Journal Article

An overview and analysis of community bank mergers

Abstract: With some of the largest mergers in history now taking place in the financial services industry, the fact that consolidation is also occurring among small banking institutions is often overlooked. The factors that are promoting consolidation in the banking industry are also relevant for the smallest banks, namely the need to spread the cost of technological and administrative overhead and the desire to maintain earnings growth. With limited growth opportunities in many rural communities, smaller banks often choose to merge with other nearby rural banks as the means to gain asset size and improve efficiency. ; Using a case study approach that focuses on nineteen rural banks that participated in in-market mergers, this article examines whether smaller community banks that followed this merger strategy realized efficiency gains. The results show that such mergers have usually been successful from both a profitability and a cost efficiency perspective. Further, these gains were typically achieved without closing branch offices. These successes are important to rural bankers as they seek opportunities for consolidation. They are also important from a public policy perspective and should be carefully considered by regulators in their evaluation of small bank mergers.

Keywords: Bank mergers;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Financial Industry Perspectives

Publication Date: 1998

Issue: Dec

Pages: 1-14