A sense of optimism has slowly returned among executives at this year's American Bankers Association annual conference for community bankers. But at every turn, they are being reminded to stay somewhat skeptical.

Bringing up proposed Basel III capital requirements, for instance, is an easy way to wipe the smile off the face of even the most jovial attendee at the Orlando, Fla., conference.

"The larger institutions can handle Basel III," Frank Keating, the association's president and chief executive, said in an interview. "It's the midsize and smaller institutions that can't" manage the aftershocks of the proposal.

Keating has held talks recently with bank regulators in other countries. Those regulators are "stunned" to hear that U.S. regulators plan to apply Basel III standards to small banks, Keating said. Recent efforts by leaders of state banking associations, and state regulators, are prompting federal regulators to reconsider Basel III's application to smaller banks, he said.

The top officials at the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau "have been very sensitive to our message," Keating said. "They are all very thoughtful" and realize the problems that Basel III presents to smaller banks.

"If community banks blow away, then communities are going to blow away," Keating added. "Mortgage lending, as just one example, would ground to a halt" if the capital requirements are implemented.

Attendees at this year's conference have received a number of reality checks on topics such as the Dodd-Frank Act, compliance with the Consumer Financial Protection Bureau and the emerging issue of cybersecurity. Throw in ongoing anxiety over sluggish loan demand and managing through an artificially low rate environment, and you might be surprised to see some signs of optimism.

Despite persistent challenges, several bankers are expressing a belief that a rebound is approaching. From new loan-participation services to more sophisticated loan modeling software, bankers have a growing number of alternatives when it comes to unearthing and evaluating lending opportunities.

In one breakout session, Charles Cullen, president and chief executive of the $567 million-asset Provident Bank in Amesbury, Mass., said he has been able to significantly diversify Provident's loan portfolio by partnering with BancAlliance, a Chevy Chase, Md., cooperative that connects community banks with commercial-and-industrial loans. "They've been able to put us into loans that we just couldn't make in our footprint," Cullen said.

This week's conference marks the last community bankers' assembly where Matt Williams, chairman and president of the $122 million-asset Gothenburg State Bank in Nebraska, will serve as the association's chairman.

Jeff Plagge, president and chief executive of $1.3 billion-asset Northwest Financial in Arnolds Park, Iowa, will succeed Williams in October.

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