Banks are no strangers to risk, but a series of natural disasters on both sides of the country this past year proved that some banks face more risks than others.
Just ask Phil Collins.
He’s the president of Sound Bank, a Morehead City, North Carolina-based bank with a half-dozen branches along the coast that found itself squarely in the path of Hurricane Florence last September.
The natural temptation in a situation like that is to flee. But doing so goes against a banker’s duty to help communities recover from hard times, be it in the wake of an economic downturn or a natural disaster.
“I think [our bankers] know that’s the obligation they have being a banker,” says Collins.
Natural disasters are one of the more unpredictable risks banks face. Hurricanes like Michael and Florence along the Eastern Seaboard, as well as wildfires like the Camp and Woolsey blazes in California, wiped entire towns off the map.
Bank Director magazine explored disaster preparation plans and climate change in the first quarter edition of 2018. But the topic presents a deeper and more philosophical issue.
It can seem like bankers are pulled in opposing directions when Mother Nature strikes. Should they look out for their shareholders, or should they help their communities?
At the same time, any good banker will tell you these aren’t mutually exclusive. Without a successful community, you can’t have a successful bank, they’ll say.
David Morrow, CEO at CresCom Bank, a subsidiary of $3.7 billion Carolina Financial Corp., which is based in Charleston, South Carolina, has been a banker on the Atlantic coast for 45 years.
For him, storms are nothing new.
Starting in June, when hurricane season arrives, he knows the inevitable storm could begin circling off the coast. “Over a period of time, you develop a plan,” he says.
All bankers in his part of the country have contingency plans for when hurricanes strike, and they all have experience using those plans.
One of the biggest impacts from Hurricane Florence was the cancellation of the North Carolina Seafood Festival, a popular event scheduled to take place three weeks after landfall.
On top of this, says Collins, many residents fled the area, and some won’t return.
Weeks later, in the aftermath of Hurricane Michael, Jim Haynes, regional president overseeing more than two-dozen branches in six counties along the Florida panhandle for Centennial Bank, a subsidiary of Arkansas-based Home BancShares, was coming to work in wader boots, shorts and a T-shirt-atypical attire for a banker.
Centennial had to organize a patchwork telephone network so its branches could communicate with its home office 600 miles away in Conway, Arkansas, to check balances and distribute cash to customers along the coast.
Haynes lost his home to Michael, but he didn’t stop working to take care of his employees and community.
“It’s been 34 days or something like that, but it feels like three and a half months,” he says.
At about the same time, on the other side of the country, California was experiencing the most destructive wildfire season on record.
One of the few buildings in downtown Paradise, California, to survive the devastation was a branch of Tri Counties Bank, says Beth Mills, senior vice president of communications at the California Bankers Association.
“We are committed to supporting our communities impacted by the wildfires,” said Richard Smith, president and CEO of Chico, California-based Tri Counties Bank, in a press release.
Yet, while bankers are committed to supporting their communities, they also have to think about what’s best for their shareholders.
You can see the push and pull this exerts on a bank’s business model by reading the 2017 shareholder letter by Tim Sloan, CEO of Wells Fargo & Co., which operates branches affected by the hurricanes along the Eastern Seaboard as well as the wildfires in its home state of California.
The letter highlights six long-term goals for the company to rally around as it recovers in the wake of its sales scandal. Those goals are to become the financial services leader in customer service, team member engagement, innovation, risk management, corporate citizenship and shareholder value.
It’s the final two, in this case, that could easily be interpreted as being in conflict with each other.
Wells Fargo has seen its efficiency, profitability and shareholder returns suffer in the two years since its sales scandal came to light. Yet, this didn’t stop the bank, its team members and board of directors from donating nearly $12 million to the American Red Cross and other nonprofits to support recovery and rebuilding efforts following the hurricanes and wildfires.
And that wasn’t all Wells Fargo did. “This was in addition to hundreds of hours of volunteer support for activities like blood drives, beach cleanups, fostering displaced pets and other rebuilding efforts,” wrote Sloan.
The point is that even banks facing immense internal pressure still understand and embrace the central role they play in their communities. Because without banks, no community could ever recover from a crisis, be it an economic downturn or a natural disaster.
Some may see this as a form of enlightened self-interest, but others, like Collins, simply see it as a banker’s obligation.