Headquarters: San Benito, Texas
Asset size: $205 million
Project: New software for a flexible checking account.
Why it's cool: The software lets the bank steer customers toward electronic statements and transactions while generating fee income.

A La Carte Checking

For a community bank that has already lost fee income from fewer overdraft charges, offering free checking is a significant challenge.

First Community Bank has started offering a flexible checking program that lets customers have a free checking account if they adjust their banking habits to meet certain criteria. Joaquin Lopez, senior vice president and chief operating officer at the family-owned bank, worked with Harland Financial Solutions to develop software for the program, called Phoenix EFE Flexible Checking.

The software helps the bank increase fee income without alienating valued customers. A customer receives free checking for every month that he or she maintains a $750 minimum balance or utilizes some of its most common services, such as electronic statements, debit cards, ACH credit or debit, or online bill payments. Otherwise the customer pays an $8 charge a month.

The bank has about 7,000 personal checking customers and 1,200 to 1,300 commercial banking customers.

The program was implemented in May 2011, and so far the bank is making up $7,000 to $7,500 a month of the $30,000 a month in lost revenue from overdraft and insufficient fund charges, Lopez says. "To a small community bank, that is a big deal," he says.

First Community also benefits from changing the behavior of bank customers toward less expensive channels.

For example, it's able to steering customers toward electronic statements rather than mailed bank statements, and electronic transactions instead of paper checks, he says. And the bank now has the technology to track customer behavior to tweak the program based on performance.

"That makes it very simple for the consumer to access a great free checking account," Lopez says.