Fremont Bank suffered a drop in profits, but the bank's first-quarter results also pointed to an improved picture for its loan portfolio.

The regional bank earned $4.2 million during the January-March quarter of 2010, down 17.6 percent from the year-ago period, according to a quarterly report on file with bank regulators.

Despite the reduced earnings, Fremont Bank appears to be turning the corner on its efforts to cope with failed loans, the filing suggested.

"We feel that we are pretty close to leveling off," said Ron Wagner, Fremont Bank's chief financial officer. "We see some signs that the problems are starting to level off."

At the end of March, Fremont Bank had $48.9 million in non-performing loans. That was down 12.4 percent from the bank's non-performing loans at the end of December 2009. Non-performing loans are loans more than 90 days past due or delinquent loans that no longer produce income.

Improvements also emerged for the bank's provisions against future loan losses. The bank set aside $8.2 million in loan loss provisions in the first quarter. That was down 11.9 percent from the end of the fourth quarter.

"The major difference in the earnings is what we set aside for loan losses," Wagner said. "Without the provision for loan losses we would have looked a lot better."

It's wise for banks to continue to set aside cash to ward off the effects of delinquent loans, said Michael Yoshikami, president of Walnut Creek-based YCMNET Advisors, an investment firm.

"Fremont Bank may be setting aside more of a reserve than they need so there no surprises from a downturn," Yoshikami said. "Their conservative underwriting standards are starting to pay off."

The bank did wind up with more foreclosed property on its books. At the end of March, the value of Fremont Bank's real estate seized through foreclosure totaled $18.1 million, up 8.7 percent from the fourth quarter.

Deposits and overall revenue also trended in a positive direction for Fremont Bank.

Revenues totaled $39.2 million in the first quarter, up 3.8 percent from the year-ago quarter.

At the end of March, Fremont Bank's deposits totaled $1.85 billion. That was 4 percent higher than the end of December.

"The deposits are a really positive sign," Wagner said. "The marketplace is creating a lot of opportunities. A lot of customers are interested in going to smaller banks."

Customers, though, still aren't looking to do much borrowing as they confront the uncertainties of a brutal economy.

Loans totaled $1.82 billion at the end of the first quarter. That was down 2.5 percent from the bank's total loan amount at the end of the fourth quarter.

"We are not seeing a lot of loan demand out there," Wagner said.

Overall, the quarterly report didn't raise red flags with Yoshikami.

"Fremont Bank is pretty well run," Yoshikami said. "There don't seem to be any major issues with them."

Contact George Avalos at 925-977-8477.