In 2010 North Dakota was often in the spotlight as the country, and even the world, tried to understand our state’s success during times of economic trouble and slow recovery. For the State of North Dakota it was business as usual. Bank of North Dakota continued to play a vital role in igniting successful projects that move the state and its citizens forward.
While we proceeded to stoke the embers of business, agriculture and commerce, we experienced significant change. The retirement of four top executives resulted in internal promotions and shifts of responsibility to create a new business model. Accounting and treasury became one Service Area managed by Tim Porter. We combined our Information Technology department with Operations, now managed by Joe Herslip. Bob Humann, our longtime manager of the loan functions, added student loans to his oversight of commercial, agricultural, and residential loans. Lastly, we joined our Human Resource function with customer service, managed by Lori Leingang. This new management team has the background and experience to provide a diversified and fresh approach to the challenges that confront us today.
This past year we also ended our long-term involvement with the Federal Family Education Loan (FFEL) program. This program was eliminated by a congressional act and was replaced by the Federal Direct program administered by the U.S. Department of Education. We move forward!
While we lost the FFEL program, Bank of North Dakota was selected to administer the College Access Challenge Grant. This grant program provides $1.5 million in funding to assist with educational outreach. We have developed an exciting program which touches many areas of the educational spectrum. Additionally, we spent considerable time working with issues in the energy regions of western North Dakota. Bankers and economic developers worked together to use our programs to address a number of housing related issues.
Financially, 2010 was our strongest year ever. Profits increased by nearly $4 million to $61.9 million during our seventh consecutive year of record profits. Earnings were fueled by a strong and growing deposit base, brought about by a surging energy and agricultural economy. We ended the year with the highest capital level in our history at just over $325 million. The Bank returned a healthy 19 percent ROE, which represents the state’s return on its investment.
As the only state-owned bank in the nation, our mission to be a catalyst for progress in North Dakota is well defined. Together with our partners across the state, we contribute to a thriving state economy and ignite success for the people of North Dakota.
Eric Hardmeyer, President
BND: IGNITING SUCCESS
Bank of North Dakota has been igniting success for more than 90 years by seeking important opportunities to partner, change and grow. In 2010, the Bank fueled responsible growth within its diverse loan portfolio of agriculture, commercial, residential and student loans. The entire loan portfolio grew a modest 3.6 percent over 2009 to a record $2.8 billion. At the end of 2010, BND was a $4.03 billion institution with capital of over $327 million.
The agriculture loan portfolio grew by 3 percent to $277 million. Agriculture participation loans increased because of higher annual operating costs for farmers and ranchers. More than half of this portfolio is energized by Farm and Ranch program loans with $149 million in volume.
Following the national trend for the third consecutive year, the commercial loan portfolio saw a small decline of just over 1 percent, or $15 million. The need for Flex PACE funding was substantial, growing by 62 percent to help finance essential community services as energy development spiked in western North Dakota. Commercial bank participation loans grew to 64 percent of the entire $1.022 billion portfolio. BND funded 255 business and industrial projects.
Homeowners took advantage of low interest rates for purchasing and refinancing, fueling a healthy housing market. BND acts as a secondary market for financial institutions seeking to sell FHA and VA mortgages. BND funded $93 million in home loans, which was down by $4 million from 2009. BND made 27 loans through two new rural housing programs, accounting for $3.8 million of this $471 million residential portfolio.
BND disbursed $81.2 million in Federal Stafford loans in 2010, but federal law ended the Federal Family Education Loan (FFEL) program as of July 1. The termination of that program, while significant, allowed BND to focus on and grow our exceptional state loan option, the Dakota Education Alternative Loan (DEAL). The DEAL loan saw a 38 percent increase in disbursements for a second straight year. In total, BND (Continued on page 5)
BND assisted in the launch of a new ND Jump$tart website.
BND participated in the first "Crash Course" partnership event for college preparation.
BND participated in the third North Dakota College Goal Sunday event.
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disbursed over $178 million in student loans and the total portfolio grew 12 percent. In its eighth consecutive year of growth, BND continued to service its $1.044 billion student loan portfolio. While the portfolio grew, BND’s student loan default rate dropped to 1.8 percent, outperforming the national average of 7 percent.
This well-diversified loan portfolio provided consistent earnings throughout 2010. Commercial loans accounted for 36 percent, student loans 37 percent, agricultural loans 10 percent, and residential 17 percent of the entire portfolio. BND continued its role as an important catalyst in a strong and healthy North Dakota economy.
PROGRAMS & SERVICES
ACCOUNTING & TREASURYSAFEKEEPING NEARLY $3 BILLION
BND had over $2.9 billion of securities in safekeeping for North Dakota financial institutions at the end of 2010. The Bank provided Secured and Unsecured Federal Fund Lines to 95 financial institutions with combined lines of over $318 million for 2010. Federal Fund sales averaged over $13 million per day, peaking at $36 million in June. These numbers of borrowing are down from previous years and reflect the substantial excess liquidity in the marketplace. The Letter of Credit for Public Deposits program provided an average of nearly $261 million in additional liquidity daily, allowing the availability of additional securities to increase financial institutions’ funding sources. Both programs provided a daily average of over $274 million of liquidity to North Dakota financial institutions, topping out at over $297 million in June.
LENDINGIGNITING OPPORTUNITY IN RURAL HOUSING
BND and NDHFA Team Up to Help Rural Financial Institutions
Bank of North Dakota and the North Dakota Housing Finance Agency (NDHFA) began jointly offering a $10 million Rural Mortgage Loan Program on January 1, 2010. The Rural Mortgage Loan Program temporarily allows rural financial institutions who do not have FHA approval to access a pool of $10 million to increase their likelihood of working with local residential home loan borrowers. Home locations that are not in Bismarck, Fargo, Grand Forks, Mandan or Minot are eligible. Financial institutions may choose to originate the loan or partner with another financial institution with residential lending experience in order to expedite the process. BND and NDHFA worked with the North Dakota Bankers Association (NDBA) to bring financial institutions together to structure a program that truly benefits those willing to use it. In 2010, 18 loans were made totaling $2.5 million.
BND held "College SAVE" events at zoos in Minot, Bismarck and Fargo.
BND Leadership group graduated.
Carrie Willits in Investments and Carinna Hendrickson in Credit Review graduated from Dakota School of Banking.
BND Now Purchases USDA Guaranteed Rural Housing Loans
During a spring focus group, it came to light that BND could better serve the needs of its lending partners throughout the state by assisting with USDA Guaranteed Rural Housing Loans. The Bank wasted no time in submitting an application which was approved in July to purchase such loans. Therefore, BND created a secondary market for these types of loans, which assists community financial institutions to continue an important service to qualified homebuyers in rural areas. In the last six months of the year, $1.3 million in funding was disbursed through nine loans.
Jump-Starting Health Information Projects in North Dakota
The North Dakota legislature established a revolving loan fund with Bank of North Dakota in 2009 to provide low-interest loans to health care entities to build their health information technology infrastructure. By spring of 2010, parameters had been set and the program became available to assist healthcare providers in purchasing, installing and supporting fully functional, standards-based, interoperable electronic health information technology systems. Eight loans were made in 2010 under this program for a total of $2.8 million.
A Year of Change in Student Loans
Generating New Focus After Federal Program Ends
BND has a long history in the student loan industry as we made the first federally insured student loan in the country in 1967. Effective July 1, 2010, federal legislation required students to borrow from the Federal Direct Loan Program through the U.S. Department of Education.
While this change impacted the Bank, BND continues to serve the needs of students by providing the Dakota Education Alternative Loan (DEAL) for those students who are unable to obtain adequate funds through federal student aid programs, as well as those high school students who are taking dual credit courses.
The DEAL loan is one of the most competitive alternative loans in the nation. North Dakota students or those who attend school here pay zero fees, have the option of fixed or variable interest rates, and can count on quality local customer service.
Federal Family Education Loan Program ended.
College SAVE promoted at North Dakota State Fair.
Bonnie Schneider received BND Leadership Award.
Chad Johnson and Joel Erickson jointly received the Small Business Development Center (SBDC) Lender of the Year Award.
Stimulating Progress with New Lending System
Bank of North Dakota’s student loan staff spent 2010 working with 5280 Solutions to develop and launch a new lending system. This new technology gives BND more control, more functionality, increased efficiencies and incorporates new regulatory requirements with an online application process. Colleges and students gained enhanced security options, real-time processing for online data, and more.
The conversion impacted nearly 70,000 borrowers, with more than 250,000 loans with balances that exceed $1 billion.
The new system was ready for use on January 3, 2011, and the conversion impacted nearly 70,000 borrowers, with more than 250,000 loans with balances that exceed $1 billion.
BND Launched Econnect
BND implemented a new communication tool to allow borrowers, schools, banks and other outside users to have access to reports and documents. This development eliminates the need to fax reports or send statements to customers upon their agreement. This development offers the opportunity for students to receive electronic correspondence from BND as well.
Charged With A New Commitment to Education
In the fall of 2010, Bank of North Dakota began administering a $1.5 million College Access Challenge Grant from the U.S. Department of Education to promote college access initiatives to students throughout North Dakota. NDCAN replaces College Information Service (CIS), which helped educate students about the financial aid process and going to college for the previous 17 years. The grant can be renewed each year through 2015. Some services focus on lower income students who traditionally have been underrepresented on college campuses, while other services provide information and resources that assist all students in their efforts to succeed in college.
BND administers the College Access Challenge Grant under the name North Dakota College Access Network (NDCAN). NDCAN replaces College Information Service (CIS), which helped educate students about the financial aid process and going to college for the previous 17 years. Student Loans of North Dakota, the guarantee agency, directs the program.
BND quickly implemented new programs through NDCAN including Dual Credit Assistance for low income junior and senior high school students, sub-grants for nonprofit organizations who work to improve college access, and Crash Course programs for students grades 7 through 12 and their families to learn about careers, financial aid, scholarships and more.
Five $529 College SAVE awards were distributed in coordination with summer events.
BND donated $75,000 in scholarships at the North Dakota Dollars for Scholars appreciation event.
BND was designated to administer NDCAN.
COLLEGE SAVESparking In-State Program Growth
North Dakota’s 529 college savings plan, College SAVE, grew in several ways in 2010. The number of in-state accounts grew 27 percent during the year to 3,902, total matching grant accounts grew by 56 percent, and net assets grew to $305 million.
Bank of North Dakota also expanded the program to the financial advisor community. The expansion offers families who work with financial advisors a flexible, smart way to make saving for college part of North Dakota families’ overall financial strategy.
Families who choose to work with a financial advisor to invest in College SAVE are not charged any additional fees by the plan. Advisors will now receive a 0.30 percent annual servicing fee borne by the program manager.
At the close of 2010, more than 200 advisors in multiple firms across the state were available to North Dakota families interested in College SAVE.
BND LEADERSHIP PROGRAMLighting the Way
To incite our goal to "Be the Correspondent Bank of Choice," the 2010 BND Leadership group completed important legwork in assessing customer satisfaction and identifying program opportunities. The group completed their mission to create an action plan for the Bank. During the six-month program, the team surveyed North Dakota financial institutions, held focus groups and completed research. The insight they garnered provides a solid outline in establishing our focus to meet our goal.
BND: IGNITING SUCCESS SINCE 1919
BND’s mission is "To Deliver Quality, Sound Financial Services that Promote Agriculture, Commerce and Industry in North Dakota." True to this mission, we have a steadfast history of sparking partnerships and growth across the state. Through these partnerships, along with our ability to find opportunity among change and challenge, we continue to stoke progress and ignite success.
Six mentoring pairs began the second year of BND’s Mentoring Program.
BND announced the College SAVE expansion to financial advisors.
The Dual Credit Assistance program for low-income students launched through NDCAN.
ND INDUSTRIAL COMMISSION
BND ADVISORY BOARD
Pat Mahar, Frank Larson, Karl Bollingberg
Gary Petersen, Elaine Fremling, Pat Clement, John Stewart
BND EXECUTIVE COMMITTEE
L to R: Tim Porter, Joe Herslip, Eric Hardmeyer,
Lori Leingang, Bob Humann