EconSouth (First Quarter 2006)

Community Bank Remains Committed to Rebuilding in New Orleans

Hurricanes Katrina and Rita delivered staggering one-two punches to banks in Alabama, Louisiana, and Mississippi. As of March 9, the Federal Deposit Insurance Corp. counted 214 financial institutions whose offices were affected by the hurricanes. But recovery will happen one person—and one bank—at a time. Liberty Bank in New Orleans is committed to being one of the businesses that helps its hometown return to normalcy.

As he steps across debris in the parking lot of his shattered bank operations center, Alden McDonald Jr. points to the adjacent neighborhood of New Orleans East. “These homes cost $250,000 and up,” he said, noting that toxic mold has rendered most every structure in sight uninhabitable. “You’re talking about an enormous amount of wealth coming off the books of this country.”

Alden McDonald
Photo by Flip Chalfant
Alden McDonald, president and chief executive officer of Liberty Bank & Trust, believes the bank can rebuild its battered business and at the same time help its hometown of New Orleans return to a normal way of life.

The president and chief executive of Liberty Bank & Trust, a New Orleans-based community bank, McDonald has a unique perspective on the local economy after Hurricane Katrina. Because of the storm and the flooding that spread through large portions of New Orleans, Liberty Bank lost all of its eight New Orleans branches and its central operations center. But the institution is recovering, and McDonald is front and center in efforts to rebuild the city’s devastated communities.

“Banks have traditionally been pillars of the community, and they will be key to the rebuilding process in New Orleans,” said Cheryl Couch, assistant regional director for the Federal Deposit Insurance Corp. (FDIC). “In New Orleans, Alden McDonald is very much a driving force.”

Quick action key to rebounding
McDonald attributes Liberty Bank’s situation in large part to disciplined underwriting procedures and effective disaster response. After floodwaters wrecked the bank’s operations center, McDonald acted quickly to retrieve data that were backed up electronically. He then moved to reassure his depositors and reestablish contact with borrowers dispersed by the storm. As of February 2006, Liberty was operating with three New Orleans branches, three in Baton Rouge, and two in Jackson, Miss. Plans are on the table today for rebuilding and reopening several branches that were lost to flooding.

One of the nation’s longest-tenured African-American bank presidents, McDonald has worked in financial services since the 1960s. Katrina powerfully tested his experience. “We had a good contingency plan, but everything that could go wrong did go wrong,” he said. “In the process, we have become disaster recovery experts.”

Last September, without working computers available, he had to balance the bank’s books by hand, using accounting skills acquired in the pre-digital era. He also persuaded Citizens Trust Bank in Atlanta and other financial institutions to accept his bank’s cash letters for settlement at a later date, enabling his customers to gain access to their money.

Hurricanes Strain Gulf Coast Banking Systems

• Financial institutions affected by Katrina and Rita 280
• Banks headquartered in the disaster area (Alabama, 9; Mississippi, 17; Louisiana, 94) 120
• Branches closed as of Dec. 9, 2005 98
• Branches closed as of March 9, 2006 85
• Temporary branches open as of March 9, 2006 45
• ATMs damaged or destroyed +1,000
• Affected institutions with assets over $1 billion 5
• Affected institutions with assets less than $250 million 90
• Affected institutions reporting net operating losses for Q4 2005 20
• Percent of institutions receiving 100 percent of deposits from within disaster counties 73
Source: FDIC

But technological problems were just one hurdle. After the storm, many Liberty Bank employees (including McDonald) found themselves homeless—a problem that continues to plague many throughout the Gulf Coast. McDonald leased 12 apartment units for staff in Baton Rouge while temporarily operating from there. He also provides some of his employees with a gas allowance to compensate for extended commutes.

Cost control is a top priority for McDonald. Liberty’s payroll is currently only about 75, half of what it was last summer. After many of his 35,000 customers fled New Orleans, a number of customers closed small accounts. Liberty Bank’s total assets declined from $360 million in mid-2005 to $308 million after the disaster. But according to McDonald, Liberty is more profitable now than before Katrina because the bank has a smaller number of accounts, and these accounts have higher average balances and lower service costs.

Helping to lay the path toward recovery
McDonald stressed that Liberty Bank is well positioned to serve the many pressing needs of storm-damaged communities, noting Liberty’s future headquarters and operations center in New Orleans East. Here, half a year after Katrina, workers have been busy finishing Liberty’s 116,000-square-foot office, which is slated to open later this year on the sixth story of an office building, high above any potential floodwaters.

By all estimates, Katrina destroyed huge numbers of homes and businesses. According to data from Louisiana’s Acadiana Regional Development District, Katrina destroyed 275,000 homes and 18,750 businesses, so many banking customers have had their lives severely disrupted. The FDIC has linked the prospects for severely affected financial institutions to the health and vitality of their local economies.

While McDonald is confident about the near-term solvency of Liberty Bank borrowers, he’s worried about the longer-term consequences of leaving whole communities uninhabitable for an extended time. “What we want to avoid is a repeat of the oil bust in 1987,” McDonald said. “That’s when families left New Orleans, there were massive foreclosures, and real estate values went down. That devaluation went on to bank books, and it was a very difficult time.”

Property hits a fork in the road
In many ways, post-Katrina New Orleans is a tale of two cities. While real estate prices have increased in areas where flooding was minimal, other areas that were under several feet of water have seen almost no real estate activity. The uncertainty about future flood plans and other zoning issues has made many property owners unable or unwilling to invest in rebuilding, and large numbers of insurance claims have been delayed. And as another hurricane season looms, many people and businesses are wary about rebuilding in areas protected by patched-up levees rather than fully re-engineered ones.

Karl Hoefer “We have a chance to make this city a better place,” said Karl Hoefer, IberiaBank’s New Orleans market president.“Businesses are counting on our public officials to get it right. Business as usual is no longer good enough.”
Photo courtesy of IberiaBank  

Given the complex scope of New Orleans’ problems in the storm’s wake, McDonald stressed the importance of a structured approach to the rebuilding effort. The FDIC’s Couch said recovery will require cooperation. “The rebuilding process will take a lot of different parties working together, and certainly the private sector will play a major role,” she noted.

McDonald has launched a Katrina Recovery Center, intended to help storm victims make sound financial decisions during this time of personal hardship. He said many residents have struggled to rebuild their lives while being poorly served by out-of-state contractors and others who often charge premium prices for the construction work so many people need. McDonald said he’s encouraged that deposits are once again flowing into Liberty Bank, which he interprets as a sign the city is slowly coming back to life.

Growing into new markets
One bank that sees opportunity in the post-Katrina New Orleans region is Lafayette, La.-based IberiaBank—the state’s second-largest home-based bank holding company, with $2.8 billion in assets. The bank moved quickly in late 2005 to expand operations in the North Shore area across Lake Pontchartrain. In less than six months, IberiaBank opened three new branches (in addition to one already there). IberiaBank also has reported rapid deposit growth at existing branches in Metairie, Gretna, and River Ridge—mostly areas that were spared the worst of the widespread severe flooding and that are becoming staging areas for rebuilding.

Karl Hoefer, IberiaBank’s New Orleans market president, said he is optimistic about the future of New Orleans—his hometown—and he stresses his commitment to the area. Hoefer views rebuilding as an opportunity to fix longstanding problems, such as a troubled public school system. “We have a chance to make this city a better place,” he said. “Businesses are counting on our public officials to get it right. Business as usual is no longer good enough.”

Looking ahead, McDonald doesn’t believe that long-term recovery will come from the influx of out-of-town opportunists. He believes the city’s economic future depends on the return of people who are committed to a life in the area. Liberty Bank, he said, intends to keep money in New Orleans and support those who are rebuilding the city one business and one home at a time.

This article was written by William R. Smith, a staff writer for EconSouth.

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