Southwest Bancorporation of Texas,Inc.and Subsidiaries
Condensed Consolidated Statement of Income
(In thousands,except per share amounts)
(Unaudited)

During the first quarter of 2001, market interest rates declined due to the Federal Reserve’ rapid interest rate reduction of 50 basis points on January 4 and another 50 basis points on February 4. This decline in interest rates will unfavorably impact the Company’s net interest margin in 2001 due to its short term GAP position. As illustrated on page 29, a 100 basis point drop in interest rates, as we have experienced in the first quarter of 2001, may reduce the Company’s net interest income by 4.11% for the year, assuming no additional change in interest rates. However as more fully described in ‘‘ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internest Rate Sensitivity and Liquidity" there are inherent limitations in any methodology used to estimate the exposure to changes in market interest rates. 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. Although it is difficult to predict the long term impact of this decline in interest rates, management expects the net interest margin for the first quarter of 2001 to be in the range of 4.40% to 4.55% , compared to 4.67% for the fourth quarter of 2000. Consistent with the Company’s objective to generate stable growth in net interest income and to attempt to control risks associated with interest rate movements, management routinely implements activities which adjust to changes in the interest rate environment. These activities are expected to have a favorable impact on net interest income over time.