UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number: 000-22007

Southwest Bancorporation of Texas, Inc.

(Exact name of registrant as specified in its charter)

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 þ     No o

      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.     þ

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)     Yes þ          No     o

      The aggregate market value of the Registrant’s Common Stock held by non-affiliates was approximately $1.42 billion (based upon the closing price of $22.06 on June 30, 2004, as reported on the NASDAQ National Market System).

      There were 70,143,246 shares of the Registrant’s Common Stock outstanding as of the close of business on March 9, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant’s Proxy Statement relating to the 2005 Annual Meeting of Shareholders, which will be filed within 120 days after December 31, 2004, are incorporated by reference into Part III of this Report.

PART I

      The disclosures set forth in this item are qualified by the section captioned “Special Cautionary Notice Regarding Forward-Looking Statements — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report and other cautionary statements set forth elsewhere in this report.

The Company

      General. Southwest Bancorporation of Texas, Inc. (“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, 2004, the Company ranks as the largest independent bank holding company headquartered in the Houston metropolitan 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’s internet address is www.amegybank.com.

      The Company makes available through its website, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after filing with the Securities and Exchange Commission.

      The Company has adopted a Code of Conduct and Ethics that applies to all employees and directors of the Bank and the Company. This document is available on the Company’s website. The information included on the Company’s website is not a part of this document.

      Business Strategy. The Company’s vision is to grow and prosper through the building of long-term customer relationships by providing exceptional levels of customer service in an environment founded on high ethical standards and the generation of safe and sound assets. The Company operates as a locally oriented, community-based banking company with local and regional business advisory boards to assist it in meeting the financial needs of the communities it serves. Certain services are provided on a centralized basis in selected critical areas.

      The Company offers commercial and consumer banking services, as well as trust and investment management, treasury management, brokerage, leasing, factoring, and item processing services, primarily in the greater Houston and Dallas-Fort Worth markets. These services are provided to small, middle market, and larger corporate businesses, private banking individuals, and retail consumers in the Houston metropolitan area through its 72 full service banking facilities and in the Dallas-Fort Worth market through its five full service banking facilities.

      The Company offers an array of sophisticated deposit, lending, and treasury management products typically found only in major regional banks. Several banking locations have seasoned management with significant lending experience who are responsible for credit and pricing decisions, subject to loan committee approval for larger credits. This decentralized relationship management approach, coupled with the continuity of service by its banking officers, 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 opportunities of good quality within its target markets that exhibit positive 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 appropriate approvals for credit extensions in excess of conservatively assigned individual 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 focuses on internally generated growth through its existing branch network, building on its strong sales culture. The Company actively seeks retail consumer deposits, loan, and fee income generating relationships through its branch network and through the use of direct mail solicitations. In addition, the Company continues to actively target the commercial customers considered or defined as “middle market,” as well as the small business and the large corporate customers headquartered primarily in the Houston and Dallas-Fort Worth markets as well as in the other major metropolitan markets in the State of Texas. The “middle market” commercial customer is generally characterized as a company having annual revenues ranging from $1 million to $500 million and borrowings ranging from $50,000 to $15 million. 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. The Company also provides services to private banking clients including mortgage products, depository relationships, and trust and investment management services. The Company employs incentive compensation programs to promote and reward successful cross-selling activities among its relationship officers and product groups.

      Second, the Company establishes 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 and Dallas area neighborhoods who feel disenfranchised by larger regional or national organizations.

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

      The Company’s mergers and acquisitions are listed in the following table:

      See “Note 2 — Merger Related Activity” for more information regarding recent mergers and acquisitions.

Name Change

      On March 7, 2005, the Bank changed its name to Amegy Bank National Association. The Bank’s subsidiary, Mitchell Mortgage Company, L.L.C, changed its name to Amegy Mortgage Company, L.L.C. (“Amegy Mortgage”) on the same date. Subject to shareholders’ approval at the annual meeting on May 4, 2005, the name of the Company will change to Amegy Bancorporation, Inc. The Bank elected to change its name to enable its marketing and relationship officers and subsidiaries to market its products and services using one brand throughout the State of Texas. Accordingly, the Bank has designed an aggressive advertising

campaign to introduce the name to its customers and marketplace, focusing on the tagline “The ‘A’ Bank.” The costs associated with the name change are estimated to be $6 million. The Company’s stock ticker symbol changed to “ABNK” effective March 7, 2005.

Operating Segments

      The Company has two operating segments: the Bank and the mortgage company. Each segment is managed separately because each business requires different marketing strategies and each offers different products and services.

      The Bank provides a complete range of retail and commercial banking services that compete directly with major regional and money center banks. Loans consist of commercial loans to small, middle market, and large corporate businesses, loans to individuals, commercial real estate loans, residential mortgages, and construction loans. In addition, the Bank offers a broad array of fee income products including customized cash management services, investment and capital market products and services, trust and private banking services, accounts receivable financing, letters of credit, and merchant card services. The Bank develops business through, among other things, an active calling program by both product specialists and lenders. Approximately 225 banking officers actively call on customers and prospects.

      The Bank maintains a staff of professional treasury management marketing officers who consult with middle market and large corporate market companies to design customized and cost-effective cash management solutions. The Bank offers a full product line of cash concentration, disbursement, and information reporting services and a full suite of Internet imaging products superior to those offered by most regional banks. Through the continued investment in new technology and people, the Bank has attracted some of Houston’s largest middle market companies to utilize the Bank’s treasury management products. The Bank also has attracted new loan customers through use of the Bank’s treasury management services as a lead-in with products such as an image-based lockbox service and controlled disbursement and sweep products, which allow borrowers to minimize interest expense and earn interest income on excess operating funds. Through the use of an internet connection, the Bank’s NetSt@r 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 information in a standard computer-processable format. Through the use of EDI and electronic payments, the Bank can provide the customer with a paperless funds management system. Positive Pay Advantage, a service under which the Bank only pays checks listed on a legitimate “company issue” file, is another product which helps in the prevention of check fraud. The Bank’s average commercial customer uses six 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 72 locations throughout the Houston metropolitan area and 5 locations in Dallas. These branch locations are an important source of bank funding and fee income. Retail products consist of both traditional deposit accounts such as checking, savings, money market, and certificates of deposit, and a wide array of consumer loan and electronic banking alternatives. The Bank continues to emphasize the cultivation of retail market opportunities and investment in 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. The Bank has a variety of community outreach programs and is involved in supporting non-profit organizations in a number of ways. Several banking offices also appoint 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.

      The Company originates residential and commercial mortgage loans both for its own portfolio and to sell to investors with servicing rights retained through its ownership of Amegy Mortgage. Amegy Mortgage also purchases mortgage servicing rights, 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. Amegy Mortgage has production offices in Fort Bend and Montgomery Counties, Texas and, as a result of the January 31, 2004 merger with Reunion Bancshares, Inc. (“Reunion”), in Dallas, Texas. Amegy Mortgage’s corporate offices are located in The Woodlands, Texas.

      Amegy Mortgage is an approved seller/servicer for Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) and an approved issuer of Government National Mortgage Association (“GNMA”) mortgage-backed securities. Amegy Mortgage is also a HUD-Approved Title II nonsupervised mortgagee. During 2004, Amegy Mortgage funded approximately $278.8 million in residential mortgage loans, $188.5 million in commercial real estate loans, and $193.0 million in residential and commercial construction loans.

Competition

      The banking business is highly competitive and the profitability of the Company depends 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 providing products and services designed to address the specific needs of its customers. Total bank deposits in the Houston area were approximately $74 billion and deposits in the Dallas-Fort Worth Metroplex totaled approximately $84 billion as of June 30, 2004.

Employees

      As of December 31, 2004, the Company had 2,126 full-time equivalent employees, 756 of whom were officers. Employees of the Company enjoy a variety of employee benefit programs, including a stock option plan, a restricted stock plan, a 401(k) plan, various comprehensive medical, accident and group life insurance plans, and paid vacations. The Company considers its relations with its employees to be excellent.

Economic Conditions

      The Company’s success is dependent to a significant degree on economic conditions in the eight-county region comprising the Houston metropolitan area, which the Company defines as its primary market. The banking industry in Texas and in Houston is affected by general economic conditions including the effects of inflation, recession, unemployment, real estate values, energy prices, trends in the national and global economies, and other factors beyond the Company’s control. During the mid-1980’s, severely depressed oil and gas prices and levels of activity in the energy industries materially and adversely affected the Texas and Houston economies, causing recession and unemployment in the region and resulting in excess vacancies in the Houston real estate market and elsewhere in the State. Since 1987, however, the Houston metropolitan economy has gained nearly 730,000 jobs, averaging an annual growth rate of 2.6%. Houston is currently the corporate headquarters for 20 Fortune 500 companies. The job count at December 31, 2004 is estimated to be 2.14 million, which is more than the states of Alabama, Louisiana, South Carolina or Kentucky. In 2004, Houston registered a net gain of 38,600 jobs, or 1.7 percent job growth, which outperformed Texas and all of the state’s major metropolitan areas. Job growth for 2005 is forecasted to be 39,000, or 1.8 percent.

      On January 31, 2004, the Company expanded its branch presence in Texas into the Dallas-Fort Worth market with the merger with Reunion. The Dallas-Fort Worth market represents a significant growth

opportunity as it is estimated that two-thirds of the economic activity in Texas is accounted for by the markets in Houston and the Dallas-Fort Worth Metroplex. These two markets represent approximately $177 billion in bank deposits. The Dallas-Fort Worth economy is driven by the distribution, transportation, and telecom industries and is the corporate headquarters for 19 Fortune 500 companies. At year-end, the Dallas-Fort Worth area had 5.8 million residents and a job base of approximately 2.4 million jobs. Job growth for 2004 was 0.9 percent and is anticipated to increase by 2 percent for 2005.

      Since 1987, the Houston area economy has diversified from being primarily energy dependent to one that is now influenced by national and global economic trends as well as activity in the energy industries. The energy independent sectors of the Houston area economy have grown at an annual compounded rate of 5.9% since 1981. As a result, it is estimated that the upstream sector of the energy industry now accounts for approximately 31% of economic activity, down from 69% in 1981. Nonetheless, an economic recession or a delayed recovery over a prolonged period of time in the Houston area could cause an increase in the level of the Company’s nonperforming assets and loan losses, thereby causing operating losses, impairing liquidity and eroding capital. There can be no assurance that future adverse changes in the local economy would not have a material adverse effect on the Company’s consolidated financial condition, results of operations, and cash flows.

Supervision and Regulation

      The federal banking laws contain numerous provisions affecting various aspects of the business and operations of the Bank and the Company. The following descriptions of and 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 summaries and are qualified in their entirety by reference to such statutes and regulations.

      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 adequacy, reserves, loan portfolio, investments, and management practices. The Bank is currently a participant in the OCC’s “midsize” bank program. This program supplies the Bank with a full time examiner-in-charge that oversees a continuous examination process. 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, and because the Bank is a member of the Federal Reserve System, the Federal Reserve Board also has regulatory authority that affects the Bank.

      Restrictions on Transactions with Affiliates and Insiders. The Bank is subject to certain federal statutes limiting transactions between the Company and its nonbanking affiliates. Loans or other credit extensions to, asset purchases from and investments in affiliates of the Bank, meaning the Company or any of its nonbanking subsidiaries, are limited individually in amount to 10 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 20 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 collateralized in specified amounts.

      In addition, certain transactions between the Bank and its affiliates must be on terms substantially the same, or at least as favorable to the Bank, 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 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 apply to

all insured institutions and to the insiders of the institution’s affiliates. These restrictions include limits on loan amounts to one borrower and their related interests, 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.

      Examinations. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), revised the bank regulatory and funding provisions of the Federal Deposit Insurance Corporation Act and made revisions to several other banking statutes. Under FDICIA, all insured institutions must undergo regular on-site examination by their appropriate banking agency and such agency may assess the institution for its costs of conducting the examination. 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. The Bank is currently a participant in the OCC’s “midsize” bank program. This program supplies the Bank with a full time examiner-in-charge that oversees a continuous examination process.

      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 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 6.0% 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 institution’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 federal banking agencies are authorized by FDICIA to take various enforcement actions against any significantly undercapitalized national bank, any bank holding company owning such 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 prior 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, 2004, the Bank met the capital requirements of a “well 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 income for that year, plus its retained earnings for the preceding two years, 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.

      The FDIC has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The risk-based system assigns an institution to one of three capital categories: (i) well-capitalized, (ii) adequately capitalized, or (iii) undercapitalized. These three categories are substantially similar to the prompt corrective action categories, with the “undercapitalized” category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. An institution is also assigned by the FDIC to one of three supervisory subgroups within each capital group. The supervisory subgroup to which an institution is assigned is based on an evaluation provided to the FDIC by the institution’s primary federal regulator and information which the FDIC determines to be relevant to the institution’s financial condition and the risk posed to the deposit insurance funds. The supervisory subgroup to which an institution is assigned by the FDIC is confidential and may not be disclosed. An institution’s insurance assessment rate is then determined based on the capital category and supervisory category to which it is assigned.

      Under the risk-based assessment system there are nine assessment risk classifications (i.e., combinations of capital groups and supervisory subgroups) to which different assessment rates are applied. Assessment rates for deposit insurance currently range from zero basis points to 27 basis points. A bank’s rate of deposit insurance assessments will depend on the category and subcategory to which the bank is assigned by the FDIC. Any increase in insurance assessments could have an adverse effect on the earnings of insured institutions, including the Bank.

      Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC or any written agreement entered into between the institution and the FDIC. Management does not know of any practice, condition or violation that might lead to termination of deposit insurance.

      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 following list 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 Fair Credit Reporting Act, the Equal Credit Opportunity Act, the privacy provisions of the Gramm-Leach-Bliley 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 its ongoing customer relations.

      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 the Gramm-Leach-Bliley Act (see discussion below), however, bank holding companies and national banks have broadened authority, subject to limitations, to engage in activities that are financial in nature if the bank subsidiary is well capitalized and 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 is 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. FIRREA expanded the Federal Reserve Board’s authority to prohibit activities of bank holding companies and their nonbanking subsidiaries that represent unsafe and unsound banking practices or that 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.

      Stock Repurchases. A holding company is required 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 percent 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. A

holding company may 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 believes it not prudent to do so.

      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 are expected to maintain leverage ratios that are 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 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.

      Traditionally, the activities of bank holding companies have been limited to the business of banking and activities closely related or incidental to banking. Beginning in 1999, however, the Gramm-Leach-Bliley Act permits 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 or incidental to a financial activity. A bank holding company may become a financial holding company under the 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. Under the statute, 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 depends on the type of activity conducted by the subsidiary. For example, broker-dealer subsidiaries are regulated largely by securities regulators and insurance subsidiaries are regulated largely by insurance authorities. 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 that does not elect to become a financial holding company remains subject to the current restrictions of the Bank Holding Company Act. The Company has elected not to become a financial holding company.

      The federal banking agencies 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 and their subsidiaries, 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.

      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, 2004, the Bank met the requirements of a “well 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.

      On October 6, 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA Patriot”) Act of 2001 was enacted. The statute increased the power of the United States Government to obtain access to information and to investigate a full array of criminal activities. In the area of money laundering activities, the statute added terrorism, terrorism support, and foreign corruption to the definition of money laundering offenses and increased the civil and criminal penalties for money laundering; applied certain anti-money laundering measures to United States bank accounts used by foreign persons; prohibited financial institutions from establishing, maintaining, administering or managing a correspondent account with a foreign shell bank; provided for certain forfeitures of funds deposited in United States interbank accounts by foreign banks; provided the Secretary of the Treasury with regulatory authority to ensure that certain types of bank accounts are not used to hide the identity of customers transferring funds and to impose additional reporting requirements with respect to money laundering activities; and included other measures. On October 28, 2002, the Department of Treasury issued a final rule concerning compliance by covered United States financial institutions with the new statutory anti-money laundering requirement regarding correspondent accounts established or maintained for foreign banking institutions, including the requirement that financial institutions take reasonable steps to ensure that correspondent accounts provided to foreign banks are not being used to indirectly provide banking services to foreign shell banks. The Company believes that compliance with the new requirements will not have a material adverse impact on its operations or financial condition.

      In June 2003, the Securities and Exchange Commission adopted final rules under Section 404 of the Sarbanes-Oxley Act of 2002. Commencing with this 2004 Annual Report on Form 10-K, the Company is required to include a report of management on the Company’s internal control over financial reporting. The internal control report must include a statement of management’s responsibility for establishing and maintaining adequate control over financial reporting as of year-end; of the framework used by management to evaluate the effectiveness of the Company’s internal control over financial reporting; and that the Company’s independent accounting firm has issued an attestation report on management’s assessment of the Company’s internal control over financial reporting, which report is also required to be filed as part of the Annual Report. Management’s Report on Internal Control Over Financial Reporting is in Item 9A. Controls and Procedures which begins on page 44 of this report. The Report of Independent Registered Public Accounting Firm begins on page 52 of this report.

      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 United States 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.

      The Company’s principal executive offices are located at 4400 Post Oak Parkway in Houston, Texas in space leased by the Company. The principal offices of Amegy Mortgage are located at 4576 Research Forest Drive in The Woodlands, Texas, in space owned by the Company.

      The Company has options to renew leases at most locations.

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

      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.

PART II

      The Company’s common stock began trading on the NASDAQ Stock Market on January 28, 1997, and was quoted in such Market under the symbol “SWBT”. Effective March 7, 2005, the Company’s stock ticker symbol changed to “ABNK”. The Company’s common stock was not publicly traded, nor was there an established market therefor, prior to January 28, 1997. On March 8, 2005 there were approximately 1,016 holders of record of the Company’s common stock.

      The Company’s principal source of funds to pay cash dividends on its common stock is cash dividends from the Bank. There are 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 income for that year, plus its retained earnings 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, 2004, approximately $66.7 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 high and low intra-day sales prices per share of the Company’s common stock as reported by the NASDAQ and the cash dividends declared per share for each quarter of 2004 and 2003. The common stock sale price and cash dividends per common share were retroactively adjusted for the Company’s one for one stock dividend paid on July 15, 2004.

      On February 2, 2005, the Company’s Board of Directors approved a cash dividend of $0.03 per common share to be paid on March 15, 2005 to shareholders of record on March 1, 2005.

Recent Sales of Unregistered Securities

      None.

Stock Repurchase Plan

      During the third quarter of 2001, the Company announced a program to repurchase, from time to time, up to 1.0 million shares of its common stock. As of December 31, 2004, no shares of the Company’s common stock had been repurchased under this plan.

      The following consolidated selected 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, 2004 are derived from the Company’s Consolidated Financial Statements which have been audited by independent accountants.

      Earnings per common share, cash dividends per common share, book value per common share, average common shares outstanding, and average common share equivalents presented below were retroactively adjusted for the Company’s one for one stock dividend paid on July 15, 2004.

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 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) the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; (c) governmental monetary and fiscal policies, as well as legislative and regulatory changes; (d) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters; (e) 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; (f) 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; (g) technological changes; (h) acquisitions and integration of acquired businesses; (i) 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 (j) acts of war or terrorism. All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements.

      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 Consolidated Financial Statements of the Company and Notes thereto and other detailed information appearing elsewhere in this Annual Report.

For the Years Ended December 31, 2004, 2003 and 2002

Overview

      This overview of management’s discussion and analysis highlights selected information in this document and may not contain all of the information that is important to you. For a more complete understanding of

trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates, you should carefully read this entire document. These have an impact on the Company’s financial condition and results of operations.

      Net income was $68.5 million, $60.7 million, and $59.2 million and diluted earnings per common share was $0.97, $0.87, and $0.86 for the years ended December 31, 2004, 2003, and 2002, respectively. This increase in net income was primarily the result of strong loan growth, increases in fee income, and the maintenance of strong asset quality offset by increases in operating expenses resulting from the Company’s mergers with Reunion and Klein Bancshares, Inc. (“Klein”) during 2004. Returns on average assets were 1.05%, 1.14%, and 1.30% and returns on average common shareholders’ equity were 12.86%, 12.86%, and 14.55% for the years ended December 31, 2004, 2003, and 2002, respectively. Return on average assets and return on average common shareholders’ equity in 2004 were negatively impacted by the decline in the net interest margin and increases in operating expenses resulting from the Company’s mergers with Reunion and Klein and the opening of the Dallas operations center, as well as expenses related to compliance work associated with the Sarbanes-Oxley Act of 2002 and the name change as discussed below. Return on average assets is calculated by dividing net income by the daily average of total assets. Return on average common shareholders’ equity is calculated by dividing net income by the daily average of common shareholders’ equity.

      Total assets at December 31, 2004, 2003, and 2002 were $7.51 billion, $5.95 billion, and $5.17 billion, respectively. This growth was a result of a favorable local economy, the mergers with Maxim Financial Holdings, Inc. (“Maxim”), Reunion and Klein, and the Company’s overall growth strategy. Loans were $4.65 billion at December 31, 2004, an increase of $1.06 billion, or 29%, from $3.59 billion at December 31, 2003. Loans were $3.22 billion at December 31, 2002. Deposits increased to $5.62 billion at December 31, 2004 from $4.40 billion at December 31, 2003 and $3.91 billion at December 31, 2002. As of December 31, 2004, approximately $297.3 million of loans and $747.2 million of deposits relate to the former Reunion and Klein branches.

      Two principal components of the Company’s growth strategy are expansion through de novo branching and strategic merger transactions. During 2004, two new branches were opened in the Houston metropolitan area. The merger with Maxim was completed in July 2003, adding eight branches in Galveston County. The merger with Reunion closed on January 31, 2004. This transaction added five branch locations in Dallas and initiated the Company’s entry into the important Dallas-Fort Worth Metroplex market. The Company opened an operations center in Dallas during the second quarter of 2004 to enable it to offer its treasury management products to commercial businesses in that market. The merger with Klein was closed on October 1, 2004. This merger added 27 branches in the attractive northwest quadrant of the Houston metropolitan area to the Company’s branch network, bringing the total number of branches in Houston to 72 at December 31, 2004.

      Taxable-equivalent net interest income increased $37.9 million, or 20%, during 2004 primarily as a result of the Company’s strong internal loan growth coupled with loans acquired through the mergers with Reunion and Klein. Investment securities increased during the year as a result of the investment portfolio acquired in the Klein merger. This increase contributed to the increase in net interest income.

      Noninterest income increased $13.3 million, or 16%, to $96.5 million in 2004 compared with $83.2 million in 2003 and $67.1 million in 2002. Noninterest income continues to be an important component of the Company’s net income and comprises 30% of total revenue, defined as net interest income plus noninterest income, in 2004. The primary drivers of the increase were continued growth in service charge income arising both from the sale of treasury management products to commercial customers and from retail activities, increased income from the trust, investment, and foreign exchange groups, and gains from the sale of letters of credit, loan commitments and from the private equity investment portfolio.

      Noninterest expenses increased $42.9 million, or 25%, to $216.6 million in 2004 compared with $173.7 million in 2003 and $145.7 million in 2002. The primary causes of the increase in noninterest expenses were the Company’s merger activity, expenses related to the opening of the Dallas operations center, expenses related to Sarbanes-Oxley compliance, expenses related to the name change, and normal operating expense increases to support the increase in the levels of the Company’s business. The Company merged with Maxim on July 1, 2003, Reunion on January 31, 2004, and Klein on October 1, 2004. The operating, core deposit

intangible amortization, and merger related expenses from these three merged entities incurred during 2004 totaled $23.2 million, compared with $7.7 million of operating, core deposit intangible amortization, and merger-related expenses incurred in 2003 associated with the Maxim merger. The Company incurred approximately $900,000 of out-of-pocket expenses related to Sarbanes-Oxley compliance and $630,000 of expenses related to the change in its name. In addition, the Company continues to invest in its technology infrastructure and personnel to accommodate the growth in its various business activities, including the sale of treasury management products and services, and to continually upgrade its capabilities to meet customer and data security requirements.

      Credit quality is an area of importance to the Company and 2004 reflected continued favorable results. Net charge-offs were 0.15% of average loans, an improvement from the 0.22% experienced during 2003. Nonperforming assets to total loans and other real estate was 0.55% at December 31, 2004, compared with 0.49% at December 31, 2003. See “— Financial Condition — Loans Held for Investment” for information on the composition of the loan portfolio.

      The Company’s capital position remains strong and in excess of the regulatory minimums to be classified as “well capitalized.” Its Tier 1 capital ratio of 9.02% and Total Capital ratio of 11.02% were augmented by the issuance of $35.0 million in trust preferred securities issued by SWBT Statutory Trust II in September 2004 and $60.0 million in trust preferred securities issued by SWBT Statutory Trust III in December 2004 (neither of which are consolidated for reporting purposes) and the issuance of $75.0 million of senior subordinated debentures in September 2004. The proceeds of these issuances were used to fund the merger with Klein and to augment the Company’s capital to support the growth in its loan portfolio. See “— Financial Condition — Liquidity.”

Results of Operations

      Net interest income represents the amount by which interest income on interest-earning assets, primarily securities and loans, exceeds interest expense incurred on interest-bearing liabilities, including deposits and borrowed funds. Net interest income, the principal source of the Company’s earnings, provided 70% of the Company’s total revenues in 2004, compared with 70% in 2003 and 72% in 2002. Changes in the level of interest rates, as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income.

      2004 versus 2003. Taxable-equivalent net interest income was $232.1. million in 2004 compared with $194.2 million in 2003, an increase of $37.9 million, or 20%. Growth in average interest-earning assets, primarily loans, was $1.01 billion, or 21%, while taxable-equivalent yields on interest-earning assets decreased 3 basis points to 4.96%. The impact of the growth in average interest-earning assets was partially offset by a $766.5 million, or 22%, increase in average interest-bearing liabilities that generated $9.1 million of interest expense in 2004. The cost of average interest bearing liabilities increased by 3 basis points to 1.31% compared with 1.28% in 2003. The combined effect of the decrease in the taxable-equivalent yield on interest-earning assets and the increase in cost of interest-bearing liabilities was a 5 basis point decline in the taxable-equivalent net interest margin for 2004 compared with 2003, to 3.99% from 4.04%. For the year 2004, the strong growth in interest-earning assets, primarily loans, generated a $51.2 million increase in interest income.

      Net interest margin risk is typically related to a narrowing of the margin between the yield on interest-earning assets and the cost of interest bearing liabilities as the level of market interest rates changes and changes occur both in the business mix and the rate of growth of the Company’s loan and securities portfolios and the mix and cost of its sources of liabilities used to fund its earnings assets. The Company manages this risk with asset and liability policies designed to maximize net interest income and the net present value of future cash flows within authorized risk limits by managing the changes in its deposit and loan pricing, seeking to match the repricing profile of its interest bearing liabilities and its interest bearing loan portfolio, and by managing the composition and maturity profile of its securities portfolio. During 2004, the growth in interest-earning assets, primarily loans, outpaced the growth in internally generated deposits resulting in an increased reliance on higher cost wholesale funding sources to support this growth. As the market level of interest rates changes, wholesale funding sources typically will reprice more rapidly than core deposits. To address this reliance on wholesale funding and to meet its strategic growth objectives, the Company merged with Klein on October 1, 2004. The Klein merger added $535.6 million in deposits, $163.1 million in loans and $330.0 million in securities.

      2003 versus 2002. Taxable-equivalent net interest income was $194.2 million in 2003 compared with $178.5 million in 2002, an increase of $15.7 million, or 9%. Growth in average interest-earning assets, primarily loans and securities, was $701.3 million, or 17%, while yields decreased 81 basis points to 4.99%. The impact of the growth in average interest-earning assets was partially offset by a $443.2 million, or 14%, increase in average interest-bearing liabilities, offset by a decrease in the rate paid on interest-bearing liabilities of 64 basis points to 1.28% in 2003.

      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. Income and yield on interest-earning assets include amounts to convert tax-exempt income to a taxable-equivalent basis, assuming a 35% tax rate. All average balances are daily average balances. Nonaccruing loans have been included in the table as loans carrying a zero yield. Interest on nonaccruing loans is included to the extent it is received. 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.

      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 have been allocated proportionately to the change due to volume and the change due to rate.

      On a taxable-equivalent basis, interest income increased by $48.9 million in 2004 as a result of increases in the average balances of interest-earning assets, primarily loans. The increase in interest income resulting from higher yields on the securities portfolio of $3.7 million was offset by a decrease in interest income resulting from declines in the yield earned on the loan portfolio of $6.9 million which was due to a changing business mix of loans and increased price competition. This increase in interest income was offset by a $9.1 million increase in interest expense due to higher volumes of interest bearing liabilities and a $1.8 million increase in interest expense resulting from an increase in the rates paid. The net result was a $37.9 million increase in taxable-equivalent net interest income in 2004 compared with 2003.

      The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The 2004 provision for loan losses was $10.2 million, a decrease of $1.6 million from 2003. The provision for the year ended December 31, 2003 was $11.9 million, an increase of $813,000 from the year ended December 31, 2002. Management regularly reviews the Company’s loan loss allowance in accordance with its standard procedures. See “— Financial Condition — Loan Review and Allowance for Loan Losses.”

      Noninterest income grew to $96.5 million for the year ended December 31, 2004, an increase of $13.3 million, or 16%, from $83.2 million for 2003. Noninterest income was $83.2 million in 2003, an increase of $16.1 million, or 24%, from $67.1 million for 2002.

      The following table presents the breakout of noninterest income between the bank and the mortgage company for the periods indicated.

      Banking Segment. The largest component of noninterest income is service charges on deposit accounts, which were $46.3 million for the year ended December 31, 2004, compared with $40.1 million for 2003 and $33.9 million for 2002. These were increases of 16% and 18%, respectively, for 2004 and 2003. Several factors contributed to this growth. First, the Bank’s treasury management group continues to grow with service charges from commercial analysis and fee income up $1.9 million, or 11%, in 2004. This success at winning new business results from the Company’s ability to design custom cost-effective cash management solutions for middle market and large corporate customers. Second, net non-sufficient funds charges on deposit accounts were $23.0 million for the year ended December 31, 2004, an increase of $3.8 million, or 20%, from $19.2 million for the same period last year. Additionally, the total number of deposit accounts grew from 159,860 at December 31, 2002 to 193,701 at December 31, 2003 and to 202,999 at December 31, 2004.

      Income on Bank-owned life insurance was $7.0 million for the year ended December 31, 2004, compared to $6.0 million for 2003 and $4.9 million for 2002. These were increases of 17% and 24%, respectively, for 2004 and 2003. The increases in 2004 and 2003 were attributable to the purchase of $30.0 million of additional Bank-owned life insurance in the third quarter of 2003.

      Other income was $13.7 million for the year ended December 31, 2004, compared with $11.0 million in 2003 and $7.9 million in 2002. The primary reasons for the increase in 2004 were an increase in equity investments income from unconsolidated investees and increased rental income.

      Mortgage Segment. Loan fee income was $2.1 million for the year ended December 31, 2004 compared with $3.0 million for 2003 and $1.6 million for 2002. Mortgage loan originations were lower in 2004 compared with 2003 as a result of higher market rates reducing borrower incentives to refinance. Amegy Mortgage funded $660.3 million of loans for the year ended December 31, 2004 compared with $735.0 million in 2003. Lower interest rates in 2003 and 2002 contributed to an increase in mortgage refinancings and originations. The increase in loan fee income of $1.3 million in 2003 was the result of an increase in the Amegy Mortgage loans funded of $212.0 million to $735.0 million for the year ended December 31, 2003, compared with $523.0 million in 2002.

      Gain on sale of loans, net, was $914,000 for the year ended December 31, 2004, down $608,000, or 40%, compared with $1.5 million for 2003 and $1.4 million for 2002. The market value of loans held for sale is impacted by changes in current interest rates. An increase in interest rates results in a decrease in the market

value of these loans while a decrease in interest rates results in an increase in the market value of these loans. The principal balances of mortgage loans sold were $174.6 million, $270.0 million, and $180.5 million during the years ended December 31, 2004, 2003 and 2002, respectively.

      Mortgage servicing fees, net of amortization and impairment, were $867,000 for the year ended December 31, 2004, compared with $659,000 for 2003, and ($2.9) million for 2002. The increase in 2004 is due to lower levels of refinancing experienced due to the increase in market rates for mortgages during the year. The increase in 2003 is primarily due to a provision established for capitalized mortgage servicing rights in excess of fair value, net of recovery, in the amount of $2.4 million in 2002. During 2003, the Company’s valuation allowance for mortgage servicing rights was fully recovered. For the year ended December 31, 2004, amortization of capitalized servicing costs was $2.2 million, a decrease of $2.6 million, or 54%, from the $4.8 million for the year ended December 31, 2003. Amortization of capitalized mortgage servicing costs was $4.2 million for 2002. Capitalized mortgage servicing costs are expensed against the related fee income as the underlying loans are paid off. Additionally, mortgage servicing fees were $3.1 million for the year ended December 31, 2004 unchanged from $3.1 million for the year ended December 31, 2003. See “Note 8 — Mortgage Servicing Rights” for further discussion on accounting for these assets. The majority of single family mortgages originated are sold in the secondary market with servicing retained.

      The following table presents the detail of noninterest expenses for the periods indicated.

      For the year ended December 31, 2004, noninterest expenses totaled $216.6 million, an increase of $43.0 million, or 25%, from $173.7 million for 2003, which had increased from $145.7 million for 2002. The increase in noninterest expenses during these periods was due primarily to increases in salaries and employee benefits, occupancy expenses, and merger-related expenses as detailed in the table below. Of the $43.0 million increase in noninterest expenses for 2004, $15.5 million was related to merger-related expenses, core deposit intangible amortization expense, and operating expenses of the merged entities. Other significant factors affecting 2004 noninterest expenses were approximately $900,000 in direct expenses for Sarbanes-Oxley compliance, $630,000 associated with the name change, and $2.2 million of operating expenses associated with the Dallas operations center opened in 2004.

      Salaries and employee benefits expense was $117.9 million for the year ended December 31, 2004, an increase of $20.7 million, or 21%, from $97.2 million for the year ended December 31, 2003. Salaries and employee benefits expense for the year ended December 31, 2003 increased $15.7 million, or 19%, from the same period in 2002. These increases were due primarily to the impact of employees acquired as a result of the mergers consummated during these periods and to hiring additional personnel required to accommodate the Company’s growth. Total full-time equivalent employees at December 31, 2004, 2003, and 2002 were 2,126, 1,760, and 1,481, respectively.

      Occupancy expense rose $8.0 million to $37.7 million in 2004. Major categories included within occupancy expense are building lease expense, depreciation expense and maintenance contract expense. Building lease expense increased $1.3 million, or 28%, to $5.8 million for the year ended December 31, 2004. Depreciation expense increased $2.9 million, or 25%, to $15.0 million for the year ended December 31, 2004

and was affected by the merger activity during 2004. This increase was due primarily to additional depreciation resulting from the ownership of the downtown operations center, depreciation from additional capital assets and the addition of new branches, including the eight Maxim branches acquired in July 2003, the five Lone Star Bank branches acquired in January 2004, and the 27 Klein Bank branches acquired in October 2004. Maintenance contract expense for the year ended December 31, 2004 was $6.7 million, an increase of $1.1 million, or 19%, compared with $5.6 million in 2003 and $4.0 million in 2002. The Company has purchased maintenance contracts for major operating systems throughout the organization.

      Merger-related expenses related to the mergers with Klein, Reunion, and Maxim were as follows:

      The efficiency ratio is a supplemental financial measure utilized in management’s internal evaluation of the Company and is not defined under generally accepted accounting principles. The efficiency ratio is calculated by dividing total noninterest expenses, excluding intangible amortization expense, by net interest income plus noninterest income, excluding net security gains (losses). An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources. The Company’s efficiency ratios were 65.52%, 63.26%, and 60.41% for the years ended December 31, 2004, 2003, and 2002, respectively. The increase in the efficiency ratio in 2004 is primarily a result of the decline in the net interest margin discussed in “— Results of Operations — Net Interest Income” above and the merger-related expenses discussed above. This ratio may not be a comparable measurement among different financial institutions.

      The provision for income taxes includes the regular federal income tax at the statutory rate, plus the income tax component of the Texas franchise tax, if applicable. 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. For the year ended December 31, 2004, the provision for income taxes was $27.7 million, an increase of $284,000, or 1%, from $27.4 million of provision for income taxes in 2003 which increased $414,000, or 2%, from $27.0 million of provision for income taxes in 2002. The Company’s effective tax rates were 29% for the year ended December 31, 2004 and 31% for the years ended December 31, 2003 and 2002. The reduced tax rate is primarily due to an increase in tax exempt income earned on the Company’s bank-owned life insurance and other tax exempt securities.

      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 attempts 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 were $4.54 billion at December 31, 2004, an increase of $1.05 billion, or 30%, from December 31, 2003. Loans held for investment were $3.49 billion at December 31, 2003, an increase of $373.7 million, or 12%, from $3.12 billion at December 31, 2002. During 2004, $163.8 million and $163.1 million of loans were acquired through the Reunion merger and the Klein merger, respectively. The balance of the loan growth was internally generated and resulted from The Company’s successful marketing and business development initiatives.

      During the past five years, loans have grown at a compounded annual growth rate of 18%. This growth is consistent with the Company’s strategy of targeting large 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 the existing or targeted customer bases, pursuing selected mergers and acquisitions that will add new markets, delivery systems, and management talent to the Company, and leveraging new or existing technology to improve the profitability of the Company and its customers.

      Loans increased during 2004 as the Company continued to expand its market presence in its defined primary markets. Additionally, at December 31, 2004, approximately $297.3 million of loans relate to the former Reunion and Klein branches. The Company continues to take a conservative approach to credit underwriting, which it believes is a prudent course of action, especially in uncertain economic conditions. While the short-term outlook for economic conditions is unclear, the Company is optimistic about the future and has continued to invest in new products, services, and personnel that it believes will bring opportunities for growth and expansion.

      The loan portfolio is concentrated in loans to commercial, real estate construction, and land development enterprises, with the balance in residential and consumer loans. While no specific industry concentration is considered significant, lending operations are focused primarily on the eight county area around Houston, the Dallas-Fort Worth market and other urban markets in the State of Texas. An economic recession over a prolonged period of time in the Houston and Dallas-Fort Worth markets could cause increases in nonperforming assets, thereby causing operating losses, impairing liquidity and eroding capital. There can be no assurance that future adverse changes in the local economy would not have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

      Loans classified as shared national credits totaled approximately $767 million at December 31, 2004 compared with $445 million at December 31, 2003. A shared national credit is a term used by the OCC to describe a lending relationship where three or more banks may lend to one borrower in amounts of $20 million or more. The Company believes that lending to this market is a natural development arising from its growth in capital base and its breadth of product offering. The borrowers are typically the largest employers in its defined marketplace and, due to the size of the economies in Houston and the Dallas-Fort Worth areas, there are a large number of attractive borrowers headquartered in its primary markets. The Company takes a disciplined approach to lending in this market segment. Its criteria are: the borrower generally has to be located in the State of Texas; the Company has to have access to executive management of the borrower; all credit extensions are based on a relationship banking approach whereby the Company expects to gain additional fee income or depository business within a reasonable period of time; and regular relationship profitability reviews are conducted with the goal that only borrowers using multiple banking services are retained. Deposits related to this market total approximately $335 million, with credit related fee income of $6.5 million and non-credit related fee income of $6 million realized in 2004.

      The following table summarizes the loan portfolio of the Company by major category as of the dates indicated:

      The primary lending focus of the Company is on small- and medium-sized commercial, construction and land development, 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.

      The Company’s commercial loans are generally underwritten 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, accounts receivable, inventory, or other assets and personal guarantees of company owners or project sponsors. 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, other assets, and personal guarantees of company owners or project sponsors. 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 10 to 30 years.

      Loans collateralized by single-family residential real estate are typically originated in amounts of no more than 90% of appraised value. The Company typically 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 10 to 30 year period, such loans often remain outstanding for significantly shorter periods than their contractual terms. The Company also offers home improvement loans and home equity loans collateralized by single-family residential real estate. The terms of these loans typically range from three to 15 years.

      The Company originates residential and commercial mortgage loans to sell to investors with servicing rights retained. The Company 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.

      Residential construction financing to builders generally has been originated in amounts of no more than 80% of appraised value. The Company requires a mortgage title binder and builder’s risk insurance in the amount of the loan. The contractual loan payment periods for residential constructions loans are generally for a six to eighteen month period.

      Consumer loans originated by the Company include automobile loans, recreational vehicle loans, boat 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 funded real estate construction and land development loan portfolio and the amount of such loans with fixed interest rates and floating interest rates in each maturity range as of December 31, 2004 are summarized in the following table:

      Loans held for sale of $107.4 million at December 31, 2004 increased from $96.9 million at December 31, 2003. These loans are primarily single family residential loans and are carried at the lower of cost or market. The market value of these loans is impacted by changes in current interest rates. An increase in interest rates would result in a decrease in the market value of these loans while a decrease in interest rates would result in an increase in the market value of these loans. The business of originating and selling loans is conducted by the Company’s mortgage segment.

      The Company’s loan review procedures include a credit quality assurance process that includes approval by the Board of Directors of lending policies and underwriting guidelines, a loan review department staffed, in part, with OCC experienced personnel, low individual lending limits for officers, loan committee approval for credit relationships in excess of $4.0 million, and a quality control process for loan documentation. The Company also maintains a monitoring process for credit extensions in excess of $100,000. The Company performs quarterly concentration analyses based on various factors such as industries, collateral types, business lines, large credit sizes, international credit exposure 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. The Company continues to invest in its credit risk management systems to enhance its risk management capabilities.

      The Company’s loan portfolio is well diversified by industry type but is generally concentrated in the eight county region defined as its primary market area. Historically, the Houston metropolitan area has been affected both positively and negatively by conditions in the energy industry. The Greater Houston Partnership reports that approximately 31% of economic activity currently is related to the upstream energy industry, down from 69% in 1981. Since the mid-1980’s, the economic impact of changes in the energy industry has been lessened due to the diversification of the Houston economy driven by growth in such economic entities as the Texas Medical Center, the Port of Houston, the Johnson Space Center, and government infrastructure spending to support the population and job growth in the Houston area. As a result, the economy of the Company’s primary market area has become increasingly affected by changes in the national and international economies.

      The Company monitors changes in the level of energy prices, real estate values, borrower collateral, and the level of local, regional, national, and international economic activity. There can be no assurance, however, the Company’s loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to changes in general economic conditions.

      The allowance for credit losses represents management’s estimate of probable losses inherent in various on- and off-balance sheet financial instruments. The allowance is established through a provision for credit losses based on management’s evaluation of the risk inherent in the loan portfolio and in unfunded commitments. The allowance is increased by provisions charged against current earnings and reduced by net charge-offs. Loans are charged off when they are deemed to be uncollectible; recoveries are recorded only when cash payments are received.

      At least quarterly, the Company’s Allowance for Loan Losses Committee and the Board Loan Committee review the allowance for credit losses relative to the risk profile of the Company’s loan portfolio and unfunded commitments. The allowance is adjusted based on that review if changes are warranted.

      The allowance has several components, which include specific reserves, migration analysis reserves, qualitative adjustments, a general reserve component, and a separate reserve for international, cross-border risk (allocated transfer risk reserve “ATRR”).

      Specific reserves cover those loans that are nonperforming or impaired. All impaired loans are evaluated per SFAS No. 114, Accounting by Creditors for Impairment of a Loan (“SFAS No. 114”). For impaired loans greater than or equal to $1.0 million, an allowance is established when the present value of the discounted expected cash flows (or collateral value or observable market price) is lower than the carrying value of that loan. For impaired loans less than $1.0 million, a determination is made as to the ultimate collectibility of the loan and a reserve is established for any expected shortfall.

      Migration analysis reserves cover performing loans both classified and non-classified, excluding those loans specifically evaluated for impairment reserve applicability. The migration reserve is established for commercial real estate and commercial non-real estate loans by analyzing historical loss experience by internal risk rating. The migration analysis reserve for consumer loans is established by analyzing historical loss experience by collateral type.

      Qualitative adjustments serve to modify the migration analysis reserves after considering various internal and external factors that management believes may have a material impact on the loss probabilities within the loan portfolio. The qualitative factors include, but are not limited to, economic factors affecting the Bank’s primary market area, changes in the nature and volume of the loan and lease portfolio, the composition of unfunded commitments, concentrations of credit within industries and lines of business, the experience level of the lending management and staff, and the quality of the Bank’s credit risk management systems.

      The general reserve covers general economic uncertainties as well as the imprecision inherent in any loan loss forecasting methodology. It will vary over time depending on existing economic, industry, organization, and portfolio conditions.

      The qualitative adjustments, ATRR, and general reserve are allocated to the loan portfolio categories on a risk adjusted, pro-rata basis utilizing the relative reserve contributions of each portfolio segment based on the migration analysis.

      The Company also maintains a reserve for unfunded commitments to provide for the risk of loss inherent in its unfunded lending related commitments. In the fourth quarter of 2004, the allowance for losses on lending related commitments was reclassified from the allowance for loan losses to other liabilities. Previously reported amounts were reclassified to conform to the current presentation. The reclassifications had no effect on net income or shareholders’ equity.

      The allowance for credit losses increased by $8.3 million from December 31, 2003 as a result of the increase in loans held for investment, net charge-offs of $5.9 million, the allowance for loan losses acquired

through the mergers with Reunion and Klein of $3.5 million, provision for loan losses of $10.2 million, and provision for unfunded lending commitments of $454,000. At December 31, 2004, the allowance for credit losses was 1.11% of period-end loans, a decrease from 1.23% at December 31, 2003. For the year ended December 31, 2004, net charge-offs to average loans was 0.15%. The net charge-offs average for all FDIC insured commercial banks was 0.61% for the nine months ended September 30, 2004.

      Management believes that the allowance for credit losses at December 31, 2004 is adequate to cover probable losses inherent in the loan and commitment 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 as of December 31, 2004.

      The following table presents, for the periods indicated, an analysis of the allowance for credit losses and other related data: