The $1.4 billion University of Iowa Community Credit Union hasclosed two of its campus branches and turned them over to acompeting Iowa City bank, it was disclosed this week.

On the drawing boards since last fall, the move follows abidding procedure completed last year in which the universityadministration formally ended a five-year pact with UICCU andsubsequently solicited bids from banks and CUs.

The $2 billion Hills Bank of Iowa City emerged as the successfulbidder for the two branches as well as ATMs and student ID cardspreviously managed by the Iowa City CU.

“The fact is that while it is disappointing we will not havethose facilities any longer, they were really not profitable andhad become heavy transaction users not fitting into our overallbusiness model,” said James Kelly, senior vice president ofmarketing at Iowa's second-largest CU.

Approximately 10,000 UICCU members are impacted by the closing and were informedlast November of the projected switch to Hills Bank. Two megabanks,Wells Fargo and U.S. Bank, also reportedly submitted offers to theuniversity.

The original five-year contract gave the university the optionof two, two-year extensions “but when they decided to put it out tobid, we reevaluated the profitability of the relationship andprojected that we would be losing money,” said Kelly. He said thatwould seem unfair to the full 91,000 members the credit unionserves so the credit union bid for the ATMs only.

“I think there was an understandable desire by the universityadministration that one financial institution handle branches, ATMsand the ID cards all in one,” said Kelly. “So we ended up losingthe ATMs as well.”

The CU/bank rivalry in Iowa City, with the Iowa BankersAssociation playing a backstage role with the university in seekingto curb UICCU's expansion plans, has for years been a topic fordiscussion in the state.

The closure followed a rare and well publicized defeat by UICCUmembers in 2007 for UICCU to rebrand as Optiva Credit Union. At the time, speculation was rifethat the banking lobby through its alumni or wealthy donors servingon the University of Iowa board had pressured the universityadministration to force UICCU to sever or loosen its ties to theuniversity. Members rebelled and the Optiva brand was dropped.

Kelly acknowledged the rebranding idea was brought up by UIofficials again a couple of years ago but was not advanced. He saidthe university will have to take that up now instead of the creditunion's leadership.

Kelly and other UICCU officials have declined to discuss whetherbanking pressure this time figured in the new Hills two-yearcontract.

He said UICCU expects to continue operating profitably andsuccessfully from four other Iowa City branches. It has five otherselsewhere in the state.

Kelly also acknowledged that the university's Hills Bankcontract move does reflect a desire by public institutions toincrease revenue. That could have implications for other CUs linkedclosely to colleges elsewhere, he said.

Credit unions, he said, will need the deep financial pockets tocompete in that arena as colleges look for new sources ofrevenue.

“Community-chartered credit unions need to ask themselves if itis worth it,” he concluded.