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Weekly Recap — Digital adoption critical but qualified workers hard to find

The weekly recap features news on regulatory actions, mergers and other issues facing the credit union space. Send tips, ideas and chatter to ken.mccarthy@spglobal.com.

In the spotlight

CO-OP Financial Services revealed the results of a proprietary research study that showed credit union leaders believe digital transformation is critical. The study was based on research by David Rogers, who queried 221 credit union executives on five strategic areas — consumers, competition, data, innovation and value. Among the findings, 73% of respondents said their credit union is planning to increase the budget for digital initiatives in the next year, and 88% said digital transformation was extremely or quite important.

Atlanta-based Pinnacle CU President and CEO Matthew Selke said in an interview that 2018 will be the year of digital development at Pinnacle, and members next year will basically be able to do everything online and never need to step foot in a branch if they don't want to. He said Pinnacle already has the software and now needs to invest the time and human capital to use it and market it.

Respondents to the survey identified Amazon, Google, Facebook and Apple as setting the gold standard for a great digital experience. Relative to those brands, nearly half of the survey respondents felt the experience provided by their credit union was inferior or far inferior, while 44% rated their experience as good, but not quite as good. Selke said he understands why such a perception exists but added that he is aware of a couple of credit unions that have a "fantastic" digital presence, including Atlanta-based Delta Community CU. "Ours is terrible currently, but I expect to see improvement in the future," Selke said. "Our goal in two years is to get to pretty decent. We have the technology to get to great but not the human infrastructure."

Selke said among the primary barriers to credit union digital transformation is a lack of technology capabilities among staff members. "It's a real issue," he said "The divide between the capabilities of the general workforce and the people that credit unions are looking to hire is huge." Selke said Pinnacle currently has three openings but is struggling to find qualified candidates.

In other news

* Credit unions are increasingly looking to buy community banks, and more small banks, under pressure from heavy regulations and stiff competition, are viewing credit unions as another viable route as they consider selling. To date in 2017, four banks have agreed to sell to credit unions. That matches the number of such deals announced in all of 2016 and is up from three in all of 2015.

* And the most recent credit union-buying-bank deal involves the largest seller to date. Grand Rapids, Mich.-based Lake Michigan CU is buying Naples, Fla.-based Encore Bank. As of June 30, Encore Bank had $396.8 million in assets. The merger is expected to close in the first quarter of 2018. After deal completion, Encore Bank CEO Tom Ray will become regional president of Lake Michigan Credit Union of Florida.

* Pittsburgh-based Hill District FCU Treasurer and CEO Richard Witherspoon said he was "flabbergast" when he learned recently that the 3,000-member credit union's accounts with PNC Bank NA were suddenly closed. Witherspoon said the credit union started banking with PNC in 1971. The Pittsburgh-based banking giant had been providing depository and check-clearing services for Hill District FCU and declined to disclose the reason for exiting the relationship to S&P Global Market Intelligence.

* U.S. credit unions are delighted to receive refunds on the assessments they paid into the corporate credit union stabilization fund, but they are not thrilled about the amount of the planned distributions. At its July meeting, the National Credit Union Administration board said the fund has fulfilled its purpose, and the regulator is considering closing it, possibly in October. Pennsylvania Credit Union Association President and CEO Patrick Conway said the state's credit unions have been "very positive overall" about the news of the 2018 distributions but less so on the amount they would receive. He said the refunds should be a larger percentage of the assessments but declined to speculate what an appropriate number would be. "Our hope was that it would be higher," he said.

* And not surprisingly, credit unions want to know exactly when and how much they can expect to receive in refunds if the stabilization fund is closed later this year. More than 800 participants signed up for an Aug. 9 webinar to discuss the plans, and NCUA staff members answered a slew of questions ranging from the timing of potential payouts to whether more assessments might be made if the fund is not closed.