at 3%, lend it at 6%, and be on the golf course by 3 p.m.) are over. Rising interest rates can leave a bank with long-term 6% mortgages while savings interest costs rise well above that level. Borrowing long and lending short can cause similar risks if interest rates fall.

So banks concentrate on spread management -- matching maturities of assets and liabilities. But this means that an improved bottom line requires boosting noncredit income and curbing noncredit expenses.

The latter is easier to achieve.

Boosting noninterest income involves raising fees and charges -- something many community banks hate to do; and inaugurating new services -- something that takes time, effort, new talent, and risk.

But often all it takes to cut expenses is a close look at your operations. One area where community bankers tell me they can really curb expenses is by encouraging employees to take on more responsibility. There are many people who would be willing to work harder and longer for a modest pay raise.

This allows other positions to be deleted-- and the bank saves on salary and benefits.

Little things can add up as well.

A friend of mine was visiting an executive of a major airline the day it announced a loss of several million.

"How can you go on losing that much?" he asked.

"We're working on it" was the reply. "Why, we just gave up the olives in the martinis."

My friend laughed, but the airline was spending millions on olives.

Another airline admitted that it saved millions by cutting back on lettuce in its salads.

Can banks save in the same way? You bet. Some examples include:

Telephones. Most employees consider the phone a fringe benefit. Banks that ask employees about long-distance calls on their extensions find savings both in expenses and in employee time.

Light bulbs. One community bank in Rhode Island told me how it saves a considerable amount on fluorescent light bulbs by changing all of them at the same time. This avoids having the electrician come in every time one or two burn out. Sure, some bulbs still have life in them, but these are donated to a charity so the savings after the donation deduction is even greater.

Heat and cooling. One college reduced the heat in the dorms by 10 degrees and saved $1 million a year.

Of course, you don't want to freeze out your employees. But there can be savings within reason. One bank I know checks the cost of fuel oil on the open market every day to make sure the local dealer is giving them all the discounts possible.

Staff. A Philadelphia bank reported to me that when it first made auto loans, it had one guard stay late to let people whose cars had been repossessed come in and get their belongings.

Eventually, the department employed so many full-time workers that it no longer needed the guard, but no one told him to stop staying late. So for a year and a half he sat there earning overtime pay for nothing.

Lunch. Banks with a lunchroom and free coffee and drinks find that it takes far less time for staff members to eat in than eat out. New York City banks find that even their elegant dining rooms save money, as you can feed an officer and guests in far less time than at a restaurant. Plus there's no worry about drinking alcohol during lunch.

On the other hand, banks that have audited lunch expense reports find that often one officer takes out another with no guest present.

If that isn't an avoidable noncredit expense, what is

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.