Fortress Partners Capital Management Ltd. remains on the hunt for capital so it can continue to invest in smaller community banks that it believes are poised for growth.

The company, not to be confused with the bigger Fortress Investment Group LLC in New York, specializes in bank advisory work. Since 2007, the Hartland, Wis., firm has also bought stakes of up to 9.9% in a number of banks, primarily those along the coasts.

The company's investments include the $2.2 billion-asset First NBC Bank in New Orleans and the $1.4 billion-asset 1st United Bank in Boca Raton, Fla.

Jon Bruss, the private-equity firm's managing partner and chief executive, sat down with American Banker while on a trip to Chicago earlier this month. Bruss has been involved with banking for more than 40 years as both a banker and an adviser. He started Town Bankshares in Delafield, Wis., which sold to Wintrust Financial Corp. in 2004 for about $38.5 million.

Over coffee, Bruss shared his perspective on the current state of the banking industry, including consolidation, bulk loan sales, and the appetite of private equity firms to invest in community banks.

Here is an excerpt:

What's your read on community banking and the appetite for investment these days?

JON BRUSS: I think it appears that the attitude of investors towards community banks has been improving. Our portfolio of publicly traded banks did extremely well in January and has done very well so far this month.

[The banking sector's performance] has been far better than what we did in any of the last three years. There is an attitude that banks have gotten their balances sheets cleaned up and reserves appropriately built for the most part.

What about so-called zombie banks with unclear exit strategies? What does 2012 hold for them?

That continues to be a tough, tough sell. I suspect 2012 will hold more of the same for them. We've heard from regulators that so long as there is sufficient liquidity, they are just going to let them bleed out. That is crass, but as you watch this whole thing play out, it seems like that is what is already happening, doesn't it?

For the banks that can, what is your position on bulk sales?

Absolutely. If I am an enlightened bank CEO, I'm interested in having my franchise survive, because we fulfill a need in the markets we are serving. How can I survive and grow without capital? I can't because I have this impediment. That is taking up a ton of my time and the time of the people working for me. I want to get rid of the problems. I might have to shrink the bank to make that happen because I'm also going to have to sell some good loans with the bad, but I can get back to business.

I'm a big fan of these sales. Does it work for everybody? Probably not. I had breakfast recently with a former CEO who had explored such a sale and when they looked at their loans, they couldn't find a sufficient number of good loans to package with the bad loans to make it work.

What is your opinion of the private equity strategy of rolling up failed banks?

That's all anybody talked about for a while. People put together those funds pretty quickly and they didn't pan out, but it wasn't really our thing.

You have investments in the Southeast, Is it getting any better down there?

Southwest Florida is always fingered as being the bad boy. Luckily, that encompasses a lot of area. We think Fort Myers, Bonita Springs and Naples are pretty good markets and they are beginning to come back. We are well acquainted with a contracter down there and there are now talks of new construction.

How much capital are you trying to raise? What has the appetite been?

We'd like to raise $75 million. It has been a real challenge because we haven't had any exits from our first two funds. Investors want to see our results.

In the bigger picture, there was a lot of money that was soaked up in late 2008 and 2009 and early 2010 by huge funds - billion dollar funds. They were supposed to take 24.9% positions or do whole bank acquisitions. And a lot of investors that we are talking to are invested in those funds and they are not being drawn.

I bet they're grumpy.

They are mad as heck. I really think that there is a lot of capital that has not yet been deployed [in the industry] and a lot of funds that were committed to banks that were not able to roll out the strategy.

For instance, we continue to be invested in a bank that started in 2007 that decided to change its strategy and become a platform bank. It raised a very significant nine figure number. None of the money was ever drawn and now that bank is for sale.

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