UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
                            ------------------------

                       COMMISSION FILE NUMBER:  000-22007
                            ------------------------

                    SOUTHWEST BANCORPORATION OF TEXAS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              TEXAS                                   76-0519693
(STATE OR OTHER JURISDICTION OF                     (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NO.)

                             4400 POST OAK PARKWAY
                              HOUSTON, TEXAS 77027
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                 (713) 235-8800
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                            ------------------------

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                         Common Stock, $1.00 par value
                                (TITLE OF CLASS)

                            ------------------------

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
                            ------------------------

     There were 28,063,483 shares of the Registrant's Common Stock outstanding
as of the close of business on February 16, 2000. The aggregate market value of
the Registrant's Common Stock held by non-affiliates was approximately $484
million (based upon the closing price of $17.25 on February 16, 2000, as
reported on the NASDAQ National Market System).

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Proxy Statement relating to the 2000 Annual
Meeting of Shareholders, which will be filed within 120 days after December 31,
1999, are incorporated by reference into Part III of this Report.

================================================================================

<PAGE>
                                     PART I

ITEM 1.  BUSINESS

         SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

     Certain of the matters discussed in this document and in documents
incorporated by reference herein, including matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may constitute forward-looking statements for purposes of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, and as such may involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
Southwest Bancorporation of Texas, Inc. (the "Company") to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. The words "expect," "anticipate,"
"intend," "plan," "believe," "seek," "estimate," and similar
expressions are intended to identify such forward-looking statements. The
Company's actual results may differ materially from the results anticipated in
these forward-looking statements due to a variety of factors, including, without
limitation: (a) the effects of future economic conditions on the Company and its
customers; (b) governmental monetary and fiscal policies, as well as legislative
and regulatory changes; (c) the risks of changes in interest rates on the level
and composition of deposits, loan demand, and the values of loan collateral,
securities and interest rate protection agreements, as well as interest rate
risks; (d) the effects of competition from other commercial banks, thrifts,
mortgage banking firms, consumer finance companies, credit unions, securities
brokerage firms, insurance companies, money market and other mutual funds and
other financial institutions operating in the Company's market area and
elsewhere, including institutions operating locally, regionally, nationally and
internationally, together with such competitors offering banking products and
services by mail, telephone, computer and the Internet; and (e) the failure of
assumptions underlying the establishment of reserves for loan losses and
estimations of values of collateral and various financial assets and liabilities
and technological changes, including "Year 2000" data systems compliance
issues, are more difficult or expensive than anticipated. All written or oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by these cautionary statements.

THE COMPANY

     The Company was incorporated as a business corporation under the laws of
the State of Texas on March 28, 1996, for the purpose of serving as a bank
holding company for Southwest Bank of Texas National Association (the "Bank").
The holding company formation was consummated and the Company acquired all of
the outstanding shares of capital stock of the Bank as of the close of business
on June 30, 1996. Based upon total assets as of December 31, 1999, the Company
ranks as the largest independent bank holding company headquartered in the
metropolitan Houston area. The Company's headquarters are located at 4400 Post
Oak Parkway, Houston, Texas 77027, and its telephone number is (713) 235-8800.

     The Company provides an array of sophisticated products typically found
only in major regional banks. These services are provided to middle market
businesses in the metropolitan Houston area through twenty-six full service
banking facilities. Each banking office has seasoned management with significant
lending experience who exercises substantial autonomy over credit and pricing
decisions, subject to loan committee approval for larger credits. This
decentralized management approach, coupled with the continuity of service by the
same staff members, enables the Company to develop long-term customer
relationships, maintain high quality service and provide quick responses to
customer needs. The Company believes that its emphasis on local relationship
banking, together with its conservative approach to lending and resultant strong
asset quality, are important factors in the success and the growth of the
Company.

     The Company seeks credit risks of good quality within its target market
that exhibit good historical trends, stable cash flows and secondary sources of
repayment from tangible collateral. The Company extends credit for the purpose
of obtaining and continuing long term relationships. Lenders are provided with
detailed underwriting policies for all types of credit risks accepted by the
Company and must obtain

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appropriate approvals for credit extensions in excess of conservatively assigned
individuals' lending limits. The Company also maintains strict documentation
requirements and extensive credit quality assurance practices in order to
identify credit portfolio weaknesses as early as possible so any exposures that
are discovered might be reduced.

     The Company has a three-part strategy for growth. First, the Company will
continue to actively target the "middle market" and private banking customers
in Houston for loan and deposit opportunities as it has successfully done for
the past ten years. The "middle market" is generally characterized by
privately owned companies having annual revenues ranging from $1 million to $250
million and borrowings ranging from $50,000 to $10 million, but primarily in the
$150,000 to $5 million range. Typical middle market customers seek a
relationship with a local independent bank that is sensitive to their needs and
understands their business philosophy. These customers desire a long-term
relationship with a decision-making loan officer who is responsive and
experienced and has ready access to a bank's senior management. In implementing
this part of its strategy, the Company continues to explore opportunities (i) to
solidify its existing customer relationships and build new customer
relationships by providing new services required by its middle market customers
and (ii) to expand its base of services in the professional and executive market
to meet the demands of that sector.

     Second, the Company intends to establish branches in areas that
demographically complement its existing or targeted customer base. As other
local banks are acquired by out-of-state organizations, the Company believes
that the establishment of branches will better meet the needs of customers in
many Houston area neighborhoods who feel disenfranchised by larger regional or
national organizations.

     Third, the Company may pursue selected acquisitions of other financial
institutions. The Company intends to conduct thorough studies and reviews of any
possible acquisition candidates to assure that they are consistent with the
Company's existing goals, both from an economic and strategic perspective. The
Company believes market and regulatory factors may present opportunities for the
Company to acquire other financial institutions.

THE BANK

     The Bank provides a complete range of retail and commercial banking
services that compete directly with major regional banks. Loans consist of
commercial loans to middle market businesses, loans to individuals, commercial
real estate loans, residential mortgages and construction loans. The Bank also
originates and purchases residential and commercial mortgage loans to sell to
investors with servicing rights retained. The Bank also promotes residential and
commercial construction financing to builders and developers and acts as a
broker in the origination of multi-family and commercial real estate loans. In
addition, the Bank offers a broad array of fee income products including
merchant card services, letters of credit, accounts receivable finance,
customized cash management services, brokerage and mutual funds and drive-in
banking services.

     The Bank maintains a staff of professional treasury management marketing
officers who consult with middle market companies to design custom
cost-effective cash management systems. The Bank offers a full product line of
cash concentration, disbursement and automated information reporting services
and a full suite of internet products comparable to those offered by any major
regional bank. Through the Bank's continued investment in new technology and
people, the Bank has been able to attract some of Houston's largest middle
market companies to utilize the Bank's treasury management products. The Bank
has also been able to attract new loan customers through use of the Bank's
treasury management products, such as an image-based lock box service and
controlled disbursement and sweep products, which allow borrowers to minimize
interest expense and convert excess operating funds into interest income.
Through the use of an interactive terminal or personal computer, the Bank's
NetStar system provides customers with instant access to all bank account
information with multiple intraday updates. The Bank makes business
communication more efficient through Electronic Data Interchange ("EDI"),
which is an inter-organizational computer-to-computer exchange of business
documentation in a standard computer-processable format. Through the use of EDI
and electronic payments, the Bank can provide the customer with a paperless
funds

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<PAGE>
management system. Positive Pay, a service under which the Bank only pays checks
listed on a legitimate "company issue" file, is another product which helps
prevent check fraud. The Bank's average commercial customer uses five treasury
management services. Because these services help customers improve their
treasury operations and achieve new efficiencies in cash management, they are
extremely useful in building and maintaining long-term relationships.

     The Bank has a retail presence in 26 locations throughout the Houston
metropolitan area. Such locations are emerging as an important source of bank
funding and fee income. Retail products consist of both traditional deposit
accounts such as checking, savings, money market accounts and certificates of
deposit, and a wide array of consumer loan and electronic banking alternatives.
The Bank is putting a strong emphasis on the cultivation of retail market
opportunities and on its retail staff to help expand and deepen customer
relationships.

     The Bank maintains a strong community orientation by, among other things,
supporting active participation of all employees in local charitable, civic,
school and church activities. Each banking office also appoints selected
customers to a business development board that assists in introducing
prospective customers to the Bank and in developing or modifying products and
services to better meet customer needs.

COMPETITION

     The banking business is highly competitive, and the profitability of the
Company will depend principally upon the Company's ability to compete in its
market area. The Company competes with other commercial and savings banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking firms, asset-based
non-bank lenders and certain other non-financial institutions, including certain
governmental organizations which may offer subsidized financing at lower rates
than those offered by the Company. The Company has been able to compete
effectively with other financial institutions by emphasizing technology and
customer service, including local office decision-making on loans, establishing
long-term customer relationships and building customer loyalty, and by providing
products and services designed to address the specific needs of its customers.

     The success of the Company is also highly dependent on the economic
strength of the Company's general market area. Significant deterioration in the
local economy or economic problems in the greater Houston area could
substantially impact the Company's performance. In addition, the enactment of
the Gramm-Leach-Bliley Act (see discussion below) which breaks down many
barriers between the banking, securities and insurance industries, may
significantly affect the competitive environment in which the Company operates.

EMPLOYEES

     As of December 31, 1999, the Company had 934 full-time employees, 323 of
whom were officers of the Bank. The Company provides medical and hospitalization
insurance to its full-time employees. The Company has also provided most of its
employees with the benefit of Common Stock ownership through the Company's
contributions to a 401(k) plan, in which 690 of its employees are currently
participating. The Company considers its relations with its employees to be
excellent.

SUPERVISION AND REGULATION

     The federal banking laws contain numerous provisions affecting various
aspects of the business and operations of the Company and the Bank. The
following description of references herein to applicable statutes and
regulations, which are not intended to be complete descriptions of these
provisions or their effects on the Company or the Bank, are brief summaries and
are qualified in their entirety by reference to such statutes and regulations.

     THE BANK

     As a national banking association, the Bank is principally supervised,
examined and regulated by the Office of the Comptroller of the Currency (the
"OCC"). The OCC regularly examines such areas as capital

                                       3
<PAGE>
adequacy, reserves, loan portfolio, investments and management practices. The
Bank must also furnish quarterly and annual reports to the OCC, and the OCC may
exercise cease and desist and other enforcement powers over the Bank if its
actions represent unsafe or unsound practices or violations of law. Since the
deposits of the Bank are insured by the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation (the "FDIC"), the Bank is also subject
to regulation and supervision by the FDIC. Because the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") regulates the Company,
the Federal Reserve Board has supervisory authority which affects the Bank.

     RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES AND INSIDERS.  The Bank is
subject to certain federal statutes limiting transactions with the Company and
its nonbanking affiliates. Section 23A of the Federal Reserve Act affects loans
or other credit extensions to, asset purchases from and investments in
affiliates of the Bank. Such transactions with the Company or any of its
nonbanking subsidiaries are limited in amount to ten percent of the Bank's
capital and surplus and, with respect to the Company and all of its nonbanking
subsidiaries together, to an aggregate of twenty percent of the Bank's capital
and surplus. Furthermore, such loans and extensions of credit, as well as
certain other transactions, are required to be secured in specified amounts.

     In addition, Section 23B of the Federal Reserve Act requires that certain
transactions between the Bank, including its subsidiaries, and its affiliates
must be on terms substantially the same, or at least as favorable to the Bank or
its subsidiaries, as those prevailing at the time for comparable transactions
with or involving other nonaffiliated persons. In the absence of such comparable
transactions, any transaction between the Bank and its affiliates must be on
terms and under circumstances, including credit standards, that in good faith
would be offered to or would apply to nonaffiliated persons. The Bank is also
subject to certain prohibitions against any advertising that indicates the Bank
is responsible for the obligations of its affiliates. The Bank does not have any
nonbanking affiliates as of the date of this Annual Report.

     The restrictions on loans to directors, executive officers, principal
shareholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Regulation O now apply to
all insured institutions and their subsidiaries and holding companies. These
restrictions include limits on loans to one borrower and conditions that must be
met before such loans can be made. There is also an aggregate limitation on all
loans to insiders and their related interests. These loans cannot exceed the
institution's total unimpaired capital and surplus, and the OCC may determine
that a lesser amount is appropriate. Insiders are subject to enforcement actions
for knowingly accepting loans in violation of applicable restrictions.

     INTEREST RATE LIMITS.  Interest rate limitations for the Bank are primarily
governed by the National Bank Act which generally defers to the laws of the
state where the bank is located. Under the laws of the State of Texas, the
maximum annual interest rate that may be charged on most loans made by the Bank
is based on doubling the average auction rate, to the nearest 0.25%, for 26 week
United States Treasury Bills, as computed by the Office of the Consumer Credit
Commissioner of the State of Texas. However, the maximum rate does not decline
below 18% or rise above 24% (except for loans in excess of $250,000 that are
made for business, commercial, investment or other similar purposes in which
case the maximum annual rate may not rise above 28%, rather than 24%). On fixed
rate closed-end loans, the maximum non-usurious rate is to be determined at the
time the rate is contracted, while on floating rate and open-end loans (such as
credit cards), the rate varies over the term of the indebtedness. State usury
laws (but not late charge limitations) have been preempted by federal law for
loans secured by a first lien on residential real property.

     EXAMINATIONS.  The OCC periodically examines and evaluates national banks.
Based upon such an evaluation, the OCC may revalue the assets of a national bank
and require that it establish specific reserves to compensate for the difference
between the OCC-determined value and the book value of such assets. Onsite
examinations are to be conducted every 12 months, except that certain well
capitalized banks may be examined every 18 months. The Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") authorizes the OCC to assess
the institution for its costs of conducting the examinations.

     PROMPT CORRECTIVE ACTION.  In addition to the capital adequacy guidelines,
FDICIA requires the OCC to take "prompt corrective action" with respect to any
national bank which does not meet specified

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minimum capital requirements. The applicable regulations establish five capital
levels, ranging from "well capitalized" to "critically undercapitalized,"
which authorize, and in certain cases require, the OCC to take certain specified
supervisory action. Under regulations implemented under FDICIA, a national bank
is considered well capitalized if it has a total risk-based capital ratio of
10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a
leverage ratio of 5.0% or greater, and it is not subject to an order, written
agreement, capital directive, or prompt corrective action directive to meet and
maintain a specific capital level for any capital measure. A national bank is
considered adequately capitalized if it has a total risk-based capital ratio of
8.0% or greater, a Tier 1 risk-based capital ratio of at least 4.0% and a
leverage capital ratio of 4.0% or greater (or a leverage ratio of 3.0% or
greater if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate federal banking agency guidelines), and the
institution does not meet the definition of an undercapitalized institution. A
national bank is considered undercapitalized if it has a total risk-based
capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is
less than 4.0%, or a leverage ratio that is less than 4.0% (or a leverage ratio
that is less than 3.0% if the institution is rated composite 1 in its most
recent report of examination, subject to appropriate federal banking agency
guidelines). A significantly undercapitalized institution is one which has a
total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based
capital ratio that is less than 3.0%, or a leverage ratio that is less than
3.0%. A critically undercapitalized institution is one which has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Under
certain circumstances, a well capitalized, adequately capitalized or
undercapitalized institution may be treated as if the institution were in the
next lower capital category.

     With certain exceptions, national banks will be prohibited from making
capital distributions or paying management fees to a holding company if the
payment of such distributions or fees will cause them to become
undercapitalized. Furthermore, undercapitalized national banks will be required
to file capital restoration plans with the OCC. Such a plan will not be accepted
unless, among other things, the banking institutions's holding company
guarantees the plan up to a certain specified amount. Any such guarantee from a
depository institution's holding company is entitled to a priority of payment in
bankruptcy. Undercapitalized national banks also will be subject to restrictions
on growth, acquisitions, branching and engaging in new lines of business unless
they have an approved capital plan that permits otherwise. The OCC also may,
among other things, require an undercapitalized national bank to issue shares or
obligations, which could be voting stock, to recapitalize the institution or,
under certain circumstances, to divest itself of any subsidiary.

     The OCC is authorized by FDICIA to take various enforcement actions against
any significantly undercapitalized national bank and any national bank that
fails to submit an acceptable capital restoration plan or fails to implement a
plan accepted by the OCC. These powers include, among other things, requiring
the institution to be recapitalized, prohibiting asset growth, restricting
interest rates paid, requiring primary approval of capital distributions by any
bank holding company which controls the institution, requiring divestiture by
the institution of its subsidiaries or by the holding company of the institution
itself, requiring new election of directors, and requiring the dismissal of
directors and officers.

     Significantly and critically undercapitalized national banks may be subject
to more extensive control and supervision. The OCC may prohibit any such
institution from, among other things, entering into any material transaction not
in the ordinary course of business, amending its charter or bylaws, or engaging
in certain transactions with affiliates. In addition, critically
undercapitalized institutions generally will be prohibited from making payments
of principal or interest on outstanding subordinated debt. Within 90 days of a
national bank becoming critically undercapitalized, the OCC must appoint a
receiver or conservator unless certain findings are made with respect to the
prospect for the institution's continued viability.

     As of December 31, 1999, the Bank met the capital requirements of an
"adequately-capitalized" institution.

     DIVIDENDS.  There are certain statutory limitations on the payment of
dividends by national banks. Without approval of the OCC, dividends may not be
paid by the Bank in an amount in any calendar year which exceeds the Bank's
total net profits for that year, plus its retained profits for the preceding two
years,

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less any required transfers to capital surplus. In addition, a national bank may
not pay dividends in excess of total retained profits, including current year's
earnings after deducting bad debts in excess of reserves for losses. In some
cases, the OCC may find a dividend payment that meets these statutory
requirements to be an unsafe or unsound practice. Under FDICIA, the Bank cannot
pay a dividend if it will cause the Bank to be "undercapitalized."

     DEPOSIT INSURANCE.  The deposits of the Bank are insured by the FDIC
through the BIF to the extent provided by law. Under the FDIC's risk-based
insurance system, BIF-insured institutions are currently assessed premiums of
between zero and twenty seven cents per $100 of eligible deposits, depending
upon the institution's capital position and other supervisory factors. Congress
recently enacted legislation that, among other things, provides for assessments
against BIF-insured institutions that will be used to pay certain Financing
Corporation ("FICO") obligations. In addition to any BIF insurance
assessments, BIF-insured banks are expected to make payments for the FICO
obligations equal to $0.01296 per $100 of eligible deposits each year during
1997 through 1999, and an estimated $0.024 per $100 of eligible deposits
thereafter.

     CONSERVATOR AND RECEIVERSHIP POWERS.  FDICIA significantly expanded the
authority of the federal banking regulators to place depository institutions
into conservatorship or receivership to include, among other things, appointment
of the FDIC as conservator or receiver of an undercapitalized institution under
certain circumstances. In the event the Bank is placed into conservatorship or
receivership, the FDIC is required, subject to certain exceptions, to choose the
method for resolving the institution that is least costly to the BIF, such as
liquidation.

     BROKERED DEPOSIT RESTRICTIONS.  The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") and FDICIA generally limit institutions
which are not well capitalized from accepting brokered deposits. In general,
undercapitalized institutions may not solicit, accept or renew brokered
deposits. Adequately capitalized institutions may not solicit, accept or renew
brokered deposits unless they obtain a waiver from the FDIC. Even in that event,
they may not pay an effective yield of more than 75 basis points over the
effective yield paid on deposits of comparable size and maturity in the
institution's normal market area for deposits accepted from within that area, or
the national rate paid on deposits of comparable size and maturity for deposits
accepted from outside the institution's normal market area.

     CONSUMER LAWS AND REGULATIONS.  In addition to the laws and regulations
discussed herein, the Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Community Reinvestment
Act, the Equal Credit Opportunity Act, and the Fair Housing Act, among others.
These laws and regulations mandate certain disclosure requirements and regulate
the manner in which financial institutions must deal with customers when taking
deposits or making loans to such customers. The Bank must comply with the
applicable provisions of these consumer protection laws and regulations as part
of their ongoing customer relations.

     THE COMPANY

     The Company is a bank holding company registered under the Bank Holding
Company Act of 1956 (the "BHCA"), and is subject to supervision and regulation
by the Federal Reserve Board. The BHCA and other Federal laws subject bank
holding companies to particular restrictions on the types of activities in which
they may engage, and to a range of supervisory requirements and activities,
including regulatory enforcement actions for violations of laws and regulations.
As a bank holding company, the Company's activities and those of its banking and
nonbanking subsidiaries have in the past been limited to the business of banking
and activities closely related or incidental to banking. Under new banking
legislation (see discussion of Gramm-Leach-Bliley Act below), however, national
banks will have broadened authority, subject to limitations on investment, to
engage in activities that are financial in nature (other than insurance

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underwriting, merchant or insurance portfolio investment, real estate
development and real estate investment) through subsidiaries if the bank is well
capitalized, well managed and has at least a satisfactory rating under the
Community Reinvestment Act.

     Because the Company is a legal entity separate and distinct from its
subsidiaries, its right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a liquidation
or other resolution of the Bank, the claims of depositors and other general or
subordinated creditors of the Bank are entitled to a priority of payment over
the claims of holders of any obligation of the institution to its shareholders,
including any depository institution holding company (such as the Company) or
any shareholder or creditor thereof.

     SAFE AND SOUND BANKING PRACTICES.  Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. For example, the Federal
Reserve Board's Regulation Y requires a holding company to give the Federal
Reserve Board prior notice of any redemption or repurchase of its own equity
securities, if the consideration to be paid, together with the consideration
paid for any repurchases or redemptions in the preceding year, is equal to 10%
or more of the company's consolidated net worth. The Federal Reserve Board may
oppose the transaction if it believes that the transaction would constitute an
unsafe or unsound practice or would violate any law or regulation. As another
example, a holding company could not impair its subsidiary bank's soundness by
causing it to make funds available to nonbanking subsidiaries or their customers
if the Federal Reserve Board believed it not prudent to do so.

     FIRREA expanded the Federal Reserve Board's authority to prohibit
activities of bank holding companies and their nonbanking subsidiaries which
represent unsafe and unsound banking practices or which constitute violations of
laws or regulations. Notably, FIRREA increased the amount of civil money
penalties which the Federal Reserve Board can assess for certain activities
conducted on a knowing and reckless basis, if those activities caused a
substantial loss to a depository institution. The penalties can be as high as
$1,000,000 for each day the activity continues. FIRREA also expanded the scope
of individuals and entities against which such penalties may be assessed.

     ANTI-TYING RESTRICTIONS.  Bank holding companies and their affiliates are
prohibited from tying the provision of certain services, such as extensions of
credit, to other services offered by a holding company or its affiliates.

     ANNUAL REPORTING; EXAMINATIONS.  The Company is required to file an annual
report with the Federal Reserve Board, and such additional information as the
Federal Reserve Board may require pursuant to the BHCA. The Federal Reserve
Board may examine a bank holding company or any of its subsidiaries, and charge
the company for the cost of such an examination.

     CAPITAL ADEQUACY REQUIREMENTS.  The Federal Reserve Board has adopted a
system using risk-based capital guidelines to evaluate the capital adequacy of
bank holding companies. Under the guidelines, specific categories of assets and
certain off-balance sheet assets such as letters of credit are assigned
different risk weights, based generally on the perceived credit risk of the
asset. These risk weights are multiplied by corresponding asset balances to
determine a "risk-weighted" asset base. The guidelines require a minimum total
risk-based capital ratio of 8.0% (of which at least 4.0% is required to consist
of Tier 1 capital elements).

     In addition to the risk-based capital guidelines, the Federal Reserve Board
uses a leverage ratio as an additional tool to evaluate the capital adequacy of
bank holding companies. The leverage ratio is a company's Tier 1 capital divided
by its total consolidated average assets. Bank holding companies must maintain a
minimum leverage ratio of at least 3.0%, although most organizations are
expected to maintain leverage ratios that are 100 to 200 basis points above this
minimum ratio.

     The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The federal bank
regulatory agencies may set capital requirements

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for a particular banking organization that are higher than the minimum ratios
when circumstances warrant. Federal Reserve Board guidelines also provide that
banking organizations experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets. In
addition, the regulations of the Federal Reserve Board provide that
concentration of credit risk and certain risks arising from nontraditional
activities, as well as an institution's ability to manage these risks, are
important factors to be taken into account by regulatory agencies in assessing
an organization's overall capital adequacy.

     The Federal Reserve Board recently adopted amendments to its risk-based
capital regulations to provide for the consideration of interest rate risk in
the agencies' determination of a banking institution's capital adequacy.

GRAMM-LEACH-BLILEY ACT

     Traditionally, the activities of bank holding companies have been limited
to the business of banking and activities closely related or incidental to
banking. On November 12, 1999, however, the Gramm-Leach-Bliley Act was signed
into law which will, effective March 11, 2000, relax the previous limitations
and permit bank holding companies to engage in a broader range of financial
activities. Specifically, bank holding companies may elect to become financial
holding companies which may affiliate with securities firms and insurance
companies and engage in other activities that are financial in nature. Among the
activities that will be deemed "financial in nature" are, in addition to
traditional lending activities, securities underwriting, dealing in or making a
market in securities; sponsoring mutual funds and investment companies,
insurance underwriting and agency activities, merchant banking activities, and
activities which the Federal Reserve Board considers to be closely related to
banking. A bank holding company may become a financial holding company under the
new statute only if each of its subsidiary banks is well capitalized, is well
managed and has at least a satisfactory rating under the Community Reinvestment
Act. A bank holding company that falls out of compliance with such requirement
may be required to cease engaging in certain activities. Any bank holding
company which does not elect to become a financial holding company remains
subject to the current restrictions of the Bank Holding Company Act.

     Under the new legislation, the Federal Reserve Board serves as the primary
"umbrella" regulator of financial holding companies with supervisory authority
over each parent company and limited authority over its subsidiaries. The
primary regulator of each subsidiary of a financial holding company will depend
on the type of activity conducted by the subsidiary. For example, broker-dealer
subsidiaries will be regulated largely by securities regulators and insurance
subsidiaries will be regulated largely by insurance authorities.

     Implementing regulations under the Gramm-Leach-Bliley Act have not yet been
promulgated and the Company cannot predict the full sweep of the new legislation
and has not yet determined whether it will ever elect to become a financial
holding company.

ENFORCEMENT POWERS OF THE FEDERAL BANKING AGENCIES

     The Federal Reserve Board and the OCC have broad enforcement powers,
including the power to terminate deposit insurance, impose substantial fines and
other civil and criminal penalties and appoint a conservator or receiver.
Failure to comply with applicable laws, regulations and supervisory agreements
could subject the Company or the Bank, as well as officers, directors and other
institution-affiliated parties of these organizations, to administrative
sanctions and potentially substantial civil money penalties. In addition to the
grounds discussed above under " -- The Bank -- Prompt Corrective Action," the
appropriate federal banking agency may appoint the FDIC as conservator or
receiver for a banking institution (or the FDIC may appoint itself, under
certain circumstances) if any one or more of a number of circumstances exist,
including, without limitation, the fact that the banking institution is
undercapitalized and has no reasonable prospect of becoming adequately
capitalized; fails to become adequately capitalized when required to do so;
fails to submit a timely and acceptable capital restoration plan; or materially
fails to implement an accepted capital restoration plan.

                                       8
<PAGE>
     IMPOSITION OF LIABILITY FOR UNDERCAPITALIZED SUBSIDIARIES.  FDICIA requires
bank regulators to take "prompt corrective action" to resolve problems
associated with insured depository institutions whose capital declines below
certain levels. In the event an institution becomes "undercapitalized," it
must submit a capital restoration plan. The capital restoration plan will not be
accepted by the regulators unless each company having control of the
undercapitalized institution guarantees the subsidiary's compliance with the
capital restoration plan. Under FDICIA, the aggregate liability of all companies
controlling an undercapitalized bank is limited to the lesser of 5% of the
institution's assets at the time it became undercapitalized or the amount
necessary to cause the institution to be "adequately capitalized." The
guarantee and limit on liability expire after the regulators notify the
institution that it has remained adequately capitalized for each of four
consecutive calendar quarters. FDICIA grants greater powers to the bank
regulators in situations where an institution becomes "significantly" or
"critically" undercapitalized or fails to submit a capital restoration plan.
For example, a bank holding company controlling such an institution can be
required to obtain prior Federal Reserve Board approval of proposed dividends,
or might be required to consent to a consolidation or to divest the troubled
institution or other affiliates. At December 31, 1999, the Bank met the
requirements of an "adequately capitalized" institution and, therefore, these
requirements presently do not apply to the Company.

     ACQUISITIONS BY BANK HOLDING COMPANIES.  The BHCA requires every bank
holding company to obtain the prior approval of the Federal Reserve Board before
it may acquire all or substantially all of the assets of any bank, or direct or
indirect ownership or control of more than 5% of any class of voting shares of
any bank.

     The Federal Reserve Board will allow the acquisition by a bank holding
company of an interest in any bank located in another state only if the laws of
the state in which the target bank is located expressly authorize such
acquisition. Texas law permits, in certain circumstances, out-of-state bank
holding companies to acquire banks and bank holding companies in Texas.

EXPANDING ENFORCEMENT AUTHORITY

     One of the major effects of FDICIA was the increased ability of banking
regulators to monitor the activities of banks and their holding companies. In
addition, the Federal Reserve Board and FDIC have extensive authority to police
unsafe or unsound practices and violations of applicable laws and regulations by
depository institutions and their holding companies. For example, the FDIC may
terminate the deposit insurance of any institution which it determines has
engaged in an unsafe or unsound practice. The agencies can also assess civil
money penalties, issue cease and desist or removal orders, seek injunctions, and
publicly disclose such actions.

EFFECT ON ECONOMIC ENVIRONMENT

     The policies of regulatory authorities, including the monetary policy of
the Federal Reserve Board, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among the means available to the
Federal Reserve Board to affect the money supply are open market operations in
U.S. Government securities, changes in the discount rate on member bank
borrowings, and changes in reserve requirements against member bank deposits.
These means are used in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their use may affect
interest rates charged on loans or paid for deposits.

     Federal Reserve Board monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect of
such policies on the business and earnings of the Company and its subsidiaries
cannot be predicted.

                                       9
<PAGE>
ITEM 2.  PROPERTIES

FACILITIES

     The Company currently maintains twenty-six locations, sixteen of which are
leased. The following table sets forth specific information on each branch, each
of which offers full service banking. The Company's headquarters are located at
4400 Post Oak Parkway, in a 28-story office tower in the Galleria area.

<TABLE>
<CAPTION>
                                                                                             BRANCH DEPOSITS
                                                                                                   AT
                 BRANCH                    SQ. FT.                  LOCATION                DECEMBER 31, 1999
----------------------------------------  ---------   ------------------------------------  -----------------
<S>                                       <C>         <C>                                   <C>
                                                                                             (IN THOUSANDS)
Galleria/Corporate......................    149,294   4400 Post Oak Parkway                    $   974,365
Downtown -- 1100 Louisiana..............     10,124   1100 Louisiana                                81,996
Northwest Crossing......................      6,558   Hwy 290 at Tidwell                           281,686
Memorial City...........................      3,554   899 Frostwood                                 20,588
12 Greenway Plaza.......................      2,669   12 Greenway Plaza                             48,568
Medical Center..........................      2,437   6602 Fannin                                   15,824
Downtown -- Two Houston Center..........      2,219   909 Fannin                                    66,666
Hempstead...............................     17,000   12130 Hempstead Hwy                          116,759
Tanglewood..............................      5,625   5791 Woodway                                  72,544
Pasadena................................      4,900   4207 Fairmont Parkway                         25,901
Memorial West...........................      1,700   14803 Memorial                                 5,807
Spring..................................      6,300   2000 Spring Cypress Road                      34,358
Bell Tower..............................      4,500   1330 Wirt Road                                21,021
Kingwood................................      5,500   29805 Loop 494                                36,237
Porter..................................      2,450   23741 Highway 59, Suite 2                      9,329
North Port..............................      5,000   9191 North Loop East                          21,323
Sugar Land..............................      4,000   14965 Southwest Freeway                       22,790
Greenspoint.............................      3,797   Sam Houston at Ronan Road                     14,041
3 Greenway Plaza........................      2,549   3 Greenway Plaza, Suite C118                   1,158
Rosenberg...............................     45,000   3400 Avenue H                                145,077
East Bernard............................      1,500   9212 Hwy 60                                   17,586
Needville...............................      2,500   3328 School Street                            37,043
Bissonnet...............................      1,520   10881 Bissonnet                               14,520
Katy....................................      2,800   919 Avenue C                                  11,402
Missouri City...........................      8,446   5819 Hwy 6                                    23,540
 The Woodlands..........................      3,600   10077 Grogan's Mill Road, Suite 300           52,625
                                                                                            -----------------
                                                                                               $ 2,172,754
                                                                                            =================
</TABLE>

ITEM 3.  LEGAL PROCEEDINGS

     Neither the Company nor the Bank is currently involved in any material
legal proceeding.

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

     No matter was submitted during the fourth quarter of the fiscal year
covered by this Annual Report to a vote of the Company's security holders.

                                       10
<PAGE>
                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock began trading on the NASDAQ Stock Market on
January 28, 1997, and is quoted in such Market under the symbol "SWBT". The
Company's Common Stock was not publicly traded, nor was there an established
market therefor, prior to January 28, 1997. On February 16, 2000, there were
approximately 1,162 holders of record of the Company's Common Stock.

     No cash dividends have ever been paid by the Company on its Common Stock,
and the Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company's principal source of funds to pay
cash dividends on its Common Stock would be cash dividends from the Bank. There
are certain statutory limitations on the payment of dividends by national banks.
Without approval of the OCC, dividends in any calendar year may not exceed the
Bank's total net profits for that year, plus its retained profits for the
preceding two years, less any required transfers to capital surplus or to a fund
for the retirement of any preferred stock. In addition, a dividend may not be
paid in excess of a bank's cumulative net profits after deducting bad debts in
excess of the allowance for loan losses. As of December 31, 1999, approximately
$70.1 million was available for payment of dividends by the Bank to the Company
under these restrictions without regulatory approval. See "Item 1.
Business -- Supervision and Regulation."

     The following table presents the range of high and low sale prices reported
on the NASDAQ during the year ended December 31, 1999.

<TABLE>
<CAPTION>
                                                           1999                                      1998
                                           ------------------------------------   ------------------------------------------
                                           FOURTH    THIRD      SECOND    FIRST    FOURTH      THIRD      SECOND     FIRST
                                            QTR.     QTR.        QTR.     QTR.      QTR.       QTR.        QTR.      QTR.
                                           ------    -----      ------    -----   ---------  ---------    ------   ---------
<S>                                        <C>       <C>        <C>       <C>     <C>        <C>          <C>      <C>
Common stock sale price:
     High...............................   $20      $18 7/16   $18 5/8   $18 3/16 $18 1/2    $19 1/4     $21 19/32  $19 7/8
     Low................................    16 1/8   16 1/8     12 3/8    11 7/8   10         12 3/4      16 1/4     15
</TABLE>

RECENT SALES OF UNREGISTERED SECURITIES

     On June 21, 1999, the Company issued 307,323 shares of Common Stock to The
Woodlands Land Development Company, L.P. ("Woodlands") pursuant to the
exercise by Woodlands on June 17, 1999 of its right to exchange its 49% equity
interest in Mitchell Mortgage Company L.L.C. ("Mitchell") for shares of
Company Common Stock. As a result of the exchange, Mitchell became a
wholly-owned subsidiary of the Bank effective June 30, 1999. No underwriter was
involved, and the issuance of those shares of Company Common Stock was not
registered under the Securities Act of 1933 in reliance upon the exemption
provided by Section 4(2) thereof. The Company is entitled to rely upon Section
4(2) in connection with this transaction because it was a privately negotiated
transaction with a single accredited investor.

                                       11

<PAGE>
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto, appearing elsewhere in this Annual Report, and the information
contained in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected historical consolidated
financial data as of the end of and for each of the five years in the period
ended December 31, 1999 are derived from the Company's Consolidated Financial
Statements which have been audited by independent public accountants. Historical
results have been restated to reflect the operations of Fort Bend Holding Corp.
prior to April 1, 1999, the date on which it was merged into the Company in a
transaction accounted for as a pooling of interests.

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                       -----------------------------------------------------
                                         1999       1998       1997       1996       1995
                                       ---------  ---------  ---------  ---------  ---------
<S>                                    <C>        <C>        <C>        <C>        <C>
                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
    Interest income..................  $ 186,223  $ 161,747  $ 130,895  $  97,189  $  78,233
    Interest expense.................     79,241     70,973     58,055     43,675     35,533
                                       ---------  ---------  ---------  ---------  ---------
        Net interest income..........    106,982     90,774     72,840     53,514     42,700
    Provision for loan losses........      6,060      4,053      3,982      2,414      1,244
                                       ---------  ---------  ---------  ---------  ---------
        Net interest income after
          provision for loan
          losses.....................    100,922     86,721     68,858     51,100     41,456
    Noninterest income...............     27,011     22,482     16,769     10,123      6,526
    Noninterest expenses.............     85,836     70,828     56,264     41,498     31,134
                                       ---------  ---------  ---------  ---------  ---------
        Income before income taxes...     42,097     38,375     29,363     19,725     16,848
    Provision for income taxes.......     15,266     13,541     10,167      6,831      5,832
    Minority interest................        (19)       373        373         58         --
                                       ---------  ---------  ---------  ---------  ---------
    Net income before preferred stock
      dividend.......................     26,850     24,461     18,823     12,836     11,016
    Preferred stock dividend.........         --         --         36        457         50
                                       ---------  ---------  ---------  ---------  ---------
    Net income available to common
      shareholders...................  $  26,850  $  24,461  $  18,787  $  12,379  $  10,966
                                       =========  =========  =========  =========  =========
PER SHARE DATA:
    Basic earnings per common
      share(1).......................  $    0.97  $    0.95  $    0.77  $    0.58  $    0.53
    Diluted earnings per common
      share(1).......................  $    0.93  $    0.88  $    0.71  $    0.53  $    0.50
    Cash dividends per common share
      paid by Fort Bend..............  $    0.10  $    0.40  $   0.285  $    0.14  $    0.14
    Book value per share.............  $    6.96  $    6.47  $    5.48  $    4.33  $    3.71
    Average common shares (in
      thousands).....................     27,744     25,795     24,333     21,168     20,521
    Average common share equivalents
      (in thousands).................      1,200      2,947      3,080      3,304      1,962
PERFORMANCE RATIOS:
    Return on average assets.........       1.03%      1.11%      1.06%      0.93%      1.05%
    Return on average common
      equity.........................      15.25%     16.10%     15.44%     14.75%     15.58%
    Net interest margin..............       4.48%      4.42%      4.44%      4.35%      4.36%
    Efficiency ratio(3)..............      63.99%     62.79%     63.14%     65.03%     61.95%
BALANCE SHEET DATA(2):
    Total assets..................... $2,852,196 $2,522,391 $2,124,210 $1,567,221 $1,251,785
    Securities.......................    652,539    718,740    652,210    458,981    472,649
    Loans............................  1,913,857  1,528,999  1,160,724    874,244    626,904
    Allowance for loan losses........     19,716     14,980     11,927      9,101      7,374
    Total deposits...................  2,172,754  1,999,462  1,781,332  1,291,665  1,044,088
    Total shareholders' equity.......    194,997    177,336    136,239     91,843     75,876
CAPITAL RATIO:
    Average equity to average
      assets.........................       6.78%      6.88%      6.88%      6.28%      6.72%
ASSET QUALITY RATIOS(2):
    Nonperforming assets(4) to loans
      and other real estate..........       0.24%      0.25%      0.42%      0.37%      0.66%
    Net charge-offs to average
      loans..........................       0.08%      0.08%      0.12%      0.20%      0.15%
    Allowance for loan losses to
      total loans....................       1.07%      0.99%      1.04%      1.04%      1.18%
    Allowance for loan losses to
      nonperforming loans(5).........     650.91%    460.07%    285.13%    359.01%    187.68%
</TABLE>

------------

(1) Basic earnings per common share is computed by dividing net income available
    to common shareholders by the weighted average number of common shares
    outstanding for the period. Diluted earnings per common share is computed by
    dividing net income available to common shareholders adjusted for any
    changes in income that would result from the assumed conversion of all
    potential dilutive common shares, by the sum of the weighted average number
    of common shares outstanding and the effect of all dilutive potential common
    shares outstanding for the period.

(2) At period end, except net charge-offs (recoveries) to average loans.

(3) Calculated by dividing total noninterest expenses by net interest income
    plus noninterest income, excluding net security gains/losses.

(4) Nonperforming assets consist of nonperforming loans and other real estate
    owned.

(5) Nonperforming loans consist of nonaccrual loans, troubled debt
    restructurings and loans contractually past due 90 days or more.

                                       12
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of the Company's consolidated financial
statements and should be read in conjunction with the Company's consolidated
financial statements and accompanying notes and other detailed information
appearing elsewhere in this Annual Report.

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

OVERVIEW

     On April 1, 1999, Southwest Bancorporation of Texas, Inc. (the "Company")
and Fort Bend Holding Corp. ("Fort Bend") completed their merger, which was
accounted for as a pooling of interests. The merger agreement provided for the
exchange of 1.45 shares of the Company's Common Stock for each share of Fort
Bend Common Stock, resulting in the issuance of approximately 4.6 million shares
of Company Common Stock on a fully diluted basis. In connection with this
merger, the Company incurred approximately $4.5 million in pretax merger-related
expenses and other charges including investment banking fees, other professional
fees and severance expense (the "special charge"). The historical financial
data has been restated to include the accounts and operations of Fort Bend for
all periods presented.

     Through the merger with Fort Bend, the Company acquired Fort Bend's 51%
ownership interest in Mitchell Mortgage Company L.L.C. ("Mitchell"), a
full-service mortgage banking affiliate of The Woodlands Operating Company L.P.
("Woodlands"). Following the merger, Woodlands had the right to convert its
49% ownership interest in Mitchell into shares of Company Common Stock at an
exchange rate of 119.3408 shares for each $1,000 of its ownership interest in
Mitchell. Prior to the merger Woodlands had the right to convert its ownership
interest into Fort Bend common stock. On June 17, 1999, Woodlands exercised its
conversion right, resulting in the issuance of 307,323 shares of Company Common
Stock to Woodlands in exchange for Woodlands' 49% ownership interest in Mitchell
and Mitchell becoming a wholly-owned subsidiary of the Bank, effective as of
June 30, 1999. As a result, 100% of the accounts and operations of Mitchell
after that date are included in the financial statements of the Company.

     Total assets at December 31, 1999, 1998 and 1997 were $2.85 billion, $2.52
billion, and $2.12 billion, respectively. This growth was a result of a strong
local economy, the addition of new loan officers, aggressive marketing, and the
Company's overall growth strategy. Loans were $1.91 billion at December 31,
1999, an increase of $384.9 million or 25% from $1.53 billion at the end of
1998, marking the second consecutive year that loan growth exceeded $350
million. Loans were $1.16 billion at year end 1997. Deposits increased to $2.17
billion at year end 1999 from $2.00 billion at year end 1998 and $1.78 billion
at year end 1997.

     Net income available for common shareholders was $26.9 million, $24.5
million, and $18.8 million and diluted earnings per common share was $0.93,
$0.88, and $0.71 for the years ended 1999, 1998 and 1997, respectively. This
increase in net income was primarily the result of strong loan growth,
maintaining strong asset quality and expense control and resulted in returns on
average assets ("ROA") of 1.03%, 1.11%, and 1.06% and returns on average
common equity ("ROE") of 15.25%, 16.10%, and 15.44% for the years ended 1999,
1998 and 1997, respectively.

     Results for 1999 include the impact of the special charge taken in the
second quarter. On an operating basis, excluding this special charge, the
Company's net income was $30.5 million or $1.05 per diluted common share,
resulting in an ROA of 1.17%, ROE of 17.29, and an efficiency ratio of 60.66%.

RESULTS OF OPERATIONS

     NET INTEREST INCOME

     Net interest income represents the amount by which interest income on
interest-earning assets, including securities and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of the Company's
earnings. In 1999, net interest income provided 79.8% of the Company's net
revenues, compared with 80.1% in 1998

                                       13
<PAGE>
and 81.3% in 1997. Interest rate fluctuations, as well as changes in the amount
and type of earning assets and liabilities, combine to affect net interest
income.

     1999 VERSUS 1998.  Net interest margin increased six basis points in 1999
to 4.48%. The principal factor contributing to the increase was lower cost of
funds partially offset by lower yielding earning assets resulting in higher
interest rate spreads.

     Total net interest income was $107.0 million in 1999 compared to $90.8
million in 1998, an increase of $16.2 million or 18%. Growth in average earning
assets was $332.4 million or 16% while yields decreased seven basis points to
7.80%. During the first six months of the year yields remained relatively flat
and then increased during the final six months of the year as the Bank's prime
lending rate increased. The yield on earning assets during the fourth quarter
was the highest for the year, resulting in increased yields on a weighted
average basis.

     Net interest margin risk is typically related to a narrowing of the prime
rate and cost of funds. The Company reduced this risk with a modestly asset
sensitive balance sheet during 1999. On June 30, 1999 the Federal Reserve
increased the federal funds rate and discount rate by 25 basis points. This was
followed by two additional 25 basis point increases on August 25, 1999 and
November 17, 1999. Due to the Bank's asset sensitivity the net interest margin
gradually increased during the second half of the year. This resulted in net
interest margins of 4.48% and 4.42% and net interest spreads of 3.53% and 3.34%
for 1999 and 1998, respectively.

     The increase in net interest income was due primarily to a $332.4 million
or 16% increase in average earning assets. Average loans grew $338.7 million or
26% during 1999 while average securities grew $82.6 million or 13% during the
same period. The yield earned on average loans outstanding decreased 37 basis
points to 8.51% in 1999. Overall, the yield earned on average earning assets
decreased seven basis points to 7.80% in 1999 compared to a 26 basis point
decrease in the rate paid on average interest-bearing liabilities.

     1998 VERSUS 1997.  Net interest income totaled $90.8 million in 1998
compared to $72.8 million in 1997, an increase of $17.9 million or 25%. This
resulted in net interest margins of 4.42% and 4.44% and net interest spreads of
3.34% and 3.32% for 1998 and 1997, respectively.

     The increase in net interest income was due primarily to a $415.6 million
or 25% increase in average interest-earning assets. Average loans grew $302.6
million or 30% during 1998 while average securities grew $110.7 million or 22%
during the same period. The increase in net interest income caused by this
increase in average interest-earning assets was partially offset by an increase
in average interest-earning liabilities of $321.5 million or 26%. The yield
earned on average interest-earning assets decreased 11 basis points to 7.87% in
1998 compared to an overall decrease in the yield earned on average
interest-bearing liabilities of 13 basis points to 4.53% for the period.

                                       14
<PAGE>
     The following table presents, for the periods indicated, the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made and
all average balances are daily average balances. Nonaccruing loans have been
included in the table as loans carrying a zero yield. The yield on the
securities portfolio is based on average historical cost balances and does not
give effect to changes in fair value that are reflected as a component of
consolidated shareholders' equity.
<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                        --------------------------------------------------------------------------------------------
                                                      1999                               1998                          1997
                                        --------------------------------   --------------------------------   ----------------------
                                          AVERAGE     INTEREST   AVERAGE     AVERAGE     INTEREST   AVERAGE     AVERAGE     INTEREST
                                        OUTSTANDING   EARNED/    YIELD/    OUTSTANDING   EARNED/    YIELD/    OUTSTANDING   EARNED/
                                          BALANCE       PAID      RATE       BALANCE       PAID      RATE       BALANCE       PAID
                                        -----------   --------   -------   -----------   --------   -------   -----------   --------
<S>                                     <C>           <C>        <C>       <C>           <C>        <C>       <C>           <C>
                                                                           (DOLLARS IN THOUSANDS)
ASSETS
Interest-earning assets:
  Loans................................. $1,652,242   $140,598      8.51%   $1,313,500   $116,586      8.88%   $1,010,910   $ 92,307
  Securities............................    699,581     43,865      6.67       616,999     38,302      6.21       506,275     31,709
  Federal funds sold and other..........     36,010      1,760      4.89       124,897      6,859      5.49       122,591      6,879
                                        -----------   --------   -------   -----------   --------   -------   -----------   --------
      Total interest-earning assets.....  2,387,833    186,223      7.80%    2,055,396    161,747      7.87%    1,639,776    130,895
                                                      --------   -------                 --------   -------                 --------
Less allowance for loan losses..........    (17,534)                           (13,321)                           (10,294)
                                        -----------                        -----------                        -----------
                                          2,370,299                          2,042,075                          1,629,482
Nonearning assets.......................    227,332                            167,580                            138,584
                                        -----------                        -----------                        -----------
      Total assets...................... $2,597,631                         $2,209,655                         $1,768,066
                                        ===========                        ===========                        ===========
LIABILITIES AND
  SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
  Money market and savings deposits.....  $ 870,033     31,277      3.59%    $ 808,779     31,766      3.93%    $ 618,924     24,517
  Certificates of deposit...............    609,423     30,386      4.99       536,095     27,984      5.22       465,665     24,933
  Repurchase agreements and borrowed
    funds...............................    374,398     17,578      4.70       222,246     11,223      5.05       161,072      8,605
                                        -----------   --------   -------   -----------   --------   -------   -----------   --------
      Total interest-bearing
        liabilities.....................  1,853,854     79,241      4.27%    1,567,120     70,973      4.53%    1,245,661     58,055
                                                      --------   -------                 --------   -------                 --------
Noninterest-bearing liabilities:
  Noninterest-bearing demand deposits...    543,961                            469,721                            380,034
  Other liabilities.....................     23,712                             20,838                             20,658
                                        -----------                        -----------                        -----------
      Total liabilities.................  2,421,527                          2,057,679                          1,646,353
Shareholders' equity....................    176,104                            151,976                            121,713
                                        -----------                        -----------                        -----------
      Total liabilities and
        shareholders' equity............ $2,597,631                         $2,209,655                         $1,768,066
                                        ===========                        ===========                        ===========
Net interest income.....................              $106,982                           $ 90,774                           $ 72,840
                                                      ========                           ========                           ========
Net interest spread.....................                            3.53%                              3.34%
                                                                 =======                            =======
Net interest margin.....................                            4.48%                              4.42%
                                                                 =======                            =======

<CAPTION>

                                          AVERAGE
                                          YIELD/
                                           RATE
                                          -------
<S>                                       <C>

ASSETS
Interest-earning assets:
  Loans.................................    9.13%
  Securities............................    6.26
  Federal funds sold and other..........    5.61
                                          -------
      Total interest-earning assets.....    7.98%
                                          -------
Less allowance for loan losses..........

Nonearning assets.......................

      Total assets......................

LIABILITIES AND
  SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
  Money market and savings deposits.....    3.96%
  Certificates of deposit...............    5.35
  Repurchase agreements and borrowed
    funds...............................    5.34
                                          -------
      Total interest-bearing
        liabilities.....................    4.66%
                                          -------
Noninterest-bearing liabilities:
  Noninterest-bearing demand deposits...
  Other liabilities.....................

      Total liabilities.................
Shareholders' equity....................

      Total liabilities and
        shareholders' equity............

Net interest income.....................

Net interest spread.....................    3.32%
                                          =======
Net interest margin.....................    4.44%
                                          =======
</TABLE>

                                       15
<PAGE>
     The following table presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to higher outstanding balances and the volatility of interest
rates. For purposes of this table, changes attributable to both rate and volume
which cannot be segregated have been allocated.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                          ----------------------------------------------------------------
                                                  1999 VS. 1998                     1998 VS. 1997
                                          ------------------------------    ------------------------------
                                               INCREASE (DECREASE)               INCREASE (DECREASE)
                                                      DUE TO                            DUE TO
                                          ------------------------------    ------------------------------
                                          VOLUME      RATE       TOTAL      VOLUME      RATE       TOTAL
                                          -------   ---------  ---------    -------   ---------  ---------
<S>                                       <C>       <C>        <C>          <C>       <C>        <C>
                                                               (DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans...................................  $30,067   $  (6,055) $  24,012    $27,630   $  (3,351) $  24,279
Securities..............................    5,127         436      5,563      6,935        (342)     6,593
Federal funds sold and other............   (4,881)       (218)    (5,099)       129        (149)       (20)
                                          -------   ---------  ---------    -------   ---------  ---------
    Total increase (decrease) in
      interest
      income............................   30,313      (5,837)    24,476     34,694      (3,842)    30,852
                                          -------   ---------  ---------    -------   ---------  ---------
INTEREST-BEARING LIABILITIES:
Money market and savings deposits.......    2,406      (2,895)      (489)     7,520        (271)     7,249
Certificates of deposits................    3,827      (1,425)     2,402      3,771        (720)     3,051
Repurchase agreements and borrowed
  funds.................................    7,684      (1,329)     6,355      3,268        (650)     2,618
                                          -------   ---------  ---------    -------   ---------  ---------
    Total increase (decrease) in
      interest expense..................   13,917      (5,649)     8,268     14,559      (1,641)    12,918
                                          -------   ---------  ---------    -------   ---------  ---------
Increase (decrease) in net interest
  income................................  $16,396   $    (188) $  16,208    $20,135   $  (2,201) $  17,934
                                          =======   =========  =========    =======   =========  =========
</TABLE>

     PROVISION FOR LOAN LOSSES

     The 1999 provision for loan losses was $6.1 million, an increase of $2.0
million or 50% from 1998. The provision for the year ended 1998 was $4.0 million
unchanged from the year ended December 31, 1997. Net charge-offs during 1999
equaled $1.3 million, which when subtracted from the provision for loan losses
of $6.1 million resulted in a net increase in the allowance for loan losses of
$4.8 million. This increase approximates a reserve of 1.23% provided for new
loans recorded. Although no assurance can be given, management believes that the
present allowance for loan losses is adequate considering loss experience,
delinquency trends and current economic conditions. Management constantly
reviews the Company's loan loss allowance policy as its loan portfolio grows and
diversifies. (See "-- Financial Condition -- Loan Review and Allowance for Loan
Losses.")

     NONINTEREST INCOME

     Noninterest income grew to $27.0 million for the year ended December 31,
1999, an increase of $4.5 million or 20% from 1998. Noninterest income totaled
$22.5 million in 1998, an increase of $5.7 million or 33.9% from 1997.

<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31,
                                          -------------------------------
                                            1999       1998       1997
                                          ---------  ---------  ---------
<S>                                       <C>        <C>        <C>
                                              (DOLLARS IN THOUSANDS)
Service charges on deposit accounts.....  $  10,515  $   8,552  $   6,843
Investment services.....................      4,232      3,537      2,536
Factoring fee income....................      3,169      1,775         --
Loan fee income.........................      2,445      2,804      2,730
Bank-owned life insurance income........      1,379        390         --
Letters of credit fee income............        829        627        423
Gain (loss) on sale of securities,
  net...................................       (139)       463        498
Other income............................      4,581      4,334      3,739
                                          ---------  ---------  ---------
                                          $  27,011  $  22,482  $  16,769
                                          =========  =========  =========
</TABLE>

                                       16
<PAGE>
     The largest component of noninterest income is service charges, which were
$10.5 million for the year ended December 31, 1999, compared to $8.6 million for
1998 and $6.8 for 1997. These were increases of 23% and 25%, respectively for
1999 and 1998. Several factors are attributable for this growth. First, during
this three-year period the Company introduced several new products to their
existing retail product line. Secondly, in August 1999, the Company initiated a
deposit campaign encompassing all of their existing market areas and redesigned
the consumer banking area which has experienced strong growth since its
inception. Additionally, the number of deposit accounts grew from 65,939 at
December 31, 1997 to 70,997 at December 31, 1998 and to 78,324 at December 31,
1999.

     Additional areas of increased growth included investment services and
factoring fee income. Factoring fee income is derived from the acquisition of
First Republic Capital Corp. and City Financial Services, Inc. in February of
1998. This acquisition was accounted for as a pooling of interests, and due to
immateriallity, prior years financial statements were not restated. Investment
services income grew to $4.2 million, or 20% from the 1998 period. During the
past several years, the international department and the foreign exchange
division have experienced strong growth, including the addition of seven new
officers. This addition adds to the high quality of personal service and
responsiveness to customer needs. Secondly the Company introduced new services
such as confirmation of letters of credit for a variety of countries and banks.
The international department also has a registered broker for non-U.S. citizens
which allows the Company to offer investment products in that market as well.

     NONINTEREST EXPENSES

     For the year ended December 31, 1999, noninterest expenses totaled $85.8
million, an increase of $15.0 million, or 21%, from $70.8 million during 1998,
which had increased from $56.3 million during 1997. The increase in noninterest
expenses during these periods was due primarily to salaries and employee
benefits, occupancy expenses, FDIC insurance and merger-related expenses. The
efficiency ratio was 63.99%, 62.79% and 63.14% for the years ended December 31,
1999, 1998 and 1997 respectively. The increase in efficiency ratio during 1999
resulted primarily from expenses incurred in connection with the acquisition of
Fort Bend Holding Corp. Excluding the special charge incurred, the efficiency
ratio would have improved to 60.66%. Additionally, less than 75% of the
estimated cost savings projected from the merger were realized during 1999. Full
cost savings are expected to be achieved in 2000.

     Salaries and employee benefits expense for the year ended December 31, 1999
was $48.9 million, an increase of $6.1 million or 14% from $42.8 million for the
year ended December 31, 1998. Salaries and employee benefits expense for the
year ended December 31, 1998 increased $10.7 million or 33% from the same period
in 1997. This increase was due primarily to hiring of additional personnel
required to accommodate the Company's growth. Total full-time equivalent
employees for the years ended December 31, 1999, 1998 and 1997 were 934, 850,
and 734, respectively.

     Occupancy expense rose $2.3 million from the prior year in both 1999 and
1998. Major categories included within occupancy expense are building lease
expense, depreciation expense, and maintenance contract expense. Building lease
expense increased to $3.7 million in 1999 from $2.8 million in 1998, an increase
of $916,000 or 33%. The Company continues to increase the rentable square feet
of the Galleria location to accommodate the increases in personnel. Depreciation
expense increased $455,000 to $4.9 million for the year ended December 31, 1999.
This increase was due primarily to depreciation on equipment provided to new
employees and expense related to technology upgrades throughout the Company.
Maintenance contract expense for the year ended December 31, 1999 was $1.4
million, an increase of $350,000 or 33% compared to $1.1 million in 1998 and
$789,000 in 1997. The Company has purchased maintenance contracts for major
operating systems throughout the organization.

     FDIC insurance expense increased $488,000 to $832,000 during 1999. This
increase was the result of a three basis point increase in rates as a result of
the Bank's capital classification changing from well capitalized to adequately
capitalized and due to a $173.0 million increase in deposits from which the FDIC
assessment is calculated.

                                       17
<PAGE>
     During the second quarter of 1999, the Company expensed approximately $4.5
million (pretax) in merger-related expenses and other charges including
investment banking fees, other professional fees and severance expense
associated with the merger of Fort Bend Holding Corp.

     INCOME TAXES

     Income tax expense includes the regular federal income tax at the statutory
rate, plus the income tax component of the Texas franchise tax. The amount of
federal income tax expense is influenced by the amount of taxable income, the
amount of tax-exempt income, the amount of nondeductible interest expense, and
the amount of other nondeductible expenses. Taxable income for the income tax
component of the Texas franchise tax is the federal pre-tax income, plus certain
officers salaries, less interest income from federal securities. In 1999 income
tax expense was $15.3 million, an increase of $1.7 million or 13% from the $13.5
million of income tax expense in 1998. In 1998 income tax expense was $13.5
million, an increase of $3.3 million or 33% from the $10.2 million of income tax
expense in 1997.

     IMPACT OF INFLATION

     The effects of inflation on the local economy and on the Company's
operating results have been relatively modest for the past several years. Since
substantially all of the Company's assets and liabilities are monetary in
nature, such as cash, securities, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates. The Company tries to
control the impact of interest rate fluctuations by managing the relationship
between its interest rate sensitive assets and liabilities. See " -- Financial
Condition -- Interest Rate Sensitivity and Liquidity" below.

FINANCIAL CONDITION

     LOANS HELD FOR INVESTMENT

     Loans were $1.84 billion at December 31, 1999, an increase of $323.1
million, or 21% from December 31, 1998. Loans were $1.51 billion at December 31,
1998, an increase of $365.9 million, or 32%, from $1.15 billion at December 31,
1997.

     During the past 5 years loans have grown at an annualized rate of 30%. This
growth is consistent with the Bank's strategy of targeting corporate "middle
market" and private banking customers and providing innovative products with
superior customer service. This plan also includes establishing new branches in
areas that demographically complement existing or targeted customer base,
pursuing selected mergers / acquisitions which will add new markets, delivery
systems and talent to the Bank and leveraging new or existing technology to
improve the profitability of the Bank and its customers.

     The following table summarizes the loan portfolio of the Company by major
category as of the dates indicated:
<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                       ---------------------------------------------------------------------------------------
                                              1999                   1998                   1997                   1996
                                       -------------------    -------------------    -------------------    ------------------
                                        AMOUNT     PERCENT     AMOUNT     PERCENT     AMOUNT     PERCENT     AMOUNT    PERCENT
                                       ---------   -------    ---------   -------    ---------   -------    --------   -------
<S>                                    <C>         <C>        <C>         <C>        <C>         <C>        <C>        <C>
                                                                       (DOLLARS IN THOUSANDS)
Commercial and industrial............  $ 721,229    39.27 %   $ 639,027    42.22 %   $ 453,082    39.47 %   $332,129    38.11%
Real estate:
  Construction & land development....    494,755    26.94       296,004    19.56       177,911    15.50      119,316    13.69
  1-4 family residential.............    268,349    14.61       255,619    16.89       242,106    21.09      204,579    23.47
  Commercial owner occupied..........    185,679    10.11       167,084    11.04       139,296    12.14      104,468    11.99
  Farmland...........................     13,056     0.71         8,314     0.55         8,384     0.73        8,879     1.02
Other................................     20,447     1.10        17,480     1.14        10,852     0.95        6,498     0.74
Consumer.............................    133,295     7.26       130,161     8.60       116,173    10.12       95,715    10.98
                                       ---------   -------    ---------   -------    ---------   -------    --------   -------
    Loans held for investment........  $1,836,810  100.00 %   $1,513,689  100.00 %   $1,147,804  100.00 %   $871,584   100.00%
                                       =========   =======    =========   =======    =========   =======    ========   =======

<CAPTION>

                                              1995
                                       ------------------
                                        AMOUNT    PERCENT
                                       --------   -------
<S>                                    <C>        <C>

Commercial and industrial............  $218,723    34.94 %
Real estate:
  Construction & land development....    67,831    10.84
  1-4 family residential.............   157,167    25.11
  Commercial owner occupied..........    71,613    11.44
  Farmland...........................     5,327     0.85
Other................................    27,905     4.45
Consumer.............................    77,416    12.37
                                       --------   -------
    Loans held for investment........  $625,982   100.00 %
                                       ========   =======
</TABLE>

                                       18
<PAGE>
     The primary lending focus of the Company is on small- and medium-sized
commercial, residential mortgage and consumer loans. The Company offers a
variety of commercial lending products including term loans, lines of credit and
equipment financing. A broad range of short- to medium-term commercial loans,
both collateralized and uncollateralized, are made available to businesses for
working capital (including inventory and receivables), business expansion
(including acquisitions of real estate and improvements) and the purchase of
equipment and machinery. The purpose of a particular loan generally determines
its structure.

     Generally, the Company's commercial loans are underwritten in the Company's
primary market area on the basis of the borrower's ability to service such debt
from cash flow. As a general practice, the Company takes as collateral a lien on
any available real estate, equipment or other assets. Working capital loans are
primarily collateralized by short-term assets whereas term loans are primarily
collateralized by long-term assets.

     A substantial portion of the Company's real estate loans consists of loans
collateralized by real estate and other assets of commercial customers.
Additionally, a portion of the Company's lending activity consists of the
origination of single-family residential mortgage loans collateralized by
owner-occupied properties located in the Company's primary market area. The
Company offers a variety of mortgage loan products which generally are amortized
over five to 30 years.

     Loans collateralized by single-family residential real estate generally
have been originated in amounts of no more than 90% of appraised value. The
Company requires mortgage title insurance and hazard insurance in the amount of
the loan. Although the contractual loan payment periods for single-family
residential real estate loans are generally for a three to five year period,
such loans often remain outstanding for significantly shorter periods than their
contractual terms.

     The Bank is engaged in the mortgage banking business and originates and
purchases residential and commercial mortgage loans to sell to investors with
servicing rights retained. The Bank also provides residential and commercial
construction financing to builders and developers and acts as a broker in the
origination of multi-family and commercial real estate loans.

     Consumer loans made by the Company include automobile loans, recreational
vehicle loans, boat loans, home improvement loans, personal loans
(collateralized and uncollateralized) and deposit account collateralized loans.
The terms of these loans typically range from 12 to 84 months and vary based
upon the nature of collateral and size of loan.

     The contractual maturity ranges of the commercial and industrial and real
estate construction loan portfolio and the amount of such loans with fixed
interest rates and floating rates in each maturity range as of December 31, 1999
are summarized in the following table:

<TABLE>
<CAPTION>
                                                      DECEMBER 31, 1999
                                       -----------------------------------------------
                                                   AFTER ONE     AFTER
                                        ONE YEAR    THROUGH      FIVE
                                        OR LESS    FIVE YEARS    YEARS       TOTAL
                                       ----------  ----------  ---------  ------------
<S>                                    <C>         <C>         <C>        <C>
Commercial and industrial............  $  452,276  $  236,226  $  32,727  $    721,229
Real estate construction.............     310,088     154,403     30,264       494,755
                                       ----------  ----------  ---------  ------------
       Total.........................  $  762,364  $  390,629  $  62,991  $  1,215,984
                                       ==========  ==========  =========  ============
Loans with a fixed interest rate.....  $  244,032  $  110,414  $  19,206  $    373,652
Loans with a floating interest
  rate...............................     518,332     280,215     43,785       842,332
                                       ----------  ----------  ---------  ------------
       Total.........................  $  762,364  $  390,629  $  62,991  $  1,215,984
                                       ==========  ==========  =========  ============
</TABLE>

  LOANS HELD FOR SALE

     Loans held for sale of $77.0 million at December 31, 1999 increased from
$15.3 million at December 31, 1998. These loans are typically sold to investors
within one month of origination. The

                                       19
<PAGE>
increase during 1999 is due to a reclassification from the loan portfolio. It is
expected that these loans will ultimately be sold after restrictions have
expired relating to pooling of interests merger.

  LOAN REVIEW AND ALLOWANCE FOR LOAN LOSSES

     The Company's loan review procedures include a Credit Quality Assurance
Process that begins with approval of lending policies and underwriting
guidelines by the Board of Directors, an independent loan review department
staffed with OCC experienced personnel, low individual lending limits for
officers, Senior Loan Committee approval for large credit relationships and
quality loan documentation procedures. The Company also maintains a well
developed monitoring process for credit extensions in excess of $100,000. The
Company performs monthly and quarterly concentration analyses based on various
factors such as industries, collateral types, business lines, large credit
sizes, international investments and officer portfolio loads. The Company has
established underwriting guidelines to be followed by its officers. The Company
also monitors its delinquency levels for any negative or adverse trends. There
can be no assurance, however, that the Company's loan portfolio will not become
subject to increasing pressures from deteriorating borrower credit due to
general economic conditions.

     Historically, the Houston metropolitan area has been affected by the state
of the energy business, but since the mid 1980's the economic impact has been
reduced by a combination of increased industry diversification and less reliance
on debt to finance expansion. When energy prices drop, as they did in 1998, it
is the Company's practice to review and adjust underwriting standards with
respect to companies affected by oil and gas price volatility, and to
continuously monitor existing credit exposure to companies which are impacted by
this price volatility.

     The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Based on an evaluation of the loan
portfolio, management presents a quarterly review of the allowance for loan
losses to the Board of Directors, indicating any changes in the allowance since
the last review and any recommendations as to adjustments in the allowance. In
making its evaluation, management considers growth in the loan portfolio, the
diversification by industry of the Company's commercial loan portfolio, the
effect of changes in the local real estate market on collateral values, the
results of recent regulatory examinations, the effects on the loan portfolio of
current economic indicators and their probable impact on borrowers, the amount
of charge-offs for the period, the amount of nonperforming loans and related
collateral security and the evaluation of its loan portfolio by the loan review
function. Charge-offs occur when loans are deemed to be uncollectible.

     In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. The allocated component of the allowance is supplemented by
an unallocated component. The unallocated portion of the allowance includes
management's judgmental determination of the amounts necessary for subjective
factors such as economic uncertainties and concentration risks. The Company then
charges to operations a provision for loan losses determined on an annualized
basis to maintain the allowance for loan losses at an adequate level determined
according to the foregoing methodology.

     Management believes that the allowance for loan losses at December 31, 1999
is adequate to cover losses inherent in the portfolio as of such date. There can
be no assurance, however, that the Company will not sustain losses in future
periods, which could be greater than the size of the allowance at December 31,
1999.

                                       20
<PAGE>
     The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                       -------------------------------------------------------
                                         1999       1998       1997        1996        1995
                                       ---------  ---------  ---------  ----------  ----------
<S>                                    <C>        <C>        <C>        <C>         <C>
                                                       (DOLLARS IN THOUSANDS)
Allowance for loan losses, beginning
  balance............................  $  14,980  $  11,927  $   9,101  $    7,374  $    6,641
Provision charged against
  operations.........................      6,060      4,053      3,982       2,414       1,244
Charge-offs..........................     (1,536)    (1,151)    (1,283)     (1,614)       (870)
Recoveries...........................        212        133        127         192          31
Increase from acquisition............         --         --         --         735         328
Adjustment to conform reporting
  periods............................         --         18         --          --          --
                                       ---------  ---------  ---------  ----------  ----------
Allowance for loan losses, ending
  balance............................  $  19,716  $  14,980  $  11,927  $    9,101  $    7,374
                                       =========  =========  =========  ==========  ==========
Allowance to period-end loans........       1.07%      0.99%      1.04%       1.04%       1.18%
Net charge-offs to average loans.....       0.08%      0.08%      0.12%       0.20%       0.15%
Allowance to period-end nonperforming
  loans..............................     650.91%    460.07%    285.13%     359.01%     187.68%
</TABLE>

     The following table describes the allocation of the allowance for loan
losses among various categories of loans and certain other information for the
dates indicated. Portions of the allowance for loan losses are allocated to
cover the estimated losses inherent in particular risk categories of loans. The
allocation of the allowance for loan losses is based upon the Company's loss
experience over a period of years and is adjusted for subjective factors such as
economic trends, performance trends, portfolio age and concentrations of credit.
Prior year allocations have been restated to conform to this methodology. The
allocation is made for analytical purposes and is not necessarily indicative of
the categories in which future loan losses may occur. The total allowance is
available to absorb losses from any segment of loans.

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                       ---------------------------------------------------------------------------
                                                1999                      1998                      1997
                                       -----------------------   -----------------------   -----------------------
                                                   PERCENT OF                PERCENT OF                PERCENT OF
                                                    LOANS TO                  LOANS TO                  LOANS TO
                                        AMOUNT     TOTAL LOANS    AMOUNT     TOTAL LOANS    AMOUNT     TOTAL LOANS
                                       ---------   -----------   ---------   -----------   ---------   -----------
<S>                                    <C>         <C>           <C>         <C>           <C>         <C>
                                                                 (DOLLARS IN THOUSANDS)
Balance of allowance for loan losses
  applicable to:
    Commercial and industrial........  $   8,503       39.27%    $   7,023       42.22%    $   3,908       39.47%
    Real estate:
         Construction and land
           development...............      2,942       26.94         2,123       19.56         1,054       15.50
         1-4 family residential......      1,409       14.61         1,802       16.89         1,355       21.09
         Commercial owner occupied...        947       10.11         1,153       11.04           760       12.14
         Farmland....................         60        0.71            57        0.55            46        0.73
         Other.......................         94        1.10           120        1.14            59        0.95
    Consumer.........................      1,633        7.26         1,598        8.60         1,136       10.12
    Unallocated......................      4,128         n/a         1,104         n/a         3,609         n/a
                                       ---------   -----------   ---------   -----------   ---------   -----------
Total allowance for loan losses......  $  19,716      100.00%    $  14,980      100.00%    $  11,927      100.00%
                                       =========   ===========   =========   ===========   =========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                       -------------------------------------------------
                                                1996                      1995
                                       -----------------------   -----------------------
                                                   PERCENT OF                PERCENT OF
                                                    LOANS TO                  LOANS TO
                                        AMOUNT     TOTAL LOANS    AMOUNT     TOTAL LOANS
                                       ---------   -----------   ---------   -----------
<S>                                    <C>         <C>           <C>         <C>
                                                    (DOLLARS IN THOUSANDS)
Balance of allowance for loan losses
  applicable to:
    Commercial and industrial........  $   2,802       38.11%    $   1,779       34.94%
    Real estate:
         Construction and land
           development...............        874       13.69           538       10.84
         1-4 family residential......      1,366       23.47         1,174       25.11
         Commercial owner occupied...        716       11.99           661       11.44
         Farmland....................         58        1.02            40        0.85
         Other.......................         44        0.74           212        4.45
    Consumer.........................        898       10.98           784       12.37
    Unallocated......................      2,343         n/a         2,186         n/a
                                       ---------   -----------   ---------   -----------
Total allowance for loan losses......  $   9,101      100.00%    $   7,374      100.00%
                                       =========   ===========   =========   ===========
</TABLE>

                                       21
<PAGE>
  NONPERFORMING ASSETS AND IMPAIRED LOANS

     The Company generally places a loan on nonaccrual status and ceases
accruing interest when loan payment performance is deemed unsatisfactory. All
loans past due 90 days, however, are placed on nonaccrual status, unless the
loan is both well collateralized and in the process of collection. Cash payments
received while a loan is classified as nonaccrual are recorded as a reduction of
principal as long as doubt exists as to collection. The Company is sometimes
required to revise a loan's interest rate or repayment terms in a troubled debt
restructuring.

     Nonperforming assets were $4.4 million at December 31, 1999, compared with
$3.8 million at December 31, 1998 and $4.8 million at December 31, 1997. This
resulted in a ratio of nonperforming assets to loans plus other real estate of
0.24%, 0.25%, and 0.42% for the years ended 1999, 1998, and 1997, respectively.

     The following table presents information regarding nonperforming assets as
of the dates indicated:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                       ------------------------------------------------------
                                          1999       1998       1997       1996       1995
                                       ----------  ---------  ---------  ---------  ---------
<S>                                    <C>         <C>        <C>        <C>        <C>
                                                       (DOLLARS IN THOUSANDS)
Nonaccrual loans.....................  $    2,388  $   2,324  $   3,253  $   2,104  $   1,598
Accruing loans 90 or more days past
  due................................         641        681        383         26         23
Restructured loans...................          --        251        547        405      2,308
Other real estate and foreclosed
  property...........................       1,337        504        643        655        225
                                       ----------  ---------  ---------  ---------  ---------
       Total non-performing assets...  $    4,366  $   3,760  $   4,826  $   3,190  $   4,154
                                       ==========  =========  =========  =========  =========
Nonperforming assets to total loans
  and other real estate..............        0.24%      0.25%      0.42%      0.37%      0.66%
</TABLE>

     The Company regularly updates appraisals on loans collateralized by real
estate, particularly those categorized as nonperforming loans and potential
problem loans. In instances where updated appraisals reflect reduced collateral
values, an evaluation of the borrower's overall financial condition is made to
determine the need, if any, for possible writedowns or appropriate additions to
the allowance for loan losses.

     A loan is considered impaired when, based upon current information and
events, it is probable that the Company will be unable to collect the scheduled
payments of principal and interest when due according to the contractual terms
of the loan agreement. The Company's impaired loans were approximately $13.7
million and $14.0 million at December 31, 1999 and 1998, respectively. The
largest component of impaired loans at December 31, 1999 and 1998 is a
commercial energy related loan of approximately $10.8 million and 10.6 million,
respectively. The average recorded investment in impaired loans during 1999 and
1998 was $13.9 million and $6.3 million, respectively. The total required
allowance for loan losses related to these loans was $0 for each reported
period. Interest income on impaired loans of $1.5 million and $415,000 was
recognized for cash payments received in 1999 and 1998, respectively.

     The Bank is not committed to lend additional funds to debtors whose loans
have been modified.

     SECURITIES

     At the date of purchase, the Company classifies debt and equity securities
into one of three categories: held to maturity, trading or available for sale.
At each reporting date, the appropriateness of the classification is reassessed.
Investments in debt securities classified as held to maturity are stated at
cost, increased by accretion of discounts and reduced by amortization of
premiums, both computed by the interest method. Management has the positive
intent and ability to hold those securities to maturity. Securities that are
bought and held principally for the purpose of selling them in the near term are
classified as trading and measured at fair value in the financial statements
with unrealized gains and losses included in earnings. Securities not classified
as either held to maturity or trading are classified as available for sale and
measured at fair value in the financial statements with unrealized gains and
losses reported, net of tax, as a component of accumulated other comprehensive
income (loss) until realized. Gains and losses on sales of securities are

                                       22
<PAGE>
determined using the specific-identification method. The Company has classified
all securities as available for sale at December 31, 1999. This allows the
Company to manage its investment portfolio more effectively and to enhance the
average yield on the portfolio.

     The amortized cost of securities classified as available for sale and held
to maturity is as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                       ----------------------------------------------------------
                                          1999        1998        1997        1996        1995
                                       ----------  ----------  ----------  ----------  ----------
<S>                                    <C>         <C>         <C>         <C>         <C>
                                                         (DOLLARS IN THOUSANDS)
Available for sale:
     U.S. Government securities......  $   78,527  $  143,570  $  163,730  $  127,466  $  136,794
     Mortgage-backed securities......     560,471     488,851     323,716     169,920     166,744
     Federal Reserve Bank stock......       2,408       1,869       1,791         950         946
     Federal Home Loan Bank stock....      14,886       7,672      39,451      41,319      39,808
     Other securities................      14,253       3,894      28,732      11,147       8,694
                                       ----------  ----------  ----------  ----------  ----------
          Total securities available
             for sale................  $  670,545  $  645,856  $  557,420  $  350,802  $  352,986
                                       ==========  ==========  ==========  ==========  ==========
Held to maturity:
     U.S. Government securities......  $       --  $    6,248  $    9,244  $   11,235  $    9,233
     Mortgage-backed securities......          --      60,869      82,815      97,084     110,490
                                       ----------  ----------  ----------  ----------  ----------
          Total securities held to
             maturity................  $       --  $   67,117  $   92,059  $  108,319  $  119,723
                                       ==========  ==========  ==========  ==========  ==========
</TABLE>

     The following table presents the amortized cost of securities classified as
held to maturity and available for sale and their approximate fair values as of
the dates shown:
<TABLE>
<CAPTION>
                                                     DECEMBER 31, 1999                            DECEMBER 31, 1998
                                       ----------------------------------------------    -----------------------------------
                                                     GROSS        GROSS                                GROSS        GROSS
                                       AMORTIZED   UNREALIZED   UNREALIZED     FAIR      AMORTIZED   UNREALIZED   UNREALIZED
                                         COST         GAIN         LOSS       VALUE        COST         GAIN         LOSS
                                       ---------   ----------   ----------   --------    ---------   ----------   ----------
<S>                                    <C>         <C>          <C>          <C>         <C>         <C>          <C>
                                                                      (DOLLARS IN THOUSANDS)
Available for sale:
 U.S. Government securities..........  $ 78,527      $   35      $ (1,567)   $ 76,995    $143,570      $1,575       $--
 Mortgage-backed securities..........   560,471         356       (16,852)    543,975     488,851       4,549         (452)
 Federal Reserve Bank stock..........     2,408       --           --           2,408       1,869       --           --
 Federal Home Loan Bank stock........    14,886       --           --          14,886       7,672       --           --
 Other securities....................    14,253          22        --          14,275       3,894         107          (12)
                                       ---------   ----------   ----------   --------    ---------   ----------   ----------
   Total securities available for
     sale............................  $670,545      $  413      $(18,419)   $652,539    $645,856      $6,231       $ (464)
                                       =========   ==========   ==========   ========    =========   ==========   ==========
Held to maturity:
 U.S. Government securities..........  $  --         $--         $ --        $  --       $  6,248      $   14       $ (186)
 Mortgage-backed securities..........     --          --           --           --         60,869         689         (259)
                                       ---------   ----------   ----------   --------    ---------   ----------   ----------
   Total securities held to
     maturity........................  $  --         $--         $ --        $  --       $ 67,117      $  703       $ (445)
                                       =========   ==========   ==========   ========    =========   ==========   ==========

<CAPTION>
                                                                 DECEMBER 31, 1997
                                                   ----------------------------------------------
                                                                 GROSS        GROSS
                                         FAIR      AMORTIZED   UNREALIZED   UNREALIZED     FAIR
                                        VALUE        COST         GAIN         LOSS       VALUE
                                       --------    ---------   ----------   ----------   --------
<S>                                    <C>         <C>         <C>          <C>          <C>

Available for sale:
 U.S. Government securities..........  $145,145    $163,730      $  536      $     (5)   $164,261
 Mortgage-backed securities..........   492,948     323,716       2,275          (151)    325,840
 Federal Reserve Bank stock..........     1,869       1,791       --           --           1,791
 Federal Home Loan Bank stock........     7,672      39,451       --           --          39,451
 Other securities....................     3,989      28,732          76        --          28,808
                                       --------    ---------   ----------   ----------   --------
   Total securities available for
     sale............................  $651,623    $557,420      $2,887      $   (156)   $560,151
                                       ========    =========   ==========   ==========   ========
Held to maturity:
 U.S. Government securities..........  $  6,076    $  9,244      $   21      $   (281)   $  8,984
 Mortgage-backed securities..........    61,299      82,815         923          (516)     83,222
                                       --------    ---------   ----------   ----------   --------
   Total securities held to
     maturity........................  $ 67,375    $ 92,059      $  944      $   (797)   $ 92,206
                                       ========    =========   ==========   ==========   ========
</TABLE>

     In connection with the Fort Bend merger, the Company transferred all of
Fort Bend's held-to-maturity debt securities to the available for sale category.
The amortized cost of these securities at the time of transfer was $57.8 million
and the unrealized gain was $80,000 ($52,000 net of income taxes). The Company
does not intend to sell these securities in the near term.

     Securities totaled $652.5 million at December 31, 1999, a decrease of $66.2
million from $718.7 million at December 31, 1998. During 1998, securities
increased $66.5 million from $652.2 million at December 31, 1997. The yield on
the securities portfolio for 1999 was 6.67% while the yield was 6.21% in 1998.

                                       23
<PAGE>
     The Company has no mortgage-backed securities that have been issued by
non-agency entities. Included in the Company's mortgage-backed securities at
December 31, 1999 were agency issued collateral mortgage obligations with a book
value of $272.0 million and a fair market value of $265.8 million.

     At December 31, 1999, $502.1 million of the mortgage-backed securities held
by the Company had final maturities of more than 10 years. At December 31, 1999,
approximately $32.2 million of the Company's mortgage-backed securities earned
interest at floating rates and repriced within one year, and accordingly, were
less susceptible to declines in value should interest rates increase.

     The following table summarizes the contractual maturity of investments and
their weighted average yields at December 31, 1999. The yield on the securities
portfolio is based on average historical cost balances and does not give effect
to changes in fair value that are reflected as a separate component of other
comprehensive income.
<TABLE>
<CAPTION>
                                                                               DECEMBER 31, 1999
                                           -----------------------------------------------------------------------------------------
                                                                  AFTER ONE           AFTER FIVE
                                                               YEAR BUT WITHIN     YEARS BUT WITHIN
                                                WITHIN
                                               ONE YEAR           FIVE YEARS          TEN YEARS         AFTER TEN YEARS
                                           ----------------    ----------------    ----------------    -----------------
                                           AMOUNT     YIELD    AMOUNT     YIELD    AMOUNT     YIELD     AMOUNT     YIELD     TOTAL
                                           -------    -----    -------    -----    -------    -----    --------    -----    --------
<S>                                        <C>        <C>      <C>        <C>      <C>        <C>      <C>         <C>      <C>
                                                                            (DOLLARS IN THOUSANDS)
U.S. Government securities..............   $ 4,002     5.89%   $59,525     5.79%   $15,000     6.45%   $   --        -- %   $ 78,527
Mortgage-backed securities..............     4,198     5.93     18,561     6.48     35,659     6.35     502,053     6.41     560,471
Federal Reserve Bank stock..............     2,408     6.00       --        --        --        --         --        --        2,408
Federal Home Loan Bank stock............    14,886     5.25       --        --        --        --         --        --       14,886
Other securities........................     2,819     5.14        182     8.01        619     6.94      10,633     7.51      14,253
Interest-bearing deposits...............    20,517     6.48       --        --        --        --         --        --       20,517
                                           -------    -----    -------    -----    -------    -----    --------    -----    --------
    Total investments...................   $48,830     5.91%   $78,268     5.96%   $51,278     6.39%   $512,686     6.43%   $691,062
                                           =======    =====    =======    =====    =======    =====    ========    =====    ========



                                          YIELD
                                          -----
U.S. Government securities..............  5.92 %
Mortgage-backed securities..............  6.40
Federal Reserve Bank stock..............  6.00
Federal Home Loan Bank stock............  5.25
Other securities........................  7.03
Interest-bearing deposits...............  6.48
                                          -----
    Total investments...................  6.34 %
                                          =====
</TABLE>

     OTHER ASSETS

     Other assets were $86.8 million at December 31, 1999, an increase of $31.1
million from $55.7 million at December 31, 1998. This increase is primarily
attributable to the purchase of Bank-owned life insurance policies, increases in
factored receivables and increases in deferred tax assets. Cash value of
bank-owned life insurance policies was approximately $26.8 million at December
31, 1999 compared with a balance of $20.4 million at December 31, 1998. This
increase primarily resulted from insurance purchased for new officers, including
those from the merger with Fort Bend.

     Factored receivables result from providing operating funds to businesses by
converting their accounts receivable to cash. During 1999 factored receivables
increased $9.6 million to $18.5 million. This increase was due to several
factors including new officers hired and aggressive marketing, both internally
and externally.

     Temporary differences between the tax bases of assets and their financial
reporting amounts give rise to deferred income tax assets and liabilities. At
December 31, 1999 deferred tax assets totaled $12.3 million compared with $2.4
million for the same period in 1998. This increase was caused by a decline in
the market value of the securities portfolio and an increase in the allowance
for loan losses.

     DEPOSITS

     The Company offers a variety of deposit accounts having a wide range of
interest rates and terms. The Company's deposits consist of demand, savings, NOW
accounts, money market and time accounts. The Company relies primarily on
customer service, advertising, and competitive pricing policies to attract and
retain these deposits. As of December 31, 1999, the Company had less than two
percent of its deposits classified as brokered funds and does not anticipate any
significant increase. Deposits provide the majority of the funding for the
Company's lending and investment activities, and the interest paid for deposits
must be managed carefully to control the level of interest expense.

                                       24
<PAGE>
     The Company's ratio of average demand deposits to average total deposits
for the years ended December 31, 1999, 1998, and 1997 was 26.88%, 25.89%, and
25.95%, respectively.

     Average total deposits during 1999 increased to $2.02 billion from $1.81
billion in 1998, an increase of $208.8 million or 12%. Average
noninterest-bearing deposits increased to $544.0 million in 1999 from $469.7
million in 1998 due to the increase of approximately 7,000 deposit accounts.
Average deposits in 1998 rose to $1.81 billion from $1.46 billion in 1997, an
increase of $350.0 million or 24%.

     The average daily balances and weighted average rates paid on deposits for
each of the years ended December 31, 1999, 1998, and 1997 are presented below:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                       ---------------------------------------------------------------------
                                                1999                     1998                    1997
                                       -----------------------  -----------------------   ------------------
                                          AMOUNT       RATE        AMOUNT       RATE        AMOUNT      RATE
                                       ------------  ---------  ------------  ---------   ----------    ----
<S>                                    <C>           <C>        <C>           <C>         <C>           <C>
                                                              (DOLLARS IN THOUSANDS)
NOW accounts.........................  $     28,807       2.31% $     47,482       1.67%  $   61,830    1.92%
Regular Savings......................        36,201       2.44        35,122       2.35       33,901    2.44
Premium Yield........................       472,501       4.24       426,034       4.69      278,448    4.91
Money market savings.................       332,525       2.92       300,141       3.39      244,745    3.61
CD's less than $100,000..............       221,161       4.92       192,041       5.15      194,788    5.20
CD's $100,000 and over...............       345,060       4.97       289,357       5.17      217,463    5.40
IRA's, QRP's & Other.................        43,201       5.43        54,697       5.70       53,414    5.74
                                       ------------  ---------  ------------  ---------   ----------    ----
     Total interest-bearing
     deposits........................     1,479,456       4.17%    1,344,874       4.44%   1,084,589    4.56%
                                                     =========                =========                 ====
Noninterest-bearing deposits.........       543,961                  469,721                 380,034
                                       ------------             ------------              ----------
     Total deposits..................  $  2,023,417             $  1,814,595              $1,464,623
                                       ============             ============              ==========
</TABLE>

     The following table sets forth the maturity of the Company's time deposits
that are $100,000 or greater as of the dates indicated:

<TABLE>
<CAPTION>
                                                  DECEMBER 31,
                                       ----------------------------------
                                          1999        1998        1997
                                       ----------  ----------  ----------
                                             (DOLLARS IN THOUSANDS)
<S>                                    <C>         <C>         <C>
3 months or less.....................  $  177,432  $  213,705  $  184,244
Between 3 months and 6 months........      68,476      56,005      43,269
Between 6 months and 1 year..........      67,388      43,019      45,130
Over 1 year..........................      23,678      24,636      19,222
                                       ----------  ----------  ----------
     Total time deposits $100,000 and
       over..........................  $  336,974  $  337,365  $  291,865
                                       ==========  ==========  ==========
</TABLE>

                                       25
<PAGE>
     BORROWINGS

     Securities sold under repurchase agreements and other borrowings,
consisting of federal funds purchased and treasury, tax, and loan deposits,
generally represent borrowings with maturities ranging from one to thirty days.
Information relating to these borrowings is summarized as follows:

<TABLE>
<CAPTION>
                                            DECEMBER 31,
                                       ----------------------
                                          1999        1998
                                       ----------  ----------
<S>                                    <C>         <C>
                                       (DOLLARS IN THOUSANDS)
Securities sold under repurchase
  agreements:
     Average.........................  $  184,815  $  182,254
     Period-end......................     216,838     181,696
     Maximum month-end balance during
       period........................     216,838     240,670
Interest Rate:
     Average.........................        4.06%       4.77%
     Period-end......................        4.03%       5.16%
Other borrowings:
     Average.........................  $  189,929  $   26,034
     Period-end......................     248,346     138,347
     Maximum month-end balance during
       period........................     265,440     138,347
Interest rate:
     Average.........................        5.33%       5.65%
     Period-end......................        5.23%       5.53%
</TABLE>

     Securities sold under repurchase agreements are maintained in safekeeping
by correspondent banks.

     INTEREST RATE SENSITIVITY AND LIQUIDITY

     Asset and liability management is concerned with the timing and magnitude
of repricing assets compared to liabilities. It is the objective of the Company
to generate stable growth in net interest income and to attempt to control risks
associated with interest rate movements. In general, management's strategy is to
reduce the impact of changes in interest rates on its net interest income by
maintaining a favorable match between the maturities or repricing dates of its
interest-earning assets and interest-bearing liabilities. The Company adjusts
its interest sensitivity during the year through changes in the mix of assets
and liabilities and may use interest rate products such as interest rate swap
and cap agreements. The Company did not utilize derivative financial instruments
to manage interest rate risk during the years ended December 31, 1999 and 1998.
The Company's asset and liability management strategy is formulated and
monitored by the Asset Liability Committee, which is composed of senior officers
of the Bank and three outside directors, in accordance with policies approved by
the Bank's Board of Directors. This Committee meets regularly to review, among
other things, the sensitivity of the Bank's assets and liabilities to interest
rate changes, the book and market values of assets and liabilities, unrealized
gains and losses, purchase and sale activity, and maturities of investments and
borrowings. The Asset Liability Committee also approves and establishes pricing
and funding decisions with respect to the Bank's overall asset and liability
composition. The Committee reviews the Bank's liquidity, cash flow flexibility,
maturities of investments, deposits and borrowings, retail and institutional
deposit activity, current market conditions, and interest rates on both a local
and national level.

     To effectively measure and manage interest rate risk, the Company uses
simulation analysis to determine the impact on net interest income of changes in
interest rates under various interest rate scenarios, balance sheet trends, and
strategies. From these simulations, interest rate risk is quantified and
appropriate strategies are developed and implemented.

                                       26
<PAGE>
     The following table presents an analysis of the sensitivity inherent in the
Company's net interest income and market value of portfolio equity. The interest
rate scenarios presented in the table include interest rates at December 31,
1999 and 1998 and as adjusted by instantaneous rate changes upward and downward
of up to 200 basis points. Each rate scenario reflects unique prepayment and
repricing assumptions. Since there are limitations inherent in any methodology
used to estimate the exposure to changes in market interest rates, this analysis
is not intended to be a forecast of the actual effect of a change in market
interest rates on the Company. The market value sensitivity analysis presented
includes assumptions that (i) the composition of the Company's interest
sensitive assets and liabilities existing at year end will remain constant over
the twelve month measurement period; and (ii) that changes in market rates are
parallel and instantaneous across the yield curve regardless of duration or
repricing characteristics of specific assets or liabilities. Further, the
analysis does not contemplate any actions that the Company might undertake in
response to changes in market interest rates. Accordingly, this analysis is not
intended and does not provide a precise forecast of the effect actual changes in
market rates will have on the Company.

<TABLE>
<CAPTION>
                                                     CHANGES IN INTEREST RATES
                                       -----------------------------------------------------
                                         -200       -100         0        +100       +200
                                       ---------  ---------  ---------  ---------  ---------
<S>                                    <C>        <C>        <C>        <C>        <C>
Impact on net interest income:
     December 31, 1999...............      -8.30%     -3.32%      0.00%      3.18%      6.25%
     December 31, 1998...............      -4.22%     -2.10%      0.00%      1.52%      2.48%
Impact on market value of portfolio
equity:
     December 31, 1999...............     - 2.90%     -0.05%      0.00%     -0.85%     -1.46%
     December 31, 1998...............     -15.28%     -7.21%      0.00%      5.96%     10.93%
</TABLE>

     The interest rate sensitivity ("GAP") is defined as the difference
between interest-earning assets and interest-bearing liabilities maturing or
repricing within a given time period. A GAP is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities. A GAP is considered negative when the amount of interest
rate sensitive liabilities exceeds interest rate sensitive assets. During a
period of rising interest rates, a negative GAP would tend to adversely affect
net interest income, while a positive GAP would tend to result in an increase in
net interest income. During a period of falling interest rates, a negative GAP
would tend to result in an increase in net interest income, while a positive GAP
would tend to affect net interest income adversely. While the GAP is a useful
measurement and contributes toward effective asset and liability management, it
is difficult to predict the effect of changing interest rates solely on that
measure. Because different types of assets and liabilities with the same or
similar maturities may react differently to changes in overall market rates or
conditions, changes in interest rates may affect net interest income positively
or negatively even if an institution were perfectly matched in each maturity
category.

     The Company's one-year cumulative GAP position at December 31, 1999 was
negative $444.8 million or 15.59% of assets. This is a one-day position that is
continually changing and is not indicative of the Company's position at any
other time. While the GAP position is a useful tool in measuring interest rate
risk and contributes toward effective asset and liability management,
shortcomings are inherent in GAP analysis since certain assets and liabilities
may not move proportionally as interest rates change. Consequently, in addition
to GAP analysis the Company uses a simulation model to test the interest rate
sensitivity of net interest income and the balance sheet. Based on the Company's
December 31, 1999 simulation analysis, the Company estimates that it's one-year
cumulative GAP position, adjusted for the calculated correlation between changes
in the prime rate and interest-earning assets and interest-bearing liabilities,
is a positive 2.74%. This results primarily from the behavior of demand, money
market and savings deposits. The Company has found that historically, interest
rates on these deposits change more slowly than changes in prime rate.

                                       27
<PAGE>
     The following table sets forth an interest rate sensitivity analysis for
the Company as of December 31, 1999:

<TABLE>
<CAPTION>
                                                                                      AFTER
                                        0-30 DAYS     31-180 DAYS    181-360 DAYS    ONE YEAR      TOTAL
                                        ----------    -----------    ------------   ----------  ------------
<S>                                     <C>           <C>            <C>            <C>         <C>
                                                               (DOLLARS IN THOUSANDS)
Interest-earning assets:
     Money market funds..............   $    2,276     $       --     $        --   $       --  $      2,276
     Securities......................       32,151         39,683          43,095      552,161       667,090
     Loans...........................    1,119,312        164,802          73,579      554,283     1,911,976
     Overdrafts......................        3,735             --              --           --         3,735
     Federal funds sold..............           --             --              --           --            --
                                        ----------    -----------    ------------   ----------  ------------
          Total interest-earning
          assets.....................    1,157,474        204,485         116,674    1,106,444     2,585,077
                                        ----------    -----------    ------------   ----------  ------------
Interest-bearing liabilities:
     Demand, money market and savings
       deposits......................      973,149             --              --           --       973,149
     Certificates of deposit and
       other time deposits...........      100,986        253,202         131,399      108,022       593,609
     Short-term borrowings...........      460,891             --              --           --       460,891
     Long-term borrowings............           --          3,762              --          530         4,292
                                        ----------    -----------    ------------   ----------  ------------
          Total interest-bearing
          liabilities................    1,535,026        256,964         131,399      108,552     2,031,941
                                        ----------    -----------    ------------   ----------  ------------
Period GAP...........................   $ (377,552)    $  (52,479)    $   (14,725)  $  997,892  $    553,136
                                        ==========    ===========    ============   ==========  ============
Cumulative GAP.......................   $ (377,552)    $ (430,031)    $  (444,756)  $  553,136
                                        ==========    ===========    ============   ==========
Period GAP to total assets...........       -13.24%         -1.84%          -0.52%       34.99%
Cumulative GAP to total assets.......       -13.24%        -15.08%         -15.59%       19.39%
</TABLE>

     Liquidity involves the Company's ability to raise funds to support asset
growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis. For the year ended December 31, 1999, the Company's
liquidity needs have primarily been met by growth in core deposits, and
increases in short-term borrowings, primarily from the Federal Home Loan Bank.
The cash and federal funds sold position, supplemented by amortizing securities
and loan portfolios, have generally created an adequate liquidity position.

     Subject to certain limitations, the Bank may borrow funds from the Federal
Home Loan Bank ("FHLB") in the form of advances. Credit availability from the
FHLB to the Bank is based on the Bank's financial and operating condition.
Borrowings from the FHLB to the Bank was approximately $237.2 million at
December 31, 1999. In addition to creditworthiness, the Bank must own a minimum
amount of FHLB capital stock. This minimum is 5.00% of outstanding FHLB
advances. Unused borrowing capacity at December 31, 1999 was approximately $85.0
million. The Bank uses FHLB advances for both long-term and short-term liquidity
needs. Other than normal banking operations, the Bank has no long-term liquidity
needs. The Bank has never been involved with highly leveraged transactions that
may cause unusual potential long-term liquidity needs.

     CAPITAL RESOURCES

     Shareholders' equity increased to $195.0 million at December 31, 1999 from
$177.3 million at December 31, 1998, an increase of $17.7 million, or 10%.

     Capital management consists of providing equity to support both current and
future operations. The Company is subject to capital adequacy requirements
imposed by the Federal Reserve Board and the Bank is subject to capital adequacy
requirements imposed by the OCC. Both the Federal Reserve Board and the OCC have
adopted risk-based capital requirements for assessing bank holding company and
bank capital adequacy. These standards define capital and establish minimum
capital requirements in relation to assets

                                       28
<PAGE>
and off-balance sheet exposure, adjusted for credit risk. The risk-based capital
standards currently in effect are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among bank holding
companies and banks, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate relative risk weights.
The resulting capital ratios represent capital as a percentage of total risk-
weighted assets and off-balance sheet items.

     Bank regulatory authorities in the United States have issued risk-based
capital standards by which all bank holding companies and banks are evaluated in
terms of capital adequacy. The risk-based capital standards issued by the
Federal Reserve Board apply to the Company, and the OCC guidelines apply to the
Bank. These guidelines relate a financial institution's capital to the risk
profile of its assets. The risk-based capital standards require all financial
organizations to have "Tier 1 capital" of at least 4.0% of risk-adjusted
assets and "total risk-based" capital (Tier 1 and Tier 2) of at least 8.0% of
risk-adjusted assets. "Tier 1 capital" includes, generally, common
shareholders' equity and qualifying perpetual preferred stock together with
related surpluses and retained earnings, qualifying perpetual preferred stock
and minority interest in equity accounts of consolidated subsidiaries less
deductions for goodwill and various other intangibles. "Tier 2 capital" may
consist of a limited amount of subordinated debt, certain hybrid capital
instruments and other debt securities, preferred stock not qualifying as Tier 1
capital, and a limited amount of the general valuation allowance for loan
losses. The sum of Tier 1 capital and Tier 2 capital is "total risk-based
capital."

     The agencies have also adopted guidelines which supplement the risk-based
capital guidelines with a minimum leverage ratio of Tier 1 capital to average
total consolidated assets ("leverage ratio") of 3.0% for institutions with
well diversified risk, including no undue interest rate exposure; excellent
asset quality; high liquidity; good earnings; and that are generally considered
to be strong banking organizations, rated composite 1 under applicable federal
guidelines, and that are not experiencing or anticipating significant growth.
Other banking organizations are required to maintain a leverage ratio of at
least 4.0% to 5.0%. These rules further provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
capital positions substantially above the minimum supervisory levels and
comparable to peer group averages, without significant reliance on intangible
assets.

                                       29
<PAGE>
     The following table compares the Company's and the Bank's leverage and
risk-weighted capital ratios as of December 31, 1999 and 1998 to the minimum
regulatory standards:

<TABLE>
<CAPTION>
                                                                                     TO BE WELL
                                                                                 CAPITALIZED UNDER
                                                               FOR CAPITAL       PROMPT CORRECTIVE
                                             ACTUAL         ADEQUACY PURPOSES    ACTION PROVISIONS
                                       ------------------   ------------------   ------------------
                                         AMOUNT     RATIO     AMOUNT     RATIO     AMOUNT     RATIO
                                       ----------   -----   ----------   -----   ----------   -----
<S>                                    <C>          <C>     <C>          <C>     <C>          <C>
                                                          (DOLLARS IN THOUSANDS)
As of December 31, 1999
  Total Capital (to Risk
     Weighted Assets):
     The Company.....................  $  223,862    9.54%  $  187,770   8.00 %  $  234,712   10.00%
     The Bank........................     222,333    9.47%     187,756   8.00 %     234,695   10.00%
  Tier I Capital (to Risk
     Weighted Assets):
     The Company.....................     204,146    8.70%      93,885   4.00 %     187,770    8.00%
     The Bank........................     202,617    8.63%      93,878   4.00 %     187,756    8.00%
  Tier I Capital
     (to Average Assets):
     The Company.....................     204,146    7.48%      81,916   3.00 %     136,526    5.00%
     The Bank........................     202,617    7.40%      82,208   3.00 %     137,013    5.00%
As of December 31, 1998
  Total Capital (to Risk
     Weighted Assets):
     The Company.....................     187,378   10.18%     147,261   8.00 %     184,077   10.00%
     The Bank........................     173,812    9.46%     146,969   8.00 %     183,711   10.00%
  Tier I Capital (to Risk
     Weighted Assets):
     The Company.....................     172,538    9.37%      73,631   4.00 %     147,261    8.00%
     The Bank........................     158,970    8.65%      73,484   4.00 %     146,969    8.00%
  Tier I Capital
     (to Average Assets):
     The Company.....................     172,538    7.27%      71,236   3.00 %     118,727    5.00%
     The Bank........................     158,970    6.72%      70,976   3.00 %     118,294    5.00%
</TABLE>

     Pursuant to Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency revised its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risks of nontraditional activities,
as well as reflect the actual performance and expected risk of loss on
multifamily mortgages. Also pursuant to FDICIA, each federal banking agency has
promulgated regulations setting the levels at which an insured institution would
be considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." Under the Federal Reserve Board's regulations, the Bank is
classified as "adequately capitalized" for purposes of prompt corrective
action. See "Supervision and Regulation."

     YEAR 2000 INFORMATION AND READINESS DISCLOSURE

     The Company has undertaken a company-wide initiative to address the Year
2000 and has developed a comprehensive plan to prepare, as appropriate, its
computer systems and facilities. The Company has completed a thorough education
and awareness initiative and an inventory and assessment of its technology and
application portfolio to understand the scope of the Year 2000 impact.

                                       30
<PAGE>
     The contingency plan developed for the Year 2000 detailed the course of
action to follow at various stages of readiness. There were no problems
encountered that warranted implementation of the contingency plan. Operations
for the Company continued with no noticeable disruptions of service.

     Costs to prepare the Company's systems for the Year 2000, including costs
for internal systems renovation and testing, equipment testing, and internal and
external project personnel, are estimated at approximately $3.8 million. Through
December 31, 1999, the Company had incurred approximately $3.6 million of these
costs. Capital expenditures total approximately $592,000 and non-capital
expenditures total approximately $3.0 million.

     OTHER MATTERS

     In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended, was
issued by the Financial Accounting Standards Board to establish accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires that an entity recognize those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction. The accounting for the changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. The standard is effective for all fiscal years beginning
after June 15, 2000. The Company is evaluating the effect of this pronouncement
on the Company's consolidated financial position, results of operations and cash
flows.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Management uses derivative contracts to manage its exposure to commitments
to originate mortgage loans. All of the derivatives utilized by the Company are
for purposes other than trading. The derivatives utilized consist of purchased
options on FNMA or FHLMC guaranteed mortgage-backed securities. These financial
instruments are used to reduce the Company's exposure to the effects of
fluctuations in interest rates on the Company's lending and secondary marketing
activities. The notional amount and fair value of such derivatives was
immaterial at December 31, 1999 and 1998.

     In addition, reference is made to "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition -- Interest Rate Sensitivity and Liquidity" which is incorporated
herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Reference is made to the financial statements, the reports thereon, the
notes thereto and supplementary data commencing at page F-1 of this Form 10-K,
which financial statements, reports, notes and data are incorporated herein by
reference.

                                       31
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table represents summarized data for each of the quarters in
fiscal 1999 and 1998 (in thousands, except earnings per share).

<TABLE>
<CAPTION>
                                                       1999                                     1998
                                       -------------------------------------    -------------------------------------
                                       FOURTH     THIRD    SECOND     FIRST     FOURTH     THIRD    SECOND     FIRST
                                       QUARTER   QUARTER   QUARTER   QUARTER    QUARTER   QUARTER   QUARTER   QUARTER
                                       -------   -------   -------   -------    -------   -------   -------   -------
<S>                                    <C>       <C>       <C>       <C>        <C>       <C>       <C>       <C>
Interest income......................  $50,620   $47,513   $45,024   $43,066    $42,567   $42,137   $39,614   $37,429
Interest expense.....................   21,374    20,180    19,340    18,347     18,229    18,312    17,208    17,224
                                       -------   -------   -------   -------    -------   -------   -------   -------
    Net interest income..............   29,246    27,333    25,684    24,719     24,338    23,825    22,406    20,205
Provision for loan losses............    1,500     1,500     1,515     1,545      1,245     1,245       945       618
                                       -------   -------   -------   -------    -------   -------   -------   -------
    Net interest income after
      provision for loan losses......   27,746    25,833    24,169    23,174     23,093    22,580    21,461    19,587
Noninterest income...................    7,144     6,963     6,351     6,553      5,923     5,837     5,496     5,226
Noninterest expenses.................   22,012    20,683    23,812    19,329     19,110    18,273    17,420    16,025
                                       -------   -------   -------   -------    -------   -------   -------   -------
    Income before income taxes and
      minority interest..............   12,878    12,113     6,708    10,398      9,906    10,144     9,537     8,788
Provision for income taxes...........    4,412     4,305     2,813     3,736      3,509     3,567     3,355     3,110
Minority interest....................    --        --           34       (53)        49       165       123        36
                                       -------   -------   -------   -------    -------   -------   -------   -------
Net income available to common
  shareholders.......................  $ 8,466   $ 7,808   $ 3,861   $ 6,715    $ 6,348   $ 6,412   $ 6,059   $ 5,642
                                       =======   =======   =======   =======    =======   =======   =======   =======
Basic earnings per common share......  $  0.30   $  0.28   $  0.14   $  0.25    $  0.24   $  0.25   $  0.24   $  0.22
Diluted earnings per common share....  $  0.29   $  0.27   $  0.13   $  0.24    $  0.22   $  0.23   $  0.22   $  0.21
Weighted average common shares
  outstanding (in 000's).............   29,082    29,010    28,929    28,751     28,811    28,427    28,569    28,499
</TABLE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     There have been no disagreements with accountants on any matter of
accounting principles or practices or financial statement disclosures during the
two year period ended December 31, 1999.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     For information regarding the directors and persons nominated to become
directors of the Company, reference is made to the information presented in the
Company's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders
to be filed with the Commission pursuant to Regulation 14A under the Securities
and Exchange Act of 1934 (the "2000 Proxy Statement"). All of such information
is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     For information concerning the compensation paid by the Company during the
year ended December 31, 1999 to its executive officers, reference is made to the
information presented in the Company's 2000 Proxy Statement. Such information is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     For information concerning the beneficial ownership of the common stock of
the Company by its directors and officers and by certain other beneficial
owners, reference is made to the information presented in the Company's 2000
Proxy Statement. Such information is incorporated herein by reference.

                                       32

<PAGE>
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     For information regarding certain business relationships and related
transactions involving the Company's officers and directors, reference is made
to the information presented in the Company's 2000 Proxy Statement. Such
information is incorporated herein by reference.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) AND (D)  FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

     The financial statements and financial statement schedule listed on the
accompanying Index to Financial Statements and Schedule (see page F-1) are filed
as part of this Form 10-K.

(B)  REPORTS ON FORM 8-K

     No report on Form 8-K was filed by the Company during the three months
ended December 31, 1999.

(c)  *Exhibits:

<TABLE>
<C>                       <S>
           3.1       --   Articles of Incorporation of the Company
           3.2       --   Bylaws of the Company (Restated as of December 31, 1996)
           3.3       --   Amendment dated December 18, 1996 to Articles of Incorporation of the Company
           4.1       --   Specimen Common Stock certificate
          10.1       --   1989 Stock Option Plan
          10.2       --   1993 Stock Option Plan
          10.3       --   Form of Stock Option Agreement under 1989 Stock Option Plan and 1993 Stock
                          Option Plan
        **10.4       --   1996 Stock Option Plan, as amended January 24, 2000
          10.5       --   Form of Incentive Stock Option Agreement under 1996 Stock Option Plan
          10.6       --   Form of Non-qualified Stock Option Agreement under 1996 Stock Option Plan
          10.7       --   Directors Stock Option Plan, adopted October, 1993
          10.8       --   Form of Stock Option Agreement under Directors Stock Option Plan
          10.9       --   Form of Change in Control Agreement between the Company and each of Walter E.
                          Johnson, Paul B. Murphy, Jr., Joseph H. Argue, David C. Farries, James R.
                          Massey, Steve D. Stephens and Randall E. Meyer
          10.10      --   Form of Employment Contract between the Company and J. Nolan Bedford
                          (incorporated by reference to Exhibit B-1 to Exhibit 2.1 to the Registrant's
                          Form S-4 Registration Statement No. 333-27897).
        **10.11      --   Form of Employment Contract between the Company and Walter Lane Ward, Jr.
        **21.1       --   List of subsidiaries of the Company
        **23.1       --   Consent of PricewaterhouseCoopers LLP
        **27.1       --   Financial Data Schedule
</TABLE>

------------

 * All Exhibits except for those filed herewith and as otherwise indicated are
   incorporated herein by reference to the Exhibits bearing the same Exhibit
   numbers in the Registrant's Form S-1 Registration Statement No. 333-16509.

** Filed herewith.

                                       33
<PAGE>
                                   SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.

                                          SOUTHWEST BANCORPORATION
                                            OF TEXAS, INC.
                                          By: /s/ WALTER E. JOHNSON
                                                  CHAIRMAN OF THE BOARD

                                          Date: March 1, 2000

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
                     SIGNATURE                                       TITLE                         DATE
---------------------------------------------------  -------------------------------------  -------------------
<C>                                                  <S>                                    <C>
               /s/WALTER E. JOHNSON                  Chairman of the Board                     March 1, 2000
                 WALTER E. JOHNSON

              /s/PAUL B. MURPHY, JR.                 Director, President and Chief             March 1, 2000
                PAUL B. MURPHY, JR.                  Executive Officer (Principal
                                                     Executive Officer)

                /s/DAVID C. FARRIES                  Executive Vice President, Treasurer       March 1, 2000
                 DAVID C. FARRIES                    and Secretary (Principal Financial
                                                     Officer)

               /s/R. JOHN McWHORTER                  Senior Vice President and Controller      March 1, 2000
                 R. JOHN MCWHORTER                   (Principal Accounting Officer)

                /s/JOHN W. JOHNSON                   Director and Chairman of the              March 1, 2000
                  JOHN W. JOHNSON                    Executive Committee of the Board

               /s/JOHN B. BROCK III                  Director                                  March 1, 2000
                 JOHN B. BROCK III

               /s/ERNEST H. COCKRELL                 Director                                  March 1, 2000
                ERNEST H. COCKRELL

                /s/J. DAVID HEANEY                   Director                                  March 1, 2000
                  J. DAVID HEANEY

              /s/WILHELMINA R. MORIAN                Director                                  March 1, 2000
               WILHELMINA R. MORIAN

              /s/ANDRES PALANDJOGLOU                 Director                                  March 1, 2000
                ANDRES PALANDJOGLOU

             /s/ADOLPH A. PFEFFER, JR.               Director                                  March 1, 2000
              ADOLPH A. PFEFFER, JR.

            /s/STANLEY D. STEARNS, JR.               Director                                  March 1, 2000
              STANLEY D. STEARNS, JR.

             /s/WALTER LANE WARD, JR.                Director                                  March 1, 2000
               WALTER LANE WARD, JR.

               /s/MICHAEL T. WILLIS                  Director                                  March 1, 2000
                 MICHAEL T. WILLIS
</TABLE>

                                       34

<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                        PAGE
                                        ----

<S>                                     <C>
Consolidated Financial Statements

     Report of Independent
      Accountants....................    F-2

     Consolidated Balance Sheet as of
      December 31, 1999 and 1998.....    F-3

     Consolidated Statement of Income
      for the Years Ended December
      31, 1999, 1998 and 1997........    F-4

     Consolidated Statement of
      Changes in Shareholders' Equity
      for the Years Ended
       December 31, 1999, 1998 and
      1997...........................    F-5

     Consolidated Statement of Cash
      Flows for the Years Ended
      December 31, 1999, 1998 and
      1997...........................    F-6

     Notes to Consolidated Financial
      Statements.....................    F-7

Financial Statement Schedule

     Report of Independent
      Accountants on Financial
      Statement Schedule.............   F-26

     Schedule I -- Parent Company
      Condensed Financial
      Statements.....................   F-27
</TABLE>

                                      F-1
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
Southwest Bancorporation of Texas, Inc.:

     In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity, and of
cash flows present fairly, in all material respects, the consolidated financial
position of Southwest Bancorporation of Texas, Inc. and Subsidiaries (the
"Company") at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

                                          PricewaterhouseCoopers LLP

Houston, Texas
February 11, 2000

                                      F-2
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                       --------------------------
                                           1999          1998
                                       ------------  ------------
<S>                                    <C>           <C>
               ASSETS
Cash and due from banks..............  $    148,710  $    129,922
Federal funds sold and other cash
  equivalents........................        20,517        57,571
                                       ------------  ------------
          Total cash and cash
             equivalents.............       169,227       187,493
Securities -- available for sale.....       652,539       651,623
Securities -- held to maturity.......            --        67,117
Loans held for sale..................        77,047        15,310
Loans held for investment, net.......     1,817,094     1,498,709
Premises and equipment, net..........        31,912        30,944
Accrued interest receivable..........        17,546        15,459
Other assets.........................        86,831        55,736
                                       ------------  ------------
          Total assets...............  $  2,852,196  $  2,522,391
                                       ============  ============

<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                    <C>           <C>
Deposits:
     Demand -- noninterest-bearing...  $    605,997  $    561,420
     Demand -- interest-bearing......        30,483        94,683
     Money market accounts...........       906,762       735,000
     Savings.........................        35,904        35,915
     Time, $100 and over.............       336,974       337,365
     Other time......................       256,634       235,079
                                       ------------  ------------
          Total deposits.............     2,172,754     1,999,462
Securities sold under repurchase
  agreements.........................       216,838       181,696
Other borrowings.....................       248,346       142,750
Accrued interest payable.............         3,034         1,499
Other liabilities....................        16,227        16,926
                                       ------------  ------------
          Total liabilities..........     2,657,199     2,342,333
                                       ------------  ------------
Minority interest in consolidated
  subsidiary.........................            --         2,722
                                       ------------  ------------
Commitments and contingencies
Shareholders' equity:
     Common stock -- $1 par value,
      50,000,000 shares authorized;
       28,018,783 issued and
      outstanding at December 31,
      1999 and
      27,649,710 issued and 27,394,005 outstanding at December
      31, 1998..                             28,019        27,650
     Additional paid-in capital......        63,182        58,549
     Retained earnings...............       115,417        88,844
     Accumulated other comprehensive
      income (loss)..................       (11,621)        3,749
     Treasury stock, at
      cost -- 255,705 shares.........            --        (1,456)
                                       ------------  ------------
          Total shareholders'
             equity..................       194,997       177,336
                                       ------------  ------------
          Total liabilities and
             shareholders' equity....  $  2,852,196  $  2,522,391
                                       ============  ============
</TABLE>

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

                                      F-3
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF INCOME
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31,
                                       ----------------------------------
                                          1999        1998        1997
                                       ----------  ----------  ----------
<S>                                    <C>         <C>         <C>
Interest income:
     Loans...........................  $  140,598  $  116,586  $   92,307
     Securities......................      43,865      38,302      31,709
     Federal funds sold and other....       1,760       6,859       6,879
                                       ----------  ----------  ----------
          Total interest income......     186,223     161,747     130,895
Interest expense on deposits and
  other borrowings...................      79,241      70,973      58,055
                                       ----------  ----------  ----------
          Net interest income........     106,982      90,774      72,840
Provision for loan losses............       6,060       4,053       3,982
                                       ----------  ----------  ----------
          Net interest income after
             provision for loan
             losses..................     100,922      86,721      68,858
                                       ----------  ----------  ----------
Other income:
     Service charges on deposit
       accounts......................      10,515       8,552       6,843
     Investment services.............       4,232       3,537       2,536
     Other fee income................       6,443       5,206       3,153
     Other operating income..........       5,960       4,724       3,739
     Gain (loss) on sale of
       securities, net...............        (139)        463         498
                                       ----------  ----------  ----------
          Total other income.........      27,011      22,482      16,769
                                       ----------  ----------  ----------
Other expenses:
     Salaries and employee
       benefits......................      48,884      42,828      32,170
     Occupancy expense...............      12,870      10,606       8,351
     Merger-related expenses and
       other charges.................       4,474          67       2,011
     Other operating expenses........      19,608      17,327      13,732
                                       ----------  ----------  ----------
          Total other expenses.......      85,836      70,828      56,264
                                       ----------  ----------  ----------
          Income before income taxes
             and minority interest...      42,097      38,375      29,363
Provision for income taxes...........      15,266      13,541      10,167
                                       ----------  ----------  ----------
          Income before minority
             interest................      26,831      24,834      19,196
     Minority interest...............         (19)        373         373
                                       ----------  ----------  ----------
          Net income before bank
             preferred stock
             dividend................      26,850      24,461      18,823
Bank preferred stock dividend........      --          --              36
                                       ----------  ----------  ----------
          Net income available for
             common shareholders.....  $   26,850  $   24,461  $   18,787
                                       ==========  ==========  ==========
Earnings per common share:
          Basic......................  $     0.97  $     0.95  $     0.77
                                       ==========  ==========  ==========
          Diluted....................  $     0.93  $     0.88  $     0.71
                                       ==========  ==========  ==========
</TABLE>

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

                                      F-4
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                      ACCUMULATED
                                          COMMON STOCK       ADDITIONAL                  OTHER                       TOTAL
                                      --------------------    PAID-IN     RETAINED   COMPREHENSIVE    TREASURY   SHAREHOLDERS'
                                        SHARES     DOLLARS    CAPITAL     EARNINGS   INCOME/(LOSS)     STOCK        EQUITY
                                      ----------   -------   ----------   --------   --------------   --------   -------------
<S>                                    <C>         <C>       <C>          <C>        <C>              <C>        <C>
BALANCE, DECEMBER 31, 1996........... 21,191,837   $21,447   $   24,816   $ 47,130   $          (94)  $ (1,456)  $      91,843
    Issuance of common stock to
      benefit plan...................      5,040         5           30                                                     35
    Issuance of common stock to the
      recognition and retention
      plan...........................      7,540         8           (8)
    Exercise of stock options........    929,301       929        2,134                                                  3,063
    Proceeds of public offering......  2,645,000     2,645       17,165                                                 19,810
    Conversion of subordinated
      debentures.....................     90,602        91          549                                                    640
    Deferred compensation
      amortization...................                               218                                                    218
    Stock compensation...............                               450                                                    450
    Cash dividends on preferred stock
      ($.05 per share)...............                                          (36)                                        (36)
    Cash dividends paid by Fort
      Bend...........................                                         (476)                                       (476)
    Comprehensive income:............
      Net income for the year ended
        December 31, 1997............                                       18,823                                      18,823
      Net change in unrealized
        appreciation on securities
        available for sale, net of
        deferred taxes of ($1,007)...                                                         1,869                      1,869
                                                                                                                 -------------
      Total comprehensive income.....                                                                                   20,692
                                      ----------   -------   ----------   --------   --------------   --------   -------------
BALANCE, DECEMBER 31, 1997........... 24,869,320    25,125       45,354     65,441            1,775     (1,456)        136,239
    Common stock issued in
      acquisition....................    280,000       280          304                                                    584
    Issuance of common stock to the
      recognition and retention
      plan...........................      4,707         5           (5)
    Exercise of stock options........    713,457       713        3,061                                                  3,774
    Conversion of subordinated
      debentures.....................  1,606,631     1,607        9,736                                                 11,343
    Deferred compensation
      amortization...................                               187                                                    187
    Stock compensation...............                               358                                                    358
    Cash dividends paid by Fort
      Bend...........................                                         (723)                                       (723)
    Comprehensive income:
      Net income for the year ended
        December 31, 1998............                                       24,461                                      24,461
      Net change in unrealized
        appreciation on securities
        available for sale, net of
        deferred taxes of ($1,063)...                                                         1,974                      1,974
                                                                                                                 -------------
      Total comprehensive income.....                                                                                   26,435
                                                                                                                 -------------
      Adjustment to conform reporting
        periods......................    (80,110)      (80)        (446)      (335)                                       (861)
                                      ----------   -------   ----------   --------   --------------   --------   -------------
BALANCE, DECEMBER 31, 1998........... 27,394,005    27,650       58,549     88,844            3,749     (1,456)        177,336
    Issuance of common stock to
      401(k) plan....................      4,431         4           73                                                     77
    Exercise of stock options........    313,024       313        2,150                                                  2,463
    Purchase of minority interest in
      Mitchell Mortgage..............    307,323       307        3,303                                                  3,610
    Deferred compensation
      amortization...................                               108                                                    108
    Cancellation of treasury stock...                 (255)      (1,201)                                 1,456
    Cash dividends paid by Fort
      Bend...........................                                         (277)                                       (277)
    Stock compensation...............                               200                                                    200
    Comprehensive income:
      Net income for the year ended
        December 31, 1999............                                       26,850                                      26,850
      Net change in unrealized
        depreciation on securities
        available for sale, net of
        deferred taxes of $8,277.....                                                       (15,370)                   (15,370)
                                                                                                                 -------------
      Total comprehensive income.....                                                                                   11,480
                                      ----------   -------   ----------   --------   --------------   --------   -------------
BALANCE, DECEMBER 31, 1999........... 28,018,783   $28,019      $63,182   $115,417   $      (11,621)  $   --     $     194,997
                                      ==========   =======   ==========   ========   ==============   ========   =============
</TABLE>

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

                                      F-5
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31,
                                       ----------------------------------
                                          1999        1998        1997
                                       ----------  ----------  ----------
<S>                                    <C>         <C>         <C>
Cash flows from operating activities:
  Net income.........................  $   26,850  $   24,461  $   18,823
  Adjustments to reconcile net income
    to net cash provided by operating
    activities:
    Provision for loan losses........       6,060       4,053       3,982
    Depreciation.....................       6,833       5,386       4,289
    Realized loss (gain) on
     securities available for sale,
     net.............................         139        (463)       (498)
    Amortization.....................       3,145       3,399       2,888
    Minority interest in net (loss)
     income of consolidated
     subsidiary......................         (19)        373         373
    Gain on sale of loans, net.......        (570)     (1,329)       (870)
    Dividends on Federal Home Loan
     Bank stock......................        (617)       (936)     (2,949)
    Origination of loans held for
     sale and mortgage servicing
     rights..........................     (91,303)   (120,526)    (82,249)
    Proceeds from sales of loans.....      74,935     115,725      71,991
    Increase in accrued interest
     receivable and other assets.....     (19,166)    (14,597)     (4,571)
    Increase in accrued interest
     payable and other liabilities...       1,804       2,568       4,824
    Other, net.......................       1,439      (1,933)      1,696
    Adjustment to conform reporting
     periods.........................          --       2,650          --
                                       ----------  ----------  ----------
         Net cash provided by
           operating activities......       9,530      18,831      17,729
                                       ----------  ----------  ----------
Cash flows from investing activities:
  Proceeds from maturity of
    securities available for sale....      60,672     284,996      42,080
  Proceeds from maturity of
    securities held to maturity......          --       4,000       4,000
  Principal paydowns of
    mortgage-backed securities
    available for sale...............     114,424     111,986      47,378
  Principal paydowns of
    mortgage-backed securities held
    to maturity......................          --      25,939      14,223
  Proceeds from sale of securities
    available for sale...............     239,995     123,185      93,109
  Purchase of securities available
    for sale.........................    (373,360)   (608,737)   (388,025)
  Purchase of securities held to
    maturity.........................          --          --      (1,992)
  Net increase in loans receivable...    (371,714)   (381,183)   (277,169)
  Purchase of bank-owned life
    insurance policies...............      (5,000)    (20,000)         --
  Purchase of premises and
    equipment........................      (9,694)    (10,163)     (9,499)
  Other, net.........................       2,034         197         (54)
  Adjustment to conform reporting
    periods..........................          --       9,654          --
                                       ----------  ----------  ----------
         Net cash used in investing
           activities................    (342,643)   (460,126)   (475,949)
                                       ----------  ----------  ----------
Cash flows from financing activities:
  Net increase in noninterest-bearing
    demand deposits..................      44,577      55,315     129,070
  Net increase in time deposits......      21,164      35,634     146,064
  Net increase in other
    interest-bearing deposits........     107,551     140,446     214,533
  Net increase in securities sold
    under repurchase agreements......      35,142      25,864      19,713
  Net increase in other borrowings...     105,596     121,587       7,164
  Net proceeds from public offering
    of common stock..................          --          --      19,810
  Net proceeds from exercise of stock
    options..........................       1,146       1,734         821
  Retirement of Bank preferred
    stock............................          --          --      (7,500)
  Payment of dividends on Bank
    preferred stock..................          --          --        (152)
  Other, net.........................        (329)     (2,497)       (933)
  Adjustment to conform reporting
    periods..........................          --     (13,318)         --
                                       ----------  ----------  ----------
         Net cash provided by
           financing activities......     314,847     364,765     528,590
                                       ----------  ----------  ----------
Net increase (decrease) in cash and
  cash equivalents...................     (18,266)    (76,530)     70,370
Cash and cash equivalents at
  beginning of period................     187,493     264,023     193,653
                                       ----------  ----------  ----------
Cash and cash equivalents at end of
  period.............................  $  169,227  $  187,493  $  264,023
                                       ==========  ==========  ==========
</TABLE>

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

                                      F-6

<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1.  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  BASIS OF PRESENTATION AND NATURE OF OPERATIONS

     The consolidated financial statements include the accounts of Southwest
Bancorporation of Texas, Inc. (the "Company") and its direct and indirect
wholly-owned subsidiaries, Southwest Holding Delaware Inc. (the "Delaware
Company"), Southwest Bank of Texas, National Association (the "Bank"), and
Mitchell Mortgage Company, LLC ("Mitchell"). All material intercompany
accounts and transactions have been eliminated.

     Substantially all of the Company's revenue and income is derived from the
operations of the Bank. The Bank provides a full range of commercial and private
banking services to small and middle market businesses and individuals in the
Houston metropolitan area.

     In connection with the Company's merger with Fort Bend Holding Corp.
("Fort Bend") (as more fully discussed in note 2) the historical financial
data has been restated to include the accounts and operations of Fort Bend for
all periods presented. This restatement was accomplished by combining Fort
Bend's March 31, 1998 fiscal year financial information with the Company's
December 31, 1997 calendar year financial information. In 1998, Fort Bend's
fiscal year was conformed to the Company's calendar year. As a result of
conforming fiscal periods, the Company's consolidated statement of income for
the fourth quarter of 1997 and the first quarter of 1998 include Fort Bend's net
income for the three months ended March 31, 1998 of $504. An adjustment to
shareholders' equity removes the effect of including Fort Bend's financial
results in both periods.

  MANAGEMENT'S ESTIMATES

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

  CASH AND CASH EQUIVALENTS

     The Company considers federal funds sold, due from bank demand accounts and
other highly liquid investments purchased with a maturity of three months or
less to be cash equivalents. The Company classifies investments in money market
funds as securities and not cash equivalents.

     The Company is required to maintain noninterest-bearing cash reserve
balances with the Federal Reserve Bank. The average balance was approximately
$6,090 and $7,985 for the years ended December 31, 1999 and 1998, respectively.

  SECURITIES

     Securities which management intends and has the ability to hold to maturity
are classified as held to maturity. Securities held to maturity are stated at
cost, increased by accretion of discounts and reduced by amortization of
premiums, both computed by the interest method.

     Securities to be held for indefinite periods of time, including securities
that management intends to use as part of its asset/liability strategy, or that
may be sold in response to changes in interest rates, changes in prepayment
risk, the need to increase regulatory capital or other similar factors, are
classified as available for sale and are carried at fair value. Fair values of
securities are estimated based on available market quotations. Unrealized
holding gains and losses, net of taxes, on available for sale securities are
reported as a separate component of other comprehensive income until realized.
The amortized cost of securities

                                      F-7
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

available for sale is increased by accretion of discounts and reduced by
amortization of premiums, both computed by the interest method. Gains and losses
on the sale of available for sale securities are determined using the specific
identification method.

     Trading securities are carried at market value. Realized and unrealized
gains and losses on trading securities are recognized in the consolidated
statement of income as they occur. The Company held no trading securities at
December 31, 1999 and 1998.

     The Company reviews its financial position, liquidity and future plans in
evaluating the criteria for classifying investment securities. Securities are
classified among categories at the time the securities are purchased. Declines
in the fair value of individual held to maturity and available for sale
securities below their cost that are other than temporary would result in
write-downs of the individual securities to their fair value. The Company
believes that none of the unrealized losses should be considered other than
temporary.

  LOANS

     Loans held for investment are reported at the principal amount outstanding,
net of unearned discounts, deferred loan fees and the allowance for loan losses.

     Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Loans are designated as nonaccrual when reasonable doubt
exists as to the full, timely collection of interest or principal. When a loan
is placed on nonaccrual status, all interest previously accrued but not
collected is reversed against current period interest income. Income on such
loans is then recognized only to the extent that cash is received and where the
future collection of interest and principal is probable. Interest accruals are
resumed on such loans only when they are brought fully current with respect to
interest and principal and when, in the judgment of management, the loans are
estimated to be fully collectible as to both principal and interest.

     A loan is considered impaired, based on current information and events, if
it is probable that the Company will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement. A loan is not considered impaired during a period of delay in payment
if the Company expects to collect all amounts due, including interest past due.
The Company generally considers a period of delay in payment to include
delinquency up to 90 days. The measurement of impaired loans is based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or the loan's observable market price or based on the fair value
of the collateral if the loan is collateral-dependent. If the measure of the
impaired loan is less than the recorded investment in the loan, an impairment is
recognized through the provision for loan losses.

     The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.

     Loans held for sale are carried at the lower of cost or market, which is
computed by the aggregate method (unrealized losses are offset by unrealized
gains). The carrying amount of loans held for sale in the near-term is adjusted
by gains and losses generated from corresponding hedging transactions entered
into to protect loss of value from increases in interest rates. Hedge positions
are also used to protect the pipeline of loan applications in process from
increases in interest rates. Gains and losses resulting from changes in the
market value of the inventory and open hedge positions are netted.

    ALLOWANCE FOR LOAN LOSSES

     The allowance for loan losses is established through a provision for such
losses charged against operations. Loans are charged against the allowance for
loan losses when management believes that the

                                      F-8
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

collectibility of the principal is unlikely. The allowance is an amount that
management believes will be adequate to reflect the risks inherent in the
existing loan portfolio and is based on evaluations of the collectibility and
prior loss experience of loans. In making its evaluation, management considers
growth in the loan portfolio, the diversification by industry of the Company's
commercial loan portfolio, the effect of changes in the local real estate market
on collateral values, the results of recent regulatory examinations, the effects
on the loan portfolio of current economic indicators and their probable impact
on borrowers, the amount of charge-offs for the period, the amount of
nonperforming loans and related collateral security and the evaluation of its
loan portfolio by the loan review function.

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

  LOAN FEES AND COSTS

     Nonrefundable loan origination and commitment fees and direct costs
associated with originating loans are deferred and recognized over the lives of
the related loans as an adjustment to the loans' yield.

  PREMISES AND EQUIPMENT

     Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation expense is computed using the straight-line method
and is charged to operating expense over the estimated useful lives of the
assets. Depreciation expense has been computed principally using estimated lives
of twenty years for premises, three to five years for hardware and software, and
five to ten years for furniture and equipment. Leasehold improvements are
amortized using the straight-line method over the shorter of the initial term of
the respective lease or the estimated useful life of the improvement. Costs of
major additions and improvements are capitalized. Expenditures for maintenance
and repairs are charged to operations as incurred. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in income for the
period.

  OTHER REAL ESTATE OWNED

     Real estate acquired through foreclosure is carried at the lower of the
recorded investment in the property or its fair value less estimated selling
costs. Prior to foreclosure, the value of the underlying collateral of the loan
is written down to its estimated fair value less estimated selling costs by a
charge to the allowance for loan losses, if necessary. Any subsequent
write-downs are charged against operations. Operating expenses of such
properties, net of related income, is included in other operating expenses.

  MORTGAGE SERVICING

     Mortgage servicing rights represent the right to receive future mortgage
servicing fees. The Company recognizes as separate assets the right to service
mortgage loans for others, whether the servicing rights are acquired through a
separate purchase or through loan origination by allocating total costs incurred
between the loan and the servicing rights retained based on their relative fair
values. Mortgage servicing rights are amortized in proportion to, and over the
period of, estimated net servicing income. The Company periodically evaluates
the carrying value of the mortgage servicing rights in relation to the present
value of the estimated future net servicing revenue based on management's best
estimate of remaining loan lives.

     Mortgage servicing rights are reported as a component of other assets in
the accompanying consolidated balance sheet. Fair values are based on quoted
market prices in active markets for loans and loan servicing rights. For
purchased mortgage servicing rights, the cost of acquiring loan servicing
contracts is

                                      F-9
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

capitalized to the extent such costs do not exceed the amount by which the
present value of estimated future servicing revenue exceeds the present value of
expected future servicing costs.

     Mortgage loans serviced for others are not included in the consolidated
balance sheet. The unpaid principal balance of mortgage loans serviced for
others was approximately $844,000 and $884,000 at December 31, 1999 and 1998,
respectively.

     Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were approximately $21,000 and
$9,000 at December 31, 1999 and 1998, respectively.

  EARNINGS PER COMMON SHARE

     Basic earnings per common share is computed by dividing income available
for common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per common share is computed by
dividing income available for common shareholders, adjusted for any changes in
income that would result from the assumed conversion of all potential dilutive
common shares, by the sum of the weighted average number of common shares
outstanding and the effect of all potential dilutive common shares outstanding
for the period.

  INCOME TAX

     Deferred income taxes are provided utilizing the liability method whereby
deferred income tax assets or liabilities are recognized for the tax
consequences in future years of differences in the tax bases of assets and
liabilities and their financial reporting amounts based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.

  OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

     In the ordinary course of business the Company has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments to sell mortgage loans, commercial letters of credit and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received.

  NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended, was
issued by the Financial Accounting Standards Board to establish accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires that an entity recognize those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction. The accounting for the changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. The standard is effective for all fiscal years beginning
after June 15, 2000. The Company is evaluating the effect of this pronouncement
on the Company's consolidated financial position, results of operations and cash
flows.

2.  MERGERS:

     On April 1, 1999, the Company consummated its merger with Fort Bend Holding
Corp. ("Fort Bend"). Fort Bend was the parent company of Fort Bend Federal
Savings and Loan Association of

                                      F-10
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rosenberg (which also was merged into the Bank on April 1, 1999) and the
majority owner of Mitchell. In accordance with the Agreement and Plan of Merger,
the Company exchanged 1.45 shares of the Company's common shares for each share
of Fort Bend common stock, resulting in the issuance of approximately 4.6
million shares of Company Common Stock on a fully diluted basis. At March 31,
1999, Fort Bend had total assets of approximately $316,000 and total deposits of
approximately $269,000. The transaction has been accounted for as a pooling of
interests; therefore the Company's consolidated financial statements have been
restated to include the accounts and operations of Fort Bend for all periods
presented.

     Separate interest income and net income amounts of the merged entities are
presented in the following table:

<TABLE>
<CAPTION>
                                          1999        1998        1997
                                       ----------  ----------  ----------
<S>                                    <C>         <C>         <C>
Interest income:
     Periods prior to consummation:
          Southwest Bancorporation...  $   37,612  $  139,144  $  108,932
          Fort Bend..................       5,454      22,603      21,963
     Periods subsequent to
       consummation..................     143,157          --          --
                                       ----------  ----------  ----------
               Total interest
                  income.............  $  186,223  $  161,747  $  130,895
                                       ==========  ==========  ==========
Net income:
     Periods prior to consummation:
          Southwest Bancorporation...  $    6,305  $   22,470  $   16,769
          Fort Bend..................         410       1,991       2,018
     Periods subsequent to
       consummation..................      20,135          --          --
                                       ----------  ----------  ----------
               Total net income......  $   26,850  $   24,461  $   18,787
                                       ==========  ==========  ==========
</TABLE>

     Through the merger with Fort Bend, the Company acquired Fort Bend's 51
percent ownership interest in Mitchell, a full-service mortgage banking
affiliate of The Woodlands Operating Company, L.P. ("Woodlands"). Following
the merger, Woodlands had the right to convert its 49% ownership interest in
Mitchell into shares of Company Common Stock at an exchange rate of 119.3408
shares for each $1,000 of its ownership interest in Mitchell. Prior to the
merger, Woodlands had the right to convert its ownership interest into Fort Bend
common stock. On June 17, 1999, Woodlands exercised its conversion right,
resulting in the issuance of 307,323 shares of Company Common Stock to Woodlands
in exchange for Woodlands' 49% ownership interest in Mitchell and Mitchell
becoming a wholly-owned subsidiary of the Bank effective as of June 30, 1999.
The acquisition of additional ownership interest in Mitchell has been accounted
for as a purchase.

3.  SECURITIES:

     The amortized cost and fair value of securities classified as available for
sale and held to maturity is as follows:

<TABLE>
<CAPTION>
                                                       DECEMBER 31, 1999
                                        ------------------------------------------------
                                                         GROSS UNREALIZED
                                        AMORTIZED      --------------------      FAIR
                                          COST         GAINS        LOSSES      VALUE
                                        ---------      ------      --------   ----------
<S>                                     <C>            <C>         <C>        <C>
Available for sale:
  U.S. Government securities.........   $  78,527      $   35      $ (1,567)  $   76,995
  Mortgage-backed securities.........     560,471         356       (16,852)     543,975
  Federal Reserve Bank stock.........       2,408          --            --        2,408
  Federal Home Loan Bank stock.......      14,886          --            --       14,886
  Other securities...................      14,253          22            --       14,275
                                        ---------      ------      --------   ----------
     Total securities available for
       sale..........................   $ 670,545      $  413      $(18,419)  $  652,539
                                        =========      ======      ========   ==========
</TABLE>

                                      F-11
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                      DECEMBER 31, 1998
                                        ----------------------------------------------
                                                        GROSS UNREALIZED
                                        AMORTIZED      ------------------      FAIR
                                          COST         GAINS       LOSSES     VALUE
                                        ---------      ------      ------   ----------
<S>                                     <C>            <C>         <C>      <C>
Available for sale:
  U.S. Government securities.........   $ 143,570      $1,575      $   --   $  145,145
  Mortgage-backed securities.........     488,851       4,549        (452)     492,948
  Federal Reserve Bank stock.........       1,869          --          --        1,869
  Federal Home Loan Bank stock.......       7,672          --          --        7,672
  Other securities...................       3,894         107         (12)       3,989
                                        ---------      ------      ------   ----------
     Total securities available for
       sale..........................   $ 645,856      $6,231      $ (464)  $  651,623
                                        =========      ======      ======   ==========
Held to maturity:
  U.S. Government securities.........   $   6,248      $   14      $ (186)  $    6,076
  Mortgage-backed securities.........      60,869         689        (259)      61,299
                                        ---------      ------      ------   ----------
     Total securities held to
       maturity......................   $  67,117      $  703      $ (445)  $   67,375
                                        =========      ======      ======   ==========
</TABLE>

     The scheduled maturities of securities classified as available for sale and
held to maturity is as follows:

<TABLE>
<CAPTION>
                                           DECEMBER 31, 1999            DECEMBER 31, 1998
                                        -----------------------      -----------------------
                                        AMORTIZED       FAIR         AMORTIZED       FAIR
                                           COST        VALUE            COST        VALUE
                                        ----------   ----------      ----------   ----------
<S>                                     <C>          <C>             <C>          <C>
Available for sale:
  Due in one year or less............    $   4,002   $    4,006       $  49,061   $   49,335
  Due from one year to five years....       59,525       58,520          64,509       65,650
  Due after 5 years..................       15,000       14,469          30,000       30,160
                                        ----------   ----------      ----------   ----------
                                            78,527       76,995         143,570      145,145
  Mortgage-backed securities.........      560,471      543,975         488,851      492,948
  Federal Reserve Bank stock.........        2,408        2,408           1,869        1,869
  Federal Home Loan Bank stock.......       14,886       14,886           7,672        7,672
  Other securities...................       14,253       14,275           3,894        3,989
                                        ----------   ----------      ----------   ----------
     Total securities available for
       sale..........................    $ 670,545   $  652,539       $ 645,856   $  651,623
                                        ==========   ==========      ==========   ==========
Held to maturity:
  Due in one year or less............    $      --   $       --       $   3,249   $    3,246
  Due from one year to five years....           --           --           2,999        2,830
  Due after five years...............           --           --              --           --
                                        ----------   ----------      ----------   ----------
                                                --           --           6,248        6,076
  Mortgage-backed securities.........           --           --          60,869       61,299
                                        ----------   ----------      ----------   ----------
     Total securities available for
       sale..........................    $      --   $       --       $  67,117   $   67,375
                                        ==========   ==========      ==========   ==========
</TABLE>

     Securities with a carrying value of $507,200 and $508,810 at December 31,
1999 and 1998, respectively, have been pledged to collateralize repurchase
agreements, public deposits, Federal Home Loan Bank borrowings and other items.

     In connection with the Fort Bend merger, the Company transferred all of
Fort Bend's held-to-maturity debt securities to the available for sale category.
The amortized cost of these securities at the time of transfer was $57,800 and
the unrealized gain was $80 ($52 net of income taxes). The Company does not
intend to sell these securities in the near term.

                                      F-12
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Gross gains of $281, $526 and $535 and gross losses of $420, $63 and $37
were recognized on sales of investment securities for the years ended December
31, 1999, 1998 and 1997, respectively.

4.  LOANS:

     A summary of loans outstanding follows:

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                       --------------------------
                                           1999          1998
                                       ------------  ------------
<S>                                    <C>           <C>
Commercial and industrial............  $    721,996  $    639,630
Real estate:
     Construction and land
       development...................       496,439       297,895
     1-4 family residential..........       268,411       253,130
     Other...........................       219,463       196,750
Consumer.............................       133,353       130,266
Less:
     Unearned income and fees, net of
       related costs.................        (2,852)       (3,982)
     Allowance for loan losses.......       (19,716)      (14,980)
                                       ------------  ------------
Loans held for investment, net.......     1,817,094     1,498,709
Loans held for sale..................        77,047        15,310
                                       ------------  ------------
          Total loans, net...........  $  1,894,141  $  1,514,019
                                       ============  ============
</TABLE>

     An analysis of the allowance for loan losses is as follows:

<TABLE>
<CAPTION>
                                         1999       1998       1997
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
Balance, beginning of year...........  $  14,980  $  11,927  $   9,101
Provision charged against
  operations.........................      6,060      4,053      3,982
Charge-offs..........................     (1,536)    (1,151)    (1,283)
Recoveries...........................        212        133        127
Adjustment to conform reporting
  periods............................         --         18         --
                                       ---------  ---------  ---------
Balance, end of year.................  $  19,716  $  14,980  $  11,927
                                       =========  =========  =========
</TABLE>

     A loan is considered impaired when, based upon current information and
events, it is probable that the Company will be unable to collect the scheduled
payments of principal and interest when due according to the contractual terms
of the loan agreement. The Company's impaired loans were approximately $13,700
and $14,000 at December 31, 1999 and 1998 respectively. The largest component of
impaired loans is a commercial energy related loan of approximately $10,840 and
$10,600, at December 31, 1999 and 1998 respectively. The average recorded
investment in impaired loans during 1999 and 1998 was $13,900 and $6,300,
respectively. The total required allowance for loan losses related to these
loans was $0 at December 31, 1999 and 1998. Interest income on impaired loans of
$1,500 and $415 was recognized for cash payments received in 1999 and 1998,
respectively.

     The Bank is not committed to lend additional funds to debtors whose loans
have been modified.

                                      F-13
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company has loans, deposits, and other transactions with its principal
shareholders, officers, directors and organizations with which such persons are
associated which were made in the ordinary course of business. At December 31,
1999, the aggregate amount of loans and unfunded lines of credit to such related
parties was $51,755. Following is an analysis of activity with respect to these
amounts:

<TABLE>
<CAPTION>
                                        DECEMBER 31,
                                            1999
                                        ------------
<S>                                     <C>
Balance, beginning of year...........     $ 66,809
New loans and unfunded lines of
credit...............................       10,305
Repayments...........................      (25,359)
                                        ------------
Balance, end of year.................     $ 51,755
                                        ============
</TABLE>

5.  PREMISES AND EQUIPMENT:

     Premises and equipment consist of the following:

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                          --------------------
                                            1999       1998
                                          ---------  ---------
<S>                                       <C>        <C>
Land....................................  $   7,024  $   6,749
Premises and leasehold improvements.....     16,801     15,755
Furniture and equipment.................     32,516     27,991
                                          ---------  ---------
                                             56,341     50,495
Less accumulated depreciation and
amortization............................    (24,429)   (19,551)
                                          ---------  ---------
                                          $  31,912  $  30,944
                                          =========  =========
</TABLE>

6.  OTHER ASSETS:

     Other assets consists of the following:

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                          --------------------
                                            1999       1998
                                          ---------  ---------
<S>                                       <C>        <C>
Foreclosed real estate..................  $   1,337  $     500
Deferred income taxes...................     12,323      2,376
Goodwill................................      2,471      2,696
Banker's acceptances....................      4,152      1,936
Investment in unconsolidated investee...      5,374      3,500
Cash value of bank-owned life
  insurance.............................     26,769     20,390
Factored receivables....................     18,542      8,948
Mortgage servicing rights...............      6,681      7,044
Other...................................      9,182      8,346
                                          ---------  ---------
                                          $  86,831  $  55,736
                                          =========  =========
</TABLE>

                                      F-14
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7.  DEPOSITS:

     At December 31, 1999, scheduled maturities of time deposits are summarized
as follows:

<TABLE>
<S>                                       <C>
2000....................................  $  499,772
2001....................................      60,705
2002....................................      16,171
2003....................................       5,828
2004....................................       9,757
Thereafter..............................       1,375
                                          ----------
                                          $  593,608
                                          ==========
</TABLE>

     At December 31, 1999 and 1998, the aggregate amount of deposits from
related parties was $37,855 and $49,798, respectively.

8.  SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND OTHER BORROWINGS:

     Securities sold under repurchase agreements and other borrowings,
consisting of federal funds purchased and treasury, tax, and loan deposits,
generally represent borrowings with maturities ranging from one to thirty days.
Information relating to these borrowings is summarized as follows:

<TABLE>
<CAPTION>
                                        DECEMBER 31,      DECEMBER 31,
                                            1999              1998
                                        ------------      ------------
Securities sold under repurchase
  agreements:
<S>                                     <C>               <C>
     Average.........................     $184,815          $182,254
     Year-end........................      216,838           181,696
     Maximum month-end balance during
       year..........................      216,838           240,670
Interest rate:
     Average.........................         4.06%             4.77%
     Year-end........................         4.03%             5.16%
Other borrowings:
     Average.........................     $189,929          $ 26,034
     Year-end........................      248,346           138,347
     Maximum month-end balance during
       year..........................      265,440           138,347
Interest rate:
     Average.........................         5.33%             5.65%
     Year-end........................         5.23%             5.60%
</TABLE>

     Securities sold under repurchase agreements generally include U.S.
Government securities and are maintained in safekeeping by correspondent banks.
The Company enters into these repurchase agreements as a service to its
customers.

     Subject to certain limitations, the Bank may borrow funds from the Federal
Home Loan Bank ("FHLB") in the form of advances. Credit availability from the
FHLB to the Bank is based on the Bank's financial and operating condition.
Borrowings from the FHLB to the Bank were approximately $237,200 and $34,323 at
December 31, 1999 and 1998, respectively. In addition to creditworthiness, the
Bank must own a minimum amount of FHLB capital stock. This minimum is 5.00% of
outstanding FHLB advances. Unused borrowing capacity at December 31, 1999 was
approximately $85,000.

                                      F-15
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9.  INCOME TAXES:

     The income tax provision (benefit) for the years ended December 31, 1999,
1998 and 1997 is composed of the following:

<TABLE>
<CAPTION>
                                         1999       1998       1997
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
Current..............................  $  16,326  $  16,041  $  10,041
Deferred.............................     (1,060)    (2,500)       126
                                       ---------  ---------  ---------
                                       $  15,266  $  13,541  $  10,167
                                       =========  =========  =========
</TABLE>

     The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to deferred
income tax assets and liabilities and their approximate tax effects are as
follows:

<TABLE>
<CAPTION>
                                           DECEMBER 31, 1999          DECEMBER 31, 1998
                                        -----------------------    -----------------------
                                         TEMPORARY        TAX       TEMPORARY        TAX
                                        DIFFERENCES     EFFECT     DIFFERENCES     EFFECT
                                        ------------    -------    ------------    -------
<S>                                     <C>             <C>        <C>             <C>
Future deductible differences:
Unrealized loss on securities
  available for sale.................     $ 15,545      $ 5,441      $ --          $ --
Allowance for loan losses............       19,175        6,711        14,194        4,953
Mortgage servicing rights............        1,455          509        --            --
Other................................        1,321          462         1,197          415
                                        ------------    -------    ------------    -------
     Deferred income tax asset.......     $ 37,496       13,123      $ 15,391        5,368
                                        ============               ============
                                                        -------                    -------
Future taxable differences:
Unrealized gain on securities
  available for sale.................     $ --            --         $  5,767        2,019
Market discount on securities........          577          202           360          126
Federal Home Loan Bank stock
  dividend...........................        1,708          598         1,493          520
Mortgage servicing rights............       --            --              686          233
Other................................       --            --              285           94
                                        ------------    -------    ------------    -------
     Deferred income tax liability...     $  2,285          800      $  8,591        2,992
                                        ============               ============
                                                        -------                    -------
Net deferred income tax asset........                   $12,323                    $ 2,376
                                                        =======                    =======
</TABLE>

     The reconciliation between the Company's effective income tax rate and the
statutory federal income tax rate is as follows:

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                           ------------------------
                                           1999      1998      1997
                                           ----      ----      ----
<S>                                        <C>       <C>       <C>
Statutory federal income tax rate.......   35.0%     35.0%     35.0%
Permanent differences...................    0.1       0.6       1.6
Other...................................    1.1       --       (1.5)
                                           ----      ----      ----
Effective income tax rate...............   36.2%     35.6%     35.1%
                                           ====      ====      ====
</TABLE>

10.  EMPLOYEE BENEFITS:

  STOCK-BASED COMPENSATION PLAN

     The Company sponsors, and currently grants awards under, the Southwest
Bancorporation of Texas, Inc. 1996 Stock Option Plan (the "Stock Option
Plan"), which is a stock-based compensation plan as described below. The
Company has also sponsored similar stock-based compensation plans in prior
years.

                                      F-16
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company applies the intrinsic value method in accounting for the Stock
Option Plan and the Company's other prior stock-based compensation plans. In
1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, ("SFAS
123") which, if fully adopted by the Company, would change the method the
Company applies in recognizing the expense of its stock-based compensation plans
for awards subsequent to 1994. Adoption of the expense recognition provisions of
SFAS 123 is optional and the Company decided not to elect these provisions of
SFAS 123. However, pro forma disclosures as if the Company adopted the expense
recognition provisions of SFAS 123 are required by SFAS 123 and are presented
below.

  THE STOCK OPTION PLAN

     Under the 1996 Stock Option Plan, the Company is authorized to issue up to
2,000,000 shares of common stock pursuant to "Awards" granted in the form of
incentive stock options which qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), nonqualified stock options which do not
qualify under Section 422 of the Code, and stock appreciation rights. Awards may
be granted to selected employees and directors of the Company or any subsidiary.
The Stock Option Plan provides that the exercise price of any incentive stock
option may not be less than the fair market value of the common stock on the
date of grant, and that the exercise price of any nonqualified stock option may
be equal to, greater than or less than the fair market value of the common stock
on the date of grant.

     The Company granted 353,893, 640,552 and 344,777 stock options in 1999,
1998 and 1997, respectively. These stock options were granted with an exercise
price, as determined in each individual grant agreement. The majority of the
options granted vest over a five year period commencing on the date of grant
(i.e., 60% vest on the third anniversary of the date of grant and 20% vest on
each of the next two anniversaries of the date of grant) with the remaining
options vesting over a period not to exceed five years.

     In accordance with APB 25, compensation expense is recognized for
discounted stock options granted and for performance-based stock options granted
(but not for the nondiscounted stock options granted). The Company has
recognized $108, $172 and $218 of compensation expense in connection with these
grants in 1999, 1998 and 1997, respectively.

                                      F-17
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the status of the Company's stock options as of December 31,
1999, 1998, and 1997 and the change during the years is as follows:

<TABLE>
<CAPTION>
                                                 1999                      1998                      1997
                                        ----------------------    ----------------------    ----------------------
                                                      WEIGHTED                  WEIGHTED                  WEIGHTED
                                         # SHARES     AVERAGE      # SHARES     AVERAGE      # SHARES     AVERAGE
                                        UNDERLYING    EXERCISE    UNDERLYING    EXERCISE    UNDERLYING    EXERCISE
                                         OPTIONS       PRICES      OPTIONS       PRICES      OPTIONS       PRICES
                                        ----------    --------    ----------    --------    ----------    --------
<S>                                     <C>           <C>         <C>           <C>         <C>           <C>
Outstanding at beginning of the
  year...............................    2,903,907     $ 7.08      3,007,141     $ 4.89      3,633,113     $ 3.43
     Granted at a discount...........       --            n/a         19,715     $ 5.05         30,000     $ 5.94
     Granted at-the-money............      353,893     $14.35        620,837     $ 8.16        314,777     $ 9.73
     Granted at a premium............       --            n/a         --            n/a         --            n/a
                                        ----------    --------    ----------    --------    ----------    --------
Total granted........................      353,893     $14.35        640,552     $ 8.06        344,777     $ 9.43
Exercised............................     (313,024)    $ 3.32       (713,457)    $ 1.26       (929,301)    $ 1.12
Forfeited............................     (121,605)     12.71        (34,595)    $ 6.10        (41,448)    $ 2.43
Expired..............................       --            n/a         --            n/a         --            n/a
Adjustment to conform reporting
  periods............................       --            n/a          4,266     $ 5.86         --            n/a
                                        ----------    --------    ----------    --------    ----------    --------
Outstanding at end of year...........    2,823,171     $ 8.97      2,903,907     $ 7.08      3,007,141     $ 4.89
                                        ==========                ==========                ==========
Exercisable at end of year...........    1,425,698     $ 6.06        986,807     $ 6.32      1,071,602     $ 3.09
                                        ==========                ==========                ==========
</TABLE>

     The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes stock option valuation model with the following
weighted-average assumptions for grants in 1999, 1998 and 1997: dividend yield
of 0.00%: risk-free interest rates are different for each grant and range from
5.18% to 6.48%; the expected lives of options range from 5 to 6 years; and a
volatility of 28.59%, 26.77% and 25.36% respectively. The weighted average fair
value of options granted during the year is as follows:

<TABLE>
<CAPTION>
                                         1999       1998       1997
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
Weighted-average fair value of
  options granted at a discount......        n/a  $    4.71  $    7.06
Weighted-average fair value of
  options granted at-the-money.......  $    5.08  $    2.96  $    3.24
Weighted-average fair value of
  options granted at a premium.......        n/a        n/a        n/a
Weighted-average fair value of all
  options granted during the year....  $    5.08  $    3.43  $    3.57
</TABLE>

                                      F-18
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:

<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING
                                        --------------------------------------      OPTIONS EXERCISABLE
                                                        WEIGHTED                  -----------------------
                                                         AVERAGE      WEIGHTED                   WEIGHTED
                                                        REMAINING     AVERAGE                    AVERAGE
                                          NUMBER       CONTRACTUAL    EXERCISE      NUMBER       EXERCISE
      RANGE OF EXERCISE PRICES          OUTSTANDING       LIFE         PRICE      EXERCISABLE     PRICE
-------------------------------------   -----------    -----------    --------    -----------    --------
<S>                                     <C>            <C>            <C>         <C>            <C>
$.20 to $5.20........................      923,511        *             $3.05         786,011      $3.02
$5.35 to $11.16......................    1,000,398         6.64          8.54         540,203       8.53
$11.72 to $15.35.....................      231,070         9.29         12.74             484      11.72
$15.38 to $20.19.....................      668,192         9.60         16.51          99,000      16.69
                                        -----------    ===========    --------    -----------    --------
$.20 to $20.19.......................    2,823,171        *             $8.97       1,425,698      $6.06
                                        ===========                               ===========
</TABLE>

------------

* All options, with an exercise price between $.20 to $5.20, are exercisable
  while the employee remains an employee at the Company and cease to be
  exercisable three months after termination of employment.

     If the fair value based method of accounting under SFAS 123 had been
applied, the Company's net income available for common shareholders and earnings
per common share would have been reduced to the pro forma amounts indicated
below (assuming that the fair value of options granted during the year are
amortized over the vesting period):

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                       -------------------------------
                                         1999       1998       1997
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
Net income available for common
  shareholders
     As reported.....................  $  26,850  $  24,461  $  18,787
     Pro forma.......................  $  25,582  $  23,320  $  17,943
Basic earnings per common share......
     As reported.....................  $    0.97  $    0.95  $    0.77
     Pro forma.......................  $    0.92  $    0.91  $    0.68
Diluted earnings per common share
     As reported.....................  $    0.93  $    0.88  $    0.71
     Pro forma.......................  $    0.89  $    0.84  $    0.68
</TABLE>

     The effects of applying SFAS 123 in the above pro forma disclosure are not
indicative of future amounts. The Company anticipates making awards in the
future under its stock-based compensation plans.

  BENEFIT PLAN

     The Company has adopted a contributory profit sharing plan pursuant to
Internal Revenue Code Section 401(k) covering substantially all employees (the
"401-K Plan"). Each year the Company determines, at its discretion, the amount
of matching contributions. The Company presently matches 100% of the employee
contributions not to exceed 5.0% of the employee's annual compensation. Total
plan expense charged to the Company's operations for the years ended December
31, 1999, 1998 and 1997 was $1,374, $972 and $385, respectively.

     The 401-K Plan allows for the Company to contribute up to 500,000 shares of
common stock of the Company (valued at the approximate fair market value on the
date of contribution) instead of cash. A total of 4,431, 0, and 5,040 shares at
prices ranging from $16.58, $0, and $7.00 were issued to the 401-K Plan during
the years ended December 31, 1999, 1998 and 1997, respectively.

                                      F-19
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  PREFERRED STOCK:

     The Bank authorized 1,500,000 shares of Series 1 Adjustable Rate First
Preferred Stock, $5 par value, ("Bank Preferred Stock") in October 1995 and
issued 750,000 shares in November 1995. The Bank Preferred Stock holders have no
voting rights except in certain circumstances. Each share of preferred stock is
entitled to a liquidation preference of $10.

     Dividends on the Bank Preferred Stock are noncumulative. The Bank is
prohibited from paying any cash dividends on the common stock unless all
dividends on the Bank Preferred Stock have been paid in full for all completed
quarterly periods. Bank Preferred Stock dividends are payable quarterly in
arrears and are calculated on the $10 subscription price at a rate of 1% above
the United States Treasury bill rate.

     The Bank Preferred Stock may be redeemed at the option of the Bank at the
redemption price if a change of control occurs prior to December 31, 1997. In
January 1997, upon written approval of the holders of the Bank Preferred Stock,
the Bank redeemed all of the outstanding shares for $7,500.

12.  EARNINGS PER COMMON SHARE:

     Earnings per common share is computed as follows:

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                       -------------------------------
                                         1999       1998       1997
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
Net income available for common
  shareholders.......................  $  26,850  $  24,461  $  18,787
Interest on 8% convertible
  debentures, net of tax.............     --            516        683
Minority interest in net income of
  Mitchell, net of tax...............     --            246        (a)
                                       ---------  ---------  ---------
Net income, adjusted.................  $  26,850  $  25,223  $  19,470
                                       =========  =========  =========
Divided by average common shares and
  common share equivalents:
     Average common shares...........     27,744     25,795     24,333
     Average common shares issuable
       under the stock option plan...      1,200      1,300      1,474
     Average common shares issuable
       with the conversion of the 8%
       convertible debentures........     --          1,351      1,606
     Average common shares issuable
       with the conversion of the
       minority interest of
       Mitchell......................     --            296        (a)
                                       ---------  ---------  ---------
Total average common shares and
  common share equivalents...........     28,944     28,742     27,413
                                       =========  =========  =========
Basic earnings per common share......  $    0.97  $    0.95  $    0.77
                                       =========  =========  =========
Diluted earnings per common share....  $    0.93  $    0.88  $    0.71
                                       =========  =========  =========
</TABLE>

------------

(a) The assumed conversion of the minority ownership interest in Mitchell into
    shares of common stock has an antidilutive effect on earnings per share for
    the year ended December 31, 1997. Thus, it is excluded from the calculation
    of diluted earnings per share.

                                      F-20
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13.  COMMITMENTS AND CONTINGENCIES:

  LITIGATION

     The Company is involved in various litigation that arise in the normal
course of business. In the opinion of management of the Company, after
consultation with its legal counsel, such litigation will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.

  LEASES

     At December 31, 1999, the Company has certain noncancelable operating
leases which cover the Company's premises with approximate future minimum annual
rental payments as follows:

                 2000................................. $ 3,883
                 2001.................................   3,372
                 2002.................................   3,130
                 2003.................................   2,909
                 2004.................................   2,844
                 Thereafter...........................   5,371
                                                       -------
                                                       $21,509
                                                       =======

     Rent expense was $3,673, $2,830 and $2,378 for the years ended December 31,
1999, 1998 and 1997, respectively.

14.  REGULATORY CAPITAL COMPLIANCE:

     The Company and the Bank are subject to regulatory risk-based capital
requirements that assign risk factors to all assets, including off-balance sheet
items such as loan commitments and standby letters of credit. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Capital is separated into two categories, Tier 1 and Tier 2, which combine for
total capital. At December 31, 1999, the Company's and Bank's Tier 1 capital
consists of their respective shareholders' equity adjusted for minority interest
in equity accounts of consolidated subsidiaries, goodwill, and various other
intangibles and Tier 2 consists of the allowance for loan losses subject to
certain limitations. The guidelines require total capital of 8% of risk-weighted
assets.

     In conjunction with risk-based capital guidelines, the regulators have
issued capital leverage guidelines. The leverage ratio consists of Tier 1
capital as a percent of average assets. The minimum leverage ratio for all banks
is 3%, with a higher minimum ratio dependent upon the condition of the
individual bank. The 3% minimum was established to make certain that all banks
have a minimum capital level to support their assets, regardless of risk
profile.

     As of December 31, 1999, the most recent notification from the regulators
categorized the Bank and the Company as "adequately capitalized" under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the
category.

     The Bank's capital levels do not allow the Bank to accept brokered deposits
without prior approval from the FDIC. Brokered deposits were $30,056 and $71,578
at December 31, 1999 and 1998, respectively.

                                      F-21
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table compares the Company's and the Bank's leverage and
risk-weighted capital ratios as of December 31, 1999 and 1998 to the minimum
regulatory standards:

<TABLE>
<CAPTION>
                                                                                        TO BE WELL
                                                                                     CAPITALIZED UNDER
                                                                 FOR CAPITAL         PROMPT CORRECTIVE
                                              ACTUAL          ADEQUACY PURPOSES      ACTION PROVISIONS
                                       ---------------------  ------------------   ---------------------
                                         AMOUNT      RATIO      AMOUNT     RATIO     AMOUNT      RATIO
                                       ----------  ---------  ----------   -----   ----------  ---------
<S>                                    <C>         <C>        <C>          <C>     <C>         <C>      <C>
As of December 31, 1999
  Total Capital (to Risk
     Weighted Assets):
     The Company.....................  $  223,862       9.54% $  187,770   8.00 %  $  234,712      10.00%
     The Bank .......................     222,333       9.47%    187,756   8.00 %     234,695      10.00%
  Tier I Capital (to Risk
     Weighted Assets):
     The Company.....................     204,146       8.70%     93,885   4.00 %     187,770       8.00%
     The Bank .......................     202,617       8.63%     93,878   4.00 %     187,757       8.00%
  Tier I Capital
     (to Average Assets):
     The Company.....................     204,146       7.48%     81,916   3.00 %     136,526       5.00%
     The Bank .......................     202,617       7.40%     82,208   3.00 %     137,013       5.00%
As of December 31, 1998
  Total Capital (to Risk
     Weighted Assets):
     The Company.....................     187,378      10.18%    147,261   8.00 %     184,077      10.00%
     The Bank .......................     173,812       9.46%    146,969   8.00 %     183,711      10.00%
  Tier I Capital (to Risk
     Weighted Assets):
     The Company.....................     172,538       9.37%     73,631   4.00 %     147,261       8.00%
     The Bank .......................     158,970       8.65%     73,484   4.00 %     146,969       8.00%
  Tier I Capital
     (to Average Assets):
     The Company.....................     172,538       7.27%     71,236   3.00 %     118,727       5.00%
     The Bank .......................     158,970       6.72%     70,976   3.00 %     118,294       5.00%
</TABLE>

     The Company and the Bank are also subject to certain restrictions on the
amount of dividends that they may declare without prior regulatory approval.

15.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
     CREDIT RISK:

     The Company is party to financial instruments with off-balance sheet risk
in the normal course of business in order to meet the financing needs of its
customers. These financial instruments, which are for purposes other than
trading, include loan commitments, letters of credit, commitments to sell
mortgage loans to permanent investors, purchased option contracts and financial
guarantees on GNMA mortgage-backed securities administered. These financial
instruments involve, to varying degrees, elements of credit risk in excess of
the amounts recognized in the financial statements.

     The Company's exposure to credit loss in the event of nonperformance by the
other party to the loan commitments and letters of credit is limited to the
contractual amount of those instruments. The Company uses the same credit
policies in evaluating loan commitments and letters of credit as it does for
on-balance sheet instruments. In order to control the credit risk associated
with entering into commitments, the Company subjects such activity to the same
credit quality and monitoring controls as its lending activities. For
commitments to sell mortgage loans to permanent investors, the contract amounts
do not represent exposure to credit loss. For purchased put options, the
Company's exposure is limited to the option premium paid, not the notional
amount of the option. For GNMA mortgage-backed securities administered, the
contract amount administered exceeds the Company's exposure to credit loss.

                                      F-22
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The approximate amounts of financial instruments with off-balance sheet
risk are as follows:

                                            DECEMBER 31,      DECEMBER 31,
                                               1999              1998
                                             CONTRACT          CONTRACT
                                              AMOUNT            AMOUNT
                                           ------------      ------------
     Loan commitments including unfunded
       lines of credit....................     $997,593          $776,709
     Standby letters of credit............       71,970            63,037
     Commercial letters of credit.........        2,357             5,010
     Commitments to sell mortgage loans...        1,671             6,056
     Option contracts.....................        1,000             3,000
     Guarantees on GNMA securities
       administered.......................      101,596           111,738

     Loan commitments are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee.

     Since many of the loan commitments and letters of credit may expire without
being drawn upon, the total commitment amount does not necessarily represent
future cash requirements. Standby letters of credit are conditional commitments
by the Company to guarantee the performance of a customer to a third party.

     The Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Company
upon extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include certificates of deposit,
accounts receivable, inventory, property, plant and equipment, and real
property.

     Commitments to sell mortgage loans to permanent investors are contracts in
which the Company agrees to deliver mortgage loans at specific future dates at
specified prices or yields. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
interest rates.

     The Company purchases option contracts on FNMA or FHLMC guaranteed
mortgage-backed securities to reduce the Company's exposure to the effects of
fluctuations in interest rates on the Company's lending and secondary marketing
activities. The time value portion of option premiums paid is recorded in other
assets and is amortized to expense over the term of the option. Changes in the
intrinsic value of options are deferred and recognized as the related mortgage
loans are sold.

     The Company administers GNMA mortgage-backed securities on which it
guarantees payment of monthly principal and interest to the security holders.
The underlying loans are supported by FHA and VA mortgage insurance and are
collateralized by real estate. In the event of mortgagor default, losses may
arise from principal, interest or other costs which may exceed reimbursement
limitations established by FHA or VA.

     The Company originates real estate, commercial, construction and consumer
loans primarily to customers in the greater Houston, Texas area. Although the
Company has a diversified loan portfolio, a substantial portion of its
customers' ability to honor their contracts is dependent upon the local Houston
economy and the real estate market.

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

16.  FAIR VALUES OF FINANCIAL INSTRUMENTS:

     The fair value of financial instruments provided below represents estimates
of fair values at a point in time. Significant estimates regarding economic
conditions, loss experience, risk characteristics associated with particular
financial instruments and other factors were used for the purposes of this
disclosure. These

                                      F-23
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimates are subjective in nature and involve matters of judgment. Therefore,
they cannot be determined with precision. Changes in the assumptions could have
a material impact on the amounts estimated.

     While the estimated fair value amounts are designed to represent estimates
of the amounts at which these instruments could be exchanged in a current
transaction between willing parties, many of the Company's financial instruments
lack an available trading market as characterized by willing parties engaging in
an exchange transaction. In addition, it is the Company's intent to hold most of
its financial instruments to maturity and, therefore, it is not probable that
the fair values shown will be realized in a current transaction.

     The estimated fair values disclosed do not reflect the value of assets and
liabilities that are not considered financial instruments. In addition, the
value of long-term relationships with depositors (core deposit intangibles) and
other customers is not reflected. The value of these items is significant.

     Because of the wide range of valuation techniques and the numerous
estimates which must be made, it may be difficult to make reasonable comparisons
of the Company's fair value information to that of other financial institutions.
It is important that the many uncertainties discussed above be considered when
using the estimated fair value disclosures and to realize that because of these
uncertainties, the aggregate fair value amount should in no way be construed as
representative of the underlying value of the Company.

     The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

     CASH AND CASH EQUIVALENTS:  The carrying amounts for cash and cash
equivalents approximate their fair values.

     SECURITIES:  Fair values for investment securities are based on quoted
market prices. The fair value of stock in the Federal Home Loan Bank of Dallas
and the Federal Reserve Bank Stock is estimated to be equal to its carrying
amount given it is not a publicly traded equity security, it has an adjustable
dividend rate, and transactions in the stock are executed at the stated par
value.

     LOANS HELD FOR SALE:  Fair values of loans held for sale are estimated
based on outstanding commitments from investors or current market prices for
similar loans.

     LOANS AND ACCRUED INTEREST RECEIVABLE:  For variable-rate loans that
reprice frequently and with no significant change in credit risk, fair values
are based on carrying values. The fair value of all other loans are estimated
using discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
Fair values for impaired loans are estimated using discounted cash flow analyses
or underlying collateral values, where applicable. The carrying amount of
accrued interest approximates its fair value.

     OFF-BALANCE-SHEET INSTRUMENTS:  The fair values of the Company's lending
commitments, letters of credit, commitments to sell loans and guarantees are
based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties' credit
standing. The fair value of the Company's option contracts are based on the
estimated amounts the Company would receive from terminating the contracts at
the reporting date.

     DEPOSIT LIABILITIES AND ACCRUED INTEREST PAYABLE:  The fair values
disclosed for demand deposits (e.g., interest and noninterest checking and money
market accounts) are, by definition, equal to the amount payable on demand at
the reporting date. Fair values for fixed-rate time deposits are estimated using
a discounted cash flow analysis, using interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time
deposits. The carrying amount of accrued interest approximates its fair value.

     BORROWINGS:  The carrying amounts of federal funds purchased, securities
sold under repurchase agreements, and other borrowings approximate their fair
values.

                                      F-24
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes the carrying values and estimated fair
values of financial instruments (all of which are held for purposes other than
trading):

<TABLE>
<CAPTION>
                                           DECEMBER 31, 1999           DECEMBER 31, 1998
                                        ------------------------    ------------------------
                                         CARRYING     ESTIMATED      CARRYING     ESTIMATED
                                          AMOUNT      FAIR VALUE      AMOUNT      FAIR VALUE
                                        ----------    ----------    ----------    ----------
<S>                                     <C>           <C>           <C>           <C>
Assets
     Cash and due from banks.........   $  148,710    $  148,710    $  129,922    $  129,922
     Fed funds sold and other cash
       equivalents...................       20,517        20,517        57,571        57,571
     Securities available for sale...      652,539       652,539       651,623       651,623
     Securities held to maturity.....           --            --        67,117        67,375
     Loans held for sale.............       77,047        77,047        15,310        15,310
     Loans held for investment,
       net...........................    1,817,094     1,753,956     1,498,709     1,507,426
     Accrued interest receivable.....       17,546        17,546        15,459        15,459
Liabilities
     Deposits........................    2,172,754     2,172,859     1,999,462     2,006,624
     Securities sold under repurchase
       agreements....................      216,838       216,838       181,696       181,696
     Other borrowings................      248,346       248,346       142,750       142,750
     Accrued interest payable........        3,034         3,034         1,499         1,499
</TABLE>

     The fair value of the Company's off-balance sheet instruments was
immaterial at December 31, 1999 and 1998.

17.  SUPPLEMENTAL CASH FLOW INFORMATION:

     The supplemental cash flow information for the years ended December 31,
1999, 1998, and 1997 is as follows:

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                       -------------------------------
                                         1999       1998       1997
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
Cash paid for interest...............  $  77,705  $  71,141  $  57,961
Cash paid for income taxes...........     16,235     12,450      8,649
Non-cash investing and financing
activities:
     Tax benefit related to the
       exercise of certain stock
       options.......................        967      1,800      1,400
     Subordinated debentures
       converted to common stock.....     --         10,857        640
     Loans transferred to foreclosed
       real estate...................      1,326         61         86
     Loans to facilitate sale of
       foreclosed real estate........     --         --            240
     Issuance of common stock to Fort
       Bend Retirement Retention
       Plan..........................     --             58         62
     Reduction of debt in prior Fort
       Bend Employee Stock Option
       Plan..........................     --             79        189
     Issuance of common stock in
       exchange for 49% ownership
       interest in Mitchell..........      2,575     --         --
</TABLE>

                                      F-25
<PAGE>
       REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders
Southwest Bancorporation of Texas, Inc.:

     Our audits of the consolidated financial statements referred to in our
report dated February 11, 2000 of Southwest Bancorporation of Texas, Inc. and
Subsidiaries included on page F-2 of this Form 10-K also included an audit of
the financial statement schedule listed in the index on page F-1 of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.

                                                     PricewaterhouseCoopers LLP

Houston, Texas
February 11, 2000

                                      F-26

<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
          SCHEDULE I -- PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
                            CONDENSED BALANCE SHEET
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                            DECEMBER 31,
                                       ----------------------
                                          1999        1998
                                       ----------  ----------
<S>                                    <C>         <C>
               ASSETS
Cash and cash equivalents............  $      104  $   12,520
Securities -- available for sale.....         406      --
Investment in subsidiaries...........     194,236     164,007
Other assets.........................         251         935
                                       ----------  ----------
          Total assets...............  $  194,997  $  177,462
                                       ==========  ==========

<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                    <C>         <C>
Liabilities:
     Other liablities................  $   --      $       14
                                       ----------  ----------
          Total liabilities..........      --              14
                                       ----------  ----------
Shareholders' equity:
     Common stock -- $1 par value,
      50,000,000 shares authorized;
      28,018,783 issued and
      outstanding at December 31,
      1999 and 27,649,710 issued and
      27,394,005 outstanding at
      December 31, 1998..............      28,019      27,650
     Additional paid-in capital......      63,182      58,661
     Retained earnings...............     115,417      88,844
     Accumulated other comprehensive
      income.........................     (11,621)      3,749
     Treasury stock, at
      cost -- 255,705 shares.........      --          (1,456)
                                       ----------  ----------
          Total shareholders'
        equity.......................     194,997     177,448
                                       ----------  ----------
          Total liabilities and
        shareholders' equity.........  $  194,997  $  177,462
                                       ==========  ==========
</TABLE>

  These condensed financial statements should be read in conjunction with the
             Consolidated Financial Statements and Notes thereto of
   Southwest Bancorporation of Texas, Inc. and Subsidiaries included herein.

                                      F-27
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
    SCHEDULE I -- PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
             CONDENSED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                       --------------------------------
                                          1999       1998       1997
                                       ----------  ---------  ---------
Equity in undistributed income of
  subsidiaries.......................  $   26,987  $  25,221  $  17,761
<S>                                    <C>         <C>        <C>
Interest income:
     Loans...........................      --             76         64
     Securities......................          63         26         26
                                       ----------  ---------  ---------
          Total interest income......          63        102         90
Interest expense on borrowings.......         120        717      1,035
                                       ----------  ---------  ---------
          Net interest income........         (57)      (615)      (945)
Other income:
          Dividends received from
             subsidiaries............      --         --          2,000
          Other operating income.....      --              5          5
                                       ----------  ---------  ---------
          Total other income.........      --              5      2,005
Operating expenses...................         155        552        540
                                       ----------  ---------  ---------
          Income before income
             taxes...................      26,775     24,059     18,281
          Income tax benefit.........         (75)      (402)      (506)
                                       ----------  ---------  ---------
Net income...........................      26,850     24,461     18,787
Other comprehensive income, net of
  tax:
          Net unrealized
             (depreciation)
             appreciation on
             securities available for
             sale....................     (15,370)     1,974      1,869
                                       ----------  ---------  ---------
          Comprehensive income.......  $   11,480  $  26,435  $  20,656
                                       ==========  =========  =========
</TABLE>

  These condensed financial statements should be read in conjunction with the
             Consolidated Financial Statements and Notes thereto of
   Southwest Bancorporation of Texas, Inc. and Subsidiaries included herein.

                                      F-28
<PAGE>
            SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
    SCHEDULE I -- PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
                       CONDENSED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                   YEAR ENDED
                                                  DECEMBER 31,
                                       ----------------------------------
                                          1999        1998        1997
                                       ----------  ----------  ----------
<S>                                    <C>         <C>         <C>
Cash flows from operating activities:
     Net income......................  $   26,850  $   24,461  $   18,787
     Adjustments to reconcile net
       income to net cash provided by
       operating activities:
          Equity in undistributed
             income of
             subsidiaries............     (26,987)    (25,221)    (17,761)
          Decrease in accrued
             interest receivable,
             prepaid expenses and
             other assets............         684         364       4,014
          Decrease in accrued
             interest payable and
             other liabilities.......         (14)       (262)       (151)
     Other, net......................          57      --          --
     Adjustment to conform reporting
       periods.......................      --             100      --
                                       ----------  ----------  ----------
               Net cash provided by
                  (used in) operating
                  activities.........         590        (558)      4,889
                                       ----------  ----------  ----------
Cash flows from investing activities:
     Proceeds from maturity of
       securities available for
       sale..........................      --             500      --
     Purchase of securities available
       for sale......................     (24,567)     --          --
     Sales of securities available
       for sale......................      24,161      --          --
     Investments in subsidiaries.....     (39,000)     --         (20,000)
     Return of capital from
       subsidiaries..................      25,500      --          --
                                       ----------  ----------  ----------
               Net cash (used in)
                  provided by
                  investing
                  activities.........     (13,906)        500     (20,000)
                                       ----------  ----------  ----------
Cash flows from financing activities:
     Payments of dividends on common
       stock by Fort Bend Holding
       Corp. ........................        (277)       (723)       (476)
     Net proceeds from issuance of
       common stock..................       1,236       2,370      20,733
     Other, net......................         (59)                 --
     Adjustment to conform reporting
       periods.......................      --             143      --
                                       ----------  ----------  ----------
               Net cash provided by
                  finacing
                  activities.........         900       1,790      20,257
                                       ----------  ----------  ----------
Net increase (decrease) in cash and
  cash equivalents...................     (12,416)      1,732       5,146
Cash and cash equivalents at
  beginning of period................      12,520      10,788       5,642
                                       ----------  ----------  ----------
Cash and cash equivalents at end of
  period.............................  $      104  $   12,520  $   10,788
                                       ==========  ==========  ==========
</TABLE>

  These condensed financial statements should be read in conjunction with the
             Consolidated Financial Statements and Notes thereto of
   Southwest Bancorporation of Texas, Inc. and Subsidiaries included herein.

                                      F-29