Alliance Bank of Broomhall, Pa., plans to pursue a partial second-step conversion, stopping short of a full public offering.
Currently 20% of the $391 million-asset savings bank is publicly traded, through its 11-year-old mutual holding company, Greater Delaware Valley Holdings. Greater Delaware owns the remaining 80%.
Alliance, which announced the plan Monday, said it would take another 25% of its shares public in early 2007, pending regulatory approval, and create what it calls a second-tier or midtier holding company. The midtier company is an additional holding company structure that would operate under the Delaware holding company.
Alliance plans to transfer all the shares, including those already publicly traded, to the midtier holding company structure. That new entity would trade 45% of its shares publicly at first, and it would be able to sell up to 49% of the shares to the public at a later date.
Dennis D. Cirucci, Alliance's president and chief executive, said it wants this new structure so that it can repurchase stock and make acquisitions.
Because the bank and not the mutual holding company is the primary registrant, it "can't buy its own stock back today," Mr. Cirucci said in an interview Tuesday. "And the bank can't just go out and buy another bank today. You do it in the midtier-mutual holding company format."
Alliance also said it is applying for a federal charter for its two holding companies and plans to rename the holding company Alliance Mutual Holding Co.
The Federal Reserve regulates the mutual holding company; Alliance Bank is state-regulated. After the change in charter, the Office of Thrift Supervision would regulate both holding companies. The bank said it would continue to be supervised by the Federal Deposit Insurance Corp. and state regulators.
Mr. Cirucci said the charter change would give Alliance more flexibility to add loan offices, among other things. It now has nine full-service branches in two Pennsylvania counties (Delaware and Chester) and two commercial loan officers in the state.
Shares of Alliance Bank spiked more than 19% at the start of trading Tuesday but lost ground Wednesday to close down 2.7%.
Collyn Gilbert, an analyst at BankAtlantic Bancorp Inc.'s Ryan Beck & Co., said midtier reorganizations like Alliance's are usually a prelude to going fully public. For some companies it makes more sense than a full conversion, which would give a bank "an exorbitant amount of capital, where sometimes there is not opportunity in the market to deploy it," she said. (Ms. Gilbert does not cover Alliance; according to Bloomberg, no equity analysts cover it.)
Mr. Cirucci said there is no need for a full conversion now, because Alliance Bank would not be able to use the proceeds.
Without immediate plans for an acquisition, "it's very difficult to deploy the capital in a profitable manner," he said. "Doing it in stages, as we're doing it, allows us that versatility." But he added that the company could consider doing a full conversion in the future.
One analyst, Jared Shaw at Keefe, Bruyette & Woods Inc., called the midtier structure a surprising way to raise capital. Other companies have gone to that type of structure, he said, but most simply converted the rest of the shares through a traditional second-step conversion.
A partial second-step conversion is a way to maintain control while raising additional capital at the same time, Mr. Shaw said.
Alliance Bank has hired Elias, Matz, Tiernan & Herrick LLP as its legal counsel. Sandler O'Neill & Partners LP will assist it with the proposed offer and sale of the additional shares, it said.
It expects to file the stock-offering proposal with the Securities and Exchange Commission and shareholder prospectus by next quarter.
