Established in 1963, today, Los Alamos National Bank is the largest independent bank in New Mexico. LANB provides a full range of financial services to consumer, commercial, and government markets in northern New Mexico. LANB was created originally to address the banking needs of its unique namesake community, created to house what is now known as the Los Alamos National Laboratory, site of the Manhattan Project during World War II.
The bank has become an integral component of its community. Nearly 80 percent of Los Alamos’ 18,000 residents use LANB financial services. Two-thirds of residents consider LANB to be their primary bank, and 30 percent of all customers use five or more services, as compared with the national average of 6 percent for all banks.
The business takes great pride in its designation as a community bank. Nearly every dollar deposited with LANB is loaned to borrowers in the local community. Community commitment was greatly in evidence during the spring of 2000, when fire ravaged over 48,000 acres and destroyed 280 homes in the region. The bank offered zero-interest loans to anyone affected by the fire, sus-pended loan payments on burned homes, doubled the limit on withdrawal limits from automated teller machines, and took other extraordinary measures to help the community overcome the crisis.
LANB is owned and operated by Trinity Capital Corp., a one-bank holding company. With assets of $700 million, LANB has 184 employees and branches in Los Alamos, White Rock, and Santa Fe. In addition, it offers Internet-accessible banking services, which, as of 2000, were offered by only 5 percent of community banks.
In an era of banking mergers and acquisitions, LANB capitalizes on advantages earned by successful “home-grown” businesses. As a locally owned and operated financial institution, it strives to be more “customer driven” than its competitors. It is organized to identify customer needs more readily and more accurately and, then, to respond more quickly and more satisfactorily. Success translates into more loyal customers who are more willing to use LANB products and services and to refer new business.
In its chosen markets, LANB has positioned itself to be a low-cost, full-service provider. For example, service charges generate less than an eighth of annual income, as compared to about a third for regional and national banks. Yet, LANB offers rates of deposit that match or exceed those offered by competitors, and the rates of interest it charges for loans typically are among the lowest—if not the lowest—in the market. Consequently, LANB’s net interest margin (NIM), which is the spread between the interest rate paid on deposits and the rate charged for loans, is significantly narrower than that of most other banks. This, in turn, leaves LANB with smaller margins for errors in operational performance or business judgment.
By holding down administrative costs, the bank’s highly efficient workforce more than counterbalances this potential vulnerability. On average, one LANB employee serv-ices more than $6 million in assets, which is more than twice the banking industry average. As a result, overhead expenses average 50 percent of income, a rate that ranks among the best in the industry. Effective management of its NIM and overhead expenses has enabled LANB to deliver solid returns to shareholders, while foregoing ATM fees and holding other service fees to a minimum.
Senior leaders set the bank’s long-term strategic direction and annual corporate objectives, following detailed analyses of leading and lagging indicators of trends in the economy, markets, customer behavior, technology, employee skills, supplier capabilities, and other key factors. At the departmental level, planning becomes an organization-wide activity, involving all personnel. Corporate objectives are accomplished through action plans that often transcend several departments. Totaling about 90 in the year 2000, action plans are converted into individual work goals for all employees, about a third of whom participate on long- or short-term teams.
This last step in plan development and deployment—implementation at the level of the individual worker—has been refined considerably since the mid-1990s. That’s when employee survey results revealed that workers did not understand their role in the strategic direction of the bank. Under the leadership of LANB’s Quality Council, which has members from every area and level of the company, the performance appraisal system was redesigned to magnify the direct link between job performance and corporate performance.
The form used for this system lists corporate goals, departmental objectives, and the annual and long-term goals of the employee, which he or she writes in consultation with a supervisor. Employees also complete a personal self-assessment of their strengths and of opportunities to improve their customer-service skills and technical competence. Once they complete the annual appraisal process, employees have a complete snapshot of what they must do to perform at a high level and to earn the attendant incentives and rewards, which includes profit sharing and employee stock ownership. Such incentive payouts average over 21 percent of an employee’s annual salary.
Employee empowerment is vital to accomplishing LANB’s goals for performance improvement and double digit growth in annual income. Management consciously acts to distribute leadership responsibilities throughout the organization. In fact, over 90 percent of LANB’s employees received leadership training in 1999, as compared to 8 percent of bank employees nationally.
Employees are expected to create value for customers, and they are given the authority and resources to act proactively and decisively. For example, all workers have the authority to resolve complaints on the spot. Also, high lending limits and flexible underwriting standards enable loan officers to respond innovatively to loan applicants with special circumstances. Yet, LANB’s charge-offs for loan losses (measured as a percentage of average assets) have been declining since 1997, to about one-third the average percentage for local competitors and less than half the percentage for a national bank that LANB benchmarks.
After a skilled, customer-focused workforce, LANB ranks technology as vital to executing its strategy of providing low-cost service, achieving high levels of customer satisfaction and loyalty, and, in the process, sustaining above-average profitability. It credits its client-server information network and relational database system with enabling the speed, dexterity, and analytical insight needed to manage risks and to respond rapidly to changing customer requirements and emerging market opportunities. LANB also uses a comprehensive simulation model to help it forecast the consequences of different business strategies.
LANB was quick to embrace the Internet and to provide on-line banking services, which have been received enthusiastically by customers. Introduced in March 1999, the service was being used by more than 6,000 LANB customers as of the end of 2000.
While on the lookout for new technology that will help distinguish itself from the competition, LANB often offers to “test drive” its suppliers’ new hardware and software offerings while they are being developed. These collaborations help LANB evaluate how well new technology can be adapted to help it meet anticipated customer needs and future business goals.