(the “agreement”) with PEFCo.

Transcription

Committed to Supporting American
Exports Through Assured Financing.
Flexible,
Accessible,
Transparent,
Efficient.
TABLE OF CONTENTS:
Chairman’s Letter 2
Business Year in Review 4
Summary of PEFCO’s Business 8
PEFCO’s Relationship with Ex-Im Bank 18
Management’s Discussion & Analysis 21
Report of Independent Auditors 27
Consolidated Financial Statements 28
Management’s Report on Internal Control over Financial Reporting 54
Five Year Financial Data & Independent Audit Fees 55
Board of Directors & Officers 56
Advisory Board & Exporters’ Council 58
Small Business Lender Council 58
PEFCO Shareowners 59
Additional Information 60
To: PEFCO
Shareowners,
“We close this year with a
capital base of $127.4 million,
our highest ever, and up from
$79.8 million at the end of
September 2008.”
PEFCO had an excellent year in 2012. Our focused
multi-year strategy has delivered positive results
from many different perspectives. We have been
consistently achieving our core mission of providing
supplemental financing for U.S. exports despite
continued global financial uncertainty.
Over the past few years, we have been called on
to use our balance sheet as pressure continues in
financial markets around the world. As regulations
globally are being written and implemented,
financial institutions have focused on liquidity
and capital. PEFCO has also been focused over
the years on these issues and has been taking
positive steps to address them. Our principal
strategy has been to grow our capital base. I am
very pleased that this year we have been able to
raise new capital totaling $18 million from both
new and existing shareowners. We thank them
very much for their continued support of our
mission. We close this year with a capital base of
$127.4 million, our highest ever, and up from $79.8
million at the end of September 2008. In the last
five years, our loan commitments have exceeded
$10 billion. Our expectation is for continued growth
in our loan activities and we are in discussions
to continue building our capital base with new
shareowners to support their growth. Mindful of
our goal of preserving capital, we feel that in light
of our successes, PEFCO should pay a modest
dividend. The Board has accepted management’s
recommendation to pay a $29 per share dividend for
fiscal 2012.
CHAIRMAN’s LETTER
PEFCO Annual Report 2012
“Net income for fiscal 2012 grew to $6.3 million, compared to
$3.4 million in 2011 and up from $1.4 million in 2010.”
From a liquidity perspective, we have, over the past few years consistently increased the dollar amount of our
secured line of credit and increased the number of banks we rely on. This year we finalized a new one-year revolving
credit facility and a new three–year facility in addition to our existing three-year facility. The combination of the three
facilities aggregates $1.485 billion with 17 participating banks up from $1.097 billion with 11 banks in 2008. From an
investor perspective, we have issued this year $1.5 billion of Secured Notes with each offering generally being three
times oversubscribed and sought by a broad global investor base. Our notes enjoy a very active secondary market
providing investors with added liquidity.
Over the last years, we have also been focusing on building profitability, including core profitability. Net income for
fiscal 2012 grew to $6.3 million, compared to $3.4 million in 2011 and up from $1.4 million in 2010. Our return on
equity increased to 5.47% compared to 3.46% in 2011, and 1.45% in 2010. Earnings per share were $386 compared
to $226 in 2011 and $94 in 2010. This profitability has been built with an eye to keeping costs down and increasing
our demand for loan commitments. This year’s loan commitments were $2.2 billion compared to last year’s record of
$3.0 billion and $1.6 billion in 2010. The Direct and Secondary Long-term programs in fiscal 2012 totaled $1.9 billion
from 20 borrowers through 13 sponsoring banks, compared to almost $2.6 billion from twenty-two transactions
through 12 sponsoring banks in fiscal 2011. Commitments under our Short and Medium-term Small Business
Programs in 2012 were $236 million, from 147 loans, compared to $368 million comprised of 163 loans last year.
One of the hallmarks of the success of our loan programs in the past few years is that we are transparent, flexible,
efficient, and accessible. Working with our partnering banks, we provide clear pricing so the borrower knows all the
costs embedded in the loan price. We are flexible in arranging for the clients funding dates and when needed offer
the shortest closing dates possible and are always available to work directly with the banks and the borrowers.
Catherine P. Bessant, Global Technology and Operations Executive of Bank of America Merrill Lynch and a Director
since 2010, will be retiring from our Board. During Catherine’s tenure on the Board, she served on the Audit and
Risk Committees. We at PEFCO thank Catherine for her service to PEFCO and her contributions to the Board.
We are pleased to report that we have two new members joining our Board; Francesco Vanni d ‘Archirafi, CEO Citi
Transaction Services for Citigroup, and Paul Simpson, Head of Global Transaction Services at Bank of America
Merrill Lynch. Both Francesco and Paul have a wealth of experience and are welcome additions to our Board.
Bill Rhodes, who has represented Citibank on our Board for 21 years, will continue to serve on the Board as an
independent director.
With the valuable assistance of the members of our Board of Directors and our loyal staff in 2012, we were able
to meet the challenges we faced. PEFCO’s management also acknowledges, with appreciation, the constructive
cooperation received from Fred Hochberg, Chairman of Ex-Im Bank, and his staff. Finally, I want to thank our
customers for the business they have brought, and will hopefully continue to bring us, and all our shareowners for
their continued support.
Sincerely yours,
Don B. Taggart
Chairman, President and CEO
3
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.
6
business year in review
Outstanding Loans by Product were: (dollars in millions)
Energy
551
Automobiles
300
Telecommunications
121
Total $7,065
Aircraft
5,394
Equipment
41
Infrastructure
142
Small Business
485
Other
17
OPIC
Environmental
14
Ex-Im
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, 2012.
Outstanding Loans by Country were: (dollars in millions)
Canada
150
Cayman Islands
106
Ireland
666
Switzerland
55
Russian
Federation
173
China
157
Republic of
Korea
272
Norway
512
Croatia
90
Luxembourg
160
Israel
171
Mexico
519
Other
536
Turkey
188
Panama
255
Chile
422
Japan
99
India
126
Philippines
128
Kuwait
58
Brazil
988
Nigeria
69
Australia
649
Kenya
54
Angola
239
Tajikistan
73
Total $7,065
Indonesia
150
OPIC
Ex-Im
business year in review
The average balance of financing assets increased in 2012 by
$763 million and the average balance of financing liabilities
increased by $842 million in 2012.
LENDING
Private Export Funding Corporation’s (“PEFCO”) new loan commitments were $2,154 million in 2012, compared
to new loan commitments of $2,948 million in 2011. New commitments in the Short and Medium – term Loan
Programs and under our Small Business Programs were $236 million in 2012 and $368 million in 2011.
EARNINGS
PEFCO’s net income in 2012 was $6.3 million compared to net income of $3.4 million in 2011. Net financing income
increased to $16 million in 2012 from $8.7 million in 2011. The average balance of financing assets increased in 2012
by $763 million and the average balance of financing liabilities increased by $842 million in 2012. The average financing
revenue interest rate decreased by .06%, while the average financing expense interest rate decreased .14%.
FUNDING
Series
During 2012, PEFCO issued a total of $1.5 billion
of Secured Notes under a $2.0 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.
DIVIDEND
The Board of Directors voted to declare a
dividend of $29 per share for the fiscal year
ending September 30, 2012. The Board and
management recognize that capital preservation
and growth are extremely important. As we
seek additional capital in the support of our
business, a signal to investors of a moderate
dividend is important.
Amount (in millions)
FF
EE reopen
GG
HH
FF reopen
$
$
29
350
200
400
400
150
Lead Underwriter(s)
JP Morgan / US Bancorp
BAML / Williams
RBS / BNP Paribas
BAML / Citi
US Bancorp
$ 1,500
per share
for the fiscal year ending
September 30, 2012.
No. of Loan Commitments
13
Products
AIRCRAFT
Amounts (in millions)
$ 1,431
2
ENERGY
5
OTHER
408
SMALL BUSINESS
236
147
167
79
$ 2,154
7
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 manufacture 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 Export-Import Bank of
the United States (“Ex-Im Bank”) to assist
in the financing of U.S. exports through
the mobilization of private capital 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
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.
10
summary of pefco’s business
PEFCO’S LENDING PROGRAMS
Short and Medium-term Programs
These programs are a d
ependable source of liquidity for lenders using Ex-Im Bank short-term insurance and mediumterm 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.
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 non-payment 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.
Short-term Program
PEFCO offers to purchase short-term loans under its Working Capital Facility and Short-term Insured Loan Facility.
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 non-payment
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) purchase 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.
• There is no minimum amount per loan.
• PEFCO will purchase a participation in any short-term loan or letter of credit structure acceptable to Ex-Im Bank.
• The lender retains responsibility for servicing the loan and maintaining the Ex-Im Bank guarantee or policy.
2012 PEFCO Programs
Long-term:
$ 1,918 million
(20 transactions)
Short/Medium-term:
236 million
(147 transactions)
Total:
$ 2,154 million
(167 transactions)
For lenders not able to make a loan directly, PEFCO will
“stand-in” as direct lender on behalf of the originating party.
Medium-term Program
PEFCO offers three medium-term secondary market facilities and a medium-term direct loan facility.
Guaranteed Note Facility: PEFCO purchases medium-term 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.
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.
Guaranteed Lease Facility: PEFCO purchases medium-term 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 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.
Other features of PEFCO Medium-term Facilities:
• All purchases are governed by a master note purchase agreement.
• Note amounts range from $10,000,000 to $100,000 and possibly smaller.
• PEFCO will fund any note structure acceptable to Ex-Im Bank.
• PEFCO 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.
• Except 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.
• For 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.
Special Initiatives
Short-term
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 o
btaining 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.
11
12
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.
The Council’s dedicated website is located at: http://www.pefco-smallbusinesslenders.com
Small Business Commitments
Short & Medium Term
Long Term Commitments
2012 $ 236 million
2012 $ 1,918 million
2011 $ 368 million
2011 $ 2,580 million
2010 $ 547 million
2010 $ 1,096 million
Long-term Loan Programs
Direct Loan Program 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-Im 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 SubSaharan Africa and borrowers engaged in the purchase of “environmental” exports from the U.S. or exports from
U.S. small business exporters.
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.
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.
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.
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.
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 subSaharan borrowers. PEFCO is now free to purchase both floating and fixed rate long-term loans for which Ex-Im
Bank gave its guarantee commitment on or after September 29, 2009 without restriction.
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 Medium-term Programs.
In 2012 PEFCO made commitments worth $415 million under the Secondary Loan Program which represents 22%
of all Long-term Commitments.
PEFCO’S FUNDING ACTIVITIES
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.
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.
13
14
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 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.
Since inception, PEFCO had issued $15.1 billion aggregate principal amount of Secured Notes, of which $5.6 billion
aggregate principal amount were outstanding at September 30, 2012, 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, 2012, PEFCO received short-term ratings of P-1 by Moodys’ and A-1 by Standard & Poor’s. In 2012,
PEFCO established a new $1 billion 364 day facility maturing in June 2013 and replaced its existing $270 million
three-year facility maturing on June 10, 2013 with a $250 million three-year facility maturing on June 8, 2015. In
addition, PEFCO has an existing $235 million three-year facility maturing in June 2014. The combined total of all three
facilities is $1,485 million. Of the seventeen lenders across the three credit facilities, ten 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, 2012, 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 2012.
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
were guaranteed as to the timely payment of principal and interest by Ex-Im Bank. PFC had 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 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.
As of September 30, 2012, PFC had no outstanding principal amount of Collateralized Notes. PFC will not issue any
additional Collateralized Notes since PFC is inactive.
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.
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.
As a position limit on investments, management will not allow non-core business investments (those investments
that are not required to cover secured note installments in the trust estate 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.
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). 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 counterparty is A.
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 weighted 50%.
As of September 30, 2012 the counterparty risk capital usage was $8.6 million against a maximum of $19.9 m
illion.
Exposure at Default (EAD) was $98.9 million distributed over 9 counterparties. The maximum counterparty market
value exposure to any single counterparty was $15.5 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.
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.
15
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.
18
pefco’s relationship with ex-im bank
GUARANTEE AGREEMENT Dated 12/15/1971
Under the terms of a Guarantee Agreement, dated December 15, 1971, as amended, between PEFCO and ExIm 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 ExIm 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 provides
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.
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. 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.
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.
20
pefco’s relationship with ex-im bank
The Agreement gives Ex-Im Bank a broad measure
of supervision over PEFCO’s major financial
management decisions.
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 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 g
uaranteed by Ex-Im Bank. Amounts paid by Ex-Im Bank under its guarantee of interest will bear interest
at the prevailing 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 s urplus 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.
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.
Management’s Discussion & Analysis
Operations
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 s ecurities 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 Revenue (in thousands) for the years ended September 30,
2012
2011
2010
Average
Balance
Average
Rate
Interest
Revenue
Average
Balance
Average
Rate
Interest
Revenue
Average
Balance
Average
Rate
Interest
Revenue
$ 3,040,000
1.22%
$ 37,208
$ 2,468,000
1.38%
$ 34,074
$ 2,374,000
1.79%
$ 42,372
266,000
1.13%
3,000
193,000
0.78%
1,512
215,000
0.79%
1,688
1,053,000
2.04%
21,435
1,038,000
2.12%
21,986
906,000
2.26%
20,460
907,000
0.93%
8,416
749,000
0.67%
5,014
473,000
0.76%
3,587
279,000
1.93%
5,380
312,000
1.77%
5,518
357,000
1.68%
5,991
367,000
1.81%
6,640
286,000
1.66%
4,736
66,000
1.50%
990
Long-term
116,000
1.11%
1,283
144,000
0.91%
1,317
170,000
1.10%
1,875
Medium-term
143,000
1.49%
2,125
147,000
1.30%
1,908
138,000
1.30%
1,795
6,171,000
1.39%
85,487
5,337,000
1.43%
76,065
4,699,000
1.68%
78,758
767,000
0.78%
5,971
838,000
1.07%
8,953
767,000
1.23%
9,416
$ 6,938,000
1.32%
$ 91,458
$ 6,175,000
1.38%
$ 85,018
$ 5,466,000
1.61%
$ 88,174
Financing Revenue
Interest Revenue
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
Loans
Investment securities
Total
Commitment and other income
Financing Revenue
2,329
1,278
591
$ 93,787
$ 86,296
$ 88,765
21
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The following table is an analysis of Financing Expense and Net Financing Income (in thousands) for the years ended September 30,
2012
Average
Balance
2011
Average
Rate
Interest
Expense
Average
Balance
2010
Average
Rate
Interest
Expense
Average
Balance
Average
Rate
Interest
Expense
Financing Expense
Interest Expense
Long-term Notes
$ 4,812,000
1.35%
$ 64,904
$ 4,043,000
1.56%
$ 63,268
$ 3,590,000
1.91%
$ 68,553
Short-term Notes
2,163,000
0.41%
8,883
2,090,000
0.49%
10,321
1,821,000
0.54%
9,763
$ 6,975,000
1.06%
$ 73,787
$ 6,133,000
1.20%
$ 73,589
$ 5,411,000
1.45%
$ 78,316
Total
Commitment and other fees
Financing Expense
Net Financing Income
4,009
4,052
3,933
77,796
77,641
82,249
$ 15,991
$ 8,655
$ 6,516
2012 compared to 2011
PEFCO’s net income for 2012 was $6.3 million compared to net income in 2011 of $3.4 million. The increase in
net income was primarily the result of an increase in lending volume, increased loan prepayment gains, higher
commitment fees, and lower general and administrative expenses, offset by reduced interest on investment
securities and slightly higher interest expense. In addition, there were no debt repurchase transactions in 2012 and
net income for 2011 included a debt repurchase loss of $838 thousand.
Total Financing Revenue
Total financing revenue is composed of interest income on loans and investment securities available for sale, and
commitments and other fees earned. In addition, any gains recognized on the prepayment of a loan are reported as
part of total financing revenue.
For the year-ended September 30, 2012, total financing revenue increased by $7.5 million to $93.8 million from $86.3
million in 2011. The primary reason for the increase in total financing revenue was a $9.4 million increase in interest
on loans due to growth in average loans outstanding, albeit at a slight decline in average yield, partially offset by a
decrease in interest on investment securities of $3.0 million. Short-term interest rates (LIBOR) are the basis for
pricing the floating-rate portfolio while long-term interest rates (Treasury Notes) provide the basis for pricing the fixed
rate portfolio.
The average balances and yields in the Primary Long-term Loan Program were:
• Fixed-rate - $3,040 million and 1.22% in 2012 compared to $2,468 million and 1.38% in 2011.
• Floating-rate - $266 million and 1.13% in 2012 compared to $193 million and .78% in 2011.
The average balances and yields in the Secondary Long-term Loan Program were:
• Fixed-rate - $1,053 million and 2.04% in 2012 compared with $1,038 million and 2.12% in 2011.
• Floating-rate - $907 million and .93% in 2012 compared $749 million and .67% in 2011.
The average balances and yields of the Small Business and Medium-term Program were:
• Medium-term - $279 million and 1.93% in 2012 compared with $312 million and 1.77% in 2011.
• Working Capital and Short-term Insurance - $367 million and 1.81% in 2012 compared with $286 million and 1.66%
in 2011.
The average balances and yields of loans insured by OPIC were:
• Long-term - $116 million and 1.11% in 2012 compared with $144 million and .91% in 2011.
• Medium –term - $143 million and 1.49% in 2012 compared with $147 million and 1.30% in 2011.
The overall average balance and yield of the lending portfolio was $6,171 million and 1.39% in 2012 compared with
$5,337 million and 1.43% in 2011. PEFCO utilizes interest rate swap contracts to hedge certain fixed-rate loans
and accounts for these as fair value hedges. The net interest expense on these fair value hedges reported as an
adjustment of interest income on fixed-rate loans was $107.6 million in 2012 and $101.6 million in 2011.
The available for sale investment securities portfolio had an average balance and yield of $767 million and .78% in
2012 compared with $838 million and 1.07% in 2011.
Commitment and Prepayment Fees
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 payment. In 2012, PEFCO received approximately $1.7 million in make-whole
payments from one borrower and in 2011 received approximately $882 thousand from two borrowers who prepaid.
Commitment and other fees in 2012 amounted to $631 thousand compared to $396 thousand in 2011.
Total Financing Expense
Total financing expense is comprised of interest on short-term and long-term notes, amortization of debt issuance
costs, and commitment and other fees incurred.
For the year ended September 30, 2012, total financing expense increased to $77.8 million from $77.6 million in 2011.
The primary reason for the increase in total financing expense was attributable to higher average borrowings in 2012
partially offset by lower cost of funds compared to 2011. Short-term interest rates (Commercial 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 Long-term Notes issued by PEFCO. The average balance and effective cost for Long-term Notes was
$4,812 million and 1.35% in 2012, compared to $4,043 million and 1.56% in 2011. The average balance and effective
cost of the Short-Term Notes was $2,163 million and .41% in 2012 and $2,090 million and .49% in 2011.
PEFCO utilizes interest rate swap contracts to hedge certain long-term notes and accounts for these contracts as fair
value hedges. In addition, PEFCO uses interest rate swaps designated as cash flow hedges on certain short-term
notes. The net interest income on the fair value hedges of the long-term notes reported as an adjustment to interest
expense was $111.9 million in 2012 and $104.9 million in 2011. The net interest income on interest rate swaps
designated as cash flow hedges was $4.6 million in both 2012 and 2011, and was reported as an adjustment to the
interest expense on the short-term notes.
In 2012, amortization of debt issuance costs amounted to $2.9 million, an increase of $0.3 million from $2.6 million in
2011. The increase was attributable to the issuances of Series FF, GG and HH and the re-openings of Series EE and
FF, offset by the completed amortization on Series P and V which matured in 2012.
Commitments and other fees paid in 2012 amounted to $4.0 million compared to $4.1 million in 2011.
PEFCO’s net financing income was $16.0 million in 2012 compared with $8.7 million in 2011. Net margin amounted
to 26 basis points in 2012 (asset yield of 1.32% less cost of funds of 1.06%) compared to 18 basis points in 2011
(asset yield of 1.38% less cost of funds of 1.20%).
Net Securities Gains
In 2012, net securities transactions, the result of sales on investment securities available for sale, produced a net gain
of $2.2 million, compared to a net gain of $6.7 million in 2011.
Debt Repurchase Loss
In 2011, PEFCO repurchased $15.9 million of its long-term secured notes at a loss of $838 thousand.
No repurchases of long-term secured notes was made in 2012.
23
24
General and Administrative Expenses
General and administrative expenses were $8.7 million in 2012 compared to $9.4 million in 2011. The overall
decrease was attributable to a reversal of $1.3 million in 2012 of overaccrued pension expense which accumulated
over prior years. See Notes 11 and 15 to the Consolidated Financial Statement for more information. Without
giving effect to this revision, general and administrative expenses increased by $583 thousand due to an increase
in compensation and benefits of $520 thousand, an increase in administrative expenses of $121 thousand and a
reduction in professional fees of $58 thousand.
Provision for Income Tax
Provision for income tax increased to $3.3 million in 2012 from $1.7 million in 2011 reflecting the increase in income
before income taxes of $4.5 million in 2012. PEFCO’s effective tax rate was 34.2% in 2012 and 2011.
Accumulated other comprehensive loss decreased to ($4.5 million), net of tax, in 2012 compared to ($7.2 million), net of
tax in 2011, largely due to net cash flow hedge gains and reclassification adjustments for net gains included in net
income, offset by an unrealized loss on investment securities and pension and post-retirement adjustments.
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 sales of securities and prepayment of
loans, less losses on sale of secured notes, commitment fees and operating expenses as stated below.
Total financing revenue is composed of interest income on loans and investment securities available for sale, and
commitments and other fees earned. In addition, any gains recognized on the prepayment of a loan are reported as
part of total financing revenue.
For the year-ended September 30, 2011, total financing revenue decreased to $86.3 million from $88.8 million in
2010. The primary reason for the decrease in total 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) provide 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 million and 1.38% in 2011 compared to $2,374 million and 1.79% in 2010.
• Floating-rate - $193 million and .78% in 2011 compared to $215 million and .79% in 2010.
The average balances and yields in the Secondary Long-term Loan Program were:
• Fixed-rate - $1,038 million and 2.12% in 2011 compared with $906 million and 2.26% in 2010.
• Floating-rate - $749 million and .67% in 2011 compared with $473 million and .76% in 2010.
The average balances and yields of the Small Business and Medium-term Program were:
• Medium-term - $312 million and 1.77% in 2011 compared with $357 million and 1.68% in 2010.
• Working Capital and Short-term Insurance - $286 million and 1.66% in 2011 compared to $66 million and 1.50%
in 2010.
The average balances and yields of loans insured by OPIC were:
• Long-term - $144 million and .91% in 2011 compared with $170 million and 1.10% in 2010.
• Medium –term - $147 million and 1.30% in 2012 compared with $138 million and 1.30% in 2010
The overall average balance and yield of the lending portfolio was $5,337 million and 1.43% in 2011 compared with
$4,699 million and 1.68% in 2010. PEFCO utilizes interest rate swap contracts to hedge certain fixed-rate loans
and accounts for these as fair value hedges. The net interest expense on these fair value hedges reported as an
adjustment of interest income on fixed-rate loans was $101.6 million in 2011 and $92.8 million in 2010.
The investment securities portfolio had an average balance and yield of $838 million and 1.07% in 2011 compared
with $767 million and 1.23% in 2010.
Commitment and Prepayment Fees
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 payment. In 2011, PEFCO received approximately $882 thousand in make-whole
payments from two borrowers and had no prepayments in 2010.
Commitment and other fees in 2011 amounted to $396 thousand compared to $591 thousand in 2010.
Total Financing Expense is comprised of interest on short-term and long-term notes, amortization of debt issuance
costs, and commitment and other fees incurred.
For the year ended September 30, 2011, Total Financing Expense decreased to $77.6 million from $82.2 million in
2010. The primary reason for the decrease in Total Financing Expense was the decrease in short-term and long
term-interest rates. Short-term interest rates (Commercial 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 long-term notes issued
by PEFCO. The average balance and effective cost for Long-term Notes was $4,043 million and 1.56% in 2011,
compared to $3,590 million and 1.91% in 2010. The average balance and effective cost of the Short-term Notes was
$2,090 million and .49% in 2011 and $1,821 million and .54% in 2010.
PEFCO utilizes interest rate swap contracts to hedge certain long-term notes and accounts for these contracts as fair
value hedges. In addition, PEFCO uses interest rate swaps designated as cash flow hedges on certain short-term
notes. The net interest income on the fair value hedges of the long-term notes reported as an adjustment to interest
expense amounted to $104.9 million in 2011 and $96.8 million in 2010. The net interest income on interest rate
swaps designated as cash flow hedges was $4.6 million in both 2011 and 2010 and was reported as an adjustment to
the interest expense on the short-term notes.
Commitments and other fees paid in 2011 amounted to $4.1 million compared to $3.9 million in 2010 largely
reflecting increased fees for liquidity lines, compensating balances and commercial paper ratings.
PEFCO’s Net Financing Income was $8.7 million in 2011 compared to $6.5 million in 2010. The net margin amounted
to 18 basis points in 2011 (asset yield of 1.38% less cost of funds of 1.20%) compared to 16 basis points in 2010
(asset yield of 1.61% less cost of funds of 1.45%).
Net Securities Gains
In 2011, net securities transactions, the result of sales on investment securities available for sale, resulted in a net
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.
Debt Repurchase Loss
In 2011, the PEFCO repurchased $15.9 million of its long-term secured notes at a loss of $838 thousand.
No repurchases of long-term secured notes were made in 2010.
General and Administrative Expenses
General and administrative expenses were $9.4 million in 2011 compared to $8.7 million in 2010. The overall increase
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 administrative expenses of $109 thousand and a
reduction in professional fees of $99 thousand.
Provision for Income Tax
Provision for income tax increased to $1.7 million in 2011 from $587 thousand in 2010 reflecting an increase in
Income before Income Taxes of $3.1 million in 2011. PEFCO’s effective tax rate was 34.2% in 2011.
Accumulated other comprehensive loss increased to ($7.2 million), net of tax, in 2011 from ($4.6 million), net of tax, in
2010, largely due to unrealized losses on investment securities and pension and post-retirement adjustments, offset
by cash flow hedge gains and a reclassification adjustment for net gains included in net income.
25
26
Liquidity and Capital Resources
The principal source of capital during the year were funds generated from the net issuance of PEFCO’s Short-term
notes and Long-term Secured Notes totaling $1.1 billion.
As of September 30, 2012, PEFCO has approximately $8.3 billion of total obligations, of which approximately $2.2 billion
(27%) were short-term and $6.1 billion (73%) were long-term.
The long-term debt, which includes portions due within one year, had amounts maturing of $696 million in 2013,
$400 million in 2014, $680 million in 2015, $400 million in 2016, $1,150 million in 2017 and $2,300 million in 2018
and thereafter.
During the fiscal year ended September 30, 2012, PEFCO issued 2,645 common shares to two new shareowners and
six existing shareowners, raising approximately $18 million in new capital and more than doubling the $17.4 million in
common stock outstanding at September 30, 2011. As of September 30, 2012, PEFCO had Total Shareowners’ Equity
of $127.4 million, total capitalization (calculated as the sum of total debt and Total Shareowners’ Equity) of $8.4 billion
and a total of debt to capitalization ratio of 98.5%.
On June 8, 2012, PEFCO renewed its existing 364 day $940 million revolving credit facility, increasing the size to $1
billion with a new maturity of June 2013. Also on June 8, 2012, PEFCO replaced its existing three-year $270 million
credit facility with a new three-year $250 million credit facility maturing in June 2015. Combined with an existing $235
million credit facility maturing in June 2014, PEFCO’s facilities total $1,485 million.
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, 2012, there were no
amounts outstanding under these credit facilities.
Report of Independent Auditors
To the Board of Directors and Shareowners of Private Export Funding Corporation
In our opinion, the accompanying consolidated statements of financial condition and the related consolidated
statements of operations, changes in shareowners’ equity, and cash flows present fairly, in all material respects,
the financial position of Private Export Funding Corporation and its subsidiary (the “Company”) as of September 30,
2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended
September 30, 2012 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of September 30, 2012, based on the criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management
is responsible for these financial statements, for maintaining effective internal control over financial reporting
and for its assertion of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these
financial statements and on the Company’s internal control over financial reporting based on our integrated audits.
We conducted our audits of the financial statements in accordance with auditing standards generally accepted
in the United States of America and our audit of internal control over financial reporting in accordance with the
attestation standards established by the American Institute of Certified Public Accountants. Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A Company’s internal control over financial reporting is a process effected by those charged with governance,
management, and other personnel, designed to provide reasonable assurance regarding the preparation of reliable
financial statements in accordance with accounting principles generally accepted in the United States of America.
A Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles in the United
States of America, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and those charged with governance; and (iii) provide reasonable assurance regarding
prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
November 28, 2012
27
28
Consolidated Statements of Financial Condition
Consolidated Statements of Financial Condition
Assets (Amounts in thousands, except share amounts)
September 30, 2012
Cash and cash equivalents
Investment securities available for sale
Interest and fees receivable
Export loans guaranteed or insured by Ex-Im Bank
Loans insured by OPIC
Total lending
September 30, 2011
$ 355,658
$ 302,259
522,288
611,383
71,756
71,357
7,217,526
5,901,849
234,284
277,349
7,451,810
6,179,198
85,861
81,394
$ 8,487,373
$ 7,245,591
Short-term notes
$ 2,194,408
$ 2,144,677
Interest payable
49,582
47,905
Accrued expenses and other liabilities
48,395
54,753
Long-term Secured Notes
6,067,586
4,897,357
Total Liabilities
8,359,971
7,144,692
and 14,811 shares at September 30, 2012 and September 30, 2011 respectively
35,387
17,401
Retained earnings
96,478
90,698
Accumulated other comprehensive loss
(4,463)
(7,200)
127,402
100,899
$ 8,487,373
$ 7,245,591
Other assets and deferred charges
Total Assets
Liabilities and Shareowners’ Equity
Liabilities
Shareowners’ Equity
Common stock-no par value; authorized 40,000 shares; outstanding 17,456 shares
Total Shareowners’ Equity
Total Liabilities and Shareowners’ Equity
See Notes to Consolidated Financial Statements
Consolidated Statements of Operations
Consolidated Statements of Operations
Year Ended September 30,
Financing Revenue (Amounts in thousands, except per share amounts)
2012
2011
2010
$ 91,458
$ 85,018
$ 88,174
2,329
1,278
591
93,787
86,296
88,765
(73,787)
(73,589)
(78,316)
Commitment and other fees
(4,009)
(4,052)
(3,933)
(77,796)
(77,641)
(82,249)
15,991
8,655
6,516
2,231
6,691
4,139
—
(838)
—
General and administrative expenses
(8,665)
(9,414)
(8,677)
Income before Income Tax
9,557
5,094
1,978
Provision for income tax
(3,271)
(1,743)
(587)
$ 6,286
$ 3,351
$ 1,391
$ 385.74
$ 226.25
$ 93.92
Interest
Commitment and prepayment fees
Financing Expense
Interest
Net securities gain
Debt repurchases loss
Net Income
Net Income Per Share
Net Income
29
30
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, 2009
$ 17,289
$ 85,956
$ (9,839)
Total
Shareowners’
Equity
$ 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
(435)
Comprehensive income
(435)
6,592
$ 17,401
$ 87,347
$ (4,638)
$ 100,110
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
789
$ 17,401
$ 90,698
Common stock:
2,645 shares issued
17,986
17,986
Net income
6,286
6,286
Unrealized losses on investment securities – AFS
(1,137)
(1,137)
2,814
2,814
1,628
1,628
(568)
(568)
Cashflow hedges gains
9,023
Dividend declared ($29 per share)
(506)
$ 35,387
$ 96,478
(506)
$ (4,463)
$ 127,402
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
Year Ended September 30
Operating Activities (Amounts in thousands)
Net Income
2012
$
6,286
2011 (revised)
2010 (revised)
$
$
3,351
1,391
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization
4,698
4,655
4,846
Net gain on investment securities
(2,231)
(6,691)
(4,139)
Net gain on prepayments of loans
(1,698)
(882)
—
—
838
—
Deferred income tax benefit
(830)
(383)
(279)
(Increase) in interest and fees receivable
(399)
(3,100)
(1,934)
1,677
2,174
3,587
740
3,763
691
—
—
317
4,622
5,050
(10,814)
12,865
8,775
(6,334)
—
41,889,000
23,424,000
1,827,325
1,679,265
1,069,430
238,231
197,241
182,912
—
(41,744,000)
(23,497,000)
(1,970,396)
(1,767,677)
(1,318,837)
Increase in interest payable
Increase in accrued expenses and other liabilities
Leasehold incentives
Other, net
Net cash provided by (used in) 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
Purchases of investment securities
Principal collected on loans
1,181,048
1,156,636
1,078,410
Principal disbursed on loans
(2,402,843)
(2,471,513)
(740,667)
(104)
(37)
(975)
(1,126,739)
(1,061,085)
197,273
Asset purchases
Net cash (used in) provided by investing activities
Financing Activities
Proceeds from issuance of Short-term notes
11,131,254
8,674,075
7,423,603
Repayments of Short-term notes
(11,085,691)
(8,349,880)
(7,665,844)
—
(42,000)
—
1,491,395
1,192,507
396,479
(387,671)
(149,198)
(381,614)
Proceeds and repurchases of Long-term
Collateralized Notes
Proceeds from issuance of Long-term Secured Notes
less issuance costs
Repayments and repurchases of Long-term Secured Notes
Issuance of common stock
Dividends paid
Net cash provided by (used in) financing activities
Increase (decrease) in cash
Cash and cash equivalents at the beginning of the year
17,986
—
112
—
—
(444)
1,167,273
1,325,504
(227,708)
53,399
273,194
(36,769)
302,259
29,065
$
355,658
Interest paid
$
Income taxes paid
$
Dividends declared
$
Cash and cash equivalents at the end of the year
$
302,259
180,127
$
2,859
$
506
$
65,834
$
29,065
173,633
$
168,759
900
$
750
—
$
—
Supplemental Disclosures
31
32
Notes to Consolidated Financial Statements
1. organization
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
manufacture or origin. PEFCO’s shareowners include most of the major c ommercial banks involved in financing U.S.
exports, industrial companies involved in exporting U.S. products and services, and financial s ervices 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
capital 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 c onditions 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 ExIm Bank-approved types of assets. Ex-Im Bank is entitled to representation at all m
eetings of PEFCO’s Board
of Directors, Advisory Board, and Exporters’ Council. PEFCO furnishes Ex-Im Bank with full information as to
budgets, fi
nancial condition, and operating results.
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, 2011 and 2010, to conform to the current
year presentation, including revisions to the Consolidated Statements of Cash Flows for those years. Please see
Note 17, Revision of Consolidated Statements of Cash Flows, for more information.
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 and Cash Equivalents
Cash and cash equivalents consist of deposits held at banks and highly liquid money market account balances.
Securities Purchased Under Agreement to Resell
In prior years, PEFCO 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 entered into repurchase agreements are banks which PEFCO considers creditworthy. 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 a 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 market 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
comprehensive income (loss).
The classification is determined at the time each security is acquired. At each reporting date, the appropriateness of
the classification is reassessed and the securities are assessed for other than temporary impairment.
Interest income on investment securities, including amortization of premiums and accretion of discounts, is recognized
when earned using methods that approximate 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 commitment 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 cash flow or fair value 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.
33
34
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 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 recognized 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.
Fair Value Measurement
PEFCO reports fair value measurements for specialized classes of assets and liabilities. In measuring fair value,
PEFCO utilizes 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 distribution to shareowners are recorded on the ex-dividend date.
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.
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.
Recently Issued Accounting Pronouncements
Accounting Standards Update (ASU) 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective
Control for Repurchase Agreements
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 on 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 did not have a material impact on PEFCO’s consolidated financial statements.
Accounting Standards (ASU) 2011-04, Fair Value Measurement and Disclosures (Topic 860): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS
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 financing 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 disclosures 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. Most impacts
from this ASU are not applicable for non-public companies, except that quantitative information about the Level 3
inputs should be included. The guidance is effective for annual periods beginning after December 15, 2011. Early
adoption by non-public entities is permitted. Adoption of this guidance will not have a material impact on PEFCO’s
consolidated financial statements.
Accounting Standards Update (ASU) 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income
Issued Date: June 2011
The ASU amends the guidance on the presentation of comprehensive income in ASU 220, Comprehensive Income,
which 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 of presenting comprehensive income within the statement of equity.
The ASU will be effective for annual periods beginning after December 15, 2012.
As a result of concerns raised by stakeholders in ASU 2011-05, in December, 2011, the Financial Accounting
Standards Board (FASB) issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05. ASU 2011-12 permits deferral of only those changes in ASU 2011-05 that
relate to the presentation of reclassification adjustments, and not the other provisions of ASU 2011-05, including the
requirement to report comprehensive income either in a single continuous financial statement or in two separate
but consecutive financial statements. Adoption of this guidance will not affect PEFCO’s Consolidated Statements
of Financial Condition, but will add the Consolidated Statements of Comprehensive Income (Loss). For non-public
entities, the amendments proposed in ASU 2011-05 and ASU 2011-12 are effective for fiscal years ending after
December 15, 2012 and interim and annual periods thereafter.
Accounting Standards Update (ASU) 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets
and Liabilities
Issued Date: December 2011
This ASU requires an entity to disclose information about offsetting and related arrangements to enable users of
its financial statements to understand the effect of those arrangements on its financial position. The amendments
in this update will enhance disclosures required by U.S. GAAP by requiring improved information about financial
instruments and derivative instruments that are either offset in accordance with either Section 210-20-45 or Section
815-10-45 of the Accounting Standards Codification, or subject to an enforceable master netting arrangement or
similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section
815-10-45. The guidance is effective for annual reporting periods beginning on or after January 1, 2013, and
interim periods within those annual periods. The disclosures required are retrospective for all comparative periods
presented. Adoption of this guidance will not have a material impact on PEFCO’s consolidated financial statements.
Accounting Standards Update (ASU) 2012-04, Technical Corrections and Improvements
Issued Date: October 2012
The amendments in this update are changes to clarify the FASB Accounting Standards Codification published in
2009, correct unintended application of guidance, or make minor improvements to the Codification that are not
expected to have a significant effect on current accounting practice or create a significant cost to most entities.
Amendments in the update that do not have transition guidance are effective upon issuance. For nonpublic entities,
amendments that are subject to transition guidance will be effective for fiscal periods beginning after December 15,
2013. Adoption of this guidance will not have a material impact on PEFCO’s consolidated financial statements.
35
36
4. Investment Securities
September 30, 2012 (000’s)
Amortized
Cost
Available for Sale
U.S. Treasury Securities
Maturity in one year or less
$ 224,883
U.S. Guaranteed Securities
Maturity in one year or less(c)
Gross
Unrealized
Gains
$
Gross
Unrealized
Losses
28
$ —
Fair
Value (a)
Average
Yield (b)
$ 224,911
0.10%
33,900
48
19
33,929
0.98%
Maturity after one year through five years(c)
165,863
4,052
30
169,885
2.15%
Maturity after five years through ten years
74,192
1,237
90
75,339
2.00%
17,594
348
3
17,939
2.09%
152
138
5
285
—
$ 516,584
$ 5,851
$ 147
$ 522,288
1.16%
(c)
Maturity after ten years(c)
Equity Securities
Total Available for Sale Securities
September 30, 2011 (000’s)
Amortized
Cost
Available for Sale
Maturity in one year or less
$ 279,993
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%
Maturity after ten years (c)
Equity Securities
Total Available for Sale Securities
(c)
172
61
14
219
—
$ 606,186
$ 5,650
$ 453
$ 611,383
1.04%
(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 payments through final maturity.
Cash proceeds from the sales of available for sale securities during 2012, 2011, and 2010 were $238.2 million,
$197.2 million, and $102.9 million respectively. Net gains from available for sale securities sold in 2012 amounted
to $2.2 million (gross gains of $2.2 million and gross losses of $5 thousand). 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).
PEFCO did not maintain a held to maturity securities portfolio in 2012 and 2011. Cash proceeds from the sales of
held to maturity securities during 2010 were $80 million. Gross gains from held to maturity securities sold in 2010
amounted to $2.4 million.
There were no securities purchased under agreements to resell in 2012. Securities purchased under agreements
to resell averaged approximately $174.6 million in 2011 and $94.8 million in 2010. The average yield on repurchase
agreements for the year ended September 30, 2011 was .04% (.07% in 2010). In 2011, maturities ranged from one
to five days.
The following table 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.
Less Than
12 months (000’s)
September 30, 2012
Fair
Value
Total temporary
impaired securities
Unrealized
Losses
$ 50,000
$—
35,467
$ 85,467
12 months
or more (000’s)
Fair
Value
$
Less Than
12 months (000’s)
September 30, 2011
Unrealized
Losses
—
$—
49
14,069
98
$ 49
$ 14,069
$ 98
Fair
Value
Unrealized
Losses
$ 99,996
$
Total temporary
impaired securities
2
12 months
or more (000’s)
Fair
Value
$
Unrealized
Losses
—
$ —
71,931
316
13,214
135
$ 171,927
$ 318
$ 13,214
$ 135
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.
5. Lending Programs
Loans outstanding at September 30, 2012, and related undisbursed commitments are classified as follows:
Outstanding Loans (000’s)
Direct & Secondary Long-term Loan Programs
Fixed-rate
Floating-rate
Undisbursed Commitments (000’s)
Amount
Average Rate
Amount
$ 5,006,122
1,170,712(a)
3.64%
$ 403,635(b)
325,812(a)
64,263
589,235(a)
$ 6,830,332
3.73%
50,475(b)
125,725(a)
905,647
Short-term & Medium-term Loan Programs
Fixed-rate
Floating-rate
Long-term Floating-rate
Medium-term Fixed-rate
Medium-term Floating-rate
Total
102,717(a) (c)
5,848(c)
125,719(a) (c)
$
5.78%
28,367(a) (c)
$ 234,284
$
28,367
$ 7,064,616
$
934,014
(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.
37
38
Loans outstanding at September 30, 2011, and related undisbursed commitments are classified as follows:
Outstanding Loans (000’s)
Amount
Direct & Secondary Long-term Loan Programs
Fixed-rate
Floating-rate
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
Long-term Floating-rate
Medium-term Fixed-rate
Medium-term Floating-rate
131,183(a) (c)
6,716(c)
139,450(a) (c)
Total
5.78%
36,996(a) (c)
$ 277,349
$
36,996
$ 5,841,123
$ 1,990,300
(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, 2012
as follows: (in 000’s of USD)
Outstanding loans are scheduled for repayment at September 30, 2011
as follows: (in 000’s of USD)
2013
$ 1,282,979
2012
$ 1,159,428
2014
812,529
2013
737,129
2015
752,904
2014
650,007
2016
712,226
2015
569,931
2017
671,986
2016
524,862
2018 and thereafter
2,831,992
Total before Fair Value Hedge Adjustment
2017 and thereafter
2,199,766
Total before Fair Value Hedge Adjustment
and Unamortized Discount
$ 7,064,616
and Unamortized Discount
$ 5,841,123
Fair Value Hedge Adjustment
387,290
338,191
Unamortized Discount
Total Carrying Value
(96)
$ 7,451,810
(116)
$ 6,179,198
Under the liquidity support program, PEFCO supports both medium and long-term U.S. Agency-guaranteed financing
facilities 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, 2012, PEFCO supported one transaction amounting to $16 m
illion in Agencyguaranteed 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, 2012 and 2011, PEFCO’s Short-term notes consisted of commercial paper in the amount of $2.2
billion and $2.1 billion, respectively. 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 $2.2 billion in 2012 compared to $2.1 billion in 2011. The average interest
rate was .19% in 2012 and .27% in 2011. At September 30, 2012, the cost of the commercial paper after adjusting
for the impact of the interest rate swaps (cash flow hedges) was .41%, compared to .49% at September 30, 2011.
PEFCO has three syndicated revolving credit facilities in place with 17 banks, of which ten are shareowners, split
between a three year $250 million facility, a three year $235 million facility, and a 364-day facility for $1 billion. At
September 30, 2012, there were no amounts outstanding under any facility.
7. Long-Term Secured Notes
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 PEFCO. Collateral assets include U.S. Treasury Securities
or other obligations unconditionally guaranteed or fully insured by the United States or agencies 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.
PEFCO issued $1,500 million of Secured Notes in 2012 and $1,200 million in 2011. The average principal balance of
Long-term Secured Notes was approximately $4,812 million in 2012 and $4,043 million in 2011. The average interest
cost for the year ended September 30, 2012 was 3.69% compared to 4.20% for the year ended September 30, 2011.
A summary of the Secured Note maturities as of September 30, 2012 and September 30, 2011 appears below.
Remaining Maturities of Long-term Secured Notes are as follows:
(000’s of USD)
Remaining Maturities of Long-term Secured Notes at September 30, 2011
are as follows: (000’s of USD)
2013
$ 696,405
2012
$ 387,671
2014
400,000
2013
696,405
2015
680,000
2014
0
2016
400,000
2015
730,000
2017
1,150,000
2016
650,000
2,300,000
2017 and thereafter
2018 and thereafter
Total Outstanding Principal Amount
$ 5,626,405
425,881
Total Outstanding Principal Amount
2,050,000
$4,514,076
370,284
Unamortized Premium
22,950
Unamortized Premium
19,196
(7,650)
(6,199)
$ 6,067,586
$4,897,357
39
40
In 2012, PEFCO did not repurchase any Long-term Secured Notes. In 2011, PEFCO repurchased $15.9 million of its
Long-term Secured Notes at a premium for an aggregate loss of $ 838 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, 2012 consists of $5,325 million in foreign
importer notes backed by the 1971 Guarantee and $264 million in U.S. Treasuries and other U.S. Government
guaranteed securities. Total pledged assets including cash are $5,648 million against the balance of Secured
Notes outstanding of $5,626 million. For designated installments at September 30, 2012, the amount of principal
installments in excess of Secured Note principal redemption amounted to $13 million. For free installments at
September 30, 2012, principal installments available after June 11, 2024 amount to $9 million.
Long-term Secured Notes outstanding as of September 30, 2012 (in 000’s):
Original
Principal
Amount
Principal
Amount
9/30/12
Series Y
$ 450,000
$ 450,000
3.55%
3.54%
Apr-13
Series R
300,000
246,405
4.97%
4.84%
Aug-13
Issue
Designation
Coupon
Rate
Effective
Rate (a)(b)
Maturity
Schedule
Designated
Collateral
Installments
As a % of
Principal
9/30/12
Principal
Due Within
One Year
$ 527,141
117%
$ 450,000
306,867
125%
246,405
Series AA
400,000
400,000
3.05%
3.14%
Oct-14
801,708
200%
—
Series T
330,000
330,000
4.55%
4.52%
May-15
759,198
230%
—
Series U
350,000
350,000
4.95%
4.65%
Nov-15
781,581
223%
—
Series DD
300,000
300,000
2.13%
2.23%
Jul-16
796,327
265%
—
Series W
100,000
100,000
5.00%
5.05%
Dec-16
754,235
754%
—
Series FF
500,000
500,000
1.38%
1.32%
Feb-17
755,616
151%
—
Series X
250,000
250,000
5.45%
5.51%
Sep-17
588,170
235%
—
Series CC
400,000
400,000
2.25%
2.34%
Dec-17
482,582
121%
—
Series Z
500,000
500,000
4.38%
4.30%
Mar-19
770,614
154%
—
Series HH
400,000
400,000
1.45%
1.53%
Aug-19
504,848
126%
—
Series BB
500,000
500,000
4.30%
4.27%
Dec-21
1,062,410
212%
—
Series EE
500,000
500,000
2.80%
2.76%
May-22
658,549
132%
—
Series GG
400,000
400,000
2.45%
2.52%
Jul-24
412,000
103%
—
$ 5,680,000
$ 5,626,405
3.42%
3.35%
(a) Forward gains and losses and original issue discounts are reflected in the effective interest rate.
(b) Weighted average
$ 696,405
Long-term Secured Notes outstanding as of September 30, 2011 (in 000’s):
Issue
Designation
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%
—
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
8. Long-Term Collateralized Notes
There were no outstanding Collateralized Notes as of September 30, 2012 and September 30, 2011. In 2011, the
outstanding principal amount of $42 million of Collateralized Notes matured.
9. Shareowners’ Equity
Common stock outstanding at September 30, 2012 and September 30, 2011 amounted to $35.4 million and $17.4
million, respectively, and shares outstanding amounted to 17,456 shares and 14,811 shares, respectively. During
the year PEFCO issued common shares to HSBC USA Inc. (441 shares for $3 million) and Paribas North America,
Inc. (367 shares for $2.5 million) and to current shareowners Boeing Capital Corporation (441 shares for $3 million),
Citibank, N. A. (441 shares for $3 million), General Electric Company (367 shares for $2.5 million), JPMorgan Chase &
Co. (441 shares for $3 million) and UPS Capital Business Credit (147 shares for $1 million). PEFCO did not issue any
common shares in 2011.
Net income per share was $385.74 in fiscal 2012 and $226.25 in fiscal 2011. Weighted average shares outstanding
amounted to 16,295 for 2012 and 14,811 for 2011.
Under an agreement with Ex-Im Bank effective December 16, 2010, 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 $60 million (excluding the impact on shareowners’ equity of market
value accounting for investment securities and for cash flow hedges); (ii) PEFCO maintains, after giving effect to
such dividend, a leverage ratio of guaranteed assets to shareowners’ equity not in excess of 75 to 1; and (iii) PEFCO
maintains an AAA rating from a major rating agency on all secured debt issued.
The Board of Directors voted to declare a $29 dividend per share for the fiscal year ending September 30, 2012 and
voted not to declare a dividend for fiscal year 2011.
41
42
10. Income Taxes
The provision for income taxes is as follows for the years ended September 30, (in 000’s):
Federal-current
Federal-deferred
2012
2011
2010
$ 3,808
$ 1,816
$ 641
(537)
(73)
(54)
$ 3,271
$ 1,743
$ 587
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,
2012
2011
2010
Tax at statutory rate
34.0%
34.0%
34.0%
Effective income tax rate
34.2%
34.2%
29.7%
Included in other assets and deferred charges at September 30, 2012 is a deferred tax asset of $4,504 thousand
($5,378 thousand in 2011). 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, 2012 and 2011. 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 000’s) for the years ended September 30:
2012
2011
Deferred Asset (Liability)
Deferred Asset (Liability)
Total deferred assets
$ 6,443
$ 7,144
Total deferred liabilities
$ (1,939)
$ (1,766)
Net deferred assets
$ 4,504
$ 5,378
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 an effective rate of 29.7%.
The Company has not recorded any uncertain tax positions as of September 30, 2012 and 2011. 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, 2009.
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
PEFCO has a funded, noncontributory qualified defined benefit pension plan covering all full-time employees and an
unfunded, noncontributory, nonqualified pension plan which provides defined pension benefits to certain employees.
Pension benefits are based primarily upon the participants’ compensation and years of credited service.
The following table sets forth changes in benefit obligation, plan assets, funded status and net periodic benefit cost of each plan:
Qualified Plan
(in 000’s)
Nonqualified Plan
2012
2011
2012
2011
$ 6,585
$ 5,495
$ 3,609
$ 3,385
Service cost
495
426
305
285
Interest cost
309
284
165
169
Actuarial loss/(gain)
953
380
399
(29)
—
—
(201)
(201)
$ 8,342
$ 6,585
$ 4,277
$ 3,609
$
$
Change in Benefit Obligation
Benefit obligation at beginning of year
Benefits paid
Benefit obligation at end of year
Change in Plan Assets
$ 4,942
$ 4,330
Actual return on plan assets
Fair value of plan assets at beginning of year
940
(88)
—
—
Employer contributions
925
700
201
201
—
—
(201)
(201)
Fair value of plan assets at end of year
$ 6,807
$ 4,942
$
Funded status at end of year (a)
$ 1,535
$ 1,643
$ 4,277
Benefits paid
—
—
$
—
—
$ 3,609
(a) These amounts were recognized as liabilities in the Consolidated Statements of Financial Condition as of September 30, 2012 and 2011.
Amounts Recognized in Accumulated Other Comprehensive Income
Net loss/(gain)
Prior service cost
Transition obligation
$ 2,397
$ 2,269
$ 1,058
$ 679
(15)
(10)
14
10
-
16
$ 2,382
$ 2,275
$ 1,072
$ 689
43
44
The net periodic pension cost for 2012 in the table below reflects the actuarial-determined expense. PEFCO had
overaccrued its pension expense in prior years in a cumulative amount of $1.3 million as of September 30, 2011 and
corrected the overaccrual in 2012 net income as a reduction of compensation and benefits expense. Management
has concluded that the adjustments were not individually or in the aggregate material to the consolidated financial
statements as of and for the year ended September 30, 2012 or to any preceding period as reported.
The net periodic benefit cost and other amounts recognized in Other Comprehensive Income (“OCI”) follow:
Qualified Plan
(in 000’s)
Nonqualified Plan
2012
2011
2010
2012
2011
2010
$ 495
$ 426
$ 367
$ 305
$ 284
$ 244
Components of net periodic pension cost
Service cost
Interest cost
309
284
253
165
169
166
Expected return on plan assets
(248)
(305)
(251)
—
—
—
15
17
17
—
—
—
5
5
5
(4)
(4)
(4)
134
79
66
20
33
30
$ 710
$ 506
$ 457
$ 486
$ 482
$ 436
$ 262
$ 772
$ (53)
$ 399
$ (28)
$ (24)
(134)
(79)
(66)
(20)
(33)
(30)
Amortization of unrecognized transition obligation
Amortization of prior service cost
Amortization of net losses
Net periodic pension cost
Other Changes in Amounts Recognized in OCI
Net (gain)/loss
Amortization of (gain)/loss
Amortization of prior service cost
Amortization of transition (asset)/obligation
Total Recognized in OCI
(5)
(5)
(5)
4
4
4
(15)
(17)
(17)
—
—
—
$ 108
$ 671
$ (141)
$ 383
$ (57)
$ (50)
Discount rate assumptions used for pension plan accounting reflect prevailing rates available on high-quality, fixed
–income debt instruments with maturities that match the benefit obligation. For each pension plan, the weighted
average discount rates used in the measurement of benefit obligation were 3.94% in 2012 and 4.69% in 2011
and the weighted average rate of pay increase was 4.00% in both 2012 and 2011. The weighted average discount
rates used to determine the net periodic pension costs were 4.69% in 2012 and 5.16% in 2011 for both plans. The
expected long-term rate of return on assets for the qualified plan was 5.00% in 2012 and 7.00% 2011.
The assets of the qualified plan are currently invested in a balanced fund. The asset allocation of the balanced fund
consists of approximately 65% in equity securities and 35% in debt securities. At September 30, 2012 and 2011,
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.
PEFCO also provides healthcare and life insurance benefits to eligible retired employees. Healthcare is contributory;
life insurance is noncontributory. All postretirement plans are funded on a pay-as-you-go basis.
The following table sets forth changes in benefit obligation, funded status and net periodic benefit cost of the postretirement plans:
(in 000’s)
2012
2011
$ 3,151
$ 2,472
Service cost
325
296
Interest cost
147
127
Change in benefit obligation
Benefit obligation at beginning of year
Plan participants’ contributions
25
28
(243)
284
(50)
(56)
$ 3,355
$ 3,151
$
$
Actuarial (gain)/loss
Benefits paid
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Employer contribution
—
25
—
28
Plan participants’ contributions
25
28
Benefits paid
(50)
(56)
Fair value of plan assets at end of year
$
Funded status at end of year
$ 3,355
(a)
—
$
—
$ 3,151
(a) These amounts were recognized as liabilities in the Consolidated Statements of Financial Condition at September 30, 2012 and 2011.
Amounts Recognized in Accumulated Other Comprehensive Income
Net (gain)/loss
$ 1,273
$ 1,638
Prior service (credit)
(267)
(315)
Transition obligation
—
1
$ 1,006
$ 1,324
The net periodic benefit cost and other amounts recognized in Other Comprehensive Income (“OCI”) follow:
(in 000’s)
2012
2011
2010
Service cost
$ 325
$ 296
$ 189
Interest cost
147
127
79
—
—
—
Amortization of prior service (credit)
(47)
(47)
(47)
Amortization of net losses
122
91
38
$ 547
$ 467
$ 259
Components of periodic postretirement benefit cost
Amortization of transition obligation
Net periodic postretirement benefit cost
Other Changes in Amounts Recognized in OCI
Net (gain)/loss
$ (243)
$ 284
$ 791
Amortization of transition obligation/(asset)
—
—
—
Amortization of prior service credit
47
47
47
(122)
(91)
(38)
$ (318)
$ 240
$ 800
Amortization of actuarial (gain)
Total Recognized in OCI
45
46
The weighted average discount rates used in the measurement of benefit obligation were 3.94% in 2012 and 4.69%
in 2011. The weighted average discount rates used in measuring net periodic benefit cost for the years ended
September 30, 2012 and 2011 were 4.69% and 5.16%, respectively. For the year ended September 30, 2012,
assumed health care cost trend rates for medical pre-65 were 8.75% and post-65 at 7.50%, and prescription drugs at
8.0%. For the year ended September 30, 2011, those rates were 9.50%, 7.75% and 8.5%, respectively. These rates
will gradually decrease to 5.0% by 2018. The impact of a 1% change in the health care cost trend assumption would
increase (decrease) the postretirement benefit obligation by $591 thousand and ($683 thousand), respectively.
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 $160 thousand in 2012, $162 thousand in 2011 and $137 thousand in 2010.
12. Derivative 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 pre-tax net present
value of PEFCO’s capital, which is the acceptable specified limit authorized by PEFCO’s Board of Directors. PEFCO
does not enter into interest rate swap contracts or other derivatives not designated as hedging instruments.
Interest rate swap contracts 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 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 2012, 2011, or 2010.
The following table summarizes the notional amount and credit exposure of PEFCO’s derivative instruments at September 30, 2012 and 2011.
Derivatives Instruments designated as hedges
(in 000’s)
Interest Rate Swaps
Fair Value Hedge
Cash Flow Hedge
Total
Notional
2012
Credit Exposure
2011
2012
2011
$ 9,919,519 $ 7,352,861 $ 426,105 $ 371,775
90,000
90,000
0
0
$ 10,009,519 $ 7,442,861 $ 426,105 $ 371,775
Effect of master
netting agreements
Total Credit Exposure
(363,942)
(317,179)
$ 62,163 $ 54,596
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 used 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.
Accordingly, there was no gain or loss recognized in current period earnings related to these hedges.
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 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-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.
Ineffectiveness related to derivatives and hedging relationships was recorded in net financing income as follows:
Ineffectiveness (in 000’s)
Year ended September 30,
Interest Rate Swaps
2012
2011
2010
Fair Value Hedge
$ (5)
$ 90
$ 71
Cash Flow Hedge
Total
0
0
0
$ (5)
$ 90
$ 71
The following table presents the effect of PEFCO’s derivative instruments on the Consolidated Statements of Financial Condition (in 000’s):
Asset Derivatives Fair Value (a)
Derivatives designated as hedges
Interest Rate Swaps
(c)
Total
Effect of master netting agreements
Liability Derivatives Fair Value (b)
2012
2011
2012
2011
$ 426,105
$ 371,775
$ 395,788
$ 356,629
$ 426,105
$ 371,775
$ 395,788
$ 356,629
(363,942)
(317,179)
(363,942)
(317,179)
$ 62,163
$ 54,596
$ 31,846
$ 39,450
Total reported on the Consolidated Statements
of Financial Condition
(a) Reported as “Other assets and deferred charges” on the Consolidated Statements of Financial Condition
(b) Reported as “Accrued expenses and other liabilities” on the Consolidated Statements of Financial Condition
(c) Fair Values are on a gross basis, before consideration of master netting agreements as required by ASC 815-10; 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 000’s):
Loss (Gain) Recognized in
Other Comprehensive
Income (OCI) on Derivatives,
net of tax (Effective Portion)
Interest Rate Swaps
Loss Reclassified
from OCI into
2012
2011
2010
2012
2011
2010
$ (2,815)
$ (1,781)
$ 1,828
$ 237
$ 327
$ 309
47
48
13. Fair Value measurements
PEFCO is required to report fair value measurements for specialized classes of assets and liabilities and utilizes a
three-level valuation hierarchy established under U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the
measurement date.
The three-level hierarchy for fair value measurement is defined as follows:
1. Level 1 – Quoted unadjusted prices for identical instruments in active markets for identical assets or liabilities
to which PEFCO has access at the date of measurement. Level 1 securities include U.S. Treasury and
equity securities.
2. Level 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. Level 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, 2012 (000’s)
Assets Measured at Fair Value on a Recurring Basis
Available-for-sale securities
Quoted Prices
in Active
Market (Level 1)
Prices w/Other
Observable
Inputs (Level 2)
$ 225,196
$ 297,092
Unrealized appreciation on interest rate swaps
Prices w/
Significant
Unobservable
Inputs (Levels 3)
$
—
Netting
$
(a)
—
Total
$ 522,288
—
426,105
—
(363,942)
62,163
$ 225,196
$ 723,197
$
—
$ (363,942)
$ 584,451
Unrealized depreciation on interest rate swaps
$
—
$ 395,788
$
—
$ (363,942)
$ 31,846
Total Liabilities at Fair Value
$
—
$ 395,788
$
—
$ (363,942)
$ 31,846
Total Assets at Fair Value
Liabilities Measured at Fair Value on a Recurring Basis
September 30, 2011 (000’s)
Assets Measured at Fair Value on a Recurring Basis
Available-for-sale securities
Quoted Prices
in Active
Market (Level 1)
Prices w/Other
Observable
Inputs (Level 2)
$ 280,214
$ 331,169
Unrealized appreciation on interest rate swaps
Prices w/
Significant
Unobservable
Inputs (Levels 3)
$
—
Netting
$
(a)
—
Total
$ 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
Total Assets at Fair Value
Liabilities Measured at Fair Value on a Recurring Basis
(a) PEFCO has elected to net unrealized gains (receivables) and unrealized losses (payables) when a legally enforceable master
netting agreement exists.
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 years ended September 30, 2012 and 2011. 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, 2012
and 2011.
There were no transfers between Level 1 and Level 2 during the years ended September 30, 2012 and 2011.
The following table presents the carrying amounts and estimated fair values of financial instruments as of September 30, 2012 and 2011 (in 000’s)
2012
Assets
Cash and cash equivalents
2011
Carrying
Amount
$ 302,259
$ 302,259
522,288
611,383
611,383
71,756
71,756
71,357
71,357
7,451,810
7,611,997
6,179,198
6,289,628
62,163
62,163
54,596
54,596
Short-term notes
$ 2,194,408
$ 2,194,408
$ 2,144,667
$ 2,144,667
Interest payable
49,582
49,582
47,905
47,905
6,067,586
6,122,430
4,897,357
4,939,554
31,846
31,846
39,450
39,450
Loans
Interest rate swaps
$
Estimated
Fair Value
355,658
Interest and fees receivable
355,658
Carrying
Amount
522,288
Investment securities
$
Estimated
Fair Value
Liabilities
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, floating-rate loans, interest
and fees receivable, short-term notes and interest payable.
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 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.
Long-term Secured 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.
49
50
14. Related Party Transactions
Certain shareowners (or their affiliates) have provided and presently provide a variety of commercial banking services
to PEFCO. In 2012, PEFCO paid $4,219 thousand in underwriting fees ($3,206 thousand in 2011) related to the
issuance of Long-term Secured Notes. Fees paid for liquidity back-up lines in 2012 were $2,814 thousand ($2,959
thousand in 2011). In 2012, PEFCO also paid $426 thousand for other commercial banking services ($324 thousand
in 2011).
PEFCO has derivative contracts with certain shareholders broken out as follows (in 000’s):
September 30, 2012 September 30, 2011
Receivable, net
$ 62,163
$ 54,596
Payable, net
$ (20,324)
$ (28,406)
15. General And Administrative Expenses
The breakdown of the General and Administrative Expenses are as follows (in 000’s):
Year Ended September 30,
Compensation and benefits
Administration
Professional fees
Total
2012
2011
2010
$ 5,398 (a)
$ 6,210
$ 5,441
2,481
2,413
2,602
665
723
823
$ 8,665
$ 9,414
$ 8,677
(a) P EFCO had over accrued its pension expense in prior years in a cumulative amount of $1.3 million through September 30, 2011, and corrected the
overaccrual in 2012 pre-tax earnings as a reduction of compensation and benefits expense. Management has concluded that the adjustments were not
individually or in the aggregate material to the consolidated financial statements as of and for the year ended September 30, 2012 or to any preceding
period as reported.
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, 2012, 2011 and 2010, PEFCO recorded lease expense related
to these agreements of $614 thousand, $613 thousand and $647 thousand, respectively, which is included in the
accompanying Consolidated Statements of Operations.
Future minimum lease payments under the lease as of September 30, 2012 are as follows (in 000’s)
2013
$
581
2014
581
2015
625
2016
634
2017
Thereafter
Total
634
1,374
$ 4,429
17. Revision of Consolidated Statements of Cash Flows
PEFCO has revised the Consolidated Statements of Cash Flows for the years ended September 30, 2011 and
2010. These revisions solely affect the classification of items in operating, investing and financing activities and
have no impact on the net increase/(decrease) in cash set forth in the consolidated statements of cash flows for
any of the previously reported periods. Principally, the revisions include adjustments to appropriately present in the
Consolidated Statements of Cash Flows premiums and discounts on investment securities purchased by PEFCO
and notes issued by PEFCO. These revisions have no impact on PEFCO’s previously issued interim or annual
Consolidated Statements of Financial Condition, Statements of Income and Statements of Changes in Shareowners’
equity. Management has considered the impact of these revisions and has concluded that these revisions are not
material to the previously issued consolidated financial statements. The impact of these revisions to the previously
issued Consolidated Statements of Cash Flows is as follows:
51
52
2011
As Previously
Reported
Net Income
$
3,351
2010
As Revised
$
3,351
As Previously
Reported
$
1,391
As Revised
$
1,391
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization
7,043
4,655
(5,377)
4,846
Net gain on investment securities
(6,691)
(6,691)
(4,139)
(4,139)
Net gain on prepayments of loans
(882)
(882)
—
—
838
838
—
—
Deferred income tax benefit
(Increase) in interest and fees receivable
(383)
(383)
(279)
(279)
(3,100)
(3,100)
(1,932)
(1,934)
Increase in interest payable
2,178
2,174
3,589
3,587
Increase in accrued expenses and other liabilities
2,847
3,763
1,008
691
34
—
317
317
923
5,050
257
(10,814)
6,158
8,775
(5,165)
(6,334)
41,889,000
41,889,000
23,424,000
23,424,000
1,679,265
1,679,265
1,069,430
1,069,430
196,385
197,241
178,490
182,912
(41,744,000)
(41,744,000)
(23,497,000)
(23,497,000)
(1,774,278)
(1,767,677)
(1,325,254)
(1,318,837)
Leasehold incentives
Other, net
Net cash provided by (used in) operating activities
Proceeds from maturities of repurchase agreements
Proceeds from maturities of investment securities
Proceeds from sales of investment securities
Investments in repurchase agreements
Purchases of investment securities
Principal collected on loans
1,156,636
1,156,636
1,078,410
1,078,410
Principal disbursed on loans
(2,471,513)
(2,471,513)
(740,667)
(740,667)
(38)
(37)
(431)
(975)
(1,068,543)
(1,061,085)
186,978
197,273
Asset purchases
Net cash (used in) provided by investing activities
Proceeds from issuance of Short-term notes
8,679,615
8,674,075
7,428,790
7,423,603
Repayments of Short-term notes
(8,349,880)
(8,349,880)
(7,665,844)
(7,665,844)
(42,000)
(42,000)
—
—
1,197,056
1,192,507
400,418
396,479
(149,212)
(149,198)
(381,614)
(381,614)
Issuance of common stock
—
—
112
112
Dividends paid
—
—
(444)
(444)
1,335,579
1,325,504
(218,582)
(227,708)
273,194
273,194
(36,769)
(36,769)
29,065
29,065
65,834
Proceeds and repurchases of Long-term
Proceeds from issuance of Long-term Secured Notes
less issuance costs
Repayments and repurchases of Long-term Secured Notes
Net cash provided by (used in) financing activities
Increase (decrease) in cash
Cash at beginning of the period
Cash at the end of the period
$
302,259
$
302,259
Interest paid
$
Income taxes paid
$
$
29,065
173,633
$
900
$
173,633
$
900
$
65,834
$
29,065
168,759
$
168,759
750
$
750
Supplemental Disclosures
The following table summarizes the impact of the revisions in the Consolidated Statements of Cash Flows for the periods affected:
(Decrease) increase due to correct reclassification of amortization of discount and premiums
2011
$
Net change in other assets and liabilities, primarily unamortized premiums and discounts
2010
(2,338)
$
4,983
Other
Net increase in cash flow from operating activities
10,223
(6,649)
878
(321)
3,473
3,253
6,601
6,417
1
(544)
6,602
5,873
(10,089)
(9,126)
Decrease in cash outflow related to discount on securities purchased
Other
Net decrease in cash outflow from investing activities
Decrease in cash inflow due to deferred issuance costs and discount on short-term and long-term notes issued
Other
Net decrease in cash inflow from financing activities
Net change in cash flow
18. Subsequent Events
$
14
—
(10,075)
(9,126)
0
$
In accordance with current accounting literature, subsequent events were evaluated through the date the financial
statements were issued, November 28, 2012.
0
53
54
Management’s Report on Internal Control over Financial Reporting
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.
PEFCO’s management assessed its internal control over financial reporting as of September 30, 2012, 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, 2012, its system of internal control over financial reporting was effective.
Don B. Taggart
chairman, president & chief executive officer
November 28, 2012
Robert T. O’Neill
vice president & controller
November 28, 2012
Five-Year Financial Data & Independent Audit Fees
In thousands, except per share amounts
Year ended September 30,
Loan Commitments
2012
2011
2010
2009
2008
Commitments for year
$ 2,154,000
$ 2,948,000
$ 1,643,000
$ 1,857,000
$ 1,953,000
Commitments, cumulative from inception
30,335,000
$ 877,946
$ 913,642
$ 889,710
$ 759,651
$ 678,422
7,217,526
5,901,849
4,497,347
4,642,873
4,016,942
234,284
277,349
295,132
366,405
375,379
$ 2,194,408
$ 2,144,677
$ 1,814,941
$ 2,051,996
$ 2,151,136
6,067,586
4,897,357
3,777,945
3,613,665
2,832,149
—
—
42,000
42,000
62,000
Selected Assets
Cash and investment securities
Selected Liabilities
Short-term notes
Long-term Collateralized Notes
Other Financial Data
Net income
$
Net income per share
Dividends
Average shareowners’ equity
Return on average shareowners’ equity
Independent Audit Fees
6,286
$
3,351
$
1,391
$
14,538
$
6,487
385.74
226.25
93.95
1,010.98
460.00
506
—
—
444
351
114,854
96,916
95,907
89,100
77,650
5.47%
3.46%
1.45%
16.24%
8.35%
PEFCO utilizes the services of PricewaterhouseCoopers LLP for audit, other audit-related services and tax services.
PEFCO’s Audit Committee is responsible for the pre-approval of all audit and permitted audit-related and tax services
performed by the independent auditors. The fees incurred in 2012 and 2011 were as follows:
Service
2012
2011
$ 222,000
$ 190,000
Secured Note issuances
96,000
106,800
Substitutions of collateral
45,900
63,000
141,900
169,800
62,000
60,000
$ 425,900
$ 419,800
Audit
Audit-related
Audit-related
Tax
Total
55
56
Board of Directors & Officers
Directors
Don B. Taggart(1) (3) (5) (6)
Richard S. Aldrich, Jr.(1) (4)
Robert J. Bernabucci (1) (3)
Catherine P. Bessant (2) (5)
Philip F. Bleser (2) (4)
Mary K. Bush (3) (5)
Michael J. Cave (2) (3)
Benjamin M. Friedman (1) (5)
Robert D. Matthews, Jr. (3) (5)
Karen B. Peetz (3) (4)
William R. Rhodes (1) (4)
Rita M. Rodriguez (2) (5)
Chairman, President & Chief
Executive Officer
PEFCO
CEO, Global Corporate Bank
North America
J.P. Morgan
Vice Chairman, Commercial
Banking
Citizens Financial
Group, Inc.
Partner
skadden, arps, slate,
meagher & flom, llp
Chairman
bush international, llc
Vice Chairman
The Bank of New York
Mellon
(1)
Member of the Executive Committee
(2)
Member of the Audit Committee
(3)
Member of the Nominating and Governance Committee
President
ups capital corporation
President
Boeing Capital
Corporation
Senior Advisor
CITIGROUP, INC.
President
William R. Rhodes
Global Advisors
Global Technology &
Operations Executive
Bank of America Merrill
Lynch
William Joseph Maier Professor
of Political Economy
harvard university
Senior Fellow
woodstock theological
center at georgetown
university
(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
Board of Directors & Officers
Officers
Timothy C. Dunne
Vincent J. Herman
Ann Marie Milano
John J. Neblo
Robert T. O’Neill
Francoise M. Renieris
Melinda A. Scott
Don B. Taggart
Richard E. Youtz
Senior Vice President &
Treasurer
Senior Vice President
Assistant Vice President
Vice President
Vice President & Controller
Chairman, President & Chief
Executive Officer
Vice President & Secretary
Assistant Vice President
57
58
Advisory Board & Exporters’ Council & Small Business Lender Council
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.
Advisory Board
Exporters’ Council
Stephen Atallah
Terina A. Golfinos
Managing Director
ING Capital LLC
Managing Director
Siemens Financial Services
Jeffrey S. Cain
John Sabroske
Carla G. Campos
Phillips Lee
Ronald J. Glover
Daniel A. Stewart
Ae Kyong Chung
Robert P. Mayer
Gary Groom
Managing Director
Deutsche Bank AG
Director
HSBC Securities (USA), Inc.
Managing Director
Citigroup Global Markets, Inc.
Managing Director
Société Générale
Vice President and Manager
PNC Bank, N.A.
Michael K. Clare
Christan McCormick
Marcia M. Davis
John C. Sapoch
Managing Director
J.P. Morgan Securities Inc.
Bank of America, N.A.
CEO
Natixis Transport Finance
Managing Director
Wells Fargo Bank, N.A.
Emilio A. Giliberto
Managing Director
Boeing Capital Corporation
Principal
Finance Specialists
Director- Global Trade Finance
John Deere Credit
International Export
Credit Manager
Caterpillar Financial
Services Corp.
Skip A. Warner
GE Capital Markets Corporate
Bret Kushner
Vice President
Diebold Global
Finance Corporation
Barbara A. O’Boyle
Director of Finances
Bechtel Enterprises
Holdings, Inc.
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
Federico de la Garza
Trade Finance Director
Hencorp Becstone Group, LLC
Ralph Clumeck
Steven M. Greene
Gustavo Rosas
Jorge Garza
Carlos Gonzalez Juanes
William M. Schoeningh
Emilio A. Giliberto
Richard H. Lopez
Brett N. Silvers
President
CFS International Capital Corp.
CEO
InterBanco, S.A.
Vice President
COO International Trade
Atrafin, LLC
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.
www.pefco-smallbusinesslenders.com
PEFCO Shareowners
PEFCO’s stock is owned by 25 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 30, 2012:
Commercial Banks
Bank of America
Number of Shares
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.
1,507
Deutsche Bank
1,066
HSBC USA Inc.
441
ING Capital LLC
120
JPMorgan Chase & Co.
2,937
Key Bank
165
Natixis
738
Paribas North America, Inc.
367
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
UBS AG
Union Bank N.A.
39
137
93
431
U.S. Bank N.A.
500
Wells Fargo & Company
375
Financial Services Companies
Number of Shares
Island Capital Ltd.
366
Radian Asset Assurance Inc.
212
Industrial Companies
ABB, Inc.
The Boeing Company
Number of Shares
80
1,425
Cessna Aircraft Company
40
General Electric Company
567
KBR, Inc.
113
United Technologies Corporation
Total
PEFCO Treasury Stock (purchased in 2008)
200
17,456
166
59
60
ADDITIONAL INFORMATION
Private Export Funding Corporation
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
(212) 916-0332
j.neblo@pefco.com
Common Stock
Richard E. Youtz
(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:
Robert T. O’Neill
Vice President & Controller
(212) 916-0333
r.oneill@pefco.com
Long-term Secured Notes and
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
4:45 p.m., Thursday December 6, 2012
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
PRIVATE EXPORT FUNDING CORPORATION
280 Park Avenue, New York, NY 10017
www.pefco.com

(the “agreement”) with PEFCo.

Transcription

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