It's still early in the seemingly endless community bank earnings season, but higher expectations so far are being rewarded with firmer results.

Perhaps one of the most telling is the stabilization in nonperforming assets at banks across the country. Though that, in and of itself, doesn't represent a turnaround, it's the kind of trend that is making bankers and analysts more upbeat as they await first-quarter results from thousands of publicly traded bank companies.

"We ended up raising estimates more often than we cut them," said Anthony Davis, an analyst at Stifel, Nicolaus & Co. Inc. "That hasn't happened in more than two years."

Davis, who follows banks in the Midwest, said Stifel had been cutting earnings estimates for 32 consecutive months.

Yet the recovery is not uniform. Some banks still face big obstacles, including weak loan demand and stress in commercial real estate portfolios. And some regions are recovering faster than others.

"Some banks are improving; some are slipping, but not as much," said Stephen Moss, an analyst with Janney Montgomery Scott. "Generally, things are going in the right direction." Moss, though, said credit costs were down "across the board" as banks took lower loss provisions and charged off fewer bad loans.

"There are definitely signs that, six months from now, we could be talking about a real recovery," said Brett Rabatin, an analyst with Sterne Agee & Leach Inc. who follows Northwest banks.

While the level of nonperforming assets hit a plateau or declined in the quarter, Davis said demand for new loans remained weak.

PrivateBancorp Inc. of Chicago, dogged by troubled commercial and industrial loans, is one example of the trend. The $12 billion-asset company reported relatively flat nonperforming assets of $442 million for the first quarter, just a 1.1% rise from the fourth quarter. Management had expected up to a 10% increase. Total loan volume fell 1.7%, which was notable given rapid growth over the past two years.

"Nonperforming assets increased at a slower rate than the previous quarter, providing some early signs of stabilization," Kevin Killips, PrivateBancorp's chief financial officer, said in an earnings call last week.

Regional economic differences continued to affect results, with companies in the Northeast and Mid-Atlantic improving faster than other parts of the country. Troubled loans continued to plague pockets of the Southeast and Pacific Northwest.

Some community banks that increased loans were able to lure business from large banks in their markets that were distracted, said Damon DelMonte, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc.

For example, First Niagara Financial Group of Buffalo - which competes with KeyBank in upstate New York and PNC in western Pennsylvania -- improved average commercial loan balances by 15% as a result of solid commercial loan growth.

"It just shows we can execute," said John Koelmel, the president and chief executive officer of the $15 billion-asset company, in an interview. "In this case, in markets . . . dominated by major banks, there's still an ample amount of opportunity to succeed."

While some banks have repaired pieces of their loan portfolio, they continue to work through commercial real estate loans.

Daniel Cardenas, an analyst with Howe Barnes Hoefer & Arnett in Chicago, said many companies have their arms around commercial loan portfolio problems. "But there's still a lot of uncertainty given the economy, as it is, and the stress that it's placing on borrowers," he said.

Also, the effects of unemployment are starting to filter down, causing more residential mortgage loans to fall into nonaccrual status, DelMonte said.

In the Pacific Northwest, banks trying to unload housing and construction loan portfolios are seeing prices firm up, Rabatin said, though they're still selling at a 10% to 30% discount.

Moving forward, some banks may take a more measured approach to disposing of nonperforming assets. For instance, East West Bancorp Inc. in Pasadena, Calif., charged off aggressively in 2008 and 2009. But after reducing nonperforming assets 51% from the fourth quarter — the second consecutive quarterly decline — the $20 billion-asset company may seek better pricing.

"We have much more capital and our nonperforming assets to total assets ratio is very low, at 89 basis points," Irene Oh, East West's CFO, said in an interview Monday. "We're really in a position where the market has gotten better, and because we don't have so many nonperforming assets, we don't need to sell as much."

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