Customer service was one major concern right after the storm; reconnecting the bank to the global A.T.M. system was another. Unlike larger banks, which had operation centers around the country, and smaller ones, which tended to outsource data processing, Liberty housed its central computers in New Orleans, which was without electricity or working telephone lines in Katrina's aftermath.
Mr. McDonald had prepared for the hurricane the same way he prepared for past storms, by creating several backup copies of the bank's computer records. Two employees got copies and Mr. McDonald sent two more via FedEx to a Pennsylvania company that handles the bank's computer operations during emergencies. But Mr. McDonald did not hear from either employee for more than a week after the storm, and Katrina interrupted FedEx's service for days.
With customers scattered around the nation and desperate for cash, Mr. McDonald faced a tough choice: to lock out customers from A.T.M.'s and branches in the midst of the crisis and risk being cast as a Scrooge, or to allow them to withdraw cash and risk being ripped off because he temporarily had no way to determine how much money customers actually had in their accounts. Mr. McDonald chose the second option, permitting anyone with a Liberty account to withdraw up to $100, and then up to $500, per day. In the end, that cost the bank hundreds of thousands of dollars in overdrafts during the 10 days that Liberty's records were off the A.T.M. network.
Mr. McDonald's next big worry was cash flow. The same floods that destroyed homes also wiped out jobs. That meant Liberty needed to brace for a steep drop in deposits and mortgage payments. Liberty, like many other area banks, gave both homeowners and its small-business customers until Jan. 1 to resume monthly loan payments — depriving the bank of its two largest revenue streams for four months while it racked up a number of extraordinary expenses.
Emergency computer services were costing the bank more than $50,000 a month, so Mr. McDonald ordered a new computer system, despite its $500,000 price. He spent thousands of dollars dispatching boats to eastern New Orleans to assess damage and to retrieve computers and furniture for Liberty's temporary home in Baton Rouge. Once the floodwaters receded, he brought in emergency generators to keep air blowing through his headquarters to fight mold; filling the generators' fuel tanks cost $1,500 a week. Apartments in Baton Rouge for displaced employees cost thousands of dollars a month.
"I hate losing money," Mr. McDonald said in early October, six weeks after the storm. "But everywhere I look I'm losing money." He had packed only a few short-sleeved shirts and one pair of slacks when he left New Orleans, thinking that he was leaving for a few days. Yet four weeks passed before he was finally able to take a day to relax in Baton Rouge and buy new clothes. "Thank goodness I thought to bring four pair of underwear with me," he joked.
A courtly man with a shock of wavy white hair and a bushy white mustache, Mr. McDonald is more animated than one might expect of a bank president. He laughs often, and, to underscore a point, will let his mouth hang slack-jawed. It would be a month after Katrina before he visited his home for the first time in New Orleans East — a journey he took, he said, because "my wife was bugging me to get stuff out of the house."
Amid muck and mold, he found little to salvage in his home.
At the end of each day, usually around 7 p.m., Mr. McDonald convened a small group in his office for what he called "my daily crisis management meeting." Early on, the gatherings served as forums for sharing bad news. The new computer had arrived (cheers) but parts were missing (groans). New parts had arrived (huzzahs) but not crucial software components (more groans). Tasks that people thought might take a week or two, such as reviving the bank's Web site, ended up requiring a month or more.
The daily financial updates were still more depressing. Before the storm, Liberty generated $150,000 a month in loan fees, but those funds largely evaporated in the first weeks after the storm because the bank was writing virtually no loans. The bank normally collected $70,000 in monthly charges from checking accounts — but Liberty temporarily suspended this fee for most of its customers.
These grim financial realities invariably caused people to ask Mr. McDonald how Liberty could survive. The bank had roughly $40 million in securities, an ample cushion against insolvency if Mr. McDonald could stabilize its finances. But the clock was ticking, and to raise much-needed cash, Liberty sold a portion of its securities at a $1 million loss.
"'These are nervous times for the bank," said Norman C. Francis, Liberty's chairman, five weeks after Katrina.
Mr. McDonald was largely alone in those first months after the storm. The bank's chief operating officer had resigned earlier that year to take a job in Detroit and Mr. McDonald had let his chief financial officer go shortly after the storm.
Monthly board meetings continued, but directors had their own distractions. All but one had lost a home in the storm, and all had other responsibilities that needed attention. "All of us had a lot going on," said Mr. Francis, the president of Xavier University, a historically black college in New Orleans that had been flooded. That was especially true for Mr. McDonald, who was appointed by Mayor C. Ray Nagin to the 17-member commission created last September to devise a blueprint for rebuilding New Orleans.
"Anything we do to get people back in town helps my bank," Mr. McDonald said at the time.
If the first two months after the storm were about bailing water to keep a sinking bank afloat, the next six months were about reigniting Liberty's financial engines. Mortgage payments would restart after the first of the year, and the bank could once again count on a steady stream of fee income. But every week brought more closing of accounts by longtime customers, often because there were no Liberty branches near their new homes.
The top priority during this second phase was to analyze the bank's loan portfolio and to gauge the likelihood of loan defaults. That meant figuring out who had adequate homeowner insurance and who did not. Those without flood insurance were likely to default on their loans and leave Liberty with largely worthless collateral: flood- and hurricane-ravaged homes and businesses. Analyzing potential defaults would have been fairly routine if the bank had access to its paper records, but the floods had destroyed those. So Mr. McDonald assigned a small team of people to track down individual borrowers.
"I can't even begin to tell you how many hundreds of hours we spent on that piece," he said. (In time, though, he will know the precise costs: he has asked his new chief financial officer to tally the figure so he can submit it with insurance claims.)
In October, Mr. McDonald opened a pair of branches in neighborhoods that were beginning to repopulate: the Garden District and the West Bank. Almost immediately, lines began to form as customers were eager to get on with their lives. By November, the precipitous drop in Liberty's deposits had stopped.
"People were increasing their balances rather than decreasing their balances," Mr. McDonald said. It was then, he realized, that his bank might make it.
He might have been confident about the bank's prospects, but a large portion of his customer base still had no idea when they would move home, if ever. Working with lobbyists in Washington, he tried, unsuccessfully, to have Congress pass a law requiring the federal government to funnel a large portion of Gulf Coast redevelopment funds through smaller community banks like Liberty. He thought, too, about raising his profile nationally and catering to larger corporate depositors, like Aetna and American Express, which he already had as customers.
In the end, "Phase 2," as Mr. McDonald took to calling it, entailed doing what the bank always did — selling its services to individuals — but doing so with more creative flair.