Single Purpose. Global Scope Annual Report

Transcription

1 Single Purpose. Global Scope Annual Report

2

3 Table of Contents: Chairman s Letter 2 Business Year in Review 6 Summary of PEFCO s Business 9 PEFCO s Relationship with Ex-Im Bank 17 Management s Discussion & Analysis 21 Consolidated Financial Statements 26 Management s Report 45 Five Year Financial Data & Independent Audit Fees 47 Board of Directors & Officers 48 Advisory Board & Exporters Council 49 Small Business Lender Council 50 PEFCO Shareowners 51 Additional Information 52

4 Chairman s Letter we are happy to report that we closed 2009 financially sound, strong & stable To: PEFCO Shareowners, It is a pleasure to report to you that PEFCO had a very good 2009 fiscal year. The considerable time and resources we spent over the last few years developing a strong position to meet the challenges we now face have been successful. We have upgraded our systems, re-tasked our employees and, most importantly, focused on our asset generation, client relationships and our treasury activities. Our results have shown significant improvements, but these measures tell only part of the story. In addition to taking steps to build profitability, one of our key objectives these past few years has been to not only preserve, but strengthen our capital base. We have been mindful of the need to build capital by We ve taken actions and upgraded our infrastructure in order to better service our clients and improve our internal operational efficiency. We are well positioned to face the challenges of the coming fiscal year by continuing to work closely with our clients, lenders, investors and shareholders. This has resulted in a profit for fiscal 2009 of $14.5 million compared to $6.5 million in fiscal Our return on equity increased to 16.32% and our earnings per share was $983 compared to 8.4% and $462 in 2008 respectively when the current financial crisis began. This is our second most profitable year ever. As fiscal 2009 closes, we are mindful of the enormous challenges facing every sector of the economy. Corporations of every size have been effected by the volatility in the financial markets. The market turbulence that began as far back as mid-year 2007 and continued all of last year has been unprecedented and of a magnitude that has impacted every sector of the economy, including all financial corporations. While it appears that we may be starting the recovery, we and other corporations have yet to see in what environment we will operate in the future. having a conservative dividend policy. We have raised an additional $3.1 million in capital, our first new issuance since our founding in 1970, and are in discussions with several new and existing investors about additional capital infusions. Together these actions at year-end 2009 have allowed us to reach a capital base of $103.2 million, an increase of 20% from year-end 2008 and our highest level since September We intend to search for opportunities to continue to increase our capital base as we feel greater levels are needed to support the growing requirements of our business. Mindful of our goal of capital preservation, our Board has accepted management s recommendation to have a modest dividend increase for fiscal 2009 of $30 per share compared to $25 per share for fiscal PEFCO Annual Report

5 Chairman s Letter It is in the pursuit of these public policies that we are pleased to have been able to provide financing this fiscal year of $1.9 billion of commitments compared to the record set last year of $2.0 billion. During fiscal 2009 financing under our Direct and Secondary Long-Term programs totaled $1.5 billion compared to $1.6 billion in At the same time, financing of small and mediumterm business was $369 million representing 20% of our total loan commitments for 2009, compared to 18% in In terms of relationships, small business commitments consisted of 157 transactions compared to 192 in 2008, and 18 long term direct and secondary commitments compared to 17 in We look forward to continuing to increase our financing and related activities as we face the challenges of our current economy. We believe we are well positioned to do so and will do so with the same or improved level of service to our clients, investors, shareowners and especially to our colleagues at Ex-Im Bank. I wish the new Chairman and President of Ex-Im Bank, Fred Hochberg, and his new team much success and offer our full support for their efforts. I also offer a special note of thanks to Jim Lambright, the former Chairman and President of Ex-Im Bank who has also served as the Chief Investment Officer under the U.S. Treasury s TARP program, for all of his years of support and counsel to us at PEFCO. Finally, I Growth : We will continue to focus on generating assets. Efficiency : We will work relentlessly to reduce costs and improve productivity. Operating Model : We will stay true to our core values, and maintain a clear, common mission provide the supplemental financing at an effective cost to support U.S. exports. While it is important to achieve strong financial results, the core of our business model continues to be working with the Export-Import Bank of the United States ( Ex-Im Bank ), in our role as a supplemental lender, supplying the funds needed to finance U.S. exports and thus support U.S. jobs. As we work closely with Ex-Im Bank on these important public policies, we are taking steps to ensure that our standard operating procedures are in line with developments in the marketplace so we can be flexible and adaptive to current conditions and continue to provide the best quality service. Just recently, as part of our discussions with Ex-Im Bank, we received approval to include all longterm floating rate transactions that were originally funded by other financial institutions, and fixed and floating rate promissory notes under Credit Guarantee Facilities to be under the umbrella of our 1971 Guarantee with Ex-Im Bank and, therefore, available to us as additional collateral for our Secured Notes. want to thank our customers for the business they have brought and will hopefully continue to bring to us, our Board and our staff for their dedication and efforts, and our shareowners for their continued support. Respectfully submitted, Don B. Taggert Chairman, President and CEO 2009 PEFCO Annual Report 33

6 1. Spiros Tsaketas Vice President & Controller 7. Richard E. Youtz Senior Vice President 2. John J. Neblo Senior Vice President 8. Vincent J. Herman Vice President 3. Don B. Taggart Chairman, President & Chief Executive Officer 9. Timothy C. Dunne Senior Vice President & Treasurer 4. Ann Marie Milano Vice President & Secretary 5. Melinda A. Scott Assistant Vice President 6. Francoise M. Renieris Assistant Vice President PEFCO Annual Report

7 Chairman s Letter What defines us? Experienced. Proven. Focused on the growth of U.S. Exports. We strive to be innovative and are leveraging our product capabilities within our business niches in order to continue to deliver on our growth strategy PEFCO Annual Report 53

8 business year in review Outstanding Loans by Product were: (in millions) Equipment 38 Environmental 41 Telecommunications 44 Other 47 Infrastructure 170 Energy 316 Small Business 656 Aircraft total $4, ,551 OPIC EXIM PEFCO s programs have enabled the world-wide export of various U.S. products. Outstanding Export Loans guaranteed or insured by EX-IM Bank and OPIC as of September 30, Outstanding Loans by Country were: (in millions) Australia Brazil Cayman Islands Chile Croatia Japan Mexico Nigeria Panama Philippines Russian Federation Saudi Arabia Taiwan Turkey Other total $4, ,001 OPIC EXIM PEFCO Annual Report

9 business year in review Lending Private Export Funding Corporation ( PEFCO ) had new loan commitments in 2009 totaling $1,857 million, compared to new loan commitments of $1,953 million in New commitments in the Short and Medium Term Loan Programs under our Small Business Programs were $369 million in 2009, making 2009 the Small Business Program s second best year. EARNINGs PEFCO s net income in 2009 was $14.5 million compared to net income of $6.5 million in Net financing income increased to $33.2 million in 2009 from $20.1 million in The average balance of financing assets approved by Ex-Im Bank and the Board of Directors. Issuance included two new series, Z and AA, and five reopenings of existing Secured Note Series, as detailed in the following table: Series Amount Lead Underwriters V reopen 50 Citi Y reopen 49 FTN Financial U reopen 25 FTN Financial U reopen 75 The Williams Capital Group Z 350 RBS Global Markets/Citi Z reopen 50 RBS Global Markets/Citi AA 400 RBS Global Markets/JP Morgan Total (in millions USD) 999 increased in 2009 by $207 million and the average balance of financing liabilities increased by $276 million in The average financing revenue interest rate, decreased by 1.77%, while the average financing expense interest rate also decreased 1.87%. FUNDING During the year, PEFCO issued a total of $999 million of Secured Notes under a $1 billion issuance limit as DIVIDEND The Board of Directors voted to declare a dividend of $30 per share for the fiscal year ending September 30, 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 divided is important.. No. of Loan Commitments Products AIRCRAFT ENERGY OTHER SMALL BUSINESS Amounts (in millions) $1, $1, PEFCO Annual Report 73

10 advancing the cause of america s export business Introduction: PEFCO was incorporated on April 9, 1970 under Delaware law and is principally engaged in making U.S. dollar loans to foreign importers to finance purchases of goods and services of United States 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 th e United States, PEFCO relies upon this U.S. government support and does not make evaluations of credit risks, appraisals of economic conditions in foreign countries, or reviews of other factors in making its loans PEFCO Annual Report

11 2009 Management s Discussion and Analysis Operations The following discussion should be read in conjunction with PEFCO s Consolidated Financial Statements and the Notes thereto found elsewhere 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 foreign importers of U.S. goods and services which are guaranteed 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 purchasing from commercial bank lenders participating interests in such obligations. PEFCO finances these purchases through the sale of its own securities to investors in private transactions. PEFCO also assists small businesses in financing U.S. exports and provides support for certain securitized, guaranteed financing facilities of Ex-Im Bank. Since PEFCO s creation, the volume of its export loan business has been subject to the initiation of financing transactions involving PEFCO by commercial banks and other lending institutions (including the shareowners of PEFCO), the approval by Ex-Im Bank of PEFCO s participation in each such transaction, the volume of U.S. exports, and the requirements and policies of Ex-Im Bank with respect to the financing of those exports. The following table is an analysis of net financing income (in thousands) for the years ended September 30, Financing Revenue Interest Income Export loans guaranteed or insured by Ex-Im Bank: Primary Long-Term Loan Program Average Average Interest Average Average Interest Average Average Interest Balance Rate Revenue Balance Rate Revenue Balance Rate Revenue Fixed-rate $2,389, % $ 67,507 $ 2,108, % $100,604 $1,931, % $111,493 Floating-rate 301, % 6, , % 17, , % 27,450 Secondary Long-Term Loan Program Fixed-rate 408, % 15, , % 18, , % 27,738 Floating-rate 516, % 10, , % 19, , % 22,916 Short-Term & Medium-Term Programs Medium-Term 415, % 11, , % 20, , % 29,416 Working Capital & Short-Term Insurance 66, % 2,065 20, % , % 1,383 Loans Insured by OPIC Long-Term 186, % 4, , % 9, , % 16,149 Medium-Term 184, % 4, , % 6, , % 7,215 Lending Activities 4,465, % 123,396 4,160, % 193,703 4,271, % 243,760 Investment Securities 554, % 10, , % 20, , % 26,118 Total $5,019, % 134,270 $ 4,812, % 214,054 $4,857, % 269,878 Commitment and prepayment fees 21,414 9,581 1,538 Financing Revenue $155,684 $223,635 $271, PEFCO Annual Report 21

12 2009 Management s Discussion and Analysis The following table is an analysis of net financing income (in thousands) for the years ended September 30, Financing Expense Interest Expense Average Average Interest Average Average Interest Average Average Interest Balance Rate Expense Balance Rate Expense Balance Rate Expense Long-Term Notes $3,060, % $ 97,024 $2,798, % $132,937 $2,852, % $156,350 Short-Term Notes 1,948, % 22,928 1,934, % 68,944 2,044, % 107,321 Total $5,008, % 119,952 $4,732, % 201,881 $4,897, % 263,671 Commitment and other fees 2,505 1,623 1,474 Financing Expense 122, ,504 $265,143 Net Financing Income $ 33,227 $ 20,131 $ 6, Compared to 2008 PEFCO s net income was $14.5 million in 2009 compared to net income of $6.5 million in The increase in net income was the result of an increase in margins, incremental gains on prepayment of loans, gains on sale of securities less losses on sale of secured notes and sale of loans, additional fees paid on bank lines of credit and operating expenses as stated below. For the year ended September 30, 2009, financing revenue decreased to $155.7 million from $223.6 million in The primary reason for the decrease in financing revenue was the decrease in short-term and long term interest rates. Short term interest rates (LIBOR) are the basis for pricing the floating-rate portfolio while long-term interest rates (Treasury Notes) are the basis for pricing the fixed-rate portfolio. The average balances and yields in the Primary Long Term Loan Program were: Fixed Rate - $2,389.0 million and 2.83% in 2009 compared to $2,108.0 million and 4.77% in Floating Rate - $301 million and 3.68% in 2009 compared with $403.0 million and 4.45% in The average balances and yields in the Secondary Long-Term Loan Program were: Fixed Rate - $408.0 million and 3.68% in 2009 compared with $382.0 million and 4.76% in Floating Rate - $516.0 million and 2.12% in 2009 compared with $455.0 million and 4.24% in The average balances and yields of the Small Business and Medium Term Program were: Medium Term $415.0 million and 2.85% in 2009 compared with $442.0 million and 4.59% in Short Term Insurance $66.0 million and 3.13% in 2009 compared with $20.0 million and 4.99% in The average balances and yields of loans insured by OPIC were: Long Term $186.0 million and 2.68% in 2009 compared with $192.0 million and 4.96% in Medium Term $184.0 million and 2.25% in 2009 compared with $158.0 million and 4.35% in The overall average balance of the lending portfolio was $4,465.0 million and a yield of 2.76% in 2009 compared with $4,160.0 million and 4.66% in PEFCO is using interest rate swaps contracts designated as fair value hedges of certain fixed rate loans. In 2009 the net interest expense of these contracts was $58.9 million ($13.8 million in 2008) and this amount was reported as an adjustment to the interest income of fixed rate loans. The Investment Securities portfolio had an average balance of $554 million and a yield of 2.00% in 2009 compared with $652.0 million and 3.12% in Commitments and prepayments increased in 2009 to $21.4 million from $9.6 million in 2008, primarily due to the receipt in 2009 of approximately $21.1 million prepayment make whole payments from one borrower which prepaid the remaining balances of loans. It is PEFCO s policy to permit borrowers to prepay loans only if the borrower makes PEFCO whole for the economic loss incurred as a result of such prepayment PEFCO Annual Report

13 2009 Management s Discussion and Analysis For the year ended September 30, 2009, financing expense decreased to $120.0 million from $201.9 million in The primary reason for the decrease in financing revenue was the decrease in short term and long term interest rates. Short term interest rates (commercial paper) are the basis for pricing the 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 $3,060.0 million and 3.17% in 2009, compared to $2,798.0 million and 4.75% in PEFCO is using interest rate swap contracts designated as fair value hedges of certain long term notes and interest rate swap contracts designated as cash flow hedges of certain short term notes. In 2009, the interest income of the interest rate swaps designated as fair value hedges was $58.4 million ($17.7 million in 2008) and this amount was reported as an adjustment to the interest expense of the long term notes. Furthermore, the net interest expense of the interest rate swaps designated as cash flow hedges was $5.0 million in 2009 ($2.32 million in 2008) and this amount was reported as an adjustment to the interest expense of the short term notes. The margin of the overall portfolio increased to 28 basis points in 2009 (assets 2.68% less liabilities 2.40%) from 18 basis points (assets 4.45%, liabilities 4.27%) in Commitments and other fees paid were $2.5 million in 2009 compared with $1.6 million in 2008, mainly due to fees paid on liquidity back up lines of $745 thousand. PEFCO s net financing income was $33.2 million in 2009, compared to $20.1 million in In 2009, net securities transactions, which are the result of sales of investment securities, resulted in a gain of $618 thousand. In 2008, sales of investment securities resulted in a gain of $411 thousand. In 2009, PEFCO repurchased $33.9 million of its long term Secured Notes at a loss of $2.4 million compared to repurchase of $52.9 million in 2008 for a loss of $3.6 million. General and administrative expenses were $8.8 million in 2009 as compared to $7.1 million in The increase in general and administrative expenses was the result of an increase in compensation of $647 thousand (mainly due to an increase in staff) and increase in benefits, $738 thousand (mainly due to pension expense), an increase in administration expenses of $138, and an increase in professional fees of $189 thousand. Provisions for income tax increased to $7.8 million in 2009 from $3.3 million in The effective tax rate is 35.0%. Net income increased to $14.5 million in 2009 from $6.5 million in Accumulated other comprehensive income (loss) increased to ($9.8) million, net of tax in 2009, compared to ($6.3) million, net of tax in 2008, as a result of market valuation adjustments to the carrying value of investment securities, cash flow hedges and pension and post retirement adjustments Compared to 2007 PEFCO s net income was $6.5 million in 2008 compared to net income of $585 thousand in The increase in net income was the result of an increase in net interest, incremental gains on prepayment of loans less losses on the sale of secured notes, additional fees paid on bank lines of credit and operating expenses as stated below. For the year ended September 30, 2008, financing revenue decreased to $223.6 million from $271.4 million in The average balances and yields in the Primary Long Term Loan Program were: Fixed Rate $2,108.0 million and 4.77% in 2008 compared to $1,931.5 million and 5.77% in Floating Rate $403.0 million and 4.45% in 2008 compared with $500.3 million and 5.49% in The average balances and yields in the Secondary Long Term Loan Program were: Fixed Rate $382.0 million and 4.76% in 2008 compared with $511.2 million and 5.43% in Floating Rate $455.0 and 4.24% in 2008 compared with $405.5 million and 5.65% in The average balances and yields of the Short-Term and Medium Term Program were: Medium Term $442.0 and 4.59% in 2008 compared with $507.5 million and 5.80% in Short Term Insurance $20 million and 4.99% in 2008 compared with $22.4 million and 6.16% in The average balances and yields of loans insured by OPIC were: Long-Term $192.0 and 4.96% in 2008 compared with $270.1 million and 5.98% in Medium-Term $158.0 and 4.35% in 2008 compared with $123.0 million and 5.86% in The Medium Term loans insured by OPIC were reported with the Medium Term 2009 PEFCO Annual Report 23

14 PRIVATE EXPORT FUNDING CORPORATION 280 Park Avenue New York, NY