Sitting in his luxurious, leather-laden office, William H. Mitchelson looks the part of the quintessential community bank president: an affable, graying 54-year-old, comfortably ensconced within a white-pillared building.

But at Salem Five Cents Savings Bank, the stereotype is deceiving. Mr. Mitchelson, the chief executive officer of Salem Five, founded in 1855, knows the baud rate of his modem. Surrounded by pen-and-ink drawings of local monuments and a large replica of a clipper ship, he likes to sit at his desk and surf the Internet. "One of my obligations as CEO is to stay relevant," Mr. Mitchelson said. And it is his drive to push forward that has placed Salem Five - a $750 million thrift institution with nine retail branches in northeastern Massachusetts - at the cutting edge. Its 14-month-old Web site was the first posted by a bank in New England. When its PC banking service was introduced in August 1995, it was the first in Massachusetts for a long time. Last month, the bank announced it will open its World Wide Web site ( for banking transactions starting in the fall. "Salem Five clearly serves as a model for community banks," said Les Dinkin, a Westport, Conn.-based banking consultant. "They have shown how much a community bank can do with technology, and how they can use the Internet to preempt their larger brothers and sisters and strengthen their community linkages." Indeed, with a superregional technology leader like BayBanks as a neighbor, Salem Five has explicitly adopted the much-touted view that the Internet can make community banks competitive with larger rivals. "We're looking for customer relationships," Mr. Mitchelson said. "Not just depositors - customers. How does one service a customer who is not within reasonable driving distance? The answer is electronics. "How many people who have never walked into a Fidelity Investments office have entrusted their entire life savings to them?" he went on. "We wanted to break out of our geographic borders." Salem Five's quaint and modest headquarters is steps from the town hall and chamber of commerce, in a historic area associated with the notorious witch trials, where tourists flock to see relics of Colonial America. Through its own brand of sorcery, Salem Five is beginning to spin gold out of a meager $20,000 investment in the Internet and other technologies. Customers have paid bills during business trips as far away as New Zealand. They extract cash from ATMs around the globe using a "Salem Five World Access" bank card. And they apply for mortgages from around the country using information gleaned from the bank's Web site. "We're amateur futurists," Mr. Mitchelson said. "In 1988, there were 25 banks in our peer group, and 15 have been consolidated into other banks. We could see the consolidation trend coming, and we needed more points of access." Now Salem Five competes directly with BayBanks for the business of students and others moving to Massachusetts, Mr. Mitchelson said. In April, a month after launching its PC banking program, BayBanks said it had attracted 65,000 customers. Salem Five officials decline to say how many they have signed for home banking, but they said they are capturing a respectable share of the market. "I think our customers are voting for the smaller bank," Mr. Mitchelson said. "I think there's a tremendous interest in having that preserved." Emphasizing its status as a community bank, Salem Five's technology effort has had a decidedly homespun flavor. Bank executives tell of a customer in a distant suburb who happened on the bank's Web site, opened an account, and adopted the bank as a pet project, repeatedly faxing in mockups of suggested advertising campaigns. "We're using them," Mr. Mitchelson said. "They're good." The Web site itself, which was among the first 30 American bank sites on the Internet, was hatched by Michael R. Fitzgerald, a senior vice president at Salem Five, when he grew bored during a one-sided Super Bowl game. "San Francisco was blowing San Diego away by halftime," he said. "So I sat down at the kitchen table with my kids' crayons and sheets of white paper, and mapped out what it would look like." The next step was to rent bandwidth. Not too many firms offered Internet support in early 1995, but Mr. Fitzgerald found a company in Waltham, Mass., called Utopia Inc. "It was two guys working out of their cellar," Mr. Fitzgerald said. Today, the site has won numerous "Best of" awards. On Sunday afternoons after newspaper real-estate sections are distributed, Salem Five's Web site is swamped with potential homebuyers calculating mortgage payments on-line. "We've made our name on it," Mr. Fitzgerald said. "We've taken 145 years of community banking experience and translated it to a new medium." The site gets about 7,500 visitors - adding up to 25,000 to 30,000 "hits" -a week. Mr. Fitzgerald still reads all the site's E-mail every morning when he gets into the office, but the volume has grown so large that he will soon be passing the torch to a subordinate. "A lot of traffic comes to our site because we were on first," Mr. Fitzgerald said. "Plus, we update our site every week and try to put on something really valuable every month." But there was a disadvantage to being first: the lack of role models. "When we went out there, we really didn't have anybody to copy," Mr. Fitzgerald said. Utopia, which Salem Five still uses to service its site, has grown along with the bank. David Solomont, who became chief executive officer of Utopia last July and then turned the company into a regional consultancy, said Salem Five was among its most prescient and sophisticated clients. "Salem Five should be a Harvard Business School case study," Mr. Solomont said. "They are probably the most dramatic example of how the Internet can change the nature of a business." David E. Weisman, an analyst at Forrester Research in Cambridge, Mass., also credited the bank with creating a "niche that no one's really tried before." "It's interesting to see Salem Five trying to compete on the technology front with a really strong retail bank like BayBank," he said. "Salem Five has the advantage of having that community flavor, and it could bring them a new kind of customer who likes that homey feeling but also likes technology." More than a year since Salem Five put up the first version of its Internet site, there remain precious few community banks with a Web presence. Many chief executives are skittish about the medium. (See articles on following pages.) Mr. Weisman said Mr. Mitchelson's dedication to the project set Salem Five apart. "Without him, there was no way the commitment and funding would be there," the analyst said. Mr. Mitchelson portrayed Salem Five's strategic planning as a group effort in which top officers brainstorm on a yearly basis. "Our planning process is not just dealing with next year's issues," he said. "It helps that we are a mutual, and not a stock-driven bank, so we're not forced to look at quarterly earnings." A former accountant at Peat Marwick who holds a degree in physics, Mr. Mitchelson was brought in as Salem Five's president in 1981, when the bank was in the red. After restoring profitability, Mr. Mitchelson said, he turned his attention to the big picture. In 1985, he established an affiliated mortgage corporation. Banking by telephone followed shortly thereafter. "We went from a $300 million bank with no mortgage corporation in 1981 to a $750 million bank with a mortgage corporation that is one of the five largest in Massachusetts today," he said. In the early 1980s, the bank was faced with "an asset issue," he said. Toward the late 1980s, that concern was replaced by what Mr. Mitchelson termed "an access issue." Situated on a small promontory about 30 miles south of the New Hampshire border, Salem Five found itself hemmed in by competing banks and reluctant to expand its small network of branches. Mr. Mitchelson said he saw salvation in the Internet. "I thought the Internet was part of a delivery-systems revolution, and we could take advantage of that," he said. "We had the empirical information, the sense of imagination, and the focus." Salem Five's customer base is, perhaps, slightly more computer-oriented than average.

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