Texas bankers are still processing the hit their communities took from Hurricane Harvey.

The full extent of damage to the Texas coast, especially the Houston area, won’t be known for some time. Many phones went unanswered and hundreds of branches remained closed Monday.

A number of branches will likely be out of commission for days, at least until flood waters recede and staff members can safely return to their jobs, bankers said.

Flooding in the aftermath of Hurricane Harvey.
Bankers are busy determining the status of employees and conditions of branches while dealing with their own flooded cars and homes. This photo is from the Highland Glen subdivision in Spring, Texas. Bloomberg News

Concerns can be divided into two categories. There is an immediate desire to make sure colleagues and clients are safe and banking services are available to those in need. The next big issue involves the financial hit banks and customers will take due to wind and water damage.

Discussions are already under way among industry analysts about the third-quarter hit facing affected banks in terms of lost business, facility damage and a potential spike in defaults as customers try and regroup. The energy sector is among the industries that will likely suffer, they said.

There is some hope for banks, which have shown resiliency in the face of other natural disasters. While far from bankers’ minds now, financial institutions often benefit from insurance and federal funds that make their way into communities recovering from such catastrophe.

“We’ve been through many natural disasters caused by weather over the last 10 years,” said Geoffrey Greenwade, president of the $4.2 billion-asset Green Bancorp in Houston. “We will take all of that experience and put our energy towards helping employees, customers and the community.”

Here is a look at the near- and long-term implications of Harvey and its aftermath.

Immediate response
Bankers spent much of Monday checking on co-workers, offering support and assessing damage to branches and ATMs. In many cases, it was too early to tell the amount of damage or when certain locations would reopen.

Cadence Bancorp transferred work to call centers in Birmingham, Ala., and Starkville, Miss., including calls intended for its 10 shuttered branches in Houston. A skeleton crew spent the weekend in hotels around Houston so they could be available as needed after the storm passed, said CEO Paul Murphy Jr.

"They are processing work and we are fully operational" aside from the closed locations, Murphy said. "Still, we're having conversations with bankers who have cars flooded and water damage at their homes. There are police and barricades everywhere and very few businesses are open."

Cadence will likely keep its Houston branches closed through Labor Day weekend. Executives are talking to local authorities about a moratorium on loan payments. Leadership is also brainstorming other ways to provide relief.

“We fear there are a lot” of people who will need assistance, said Steve Scurlock, executive vice president at the Independent Bankers Association of Texas. “We’ve still got bankers who haven’t been able to visit their branches to assess the damage. … It’s tough, it really is. This is a game-changer for Texas.”

Texas Capital Bancshares in Dallas said Monday that its two Houston branches were closed indefinitely. The $23 billion-asset company was one of the banks that had activated a business continuity plan and had accounted for all of its Houston area employees. It had also begun identifying ways for employees to volunteer with the Red Cross’s Ready 365 Giving Program, which provides assistance to disaster victims.

“As this storm continues to unfold, our thoughts and prayers are with all the people of Houston and surrounding communities. We stand ready to support the needs of colleagues, customers and the business community at large,” President and CEO Keith Cargill said in a press release Monday. “We appreciate the efforts of the city, state, and federal officials who are working tirelessly to rescue individuals and restore services to affected areas.”

Several employees of Cullen/Frost Bankers were displaced after the storm damaged their homes, said spokesman Bill Day. Those workers were heading to San Antonio, where the company is based, to stay with colleagues who volunteered to house them.

The $30 billion-asset company also implemented a hot line for employees to check in and report their needs.

“It’s not difficult to get people to help when other Frost employees are in need,” Day said.

Wells Fargo said it would donate $1 million to support those affected by the hurricane and the subsequent flooding. Beginning Tuesday, customers could donate to the American Red Cross’ relief efforts through the company’s ATMs nationwide.

“With forecasts calling for more rain and potentially more flooding, we will continue to work with nonprofits and those focused on relief efforts, as we determine any additional assistance and support Wells Fargo may be able to provide,” David Miree, Wells Fargo’s lead region bank president, said in a press release.

What to expect
The storm has already received some comparisons to Hurricane Katrina, the 2005 disaster that is considered the costliest in U.S. history. If this storm unfolds like past events, banks may face short-term difficulties followed by an eventual business boom.

“Historically these natural disasters follow a playbook,” said Brian Foran, an analyst at Autonomous Research. “It’s bad at first and banks focus on potential losses and business disruption. But then there’s a potential surge of deposits as residents get money from” the Federal Emergency Management Agency and insurance claims.

Area banks will have to manage through a number of operational disruptions in coming days.

Loans that were in the pipeline before the storm struck may be in limbo. Restaurants and other businesses are in danger of falling behind on loan payments as cash flows suffer. Noninterest income may decline as banks waive fees.

For the next two weeks, JPMorgan Chase is automatically waiving or refunding late fees tied to mortgages, credit cards, business banking and auto loans. The company, which closed more than 200 branches, will also waive overdraft, monthly service and ATM fees, a spokeswoman said. It is also planning a $1 million donation to assist the area.

Quarterly profit at the $65 billion-asset Zions Bancorp. could decline by up to 4 cents a share due to the hurricane, Brian Klock, an analyst at Keefe, Bruyette & Woods, wrote in a Monday note to clients. The hit at the $72 billion-asset Comerica could be as much as 2 cents per share, while the storm could knock a penny off of results at the $124 billion-asset Regions Financial.

Calls to Comerica, Regions and Zions were not immediately returned.

“The likelihood is that earnings will be weaker rather than stronger,” said Brad Milsaps, an analyst at Sandler O’Neill. “You have to think that business is going to be pretty much stopped for at least a week. Everything will have reduced revenue.”

The energy sector will likely be among the hardest-hit industries. A shutdown in refineries could have “reverberations across the entire Southeast, particularly heading” into Labor Day weekend, Milsaps said.

Over the long term, the storm may give banks an earnings lift. For instance, the $119 million-asset Mississippi River Bank in Belle Chasse, La., reported a surge in deposits as people in southern Louisiana received checks from insurance claims immediately after Katrina.

“These disasters pump a lot of money into the system, but it takes a while to absorb it,” said Mike Bush, Mississippi River Bank’s president and CEO.

Lending did not rebound immediately, though assets soared once residents were in a position to take out loans. Total assets rose 24% during the fourth quarter of 2005.

A similar trend occurred after the BP Deepwater Horizon oil spill. On a single day in June 2010, as BP began wiring money to area residents, Mississippi River Bank added more than $20 million in deposits.

“The first money people got went to getting their personal lives in order,” Bush said. “Then they started getting their business back up and running.”

Consumer lending could receive a boost. Auto lending, for instance, could increase, said Christopher Marinac, an analyst at FIG Partners. Hundreds, if not thousands, of automobiles have been damaged, which could spur individuals and auto dealerships to seek replacements.

Commercial lending is also likely to spike. Owners of damaged oil rigs, for instance, will file insurance claims and take out loans for repairs, Marinac said.

“This is going to become a construction boom for Houston,” Marinac said. “You’ll have folks driving and flying to Houston to find work.”

Paul Davis and John Reosti contributed to this story.

Andy Peters

Andy Peters

Andy Peters writes about regional banks, consumer finance and debt collections for American Banker.