In the decade through 1996 we went from 18,000 banks to 9,528.

Nationally, the rise in commercial banks' ROA in 1995 came mostly from increased net interest income (though interest margins declined, loan volume increased) and reduced FDIC premiums. The reduction of nonearning assets in 1996 allowed for continued improvement.

Banks recognize the need to identify additional sources of income in order to maintain acceptable levels of shareholder returns.

Increased nonbank competition, improved competitive advantages of larger institutions, consumers' changing needs and patterns, and increased dependence on technology have all contributed to the erosion of community bank assets and liabilities. Though deposits at banks have remained fairly constant, their share of available dollars has dropped from around 58% in the 1950s to about 20%.

To survive, the independent bank today must be better focused. An increased emphasis on controllable expenses and business line profitability will help, as will finding new sources of income to combat the pricing squeeze.

The continued use of outdated practices and traditions will prove fatal. Organizational development issues cannot be ignored, and passive resistance to increased regulation must not continue.

The primary responsibility of bank management is to enhance shareholder value. Banks need a clear strategic direction, with a keen focus on cost efficiencies and service quality that ensures a strong commitment to earnings' growth.

They must leverage their independence to differentiate themselves by selecting a viable strategic niche in which they can be more responsive and use their knowledge of the local market to better underwrite risks.

They must monitor and improve operating efficiency. A common measure is expenses divided by assets, but with increased off-balance-sheet activity, expenses divided by revenue may be more appropriate.

Building a technology infrastructure to share information may help, as may flattening the organizational structure so most employees are in direct contact with customers. Ms. Lewek is the founder of Lewek & Associates, a bank consulting firm in Culver City, Calif.

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