Liberty and profit for all: B.E. financial company of the year.

ALDEN J. MCDONALD JR HAS THE LOOK OF A MAN BEING sold a bill of goods. McDonald, president and CEO of New Orleans Liberty Bank & Trust Co., is visiting his General DeGaulle branch and has just been cornered in an elevator by a 30-ish, attractive African American woman. Representing a local HMO, she's come in to give the branch manager a presentation on why Liberty, which bids out its health insurance coverage at a cost of $250,000 annually, should give her company a rest run. Sensing an unexpected opportunity to make her pitch to the top man, she goes into hard sell mode.

But McDonald isn't having it.

"You're jumping the gun. If your firm wants to work with us, then they have a lot more to do before they send you down to give a presentation," he says firmly. "I need to see an EEOC report and know if you guys have any black people up near the top. I also want a commitment that they're going to be adding more black doctors to their HMO. There's more to do, a lot more." Then, in a kinder tone, he adds, "I'm doing this for the few of you over there, too, as well as us."

Privately, McDonald insists he's been burned by an HMO before. He made similar demands with an earlier health care carrier that agreed to include black physicians, per Liberty's request, for a short time, but soon reneged. This time, he wants it in writing. "When we spend our money, we want to make sure in some fashion it's staying in the community and it's not with a company that discriminates or doesn't include minorities in the process," he says.

Whether they'll bend to his demands is uncertain. But these days, the 53-year-old McDonald can afford to play hardball with an HN40 and just about anyone else within New Orleans proper. McDonald and Liberty Bank are on a serious roll, with the purchase of three new bank branches last year alone--two in New Orleans and one in Baton Rouge. Liberty's recent successes are all the more impressive because of the bank's grim outlook just a few years ago.

In the late '80s and very early '90s, the order of the day was streamline until it really hurts and then cut back a little bit more. When McDonald jokes now about the days of tracking paper dips to keep costs down, he sounds like a man who has walked through a dark tunnel to find a green valley on the other side.

While Lazarus-like insinuations may be pushing the analogy a bit far, to say that Liberty has come full circle since being named BLACK ENTERPRISE's Bank of the Year in 1984 would be a severe understatement. The oil bust of 1986-87 was the kiss of death for many independent banks in the New Orleans parish. Of the 10 independently owned commercial banks in New Orleans prior to 1985, only two survived the oil-bust debacle. And McDonald says Liberty came closer to joining the scrapheap than he'd care to remember. "We lost all of the profits we had made in the previous years plus some," he recalls. "It was a bad time."

Fast forward 10 years and Liberty is not only solvent again but in full-fledged expansion mode. The bank had assets last year of $ 134.8 million, a 5% increase from 1995. Liberty's total capital for the year was $10.1 million and deposits tallied up to $122.4 million. Its total loans saw a 10% increase to $81.3 million and the bank now has eight branches spread across New Orleans and Baton Rouge.

Just as significant, Liberty has been able to accomplish its remarkable turnaround while remaining an impact player to its 35,000 customers and the surrounding community. Whether it's sponsoring the local track meet, which offers college scholarships, or fund-raisers for the United Negro College Fund, Liberty has become a key player in the community. For over 25 years, it has had a reputation as one of the strongest financial institutions in its region. For its successful expansion efforts, for being a long-standing community player and being among the leading FHA and VA mortgage lenders, Liberty Bank of New Orleans is BLACK ENTERPRISE s 1997 Financial Company of the Year.

AND LIBERTY FOR ALL

New Orleans is a dangerous place, but in a good way. Bourbon Street sets the tone for much of the city's dark, yet dramatic flair. It starts with the throbbing beat of music pulsing from the many jazz dubs lining the narrow corridor of the "Street." The mood is amplified by the hawkish vendors selling overpriced T-shirts as well as the numerous bars and risque "cabarets" scattered throughout the strip. Bourbon Street is the seductive "must-see" attraction for the 10 million tourists who rush through the city annually. And although perceptions may vary, many come away thinking of New Orleans as a city where it's all right to be a little bad.

A child of New Orleans, McDonald says the city has changed in many ways since he was a youth. But, it's also stayed very much the same. "I've been here all of my life and there aren't too many other places that I'd care to live," he says.

The son of a waiter, McDonald worked his way through school tending lawns and serving as a steward at parties. At the time, he says, the very idea of banking was unthinkable. Instead, his early goal was to become a bricklayer, one of the few jobs available to blacks at the time. "Black folks in this area were either school teachers, worked in the post office or they were bricklayers or carpenters," he says. "Those were the professions available for us."

His perceptions started to change in the early 1960s, after working his way through Straight Business College and Louisiana State University's non-degree program for bankers. In 1966, International City Bank tapped McDonald for a part-time job. Six months later, he was working full time. His rise there was furious and unprecedented. In 1972, he was named ICB's first black vice president. With a growing reputation as a mover and shaker at the ripe old age of 29, McDonald was soon approached by Norman Francis, then president of Xavier University of Louisiana, about heading a start-up bank formed by 10 black and seven white investors. McDonald, believing he still had much to learn before accepting such a responsibility, twice turned down the offer before finally accepting.

FROM TRAILER PARK TO MOUNTAIN TOP

McDonald, a robust gentleman with an easy smile and salt-and-pepper hair, has a large binder filled with fraying newspaper clippings of Liberty's early years. In those days, or the "Trailer Park Years" as they're referred to by some within the company, Liberty, with $2 million in assets, was headquartered in an abandoned trailer lot. But it didn't stay there very long. Before McDonald firmly planted his feet on the ground, he signed off on the construction of a new downtown headquarters soon after the trailer doors opened in 1972.

At the same time, he applied for permission to open his first branch. "I don't know if that was smart or foolish, but I was young," he says now with some chagrin. "So I had these two major building projects going on in the infancy of the bank. People I knew in the industry thought I was crazy because with those two capital improvements, I was taking money out of the bank in an interest-earning mode and turning it into a fixed asset."

McDonald's strategy behind the hasty moves? "To show success early," he says. "We had to come out of the box swinging and make people know we were serious about business. We had to have facilities that were first class and show that customers could get the same banking service from us that they could get elsewhere," he explains.

The strategy paid off very well. From 1972-86, the bank posted a steady increase in deposits and assets. In fact, Liberty has been profitable every year since opening with the exception of three. But in 1986, the oil industry went belly up. And Louisiana, extremely dependent on oil revenues, as well as banks like Liberty that received royalties from the drilling that occurred along the Gulf of Mexico, went into a financial tailspin. When the drilling stopped, real estate values throughout the state plummeted and loans began to sour. "People lost their jobs. They were losing their homes. They couldn't pay on loans and it had a domino effect," says McDonald. "The economy was dead."

The bank had as many as 22 bankruptcies in one week during 1987. Liberty would lose $1.5 million that year. It was at that time McDonald and other Liberty executives activated their survival strategy. Cutting expenses--but not salaries--Liberty eliminated all of its service contracts including maintenance help as employees dug in and cleaned up after themselves. The gardening crew was eliminated and they all took turns cutting the lawns at different branches. The staff even came up with clever ways, like circulating paper clips, to track the most minute office; expenses. "And the vendors we just had to have, we asked them to take cuts in their fees. And most of them did," recalls Gregory St. Etienne, Liberty's executive vice president. "The ones that didn't, we cut them out completely."

If timing is everything, then St. Etienne's watch must have been seriously impaired. An independent auditor, he joined Liberty in 1985, just before the rollercoaster ride began. "I was just getting my feet wet before we started to feel it," he says. "If that experience was good for anything, it's that you appreciate the light more when you spend some time on the dark side."

Despite their best efforts, capital plunged to under $1.5 million in 1987: less than the amount the bank started with some 15 years earlier. Just as McDonald was running out of cost-cutting measures he came upon a financial boon that he was able to ride while the local economy trudged to a slower recovery. McDonald learned that many large corporations used banking services to make quarterly tax payments to the federal government. And in 1988, Liberty began selling itself as a depository for tax money and soon landed the deposit business of Aetna Life Insurance. The company would forward a check for its tax payment to Liberty. The bank would receive interest on the overnight deposit and forward the money to the U.S. Treasury. Liberty began soliciting similar business from other companies and soon had a clientele that included Sears Roebuck, J.C. Penney, Travelers Corp., Anheuser-Busch and Avon Products.

Slowly, Liberty started a steady climb back up the financial ladder. Its 1988 losses came in at $750,000. A year later, Liberty further decreased its losses by $350,000, before eventually showing a profit of $350,000 in 1990. By 1992, it was showing a modest profit of $1.4 million. That year, as the local economy stabilized, Liberty made its purchase of the long-waning Corpus Christi Federal Credit Union in New Orleans for 76 cents on the dollar. The purchase was the first ever of a credit union by a commercial bank. Most importantly, it helped boost Liberty's capital while giving it a much-needed influx of mortgage loans. But that acquisition was just the tip of the iceberg.

EXPANSION, EXPANSION, EXPANSION

Since Liberty re-ascended BE's Financial listing, the bank has moved methodically, picking up concerns left for dead by majority banks. Soon after the Corpus Christi credit union purchase, Liberty made a move outside its home market in 1994. Venturing into the bayou country of Baton Rouge, it took over the assets and deposits of Life Federal Savings Bank of Baton Rouge.

The Baton Rouge move, another first, was a bold stroke as it took Liberty some 90 miles away from its homebase. While those outside of New Orleans might consider both areas to be simply "Cajun country" with similar community needs, St. Etienne says the communities are like night and day. The people, culture and environment are completely different. While New Orleans caters primarily to the tourist mentality, Baton Rouge, the state's capital, primarily deals with industry and government. "Imagine the difference between the residents of Albany, New York, and those in New York City. It's quite a difference. chuckles St. Etienne. To make matters worse, Liberty was coming in to revive a banking institution that had failed twice in recent years, so skepticism among community residents was running high.

But they gave Liberty a chance. "We have found Baton Rouge to be a very responsive and supporting market," saxes McDonald. And the acquisition of our second banking property here represents our commitment to this area."

Not one to stay in neutral for too long. McDonald went into high gear again late last year when the bank paid $ 1 million in cash for three concerns spread across New Orleans and Baton Rouge. This brought the bank's total number of branches to eight. In almost every circumstance, McDonald's strategy has been to go in and rescue banking institutions abandoned as unprofitable by majority concerns. "This is happening across the country as majority banks flee from inner-city neighborhoods," he says. "But this also created an opportunity for minority-owned financiers to enter those areas and claim them as their own."

A dear indication of McDonald's persistence is drawn in how he acquired Liberty's second Baton Rouge branch. At the time, Hibernia National Bank had just closed one of its branches in the region and McDonald expressed an interest in purchasing it. Hibernia's regional president in Baton Rouge was reluctant to sell to a competitor when there would still be several Hibernia branches in the area. McDonald went around him, calling Hibernia's president and chief executive with whom he occasionally played tennis. "I said, `I understand I'm competition, but I'm only a pimple on an elephant' behind. And if you're that frightened of me, I'm very proud of that.'" After a little more arm-twisting, McDonald walked away with his second Baton Rouge branch.

Deborah ScottEnsley is chairperson of the National Bankers Association and president and CEO of Nashville-based Citizens Savings Bank. The association, which represents 54 minority banks with some $31 billion in assets and 3 million customers, has watched Liberty's growth from afar. ScottEnsley says Liberty Bank & Trust is poised to enjoy even greater prosperity in the future. "They are one of our more aggressive banks in terms of trying to get into different markets," she says. "The many acquisitions are very critical to the institution and I think they've been well-planned." Ask ScottEnsley if she fears Liberty is now growing too large too quickly and she says they seem to be following a well thought-out plan. "Knowing the individuals involved, I think they have a road map and a strategy. I think it's rapid but planned growth and I feel comfortable with their ability to manage it. You face problems when you grow aggressively and don't have the ability to manage it. I don't think that's the case here."

SHARE THE WEALTH

Meeting the needs of an underserved community comes with as many risks as rewards. Liberty often works with community members with a credit rating of "B" or "C" as opposed to majority banks who only play in the "safe" "A" credit rating territory. Liberty works with a deposit base that consists primarily of checking accounts and deposits that average around $400. Average loan size, including commercial loans, is about $20,000. On the flip side, McDonald says the rewards of being a major player in the community are worthwhile. "One of my childhood dreams was to have enough money to be able to give money away,"says McDonald. Today, it's a dream he's living out. Liberty has an extensive formalized corporate giving program. Profiled in BE ("Doing Good While Doing Well," February 1996), the bank had to hire Bright Moments, a local public relations firm run by Bill Rouselle, just to handle the increased requests for donations.

The bank is very active when it comes to supporting community-vested programs throughout New Orleans. In fact, Liberty was the foremost VA/FHA housing lender in New Orleans for 16 consecutive quarters before the federal Community Reinvestment Act required banks to extend loans to low-income families. The bank currently has an outstanding CRA rating of "1". Liberty also has a penchant for supporting educational ventures for local students. The Liberty Track Meet, an increasingly popular sports event among the high schools, offers young athletes the chance to earn money for higher education. Last year, the outstanding male and female athletes received scholarships of $2,000 each to help toward college costs. And the "Ball in the Mall," a formal blacktie gala, is held every January in conjunction with the Lou Rawls Parade of Stars National United Negro College Fund Telethon. The ball has raised approximately $250,000 dollars specifically for Xavier and Dillard Universities, two New Orleans-based UNCF schools.

So what's next for Liberty? For starters, the bank has won a contract to do the cash management services for the city of New Orleans. The contract means Liberty will revamp policies and procedures and install a new management system for the money collected by the city, which totals some $200 million annually, says McDonald. As for the future, McDonald doesn't want to reveal too much of his hand, but he admits acquiring other financial institutions is an addiction. He says Liberty recently made an acquisition offer to an Alabama-based bank, but was turned down.

McDonald also believes Liberty is poised to become one of the first minority banks to branch out from its homebase and set up shop in nearby states. "We want to position ourselves to be a one-stop shop," says St. Etienne. "We want to be able to offer brokerage services, insurance, and be a complete financial services company. But to do that, we have to continue to grow and expand into other financial services. That's why we open these branches to make us more convenient to more people. If we earn their trust, we'll earn their business." So expect more pick-ups in the near future.

"We've had many challenges in our 25year history and I think it just goes to show our community is not only capable of accepting those challenges but being successful at dealing with them," McDonald says. "If nothing else, what we've come through show's me there's no limit to what we can do."

RELATED ARTICLE: LIBERTY BANK & TRUST CO. New Orleans

YEAR FOUNDED: 1972
CHIEF EXECUTIVE: ALDEN McDONALD, JR.

Year Ending      Assets(*)     Deposits(*)     Loans(*)    Staff

1996             134,845       122,405          81,364      135
1995             129,020       116,107          74,388      115
1994             114,904       100,973          74,214      117
1993              96,510        88,601          54,706       96
1992              89,977        82,070          47,942       91

(*) In millions of dollars. Source: B.E. Research, 1997