I was just about to recycle the annual report that I received from Brookline Bancorp, a small savings and loan here in Massachusetts that is presumably typical of an old-school bank. Then I thought it might be interesting to see how the sleepy old way of doing business fared in 2008.
The bank had assets of $2.6 billion. Of that, more than $2 billion was money that it expected to get repaid on loans it had issued to borrowers. As long as the Massachusetts real estate market does not collapse, this money should continue to flow in. The bank allows only $28 million for expected loan losses, roughly 1% of the total owed to them. Loans that had been sold upstream and converted into cash had been invested almost exclusively in government-guaranteed securities (some of them Fannie Mae and the like, which were not explicitly guaranteed until recently).
Profit before taxes was $21 million. Roughly 40 percent of that profit was paid in taxes, leaving $12.8 million for investors, down from $21 million in 2006. (I.e., an investor in Brookline would give up roughly 50 percent of his or her profits to the government through the corporate tax and then through state and federal income tax on dividend payments.)
How did the employees do? They were paid $21 million in 2008, up from $19 million in 2006. The 74-year-old CEO was paid more than 10 percent of the total received by all 220 full-time employees. Richard P. Chapman, Jr. earned $2.24 million in 2008 (100X what a teller earns), $2.2M in 2007, and $1.7M in 2006. Was it necessary to pay the guy this much to prevent another bank from hiring him away? Presumably not, as his letter to shareholders indicated that he felt that he was too old to continue as CEO and would be retiring this year.
How does a guy at the end of a long career in local banking see our prospects? “All the risks in 2009 seem on the down side,” writes Mr. Chapman.
[Could the Board have gotten someone to manage 220 people for less than $2.24M? Consider Gary Kelly, the 52-year-old CEO of Southwest Airlines. He earned about $1M in 2008 (source) while managing an enterprise with $11 billion in revenue and more than 35,000 employees. Gary Kelly works in a much more challenging industry and is at much greater risk of having to work evenings or weekends, especially if there is a problem with one of Southwest’s more than 500 Boeing 737s.]