Summit State Bank CEO tells feds he fears hostile takeover by Santa Rosa-based Poppy Bank

In a strongly worded letter to the Federal Reserve Bank, the CEO of Santa Rosa-based Summit State Bank says he believes his company could be the target of a “hostile takeover” by the parent company of another local financial institution, Poppy Bank.

“We have grave concerns about Big Poppy’s proposal,” Summit CEO Brian Reed wrote Thursday, adding that the move to acquire roughly a quarter of Summit’s stock would reduce competition in an already concentrated market. He also called Poppy Bank’s performance and commitment to community development into question.

“It is inconsistent with the convenience and needs of the communities we serve,” the letter states.

Reed did not immediately respond to requests for comment.

Poppy Bank CEO Khalid Acheckzai said that for now, his company’s bid is for a stake in Summit and not a takeover of the entire company.

Big Poppy Holdings, the bank’s parent company, filed a legal notice in July announcing possible plans to buy up to 24.99% of its competitor’s shares, which Summit noted would give Poppy the voting power to elect several board directors.

“We may end up buying them, we may not,” Acheckzai told The Press Democrat Friday. Still, he said, “ultimately, the goal would be to acquire them. It just depends on a number of factors.”

Acquisitions of smaller banks aren’t uncommon, but usually the deals are brokered by regulators with willing participation, according to Robert Eyler, an economics professor at Sonoma State University.

“This is a relatively rare situation where you seem to have a bank that wants to make an acquisition and the other bank doesn't want to sell and see the stock go out of their hands,” he said.

“These kinds of things are somewhat humdrum, otherwise. They are relatively small, regional institutions, but this makes for a little bit of drama.”

Acheckzai also pushed back against Reed’s characterization of Poppy, calling it “surprising and disappointing.” He countered by pointing to the institution’s planned opening of 10 new branches and investments in local nonprofits.

“I don’t want to get into the negativity. I respect the regulatory process,” he said. For now, “we’re waiting on approval from Federal Reserve Bank, and then we will take it from there.”

Regulators step in when a bank moves to buy close to 5% of another financial institution. Poppy had previously accumulated a 4.9% ownership stake in Summit.

Poppy’s bid comes at a turbulent time in the banking industry. Earlier this year, several U.S. bank failures, including two California institutions roiled the stock market. The turmoil began with Silicon Valley Bank in March. San Francisco-based First Republic Bank, was taken over by JP Morgan Chase in May.

Eyler, the Sonoma State economist, said an acquisition involving the two Santa Rosa banks is unlikely to have a major impact on consumers “short of what culture change Poppy might bring to Summit if it's successful in the takeover.”

“Neither one of those banks is such a market mover that it's going to shake up the whole area, but it will at least marginally consolidate some of the choices that consumers have,” he said.

“That’s what regulators are watching when they see bank mergers, acquisitions or takeovers. They are concerned about what that means in terms of consumer choice, interest rate levels on loans and deposits with respect to pursuing profitability and really just sort of customer service in general.”

Summit State Bank was founded in 1982 and has five branches, all in Sonoma County. It has $1.2 billion in assets and $1 billion of deposits as of June 30. The bank told regulators that its roughly 8,000 customers are “primarily individuals, nonprofits, and small businesses” and emphasized its funding of affordable housing projects and community development loans among other investments.

Poppy Bank, which formed in 2005, has grown considerably with more than 20 branches in Northern and Southern California and more planned. It is approaching $6 billion in assets.

The bank was founded by high-profile Sonoma County developer Bill Gallaher, whose family owns approximately 62% of Poppy Bank’s parent company, according to Summit’s letter.

In his letter to regulators, Summit CEO Reed said Poppy’s bid should be rejected. Alternatively he asked for conditions to be imposed, including barring Poppy from having representation on the Summit board or holding management positions.

The public can weigh in on the deal by submitting public comment to the Federal Reserve Bank at sf.fisc.comments.applications@sf.frb.org until Aug. 21.

“In Your Corner” is a column that puts watchdog reporting to work for the community. If you have a concern, a tip, or a hunch, you can reach “In Your Corner” Columnist Marisa Endicott at 707-521-5470 or marisa.endicott@pressdemocrat.com. On Twitter @InYourCornerTPD and Facebook @InYourCornerTPD.