Characteristics of rural bank acquisitions: a logit analysis

Abstract

This study evaluates acquisitions of rural banks by multi-bank holding companies. Evaluation of pre-acquisition characteristics including profitability, size, market concentration, and agricultural lending volume are the basis of the analysis. The study of rural bank acquisitions by multi-bank holding companies is a significant concern to the agricultural producers whose major sources of funding are their local commercial institutions. The primary objective of this study is to evaluate the characteristics of the banks involved in these acquisitions. The banks are characterized based on financial characteristics during the year of acquisistion. A logit anlaysis is conducted based on the financial characteristics one and two years prior to acquisition to determine if the acquired banks have significant characteristics that differentiate them from non-acquired banks, The data for the analysis are taken from five sources. The accounting data for each bank is obtained from Call and Income reports for each year ending 1985 to 1991. holding company information is obtained from Y9 Bank Holding Company data provided by the Federal Reserve Bank. Data on deposit concentrations is obtained from Summary of Deposits information also provided by the Federal Reserve Bank. The results indicate that the acquired banks have characteristics that differentiate them from non-acquired banks. The acquired banks tend to be larger, and have lower agricultural loan to loans ratios than the non-acquired banks. They have less equity relative to assets and higher expenses relative to loans. Bank holding companies tend to be attracted to banks located in less concentrated market areas. The logit analysis indicates significant variables in determining acquisition targets.