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Chairman’s Letter

“Over fiscal year 2016, the PEFCO team continued to engage our customers (exporters, banks, trade finance firms and borrowers) to understand near term financing plans and longer term outlook on funding requirements.”

To: PEFCO Shareowners,

"Over fiscal year 2016, the PEFCO team continued to engage our customers (exporters, banks, trade finances firms and borrowers) to understand near term financing plans and longer term outlook on funding requirements."

Although the reauthorization of U.S. Ex-Im Bank was passed by Congress and signed into law on December 4, 2015, the Senate did not act on confirming pending nominations to the Ex-Im Bank Board of Directors, resulting in a lack of a voting quorum for approving new loans with amounts in excess of $10 million. The result was a significant reduction in lending transactions approved during the fiscal year, and a build-up of new lending transactions awaiting approval.

It is important to note that the role of PEFCO in financing U.S. exports is to provide funding for guaranteed loans under the loan programs of U.S. Ex-Im Bank as an alternative to other sources of liquidity. PEFCO is involved in a guaranteed loan transaction only after the transaction is proposed, reviewed and approved by U.S. Ex-Im Bank based on information provided by the borrower, the exporter and the financial institution acting in the role as the deal arranger. PEFCO plays a similar role in loan transactions backed by OPIC.

For PEFCO, the developments at U.S. Ex-Im Bank have resulted in a significant reduction in loan commitments. We committed to 10 loan transactions for a total amount of $292 million, with the bulk of the volume from the purchase of two long term guaranteed loan transactions. The modest amount of medium term guaranteed loans in fiscal year 2016 follows a multi-year trend of declining volume in this form of buyer financing.

The financial results for fiscal year 2016 are lower than the prior year, with net income resulting in a net loss at ($0.6) million versus $2.2 million for fiscal year 2015. Due to the financial results, the Board did not declare a dividend for fiscal year 2016.

Over fiscal year 2016, the PEFCO team continued to engage our customers (exporters, banks, trade finance firms and borrowers) to understand near term financing plans and longer term outlook on funding requirements. In addition, the PEFCO team completed a technology upgrade on an accelerated time schedule to improve operational flexibility and efficiency.

This past year also saw the departure of two valued board members. Karen Peetz has served on the PEFCO Board since 2010, and Phil Bleser has served since 2011. I appreciate their insights and support over the years in furthering the PEFCO mission. In addition, I welcome the opportunity to work in the coming fiscal year with our two new board members: Andrew O'Brien of JP Morgan and Samir Pandiri of The Bank of New York Mellon.

In meeting the challenges raised this past fiscal year, I have benefited greatly from the dedication of the PEFCO Team, the valuable contributions of the PEFCO Board in guiding the Firm, and for the continuing support of our loyal shareowners. Our colleagues at U.S. Ex-Im Bank demonstrate a continued focus on promoting and financing U.S. exports in partnership with our own efforts. We welcome the opportunity over the coming fiscal years to work with, and serve, our clients: the banks and trade finance firms that serve as partners, the borrowers who acquire U.S. products and the U.S. exporters who produce them.

Sincerely yours,

Timothy C. Dunne
Chairman, President & Chief Executive Officer