Credit risk

Hurricane Ian unlikely to pose serious credit risk to Florida banks

Hurricane Ian devastated communities in South Florida, but banks in the region are unlikely to suffer long-term negative effects, equity analysts say.

While banks in affected areas could see an increase in their loan loss reserves, the insurance should protect them against major credit losses. In addition, storms such as Hurricane Ian often lead to longer-term positive effects, such as a resurgence of local economic activity as communities rebuild and insurance funds flow, said stock market analysts.

Major increase in losses unlikely

Sorting out storm impact and insurance coverage will take time, but actual loads compared to reserved levels were low in previous storms like Hurricanes Harvey and Irma in 2017 and Hurricane Dorian in 2019, wrote Raymond James analysts David Feaster and Michael Rose in a note. before Ian’s impact.

While banks in the region could report some weakness in Q4 2022 and Q1 2023 earnings, “realized losses could be much less severe,” the analysts wrote.

In the case of Hurricane Katrina, several banks recorded tens of millions in loan loss provisions, but most of those reserves were reversed over time thanks to insurance proceeds and federal emergency assistance. of disaster, wrote a group of Hovde analysts in another note.

“Whether this will be the case for Ian remains to be seen, but the results of these major storms can often be a resurgence of local economic activity following reconstruction efforts and insurance fund inflows,” the analysts wrote. .

Hurricanes usually end up being more of a problem for insurance companies than banks because all large loans are insured against hurricane damage, especially in Florida where hurricanes are common, said analyst Stephen Scouten. by Piper Sandler, in an interview.

“Hurricane economies are doing very well and they’re getting an influx of insurance money and they’re getting new construction,” Scouten said. “From an economic perspective and from a banking perspective, they end up being quite positive in the long run. From an insurance perspective, not so much.”

One area where banks could see an uptick in losses is autos, which may be less insured, but banks aren’t as exposed to this lending segment as they have been in the past, Scouten said.

“If I had to highlight one segment of a bank’s balance sheet, it would be automotive, but again, not a big amount,” he said.

Climate First Bank, based in St. Petersburg, Florida avoided any serious damage from the storm and does not anticipate any major loan losses or credit risk from any of its lenders in the affected areas, CEO Ken LaRoe said in an interview.

“We had a few borrowers who were affected, but not terribly,” LaRoe said. “Our operations are pretty secure.”

Short-term impacts

For now, many businesses are closed and large numbers of workers are being displaced, said Dr. Chris Westley, dean of the Florida Gulf Coast University business school.

“Those two things make it much more difficult for businesses and debtors to repay their loans,” Westley said. “So just from that perspective, it’s a problem.”

Some banks have temporarily waived late fees for loan repayments to help customers deal with the fallout from the catastrophic storm. For example, Climate First has suspended late fees for loan repayments and overdraft fees on deposit accounts until October 28.

One particularly devastated area is Sanibel Island, one of the state’s most popular tourist destinations and a major contributor to Southwest Florida’s hospitality industry, Westley said.

Sanibel Captiva Community Bank, which ranked 12th among community banks in total deposits in Florida counties affected by Hurricane Ian, declined a request for an interview in a brief statement to S&P Global Market Intelligence.

“Unfortunately, we are still in the thick of it here,” Marketing Director Amy McQuagge said in the press release. “The photos and video of the destruction don’t do it justice. It will be a long time before our community fully recovers and rebuilds.”

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Bank exposure

A Market Intelligence analysis found that at least 2,209 bank branches and $328.96 billion in capped deposits were affected by Hurricane Ian.

Bank of America Corp. tops the list with $61.79 billion in capped deposits. Wells Fargo & Co. came second, with $47.65 billion in capped deposits, more than $14 billion less than Bank of America.

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