A Connecticut community bank seems to have capped its four-year fight for survival in the third quarter, with a bulk sale and sales contracts for almost $11 million of real estate assets.

That's pushing nonperforming assets at Middletown-based Farmers and Mechanics Bank to nearly $70 million below the 1991 level.

Though the $508 million-asset thrift will report a third-quarter loss of at least $2.1 million for resolving the troubled assets, its officials estimate that reduced insurance premiums and carrying costs will ultimately increase income by $3 million a year.

"We think this helps close a door on the problems of the early 1990s and allows us to move ahead," said Joel E. Hyman, executive vice president and chief financial officer.

In response to the asset sales, federal and state regulators are giving the thrift another year, until the end of 1996, to meet a memorandum-of- understanding deadline to maintain a Tier 1 capital ratio of 6%. The thrift achieved the required level June 30.

When the sales have been completed, Farmers and Mechanics' nonperforming assets will probably drop to about $12 million, or less than 2.5% of total assets, from $21.9 million on June 30.

Mr. Hyman said he expects the ratio to drop below 2% by yearend. That would let the thrift save about $700,000 annually, beginning in the first quarter, by cutting jobs and permanently reducing other expenses relating to the portfolio.

The sale proceeds are to be diverted back into performing loans, adding about $500,000 annually to interest income.

"We wanted to demonstrate that attention wasn't focused just on nonperforming assets, but also on the profitability of the basic core bank," Mr. Hyman said.

To that end, officials are in the process of cutting 24 additional positions by yearend in branches, servicing units, and even the financial staff, to save about $600,000 a year. Most cuts will be through attrition, Mr. Hyman said, but any severance pay will also be included in the third quarter.

And officials are predicting another $300,000 in savings, beginning in the fourth quarter, through consultants' cost-cutting recommendations, departmental initiatives, and even employee suggestions.

One employee idea - put two-page memos on both sides of a single piece of paper - will save the thrift thousands, Mr. Hyman said.

"It's one of the things that a CEO might not recognize," he said, "but an employee recognizes waste."

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