Banks without holding companies are nearly a thing of the past.

Today the number of banks operating without a parent company control just 4% of the assets held by U.S. banks. That's down from 7% in 1996 and 25% in 1980.

The holdouts are the nation's smallest banks. By yearend, the Federal Reserve estimates, fewer than 20% of the nation's 9,200 banks will operate without a holding company.

Even with promises of increased powers and greater access to capital, some contend that the cost of forming a holding company-which they say can range from $10,000 to $100,000-is too high to be worthwhile. "Bankers should think hard about what their need is before deciding to form a holding company," said Chris Hargrove, president of Professional Bank Services Inc., Louisville, Ky. "It can be a valuable tool. But if the need isn't present, it is a lot of money to spend for 'what if?'"

The primary reason for a community banker to form a holding company is to provide a more liquid market for the stock. Holding companies, unlike banks, are allowed to buy back stock, said William P. Johnson, a partner at Rothgerber, Appel, Powers & Johnson of Denver. Other advantages of a holding company include the ability to raise money by borrowing from correspondent banks and the potential to operate nonbank businesses such as brokerage and insurance subsidiaries.

After Provident State Bank of Preston, Md., split its stock in 1992, many shareholders were interested in selling some of their new shares, said Jesse G. Cunningham, president of the $83 million-asset bank. But there were not enough buyers to accommodate all sellers, and under Maryland law the bank could not buy the stock.

So Provident formed a holding company in October 1996. "The holding company was able to buy the stock, which solidified the price," Mr. Cunningham said.

Charles F. Harper, president of Commercial Bank of Ozark, Ala., discovered that forming a holding company helped his bank stay independent. "A lot of our shareholders have moved to other areas of the country," he said. "Now that we have people thinking of buying and selling, we have found buyers in the community who are interested in keeping this bank in the community."

Some banks craved the flexibility they say a holding company provides. "The financial world is continuously changing," said Robert T. Judson, president of Norwalk (Conn.) Savings Society. "We feel a holding company will put us in a better position to respond quickly to whatever competitive conditions arise in the future."

Norwalk formed NSS Bancorp last spring.

But some community bankers say they are content to wait for Congress or regulators to loosen rules governing what sort of concern may sell new products and services. Todd Fullington, president of Jacobs Bank, Scottsboro, Ala., said shareholders of his closely held bank are not concerned with stock liquidity. "The way bank laws are changing, we are not having any problems getting into new areas," he said. Jacobs Bank already sells brokerage services and insurance products from third-party vendors.

Jacobs Bank did consider forming a holding company last year, but the $50,000 cost was a powerful deterrent, Mr. Fullington said.

Mr. Cunningham of Provident estimated his bank spent less than $25,000 on start-up costs. He said that, if the cost had been $50,000, "I would have to think it over very carefully, too. It is worth a lot to be able to buy the stock back. But I don't know if it is worth $50,000."

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