Commerce Bank sees rating rise as local banks and credit unions stay strong

Tucson-area banks and credit unions maintained their financial strength in the first quarter of 2019, while a once-troubled Tucson-based bank earned a higher rating, according to the latest ratings from Florida-based BauerFinancial.

Commerce Bank of Arizona — the only wholly locally owned bank in Tucson — earned a Bauer rating of 3½ stars, or “good,” up from 3 stars, after posting a $400,000 first-quarter profit.

Stung by business-loan losses in the wake of the Great Recession, Commerce Bank was ordered by regulators to raise its capital reserves in 2013 and was rated as low as zero stars, or “troubled,” by Bauer in 2016.

But after Commerce raised more than $13 million from local investors and cleaned up its balance sheet, the Federal Deposit Insurance Corp. lifted its consent order in 2017 and Bauer boosted its ratings.

Commerce Bank President and CEO John P. Lewis said bank officials are gratified by the higher Bauer rating after 2018 saw the bank post nearly $2 million in annual net income, adding that the bank is off to a strong start this year.

“With our stronger capital reserves and our status as the only locally owned bank in Tucson, we see a lot of loan demand in the local community that we’re uniquely positioned to meet in the second half of this year,” Lewis said.

Another local bank that has been in recovery, Canyon Community Bank, kept its 3-star rating from Bauer after narrowing its losses in the first quarter.

Canyon posted a net loss of $40,000 in the first quarter after losing $771,000 in all of 2018.

The bank has been under a consent order by the Office of the Comptroller of the Currency since 2013, and had been rated as low as 1 star, or “problematic,” by Bauer as recently as 2016.

But Canyon has far surpassed the minimum capital reserves required in the order since raising $9.5 million in 2015 from a Texas-based investment holding company in exchange for a majority ownership stake in the bank.

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Canyon is now focused on returning to profitability, said George Psomopoulos, a longtime Florida banker who took over as Canyon’s president and CEO in January.

Psomopoulos said the bank remains well-capitalized, but an unsuccessful foray into residential mortgage lending in the past couple of years cut into Canyon’s bottom line.

Canyon Community Bank’s risk-based capital ratio — a key measure of capital reserves — is the highest of any bank in the state at more than 38%, while it has zero non-performing assets like delinquent loans.

“The cleanup has taken place, there’s plenty of capital and plenty of liquidity, so the mandate that we have is to grow earnings,” Psomopoulos said, adding that the bank has hired several veteran local bankers to drive that effort.

He said he expects the Office of the Comptroller to lift its consent order once Canyon returns to profitability.

Among major national banks operating in Arizona, Bank of America saw its Bauer rating rise to 5 stars, or “superior,” in the first quarter, from 4 stars or “excellent” previously.

All other national and regional banks and credit unions operating in Tucson retained their prior Bauer ratings.

Five of Tucson’s six locally based credit unions — Vantage West, Hughes Federal, Pima Federal, Tucson Federal and Pyramid Federal — kept their 5-star “superior” Bauer ratings.

On a statewide basis in the first quarter, 73.3% of Arizona’s banks were “recommended” — with ratings of 4 or 5 stars — unchanged from a year ago. None were rated “troubled” or “problematic.”

Nationally, more than 90% of banks were recommended and 1.3% were troubled or problematic.