The Community Bank, of Brockton, entered 2010 with $17.3 million in seriously delinquent loans, according to FDIC data. By the end of the third quarter, it had whittled that down to $10.4 million.

That’s quick progress for the $500 million bank, which has had a rough couple years. The bank has been able to work through its current stack of non-accrual loans, which are so far behind the bank has stopped charging interest on them.

But trouble remains, as a newer batch of loans between 30 days and 90 days delinquent has gone in the opposite direction. The bank started 2010 with $8 million in such loans, but ended with $15.2 million at the end of the third quarter.

No one said it would be easy to right the bank’s numerous troubles, which stem mostly from soured construction loans. Certainly not John O’Connor, five months into his job as CEO, who has repeatedly cautioned that recovery would take time.

“It’s going to take a long time for us to get there,” he told Banker & Tradesman in a recent interview.

A Balancing Act

Still, analysts say it seems that, thus far, The Community Bank is making progress to climb out of its troubles. Suzanne Moot, owner of Milton-based consultancy M&M Assoc., said she approves the bank’s apparent efforts to work through non-accrual assets and take an unflinching look at the new batch of delinquencies.

“They’re clearly trying to get their act together,” Moot said, noting that while the bank’s equity capital shrank slightly to $22.7 million, its capital reserve ratios are solid, with a total risk-based capital ratio of 9.3 percent as of the third quarter 2010. Its loan portfolio overall is improving, and it has made other moves to streamline operations – including allowing its employee headcount to shrink to 84 from 93 at the beginning of the year.

But clearing off troubled assets means one’s income takes a hit, she said, and other FDIC profitability stats back this up: With a return on assets of -.54 at the end of the third quarter, the bank slipped a little from its -.48 percent ROA at the beginning of the year.

The bank is maintaining this balancing act in an effort to emerge from some seriously bumpy years.

In 2009, the previous leadership of the bank attempted to go public with a $15 million capital raise, but gave up on the idea amid a terrible IPO market. In June 2009, the FDIC issued a cease-and-desist order harshly reprimanding the bank for “hazardous lending practices” and “operating with deficient management.” The former CEO, David Curtis, stepped down about a year later.

In August of this year, the FDIC issued a consent order that basically maintained the strict checklist originally laid out in the 2009 cease-and-desist order, ordering the bank to improve its portfolio, capital levels, compliance structures and more.

O’Connor started as CEO in July with that multi-pronged checklist in mind, but he also had other priorities.

“My first objective was to stabilize the atmosphere here,” he told Banker & Tradesman, adding that much of that revolved around building a new management team. The bank’s new faces include a new vice president of commercial lending hired in October, as well as new CFO John H. Clifford, who joined this month.

‘Total Acquiescence’

Securing new management is often essential in cases like these, said Neal Curtin, partner with Boston-based law firm Bingham McCutchen. Once regulators place a bank under official watch, the bank has an enormous amount of reporting to do, sometimes on a weekly basis, to reassure regulators all is well.

A big part of that will be to get leadership in place that regulators see as having a good track record – O’Connor had previously worked for a number of banks, including Rockland Trust, Citizens, Bank of Boston and most recently as CEO of South Coast Central Bank.

But it’s also about shedding baggage, where new management doesn’t feel the need to justify past behavior and doesn’t have to work as hard to get regulator trust.

“As a practical matter, you’re trying to sell the regulator on the fact that, in general, the bank’s now got religion, and ‘Thanks for beating me about the head and shoulders,’ and ‘may I please have some more,’” Curtin said. In other words, the bank needs to show total acquiescence to regulatory command.

In terms of pulling itself out of trouble, Curtin echoed O’Connor’s emphasis on creating earnings – which, for mutual banks that can’t sell stock, is the only way to improve its capital.

O’Connor said he is still in the middle of considering alternatives to raise capital, and in early 2011 intends to unveil management’s strategy for returning to profitability. Until then, he said, “We think we have our arms around the problem, but it’s going to take some time to solve it."