FDIC QUARTERLY 41

Introduction An increase in mergers and a dearth of new charters in the post-crisis period have renewed 

interest among researchers in banking industry consolidation. The rate of voluntary attrition increased sharply following the financial crisis as a wave of post-crisis failures receded. 

Voluntary attrition increased from 2.2 percent of existing charters per year in 2009 to a 

15-year high of 4.9 percent in 2015 (Chart 1).1 Nearly all of the increase in attrition represents 

voluntary mergers between unaffiliated institutions.

The vast majority of merger participants are community banks (91 percent).2 However, 

community banks make up the vast majority of institutions (92 percent). In fact, the proportion of community banks among total banking charters has actually increased since 1985 

and remains stable today.

1985

Voluntary Mergers Have Increased Since the Crisis

Annual Rates of Voluntary Attrition, 1985 to 2016, as a Percentage of Charters Reporting at Previous Year-End

Source: FDIC.

Percent Other Closings Intracompany Consolidation of Charters Voluntary Intercompany Mergers

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1988 1991 1994 1997 2000 2003 2006 2009 2012

Average: 1985 to 1992

–3.3

Average: 1993 to 2001

–5.4

Average: 2002 to 2015

–3.5

: –4.3

–4.9

–4.2

2016

Chart 1

Community banks also make up the vast majority of merger participants on both sides of the 

deal. Most community banks that are acquired merge with other community banks (Chart 2), 

which results in a community banking sector composed of somewhat larger institutions that 

continue to provide essential financial services within a limited geographic market.

This analysis extends the research of Kowalik et al. that compared acquired community 

banks with nonacquired community banks.3 We refine other researchers’ definitions of 

community banks by applying the FDIC’s functional definition, and we control for asset size, 

geography, and lending specialty in selecting the peers of acquired banks. Using the refined 

definitions of community banks and peers of acquired banks, we compare community banks 

acquired between 2010 and 2016 with their peers using key metrics of financial performance, 

credit quality, and balance sheet structure. Past research on bank mergers has examined 

acquirer motives, explored characteristics that increase the value of an institution to an 

acquirer, compared acquired banks with their acquirers, and compared acquired banks with 

nonacquired peers.4

COMMUNITY BANK MERGERS SINCE THE FINANCIAL CRISIS:

HOW ACQUIRED COMMUNITY BANKS COMPARED WITH THEIR PEERS

1 Voluntary attrition includes mergers between unaffiliated institutions (intercompany mergers), consolidation of charters within 

the same holding company (intracompany mergers), liquidations not involving an acquisition, and institutions relinquishing 

FDIC insurance. The latter two events are not common, accounting for an average of 0.1 percent of institutions per year between 

1985 and 2016.

2 For the FDIC’s definition of community bank, see Chapter 1 of the FDIC Community Banking Study (2012), 

https://www.fdic.gov/regulations/resources/cbi/study.html. 3 Michal Kowalik, Troy Davig, Charles S. Morris, and Kristen Regehr, “Bank Consolidation and Merger Activity Following the 

Crisis,” Federal Reserve Bank of Kansas City Economic Review 100, no. 1 (2015): 31–49. 4 “Bank” means any FDIC-insured bank or thrift. 
2 0 1 7  •  Volume 1 1  • Number 4

42 FDIC QUARTERLY

Small Community Banks Overwhelmingly Have Been Acquired by Other Community Banks

Percentage of Community Banks at Merged Intercompany With Other Community Banks Between 2007 and 2016,

by Asset Size Group of Acquired Community Bank

Source: FDIC.

93

34

16

0

10

20

30

40

50

60

70

80

90

100

< $100M $100M to $500M $500M to $1B $1B to $10B

Asset Size Group of Acquired Community Bank

All Community Banks: 70%

Percent

66

Chart 2

Our results show that acquired community banks were typically less profitable and reported 

lower Tier 1 leverage ratios than their peers. Acquired community banks also reported 

higher core deposit to asset ratios and lower ratios of nonperforming assets than their peers. 

Acquired community banks were also more likely to be on the FDIC’s problem bank list.5

Past Research Generally 

Found That Acquired Banks 

Underperformed Others

Academics and banking analysts have produced a rich literature exploring different aspects 

of bank attrition. In a comprehensive summary of the literature, DeYoung et al. reviewed 

more than 150 studies published since 2000.6 Following is an overview of the relevant findings from past research that helped inform this article.

Kowalik et al. looked at consolidation among community banks between 2011 and 2014 and 

found that acquired banks generally performed worse than nonacquired banks. Jagtiani 

looked at consolidation between 1990 and 2006 and found that the acquirers of community banks tended to outperform the acquired institutions.7

 Consistent with Backup and 

Brown, Jagtiani also found that most community banks were acquired by other community banks.8

 In a sample of banks that merged between 1990 and 2000, Cornett et al. found 

that the performance of merged banks improved after a merger.9 Wheelock and Wilson 

explored bank failures and acquisitions between 1984 and 1993 and found that a lower 

return on assets (ROA) and a lower capital ratio increased the likelihood a bank would be 

acquired.10 Cyree found that acquirers paid a premium for banks with higher core deposits 

to assets ratios.11

5 The list of problem banks is made up of all FDIC-insured institutions with CAMELS ratings of 4 or 5. CAMELS ratings are a 

composite of ratings of a bank’s capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk.

6 Robert DeYoung, Douglas Evanoff, and Philip Molyneux, “Mergers and Acquisitions of Financial Institutions: A Review of the 

Post-2000 Literature,” Journal of Financial Services Research 36, no. 2 (2009): 87–110. 7 Julapa Jagtiani, “Understanding the Effects of the Merger Boom on Community Banks,” Federal Reserve Bank of Kansas City 

Economic Review 93, no. 2 (2008) 29–48. 8 Benjamin R. Backup and Richard A. Brown, “Community Banks Remain Resilient Amid Industry Consolidation,” FDIC 

Quarterly 8, no. 2 (2014): 37–51. 9 Marcia Millon Cornett, Jamie John McNutt, and Hassan Tehranian, “Performance Changes Around Bank Mergers: Revenue 

Enhancements Versus Cost Reductions,” Journal of Money, Credit and Banking 38, no. 4 (2006): 1013–1050. 10 David C. Wheelock and Paul W. Wilson, “Why Do Banks Disappear? The Determinants of U.S. Bank Failures and 

Acquisitions,” Review of Economics and Statistics 82, no. 1 (2000): 127–138. 11 Ken B. Cyree, “What Do Bank Acquirers Value in Non-Public Bank Mergers and Acquisitions?” Quarterly Review of Economics 

and Finance 50, no. 3 (2010): 341–351.
FDIC QUARTERLY 43

COMMUNITY BANK MERGERS SINCE THE FINANCIAL CRISIS

The authors above used several methods to compare acquired banks with other institutions. 

Kowalik et al. compared acquired banks with all nonacquired banks. Jagtiani compared 

acquired banks with their acquirers. Cornett et al. compared their sample of banks with 

others located in the same Federal Reserve district and asset size class. Wheelock and Wilson 

used a statistical method that compared banks that failed or were acquired with those that 

were not. Finally, Cyree included adjustments to control for industrywide trends.

Applying the FDIC’s 

Community Bank 

Definition and Refining the 

Definition of Peer

We analyzed community bank mergers that occurred between 2010 and 2016. These mergers occurred between institutions that were not part of the same bank holding company as 

of one year before the merger. We used the FDIC’s functional definition of community bank 

to select both the acquired institutions and their peers. This definition goes beyond asset 

size to take into account the activities and geographic scope of an institution. In using this 

definition, we excluded from our analysis small institutions whose primary business model 

is not based on local deposit gathering and lending, while we retained somewhat larger 

institutions whose business model is just that. Using this definition provides a more precise 

picture of community bank mergers than using a definition of community banks based 

solely on asset size.

We refined the definition of peer institutions so that each comparison group closely matched 

the acquired community bank.12 In addition to the requirement that the acquired banks and 

their peers were community banks and were similar in asset size, the acquired banks and 

their peers also belonged to the same lending specialty group and were headquartered in the 

same type of area: metropolitan (metro) or nonmetropolitan (nonmetro).13 Controlling for 

size improved the accuracy of financial performance comparisons, as certain performance 

ratios correlate with asset size. We applied the same logic to lending specialty groups, as 

business model plays an important role in performance ratios.14 For example, earnings at 

agricultural-lending specialists tend to be higher than earnings among mortgage-lending 

specialists. Controlling for lending specialty also accounted for discrepancies between lending specialty group performance associated with the Great Recession. Finally, we controlled 

for geography to account for regional differences in performance.

Once we matched the acquired community banks to groups of like peers, we compared 

their financial performance, credit quality, and balance sheets as of a year before the merger. 

We compared pretax ROA, net interest margin (NIM), noninterest income as a percentage 

of average assets, and the efficiency ratio to explore differences in financial performance. 

We used net charge-off rates and the nonperforming asset ratio to compare credit quality.15

To compare balance sheets, we explored differences in the Tier 1 leverage ratio, the loan-toassets ratio, and core deposits as a percentage of assets. We calculated flow items, such as the 

efficiency ratio, over four quarters ending one year before the merger. We calculated stock 

items, such as the loan-to-asset ratio, as of one year before the merger.

12 See the Appendix for a detailed description of the peer selection criteria.

13 The U.S. Office of Management and Budget designates clusters of counties as metropolitan statistical areas (MSAs) based on 

the population size of the urban cores and on socioeconomic integration. MSAs have an urban core of at least 50,000 people. 

Counties outside of MSAs are nonmetropolitan.

14 Lending specialty groups include commercial real estate, commercial and industrial, agricultural, mortgage, consumer, 

multi-specialists, and no lending specialty. See Chapter 5 of the FDIC Community Banking Study (2012), https://www.fdic.gov/

regulations/resources/cbi/study.html. 15 The nonperforming asset ratio is defined as all past-due and nonaccrual loans and leases, plus other real estate owned, as a 

share of total assets.
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44 FDIC QUARTERLY

For each ratio, we performed a sign test to determine if the median difference between the 

acquired banks and their peers was statistically significant.16 A median difference that was 

statistically significant and positive suggested that acquired banks had higher values of the 

ratio compared with peers. A median difference that was statistically significant and negative suggested that acquired banks had lower values compared with peers. We compared 

acquired banks and peers across three dimensions: the overall sample of acquired banks and 

peers, acquired banks and peers by type of area, and acquired banks and peers by lending 

specialty group.

Our Sample of 

Acquired Banks

Between 2010 and 2016, 1,106 community banks were acquired. We excluded 139 banks 

(12.6 percent) from this population, which brought the final count of community banks 

analyzed to 967. We excluded 118 of the 139 institutions because we found no peers for them 

using our refined definition of peer. The remaining 21 banks were excluded because they 

acquired another institution within two years of their own acquisition.

Most of the 967 banks analyzed were acquired in the latter part of the seven-year period, 

corresponding to the post-crisis period of increase in the pace of mergers (Table 1). Each 

lending specialty was represented in the sample, though some were more common than 

others. Consumer specialists and commercial and industrial specialists were represented 

the least, with only ten acquired banks between the two specialty groups. Each of the other 

specialty groups contributed at least 106 institutions (or 11 percent) to the sample. Commercial real estate (CRE) specialists were the most common, accounting for roughly one-third of 

the sample.

Nearly two-thirds of the acquired banks were headquartered in metro areas. Acquired banks 

headquartered in metro areas had a median of five peers, whereas acquired banks headquartered in nonmetro areas had a median of 33 peers. The median number of peers for all 

acquired institutions was eight.

Table 1

Acquired Community Banks by Year Acquired, Lending Specialty, and Headquarter Location 

Year 

Acquired Count Percentage Lending Specialty Count Percentage HQ Location Count Percentage

2010 54 6% Agriculture 110 11% Metro 613 63%

2011 73 8% Commercial and Industrial 8 1% Nonmetro 354 37%

2012 128 13% Commercial Real Estate 316 33%

2013 139 14% Consumer 2 0%

2014 171 18% Mortgage 139 14%

2015 219 23% Multi-Specialist 106 11%

2016 183 19% No Specialty 286 30%

Total 967 100% Total 967 100% Total 967 100%

Source: FDIC.

Note: Percentages may sum to more than 100 because of rounding.

Statistical Comparisons of 

Acquired Banks and Peers

Acquired community banks were compared with their peers along three dimensions: by 

profitability, asset quality, and balance sheet; by type of area in which their headquarters are 

located; and by lending specialty group.

16 A result is statistically significant in this analysis if the likelihood of getting the result is less than 5 percent, assuming the 

financial data from the acquired banks come from the same distribution as the data from the peers.
FDIC QUARTERLY 45

COMMUNITY BANK MERGERS SINCE THE FINANCIAL CRISIS

Overall Comparisons of 

Acquired Banks and 

Their Peers

Acquired banks underperformed on measures of profitability, reported better asset quality, 

and reported balance sheets that differed from those of their peers. All of these differences 

were statistically significant. We discuss each in turn.

Acquired banks underperformed peers on measures of profitability. Our analysis showed 

that acquired banks reported statistically significant differences in pretax ROA, NIM, noninterest income as a percentage of average assets, and the efficiency ratio, compared with their 

peers.17 Median pretax ROA at all acquired community banks was 0.53 percent, 30 basis 

points below the median ratio at all peer banks (Chart 3). Both lower net operating revenue 

and higher expenses contributed to acquired banks’ lower profitability.18

Revenue was adversely affected by lower noninterest income and lower net interest income. 

Acquired banks reported median noninterest income as a percentage of average assets of 

0.45 percent, 10 basis points lower than the 0.55 percent reported by peers.

81

74

70

73

76

79

82

85

Acquired Community Banks Peers

Percent

Acquired Community Banks Underperformed Peers Across a Range of Performance Ratios

Community Banks Acquired Between 2010 and 2016, Compared With eir Peers

Percent

Percent Percent

Source: FDIC.

Note: e median dierence between acquired banks and peers for each ratio is statistically signicant at the 5 percent level.

Median Pretax Return on Assets Median Net Interest Margin

Median Noninterest Income as a Percentage of Average Assets Median Eciency Ratio

0.53

0.83

0.0

0.2

0.4

0.6

0.8

1.0

Acquired Community Banks Peers

3.61

3.71

3.50

3.55

3.60

3.65

3.70

3.75

3.80

Acquired Community Banks Peers

0.45

0.55

0.25

0.35

0.45

0.55

0.65

0.75

Acquired Community Banks Peers

Chart 3

17 See the Appendix for a discussion of the statistical significance test.

18 Net operating revenue is defined as the sum of net interest income and noninterest income.
2 0 1 7  •  Volume 1 1  • Number 4

46 FDIC QUARTERLY

Net interest income of acquired banks as a share of average assets was also below that of 

peers: a median of 3.31 percent at acquired banks, compared with 3.41 percent at peer institutions. Underperformance was highlighted by two factors. First, acquired banks reported 

NIM below peers. The median NIM at acquired banks was 3.61 percent, 10 basis points 

below the peer median of 3.71 percent. Second, acquired institutions reported a slightly 

smaller earnings base—defined as earning assets as a share of total assets—than peers. The 

median earnings base at acquired banks was 92.7 percent, compared with 93.5 percent at 

peers. The combination of lower margins and lower shares of earning assets led to the underperformance in net interest income as a share of assets.

A smaller earnings base among acquired banks compared with their peers also contributed 

to the fourth underperforming profitability metric shown in Chart 3—the efficiency ratio.19

Acquired banks were far less efficient than peers and reported a median efficiency ratio of 

81 percent, compared with just 74 percent at peers. Efficiency ratios increase as expenses rise, 

net operating revenue declines, or some combination of the two. Our analysis showed that 

the higher efficiency ratios of acquired banks resulted primarily from lower revenues, while 

higher expenses played a smaller role.

Asset quality at acquired banks was better than at peers. While acquired banks underperformed peers on measures of profitability, they had stronger asset quality than peers. 

Chart 4 shows acquired banks reported a lower net charge-off ratio and nonperforming asset 

ratio than peers.

Our results regarding asset quality differed from those reported in Kowalik et al. One possible reason for this difference is that we used the FDIC’s community bank definition, which 

resulted in a different sample of acquired institutions and peers. Another possible reason is 

that our peer group definition differed from that used by other researchers. For example, 

we did not include all nonacquired community banks in our peer group definition, as other 

researchers did.

Acquired Community Banks Reported Stronger Asset Quality an Did Peers

Community Banks Acquired Between 2010 and 2016, Compared With eir Peers

Source: FDIC.

Note: e median dierence between acquired banks and peers for each ratio is statistically signicant at the 5 percent level.

Percent Median Net Charge-O Ratio Percent Median Nonperforming Asset Ratio

Acquired Community Banks Peers Acquired Community Banks Peers

0.23

0.33

0.00

0.10

0.20

0.30

0.40

0.50

1.22

1.44

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

Chart 4

19 The efficiency ratio is defined as noninterest expense as a share of net operating revenue. Higher values indicate an institution 

is less efficient.
FDIC QUARTERLY 47

COMMUNITY BANK MERGERS SINCE THE FINANCIAL CRISIS

Acquired banks tended to have a higher proportion of funds from stable sources, as well 

as lower loan-to-asset ratios. While the previous sections dealt with the performance and 

credit quality of acquired institutions and their peers, here we analyze the composition 

of the balance sheet and pay particular consideration to areas influencing the acquisition 

(Chart 5). First, acquired banks reported higher ratios of core deposits to assets than their 

peers. Core deposits tend to be more stable sources of funding and may indicate stronger 

relationships with the local community. Second, acquired banks reported lower loan-to-asset 

ratios. Banks with lower loan-to-asset ratios are generally less risky than those with higher 

ratios. Finally, acquired banks reported lower capital ratios than peers, but each group was 

well-capitalized. It may be advantageous, from a price perspective, to acquire a bank with a 

lower capital ratio, because in many cases the merger price is a multiple of the value of the 

equity acquired.

Percent

Acquired Banks Had Higher Shares of Core Deposits and Lower Capital Ratios

Community Banks Acquired Between 2010 and 2016, Compared With eir Peers

Percent Percent

Source: FDIC.

Note: e median dierence between acquired banks and peers for each ratio is statistically signicant at the 5 percent level.

Median Tier 1 Leverage Ratio

Median Core Deposits as a Percentage of Average Assets Median Loans as a Percentage of Average Assets

Acquired Community Banks Peers

Acquired Community Banks Peers Acquired Community Banks Peers

9.8

10.8

9.0

9.5

10.0

10.5

11.0

11.5

12.0

80.4

78.4

 77

78

79

80

81

82

83

61.9

64.9

56

58

60

62

64

66

68

70

Chart 5
2 0 1 7  •  Volume 1 1  • Number 4

48 FDIC QUARTERLY

Comparisons Within Metro 

and Nonmetro Locations

As mentioned earlier, an acquired bank and each of its peers were both headquartered in 

metro areas or were both headquartered in nonmetro areas. In this section, we compare 

acquired banks with their peers depending on where they were headquartered. The statistically significant differences between acquired banks and their peers found in the overall 

sample remained when the sample was broken down by headquarters location.

Within metro and nonmetro areas, acquired banks underperformed their peers on measures 

of profitability. The acquired banks reported lower pretax ROA, NIM, and noninterest 

income as a percentage of assets, and higher efficiency ratios. As in the overall sample, 

acquired banks reported better asset quality compared with their peers. In addition, 

acquired banks had balance sheets that may have made them more likely than their peers to 

be acquired. Tier 1 leverage ratios were lower, reliance on core funding was greater, and loanto-asset ratios were lower at acquired banks than at their peers (Table 2). The statistically 

significant differences we observed between acquired banks and their peers within metro 

and nonmetro areas suggest geography alone did not account for the differences we observed 

in the overall sample.

Table 2

The Median Differences Between Acquired Banks and Peers by Geography Are Statistically Significant 

for Each Ratio

Median Ratios

Metropolitan Area Nonmetropolitan Area

Acquired Banks Peers Acquired Banks Peers

Pretax ROA 0.47% 0.64% 0.66% 1.02%

Net Interest Margin 3.62% 3.68% 3.60% 3.76%

Noninterest Income Percent of Assets 0.40% 0.55% 0.51% 0.55%

Efficiency Ratio 81.8% 78.3% 78.1% 70.2%

Net Charge-Off Rate 0.29% 0.37% 0.16% 0.27%

Nonperforming Asset Ratio 1.43% 1.87% 0.82% 1.04%

Tier 1 Leverage Ratio 9.84% 10.55% 9.78% 11.11%

Core Deposits Percent of Assets 78.8% 76.7% 82.9% 80.2%

Loan-to-Asset Ratio 65.3% 67.3% 54.3% 58.1%

Source: FDIC.

Notes: The threshold for statistical significance is 5 percent. The banks were acquired between 2010 and 2016.

Comparisons Within 

Lending Specialty Groups

As discussed before, acquired banks and their peers had the same lending specialty. In this 

section, we compare acquired banks with their peers based on their lending specialties. Most 

financial differences between acquired banks and their peers remained statistically significant when broken down by lending specialty.
FDIC QUARTERLY 49

COMMUNITY BANK MERGERS SINCE THE FINANCIAL CRISIS

The results we discussed in the preceding two sections remained broadly unchanged when 

we analyzed acquired banks and their peers by lending specialty. Acquired banks tended to 

underperform their peers on measures of profitability, report better asset quality, and report 

different balance sheet structures. Financial underperformance among the acquired banks 

compared with their peers was concentrated in agricultural-lending specialists, mortgagelending specialists, and banks with no lending specialty. However, the differences between 

acquired bank and peer pretax ROA were statistically significant at institutions of every 

specialty except CRE. Credit quality differences between acquired banks and their peers 

appeared to be driven primarily by agricultural-lending specialists, CRE lenders, and banks 

with no lending specialty. Differences in balance sheet structure between acquired banks and 

their peers were most prominent among agricultural-lending specialists, CRE lenders, and 

banks with no lending specialty. Acquired banks and their peers were most similar among 

mortgage lenders and multi-specialists (Table 3).

These results suggest that controlling for lending specialty is important for determining 

whether genuine differences exist in financial performance, asset quality, and balance sheet 

structure between acquired banks and their peers.

Table 3

Summary of Comparisons and Statistical Significance: Median Ratios From Acquired Banks and Peers 

by Lending Specialty

Median Ratios

Agriculture

Commercial 

Real Estate Mortgage Multi-Specialist No Specialty

Acquired 

Banks Peers

Acquired 

Banks Peers

Acquired 

Banks Peers

Acquired 

Banks Peers

Acquired 

Banks Peers

Pretax ROA 0.92% 1.19% 0.50% 0.54% 0.34% 0.57% 0.64% 0.94% 0.45% 0.90%

Net Interest Margin 3.79% 3.90% 3.73% 3.88% 3.42% 3.37% 3.81% 4.02% 3.38% 3.47%

Noninterest Income 

Percent of Assets 0.36% 0.45% 0.42% 0.55% 0.40% 0.48% 0.52% 0.64% 0.50% 0.59%

Efficiency Ratio 71.5% 66.6% 78.3% 78.6% 86.3% 78.0% 77.9% 74.6% 84.6% 73.6%

Net Charge-Off Rate 0.05% 0.17% 0.33% 0.49% 0.18% 0.21% 0.34% 0.37% 0.22% 0.31%

Nonperforming 

Asset Ratio 0.44% 0.81% 1.82% 2.83% 1.35% 1.51% 1.52% 1.91% 0.98% 1.04%

Tier 1 Leverage Ratio 10.02% 11.05% 10.03% 10.40% 9.98% 11.09% 9.65% 10.09% 9.61% 11.22%

Core Deposits 

Percent of Assets 83.3% 79.5% 78.4% 76.0% 78.7% 77.7% 78.1% 76.5% 84.0% 81.0%

Loan-to-Asset Ratio 59.7% 61.8% 68.6% 69.3% 68.4% 67.2% 69.9% 73.3% 44.2% 44.1%

Source: FDIC.

Notes: For highlighted ratios, the median difference between acquired banks and peers is significant at the 5 percent level. The banks were acquired 

between 2010 and 2016.
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50 FDIC QUARTERLY

Conclusion The results of this research are consistent with past findings that acquired community banks 

generally underperform their peers. The only exception is that acquired institutions reported 

stronger asset quality than their peers, particularly among agricultural and CRE lending 

specialists. The balance sheets of acquired banks showed a greater reliance on core funding 

and a lower loan-to-assets ratio, which suggest a less-risky asset mix and an institution with 

strong community ties.

Our results cannot be disassociated from the post-crisis environment. Prominent among 

the concerns of community banks in the post-crisis period were asset quality and low net 

interest margins, which influenced merger decisions. How these results were influenced by 

economic conditions is an area for future research.

The peer group methodology in this research can be applied to other analyses comparing groups of banks. Financial institutions, even community banks, differ widely. Future 

research could use peer group criteria to compare acquirers with peers, both before and after 

acquisition.

Authors:

Eric C. Breitenstein

Economic Analyst

Division of Insurance and Research

Nathan L. Hinton

Economic Analyst

Division of Insurance and Research
FDIC QUARTERLY 51

COMMUNITY BANK MERGERS SINCE THE FINANCIAL CRISIS

Appendix:

Matching Methodology

This is an observational study of FDIC-insured community banks that were voluntarily 

acquired by unaffiliated institutions between 2010 and 2016. We compare them with a 

sample of peers that were chosen based on their similarity to the acquired institutions.

Both the acquired banks and peers met the following criteria as of one year before the 

acquisition:

• Were community banks

20

• Were chartered more than three years earlier

• Had the same lending specialty

21

• Were headquartered in one of the 50 states or the District of Columbia, and were both 

headquartered within metropolitan areas or were both headquartered outside of metropolitan areas:

– If both were headquartered in metropolitan areas, the headquarters of the banks were 

within 100 miles of each other.

– If both were headquartered outside of metropolitan areas, the headquarters of the banks 

were within 300 miles of each other.

• Asset size criteria:

– For acquired banks that had less than $100 million in assets, the asset size of the peer 

had to be within $50 million.

– For acquired banks that had $100 million in assets or more, the asset size of the peer had 

to be within 50 percent of the acquired bank’s asset size.

• Neither the acquired banks nor their peers had themselves purchased any other banks 

during the two years before the merger of the acquired bank.

Finally, peer banks must have continued to file Call Reports for at least one year following 

the acquisition of the bank of which they were peers.

Although our results indicate that statistically significant differences exist between acquired 

banks and their peers, this does not mean that acquisitions have caused such differences. 

For example, while we attempted to control for geographic differences in economic performance by ensuring that acquired banks and their peers were headquartered near each other, 

acquired banks may be likely to do more business in economically struggling areas relative 

to their peers.

20 For the FDIC’s definition of community bank, see Chapter 1 of the FDIC Community Banking Study (2012), 

https://www.fdic.gov/regulations/resources/cbi/study.html. 21 Lending specialty groups include commercial real estate, commercial and industrial, agricultural, mortgage, consumer, 

multi-specialist, and no lending specialty. See Chapter 5 of the FDIC Community Banking Study (2012), https://www.fdic.gov/

regulations/resources/cbi/study.html. 
2 0 1 7  •  Volume 1 1  • Number 4

52 FDIC QUARTERLY

Data We calculated flow variables over the four quarters ended one year before the acquisition. 

We also calculated five-quarter averages of assets, earning assets, and gross loans and leases 

based on the five quarters ended one year before the acquisition. We then divided the annual 

flow item by the appropriate average. For acquired banks with multiple peers, the peers’ 

financial data were aggregated to create one weighted average. The variables pretax return on 

assets, net interest margin, noninterest income, efficiency ratio, and net charge-off rate were 

constructed in this manner.

We measured stock variables as of one year before the acquisition and included the nonperforming asset ratio, Tier 1 leverage ratio, core deposit ratio, and loan-to-asset ratio. For 

acquired banks with multiple peers, the peers’ financial data were aggregated to create one 

weighted average.

Once we calculated financial ratios for each acquired bank and its aggregate peer, we calculated the difference between them. We performed a statistical test on these paired differences

to determine whether the acquired banks performed better or worse than their peers.

Statistical Test We used the sign test on the paired differences in the financial ratios described above to 

determine whether the performance of acquired banks was statistically different from the 

performance of their peers. The sign test is used to determine whether the distribution of 

data from one group differs from that of another, when the variable of interest does not 

follow a normal distribution and is also skewed. If the test shows that the distributions of 

data from acquired banks and peers are different, then we have reason to believe that their 

performance is different.22 For each test, our threshold for statistical significance is 5 percent.

22 See Dennis D. Wackerly, William Mendenhall III, and Richard L. Scheaffer, Mathematical Statistics With Applications, 7th ed., 

Brooks/Cole (2008).