Casino’s winning streak lifts small thrifts; success of Connecticut tribe’s venture fuels a revival.(Norwich Savings Society, Dime Savings Bank of Norwich and Chelsea-Groton Savings Bank profit from Foxwoods Casino)(includes related article on relations between Indian tribes and community banks)
American Banker May 13, 1996 | Epstein, Jonathan D. go to website dime savings bank
Profiting from gambling is one of the last things a community banker might encourage other people to do.
But that wasn’t the case for the chief executives at three small southeastern Connecticut thrifts.
Five years ago, the three men – Dan Dennis, Jim Cronin, and Duncan Stoddard – were struggling to see the light at the end of the tunnel. With the state’s recession in full swing and the defense industry retrenching, their community was battling skyrocketing unemployment and slumping property values.
Those problems reverberated at their local thrifts – Norwich Savings Society, Dime Savings Bank of Norwich, and Chelsea-Groton Savings Bank -which saw nonperforming assets soar and loan losses mount.
All that changed, however, after the Mashantucket Pequot Indians opened the Foxwoods Casino in 1992, eventually supplying 11,000 new jobs and significant investment for the struggling rural community.
The injection resuscitated the area, helping it rebound from the recession far faster than the rest of the state. The casino also helped the fortunes of the three thrifts.
“Everyone in eastern Connecticut is affected by it, every county, every bank, every government,” said Mr. Dennis, chief executive of $711 million-asset Norwich Savings.
The casino has emerged as an unlikely savior for banks that have relied for years on more traditional sources of income.
While Mr. Dennis and his banking colleagues assert that they would have recovered eventually, they agree that it wouldn’t have happened as rapidly were it not for the casino’s success.
Foxwoods’ success is part of a surge in casino gambling on Indian reservations during the past few years. Since the beginning of the decade, at least 92 tribes in 19 states have signed more than 100 compacts for casino gambling with governments.
The agreements authorize games ranging from simple lotteries and off-track betting to blackjack, roulette, and baccarat, and even slot machines.
With almost 600 rooms in two hotels, and more than 250,000 square feet of casino space, Foxwoods has become a major tourist destination in New England. Tribal officials say it is the largest in the Western Hemisphere.
Its revenues have exceeded all expectations. Profits have topped $1 billion a year, most of it nontaxable because the reservation is technically sovereign land.
The regional recovery spawned by Foxwoods has also helped the thrifts’ earnings. Nonperforming assets are down significantly at all three institutions. In 1995, Norwich reported net income of $5.5 million, Chelsea-Groton had earnings of $4.2 million, and Dime had income of $1.8 million.
“We wouldn’t see the bad loans going away and being replaced by good loans if it weren’t for these things,” said $457 million-asset Chelsea-Groton’s Mr. Stoddard.
Although the thrifts are too small to handle the banking relationships for the casino, they have been asked to fund various other individual and tribal projects.
And the Mashantuckets have made sure to divide their deposit business among local banks. That supports the growth of the institutions, while ensuring competitive bidding for tribal projects.
“The success of it is well beyond not only the local people’s expectations, but even their wildest dreams and hopes,” said Mr. Cronin, chief executive at $159 million-asset Dime Savings.
“I know this tribe prefers to do locally what it can, and that involves community banks,” said tribal spokesman Bruce MacDonald. “We’ve made that a policy and a priority.” Since the little-known tribe opened four years ago, southeastern Connecticut has undergone a transformation that rescued it from the disaster that befell the rest of the state.
With its heavy reliance on defense industries, the area was rocked by defense cutbacks that led to, among other losses, about 14,000 job cuts at the General Dynamics Electric Boat submarine facility in Groton.
Almost simultaneously, the effects of the state’s recession and overbuilding in the condominium market led to a steep drop in property values in the area. About 40 banks failed statewide. go to website dime savings bank
The poor conditions pounded the three thrifts. Norwich Savings recorded nonperforming assets of $50 million, or 50% of its capital, while Chelsea-Groton watched its bad assets rise to 70% of capital, or $34 million.
“I don’t think any banker realized in 1989 how devastating or deep an economic trough this would be,” Mr. Dennis said.
The growth of Foxwoods, however, sparked the region’s recovery within just two years of its opening.
“We’re not going to take credit for everything, but we’ve had a noticeable impact on the local economy,” Mr. McDonald said.
With the casino now in full operation and still growing, the Norwich area has seen a return to virtually full employment and the replenishment of once empty housing stock.
And economists say that the new jobs at the casino have also supported 20,000 new jobs in the county and 7,000 in the rest of the state, helping to reduce state welfare rolls.
Currently, Dime Savings Bank of Norwich is working with the Mashantuckets to offer a housing finance program to help tribe members who might not otherwise qualify for loans.
And Norwich Savings Society, which has maintained numerous loan relationships with the tribe since 1983, is seeking to open a branch at the casino for tribe members and casino workers.
The success of the casino also has its drawbacks, the bankers point out. Most notable are the losses incurred by gambling addicts, who may default on loans and bankrupt their businesses.
“There’s been a mixed bag there. It isn’t a panacea,” Mr. Cronin said. “I’m still thankful that it happened. I shudder to think of what might have happened if they were not there.” Epstein, Jonathan D.
