Earlier this year, Liberty repackaged certificates of deposits as Katrina Investment Deposits, or K.I.D.'s, which were nothing but C.D.'s offered at a below-market interest rate and wrapped in a feel-good package. Countless people had offered to help Liberty, and this was the financial vehicle it created to capitalize on that goodwill.
Though he gave people a choice between interest rates of 2 percent and 2.5 percent, "quite a few people chose 2 percent," Mr. McDonald said. (That rate was well below the 5 percent or so that a customer could have earned on a regular C.D. last spring.) Over the coming months, Liberty would sell $10 million worth of K.I.D.'s — using the money to jump-start lending, its primary source of profits.
To further bolster his flagging loan business, Mr. McDonald offered 100 percent mortgage financing and set in motion a plan to open loan centers in strip malls in other parts of Louisiana as well as Texas and Mississippi.
"I needed those fees," he said. "I needed to get my interest income up." Liberty's staff was able to qualify enough people to approve $10 million in loans in less than three months. That amount exceeded Mr. McDonald's expectations, but it was still just a fraction of the $10 million a month that Liberty lent, on average, before Katrina. Today the bank is writing no more than $3 million a month in loans, Mr. McDonald said, and has stopped writing riskier, no-money-down loans.
In time, Mr. McDonald would complain that while he took time every Monday to drive to New Orleans to attend meetings of Mayor Nagin's commission, the group never discussed the core issue of what to do about the city's most heavily damaged neighborhoods. To this day the city is without a coherent plan for the east. But his trips gave Mr. McDonald an excuse to drive through neighborhoods to see where people were returning. Those tours persuaded him to open two branches in January in Gentilly, a large, racially mixed area in the center of New Orleans.
Other banks, including Chase and Whitney National Bank, a venerable local institution, have followed him into Gentilly. A visit to all three banks in mid-August found what seemed to be a brisk pace of business. But Mr. McDonald stressed that he was the first to open in Gentilly, and that move inspired envy in at least one rival.
"Right now I wish I had a branch in Gentilly," said Virgil Robinson Jr., the chief executive of Dryades Savings, a smaller black-owned bank based in New Orleans. An executive at Liberty until leaving in 1994, Mr. Robinson said his former boss had deftly negotiated that delicate balance between reopening a branch too early and waiting too long.
"We want to be back in the area early but not so early that we're the first one out there," said Mr. Robinson. "There's protection in numbers."
Mr. McDonald proved a trailblazer again in March, when he moved back into his headquarters in the east. When he is too tired to commute back home to Baton Rouge, he sleeps in a borrowed recreational vehicle.
Viewed from the vantage point of the central business district or the French Quarter, the city and its business environment can seem to be in good shape. These areas have been repopulated, and businesses large and small have returned. Most of the city's hotels are open again, as are most of its major employers and its more popular restaurants and music clubs. Focusing solely on Liberty's branches in the western, predominantly white half of the city also might suggest that the bank's operations are more or less back to normal.
But there appears to be relatively little forward motion in the city's eastern business corridors. In New Orleans East, for instance, home to 90,000 people before Katrina, maybe a half-dozen restaurants have opened. A few car dealerships are back in business, along with several gas stations and a giant Home Depot — and Liberty.
Mr. McDonald had anticipated that Katrina would translate into $10 million to $12 million in losses in the last four months of 2005. It ended up costing him half that much. When Katrina hit, Liberty was on pace to post a $3 million profit for the year. Instead, it lost $3.6 million.
Some bright spots emerged. Only seven borrowers let their flood insurance lapse after taking a loan from Liberty; out of a $150 million loan portfolio, Liberty wrote off only $2 million last year. Most of those bad loans, Mr. McDonald said, were car loans or credit card debt. Like many other banks across the Gulf Coast region, Liberty is now flush with cash as people park large insurance settlements in their accounts while considering their next financial steps.
This year has brought Mr. McDonald and his staff more good news. Based on results from the first half of 2006, he predicted that the bank would earn $4 million for the entire year. "This is going to be the most profitable year in the history of this company," he said.
Yet Liberty's buffed-up bottom line can be deceiving. A widespread lack of housing in New Orleans, Mr. McDonald acknowledged, has meant that the bank has fewer employees than it needs. Where he once had 160 employees, he now has 90. The shortage has kept expenses low, bolstering profitability, but the same shortage makes it hard to generate new revenue. Mr. McDonald wishes that he could hire more tellers, branch assistants, and loan officers and open a fifth branch in New Orleans, he said, "except I'd have no one to staff it."
One year ago, Liberty had 35,000 customers. Today it has 20,000 to 25,000, Mr. McDonald said. "I know I have to get an exact count on that," he added, before letting his voice trail off. His half-staff bank, it seems, has other priorities.
Elevator repairs alone will cost Liberty $350,000, and the bank has lost about $100,000 a month in rental income from tenants who once leased office space in its New Orleans headquarters but now have no immediate plans to move back home.
Water, not wind, did most of the damage to Liberty, and it is still uncertain how much its insurers will cover. Mr. McDonald had business-interruption insurance, for instance, but he said it was not clear, even one year after Katrina, whether insurers would approve flood claims. "Everyone is still struggling with insurance companies," he said.
There is another question preoccupying anyone with a financial stake in the eastern half of New Orleans: Which parts of the city will come back and which will end up as forlorn, half-occupied neighborhoods without basic services? Mr. Nagin ended up ignoring his own commission's recommendation that New Orleans devote its limited resources to neighborhoods that can prove that a critical mass of their residents are returning. Instead, the mayor has encouraged people to rebuild anywhere they want in the city.
Mr. McDonald's best guess is that only half the population of the east will eventually move home — if that. Of the 150 families in his subdivision in New Orleans East, he knows about 10 families that are returning. He even counts himself among the undecided.
From his sixth-floor office, Mr. McDonald has a perfect view of the mall next door. Its huge parking lot is empty, except for piles of debris, and its stores sit as ruined reminders of how much the east has lost and how little it has recovered. Mr. McDonald, meanwhile, intends to try to "go to where my customers are" by opening loan centers in strip malls and in places like Houston and some cities elsewhere in Louisiana and in Mississippi.
"Whenever you have obstacles," he says, "you always have opportunities."