KBRA Financial Intelligence

Floods and Fires Highlight Impact of Disasters on Bank Lending

Another Harsh Year of Disasters Threatens Bank Assets

A wave of deadly floods in Kerr County, Texas, has once again underscored the tragic and unpredictable toll of natural disasters—an increasingly frequent threat across the country. As of midyear, 2025 has already seen 78 federally declared disasters, implying that the full-year tally could reach 156 if the second half of the year were to herald as many disasters as the first. While that total would fall short of the 2024 total of 182—the second-highest annual count since FEMA began tracking disaster declarations in 1953—it still represents an elevated pace well above historical norms. The current trajectory would surpass the five-year moving average of 130.8, which itself reached a 12-year high in 2024, reflecting a broader upward trend in disaster frequency.

In addition to the profound human toll, the resulting damage to property and other assets can intensify financial pressure on borrowers and the banks that serve them. These impacts can be especially acute for smaller, community-sized institutions (those with less than $10 billion in assets), which tend to rely heavily on their local markets. This geographic concentration can leave them more vulnerable to financial strain following a disaster, in contrast to larger banks with more diversified, nationwide operations that may help absorb localized shocks.

As for Kerr County, AccuWeather estimates that the recent extreme flash flood event in Kerr County may have caused $18 billion to $22 billion in total damage and economic loss. KFI’s interactive branch and deposit mapping tool indicates that the county is home to 20 bank branches operated by 13 different institutions banks, and nearly all of them located in the town of Kerrville. However, FDIC Summary of Deposits data indicates that only one of these institutions maintains a majority of its branches and deposits within the county. This may suggest that most banks in the region have limited asset exposure to Kerr County specifically. Our interactive branch and deposit mapping tool enables users to visualize the geographic distribution of bank offices across the U.S. and drill down to specific regions. Multiple institutions can be added simultaneously, and areas of interest can be selected by state, county, city, area code, and metropolitan statistical area (MSA).

Hurricane Implications for Southeastern Banks

A major determinant of this year’s natural disaster tally will be the intensity of the Atlantic hurricane season, which typically peaks between late August and September. Colorado State University’s Tropical Cyclones, Radar, Atmospheric Modeling and Software team forecasts eight hurricanes in the coming months, including three major storms classified as category 3, 4, or 5. This projection is 11% above the 29-year seasonal average, but slightly less intense than last year’s outlook.

Following the severe and tragic impact of Hurricane Helene on the U.S. southeast last year, KFI cross-referenced FEMA information with our datasets to define an “impact zone” spanning 403 counties across six southeastern states. Using this framework, we generated a customized deposit summary to identify counties with the highest concentration of physical bank branches and deposits. Our analysis identified a correlation between rising delinquency rates and proximity to Helene’s path—particularly among community-sized banks that maintain a majority of their offices and deposits within the impact zone. When compared with peer institutions outside of Helene’s path, banks in the affected areas experienced disproportionate increases in loan delinquencies. This trend was especially pronounced in commercial real estate (CRE) portfolios, with delinquency rates intensifying further for those institutions most heavily concentrated in the hardest-hit regions.

Our full breakdown of Hurricane Helene’s initial impact on affected banks from April 2025 is available for free in KFI Insights. Additionally, KFI will present an updated analysis of Helene’s ongoing effects on community banks—alongside broader insights into the long-term financial impact of natural disasters on similarly situated institutions—in an upcoming webinar hosted by Bank Director on Tuesday, August 19. Registration for the event is available here.

LA Wildfires Kick Off Devastating Year of Fire Disasters

Fires have emerged as the most frequent disaster type in 2025 so far, accounting for nearly two-thirds of all recorded disasters in 1H 2025. The year’s destructive fire activity began as early as January, when a series of wildfires tore through Los Angeles County neighborhoods, including Pacific Palisades and Altadena. In addition to KFI’s ongoing analysis of Hurricane Helene’s lingering effects on Southeastern banks, the LA wildfires have been flagged as another event with potential implications for banks—particularly those with concentrated exposure to properties and collateral assets damaged or destroyed by the fires.

The destruction caused by six wildfires in Los Angeles County during the first week of January was severe, with 16,251 structures destroyed and another 2,047 damaged. According to the California Department of Forestry and Fire Protection (CAL FIRE), the 2025 fire season is shaping up to be the most destructive in the state since 2018. Insured damage estimates related to the LA fires have reached almost $30 billion, according to projections by Wells Fargo and Goldman Sachs. When accounting for uninsured losses, the total rises to around $40 billion. A separate analysis by AccuWeather estimates that total economic losses, factoring in longer-term costs like rebuilding or relocation, potentially exceed $250 billion.

Gauging the Initial Impact on LA Bank Lending

To assess early signs of loan stress among banks potentially exposed to the Los Angeles wildfires in 1Q 2025, KFI constructed three cohorts of community-sized banks, each categorized by their geographic proximity to the disaster:

LA County (LAC) Banks: Institutions with both branch and deposit footprints located within Los Angeles County

Other California (OCA) Banks: Institutions headquartered elsewhere in California with comparatively less exposure to Los Angeles County

Peer Group (PG): A national reference group composed of community banks headquartered outside of California

Due to the timing of regulatory data reporting, the focus of the analysis is on early-stage loan delinquency trends. Call report data from 1Q 2025 reflects balance sheet activity as of March 31, meaning just under 90 days passed between the onset of the fires and the 1Q 2025 data cut. This window is sufficient for a previously performing loan to roll into delinquency, though generally not long enough for it to progress to charge-off status.

Although the path of destruction from the LA wildfires was geographically narrower (impacting just one county) compared to Hurricane Helene’s multistate footprint, KFI applied the same analytical framework to both events. As a result, just 23 banks met the criteria for inclusion in the LA County analysis versus 333 banks in Helene’s broader impact zone. Still, the outcomes revealed notable parallels, particularly regarding CRE lending. KFI has previously highlighted the vulnerability of CRE portfolios in the wake of natural disasters, as physical damage and prolonged operational downtime can significantly disrupt property cash flows—impairing borrowers’ ability to meet repayment obligations. This concern is especially relevant for California-based institutions, where CRE lending accounts for approximately two-thirds of total loan portfolios among community-sized banks.

KFI’s analysis shows a clear stratification in delinquency trends across the three bank cohorts during 1Q 2025. While OCA banks experienced a smaller rise in delinquencies than the broader PG of community banks, LAC banks saw a significantly steeper increase than both. Notably, the increase in CRE delinquencies among LAC banks exceeded those of OCA banks by more than double, rising 26 bps. This divergence suggests a potential correlation between heightened CRE credit stress and geographic proximity to the Los Angeles wildfires. Although causation cannot be confirmed definitively at this stage, the data may point to a plausible connection between localized disaster impacts and elevated delinquency rates.

KFI will continue leveraging our proprietary datasets to monitor the evolving relationship between natural disasters and financial stress within the banking system. Individual banks and credit unions can be analyzed by loan composition and corresponding delinquency trends using tools available in the Data Wizard within KFI’s Excel add-in. Users can also access the Loan Category and Delinquency Report template from our Template Library. To access our full library of tables and templates, request a demo with KFI. For an even deeper dive into disasters’ impact on financial institutions, register for KFI’s upcoming webinar, What Disaster and Demographic Data Reveal About Concentration Risk in Banking, hosted by Bank Director on Tuesday, August 19.