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A seven-year effort to raise capital at Sarasota-based Bank of Commerce has culminated with a $10 million investment from a Tennessee businessman with holdings in health care companies and other banks.
The investor, according to a statement, is Byron DeFoor from Chattanooga. Entities where DeFoor holds an ownership stake include Grace Healthcare, which operates more than 40 skilled nursing home facilities; Contemporary Healthcare Capital, which provides financing to health care companies; Millennium Bank, which primarily serves the Chattanooga area; and Gastonia, N.C.-based AB&T Financial Co., parent company of Alliance Bank and Trust.
DeFoor is now a majority owner of Bank of Commerce, which had $209 million in assets through June 30. “We are pleased our perseverance in raising capital has finally paid off,” president and CEO Charlie Murphy says in the release.
The $10 million investment allows the bank to fulfill the requirements of a regulatory consent order, in place since 2011, to raise Tier 1 capital levels to at least 8%. Bank of Commerce, with the investment, will now be considered “well-capitalized,” the release states.
“The bank is known throughout the community for its exceptional service to customers and its dedicated leadership team,” DeFoor says in the statement. “This investment will only make a strong team stronger.”
But there is a significant downside to the investment: The bank's holding company, Bank of Commerce Holdings Inc., filed for voluntary bankruptcy in order to facilitate the recapitalization, according to the statement. The bank filed for the bankruptcy under a section of the code that happens when a “distressed holding company is unable to negotiate a pre-packaged reorganization with creditors,” the release states. That rule “permits the sale of assets 'free and clear' of existing liens and interests,” the statement adds.
The genesis of the bankruptcy comes from more than $10 million in trust preferred stock debt the bank holds. That debt was an obstacle for many potential investors, and the bankruptcy clears a path for DeFoor.
The bankruptcy also means that while Bank of Commerce will remain intact and fully operational, the holding company will cease to exist. The original shareholders in the bank, including Murphy and the board, will lose their initial investment, which was more than $10 million.
“It is very important to note this bankruptcy affects only the holding company, which operates separately from the Bank,” Murphy says in the statement. “The filing will have no impact on the Bank's day-to-day operations, the employees or customers.”
The bankruptcy-to-get-out from under the capitalization issues, adds Murphy in an interview Thursday with the Business Observer, was a bittersweet bank-saving move, considering the initial investment. The bank, through multiple advisors and consultants, met with more than 100 potential investors, banks, equity funds and potential acquirers to find capital. No one worked out until DeFoor, who Murphy met in 2014.
“We investigated every possible option to us,” Murphy says. “This really is the best solution for the bank.”
Finalization of the bankruptcy filing and recapitalization is subject to regulatory and other approvals and closing conditions. The transaction is expected to be completed by the end of the year.
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