The number of thrifts continued a long slide in 1996 while the industry's assets rose slightly for the third year in a row, an American Banker survey reveals.

Their ranks stood at 1,924 at yearend, down from 2,029 in 1995, and 3,622 in 1987, when the industry was in the throes of a deep crisis.

Reflecting the recovery of the industry, however, the statistics compiled for the annual survey show assets continuing to edge up. Thrifts held $1.03 trillion at yearend, up from a nadir of just under $1.01 trillion in 1993. (See tables beginning on page 10.)

For the first time this decade, the survey indicated that the number of employees at thrifts also edged up-by 1% to 252,759.

"Despite the fact that the industry has become more profitable, it is still consolidating big-time," said analyst Charlotte A. Chamberlain of Jefferies & Co., Los Angeles.

Thrifts-large and small-are selling off, because they need economies of scale to compete against mortgage bankers and the big government-sponsored secondary market agencies Fannie Mae and Freddie Mac, Ms. Chamberlain said.

Though some big thrifts have emerged as active acquirers-fourth-ranked Washington Mutual Inc., Seattle, for example, built its assets by 5% to $21.24 billion-most thrifts are being snapped up by commercial banks.

This not only reduces the number of thrifts, but also results in a further blurring of the once-bright lines between the banking and thrift industries, said Charles John Koch, chief executive of Charter One Financial, Cleveland.

Congress removed two key obstacles to the melding of the industries last year, Mr. Koch pointed out, when it equalized the deposit insurance premium for banks and thrifts and eased the rules governing the recapture of past tax advantages when thrifts are bought by banks. The strong stock prices of acquirers have also powered the trend.

Even those thrifts that aren't bought by banks are blurring the lines, Mr. Koch noted. Increasingly, they make not just home loans, but consumer, small-business, and even commercial loans in the search for profits.

Paradoxically, many of the top 25 thrifts shrank their assets, even as the top 300, and the industry as a whole, were gaining ground.

The most prominent example of this phenomenon is the nation's largest thrift, H.F. Ahmanson & Co.'s Home Savings of America, which shrank its assets by more than 1% last year, to $49.6 billion

Great Western Financial Corp.'s assets fell to $40.1 billion, from $42 billion. Dime Bancorp's declined to $18.9 billion from $20.3 billion, and Greenpoint Financial Corp.'s asset total dropped to $13.3 billion from $14.7 billion. The data were compiled by American Banker with assistance from Sheshunoff Information Services, Austin, Tex.

Analysts praised the strategy of shrinking assets, saying the big thrifts are shedding their least-profitable loans (usually mortgages), and either reinvesting in higher-yielding consumer and business loans or returning capital to their shareholders.

"Bigger is not necessarily better," said Caren E. Mayer, an analyst at Montgomery Securities. "Sometimes the smart business decision is to shrink the assets and buy back shares."

But some chief executives dismissed the financial reengineering as a short-term strategy intended to groom companies for sale.

"If you want to achieve financial results for a year or two, you can do it by shrinkage. If you simply harvest, you have no other option but to sell," said Jay S. Sidhu, chairman of Sovereign Bancorp, Wyomissing, Pa.

The uptick in employees surprised some thrift executives. The trend is "opposite to what we've seen here," said Carl B. Webb, president of California Federal Bank, San Francisco. Indeed, employee cutbacks are one of the drivers of consolidation, he said.

Could the industry be returning to its famously laid-back ways? "I hope not," Mr. Webb said.

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