HOUSTON - It's late on a Friday afternoon, and Walter Johnson is exuberant.

As he gives a tour of his bank's rapidly expanding headquarters, air conditioned against the 105-degree Houston heat, he continually turns the conversation toward an $8 million transaction account he and his staff have long been courting. The well-heeled customer's wire transfers start coming into the bank that afternoon.

"This one is a home run," Mr. Johnson says with a sagacious grin. "These are the kind of days that make this job so much fun."

Never a Dull Moment

Later, one of Mr. Johnson's lieutenants explains that his boss' buoyant disposition isn't a result of the deposit deal.

"He's like that pretty much all the time," said Paul B. Murphy Jr., executive vice president at $410 million-asset Southwest Bank of Texas, the bank Mr. Johnson, seemingly by the sheer will of his personality, resurrected out of the dustbin of Houston banking and turned into Texas' fastest-growing financial institution.

"Every day of my life is just so exhilarating," Mr. Johnson said.

Mr. Johnson is a kind of folk hero in Houston banking circles, becoming one of the few former chief executives of a big Texas bank to salvage a career in the front office. His competitors privately worry that he's recklessly expanding Southwest Bank, but his customers praise him as a savior of local banking.

Something to Cheer

Through four years of ever-positive publicity, advertising, and his personal style of business, Mr. Johnson has given Houston bankers something to envy, gun for, and cheer for.

"Other bankers hold us suspect because of our growth," Mr. Johnson admits. "Their board members see Southwest growing, they ask them why can't their bank see that kind of growth. They tell them it's because their bank's underwriting standards are tougher. The bottom line is, we don't have to take on extra risk to grow like we have. We have no incentive to take on a lot of risk."

Risk or no, Mr. Johnson's bank has grown at an astonishing rate since he became chief executive in 1989. From $40 million in assets, Southwest today is just shy of $410 million, an increase of 925% in four years.

Growth amid Turmoil

That makes Southwest the fastest-growing bank in Texas during the period when most banks contracted because of the effects of the late-1980s oil and real estate crashes.

Southwest has been profitable for three years, and its balance sheet is relatively clean, with only 0.07% of total loans and foreclosed real estate not performing. It has achieved its growth with no acquisitions and without reliance on high-cost deposits.

"Nobody is that good," said one of Mr. Johnson's many competitor/friends in Houston banking, who wished that he not be named. "Everybody is waiting for [Southwest] to either stub its toe on bad loans or run out of capital."

Judging from Mr. Johnson's past alone, capital won't be a problem. His record on lending, however, is mixed.

For 25 years until 1989, Mr. Johnson was president of Allied Bank of Texas. He expanded it from $200 million in assets in 1963 into one of Houston's largest banks and the city's premier middle-market business lender. By 1987, Allied had $5 billion in assets.

"Then the world ended," Mr. Johnson said.

All of Texas' big banks were affected by the collapse of the energy and real estate markets, in a tale that is now well told. Allied was one of the few to manage without federal assistance, selling out to Los Angeles-based First Interstate Bancorp in 1988.

A Rocky Start

First Interstate's foray into Texas was, at least in the short term, considered a disaster. By the end of 1989, First Interstate's Texas unit had $560 million in nonperforming assets and another 500 million in potential problem assets. During the first two years that First Interstate owned Allied, the Texas bank lost more than $277 million.

Mr. Johnson stayed on at First Interstate for a year until January 1989. By June of that year, he had been hired by a small bank in west Houston called Northwest Crossing National Bank. Northwest Crossing was run by a group of wealthy local business people, but was languishing with no profits and little capital.

Mr. Johnson said Northwest Crossing needed two things: talent and capital. By the end of 1989, Mr. Johnson had hired away a bunch of high-priced bankers from Houston's banks, some from his old shop at First Interstate.

"People thought I was crazy," Mr. Johnson said.

"Crazy" applied when he set out to raise $13.5 million in new capital for a money-losing bank in what was considered the worst banking market in the country and in a depressed climate for bank stocks.

He personally called on 650 local investors to raise the money from 30 of them.

"The investment bankers said it couldn't be done," he said. "I thought it could. I just had to be tenacious."

With his new bankers and his new investors (you have to be a Houstonian to buy stock in the bank), Mr. Johnson renamed the bank Southwest Bank of Texas and set out to build the most prominent middle-market lender bank in Houston, all over again.

He did it, he said, with a lot of hard work and a lot of publicity.

"I already knew every business in this town," Mr. Johnson said. "I knew what they wanted and needed from their bank. It was just a matter of us going out and cultivating them, letting them know that we can do it better than the big banks."

It's not that Southwest has been the only Houston bank to benefit from the turmoil of the big banks. Houston has 65 community banks within its borders, and most have snagged business from the likes of NationsBank, First Interstate, and Chemical.

But no bank in Houston has done it as successfully, nor as brazenly, as Southwest Bank.

Getting the Word Out

The bank spends $200,000 a year on advertising, all of it in the local business pages of newspapers.

The ads feature a full-page Pictures of bank executives and employees, and copy with a hefty dose of interloper bashing and driving home the fact that Southwest is 100% Houston owned and run.

"If I saw my picture big as all get out in the local newspaper, telling everybody how great my bank is, I'd be too embarrassed to show myself in public," said one local banker of Southwest's ads.

The ascent of Southwest and Mr. Johnson in Houston became evident last December, when the bank set out to raise another $8 million in capital to keep up with its meteoric loan growth.

In the three weeks between Dec. 1 and Christmas, checks had come in for $12 million in stock. Even then, the maximum one investor could buy was $50,000.

Fuel for Growth

Even with this new capital, however, Southwest is unlikely to be able to support its internal growth without another infusion in coming years. For example, right after the December offering was closed, Southwest's equity capital equaled 9.4% of total assets, putting it in the 75th percentile of its peer group, according to Ferguson & Co.

Three months and $20 million in new loans later, Southwest's equity capital had dropped to 7.73% of total assets, putting it in the 35th percentile. At June 30, however, Southwest still had a strong 11.97% risk-based capital ratio and a total of $30 million in equity capital and reserves.

Southwest's loan portfolio doesn't look like it's loaded with land mines, either. While $62 million, or 26.7%, of the bank's $235 million portfolio is real estate related, most of those loans are for owner-occupied properties and none are speculative.

Said Mr. Murphy: "We do things the same way here that Walter has always done them, except for one thing. We're tougher on lending. We all went through the same nightmare, but we took good notes while we were there."

The Houston economy is helping, too.

"This economy is in a quiet but real recovery," said David Shindeldecker, president of Houston's Northwest Bank. "We're not making a lot of noise about it, but all of the small banks are benefiting from it."

And Mr. Johnson makes no bones about his ability to capitalize on that recovery.

Sales Pitch

"There isn't another banker in this country that can tell you about middle-market banking as well as I can," he said. Like a good salesman, Mr. Johnson made this statement deadpan, with deliberate eye contact. Behind him, in an office he personally decorated, is an impressive collection of stuffed and carved wild fowl and hunting implements.

It is hard not to believe him.

Mr. Johnson's management style reflects his personality. He demands that every employee's workday begin at 7 a.m. and last until 7 p.m., so that meetings can be held during nonbusiness hours. He works 100 hours a week at least, he said. And he personally gets involved in problem solving, if not the day-to-day management of the bank.

For instance, he will take it upon himself to fix a cabinet in the office storeroom, but will leave the administration of Southwest's burgeoning wire transfer and cash management department entirely in the hands of Sharon Sokol, his chief operating officer.

No Taste for Administration

"I never liked administration," he said. "I want to be the guy on the first floor or on the street. I have never seen one ounce of fun in administration. But getting new business, that is an absolute blast. The whole key to my ability to succeed is my background with the customer."

His second-in-command and likely successor, Mr. Murphy, who came with Mr. Johnson to Southwest from First Interstate, describes his boss as driven and dedicated, able to outwork him despite his 20-year seniority. Mr. Murphy thinks Mr. Johnson is nothing short of a hero.

"We say sometimes that this bank should be called the Bank of Walter," Mr. Murphy said. "The whole reason we are here and are successful is because of Walter's abilities as a business leader."

Mr. Johnson, sitting across the table from Mr. Murphy, doesn't disagree. But his poise evaporates for just a moment, as his smile pushes his rimless glasses above his eyebrows and he blushes to the tips of his oversized ears.

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