After Hurricane Katrina slammed into New Orleans in August 2005, the future for Liberty Bank and Trust Co. appeared uncertain.

Its customers and employees were scattered, its eight New Orleans branches were severely damaged, and most of its customers' files were wiped out.

But Alden McDonald, Liberty's president and chief executive officer, said he was undaunted and committed to turning "obstacles into opportunities."

A lot of observers thought his bank might fail, "but we never at any point thought we might," Mr. McDonald, 64, said in an interview last week. "Just like [in] life, when you have a mishap, you bounce back stronger."

The Houston mortgage company had a single office, which Liberty plans to convert into a full-service branch. In addition, it has bought land in Jackson, Miss., where it plans to build its second branch in that state.

Today "our customer base is stronger, our staff is stronger, and our vision is stronger," Mr. McDonald said.

New Orleans banks were hit hard financially by the storm, but most have recovered faster than industry watchers had expected, because they expanded into new markets, such as Baton Rouge, where many New Orleans residents moved. Also, most of the damaged properties on which the banks made loans were covered by flood insurance.

Still, the $375 million-asset Liberty has not just recovered — it has thrived. Last year it earned $3.6 million, almost double what it earned in 2004. Its return on equity at the end of the third quarter stood at 18%, versus 8.26% at the end of 2004, according to Federal Deposit Insurance Corp. data.

William Michael Cunningham, a social investment adviser with Creative Investment Research Inc. in Washington, attributed Liberty's swift recovery to its "high-energy" CEO, noting, for example, that Mr. McDonald began courting depositors almost immediately after the storm, so it could get on with the rebuilding.

With many of its customers fleeing New Orleans and taking their deposits with them, the bank developed a certificate of deposit it sold nationwide to investors who were willing to accept below-market rates — 2% to 2.5% — and it used the $7 million to $10 million it raised to make loans in its communities.

Mr. McDonald also persuaded several large banking companies to place deposits with Liberty — again, at below-market rates — for several months to help it get back on its feet.

"There was no real reason to expect that Liberty would do as well as it has, given that the city was literally under water," Mr. Cunningham said. "I think it is a stunningly good job of not biting the bullet in a situation that would have knocked a lot of people out."

The loss of deposits from traditional customers also took a bite out of fee income. Liberty lost $251,000 on transaction accounts in the fourth quarter of 2005, after earning $805,000 of fee income on those accounts two quarters earlier, according to FDIC data.

To make up for the lost fee income, Mr. McDonald sped up a plan he had been considering before Katrina struck to acquire mortgage companies. Liberty bought a Baton Rouge loan production office from Premier Mortgage in February 2006 and a Houston mortgage shop, Stephens Development Inc., in June of last year.

"It's a very inexpensive way to get into a new market and increase revenues really fast," he said. "You get ongoing operations and don't have to wait to build a revenue stream."

Also, the acquired mortgage offices were turned quickly into loan production offices that also made commercial loans, Mr. McDonald said.

However, Liberty made its biggest splash last month, when it bought the assets of the $58 million-asset Douglass, which also was black-owned. Douglass had a glut of bad loans and just $1.5 million of capital when regulators closed it, but Mr. McDonald said he was attracted to it because he believes African-Americans in the Kansas City region are "underserved."

Douglass' three branches — two in Kansas City, Mo., and one in Kansas City, Kan. — have been converted to Liberty branches.

Sherwood "Woody" Briggs, the head of financial institutions group at Chaffe & Associates Inc. in New Orleans, said it makes sense for a minority-owned bank like Liberty to diversify beyond its traditional service area.

Liberty "is serving a minority community … and when you saturate that, you go to another minority area, like Kansas City, instead of going to a nonminority area of New Orleans," Mr. Briggs said. "It just makes much more sense to diversify in the minority communities nationwide."

Of course, Liberty is hardly abandoning its hometown.

Because it was focused primarily on the east side of New Orleans, which was the hardest hit with floods, it has only rebuilt five of its eight branches in the city. But Liberty has received $110 million of tax credits in the two most recent rounds of the Treasury Department's New Markets Tax Credit program, and it is using those credits to lend in hard-hit areas of New Orleans. Recipients of the credits get a 39% tax rebate on investments in low-income areas.

Liberty also is working with the city on developing loan products for residents and business owners who might not qualify for bank loans otherwise, Mr. McDonald said.

"There's a lot of rebuilding going on," he said. "We look forward to being a major player in helping to rebuild New Orleans."

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