More bank customers think smaller institutions these days

— -- A tiny bank in Happy, Texas, is a century old but hasn't before seen the kind of deposit growth that it's seen in the last three months.

By any measure, it's been an extraordinary year for anyone in the U.S. banking industry. But Happy State Bank, with headquarters in a town with an irresistible name, has been the face of steadfast calm during a period of intense global financial turmoil, drawing $30 million in deposits since September into its 20 branches in the Texas Panhandle, double the rate of deposit growth in a similar period in recent years.

"It's our 100th-year anniversary, and it's a nice way to celebrate," says Pat Hickman, CEO of Happy State Bank, which has $960 million in assets and was established in 1908 in Happy, a town with just over 650 residents in northwest Texas.

This year's financial chaos hit its peak in September when investment bank Lehman Bros. collapsed, the government seized insurance giant American International Group, Washington Mutual became the largest bank failure in U.S. history, and an ailing Wachovia was acquired by Wells Fargo.

But as the top tier of the financial services industry faltered, small and regional banks, as well as credit unions, started seeing their cash deposits rise dramatically as nervous Americans shied away from big banks. Some of these smaller financial firms saw an increase in small businesses knocking on their doors. And despite rampant headlines about a credit freeze and plunging housing market, they have even been writing more home loans this year than last year.

In her 18 years as a banker, Sebrina Verburgt hasn't seen anything like this: new customers with cash in hand, streaming in through the doors of the 11 branches of the United Heritage Credit Union, where Verburgt is senior vice president of operations. Many of them had the same story to tell: They were moving cash from larger banks, afraid that they would fail.

Just ask Clay Strange, a lawyer in Lakeway, Texas, who decided to move $20,000 into United Heritage from his Charles Schwab money market account, after reading that some of the money market funds were unstable because they had invested in bad debt securities of firms such as Lehman Bros.

"I wanted to move my money into something that was clearly insured," says Strange.

In September, United Heritage, in Austin, saw a 52% increase in new checking accounts from a year earlier. That came after 35% growth in July and 43% in August.

"This is unprecedented," says Verburgt, who is seeing the most growth in one of her checking account products that offers an annual yield of 5.01%, far more attractive than the nationwide average of 0.22% on bank checking accounts, according to Bankrate.com.