For Pentagon Federal, It's All About Loan Pricing

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ALEXANDRIA, Va.-It all comes down to one word for James Schenck: price.

Or rather, PRICE.

Schenck, EVP of real estate, title and business development for $14.9-billion Pentagon Federal Credit Union, was asked what strategies PenFed used to drive lending after the credit union was named one of the Top 10 growth lenders for 2010 by The reply was succinct.

"We have one corporate strategy: price," Schenk responded. "Actually, you can put that in all caps: PRICE. PenFed competes against the banks and against all financial institutions on price. We strive to give as much back to our members as possible."

Much of PenFed's loan growth was in two major products: its 5/5 adjustable rate mortgage and its credit card portfolio. Schenck said the CU originated more than $2.6-billion in first mortgages in 2010, which he credited to the "unique" features the 5/5 ARM carries.

"We think it is superior to other ARM products, because unlike other ARMs that reprice after five years and reprice every year, ours reprices after five years and is set for the next five years. The most it can go up is 2%. We have one price on our jumbo and super-jumbo products."

On the credit card side, in 2010 Pentagon gave back $28.2 million in cash rewards to its membership. It offers a credit card with 5% cash back on gasoline purchases with no tiers and no limits which grew double digits in 2010. Its top three credit card products combined did $2.7 billion in new volume, but the biggest growth was in the cash back Visa card.

Debbie Ames Naylor, EVP of credit cards and collections, told Credit Union Journal PenFed introduced a "Promise Card" in 2010 that has received a lot of media attention. She described it as a "no fees, no frills, low-rate card. The interest rate for the first three years is 7.49%, and there are no late fees, no over-limit fees and no foreign transaction fees.

"We expect it to take off in 2011," she said.

According to Schenck, in 2010 PenFed booked $1.1 billion in new and used auto loans. He said the CU does not risk-based lend, so all members got 2.99% last year.

On April 1, PenFed reduced the rate on new and used cars to 2.49% for 60 months terms.

PenFed reported 2010 net income of $100 million, excluding NCUA assessments. It paid $13.8 million to the NCUSIF and $14.8 million to the corporate stabilization fund, leaving it with $71.3 million in net income. Its net worth ratio was 8.66%, making it "Well Capitalized."

Schenck said less than 1% of its 2010 lending growth was through merger with the acquisition of Honolulu-based Tripler FCU, an $11 million credit union.


Cars, Cards & Castles

"We don't try to all things to all people," Schenck declared. "We like to say we do cars, cards and castles better than everybody else on price. We dominate on price. It is a team effort from our chairman to our newest tellers."

Added Naylor: "We have a model for our members: if they can find a better deal, take it."

PenFed's 2011 is off to a good start. Schenck said it once again is on pace for double-digit growth on its loan products.

"It doesn't matter what you did last year, you still have to grow. 2011 is on budget, our growth goals are being met," he said. "We are working hard, and we believe if we give a great deal the people will come in any economy. We were able to sustain growth even during a down economy. Our number of cash back cards grew 25% in 2010, which gives us a lot of growth opportunity in 2011 as people use those cards."

Naylor said a planned promotion for 2010 is a balance transfer rate of 4.99% for life with no fees.

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