October 19, 2024 / VOLUME NO. 336

The Costly Unknown


Hurricane Helene — which spawned floods that devastated parts of Appalachia far from the coast — could have some banks rethinking the risks stemming from natural disasters.


More than 20 inches of rain hit parts of western North Carolina due to the storm. That resulted in 500-year flooding — referencing the low (0.02%) probability of such an event occurring in a year, according to the North Carolina State Climate Office. That means the record-shattering flood was improbable, but not impossible.


“If you live in a place that can rain, you live in a place that can flood,” Kathie Dello, North Carolina’s state climatologist, told CNN. Notwithstanding the human toll, damages are expected in the billions of dollars. 


The flood maps produced by the Federal Emergency Management Agency have historically been used to assess flood risks, but they aren’t made for rigorous risk assessment. The maps were created to determine whether property owners would have to buy flood insurance to obtain a federally backed mortgage. 


“FEMA zones don't include heavy precipitation, and they don't include small waterway flooding. They're actually missing all of the types of flooding that impacted eastern Tennessee and western North Carolina,” says Jeremy Porter, head of climate implications at First Street, a nonprofit that analyzes climate risk. He adds that First Street’s analysis picked up more risk compared to the FEMA maps. “In our model, we had Asheville, [North Carolina,] listed as a major flood risk,” he says. “We found 20 times as many properties at risk as what FEMA showed in those neighborhoods. There’s a tremendous amount of risk that is probably unknown.”


Knowing those risks can help prospective homebuyers, which First Street does through partnerships with real estate marketplaces such as Homes.com and Zillow. But a deeper analysis could also help banks understand the risks within their real estate portfolios, helping lenders better price loans or set appropriate terms. 


Disasters exact a heavy price. We don’t yet know how much Helene will cost. The most recent, costly disaster that hit North Carolina — Hurricane Florence, which devastated the state in 2018 — exceeded $17 billion in damages. The data firm CoreLogic recently estimated that Helene could cost anywhere from $30.5 billion and $47.5 billion, with much of that financial impact hitting people and businesses that didn’t have flood insurance. 


“All of a sudden, it becomes a really risky situation for the bank,” says Porter.


• Emily McCormick, vice president of editorial & research for Bank Director

Recent M&A Deals Show Priorities of Buyers and Sellers 

Near the end of 2024, more selective buyers are raising capital in conjunction with deals, while more banks are open to selling before crossing regulators’ $10 billion asset threshold.


“There are more, bolder deals to come from the banking sector.” — Frank Sorrentino IV, Stephens.


• Paul Davis, contributing writer for Bank Director

Risk Areas To Consider Ahead of Your Next Regulatory Exam

As banks prepare for routine regulatory exams, there are a few compliance topics to keep top of mind.

Banking: an Industry (Partially) at Risk  

To prepare and protect the institution, banks should consider a range of possible future interest rate scenarios.

How To Win More SMB Business Deposits  

Implementing products and services valuable to small and medium-sized businesses can help community financial institutions win SMB deposits and compete with larger banks.

A Cautionary Tale for Bank-Fintech Partnerships 

Banks should not underestimate the importance of proper due diligence and compliance monitoring for all parties in BaaS models and fintech partnerships.

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