PenFed’s Q4 Loss Widens to $98 Million

Pentagon Federal Credit Union’s fourth-quarter loss widened by $32.8 million after it filed a revised call report April 12 with the NCUA, but the nation’s third-largest credit union said Tuesday it made a small net gain in the first quarter.

The revised fourth-quarter report showed PenFed lost $98.1 million in the three months ending Dec. 31, or an annualized -1.12% of its average assets. The increased loss came from a $26.9 million increase in loan-loss provision expenses, a $4.3 million drop in net interest income and a $1.5 million drop in non-interest income.

Even with the fourth-quarter loss, PenFed earned $16.7 million for the full 12 months of 2023, or 0.05% ROA.

PenFed told CU Times Wednesday the deepening of the fourth-quarter loss was “driven by increasing our estimated loan loss reserves on our commercial portfolio by $90.5 million.”

When the NCUA first posted its report in late January, PenFed showed a loss of $65.3 million, or -0.74% ROA.

At the time, PenFed ($34.8 billion in assets, 2.9 million members as of Dec. 31) had the second-largest fourth-quarter loss shown by NCUA reports.

CU Times previously reported that the largest loss was at GreenState Credit Union of North Liberty, Iowa ($11.3 billion, 451,291 members).

CU Times reported on Feb. 8 that GreenState lost $71.3 million, or an annualized -2.53% of its average assets. But then GreenState’s loss also widened with a revised report this month.

The revised Call Report GreenState filed with the NCUA on April 9 now shows a fourth-quarter loss of $91.5 million, or -3.25% ROA. The additional $20.2 million in losses was entirely from a correction that increased loan loss provisions to $104.8 million.

PenFed informed CU Times about its revised report on Tuesday in response to questions based on its news release about first-quarter results, which it said showed $23.1 million in net income, or an ROA of about 0.26%. The first-quarter gain was obviously an improvement from the fourth quarter loss, but lower than the 0.37% of 2023’s first quarter or any other quarter from 2022’s first quarter through the third quarter of 2023.

The losses by PenFed and GreenState were not isolated. NCUA data released March 12 showed one in four credit unions had a loss for the three months ending Dec. 31.

NCUA data then showed 1,188 of the nation’s 4,702 federally insured credit unions lost $658.0 million in the fourth quarter, or an annualized -0.80% of their average assets. That’s far higher than either a year earlier when 983 credit unions lost $163.7 million (-0.50% ROA), or the third quarter when 761 credit unions lost $149.5 million (-0.42% ROA).

The causes should be familiar to credit unions: Falling loan originations, higher provisions for loan losses, higher net charge-offs and lower revenue.

President/CEO James Schenck told CU Times on Tuesday that PenFed had improved its loan-to-share ratio. It was 95% on March 31, down from 98.1% on Dec. 31 and a recent high of 116.8% in June 2022.

Part of the cost was a drop in loans “as we continue our strategy of disciplined lending and channel optimization in this extended inverted yield curve environment,” Schenck said. “PenFed is staying laser focused on building liquidity and capital while maintaining market leading rates for our savers and borrowers.”

In its news release Tuesday, Schenck said PenFed had turned a corner in the first quarter, increasing its liquidity and capital.

“We are ahead of our 2024 business plan and continue to execute on our key priorities of building liquidity and capital,” Schenck said.

Schenck noted a sharp increase in interest expenses, saying the credit union paid members $209 in member dividends in the first quarter, up from $139.5 million a year earlier.

“PenFed is proud to deliver on our promise to members by paying top dollar on certificates,” he said. “Being a credit union with the mission of people helping people, we continue to take perfect care of our membership by providing market leading rates to our savers and our borrowers.”

PenFed pointed out these changes in the first-quarter results:

• PenFed’s total cash and investments increased to 12.6% of total assets as of March 31, up from 10.2% a year earlier and 11.2% on Dec. 31.
• PenFed’s regulatory net worth capital ratio increased from 9.10% on Dec. 31 to 9.26% on March 31, an increase of 16 basis points. The Call Report filed in January had shown 9.18% for Dec. 31.
• PenFed reduced total operating expenses by $29 million, or 14%, from a year earlier. The drop in itself was enough to put PenFed in the black.
• PenFed’s external borrowings declined $1.6 billion over the 12 months ending March 31 “as external borrowings were replaced with member share deposits, driven by offering great rates to our members.” Member share deposits rose by $750 million, or 3%, from a year earlier.
• PenFed closed the first quarter with more than $786 million of capital in excess of required regulatory net worth.
• PenFed donated over $423,000 to 10 charitable organizations during the first quarter, and it said it “will continue to support the communities where its employees live and work throughout the year.”