The Pentagon Federal Credit Union accelerates its growth | Credit Union Journal

When regulators granted the Pentagon Federal Credit Union a so-called open charter in 2019, banking trade groups cried foul and said the move could lead to runaway growth for the company’s $36.7 billion in assets. of dollars.

And those fears are coming true.

PenFed, the nation’s third-largest credit union by assets, reported a record increase in its membership in the first half of 2022. The McLean, Virginia-based company said it added about 287,000 members — or 11.2% – in the first six months of the year. ; its total membership now stands at 2.8 million.

By comparison, the credit union industry reported a 4.2% annual growth in total membership in the first quarter, the most recent reporting period available from the National Credit Union Administration.

Much of PenFed’s recent growth is due to its Acquisition 2019 Progressive Credit Union, with assets of $383 million. The NCUA allowed PenFed to adopt Progressive’s open charter, allowing anyone nationwide to join. Only a small handful of credit unions in the United States have such designations. Previously, PenFed, founded in 1935 to serve members of the national defense community, had a more limited scope of membership in several groups.

At the time, Rebeca Romero Rainey, president and CEO of Independent Community Bankers of America, said the agreement “removes” membership scope limitations on a large, rapidly growing credit union and “will against the will of Congress.

PenFed Chairman and CEO James Schenck said in an interview that geographic diversity is one of PenFed’s strengths. It said many of its members now live in major population centers, including the Washington, DC area, Texas, Florida and California.

“PenFed membership growth is a direct result of digitizing our member experience, from onboarding to applications to fulfillment,” he said. “Over the past few years, we have invested millions of dollars in our digital platforms to make thousands of enhancements to better serve our members.”

James Schenck, President and CEO of Pentagon Federal

“Due to rising rates, we plan to strategically slow loan originations and membership growth and focus on building capital, deposits and liquidity through 2023,” said CEO James Schenck. about the Pentagon Federal Credit Union’s expectations for the coming months.

The company has also invested heavily in its workforce and marketing.

PenFed spent $65.3 million on marketing in 2021 according to call report data. The company spent $39.4 million in 2020. By comparison, Navy Federal, the nation’s largest credit union, spent $160 billion in marketing and promotional assets of $160 billion in the year. last.

The crucial ingredients of PenFed’s “winning formula” are strong member benefits, including generous deposit rates; a commitment to aggressive spending on marketing; and fully utilizing the benefits of an open charter, says Jim Adkins, managing partner of Artisan Advisors.

“Interestingly, PenFed’s marketing spend has increased during the pandemic while other credit unions have gone the other way, reducing marketing spend,” Adkins said.

PenFed experienced lackluster growth from 2000 to 2019, in part because of weak spending for a credit union of its size, said Luis Dopico, chief economist for consultancy CU Collaborate. It has increased its marketing budget in 2020-21 to twice the level of its peers, he said.

“Marketing spend by asset is among the strongest and most proven growth drivers for credit unions,” Dopico said. “It’s no surprise that the explosion in PenFed membership growth coincides with or follows an explosion in marketing spending.”

The huge growth in PenFed memberships also coincided with a hiring spurt. Credit union growth often corresponds with campaigns to improve member service, and employees per member are a key component of member service, Dopico said.

PenFed had 3,585 full-time employees at the end of last year, an increase of 31% over the previous year. A PenFed spokesperson said the company was hiring across all divisions.

Schenck said PenFed is proud to have served growing numbers of members during the pandemic, when demand for loans was very high. He said that as Federal Reserve rate hikes raise the price of borrowing, demand for loans will decline and growth is expected to slow in coming quarters.

PenFed’s strategic plan is to have balanced loan and deposit growth of 10% year over year with a return on assets of 1% through 2024.

“We have already achieved these goals in the first half of 2022. Due to rising rates, we plan to strategically slow loan originations and membership growth and focus on building capital, deposits and liquidity until 2023,” Schenck said.

He said PenFed will continue to support membership growth by offering industry-leading rates on high-yield certificates of deposit and savings, attractive credit cards, and auto and personal loans.

“Scale matters,” Schenck said. “PenFed can spread marketing and technology investments over a wider base of members and potential members. This allows us to continue to grow the PenFed brand and loyalty year after year.”