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Federal Reserve Bank of Kansas City
Financial Industry Perspectives
Successful strategies in interstate bank acquisitions
Richard J. Sullivan
Kenneth Spong

Much of the recent consolidation in the banking industry has been across state lines, and this trend will accelerate due to recent federal legislation. As interstate banking expands further, the performance and success of banks that are acquired will be the key factor determining how much consolidation will occur and which organizations will be major participants. This article therefore examines a group of banks that were acquired on an interstate basis in 1986 and 1987, and tracks their performance after acquisition. It identifies strategies and characteristics that distinguish acquisitions with strong performance from those with weak performance. While strong and weak performing acquisitions were similar in many ways at the time they were acquired, strong performers expanded on an already significant presence in loan markets and avoided a deterioration in asset quality. Strong performers grew moderately overall, and improved net interest margins. Compared to weak performing acquisitions, strong performers were better at controlling expenses, and they widened this advantage after acquisition. Overall, the strong performers achieved success by applying sound banking techniques in a challenging new market, where previous experience and detailed insights into customers and competitors were limited.

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Richard J. Sullivan & Kenneth Spong, "Successful strategies in interstate bank acquisitions" , Federal Reserve Bank of Kansas City, Financial Industry Perspectives, issue Dec, pages 21-37, 1995.
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Keywords: Interstate banking
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