CARSON, Va. - In this sleepy railroad town (population: 200), the Bank of Southside Virginia keeps doing what it does best-making money hand over fist.

Since being formed by a merger in 1933, the bank has turned in steadily increasing profits. And 1992 is no exception. "We're having a banner year," says John H. Clements, who heads the bank, as his father and grandfather did before him.

Its success is tied to old-fashioned, hard-nosed banking: aggressive lending accompanied by tight underwriting standards.

The bank, which has $182 million is assets, thrives by financing small businesses, such as service stations, convenience stores, and professionals. It also has its share of well-diggers and farmers. "Just good, hard-working middle-of-America people," says Mr. Clements. "One of our best customers is a man who installs septic systems."

But despite its back water profile, the bank is not afraid to explore new territory. It's trying its hand at debit cards, and started selling annuities five months ago.

Rival bankers acknowledge that the community bank's prescription works. "It's a solid, well-run outfit," says Paul Geithner, president of First Virginia Banks Inc.

"They are good competitors," another banker grudgingly admitted on the condition that his name not be used. "The competition is keen."

In the first quarter, the bank earned $1.1 million, a 2.42% return on assets. for all of last year, the bank earned $3.4 million, a 1.97% ROA.

Town that Time Forgot

The bank, a subsidiary of Bank of Southside Virginia Corp., operates in a 75-square-mile area in some rural towns no bigger than Carson, which is 40 miles south of Richmond.

The small towns provide a steady flow of deposits. Most of its lending is done in the larger city of Petersburg.

Carson, where the bank is headquartered, is a neatly kept town that time forgot. It consists of a handful of buildings, including a school, a library, a volunteer fire department, and a U.S. Post Office.

Mr. Clements, 61, lives next door to the bank in a large white house built by his grandfather, P.B. Halligan. One of his four children works for the bank.

Mr. Halligan, a railroad man and local merchant, helped form the bank in 1933, when the Bank of Carson and two other institutions merged to form the Bank of Southside.

After he died in 1937, his son-in-law, John W. Clements became president and chairman in 1976, after managing the family|s farm-supply company.

Controlled Growth

The bank has struck a balance between its conservative roots and progressive ideas. Its asset growth is carefully managed at about 10% a year.

"We are not out growing and building for the sake of growing and building," says Mr. Clements, whose family owns about 20% of the bank and operates nearby farms that grow ballpark peanuts and other crops.

Mr. Clements takes pride in the institution's tight underwriting standards.

Lending Discipline

A week before each monthly board meeting, the 11 directors review new loans, delinquent loans, and overdrafts. The review lists borrowers' names, the amount of the loan, and the rate.

"I don't care if it's $200," Mr. Clements says. "We review every loan in the bank. We don't hide anything. We feel it brings some discipline to how we make loans."

He says loan rates are tiered depending on the size of the loan and risk involved.

"We have people on the board who pay higher rates than other people on the board, and they sit there and look at that," Mr. Clements says. "It was a little awkward at first."

Buzz Words: Cash Flow

Years ago, the bank ran into loan problems when it put too much emphasis on collateral and not enough on cash flow and debt load. These days, cash flow and debt load are buzz words at board meetings.

"We tell people up front we are not here to work ourselves to death and not make a profit," Mr. Clements says.

The hard work analyzing credits has paid off. In the first quarter, the bank's delinquent loans equaled a relatively low 1.45% of total loans.

The bank once had a collection division, but the resulting attitude of loan officers was, "I'll make 'em, and let somebody else collect 'em," Mr. Clements says. After several months, the division was scrapped.

Beating the Bushes

The rule for lenders now is simple: If you make a bad loan, you collect it.

The bank hunts aggressively for new business.

Each month, branch managers are required to meet with one potential customer and three existing ones.

James Robertson, the bank's in-house training coordinator, oversees the program and makes calls with managers of its nine branches. He says that over the last 12 months the bank has intensified its push to bring in new business.

"We are seeing an increase in business even with the economy like it is," he said, "In a lot of cases [customers] are moving from other banks."

The remaining three calls are made to check on existing customers to see if they have any problems or questions.

|What's Going On'

"We want to know what's going on," Mr. Clements says. "Is there anything we are not doing that we should be doing."

Three years ago, the bank formed a mortgage arm, which last year originated and sold 87 mortgages totaling $6.4 million. It also started a dealer finance division, which has balances of about $10 million, and it is also an issuer of credit cards.

About five months ago, the bank began selling annuities. It also started testing a debit card that will enable customers to purchase goods and withdraw cash from the Most, Cirrus, and MasterCard networks.

The bank has 500 applications. for the card, It also hopes to start selling home owners insurance.

Fee Income Diversification

Mr. Robertson puts on about 100 miles a day driving from branch to branch to teach managers about new products and programs. It's the new product that help the bank rely less on loan revenues and more on fee income.

"Diversification is the goal," says Mr. Clements' son John, a senior vice president. He worked for three years at the predecessor of Wachovia Corp. before coming to the bank in the mid-1980s. "If you rely totally on your net interest margin, you are going to get hurt. We are tying the customer back to us."

The elder Mr. Clements says he's putting in long hours keeping up with the changes, but he doesn't want the bank to stagnate. He wonders if the bank can continue piling up record earnings.

"I'm holding my breath we can," he says.

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