When he first arrived at The Community Bank last year, new CEO John J. O’Connor spoke often of re-establishing calm at the bank, roiled as it was by bad assets and regulatory trouble. But now, it’s time to make the unsettling decisions that will guide the bank back to profitability.

The bank announced a raft of new cost-cutting measures last week, including the consolidation of branches in Cape Cod and Brockton. Sixteen employees at all levels of the organization will lose their jobs, leaving 66 behind. Eight branches will be consolidated to five – all in an effort to do the necessary work of cutting expenses.

“It’s a terrible, emotional event inside an organization,” O’Connor said, but added that difficult choices were unavoidable for the bank to move from merely “stable” to profitable.

Brockton-based The Community Bank is one of seven Massachusetts banks that have gotten regulatory reprimands since 2008. That list includes Lowell’s failed Butler Bank, and other institutions – including Mt. Washington Bank and Athol-Clinton Savings Bank – which have chosen to merge with healthier partners. Others, such as Stoneham Savings Bank, haven’t ruled out a possible merger.

The Community Bank, for its part, is determined to stay independent and merger-free, O’Connor told Banker & Tradesman. But that hasn’t been easy. In addition to the $1 million in expenses that leadership will cut out through these latest austerity measures, the bank is also looking at internal sources of capital-raising. As a mutual it can’t sell stock, and so is in the process of selling off assets – although O’Connor demurred from naming which assets were on the block until the transactions were complete.

All Options On The Table

The $332.3 million institution, like many of its banking peers, ran into trouble over an abundance of soured construction loans, receiving regulator orders to raise capital, review their management team and clean up their balance sheets. After a regulatory reprimand in 2009, The Community Bank has worked through its troubled loans and sought to keep capital ratios at a higher level. Construction loans also proved troublesome for Stoneham Savings Bank, which has had to take its own austerity measures.

Don Fournier, new president and CEO of Stoneham Savings Bank, told Banker & Tradesman that all options are on the table, including a potential merger sometime down the road, or the sale of its large insurance agency.

In the meantime, Stoneham is doing the work typical of a troubled bank: Clearing out nonperforming assets, seeking to raise capital through a possible sale of assets and reducing expenses. To that end, the bank has agreed to sell its Belmont branch to Arlington-based LeaderBank, Fournier said. Employees and deposits will then belong to LeaderBank, which means Stoneham’s liabilities and balance sheet will both shrink, bumping up the bank’s capital ratios to a safer level.

It also means those Stoneham customers will now be LeaderBank customers, and a letter has recently gone out to inform them of the transfer, he said, although regulatory approval is still pending.

Overall, Fournier said, independence is the ideal, and the bank is working toward that goal. But if the bank continues to struggle, a merger might be in the offing.

Other troubled banks include Boston-based OneUnited Bank, which took $12 million in Troubled Asset Relief Program (TARP) money and has failed to pay at least five dividend payments, but has made no merger announcements. Boston-based Mt. Washington Bank became a subsidiary of East Boston Savings Bank, and Athol-Clinton Savings Bank recently announced its planned merger with Webster-based Hometown Bank.

‘Just Hard Work’

Holbrook Co-operative was the last of the bunch to receive a regulatory order from the FDIC and the state’s Division of Banks, getting slapped with a consent order in October. Paul J. Falvey, who recently took over as CEO, told Banker & Tradesman that although regulators require the bank’s board to consider all options – including possible mergers – Holbrook at the moment saw no reason to pack it in.

FDIC data on the institution illustrates an internal attempt to clean up a messy balance sheet. As of December 2010, the $108 million-asset bank had $1.5 million worth of loans in non-accrual status – meaning they were far into delinquency – compared to more than $2 million in such loans throughout the previous three quarters.

That work takes time, but Falvey said his bank isn’t focused entirely on cleaning up the past. Through Small Business Administration guaranteed loans, it’s been able to keep lending to local businesses.

Peter Conrad, president and CEO of the Co-operative Central Bank, a cash reserve for cooperative banks, said Holbrook and The Community Bank both are moving forcefully to stay independent. They’ve improved their situations, having appointed new executives and “stopped the bleeding” in an effort to work their way back to profitability, he said.

In The Community Bank’s case, Conrad said, the institution will likely be profitable again by the end of the year, which would have been tough for many industry insiders to imagine back in 2009. A lot of the bank’s future success depends on the housing market; since the market has seemingly reached bottom, Conrad said, the bank has been able to move forward. O’Connor and the new management team have been doing what’s necessary to pull the bank back.

O’Connor told Banker & Tradesman that merging wasn’t an option, even if staying solo was a tough road.

“We are absolutely committed to staying independent. There is no reason for this bank to merge today. It’s just hard work.”