DES MOINES, Iowa – In a surprising change of direction, a bid by the University of Iowa Community Credit Union to purchase the assets of Hawkeye State Bank was rejected by the credit union division for the Iowa Department of Commerce on Feb.11. Division Superintendent James Forney said the denial was made because UICCU had not filed a formal application and the ramification of a $290 million credit union acquiring a $160 million bank's assets would cause "great regulatory concern." "Credit unions have certain levels of net worth they maintain, but our concern was if you bring over $160 million to a credit union that is well capitalized (like UICCU) and apply that against net worth without bringing over the capital to supplement that net worth, it could be problematic," Forney said. In what would have been an industry first, the credit union entered into an agreement last fall to buy Hawkeye, the fourth largest bank in Johnson County here with $96.7 million in deposits. UICCU is the fourth largest in the state with more than 38,000 members and nearly $300 million in assets. UICCU President Jeff Disterhoft expressed disappointment over the dead deal. "As we interpret the regulator's message, they were ultimately concerned the sale would place too great a burden upon the credit union's capital position," Disterhoft said. "Initial research led us to believe that we had processes in place to address that concern, and unfortunately the regulatory environment ultimately disagreed with this assessment." Disterhoft also pointed out that "the denial was not an indication of the financial integrity of either organization nor was it an indication of the business model proposed to bring the two together." "Our goal for the purchase was to improve service to the residents of the community, keep ownership of the assets local to the area, and assure the future of their employees," he said. In a news release, Hawkeye President Russ Gerdin said "it is our understanding that tremendous pressures (were) exerted upon Mr. Forney to not permit this transaction. Certain large chartered credit unions may have threatened to convert from a state charter to a federal charter if this transaction were approved." Forney flatly dismissed speculation that his office was influenced by any potential state-to-federal credit union conversions. "It doesn't even merit a response, it's such a disappointment that anyone would think that had anything to do with our decision," Forney said, adding he has not received any calls from credit unions threatening to convert. "Our decision was based on the law and regulations." The Iowa Credit Union League squarely blamed "banking associations" who "would like to believe it is their business" to determine how credit unions are regulated. "This is a regulatory issue and not a trade association issue," said Patrick Jury, league president. "Iowa law grants the superintendent of credit unions the ability to determine whether or not this request is approved, and his decision has been made clear." While the league is disappointed, Jury said "at this point we can only hope the successful purchaser of the bank is locally owned and independently controlled to ensure the needs of the community are met." Meanwhile, the Iowa Bankers Association found it "most interesting" that the superintendent made the decision without receiving UICCU's application. "It makes me wonder whether they reviewed the specifics or whether the decision was politically motivated by the threat of credit unions converting to federal charters if the transaction went through," said John Sorensen, IBA's president. "It doesn't change our position on having an equitable playing field between banks and bank-like credit unions." The IBA recently drafted a bill that would assess the state's five-percent financial institution tax on those community-chartered credit unions with more than $100 million in assets. Sorensen said the bill's chief sponsor is in the process of obtaining co-sponsors for the bill. -

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