Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, December 11, 1994 TAG: 9412140005
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
"I knew right then and there our work was cut out for us," Plymale recalled recently.
Most people in Southwest Virginia now are probably well aware that Central Fidelity is a bank, and a rapidly growing one. And a series of events has documented still more changes for the company:
In its Roanoke-based Southwestern Region - a territory including the Roanoke and New River valleys and west to Abingdon, Chilhowie and Smyth and Washington counties - 47-year-old Plymale becomes Central Fidelity's regional president at the end of this month. As a practical matter, however, his predecessor, Carson Quarles, has already quit the premises on annual leave. Quarles' last management meeting will be Tuesday.
There's been a change of executives on the state level as well. Board Chairman Carroll Saine died of a heart attack Aug. 18, only a week after he had met in Roanoke with Central Fidelity regional employees. He was succeeded quickly by President Lewis N. Miller Jr., but the change has led to speculation in the industry about the bank's future.
Amid that speculation about Central Fidelity's being a tempting target for an out-of-state bank, the bank's board acted last month to make a hostile takeover more difficult.
The bank announced a plan to take a $30 million write-off this quarter on the sale of securities, a move that industry analysts believe will break a 19-year string of successive record-high profits.
Plymale admits that he will be pressed to top the dramatic growth in Southwest Virginia that vaulted Central Fidelity from being a relatively insignificant player in 1984 to the No,2 position currently. That ranking, as of the end of June, is based on Central Fidelity's 10.5 percent share of the $5.8 billion deposited in banks in the Southwest region.
It jumped from third place in mid-1993 by climbing in one year from deposits of $581,782 to $604,317, although its market share remained at 10.5 percent, according to the Financial Institutions Data Exchange. (The 1994 report is still incomplete in that it lacks statistical information from many smaller banks, but those numbers are not likely to change the positions of major statewide banks.)
Freda Carper, spokeswoman for Crestar Bank, said it is now third in the region defined by Central Fidelity. But she said in the two regions where they overlap - the Roanoke Valley and Radford - Crestar ranks second with 11.7 percent of the market (behind First Union) while Central Fidelity is third with 6.1 percent.
At the end of November, Plymale said, the Southwestern region had deposits of $750 million and loans of $475 million. The region covers 23 branches and employs 250 people.
In the Roanoke Valley alone, Central Fidelity ranked fifth in mid-1993 behind First Union, which then had more than 40 percent of the market, and Crestar, NationsBank and First Virginia banks.
Plymale came to Roanoke in December 1984 from Central Fidelity's Richmond bank, chosen as executive vice president for the area because he spent his teen years in the valley. His mission was to expand the bank's presence in Southwest Virginia.
When he started, Central Fidelity had four offices in Roanoke, an equal number in the New River Valley and seven scattered through the far Southwest. The bank had only $200 million in deposits throughout the region and only $75 million in loans.
Plymale hired a few commercial lenders and began building branches - a new downtown office in the Franklin Plaza Building, Mountain View at Troutville, and U.S. 460 East.
The course changed two years later, in December 1986, when Plymale's close friend and neighbor, Carson Quarles, left as president of the former Dominion Bank, now First Union National Bank of Virginia. At Plymale's urging, Central Fidelity recruited Quarles as its regional president and made an offer to acquire the former Colonial American National Bank as "a quick way to impact the Roanoke market."
But Colonial American, with assets of $350 million, resisted a take-over; several years later, it merged with Crestar Bank.
That may have been just as well, Plymale said recently, because it enabled Central Fidelity to come in without the "baggage" of purchasing an existing bank; baggage of different operating culture and traditions, and duplications of branches and operations.
As a result, Plymale said, Central Fidelity set about to build the region "one branch at a time, one new employee at a time, one customer at a time." Quarles focused on the commercial side of banking, providing credit and services to businesses. Plymale concentrated on the retail side, serving consumers. It's an arrangement that "worked out pretty well for us," Plymale said.
Still more branches followed in the Roanoke Valley: Towers Mall, Crossroads Mall, West Main and Electric Road in Salem, Vinton, 220 South, Plantation Road, Smith Mountain Lake. In the Southwest counties, Central Fidelity primarily rebuilt existing branches.
As Central Fidelity celebrated the opening of each million-dollar facility, Plymale pointed out, "there was not one penny of deposits inside the building." The staff hired for each branch had the job of building its business from scratch.
That meant developing what Plymale calls a "sales culture." Central Fidelity came late into a developed market, he said. Everybody already had a bank, so it was up to Central Fidelity to develop better products and differentiate itself through advertising from others already in place.
Some examples of these innovations are the Focus 55 banking program for senior citizens, an Individual Retirement Account with an interest rate tied to an external market index, a no-penalty certificate of deposit and basic checking accounts.
Now that Central Fidelity is a leader in the local banking scene, Plymale said his mission is to develop the market relying on the system that is in place now that the original expansion plan has been completed. Still, new branches are not ruled out. "You may see additions to the branch network, even in Roanoke - maybe as soon as next year," Plymale said.
For most banks, having employees involved in community affairs is a significant aspect of public relations. For Central Fidelity, it is a part of laying claim to its niche as a Virginia-only bank.
Central Fidelity boasts 100 percent participation in United Way with the largest per capita contribution of more than $325; 95 percent of its employees donate 1 percent or more of their salaries.
Central Fidelity has adopted eight schools throughout the region, including Fallon Park Elementary in Roanoke. In addition to its mentoring and tutoring programs, Central Fidelity helps the students run a small bank at the school.
On the state scene, the transition from Saine to Miller has been "a very orderly one," Plymale said. There has been no interruption in management.
But any time a chief executive officer leaves any company, he conceded, it "fosters all kinds of speculation within whatever industry."
"I can assure you positively that Central Fidelity has not changed in any fashion" its lack of interest in interstate banking. "We are not interested in being an acquirer and not at all in being acquired."
Central Fidelity, he said, is a stable bank with record profits each year for the last 19 years. Everyone was expecting the string to reach 20 years, until Miller announced last month that the bank would take security losses of $30 million in this quarter.
Despite that, Plymale said, Central Fidelity has one of the best efficiency ratings in the business. With costs already low, he explained, a potential acquirer could not recoup its investment through savings on expenses.
"We are having a very strong year with unprecedented loan growth and unprecedented deposit growth," Plymale said.
Several analysts largely agree with Plymale's financial assessments.
"They are very adamant and open about wanting to remain independent," said Guy W. Ford, chief of research at Scott & Stringfellow Investment Corp. in Richmond.
The best defense is a good offense, Ford said of Central Fidelity, because an acquirer would look for weakness in the form of a lack of earnings growth or financial problems. "The challenge is to keep earnings up and the stock strong," Ford said.
Vernon Plack, who follows the banking industry for Scott & Stringfellow, said he commended Miller for making the decision to write off the $30 million in securities that had fallen in value.
The company, in its release, attributed the decline in value to the increase in interest rates. "Accordingly, this action is being taken to further reduce the company's exposure to continued increases in interest rates to levels higher than previously anticipated."
The company anticipates the loss of $30 million on the sale of $500 million of fixed-rate investment securities having an average yield of 6.06 percent and an average maturity of four years. The money from the sale will be used to reduce short-term borrowing by $100 million and to reinvest the balance in adjustable-rate investment securities.
The net effect will be a 50-cent-per-share reduction in Central Fidelity's earnings this year.
Plack said Miller faced "a tough situation" with securities on a balance sheet set up in Saine's time.
"It will help out next year ... It will help them going forward." Plack said, adding that similar steps have been taken by some banks in other states.
"The increase in short-term rates has caught them short a little bit," Plack said.
Merrill Ross, of Wheat First Butcher Singer, said the special charge cost the company its expected record earnings. She believes the bank will not do as well in 1995 because of the charge, but, in the long term, the earnings will be more attractive.
"They got caught in rising interest rates," Ross said.
David West, who follows the industry for Davenport & Co. in Richmond, said growth should be faster after 1994 because it will be playing off the smaller base of this year's earnings.
The amount of the charge-off surprised the industry, West said. Miller could have reported a profit in his first year, according to West, but he chose to correct all of the problem, which will be good for the bank in the long run.
"It's a wise action for the company, but disappointing that core earnings will be somewhat depressed," West said. He forecasts earnings of $2.75 a share for 1995, compared with $2.21 at the end of this year's third quarter.
As to mergers, West said, "everybody speculates."
Because new state and federal laws have made acquisitions easier, Central Fidelity has made it harder in its own case. It has lowered from 20 percent to 10 percent the amount of stock any company and individual can own without going to the board. That makes it more difficult for anyone to take the case for takeover directly to shareholders.
William Stoyko, corporate executive officer of Central Fidelity Banks Inc., the holding company for the banks and other subsidiaries, said the board would have to act on behalf of the shareholders' interest, but it would make a hostile bid more difficult.
"Everybody speculates" about mergers of various banks, West said. "It's a matter of intense debate who will come into Virginia and take over" a state bank.
Central Fidelity is an attractive acquisition candidate, West said, because it has been profitable over many years and has "a good franchise in Virginia."
But West believes this is unlikely to happen soon. "Bank stocks have done poorly," he said, so that no bank has the financial strength in its own stock to finance purchase of a bank like Central Fidelity with $10 billion in assets.
"The likelihood of major mergers is a little more remote," West said. He predicted that banks will continue to acquire smaller institutions rather than a bank the size of Central Fidelity.
Memo: ***CORRECTION***