401(k) PLAN

     The Corporation has established a contributory plan pursuant to Internal Revenue Code Section 401(k) covering substantially all of its employees (the “401(k) Plan”). Each year the Board determines in its discretion the amount, if any, of matching contributions to be made to participants in the 401(k) Plan. In each year since 2000, the Board approved matching contributions of 100% of a participant’s deferral of annual compensation up to and including 6% of such participant’s annual compensation, subject to certain restrictions of the Internal Revenue Code. The Board has approved the same matching contributions for 2006. In 2005 the Corporation made contributions under the 401(k) Plan on behalf of Mr. Norwood, Mr. Scott and Mr. Waters of $14,000, $12,147 and $10,904, respectively.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

     The Corporation implemented the Supplemental Executive Retirement Plan (the “SERP”) in order to attract and retain employees of outstanding competence and to provide additional deferred compensation benefits for such employees. Under the SERP and the individual agreements with participants established thereunder, benefits are provided to a select group of management employees, including the Named Executive Officers, who contribute materially to the continued growth, development and future business success of the Corporation. The individual agreements established thereunder are intended to be administered by the Compensation and Benefits Committee as welfare benefit plans established and maintained for the participants.

     Under the SERP, the Corporation purchases an insurance policy for each participant. The policy is jointly owned by the Corporation and the participant with the insurance policy providing benefits to the participant in the amount and in the manner specified by the SERP and the participant’s individual agreement thereunder. The Corporation makes contributions, as determined in its sole discretion, sufficient to fund the premiums due under each insurance policy. Although portions of the cash surrender value of each insurance policy may be vested to the participant over time, the majority of the cash surrender value of each insurance policy will not become vested until the participant attains retirement age.

     In the event the participant’s employment is voluntarily or involuntarily terminated for any reason (other than as a result of the participant’s death or disability or a “change in control” (as described below) of the Corporation) prior to the fifth anniversary of the date on which the participant was employed by the Corporation, all benefits payable to the participant under the SERP will be forfeited. In the event the participant’s employment is voluntarily or involuntarily terminated for any reason (other than as a result of the participant’s death or disability, a change in control of the Corporation, or Just Cause (as defined in the SERP)) following the fifth anniversary of the date on which the participant was employed by the Corporation, all benefits payable to the participant under the SERP (that have been earned to date) will become vested upon the second anniversary of the date of the participant’s termination, provided that the participant complies with certain noncompetition, nondisclosure and nonsolicitation provisions under the SERP during such two-year period.

     In the event of the participant’s death at any time, benefits payable to the participant under the SERP will become immediately vested and paid to the participant’s beneficiary. In addition, the Corporation will pay to the participant’s beneficiary an amount necessary to reimburse the beneficiary for federal income taxes imposed by the payment of benefits. In the event of the disability of the participant, the participant’s attainment of the age of 65, or a change in control of the Corporation, benefits payable to the participant under the SERP will become immediately vested and paid to the participant, and the participant will not be required to comply with the noncompetition, nondisclosure and nonsolicitation provisions under the SERP. Under the SERP, a “change of control” of the Corporation includes a merger, consolidation or reorganization involving the Corporation in which the Corporation is not the surviving entity, the sale of all or substantially all of the assets of the Corporation, the persons who were members of the Board immediately prior to a tender offer, exchange offer or contested election cease to constitute a majority of the members of the Board after such tender offer, exchange offer or contested election, the acquisition by any person or group of persons of 51% or more of the capital stock of the Corporation, or the consummation of a tender offer or exchange offer in which a person or group of persons acquire beneficial ownership of 51% or more of the capital stock of the Corporation.

     If a transfer of policy interests to a participating officer occurs after a change in control, the Corporation would also pay to that participant in the form of a bonus an amount necessary to reimburse the participant for federal taxes imposed on the transfer of the policy to him or to her.

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     The Corporation has entered into individual agreements under the SERP with each of the Named Executive Officers. The following table provides information regarding benefits provided to the Named Executive Officers under such agreements:

SEVERANCE AGREEMENT

     Effective October 2000, the Corporation and the Bank entered into a severance agreement with Mr. Norwood (the “Severance Agreement”). The Severance Agreement provides that if the Corporation or the Bank terminates Mr. Norwood’s employment for reasons other than death, disability or Cause (as defined in the Severance Agreement) or if Mr. Norwood terminates his employment for any reason, Mr. Norwood will be prohibited from competing with the Corporation or the Bank in Tarrant County, Texas, from soliciting customers, potential customers or employees of the Corporation or the Bank during the two-year period beginning on the date of his termination, and from disclosing any confidential, proprietary or sensitive corporate information relating to the business of the Corporation and the Bank during the two-year period beginning on the date of his termination.

     In the event of his termination by the Bank or the Corporation for any reason other than Cause or if Mr. Norwood terminates his employment for any reason, Mr. Norwood would continue to receive his base salary for a period of two years following the date on which his employment is terminated. In addition, Mr. Norwood would be entitled to retain the automobile provided to him during his service to the Corporation and the Bank, the Corporation would continue to pay Mr. Norwood’s club dues for the two-year period following the termination of his employment, and Mr. Norwood, his spouse, and his dependent children, will generally be entitled to participate in all plans or arrangements of the Corporation and the Bank for the two-year period following the termination of his employment.

PERFORMANCE COMPENSATION PLAN

     The Corporation has established a Performance Compensation Plan (the “Performance Compensation Plan”) that is administered by the Compensation and Benefits Committee. The objective of the Performance Compensation Plan is to create competitive levels of compensation tied to the attainment of performance objectives which the Compensation and Benefits Committee believes are important for achieving long-term shareholder value. Under the Performance Compensation Plan, participating employees are given the opportunity to receive a bonus in the first quarter of each year based upon the Corporation’s performance during the preceding year.

     The Compensation and Benefits Committee annually establishes performance goals under the Performance Compensation Plan based upon the Corporation’s loan and deposit growth, profitability, asset quality and operational productivity. The Compensation and Benefits Committee annually assesses the Corporation’s actual performance against the performance goals established in the preceding year and determines the amount, if any, of awards to be distributed to participants under the Performance Compensation Plan. In addition, all awards under the Performance Compensation Plan are contingent upon the Corporation achieving certain basic financial objectives such as return on equity and net income compared to the prior year. For the Named Executive Officers, 80% of each award under the Performance Compensation Plan in recognition of the Corporation’s preceding year is paid during the first quarter of the following year and the remaining 20% of the award is deferred for two years.

     During 2005, the Corporation made awards of $52,272, $26,433 and $28,910 to Mr. Norwood, Mr. Scott and Mr. Waters, respectively, under the Performance Compensation Plan in respect of the Corporation’s performance during 2004. In addition, during 2005, the Corporation made payments of $3,489, $1,880 and $2,755 to Mr. Norwood, Mr. Scott and Mr. Waters, respectively, in respect of awards granted to such individuals under the Performance Compensation Plan during prior years.

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COMPENSATION AND BENEFITS COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

COMPENSATION POLICY

     The Corporation’s executive compensation programs and practices are designed to attract, retain and motivate highly qualified individuals to serve as executive officers of the Corporation and to reward such executive officers for their contributions to the Corporation’s financial performance. These underlying policies reflect the Compensation and Benefits Committee’s belief that the Corporation’s executive compensation programs and practices should seek to align the interests of the Corporation’s executive officers with those of its shareholders on both a short-term and long-term basis.

     The Compensation and Benefits Committee’s general guidelines for executive compensation decisions include the following key principles:

• Executive compensation should be competitive with that provided by peer financial institutions that compete in the same markets and provide similar financial services and products as the Corporation.
  
  

• Executive compensation packages should contain a performance-based component that is directly linked to both quantitative and qualitative performance goals. Quantitative performance goals should be based upon measures of the Corporation’s financial performance, including net income, return on equity or other indicators deemed appropriate by the Compensation and Benefits Committee. Qualitative performance goals should be based upon individual performance and contributions to the Corporation’s financial performance and achievement of targeted short-term and long-term business and financial objectives.
  
  

• Executive compensation packages should contain base salaries that are comparable to the Corporation’s peer financial institutions.

     Prior to establishing executive compensation packages for a given year, the Compensation and Benefits Committee conducts a comprehensive review of the Corporation’s executive compensation programs and practices. In connection with its review, the Compensation and Benefits Committee reviews internal management reports, competitive industry and market data and other information deemed appropriate by the Compensation and Benefits Committee. In addition, the Compensation and Benefits Committee reviews reports and other materials prepared by the Corporation’s independent compensation consultants relating to the competitiveness of the Corporation’s executive practices relative to those of its peer financial institutions.

ELEMENTS OF EXECUTIVE COMPENSATION

     The Compensation and Benefits Committee regularly reviews the Corporation’s compensation programs to ensure that remuneration levels and incentive opportunities are competitive and reflect performance by the Corporation and by the respective executive officer. The various components of the compensation programs for executive officers are discussed below.

BASE SALARY

     Base salary levels are largely determined through comparison with banking organizations of a size and complexity similar to the Corporation. Surveys are utilized to establish base salaries that are within the range of those persons holding positions of similar responsibility at other comparable banking organizations. Actual base salaries also are intended to reflect individual performance contributions as determined through performance evaluations. In addition to individual job performance and the above-referenced market comparisons, other factors may be taken into consideration, such as cost of living increases as well as an individual’s perceived potential contributions to the Corporation. All executive officer base salary levels, which are reviewed annually, are considered by the Compensation and Benefits Committee to be competitive and within a necessary and reasonable range.

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PERFORMANCE COMPENSATION PLAN

     The Compensation and Benefits Committee administers the Performance Compensation Plan. The objective of the Performance Compensation Plan is to create competitive levels of compensation tied directly to the attainment of performance objectives which the Compensation and Benefits Committee believes are important for achieving long-term shareholder value. The Performance Compensation Plan rewards all employees based on the attainment of certain performance goals of the Corporation. The executive officers of the Corporation are eligible to participate at the same level as all employees in relationship to their respective base salaries. In addition, the executive officers, through a supplemental program, earn additional compensation for achievement of the Corporation’s performance goals. The Compensation and Benefits Committee annually determines which executive officers are eligible to participate in the supplemental program of the Performance Compensation Plan and the potential awards to be made for various levels of achievement under the Performance Compensation Plan. The performance goals effective for 2005 included specific goals for growth, profits, asset quality and operational productivity. In 2005 the Named Executive Officers participated in this supplemental program of the Performance Compensation Plan.

     All awards under the Performance Compensation Plan are contingent on the Corporation attaining certain basic financial objectives such as return on equity and net income compared to the prior year. For executive officers, a portion of each year’s annual award is deferred and held by the Corporation for payment within two years. The accumulated deferred payments may be reduced because of less than satisfactory performance in any one year.

STOCK OPTIONS

     It is the Corporation’s philosophy that awarding stock options to officers of the Corporation based upon their respective positions and contributions to the Corporation’s overall success will help attract and retain high quality, results-oriented professionals committed to creating long-term shareholder value. In November 2005, the Committee granted options to the Named Executive Officers under the 1997 Incentive Stock Option Plan of the Corporation (the “1997 Plan”). See “Options Granted During 2005” for additional information. The Board recently adopted, subject to shareholder approval, the Summit Bancshares, Inc. 2006 Long-Term Incentive Plan (hereinafter called the “2006 Plan”).

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

     The Corporation provides deferred compensation benefits for certain of its employees, including the Named Executive Officers, pursuant to the SERP. See “Executive Compensation and Other Information – Supplemental Executive Retirement Plan” for additional information.

SEVERANCE AGREEMENT

     The Compensation and Benefits Committee may from time to time consider whether or not the Corporation should enter into severance agreements with its executive officers. The Corporation entered into a severance agreement with Mr. Norwood during October 2000. See “Executive Compensation and Other Information – Severance Agreement” for additional information.

CHANGE—IN—CONTROL AGREEMENTS

     The Corporation has change—in—control agreements with Mr. Waters and other key employees. The main purposes of these agreements are (i) to help executives evaluate objectively whether a potential change in control is in the best interests of shareholders, (ii) to help protect against the departure of executives, thus assuring continuity of management, in the event of an actual or threatened merger or change in control, and (iii) to maintain compensation and benefits comparable to those available from competing employers. “Change—in—control” is generally defined in the agreements as (a) an acquisition of beneficial ownership of 51% or more of the Corporation’s common stock by a corporation, person, or group acting in concert, (b) certain changes in the composition of a majority of the Board of Directors, or (c) certain other events involving a merger or consolidation of the Corporation or a sale of substantially all of its assets.

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     Under the change—in—control agreements, Mr. Waters could receive severance payments equal to one and one-half times his base salary and a bonus equal to the average annual bonus’ paid to Mr. Waters in the three previous years if his position is terminated by the Corporation within one year following a change—in—control, if the termination is for reasons other than cause, death or disability. “Cause” is generally defined in the agreement as an executive’s (i) willful and continued failure to substantially perform his duties, (ii) willful engagement in conduct materially injurious to the Corporation, (iii) conviction of a felony, or (iv) an act consisting of fraud, embezzlement, or misappropriate use of funds. In addition, the change—in—control agreements provide that Mr. Waters could receive severance payments described above if he terminates his employment for good reason within one year following change—in—control. “Good reason” is generally defined in the agreements as the occurrence of one or more of the following events: (a) a significant change or reduction in the executive’s responsibilities or title, (b) an involuntary transfer of the executive to a location that is 50 miles from the executive’s current office, (c) a material reduction in the executive’s current compensation, or (d) the failure of any successor to the Corporation to assume the executive’s change—in-control agreement. The change—in-control agreements also provide for a continuation of certain employee benefits.

     Through the programs described above, a significant portion of the Corporation’s executive compensation program is linked directly to individual and corporate performance and long-term shareholder return. The Compensation and Benefits Committee will continue to review all elements of executive compensation to ensure that the total compensation program and each element therein, meet the Corporation’s objectives and philosophy discussed above.

2005 COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

     Mr. Norwood has served as Chairman of the Board, President and CEO of the Corporation and the Bank from January 2001 to present. Mr. Norwood’s 2005 base salary of $325,000 was established by the Board on the Compensation and Benefits Committee’s recommendation, which was based on a survey of peer group institutions and the factors discussed above. Mr. Norwood participates in the Performance Compensation Plan at the all employee level as well as the executive officer level. Because the Corporation achieved certain basic financial objectives established under the Performance Compensation Plan during 2004, Mr. Norwood received an award of $52,272 during January 2005. In addition, the Corporation paid Mr. Norwood $3,487 in January 2005 in respect of awards granted to Mr. Norwood under the Performance Compensation Plan during prior years. Also, Mr. Norwood was granted 10,000 options with an exercise price of $18.36 as detailed in the table entitled “Option Grants in Last Fiscal Year” above.

     This report is submitted on behalf of the Compensation and Benefits Committee.

	WILLIAM W. MEADOWS, Chairman
	RONALD J. GOLDMAN
	F. S. GUNN
	ROBERT L. HERCHERT
	JAMES L. MURRAY

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COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION

     As of December 31, 2005, the Compensation and Benefits Committee was comprised of the following members of the Board: William W. Meadows (Chairman), Ronald J. Goldman, F. S. Gunn, Robert L. Herchert and James L. Murray. During 2005, no member of the Compensation and Benefits Committee served as an officer or employee of the Corporation or its subsidiaries. Prior to their respective retirements on December 31, 1997, Mr. Gunn and Mr. Murray served as officers of the Corporation. Mr. Meadows is an executive of The Rigg Group, Inc., an insurance agency that the Corporation has engaged to place certain property and casualty insurance coverage and to assist in providing property and casualty insurance products to the Corporation’s customers.

     During 2005 no executive officer of the Corporation (i) served as a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served on the Compensation and Benefits Committee, (ii) served as a director of another entity, one of whose executive officers served on the Compensation and Benefits Committee, or (iii) was a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served as a director of the Corporation.

EQUITY COMPENSATION PLAN INFORMATION

     The following table provides information as of December 31, 2005 for compensation plans under which shares of Common Stock may be issued.

STOCK PERFORMANCE GRAPH

     The following graph compares the cumulative total shareholder return on the Common Stock with that of the CRSP Total Return Index for The Nasdaq Stock Market (US Companies) (the “Total Return Index”), a broad market index published by the Center for Research in Security Prices at the University of Chicago, and the Nasdaq Bank Stocks Index (“Bank Stocks Index”), a bank industry stock index also published by the Center for Research in Security Prices at the University of Chicago. The comparison for each of the periods assumes that $100 was invested on December 31, 2000 in each of the Common Stock, the Total Return Index and the Bank Stocks Index. The comparison also assumes that all dividends were reinvested. These indexes, which reflect formulas for dividend reinvestment and weighing of individual stocks, do not necessarily reflect returns that could be achieved by individual investors.

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COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN

PROPOSAL 2 –APPROVAL OF 2006 LONG-TERM INCENTIVE PLAN

     Upon recommendation of the Compensation and Benefits Committee (the “Compensation Committee”) of the Board, the Board has adopted, subject to shareholder approval, the 2006 Plan. The 2006 Plan is intended to enable the Corporation to remain competitive and innovative in its ability to attract, motivate, reward and retain the services of key employees. The 2006 Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other awards which may be paid in cash or stock. The 2006 Plan is expected to provide flexibility to the Corporation’s compensation methods in order to adapt the compensation of key employees to a changing business environment, after giving due consideration to competitive conditions and the impact of federal tax laws. The following is a brief description of the 2006 Plan. A copy of the 2006 Plan is attached as Exhibit 1 to this proxy statement, and the following description is qualified in its entirety by reference to the 2006 Plan.

     The 2006 Plan will replace the 1997 Plan. The Board has approved the termination of the 1997 Plan effective upon the date of shareholder approval of the 2006 Plan. No additional awards can be granted pursuant to the 1997 Plan after the effective date of its termination. It is the judgment of the Board that the 2006 Plan is in the best interest of the Corporation and its shareholders.

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DESCRIPTION OF THE 2006 PLAN

Effective Date and Expiration

     The 2006 Plan will become effective on April 18, 2006, subject to and conditioned upon shareholder approval of the 2006 Plan, and will terminate on April 18, 2016. No award may be made under the 2006 Plan after its expiration date, but awards made prior thereto may extend beyond that date.

Share Authorization

     Subject to certain adjustments, the number of the Corporation’s shares of common stock that may be issued pursuant to awards under the 2006 Plan is 1,250,000 shares, less the total number of shares of common stock issued after the effective date of the 2006 Plan, or issuable, upon the exercise of awards granted under a predecessor plan. As of March 6, 2006, there were 598,074 shares issuable upon the exercise of awards previously granted under predecessor plans of the Corporation, which means there will be a total of 651,296 shares of common stock that may be issued pursuant to awards under the 2006 Plan on its effective date. Shares are counted only to the extent they are actually issued. If shares are issued and reacquired by the Corporation under the 2006 Plan or the 1997 Plan, such shares are available for issuance under the 2006 Plan. Shares tendered in payment of the purchase price of an award or to satisfy tax withholding obligations or shares covered by an award that is settled in cash, are available for awards under the 2006 Plan.

     No executive officer may receive in any calendar year (i) stock options or stock appreciation rights with an aggregate fair market value on the date of grant of more than $1,000,000, or (ii) restricted stock, restricted stock units, performance awards or other awards that are subject to the attainment of performance goals with an aggregate fair market value on the date of grant of more than $1,000,000; provided, however, that all such awards to any executive officer during any calendar year shall not exceed an aggregate of more than 50,000 shares of common stock.

Administration

     The Compensation Committee has been designated by the Board to administer the 2006 Plan. The Compensation Committee, in its discretion, has authority to (i) interpret the 2006 Plan, (ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the 2006 Plan, (iii) establish performance goals for an award pursuant to the 2006 Plan and certify the extent of a participant’s achievement, and (iv) make such other determinations or certifications and take such other action as it deems necessary or advisable in the administration of the 2006 Plan. The Compensation Committee may delegate to officers of the Corporation, pursuant to a written delegation, the authority to perform specified functions under the 2006 Plan. Any actions taken by any officers of the Corporation pursuant to such written delegation of authority shall be deemed to have been taken by the Compensation Committee. Any interpretation, determination, or other action made or taken by the Compensation Committee shall be final, binding, and conclusive on all interested parties.

Eligibility

     Employees (including an employee who is also a director or an officer) of the Corporation or its subsidiaries whose judgment, initiative and efforts contributed to or may be expected to contribute to the successful performance of the Corporation are eligible to participate in the 2006 Plan. As of March 6, 2006, the Corporation had approximately 107 employees who would be eligible under the 2006 Plan.

Stock Options

     The Compensation Committee may grant either incentive stock options qualifying under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) or non-qualified stock options. Recipients of stock options may pay the option exercise price in (i) cash, check, bank draft or money order payable to the order of the Corporation, (ii) by delivering to the Corporation shares of common stock already owned by the participant having a fair market value equal to the aggregate option exercise price and that the participant has not acquired from the Corporation within twelve months prior to the exercise date, (iii) by delivering to the Corporation or its designated agent an executed irrevocable option exercise form together with irrevocable instructions from the participant to a broker or

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dealer, reasonably acceptable to the Corporation, to sell certain of the shares of common stock purchased upon the exercise of the option or to pledge such shares to the broker as collateral for a loan from the broker and to deliver to the Corporation the amount of sale or loan proceeds necessary to pay the purchase price, and (iv) by any other form of valid consideration that is acceptable to the Compensation Committee in its sole discretion.

     Stock options will be exercisable as set forth in the option agreements pursuant to which they are issued, but in no event will stock options be exercisable after the expiration of ten (10) years from the date of grant. Options are not transferable other than by will or the laws of descent and distribution, except that the Compensation Committee may permit further transferability of a non-qualified stock option and, unless otherwise provided in the option agreement, a non-qualified stock option may be transferred to: one or more members of the immediate family of the participant; a trust for the benefit of one or more members of the immediate family of the participant; a partnership, the sole partners of which are the participant, members of the immediate family of the participant, and one or more family trusts; or a foundation in which the participant controls the management of the assets.

Stock Appreciation Rights

     Stock appreciation rights (“SARs”) may, but need not, relate to options. A SAR is the right to receive an amount equal to the excess of the fair market value of a common share on the date of exercise over the fair market value of a common share on the date of grant. A SAR granted in tandem with a stock option will require the holder, upon exercise, to surrender the related stock option with respect to the number of shares as to which the SAR is exercised. The Compensation Committee will determine the terms of each SAR at the time of the grant. Any SAR may not be granted at less than the fair market value of a common share on the date the SAR is granted and cannot have a term of longer than ten (10) years. Distributions to the recipient may be made in shares of common stock, in cash or in a combination of both as determined by the Compensation Committee.

Restricted Stock and Restricted Stock Units

     Restricted stock consists of shares that are transferred or sold by the Corporation to a participant, but are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the participant. Restricted stock units are the right to receive shares of common stock at a future date in accordance with the terms of such grant upon the attainment of certain conditions specified by the Compensation Committee, which include substantial risk of forfeiture and restrictions on their sale or other transfer by the participant. The Compensation Committee determines the eligible participants to whom, and the time or times at which, grants of restricted stock or restricted stock units will be made, the number of shares or units to be granted, the price to be paid, if any, the time or times within which the shares covered by such grants will be subject to forfeiture, the time or times at which the restrictions will terminate, and all other terms and conditions of the grants. Restrictions or conditions could include, but are not limited to, the attainment of performance goals (as described below), continuous service with the Corporation, the passage of time or other restrictions or conditions.

Performance Awards

     The Compensation Committee may grant performance awards payable in cash or shares of common stock at the end of a specified performance period. Payment will be contingent upon achieving pre-established performance goals (as discussed below) by the end of the performance period. The Compensation Committee will determine the length of the performance period, the maximum payment value of an award, and the minimum performance goals required before payment will be made. Subject to Compensation Committee discretion, a performance award will terminate for all purposes if the participant is not continuously employed by the Corporation at all times during the applicable performance period.

Other Awards

     The Compensation Committee may grant other forms of awards payable in cash or shares of common stock if the Compensation Committee determines that such other form of award is consistent with the purpose and restrictions of the 2006 Plan. The terms and conditions of such other form of award shall be specified by the grant. Such other awards may be granted for no cash consideration, for such minimum consideration as may be required by applicable law, or for such other consideration as may be specified by the grant.

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Dividend Equivalent Rights

     The Compensation Committee may grant a dividend equivalent right either as a component of another award or as a separate award. The terms and conditions of the dividend equivalent right shall be specified by the grant. Dividend equivalents credited to the holder of a dividend equivalent right may be paid currently or may be deemed to be reinvested in additional shares of common stock. Any such reinvestment shall be at the fair market value at the time thereof. Dividend equivalent rights may be settled in cash or shares of common stock.

Performance Goals

     Awards of restricted stock, restricted stock units, performance awards and other awards (whether relating to cash or shares of common stock) under the 2006 Plan may be made subject to the attainment of performance goals within the meaning of Section 162(m) of the Code that consist of one or more or any combination of the following criteria: cash flow; cost; revenues; ratio of debt to debt plus equity; net borrowing, credit quality or debt ratings; profit before tax; economic profit; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; gross margin; earnings per share (whether on a pre-tax, after-tax, operational or other basis); operating earnings; capital expenditures; expenses or expense levels; economic value added; ratio of operating earnings to capital spending or any other operating ratios; free cash flow; net profit; net asset value per share; the accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions; price of the Corporation’s common stock; return on assets, equity or shareholders’ equity; market share; or total return to shareholders (“Performance Criteria”). Any Performance Criteria may be used to measure the performance of the Corporation as a whole or any business unit of the Corporation and may be measured relative to a peer group or index. Any Performance Criteria may include or exclude (i) extraordinary, unusual and/or non-recurring items of gain or loss, (ii) gains or losses on the disposition of a business, (iii) changes in tax or accounting regulations or laws, or (iv) the effect of a merger or acquisition, as identified in the Corporation’s quarterly and annual earnings releases. In all other respects, Performance Criteria shall be calculated in accordance with the Corporation’s financial statements, under generally accepted accounting principles, or under a methodology established by the Compensation Committee prior to the issuance of an award which is consistently applied and identified in the audited financial statements, including footnotes, or the Management Discussion and Analysis section of the Corporation’s Annual Report on Form 10-K. However, the Compensation Committee may not in any event increase the amount of compensation payable to an individual upon the attainment of a Performance Goal.

Adjustments Upon Changes in Capitalization

     The number of shares of common stock subject to an award may be adjusted by the Compensation Committee, in the manner it deems equitable, in the event that the Compensation Committee determines that any dividend or other distribution, recapitalization, stock split, reverse stock split, rights offering, reorganization, merger, consolidation, split-up, split-off, combination, subdivision, repurchase or exchange of the shares of common stock or other securities, issuance of warrants or other rights to purchase shares of common stock or other similar corporate transaction or event affects the shares of common stock such that the Compensation Committee determines that an adjustment is appropriate to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the 2006 Plan.

Amendment or Discontinuance of the Plan

     The Board may, at any time and from time to time, without the consent of the participants, alter, amend, revise, suspend or discontinue the 2006 Plan; provided, however, that (i) no amendment that requires shareholder approval in order for the 2006 Plan and any awards under the 2006 Plan to continue to comply with Sections 162(m), 421, and 422 of the Code or any applicable requirements of any securities exchange or inter-dealer quotation system on which the Corporation’s stock is listed or traded, shall be effective unless such amendment is approved by the requisite vote of the Corporation’s shareholders entitled to vote on the amendment, and (ii) unless required by law, no action by the Board of Directors of the Corporation regarding amendment or discontinuance of the 2006 Plan may adversely affect any rights of any participants or obligations of the Corporation to any participants with respect to any outstanding award under the 2006 Plan without the consent of the affected participant.

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New Plan Benefits

     The benefits and amounts that will be received by or allocated to persons under the 2006 Plan are not currently determinable.

FEDERAL INCOME TAX CONSEQUENCES

     The following is a brief summary of certain federal income tax consequences relating to the transactions described under the 2006 Plan as set forth below. This summary does not purport to address all aspects of federal income taxation and does not describe state, local or foreign tax consequences. This discussion is based upon provisions of the Code and the treasury regulations issued thereunder (the “Treasury Regulations”), and judicial and administrative interpretations under the Code and Treasury Regulations, all as in effect as of the date hereof, and all of which are subject to change (possibly on a retroactive basis) or different interpretation.

New Law Affecting Deferred Compensation

     In 2004, a new Section 409A was added to the Code to regulate all types of deferred compensation. If the requirements of Section 409A of the Code are not satisfied, deferred compensation and earnings thereon will be subject to tax as it vests, plus an interest charge at the underpayment rate plus 1% and a 20% penalty tax. Certain performance awards, stock options, stock appreciation rights, restricted stock units and certain types of restricted stock are subject to Section 409A of the Code.

Incentive Stock Options

     A participant will not recognize income at the time an incentive option is granted. When a participant exercises an incentive option, a participant also generally will not be required to recognize income (either as ordinary income or capital gain). However, to the extent that the fair market value (determined as of the date of grant) of the shares of common stock with respect to which the participant’s incentive options are exercisable for the first time during any year exceeds $100,000, the incentive options for the shares of common stock over $100,000 will be treated as nonqualified options, and not incentive options, for federal tax purposes, and the participant will recognize income as if the incentive options were nonqualified options.

     In addition to the foregoing, if the fair market value of the shares of common stock received upon exercise of an incentive option exceeds the exercise price, then the excess may be deemed a tax preference adjustment for purposes of the federal alternative minimum tax calculation. The federal alternative minimum tax may produce significant tax repercussions depending upon the participant’s particular tax status.

     The tax treatment of any shares of common stock acquired by exercise of an incentive option will depend upon whether the participant disposes of his or her shares prior to two years after the date the incentive option was granted or one year after the shares of common stock were transferred to the participant (referred to as the “Holding Period”). If a participant disposes of shares of common stock acquired by exercise of an incentive option after the expiration of the Holding Period, any amount received in excess of the participant’s tax basis for such shares will be treated as short-term or long-term capital gain, depending upon how long the participant has held the shares of common stock. If the amount received is less than the participant’s tax basis for such shares, the loss will be treated as short-term or long-term capital loss, depending upon how long the participant has held the shares.

     If the participant disposes of shares of common stock acquired by exercise of an incentive option prior to the expiration of the Holding Period, the disposition will be considered a “disqualifying disposition.” If the amount received for the shares of common stock is greater than the fair market value of the shares of common stock on the exercise date, then the difference between the incentive option’s exercise price and the fair market value of the shares of common stock at the time of exercise will be treated as ordinary income for the tax year in which the “disqualifying disposition” occurs. The participant’s basis in the shares of common stock will be increased by an amount equal to the amount treated as ordinary income due to such “disqualifying disposition.” In addition, the amount received in such “disqualifying disposition” over the participant’s increased basis in the shares of common stock will be treated as capital gain. However, if the price received for shares of common stock acquired by exercise of an incentive option is less than the fair market value of the shares of common stock on the exercise date and the disposition is a transaction

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in which the participant sustains a loss which otherwise would be recognizable under the Code, then the amount of ordinary income that the participant will recognize is the excess, if any, of the amount realized on the “disqualifying disposition” over the basis of the shares of common stock.

Non-qualified Stock Options

     A participant generally will not recognize income at the time a non-qualified option is granted. When a participant exercises a non-qualified option, the difference between the option price and any higher market value of the shares of common stock on the date of exercise will be treated as compensation taxable as ordinary income to the participant. The participant’s tax basis for shares of common stock acquired under a non-qualified option will be equal to the option price paid for such shares of common stock, plus any amounts included in the participant’s income as compensation. When a participant disposes of shares of common stock acquired by exercise of a non-qualified option, any amount received in excess of the participant’s tax basis for such shares will be treated as short-term or long-term capital gain, depending upon how long the participant has held the shares of common stock. If the amount received is less than the participant’s tax basis for such shares, the loss will be treated as short-term or long-term capital loss, depending upon how long the participant has held the shares.

Special Rule if Option Price is Paid For in Shares Of Common Stock

     If a participant pays the exercise price of a non-qualified option with previously-owned shares of the Corporation’s shares of common stock and the transaction is not a disqualifying disposition of shares of common stock previously acquired under an incentive option, the shares of common stock received equal to the number of shares of common stock surrendered are treated as having been received in a tax-free exchange. The participant’s tax basis and holding period for these shares of common stock received will be equal to the participant’s tax basis and holding period for the shares of common stock surrendered. The shares of common stock received in excess of the number of shares of common stock surrendered will be treated as compensation taxable as ordinary income to the participant to the extent of their fair market value. The participant’s tax basis in these shares of common stock will be equal to their fair market value on the date of exercise, and the participant’s holding period for such shares will begin on the date of exercise.

     If the use of previously acquired shares of common stock to pay the exercise price of a non-qualified option constitutes a disqualifying disposition of shares of common stock previously acquired under an incentive option, the participant will have ordinary income as a result of the disqualifying disposition in an amount equal to the excess of the fair market value of the shares of common stock surrendered, determined at the time such shares of common stock were originally acquired on exercise of the incentive option, over the aggregate option price paid for such shares of common stock. As discussed above, a disqualifying disposition of shares of common stock previously acquired under an incentive option occurs when the participant disposes of such shares before the end of the Holding Period. The other tax results from paying the exercise price with previously-owned shares are as described above, except that the participant’s tax basis in the shares of common stock that are treated as having been received in a tax-free exchange will be increased by the amount of ordinary income recognized by the participant as a result of the disqualifying disposition.

Stock Appreciation Rights

     Generally, a participant who receives a stand-alone SAR will not recognize taxable income at the time the stand-alone SAR is granted, provided that the SAR is exempt from or complies with Section 409A of the Code. If an employee receives the appreciation inherent in the SARs in cash, the cash will be taxed as ordinary income to the recipient at the time it is received. If a recipient receives the appreciation inherent in the SARs in stock, the spread between the then current market value and the grant price, if any, will be taxed as ordinary income to the employee at the time it is received.

     In general, there will be no federal income tax deduction allowed to the Corporation upon the grant or termination of SARs. However, upon the exercise of a SAR, the Corporation will be entitled to a deduction equal to the amount of ordinary income the recipient is required to recognize as a result of the exercise.

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Restricted Stock

     A participant who receives restricted stock generally will recognize as ordinary income the excess, if any, of the fair market value of the shares of common stock granted as restricted stock at such time as the shares of common stock are no longer subject to forfeiture or restrictions, over the amount paid, if any, by the participant for such shares of common stock. However, a participant who receives restricted stock may make an election under Section 83(b) of the Code within 30 days of the date of transfer of the shares of common stock to recognize ordinary income on the date of transfer of the shares of common stock equal to the excess of the fair market value of such shares (determined without regard to the restrictions on such shares of common stock) over the purchase price, if any, of such shares. If a participant does not make an election under Section 83(b) of the Code, then the participant will recognize as ordinary income any dividends received with respect to shares of common stock. At the time of sale of such shares, any gain or loss realized by the participant will be treated as either short-term or long-term capital gain (or loss) depending on the holding period. For purposes of determining any gain or loss realized, the participant’s tax basis will be the amount previously taxable as ordinary income.

Other Awards

     In the case of an award of restricted stock units, performance awards, dividend equivalent rights or other stock or cash awards, the recipient will generally recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on the date of payment or delivery, provided that the award is exempt from or complies with Section 409A of the Code. In that taxable year, the Corporation will receive a federal income tax deduction in an amount equal to the ordinary income which the participant has recognized.

FEDERAL TAX WITHHOLDING

     Any ordinary income realized by a participant upon the exercise of an award under the 2006 Plan is subject to withholding of federal, state and local income tax and to withholding of the participant’s share of tax under the Federal Insurance Contribution Act (“FICA”) and the Federal Unemployment Tax Act (“FUTA”).

     To satisfy federal income tax withholding requirements, the Corporation will have the right to require that, as a condition to delivery of any certificate for shares of common stock, the participant remit to the Corporation an amount sufficient to satisfy the withholding requirements. Alternatively, the Corporation may withhold a portion of the shares of common stock (valued at fair market value) that otherwise would be issued to the participant to satisfy all or part of the withholding tax obligations.

     Withholding does not represent an increase in the participant’s total income tax obligation, since it is fully credited toward his or her tax liability for the year. Additionally, withholding does not affect the participant’s tax basis in the shares of common stock. Compensation income realized and tax withheld will be reflected on Forms W-2 supplied by the Corporation to employees by January 31 of the succeeding year.

     Deferred compensation that is subject to Section 409A of the Code will be subject to certain federal income tax withholding and reporting requirements. However, pursuant to IRS Notice 2005-94, the IRS has suspended these withholding and reporting requirements until further IRS guidance is issued.

TAX CONSEQUENCES TO THE CORPORATION

     To the extent that a participant recognizes ordinary income in the circumstances described above, the Corporation will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.

MILLION DOLLAR DEDUCTION LIMIT AND OTHER TAX MATTERS

     The Corporation may not deduct compensation of more than $1,000,000 that is paid to an individual who, on the last day of the taxable year, is either the Corporation’s chief executive officer or is among one of the four other most highly-compensated officers for that taxable year as reported in the Corporation’s proxy statement. The limitation on deductions does not apply to certain types of compensation, including qualified performance-based

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compensation. The Corporation intends that benefits in the form of stock options, performance awards, stock appreciation rights, performance-based restricted stock and restricted stock units and performance based cash payments under other awards will be constructed so as to constitute qualified performance-based compensation and, as such, will be exempt from the $1,000,000 limitation on deductible compensation.

     If an individual’s rights under the plan are accelerated as a result of a change in control and the individual is a “disqualified individual” under Section 280G of the Code, the value of any such accelerated rights received by such individual may be included in determining whether or not such individual has received an “excess parachute payment” under Section 280G of the Code, which could result in (i) the imposition of a 20% Federal excise tax (in addition to Federal income tax) payable by the individual on the value of such accelerated rights, and (ii) the loss by the Corporation of a compensation deduction.

     THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” APPROVAL OF 2006 LONG-TERM INCENTIVE PLAN.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

LOANS

     Certain directors, officers and shareholders of the Corporation and their affiliates are customers of the Corporation. Accordingly, such persons have deposit accounts with the Corporation, and the Corporation makes loans or extends credit to such persons in the ordinary course of its business. All loans or other extensions of credit made by the Corporation to directors, officers and shareholders of the Corporation and their affiliates were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with independent third parties and did not involve more than the normal risks of collectibility or present other unfavorable features. The Corporation expects to continue to enter into such transactions in the ordinary course of its business, and such transactions will be subject to the insider lending restrictions of Section 22(h) of the Federal Reserve Act and the requirements of Section 13(k) of the Securities Exchange Act.

OTHER TRANSACTIONS

     During the Corporation’s fiscal year ended December 31, 2005, the Corporation retained Barlow Garsek & Simon, LLP to perform legal services. Elliott S. Garsek, a director of the Corporation, is a shareholder of Barlow Garsek & Simon, LLP. During 2005, the Corporation also engaged Coldwell Banker Commercial – Kelly, Geren & Searcy, Inc. as real estate brokers or advisors in connection with certain real estate transactions. Byron B. Searcy, a director of the Corporation, is a commercial real estate broker affiliated with Coldwell Banker Commercial – Kelly, Geren & Searcy, Inc. In addition, the Corporation engaged The Rigg Group, Inc. during 2005 as a broker to place certain property and casualty insurance coverage. The Corporation also has a contract with The Rigg Group, Inc. to assist in providing property and casualty insurance products to the Corporation’s customers. William W. Meadows, a director of the Corporation, is an executive of The Rigg Group, Inc.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act requires the Corporation’s directors, executive officers and persons who are beneficial owners of more than 10% of the Common Stock to file with the SEC initial reports of ownership and reports of changes in ownership of shares of Common Stock beneficially owned by them. Directors, executive officers and beneficial owners of more than 10% of the Common Stock are also required to furnish the Corporation with copies of all Section 16(a) reports that they file with the SEC.

     To the Corporation’s knowledge, based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to the Corporation and written representations from certain reporting persons, no director, executive officer or greater than 10% beneficial owner of Common Stock, failed to timely file with the SEC one or more required reports on Form 3, 4 or 5 during 2005.

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INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

     The Corporation’s directors, executive officers and other employees, and their associates may have a substantial interest in, and may benefit from, the 2006 Plan as such persons may be eligible to participate in the 2006 Plan and may receive benefits and awards under the 2006 Plan.

     The Board, in approving the 2006 Plan, may have had different and/or conflicting interests than or with the shareholders of the Company. In addition, the Board, management and employees of the Company, and shareholders affiliated with the Company may have different and/or conflicting interests than or with the shareholders of the Company that are not affiliated with the Company in any capacity other than in their capacity as a shareholder of the Company, including interests arising from ownership of securities of the Company under the 2006 Plan that are not shared on a pro rata basis by all shareholders of the Company.

SHAREHOLDER PROPOSALS
FOR THE 2007 ANNUAL MEETING OF SHAREHOLDERS

     Proposals of shareholders intended to be presented at the 2007 Annual Meeting of Shareholders must be received by the Corporation at its principal executive offices at 3880 Hulen Street, Suite 300, Fort Worth, Texas 76107, Attention: Corporate Secretary, not later than November 24, 2006 to be included in the Corporation’s proxy statement and form of proxy relating to the 2007 Annual Meeting of Shareholders. Any such proposals shall be subject to the requirements of the proxy rules and regulations adopted under the Securities Exchange Act. It is anticipated that the 2007 Annual Meeting of Shareholders will be held on or about April 17, 2007.

     Notice of a shareholder proposal submitted outside the processes of Rule 14a-8 of the Securities Exchange Act will be considered untimely after February 7, 2007. Proxy holders designated by the Board for the 2007 Annual Meeting of Shareholders may vote proxies in their discretion on proposals of shareholders if (i) the Corporation receives notice of the proposal on or after February 7, 2007 or (ii) the Corporation receives notice of the proposal prior to February 7, 2007, describes the proposal in the Corporation’s proxy statement relating to its 2007 Annual Meeting of Shareholders and states how the proxy holders designated by the Board intend to vote with respect to such proposal.

ANNUAL REPORT AND
CORPORATE GOVERNANCE MATERIALS

     A copy of the Corporation’s 2005 Annual Report on Form 10-K, including the financial statements and schedules thereto, filed with the SEC, may be obtained without charge (except for exhibits thereto, which will be furnished upon payment of the Corporation’s reasonable expenses in furnishing such exhibits) by any shareholder of the Corporation upon written request to:

Summit Bancshares, Inc.
P.O. Box 2665
Fort Worth, Texas 76113
Attention: Bob G. Scott

     Copies of charters of certain committees of the Board and other corporate governance materials are publicly available on the Corporation’s website at www.summitbank.net under the “Investor Relations” section, including the Amended and Restated Audit Committee Charter, Compensation and Benefits Committee Charter, Nominating and Corporate Governance Committee Charter and Amended and Restated Code of Ethics and Standards of Conduct of the Corporation.

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INCORPORATION BY REFERENCE

     The following documents, or portions of documents, are incorporated by reference in this Proxy Statement:

     The Corporation will provide, without charge, to each person to whom a proxy statement is delivered, upon written or oral request of such person and by first class mail or other equally prompt means within one business day of receipt of such request, a copy of any and all of the information that has been incorporated by reference in this Proxy Statement (not including exhibits to the information that is incorporated by reference unless such exhibits are specifically incorporated by reference into the information that the proxy statement incorporates). Such a request should be directed to Summit Bancshares, Inc., P.O. Box 2665, Fort Worth, Texas 76113, Attention: Bob G. Scott or 817-336-6817.

 

	By Order of the Board of Directors,
	PHILIP E. NORWOOD
	Chairman of the Board, President and CEO

March 24, 2006
Fort Worth, Texas

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