No abstract

Community banks (CBs), despite holding a fairly small share of US banking assets, provide vital financial services to key segments of the economy and fill a void untapped by larger non‐community banks (Non‐CBs). They face challenges brought on by a fast‐changing banking landscape, evolving technology, and ever‐increasing regulatory burden. To remain competitive and to gain scale‐related efficiencies, CBs have been seeking mergers even as greater institutional size causes a departure from the classical relationship‐based business model. This study examines performance of US CBs and Non‐CBs post the Great Recession to reveal how size of these institutions may affect their business operations. Empirical findings show that CBs, compared with their larger counterparts, tend to maintain higher levels of liquidity and lower levels of capital, and demonstrate a greater dependence on core deposits, confirming that CBs focus on deposit taking and soft information‐based lending strategies. Furthermore, this study suggests that CBs should not be considered a homogenous group operating under a singular business model and cautions that regulatory dialectics aimed at the banking industry should not employ a one‐size‐fits‐all approach.

PurposeThe purpose of this paper is to identify effects of prepayment risk on performance of commercial banks in the USA. Understanding how various risks impact banks' performance can help to improve performance of financial institutions and better estimate risk premia charged by banks on the loans they extend to their customers.Design/methodology/approachThe paper measures the prepayment risk premium and aims to gauge its effect on various ratios that measure bank performance. Since, risk management is an important goal of financial management, it is important to learn how prepayment risk pertains to bank performance.FindingsThe results of this paper suggest that prepayment risk may significantly impact return on loans, return on equity and real estate loans to total loans ratios of various commercial banks. The impacts, in terms of strength and direction, vary between the periods of pre‐ and post‐passage of the Financial Institutions Reform and Recovery Act. The results indicate that the addition of prepayment risk variable to regression models can generally increase their ability to explain bank performance metrics.Originality/valueTo the authors' knowledge, there is no existing literature that gauges the impact of prepayment risk on various components of bank performance. There is existing literature that shows that bank stocks move in response to prepayment risk.

Post‐IPO banks are far more likely to initiate dividends than nonfinancial IPO firms. Moreover, dividend initiation has a significant impact on the ultimate disposition of a newly public bank, increasing its likelihood of subsequent acquisition by around 40% and reducing the expected time until acquisition by 83%. Conditional on being acquired, dividend initiation increases the average takeover premium by about 55% of the market value of the bank in the month prior to the takeover announcement. Dividend initiating banks are also more mature, as indicated by asset growth rates, profitability, risk measures, and corporate governance measures. The initiation of the dividends and the ultimate sale of the firm may be consequences of the same underlying driver—maturity—but the dividend initiation appears to expedite the process by confirming the status of the firm and by drawing attention to the bank's readiness and willingness to be acquired. Dividend initiation thus seems to speed up and amplify the rewards to owners that may be reaped through an ultimate sale of the institution.