A bank in Santa Rosa, California, is seeking to acquire a big stake in a crosstown rival.
Earlier this month, the $5.9 billion-asset Big Poppy Bancorp filed an application with the Federal Reserve to acquire up to 24.99% of Summit State Bank. Big Poppy currently owns about 4.9% of Summit State's outstanding shares.
Summit State issued a statement Thursday noting "it is aware" of Big Poppy's investment, as well as the company's plans to boost its stake pending approval from the Federal Reserve. The public comment period on Big Poppy's application ends Aug. 1.
In a brief interview Friday, Summit State CEO Brian Reed added that Summit State's board is "evaluating our response" to Big Poppy's application. "Nothing's been formalized."
Big Poppy CEO Khalid Acheckzai did not respond to requests for comment. In a July 14 interview in the North Bay Business Journal, Acheckzai said Big Poppy was "accumulating shares" in Summit State, and he did not rule out a bid to buy the $1.1 billion-asset company.
Founded in January 2005, Big Poppy, the holding company for Poppy Bank, has done one deal, acquiring Costa Mesa, California-based Blue Gate Bank in 2018. The bank is clearly in a de novo expansion mode. In a statement on its website, Acheckzai noted plans to open 10 branches in the San Francisco Bay Area, Sacramento and Southern California. So far this year, Big Poppy has opened branches in Folsom and Elk Grove in the Sacramento area and Laguna Hills in Orange County.
It's easy to see why Big Poppy might consider acquiring Summit State. The combined institution would vault past industry giant Wells Fargo and the $3.3 billion-asset Exchange Bank — also headquartered in Santa Rosa — to become the city's largest bank, with a 21% share of its $10.6 billion deposit market according to the Federal Deposit Insurance Corp.
According to the Census Bureau, the population of Santa Rosa, which is ensconced in the Sonoma County wine country, totaled 177,000 on July 1, 2022. Santa Rosa's median household income of $84,823 was slightly higher than the statewide total but substantially higher than the national median household income of $69,021.
Summit State reported second-quarter results Tuesday. Net income of $3 million declined 34% year over year due in large part to a significant spike in funding costs, with the net interest margin shrinking by 76 basis points over the past year to 3.56%.
Summit State also reported a major increase in nonperforming loans, which totaled 2.65% of total loans on June 30. Nonperformers totaled seven basis points a year earlier.
"Despite the challenges and headwinds facing the banking industry, our ability to grow our balance sheet organically will ultimately further enhance the value of our Bank over time," Reed said Tuesday in a press release.
The privately held Big Poppy has not yet reported its second-quarter results. According to FDIC statistics, Big Poppy reported earnings of $14.3 million in the first quarter and $72.9 million in 2022.
Ted Peters, CEO at the Community Financial Institutions Fund and former CEO at Bryn Mawr Bank Corp. in Philadelphia, said it was "very rare" for one bank to seek to buy such a large stake in a competitor.
"Usually, if you want to buy the bank, you buy the bank," Peters said Thursday.
