Accumulated Amortization and Depreciation		11,403		11,146		11,580
Net Book Value	$	15,620	$	15,643	$	15,749

NOTE 6 – Goodwill and Other Intangible Assets

          Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations under the purchase method of accounting.  The Corporation has adopted Financial Accounting Standards Board Statement No. 142 (FAS 142), “Goodwill and Other Intangible Assets.”  FAS 142 eliminates amortization of goodwill associated with business combinations completed after June 30, 2001.  Goodwill is periodically assessed for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.  The Corporation bases its evaluation on such impairment factors as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present.  On May 3, 2004, the Corporation completed its acquisition of ANB.  A premium of $10.7 million was paid in connection with the acquisition of ANB, $2.7 million of which was identified as core deposit intangibles.  The remaining $8.0 million has been recorded as goodwill.  In accordance with FAS 142, the goodwill will not be amortized.  The core deposit intangibles are being amortized using a straight line method over their estimated useful life of 8 years.  Amortization expense of $219,000 and $246,000 has been recorded on the core deposit intangibles for the year ended December 31, 2004 and for the nine months ended September 30, 2005, respectively.

          On March 21, 2005, the Corporation completed the acquisition of Dignum Financial Services (“DFS”), a proprietorship engaged in financial planning and management services.  Goodwill of $955,000 was recorded in connection with the acquisition.  

NOTE 7 - Other Real Estate

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

	September 30,
					December 31,
	2005		2004		2004
Other Real Estate	$	-0-	$	-0-	$	-0-

          There was no Other Real Estate at September 30, 2005.  There were no direct write-downs of other real estate charged to income for the nine months ended September 30, 2005 or September 30, 2004.  There were also no direct write-downs of other real estate charged to income for the year ended December 31, 2004. 

          Included in Other Assets at September 30, 2004 was $4,000 of Other Foreclosed Assets.  The 2004 assets were comprised of motor vehicles.  There were no direct write-downs of these assets for any period during 2004.

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NOTE 8 – Deposits

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

	September 30,
					December 31,
	2005		2004		2004
Noninterest-Bearing Demand Deposits	$	258,644	$	232,586	$	235,399
Interest-Bearing Deposits:
Interest-Bearing Transaction
Accounts and Money Market Funds		241,251		245,472		239,773
Savings		177,287		160,338		164,363
Certificates of Deposits under $100,000 and IRA’s		85,765		72,462		72,825
Certificates of Deposits $100,000 or more		100,031		80,450		79,754
Other		3,050		216		150
Total		607,384		558,938		556,865
Total Deposits	$	866,028	$	791,524	$	792,264

NOTE 9 - Short Term Borrowings

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

	Nine Months Ended September 30,						Year Ended December 31,
	2005			2004			2004
Securities Sold Under Repurchase Agreements:
Average Balance	$	44,332		$	31,558		$	33,068
Period-End Balance		51,370			36,733			43,972
Maximum Month-End Balance During Period		51,370			36,733			43,972
Interest Rate:
Average		2.40	%		0.64	%		0.68	%
Period-End		3.04			1.14			1.64
Federal Home Loan Bank Advances:
Average Balance	$	63,663		$	71,423		$	67,732
Period-End Balance		60,000			70,000			60,000
Maximum Month-End Balance During Period		70,000			100,000			100,000
Interest Rate:
Average		3.00	%		1.56	%		1.65	%
Period-End		3.49			1.80			2.11
Federal Funds Purchased:
Average Balance	$	444		$	2,197		$	1,878
Period-End Balance		-0-			-0-			-0-
Maximum Month-End Balance During Period		-0-			21,525			21,525
Interest Rate:
Average		2.95	%		1.32	%		1.45	%
Period-End		-0-			-0-			-0-

          The Corporation has available a line of credit with the FHLB of Dallas which allows it to borrow on a collateralized basis at a fixed term.  The borrowings are collateralized by a blanket floating lien on all first mortgage loans, the FHLB capital stock owned by the Corporation and any funds on deposit with FHLB.  At September 30, 2005, the Corporation had $60.0 million of borrowings outstanding under the line of credit at a rate of 3.44%, $5.0 million of which matures in 2005, 40.0 million of which matures in 2006 and the remaining $15.0 million of which matures in 2007.  For the nine months ended September 30, 2005, the Corporation had average borrowings under the line of credit of $63.7 million.  At September 30, 2004, the Corporation had $70.0 million of borrowings outstanding under the line of credit at a rate of 1.80%, $20.0 million of which matured in 2004, $40.0 million of which matures in 2005 and the remaining $10.0 million of which matures in April 2006.  At December 31, 2004, $60.0 million of borrowings were outstanding at an average rate of 2.11%, $40.0 million of which matures during 2005 and $20.0 million of which matures during 2006.  For the year ended December 31, 2004, the Corporation had average borrowings of $67.7 million. 

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NOTE 10 – Notes Payable

          On September 15, 2005, the Corporation obtained a line of credit from a bank under which the Corporation may borrow $10,000,000 at a floating rate (three month LIBOR plus 2.00%).  The line of credit is secured by stock of the Bank and matures on September 15, 2006, whereupon, if balances are outstanding, the line converts to a term note having a five year term.  The Corporation will not pay a fee for any unused portion of the line.  As of September 30, 2005, $150,000 had been borrowed under this line.  The rate on this line at September 30, 2005 was 5.52%.

NOTE 11 - Junior Subordinated Deferrable Debentures

          On May 3, 2004, the Corporation formed SBI Trust and SBI Trust subsequently issued $12.0 million of floating rate (three month LIBOR plus a margin of 2.65%) Capital Securities (the “Trust Capital Securities”).  Concurrent with the issuance of the Trust Capital Securities, SBI Trust issued trust common securities to the Corporation in the aggregate liquidation value of $372,000.  The proceeds of the issuance of the Trust Capital Securities and trust common securities were invested in the Corporation’s Floating Rate Junior Subordinated Deferrable Debentures (the “Deferrable Debentures”), which mature on July 7, 2034 and have a call feature that permits the Corporation to redeem any or all of the securities after July 7, 2009.  The interest rate on the Deferrable Debentures at September 30, 2005 and December 31, 2004 was 6.25% and 4.72%, respectively.  The Deferrable Debentures, which are the only assets of SBI Trust, are subordinated and junior in right of payment to all present and future senior indebtedness (as defined in the Indenture dated May 3, 2004) of the Corporation.

NOTE 12 - Other Non-Interest Expense

          The significant components of other non-interest expense are as follows (in thousands):

	Nine Months Ended September 30,				Year Ended December 31,
	2005		2004		2004
Business Development	$	795	$	641	$	810
Legal and Professional Fees		975		793		1,267
Item Processing		474		653		895
Printing and Supplies		359		303		440
Regulatory Fees and Assessments		239		224		302
Other		2,330		1,801		2,417
Total	$	5,172	$	4,415	$	6,131

NOTE 13 - Income Taxes

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

	September 30,
						December 31,
	2005			2004		2004
Current Tax Asset (Liability)	$	(82	)	$	563	$	807
Net Deferred Tax Asset		4,416			2,715		3,006
Total Included in Other Assets	$	4,334		$	3,278	$	3,813

          The net deferred tax asset at September 30, 2005 of $4,416,000 included $1,152,000 related to unrealized losses on Available-for-Sale Securities.

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NOTE 13 - Income Taxes (cont’d.)

The components of income tax expense were as follows (in thousands): 

	Nine Months Ended September 30,						Year Ended December 31,
	2005			2004			2004
Federal Income Tax Expense:
Current	$	5,889		$	4,731		$	6,285
Deferred (Benefit)		(502	)		(493	)		(434	)
Total Federal Income Tax Expense	$	5,387		$	4,238		$	5,851
Effective Tax Rates		35.80	%		35.00	%		35.00	%

          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):

	Nine Months Ended September 30,						Year Ended December 31,
	2005			2004			2004
Federal Income Taxes at Statutory Rate of 35%	$	5,267		$	4,216		$	5,783
Effect of Tax Exempt Interest Income		(77	)		(65	)		(88	)
Non-deductible Expenses		167			124			166
Other		30			(37	)		(10	)
Income Taxes Per Income Statement	$	5,387		$	4,238		$	5,851

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

	Nine Months Ended September 30,				Year Ended December 31,
	2005		2004		2004
Federal Deferred Tax Assets:
Allowance for Loan Losses	$	3,896	$	3,517	$	3,546
Valuation Reserves- Other Real Estate		-0-		-0-		-0-
Interest on Non-accrual Loans		142		181		79
Unrealized Losses on Available-for-Sale Securities		1,152		-0-		244
Deferred Compensation		719		599		596
Net Operating Loss Carryover		-0-		161		149
Other		156		-0-		-0-
Gross Federal Deferred Tax Assets		6,065		4,458		4,614
Federal Deferred Tax Liabilities:
Depreciation and Amortization		1,414		1,201		1,466
Accretion		79		27		34
Unrealized Gains on Available-for-Sale Securities		-0-		346		-0-
Other		156		169		108
Gross Federal Deferred Tax Liabilities		1,649		1,743		1,608
Net Deferred Tax Asset	$	4,416	$	2,715	$	3,006

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NOTE 14 - Related Party Transactions

          The Bank has made transactions in the ordinary course of business with certain of its and the Corporation’s 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 and all loans are current as to principal and interest payments.  Total loans outstanding to such parties amounted to approximately $11,410,000 at September 30, 2005 and $8,537,000 at December 31, 2004 and $10,599,000 at September 30, 2004.

NOTE 15 - 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, 2005, outstanding documentary and standby letters of credit totaled $5,112,000 and commitments to extend credit totaled $189,257,000.

          In addition, the Corporation leases certain office facilities under operating leases.  Rent expense for all operating leases totaled $947,000 and $814,000 for the nine months ended September 30, 2005 and 2004, respectively, and $1,128,000 for the year ended December 31, 2004. 

NOTE 16 - Stock Option Plans

          The Corporation has two Incentive Stock Option Plans, the 1993 Plan and the 1997 Plan, (each, a “Plan,” and, collectively, “the Plans”).  No more options may be granted under the 1993 Plan.  The 1997 Plan originally reserved 1,200,000 shares (adjusted for two-for-one stock splits in 1995, 1997 and 2004) of common stock for grants thereunder.  The 1993 Plan provided, and the 1997 Plan provide for the granting to executive management and other key employees of the Corporation and its subsidiaries incentive stock options, as defined under the current tax law.  The outstanding options granted under the Plans are generally exercisable for ten years from the date of grant and generally vest ratably over a five year period.  Options will be and have been granted at prices which will not be less than 100-110% of the fair market value of the underlying common stock at the date of grant.

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

	Shares Under Option Plans
	Nine Months Ended September 30, 2005			Year Ended December 31, 2004
Outstanding, Beginning of Period		679,578			759,318
Additional Options Granted During the Period		10,000			68,000
Forfeited During the Period		(2,400	)		(38,000	)
Exercised During the Period		(100,184	)		(109,740	)
Outstanding, End of Period		586,994			679,578

          Options outstanding at September 30, 2005 have exercise prices ranging from $2.65 to $18.75 per share with a weighted average exercise price of $9.31 per share.  As of September 30, 2005, options on 488,854 shares were vested and, therefore, exercisable with a weighted average exercise price of $8.71 per share.  At September 30, 2005, there remained 536,796 shares reserved for future grants of options under the 1997 Plan.  See Note 1 “Summary of Significant Accounting Policies – Stock Based Compensation” for information regarding the dilutive impact of these stock options.

NOTE 17 - Employee Benefit Plans

401(k) Plan

          The Corporation implemented a 401(k) plan in December 1997 covering substantially all employees.  The Corporation made no contribution to this plan in 1998 or 1999.  In 2000 through 2004, the Corporation made matching contributions, not to exceed 6% of the employee’s annual compensation, to the participant’s deferrals of compensation up to 100% of the employee contributions.  The Corporation’s Board of Directors has approved matching contributions for 2005, not to exceed 6% of the employee’s annual compensation.

          The amount expensed in support of the plan was $451,000 and $417,000 during the first nine months of 2005 and 2004, respectively, and $490,000 for the year 2004.

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NOTE 17 - Employee Benefit Plans (cont’d.)

Supplemental Executive Retirement Plan

          In 2002, the Corporation established a Supplemental Executive Retirement Plan (the “Retirement Plan”) to provide key employees with retirement, death or disability benefits.  For currently employed employees, the Retirement Plan replaces the previous Management Security Plan.  The Retirement Plan is a defined contribution plan and the expense charged to earnings relating to the Retirement Plan was $312,000 and $126,000 for the first nine months of 2005 and 2004, respectively, and $175,000 for the year 2004.

Employment Contracts

          The Chief Executive Officer of the Corporation has entered into a severance agreement providing for salary and fringe benefits in the event of termination for other than cause and under certain changes in control.

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.

Compensated Absences

          Employees of the Corporation are entitled to paid vacation, paid sick days and other personal days off, depending on job classification, length of service and other factors.  It is impracticable to estimate the amount of compensation for future absences, and accordingly, no liability has been recorded in the accompanying financial statements.  The Corporation’s policy is to recognize the costs of compensated absences when actually paid to employees.

NOTE 18 - Earnings per Share

          The following data shows the amounts used in computing earnings per share (“EPS”) and the weighted average number of shares of dilutive potential common stock (dollars in thousands), as adjusted to reflect the two-for-one stock split effected on December 31, 2004:

	Nine Months Ended September 30,				Year Ended December 31,
	2005		2004		2004
Net income	$	9,660	$	7,843	$	10,762
Weighted average number of common shares used in Basic EPS		12,405,183		12,318,864		12,326,477
Effect of dilutive stock options		300,294		347,754		352,048
Weighted number of common shares and dilutive potential common stock used in Diluted EPS		12,705,477		12,666,618		12,678,525

The incremental shares for the assumed exercise of the outstanding options were determined by application of the treasury stock method.

NOTE 19 - Financial Instruments with Off-Balance Sheet Risk

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

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

          The total contractual amounts of financial instruments with off-balance sheet risk are as follows (in thousands):

	September 30,
	2005		2004
Financial Instruments Whose Contract Amounts Represent Credit Risk:
Loan Commitments Including Unfunded Lines of Credit	$	189,257	$	181,304
Standby Letters of Credit		5,112		5,339

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NOTE 19 - Financial Instruments with Off-Balance Sheet Risk (cont’d.)

          Loan commitments are agreements to lend to a customer as long as there is no customer violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Standby letters of credit are conditional commitments by the Corporation to guarantee the performance of a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

           Since many of the loan commitments and letters of credit 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 Corporation originates real estate, commercial and consumer loans primarily to customers in the Tarrant County area.  Although the Corporation has a diversified loan portfolio, a substantial portion of its customers’ ability to honor their contracts is dependent upon the local economy and the real estate market.

          The Corporation maintains funds on deposit at correspondent banks which at times exceed the federally insured limits.  Management of the Corporation monitors the balance in these accounts and periodically assesses the financial condition of correspondent banks.

NOTE 20 - Concentrations of Credit Risk

          The Bank makes commercial, consumer and real estate loans in its direct market which is defined as Fort Worth and its surrounding area.  The Board of Directors of the Bank monitors concentrations of credit by purpose, collateral and industry at least quarterly.  Certain limitations for concentration are set by the Board of Directors of the Bank.  Additional loans in excess of these limits must have prior approval of the Bank’s directors’ loan committee.  Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ abilities to honor their contracts is dependent upon the strength of the local and state economy.

NOTE 21 - Litigation

          The Corporation may be subject to legal actions, including various legal actions arising in the ordinary course of business.  The ultimate outcome of pending and potential proceedings is difficult to project with certainty.  However based on management’s experience to date, it is the opinion of management, that the settlement or other disposition of these matters is not reasonably likely to materially adversely affect the Corporation’s business or financial position.

NOTE 22 - Stock Repurchase Plans

          On April 20, 2004, the Board of Directors of the Corporation approved a stock purchase plan (the “2004 Stock Purchase Plan”) authorizing the Corporation to purchase up to 615,360 shares of the Corporation’s common stock over the twelve-month period beginning April 20, 2004, including in open market transactions, privately negotiated transactions or other transactions.  On April 19, 2005, the Board of Directors of the Corporation approved a stock purchase plan (the “2005 Stock Purchase Plan”) authorizing the Corporation to purchase up to 620,467 shares of the Corporation’s common stock over the twelve-month period beginning April 19, 2005, including in open market transactions or other transactions.

          For the nine months ended September 30, 2005, 29,300 shares of the Corporation’s common stock were purchased and retired pursuant to the 2004 Stock Purchase Plan and 988 shares of  the Corporation’s common stock were purchased (but not retired) by the Corporation pursuant to the 2005 Stock Purchase Plan.  No more shares of the Corporation’s common stock may be purchased pursuant to the 2004 Stock Purchase Plan.

          The Corporation’s ability to purchase shares of the Corporation’s common stock is subject to various banking laws, regulations and policies as well as rules and regulations of the Securities and Exchange Commission.  The Corporation anticipates purchasing additional shares of the Corporation’s common stock pursuant to the 2005 Stock Purchase Plan as conditions warrant. 

NOTE 23 - Subsequent Events

          On October 18, 2005, the Board of Directors of the Corporation approved a quarterly dividend of $.07 per share to be paid on November 15, 2005 to shareholders of record on November 1, 2005.

NOTE 24 - 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.

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NOTE 24 - Fair Values of Financial Instruments (cont’d.)

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

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

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

Short term borrowings:  The carrying amounts of borrowings under repurchase agreements approximate their fair values.

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

	September 30,
	2005						2004
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial Assets:
Cash and due from banks	$	34,967		$	34,967		$	30,836		$	30,836
Federal funds sold and due from time		15,671			15,671			19,467			19,467
Securities		236,544			236,544			219,264			219,264
Loans		754,153			735,864			689,906			686,988
Allowance for loan losses		(11,131	)		(11,131	)		(10,079	)		(10,079	)
Financial Liabilities:
Deposits		866,028			866,701			791,524			792,869
Short term borrowings		111,370			111,224			106,733			106,679
Off-balance Sheet Financial Instruments:
Loan commitments					189,257						181,304
Letters of credit					5,112						5,339

NOTE 25 - Comprehensive Income

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

	Nine Months Ended September 30,						Year Ended December 31,
	2005			2004			2004
Net Income	$	9,660		$	7,843		$	10,762
Other Comprehensive Income:
Change in unrealized (loss) on securities available-for-sale, net of tax (benefit)		(1,762	)		(17	)		(1,162	)
Comprehensive Income	$	7,898		$	7,826		$	9,600

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

          The following discussion should be read in conjunction with the consolidated financial statements, accompanying notes and selected financial data appearing elsewhere in this Quarterly Report on Form 10-Q and in our most recent Annual Report on Form 10-K and may contain certain forward-looking statements that are based on current management expectations.  Generally, verbs in the future tense and the words “believe,” “expect,” “anticipate,” “estimate,” “intends,” “opinion,” “potential” and similar expressions identify forward-looking statements.  Examples of this forward-looking information can be found in, but are not limited to, the expected effects of litigation, accounting pronouncements and government regulation applicable to our operations, the discussion of allowance for loan losses, and quantitative and qualitative disclosure about market risk.  Our actual results could differ materially from those management expectations.  Further information concerning our business, including additional risk factors and uncertainties that could cause actual results to differ materially from the results described in the forward-looking statements contained in this Quarterly Report on Form 10-Q, is set forth below under the heading “Factors That May Affect Future Results.”  These risk factors and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  The forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as may be required by applicable law and regulation, we do not undertake, and specifically disclaim any obligation to, publicly update or revise such statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.  Except as the context otherwise requires, references herein to “the Corporation,” “we,” or “our” refer to the business of Summit Bancshares, Inc. and its consolidated subsidiaries.

Overview

          Our business has been conducted primarily through our wholly-owned subsidiaries, Summit Bank, National Association (the “Bank”), SBI Trust, Summit Delaware Financial Corporation and SIA Insurance Agency, Inc. (“SIA”).  The Bank currently operates its branch offices in twelve locations in Tarrant County, Texas.

          Five branch offices were added in 2004 with the May 2004 acquisition of the four branches of Arlington National Bank and the October 2004 opening of a branch in Euless, Texas.  In May 2004, the Corporation completed its acquisition of ANB Financial Corporation and its wholly-owned subsidiary, Arlington National Bank (collectively, “ANB”), and ANB’s results of operations have been included in the Corporation’s results of operations since the acquisition date.  On December 31, 2004, the Corporation effected a two-for-one stock split on its common stock payable in the form of a 100% stock dividend, and all share and per share data included herein has been adjusted to reflect the stock split.

          Our results of operations are primarily dependent on net interest income, which is the difference between the income earned on our loans and investment portfolios and our cost of funds, consisting of the interest paid on deposits and borrowings.  Results of operations are also affected by our allowance for loan losses, investment activities, loan servicing fees and other fees.  Our non-interest expense principally consists of salary and benefits, occupancy and equipment expense, business development costs, professional fees, data processing expense and other expenses.            

          Net income for the third quarter of 2005 was $3,456,000, an increase of $660,000, or 23.6%, compared to $2,796,000 recorded for the third quarter of 2004.  On a weighted average share basis, net income for the third quarter of 2005 was $0.27 per diluted share as compared to $0.22 per diluted share for the third quarter of 2004, an increase of 22.7%.  Net income for the first nine months of 2005 was $9,660,000, an increase of $1,817,000, or 23.2%, compared to net income of $7,843,000 for the first nine months of 2004.  On a weighted average share basis, net income for the first nine months of 2005 was $0.76 per diluted share compared to $0.62 per diluted share for the first nine months of 2004.  The increase in earnings during the third quarter of 2005 and for the first nine months of 2005 was largely due to an increase in net interest income (tax equivalent) of $1,393,000, or 14.1%, for the third quarter of 2005 over the third quarter of 2004 and $5,045,000, or 18.5%, for the first nine months of 2005 over the first nine months of 2004.  The increase in net interest income was primarily due to the growth in loans and an increase in the yield on loans.

          Based on continuing economic growth in our market area, total loans at September 30, 2005 were $754.2 million, which represented an increase of $51.5 million, or 7.3%, over total loans at December 31, 2004 and an increase of $64.2 million, or 9.3% over total loans at September 30, 2004. Average total loans for the third quarter of 2005 were 8.3% higher compared with the third quarter last year. Average total loans for the nine months ended September 30, 2005 were 14.2% higher than for the nine months ended September 30, 2004. 

          Total deposits were $866.0 million at September 30, 2005, an increase of $73.8 million, or 9.3%, from December 31, 2004 and an increase of $74.5 million, or 9.4%, from $791.5 million at September 30, 2004.   Average total deposits for the third quarter of 2005 were 6.3% higher compared with the third quarter last year.    Average total deposits for the nine months ended September 30, 2005 were 12.5% higher than for the nine months ended September 30, 2004.    Compared to the third quarter of 2004, we experienced growth in every category of deposits, for the third quarter of 2005, except for interest-bearing transaction accounts and money market accounts.  The most significant growth was in certificates of deposit.

          Shareholders’ equity was $79.7 million at September 30, 2005, an increase of $5.2 million, or 7.0%, from December 31, 2004 and an increase of $6.2 million, or 8.4%, from September 30, 2004.   See the Consolidated Statements of Changes in Shareholders’ Equity on page 6 for a detail of the changes.

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          The following table shows selected performance ratios for the first nine months of 2005 and 2004 that management believes to be key indicators of the Corporation’s overall financial performance:

	2005			2004
Annualized Return on Average Assets (ROAA)		1.27	%		1.15	%
Annualized Return on Average Shareholders’ Equity (ROAE)		16.75			14.82
Shareholders’ Equity to Assets - Average		7.61			7.81
Dividend Payout Ratio		26.95			33.01
Net Interest Margin (tax equivalent)		4.54			4.28
Efficiency Ratio		58.49			58.11

          The return on average assets ratio is calculated by dividing net income by average total assets for the period.  Management believes our return on average assets ratio of 1.27% for the first nine months of 2005 compares favorably to the return on average assets ratio of other financial institutions in our selected peer group, which averaged 1.34% for the first nine months of 2005.  Our selected peer group is comprised of seven other publicly traded bank holding companies headquartered in Texas with assets ranging from $2.4 billion to $10.0 billion and was selected by our management.

          The return on average shareholders’ equity ratio is calculated by dividing net income by average shareholders’ equity for the period.  Management believes our return on average shareholders’ equity ratio of 16.75% in the first nine months of 2005 compares favorably to the return on average shareholders’ equity ratio of other financial institutions in our peer group, which averaged 14.42% for the first nine months of 2005.

          The shareholders’ equity to assets ratio is calculated by dividing average shareholders’ equity by average total assets for the period.  Management believes our average shareholders’ equity to average assets ratio of 7.61% for the first nine months of 2005 compares favorably to the average shareholders’ equity to average asset ratio of other financial institutions in our peer group, which averaged 9.28% in the first nine months of 2005. 

          The dividend payout ratio is determined by dividing the total dividends paid by net income for the period.  For the first nine months of 2005, our dividend payout ratio resulted in a yield-to-market price return that compared favorably to our peer group.

          Net interest margin is calculated by dividing net interest income on a tax equivalent basis by average total earning assets.  Management believes our net interest margin of 4.54% in the first nine months of 2005 compares favorably to the net interest margin ratio of other financial institutions in our peer group, which averaged 4.21% in the first nine months of 2005.

          The efficiency ratio is calculated by dividing non-interest expenses by the sum of total non-interest income and net interest income on a tax equivalent basis for the period.  The efficiency ratio provides a measure of the extent to which our revenues are absorbed by our non-interest expenses.  Management believes our efficiency ratio of 58.49% in the first nine months of 2005 compares favorably to the average efficiency ratio of other financial institutions in our peer group, which was 57.10% in the first nine months of 2005.

22

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 quarters of 2005 and 2004 (rates on tax equivalent basis):

	Three Months Ended September 30,
	2005								2004
	Average Balances			Interest		Average Yield/Rate			Average Balances			Interest		Average Yield/Rate
	(Dollars in Thousands)
Earning Assets:
Federal Funds Sold & Due From Time	$	13,294		$	114		3.40	%	$	16,849		$	51		1.21	%
Investment Securities (Taxable)		216,541			2,073		3.83	%		211,298			1,939		3.65	%
Investment Securities (Tax-exempt)		9,900			133		5.37	%		7,533			113		5.98	%
Loans, Net of Unearned Discount(1)		735,109			13,203		7.13	%		678,915			10,297		6.03	%
Total Earning Assets		974,844			15,523		6.32	%		914,595			12,400		5.39	%
Non-interest Earning Assets:
Cash and Due From Banks		30,876								31,213
Other Assets		43,824								41,022
Allowance for Loan Losses		(10,916	)							(9,919	)
Total Assets	$	1,038,628							$	976,911
Interest-Bearing Liabilities:
Interest-Bearing Transaction
Accounts and Money Market Funds	$	232,640			886		1.51	%	$	253,642			672		1.05	%
Savings		173,539			866		1.98	%		154,980			462		1.19	%
Certificates of Deposit under $100,000 and IRA’s		82,786			614		2.94	%		71,360			394		2.20	%
Certificates of Deposit $100,000 or more		98,670			794		3.19	%		77,033			466		2.40	%
Other Time		2,755			25		3.60	%		314			2		2.29	%
Other Borrowings		121,435			1,078		3.52	%		118,083			537		1.81	%
Total Interest-Bearing Liabilities		711,825			4,263		2.38	%		675,412			2,533		1.49	%
Non-interest Bearing Liabilities:
Demand Deposits		242,849								226,462
Other Liabilities		4,901								3,999
Shareholders’ Equity		79,053								71,038
Total Liabilities and Shareholders’ Equity	$	1,038,628							$	976,911
Net Interest Income and Margin (Tax-equivalent Basis)(2)				$	11,260		4.58	%				$	9,867		4.29	%

(1)      Loan interest income includes fees and loan volumes include loans on non-accrual.  The loan fees include loan origination fees which are considered adjustments to interest income.  These fees aggregated $427,000 and $400,000 at September 30, 2005 and 2004, respectively.  Related loan origination costs are not separately allocated to loans, but are charged to non-interest expense.  For the purpose of calculating loan yields, average loan balances include non-accrual loans with no related interest income.

(2)      Presented on tax equivalent basis using a federal income tax rate of 35% for 2005 and 34% for 2004.

          The net interest margin was 4.58% for the third quarter of 2005, which represented an increase of 29 basis points from the third quarter of 2004.  This increase in net interest margin reflected a 93 basis point increase in yield on earning assets from the third quarter of 2004 to the third quarter of 2005, which was substantially offset by an 89 basis point increase in rates paid on interest-bearing liabilities from the third quarter of 2004 to the third quarter of 2005.  The increase in net interest margin also reflected an increase in the volume of loans, up $56.2 million or 8.3%, over the third quarter of 2004 and increases in non-interest bearing funding sources, such as demand deposits and shareholders’ equity.   Average demand deposits were $242.8 million in the third quarter of 2005, an increase of $16.4 million, or 7.2%, over the third quarter of 2004.

23

Summary of Earning Assets and Interest-Bearing Liabilities (cont’d.)

          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 2005 and 2004 (rates on tax equivalent basis):

	Nine Months Ended September 30,
	2005								2004
	Average Balances			Interest		Average Yield/Rate			Average Balances			Interest		Average Yield/Rate
	(Dollars in Thousands)
Earning Assets:
Federal Funds Sold & Due From Time	$	7,823		$	181		3.09	%	$	17,813		$	139		1.04	%
Investment Securities (Taxable)		212,369			5,913		3.71	%		194,295			5,435		3.73	%
Investment Securities (Tax-exempt)		8,796			349		5.29	%		7,032			291		5.51	%
Loans, Net of Unearned Discount(1)		721,952			36,905		6.83	%		632,076			28,102		5.94	%
Total Earning Assets		950,940			43,348		6.09	%		851,216			33,967		5.33	%
Non-interest Earning Assets:
Cash and Due From Banks		30,361								28,398
Other Assets		42,663								33,314
Allowance for Loan Losses		(10,644	)							(9,077	)
Total Assets	$	1,013,320							$	903,851
Interest-Bearing Liabilities:
Interest-Bearing Transaction Accounts and Money Market Funds	$	233,203			2,400		1.38	%	$	229,841			1,827		1.06	%
Savings		168,002			2,206		1.76	%		143,237			1,255		1.17	%
Certificates of Deposit under $100,000 and IRA’s		78,341			1,585		2.70	%		67,304			1,105		2.19	%
Certificates of Deposit $100,000 or more		89,253			1,951		2.92	%		70,636			1,281		2.42	%
Other Time		1,028			27		3.51	%		315			6		2.66	%
Other Borrowings		126,073			2,890		3.06	%		113,559			1,249		1.47	%
Total Interest-Bearing Liabilities		695,900			11,059		2.12	%		624,892			6,723		1.44	%
Non-interest Bearing Liabilities:
Demand Deposits		235,896								204,638
Other Liabilities		4,435								3,740
Shareholders’ Equity		77,089								70,581
Total Liabilities and Shareholders’ Equity	$	1,013,320							$	903,851
Net Interest Income and Margin (Tax-equivalent Basis)(2)				$	32,289		4.54	%				$	27,244		4.28	%

(1)      Loan interest income includes fees and loan volumes include loans on non-accrual.  The loan fees include loan origination fees which are considered adjustments to interest income.  These fees aggregated $1,263,000 and $1,124,000 for the nine month periods ended September 30, 2005 and 2004, respectively.  Related loan origination costs are not separately allocated to loans, but are charged to non-interest expense.  For the purpose of calculating loan yields, average loan balances include non-accrual loans with no related interest income.

(2)      Presented on tax equivalent basis using a federal income tax rate of 35% for 2005 and 34% for 2004.

          The net interest margin was 4.54% for the nine months ended September 30, 2005 which represented a 26 basis point increase over the net interest margin of 4.28% for the nine months ended September 30, 2004.  The increase in net interest margin reflected a 76 basis point increase in yield on earning assets from the first nine months of 2004 to the first nine months of 2005, which was partially offset by a 68 basis point increase in rates paid on interest-bearing liabilities from the first nine months of 2004 to the first nine months of 2005.  The increase in net interest margin also reflected an increase in the volume of loans, up $89.9 million, or 14.2%, over the first nine months of 2004 and increases in non-interest bearing funding sources, such as, demand deposits and shareholders’ equity. Average demand deposits were $235.9 million for the first nine months of 2005, an increase of $31.3 million, or 15.3%, over the same period in 2004.

24

Summary of Earning Assets and Interest-Bearing Liabilities (cont’d.)

          In the event that our average loans continue to grow during the remainder of 2005 and we are unable to fund such growth solely through the generation of additional deposits, we may be required to obtain funding from secondary sources, such as the Federal Home Loan Bank or brokered deposits, which could have a material negative impact on our net interest margin.  In this event, we may experience a slower growth in net interest margin during the remainder of 2005 as a result of any such borrowings, but expect to benefit as our investment portfolio and maturing fixed rate loans reprice at higher rates.  Because of the composition of our balance sheet and our emphasis on commercial lending, we are market interest rate sensitive and expect to benefit from any market interest rate increases, assuming deposit interest rates do not increase significantly faster than interest rates on earning assets.

Net Interest Income

          Net interest income (tax equivalent) for the third quarter of 2005 was $11,260,000, which represented an increase of $1,393,000, or 14.1%, compared to the third quarter of 2004.  In the third quarter of 2005, tax equivalent interest income increased $3,123,000, or 25.2%, while interest expense increased $1,730,000, or 68.3%, compared to the third quarter of 2004.  The  increase in net interest income resulted from a 6.6% increase in average earning assets for the third quarter of 2005 compared to the third quarter of 2004, along with a 200 basis point increase in market interest rates (as measured by average market rates published in the Wall Street Journal) from September 2004 through September 2005.

          Net interest income (tax equivalent) for the first nine months of 2005 was $32,289,000, which represented an increase of $5,045,000, or 18.5%, compared to the first nine months of 2004.  For the first nine months of 2005, tax equivalent interest income increased $9,381,000, or 27.6%, while interest expense increased $4,336,000, or 67.5% compared to the first nine months of 2004.  The increase in net interest income reflected an 11.7% increase in average earning assets for the first nine months of 2005 compared to the first nine months of 2004.

          The table below summarizes the effects of changes in interest rates and average volumes of earning assets and interest-bearing liabilities on net interest income (tax equivalent) for the three and nine month periods ended September 30, 2005 and 2004.  Non-accruing loans have been included in assets for these computations, thereby reducing yields on total loans.  For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated to rate.

	ANALYSIS OF CHANGES IN NET INTEREST INCOME
	3rd Qtr. 2005 vs. 3rd Qtr. 2004 Increase (Decrease) Due to Changes in:								Nine Months 2005 vs. Nine Months 2004 Increase (Decrease) Due to Changes in:
	Volume			Rate			Total		Volume			Rate			Total
	(Dollars in Thousands)
Interest Earning Assets:
Federal Funds Sold	$	(10	)	$	74		$	64	$	(77	)	$	120		$	43
Investment Securities (Taxable)		48			85			133		505			(28	)		477
Investment Securities (Tax-exempt)		36			(16	)		20		73			(15	)		58
Loans, Net of Unearned Discount		852			2,054			2,906		3,995			4,807			8,802
Total Interest Income		926			2,197			3,123		4,496			4,884			9,380
Interest-Bearing Liabilities:
Deposits		209			980			1,189		775			1,920			2,695
Other Borrowings		15			526			541		138			1,503			1,641
Total Interest Expense		224			1,506			1,730		913			3,423			4,336
Net Interest Income	$	702		$	691		$	1,393	$	3,583		$	1,461		$	5,044

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Non-Interest Income

          The following table reflects the changes in non-interest income during the periods presented (dollars in thousands):

	Three Months Ended September 30,							Nine Months Ended September 30,
	2005		2004		% Change			2005		2004		% Change
Service Charges on Deposit Accounts	$	992	$	1,180		(16.0	)%	$	2,904	$	3,164		(8.2	)%
Non-recurring Income		315		37		751.0			449		204		120.0
Gain on Sale of Securities		-0-		32		(100.0	)		-0-		32		(100.0	)
Gain on Sale of Student Loans		25		176		(86.0	)		263		176		49.4
Other Non-interest Income		844		716		18.0			2,475		1,855		33.4
Total Non-interest Income	$	2,176	$	2,141		1.6	%	$	6,091	$	5,431		12.2	%

          Non-interest income for the third quarter of 2005 was $2,176,000, which represented an increase of $35,000, or 1.6%, over the third quarter of 2004.  Non-interest income for the nine months ended September 30, 2005 was $3,915,000, which represented an increase of $660,000, or 12.2%, over the nine months ended September 30, 2004.  The most significant component of non-interest income is the various charges and fees that we earn on deposit accounts and related services.

          Service charges and fees on deposits were $992,000 for the third quarter of 2005, a decrease of $188,000, or 16.0%, from the third quarter of 2004.  The decrease was largely the result of a reduction in fees earned on commercial accounts that are on account analysis. Service charges and fees on deposits were $2,904,000 for the first nine months of 2005, a decrease of 8.2% from the first nine months of 2004.  The decreases in commercial deposit account analysis income for the third quarter of 2005 and the first nine months of 2005 were driven by the higher interest rate environment which provided commercial customers higher credits for funds on deposit. 

          Non-recurring non-interest income for the first nine months of 2005 includes a gain of $247,000 on the sale of land carried in Premises and Equipment in the third quarter of 2005 that was previously held for future bank expansion.  The other component of non-recurring non-interest income for the first nine months of 2005 represents payments totaling $202,000 received from Pulse EFT as a participant in that ATM network..  The non-recurring income for the same period of the prior year resulted from the gain of $167,000 on the sale of assets previously carried in Other Assets and a gain of $37,000 on the partial sale of land carried in Premises and Equipment during the third quarter of 2004 that was previously held for future branch expansion.

          The increases in other non-interest income for the third quarter of 2005 and the first nine months of 2005 as compared to the same periods last year are primarily due to increases in investment services fees, gains on the sale of student loans and trust income.  There were also increases for both periods in merchant card processing income and check card fees.  The increases in various components of other non-interest income were partially offset by lower levels of ATM fees.

          Investment services fees were $220,000 for the third quarter of 2005, an increase of $139,000, or 171.6%, over the third quarter of 2004.  For the first nine months of 2005, investment services fees were $552,000, an increase of $305,000, or 123.0%, over the same period in 2004.  Gains on the sale of student loans were $25,000 and $263,000 for the third quarter of 2005 and the first nine months of 2005, respectively.  Gains on the sale of student loans were $177,000 for the third quarter of 2004.  There were no gains on the sale of student loans recorded in the first two quarters of 2004.  Trust income was $81,000 and $236,000 for the third quarter of 2005 and the first nine months of 2005, respectively.  Trust income was $79,000 and $114,000 for the third quarter and first nine months of 2004, respectively. 

26

Non-interest Expense

          The following table summarizes the changes in non-interest expense during the periods presented (dollars in thousands):

	Three Months Ended September 30,									Nine Months Ended September 30,
	2005			2004		% Change				2005				2004		% Change
Salaries & Employee Benefits	$	4,579	$		4,029		13.7	%	$		13,296		$		11,169		19.0	%
Occupancy Expense - Net		724			570		27.0				1,988				1,560		27.4
Furniture and Equipment Expense		587			610		(3.8	)			1,756				1,670		5.1
Other Real Estate and Foreclosed Asset Expense - Net		-0-			23		(100.0	)			(11	)			38		(128.9	)
Core Deposit Intangible Amortization		82			82		-0-				246				137		79.6
Other Expenses:
Business Development		236			221		6.8				795				641		24.0
Insurance - Other		72			74		(2.7	)			167				208		(19.7	)
Legal & Professional Fees		282			395		(28.6	)			975				793		23.0
Item Processing		173			272		(36.4	)			474				653		(27.6	)
Taxes - Other		38			7		442.9				82				40		105.0
Postage & Courier		108			98		10.2				342				315		8.6
Printing & Supplies		141			120		17.5				359				303		18.5
Regulatory Fees & Assessments		76			81		(6.2	)			239				224		7.6
Other Operating Expenses		539			527		2.3				1,739				1,238		40.4
Total Other Expenses		1,665			1,795		(7.2	)			5,172				4,415		17.1
Total Non-interest Expense	$	7,637	$		7,109		7.4	%	$		22,447		$		18,989		18.2	%

          Non-interest expenses include all expenses other than interest expense, the provision for loan losses and income tax expense.  Total non-interest expense increased 7.4% in the third quarter of 2005 over the third quarter of 2004.  As a percent of average assets, non-interest expenses were 2.92% in the third quarter of 2005 (annualized) and 2.89% in the same period of 2004.  Total non-interest expenses for the first nine months of 2005 were 18.2% higher than the first nine months of 2004.  The higher levels of non-interest expense for third quarter of 2005 and for the nine months ended September 30, 2005 were largely the result of increases in salaries and benefits and occupancy expense.

          The “efficiency ratio” (non-interest expenses divided by the sum of total non-interest income plus net interest income on a tax equivalent basis) was 56.84% for the third quarter of 2005 compared to 59.23% for the third quarter of 2004. 

          The increases in salaries and benefits during the third quarter of 2005 and the first nine months of 2005 compared to the same periods in the prior year were due to staff increases and merit increases to support the Company’s continued growth.

          Net occupancy expense increased $154,000 and $428,000 for the third quarter of 2005 and the first nine months of 2005, respectively, compared to the same periods in 2004.  The increase in occupancy expense was largely the result of opening new facilities (the Euless branch and the Hulen motor bank), the addition of the ANB locations in May 2004, the relocation of our Wealth Management Department and Trust Department to new facilities and the loss of tenant rents at one of our bank-owned facilities.

27

Allowance for Loan Losses and Non-Performing Assets

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Balance, Beginning of Period	$	10,798		$	9,844		$	10,187		$	7,784
Balance Acquired in the Arlington National Bank Acquisition		-0-			-0-			-0-			1,254
Provisions, Charged to Income		315			495			765			1,500
Loans Charged-Off		(25	)		(415	)		(256	)		(748	)
Recoveries of Loans Previously Charged-Off		43			155			435			289
Net Loans (Charged-Off) Recovered		18			(260	)		179			(459	)
Balance, End of Period	$	11,131		$	10,079		$	11,131		$	10,079

          Our allowance for loan losses was $11,131,000, or 1.48% of total loans, as of September 30, 2005 compared to $10,079,000, or 1.46% of total loans, as of September 30, 2004.   For the nine months ended September 30, 2005 and 2004, net charge-offs (recoveries) were (0.02) % and 0.07% of loans, respectively, not annualized.         

          The following table summarizes the non-performing assets as of the end of the last five quarters (in thousands):

	September 30, 2005			June 30, 2005			March 31, 2005			December 31, 2004			September 30, 2004
Non-Accrual Loans	$	4,989		$	3,372		$	3,294		$	2,587		$	2,545
Renegotiated Loans		-0-			-0-			-0-			-0-			-0-
Other Real Estate Owned and Other Foreclosed Assets		-0-			-0-			-0-			-0-			4
Total Non-Performing Assets	$	4,989		$	3,372		$	3,294		$	2,587		$	2,549
As a Percent of:
Total Assets		0.46	%		0.34	%		0.33	%		0.26	%		0.25	%
Total Loans and Other Real Estate/ Foreclosed Assets		0.66	%		0.47	%		0.46	%		0.37	%		0.37	%
Loans Past Due 90 days or More and Still Accruing	$	2,178		$	36		$	-0-		$	18		$	2,300

          At September 30, 2005, the ratio of non-accrual loans to total loans was .66% compared with .37% as of September 30, 2004.

          As of September 30, 2005, non-accrual loans were comprised of $3,335,000 in commercial loans, $1,473,000 in real estate mortgage loans, $109,000 in interim construction loans and $72,000 in consumer loans. 

          As of September 30, 2005, there was no other real estate owned or other foreclosed assets.

28

Allowance for Loan Losses and Non-Performing Assets (cont’d.)

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

	September 30, 2005			June 30, 2005			March 31, 2005			December 31, 2004			September 30, 2004
Non-Performing Loans	$	4,989		$	3,372		$	3,294		$	2,587		$	2,545
Criticized Loans		39,450			35,580			38,110			35,375			40,289
Allowance for Loan Losses		11,131			10,798			10,519			10,187			10,079
Allowance for Loan Losses as a Percent of:
Non-Performing Loans		223	%		320	%		319	%		394	%		396	%
Criticized Loans		28	%		30	%		28	%		29	%		25	%

          Loans are graded on a system similar to that used by the banking industry regulators.  The first level of criticized loans is “Other Assets Especially Mentioned” (OAEM).  These loans are fundamentally sound but have potential weaknesses which may, if not corrected, weaken the asset or inadequately protect the bank’s credit position at some future date.  The second level is “Substandard,” which are loans inadequately protected by current sound net worth, paying capacity or pledged collateral of the borrower.  The last level of criticized loans, before they are charged-off, is “Doubtful.”  Doubtful loans are considered to have inherent weaknesses because collection or liquidation in full is highly questionable.  In addition to the above grading system, the Corporation maintains a separate “watch list” which further aids the Corporation in monitoring loan quality.  Watch list loans show warning elements where the present status portrays one or more deficiencies that require attention in the short run or where pertinent ratios of the account have weakened to a point where more frequent monitoring is warranted.

          Total criticized loans at September 30, 2005, loans classified as OAEM, Substandard or Doubtful as noted above, have decreased slightly from September 30, 2004.  As a percentage of total loans, criticized loans have decreased from 5.8% as of September 30, 2004 to 5.2% as of September 30, 2005.  The allowance for possible loan losses as a percentage of criticized loans has increased from 25% as of September 30, 2004 to 28% as of September 30, 2005.  The Corporation remains diligent in its efforts to identify any loan that might reflect weakness of the borrower as soon as practicable.  Management is not aware of any potential loan problems that have not been disclosed to which serious doubt exists as to the ability of the borrower to substantially comply with the present repayment terms and the Corporation does not anticipate any significant losses from these criticized loans.

29

Interest Rate Sensitivity

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

          The following table, commonly referred to as a “static GAP report”, indicates the interest rate sensitivity position at September 30, 2005 and may not be reflective of positions in subsequent periods (dollars in thousands):

	Matures or Reprices within:									Total Rate Sensitive One Year or Less			Repriced After 1 Year or Non-interest Sensitive		Total
	30 Days or Less			31-180 Days			181 to One Year
Earning Assets:
Loans	$	358,196		$	61,368		$	55,535		$	475,099		$	279,054	$	754,153
Investment Securities		11,781			6,534			30,888			49,203			187,341		236,544
Federal Funds Sold and Due From Time		15,671			-0-			-0-			15,671			-0-		15,671
Total Earning Assets		385,648			67,902			86,423			539,973			466,395		1,006,368
Interest Bearing Liabilities:
Interest-Bearing Transaction Accounts and Savings		421,588			-0-			-0-			421,588			-0-		421,588
Certificates of Deposit under $100,000 and IRA’s		3,997			19,061			23,492			46,550			39,214		85,764
Certificates of Deposit $100,000 or More		2,445			22,915			30,176			55,536			44,496		100,032
Short Term Borrowings		56,370			15,000			20,000			91,370			20,000		111,370
Total Interest Bearing Liabilities		484,400			56,976			73,668			615,044			103,710		718,754
Interest Sensitivity Gap	$	(98,752	)	$	10,926		$	12,755		$	(75,071	)	$	362,685	$	287,614
Cumulative Gap	$	(98,752	)	$	(87,826	)	$	(75,071	)
Periodic Gap to Total Assets		(9.19	)%		1.02	%		1.19	%
Cumulative Gap to Total Assets		(9.19	)%		(8.17	)%		(6.99	)%

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

          Beta factors are an estimation of the long term, multiple interest rate environment relation between an individual account and market rates in general.  For instance, NOW, savings and money market accounts, which are repriceable within 30 days, will have considerably lower beta factors than variable rate loans and most investment categories.  Taking this into consideration, it is quite possible for a bank with a negative cumulative GAP to total asset ratio to have a positive “beta adjusted” GAP risk position.  As a result of applying the beta factors established by management to the earning assets and interest bearing liabilities in the static gap report via a simulation model, the negative cumulative GAP to total assets ratio at one year of (6.99%) was reversed to a positive 26.80% “beta adjusted” GAP position.  Management feels that the “beta adjusted” GAP risk technique more accurately reflects the Corporation’s GAP position. 

30

Capital

          At September 30, 2005, shareholders’ equity totaled $79.7 million, an increase of $5.2 million, or 7.1%, compared to December 31, 2004, and an increase of $6.2 million, or 8.5%, compared to September 30, 2004.  These increases are primarily due to net income exceeding the amount of dividends paid, the change in the unrealized loss on available for sale securities, the repurchases of outstanding shares of our Common Stock and the impact of the exercising of stock options. 

          On April 19, 2005, the Board of Directors of the Corporation approved a stock purchase plan (the “2005 Stock Purchase Plan”) authorizing the Corporation to purchase up to 620,467 shares of the Corporation’s common stock over the twelve-month period beginning April 19, 2005, including in open market transactions, privately negotiated transactions or other transactions. The Corporation purchased (but did not retire) 988 shares of the Corporation’s common stock pursuant to the 2005 Stock Purchase Plan in the quarter covered by this report.  The Corporation’s ability to purchase shares of the Corporation’s common stock is subject to various banking laws, regulations and policies as well as rules and regulations of the Securities and Exchange Commission.  The Corporation anticipates purchasing additional shares of the Corporation’s common stock pursuant to the 2005 Stock Purchase Plan as conditions warrant. 

          The consolidated Corporation and the Bank are subject to capital adequacy guidelines established by the Federal Reserve Board and other regulatory authorities.  The table below illustrates the consolidated Corporation’s and the Bank’s compliance with the capital adequacy guidelines as of September 30, 2005 and 2004 (dollars in thousands):    

	September 30, 2005						September 30, 2004
	The Consolidated Corporation			Summit Bank, N.A.			The Consolidated Corporation			Summit Bank, N.A.
Total Assets	$	1,074,261		$	1,073,868		$	990,406		$	989,950
Risk Weighted Assets		801,549			801,532			743,942			743,488
Equity Capital (Tier 1)		82,627			82,632			74,325			76,236
Qualifying Allowance for Loan Losses		10,037			10,033			9,309			9,303
Total Capital	$	92,664		$	92,665		$	83,634		$	85,539
Leverage Ratio		8.04	%		8.05	%		7.69	%		7.81	%
Risk Capital Ratio:
Tier I Capital		10.31	%		10.31	%		9.99	%		10.25	%
Total Capital		11.56			11.56			11.24			11.51

          As of September 30, 2005, the consolidated Corporation and the Bank each exceeded the risk-based capital and leverage requirements set by regulatory authorities, as applicable, and satisfied the criteria for classification as a “well capitalized” institution under the rules of the Federal Deposit Insurance Corporation Improvement Act of 1991.

Liquidity

          Our primary “internal” sources of liquidity consist of the federal funds that we sell and our portfolio of marketable investment securities, particularly those with shorter maturities.  Federal funds sold and investment securities maturing within 30 days represented $17.4 million, or 1.6%, of total assets as of September 30, 2005.  Additionally, our ability to sell loan participations, purchase federal funds and obtain advances from the Federal Home Loan Bank serve as secondary sources of liquidity.  The Bank also has funds available to the Bank under approved federal funds lines at other banks.

          Our liquidity is enhanced by the fact that 88.0% of our total deposits at September 30, 2005 were “core” deposits.  For this purpose, core deposits are defined as total deposits less public funds, certificates of deposit greater than $100,000 and brokered deposits.  As of September 30, 2005, brokered deposits were $198,000 or less than .1% of total deposits.   Our loan to deposit ratio averaged 89.6% for the nine month period ended September 30, 2005.

          In the event that our average loans continue to grow during the remainder of 2005 and we are unable to fund any such growth solely through the generation of additional deposits, we may be required to obtain funding from secondary sources, including purchasing federal funds, obtaining advances from the Federal Home Loan Bank or other secondary sources.  In such event, our business, results of operations and financial condition could be materially negatively impacted. 

          Our income, which provides funds for the payment of dividends to our shareholders and for other corporate purposes, is derived from our investment in the Bank.

          On May 3, 2004, the Corporation formed SBI Trust and SBI Trust subsequently issued $12.0 million of floating rate (three month LIBOR plus a margin of 2.65%) Capital Securities (the “Trust Capital Securities”).  Concurrent with the issuance of the Trust Capital Securities, SBI Trust issued trust common securities to the Corporation with an aggregate liquidation value of $372,000.  The proceeds of the issuance of the Trust Capital Securities and trust common securities were invested in the Corporation’s Floating Rate Junior Subordinated Deferrable Debentures (the “Deferrable Debentures”), which mature on July 7, 2034 and have a call feature that permits the Corporation to redeem any or all of the securities after July 7, 2009.  The interest rate on the Deferrable Debentures at

31

Liquidity (cont’d.)

September 30, 2005 was 6.29%.  The Deferrable Debentures, which are the only asset of SBI Trust, are subordinated and junior in right of payment to all present and future senior indebtedness (as defined in the Indenture dated May 3, 2004) of the Corporation.

          On September 15, 2005, we obtained a line of credit from a bank under which we may borrow $10,000,000 at a floating rate (three month LIBOR plus a margin of 2.00%).  The line of credit is secured by stock of the Bank owned by the Corporation and matures on September 15, 2006, whereupon, if balances are outstanding, the line converts to a term note with a five year term.  The Corporation is not required to pay a fee for any unused portion of this line.  At September 30, 2005, $150,000 had been borrowed under the line.  The rate on this line at September 30, 2005 was 5.52%.   The purpose of the line is to provide an additional liquidity source and finance bank acquisitions and the current amount outstanding was used to help fund the acquisition of ANB.

Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contractual Obligations

          Except as set forth herein, there have been no material changes outside the ordinary course of business in our contractual obligations as set forth in “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance-Sheet Arrangements, Commitments, Guarantees and Contractual Obligations in our Annual Report on Form 10-K for the year ended December 31, 2004 during the interim period covered by this report.

          At September 30, 2005, outstanding documentary and standby letters of credit totaled $5,112,000 and commitments to extend credit totaled $189,257,000.  Documentary and standby letters of credit and commitments to extend credit totaled $6,175,000 and $175,074,000, respectively, at December 31, 2004.  The increase in commitments to extend credit reflects the continued demand for credit facilities in our market.

Related Party Transactions

          The Bank has made transactions in the ordinary course of business with certain of its and the Corporation’s officers, directors and their affiliates. All loans included in such transactions were made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with unrelated parties and all loans are current as to principal and interest payments.  Total loans outstanding to such related parties amounted to approximately $11,410,000 at September 30, 2005 and $8,537,000 at December 31, 2004.

Subsequent Events

          On October 18, 2005, the Board of Directors of the Corporation approved a quarterly dividend of $.07 per share to be paid on November 15, 2005 to shareholders of record on November 1, 2005.

Critical Accounting Policies

          Our accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition.  We have identified our policy with respect to allowance for loan losses as critical because it requires management to make particularly difficult, subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.  There have been no material changes in our application of this critical accounting policy since December 31, 2004.  We, in consultation with the Audit Committee of the Corporation’s Board of Directors, have reviewed and approved this critical accounting policy, which is further described under the caption “Loans and Allowance for Loan Losses” in Note 1 (“Summary of Significant Accounting and Reporting Policies”) to the Financial Statements.

          Evaluations of this critical accounting policy are inherently subjective because, even though they are based on objective data, management’s interpretation of the data determines the amount of the appropriate allowance.  Therefore, from time to time (but at least quarterly), management reviews the actual performance and write-off history of the loan portfolio and compares that to previously determined allowance coverage percentages.  In this manner, management evaluates the impact the previously mentioned variables may have had on the loan portfolio to determine what changes, if any, should be made to the assumptions and analyses.  Recent analysis has indicated that projections of estimated losses inherent in the loan portfolio have approximated actual write-off experience.  

          Actual results could differ materially from estimates as a result of changes in economic or market conditions and other factors.  Changes in our evaluations and the assumptions underlying these evaluations could result in a material change in the allowance.  While we believe that the allowance for loan losses has been established and maintained at levels adequate to reflect the risks inherent in the loan portfolio, future increases may be necessary if economic or market conditions and other factors differ substantially from the conditions that existed at the time of the initial determination.

Factors That May Affect Future Results

          This Quarterly Report on Form 10-Q contains forward-looking statements concerning the business, results of operations and financial condition of the Corporation and our subsidiaries.  The forward-looking statements are based upon management’s current expectations and assumptions about future events.  Such expectations and assumptions have been expressed in good faith, and management believes that there is a reasonable basis for them. 

32

Factors That May Affect Future Results (cont’d.)

          A number of risks and uncertainties could cause our actual results to differ materially from the results described in the forward-looking statements contained in this Quarterly Report on Form 10-Q.  These risks and uncertainties include, without limitation:

• Changes in, or the effects of, competition for our products and services;

• Our ability to effectively manage interest rate risk and other market, credit and operation risks;

• Changes in the financial condition of the Corporation’s borrowers;

• Our ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by our customers and potential customers;

• The costs and effects of litigation involving us and of unexpected or adverse outcomes in such litigation;

• Our ability to successfully integrate, and to achieve anticipated cost savings and revenue enhancements with respect to, acquired businesses and operations;

• Our ability to attract and retain key employees;

• Changes in general local, regional and international economic conditions;

• Changes in, or the effects of, trade, monetary and fiscal policies, laws and regulations, including interest rate policies, of the Federal Reserve Board and other regulatory authorities;

• Changes in accounting policies and practices, as may be adopted by regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board;

• Changes in consumer and business spending, borrowing and saving habits;

• Changes in laws, regulations and policies applicable to us;

• Technological changes; and

• Political instability and acts of war or terrorism.

Item 3 – Quantitative and Qualitative Disclosure about Market Risk

          There have been no material changes in market risks faced by the Corporation since December 31, 2004.  For more information regarding quantitative and qualitative disclosures about market risk, please refer to the Corporation’s Annual Report on Form 10-K as of and for the year ended December 31, 2004, and in particular, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate Sensitivity and Liquidity” of that Form 10-K.

Item 4 – Controls and Procedures

          The Corporation’s management, including the Corporation’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based on that evaluation, the Corporation’s principal executive officer and principal financial officer have concluded that the Corporation’s disclosure controls and procedures were effective as of the end of the period covered by this report.

          There were no changes in the Corporation’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the Corporation’s last fiscal quarter  that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

33

PART II - OTHER INFORMATION

Item 1.     Legal Proceedings

The Corporation may be subject to legal actions, including various legal actions arising in the ordinary course of business.  The ultimate outcome of pending and potential proceedings is difficult to project with certainty.  However, based on management’s experience to date, it is the opinion of management, that the settlement or other disposition of these matters is not reasonably likely to materially affect the Corporation’s business or financial position.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

On April 19, 2005, the Board of Directors of the Corporation approved a stock purchase plan (the “2005 Stock Purchase Plan”) authorizing the Corporation to purchase up to 620,467 shares of the Corporation’s  common stock over the twelve-month period beginning April 19, 2005, including in open market transactions, privately negotiated transactions or other transactions.  The expiration date of the 2005 Stock Purchase Plan is April 18, 2006.  The Corporation purchased (but did not retire) 988 shares of the Corporation’s common stock pursuant to the 2005 Stock Purchase Plan in the quarter covered by this report.

The Corporation’s ability to purchase shares of the Corporation’s common stock is subject to various banking laws, regulations and policies as well as rules and regulations of the Securities and Exchange Commission.  The Corporation anticipates purchasing additional shares of the Corporation’s common stock pursuant to the 2005 Stock Purchase Plan as conditions warrant. 

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

On September 15, 2005, the Corporation and Summit Delaware Financial Corporation (“SDFC”) entered into a loan agreement with The Frost National Bank for the purpose of providing an additional liquidity source and financing bank acquisitions. The loan agreement provides for a revolving credit facility from Frost National Bank to the Corporation in the principal amount of $10,000,000 bearing interest at the three month LIBOR rate plus 2.00%. The revolving credit facility matures on September 15, 2006, whereupon, any outstanding principal balance under the revolving credit facility shall convert to a term facility with a five year term.

The loan agreement imposes negative covenants on the Corporation and the Bank, including with respect to capital, non-performing loans, return on average assets, tangible net worth, cash flow coverage, return on equity capital, and the ability to incur debt, and prohibits the Corporation from declaring or paying any dividends in excess of $5,000,000 in the aggregate during any fiscal year or at any time the Corporation is in default in payment of obligations under the loan agreement.

Obligations under the loan agreement are secured by a first priority security interest in 100% of the shares of common stock of SDFC and a first priority security interest in 100% of the shares of the Bank. Obligations under the loan agreement are also secured by a guaranty agreement executed by SDFC.

At September 30, 2005, $150,000 was outstanding under the revolving credit facility bearing interest at 5.52%. At November 4, 2005, $0 was outstanding under the revolving credit facility. The Corporation used advances under the revolving credit facility in connection with the acquisition of ANB.

Item 6.     Exhibits

3.1	Restated Articles of Incorporation of the Corporation (incorporated herein by Reference to Exhibit 3(a) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 1998)
3.2	Amended and Restated Bylaws of the Corporation (incorporated herein by reference to Exhibit 3(b) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002)
3.3	Amendment to the Amended and Restated Bylaws of the Corporation adopted by resolution of the Board of Directors of the Corporation (incorporated herein by reference to Exhibit 99.1 to the Corporation’s Current Report on Form 8-K filed February 22, 2005)
4.1	Rights Agreement, dated April 17, 1990, by and between the Corporation and Summit Bancservices, Inc. (incorporated herein by reference to Exhibit 1 to the Corporation’s Current Report on Form 8-K dated April 18, 1990 filed on April 24, 1990)
4.2	Amendment No. 1 to Rights Agreement, effective as of April 16, 2000, by and between the Corporation and Summit Bancservices, Inc. (incorporated herein by reference to Exhibit 4(b) to the Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000)

34

4.3	Junior Subordinated Debt Securities Indenture Agreement dated May 3, 2004 (incorporated herein by reference to Exhibit 4(a) to the Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004)
4.4	Junior Subordinated Debt Securities Due 2034 (incorporated herein by reference to Exhibit 4(b) to the Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004)
10	Loan Agreement dated September 15, 2005 between the Corporation and Frost National Bank
11	Computation of Earnings Per Common Share
31.1	Certification of Principal Executive Officer of Summit Bancshares, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2	Certification of Principal Financial Officer of Summit Bancshares, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1	Certification of Principal Executive Officer of Summit Bancshares, Inc. pursuant to Section 1350, Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer of Summit Bancshares, Inc. pursuant to Section 1350, Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

35

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 10, 2005	By:	/s/ Philip E. Norwood
		Philip E. Norwood, Chairman, President
		and Chief Executive Officer
Date: November 10, 2005	By:	/s/ Bob G. Scott
		Bob G. Scott, Executive Vice President
		and Chief Operating Officer
		(Principal Financial Officer)

EXHIBIT INDEX

Exhibit	Description
3.1	Restated Articles of Incorporation of the Corporation (incorporated herein by Reference to Exhibit 3(a) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 1998)
3.2	Amended and Restated Bylaws of the Corporation (incorporated herein by reference to Exhibit 3(b) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002)
3.3	Amendment to the Amended and Restated Bylaws of the Corporation adopted by resolution of the Board Directors of the Corporation (incorporated herein by reference to Exhibit 99.1 to the Corporation’s Current Report on Form 8-K filed February 22, 2005)
4.1	Rights Agreement, dated April 17, 1990, by and between the Corporation and Summit Bancservices, Inc. (incorporated herein by reference to Exhibit 1 to the Corporation’s Current Report on Form 8-K dated April 18, 1990 filed on April 24, 1990)
4.2	Amendment No. 1 to Rights Agreement, effective as of April 16, 2000, by and between the Corporation and Summit Bancservices, Inc. (incorporated herein by reference to Exhibit 4(b) to the Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000)
4.3	Junior Subordinated Debt Securities Indenture Agreement dated May 3, 2004 (incorporated herein by reference to Exhibit 4(a) to the Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004)
4.4	Junior Subordinated Debt Securities Due 2034 (incorporated herein by reference to Exhibit 4(b) to the Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004)
10	Loan Agreement dated September 15, 2005 between the Corporation and Frost National Bank
11	Computation of Earnings Per Common Share
31.1	Certification of Principal Executive Officer of Summit Bancshares, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2	Certification of Principal Financial Officer of Summit Bancshares, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1	Certification of Principal Executive Officer of Summit Bancshares, Inc. pursuant to Section 1350, Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer of Summit Bancshares, Inc. pursuant to Section 1350, Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10

EXHIBIT 10

LOAN AGREEMENT

          THIS LOAN AGREEMENT (hereinafter called “this Agreement”) is made and entered into this 15th day of September, 2005, by and between SUMMIT BANCSHARES, INC., a Texas corporation, having its principal place of business at 3880 Hulen Street, Suite 300, Fort Worth, Texas 76107 (hereinafter called “Borrower”), SUMMIT DELAWARE FINANCIAL CORPORATION, a Delaware corporation, having a principal place of business at 103 Foulk Road, Suite 202, Wilmington, Delaware, 19803 (hereinafter called “SDFC”) and THE FROST NATIONAL BANK, a national banking association, with its main banking offices located at 1 00 West Houston Street, P.O. Box 1600, San Antonio, Texas 78296 (hereinafter called “Lender”).

          WHEREAS, Borrower is desirous of obtaining from Lender a loan in the principal amount of $10,000,000.00 for the purpose of financing bank acquisitions; and

          WHEREAS, Lender is desirous of making a loan to Borrower in the principal amount of $10,000,000.00 for the purposes set forth above, but on the terms, conditions and covenants hereafter contained;

          NOW, THEREFORE, subject to all terms, conditions and covenants hereinafter set forth and in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

ARTICLE I

Definitions

          The terms defined in this Article I (except as otherwise expressly provided in this Agreement) for all purposes shall have the following meanings:

          “Acquisition Note” shall mean the promissory note so referenced in Section 2.01 of this Agreement.

          “Advance” shall mean the amounts requested by Borrower from time to time as set forth in Section 2.01 of this Agreement.

          “Advance Request Form” means a document properly completed and signed by Borrower requesting an Advance.

          “Average Assets” shall mean the average of the assets most recently reported by a bank to its regulatory authorities calculated in accordance with regulatory accounting principles consistently applied.

          “Bad Debt Ratio” shall mean the ratio of the Bank’s reserve for bad debts to total loans.

          “Capital Ratio” shall mean the ratio of Bank’s Equity Capital to Bank’s total assets as determined by regulatory accounting principles consistently applied.

          “Cash Flow Coverage” shall mean the ratio of (i) the Borrower’s consolidated Net Income plus non-cash charges plus depreciation plus amortization plus loan loss provisions to (ii) the current maturities of long term debt, all as determined in accordance with GAAP.

          “Classified Assets” means, at any particular time, all assets of Bank classified, in whole or in part, as “Loss,” “Doubtful,” “Substandard,” or “Other Assets Especially Mentioned” by Bank or any governmental or regulatory authority.

          “Closing Date” shall mean the date this Agreement is executed by all parties hereto which shall be the day and year first written above unless otherwise indicated. The Closing shall take place at Borrower’s offices, or at such other place as the parties shall mutually agree.

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          “Collateral” shall have the meaning ascribed to it in Section 2.03.

          “Equity Capital” shall mean the Tier I Capital as defined by the Federal Reserve Regulations.

          “Event of Default” means any event specified in Section 6.01 of this Agreement, provided that any requirement in connection with such event for the giving of notice or lapse of time or any other condition has been satisfied.

          “GAAP” means generally accepted accounting principles, applied on a consistent basis, as set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the date in question. Accounting principles are applied on a “consistent basis” when the accounting principles observed in a current period are comparable in all material respects to those accounting principles applied in a preceding period.

          “Insider” shall mean an “executive officer,” “director,” or “person who directly or indirectly or in concert with one or more persons, owns, controls, or has the power to vote more than 10% of any class of voting securities” (as such terms are defined in the Financial Institutions Regulatory and Interest Rate Control Act of 1978, as amended, or in regulations promulgated pursuant thereto) of Borrower or any Subsidiary.

          “Highest Lawful Rate” shall mean the maximum rate of nonusurious interest allowed from time to time by Law. In no event shall Chapter 346 of the Texas Finance Code (which regulates certain revolving loan accounts and revolving tri-party accounts) apply to this Loan. To the extent that Chapter 303 of the Texas Finance Code is applicable to this Loan, the “weekly ceiling” specified in such article is the applicable ceiling; provided that, if any applicable law permits greater interest, the law permitting the greatest interest shall apply.

          “Laws” shall mean all statutes, laws, ordinances, regulations, orders, writs, injunctions, or decrees of the United States, any state or commonwealth, any municipality, or any Tribunal.

          “LlBOR” shall mean the London Interbank Offered Rate (LIBOR) for three months quoted on the first business day of each calendar quarter in The Wall Street Journal (Central Edition) in the “Money Rates” column. If the Wall Street Journal London Interbank Offered Rate ceases to be made available by the publisher, or any successor to the publisher of The Wall Street Journal, (Central Edition), the interest rate will be determined by using a comparable index. If more than one Wall Street Journal London Interbank Offered Rate for three months is quoted, the higher rate shall apply. The Wall Street Journal London Interbank Offered Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer.

          “Loan” shall mean extensions of credit to Borrower pursuant to Section 2.01 of this Agreement.

          “Loan Documents” shall mean this Agreement, the Acquisition Note, the Security Instruments, and all instruments or documents executed and delivered pursuant to or in connection with this Agreement and any future amendments hereto or thereto, and all renewals and extensions thereof.

          “Net Income” shall mean that amount of income remaining after deducting expenses (including provision for loan and lease losses) and payments of all taxes incurred on said income and after deducting securities transactions, all as calculated in accordance with GAAP and regulatory accounting principles, to the extent each is applicable.

          “Non-Performing Loans” means loans on nonaccrual, loans on which the interest rate has been reduced other than to reflect the then prevailing market interest rates, loans which have been past due for ninety (90) days or more, and Other Real Estate.

          “Non-Performing Loans Ratio” means the ratio of the Bank’s reserve for bad debts to NonPerforming Loans.

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          “Note” shall mean the promissory note evidencing the Loan executed pursuant to Section 2.02 of this Agreement and any promissory note issued in substitution therefor or in renewal or extension or rearrangement thereof.

          “Obligations” shall mean the outstanding principal amounts of the Note and interest accrued thereon, and any and all other indebtedness, liabilities and obligations whatsoever of Borrower to Lender hereunder or under the Note and/or the Security Instruments and all renewals, modifications and extensions thereof, plus interest accruing on any foregoing and all attorney fees and costs incurred in the enforcement of any foregoing.

          “Other Real Estate” shall mean the real property owned by Bank as a result of foreclosure, deeds in lieu of foreclosure, or judicial process, or received as partial payment of a note, specifically excluding real estate occupied by Bank in the conduct of its ordinary course of business.

          “Person” shall mean any individual, firm, corporation, association, partnership, joint venture, trust or other entity, or Tribunal.

          “Prime Rate” shall mean the variable rate of interest per annum established by The Frost National Bank from time to time and referred to as its “prime rate”. Such rate is set by Lender as a general reference rate of interest, taking into account such factors as Lender may deem appropriate, it being understood that many of Lender’s commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that Lender may make various commercial or other loans at rates of interest having no relationship to such rate.

          “Return on Average Assets” shall mean the ratio of Bank’s Net Income to the Bank’s Average Assets.

          “Return on Equity Capital” shall mean the ratio of Bank’s Net Income to the Bank’s Equity Capital.

          “SDFC” shall mean Summit Delaware Financial Corporation, a Delaware corporation and wholly-owned subsidiary of the Borrower.

          “Security Instruments” shall mean the Security Agreement-Pledge referred to in Section 2.03 of this Agreement and any other documents securing the Obligations.

          “Subsidiary” means any corporation or bank of which more than fifty (50%) of the issued and outstanding securities having ordinary voting power for the election of a majority of directors is owned or controlled, directly or indirectly, by Borrower, by Borrower with one or more Subsidiaries, or by just one or more Subsidiaries.

          “Tangible Net Worth” means, at any particular time, all amounts which, in conformity with GAAP, would be included as stockholders’ equity on a balance sheet; provided, however, there is excluded there from: (i) any amount at which shares of capital stock of Borrower (treasury shares) appears as an asset on the balance sheet, (ii) goodwill, including any amounts, however designated, that represent the excess of the purchase price paid for assets or stock over the value assigned thereto, (iii) patents, trademarks, trade names, and copyrights, and (iv) all other assets which are properly classified as intangible assets.

          “Taxes” shall mean all taxes, assessments, fees, or other charges from time to time or at any time imposed by any Laws or by any Tribunal.

          “Tribunal” shall mean any state, commonwealth, federal, foreign, territorial, regulatory, or other court or governmental department, commission, board, bureau, agency or instrumentality.

          1.02 Other Definitional Provisions. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words “hereof,” “herein,” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all Article and Section references pertain to this Agreement. All accounting terms not specifically defined herein shall be construed in accordance with GAAP.

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ARTICLE II

Loan, Security and Conditions Precedent

          2.01 The Loan. Subject to the terms and conditions of this Agreement, Lender agrees to make a Loan to Borrower evidenced by a promissory note in the principal amount of $10,000,000.00 the proceeds shall be for the sole purpose of financing bank acquisitions (the “Acquisition Note”).

          2.02 The Note. The obligation of Borrower to pay the Loan shall be evidenced by the Acquisition Note executed by Borrower and payable to the order of Lender, in the principal amount of $10,000,000 bearing interest as therein provided. Unpaid and past due principal and interest shall bear interest at the rate of four percent (4.0%) per annum above the Prime Rate. The Borrower shall pay principal and interest in accordance with the terms of the Note, with the maturity date being as set forth in the Note.

          (a)          Advances.          From Closing Date and continuing at all times through September 15, 2006 (the “Revolving Credit Period”) the Loan evidenced by the Acquisition Note shall be a revolving credit facility which will allow the Borrower to request such amounts as Borrower may elect from time to time (each such amount being herein called an “Advance”) so long as the aggregate amount of Advances outstanding at any time under the Acquisition Note does not exceed Ten Million and NO/100 Dollars ($10,000,000.00) provided however, the minimum Advance must be at least $500,000.00. The Borrower shall have the right to borrow, repay, and borrow again under the credit facility. Interest shall be due and payable quarterly and shall accrue at the election of the Borrower (which election shall be made on the date of the first Advance) at LIBOR plus 200 basis points or the Prime Rate. The outstanding principal balance of the Acquisition Note on September 15, 2006 shall convert to a term facility (the “Term Period”) and shall be payable in accordance with the terms of the Acquisition Note.

          (b)          Revolving Principal Balance.          It is contemplated that by reason of payments or prepayments there may be times when no indebtedness is owing under the Loan; but notwithstanding such occurrences, the Note shall remain valid and shall be in full force and effect as to loans or Advances made pursuant to and under the terms of the Note subsequent to each such occurrence. All loans or Advances and all payments or prepayments made on account of principal or interest shall be endorsed by the holder of the Note on a schedule attached thereto and made a part thereof for all purposes. In the event that the unpaid principal amount at any time, for any reason, exceeds the maximum amount specified in the Note, Borrower covenants and agrees to immediately pay to the Lender the excess principal amount, such excess principal amount shall in all respects be deemed to be included among the loans or Advances made pursuant to the other terms of the Note and shall bear interest at the rates hereinabove stated.

          (c)          Interest Calculation.          Adjustments in the interest rate shall be made on the date as any change in LlBOR or the Prime Rate and adjustments due to changes in the Highest Lawful Rate to be made on the effective date of any change in the Highest Lawful Rate. Interest shall be computed on a per annum basis of a year of 360 days and for the actual number of days (including the first but excluding the last day) elapsed unless such calculation would result in a usurious rate, in which case interest shall be calculated on a per annum basis of a year of 365 or 366 days, as the case may be. It is the intention of Borrower and Lender to conform strictly to applicable usury laws. Accordingly, if the transactions contemplated hereby would be usurious under applicable law, then, in that event, notwithstanding anything to the contrary herein or in any agreement entered into in connection with or as security for this Loan, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is taken, reserved, contracted for, charged or received under this Loan or under any of the other Loan Documents or otherwise in connection with this note shall under no circumstances exceed the maximum amount of nonusurious interest allowed by applicable law, and any excess shall be credited on this Loan by the holder hereof (or, to the extent that this note shall have been or would thereby be paid in full, then it shall be applied to any other indebtedness of Borrower to Lender, or to the extent all other indebtedness has been or would thereby be paid in full, refunded to Borrower); and (ii) in the event that maturity of this Loan is accelerated by reason of an election by the holder hereof resulting from any default hereunder or otherwise, or in the event of any required or permitted prepayment, then such consideration that

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constitutes interest may never include more than the maximum amount of nonusurious interest allowed by applicable law, and excess interest, if any, provided for in the Note or otherwise shall be cancelled automatically as of the date of such acceleration or prepayment and, if theretofore prepaid, shall be credited on this Loan (or, to the extent that this Loan shall have been or would thereby be paid in full, then it shall be applied to any other indebtedness of Borrower to Lender, or to the extent all other indebtedness has been or would thereby be paid in full, refunded to Borrower).

          2.03 Security for the Loan. To secure full and complete payment and performance of the Obligations, Borrower and SDFC shall execute and deliver the following documents (which, together with all property which may hereafter be delivered to secure the Obligations, being herein called “Collateral”):

          (i) A Security Agreement-Pledge wherein the Borrower shall pledge and grant to Lender a first priority security interest in 100% of the shares of common stock of SDFC and all products and proceeds thereof. Lender shall retain possession of the certificate(s) representing said common stock, together with stock powers executed in blank by Borrower; and

          (ii) A Security Agreement-Pledge wherein SDFC shall pledge and grant to Lender a first priority security interest in 100% of the shares of common stock of Bank and all products and proceeds thereof. Lender shall retain possession of the certificate(s) representing said common stock, together with stock powers executed in blank by SDFC; and

         (iii) A Guaranty Agreement executed by SDFC.

          2.04 Conditions Precedent to Closing. The obligation of Lender to make the Loan shall be subject to the conditions precedent that Lender shall have received on or before the day of the making of the Loan, the following documents, in form and substance satisfactory to Lender:

          (a) Note. The Acquisition Note executed by Borrower.

          (b) Security Instruments. The Security Instruments executed by Borrower granting to Lender a security interest in the Collateral.

          (c) Stock Certificates. Powers. UCC-1. The original stock certificates pledged as collateral, the executed stock powers and financing statements to evidence the security interest granted in the Security Instruments.

          (d) Resolutions.  Corporate resolutions of the Board of Directors of Borrower, certified by the Secretary of such corporation, which resolution authorize the execution, delivery and performance by Borrower of this Agreement and the other Loan Documents. Included in said resolutions or by separate document, the Lender shall receive a certificate of incumbency certified by the Secretary of Borrower certifying the names of each officer authorized to execute this Agreement and the other Loan Documents, together with specimen signatures of such officers.

          (e) Articles of Incorporation.  Copies of the Articles of Incorporation of Borrower, SDFC and the Articles of Association of the Bank certified to be true and correct by the Secretary of such corporation and cashier of such Bank, respectively.

          (f) Bylaws.  The Bylaws of Borrower, SDFC and Bank certified to be true and correct by the Secretary of such corporation and cashier of such Bank, respectively.

          (g) Government Certificates.  Certificate of Good Standing of Borrower (if appropriate) issued by the Comptroller of Public Accounts of the State of Texas; Certificate of Good Standing and Existence of SDFC issued by the Secretary of State of Delaware, Certificate of Existence of Borrower and each Subsidiary (if appropriate) issued by the Secretary of State of Texas; certificate of good standing of Bank from the appropriate regulatory authority; and a copy of the Letter of Approval from the Board of Governors of the Federal Reserve Bank approving Borrower’s application as a bank holding company (or such other documentation acceptable to Lender to evidence the Borrower’s status as a bank holding company).

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          (h) Opinion of Borrower’s Counsel. Lender shall have received from Borrower’s counsel an opinion satisfactory in form and substance to Lender and its counsel.

          (i) Financial Statements.  Borrower and its Subsidiaries shall have each delivered to Lender such financial statements as shall have been requested by Lender, in form and substance satisfactory to Lender in its sole discretion.

          U) Additional Papers.  Borrower shall have delivered to Lender such other documents, records, instruments, papers, opinions, and reports, as shall have been requested by Lender, to evidence the status or organization or authority of Borrower or to evidence or secure payment of the Obligations, all in form satisfactory to Lender and its counsel.

ARTICLE III

Representations and Warranties

          To induce Lender to enter into this Agreement and upon which Lender has relied in entering into this Agreement and consummating the transactions herein described, Borrower represents and warrants to Lender that:

          3.01 Organization of Borrower.  Borrower is a corporation duly organized, validly existing, and in good standing under the laws of the State of Texas; Borrower is duly authorized, qualified under all applicable Laws to conduct its businesses; and Borrower has full power, capacity, authority and legal right to conduct the businesses in which it does now, and propose to, engage; and Borrower has full power, capacity, authority and legal right to execute and deliver and to perform and observe the provisions of this Agreement, and the other Loan Documents, to which it is a party, all of which have been duly authorized and approved by all necessary corporate action. SDFC is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware; SDFC is duly authorized, qualified under all applicable Laws to conduct its businesses; and SDFC has full power, capacity, authority and legal right to conduct the businesses in which it does now, and propose to, engage; and SDFC has full power, capacity, authority and legal right to execute and deliver and to perform and observe the provisions of this Agreement, and the other Loan Documents, to which it is a party, all of which have been duly authorized and approved by all necessary corporate action. Bank is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America.

          3.02 Litigation.  No action, suit or proceeding against or affecting Borrower or any Subsidiary is known to be pending, or to the knowledge of Borrower threatened, in any court or before any governmental agency or department, which, if adversely determined, could result in a final judgment or liability of a material amount not fully covered by insurance, or which may result in any material adverse change in the business, or in the condition, financial or otherwise, of Borrower. There are no outstanding judgments against Borrower or any Subsidiary.

          3.03 Compliance With Other Instruments.  There is no default in the performance of any material obligation, covenant, or condition contained in any agreement to which Borrower is a party which has not been waived. Neither Borrower nor any Subsidiary is in material default with respect to any Law of any Tribunal. The execution, delivery and performance of the terms of this Agreement, the Note and the other Loan Documents by Borrower will not violate the provisions of any Law applicable to Borrower. Borrower’s By-laws or Articles of Incorporation, or any order or regulation of any governmental authority to which the Borrower is subject, and will not conflict with or result in a breach of any of the terms of any agreement or instrument to which Borrower is a party or by which Borrower is bound, or constitute a default thereunder, or result in the creation of a lien, charge, or incumbrance of an y nature upon any of Borrower’s properties or assets.

          3.04 No Default.  No Event of Default specified in Article VI has occurred and is continuing.

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          3.05 Corporate Authorization.  Borrower’s Board of Directors have duly authorized the execution and delivery of this Agreement and the other Loan Documents to which it is a party and the performance of their respective terms and no consent of the stockholders of Borrower or any other Person is a prerequisite thereto or if a prerequisite thereto, the same has been duly obtained. This Agreement and all other Loan Documents are valid, binding, and enforceable obligations of Borrower in accordance with their respective terms.

          3.06 Disclosure.  Neither this Agreement nor any other document, certificate, Loan Document or statement furnished to Lender by or on behalf of Borrower in connection herewith is known to contain any untrue statement of a material fact or, to the knowledge of Borrower, omits to state a material fact necessary in order to make the statements contained herein and therein not misleading.

          3.07 Ownership of Subsidiaries. Except as otherwise disclosed to Lender, Borrower owns 100% of the issued and outstanding capital stock of SDFC and SDFC owns 100% of the issued and outstanding capital stock of Bank. Except as otherwise disclosed to Lender, Borrower does not own, directly or indirectly, any stock or any interest in any other Person.

          3.08 Federal Reserve Board Regulations.  Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation G, T, U, or X of the Board of Governors of the Federal Reserve System) and no part of the proceeds of the loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock except as otherwise disclosed in writing to lender. Neither Borrower nor any agent acting on its behalf has taken or will take any action which might cause Borrower’s execution of this Agreement to violate any regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended.

          3.09 Stock and Stock Agreements.  Neither Borrower nor any Subsidiary has any class of stock authorized other than common stock. Further, Borrower has furnished to lender copies of all buy-sell agreements, stock redemption agreements, voting trust agreements and all other agreements and contracts involving the stock of Borrower and/or each of its Subsidiaries to which Borrower or any Subsidiary is a party and there are not now any agreements or terms of any agreements to which Borrower or any Subsidiary is a party which alter, impair, affect or abrogate the rights of lender or the Obligations of Borrower under this Agreement or any other loan Document.

          3.10 Financial Statements.  The consolidated financial statements of Borrower, dated as of December 31, 2004, and furnished to lender, were prepared in accordance with regulatory accounting principles or GAAP, as indicated upon such statements, and such statements fairly present, as appropriate, the consolidated financial conditions and the results of operations of Borrower as of, and for the portion of the fiscal year ending on, the date or dates thereof. There were no material adverse events or liabilities, direct or indirect, fixed or contingent, of Borrower as of the date or dates of such financial statements and known to Borrower, which are not reflected therein or in the notes thereto. Except for transactions directly related to, or specifically contemplated by, the loan Documents and transactions heretofore disclosed in writing to lender, there have been no material adverse changes in the r espective financial conditions of Borrower and/or its Subsidiaries from those shown in such financial statements between such date or dates and the date hereof.

          3.11 Taxes.  All federal, state, foreign, and other tax returns of Borrower and each Subsidiary required to be filed have been filed, and all federal, state, foreign, and Taxes are shown thereon as owing have been paid. Borrower does not know of any pending audit or investigation of Borrower and/or any Subsidiary with any taxing authority.

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          3.12  Title to Collateral.  Borrower owns, and with respect to common stock of SDFC delivered after the date hereof, Borrower will own, legally and beneficially, the common stock of SDFC free of any lien or claim or any right or option on the part of any third person to purchase or otherwise acquire such common stock or any part thereof, except for the first priority lien granted pursuant to the loan Documents. Borrower has the unrestricted right to pledge the common stock of SDFC as contemplated hereby. SDFC owns, and with respect to common stock of Bank delivered after the date hereof, SDFC will own, legally and beneficially, the common stock of Bank free of any lien or claim or any right or option on the part of any third person to purchase or otherwise acquire such common stock or any part thereof, except for the first priority lien granted pursuant to the loan Documents. SDFC has t he unrestricted right to pledge the common stock of Bank as contemplated hereby. The Collateral is not subject to any restriction on transfer or assignment except for compliance with applicable federal and state laws and regulations promulgated thereunder. All of the Collateral has been, and with respect to Collateral delivered after the date hereof, will be duly and validly issued and fully paid and nonassessable.

          3.13 Use of Loan Proceeds.  All loan proceeds or funds furnished by Lender to Borrower pursuant to this Agreement shall be used solely for the purpose specified in Article II of this Agreement.

ARTICLE IV

Affirmative Covenants

          While any part of the Obligations remains unpaid and unless otherwise waived in writing by Lender:

          4.01     Accounts. Reports and Other Information.  Borrower shall maintain, and cause each Subsidiary to maintain, a standard system of accounting in accordance with regulatory accounting principles or GAAP, as applicable, and Borrower shall furnish to Lender the following:

          (a) Quarterly Statements.  As soon as available, but no more than forty-five (45) days after the end of each of the first three quarters of Borrower’s fiscal year: (i) a copy of its Form 10Q; (ii) a copy of the Federal Reserve Board Form Y-9C and Y-9LP; (iii) an officer’s certificate setting forth the information required to establish whether Borrower and its Subsidiaries were in compliance with the financial covenants and ratios set forth in Articles IV and V hereof during the period covered and that signer or signers have reviewed the relevant terms in this Agreement and have made, or caused to be made under their supervision, a review of the transactions of Bank from the beginning of the accounting period covered by the financial statements being delivered therewith to the date of the officer’s certificate and that such review has not disclosed any Event of Default, or material violation or breach in the due observance of any covenant, agreement or provision of this Agreement; (iv) as to those Subsidiaries whose stock has been pledged hereunder as Collateral, copies of all FFIEC Call Reports furnished by each such Subsidiary to the appropriate Tribunal; (v) such other information as Lender shall reasonably request.

          (b) Annual Audit.  As soon as available, but no more than one hundred twenty (120) days after the end of each fiscal year of Borrower: (i) a copy of the Borrower’s Form 10K; (ii) an opinion by an independent certified public accountant selected by Borrower, which opinion shall state that said consolidated financial statements have been prepared in accordance with GAAP and that such accountant’s audit of such financial statements has been made in accordance with generally accepted auditing standards and that said financial statements present fairly the consolidated financial condition of Borrower, and SDFC and the results of their operations; (iii) a copy of the Federal Reserve Board Form Y-6 Annual Report of Borrower and SDFC, as filed with the Board of Governors of the Federal Reserve System; and (iv) such other information as Lender may reasonably request.

           (c) Other Reports and Information.  As soon as available, copies of all other financial and other statements, reports, correspondence, notices and information of Borrower, each Subsidiary as may be requested, in form and substance reasonably satisfactory to Lender. The Borrower shall add Lender to its shareholder mailing list which will allow it to receive copies of correspondence with its shareholders.

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          4.02 Existence.  Borrower and its Subsidiaries shall maintain their respective existence as a corporation and all of its privileges, franchises, agreements, qualifications and rights that are necessary or desirable in the ordinary course of business; and Borrower shall cause each of its Subsidiaries to maintain and preserve their respective good standing with all Tribunals.

          4.03 Observance of Terms.  Borrower shall: (i) pay the principal and interest on the Note in accordance with its terms; and (ii) observe, perform, and comply with every covenant, term and condition herein expressed or implied on the part of Borrower to be observed, performed or complied with.

          4.04 Compliance With Applicable Laws.  Borrower and each Subsidiary shall in all material respects comply with the requirements of all applicable Laws of any Tribunal.

          4.05 Inspection.  Borrower and each Subsidiary shall permit any representatives of Lender to visit, review and/or inspect any of its properties and assets at any reasonable time and to examine all books of account, records, reports, examinations and other papers (subject to applicable confidentiality requirements), to make copies therefrom at the expense of Borrower, and to discuss the affairs, finances and accounts of Borrower and each Subsidiary with their respective employees and officers at all such reasonable times and as often as may be reasonably requested.

          4.06 Change.  Borrower shall promptly notify Lender of: (i) all litigation affecting Borrower which is not adequately covered by insurance and which could have a material adverse effect on the financial condition or operations of the Borrower; (ii) any other matter which could have a material adverse effect on the financial condition or operations of Borrower.

          4.07 Payment of Taxes.  Borrower and its Subsidiaries shall pay all lawful Taxes imposed upon them or upon their income or profits or upon any of their property before the same shall be delinquent; provided, however, that neither Borrower nor any Subsidiary shall be required to pay and discharge any such Taxes: (i) so long as the validity thereof shall be contested in good faith by appropriate proceedings diligently pursued and such liable party shall set aside on its books adequate reserves with respect thereto and shall pay any such Taxes before any of its property shall be sold to satisfy any lien which has attached as a security therefor; and (ii) if Lender has been notified of such proceedings.

          4.08 Insurance.  Borrower and each Subsidiary shall keep all property of a character usually insured by Persons engaged in the same or similar businesses, adequately insured by financially sound and reputable insurers, and shall furnish Lender evidence of such insurance immediately upon request in form satisfactory to Lender.

          4.09 Compliance With ERISA.  Borrower and each Subsidiary shall comply, if applicable, in all material respects, with the provisions of the Employee Retirement Income Security Act of 1974, as amended, and furnish to Lender, upon Lender’s request, such information concerning any plan of Borrower or Bank subject to said Act as may be reasonably requested. Borrower and each Subsidiary shall notify Lender immediately of any fact or action arising in connection with any plan which might constitute grounds for the termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States district court of a trustee or administrator for such plan.

          4.10 Financial Condition.  Subject to the provisions of Article V, Borrower shall cause Bank to maintain the ratios of loans to deposits, loan loss reserves and liquidity at percentages acceptable to all Tribunals having jurisdiction over Bank.

          4.11 Maintenance of Priority of Liens.   Borrower and each Subsidiary shall each perform such acts and shall duly authorize, execute, acknowledge, deliver, file, and record such additional assignments, security agreements, and other agreements, documents, instruments, and certificates as Lender may deem reasonably necessary or appropriate in order to perfect and maintain the security interest created in favor of Lender in the Security Instruments.

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          4.12 FDIC Insurance.  Borrower shall cause the Bank to maintain federal deposit insurance and to be a member of the Federal Deposit Insurance Corporation.

          4.13 Notices.  Borrower shall promptly notify, and shall cause each Subsidiary to promptly notify, Lender of (i) the occurrence of an Event of Default, or of any event that with notice or lapse of time or both would be an Event of Default, (ii) the commencement of any action, suit, or proceeding against Borrower or any Subsidiary that might in the reasonable judgment of Borrower have a material adverse effect on the business, financial condition, or operations of Borrower or any Subsidiary, and (iii) any other matter that might in the reasonable judgment of Borrower have a material adverse effect on the business, financial condition, or operations of Borrower or any Subsidiary.

ARTICLE V

Negative Covenants

          While any part of the Obligations remains unpaid and unless waived in writing by Lender:

          5.01 Capital Ratio.  The Borrower shall not permit the Capital Ratio of Bank at any time to be less than six percent (6.0%), calculated quarterly.

          5.02 Non-Performing Loans Ratio.  The Borrower shall not permit the Bank’s NonPerforming Loans Ratio at any time to be less than one-hundred (100.0%).

          5.03 Return on Average Assets.  The Borrower shall not permit the Bank’s annual Return on Average Assets at any time to be less than one percent (1.0%).

          5.04 Tangible Net Worth.  The Borrower shall not permit its consolidated Tangible Net Worth at any time to be less than Fifty-Five Million and no/100 Dollars ($55,000,000.00).

          5.05 Cash Flow Coverage.  The Borrower shall maintain at all times a Cash Flow Coverage of not less than 1.5 to 1.0, calculated on a quarterly annualized basis.

          5.06 Return on Equity Capital.  The Borrower shall cause the Bank at all times to maintain an annual (Return on Equity Capital of not less than 10 percent (10%). 

          5.07 Bad Debt Ratio.  The Borrower shall not permit the Bad Debt Ratio at any time to be less than one percent (1%). 

          5.08 Dividends.  Borrower shall not declare or pay any dividends, make any payment on account of any class of the capital stock of Borrower now or hereafter outstanding, or make any distribution of cash or property to holders of any shares of such stock which exceed Five Million Dollars ($5,000,000.00) in the aggregate during any fiscal year, provided however, without lender’s prior written consent, Borrower will not declare any dividend so long as Borrower is in default in payment of the Obligations. Payment by Borrower for shares purchased under a stock repurchase plan by which Borrower purchases its own shares on the open market will not be considered a distribution to shareholders.

          5.09 Business.  Borrower and each Subsidiary shall not engage, directly or indirectly, in any business other than the businesses permitted by statute and the regulations of the appropriate governmental and regulatory agencies or Tribunals.

          5.10 Other Liens, Disposition of Assets.  Borrower or any Subsidiary shall not create or suffer to exist a lien or security interest upon, or otherwise dispose of or encumber, any Collateral securing Borrower’s payment and performance of the Obligations, nor will Borrower or any Subsidiary sell, lease, or otherwise dispose of any material part of their assets or investments, except in the ordinary course of business.

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          5.11 Limitation on Debt.  Borrower shall not, nor allow any Subsidiary to, create, incur, assume, become liable in any manner in respect of, or suffer to exist, any debt for borrowed money except:

          (a) debt, excluding debt created under this Agreement, not in excess of ONE MILLION DOLLARS ($1,000,000.00) at anyone time outstanding;

          (b) debt created under this Agreement;

          (c) debt secured by a purchase money security interest;

          (d) $25,000,000.00 of federal funds purchased;

          (e) any borrowings from the Federal Home Loan Bank which shall not exceed $100,000,000; and

          (f)  junior subordinated debt due in 2034 as disclosed in the Borrower’s 10K.

          5.12 Prepayment of Debt.  Borrower shall not, and Borrower shall not permit its Subsidiaries to prepay any of their respective material debt, other than the debt created under this Agreement, or incurred in the ordinary course of business before the same becomes due.

          5.13 Issuance of Stock.  Except for the $12,000,000 of Trust Preferred stock issued by Summit Bancshares, Inc. Statutory Trust I, a Delaware corporation (a newly formed Subsidiary of the Borrower), no Subsidiary shall authorize or issue shares of stock of any class, common or preferred, or any warrant, right or option pertaining to its capital stock or issue any security convertible into capital stock, except for any issued to Borrower by any Subsidiary of Borrower, provided however, any stock issued by a Bank shall be pledged to Lender.

ARTICLE VI

Default

          6.01     Events of Default.  Each of the following shall be deemed an “Event of Default”:

          (a) Failure by Borrower to pay or perform any part or component of the Obligations, when due or declared due and continuation of such failure for a period of three (3) Business Days thereafter; or,

          (b) Any representation or warranty made or deemed made by Borrower or any other Person in any Loan Documents, or in any certificate or financial or other statement furnished at any time to Lender by or on behalf of Borrower shall be false, misleading or erroneous in any material respect as of the date made, deemed made, or furnished and failure by Borrower to cure the same within thirty (30) days after notice thereof is given by Lender to Borrower; or,

          (c) Failure to observe, perform or comply with any of the covenants, terms, or agreements contained in this Agreement or any other Loan Document and failure by Borrower to cure the same within thirty (30) days after notice thereof is given by Lender to Borrower; or,

          (d) Failure by Borrower or any Subsidiary to pay any of its material indebtedness as the same becomes due or within any applicable grace period (other than indebtedness being actively contested in good faith and for which adequate reserves have been established in accordance with generally accepted accounting principles); or,

Page 11

          (e) Borrower or any Subsidiary shall file a petition for bankruptcy, liquidation or any answer seeking reorganization, rearrangement, readjustment of its debts or for any other relief under any applicable bankruptcy, insolvency, or similar act or law, now or hereafter existing, or any action consenting to, approving of, or acquiescing in, any such petition or proceeding; or the appointment by consent or acquiescence of, a receiver, trustee, liquidator, or custodian for all or a substantial part of its property; or the making of an assignment for the benefit of creditors; or the inability to pay its debts as they mature; or take any corporate action to authorize any of the foregoing; or,

          (f) Filing of an involuntary petition against Borrower or any Subsidiary seeking reorganization, rearrangement, readjustment or liquidation of its debts or for any other relief under any applicable bankruptcy, insolvency or other similar act or law, now or hereafter existing, or the involuntary appointment of a receiver, trustee, liquidator or custodian of all or a substantial part of its property, and such involuntary proceeding or appointment remains unvacated, undismissed or unstayed for a period of ninety (90) days; or the issuance of a writ of attachment, execution, sequestration or similar process against any part of its property and same remains unbonded, undischarged, or undismissed for a period of thirty (30) days from the date of notice; or,

          (g) Final judgment for the payment of money in excess of $100,000.00 shall be rendered against Borrower or any Subsidiary and the same shall remain undischarged for a period of thirty (30) days during which execution shall not be effectively stayed; or,

          (h) An event occurs which has a material adverse affect on the financial conditions or operation of Borrower or Bank; or,

          (i) A change in control of Bank (as such or similar term is used in the Texas Banking Code of 1943 and in the Financial Institutions Regulatory and Interest Rate Control Act) shall occur, or action to change such control shall be commenced, without the prior written consent of Lender (which consent may be given or withheld in Lender’s sole discretion); or,

          (j)  This Agreement or any other Loan Document shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by Borrower or any Subsidiary or Borrower shall deny that it has any further liability or obligation under any of the Loan Documents; or,

          (k) Receipt by Bank of a notice from the Federal Deposit Insurance Corporation of intent to terminate status as an insured bank; or,

          (I) The filing by Bank of an application for relief pursuant to section 13(c) of 13(i) of the Federal Deposit Insurance Act, as amended, or similar relief from any Tribunal; or,

          (m) The filing by Bank of an application for capital forbearance from any Tribunal; or,

          (n) If Lender shall have elected to file any financing statement with respect to the Collateral, Lender shall receive at any time following the execution of this Agreement a search report indicating that Lender’s security interest in the Collateral is not prior to all other security interests or other interests reflected in the report and Borrower has failed to cure such default by having a termination statement filed for such prior lien within thirty (30) days after notice thereof is given by Lender to Borrower.

          6.02 Remedies Upon Default.  Upon the occurrence of any Event of Default set forth in Section 6.01, at the option of Lender, the obligation of Lender to extend credit to Borrower pursuant hereto shall immediately terminate and the principal of and interest accrued on the Note if not earlier demanded, shall be immediately and automatically forthwith DEMANDED and due and payable without any notice or demand of any kind, and the same shall be due and payable immediately without any notice, presentment, acceleration, demand, protest, notice of acceleration, notice of intent to accelerate, notice of intent to demand, notice of protest or notice of any kind (except notice required by law which has not been waived herein), all of which are hereby waived. Upon the occurrence of any Event of Default, Lender may exercise all rights and remedies available to it in law or in equity, under any Loan Document or otherwise.

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ARTICLE VII

Miscellaneous

          7.01 Notices.  Unless otherwise provided herein, all notices, requests, consents and demands shall be in writing and delivered in person or mailed, postage prepaid, certified mail, return receipt requested, addressed as follows:

          If intended for Borrower or its Subsidiaries, to:

SUMMIT BANCSHARES, INC.

3880 Hulen Street, Suite 300

Fort Worth, Texas 76107

Attn: Philip E. Norwood

          If intended for Lender, to:

THE FROST NATIONAL BANK 100 West Houston Street

P.O. Box 1600

San Antonio, Texas 78296

Attn: Jerry Crutsinger

or to such other person or address as either party shall designate to the other from time to time in writing forwarded in like manner. All such notices, requests, consents and demands shall be deemed to have been given or made when delivered in person, or if mailed, when deposited in the mails.

          7.02 Place of Payment.  All sums payable hereunder to Lender shall be paid at Lender’s banking office at 100 West Houston Street, P.O. Box 1600, San Antonio, Texas 78296. If any payment falls due on other than a Business Day, then such due date shall be extended to the next succeeding Business Day, and such amount shall be payable in respect to such extension.

          7.03 Survival of Agreement.  All covenants, agreements, representations and warranties made in this Agreement shall survive the execution and delivery of this Agreement in the making of the Loan. All statements contained in any certificate or other instrument delivered by Borrower hereunder shall be deemed to constitute representations and warranties made by Borrower.

          7.04 No Waiver.  No waiver or consent by Lender with respect to any act or omission of Borrower or any Subsidiary on one occasion shall constitute a waiver or consent with respect to any other act or omission by Borrower or any Subsidiary on the same or any other occasion, and no failure on the part of Lender to exercise and no delay in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right hereunder preclude any other or further right of exercise thereof or the exercise of any other right. The rights and remedies provided for in this Agreement and the other Loan Documents are cumulative and not exclusive of any rights and remedies provided by Law.

          7.05 Accounting Terms.  All accounting and financial terms used herein, and the compliance with each covenant herein which relates to financial matters, shall be determined in accordance with regulatory accounting principles or GAAP.

          7.06 Lender Not In Control.  None of the covenants or other provisions contained in the Agreement shall, or shall be deemed to, give Lender the right or power to exercise control over the affairs and/or management of Borrower or any Subsidiary, the power of Lender being limited to those rights generally given to lenders; provided that, if Lender becomes the owner of any stock or other equity interest in Borrower or any Subsidiary whether through foreclosure or otherwise, Lender shall be entitled to exercise such legal rights as it may have by being an owner of such stock, or other equity interest in Borrower or any Subsidiary.

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          7.07 Joint Venture. Partnership, Etc.  None of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, constitute or create a joint venture, partnership or any other association, affiliation, or entity between Borrower or any Subsidiary and Lender.

          7.08 Successors and Assigns.  All covenants and agreements contained in this Agreement and all other Loan Documents shall bind and inure to the benefit of the respective successors and assigns of the parties hereto, except that neither Borrower nor any Subsidiary may assign its rights herein, in whole or in part.

          7.09 Expenses.  Borrower agrees to reimburse Lender for its out-of-pocket expenses, including reasonable attorneys’ fees, in connection with the negotiation, preparation, administration and enforcement of this Agreement or any of the Loan Documents, making the Loan hereunder, and in connection with amendments, consents and waivers hereunder.

          7.10 Governing Law.  THIS AGREEMENT, THE NOTE, AND ALL OTHER LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS UNDER THE LAWS OF THE STATE OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT FEDERAL LAWS MAY APPLY. THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMED IN SAN ANTONIO, BEXAR COUNTY, TEXAS.

          7.11 Severability.  If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future Laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid and unenforceable provision had never comprised a part of this Agreement; and remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement.

          7.12 Modification or Waiver.  No modification or waiver of any provision of this Agreement, the Note, or any Loan Documents shall be effective unless such modification or waiver shall be in writing and executed by a duly authorized officer of Lender.

          7.13 Right of Setoff.  Nothing in this Agreement shall be deemed a waiver of Lender’s right of Lender’s banker’s lien or setoff.

          7.14 Release.  Lender will not be liable to Borrower for any claim arising from or relating to any of the Loan Documents or any transactions contemplated thereby except upon proof of Lender’s gross negligence or willful misconduct or willful breach of its agreements.

          7.15 Waiver of DTP A.  Neither the Borrower nor its Subsidiary is in a significantly disparate bargaining position and they have both been represented by legal counsel in this transaction. The Borrower and its Subsidiaries hereby waive the applicability of the Texas Deceptive Trade Practices Act (other than §17.555) to the transaction and any and all rights or remedies that may be available to the Borrower or any Subsidiary in connection with this transaction.

          7.16 Counterparts.  This Agreement may be executed simultaneously in multiple counterparts, all of which together shall constitute one and the same instrument.

          7.17 Headings.  The headings, captions, and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

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          7.18 Maximum Interest Rate.  No provision of this Agreement or of the Note shall require the payment or the collection of interest in excess of the maximum permitted by applicable law. If any excess of interest in such respect is hereby provided for, or shall be adjudicated to be so provided, in the Note or otherwise in connection with this loan transaction, the provisions of this Section 7.18 shall govern and prevail and Borrower shall not be obligated to pay the excess amount of such interest or any other excess sum paid for use, forbearance, or detention of sums loaned pursuant hereto. In the event Lender ever receives, collects, or applies as interest any such sum, such amount which would be in excess of the maximum amount permitted by applicable law shall be applied as a payment and reduction of the principal of the indebtedness evidenced by the Note; and, if the principal of the Note has be en paid in full, any remaining excess shall forthwith be paid to Borrower.

          7.19 Assignment. Participation or Pledge by Lender.  Lender may from time to time, without notice to Borrower: (I) pledge or encumber or assign to anyone or more Persons (including, but not limited to, one or more of Lender’s affiliates, subsidiaries, or subsidiaries of Lender’s affiliates) all of Lender’s right, title and interest in and to this Agreement, the Loan Documents and/or the collateral securing the Loan; or (ii) sell, to anyone or more Persons, a participation or joint venture interest in all or any part of Lender’s right, title, and interest in and to this Agreement, the Loan Documents and/or such collateral; and Borrower hereby expressly consent to any such future transaction. Each participant or joint venture shall be entitled to receive all information regarding the creditworthiness of Borrower, including, without limitation, all information required to be discl osed to a participant or joint venture pursuant to any Law of any Tribunal.

          7.20 Confidentiality.  The Lender agrees to keep in confidence all records and information provided by Borrower to Lender which is marked or identified as confidential. Lender agrees not to use the records and information provided by Borrower to Lender to solicit customers of Borrower or any of its Subsidiaries or to gain any competitive advantage against Borrower or any of its Subsidiaries.

          7.21 Renewal and Extension.  This Agreement and the Acquisition Note referenced in Section 2.1 herein, is given in renewal and extension, but not extinguishment, of the unpaid principal balance of that certain Acquisition Note dated September 15, 2004 executed and delivered by Borrower and payable to the order of Lender in the original principal amount of $1 0,000,000.00. This Loan Agreement supersedes that certain Loan Agreement dated September 15, 2001.

          7.22 ENTIRE AGREEMENT.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT, UNDERSTANDING, REPRESENTATIONS AND WARRANTIES OF THE PARTIES HERETO AND SUPERSEDE ALL PRIOR AGREEMENTS, ARRANGEMENTS AND UNDERSTANDINGS BETWEEN THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES. SHOULD A CONFLICT IN ANY TERMS, CONDITIONS OR COVENANTS EXIST BETWEEN THIS AGREEMENT AND ANY OF THE LOAN DOCUMENTS, THIS AGREEMENT SHALL BE CONTROLLING.

IN WITNESS HEREOF, Borrower and Lender, by and through their duly authorized officers, have caused this Agreement to be executed the day and year first above written.

BORROWER:	SUMMIT BANCSHARES
	By:	/s/ Bob G. Scott
	Its:	Secretary and Treasurer
LENDER:	THE FROST NATIONAL BANK
	By:	/s/ Jerry L. Crutsinger
	Its:	Senior Vice President
GUARANTOR:	SUMMIT DELAWARE FINANCIAL CORPORATION
	By:	/s/ Bob G. Scott
	Its:	Secretary and Treasurer

Page 15

EX-11

EXHIBIT 11

COMPUTATION OF EARNINGS PER COMMON SHARE

The details of computation of earnings per common share are disclosed in the Consolidated Statements of Income and Note 18 of the Notes to Consolidated Financial Statements for the Nine Months Ended September 30, 2005 and 2004 (unaudited) and the Year Ended December 31, 2004 (unaudited), contained in the Quarterly Report on Form 10-Q of the registrant for the quarter ended September 30, 2005.

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF SUMMIT BANCSHARES, INC.

I, Philip E. Norwood, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Summit Bancshares, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 10, 2005	By:	/s/ Philip E. Norwood
		Philip E. Norwood
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER OF SUMMIT BANCSHARES, INC.

I, Bob G. Scott, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Summit Bancshares, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 10, 2005	By:	/s/ Bob G. Scott
		Bob G. Scott
		Executive Vice President and Chief Operating Officer
		(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF SUMMIT BANCSHARES, INC.

          Pursuant to Section 1350, Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I Philip E. Norwood, the Chairman, President and Chief Executive Officer of Summit Bancshares, Inc. (the “Corporation”) hereby certify, to my knowledge,  that:

(i)	the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 of the Corporation fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and
(ii)	the information contained in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 of the Corporation fairly presents, in all material respects, the financial condition and results of operations of the Corporation as of, and for, the periods presented in the report.

Dated:     November 10, 2005

By:	/s/ Philip E. Norwood
Name:	Philip E. Norwood
Title:	Chairman, President and Chief Executive Officer (Principal Executive Officer)

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b) (32) of Regulation SK and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER OF SUMMIT BANCSHARES, INC.

          Pursuant to Section 1350, Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I Bob G. Scott, the Executive Vice President and Chief Financial Officer of Summit Bancshares, Inc. (the “Corporation”) hereby certify, to my knowledge,  that:

(i)	the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 of the Corporation fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and
(ii)	the information contained in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 of the Corporation fairly presents, in all material respects, the financial condition and results of operations of the Corporation as of, and for, the periods presented in the report.

Dated:     November 10, 2005

By:	/s/ Bob G. Scott
Name:	Bob G. Scott
Title:	Executive Vice President and Chief Operating Officer
	(Principal Financial Officer)

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b) (32) of Regulation SK and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.