Southwest Bancorporation of Texas, Inc. and Subsidiaries
Notes to Consolidated Financial Statements— (Continued)

12. 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, 2000, the Company has certain noncancelable operating leases which cover the Company’s premises with approximate future minimum annual rental payments as follows:

Rent expense was $4,672, $3,937 and $3,057 for the years ended December 31, 2000, 1999 and 1998, respectively.

13. 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, 2000, 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, 2000, the most recent notification from the regulators categorized the Bank and the Company as ‘‘well 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.