Mitchell H. Caplan worked outside the banking industry for years, so it should come as little surprise that the thrift he heads is not traditional.

Metropolitan Bank for Savings of Arlington, Va., is one of a growing number of financial institutions organized around the belief that the branch office need not be the foundation for every bank is built.

Under the 37 year-old Mr. Caplan's guidance as president and chief operating officer, Metropolitan has evolved into a virtually branchless organization, conducting the vast majority of its business over the phone and through the mail.

Though the approach is not right for every institution, experts said a growing niche exists for branchless banking.

"We are seeing an increasing number of banks of all types and sizes that are setting up direct marketing programs using mail and telephone," said Edward J. Furash, president of Furash & Co., a bank consulting company based in Washington.

As the value of branch market distribution declines and as the consolidation of geographic markets continues, Metropolitan's version of banking puts it at the "forefront of what will become increasing competition," Mr. Furash said.

Mr. Caplan, a former partner in the New York law firm Danziger & Caplan, understands that his business occupies a niche in the banking industry, but it is one that he says is lucrative.

Metropolitan, a unit of Telebanc Financial Corp., has learned from experience that its services appeal mainly to consumers over 50 years of age. Members of this group typically maintain high balances and rarely tinker with their savings, experts said.

Metropolitan appeals to these customers by making conservative investments that allow it to promote itself as a stable place to save.

The asset side of the bank's balance sheet is virtually all mortgage- based securities, "which is what we think of as the bedrock asset of America," said Mr. Caplan. "We do not invest in speculative securities and we don't invest in consumer loans.

Investments in mortgage products may not give the same level of return that consumer loans or credit cards would, but, "from our perspective, we are taking a lot less risk," Mr. Caplan said.

"We view ourselves as a premier savings bank," he continued. "We pass on the higher rate to customers because of how our cost structure operates, and at the same time they are guaranteed FDIC insurance."

If Metropolitan's investment strategy is run of the mill, the same cannot be said of the way it conducts its daily business.

Operating only one office - which, for regulatory purposes, functions as a branch - and employing only 30 people, the $486-million-asset institution focuses heavily on marketing.

Metropolitan runs national direct marketing campaigns targeted at places populated by those most likely to buy its offerings. It markets mainly basic deposit products, such as certificates of deposit, money market accounts, and passbook savings accounts. The bank also offers Smart Saver accounts, which essentially are money market accounts without checking access.

The bank employs 12 customer service phone operators, who each work 12- hour shifts. Handling between 750 to 1,000 phone calls daily, they answer questions, open new accounts, and provide information to potential customers who call its toll-free number.

"The way we differentiate ourselves is on the deposit side. Mr. Caplan said. "We are truly telemarketing driven."

Metropolitan considers the entire nation its market. It has over 8,500 customers spread across 50 states.

Experts believe the rootless nature of direct marketing and phone-based services may be one of the saving graces of community banks, as consolidation increases competition from larger institutions.

Mr. Furash noted that pure remote financial services are still largely the domain of nonbanks. But that is in the process of changing.

Metropolitan and institutions like it are well-positioned to take advantage of a business climate in which consumers are receptive to remote services.

"What was not terribly interesting to the consumer five years ago is more interesting today, and will be even more interesting tomorrow as the demographics change," he asserted.

The bank has recently embarked upon an aggressive drive to build assets and deposits. It went public last year, raising over $20 million through the sale of $17.3 million of subordinated notes and $4.6 million of common stock. The bank used the capital infusion to more than double its assets in just over a year.

It is confident that the consumer receptiveness to which Mr. Furash alluded will allow it to continue to grow in the next few years.

With customer contact essentially held to telephone and mail, Metropolitan sees no need to follow the industry's trend of consolidation. Mr. Caplan terms the bank's growth potential as "nearly unlimited."

To be sure, not everyone is rosy on the concept of branchless banking.

Bert Ely, a principal with Ely & Co., Alexandria, Va., said such strategies have yet to be proven economical for the banking industry as whole.

"Supposedly this is where the future lies," Mr. Ely said, but "I'm not sure that is where a lot of banks can get additional power."

"Return on equity last year was 6.76%," referring to Metropolitan's performance. "That's not particularly good, and their operational efficiency, at 57% is not worth getting that excited about."

Mr. Ely further pointed out that branch-based banking has several advantages, including a physical presence that allows branches to function as billboards that promote brand recognition.

He also questioned whether the customers attracted to banks like Metropolitan would be loyal in the face of tougher competition on interest rates.

"The question that comes up long term is, 'What is their franchise value?'" Mr. Ely asked.

Others, however, feel it is merely a matter of time before the branchless concept yields results.

"I think the approach is a positive one, and one that I'd expect to see more banks embarking on," said Dan Pfau, a partner with Andersen Consulting's Boston office.

Such words are music to the ears of Mr. Caplan, who has staked a large part of his professional future on the concept.

Mr. Caplan was introduced to the idea of branchless banking in 1990 through his law practice. At that time, he became closely involved with an innovative project being undertaken by one of his clients, Met Holdings Corp.

Met Holdings, which had acquired Metropolitan Bank for Savings in 1989, was in the early stages of converting the bank from a traditional thrift to the direct marketer of bank products that it is today.

The more time Mr. Caplan spent learning about the branchless bank, the more enthusiastic he became about the concept - so much so that in March 1994, he joined with Met Holding's chairman and chief executive David Smilow to create Telebanc Financial.

With its deposit base growing, Mr. Caplan, a graduate of Brandeis and Emory Universities, believes he has made a good career move.

He emphasized, however, that the bank is not simply in a deposit- gathering mode, but is rather aimed at building a "long-term customer base strictly through the telephone and mail and other forms of technology."

"We want people to call in and feel that their experience has been not equal to their local community bank, but has far surpassed it," he said.

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