SECURITIESTable ANDof EXCHANGE COMMISSION Contents

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q

~~FORM~~QUARTERLY ~~10-Q~~REPORT UNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

~~QUARTERLY~~FOR ~~REPORT~~QUARTER ~~UNDER~~ENDED: ~~SECTION~~JUNE 1330, ~~OR 15(d) OF~~ 2002

~~THE~~COMMISSION ~~SECURITIES~~FILE ~~EXCHANGE~~NUMBER: 0-11108SUMMIT ~~ACT~~BANCSHARES, INC.STATE OF ~~1934~~CALIFORNIA I.R.S. IDENTIFICATIONNUMBER 94-27670672969 BROADWAY, OAKLAND CALIFORNIA 94611(510) 839-8800

~~FOR~~Indicate ~~QUARTER~~by check mark whether the registrant (1) has filed all reports required to be ~~ENDED: SEPTEMBER~~filed 30by 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), ~~2001~~and (2) has been subject to such filing requirements for the past 90 days.YES X NO

~~COMMISSION~~The ~~FILE~~number ~~NUMBER: 0-11108~~ of shares outstanding of the registrant’s common stock was1,854,328 shares of no par value common stockas of JUNE 30, 2002

~~SUMMIT BANCSHARES, INC.~~ 1

STATETable OFof CALIFORNIA Contents

2969 BROADWAY, OAKLAND CALIFORNIA 94611

PART I - FINANCIAL INFORMATION

ITEM 1		PAGE

SUMMIT BANCSHARES, INC. AND SUBSIDIARY FINANCIAL STATEMENTS

	Consolidated Statement of Financial Position	3
	Consolidated Statements of Income	4
	Consolidated Statement of Changes in Shareholders’ Equity	5
	Consolidated Statement of Cash Flows	6
	Notes to Financial Statements	7
	Interest Rate Risk Reporting Schedule	10

ITEM 2

	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

ITEM 3
	Quantitative and Qualitative Disclosures About Market Risk	18

PART II - OTHER INFORMATION		19


ITEMS 1-6

(510)Table 839-8800of Contents

I ITEM 1.~~R.S.~~ CONSOLIDATED ~~IDENTIFICATION~~FINANCIAL ~~NUMBER~~ STATEMENTS

~~94-2767067~~SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OFFINANCIAL POSITION JUNE 30, 2002 AND DECEMBER 31, 2001

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


		Unaudited		Audited
ASSETS		06/30/02		12/31/01

Cash and due from banks	$	11,518,470	$	5,532,202
Federal funds sold		16,945,000		20,070,000

Cash and cash equivalents		28,463,470		25,602,202
Time deposits with other financial institutions		22,246,026		27,189,613
Investment securities (fair value of $2,044,637 at June 30, 2002 and $2,074,688 at December 31, 2001 ) held to maturity		2,021,767		2,029,750
Loans:	$	95,915,357	$	88,648,893
Less: allowance for loan losses	$	1,555,022	$	1,506,750

Net loans		94,360,335		87,142,143
Premises and equipment, net		750,511		804,115
Interest receivable and other assets		5,264,409		4,884,324


Total Assets	$	153,106,518	$	147,652,147


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand	$	45,508,471	$	38,484,086
Interest-bearing transaction accounts		38,669,401		48,553,348
Savings		3,232,923		2,566,402
Time certificates $100,000 and over		32,396,077		32,420,495
Other time certificates		13,641,613		6,719,637

Total Deposits		133,448,485		128,743,968
Interest payable and other liabilities		1,004,331		698,311

Total Liabilities		134,452,816		129,442,279
Shareholders’ Equity
Preferred Stock, no par value:
2,000,000 shares authorized, no shares outstanding		0		0
Common Stock, no par value:
3,000,000 shares authorized;
1,854,328 shares outstanding at June 30, 2002 and 1,850,492 shares outstanding at December 31, 2001		3,764,953		3,752,486
Retained Earnings		14,888,749		14,457,382

Total Shareholders’ Equity		18,653,702		18,209,868


Total Liabilities and Shareholders’ Equity	$	153,106,518	$	147,652,147

The ~~number~~accompanying ofnotes ~~shares outstanding~~are ofan ~~the~~integral ~~registrant’s~~part ~~common stock was 1,850,492 shares~~ of nothese ~~par~~consolidated ~~value~~financial ~~common stock issued as of SEPTEMBER 30, 2001~~ statements

		Page
PART I—FINANCIAL INFORMATION
ITEM 1
SUMMIT BANCSHARES, INC. AND SUBSIDIARY FINANCIAL STATEMENTS
Consolidated Balance Sheets		3
Consolidated Statements of Income		4
Consolidated Statement of Cash Flows		5
Consolidated Statement of Changes in Shareholders’ Equity		6
Notes to Financial Statements		7-8
Interest Rate Risk Reporting Schedule		9
ITEM 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations		10-14
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk		15
PART II—OTHER INFORMATION
ITEMS 1-6		16

2Table of Contents

SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
	09/30/01	12/31/00
	(Unaudited)	(Audited)
ASSETS
Cash and due from banks	$ 8,224,981	$ 10,754,372
Federal funds sold	17,485,000	8,055,000
Cash and cash equivalents	$ 25,709,981	$ 18,809,372
Time deposits with other financial institutions	20,462,613	26,349,023
Investment securities held to maturity (fair value of $2,081,558 at September 30, 2001 and $12,450,018 at December 31, 2000)	2,033,778	12,465,000
Loans, net of allowance for loan losses of $1,502,533 at September 30, 2001 and $1,468,393 at December 31, 2000	87,317,105	83,716,482
Other real estate owned	0	0
Premises and equipment, net	856,469	726,236
Interest receivable and other assets	4,867,837	3,636,418
Total Assets	$141,247,783	$145,702,531
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand	$ 39,340,194	$ 43,685,937
Interest-bearing transaction accounts	41,968,706	41,551,449
Savings	2,755,568	2,993,922
Time certificates $100,000 and over	30,654,731	32,071,157
Other time certificates	6,922,307	7,784,304
Total Deposits	$121,641,506	$128,086,769
Interest payable and other liabilities	1,410,776	780,638
Total Liabilities	$123,052,282	$128,867,407
Shareholders’ Equity
Preferred Stock, no par value:
2,000,000 shares authorized, no shares outstanding	0	0
Common Stock, no par value:
3,000,000 shares authorized;
1,850,492 shares outstanding at September 30, 2001 and 1,837,548 shares outstanding at December 31, 2000	3,752,486	3,699,018
Retained Earnings	14,443,015	13,136,106
Total Shareholders’ Equity	$ 18,195,501	$ 16,835,124
Total Liabilities and Shareholders’ Equity	$141,247,783	$145,702,531

SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)

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

	THREE MONTHS		THREE MONTHS		SIX MONTHS		SIX MONTHS
	ENDED 6-30-02		ENDED 6-30-01		ENDED 6-30-02		ENDED 6-30-01
INTEREST INCOME:
Interest and fees on loans	$	2,107,595	$	2,017,823	$	3,912,208	$	4,311,542
Interest on time deposits with other
financial institutions		283,013		365,439		595,201		757,290
Interest on U.S. government
treasury securities		22,259		38,742		44,517		150,606
Interest on federal funds sold		106,841		338,804		217,287		669,855

Total interest income		2,519,708		2,760,808		4,769,213		5,889,293

INTEREST EXPENSE:
Interest on deposits		769,837		740,851		1,269,714		1,604,570

Total interest expense		769,837		740,851		1,269,714		1,604,570

Net interest income		1,749,871		2,019,957		3,499,499		4,284,723
Provision for loan losses		15,000		35,000		32,000		132,000

Net interest income after
provision for loan losses		1,734,871		1,984,957		3,467,499		4,152,723

NON-INTEREST INCOME:
Service charges on deposit accounts		54,084		63,133		117,103		118,254
Other customer fees and charges		28,631		22,511		101,291		56,599

Total non-interest income		82,715		85,644		218,394		174,853

NON-INTEREST EXPENSE:
Salaries and employee benefits		678,888		667,695		1,485,148		1,379,668
Occupancy expense		73,353		85,733		148,382		193,910
Equipment expense		92,535		61,995		172,716		119,631
Other		285,744		294,976		561,829		580,868

Total non-interest expense		1,130,520		1,110,399		2,368,075		2,274,077
Income before income taxes		687,066		960,202		1,317,818		2,053,499
Provision for income taxes		285,480		400,034		538,765		857,838

Net Income	$	401,586	$	560,168	$	779,053	$	1,195,661


EARNINGS PER SHARE:
Earnings per common share	$	0.22	$	0.29	$	0.42	$	0.65
Earnings per common share assuming dilution	$	0.21	$	0.30	$	0.42	$	0.64
Weighted average shares outstanding		1,854,328		1,846,224		1,853,141		1,841,864
Weighted avg. shrs. outsdg. assuming dilution		1,871,894		1,860,344		1,870,643		1,861,288

3The accompanying notes are an integral part of these consolidated financial statements

~~SUMMIT BANCSHARES, INC. AND SUBSIDIARY~~ 4

CONSOLIDATEDTable STATEMENTSof OF INCOME Contents

~~FOR~~ SUMMIT ~~THE~~BANCSHARES, ~~THREE~~INC. AND ~~NINE~~SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGESIN SHAREHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2001~~2002 AND ~~2000~~ 2001(UNAUDITED)

		Three Months Ended 9-30-2001				Three Months Ended 9-30-2000			Nine Months Ended 9-30-2001	Nine Months Ended 9-30-2000
	NUMBER OFSHARESOUTSTANDING		COMMONSTOCK		RETAINEDEARNINGS		TOTAL
Interest income:
Balance at December 31, 2000	1,837,548	$	3,699,017	$	13,136,106		16,835,123
Interest and fees on loans			$1,951,328				$2,052,021		$6,262,870	$5,383,703
Stock Options Exercised	12,944		53,469		0		53,469
Interest on time deposits with other financial institutions			285,890				540,458		1,043,180	1,378,595
Repurchase of Common Stock	0		0		0		0
Interest on U.S. government treasury securities			25,823				252,013		176,429	787,338
Issuance of cash dividends of $.1875 per share	0		0		(347,047	)	(347,047	)
Interest on federal funds sold			239,743				220,927		909,598	742,070
Net Income	0		0		1,195,660		1,195,660
Total interest income			2,502,784				3,065,419		8,392,077	8,291,706
Balance at June 30, 2001	1,850,492	$	3,752,486	$	13,984,719	$	17,737,205
Interest expense:
Balance at December 31, 2001	1,850,492	$	3,752,486	$	14,457,382	$	18,209,868
Interest on deposits			661,361				838,656		2,265,931	2,157,444
Stock Options Exercised	3,836		12,467		0		12,467
Total interest expense			661,361				838,656		2,265,931	2,157,444
Issuance of cash dividends of $.1875 per share	0		0		(347,686	)	(347,686	)
Net interest income			1,841,423				2,226,763		6,126,146	6,134,262
Net Income	0		0		779,053		779,053
Provision for loan losses			3,000				90,000		135,000	120,000
Balance at June 30, 2000	1,854,328	$	3,764,953	$	14,688,749	$	18,653,702
Net interest income after provision for loan losses			1,838,423				2,136,763		5,991,146	6,014,262
Non-interest income:
Service charges on deposit accounts			86,391				90,370		249,605	267,604
Other customer fees and charges			3,434				1,248		15,073	5,614
Total non-interest income			89,825				91,618		264,678	273,218
Non-interest expense:
Salaries and employee benefits			651,835				701,668		2,031,503	1,980,442
Occupancy expense			86,620				99,890		280,530	308,485
Equipment expense			73,554				69,042		193,185	205,674
Other			318,923				245,454		899,791	816,154
Total non-interest expense			1,130,932				1,116,054		3,405,009	3,310,755
Income before income taxes			797,316				1,112,327		2,850,815	2,976,725
Provision for income taxes			339,020				462,522		1,196,858	1,246,962
Net Income			$ 458,296				$ 649,805		$1,653,957	$1,729,763
Earnings per share:
Earnings per common share			$ 0.25				$ 0.35		$ 0.90	$ 0.94
Earnings per common share assuming dilution			$ 0.25				$ 0.35		$ 0.89	$ 0.93
Weighted average shares outstanding			1,850,492				1,831,952		1,844,750	1,833,272
Weighted avg. shrs. outsdg. assuming dilution			1,865,695				1,852,964		1,864,177	1,854,280

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

4 5

SUMMITTable BANCSHARES,of INC. AND SUBSIDIARY Contents

SUMMIT BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OFOFCASH ~~CASH~~ FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

	SIX MONTHS ENDED 6-30-02			SIX MONTHS ENDED 6-30-01
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received	$	4,207,535		$	5,200,382
Fees received		714,684			536,544
Interest paid		(1,252,898	)		(1,609,465	)
Cash paid to suppliers and employees		(2,268,251	)		(2,599,393	)
Income taxes paid		(443,820	)		(1,423,764	)

Net cash provided by operating activities		957,250			104,304

CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in time deposits with other financial institutions		4,943,587			(7,273,182	)
Maturity of investment securities		7,983			10,428,111
Purchase of investment securities		0			0
Net (increase) decrease in loans to customers		(7,366,129	)		(2,514,252	)
Recoveries on loans previously charged-off		18,632			8,000
(Increase) decrease in premises and equipment		(69,353	)		(191,057	)

Net cash provided by (used in) investing activities		(2,465,280	)		20,032,488

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in demand, interest bearing transaction, and savings deposits		(2,193,041	)		2,876,788
Net increase (decrease) in time deposits		6,897,558			(3,009,778	)
Exercise of stock options		12,467			53,468
Repurchase of common stock (decrease)		0			0
Dividends paid (decrease)		(347,686	)		(347,048	)

Net cash provided by (used in) financing activities		4,369,298			(426,570	)

Net increase (decrease) in cash and cash equivalents		2,861,268			19,710,222
Cash and cash equivalents at the beginning of the year		25,602,202			18,809,372

Cash and cash equivalents at the end of 6-30-02 and 6-30-01	$	28,463,470		$	38,519,594

RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income	$	779,053		$	1,195,661
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		122,957			103,014
Provision for loan losses and OREO losses		32,000			132,000
(Increase) decrease in interest receivable		(380,085	)		(1,871,848	)
Increase (decrease) in unearned loan fees		97,305			54,302
Increase (decrease) in Int Pay and Other Liab		306,020			491,175
Total adjustments		178,197			(1,091,357	)

Net cash provided by operating activities		957,250		$	104,304

~~(UNAUDITED)~~The accompanying notes are an integral part of these consolidated financial statements

	Nine Months Ended 9-30-01		Nine Months Ended 9-30-00
Cash flows from operating activities:
Interest received	$ 7,928,890		$ 7,772,032
Fees received	874,106		731,101
Interest paid	(2,236,809	)	(2,187,072	)
Cash paid to suppliers and employees	(3,615,679	)	(2,850,636	)
Income taxes paid	(1,588,765	)	(1,250,962	)
Net cash provided by operating activities	1,361,743		2,214,463
Cash flows from investing activities:
(Increase) decrease in time deposits with other financial institutions	5,886,410		(5,729,002	)
Maturity of investment securities	12,465,000		2,000,133
Purchase of investment securities	(2,033,778	)	0
Net (increase) decrease in loans to customers	(3,758,715	)	(12,215,793	)
Recoveries on loans previously charged-off	17,000		21,000
(Increase) decrease in premises and equipment	(298,208	)	(78,677	)
Net cash provided by (used in) investing activities	12,277,709		(16,002,339	)
Cash flows from financing activities:
Increase (decrease) in demand, interest bearing transaction, and savings deposits	(4,166,840	)	(11,307,151	)
Net increase (decrease) in time deposits	(2,278,423	)	13,987,523
Exercise of stock options	53,468		50,810
Repurchase of common stock (decrease)	0		(95,014	)
Dividends paid (decrease)	(347,048	)	(344,249	)
Net cash provided by (used in) financing activities	(6,738,843	)	2,291,919
Net increase (decrease) in cash and cash equivalents	6,900,609		(11,495,957	)
Cash and cash equivalents at the beginning of the period	18,809,372		27,635,500
Cash and cash equivalents at the end of period	$25,709,981		$16,139,543
Reconciliation of net income to net cash provided by operating activities:
Net Income	$ 1,653,957		$ 1,729,763
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	167,975		206,677
Provision for loan losses and OREO losses	135,000		120,000
(Increase) decrease in interest receivable	(1,231,419	)	(146,650	)
Increase (decrease) in unearned loan fees	6,092		75,974
Increase (decrease) in Int Pay and Other Liab	630,138		227,699
Total adjustments	(292,214	)	483,700
Net cash provided by operating activities	1,361,743		$ 2,213,463

TheTable accompanying notes are an integral part of these consolidated financial statements Contents

5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SUMMIT BANCSHARES, INC~~1. CONSOLIDATED ~~AND~~FINANCIAL ~~SUBSIDIARY~~ STATEMENTS

~~CONSOLIDATED~~In ~~STATEMENTS~~the OFopinion ~~CHANGES~~of INmanagement, ~~SHAREHOLDERS’~~the unaudited interim consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the ~~EQUITY~~Company’s financial position at June 30, 2002 and the results of operations for the three months and six months ended June 30, 2002 and 2001 and cash flows for the six months ended June 30, 2002 and 2001.

~~FOR~~Certain ~~THE~~information ~~NINE~~and ~~MONTHS~~footnote ~~ENDED~~disclosures ~~SEPTEMBER~~presented 30in the Company’s annual consolidated financial statements are not included in these interim financial statements. Accordingly, the accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2001 ~~AND~~Annual ~~2000~~Report to Shareholders, which is incorporated by reference in the Company’s 2001 annual report on Form 10-K. The results of operations for the three months and six months ended June 30, 2002 are not necessarily indicative of the operating results for the full year.

	Number of Shares Outstanding			Common Stock		Retained Earnings		Total
Balance at December 31, 2000		1,837,548		$3,699,018		$13,136,106		$16,835,124
Stock Options Exercised		12,944		53,468		0		53,468
Repurchase of Common Stock		0		0		0		0
Issuance of cash dividends of $.1875 per share		0		0		(347,048	)	(347,048	)
Net Income		0		0		1,653,957		1,653,957
Balance at September 30, 2001		1,850,492		$3,752,486		$14,443,015		$18,195,501
Balance at December 31, 1999		1,832,084		$3,741,923		$11,411,204		$15,153,127
Stock Options Exercised		15,120		50,810		0		50,810
Repurchase of Common Stock		(10,048	)	(95,014	)	0		(95,014	)
Issuance of cash dividends of $.1875 per share		0		0		(344,249	)	(344,249	)
Net Income		0		0		1,729,763		1,729,763
Balance at September 30, 2000		1,837,156		$3,697,719		$12,796,718		$16,494,437

2. COMPREHENSIVE INCOME

The ~~accompanying~~Company ~~notes~~had no items of other comprehensive income for the three ~~are~~month anand ~~integral~~six-month ~~part~~periods ofended ~~these~~June ~~consolidated~~30, ~~financial~~2002 ~~statements~~and 2001. Accordingly, total comprehensive income was equal to net income for each of those periods

63. SEGMENT REPORTING

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ 7

1. ConsolidatedTable Financialof Statements Contents

In the opinion of management, the unaudited interim consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position at September 30, 2001 and the results of operations for the three months and nine months ended September 30, 2001 and 2000 and cash flows for the three months and nine months ended September 30, 2001 and 20004. EARNINGS PER SHARE

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

2. Comprehensive Income

	Net Income (Loss)	Weighted Avg. Shares	Per Share Amount
	For the quarter ended June 30, 2002

Basic Earnings (Loss) per share	$402	1,854,328	$.22
Stock Options		17,566
Diluted Earnings (Loss) per share	$402	1,871,894	$.21

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

	Net Income (Loss)	Weighted Avg. Shares	Per Share Amount
	For the quarter ended June 30, 2001

Basic Earnings (Loss) per share	$560	1,846,224	$.30
Stock Options		14,120
Diluted Earnings (Loss) per share	$560	1,860,344	$.30

3. Segment Reporting

	Net Income (Loss)	Weighted Avg. Shares	Per Share Amount
	For the six months ended June 30, 2002

Basic Earnings (Loss) per share	$779	1,853,141	$.42
Stock Options		17,502
Diluted Earnings (Loss) per share	$779	1,870,643	$.42

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

	Net Income (Loss)	Weighted Avg. Shares	Per Share Amount
	For the six months ended June 30, 2001

Basic Earnings (Loss) per share	$1,196	1,841,864	$.65
Stock Options		19,424
Diluted Earnings (Loss) per share	$1,196	1,861,288	$.64

7 8

4. EarningsTable Perof Share Contents

~~The~~For ~~following~~the ~~table~~periods ~~reconciles~~reported, the ~~numerator~~Company had no reconciling items between net income (loss) and ~~denominator~~income (loss) available to common shareholders. 5. NEW ACCOUNTING PROUNOUNCEMENTS The Financial Accounting Standards Board Statement of ~~the~~Financial ~~basic~~Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and ~~diluted~~Hedging Activities, as amended by SFAS 138, establishes ~~earnings~~accounting ~~per~~and ~~share~~reporting ~~computations:~~standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Company adopted SFAS 133 on January 1, 2001. The implementation of this statement did not have a material impact on the Company’s financial position or result of operations.

	Net Income (Loss)		Weighted Avg. Shares		Per Share Amount
	For the quarter ended September 30, 2001
Basic Earnings (Loss) per share		$ 458		1,850,492		$.25
Stock Options				15,203
Diluted Earnings (Loss) per share		$ 458		1,865,695		$.25
	Net Income (Loss)		Weighted Avg. Shares		Per Share Amount
	For the quarter ended September 30, 2000
Basic Earnings (Loss) per share		$ 650		1,831,952		$.35
Stock Options				21,012
Diluted Earnings (Loss) per share		$ 650		1,852,964		$.35
	Net Income (Loss)		Weighted Avg. Shares		Per Share Amount
	For the nine months ended September 30, 2001
Basic Earnings (Loss) per share		$1,654		1,844,750		$.90
Stock Options				19,427
Diluted Earnings (Loss) per share		$1,654		1,864,177		$.89
	Net Income (Loss)		Weighted Avg. Shares		Per Share Amount
	For the nine months ended September 30, 2000
Basic Earnings (Loss) per share		$1,730		1,833,272		$.94
Stock Options				21,008
Diluted Earnings (Loss) per share		$1,730		1,854,280		$.93

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

~~5. New~~INTEREST ~~Accounting~~RATE ~~Prounouncements~~SENSITIVITY/INTEREST RATE RISK ANALYSIS

The ~~Financial~~following ~~Accounting~~table ~~Standards~~provides ~~Board~~an ~~Statement~~interest ofrate ~~Financial~~sensitivity ~~Accounting~~and ~~Standards~~interest ~~No.~~rate ~~133~~risk ~~(SFAS~~analysis ~~133), Accounting~~ for ~~Derivative~~the ~~Instruments~~quarter ~~and~~ended ~~Hedging~~June ~~Activities~~30, as amended by SFAS 138, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value2002. The ~~Company~~table presents ~~adopted~~each ~~SFAS~~major ~~133~~category ~~on January 1, 2001. The implementation~~ of ~~this~~interest-earning ~~statement~~assets ~~did~~and ~~not~~interest ~~have a material impact on the Company’s financial position or result of operations~~bearing-liabilities.

8 INTEREST RATE RISK REPORTING SCHEDULE

~~INTEREST~~REPORTING ~~RATE~~INSTITUTION: ~~SENSITIVITY/INTEREST~~SUMMIT ~~RATE~~BANK ~~RISK~~REPORTING ~~ANALYSIS~~DATE: 6-30-02

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

			REMAINING TIME BEFORE MATURITY OR INTEREST RATE ADJUSTMENT
			($000.00) OMITTED TOTAL		UP 3		>3 <1			>1 <3		>3 <5		>5 <10			OVER 10 YEARS

I.		EARNING ASSETS

	A.	INVESTMENTS:
	1.	U. S. TREASURIES	$	0	$	0	$	0		$	0	$	0	$	0		$	0
	2.	U. S. AGENCIES		2,022		0		0			2,022		0		0			0
	3.	FED FUNDS SOLD		16,945		16,945		0			0		0		0			0
	4.	PURCHASED CDS		22,246		4,534		9,663			8,049		0		0			0

		TOTAL INVESTMENTS	$	41,213	$	21,479	$	9,663		$	10,071	$	0	$	0		$	0


	B.	LOANS	$	92,778	$	77,432	$	4,789		$	4,299	$	4,299	$	1,959		$	0

		TOTAL LOANS	$	92,778	$	77,432	$	4,789		$	4,299	$	4,299	$	1,959		$	0
	C.	TOTAL EARNING ASSETS	$	133,991	$	98,911	$	14,452		$	14,370	$	4,299	$	1,959		$	0

II.		COST OF FUNDS (DEPOSITS)

	A.	CERTIFICATE OF DEPOSITS	$	46,038	$	31,726	$	13,299		$	1,013	$	0	$	0		$	0
	B.	MONEY MARKET ACCOUNTS		35,203		21,122		7,334			6,747		0		0			0
	C.	TRANSACTION ACCOUNTS		6,149		263		791			2,084		1,499		1,512			0
	D.	SAVINGS ACCOUNTS		2,652		114		341			899		647		651			0

		TOTAL COST OF FUNDS	$	90,042	$	53,225	$	21,765		$	10,743	$	2,146	$	2,163		$	0

III.		INTEREST SENSITIVE ASSETS	$	133,991	$	98,911	$	14,452		$	14,370	$	4,299	$	1,959		$	0

IV.		INTEREST SENSITIVE LIABILITIES	$	90,042	$	53,225	$	21,764		$	10,744	$	2,145	$	2,164		$	0

V.		GAP	$	43,949	$	45,686	$	(7,312	)	$	3,626	$	2,154	$	(205	)	$	0

VI.		CUMULATIVE GAP	$	43,949	$	45,686	$	38,374		$	42,000	$	44,154	$	43,949		$	43,949

VII.		GAP RATIO		1.49		1.86		0.66			1.34		2.00		0.91			0.00

VIII.		CUMULATIVE RATIO		1.49		1.86		1.51			1.49		1.50		1.49			1.49

IX.		GAP AS A % OF TOTAL ASSETS		29.43		30.59		-4.90			2.43		1.44		0.14			0.00

X.		CUMULATIVE GAP AS A % OF TOTAL ASSETS		29.43		30.59		25.70			28.12		29.57		29.43			29.43

~~INTEREST RATE RISK REPORTING SCHEDULE~~ 10

REPORTINGTable INSTITUTION:of SUMMIT BANK REPORTING DATE: 9-30-01Contents

		Remaining Time Before Maturity or Interest Rate Adjustment
		($000.00) Omitted Total		Up 3 Mo.	>3Mo. <1Yrs.		>1Yrs. <3Yrs.	>3Yrs. <5Yrs.	>5Yrs. <10Yrs.	Over 10 Years
I.	Earning assets
	A. Investments:
	1. U. S. Treasuries		$ 0	$ 0	$ 0		$ 0	$ 0	$ 0		$ 0
	2. U. S. Agencies		2,034	0	0		2,034	0	0		0
	3. Fed funds sold		17,485	17,485	0		0	0	0		0
	4. Purchased cds		20,462	1,188	5,722		13,552	0	0		0
	Total investments		$ 39,981	$18,673	$ 5,722		$15,586	$ 0	$ 0		$ 0
	B. Loans		$ 85,775	$68,887	$ 2,958		$ 2,445	$ 5,980	$ 5,505		$ 0
	Total loans		$ 85,775	$68,887	$ 2,958		$ 2,445	$ 5,980	$ 5,505		$ 0
	C. Total earning assets		$125,756	$87,560	$ 8,680		$18,031	$ 5,980	$ 5,505		$ 0
II.	Cost of funds (deposits)
	A. Certificate of deposits		$ 37,577	$26,734	$10,599		$ 244	$ 0	$ 0		$ 0
	B. Money market accounts		35,670	7,134	14,862		13,674	0	0		0
	C. Transaction accounts		8,034	344	1,033		2,723	1,958	1,976		0
	D. Savings accounts		2,755	118	354		934	672	677		0
	Total cost of funds		$ 84,036	$34,330	$26,848		$17,575	$ 2,630	$ 2,653		$ 0
III.	Interest sensitive assets		$125,756	$87,560	$ 8,680		$18,031	$ 5,980	$ 5,505		$ 0
IV.	Interest sensitive liabilities		$ 84,036	$34,330	$26,848		$17,575	$ 2,630	$ 2,653		$ 0
V.	Gap		$ 41,720	$53,230	($ 18,168	)	$ 456	$ 3,350	$ 2,852		$ 0
VI.	Cumulative gap		$ 41,720	$53,230	$35,062		$35,518	$38,868	$41,720		$41,720
VII.	Gap ratio		1.50	2.55	0.32		1.03	2.27	2.08		0.00
VIII.	Cumulative ratio		1.50	2.55	1.57		1.45	1.48	1.50		1.50
IX.	Gap as a % of total assets		30.34	38.72	(13.21	)	0.33	2.44	2.08
X.	Cumulative gap as a % of total assets		30.34	38.72	25.50		25.83	28.27	30.34		30.34

ITEM 2.

9 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001

The registrant, Summit ~~ITEM~~Bancshares, 2Inc. (the “Company”) is a financial holding company whose only operating subsidiary is Summit Bank (the “Bank”). The following discussion primarily concerns the financial condition and results of operations of the Company on a consolidated basis including the subsidiary Bank. All adjustments made in the compilation of this information are of a normal recurring nature.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~ FINANCIAL CONDITION ~~AND~~

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

The ~~registrant~~consolidated loan-to-deposit ratio at June 30, ~~Summit~~2002 ~~Bancshares~~was 70.7%, ~~Inc~~which was an increase from 63.3% (for the ~~“Company”)~~same isperiod ain ~~bank~~2001. ~~holding~~Total ~~company~~outstanding ~~whose~~loans ~~only~~as ~~operating~~of ~~subsidiary~~June is30, ~~Summit~~2002 ~~Bank~~increased ($13,352,407 compared to the ~~“Bank”)~~same period a year ago while total deposits increased $5,494,706 versus the same time last year. The ~~following discussion~~increase ~~primarily~~in ~~concerns~~loans ~~the~~and ~~financial~~deposits ~~condition~~was mainly due to Summit’s effort in marketing its products and ~~results~~the formation of ~~operations~~the Real Estate Capital Markets Group. The average loan-to-deposit ratio at the end of the ~~Company~~second onquarter of a2002 ~~consolidated~~was ~~basis~~66.2%, ~~including~~an increase from 60.7% for the ~~subsidiary~~same ~~Bank~~period last year. ~~All~~This ~~adjustments~~increase ~~made~~was caused by an increase in ~~the~~average ~~compilation~~total deposits of ~~this~~$10,871,047 ~~information~~or ~~are~~8.3% ofwhile aaverage ~~normal~~total ~~recurring~~loans ~~nature~~increased $14,596,222 or 19. 6%.

~~FINANCIAL~~One ~~CONDITION~~of the Company’s customers manages accounts for medical offices and physicians. This customer has brought approximately 80 of the accounts they manage to the Company. As of June 30, 2002 the aggregate monthly average balance in these accounts was approximately $16,000,000.

~~Liquidity~~This ~~Management~~customer has notified the Bank that due to the expiration of a contract and its merger with an affiliated company, approximately $9,000,000 of the deposit relationship will be moving to the affiliate’s bank in Southern California. It is anticipated that these accounts will move by the end of the third quarter.

~~The consolidated~~In ~~loan-to-deposit~~anticipation ~~ratio~~of ~~at September 30, 2001 was 71.8%, which was an increase from 52.9% for~~ the ~~same~~transfer ~~period in 2000. Net outstanding loans as~~ of ~~September~~those 30accounts, ~~2001 increased $22,452,000 compared to~~ the ~~same~~Bank ~~period~~purchased abrokered ~~year~~CDs ~~ago~~to ~~while~~assist ~~total deposits~~in ~~decreased $1,036,000 versus~~ the ~~same~~outflow ~~time~~of ~~last year~~funds. The increase in ~~loans was mainly due to Summit’s effort in marketing its products and~~ the ~~formation of the Real Estate Capital Markets Group. The average loan-to-~~deposit ~~ratio~~accounts atis ~~the end~~partially ofreflective ~~the third quarter~~ of ~~2001 was 64.1%, an increase from 52.3% for~~ the ~~same~~purchase ~~period last year. This increase was caused by an increase in average total deposits~~ of brokered ~~$4,208,000 or 3~~CDs.~~3% while average total loans increased $20,479,000 or 30.4%.~~

One of the Company’s customers manages accounts for medical offices and physicians. This customer has brought approximately 80 of the accounts they manage to the Company. As of September 30, 2001 the aggregate monthly average balance in these accounts was approximately $12,000,000. 11

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

Net liquid assets, which consists primarily of cash, due from banks, interest-bearing deposits with other financial institutions, investment securities and ~~federal~~Federal Funds ~~funds~~ sold totaled $4850,~~206~~709,~~000~~496 on ~~September~~June 30, ~~2001~~2002. This amount represented 3938.60% of total deposits in comparison to the liquidity ratio of 5446.87% as of ~~September~~June 30, ~~2000~~2001. This decrease is primarily a result of a proportionately higher rise in loan growth, than ~~which~~the ~~caused~~corresponding aincrease ~~decrease~~ in ~~investments~~deposits. It is management’s belief that the current liquidity level is ~~appropriate~~sufficient ~~given~~to meet current ~~economic~~needs. ~~conditions~~The ~~and~~Company is ~~sufficient~~not toaware ~~meet~~of any current ~~needs.~~recommendations by the regulatory authorities, which, if they were implemented, would have a material effect on the Company.

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

Investment Comparative($000.00 Omitted)

($000.00 Omitted)

	6-30-02	%	12-31-01	%	6-30-01	%

Fed funds sold	$16,945	41%	$20,070	41%	$29,670	58%
Interest bearing Deposits	22,246	54%	27,189	55%	19,076	38%
Securities	2,022	5%	2,030	4%	2,037	4%

	9-30-01	%		12-31-00	%		9-30-00	%
Fed funds sold	$17,485	44	%	$ 8,055	17	%	$ 8,985	15	%
Interest bearing deposits	20,463	51	%	26,349	56	%	33,618	56	%
Securities	2,034	5	%	12,465	27	%	17,465	29	%

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

~~Interest~~Securities ~~bearing deposits~~on ~~are~~June ~~comprised~~30, of2002 ~~Time~~were ~~Certificates~~comprised of ~~Deposit~~U.S. ~~with~~Gov’t ~~other banks and savings and loan institutions with no more than $100,000 in any institution~~agencies.

~~Securities~~Changes onin ~~September~~Financial ~~30, 2001 were comprised of U.S. Gov’t agencies.~~ Position

10As of June 30, 2002, total deposits increased $4,704,517 from December 31, 2001 and net loans outstanding increased $7,218,192. The increase in loans was primarily due to an increase in real estate construction loans. Total deposits as of June 30, 2002 were $133,448,485, an increase of 4.3% from $127,953,779 as of June 30, 2001. Total loans as of June 30, 2002 were $94,360,335, an increase of 16.5% from $81,007,928 as of June 30, 2001.

~~Changes~~The infollowing ~~Financial~~table ~~Position~~sets forth the amount of deposits by each category and the percent of total deposits at the dates specified.

As of September 30, 2001, total deposits decreased $6,445,000 from December 31, 2000 while at the same time net loans outstanding increased $3,601,000. Total deposits as of September 30, 2001 were $121,642,000, a decrease of .8% from $122,678,000 as of September 30, 2000. Net loans as of September 30, 2000 were $87,317,000, an increase of 28.3% from $68,070,000 as of September 30, 2000. 12

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

Deposit Comparative($000.00 Omitted)

($000.00 Omitted)

	6-30-02	%	12-31-01	%	6-30-01	%

Demand	$45,508	34%	$38,484	34%	$36,017	28%

Savings	3,233	2%	2,566	2%	3,148	2%

Interest bearing Trans. Deposits	38,669	29%	48,553	33%	51,943	41%

Other time	46,038	35%	39,140	31%	36,846	29%

	9-30-01	%		12-31-00	%		9-30-00	%
Demand	$39,340	34	%	$43,686	34	%	$42,095	34	%
Savings	2,756	2	%	2,994	2	%	2,482	2	%
Interest bearing Trans. Deposits	41,969	28	%	41,551	33	%	34,236	28	%
Other time	37,577	36	%	39,855	31	%	43,865	36	%

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

~~The~~Loan ~~following table sets forth the amount of loans outstanding by category and the percent of total loans outstanding at the dates specified~~Comparative($000.00 Omitted)

Loan Comparative

	6-30-02	%	12-31-01	%	6-30-01	%

Commercial	$29,499	31%	$23,475	26%	$30,997	38%
Real estate-const	24,881	26%	27,389	31%	20,918	26%
Real estate-other	35,399	37%	30,829	35%	21,834	27%
Installment/other	6,136	6%	6,956	8%	7,259	9%

Non-Performing ~~($000.00 Omitted)~~ Assets

	9-30-01	%		12-31-99	%		9-30-00	%
Commercial	$27,845	52	%	$28,027	33	%	$34,459	52	%
Real estate-const	23,952	21	%	18,032	21	%	14,230	21	%
Real estate-other	30,089	15	%	31,634	37	%	10,109	15	%
Installment/other	6,933	12	%	7,491	9	%	7,481	12	%

The following table provides information with respect to the subsidiary Bank’s past due loans and components for non- performing assets at the dates indicated. Included in the following figures for June 30, 2002 is a $1,894,000 loan that subsequently paid off on July 19, 2002.

Non-Performing Assets

	Non-Performing Assets ($000.00 Omitted)

	6-30-02	12-31-01	6-30-01

Loans 90 days or more past due & still accruing	$ 2,182	$ 145	$ 131
Non-accrual loans	0	0	605
Other real estate owned	0	0	0

Total non-performing assets	$ 2,182	$ 145	$ 736

~~The following table provides information with respect to the Bank’s past due loans and components for non-performing assets at the dates indicated.~~ 13

	Non-Performing Assets
	($000.00 Omitted)
	9-30-01		12-31-00		9-30-00
Loans 90 days or more past due & still accruing	$ 535		$ 45		$ 0
Non-accrual loans	0		0		16
Other real estate owned	0		0		0
Total non-performing assets	$ 535		$ 45		$ 16
Non-performing assets to period end loans plus other real estate owned	.61	%	0.005	%	1.02	%
Allowance to non-performing loans	280.9	%	3,262	%	8,838	%

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

Non-performing assets to period end loans plus other real estate owned	2.27	%	.17	%	.90	%

Allowance to non-performing loans	71	%	1,039	%	218	%

11The subsidiary Bank’s policy is to recognize interest income on an accrual basis unless the full collectibility of principal and interest is uncertain. Loans that are delinquent 90 days as to principal or interest are placed on a non-accrual basis, unless they are well secured and in the process of collection, and any interest earned but uncollected is reversed from income. Collectibility is determined by considering the borrower’s financial condition, cash flow, quality of management, the existence of collateral or guarantees and the state of the local economy.

Other real estate owned (“OREO”) is comprised of properties acquired through foreclosure. These properties are carried at the lower of the recorded loan balance or their estimated fair market value based on appraisal, less estimated ~~costs~~disposal ~~to sell~~costs. When the loan balance plus accrued interest exceeds the fair value of the property ~~less disposal costs~~, the difference is charged to the allowance for loan losses at the time of foreclosure. Subsequent declines in value from the recorded amount, if any, and gains or losses upon disposition are included in noninterest expense. Operating expenses related to other real estate owned are charged to non-interest expense in the period incurred. Capital Position As of June 30, 2002, Shareholders’ Equity was $18,654,000. This represents an increase of $917,000 or 5.2% over the same period last year. Since the inception of the repurchase program in 1989, the Company has authorized the repurchase of $3,500,000 of its stock. As of June 30, 2002, the Company has repurchased a total of 668,680 shares of the Company stock constituting 31.1% of the Company’s original stock prior to the repurchase program, at a total cost of $2,668,000, or an average price per share of $3.99. The Company plans to continue its repurchase program as an additional avenue for liquidity for its shareholders. The program has not significantly affected the Company’s liquidity or capital position or its ability to operate. In addition, the Company’s subsidiary Bank remains more than well-capitalized under current regulations.

The increase in non-performing assets from September 30, 2000 to September 30, 2001 is due primarily to an increase in loans 90 days or more past due and still accruing. These loans are all secured by real estate. 14

CapitalTable Positionof Contents

AsThe offollowing ~~September~~table ~~30,~~shows ~~2001, Shareholders’ Equity was $18,196,000. This represents an increase of $1,703,000 or 10.3% over~~ the ~~same~~risk-based ~~period~~capital ~~last~~and ~~year.~~leverage ~~Since~~ratios ~~the~~as ~~inception~~well ofas the ~~repurchase~~minimum ~~program~~regulatory inrequirements ~~1989,~~for the ~~Company~~same ~~has~~as ~~authorized the repurchase~~ of ~~$3,500,000~~June ~~of its stock. As of September~~ 30, 2001, the Company has repurchased a total of 668,680 shares of the Company stock constituting 31.1% of the Company’s original stock prior to the repurchase program, at a total cost of $2,667,714, or an average price per share of $3.99. The Company plans to continue its repurchase program as an additional avenue for liquidity for its shareholders. The program has not significantly affected the Company’s liquidity or capital position or its ability to operate as the Company’s capital growth has exceeded its asset growth. In addition, the Company’s subsidiary Bank remains more than well-capitalized under current regulations. 2002:

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

	Capital Ratio	Minimum Regulatory Requirement

Tier 1 Capital	15.99%	4.00%
Total Capital	17.16%	8.00%
Leverage Ratio	12.65%	4.00%

	Capital Ratio			Minimum Regulatory Requirement
Tier 1 Capital		16.69	%		4.00	%
Total Capital		17.89	%		8.00	%
Leverage Ratio		12.81	%		4.00	%

RESULTS OF OPERATIONS

Net Interest Income

Total interest income including loan fees decreased to $4,769,000 for the first six months of 2002 from $5,889,000 for the same period in 2001.

Total interest income on loans and fees decreased to $3,912,000 for the first six months of 2002 from $4,312,000 for the same period last year. Although average loans outstanding during the first six months of 2002 increased $10,260,000 over the same period last year, the average prime lending rate decreased from an average of 8.40% in the first six months of 2001 to an average rate of 4.75% for the first six months of 2002, or a decrease of 365 basis points. Due to this factor, the yield on loans and fees decreased 114 basis points over the same period last year. The yield on investments decreased 197 basis points over the same period last year. This decrease was brought about by a decrease in yields in the marketplace due to the change in the prime-lending rate. Average outstanding investments decreased $2,462,000 for the period brought about by an increase in total loans.

Interest expense decreased from $1,604,000 at the end of the first six months of 2001 to $1,270,000 for the same period in 2002. Although average interest-bearing deposit accounts increased $3,763,000 during the first six months of 2002 versus the same period last year the average cost of funds decreased 86 basis points. This was brought about by changes in the marketplace brought influenced by the decrease in the prime lending rate.

As a result of these factors, net interest margin for the first six months of 2002 was 4.77% compared to 6.21% for the same period last year.

For the second quarter, total interest income including loan fees decreased from $2,761,000 in 2001 to $2,520,000 for the same period in 2002. This decrease is due to the decrease in the average prime rate, which for the second quarter 2001 was

~~RESULTS OF OPERATIONS~~ 15

NetTable Interestof Income Contents

~~Total~~7.74% versus the average of 4.75% for the same period in 2002. Offsetting this decrease was an increase in average loans outstanding of $13,276,000 for the second quarter of 2002 versus the same period in 2001. Average outstanding investments decreased $2,353,000 during the second quarter of 2002 versus the same period last year, primarily due to the increase in loans. For the second quarter of 2002, interest expense ~~income~~increased ~~including~~$29,000 ~~loan~~compared ~~fees~~to the same period in 2001. Average outstanding interest bearing deposits increased from $884,~~292~~897,000 in 2001 to $93,504,000 in 2002. Average cost of funds for the same period was 2.59% compared to 4.04% in 2001. As a result, net interest income for the second quarter of 2002 decreased $270,000, or 13.4% compared to the same period in 2001. Other Operating Income Service charges on deposit accounts as of the end of the first ~~nine~~six months of 2002 ~~2000~~decreased to $8117,~~392~~000 versus $118,000 for the same period in 2001. This was primarily related to a decrease in service charges collected on returned checks. Other customer fees and charges as of the end of the first six months of 2002 increased to $101,000 versus $57,000 for the same period in 2001. This was primarily related to an increase in service charge related to early withdrawal of time certificates of deposits Service charges on deposit accounts as of the end of the second quarter of 2002 decreased to $54,000 versus $63,000 for the same period in 2001. This was primarily related to a decrease in service charges collected on returned checks and a decrease in analysis charges. Other customer fees and charges increased $6,000 for the second quarter. This was primarily related to an increase in other miscellaneous income. Loan Loss Provision The allowance for loan losses is maintained at a level that management of the Company considers to be adequate for losses that inherent in the current loan portfolio. The allowance is increased by charges to operating expenses and reduced by net-charge-offs. The level of the allowance for loan losses is based on management’s evaluation of losses in the loan portfolio, as well as prevailing economic conditions. Management employs a systematic methodology on a monthly basis to determine the adequacy of the allowance for current

The increase in loan income was due primarily to the increase in outstanding loans. Average outstanding loans increased from $61,626,000 in 2000 to $82,105,000 in 2001. The yield on loans and fees decreased from 11.65% in 2000 to 10.17% in 2001. This decrease was directly related to the decrease in the prime lending rate from the beginning of the year figure of 9.50% to the current prime rate of 5.50% 16

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

~~Interest~~and ~~expense increased~~future ~~from~~loan ~~$2,157,000~~losses. The credit administrator grades each loan at the ~~end~~time of ~~the~~extension ~~first~~or ~~nine~~renewal. ~~months~~Gradings ofare ~~2000~~assigned toa $2risk factor,~~266,000~~ inwhich ~~2001.~~is ~~This~~calculated ~~increase~~to ~~was~~assess ~~due~~the adequacy toof anthe ~~increase~~allowance infor ~~average~~loan ~~interest-bearing~~losses. ~~deposit~~Further, ~~accounts~~management ofconsiders $8other factors such as overall portfolio quality,~~876,000~~ ~~during~~trends in the ~~first~~level ~~nine~~of ~~months~~delinquent ofand ~~2001~~classified ~~versus~~loans, ~~the~~specific ~~same~~problem ~~period last~~loans, ~~year~~and current and anticipated economic conditions. The ~~average~~following ~~cost~~table summarizes the allocation of ~~funds~~the allowance for loan losses by loan type for the ~~period~~years ~~ending~~ indicated and the percent of loans in each category to total loan dollar amounts in thousands:


	6-30-02				12-31-01				6-30-01

	Amount		Loan		Amount		Loan		Amount		Loan
			Percent				Percent				Percent

Commercial	$	615	39.6	%	$	580	38.4	%	$	600	37.3	%
Construction		350	22.5	%		340	22.6	%		338	21.0	%
Real Estate		300	19.3	%		300	19.9	%		345	21.5	%
Consumer		50	3.2	%		48	3.2	%		60	3.7	%
Unallocated		240	15.4	%		239	15.9	%		264	16.5	%
	$	1,555	100.0	%	$	1,507	100.0	%	$	1,607	100.0	%

~~September~~The ~~30,~~following ~~2001~~table ~~was~~summarizes 42the ~~basis~~activity ~~points~~in ~~more than~~ the ~~same~~Bank’s ~~period~~allowance ~~last~~for ~~year.~~loan Aslosses ~~a result of these factors, net interest margin~~ for the ~~first~~six ~~nine~~ months ended ofJune ~~2001~~30, ~~was~~2002 ~~5.94%~~and ~~compared to 6~~2001.~~22% for the same period last year.~~

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

	Six months ended

	($000.00 Omitted)
	6-30-02			6-30-01

Balance, beginning of the period	$	1,507		$	1,468
Provision for loan losses		32			132
Recoveries		21			8
Loans charged-off		(5	)		(1	)

Balance, end of the period	$	1,555		$	1,607

~~For~~The ~~the~~balance ~~third~~in ~~quarter~~the ofallowance ~~2001,~~for ~~interest~~loan ~~expense~~losses ~~increased~~at ~~$108~~June 30,~~000~~ ~~compared~~2002 ~~to the~~was ~~same period in 2000~~1.62% ~~Average~~of ~~outstanding~~total ~~interest~~loans ~~bearing~~compared ~~deposits~~to ~~increased~~1.98% ~~from~~of ~~$84,581,000~~total inloans ~~the~~at ~~third~~June ~~quarter of 2000 to $90~~30,~~923,000~~ 2001. inThis ~~the~~level ~~third~~is ~~quarter~~considered ofappropriate ~~2001.~~and ~~Average~~is ~~cost~~slightly ofgreater ~~funds~~than ~~for~~ the ~~same~~industry ~~period was 3~~average.~~62%~~ inOther ~~2001~~Operating ~~compared~~Expenses toTotal ~~3.97% in~~other ~~2000.~~operating Asexpenses aincreased ~~result of these factors~~$94,000 ~~net~~as ~~interest~~of ~~income for~~ the ~~third~~end ~~quarter~~ of ~~2001~~the ~~decreased~~first ~~$386,000,~~six ormonths ~~17.3%,~~of 2002 compared to the same period inlast ~~2000~~year. This increase was primarily due to an

~~Other Operating Income~~ 17

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

~~Other~~increase ~~customer~~in ~~fees~~salaries of $106,000 primarily centered in incentive accruals and ~~charges~~an ~~for~~increase in staff over the ~~first~~same ~~nine~~period ~~months~~last year. In addition, equipment expense increased $952,000 primarily related to the purchase of a new computer system, however, this was partially offset by an occupancy expense decrease of $45,000 centered in a reduction of leasehold expense. Other expenses also decreased $19,000 centered in business development expenses.

~~Service~~Total ~~charges~~other onoperating ~~deposit~~expenses ~~accounts~~increased ~~for~~$20,000 as of the ~~third~~end of the second quarter of ~~2001~~2002. ~~decreased~~This increase was primarily due to an increase in salaries of $411,000 ~~compared~~primarily tocentered ~~the~~in ~~same~~incentive ~~period~~accruals ~~last~~and ~~year~~an ~~due~~increase toin ~~decreased~~equipment ~~collection~~expense ~~of fees~~ related to ~~NSF~~the ~~fees~~purchase onof ~~commercial~~a ~~accounts~~new computer system.

~~Loan Loss~~ Provision for Income Taxes

The ~~allowance~~Company’s provision for ~~loan~~income ~~losses~~taxes isas ~~maintained~~of atthe aend ~~level that management~~ of the ~~Company~~first ~~considers~~six ~~adequate for~~months ~~losses~~of ~~that~~2002 ~~are~~decreased ~~inherent~~from $858,000 in ~~the~~2001 ~~loan portfolio. The allowance is increased by charges~~ to ~~operating expenses and reduced by net-charge-offs~~$539,000. ~~The~~For ~~level of~~ the ~~allowance~~same ~~for~~period, ~~loan losses is based on management~~the Company’s ~~evaluation~~total ofeffective ~~losses~~tax inrate ~~the~~was ~~loan portfolio,~~40.1% ascompared ~~well~~to as41.8% ~~prevailing~~in ~~economic conditions~~2001.

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

13Net income for the first six months of 2002 decreased to $779,000 from $1,196,000 for the same period in 2001, or a decrease of 34.9%.

~~The following table summarizes the~~ ~~activity~~ITEM 3. Quantitative inand ~~the~~Qualitative ~~Bank’s~~Disclosures ~~allowance~~About ~~for~~Market ~~credit losses for the nine months ended September 30, 2001 and 2000.~~ Risk

	Nine months ended
	9/30/01	9/30/00
	(000.00 Omitted)
Balance, beginning of the period	$1,468	$1,273
Provision for loan losses	135	120
Recoveries	17	21
Loans Charged-off	117	0
	$1,503	$1,414

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

~~The~~Interest ~~balance~~rate inrisk ~~the allowance~~is ~~for~~managed ~~loan~~by ~~losses~~subjecting atthe ~~September~~Company’s ~~30,~~balance ~~2001~~sheet ~~was~~to 1hypothetical interest rate shocks.~~72%~~ ofThe ~~loans~~Company’s ~~compared~~primary objective in managing interest rate risk is to ~~2.08%~~minimize the adverse impact of ~~loans~~changes atin ~~September~~interest ~~30,~~rates ~~2000.~~on ~~This~~the ~~level~~Company’s isnet ~~considered~~interest ~~appropriate~~income and iscapital, ~~slightly~~while ~~greater~~structuring ~~than~~the Company’s asset/liability position to obtain the ~~industry~~maximum ~~average.~~yield-cost spread on that structure.

~~Other~~Rate ~~Operating~~shock ~~Expenses~~is an instantaneous and complete adjustment in market rates of various magnitudes on static or level balance sheet to determine the effect such a change in rates would

Total other operating expenses increased $94,000 as of the end of the first nine months of 2001 compared to the same period last year. This increase was primarily due to an increase in staff expense, consulting fees and business development expenses. 18

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

~~Provision~~have on the Company’s net interest income for ~~Income~~the ~~Taxes~~succeeding twelve months, and the fair values of financial instruments.

~~The~~Management ~~Company’s~~has ~~provision~~assessed ~~for~~these ~~income~~risks ~~taxes~~and asbelieves ofthat ~~the~~there ~~end~~has ofbeen ~~the~~no ~~first~~material ~~nine~~change ~~months~~since ofDecember ~~2001 decreased from $1~~31,~~247,000~~ ~~in 2000 to $1,197,000. This decrease is attributable to decreased profits from operations as a result of the decrease in the prime lending rate. For the same period in~~ 2001 ~~the Company’s total effective tax rate was 42~~.~~0% compared to 41.9% in 2000.~~

~~For~~CERTAIN ~~the~~FACTORS ~~third~~THAT ~~quarter~~MAY ofAFFECT FUTURE ~~2001~~RESULTS The primary factor, which may affect future results, is the ~~provision~~fluctuation ~~for~~of ~~income~~interest ~~taxes decreased~~rates ~~$124,000~~in ~~compared~~the market place more commonly referred to ~~the~~as ~~third~~interest ~~quarter~~rate ofrisk. ~~2000~~Interest ~~for~~rate risk is the ~~same~~exposure ~~reason~~of ~~stated~~a ~~above~~bank’s current and future earnings and equity capital arising from adverse movements in interest rates. ~~The~~It ~~effective~~results ~~tax~~from ~~rate~~the ~~for~~possibility ~~this~~that ~~period~~changes ~~was~~in 42interest rates may have an adverse effect on a bank’s earnings and its underlying economic value.5% ~~versus~~Changes 41in interest rates affect a bank’s earnings by changing its net interest income and the level of other interest-sensitive income and operating expenses.6% ~~for~~As mentioned previously, the ~~same~~potential ~~period~~decrease ~~last~~in ~~year~~a declining interest rate environment would be minimized by an increase in assets. In addition, earnings and growth of the company are and will be affected by general economic conditions, both domestic and international, and by monetary and fiscal policies of the United States Government, particularly the Federal Reserve Bank.

~~Net~~ PART II - OTHER ~~Income~~ INFORMATION

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

ITEM 1 - LEGAL PROCEEDINGS
	From time to time the Company is a party to claims and legal proceedings arising in the ordinary course of business. Currently, the Company has no outstanding suits brought against it.

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
	None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
	None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	The Annual Meeting of Shareholders was held on April 4, 2002. There were present at the Meeting, in person or by proxy, the holders of 1,628,121 shares of Stock of the Company, representing 88% of the total votes eligible to be cast. At the meeting two proposals were presented. The first proposal offered a slate of Directors who were all

1419

ITEMTable 3. QUANTITATIVEof AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Contents

		approved. The second and final proposal was the approved of Vavrinek, Trine Day and Co., LLP as the public accounting firm to perform the Company’s audit for the year 2002. This proposal was also approved. There was no further business to come before the shareholders.

ITEM 5 - OTHER INFORMATION
		None

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

	A)	Exhibits:

		99.1 - Certification of CEO pursuant to Section 906 of Sarbanes-Oxley Act of 2002

		99.2 - Certification of CFO pursuant to Section 906 of Sarbanes-Oxley Act of 2002

	B)	Reports on Form 8-K

		None

~~Interest~~SIGNATURES ~~rate~~Pursuant ~~risk~~to isthe ~~managed~~requirements byof ~~subjecting~~ the ~~Company’s~~ ~~balance~~Securities ~~sheet~~Exchange toAct ~~hypothetical~~of ~~interest~~1934, ~~rate~~the ~~shocks.~~registrant ~~The~~has ~~Company’s~~duly ~~primary~~caused ~~objective~~this inreport ~~managing interest rate risk is~~ to ~~minimize~~be ~~the~~signed ~~adverse impact of changes in interest rates~~ on ~~the~~its ~~Company’s~~behalf ~~net~~by ~~interest income and capital, while structuring~~ the ~~Company’s~~undersigned ~~asset/liability~~thereunto ~~position~~duly ~~to obtain the maximum yield-cost spread on that structure~~authorized.

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

		SUMMIT BANCSHARES, INC. Registrant


	DATE: August 9, 2002	By: /s/ Shirley W. Nelson Shirley W. Nelson Chairman and CEO (Principal Executive Officer)

	DATE: August 9, 2002	By: /s/ Kikuo Nakahara Kikuo Nakahara Chief Financial Officer (Principal Financial Officer)

Management has assessed these risks and has implemented an investment policy, a new loan program and decreased interest rates it pays on deposit accounts commensurate with the marketplace to help mitigate the downward pressure on its net interest margin. 20

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

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

PART II—OTHER INFORMATION

ITEM 1—LEGAL PROCEEDINGS

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

ITEM 2—CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3—DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5—OTHER INFORMATION

None

ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

(b) Reports on Form 8-K

None

SIGNATURES

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

		SUMMIT BANCSHARES, INC.
		Registrant
		/s/ SHIRLEY W. NELSON
DATE: November 13, 2001		By:
		Shirley W. Nelson
		Chairman and CEO
		(Principal Executive Officer)
		/s/ KIKUO NAKAHARA
DATE: November 13, 2001		By:
		Kikuo Nakahara
		Chief Financial Officer (Principal Financial Officer)

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