Carla Brooks is doing something entirely new and yet she's following in her grandfather's footsteps. Brooks, who helps runs a $150 million private equity portfolio of community banks at Commerce Street Capital, is pioneering a nascent but growing sector of private equity investment in financial institutions. But considering that she buys banks for a living, she hasn't strayed far from home: in the late 1930s, Brooks' grandfather bought a small community bank in Iowa.

"It was always a mess counting the money from the local donut shop, as it always had sugar all over it!" she jokes. Brooks' father took over the business in the 1970s but sold it 10 years later when his daughter decided to take a different path. "My father and grandfather were on the operational side of things, but I like dealing with the spectrum of banking," says Brooks, explaining her decision to pass up the opportunity.

In the end Brooks got what she wished for. In 2002, after a long and varied career in the financial sector (her first job out of college was as an analyst at the Federal Reserve Bank of Dallas), Brooks joined Commerce Street, a Dallas-based boutique investment bank. With a mandate to invest in community banks, Brooks spent a year setting up the business and started raising money in 2003. Since then, she has helped build three portfolios worth $150 million. A fourth portfolio, projected to reach over $300 million, was launched this year.

Investors should be happy with their returns. Brooks has already sold two stakes, one returning 30 percent and the other 41 percent. Meanwhile, the book value of Brooks' portfolio banks has grown an average 11.75 percent since inception, with deposits up 346 percent and assets up 253 percent.

When making investments, Brooks looks for two criteria: she likes banks in booming areas, and those whose managers have the right kind of experience. Too many senior executives from larger banks think they can run a community bank without understanding how much effort is involved, she says.

"If you have a sign that says Bank of America on your door, people will come in and bank with you," she explains. "If you have a sign that says National Bank of Podunk, you're going to have to call the plumber in your area and the HVAC guy and get them to do business with you."

As a private equity investor, Brooks does indeed delve into the whole spectrum of banking. When she performs due diligence on potential targets, Brooks does everything from analyzing its regulatory filings to touring its nearby neighborhoods. That's no easy task, considering that Brooks has analyzed 487 different opportunities in the past two years, but only made 39 investments.

"I'm kind of picky," she says.

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