The much-touted marketing efforts of Internet banks appear to be paying off.

Net.Bank Inc. of Atlanta and Telebanc Financial Corp., the parent of Telebank in Arlington, Va., both made money in the third quarter and said it was a testament to strategic marketing. For Philadelphia-based USABancshares.com Inc., however, initial marketing costs contributed to a net loss.

Telebank boosted its profits to $2.1 million, up from $57,000 the year earlier. For the first nine months, it reported net income of $7.5 million.

Net.Bank had its sixth profitable quarter of the eight since it went public.

It attributed its success to efficient marketing and heavy loan volume. In contrast to some high-profile Internet banks and brokerage firms that devote double- or triple-digit millions of dollars to advertising and branding, Net.Bank budgeted $8 million for 1999, said D.R. Grimes, its chief executive officer.

"We try to be really efficient with our marketing dollars," he said, with most of the advertising done on the Internet. Net.Bank supplements that with radio spots in its top 10 markets.

Most of Net.Bank's income is interest on loans. It recently added home equity to a product portfolio with home mortgages, credit cards, leases, and overdraft protection. Its current loan volume is $640 million.

Mr. Grimes said Net.Bank's deposits have risen to $486 million, from $241 million a year earlier. The ability to generate deposits on-line and nationwide helps keep lending costs low, he said.

Mitchell H. Caplan, president and chief executive officer of Telebank, said its "targeted and cost-effective" marketing has helped it grow to $2.1 billion of deposits and $4 billion of assets.

The 10-year-old virtual bank, which was telephone-centered before starting on the Internet four years ago, has doubled its marketing budget this year.

Telebank has a merger pending with E-Trade Group, the prominent on-line brokerage, which is expected to increase its customer base and cross-selling potential.

USABancshares had an operating loss of $563,000. It cited one-time expenses of $1.3 million for marketing and advertising and $230,000 related to a systems conversion. Kenneth L. Tepper, its president and CEO, said he is "pleased" by its growth to $22 million of deposits and 5,500 accounts in October, a 34% increase in the eight weeks since full on-line services were launched.

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ATLANTA -- Net.Bank said it has signed a one-year agreement, effective Jan. 1, for a key sponsorship position on Microsoft Corp.'s MSN MoneyCentral Internet portal.

Net.Bank said it was one of three financial institutions -- the others were not named -- with exclusive branding and positioning rights in the MoneyCentral banking and bills and saving and spending areas.

The banking link would make Net.Bank one of the first institutions to give its customers direct access to their account information via the Microsoft network.

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