"That's one of the few live plants that we still have around the bank," says Lewis N. Miller Jr., pointing to the miniature Japanese bonsai tree sitting on a table in his office.

Mr. Miller, president of Richmond-based Central Fidelity Banks Inc., said the bank recently did away with its plant servicing contract, thereby saving about $150,000 a year statewide.

In its place, employees were provided with their own watering cans or asked to make do with artificial plants.

"A nickel here, a nickel there, sooner or later it adds up," Mr. Miller said nonchalantly.

Low Efficiency Ratio

But the sentiment has become one of Central Fidelity's bedrock credos. The company is obsessed with saving money.

In fact, its efficiency ratio, which measures the percentage of operating revenues eaten up by noninterest expense, was 54.58% last year, the fourth lowest among the nation's larger banks.

"In Central Fidelity's case, it's very much an expense control story," said Anthony R. Davis, a bank analyst at Dean Witter Reynolds Inc., in New York. "They don't waste any motion." Central Fidelity earned $7,749 per employee in the second quarter, compared with $6,400 for the typical bank followed by Dean Witter, according to Mr. Davis.

A Rough Decade

Mr. Miller dates Central Fidelity's fixation on cost control back to 1989, when he and chairman Carroll L. Saine started thinking hard about the future of the banking industry.

"We realized the '90s weren't going to be good for banks," Mr. Miller says. "To continue to be profitable and to grow, you were going to have to be efficient -- get more out of what you've got."

To encourage its employees to buy into the cost-scrimping regime, Central Fidelity makes heavy use of financial incentives.

Last year, after employees succeeded in keeping controllable expenses flat, they received two separate 2% increases in salary.

Added Incentive

The incentive this year is even richer. Under the new "Four for 49" program, each of the bank's 3,500 employees will receive a 4% boost in salary if the bank is able to get its efficiency ratio below 50%.

Since the ratio dipped to 48.98% in the second quarter, Mr. Miller feels certain the goal can be achieved for the full year.

Unfortunately for Central Fidelity, its strenuous efforts have not won it any kind of premium in the stock market. The bank company's shares sell at a 10% discount to the typical regional bank stock followed by Dean Witter, Mr. Davis said.

Nonperformers Remain High

He cited credit problems related to commercial real -estate in the Washington, D.C., area as a continuing cloud" over the company. At a time when other banks are working down their nonperforming assets, Central Fidelity made no dent in its $112 million of nonperformers during the second quarter.

"Central Fidelity has sort of brought up the rear in this cycle in terms of credit recovery," Mr. Davis said. "They've had problems longer than most banks we follow. Efficiency is just one piece of the puzzle."

Historically a middle-market lender with little razzle-dazzle in its strategy, Central Fidelity has lagged behind the industry in its ability to generate fee income.

Fees accounts for less than 20% of revenues, putting Central Fidelity in the bottom quartile for banks its size. However, it made a major effort to correct that deficiency last year by forming a new mortgage subsidiary and launching a mutual funds and annuities sale drive.

Mr. Miller says Central Fidelity is striving to achieve the averages of its peers in fees. But he is not planning on any major changes in his overall strategy.

"We'll never be in the top rank of fee-earning banks," he said without apology.

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