When one of the pioneering Internet banks, Salem Five Cents Savings, set up shop on the World Wide Web back in 1995, its sights were set far higher than on its Massachusetts market.

Four years later, the $980 million-asset thrift has 6,000 on-line-only customers from across the United States, and even a few in foreign countries. At a time when many community banks are strapped for new deposits from local sources, Salem Five has enjoyed healthy inflows.

Though most smaller financial institutions go on-line to supplement existing telephone banking services in their home markets, the desire for deposit growth has interested some bankers in trying to accomplish something like what Salem Five did.

"A lot of banks have developed niches they lend funds to, but few have spent much time trying to develop the same sort of niches to get deposits," said Dennis McCuistion, a consultant based in Irving, Tex. "I don't know a single bank that shouldn't at least be looking for new ways to fund their loans."

Salem Five "started doing this a few years ago because we decided we wanted to be around in four or five years," said senior vice president Mark Fitzgerald. "But we had no idea then how much it would grow."

The Web site, which the thrift calls its 10th branch, has attracted $87 million of deposits-about 10% of the total.

Salem Five followed the now well-worn path of offering higher interest rates than customers generally get from conventional hometown banks.

Another that is willing to pay up for Internet business is Texas Capital Bancshares. Chairman and chief executive officer Joseph M. Grant said the Dallas company's aggressive lending expansion would be funded, at least in part, through the Internet.

Texas Capital has about $100 million of loans on its books, and three times that in the pipeline. On the liability side, the bank in May launched BankDirect, an on-line division offering more than 100 basis points above market rates on certificates of deposit.

"We think we have a new banking model," said Mr. Grant. "We are not totally reliant on the Internet, but it is going to be a significant part of our game plan."

Mr. Grant said BankDirect's Web site is averaging 100,000 hits per day and opening some 28 new accounts a week.

In Philadelphia, the $250 million-asset USABanc.com - it just recently added the "dot-com"-allows Web customers to set their CD rates. On the Web site, the bank posts an above-market ceiling rate and asks people how low a rate they would accept and still buy the CD.

Most community bankers are not concerned about losing deposits to high- rate Internet offers. The majority of customers, they contend, still would rather put their money in a bank with a branch around the corner.

"Geographic presence still has value, and it is our biggest advantage," said Manuel J. Mehos, chairman and CEO of Coastal Bancorp in Houston.

Coastal, which has $3 billion of assets and 50 branches in southeast Texas, started Internet banking this month. Mr. Mehos said that though it is important to give customers the option of using the Web, "very few people are picking their bank based on its Internet offerings."

Christopher Musto, director of financial services at Gomez Advisors in Concord, Mass., pointed out that all of the Internet-only banks combined have just 140,000 accounts.

"There is no sign out there that the mass populace is saying, 'I don't need a physical bank,'" Mr. Musto said.

But Mr. Fitzgerald of Salem Five said time might be running out on banks that are not looking for business in cyberspace.

"The world of community banking is at a crossroads," he said. "Banks need to get on-line and discover if they can compete, or recognize they can't and start grooming for an acquisition."

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