Tolland Bank shed $2 million in bad loans from its portfolio this month as it continued to rebound from a long struggle with problem assets.

"We are on the path to recovery," said Joseph H. Rossi, president and chief executive officer of the Vernon, Conn.-based thrift.

Tolland, with $230 million in assets, announced this week that $2 million in delinquent loans had been "paid off." Officials wouldn't elaborate but said that the loans, along with an earlier liquidation of $2.8 million of problem loans, reduces problem assets by 46% from the previous quarter. The thrift will release its latest results next week.

"Is it a step in the right direction? Absolutely," said Stanley Wells, a bank analyst at Keefe, Bruyette & Woods Inc. "But they still have their work cut out for them."

Mr. Wells said that Tolland Bank still lags behind most New England financial institutions. As of Sept. 30, the thrift's nonperforming assets amounted to 4.27% of total assets, compared with a New England median of 1.34%, he said.

But 1996 was clearly a good year for Tolland Bank.

The Connecticut Department of Banking terminated a memorandum of understanding under which Tolland had been operating since mid-1991. Officials said the memorandum was lifted because the continued improvement in earnings and a reduction of bad assets.

Now, Mr. Rossi said, the bank's major focus is on increasing its presence outside its current markets. Tolland runs seven branches in Tolland County, which is east of Hartford.

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