Turning Around A Troubled Bank

Banker Tom Brouster Specializes In Turning Around Troubled Banks.

by Julia Paulis Ogilvie

After 47 years in the finance business – savings and loans, consumer finance, and banking – Tom Brouster has risen through the ranks, but one aspect of his career has held steady. Brouster has continually used his expertise to save failing lending institutions and share financial wisdom with clients with hopes of improving local economies along the way.

His entrance into the industry was early. While working his first job when he was in his late teens – in the mailroom of a savings and loans company – Brouster knew he was meant for the finance industry. While attending night school and working in consumer finance, he gained training in making and collecting loans. At 22 years old he became the manager of a beneficial finance company office, where he was responsible for making and collecting loans, which was a prelude to his future as a turnaround banker.

At 25, Brouster joined Tower Grove Bank and Trust Company, now Commerce Bank, doing all the jobs a management trainee would in order to learn all areas of the bank. “I became the youngest officer in the bank’s history,” he says.

Then Brouster, along with a few colleagues, decided to put his early experience to the test, buying a bank on the courthouse steps. “That was Jefferson Trust Co.,” says Brouster. “It was a $4 million bank that we bought under foreclosure. It was my first role as an entrepreneur. I leveraged my house to do it. I became the bank president at 30 years old. Today that bank is Eagle Bank of Jefferson County. I sold it to a person who used to work for me in 1993.”

Brouster continued to use his expertise to buy, turn around and sell banks. He next saved North St. Louis Trust Co., which became Allegiant Bank, then National City and now PNC Bank; a bank in Owensville, Mo.; a bank in Charleston, Ill.; and then Brentwood Bank. “Then I moved into a bank in southern Illinois, Eagle Bank Corp.,” says Brouster. “It was seven banks and each were in trouble separately and had to be turned around. After, I  was recruited to a problem situation in Kansas City at Midland Bank. I successfully turned it around and sold it to Commercial Fed, a bank out of Omaha, Ne.  

I came back to St. Louis to work on Pioneer Bank and Trust, which was also near failure when I acquired it. I owned it for 14 years and sold it to PNC in 2006.”

At that point Brouster became chairman for PNC for the state of Missouri, and he worked as such for four years. By 2010 Brouster once again began to look for a turnaround situation. He was soon led to Reliance Bank. “I was on the sidelines reviewing the bank and analyzing whether I wanted to invest until 2012,” he says.

In February 2012, Brouster had made his decision. He formed an investor group and took control of Reliance Bancshares, the holding company for Reliance Bank. He and his partners injected $31 million of new capital into the company in March of 2013, at which time he became the chairman and majority shareholder.

St. Louis Small Business Monthly spoke with Brouster about how he has achieved his current success with Reliance Bank and the financial guidance he would provide to entrepreneurs today.

What attracted you to the turnaround situation?

As a person, I like taking what’s broken and making it better. It’s a thread about me. From a business point of view, it fit for what I trained for, starting in consumer finance and then learning all aspects for the department to owner at 30 and using that experience to fix an organization to be better than it was.

Why did you choose to get involved with Reliance?

My role at PNC was in an advisory capacity and I wanted to be in business again, but I was also partially retired. I had to decide No. 1: Do I want to take the risk of my investment and my partners? And No. 2: Do I want to go back to working 12- to 15-hour days?

The board of Reliance approached me. What I saw was an opportunity for Reliance in the marketplace as a larger community bank with 22 locations in Missouri and two in Florida. I saw an ideal opportunity to solve the problems and then grow it as a community bank in the St. Louis metro. It was motivating.

What shape was Reliance in then?

The bank had severe loan problems and needed new capital. The bank holding company and bank were both under severe regulatory orders. They had a requirement to resolve problem loans to reduce losses and provide capital depleted through loss of earnings. It lost $108 million from 2009 to 2011. It would have lost $12 million in 2012.

What steps did you take to turn around the situation at Reliance?

When my partner, Gaines Dittrich, and I joined, we began to solve many loan problems. We made a small profit in 2012 rather than a loss by collecting past loans. We worked problem loans one on one, face to face, in a fair way to help the bank and borrower.

We also looked at all procedures and corrected deficiencies to increase earnings.

Because of the restrictive order of the regulator to inject capital, that’s what we ultimately did.

The bank had a large concentration of commercial real estate loans. From 2007 to 2008, many banks involved with commercial real estate loans faltered. The values decreased and the borrowers were unable to pay back the loans.

We narrowed our focus from bigger problems to smaller issues we could work and resolve. We worked those with the largest dollar amount first to decrease those with the most risk.

Where did you go and where are you now?

For 22 consecutive months, we have had no loans over 30 days past due. Sixty percent of the loans have automatic debits. Otherwise we contact the borrower five days after due dates on all loans.  Borrowers understand their responsibility and want to pay on time. Sometimes it is just difficult. The bank is ready to work out a plan that benefits the borrower and the bank.

Our turnaround started in 2012. It became a transformation of the organization. We made rapid improvement, growing in deposits and growing in new loans. We are back in regular banking and have been been beginning in 2013. We have gone from turnaround to what I consider normal banking. The bank is profitable. 2013 was the best earnings year in the bank’s history at $6.5 million, and we project to earn $8.5 million in 2014.

I brought in additional key management personnel. This helped us make strides as a growing, stable, profitable bank.

What do you think business owners can take away from the work you do with banks to improve their own financial situations?

Strategic planning. Strategic planning is a critical process in management. I believe it should be a formal process with your upper-level management team that moves from the top down. Your strategic plan should establish goals and objectives for the next one, three and five years. It doesn’t need to be Harvard-MBA-perfect. It’s about sitting down and deciding what needs to be achieved. We at Reliance concentrate on what we call our Top 5 and Top 10. These are goals we keep management focused on, whether they are weekly or monthly goals. And we discuss them so that we have a better chance of achieving them.

Partnership agreements. When you start or buy a business and there are partners involved, it is a problem when no one is put in charge. In part, you need someone to be because there must be a mechanism for control. And if two partners own 50% and one wants out, how does that happen? You must set the stage in the beginning for the ultimate partnership arrangement so that if there is a disagreement on direction or one person wants to leave, you know how to move forward. This should be decided up front. Although it’s not a conversation everyone wants to have in the beginning because everything is hunky-dory, know that it is subject to change.

Banker relationships. Everyone at some point has to borrow money. Establish communication with your lender. Get on the phone or go in if things go wrong. Your banker will hopefully be able to help you resolve the problem. Often, problems can be resolved early on if you have an open channel of communication – before any damage is done.

Community involvement. As much as I have been involved in the business community, I have been heavily active in civic organizations. I believe in putting back into the system. I have been on the boards of the Saint Louis Zoo, Saint Louis Art Museum, Saint Louis University, Cardinal Glennon hospital, MICDS, the Muny, and I am the former president of the St. Louis archdioceses’ school board.

At the end of the day, what do you hope comes from your work?
I have a pride of professionalism and reputation and fair dealings. I don’t like win-lose situations. I aim for win-wins. Also, I hope to maximize return for myself, investors and shareholders.