The aim of this paper is to test the temporal variation of technical efficiency of Spanish savings banks during the period 1985–1998. Furthermore, we test whether merged and non-merged firms have different levels and temporal patterns of technical efficiency. A stochastic output distance function (R.W. Shephard, Theory of Cost and Production Functions, Princeton University Press, Princeton, NJ) is employed to accommodate multiple output technology. The distance function provides the advantage that it does not need information about prices, so it can accommodate the multi-product nature of the financial sector only using the quantities as data (an important point when the assumptions about perfectly competitive markets are unlikely to be met). The temporal variation of efficiency is modeled extending the Battese and Coelli (Journal of Productivity Analysis 3 (1992) 153–169) approach in two ways: relaxing the monotonicity of the temporal variation pattern of the efficiency term, and allowing for different patterns of efficiency change between merged and non-merged firms.