Arizona’s banks continued to strengthen in the third quarter, though their overall financial health still lagged behind the national average, according to the latest ratings from Bauer Financial.

In the third quarter ending Sept. 30, 16.7 percent of the banks operating in Arizona were rated “troubled” or “problematic” by Bauer, compared with 23.3 percent at the same time in 2012.

Bauer rated 37.5 percent banks operating in Arizona as “recommended” in the third quarter, up from 33.3 percent a year earlier.

Nationally, Bauer rated 7.6 percent of banks troubled or problematic, down from 10.1 percent in third-quarter 2012, while 72 percent were recommended, up from 68.1 percent in the third quarter of 2012.

While most banks retained their Bauer ratings from the prior quarter, Tucson-based National Bank of Arizona rose to Bauer’s top five-star rating in the third quarter, from four stars in the prior quarter.

Commerce Bank of Arizona and Canyon Community Bank were the lowest-rated local banks, rated two stars or “problematic” by Bauer. (See related story.)

While the financial industry continues to shrink, institutions that remain continue to get stronger, said the Coral Gables, Fla.-based Bauer, which has been rating financial institutions for 30 years.

Bauer rates financial institutions with assets on a scale from 0 to 5 stars, using quarterly reports filed with the Federal Deposit Insurance Corporation. The firm examines ratios of capital to risk-weighted assets, along with other factors.

Arizona’s credit unions also saw improvement in the third quarter. Bauer said 84.4 percent of the state’s credit unions were recommended, while just 4.4 percent were rated troubled or problematic, improving from 76 percent recommended and 6.5 percent troubled or problematic in third-quarter 2012.

Southern Arizona credit unions remained strong, with three Tucson-based credit unions — Vantage West, Pima Federal and Pyramid Federal — retaining their five-star, “superior” Bauer ratings. Hughes Federal and Tucson Federal held on to their four-star (excellent) ratings.

One local bank is no longer rated individually by Bauer. Bank of Tucson was acquired along with Southern Arizona Community Bank in 2010 by Los Angeles-based Grandpoint Capital, and the merged bank operates locally as Bank of Tucson. The bank had a five-star Bauer rating at the end of 2012; Grandpoint Bank (listed among national and regional banks in the accompanying chart) also holds a five-star rating.

Contact Assistant Business Editor David Wichner at or 573-4181.