Arizona’s banks improved their financial condition overall in 2015, though the percentage of top-rated institutions remained below the national average, according to the latest ratings from Bauer Financial.
And in Southern Arizona, two Tucson-based banks raised capital to shore up their finances amid regulatory orders to do so.
Canyon Community Bank saw its Bauer rating rise one notch, to two stars or “problematic,” from a one-star “troubled” rating, after raising $9.5 million from an investment holding company in November.
Meanwhile, Commerce Bank of Arizona still is rated “zero” stars by Bauer, though the bank raised $2.7 million in new capital last year and has worked to otherwise bolster its finances.
Statewide, all other Arizona banks and credit unions retained their previous Bauer ratings.
In the fourth quarter, Bauer rated 66.7 percent of Arizona banks “recommended” — at five stars (“superior”) or four stars (“excellent”) — compared with 59.1 percent in fourth-quarter 2014. And 11.1 percent were rated “troubled and problematic,” down from 13.6 percent in 2014.
Nationwide, Florida-based Bauer rated 83.5 percent of banks as recommended and 4.7 as troubled and problematic.
Among Arizona’s credit unions, 84.1 percent were recommended, while 2.3 percent were rated troubled and problematic in the fourth quarter, compared with 88.6 percent and 2.3 percent, respectively, in the fourth quarter of 2014.
Nationally, Bauer rated 79.3 percent of credit unions as recommended and 2.5 percent troubled and problematic.
Canyon Community Bank got its infusion of cash from Texas-based Highgate Holdings LLC, an investment firm mainly involved in hotel properties, said the bank’s president and CEO, Lauren Kingry.
The capital investment, which was reported in regulatory filings but not announced publicly, makes Highgate a 77 percent owner of Canyon Community Bank, Kingry said.
It also makes Canyon Community the highest-capitalized Arizona-based bank, said Kingry, who replaced Canyon president Chuck Luhtala in December.
“We are excited about this new future for Canyon,” said Kingry, who spent more than five years as superintendent of the Arizona Department of Financial Institutions before joining Canyon Community Bank.
He said the federally chartered bank has filed a request with the Office of the Comptroller of the Currency to lift a consent order the bank has operated under since July 2013.
With the new capital infusion, Canyon has blown past the requirements in the consent order that it must increase its leverage-capital ratio — a key measure of capital reserves — to 9 percent and its risk-based capital ratio to 12 percent.
At the end of 2015, Canyon’s leverage capital ratio was 18.5 percent and its risk-based ratio was 32.4 percent, up from 6.3 percent and 10.7 percent, respectively, at the end of 2014, according to regulatory filings.
Kingry said he was disappointed that Bauer didn’t raise Canyon’s star rating even higher in response to the bank’s much stronger capital position, but he said that probably will happen once the regulatory order is lifted.
Operationally, Canyon posted a small profit in 2015 as it continued to work out bad loans and boost its small-business lending. The bank posted a $1.6 million loss in 2014.
Its higher capital levels will now allow Canyon to make loans of up to $2 million per borrower, compared with a limit of $400,000 previously, opening up a whole new market segment, Kingry added.
“We’re excited about being a serious player in almost all loans in Tucson,” said Kingly, who headed Liberty Bank in Tucson in the 1990s.
While Commerce Bank didn’t see its Bauer rating rise, the new capital raised from local investors will serve as a bridge to a larger fundraising effort now in planning, said Mike Sheneman, Commerce’s chief financial officer.
“Overall, we’re pleased with the progress we have made,” Sheneman said.
Commerce’s capital ratios remain below the requirements of a consent order the state-chartered bank signed with the Federal Deposit Insurance Corp. in 2013. But both its leverage capital ratio of 6.3 percent and its risk-based capital ratio of 8.6 percent in the fourth quarter are improvements from 2014.
The bank also significantly cut its losses last year, with earnings of $635,000 in the fourth quarter helping to keep its 2015 loss to $271,000, compared with a loss of more than $3 million in all of 2014.
Commerce continues to trim non-interest expenses and work out its bad loans, and the bank has kept FDIC regulators on board with its recovery plans, Sheneman said.
“We have a really good relationship with the regulators. They want us to show progress and we’ve done that,” he said.
Commerce Bank also has improved its percentage of non-performing loans, which include delinquent loans and repossessed real estate. In the fourth quarter, 6.7 percent of the bank’s loans were considered non-performing, down from more than 9 percent in the first quarter of 2015.
Among Arizona banks with operations in Southern Arizona, Western Alliance Bank, parent of Alliance Bank of Arizona, retained its five-star or “superior” rating.
Five Tucson-based credit unions kept their five-star ratings: Vantage West, Hughes Federal, Pima Federal, Tucson Federal and Pyramid Federal.
Zions Bancorporation no longer reports data for National Bank of Arizona. The company consolidated charters for seven banks it owns last year and reports as ZB National Association.
UMB Bank acquired Meridian Bank in 2015 and no longer reports its finances separately.
