The article is an attempt to answer the question concerning the impact of current management decisions and their cumulative effects upon banks' performance in the economy undergoing a transformation process. Data obtained from financial reports for the years 1995 - 2001 was used to determine parameters for an econometric model with a set of explanatory variables including a wide spectrum of factors which may affect profitability. The outcome of the research shows that for small banks and entities with a weak capital base the key elements are: strict operating-cost controls and diversification of income sources. Entities with a sound capital base act in a sub-optimal manner when they adopt conservative investment and growth strategies. As expected, small commercial banks operating in Poland are particularly susceptible to general changes of conditions within the sector, specifically as regards the profitability of traditional credit/ deposit services. A bank which consciously assumes the position of net debtor vis-a-vis the money market or is forced to do so by the nature of its core activities, and whose shareholders' equity is limited should be aware that both the costs and the stability of this source of financing are largely depend on the actual bank's profitability.