Strategic Growth Bancorp: Hitting profitability?

Real estate investor Bill Sanders is credited with building some of the largest and most successful real estate companies in the nation, holding high-profile positions in Chicago before moving back to his hometown of El Paso more than a decade ago.

So when Sanders, who has been described as the Warren Buffett of real estate, and his investment team make acquisitions for their real estate empire, it draws attention.

But lately Sanders has been expanding his business in a different direction. He and a group of investors have formed a holding company called Strategic Growth Bancorp, and have been buying community banks – some ailing – that they hope to consolidate into a regional banking powerhouse in the Southwest.

The group raised nearly $250 million initially, and so far, the group’s banking platform includes four community banks, the first bank acquired in 2010 and the most recent in May, and has assets totaling almost $2 billion, public filings show. The banks’ branches extend from the U.S.-Mexico border north to Colorado.

Overall, the banks that the group saved by injecting large amounts of capital into them are still ailing, but less so, a close study of bank financial reports indicates.

And the holding company that controls the banks, formed in late 2009 by a group of investors led by Sanders, continues to lose money but at a slower pace.

Strategic Growth Bancorp is headquartered on the third floor of the Chase Building in Downtown El Paso. It now controls four banks: Capital Bank located in El Paso, Bank of the Rio Grande in Las Cruces and Albuquerque, N.M., Mile High Banks in Colorado and, most recently, First National Bank of Santa Fe.

Famously quiet, neither Strategic Growth Bancorp nor Capital Bank responded to requests for comment.

But documents filed with the Federal Reserve show Strategic Growth lost $4.6 million in the first half of this year, and had assets of $1.9 billion.

In its most recent Bank Holding Company Performance Report filed with the Federal Reserve, Strategic Growth is compared with 344 peer banking institutions. In that comparison, the holding company ranked in the 2nd percentile for net income during the first half of the year.

New strategy

Strategic Growth has been growing its ranks, announcing more than 10 hires over the past year and promoting several employees.

Banking experts contacted by El Paso Inc. noted many of the new hires have come to El Paso with little community banking experience but with Ivy League educations and experience at big banks and investment firms such as Goldman Sachs and Citigroup – perhaps giving an indication of the scope of Sanders’ vision.

“It’s not just trying to turn the operations around by increasing the asset quality and such, doing better what the ailing banks were already doing; it looks like they are also making a total strategic change,” said University of Texas at El Paso finance professor Erik Devos.

The four banks, consolidated under one holding company, may be able to offer more services that larger banks provide and do more commercial real estate business, Devos said.

Recent hires include Stanford-educated financial analyst Michael Marshall, who was a legislative assistant to Speaker of the House John Boehner and is a former professional baseball player, and El Paso native Alberto Herrera, a graduate of the London School of Economics and Political Science where he was a Fulbright Scholar, according to bank announcements.

Strategic Growth’s new managing director, Richard Moore, hired earlier this year, worked at Goldman Sachs for 18 years and has an MBA from Harvard Business School, according to an announcement.

Why would a real estate developer like Sanders, who is best known for the successful real estate investment trusts, or REITs, he has founded, want to get into the community banking business?

Devos said the answer is anyone’s guess, but added that the banking business does complement the real estate business.

“If you think about it, most of what a REIT does is buy and manage properties. So they will have already built a lot of relationships with potential customers,” Devos speculated.

It also allows Sanders to work both the asset side of real estate, including buying and selling property, and the finance side, originating loans and servicing mortgages, he said. Indeed, Strategic Growth entered the home-mortgage loan business last year, forming affiliate Strategic Lending Group, which offers mortgages directly through its website: www.slghomeloans.com.

And, on Oct. 9, Capital Bank filed an application with the Federal Deposit Insurance Corporation, or FDIC, to open a fourth branch office in Downtown El Paso at 330 E. Yandell, according to a public notice.

Ailing banks

Capital Bank, a troubled El Paso savings and loan with assets of $195 million, was Strategic Growth Bancorp’s first acquisition. It rescued the savings and loan three years ago.

Strategic Growth put about $32 million into the bank initially and continued to inject capital as the losses continued, keeping the bank well capitalized, financial reports indicate.

Today, the bank is still losing money but at a somewhat slower pace.

In 2010, the year Strategic Growth acquired Capital Bank, the troubled savings and loan lost $2.2 million. But it lost $1.1 million last year and it lost $1.5 million from January to September of this year, according to the bank’s most recent Uniform Bank Performance Report, or UBPR.

The report is used by the Federal Financial Institutions Examinations Council to help monitor a bank’s stability.

Strategic Growth entered the New Mexico banking market in January 2012 when it acquired Bank of the Rio Grande in Las Cruces, which has $129 million in assets and 10 New Mexico branches.

Its net income was $19,000 the first half of this year. That compares to a loss of $188,000 during the same period last year, according to its most recent UBPR.

Later in 2012, Strategic Growth entered the Colorado banking market when it took control of Longmont-based Mile High Banks and its 13 branches. It acquired Mile High for $5.5 million, following the Chapter 11 bankruptcy filing of the bank’s previous parent, Big Sandy Holding Company.

Mile High Banks, which has $763 million in assets, lost a whopping $34 million in 2011. But from January to September of this year, the bank had a net income of $5.2 million.

It’s not clear from the financial documents what caused the dramatic change in income.

Most recently, in May, Strategic growth acquired First National Bank of Santa Fe, which has $846 million in assets and three branch banks.

Its net income from January to September was $98,000. That compares to $5.7 million during the same period last year.

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Email El Paso Inc. reporter Robert Gray at rsgray@elpasoinc.com or call (915) 534-4422 ext. 105.