Some of the nation's top bankers said Wednesday the beleaguered industry continues to face troubled loans, but that there's some hope in sight for the nascent recovery.

Executives at a two-day financial industry conference held by Barclays Capital said bank profits will be squeezed by high levels of loan charge-offs and defaults this year. But many sounded a bit more upbeat that they are getting a better handle on the deterioration of their balance sheets.

"Considering the current economic environment, we would expect our nonperforming assets to continue to increase," said Wells Fargo & Co. (WFC) Chief Executive John Stumpf.

His sentiments were echoed by top executives from banks like Fifth Third Bancorp (FITB), SunTrust Banks Inc. (STI) and Bank of America Corp. (BAC). They expect that fallout from the real-estate market's downturn will remain their biggest challenge, and that consumer-related loans will further stumble.

However, concerns about another big bank failure were assuaged as many bankers predicted the magnitude of delinquencies will soon slow. That helped push bank stocks higher on Wednesday, with the KBW Bank Index up 3.7% to 48.17.

"The biggest takeaway was the majority of companies commenting that the pace of non-performing assets increases in the third quarter will be less than the second quarter," said Jason Goldberg, an analyst with Barclays Capital.

CEOs like Stumpf and several others said they are making strides in modifying troubled loans to dampen losses. There was even some talk the magnitude of losses might be close to peaking.

Bank of America Chief Financial Officer Joe Price said consumer losses won't rise at the "same pace experienced in the last few quarters." And Regions Financial Corp. (RF) Chief Executive C. Dowd Ritter expects losses from bad loans will begin to decline "late this year or early next year."

Michael Cavanagh, the chief financial officer of JPMorgan Chase & Co (JPM) said his bank saw continued stabilization in early stage delinquencies, usually borrowers who are less than 60 days late with their payments. Sill, Cavanagh was cautious: "we're not yet in a position to draw any conclusion" about improvements in overall delinquencies and loan losses.

For life insurers, investors rewarded evidence of improved investment returns and strengthening capital positions, both of which will help insurers get back to writing more business.

Insurers had good news to report. MetLife Inc. (MET) Chief Financial Officer William Wheeler said Tuesday that unrealized, or market-value investment losses had already dropped in the second quarter for many insurers. "So I don't think it's any big secret that that number has come down a lot further in the third quarter," he said. "It will be OK."

Protective Life Corp.'s (PL) Chief Financial Officer Richard Bielen had similar news. Unrealized investment losses dropped 50% from the end of June to the end of August on its investment portfolio. Genworth Financial Inc. (GNW) canceled its scheduled presentation due to its $500 million equity offering announced earlier this week.

-By Joe Bel Bruno, Dow Jones Newswires; 212-416-2469; joe.belbruno@dowjones.com

(Lavonne Kuykendall in Chicago and Matthias Rieker in New York contributed to this report.)