Credit Union buying bank

Northwestern Financial Review, Feb 15-Feb 28, 2003 by Bengtson, Tom

The University of Iowa Community Credit Union in Iowa City, Iowa, announced Jan. 23 that it is purchasing the Hawkeye State Bank in Iowa City. The acquisition, which still needs regulatory approval, would mark the first time in Iowa history that a credit union has purchased a bank. The transaction is expected to be complete this spring.

Under the terms of the deal, the bank charter would be retired and the bank customers would become members of the credit union.

"Hawkeye State Bank has a rich history of combining strong products with personal, local service," said bank president Russ Jerdin and credit union president Jeff Disterhoft in a joint statement.

The $160 million bank, which was opened in 1967, has two offices in Iowa City. The $290 million credit union has five offices. Boards of directors for both institutions approved the sale in December and January. The credit union is 65 years old and serves 38,000 people.

"The UICCU and HSB will work to make this transition as easy and seamless as possible for Hawkeye State Bank customers," the presidents of the two financial institutions said in the statement. "At this point, they will be able to access their accounts, use debit and credit cards, write checks and conduct their financial business just as they have in the past. No gap in service will be noticed."

The merger would bring together $12.7 million in commercial and industrial loans at Hawkeye State Bank and $13.6 million in member business loans at the credit union. Disterhoft said he does not expect the addition of the bank's commercial loans to push the credit union's loan portfolio up against regulatory limits on business lending by credit unions.

John Sorensen, president of the Iowa Bankers Association, said that if a credit union can buy a bank, it should pay income taxes the same way a bank does.

Through Sept. 30, 2002, Hawkeye State Bank reported net income of $2.9 million. For the year 2001, the subchapter S bank reported net income of $2.7 million. As part of a credit union, no federal or state income tax would be paid on that income. As a result of the merger, the institution also would no longer need to pay the Iowa franchise tax that applies to banks.

The bank posted $280,000 in net charge-offs during the first nine months of 2002, and the bank's former president Ray Glass, was placed on administrative leave late in the year. Jerdin is serving as interim president.

By Tom Bengtson