Annual Report 2011
Stable. Integral. Dedicated.
A strong foundation as we build for future growth in U.S. exports.
Building for Future Growth
through Stability, Integrity, Dedication & Financial Strength
Private Export Funding Corporation
Annual Report 2011
Chairman’s Letter 2
Business Year in Review 4
Summary of PEFCO’s Business 8
PEFCO’s Relationship with Ex-Im Bank 17
Management’s Discussion & Analysis 21
Report of Independent Auditors 25
Consolidated Financial Statements 26
Management’s Report 45
Five Year Financial Data & Independent Audit Fees 47
Board of Directors & Officers 48
Advisory Board & Exporters’ Council 51
Small Business Lender Council 51
PEFCO Shareowners 52
Additional Information 53
PEFCO Annual Report 2011
Table of Contents:
CHAIRMAN’s LETTER
$3.0
billion
“Continuing its strong growth in business in recent years,
PEFCO saw its loan commitments in 2011 reach a record
$3.0 billion compared to $1.6 billion in 2010.”
To: PEFCO Shareowners,
I am pleased to report an improvement in PEFCO’s
earnings and a significant record number of loan
commitments in this past year, our 41st year of
operations. Our results were achieved against a
backdrop of continued high financial market volatility
and global economic uncertainty. The value of PEFCO’s
model has stood the test of time as it continues to
provide the supplemental liquidity that is needed to
ensure the financing of U.S. goods and services in
the export markets and, thereby, to help to create and
sustain U.S. jobs.
Net income for our most recent 2011 fiscal year grew
to $3.4 million, compared to $1.4 million in 2010. Our
return on equity increased to 3.16% compared to 1.45%
and our earnings per share was $226 compared to
$94 in 2010. Continuing its strong growth in business
in recent years, PEFCO saw its loan commitments in
2011 reach a record $3.0 billion compared to $1.6 billion
in 2010. To put this in historical perspective, our loan
commitment volume averaged close to $792 million
2
per year for the 20 years prior to 2008. Despite the
turmoil in the financial markets in 2008 and 2009, our
loan commitments increased to almost $2 billion in each
of those years. In addition to the significant increase in
the volume of Ex-Im Bank loan commitments, this year’s
increase was also helped by global regulatory changes,
as financial institutions adjusted for liquidity and balance
sheet growth. We believe our increased demand for
loan commitments will continue for the foreseeable
future. As a result, we are continuing to focus on
increasing our capital base to support this demand. We
are actively pursuing both current shareowners and
other financial institutions and exporters that actively
use our balance sheet. While our capital base is at its
highest level ever, we feel it still needs to be higher to
support the level of growth that we anticipate. Mindful
of our goal of capital preservation, our Board has
accepted management’s recommendation to forego a
dividend payment for fiscal year 2011 and we intend to
retain earnings, as in the past, to bolster our capital and
support our growing activities.
Direct and Secondary Long-Term Programs totaled
close to $2.6 billion from twenty one transactions
through twelve sponsoring banks. Financing of
small business exports represented 12% of our total
loan commitments in 2011 for a total of $368 million
comprised of 163 loans. Our small business export
activity consists of both short-term and medium-term
loans. While medium-term loan growth has remained
about unchanged year-over-year, the short-term program
has shown significant growth these past few years.
I want especially to note that our results this year could
not have been achieved without the dedication and loyal
support of our staff and the valuable assistance of all
of the members of our Board. We also acknowledge,
with appreciation, the constructive cooperation of
Ex-Im Bank’s Chairman, Fred Hochberg, and all of his
colleagues at the Export-Import Bank. We wish to also
acknowledge the valuable input from the members
of our Advisory Board, our Exporters’ Council and our
Small Business Lender Council.
During the past year, there were changes to the Board
of Directors. Joseph C. Guyaux, President of PNC
Financial Services Group and a director since 2003, and
S. Todd Maclin, Executive Vice President, JPMorgan
Chase and a director since 2007, retired from our
Board. During Joe’s tenure on the Board, he served on
numerous committees, including the Audit Committee
and the Compensation and Management Development
Committee. Todd also served on the Audit Committee
as well as, the Nominating and Governance Committee.
We at PEFCO thank both Joe and Todd for their years of
selfless service to PEFCO and for their contributions to
the Board.
We look forward to providing even more service and
support in the promotion of U.S. exports and thank you,
our shareowners, for your continued support.
Don B. Taggart
Chairman, President and CEO
We note with great sadness the passing on December
22, 2010, of our friend and distinguished Board member,
George J. Vojta, after a short illness. George served
on our Board for 20 years and provided the Board and
PEFCO management with valuable insight and wisdom.
He will be greatly missed by us all.
PEFCO Annual Report 2011
Sincerely yours,
We are pleased to report that we have two new Board
members: Philip F. Bleser, CEO of Global Corporate
Bank in North America for JPMorgan; and Robert D.
Matthews, Jr, Vice Chairman of Royal Bank of Scotland
Citizens Financial Group. Both of them bring a wealth
of experience to our Board.
“I want especially to note that our
results this year could not have been
achieved without the dedication
and loyal support of our staff and
the valuable assistance of all of the
members of our Board.”
3
business year in review
Committed to Growing
Opportunities for America’s
Export Businesses
We are focused on the growth of U.S.
Exports. By helping our country compete,
we open more markets and create more
opportunities to grow our economy.
4
5
PEFCO Annual Report 2011
Outstanding Loans by Product were: (in millions)
Equipment
9
Telecommunications
29
Environmental
124
Other
31
28
Energy
550
Infrastructure
Automobiles
Small Business
250
562
Aircraft
4,258
business year in review
Total $5,841
OPIC
EXIM
PEFCO’s programs have enabled the world-wide export of
various U.S. products. Outstanding Export Loans guaranteed
or insured by EX-IM Bank and OPIC as of September 30, 2011.
Outstanding Loans by Country were: (in millions)
Norway
368
Ireland
307
Canada
125
Cayman Islands
116
Croatia
105
Mexico
477 Panama
Brazil
1,012
6
Chile
495
Kuwait
63
Israel
60
Nigeria
117
293
Other
718
Turkey
231
Saudi Arabia
80
Angola
256
Total $5,841
China
175
Korea
158
Japan
108
Taiwan
58
Philippines
53
Indonesia
148
Australia
318
OPIC
EXIM
Private Export Funding Corporation (“PEFCO”) new loan
commitments were a record $2,948 million in 2011,
compared to new loan commitments of $1,643 million
in 2010. New commitments in the Short and Medium
– Term Loan Programs and under our Small Business
Programs were $368 million in 2011.
FUNDING
During 2011, PEFCO issued a total of $1.2 billion of
Secured Notes under a $1.5 billion issuance limit as
approved by Ex-Im Bank and the Board of Directors.
Issuances included three original issue series, and
two re-openings of existing series as detailed in the
following table.
Series
EARNINGS
PEFCO’s net income in 2011 was $3.4 million compared
to net income of $1.4 million in 2010. Net financing
income increased to $8.7 million in 2011 from $6.5
million in 2010. The average balance of financing assets
increased in 2011 by $709 million and the average
balance of financing liabilities increased by $722
million in 2011. The average financing revenue interest
rate decreased by .23%, while the average financing
expense interest rate also decreased .25%.
No. of Loan Commitments
17
Products
AIRCRAFT
CC
Z reopen
BB reopen
DD
EE
DIVIDEND
400
100
100
300
300
JPM/RBS
US Bancorp
BAML
Citi/JPM
BAML/RBS
The Board of Directors voted not to declare a dividend
for the fiscal year ending September 30, 2011. The
Board’s decision was based on the view that PEFCO will
continue to see a large number of loan commitments
and the belief that the retention of earnings is in the
best interest of PEFCO and its shareowners as PEFCO
increases its capital base.
Amounts (in millions)
$ 2,018
ENERGY
462
3
OTHER
100
SMALL BUSINESS
368
185
Lead Underwriter
1,200
2
163
Amount (in millions)
PEFCO Annual Report 2011
LENDING
$ 2,948
Committed to Growing Opportunities
for America’s Export Businesses
7
summary of pefco’s business
Introduction:
PEFCO was incorporated on April 9, 1970 under
Delaware law and is principally engaged in
making U.S. dollar loans to foreign importers
to finance purchases of goods and services
of United States m
­ anufacture or origin.
PEFCO’s shareowners include most of the
major commercial banks involved in financing
U.S. exports, industrial companies involved
in exporting U.S. products and s­ ervices, and
financial ­services companies.
PEFCO was established with the support
of the United States Department of the
Treasury and the Export-Import Bank of
the United States (“Ex-Im Bank”) to assist
in the financing of U.S. exports through
the mobilization of private c­ apital as a
supplement to the financing already available
through Ex-Im Bank, commercial banks
and other lending institutions. Ex-Im Bank
8
has cooperated in the operation of PEFCO
through various agreements described under
“PEFCO’s Relationship with Ex-Im Bank” and
in the “Notes to the Consolidated Financial
Statements.”
Since all loans made by PEFCO are guaranteed
or insured as to the due and punctual payment
of principal and interest by Ex-Im Bank or
other U.S. government institutions, such as
the Overseas Private Investment Corporation
(“OPIC”), whose obligations are backed by the
full faith and credit of th­e United States, PEFCO
relies upon this U.S. government support and
does not make ­evaluations of credit risks,
appraisals of economic ­conditions in foreign
countries, or reviews of other factors in making
its loans.
PEFCO’S LENDING PROGRAMS
Short and Medium-Term Programs
Short-Term Program
PEFCO offers to purchase short-term loans under
its Working Capital Facility and Short-Term Insured
Loan Facility.
PEFCO will purchase loans from lenders who have
demonstrated an understanding of, and ability to work
with, Ex-Im Bank insurance and guarantee programs.
Loan amount, exporter size, borrower’s country, and the
underlying item financed are not factors in our decision
to purchase. All loans are purchased by PEFCO on a
non-recourse basis. While defaulted loans must and will
be assigned to Ex-Im Bank upon its payment of a claim,
performing loans are held by PEFCO in its portfolio to
maturity. By selling to PEFCO, a lender achieves its
financial objectives – improved profitability, removal
from the balance sheet of low-yielding assets, a freeing
up of capacity for borrowers, and reduced loan portfolio
size while maintaining its lending relationship with
the borrower.
Standard Programs
Loans disbursed by a lender may be subsequently sold
to PEFCO under one of our Standard Facilities. The
loans must be insured or guaranteed against nonpayment under a documentary insurance policy or a
guarantee by Ex-Im Bank. PEFCO will only purchase
the amount covered by the Ex-Im Bank insurance
or guarantee.
Working Capital Facility: PEFCO purchases
participations in working capital loans guaranteed
against non-payment under an Ex-Im Bank Working
Capital Guarantee. PEFCO will purchase the 90%
guaranteed portion of each loan. The lender funds and
retains the risk of the 10% non-guaranteed portion.
PEFCO will purchase transaction specific or revolving
loans, and can include participations in standby letters of
credit included under the Ex-Im Bank guarantee.
Short-Term Insured Loan Facility: PEFCO purchases
participations in short-term loans insured against nonpayment under an Ex-Im Bank “documentary”
or small business “enhanced” policy. The lender
can (i) lend directly to the overseas buyer or foreign
bank or (ii) p
­ urchase insured buyer obligations. PEFCO
purchases the Ex-Im Bank insured portion of each loan
(90%, 95%, 98% or 100%). The lender or exporter
retains the risk of the non-insured portion.
Other features of PEFCO’s Short-Term Facilities:
• All purchases are governed by a master loan
participation agreement between the lender
and PEFCO.
PEFCO Annual Report 2011
These programs are a d
­ ependable source of liquidity
for lenders using Ex-Im Bank short- and mediumterm insurance and guarantee programs. The lender
is always our customer; PEFCO does not finance
exporters directly. The PEFCO Short and Medium-Term
Programs include our Standard Programs, our Special
Initiatives and our Small Business Initiative.
• There is no minimum amount per loan.
• P
EFCO will purchase a participation in any shortterm loan or letter of credit structure acceptable to
Ex-Im Bank.
• T
he lender retains responsibility for servicing the loan
and maintaining the Ex-Im Bank guarantee
or policy.
2011 PEFCO Programs
Long Term:
$ 2,580 million
(22 transactions)
Short/Medium Term:
368 million
(163 transactions)
Total:
$ 2,948 million
(185 transactions)
9
For lenders not able to make a loan directly, PEFCO will
“stand-in” as direct lender on behalf of the originating lender.
Medium-Term Program
the Stand-In Lender for a variety of reasons including
loan size or because a borrower may be located outside
the lender’s marketing area.
Guaranteed Note Facility: PEFCO purchases mediumterm loans guaranteed against non-payment under an
Ex-Im Bank medium-term guarantee (“ECP-MGA”).
Interest rates can be floating or fixed. Fixed rates can
be set in advance of the PEFCO purchase date.
Other features of PEFCO Medium-Term Facilities:
• All purchases are governed by a master note purchase
agreement.
PEFCO offers four medium-term secondary market
facilities and a medium-term direct loan facility.
summary of pefco’s business
Discount Facility: PEFCO offers a special program
under the Guaranteed Note Facility used for guaranteed
loans requiring a fixed interest rate to be set prior to
shipment of the items. Once set, the fixed interest
is held constant until the final disbursement, even
when the note has multiple disbursements over many
months, without payment of an up front fee.
Insured Note Facility: PEFCO purchases medium-term
loans insured against non-payment under an Ex-Im Bank
medium-term policy, including the hybrid distributor
policy. Interest rates can be floating or fixed. Fixed rates
can be set in advance of the PEFCO purchase date.
Guaranteed Lease Facility: PEFCO purchases mediumterm leases guaranteed against non-payment under an
Ex-Im Bank ECP-MGA. Interest rates can be floating or
fixed. Fixed rates can be set in advance of the PEFCO
purchase date.
Stand-In Lender Facility: For lenders not able to make
a loan directly, PEFCO will “stand-in” as direct lender
on behalf of the originating party. The originating lender
must participate in preparing the application to Ex-Im
Bank, acquiring related documentation and maintaining
the borrower relationship. Lenders ask PEFCO to be
10
•N
ote amounts range from $10,000,000 to $100,000
and possibly smaller.
•P
EFCO will fund any note structure acceptable to ExIm Bank.
•P
EFCO will purchase single notes or portfolios, new
notes or partially repaid notes, single-disbursement or
multiple-disbursement notes, buyer credits or supplier
credits, and financial leases.
•E
xcept for the Discount Facility and the Stand-in
Lender Facility, the lender retains responsibility for
servicing the loan and maintaining the Ex-Im Bank
guarantee or policy. PEFCO holds the original note.
•F
or the Discount Facility and the Stand-In Lender
Facility PEFCO always assumes responsibility for
collecting payments and maintaining the Ex-Im Bank
guarantee. PEFCO holds the original note.
Small Loan Program: For exporters of small value items
with a Small Business Policy. PEFCO will work with
the exporter’s lender, or a reliable lender ­introduced by
PEFCO, to facilitate ­obtaining access to financing.
Medium-Term
Accessible Lender Program: A referral service for
exporters. PEFCO will introduce the exporter to a
reliable lender willing to p
­ rovide medium-term export
financing on a transactional basis.
Committed Purchase Program: For lenders needing
certainty of access to PEFCO funding over extended
periods. PEFCO provides a written commitment to
purchase an aggregate amount over a specified term
(typically one year) on defined terms and interest rates.
Actual loan commitments are made individually.
Emerging Markets Lender Program: For ­foreign
lenders with their own Master Guarantee Agreement
(“MGA”) that finance importers in their own and other
countries, but which lack access to competitively-priced
U.S. dollars.
Small Lender Program: For small U.S. and foreign
lenders with their own MGA that specialize in
financing small exporters and small-value loans but
which fail to meet PEFCO’s minimum standards for
financial strength.
Small Note Program: For exporters of small-value
products or services, PEFCO will work with the
exporter’s lender, or a reliable lender is introduced by
PEFCO, to enable the exporter to obtain financing.
Trade Association Program: A service for organizations
with exporting members (e.g., trade associations
and City/State agencies). PEFCO will work with the
organization to provide its members with access to
financing from reliable sources.
Small Business Initiative
The PEFCO Small Business Initiative is a direct result
of our strong commitment to assist small business
exporters (as defined by the U.S. Small Business
Administration) in obtaining access to reliable lenders
for financing their exports.
The cornerstone of the Small Business Initiative is the
PEFCO Small Business Lender Council (the “Council”).
The Council is a network of lenders committed to
supporting Ex-Im Bank’s outreach to small business
exporters. Members of the Council include banks and
trade finance companies. Ex-Im Bank participates on
the Council as an ex-officio member. The Council has
two principal functions; as a funding source for small
business exporters, and as a forum where Ex-Im Bank
can have frank discussions with lenders on subjects of
common interest.
PEFCO Annual Report 2011
Special Initiatives
Short-Term
The Council’s dedicated website is located at:
http://www.pefco-smallbusinesslenders.com
Small Business Commitments
Short & Medium Term
Long Term Commitments
2011 $ 368 million
2011 $ 2,580 million
2010 $ 547 million
2010 $ 1,096 million
2009 $ 369 million
2009 $ 1,488 million
The Council is a network of lenders committed to supporting
Ex-Im Bank’s outreach to small business exporters.
11
Long-Term Loan Programs
Direct Loan Program summary of pefco’s business
Under the Direct Loan Program, PEFCO acts as the
original lender making loans directly to borrowers (as
opposed to buying loans made by other lenders) to
finance their purchases of U.S. goods and services.
All such loans benefit from Ex-Im Bank’s comprehensive
long-term guarantee to PEFCO, dated December 15,
1971, as amended (see “PEFCO’s Relationship with
Ex-Bank”). PEFCO Direct Loans are available for
transactions which have an Ex-Im Bank guaranteed
value of $10 million or more and a repayment term of
five years or more. The PEFCO Direct Loan Program
is typically limited to borrowers seeking a fixed rate of
interest on the Ex-Im Bank guaranteed loans. Ex-Im
Bank also allows PEFCO to make its Direct Loans
available on a floating rate basis to borrowers located
in Sub-Saharan Africa and borrowers engaged in the
purchase of “environmental” exports from the U.S. or
exports from U.S. small business exporters.
Once the fixed rate has been established, a borrower
may only cancel or prepay a portion of a loan or loan
commitment by paying PEFCO a “make-whole” fee
equal to the present value of the reinvestment loss,
if any, that would be incurred by PEFCO as a result of
such prepayment or cancellation.
Secondary Loan Program The purpose of the Secondary Loan Program is to
provide liquidity to lenders participating in the Ex-Im
Bank guaranteed loan market. PEFCO will support
lenders making long-term Ex-Im Bank guaranteed loans
by buying such loans from the originating lender. As
with the Direct Loan Program, such loans typically
have an original value of $10 million or more and were
originally scheduled to be repaid in five years or more.
As with the Direct Loan Program, the rates (yields)
at which PEFCO is willing to buy such loans will be a
function of PEFCO’s estimated cost of funds at the time
of such purchase.
The interest rates on Direct Loans (whether fixed or
floating) are based on PEFCO’s estimated cost of funds
at the time the rate is calculated, taking into account
the disbursement and repayment characteristics of the
loan. PEFCO’s estimated cost of funds is a function
of the then current U.S. Treasury yield for a maturity
similar to the average life of the loan being funded,
plus the estimated margin over the Treasury yield
required to place PEFCO Secured Notes with investors,
warehousing and hedging costs, if any, and a modest
margin for expenses, risk and return to shareholders.
Lenders are also able to obtain commitments from
PEFCO to purchase loans in the future (in advance
of disbursement of such loan by the originating
lender). Moreover, by agreement with Ex-Im Bank, as
of September 29, 2009, PEFCO is no longer limited
to purchasing floating rate loans in connection with
“environmental” transactions and from sub-Saharan
borrowers. PEFCO is now free to purchase both
floating and fixed rate long-term loans for which ExIm Bank gave its guarantee commitment on or after
September 29, 2009 without restriction.
In the case of fixed rate loans, PEFCO allows a great
deal of flexibility with respect to the timing of the
rate fixing. Borrowers are able to set forward rates in
advance of any disbursement under the loan facility or, if
they prefer, borrowers may elect to wait up to one year
after disbursement of the loan to set the fixed rate.
Many bank and non-bank lenders which had previously
not been active under Ex-Im Bank’s long-term guarantee
program have used this program to support their
exporting customers’ financing needs. Some of
these lenders were introduced to PEFCO’s Long-Term
Loan Programs through PEFCO’s Short and MediumTerm Program.
Floating interest rates are set by determining a fixed
spread to LIBOR, based on PEFCO’s estimated cost of
funds described above.
PEFCO may also charge commitment fees calculated
on the undisbursed and uncancelled amount of the
loan commitment.
In 2011 PEFCO made commitments worth $1.3 billion
under the Secondary Loan Program which represents
42% of all Long-Term Commitments.
PEFCO Direct Loans are available for transactions which
have an Ex-Im Bank guaranteed value of $10 million or
more and a repayment term of five years or more.
12
PEFCO manages the liquidity and interest rate
exposures arising from loan assets and unfunded loan
commitments through the combination of short term
funding, secured note issuances and interest rate
derivatives. This approach allows for targeting the
proper liquidity profile, while controlling exposure to
market fluctuations. For fixed rate loan commitments,
PEFCO hedges the loan pricing at the time that a
borrower accepts a fixed rate loan offer, either through
specific hedging actions or within the context of
managing the interest rate risk in the overall book. In
cases where a derivative hedge is utilized, PEFCO
hedges the fixed rate loan commitments using interest
rate swaps in advance of loan funding to immunize the
interest rate exposure. In cases where a cash hedge is
utilized for fixed rate loan commitments, PEFCO issues
term funding and investments in U.S. Government
Securities for the warehousing period prior to
loan funding.
This approach allows for flexibility in accommodating
a range of disbursement schedules. The impact
of warehousing may reduce earnings during the
warehousing period prior to disbursement of funds,
which is incorporated into the loan pricing.
1971 Guarantee Agreement between Ex-Im Bank and
PEFCO. Interest paid on the Secured Note Program is
explicitly guaranteed by Ex-Im Bank, as specified in the
1971 Guarantee & Credit Agreement.
As of September 30, 2011, PEFCO had issued $13.6
billion aggregate principal amount of Secured Notes,
of which $4.5 billion aggregate principal amount were
outstanding, currently rated, Aaa, by Moody’s and
AA+,by Standard & Poor’s.
Short-Term Borrowings
PEFCO raises short term liquidity to finance loan
commitments through the issuance of commercial
paper. As of September 30, 2011, PEFCO received
short term ratings of P-1 by Moodys’ and A-1 by
Standard & Poor’s. In 2011, PEFCO established a new
$940 million 364 day facility maturing on June 9, 2012
PEFCO Annual Report 2011
PEFCO’S FUNDING ACTIVITIES
Secured Note Issuances
For longer term U.S. dollar funding requirements,
PEFCO issues secured notes in public markets through
underwriters. The Secured Note Program is issued
through a trust arrangement on the books of Private
Export Funding Corporation under the Indenture, dated
June 15, 1975, as supplemented and amended (the
“Indenture”). The principal repayments for the Secured
Notes are backed by foreign importer notes - export
loans guaranteed by Ex-Im Bank - and investment
securities explicitly backed by the full faith and credit
of the U.S. For each Secured Note issue, the principal
cash flows backing the principal must mature prior to
the maturity date for redemption of the Secured Note
principal. Pledged assets are assigned to and held
by The Bank of New York Mellon (a shareowner o­­f
PEFCO), as Trustee, as collateral for the benefit of the
holders of PEFCO Secured Notes. Foreign importer
notes pledged against the notes are backed by the
13
For interest rate risk, Management routinely measures the
net present value and duration of interest-sensitive assets and
liabilities and maintains current schedules which show asset/
liability mismatches and simulation of future income.
summary of pefco’s business
and a $235 million three year facility maturing on June
10, 2014. In addition, PEFCO has an existing $270
million three year facility maturing on June, 2013. The
combined total of all three facilities is $1,445 million. Of
the seventeen lenders across the three credit facilities,
nine are shareholders of PEFCO. The credit agreements
contain a number of covenants, including a covenant
that PEFCO comply with its contractual commitments
with Ex-Im Bank, with customary exceptions. As of
September 30, 2011, there were no amounts
outstanding under any of the credit agreements. In
addition, there were no amounts drawn under any of
the credit agreements during fiscal year 2011.
Certain underwriters of PEFCO Secured Notes,
certain dealers of PEFCO short-term notes, and certain
participants in the 364 day and three year syndicated
credit agreements are shareowners (or their affiliates
are shareowners) of PEFCO. Certain officers of certain
shareowners also serve as Directors of PEFCO as
described herein. Certain shareowners have provided
and presently provide a variety of commercial banking
services to PEFCO.
PEFCO FINANCE CORPORATION
PEFCO created PEFCO Finance Corporation (“PFC”),
a wholly owned subsidiary, to assist it in the financing
of purchases of long-term debt obligations issued by
foreign importers of U.S. goods and services. These
obligations are guaranteed as to the timely payment of
principal and interest by Ex-Im Bank. PFC has obtained
funds to purchase such long-term debt obligations by
issuing Collateralized Notes pursuant to a separate
indenture dated as of June 24, 1998, as supplemented
and amended, between PFC and The Bank of New
York Mellon, as Trustee (the “Trustee”). The operations
14
of PFC have consisted solely of the issuance of
such Collateralized Notes and the purchase of Ex-Im
Bank-guaranteed export loans and U.S. government
obligations from PEFCO, which were then assigned to
and held by the Trustee to secure both the principal and
interest on the Collateralized Notes.
An election had been made by PFC to treat itself as a
financial asset securitization investment trust (“FASIT”)
for U.S. federal income tax purposes. The FASIT
rules were repealed as the result of tax legislation
enacted in 2004. Pursuant to the transition rules, any
Collateralized Notes issued by PFC before October 22,
2004, will continue to qualify as regular interests in PFC
as long as they remain outstanding in accordance with
their original terms. PFC, however, will not issue any
additional Collateralized Notes since PFC is inactive.
As of September 30, 2011, PFC had no outstanding
principal amount of Collateralized Notes.
PEFCO POLICIES REGARDING
RISK MANAGEMENT
PEFCO manages risk exposures for interest rate risk,
liquidity and counterparty risk using guidelines approved
by its Board of Directors. Management reports twice a
year to the Risk Policy Committee of the Board.
For interest rate risk, Management routinely measures
the net present value and duration of interest-sensitive
assets and liabilities and maintains current schedules
which show asset/liability mismatches and simulation
of future income. Management will not place at risk a
100 basis point movement in interest rates in more than
10% of the pre-tax net present value of capital.
As a position limit on investments, Management will not
allow non-core business investments (those investments
that are not required to cover secured or collateralized
note installments in the trust estates and that are
unrelated to pre-funding of guaranteed export loans) with
a maturity of more than 90 days to exceed $250 million
and will mark these investments to market daily.
To mitigate liquidity risk, the amount of short-term
funding due to mature within a two-week period,
­including commercial paper will not exceed the
unutilized portion of the credit facility. In addition,
a balance of u
­ nencumbered assets will be m
­ aintained
to equal the level of outstanding unsecured borrowings
less the unutilized portion of the credit facility.
For managing capital leverage, Management operates
under a leverage ratio limit that caps guaranteed assets
to shareowners’ equity to a level no greater than 75 to 1.
PEFCO Annual Report 2011
Management may use derivative contracts, such as
interest rate swaps, in fair value and cash flow hedge
­strategies as part of the process to mitigate risk
exposure to changes in market interest rates. However,
management will not use swaps or other derivative
financial instruments for speculative purposes.
Management routinely measures the potential interest
rate exposure associated with outstanding fixed-rate
loan offers. Management limits total fixed-rate loan
offers awaiting acceptance at any time to $700 million
and close-out i­nterest rate exposure from outstanding
­fixed-rate offers whenever the potential “loss of date”
exceeds the “spread income” in respect of fixed-rate
loan offers probability of acceptance.
15
For management of counter-party risk on derivative
transactions, PEFCO utilizes an approach based upon
the “Standardized Method” detailed in the Basel II
capital accords (see page 18 of “The Application of
Basel II to Trading Activities and the Treatment of Double
Default Effects” issued July, 2005, www.bis.org). Two
important changes are included in this methodology.
First, the required capital against a risk weighted
exposure is 20%, a limit level that is 2.5 times the 8%
limit typical of Bank regulatory requirements. Second,
the maximum use of risk capital for counterparty risk is
limited to 16% of PEFCO’s equity. Maximum market
value per counterparty is $30 million and the minimum
credit rating per counter-party is A.
As of September 30, 2011 the counterparty risk capital
usage was $6.3 million against a maximum of $16.0
­million. Exposure at Default (EAD) was $81.9 million
­distributed over 9 counterparties. The maximum
counterparty market value exposure to any single
counterparty was $18.5 million versus a maximum of
$30 million.
PEFCO has had a long and significant relationship
with the Export-Import Bank of the United States
since its inception, providing liquidity support for
certain of its guarantee financing facilities. These
arrangements are set forth in various agreements that
are described herein.
summary of pefco’s business
This approach integrates both the current net market
value per counterparty and the price risk associated
with the durations of the positions. Risk weights take
into account credit ratings, with AA rated counterparties
weighted 20% and A rated counterparties rated 50%.
PEFCO has had a long and significant relationship with the
Export-Import Bank of the United States since its inception,
providing liquidity support for certain of its guarantee
financing facilities.
16
PEFCO Annual Report 2011
Under the terms of
a Guarantee Agreement,
dated December 15, 1971, as amended, between
PEFCO and Ex-Im Bank, due and punctual
payment of the principal of and interest on all
foreign importer notes (“Guaranteed Importer
Notes”) evidencing loans made by PEFCO with
the approval of Ex-Im Bank will be fully and
unconditionally guaranteed by Ex-Im Bank.
17
GUARANTEE AGREEMENT
Dated 12/15/1971
pefco’s relationship with ex-im bank
Under the terms of a Guarantee Agreement, dated
December 15, 1971, as amended, between PEFCO
and Ex-Im Bank, due and punctual payment of the
principal of and interest on all foreign importer notes
(“Guaranteed Importer Notes”) evidencing loans made
by PEFCO with the approval of Ex-Im Bank will be fully
and unconditionally guaranteed by Ex-Im Bank. At its
option, PEFCO (or a trustee acting for the benefit of
noteholders with which PEFCO may pledge Guaranteed
Importer Notes under the Indenture, dated as of
June 15, 1975, as supplemented and amended (the
“Indenture”), among PEFCO, Ex-Im Bank and The Bank
of New York Mellon, as Trustee (the “Trustee”)) may,
after an event of default under any loan agreement
pursuant to which PEFCO shall have acquired any
Guaranteed Importer Note, elect (i) to have Ex-Im Bank
service such Guaranteed Importer Note by continuing
the payment of interest and principal in accordance
with the terms thereof or (ii) to accelerate the maturity
of such Guaranteed Importer Note and have Ex-Im
Bank pay the entire amount of such Guaranteed
Importer Note plus accrued interest to the date of
payment. If PEFCO or the Trustee should exercise
the option described in clause (ii) of the preceding
sentence, Ex-Im Bank has the right to substitute another
Guaranteed Importer Note with a yield to PEFCO at
least equal to the yield on, and with approximately the
same remaining stated maturities as, the Guaranteed
Importer Note in default. The Indenture provides that
any Guaranteed Importer Note substituted by Ex-Im
Bank must have remaining stated maturities which,
together with the stated maturities of the other
collateral then subject to the lien of the Indenture,
will be sufficient to ensure that, before the dates of
any mandatory payments of principal on all Secured
Notes outstanding under the Indenture, the Trustee
will be provided with cash sufficient to make such
payments. In consideration of Ex-Im Bank’s guarantee
of the Guaranteed Importer Notes, a one-time front-end
exposure fee is payable to Ex-Im Bank by PEFCO at a
rate determined by Ex-Im Bank. Such fee is normally
paid directly to Ex-Im Bank by the borrower on behalf of
PEFCO. Under the terms of a Guarantee Fee Guarantee
Agreement dated as of September 15, 1988 between
PEFCO and Ex-Im Bank, Ex-Im Bank guarantees
PEFCO’s reimbursement by borrowers of all amounts
of guarantee fees paid by PEFCO to Ex-Im Bank. The
Indenture p
­ rovides that no failure by PEFCO to pay
the required guarantee fee will affect Ex-Im Bank’s
obligation under any Guaranteed Importer Note subject
to the lien of the Indenture.
In September 2008, PEFCO entered into an agreement
with Ex-Im Bank pursuant to which certain loans
purchased by PEFCO that had been guaranteed by
Ex-Im Bank under the Ex-Im Bank Master Guarantee
Agreement would be eligible to be approved by
Ex-Im Bank for coverage under the 1971 Guarantee
Agreement and, as a result, could then be eligible to be
pledged as collateral in connection with issuances of
Secured Notes.
18
In 1971, in order to assist PEFCO in its objective of
mobilizing private capital to finance U.S. exports, Ex-Im
Bank entered into a Guarantee and Credit Agreement
(the “Agreement”) with PEFCO. Pursuant to the
Agreement, among other things, Ex-Im Bank agreed,
when requested by PEFCO, to guarantee the due and
punctual payment of interest on debt obligations of
PEFCO approved for issuance by Ex-Im Bank, which
currently are PEFCO’s Secured Notes. The Agreement
also provides that Ex-Im Bank will make any required
payments under its interest guarantees directly to any
trustee acting for the benefit of the holders of debt
obligations so guaranteed, that any claims Ex-Im Bank
may have against PEFCO for any payments made by
Ex-Im Bank under such guarantees will not be collected
from assets pledged to secure such obligations, unless
and until the holders thereof have been paid in full, and
that Ex-Im Bank will enter into an agreement with any
such trustee to evidence the foregoing understandings.
The Indenture contains provisions of the nature
described in the foregoing sentence. A semi-annual
guarantee fee on the total interest accrued by PEFCO
during the preceding semi-annual period on securities
on which interest payments have been guaranteed
by Ex-Im Bank is payable to Ex-Im Bank under the
Agreement. Such fee is computed at the rate of 1/4 of
1% on the first $10,000,000 of such interest expense,
3/16 of 1% on the next $10,000,000 of such interest
expense and 1/8 of 1% on the balance, if any, of such
interest expense.
If Ex-Im Bank makes any payments pursuant to its
guarantees of interest on PEFCO’s Secured Notes, the
Agreement requires PEFCO, if its net worth exceeds
25% of its paid-in and callable capital, immediately to
apply (i) cash and securities held by PEFCO and not
pledged to secure any other obligations of PEFCO
plus (ii) the aggregate amount which PEFCO can
call pursuant to subscription agreements with its
shareowners (see Note 8 of the Notes to PEFCO’s
Consolidated Financial Statements) to reimburse Ex-Im
Bank for such payments. Moreover, if PEFCO has net
income in any subsequent semi-annual period, it must
apply the amount of such net income to repay Ex-Im
Bank for any unreimbursed payments made by Ex-Im
Bank under its guarantees of interest on PEFCO debt
obligations. Finally, any amounts paid by Ex-Im Bank
­pursuant to its guarantees of interest must be repaid
by PEFCO within one year after payment in full of the
last maturing PEFCO debt obligation on which interest
is ­guaranteed by Ex-Im Bank. Amounts paid by Ex-Im
Bank under its guarantee of interest will bear interest at
the p
­ revailing rate of interest charged by Ex-Im Bank on
direct loans made in the ordinary course of business on
the date of such payment by Ex-Im Bank. Such interest
is to be payable semi-annually.
The Agreement gives Ex-Im Bank a broad measure of
supervision over PEFCO’s major financial management
decisions. In particular, the Agreement requires the
approval of Ex-Im Bank before PEFCO can issue certain
debt obligations, make direct loans guaranteed by
Ex-Im Bank, purchase its long-term debt obligations
prior to their originally stated maturity date, invest its
­surplus funds in assets other than Ex-Im Bank approved
investments, declare or pay dividends on its capital
stock, transfer all or substantially all of its assets or
engage in any business other than the financing of
exports of U.S. goods and services. Additionally,
the Agreement gives Ex-Im Bank the right to have
representatives present at all meetings of PEFCO’s
Board of Directors and the right to receive information
as to PEFCO’s budgets, financial condition and
operating results.
PEFCO Annual Report 2011
1971 GUARANTEE AND
CREDIT AGREEMENT
In 1971, in order to assist PEFCO in its objective of
mobilizing private capital to finance U.S. exports, Ex-Im
Bank entered into a Guarantee and Credit Agreement
(the “Agreement”) with PEFCO.
19
pefco’s relationship with ex-im bank
20
The Agreement, which, as originally executed, was
scheduled to terminate on December 31, 1995, has
been extended by agreement between Ex-Im Bank
and PEFCO to December 31, 2020. PEFCO may also
terminate the Agreement as of December 31 in any
year on 60 days prior written notice if it is not indebted
to Ex-Im Bank at the time. No termination will affect
any then outstanding guarantees of Ex-Im Bank or
PEFCO’s obligations to pay the guarantee fee on, or to
reimburse Ex-Im Bank for any payment by it under, any
such guarantee. Under the Agreement, Ex-Im Bank has
agreed that no failure by PEFCO to pay the required
guarantee fee will affect Ex-Im Bank’s obligations under
any outstanding guarantees and that Ex-Im Bank will not
exercise any right to terminate, cancel or rescind the
Agreement so long as any debt obligations of PEFCO
are held by persons other than Ex-Im Bank.
The Agreement provides that Ex-Im Bank will, if
necessary to meet its obligation, make payments
which may be required under its guarantee of interest
on all notes outstanding under the Indenture, and to
the extent that funds are available in accordance with
Section 6 of the Export-Import Bank Act of 1945, as
amended, apply to the Secretary of the Treasury for a
loan or loans in amounts which, together with other
funds available to Ex-Im Bank for such purpose, shall be
sufficient to make such payments.
Except for the Guarantee Agreement and the Guarantee
and Credit Agreement, PEFCO’s guarantees and
insurance policies with Ex-Im Bank have additional
requirements that must be observed in order to receive
payment under the relevant guarantee or policy.
Various other provisions governing the relationship
between Ex-Im Bank and PEFCO are contained in the
Agreement, a copy of which is on file and available for
inspection during normal business hours at the offices
of PEFCO.
The following discussion should be read in conjunction
with PEFCO’s Consolidated Financial Statements and
the Notes thereto found e
­ lsewhere in this report.
PEFCO’s mission is to assist in the financing of U.S.
exports by mobilizing private capital as a supplement
to the financing already available through Ex-Im Bank,
­commercial banks and other lending institutions.
PEFCO accomplishes this objective primarily by
­purchasing medium– and long–term debt obligations
issued by f­ oreign importers of U.S. goods and services
which are g
­ uaranteed or insured as to the timely
payment of principal and interest by Ex-Im Bank, or by
other U.S. government institutions whose obligations
are backed by the full faith and credit of the United
States, or by p
­ urchasing from commercial bank lenders
participating interests in such o
­ bligations. PEFCO
finances these purchases through the sale of its own
­securities to investors in private transactions. PEFCO
also assists small businesses in financing U.S. exports
and provides support for certain securitized, guaranteed
financing facilities of Ex-Im Bank.
Since PEFCO’s creation, the volume of its export loan
business has been subject to the initiation of financing
transactions involving PEFCO by commercial banks and
other lending institutions (including the shareowners
of PEFCO), the approval by Ex-Im Bank of PEFCO’s
participation in each such transaction, the volume of
U.S. exports, and the requirements and policies of Ex-Im
Bank with respect to the financing of those exports.
The following table is an analysis of financing income (in thousands) for the years ended September 30,
2011
2010
2009
Average
Balance
Average
Rate
Interest
Revenue
Average
Balance
Average
Rate
Interest
Revenue
Average
Balance
Average
Rate
Interest
Revenue
$ 2,468,000
1.38%
$ 34,074
$ 2,374,000
1.79%
$ 42,372
$ 2,389,000
2.83%
$ 67,507
193,000
0.78%
1,512
215,000
0.79%
1,688
301,000
2.30%
6,922
1,038,000
2.12%
21,986
906,000
2.26%
20,460
408,000
3.68%
15,004
749,000
0.67%
5,014
473,000
0.76%
3,587
516,000
2.12%
10,940
312,000
1.77%
5,518
357,000
1.68%
5,991
415,000
2.85%
11,834
286,000
1.66%
4,736
66,000
1.50%
990
66,000
3.13%
2,065
Financing Revenue
PEFCO Annual Report 2011
Operations
Interest Income
Export loans guaranteed or
insured by Ex-Im Bank:
Primary Long-Term
Loan Program
Fixed-rate
Floating-rate
Secondary Long-Term
Loan Program
Fixed-rate
Floating-rate
Small Business &
Medium-Term Programs
Medium-Term
Working Capital &
Short-Term Insurance
Loans Insured by OPIC
Long-Term
144,000
0.91%
1,317
170,000
1.10%
1,875
186,000
2.68%
4,991
Medium-Term
147,000
1.30%
1,908
138,000
1.30%
1,795
184,000
2.25%
4,133
5,337,000
1.43%
76,065
4,699,000
1.68%
78,758
4,465,000
2.76%
123,396
838,000
1.07%
8,953
767,000
1.23%
9,416
554,000
2.00%
10,874
$ 6,175,000
1.38%
85,018
$ 5,466,000
1.61%
88,174
$ 5,019,000
2.68%
134,270
Lending Activities
Investment Securities
Total
Commitment and other income
Financing Revenue
1,278
591
21,414
$ 86,296
$ 88,765
$ 155,684
21
The following table is an analysis of net financing income (in thousands) for the years ended September 30,
2011
Average
Balance
2010
Average
Rate
Interest
Expense
Average
Balance
2009
Average
Rate
Interest
Expense
Average
Balance
Average
Rate
Interest
Expense
Financing Expense
Interest Expense
Management’s Discussion and Analysis
Long-Term Notes
$ 4,043,000
1.56%
$ 63,268
$ 3,590,000
1.91%
$ 68,553
$ 3,060,000
3.17%
$ 97,024
Short-Term Notes
2,090,000
0.49%
10,321
1,821,000
0.54%
9,763
1,948,000
1.18%
22,928
$ 6,133,000
1.20%
$ 73,589
$ 5,411,000
1.45%
$ 78,316
$ 5,008,000
2.40%
$ 119,952
Total
Commitment and Other Fees
Financing Expense
Net Financing Income
4,052
3,933
2,505
77,641
82,249
122,457
$ 8,655
$ 6,516
$ 33,227
2011 compared to 2010
PEFCO’s net income was $3.4 million in 2011 compared
to net income of $1.4 million in 2010. The increase in
net income was the result of an increase in lending
volume, incremental gains on sale of securities,
prepayment of loans less losses on sale of secured
notes, commitment fees and operating expenses as
stated below.
For the year ended September 30, 2011, financing
revenue decreased to $86.3 million from $88.8 million in
2010. The primary reason for the decrease in financing
revenue was the decline in short-term and long-term
interest rates. Short-term interest rates (LIBOR) are the
basis for pricing the floating-rate portfolio while long-term
interest rates (Treasury Notes) are the basis for pricing
the fixed-rate portfolio. The average balances and yields
in the Primary Long-Term Loan Program were:
Fixed Rate- $2,468.0 million and 1.38% in 2011
compared to $2,374.0 million and 1.79% in 2010.
Floating Rate- $193.0 million and .78% in 2011
compared to $215 million and .79% in 2010.
The average balances and yields in the Secondary LongTerm Loan Program were:
Fixed Rate- $1,038.0 million and 2.12% in 2011
compared with $906.0 million and 2.26% in 2010.
Floating Rate- $749.0 and .67% in 2011 compared with
$473.0 million and .76% in 2010.
The average balances and yields of the Small Business
and Medium-Term Program were:
Medium-Term $312.0 and 1.77% in 2011 compared with
$357.0 million and 1.68% in 2010.
22
Working Capital and Short-Term Insurance $286.0
million and 1.66% in 2011 compared with $66.0 million
and 1.50% in 2010.
The average balances and yields of loans insured by
OPIC were:
Long-Term $144.0 and .91% in 2011 compared with
$170.0 million and 1.10% in 2010.
Medium-Term $147.0 and 1.30% in 2011 compared with
$138.0 million and 1.30% in 2010.
The overall average balance of the lending portfolio was
at $5,337.0 million and 1.43% in 2011 compared with
$4,699.0 million and 1.68% in 2010. PEFCO is using
interest rate swaps contracts designated as fair value
hedges of certain fixed rate loans. In 2011 the net
interest expense of these contracts was $101.6 million
($ 92.8 million in 2010) and this amount was reported as
an adjustment to the interest income of fixed rate loans.
The Investment Securities portfolio had an average
balance of $838.0 million and 1.07% in 2011 compared
with $767.0 million and 1.23% in 2010.
Accumulated other comprehensive income (loss)
increased to $(7.2) million, net of tax in 2011, compared
to $(4.6) million net of tax in 2010, as a result of
market valuation adjustments to the carrying value of
investment securities, cash flow hedges, and pension
and post retirement adjustments.
Commitments and prepayments were $1.3 million
in 2011 compared to $591 thousand in 2010. The
increase was primarily due to the receipt in 2011 of
approximately $882 thousand prepayment make-whole
payments from two borrowers which prepaid the
remaining balances of loans. It is PEFCO’s policy to
permit borrowers to prepay loans only if the borrower
makes PEFCO whole for the economic loss incurred as
a result of such prepayment.
For the year ended September 30, 2011, financing
expense decreased to $77.6 million from $82.2 million in
2010. The primary reason for the decrease in financing
revenue was the decrease in short-term and long-term
interest rates. Short-term interest rates (Commercial
PEFCO is using interest rate swap contracts designated
as fair value hedges for certain long term notes and
interest rate swap contracts designated as cash flow
hedges of certain short term notes. In 2011 the net
interest income of the interest rate swaps designated
as fair value hedges was $104.9 million ($96.8 million in
2010) and this amount was reported as an adjustment
to the interest expense of the long term notes.
Furthermore the net interest expense of the interest
rate swaps designated as cash flow hedges was $ 4.6
million in 2011 ($4.6 million in 2010) and this amount was
reported as an adjustment to the interest expense of the
short term notes.
The margin of the overall portfolio was at 18 basis points
in 2011 (assets 1.38% less liabilities 1.20%) compared
to 16 basis points (assets 1.61% less liabilities 1.45%)
in 2010.
Commitments and other fees paid were $4.1 million in
2011 compared with $3.9 million in 2010.
PEFCO’s net financing income was $8.7 million in 2011,
compared to $6.5 million in 2010.
In 2011 net securities transactions, which are the result of
sales of investment securities available for sale, resulted
in a gain of $6.7 million. In 2010 sales of investment
securities available for sale resulted in a gain of $1.7
million and sales of investment securities held to maturity
resulted in a gain of $2.4 million.
In 2011, PEFCO repurchased $15.9 million of its long
term secured notes at a loss of $838 thousand. In
2010 PEFCO did not repurchase any of its long term
secured notes.
General and administrative expenses were $9.4 million
in 2011, as compared to $8.7 million in 2010. The
increase in general and administrative expenses was
the result of an increase in compensation and benefits
of $727 thousand (mainly due to compensation $251
thousand and retirement benefits $491 thousand), an
increase in administration expenses of $109 thousand
and a reduction in professional fees of $99 thousand.
Provision for income tax increased to $1.7 million in
2011 from $587 thousand in 2010. The effective tax rate
is 34.2%. Net income increased to $3.4 million in 2011
from $1.4 million in 2010.
2010 Compared to 2009
PEFCO’s net income was $1.4 million in 2010 compared
to net income of $14.5 million in 2009. The decline
in net income was the result of decrease in margins,
reduction of gains on prepayment of loans, incremental
gains on sale of security less losses on sale of secured
notes and sale of loans, and additional fees paid on bank
lines of credit as stated below.
For the year ended September 30, 2010, financing
revenue decreased to $ 88.8 million from $155.7
million in 2009. The primary reason for the decrease
in financing revenue was the decline in short-term
and long-term interest rates. Short-term interest
rates (LIBOR) are the basis for pricing the floating-rate
portfolio while long-term interest rates (Treasury Notes)
are the basis for pricing the fixed-rate portfolio. The
average balances and yields in the Primary Long-Term
Loan Program were:
Fixed Rate- $2,374.0 million and 1.79% in 2010
compared to $2,389.0 million and 2.83% in 2009.
Floating Rate- $215.0 million and .79% in 2010
compared to $301 million and 2.30% in 2009.
PEFCO Annual Report 2011
Paper) are the basis for pricing the short-term notes
issued by PEFCO while long-term interest rates
(Treasury Notes) are the basis for pricing the longterm notes issued by PEFCO. The average balance
and effective cost for Long-Term Notes was $4,043.0
million and 1.56% in 2011, compared to $3,590.0 million
and 1.91% in 2010. The average balance of the ShortTerm notes was $2,090.0 million and .49% in 2011 and
$1,821.0 million and .54% in 2010.
The average balances and yields in the Secondary LongTerm Loan Program were:
Fixed Rate- $906.0 million and 2.26% in 2010 compared
with $408.0 million and 3.68% in 2009.
Floating Rate- $473.0 million and .76% in 2010
compared with $516.0 million and 2.12% in 2009.
The average balances and yields of the Small Business
and Medium-Term Program were:
Medium-Term $357.0 million and 1.68% in 2010
compared with $415.0 million and 2.85% in 2009.
Short-Term Insurance $66.0 million and 1.5% in 2010
compared with $66.0 million and 3.13% in 2009.
The average balances and yields of loans insured by
OPIC were:
Long-Term $170.0 million and 1.10% in 2010 compared
with $186.0 million and 2.68% in 2009.
Medium-Term $138.0 million and 1.30% in 2010
compared with $184.0 million and 2.25% in 2009.
The overall average balance of the lending portfolio was
at $4,699.0 million and 1.68% in 2010 compared with
$4,465.0 million and 2.76% in 2009. PEFCO is using
interest rate swaps contracts designated as fair value
hedges of certain fixed rate loans. In 2010 the net
interest expense of these contracts was $92.8 million ($
58.9 million in 2009) and this amount was reported as
an adjustment to the interest income of fixed rate loans.
23
The Investment Securities portfolio had an average
balance of $767.0 million and 1.23% in 2010 compared
with $554.0 million and 2.00% in 2009.
Accumulated other comprehensive income (loss)
decreased to $(4.6) million, net of tax in 2010, compared
to $(9.8) million net of tax in 2009, as a result of
market valuation adjustments to the carrying value of
investment securities, cash flow hedges, pension and
post retirement adjustments.
Management’s Discussion and Analysis
Commitments and prepayments were $591 thousand
in 2010 compared to $21.4 million in 2009. The
decrease was primarily due to the receipt in 2009 of
approximately $21.1 million prepayment make-whole
payments from one borrower which prepaid the
remaining balances of loans. It is PEFCO’s policy to
permit borrowers to prepay loans only if the borrower
makes PEFCO whole for the economic loss incurred as
a result of such prepayment.
For the year ended September 30, 2010, financing
expense decreased to $82.2 million from $122.5
million in 2009. The primary reason for the decrease
in financing revenue was the decrease in short-term
and long-term interest rates. Short-term interest rates
(Commercial Paper) are the basis for pricing the shortterm notes issued by PEFCO while long-term interest
rates (Treasury Notes) are the basis for pricing the
long-term notes issued by PEFCO. The average balance
and effective cost for Long-Term Notes was $3,590.0
million and 1.91% in 2010, compared to $3,060.0 million
and 3.17% in 2009. The average balance of the ShortTerm notes was $1,821.0 million and .54% in 2010 and
$1.948.0 million and 1.18% in 2009.
PEFCO is using interest rate swap contracts designated
as fair value hedges for certain long term notes and
interest rate swap contracts designated as cash flow
hedges of certain short term notes. In 2010 the net
interest income of the interest rate swaps designated
as fair value hedges was $96.8 million ($58.4 million in
2009) and this amount was reported as an adjustment
to the interest expense of the long term notes.
Furthermore the net interest expense of the interest
rate swaps designated as cash flow hedges was $ 4.6
million in 2010 ($5.0 million in 2009) and this amount was
reported as an adjustment to the interest expense of the
short term notes.
The margin of the overall portfolio was at 16 basis points
in 2010 (assets 1.61% less liabilities 1.45%) compared
to 28 basis points (assets 2.68% less liabilities 2.40%)
in 2009.
24
Commitments and other fees paid were $3.9 million in
2010 compared with $2.5 million in 2009, mainly due to
fees paid on liquidity back up lines of $1.3 million.
PEFCO’s net financing income was $6.5 million in 2010,
compared to $33.2 million in 2009.
In 2010 net securities transactions, which are the result
of sales of investment securities available for sale,
resulted in a gain of $1.7 million and sales of investment
securities held to maturity resulted in a gain of $2.4
million. In 2009 sales of investment securities available
for sale resulted in a gain of $180 thousand and sales of
investment securities held to maturity resulted in a gain
of $438 thousand.
In 2010 PEFCO did not repurchase any of its long term
secured notes. However in 2009, PEFCO repurchased
$33.9 million of its long term secured notes at a loss of
$2.4 million.
General and administrative expenses were $8.7 million
in 2010, as compared to $8.8 million in 2009.
Provision for income tax decreased to $587 thousand in
2010 from $7.8 million in 2009. Non-taxable insurance
proceeds of $293 thousand received by PEFCO in 2010
resulted in the reduction of the tax statutory rate from
34% to 30%. Net income decreased to $1.4 million in
2010 from $14.5 million in 2009.
Liquidity and Capital Resources
The principal source of capital during the year were funds
generated from the issuance of PEFCO’s short-term
notes and long-term Secured Notes totaling $1.2 billion.
As of September 30, 2011 PEFCO had approximately
$7.1 billion of total obligations, of which approximately
$2.2 billion (31%) was short-term and $4.9 billion (69%)
was long-term.
The long-term debt, which includes portions due within
one year, had amounts maturing of $388 million in 2012,
$696 million in 2013, $0 million in 2014, $730 million in
2015, $650 million in 2016, and $2,050 million in 2017
and thereafter.
As of September 30, 2011, PEFCO had net shareowner’s
equity of $100.9 million, total capitalization (calculated
as the sum of total debt and net shareowner’s equity)
of $7.1 billion and a total of debt to capitalization ratio
of 98.6%.
In 2011, PEFCO entered into a new one year $940
million revolving credit facility maturing in June 2012,
and a new three year $235 million credit facility
maturing in June 2014. PEFCO also has an existing
three year $270 million credit facility maturing in June
2013. The combination of the three credit facilities is an
aggregate amount of $1.4 billion.
The Credit agreements contain a number of covenants,
including a negative pledge covenant and a covenant
that PEFCO will comply with its contractual
commitments with Ex-Im Bank. As of September 30,
2011, there were no amounts outstanding under these
credit facilities.
To the Board of Directors and Shareowners of Private Export Funding Corporation
New York, New York
November 10, 2011
PEFCO Annual Report 2011
In our opinion, the accompanying consolidated statements of financial c­ ondition and the r­ elated ­consolidated
statements of o
­ perations, changes in shareowners’ equity and cash flows ­present fairly, in all material respects,
the financial position of Private Export Funding Corporation (the “Company”) and its subsidiary at September 30,
2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended
September 30, 2011, in c­ onformity with accounting principles generally accepted in the United States of America.
These financial s­ tatements are the responsibility of the Company’s management. Our respon­sibility is to express
an opinion on these financial ­statements based on our audits. We conducted our audits of these s­ tatements in
accordance with auditing ­standards generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material mis­statement. An audit includes examining, on a test basis, evidence supporting the amounts and
­disclosures in the financial statements, assessing the accounting p
­ rinciples used and significant estimates made
by ­management, and evaluating the overall ­financial statement p
­ resentation. We believe that our audits p
­ rovide a
reasonable basis for our opinion.
25
Consolidated Statements of Financial Condition
Assets (Amounts in thousands, except share amounts)
September 30, 2011
Cash
$ 302,259
Repurchase Agreements
Investment securities available for sale
Consolidated Statements of Financial Condition
Interest and fees receivable
Export loans guaranteed or insured by Ex-Im Bank
Loans insured by OPIC
Total lending
September 30, 2010
$
29,065
—
145,000
611,383
715,645
71,357
68,257
5,901,849
4,497,347
277,349
295,132
6,179,198
4,792,479
81,394
90,651
$ 7,245,591
$ 5,841,097
Short-term notes
$ 2,144,677
$ 1,814,941
Interest payable
47,905
45,731
Accrued expenses and other liabilities
54,753
60,370
—
42,000
Long-term Secured Notes
4,897,357
3,777,945
Total Liabilities
7,144,692
5,740,987
at September 30, 2011 and September 30, 2010
17,401
17,401
Retained earnings
90,698
87,347
Accumulated other comprehensive loss
(7,200)
(4,638)
100,899
100,110
$ 7,245,591
$ 5,841,097
Other assets and deferred charges
Total Assets
Liabilities and Shareowners’ Equity
Liabilities
Long-term Collateralized Notes
Shareowners’ Equity
Common stock-no par value; authorized 40,000 shares; outstanding 14,811 shares
Total Shareowners’ Equity
Total Liabilities and Shareowners’ Equity
See Notes to Consolidated Financial Statements
26
Consolidated Statements of Operations
Year Ended September 30,
Financing Revenue (Amounts in thousands, except per share amounts)
2011
2010
2009
$ 85,018
$ 88,174
$ 134,270
1,278
591
21,414
86,296
88,765
155,684
(73,589)
(78,316)
(119,952)
(4,052)
(3,933)
(2,505)
(77,641)
(82,249)
(122,457)
Net financing income
8,655
6,516
33,227
Net securities gain
6,691
4,139
618
Debt repurchases loss
(838)
—
(2,370)
Loss on sale of Loans
—
—
(284)
General and administrative expenses
(9,414)
(8,677)
(8,805)
Income before income tax
5,094
1,978
22,386
Provision for income tax
(1,743)
(587)
(7,848)
$ 3,351
$ 1,391
$ 14,538
$ 226.25
$ 93.92
$ 982.76
Interest
Commitment and prepayment fees
Total Financing Revenue
Interest
Commitment and other fees
Total Financing Expense
Net Income
PEFCO Annual Report 2011
Financing Expense
Net Income Per Share
Net Income
See Notes to Consolidated Financial Statements
27
Consolidated Statements of Changes in Shareowners’ Equity
Consolidated Statements of Changes in Shareowners’ Equity
(Amounts in thousands, except share and per share amounts)
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Balances at September 30, 2008
$ 14,189
$ 71,862
$ (6,263)
Total
Shareowners’
Equity
$ 79,788
Common Stock
738 shares issued
3,100
3,100
Comprehensive income:
Net income
14,538
14,538
Unrealized gains on investment securities – AFS
(Net of tax of $270)
502
502
(3,241)
(3,241)
357
357
Cashflow hedges loss
(Net of benefit of ($1,745))
Reclassification adjustment for net gains
included in net income
(Net of tax of $192)
Pension and Post Retirement Adjustment
(Net of benefit of ($643))
(1,194)
Comprehensive income
Dividend declared ($30 per share)
Balances at September 30, 2009
(1,194)
10,962
(444)
$ 17,289
$ 85,956
(444)
$ (9,839)
$ 93,406
Common Stock
18 shares issued
112
112
Comprehensive income:
Net income
1,391
1,391
Unrealized gains on investment securities – AFS
(Net of tax of $3,152)
6,118
6,118
(1,828)
(1,828)
1,346
1,346
Cashflow hedges loss
(Net of benefit of ($942))
Reclassification adjustment for net gains
included in net income
(Net of tax of $693)
Pension and Post Retirement Adjustment
(Net of benefit of ($224))
(435)
Comprehensive income
Balances at September 30, 2010
(435)
6,592
$ 17,401
$ 87,347
$ (4,638)
$ 100,110
Comprehensive income:
Net income
3,351
3,351
Unrealized losses on investment securities – AFS
(Net of benefit of ($4,315))
(8,377)
(8,377)
1,781
1,781
4,636
4,636
(602)
(602)
$ (7,200)
$ 100,899
Cashflow hedges gain
(Net of tax of $917)
Reclassification adjustment for net gains
included in net income
(Net of tax of $2,338)
Pension and Post Retirement Adjustment
(Net of benefit of ($310))
Comprehensive income
Balances at September 30, 2011
28
See Notes to Consolidated Financial Statements
789
$ 17,401
$ 90,698
Consolidated Statements of Cash Flows
Year Ended September 30
Operating Activities (Amounts in thousands)
Net Income (loss)
2011
$
3,351
2010
$
1,391
2009
$
14,538
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
7,043
(5,377)
(6,691)
(4,139)
4,988
(618)
Net gain on prepayments of loans
(882)
—
(21,143)
Debt repurchases loss
838
—
2,370
Deferred income tax benefit
(383)
(279)
(720)
Decrease (Increase) in interest and fees receivable
(3,100)
(1,932)
6,565
Increase (Decrease) in interest payable
2,178
3,589
2,594
(Decrease) Increase in accrued expenses and other liabilities
2,847
1,008
3,002
34
317
—
Leasehold Incentives
Other, net
923
257
(3,706)
6,158
(5,165)
7,869
41,889,000
23,424,000
9,216,000
1,679,265
1,069,430
712,657
196,385
178,490
132,928
(41,744,000)
(23,497,000)
(9,288,000)
Purchases of investment securities
(1,774,278)
(1,325,254)
(969,890)
Principal collected on loans
1,156,636
1,078,410
1,509,036
Principal disbursed on loans
(2,471,513)
(740,667)
(2,001,002)
(38)
(431)
—
(1,068,543)
186,978
(688,271)
Proceeds from issuance of short-term notes
8,679,615
7,428,790
10,903,996
Repayments of short-term notes
(8,349,880)
(7,665,844)
(11,003,136)
(42,000)
—
(21,801)
1,197,056
400,418
996,216
Net cash (used in) provided by operating activities
Investing Activities
Proceeds from maturities of repurchase agreements
Proceeds from maturities of investment securities
Proceeds from sales of investment securities
Investments in repurchase agreements
Investments in Leasehold Improvements
Net cash (used in) provided by investing activities
PEFCO Annual Report 2011
Depreciation and amortization
Net gain on investment securities
Financing Activities
Repayments and repurchases of long-term
Collateralized Notes
Proceeds from issuance of long-term Secured Notes
less issuance costs
(149,212)
(381,614)
(318,339)
Issuance of common stock
Repayments and repurchases of long-term Secured Notes
—
112
3,100
Dividends paid
—
(444)
(351)
1,335,579
(218,582)
559,685
273,194
(36,769)
(120,717)
Net cash (used in) provided by financing activities
(Decrease) increase in cash
Cash at beginning of year
Cash at end of year
29,065
$
302,259
Interest paid
$
Income taxes paid
$
65,834
186,551
$
29,065
$
65,834
173,633
$
168,759
$
171,702
900
$
750
$
8,000
Supplemental Disclosures
See Notes to Consolidated Financial Statements
29
1. organization
Notes to Consolidated Financial Statements
Private Export Funding Corporation (“PEFCO”)
was incorporated on April 9, 1970 under Delaware law
and is principally engaged in making U.S. dollar loans
to foreign importers to finance p
­ urchases of goods
and services of United States m
­ anufacture or origin.
PEFCO’s shareowners include most of the major
­commercial banks involved in financing U.S. exports,
industrial companies involved in exporting U.S. products
and ­services, and financial ­services companies.
PEFCO was established with the support of the United
States Department of the Treasury and the ExportImport Bank of the United States (“Ex-Im Bank”) to
assist in the financing of U.S. exports through the
mobilization of private c­ apital as a supplement to
the financing already available through Ex-Im Bank,
commercial banks and other lending institutions. Ex-Im
Bank has cooperated in the operation of PEFCO through
various agreements.
Since all loans made by PEFCO are guaranteed or
insured as to the due and punctual payment of principal
and interest by Ex-Im Bank or other U.S. government
institutions, such as the Overseas Private Investment
Corporation (“OPIC”), whose ­obligations are backed
by the full faith and credit of th­e United States, PEFCO
relies upon this U.S. government support and does not
make ­evaluations of credit risks, appraisals of economic
­conditions in foreign countries, or reviews of other
factors in making its loans.
2. Agreements with Ex-Im Bank
PEFCO has agreements with Ex-Im Bank which provide
that Ex-Im Bank will:
1. guarantee the due and punctual payment
of principal and interest on all export loans made by
PEFCO; and
2. guarantee the due and punctual payment of
interest on PEFCO’s long-term Secured Notes in
return for a fee paid by PEFCO.
Under its agreements with PEFCO, Ex-Im Bank retains
a broad measure of supervision over PEFCO’s major
financial m
­ anagement decisions. The approval of Ex-Im
Bank is required on the terms of PEFCO’s i­ndividual
loan commitments and on the terms of PEFCO’s
long-term debt issues. Surplus funds may be invested
only in Ex-Im Bank-approved types of assets. ExIm Bank is entitled to ­represen­tation at all ­meetings
of PEFCO’s Board of Directors, Advisory Board, and
Exporters’ Council. PEFCO furnishes Ex-Im Bank with
full ­information as to b
­ udgets, ­financial condition,
and operating results.
30
3. Summary of Significant
Accounting Policies
Basis of Presentation
The consolidated financial statements include the
accounts of PEFCO and its wholly owned subsidiary,
PEFCO Finance Corporation (“PFC”). These
consolidated financial statements are prepared in
accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”). Certain
revisions have been made to the consolidated financial
statements for the years ended September 30, 2010
and 2009 to conform with the current year presentation.
Use of Estimates
The preparation of financial statements in conformity
with U.S. GAAP requires management to make
estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of
revenue and expenses during the period. Actual results
could differ from those estimates.
Cash
Cash consists of deposits held at banks and highly liquid
money m
­ arket account balances.
Securities Purchased Under Agreement to Resell
PEFCO has agreed to purchase securities from
financial institutions, subject to the seller’s agreement
to repurchase them at an agreed-upon time and place
(“repurchase agreements”). The financial institutions
with which PEFCO enters into repurchase agreements
are banks which PEFCO considers credit worthy. The
sellers under a repurchase agreement are required to
maintain the value of the securities as collateral subject
to the agreement, at no less than the repurchase price
plus accrued interest. Default by or bankruptcy of the
seller would, however, expose PEFCO to possible loss
because of adverse market action or delays in connection
with the disposition of the underlying securities.
Investment Securities
Investment securities that PEFCO has the positive
intent and ability to hold to maturity are classified
as securities held to maturity and recorded at
amortized cost.
Investment securities that may be sold in response
to changes in m
­ arket interest rates, needs for liquidity,
changes in funding sources and terms or other factors
are classified as securities available for sale. The
securities are carried at fair value with unrealized
gains and losses, net of income taxes, reported as
a ­component of accumulated other c­ omprehensive
income (loss).
Interest income on investment securities, including
amortization of premiums and accretion of discounts,
is recognized when earned using the interest method.
Security transactions are accounted for as the date
these securities are purchased or sold (trade date).
Realized gains and losses are reported on an identified
cost basis (FIFO).
Loans, Interest and Fees
Loans are reported at their principal amounts
outstanding. Interest income is recognized when
earned using the interest method. Fees are received
from securitization support transactions and from the
­undisbursed balances of loan commitments. Fee
income is recognized over the period the ­service is
provided. A borrower may ­cancel all or any portion
of an unused fixed-rate loan c­ ommitment or prepay
a fixed-rate loan by paying PEFCO a fee equal to the
­present value of the reinvestment loss, if any, incurred
by PEFCO. Cancellation and prepayment fees are
­recorded as income by PEFCO upon receipt.
Other Assets and Deferred Charges
Debt issuance costs incurred in connection with
the issuance of long-term debt are deferred and
amortized to interest expense ­straight–line over the life
of each issue.
Equipment and leasehold improvements are ­carried at
cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using the
straight-line method over the estimated ­useful life of the
owned asset and, for leasehold improvements, over the
estimated useful life of the improvement or the lease
term, whichever is shorter.
Derivative Financial Instruments
In connection with PEFCO’s asset/liability management
process, the purpose of which is to manage and control
the sensitivity of PEFCO’s earnings to changes in
market interest rates, PEFCO may enter into derivative
financial instruments including interest rate swap
contracts that are designated as hedges of specific
assets or groups of similar assets or similar liabilities
and anticipated debt issuance transactions. Interest
rate swaps are transactions in which two parties
agree to exchange, at specified intervals, interest
payment streams calculated on an agreed-upon
notional amount with at least one stream based on a
specified floating-rate index. The credit risk inherent in
interest rate swaps arises from the potential inability of
counterparties to meet the terms of their contracts.
Derivative financial instruments are recorded in the
balance sheet as either an asset or l­iability measured
at fair value. If the derivative is ­designated as a fair
value hedge, the changes in fair value of the derivative
and the hedged item are recognized in earnings. If the
derivative is designated as a cash flow hedge, changes
in the fair value of the derivative are recorded in other
comprehensive income (loss) and are r­ ecognized
in the income statement when the hedged item
affects earnings.
PEFCO formally documents all relationships between
hedging instruments and hedged items. Also, PEFCO
formally assesses whether the derivatives used in
hedging transactions have been highly effective in
offsetting changes in the fair value or cash flows of
hedged items and whether those derivatives may be
expected to remain highly effective in future periods.
PEFCO adopted amended accounting principles
related to disclosures about derivative instruments
and hedging activities as of October 1, 2008. This
amendment is intended to improve financial reporting
about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to
better understand their effects on the entity’s financial
position, financial performance, and cash flows.
PEFCO Annual Report 2011
The ­classification is determined at the time each security
is acquired. At each reporting date, the appropriateness
of the classification is reassessed.
Fair Value Measurement
PEFCO adopted fair value measurements as of
October 1, 2008. This guidance defines fair value,
establishes a framework for measuring fair value and
expands disclosures about fair value measurements.
This guidance clarifies that the term fair value is
intended to mean a market-based measure, not an
entity-specific measure. In measuring fair value for a
financial statement item, the guidance sets forth a fair
value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad
levels. The highest priority is given to quoted prices in
active markets and the lowest priority to unobservable
inputs. Additional disclosure requirements are required
for the lowest priority level. At PEFCO fair value
measurement is calculated using prices from data
providers and dealers.
Dividends and Distribution to Shareowners
Dividends and distributions to shareowners are
recorded on the ex–dividend date.
31
Income Taxes
Income taxes are recorded based on the provisions of
enacted tax laws, including the tax rates in effect for
current and future years. Net deferred tax assets are
recognized to the extent that it is more likely than not
that these future benefits will be realized.
Notes to Consolidated Financial Statements
The Company adopted FASB guidance which addresses
the recognition and measurement of tax positions taken
or expected to be taken and guidance on derecognition,
and classification, of interest and penalties as of
October 1, 2010. A tax position is recognized as a
benefit only if it is “more likely than not” that the tax
position would be sustained in a tax examination,
with a tax examination being presumed to occur. The
amount recognized is the largest amount of tax benefit
that is greater than 50% likely of being realized on
examination. For tax positions not meeting the “more
likely than not” test, no tax benefit is recorded. The
adoption had no material effect on the Company’s
financial statements.
Recently Issued Accounting Pronouncements
Accounting Standards Update (ASU) 2010-06, Fair Value
Measurement and Disclosures (Topic 820)
Issued Date: January 2010
This update enhances disclosure about (1) different
classes of assets and liabilities measured at fair value,
(2) valuation techniques and inputs used, (3) transfers
between Levels 1, 2, and 3 and (4) activity in Level 3
fair value measurement. Disclosure of activity in Level
3 fair value measurement is effective for fiscal years
and interim periods beginning after December 15,
2010. This guidance was adopted and did not have a
material impact on PEFCO’s financial statements
and disclosures.
Accounting Standards Update (ASU) 2011-02, Troubled
Debt Restructurings
Issued Date: April 2011
This amendment clarifies the guidance for accounting
for troubled debt restructurings (TDRs). The ASU
clarifies the guidance on a creditor’s evaluation of
whether it has granted a concession and whether a
debtor is experiencing financial difficulties, such as:
• Creditors cannot assume that debt extensions at or
above a borrower’s original contractual rate do not
constitute troubled debt restructurings.
32
• If a borrower doesn’t have access to funds at the
market rate for debt with characteristics similar to the
restructured debt, that may indicate that the creditor
has granted a concession.
• A borrower that is not currently in default may still
be considered to be experiencing financial difficulty
when payment default is considered probable in the
foreseeable future.
The guidance is effective for interim and annual
periods ending after June 30, 2011 and must be
applied retrospectively to restructurings occurred on
or after January 1, 2011. Adoption of this guidance did
not have a material impact on PEFCO’s consolidated
financial statements.
Accounting Standards Update (ASU) 2011-03,
Reconsideration of Effective Control for Repurchase
Agreements (Topic 860)
Issued Date: April 2011
The ASU amends the criteria used to assess whether
repurchase agreements should be accounted for as
financing or sales (purchases) with forward agreements
to repurchase (resell). Specifically, the guidance
eliminates circumstances in which the lack of adequate
collateral maintenance requirements could result in
a repurchase agreement being accounted for as a
sale. The guidance should be applied prospectively to
transactions or modifications of existing transactions
that occur on or after December 15, 2011. Early
adoption is not permitted. Adoption of this guidance
will not have a material impact on PEFCO’s consolidated
financial statements.
Accounting Standard Update (ASU) 2011-04, Fair Value
Measurement and Disclosures
Issued Date: May 2011
The ASU issued guidance that amends the
requirements for fair value measurement and
disclosure. The guidance changes and clarifies certain
existing requirements related to portfolios of financial
instruments and valuation adjustments and requires
additional disclosures for fair value measurement
categorized in Level 2 and Level 3 of the fair value
hierarchy (including disclosure of the range of inputs
used in certain valuations) and for financial instruments
that are not carried at fair value but for which fair value
is required to be disclosed. The guidance is effective
for annual periods beginning after December 15, 2011.
Adoption of this guidance will not have a material
impact on PEFCO’s consolidated financial statements.
annual periods beginning after December 15, 2011.
Adoption of guidance will not affect PEFCO’s financial
condition and will change the presentation of the
consolidated statement of operations.
Issued Date: June 2011
The ASU amends the guidance on the presentation of
comprehensive income in ASC 220, Comprehensive
Income that would require companies to present a
single statement of comprehensive income or two
consecutive statements. The proposed guidance
would make financial statement presentation of other
comprehensive income more prominent by eliminating
the alternative to present comprehensive income within
the statement of equity. The ASU will be effective for
On October 21, 2011, the Financial Accounting
Standards Board (FASB) decided to propose a deferral
of the new requirement to present reclassifications
of other comprehensive income on the face of the
income statement. Companies would still be required
to adopt the other requirements contained in the
new accounting standard for the presentation of
comprehensive income.
4. Investment Securities
September 30, 2011 (000’s)
Available for Sale
Amortized
Cost
U.S. Treasury Securities
Maturity in one year or less
$ 279,993
U.S. Guaranteed Securities
Maturity in one year or less(c)
Gross
Unrealized
Gains
$­
4
Gross
Unrealized
Losses
$
2
Fair
Value(a)
Average
Yield(b)
$ 279,995
0.01%
25,219
33
100
25,152
1.37%
Maturity after one year through five years(c)
181,095
3,215
111
184,199
1.95%
Maturity after five years through ten years
111,003
2,274
189
113,088
2.07%
8,704
63
37
8,730
1.35%
172
61
14
219
—
$ 606,186
$ 5,650
$ 453
$ 611,383
1.04%
(c)
Maturity after ten years(c)
Equity Securities
Total Available for Sale Securities
PEFCO Annual Report 2011
Accounting Standards Update (ASU) 2011-05,
Comprehensive Income (Topic 220)
September 30, 2010 (000’s)
Available for Sale
Amortized
Cost
U.S. Treasury Securities
Maturity in one year or less
$ 334,665
U.S. Guaranteed Securities
Maturity in one year or less(c)
Gross
Unrealized
Gains
$­
6
Gross
Unrealized
Losses
$
1
Fair
Value(a)
Average
Yield(b)
$ 334,670
0.25%
32,075
270
29
32,316
2.88%
Maturity after one year through five years(c)
244,466
8,476
181
252,761
2.71%
Maturity after five years through ten years
71,878
1,781
38
73,621
2.04%
21,188
940
104
22,024
2.80%
Maturity after ten years(c)
Equity Securities
Total Available for Sale Securities
(c)
173
100
20
253
—
$ 704,445
$ 11,573
$ 373
$ 715,645
1.48%
(a) The fair value of PEFCO’s portfolio of investment securities is based on independent dealer quotations.
(b) The average yield is based on effective rates on carrying values at the end of the year.
(c) The weighted average term has been used for U.S. Guaranteed Securities that have scheduled principal payments through final maturity. For U.S.
Guaranteed Securities that do not have scheduled principal payments (i.e. bullets), allocations are based on the actual date of maturity.
33
Notes to Consolidated Financial Statements
Cash Proceeds from the sales of available for sale
securities during 2011, 2010, and 2009 were $197.2
million, $102.9 million, and $33.2 million respectively.
Net gains from available for sale securities sold in 2011
amounted to $6.7 million (gross gains of $6.7 million
and gross losses of $5 thousand). Net gains from
available for sale securities sold in 2010 amounted
to $1.7 million (gross gains of $1.7 million and gross
losses of $1 thousand). Net gains from available for sale
securities sold in 2009 amounted to $180 thousand
(gross gains of $194 thousand and gross losses of
$14 thousand).
There were no sales of held to maturity securities in
2011. Cash proceeds from the sales of held to maturity
securities during 2010 and 2009 were $80 million and
$100.4 million respectively. Gross gains from held
to maturity securities sold in 2010 amounted to $2.4
million. Gross gains from held to maturity securities sold
in 2009 amounted to $438 thousand.
Securities purchased under agreements to resell
averaged approximately $174.6 million in 2011 and $94.8
million in 2010 ($38.9 million in 2009). The average
yield on repurchase agreements for the year ended
September 30, 2011 was .04% and .07% in 2010
(.06% in 2009). In 2011, maturities ranged from one to
five days.
September 30, 2011
U.S. Treasury Securities
Fair Unrealized
Value
Losses
—
—
71,931
316
$ 13,214
$ 135
$ 171,927
$ 318
$ 13,214
$ 135
$
Less Than
12 months (000’s)
12 months
or more (000’s)
Fair Unrealized
Value
Losses
Fair Unrealized
Value
Losses
$ 204,990
$ 1
—
—
14,474
88
$ 51,276
$ 284
$ 219,464
$ 89
$ 51,276
$ 284
U.S. Guaranteed Securities
Total temporary
impaired securities
Fair Unrealized
Value
Losses
2
September 30, 2010
U.S. Treasury Securities
12 months
or more (000’s)
$ 99,996
U.S. Guaranteed Securities
Total temporary
impaired securities
Less Than
12 months (000’s)
These investment securities are U.S. Guaranteed
Securities. The unrealized losses on these investments
resulted from the movement in the yield curve and are
not credit related. PEFCO has the ability and intent to
hold these investments for a period of time sufficient
to collect all amounts due according to the contractual
terms of the investments.
The following tables provides the gross unrealized
losses and fair value, aggregated by investment
category and length of time the individual securities
have been in a continuous unrealized loss position.
5. Lending Programs
Loans outstanding at September 30, 2011, and related undisbursed commitments are classified as follows:
Outstanding Loans (000’s)
Export loans guaranteed or insured by Ex-Im Bank
Direct & Secondary Long-Term Loan Programs
Fixed-rate
Floating-rate
Amount
Undisbursed Commitments (000’s)
Average Rate
Amount
$ 3,907,790
989,980(a)
4.29%
$ 787,324(b)
988,410(a)
67,459
598,545(c)
$ 5,563,774
4.04%
46,324(b)
131,246(a)
$ 1,953,304
Short-Term & Medium-Term Loan Programs
Fixed-rate
Floating-rate
Loans insured by OPIC
Long-Term Floating Rate
Medium-Term Fixed Rate
Medium-Term Floating Rate
Total
34
131,183(a) (c)
6,716(c)
139,450(a) (c)
5.78%
36,996(a) (c)
$ 277,349
$
$ 5,841,123
$ 1,990,300
36,996
(a) The base interest rate is the London Interbank Offered Rate (“LIBOR”).
(b) The interest rate will be determined upon pricing (Direct and Secondary) / disbursement (Small Business & Medium-Term).
(c) These transactions are unconditionally guaranteed by the sovereign governments involved and are fully insured by OPIC against the non honoring
of such sovereign guarantees.
Outstanding loans are scheduled for repayment at September 30, 2011
as follows: (in 000’s of USD)
Outstanding loans are scheduled for repayment at September 30, 2010
as follows: (in 000’s of USD)
2012
$ 1,159,428
2011
$ 832,110
2013
737,129
2012
641,972
2014
650,007
2013
577,079
2015
569,931
2014
466,354
2016
524,862
2015
406,557
2,199,766
Total before Fair Value Hedge Adjustment
2016 and thereafter
1,601,293
Total before Fair Value Hedge Adjustment
and Unamortized Discount
$ 5,841,123
and Unamortized Discount
$ 4,525,365
Fair Value Hedge Adjustment
338,191
Fair Value Hedge Adjustment
267,255
Unamortized Discount
Total Carrying Value
(116)
$ 6,179,198
Unamortized Discount
(141)
Total Carrying Value
$ 4,792,479
Loans outstanding at September 30, 2010, and related undisbursed commitments are classified as follows:
Outstanding Loans (000’s)
Export loans guaranteed or insured by Ex-Im Bank
Direct & Secondary Long-Term Loan Programs
Fixed-rate
Floating-rate
Amount
Undisbursed Commitments (000’s)
Average Rate
Amount
$ 3,240,427
582,830(a)
4.67%
$ 793,335(b)
452,038(c)
64,967
342,009(c)
$ 4,230,233
4.89%
26,293(b)
376,990(c)
$ 1,648,656
Short-Term & Medium-Term Loan Programs
Fixed-rate
Floating-rate
Loans insured by OPIC
Long-Term Floating Rate
Medium-Term Fixed Rate
Medium-Term Floating Rate
Total
159,650(c) (d)
7,583(d)
127,899(c) (d)
PEFCO Annual Report 2011
2017 and thereafter
5.78%
56,192(c) (d)
$ 295,132
$
56,192
$ 4,525,365
$ 1,704,848
(a) The base interest rate on $201,949 is the 90-day London Interbank Offered Rate (“LIBOR”). The base rate on $380,881 is the 180-Day LIBOR
(b) The interest rate will be determined upon pricing (Direct and Secondary) / disbursement (Small Business & Medium Term)
(c) The base interest rate is the 180-Day LIBOR
(d) These transactions are unconditionally guaranteed by the sovereign governments involved and are fully insured by OPIC against the non honoring
of such sovereign guarantees.
Under the liquidity support program, PEFCO supports
both medium- and long-term U.S. Agency-guaranteed
financing f­ acilities by providing liquidity support during
the waiting period prior to p
­ ayment by the agency
under its guarantee and by funding interim notes until
securitization of the agency-­guaranteed debt is effected.
PEFCO’s liquidity support advance, if any, will be repaid
and is secured by the agency’s guarantee and, in
certain instances, by deposits held by a trustee. As of
September 30, 2011, PEFCO supported one transaction
amounting to $30 m
­ illion in agency-guaranteed
financing facilities. PEFCO’s m
­ aximum ­exposure to
advance funds in its support of these ­transactions on
any given day was $4 million.
6. Short-Term Notes
At September 30, 2011, PEFCO’s short-term notes
consisted of commercial paper in the amount of
$2.1 billion. Commercial paper is generally issued
in amounts not less than $100 thousand and with
maturities of 270 days or less.
Short-term notes averaged approximately $2.1 billion in
2011 ($1.8 billion in 2010), with an average interest rate
of .27% in 2011 (.29% in 2010). At September 30, 2011,
the cost of the commercial paper after adjusting for the
impact of the interest rate swaps (cash flow hedges) is
.48% (.54% at September 30, 2010).
35
PEFCO has in place three syndicated revolving credit
facilities with 17 banks, of which nine are shareowners,
split between a three year $270 million facility, a three
year $235 million facility and a 364 day facility for $940
million. At September 30, 2011, there were no amounts
outstanding under any facility.
7. Long-Term Secured Notes
Notes to Consolidated Financial Statements
Secured Notes typically have original maturities of five
years or longer and are sold through underwriters. Lead
underwriters are often also shareowners of PEFCO. The
principal of all Secured Notes is fully backed by collateral
assets held in a trust arrangement residing on the books
of Private Export Funding Corporation. Collateral assets
include U.S. Treasury Securities or other obligations
unconditionally guaranteed or fully insured by the United
States or agencies or instrumentalities of the United
States, and foreign importer notes supported directly by
export loan guarantees by Ex-Im Bank under the 1971
Guarantee Agreement. The securities and notes are
assigned to, and held by, The Bank of New York Mellon
(a shareowner of PEFCO), as Trustee. The collateral
includes scheduled maturities which ensure that, before
the date on which payment of principal of each Secured
Note is due, the Trustee will have cash from maturing
collateral sufficient to pay the principal of the Secured
Notes. Payment of interest on the Secured Notes is
fully guaranteed by Ex-Im Bank in return for a fee paid by
PEFCO, which is expensed as incurred.
In 2011, PEFCO issued $1,200 million of Secured
Notes. The average balance of long-term Secured
Notes was approximately $4,003 million in 2011 ($3,548
million in 2010), and the average interest cost for the
year ended September 30, 2011 was 4.20% (4.64% in
2010). A summary of the Secured Note maturities as
of September 30, 2011 and September 30, 2010
appears below.
Remaining Maturities of long-term Secured Notes are as follows:
(000’s of USD)
2012
$ 387,671
2013
696,405
2014
0
2015
730,000
2016
650,000
2017 and thereafter
Total Outstanding Principal Amount
Fair Value Hedge Adjustment
$ 4,514,076
370,284
Unamortized Premium
19,196
Unamortized Discount
(6,199)
Total Carrying Value
36
2,050,000
$ 4,897,357
Remaining Maturities of long-term Secured Notes at September 30, 2010
are as follows: (000’s of USD)
2011
$ 132,445
2012
400,000
2013
700,005
2014
0
2015
730,000
2016 and thereafter
Total Outstanding Principal Amount
Fair Value Hedge Adjustment
1,500,000
$3,462,450
305,515
Unamortized Premium
14,667
Unamortized Discount
(4,687)
Total Carrying Value
$3,777,945
In 2011, PEFCO repurchased $15.9 million of its longterm Secured Notes at a premium for an aggregate
loss of $838 thousand. For comparison, there were no
repurchases in 2010. In 2009, there were repurchases
of $13.9 million at a premium for an aggregate loss of
$569 thousand.
As noted above, the principal cash flows arising from
the collateral pool backing each Secured Note series
must mature before the due date when the Secured
Note principal is due. The principal cash flows are
segregated between designated installments (pledged
in the trust against existing Secured Note issuances)
and free installments (pledged in the Trust arrangement
but not designated currently against any existing
Secured Note issuances). Designated installments
in excess of a Secured Note principal redemption are
available to back the next scheduled Secured Note
redemption. Free installments are available collateral
for pledging against future Secured Note issuance, or
transferring out of the trust if held as current cash.
The pledged collateral backing the Secured Notes at
September 30, 2011 consists of $4,316 million in foreign
importer notes backed by the 1971 Guarantee and $246
million in U.S. Treasuries and other U.S. Government
guaranteed securities. Total pledged assets including
cash are $4,622 million against the balance of Secured
Notes outstanding of $4,514 million. For designated
installments at September 30, 2011, the amount
of principal installments in excess of Secured Note
principal redemption amounted to $19 million. For
free installments at September 30, 2011, principal
installments available after February 15, 2022 amount to
$89 million.
Original
Principal
Amount
Principal
Amount
9/30/11
Coupon
Rate
Effective
Rate(a)(b)
Maturity
Schedule
Designated
Collateral
Installments
As a % of
Principal
9/30/11
Principal
Due Within
One Year
Series V
$ 150,000
$ 148,295
4.90%
3.96%
Dec-11
303,765
205%
$ 148,295
Series P
250,000
239,376
5.69%
5.45%
May-12
367,696
154%
239,376
Series Y
450,000
450,000
3.55%
3.47%
Apr-13
639,211
142%
—
Series R
300,000
246,405
4.97%
4.79%
Aug-13
365,228
148%
—
Issue
Designation
Series AA
400,000
400,000
3.05%
3.07%
Oct-14
697,777
174%
—
Series T
330,000
330,000
4.55%
4.47%
May-15
565,160
171%
—
Series U
350,000
350,000
4.95%
4.61%
Nov-15
508,783
145%
—
Series DD
300,000
300,000
2.13%
2.15%
Jul-16
443,945
148%
—
Series W
100,000
100,000
5.00%
5.01%
Dec-16
334,428
334%
—
Series X
250,000
250,000
5.45%
5.47%
Sep-17
559,289
224%
—
Series CC
400,000
400,000
2.25%
2.28%
Dec-17
412,491
103%
—
Series Z
500,000
500,000
4.38%
4.25%
Mar-19
520,619
104%
—
Series BB
500,000
500,000
4.30%
4.22%
Dec-21
788,912
158%
—
Series EE
300,000
300,000
2.80%
2.83%
May-22
318,658
106%
—
$ 4,580,000
$ 4,514,076
3.98%
3.87%
$ 387,671
(a) Forward gains and losses and original issue discounts are reflected in the effective interest rate.
(b) Weighted average
PEFCO Annual Report 2011
Long-term Secured Notes outstanding as of September 30, 2011 (in thousands USD):
Long-term Secured Notes outstanding as of September 30, 2010 (in thousands USD):
Original
Principal
Amount
Principal
Amount
9/30/10
Series O
$ 150,000
$ 132,445
6.07%
Series V
150,000
150,000
4.90%
Issue
Designation
Coupon
Rate(b)
Maturity
Schedule
Designated
Collateral
Installments
6.07%
Apr-11
3.97%
Dec-11
Effective
Rate(a)(b)
As a % of
Principal
9/30/10
Principal
Due Within
One Year
$495,921
374%
$ 132,445
707,043
471%
—
Series P
250,000
250,000
5.69%
5.47%
May-12
713,730
285%
—
Series Y
450,000
450,000
3.55%
3.47%
Apr-13
852,694
189%
—
Series R
300,000
250,005
4.97%
4.80%
Aug-13
520,415
208%
—
Series AA
400,000
400,000
3.05%
3.07%
Oct-14
677,156
169%
—
Series T
330,000
330,000
4.55%
4.47%
May-15
455,084
138%
—
Series U
350,000
350,000
4.95%
4.61%
Nov-15
361,207
103%
—
Series W
100,000
100,000
5.00%
5.01%
Dec-16
331,602
332%
—
Series X
250,000
250,000
5.45%
5.47%
Sep-17
439,223
176%
—
Series Z
400,000
400,000
4.38%
4.43%
Mar-19
573,258
143%
—
Series BB
400,000
400,000
4.30%
4.29%
Dec-21
418,907
105%
—
$ 3,530,000
$ 3,462,450
4.50%
4.39%
$ 132,445
(a) Forward gains and losses and original issue discounts are reflected in the effective interest rate.
(b) Weighted average
37
8. Long-Term
Collateralized Notes
Notes to Consolidated Financial Statements
PFC’s long-term Collateralized Notes are not debt
obligations of PEFCO and are not guaranteed by Ex-Im
Bank. The Collateralized Notes are separate and distinct
from the Secured Notes and are issued pursuant to
a separate indenture. The principal of and interest on
the long-term Collateralized Notes are fully secured
by foreign importer notes related to export loans
guaranteed by Ex-Im Bank and U.S. Treasury Securities,
which are assigned to, and held by, The Bank of New
York Mellon (a shareowner of PEFCO), as Trustee. The
scheduled m
­ aturities of this collateral ensure that before
the date on which p
­ ayments of ­principal and interest on
the Collateralized Notes are due, the Trustee will have
sufficient cash to pay such amounts due.
An election had been made by PFC to treat itself as a
financial asset securitization investment trust (“FASIT”)
for U.S. federal income tax purposes. Under enacted
tax legislation, the FASIT rules were repealed. Under
the transition rules provided, any Collateralized Notes
issued by PFC before October 22, 2004 will continue
to qualify as regular interests in PFC, as long as they
remain outstanding in accordance with their original
terms. PFC, however, may not issue any additional
Collateralized Notes.
Long-term Collateralized Notes outstanding at September 30, 2011 (in thousands USD):
Issue
Designation
Original
Principal
Amount
Principal
Amount
9/30/11
$0
$0
Series 2001-1
Coupon
Rate
Effective
Interest
Rate(a)
Maturity
Schedule
(a) Forward gains and losses and original issue discounts are reflected in the effective interest rate.
In 2011 and 2010, there were no long-term Collateralized Notes repurchases. In 2009, $20 million of PFC’s long-term
Collateralized Notes were repurchased at a premium for an aggregate loss of $1.8 million. In 2011, the outstanding
principal amount of $42 million of long-term Collateralized Notes matured.
Long-term Collateralized Notes outstanding at September 30, 2010 (in thousands USD):
Issue
Designation
Original
Principal
Amount
Principal
Amount
9/30/10
Coupon
Rate
Series 2001-1
$100,000
$42,000
5.66%
Effective
Interest
Rate(a)
Maturity
Schedule
5.66% September 2011
(a) Forward gains and losses and original issue discounts are reflected in the effective interest rate.
9. Shareowners’ Equity
Each share of common stock outstanding is subject to an additional assessment of $1,000 upon call by
the Board of Directors. Net income per share of
$226.25 has been calculated based on 14,811
shares ­outstanding.
During the year PEFCO did not sell any common shares.
In 2010, PEFCO sold to UPS Capital Business Credit,
a current shareowner, 18 shares of PEFCO’s common
shares for $112 thousand.
38
Under an agreement with Ex-Im Bank effective
October 1, 2007, PEFCO has approval to declare or
pay dividends of up to 50% of annual net income,
subject to the following: (i) the shareowners’ equity
of PEFCO, after giving effect to such dividend, is
­maintained at a minimum of $55 million (excluding
the impact on shareowners’ e
­ quity of market value
accounting for investment ­securities and for cash flow
hedges); (ii) PEFCO m
­ aintains, after giving effect to
such dividend, a leverage ratio of ­guaranteed assets
to shareowners’ e
­ quity not in excess of 75 to 1; and
(iii) PEFCO maintains a guideline that permits fixedrate export loan offers outstanding at any one time
to aggregate at least $500 m
­ illion. The Board of
Directors voted not to declare a dividend for the fiscal
year ending September 30, 2011. As of September
30, 2011, d
­ ividends comprised 62% of cumulative net
income, shareowners’ equity excluding accumulated
other comprehensive income (loss) was $
­ 108.1 million,
leverage was 54 to 1 and the maximum fixed-rate
export loan offer guideline was $700 million.
10. Income Taxes
The provision for income taxes is as follows for the years ended September 30,
Federal-current
Federal-deferred
2011
2010
2009
$ 1,816
$ 641
$ 7,952
(73)
(54)
(104)
$ 1,743
$ 587
$ 7,848
A reconciliation from the U.S. Federal statutory tax rate to the
effective income tax rate is as follows for the years ended September 30,
2011
2010
2009
Tax at statutory rate
34.0%
34.0%
35.0%
Effective income tax rate
34.2%
29.7%
35.0%
PEFCO Annual Report 2011
Included in other assets and deferred charges at
September 30, 2011 is a deferred tax asset of $5,378
thousand ($3,984 thousand in 2010). PEFCO determined
that, as it was more likely than not that such deferred
tax asset would be realized in the future, no valuation
allowance was required as of September 30, 2011 and
2010. This determination was made based upon the
evidence of prior year earnings as well as expected
future earnings.
The following table is an analysis of the deferred tax assets/liabilities (in thousands) for the years ended September 30:
2011
2010
Deferred Asset (Liability)
Deferred Asset (Liability)
$ 4,253
$ 5,282
1,668
1,595
Future tax benefits-post retirement benefit
450
369
Future tax benefits-pension
773
545
$ 7,144
$ 7,791
(1,766)
(3,807)
Cash flow hedge- unrealized gains
Other deferred taxes(1)
Total deferred assets
Investment securities-unrealized losses
Total deferred liabilities
$ (1,766)
$ (3,807)
Net deferred assets
$ 5,378
$ 3,984
(1) relates mostly to temporary differences in the current tax provision
Non-taxable life insurance proceeds of $293 thousand
received by PEFCO in 2010 resulted in the reduction of
the tax statutory rate from 34% to 29.7%.
The Company has not recorded any uncertain tax
positions as of September 30, 2011 and 2010. The
Company does not expect its uncertain tax position
balance to change significantly in the next 12 months.
The company is no longer subject to examinations by
taxing authorities for all fiscal years prior to the one
ended September 30, 2008. Currently, there are no
examinations in progress and the Company has not
been notified of any future examination by applicable
taxing authorities.
There are no significant matters affecting the
comparability of the income tax information
presented above.
11. Employee Benefit Plans
The measurement date of both plans is September
30, 2011. At this date, the fair value of the qualified
plans assets was $4,942 thousand. The projected
benefit obligation (“PBO”) was $6,586 thousand
for the qualified plan and $3,609 thousand for the
nonqualified plan. The funded status at September
30, 2011 was ($1,643) thousand for the qualified plan
and ($3,609) thousand for the non-qualified plan. The
estimated net loss and prior service costs for the
qualified plan that will be amortized from accumulated
other comprehensive income into the net periodic
pension cost over the next fiscal year is $ 134 thousand
and $ 22 thousand respectively. The estimated
net loss and prior service costs for the nonqualified
plan that will be amortized from accumulated other
comprehensive income into the net periodic pension
cost over the next fiscal year is $28 thousand and ($4)
39
thousand respectively. The employer contributions for
the qualified plan were $700 thousand in 2011 ($457
thousand in 2010). The PBO is based on a discount
rate of 4.69%. Pension expense for the qualified plan
was $506 thousand in 2011 ($457 thousand in 2010).
Pension expense for the nonqualified plan was $482
thousand in 2011 ($371 thousand in 2010).
Notes to Consolidated Financial Statements
The plan assets are currently invested in a balanced
fund. The asset allocation of the balanced fund
consists of approximately 70% in equity securities and
approximately 30% in debt securities. At September
30, 2011 and 2010 all plan assets were invested in Level
I asset classes. The funding objectives of the pension
plan are to achieve and maintain plan assets adequate
to cover the accumulated benefit obligation and to
provide competitive investment returns and reasonable
risk levels when measured against appropriate
benchmarks. The expected long-term rate of return
on plan assets was 7% at September 30, 2011 (7.00%
at September 30, 2010) and will be adjusted annually
to take into account changes in historical returns on
the appropriate indices and any changes in the plan’s
investment allocation strategies.
Pursuant to accounting standards, PEFCO must
recognize the cost of health care and life insurance
post-retirement benefits during the periods employees
render service, with such costs being recognized in
full by the eligibility date. The periodic post-retirement
benefit cost for 2011 was $467 thousand. PEFCO
contributed $29 thousand in 2011 towards the cost of
healthcare and life insurance benefits.
The accumulated post-retirement benefit obligation
(“APBO”) for the unfunded plan at September 30, 2011
was $3,151 thousand. The APBO is based on a discount
rate of 4.69% and assumed health care cost trend rates
for medical, pre-65 at 9.5% and post-65 at 7.75% and
prescription drugs at 8.5%. These rates will gradually
decrease to 5% by 2018. The impact of a 1% change
in the health care cost trend rate assumption would
amount to approximately $102 thousand.
PEFCO has a defined contribution 401(k) plan in which
all full-time employees, after completing six months
of service, are eligible to participate. This plan allows
employees to make pre-tax contributions to tax-deferred
investment portfolios. Employees may contribute up
to 12% of their compensation subject to certain limits
based on federal income tax laws. PEFCO matches
employee contributions up to 6% of an employee’s
compensation. The contribution expense was $162
thousand in 2011 ($137 thousand in 2010).
40
12. D
erivative Financial
Instruments
PEFCO uses derivative financial instruments, including
interest rate swap contracts, as part of its asset/liability
management activities. The objective of the asset/
liability management process is to manage and control
the sensitivity of PEFCO’s earnings to changes in the
market interest rates. The process seeks to maximize
earnings while not placing at risk of a 100 basis point
movement in interest rate more than 10% of the pretax net present value of PEFCO’s capital, which is the
acceptable specified limit authorized by PEFCO’s Board
of Directors.
Interest rate swap contracts are transactions in which
two parties agree to exchange, at specified intervals,
interest payment streams calculated on an agreedupon notional amount with at least one stream
based on a specified floating-rate index. The notional
principal amount of interest rate swap contracts do
not represent the market or credit risk associated with
those contracts but rather provide an indication of the
volume of the transactions. The credit risk inherent in
interest rate swaps arises from the potential inability
of counterparties to meet the terms of their contracts.
PEFCO performs credit reviews and enters into netting
agreements to minimize the credit risk of interest rate
swaps. There were no counterparty default losses in
2011, 2010, or 2009.
The following table summarizes the notional amount
and credit exposure of PEFCO’s derivative instruments
at September 30, 2011 and 2010.
Derivatives Instruments designated as hedges
(in thousands)
Interest Rate Swaps
Fair Value Hedge
Cash Flow Hedge
Total
Notional
2011
Credit Exposure
2010
2011
2010
$ 7,352,861 $ 5,367,329 $ 371,775 $ 305,515
90,000
90,000
0
0
$ 7,442,861 $ 5,457,329 $ 371,775 $ 305,515
Effect of master
netting agreements
Total Credit Exposure
(317,179)
(244,773)
$ 54,596 $ 60,742
PEFCO has interest rate swap contracts designated
as fair value hedges, which hedge certain fixed-rate
long-term loans and certain fixed-rate long-term secured
notes (debt).
The objective of the fair value hedge is to protect the
fixed-rate long-term loans and the fixed-rate long-term
debt against changes in LIBOR which is the designated
benchmark interest rate
by PEFCO.
Certain fair value hedges are considered to be 100%
effective as each meets shortcut method accounting
requirements and, accordingly the changes in fair values
of both the interest rate swap contracts and related
debt are recorded as equal and offsetting gains and
losses in the Consolidated Statements of Financial
Condition. As a result, regarding these fair value
hedges, there was no gain or loss recognized in current
period earnings.
term liabilities. Any ineffectiveness must be recorded
in the current period earnings. The gains and losses
deemed to be effective are recorded in Accumulated
Other Comprehensive Income (Loss), net of applicable
Income Taxes.
Certain fair value hedges do not meet shortcut
accounting requirements and accordingly, the extent
to which these instruments are effective at achieving
offsetting changes in fair value must be assessed at
least quarterly. Any ineffectiveness must be recorded in
current period earnings.
PEFCO does not enter into interest rate swap
contracts or other derivatives not designated as
hedging instruments.
Ineffectiveness (in thousands)
Year ended September 30,
Interest Rate Swaps
2011
2010
2009
Fair Value Hedge
$ 90
$ 71
$ 155
Cash Flow Hedge
Total
0
0
(41)
$ 90
$ 71
$ 114
PEFCO Annual Report 2011
PEFCO has interest rate swap contracts designated as
cash flow hedges, which offset the variability in cash
flows arising from the rollover of short-term notes
(liabilities). The cash flow hedges are considered to be
highly effective and accordingly, the changes in the cash
flows of the interest rate swap contracts have been,
and are expected to continue to be, highly effective at
offsetting the changes in the cash flows of the short-
Ineffectiveness related to derivatives and hedging
relationships was recorded in net financing income
as follows:
The following table presents the effect of PEFCO’s derivative instruments on the Consolidated Statements of Financial Condition: (in thousands USD)
Asset Derivatives Fair Value (1)
Derivatives designated as hedging
Liability Derivatives Fair Value (2)
2011
2010
2011
2010
Interest Rate Swaps
$ 371,775
$ 305,515
$ 356,629
$ 293,228
Total
$ 371,775
$ 305,515
$ 356,629
$ 293,228
(317,179)
(244,773)
(317,179)
(244,773)
$ 54,596
$ 60,742
$ 39,450
$ 48,455
Effect of master netting agreements
Total Reported on the Consolidated Statements
of Financial Condition
(1) Reported as “Other Assets and Deferred Charges” on the Consolidated Statements of Financial Condition
(2) Reported as “Accrued Expenses and Other Liabilities” on the Consolidated Statements of Financial Condition
(3) Fair Values are on a gross basis, before consideration of master netting agreements as required by SFAS Interpretation No. 39; PEFCO received/paid no
cash collateral in connection with the derivative transactions
The following table presents the effect of PEFCO’s derivative instruments in cash flow hedging relationships on the Consolidated Statements of Operations:
(in thousands USD)
Loss (Gain) Recognized in
Other Comprehensive
Income (OCI) on Derivatives,
net of tax (Effective Portion)
Interest Rate Swaps
Loss Reclassified
from OCI into
Total Financing Expense
2011
2010
2009
2011
2010
2009
$ (1,781)
$ 1,828
$ 3,241
$ 327
$ 309
$ 363
41
13. Fair Value measurements
Notes to Consolidated Financial Statements
PEFCO has performed an analysis of all existing
investments, debt instruments and derivative
instruments to determine the significance and character
of all inputs to their fair value determination. Based
on this assessment, the adoption of this guidance did
not have any material effect on PEFCO’s Consolidated
Statements of Financial Condition and Consolidated
Statements of Operations. However, the adoption of
this guidance does require PEFCO to provide additional
disclosures about the inputs used to develop the
measurements and the effect of certain measurements
on changes in assets and liabilities for the reportable
periods as included in PEFCO’s annual report.
The guidance establishes a fair value hierarchy
that prioritizes the inputs to valuation techniques
used to measure fair value into the following three
broad categories.
1. L
evel 1 ­– Quoted unadjusted prices for identical
instruments in active markets to which PEFCO
has access at the date of measurement.
Level 1 securities include U.S. Treasury and
Equity Securities.
2. L
evel 2 – Quoted prices for similar instruments
in active markets; quoted and model-derived
valuations in which all significant inputs and
significant value drivers are observable in active
markets. Level 2 inputs are those in markets
for which there are few transactions, the prices
are not current, little public information exists or
instances where prices vary substantially over
time or among brokered market makers. Level 2
securities consist of U.S. Guaranteed Securities.
3. L
evel 3 – Model derived valuations in which one or
more significant inputs or significant value drivers
are unobservable. Unobservable inputs are those
inputs that reflect PEFCO’s own assumptions that
market participants would use to price the asset or
liability based on the best available information.
September 30, 2011 (000’s)
Quoted Prices
in Active
Market (Level 1)
Prices w/Other
Observable
Inputs (Level 2)
Prices w/
Significant
Unobservable
Inputs (Levels 3)
$ 280,214
$ 331,169
—
—
$ 611,383
—
371,775
—
(317,179)
54,596
$ 280,214
$ 702,944
—
(317,179)
$ 665,979
Unrealized depreciation on interest rate swaps
—
$ 356,629
—
(317,179)
$ 39,450
Total Liabilities at Fair Value
—
$ 356,629
—
(317,179)
$ 39,450
Asset Fair Value
Available-for-sale securities
Unrealized appreciation on interest rate swaps
Total Assets at Fair Value
Netting(a)
Total
Liabilities Fair Value
September 30, 2010 (000’s)
Asset Fair Value
Available-for-sale securities
Unrealized appreciation on interest rate swaps
Quoted Prices
in Active
Market (Level 1)
Prices w/Other
Observable
Inputs (Level 2)
Prices w/
Significant
Unobservable
Inputs (Levels 3)
$ 334,923
$ 380,722
—
—
Netting(a)
Total
$ 715,645
—
305,515
—
(244,773)
60,742
$ 334,923
$ 686,237
—
(244,773)
$ 776,387
Unrealized depreciation on interest rate swaps
—
$ 293,228
—
(244,773)
$ 48,455
Total Liabilities at Fair Value
—
$ 293,228
—
(244,773)
$ 48,455
Total Assets at Fair Value
Liabilities Fair Value
(a) PEFCO has elected to net unrealized gains (receivables) and unrealized losses (payables) when a legally enforceable master
netting agreement exists.
42
PEFCO did not have any assets or liabilities that were
measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) during the year
ended September 30, 2011 and 2010. PEFCO did not
have any assets or liabilities that were measured at fair
value on a non-recurring basis during the years ended
September 30, 2011 and 2010.
There were no transfers between Level 1 and Level 2
during the years ended September 30, 2011 and 2010.
The following table presents the carrying amounts and estimated fair values of financial instruments as of September 30, 2011 and 2010 (in thousands USD)
Assets
Cash
Repurchase Agreements
Investment securities
Interest and fees receivable
Loans
Interest rate swaps
2010
Estimated
Fair Value
Carrying
Amount
$ 302,259
$ 302,259
0
0
145,000
145,000
611,383
611,383
715,645
715,645
71,357
71,357
68,257
68,257
6,179,198
6,289,628
4,792,479
4,919,158
54,596
54,596
60,742
60,742
$ 2,144,667
$ 2,144,667
$ 1,814,941
$ 1,814,941
$
29,065
Estimated
Fair Value
$
29,065
Liabilities
Short-term notes
Interest payable
Long-term Secured Notes
Long-term Collateralized Notes
Interest rate swaps
Certain Short-Term or Floating-Rate Financial
Instruments - For the following financial instruments,
which have relatively short-term maturities or floating
interest rates, the carrying amounts recognized in the
Consolidated Statement of Financial Condition were
determined to be a reasonable estimate of their fair
value: cash, repurchase agreements, floating-rate loans,
interest and fees receivable, short-term notes and
interest payable.
47,905
47,905
45,731
45,731
4,897,357
4,939,554
3,777,945
3,814,240
0
0
42,000
44,191
39,450
39,450
48,455
48,455
PEFCO Annual Report 2011
2011
Carrying
Amount
Long-Term Secured Notes and Collateralized Notes - The
fair values were based on dealer quotations taking into
account current market interest rates and the credit
rating of PEFCO.
Interest Rate Swaps - The fair values were based on
model valuations (Level 2) using market- based inputs.
The fair value generally reflects the estimated amounts
that PEFCO would receive or pay to replace the
contracts at the reporting date.
Investment Securities - The fair value of investment
securities available for sale are recorded at fair value
on the balance sheet. The fair value is generally
determined using market prices provided by the data
providers (Level 1) or dealer quotations (Level 2).
Fixed Rate-Loans - Because no quoted market prices are
available for the loan portfolio, contractual cash flows
are discounted using current rates appropriate for each
maturity to estimate the fair value of fixed- rate loans.
43
14. Related Party Transactions
Notes to Consolidated Financial Statements
Certain shareowners (or their affiliates) have provided
and presently provide a variety of commercial banking
services to PEFCO. In 2011, PEFCO paid $3,206
thousand in underwriting fees ($1,388 thousand in 2010)
related to the issuance of long-term Secured Notes.
Fees paid for liquidity back up lines in 2011 were $2,959
thousand ($2,873 thousand in 2010). In 2011, PEFCO
also paid $324 thousand for other commercial banking
services ($337 thousand in 2010).
September 30, 2011 September 30, 2010
Receivable
Payable
Net Receivable
$ 54,596
$ 60,742
(28,406)
(35,438)
$ 26,190
$ 25,304
15. General And Administrative Expenses (000’s)
The breakdown of the General and Administrative Expenses are as follows:
Year Ended September 30,
Compensation and Benefits
Administration
Professional Fees
Total
16. OPERATING LEASE
PEFCO has executed as lessee an operating lease for
the rental of office space through fiscal 2020. Rent
holidays and rent escalation clauses are recognized on
a straight-line basis over the lease term. Leasehold
improvements incentives are recorded as leasehold
improvements and amortized over the shorter of their
economic lives or the term of the lease. For the years
ended September 30, 2011, 2010 and 2009, PEFCO
recorded lease expense related to these agreements
of $613 thousand, $647 thousand and $581 thousand,
respectively, which is included in the accompanying
Consolidated Statements of Operations.
17. Subsequent Events
In accordance with current accounting literature,
subsequent events were evaluated through the date the
financial statements were issued, November 10, 2011.
44
PEFCO has derivative contracts with certain
shareholders broken out as follows (000’s):
2011
2010
2009
$ 6,210
$ 5,441
$ 5,709
2,481
2,413
2,186
723
823
910
$ 9,414
$ 8,677
$ 8,805
Future minimum lease payments under the lease as of
September 30, 2011 are as follows (in 000’s)
2012
$
581
2013
581
2014
581
2015
625
2016
Thereafter
Total
634
2,008
$ 5,010
To the Board of Directors and Shareowners of Private Export
Funding Corporation
Private Export Funding Corporation (“PEFCO”) maintains a system of ­internal control over financial reporting which is
designed to provide reasonable assurance regarding the preparation of reliable p
­ ublished financial statements. The
­system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are i­dentified.
Even an effective internal ­control system, no matter how well designed, has inherent limitations – including the
­possibility of the circumvention or overriding of controls – and therefore can provide only reasonable ­assurance
with respect to financial ­statement preparation. Further, because of changes in con­ditions, internal c­ ontrol system
­effectiveness may vary over time.
Don B. Taggart
chairman, president & chief executive officer
November 10, 2011
PEFCO Annual Report 2011
PEFCO’s management assessed its internal control over financial reporting as of September 30, 2011, in relation to
criteria for effective internal control described in “Internal Control-Integrated Framework” issued by the Committee
of Sponsor­ing Organizations of the Treadway Commission. Based on this assessment, PEFCO believes that, as of
September 30, 2011, its system of internal control over financial ­reporting was effective.
Spiros Tsaketas
vice president & controller
November 10, 2011
45
To the Board of Directors and Shareowners of Private Export
Funding Corporation
We have examined management’s assertion, included in the accompanying Management’s Report on Responsibility
for Financial Reporting, that Private Export Funding ­Corpor­ation (“PEFCO”) m
­ aintained effective internal c­ ontrol
over financial reporting as of September 30, 2011, based on criteria established in “Internal Control-Integrated
Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
PEFCO’s management is responsible for maintaining effective internal control over ­financial reporting. Our
responsibility is to express an opinion on management’s assertion based on our examination.
Report of Independent Auditors
Our examination was conducted in accordance with attestation standards established by the American Institute of
Certified Public Accountants and, accordingly, included obtaining an understanding of internal control over financial
reporting, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our examination p
­ rovides a
­reasonable basis for our opinion.
Because of inherent limitations in any internal control, misstatements due to error or fraud may occur and not be
­detected. Also, projections of any evaluation of internal control over financial reporting to future ­periods are subject
to the risk that the internal control may become i­nadequate because of changes in c­ onditions, or that the degree of
compliance with the p
­ olicies or ­procedures may deteriorate.
In our opinion, management’s assertion that PEFCO maintained effective internal control over financial reporting
as of September 30, 2011 is fairly stated, in all material respects, based on criteria established in “Internal ControlIntegrated Framework.”
New York, New York
November 10, 2011
46
In thousands, except per share amounts and Independent Auditors Fees
Year ended September 30,
Loan Commitments
Commitments for year
2011
2010
2009
2008
2007
$ 2,948,000
$ 1,643,000
$ 1,857,000
$ 1,953,000
$
828,087
$ 913,642
$ 889,710
$
759,651
$ 678,422
$
608,082
5,901,849
4,497,347
4,642,873
4,016,942
3,819,964
277,349
295,132
366,405
375,379
395,388
$ 2,144,677
$ 1,814,941
$ 2,051,996
$ 2,151,136
$ 1,913,323
4,897,357
3,777,945
3,613,665
2,832,149
2,832,579
0
42,000
42,000
62,000
72,000
Commitments, cumulative
from inception
28,181,000
Selected Assets
Cash and investment securities
or insured by Ex-Im Bank
Loans insured by OPIC
Selected Liabilities
Short-term notes
Long-term Secured Notes
Long-term Collateralized Notes
Other Financial Data
Net income (loss)
Net income (loss) per share
$
3,351
1,391
226.25
Dividends
Average shareowners’ equity
$
$
93.92
14,538
$
982.76
—
—
444
105,878
95,907
89,100
3.16%
1.45%
16.24%
6,487
461.54
$
$
585
41.14
351
—
77,650
76,960
8.35%
0.80%
2011
2010
$ 190,000
$ 202,000
106,800
49,400
63,000
27,000
359,800
278,400
60,000
58,000
$ 419,800
$ 336,400
PEFCO Annual Report 2011
Export loans guaranteed
Return on average
shareowners’ equity
Independent Audit Fees
PEFCO utilizes the services of PricewaterhouseCoopers
LLP for audit, tax and other non-audit services. PEFCO’s
Audit Committee is responsible for the pre-approval of all
audit and permitted non-audit services performed by the
independent auditors. The fees incurred in 2011 and 2010
were as follows:
Service
Audit
Audit related:
Secured Note issuances
Substitutions of collateral
Total Audit related
Tax
Total
47
Directors
Board of Directors and Officers
Don B. Taggart(1) (3) (5) (6)
Richard S. Aldrich, Jr.(1) (4)
Philip F. Bleser
Mary K. Bush (3) (5)
Chairman, President & Chief
Executive Officer
PEFCO
CEO, Global Corporate Bank
North America
J.P. Morgan
48
Partner
skadden, arps, slate,
meagher & flom, llp
Robert J. Bernabucci (1) (2) (3)
President
ups capital corporation
Catherine P. Bessant (2) (5)
Global Technology &
Operations Executive
Bank of America
Merrill Lynch
Chairman
bush international, llc
(1)
Member of the Executive Committee
(2)
Member of the Audit Committee
(3)
Member of the Nominating and Governance Committee
(4)
ember of the Compensation and Management Development
M
Committee
(5)
Member of the Risk Policy Committee
(6)
r. Taggart is an ex-officio member of the Audit Committee and
M
Compensation and Management Development Committee
Benjamin M. Friedman (1) (5)
William R. Rhodes (1) (4)
Rita M. Rodriguez (2) (5)
President
Boeing Capital
Corporation
Senior Advisor
CITIGROUP, INC.
President
William R. Rhodes
Global Advisors
William Joseph Maier Professor
of Political Economy
harvard university
Robert D. Matthews, Jr.
Vice Chairman, Commercial
Banking
Citizens Financial
Group, Inc.
Karen B. Peetz (3) (4)
Vice Chairman
The Bank of New York
Mellon
PEFCO Annual Report 2011
Michael J. Cave (2) (3)
Senior Fellow
woodstock theological
center at georgetown
university
49
Officers
Board of Directors and Officers (cont’d)
Timothy C. Dunne
Vincent J. Herman
Ann Marie Milano
John J. Neblo
Francoise M. Renieris
Melinda A. Scott
Don B. Taggart
Spiros Tsaketas
Richard E. Youtz
Senior Vice President &
Treasurer
Senior Vice President
Chairman, President & Chief
Executive Officer
50
Vice President
Assistant Vice President
Vice President & Controller
Vice President & Secretary
Assistant Vice President
Senior Vice President
The Advisory Board and the Exporters’ Council advise the management of PEFCO on loan policy, lending rate policy,
scope of activities, ­relationships with borrowers, commercial banks, other co-lenders, Ex-Im Bank and on such other
­matters as management may request. Their ­guidance and strong support contribute greatly to the success of PEFCO
and are ­highly appreciated. We are also appreciative of the active ­participation of Ex-Im Bank.
Exporters’ Council
Jeffrey S. Cain
Stephen Atallah
Marguerite M. Gill
Vice President
JPMorgan Chase Bank, N.A.
Managing Director
Siemens Financial Services
Carla G. Campos
Terina A. Golfinos
Ronald J. Glover
Managing Director
Deutsche Bank AG
Director
HSBC Securities (USA), Inc.
Carl Carrier
Executive Director
Banco Santander S.A.
Managing Director
ING Capital LLC
Phillips Lee
Managing Director
Société Générale
Ae Kyong Chung
Robert P. Mayer
Michael K. Clare
Christan McCormick
Marcia M. Davis
John C. Sapoch
Managing Director
Citigroup Global Markets, Inc.
Managing Director
J.P. Morgan Securities Inc.
Senior Vice President
Bank of America, N.A.
Vice President and Manager
PNC Bank, N.A.
Managing Director
Boeing Capital Corporation
Gary Groom
Barbara A. O’Boyle
Director of Finances
Bechtel Enterprises
Holdings, Inc.
John Sabroske
Director- Global Trade Finance
John Deere Credit
Daniel A. Stewart
Principal
Finance Specialists
International Export
Credit Manager
Caterpillar Financial
Services Corp.
Bret Kushner
Vice President
Diebold Global
Finance Corporation
Skip A. Warner
Senior Vice President
GE Capital Markets Corporate
CEO
Natixis Transport Finance
Managing Director
Wells Fargo Bank, N.A.
PEFCO Annual Report 2011
Advisory Board
Emilio A. Giliberto
Vice President
UPS Capital Business Credit
The PEFCO Small Business Lender Council is a network of lenders that work with PEFCO in support of Ex-Im Bank’s
outreach to small U.S. exporters. The Council has two principal functions: as a funding resource for small exporters
and as a forum where Ex-Im Bank can have frank discussions with lenders on subjects of common interest. The
Council is a PEFCO endeavor and is open only to lenders that have an established relationship with the PEFCO Small
Business Program. The Council began activities in 2006.
Small Business Lender Council
Joseph T. Barrett
President
Barrett Trade & Finance
Group, LLC
Gregory J. Bernardi
President
London Forfaiting Americas
Alfredo J. Briceňo
Trade Finance Director
Hencorp Becstone Group, LLC
Ralph Clumeck
President
CFS International Capital Corp.
James G. Fortsch
Carlos Gonzalez Juanes
William M. Schoeningh
Jorge Garza
Richard H. Lopez
Brett N. Silvers
Emilio A. Giliberto
Gustavo Rosas
Jamie Zamudio
Head of ECA Finance
UPS Capital Business Credit
CEO
InterBanco, S.A.
Vice President
UPS Capital Business Credit
Banking Executive Director
Banco Monex, S.A.
Managing Principal
Drake Finance Group, Inc.
Director
New Continent Finance, Inc
President
Centre Merchant Finance, Inc.
President
WorldBusiness Capital, Inc.
Vice President
Republic Federal Bank
Steven M. Greene
COO International Trade
Atrafin, LLC
www.pefco-smallbusinesslenders.com
51
PEFCO’s stock is owned by 23 commercial banks, six industrial companies and two financial services companies. In
the case of the commercial banks, the shares are owned directly or through an affiliate. Ownership and transferability
of the common stock of PEFCO are restricted to “Qualified Investors”. As defined in the By-laws, a “Qualified
Investor” is a financial institution or a corporation engaged in producing or exporting United States products or
services. Under PEFCO’s By-laws, no shareowner may own more that 18% of the outstanding shares. The following
is a list of shareowners as of September 1, 2011:
Commercial Banks
Bank of America
1,924
The Bank of Miami, N.A.
280
The Bank of New York Mellon
702
Bank of the West
79
Brown Brothers Harriman & Co.
38
Citibank, N.A.
1,066
Deutsche Bank
1,066
ING Capital LLC
PEFCO Shareowners
JPMorgan Chase & Co.
120
2,496
Key Bank
165
Natixis Transport Finance, S.A.
738
PNC Bank Corp.
503
Regions Bank
The Royal Bank of Scotland
Silicon Valley Bancshares
20
1,549
42
Société Générale
100
Standard Chartered Bank
300
Sterling National Bank & Trust Company of New York
UBS AG
Union Bank N.A.
52
Number of Shares
39
137
93
UPS Capital Business Credit
284
U.S. Bank
500
Wells Fargo & Company
375
Financial Services Companies
Number of Shares
Island Capital Ltd.
366
Radian Asset Assurance Inc.
212
Industrial Companies
ABB, Inc.
Boeing Capital Corporation
Number of Shares
80
984
Cessna Aircraft Company
40
General Electric Company
200
Halliburton Co., Houston
113
United Technologies Corporation
200
Total
PEFCO Treasury Stock (purchased in 2008)
14,811
166
280 Park Avenue, New York, NY 10017
Telephone: (212) 916-0300
Facsimile: (212) 286-0304
For Specific Inquiries Concerning
PEFCO’s Lending Programs, Contact:
Internet
John Neblo
Senior Vice President
(212) 916-0352
j.neblo@pefco.com
Common Stock
Richard E. Youtz
Senior Vice President
(212) 916-0304
r.youtz@pefco.com
www.pefco.com
www.pefco-smallbusinesslenders.com
PEFCO is its own transfer agent and registrar for
its common stock, and a­ ccordingly, all transfers of stock
must be coordinated through PEFCO.
For inquiries, c­ ontact
Ann Marie Milano, Vice President & Secretary
(212) 916-0314
a.milano@pefco.com
Financial Information About PEFCO, Contact:
Spiros Tsaketas
Vice President & Controller
(212) 916-0317
s.tsaketas@pefco.com
Long-Term Secured Notes and
Collateralized Notes
Vincent J. Herman
Vice President
(212) 916-0327
v.herman@pefco.com
Independent Auditors
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
Legal Counsel
Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
The Bank of New York Mellon is trustee, registrar,
transfer agent and paying agent for all outstanding
issues of PEFCO’s Secured Notes and PFC’s
Collateralized Notes.
Annual Meeting
Short-Term Notes
To Contact Any of the Board of Directors
Please Mail Correspondence to:
JPMorgan Chase Bank is the issuing and paying agent
for PEFCO’s ­commercial paper.
For inquiries regarding Long-Term and
Short-Term Notes, Contact:
Timothy Dunne
Senior Vice President & Treasurer
(212) 916-0323
t.dunne@pefco.com
PEFCO Annual Report 2011
Private Export Funding Corporation
7:15 a.m., Friday December 2, 2011
280 Park Avenue, 4th Floor
New York, NY 10017
PEFCO
Attention (Board Member)
Office of the Secretary
280 Park Avenue, 4th Floor
New York, NY 10017
53
PRIVATE EXPORT FUNDING CORPORATION
280 Park Avenue, New York, NY 10017
www.pefco.com