Lake Shore Bancorp cut its quarterly cash dividend by 43 percent because it now has to pay the same dividend to its majority owner, a depositor-owned mutual holding company, as it does for its common shareholders.
The Dunkirk-based parent of Lake Shore Savings Bank said its board declared a 4-cent-per-share cash dividend on its common stock, to be paid Nov. 20 to shareholders of record on Nov. 6. That’s down from 7 cents per share, or 28 cents per year, in the past.
The reason is a pending new regulation from the Federal Reserve Board that means the bank must pay the dividend to more than twice as many shares as in the past. In turn, that would more than double the cost of the dividend, and the tax on it.
That’s because unlike in the past, the publicly traded company’s majority owner, Lake Shore MHC, will not waive its right to receive dividends from its subsidiary. Lake Shore MHC owns 3.64 million shares of Lake Shore Bancorp, or 61.2 percent of the outstanding common stock.
The new Fed regulation requires the prior approval of a majority of eligible votes of a mutual holding company’s members – the bank’s depositors – before a mutual holding company can waive its right to receive dividends from its public subsidiary. That would take so much time and effort that the mutual company’s board decided not to seek such a vote, which means the bank has to pay the same rate.
“The reduction in the dividend by the company’s Board of Directors is not a result of our earnings performance or due to any capital needs or operational issues,” President and CEO Daniel P. Reininga said in a press release. “The company’s board decided to reduce the dividend in order to redue the total amount of cash that would be paid to the MHC, as well as the tax on such cash.”
Reininga said the company “continues to evaluate alternatives” for waiving a dividend in the future under the proposed rules.
Meanwhile, the board also directed the bank’s management to restart purchases of its stock in the open market under a repurchase plan that was adopted and announced in November 2010. “This dividend, along with our intention to reinitiate the stock repurchase program reflects two initiatives of the company to return value to its shareholders,” Reininga said.