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In California, Blue Gate Bank to merge into Poppy Bank

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In California, Blue Gate Bank to merge into Poppy Bank

Costa Mesa, Calif.-based Blue Gate Bank on April 19 agreed to merge into Santa Rosa, Calif.-based Poppy Bank, a unit of Big Poppy Holdings Inc., according to a merger application recently obtained by S&P Global Market Intelligence.

The deal is expected to close in the third quarter, subject to regulatory approvals and the approval of Blue Gate Bank shareholders. At closing, each Blue Gate common share, except the dissenting shares, will be converted into the right to receive the merger consideration of 0.16008 Big Poppy common share. Blue Gate's common shareholders will also be entitled to receive additional consideration if Blue Gate's total tangible shareholders' equity exceeds $20 million on the 90th day following deal completion.

For those shareholders who will not vote in favor of the merger, they will be entitled to exercise dissenters' rights to receive cash equal to the fair value of their shares in lieu of the merger consideration. At the effective time of the merger, any outstanding options or restricted stock awards to acquire Blue Gate Bank common shares will be canceled.

Molly Flater and William Gallaher, principal Blue Gate shareholders with a combined stock ownership of 83.65%, have committed to approve the transaction. All Blue Gate Bank shareholders are expected to approve the transaction. Most Blue Gate Bank shareholders are also shareholders of Big Poppy Holdings, according to the merger application.

Flater and Gallaher also own 48.7% of the outstanding shares of Big Poppy Holdings. Flater serves as chairwoman of Blue Gate Bank and Gallaher serves as chairman of Poppy Bank and Big Poppy Holdings.

Flater and two Blue Gate Bank directors, Brent Koch and Doris Farinacci, will join Poppy Bank's board as part of the merger.

SNL valuations for bank and thrift targets in the West region between April 19, 2017, and April 19, 2018, averaged 189.77% of book, 195.79% of tangible book and had a median of 25.44x last-12-months earnings, on an aggregate basis.

Poppy Bank had approximately $1.61 billion total assets as of March 31, while Blue Gate Bank had approximately $129.9 million in assets, according to S&P Global Market Intelligence data.

Since Blue Gate Bank opened for business in January 2017, it has not been able to fully comply with the business plan it submitted to the Federal Deposit Insurance Corp. and the California Commissioner of Business Oversight as part of the chartering process, according to the merger application. The bank was able to assemble a Small Business Administration lending team but faced difficulty in growing core deposit. The board of Blue Gate Bank determined that a merger with a "successful banking entity with deposit growth capacity" is a proper strategy to avoid the slowdown in potential loan growth.

Poppy Bank has also filed a merger application with the California Commissioner of Business Oversight.

SNL data shows that Poppy Holdings will enter Orange County, Calif., with one branch to be ranked no. 58 with a 0.05% share of about $122.42 billion in total market deposits.

To use S&P Global Market Intelligence's branch analytics tools to compare market overlap, click here. To create custom maps, click here.

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