A Maine thrift is offering depositors an extra dividend for the third time in 10 years, keeping alive an all-but-faded tradition at mutual savings banks.
But with many banks and thrifts teeming with capital, Biddeford Savings Bank's decision to give customers a bonus - equal to 7% of interest they earned during the year - could catch on in the mutual thrift industry.
Besides being a good public relations move, analysts say, the practice - though rare - is a good, if not inexpensive, way to deploy excess capital.
"Because of the strength of the banking industry, I guess more mutuals will follow suit," said John Carusone, president of Bank Analysis Center in Hartford, Conn. "Whether publicly traded or mutual, banks are wallowing in excess capital."
But Mr. Carusone and other industry analysts don't expect there to be a flood of institutions issuing special dividends. The extra dividend was more common among mutual savings institutions in the 1950s and early 1960s, before the Federal Reserve put a cap on interest thrifts could pay customers in 1966. Since that rule, Regulation Q, was phased out in 1986, the practice is slowly making a comeback.
"It's a risky thing to do in a way because it's expensive," said Jay M. Burke, principal of Burke Marketing, a Boston community bank marketing firm. "You're really not going to do it unless you truly believe in mutuality."
For Biddeford Savings, a $139 million-asset institution, the price tag for the special yearend bonus is likely to reach $350,000 - an average of $17.50 per customer. But William J. Denyer, president and chief executive, said it's worth the money to prove that the thrift is a true mutual institution that shares its profits.
"You just wouldn't believe how many people have stopped me here in the bank, on the street, everywhere, and thanked me," Mr. Denyer said. "They said, 'Gee, we really appreciate that.'"
Mr. Denyer said the bank wanted to pass along some of its success. This year was especially good because the thrift has ended up with a capital position of more than 12%.
Biddeford handed out its last bonus three years ago, a 5% extra dividend. He said the extra money attracted new customers who didn't want to miss out on the cash again.
But he said his board makes a point not to offer the extra money annually.
"We don't want it to be an annual event that people look for," he said.
Under Maine banking law, Biddeford had to ask the state Bureau of Banking to let it pay the special dividend. The agency has received only a handful of such requests in recent years.
"They are few and far between," said H. Donald DeMatteis, its superintendent, but mutuals "are entrusted with sharing the success of the organization with the depositors."
