Credit quality has steadily improved throughout the industry, but lenders in some cities still have a case of persistent heartburn when it comes to delinquent loans.

In at least five large metro areas-Atlanta, Baltimore, Chicago, Milwaukee and Indianapolis-the delinquency rate remained above the national average in three lending categories as of June 30, according to data from research firm Trepp LLC. The categories are commercial real estate, construction and multifamily housing.

In Atlanta, for example, the proportion of delinquent construction loans improved from 21.7% as of June 30, 2012, to 7.8% as of June 30 this year, according to Trepp. But that's still 450 basis points above the national average of 3.3%.

Baltimore, Chicago, Milwaukee and Indianapolis each posted similar rates of steady improvement, but it hasn't been enough to fully compensate for the damage done during the financial crisis, said Matthew Anderson, a managing director at Trepp. The pace of a metropolitan region's economic recovery is often the prime factor.

"In Chicago itself, for example, the economy is recovering, but slower than in Los Angeles or New York," Anderson said.

The situation could leave lenders in these markets vulnerable to another economic shock. Concerns have risen that credit quality could take a turn for the worse, as some banks have been loosening underwriting standards to beat out rivals for commercial-and-industrial loans, as they chase higher yields. The Office of the Comptroller of the Currency and the Federal Reserve have both warned about loosening of underwriting standards in the past year.

Trepp's count of delinquent loans combines three categories: loans that are 30 to 89 days past due; loans that are past due 90 days or longer; and nonaccrual loans.

Atlanta and Chicago have been slower to recover because both cities have a large number of small, independent banks. Those institutions have had a harder time unloading delinquent assets, said Jim Adkins, a founder and managing member of Artisan Advisors in Barrington, Ill.

"They really haven't had the opportunity to clean themselves up like the big boys have," Adkins said. "They haven't had the capital to get the bad loans off their books."

Indeed, larger banks that operate in the Chicago area have cleaned up their books. Noncurrent loans, as a percentage of all loans, at $19 billion-asset TCF Financial, in Wayzata, Minn., improved to 1.61% at the end of the second quarter, compared with 2.53%, as of June 30, 2012. TCF operates 159 branches in the Chicago area.

"The whole story in credit at TCF is improving," William Cooper, TCF's chairman and chief executive, said on Sept. 8 at the Barclays Global Financial Services Conference.

To cope with credit quality issues, some banks have diversified types of geographies of lending and tried to lower deposit costs.

TCF "changed its model" to increase core deposits and expand lending nationally. Those moves have helped TCF improve its credit quality, Cooper said.

"To the degree we had credit issues at the bank, they weren't credit issues off the national, they were residential loans we made in our own marketplace, commercial real estate loans we made in our own marketplace," Cooper said. "The credit quality … of those national platforms is excellent and will continue to be excellent."

But large and regional banks, like TCF, have also had advantages that community banks lacked, Anderson said.

"The larger banks had more severe credit-quality problems early on, but they've also had much greater access to capital markets," he said. "The first round of stress testing had the desired, but also unanticipated, outcome that the large banks were immediately able to go out to the capital markets and raise equity."

Factors specific to a region also play a role in the rate of improvement, Anderson said. Some areas, like the Southwest and the West, seem poised to lead the nation's loan growth over the coming months. But those areas also had steeper declines, and thus had farther to come back.

"There was a lot of construction on the periphery of the metro area of Atlanta," Anderson said. "When the market fell, the exurban areas were hit particularly hard."

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