It took more than 50 years for Pentagon Federal Credit Union toreach $1 billion in assets. But every year since 2001, theAlexandria, Va.-based credit union has been generating an averageof approximately $1 billion in assets per year.

And it's set to reach $20 billion in assets by May 1, making itthe third credit union in the nation to reach that milestone. TheVienna, Va.-based Navy Federal Credit Union is No. 1, with $73.2billion in assets, and SECU of Raleigh, N.C., is second with $31.8billion in assets.

In a recent interview with CU Times, the 49-year-oldPenFed President/CEO James R. Schenck (pictured) said the keyto the credit union's explosive growth has been and continues to beits lower-than-peer operating cost structure, which has enabled itto compete on product pricing for its 1.3 million members.

Lower operating costs have also allowed PenFed to build areputation as a destination employer to attract and retain talentand become a leader in giving back to the communities it servesthrough the PenFed Foundation and many other charitable initiatives.

In addition to lower operational costs, however, PenFed'sinvestments in acquiring residentialand commercial firms throughout the country in 2012, 2013 and2014, as well as credit union consolidations have made substantialcontributions to the credit union's revenue generation.

“At PenFed, we run at about 130basis points of operating expense,” Schenck said. “The top 10[credit unions] average is about 235 basis points.”

According to NCUA financial performance reports, PenFed'soperating expense to average assets is 1.43%, which is well belowthe peer average of 3.23%. Its operating expense to gross income is36.03% compared to the peer average of 67.45%.

“We like to keep our operating expenses lower than all of ourpeers so we can compete in any rate environment, a low rateenvironment, falling rate environment, or a rising rateenvironment,” he explained. “If you can control your operatingexpense above your peers, it doesn't matter where the external ratemarket is, you have the competitive advantage. It's that simple aformula. If you have the competitive advantage in operatingexpenses you can redeploy that advantage into price no matter whatthe rate cycle is.”

In addition, adding assets and members at a much faster pacethan employees and brick and mortar locations has enabled PenFed tokeep its operating cost lower than its competitors.

We are predominantly doing business through mobile, our websiteand phone,” Schenck said. “Americans have become very comfortable withpurchasing products online.”

Though Schenck plans to invest more resources to grow web,mobile and phone channels, he is not abandoning the expansion ofits branch network. He noted, however, that the credit union'ssmall footprint of about 30 branches worldwide gives PenFed yetanother huge operational efficiency compared to itsmultibillion-dollar peers.

Read more insights from PenFed's CEO in the March 30, 2016print edition of Credit Union Times.