PenFed Expects Loan Demand to Fall in Second Half of 2022

PenFed Credit Union came into 2022 expecting slower growth in loan originations, and it was right for the second quarter.

Its combined mortgage and consumer loan originations were $7.5 billion in the second quarter, up 1.4% from a year earlier and down 30% from the first quarter. Those numbers more than doubled from the second quarter of 2020 to the second quarter of 2021.

Now, President/CEO James Schenck said he expects production will fall in the second half as the Federal Reserve continues to raise interest rates.

“Our business priorities for the second half of 2022 are to continue building capital, deposits and liquidity while maintaining credit quality and delivering world-class service to members,” Schenck said. “Our teammates are fully engaged and working collaboratively across divisions to execute our strategic plan.”

PenFed is based in Tysons, Va., just outside of Washington, D.C., but its 2.8 million members are scattered across the nation. It was the nation’s third-largest credit union based on its March 31 assets of $35.4 billion, and is likely to retain that rank with the $36.6 billion in assets it had June 30.

It has been on a fast growth track for the past couple years, setting all-time records for originations. Mortgage originations doubled last year. Its strategy has been to sell many of its loans, while building its production muscle.

The results from a July 14 PenFed news release showed production hit a wall in the second quarter.

“Even with the slowing market demand, PenFed’s mortgage division still managed to originate $3.4 billion in the second quarter,” it said. Residential mortgage originations (both first and second liens) in the second quarter fell 20% from a year earlier, and fell 47% from the previous quarter, using NCUA data for comparisons. For the first half — boosted by a strong first quarter — residential originations were $9.8 billion, up 35% from 2021’s first half.

Consumer loan production, which includes auto loans, credit cards, personal loans and refinanced student loans, was $4.1 billion in the second quarter, up 31% from a year earlier and down 4.7% from the previous quarter. Total consumer lending originations were $8.4 billion in the first half of the year, up 78% from 2021’s first half.

Income held up. PenFed generated $93 million in net income in the second quarter, or an annualized 1.03% of its average assets. That was down from 1.10% from a year earlier, but up from 0.90% in the first quarter. Like many credit unions, first-quarter earnings for PenFed fell both because of lower loan sales and large drops in the value of investments that caused unrealized losses.

PenFed’s total loan balance was about $30.3 billion on June 30, up 45% from a year earlier and up 28% from the first quarter.

PenFed’s member shares were $26.2 billion on June 30, up 28% from a year earlier, and up 14% from the first quarter.

PenFed had 2.8 million members on June 30, up 20% from a year earlier, and up 3.1% from the previous quarter. PenFed said the gain included more than 130,000 net new members in the second quarter alone.

“Helping our 2.8 million members do better financially is how we measure success,” Schenck said. “Adding an average of 47,800 new members per month during the first six months of this year is the result of PenFed’s value proposition of great rates for everyone and the dedication to member service of over 4,000 financial professionals who power PenFed forward.”

“In a world where members have 10,000 other choices of where to conduct their financial business, PenFed’s membership growth is truly remarkable,” he said. “I’m extremely proud of the entire PenFed team and their performance in an extremely volatile economic environment.”