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					c o r e va l u e s
SERVICE: Excel and Deliver
 TEAMWORK: Together We Accomplish More
 ETHICS: Do the Right      ing
   PEOPLE: Set Us Apart



      vision
         Bank of North Dakota is a nancial services leader in
           North Dakota fostering growth and economic
            well-being for the state and its citizens, using a
              partnership approach. Bank of North Dakota has
               knowledgeable, well-trained people delivering
                exceptional customer service, resulting in
                consistent nancial returns to the state.



                  mission
                   To deliver quality, sound nancial services
                   that promote agriculture, commerce and
                   industry in North Dakota.
PRESIDENT’S MESSAGE
                                 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           annual income (in millions)
Family Education Loan (FFEL) program. This program was eliminated                   70

by a congressional act and was replaced by the Federal Direct program               60                                 61.9
                                                                                                                58.1
administered by the U.S. Department of Education. We move forward!                                       57.0
                                                                                    50            51.1

                                                                                    40     42.9
While we lost the FFEL program, Bank of North Dakota was selected to
administer the College Access Challenge Grant. This grant program provides          30

$1.5 million in funding to assist with educational outreach. We have developed      20

an exciting program which touches many areas of the educational spectrum.           10
Additionally, we spent considerable time working with issues in the energy
regions of western North Dakota. Bankers and economic developers worked                    '06    '07    '08    '09    '10
together to use our programs to address a number of housing related issues.


Financially, 2010 was our strongest year ever. Profits increased by nearly         bnd assets (in millions)
                                                                                   4000
$4 million to $61.9 million during our seventh consecutive year of record                                       3960   4030

                                                                                   3500
profits. Earnings were fueled by a strong and growing deposit base, brought                              3517

                                                                                   3000
about by a surging energy and agricultural economy. We ended the year with                        2779
                                                                                   2500
the highest capital level in our history at just over $325 million. The Bank               2327
                                                                                   2000
returned a healthy 19 percent ROE, which represents the state’s return on
its investment.                                                                    1500

                                                                                   1000

As the only state-owned bank in the nation, our mission to be a catalyst for        500

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            '06    '07    '08    '09    '10

people of North Dakota.




        Eric Hardmeyer, President
                                                                                                                             12
FLEX PACE FURTHERS PROGRESS FOR RURAL HEALTH CARE PROVIDER
Access to quality healthcare is essential to the vitality of North Dakota’s rural communities. Coal Country
Community Health Center (CCCHC) in Beulah is a non-pro t health care provider serving low income and
medically underserved Beulah residents and its surrounding communities. CCCHC and its local governing board
of directors know the key to keeping the center’s doors open is growing services and keeping up with technology.
In 2010 when the health center had the opportunity to purchase the building it had been leasing and make
improvements to it, CCCHC was eager to take it.

CCCHC’s board of directors secured loans from e Union Bank of Beulah to purchase the building and remodel
the lower level of the clinic to create additional exam rooms, a lead-lined room for a CT scanner, space for
physical therapy, and other areas to make the operation more e cient. “ e expansion allowed CCCHC to double
                                                      the size of its facility and expand services,” said Gordon


IGNITING
                                                      Ho ner, president and chief executive o cer of e Union
                                                      Bank and member of CCCHC’s board of directors. “It’s now


SUCCESS
                                                      convenient for our residents, especially the elderly population,
                                                      to receive health care services in Beulah. is expansion helps
                                                      keep people living in Beulah and shopping at local businesses
                                                      instead of leaving town.”
Coal Country                                           e Union Bank approached both Bank of North Dakota and
Community                                           the city of Beulah about using the Flex PACE program, which
Health Center                                       provides interest buy-down of up to 5 percent to borrowers that
                                                    do not t into the traditional parameters of a Partnership in
                                                    Assisting Community Expansion (PACE) loan. “ e Flex PACE
                                                    program is a good t for CCCHC and Beulah,” said Brad
                                                       ompson, loan o cer at BND, “as it leaves the decision up to
                                                    the community whether the project is worthy of receiving the
                                                    interest buy-down.” Flex PACE allows communities to provide
                                                    assistance to borrowers with a business focus or need outside of
                                                    the current requirements of PACE, including the essential
                                                    community services that CCCHC provides.

                                                       e PACE Fund provided $70,000 and the city of Beulah added
                                                    $30,000 in interest buy-down for CCCHC. is lowered the
                                                    interest cost to CCCHC by 5 percent for three and one-half years,
                                                    saving them thousands of dollars. e total Flex PACE loan was
                                                    for $600,000 with another $250,000 provided by funds through
                                                    the Dakota Certi ed Development Corporation (CDC)
                                                    Intermediary Relending Program (IRP).

                                                    “ e loans to purchase and remodel the clinic with the Flex
                                                    PACE interest buy-down program have made it possible to
                                                    provide low-cost medical care for the underserved patients
                                                    in our area,” said Ho ner. “Without them, there would not
                                                    be a clinic in Beulah.”
BND: IGNITING SUCCESS                                                                                                    2010 year
                                                                                                                         in review
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                                            january
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.

 total loan                                                   The agriculture loan portfolio
 portfolio (in millions)                                      grew by 3 percent to $277 million.
                                                              Agriculture participation loans                            BND assisted in the
 3000
                                                              increased because of higher                                launch of a new ND
                                           2815
                         2618     2714                        annual operating costs for farmers                         Jump$tart website.
 2000
                 2004
                                                              and ranchers. More than half of
          1756
                                                              this portfolio is energized by Farm
                                                                                                                         January 21
 1500                                                         and Ranch program loans with
                                                              $149 million in volume.                                    BND participated in the
                                                                                                                          rst “Crash Course”
 1000                                                                                                                    partnership event for
                                                  Following the national trend                                           college preparation.
                                                  for the third consecutive year,
  500
                                                  the commercial loan portfolio
                                                  saw a small decline of just over
                                                  1 percent, or $15 million. The                                         febr ua ry
           '06   '07    '08    '09     '10        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,                                          Febr ua ry 2 1
fueling a healthy housing market. BND acts as a secondary market for financial                                           BND participated in
institutions seeking to sell FHA and VA mortgages. BND funded $93 million in                                             the third North Dakota
home loans, which was down by $4 million from 2009. BND made 27 loans through                                            College Goal Sunday
two new rural housing programs, accounting for $3.8 million of this $471 million                                         event.
residential portfolio.
                                    loan portfolio (balances in millions)
BND disbursed $81.2 million                       200           400           600           800    1000           1200
in Federal Stafford loans in
                                                                                                           1044
2010, but federal law ended          ‘10                  277
                                                                                                          1022

the Federal Family Education                                            471


Loan (FFEL) program as of            ‘09
                                                                                                   932
                                                                                                           1039
                                                         268
July 1. The termination of that                                         475

program, while significant,                                                           776
                                                                                                            1064
                                     ‘08
allowed BND to focus on                                  268
                                                                            509

and grow our exceptional                                                            643
                                                                                       689
state loan option, the Dakota        ‘07                 253
                                                                      420
Education Alternative Loan                                                    561
(DEAL). The DEAL loan                ‘06
                                                        241
                                                                              565

                                                                 388
saw a 38 percent increase in
disbursements for a second                        200           400           600           800    1000           1200

straight year. In total, BND               STUDENT        COMMERCIAL                AGRICULTURAL         RESIDENTIAL

(Continued on page 5)


                                                                                                                                           3
FUELING THE FLAME OF HIS FAMILY FARM
Over the past four years, Kyle Anderson has been working his family’s corn, soybean and wheat farm in
Verona, North Dakota, with plans to one day assume full ownership. For 24-year-old Anderson, seizing
opportunities for expansion and keeping up to speed with the latest equipment and technology ensures the
Anderson farm thrives well into the future.


A er acquiring land from retiring neighbors, Anderson quickly realized that their current crop sprayer
couldn’t keep up with the demands of the expanding operation that he farms with his parents, Kevin and
Lynette, and business partner Mike Vogel. “We needed to upgrade to a self-propelled sprayer that would
accommodate both the larger acreage and taller crops,” said Anderson.


With help from Matt Van Bruggen, loan o cer at AgCountry Farm Credit Services in LaMoure, Anderson
secured funding to purchase the upgraded sprayer through Bank of North Dakota’s Beginning Farmer Chattel
Loan Program. “    is new equipment has made our operation more e cient,” said Anderson. “We’re now able
                                                 to spray our own crops instead of hiring someone to have


IGNITING
                                                 it done.”



SUCCESS
                                                 In addition to funds for upgraded equipment, Anderson
                                                 accessed BND’s Beginning Farmer Real Estate Loan
                                                 Program to purchase two quarters (320 acres) of land from
                                                 his parents. Anderson and Van Bruggen again partnered
Kyle Anderson                                    with Bank of North Dakota for the best nance package to
                                                 spark success for the young farming operation.


                                                 “BND’s Beginning Farmer Real Estate and Chattel Loan
                                                 Programs allow for more a ordable nancing with
                                                 below-market interest rates and lower down payment
                                                 requirements for the purchases,” said BND loan o cer
                                                 Bruce Schumacher. “It is rewarding for me to see a young
                                                 farmer willing to work hard to continue a farming
                                                 tradition.”


                                                 “   ese loans have allowed Kyle to start building equity on
                                                 his balance sheet and secure a favorable rate to apply
                                                 more toward principal,” said Van Bruggen. “I tend to look
                                                 to BND when I start to work with any young producer.”


                                                 Anderson agrees. “Anyone who wants to get into farming
                                                 should look at BND’s programs.     ey have helped me
                                                 expand my farming operation and allowed me to do what I
                                                 want to do, which is to take over the family farm when my
                                                 parents retire. And I’m on my way to doing just that.”
(Continued from page 3)                                                                     2010 year
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
                                                                                            in review
student loan portfolio. While the portfolio grew, BND’s student loan default rate
                                                                                            M AY
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.


                                                                                            BND held “College
                                                                                            SAVE” events at zoos
PROGRAMS & SERVICES                                                                         in Minot, Bismarck
                                                                                            and Fargo.


ACCOUNTING & TREASURY                                                                       JUNE
Safekeeping 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
                                                                                            BND Leadership
Public Deposits program provided an average of nearly $261 million in additional
                                                                                            group graduated.
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.



LENDING
Igniting Opportunity in Rural Housing                                                       Carrie Willits in
                                                                                            Investments and Carinna
BND and NDHFA Team Up to Help Rural Financial Institutions                                  Hendrickson in Credit
Bank of North Dakota and the North Dakota Housing Finance Agency (NDHFA)                    Review graduated
began jointly offering a $10 million Rural Mortgage Loan Program on January 1, 2010.        from Dakota School
                                                                                            of Banking.
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.




                                                                                                               5
SPARKING GROWTH WITH PACE
While Bernie Kringstad did farm repairs from his small welding shop south of Hoople over 20 years ago, he
didn’t imagine one day being a leader in his industry. As a result of programs o ered by Bank of North
Dakota, he not only expanded his business, but is now the second largest employer in Park River. “It
positions us to pursue bigger contracts and have an edge on the competition by expanding and obtaining
additional equipment,” Kringstad said.


Kringstad Ironworks has manufactured agriculture equipment for many years, but in 2005 the company saw a
niche within the beet industry to primarily build sugar beet pilers.   e 200-foot long machines can be found
in 180 locations throughout the Red River Valley, and the company has secured contracts with strong players
in the industry, including American Crystal Sugar.



IGNITING
                                                   Business took o quickly, so Kringstad Ironworks needed
                                                   more space. In 2006, they leased a former mushroom plant


SUCCESS
                                                   from the City of Park River to give them the room needed
                                                   to ful ll their new piler contracts. Funding from the Red
                                                   River Regional Council allowed them to renovate the
                                                   building. Two years later, Kringstad requested assistance
Kringstad Ironworks                                from BND’s PACE (Partnership in Assisting Community
                                                   Expansion) Program and US Bank of Grand Forks to
                                                   purchase the building and continue renovations. In 2009,
                                                   PACE funded construction of additional space.


                                                   By participating with local lenders and the community,
                                                   BND’s PACE program boosts businesses like Kringstad
                                                   Ironworks by reducing the interest rate on a loan by 5
                                                   percent.


                                                   Kringstad’s local lender teamed with BND to o er
                                                   Kringstad more operating capital as well. “With their
                                                   volume growing dramatically over the last few years, they
                                                   needed additional equipment,” said Niel McWalter, vice
                                                   president of US Bank. “Bank of North Dakota helped put
                                                   the parts together where it would otherwise have been
                                                   hard for Kringstad to grow as he has been able to.”


                                                   “Without Bank of North Dakota’s assistance, we wouldn’t
                                                   have been able to a ord the building renovation,
                                                   expansions and equipment purchases,” Kringstad said. “      e
                                                   Bank provided funding to help us meet the demand of the
                                                   sugar industry.”
BND Now Purchases USDA Guaranteed Rural Housing Loans                                       2010 year
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
                                                                                            in review
Housing Loans. The Bank wasted no time in submitting an application which was
                                                                                            j uly
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                                                           j uly 1
homebuyers in rural areas. In the                                                           Federal Family Education
last six months of the year,              business & industrial                             Loan Program ended.
                                          projects financed
$1.3 million in funding was
disbursed through nine loans.              350

                                                                   328
                                           300
Jump-Starting Health                                                       268
Information Projects in                    250                                     255

North Dakota                               200     212
                                                           198
The North Dakota legislature               150                                              College SAVE promoted
established a revolving loan fund                                                           at the North Dakota
                                           100                                              State Fair.
with Bank of North Dakota in 2009
to provide low-interest loans to            50
health care entities to build their
health information technology
infrastructure. By spring of 2010,                 '06     '07    '08     '09     '10
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.            Bonnie Schneider
Eight loans were made in 2010 under this program for a total of $2.8 million.               received BND
                                                                                            Leadership Award.

A Year of Change in Student Loans
                                                                                            august
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
dakota education                                   Bank, BND continues to serve the
alternative loans (in millions)                    needs of students by providing           Chad Johnson and Joel
  90                                                                                        Erickson jointly received
                                                   the Dakota Education Alternative         the Small Business
                                          86.6
  80                                               Loan (DEAL) for those students           Development Center
  70
                                                   who are unable to obtain adequate        (SBDC) Lender of the
                                                   funds through federal student aid        Year Award.
  60                             62.7
                                                   programs, as well as those high
  50                                               school students who are taking dual
                         45.6
  40                                               credit courses.
                 33.8
  30
         26.1
                                                   The DEAL loan is one of the most
  20                                               competitive alternative loans in the
  10                                               nation. North Dakota students or
                                                   those who attend school here pay
                                                   zero fees, have the option of fixed or
         '06     '07     '08     '09     '10
                                                   variable interest rates, and can count
                                                   on quality local customer service.

                                                                                                                7
POTATO BUSINESS RECHARGES THROUGH PARTICIPATION PROGRAM
A multi-generation, family-owned business rmly planted in the Red River Valley more than 80 years ago, Black
Gold Farms has evolved into an international production, sales and service operation specializing in potatoes.


However, back in the mid-1990s Black Gold was primarily raising irrigated chipping potatoes in ve states when
the farm operation encountered challenges including the low carbohydrate craze – an obstacle for the potato
chip industry. Black Gold’s originating lender, AgCountry Farm Credit Services in Grand Forks, requested
participation from Bank of North Dakota to enable Black Gold to continue to expand operations.


“In Black Gold’s industry, the price per acre for potato production is costly,” says Rick Kovar, AgCountry’s vice
president of agribusiness. “In addition, their loan needs are seasonal, and at times loan volume gets fairly high.”



IGNITING
                                                       rough its Farm and Ranch Participation Loan Program,
                                                     BND has provided the capacity needed for AgCountry to


SUCCESS
                                                     meet the nancing needs of Black Gold. In most instances,
                                                     BND’s participation under this program is needed to assist
                                                     a nancial institution with a borrower whose nancing
                                                     needs have outgrown the legal lending or exposure limits
Black Gold Farms                                     of the originating lender. BND has participated in both an
                                                     operating line of credit and term loans that nance
                                                     equipment for Black Gold.


                                                     With the help of Bank of North Dakota, Black Gold has
                                                     been able to expand and diversify into the fresh table
                                                     potato market and develop alliances nationwide for its
                                                     products. As the nation’s largest supplier of chip potatoes
                                                     and second largest potato grower, Black Gold ships over
                                                     500 million pounds of potatoes within the U.S. and
                                                     internationally each year, including seed and table-stock
                                                     potatoes. Black Gold is now testing the sweet potato
                                                     market for the processed french fry industry.


                                                     “As Black Gold continues to grow, its nancial needs
                                                     increase,” said Rod Anheluk, farm loan manager at BND.
                                                     “For the 2010 production year, BND participated in about
                                                     half of AgCountry’s loan volume to Black Gold.”


                                                     Gregg Halverson, president and owner of Black Gold
                                                     Farms, appreciates not only BND’s cost structure and low
                                                     interest rates, but also that it is state-owned. “It’s nice to
                                                     deal with an in-state nancial institution. We know
                                                     they’ll be there when the need is the greatest.”
A Year of Change in Student Loans (continued)                                           2010 year
Stimulating Progress with New Lending System
                                                                                        in review
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          sep t e m ber
control, more functionality, increased efficiencies and incorporates new regulatory     Five $529 College SAVE
requirements with an online application process. Colleges and students gained           awards were distributed
enhanced security options, real-time processing for online data, and more.              in coordination with
                                                                                        summer events.
                                     The new system was ready for use on
The conversion impacted              January 3, 2011, and the conversion
nearly 70,000 borrowers,             impacted nearly 70,000 borrowers, with
                                                                                        o c tober
with more than 250,000               more than 250,000 loans with balances
                                     that exceed $1 billion.
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       BND donated $75,000
to customers upon their agreement. This development offers the opportunity for          in scholarships at the
students to receive electronic correspondence from BND as well.                         North Dakota Dollars
                                                                                        for Scholars appreciation
                                                                                        event.

                                                                                        BND was designated to
NDCAN                                                                                   administer NDCAN.
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. 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      NDCAN replaces College
and resources that assist all students in     Information Service (CIS),
their efforts to succeed in college.
                                             which helped educate students
BND administers the College Access           about the financial aid process
Challenge Grant under the name               and going to college for the
North Dakota College Access Network
(NDCAN). NDCAN replaces College
                                             previous 17 years.
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.




                                                                                                          9
NEW USE FOR PROGRAM ENERGIZES ECONOMIC DEVELOPMENT
Dickinson and surrounding areas had been enjoying an ideal economic development scenario – the strong, steady
economic growth of a diversi ed economy – when the oil industry began its boom in western North Dakota. As the
initial impact of the energy sector hit the community, the biggest problem for employers was a shortage of employees
to ll jobs. A lack of housing, particularly multi-family housing, was the primary obstacle to workforce growth.

Stark Development Corporation, the economic development organization for Stark County and Dickinson, soon
developed a program utilizing Flex PACE nancing through Bank of North Dakota to incentivize private developers
to develop multiple housing units in Stark County. “As an economic development organization, our job is to adapt to
the community’s needs,” said Gaylon Baker, executive vice president of Stark Development Corporation. “ at meant
addressing the housing shortage.” e board of directors approved the concept, and Baker sent the program details to
BND for review to assure that their proposal met the intent of the Flex PACE program.



IGNITING
                                                      e Bank had never been approached about using Flex PACE for
                                                   building housing units, but decided that it met its requirements.
                                                   “BND was very responsive to our request to step outside the box,
SUCCESS                                            so to speak,” said Baker. Flex PACE partners local lenders and
                                                   BND through a participatory lending arrangement in which half
                                                   of the loan amount is provided by the local bank and half is
Stark Development                                  provided by Bank of North Dakota. Furthermore, dedicated

Corporation
                                                   funds from BND and Stark Development Corporation are used
                                                   to reduce the interest costs to borrowers by up to ve percent
                                                   below the local bank lending rate.

                                                   “If developers are willing to build housing, Stark Development
                                                   Corporation provides the Flex PACE program for the interest
                                                   buy-down incentive,” said Bob Humann, BND sr. vice president
                                                   of Lending. “Stark Development Corporation monitors where its
                                                   money goes and approves the borrower before they come to us.
                                                   Together, we make it easier and more cost-e ective for builders to
                                                   construct housing facilities.” A number of other communities
                                                   have since asked for information about the Flex PACE program,
                                                   and at least two communities implemented it.

                                                     e program has proved extremely successful. A er 30 years
                                                   without signi cant construction of apartment buildings,
                                                   Dickinson permitted over 315 housing units in 2010 – the
                                                   highest number in the city’s history. “As fast as we build them,
                                                   the need continues to grow,” said Baker. “And with continued
                                                   drilling plans in western Stark County, we expect 2011 to be
                                                   even stronger.”

                                                   As communities like Dickinson experience growing pains,
                                                   BND is committed to generating opportunities and solutions.
COLLEGE SAVE                                                                              2010 year
Sparking In-State Program Growth                                                          in review
North Dakota’s 529 college savings plan, College SAVE, grew in several ways in 2010.
                                                                                          no v e m ber
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      matching grants
financial strategy.                      350
                                                                                          Six mentoring pairs
                                                                                          began the second year
Families who choose to work with           300                                      315
                                                                                          of BND’s Mentoring
a financial advisor to invest in                                                          Program.
                                           250
College SAVE are not charged any
additional fees by the plan. Advisors      200
                                                                       200
will now receive a 0.30 percent                                                           de c e m ber
annual servicing fee borne by the          150

program manager.                           100                                            BND announced the
                                                             73                           College SAVE expansion
At the close of 2010, more than 200        50
                                                                                          to nancial advisors.
advisors in multiple firms across the              15
state were available to North Dakota
families interested in College SAVE.              '07       '08       '09           '10




BND LEADERSHIP PROGRAM
Lighting the Way
                                                                                             e Dual Credit
To incite our goal to “Be the Correspondent Bank of Choice,” the 2010 BND                 Assistance program
Leadership group completed important legwork in assessing customer satisfaction           for low-income students
and identifying program opportunities. The group completed their mission to create        launched through
an action plan for the Bank. During the six-month program, the team surveyed North        NDCAN.
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.




                                                                                                            11
ND INDUSTRIAl COMMISSION




          Jack Dalrymple                        Doug Goehring                      Wayne Stenehjem
              Governor                      Agriculture Commissioner                Attorney General



BND ADVISORY BOARD                                         BND EXECUTIVE COMMITTEE




Standing: Pat Mahar, Frank Larson,                         L to R: Tim Porter, Joe Herslip, Eric Hardmeyer,
          Karl Bollingberg                                           Lori Leingang, Bob Humann
Seated:   Gary Petersen, Elaine Fremling,
          Pat Clement, John Stewart




                                                                                                          13
FINANCIALS
TABLE OF CONTENTS


INDEPENDENT AUDITOR’S REPORT ................................................................................................................... 1

FINANCIAL STATEMENTS
     BALANCE SHEETS ............................................................................................................................................................. 2

     STATEMENTS OF INCOME ............................................................................................................................................... 3

     STATEMENTS OF EQUITY ................................................................................................................................................ 4

     STATEMENTS OF CASH FLOWS ...................................................................................................................................... 5


NOTES TO FINANCIAL STATEMENTS
     NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ........................................................................ 6-9

     NOTE 2 - RESTRICTION ON CASH AND DUE FROM BANKS .................................................................................... 9

     NOTE 3 - DEBT AND EQUITY SECURITIES ........................................................................................................... 10-13

     NOTE 4 - LOANS ......................................................................................................................................................... 13-14

     NOTE 5 - LOAN SALES AND LOAN SERVICING .................................................................................................. 14-15

     NOTE 6 - BANK PREMISES, EQUIPMENT, AND SOFTWARE.................................................................................... 16

     NOTE 7 - DEPOSITS .................................................................................................................................................... 16-17

     NOTE 8 - REPURCHASE AGREEMENTS ....................................................................................................................... 17

     NOTE 9 - SHORT AND LONG-TERM DEBT ............................................................................................................ 17-18

     NOTE 10 - OTHER LIABILITIES ..................................................................................................................................... 18

     NOTE 11 - PENSION PLAN ......................................................................................................................................... 18-19

     NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES .......................................................................... 19-21

     NOTE 13 - RELATED PARTY TRANSACTIONS ............................................................................................................ 21

     NOTE 14 - OFF-BALANCE-SHEET ACTIVITIES .......................................................................................................... 22

     NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS .................................................................................... 22-26

     NOTE 16 - COMPREHENSIVE INCOME ........................................................................................................................ 27

     NOTE 17 - SUPPLEMENTAL DISCLOSURES RELATED TO STATEMENTS OF CASH FLOWS ............................ 27

     NOTE 18 - SUBSEQUENT EVENTS ................................................................................................................................ 28


TEN YEAR SUMMARY ........................................................................................................................................... 29-30
INDEPENDENT AUDITOR’S REPORT
BRADY, MARTZ & ASSOCIATES, P.C.




The Industrial Commission
State of North Dakota
Bismarck, North Dakota


We have audited the accompanying balance sheets of the Bank of North Dakota as of December 31, 2010 and
2009, and the related statements of income, equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 1, the Bank of North Dakota is included as part of the primary government in the State of
North Dakota’s reporting entity. However, the Bank of North Dakota has prepared the accompanying financial
statements in accordance with Financial Accounting Standards Board Accounting Standards Codification of
authoritative generally accepted accounting principles to be applied by non governmental entities. This basis of
accounting is a comprehensive basis of accounting other than accounting principles generally accepted in the
United States of America applicable to governmental units.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of the Bank of North Dakota as of December 31, 2010 and 2009, and the results of its operations and its
cash flows for the years then ended on the basis of accounting described in Note 1.




BRADY, MARTZ & ASSOCIATES, P.C.
March 1, 2011




                                                                                                              1
BANK OF NORTH DAKOTA
BALANCE SHEETS
DECEMBER 31, 2010 AND 2009


                                                        (In Thousands)

                                                   2010              2009

ASSETS

Cash and due from banks                       $    638,100       $       817,049
Federal funds sold                                  33,100                24,190

   Cash and cash equivalents                       671,200               841,239

Securities                                         537,157               397,370

Loans                                             2,814,548          2,713,611
  Less allowance for loan losses                     (46,613)          (42,468)
                                                  2,767,935          2,671,143

Interest receivable                                  39,146               34,550
Bank premises, equipment, and software, net          12,294               12,917
Other assets                                          2,195                2,450

             Total assets                     $ 4,029,927        $   3,959,669



LIABILITIES AND EQUITY

Deposits
  Non-interest bearing                        $     387,040      $     442,867
  Interest bearing                                2,671,686          2,496,192
                                                  3,058,726          2,939,059

Federal funds purchased
 and repurchase agreements                         240,725               337,627
Short and long-term debt                           397,365               405,005
Other liabilities                                    5,814                 6,329

      Total liabilities                           3,702,630          3,688,020

Equity
  Capital                                            2,000                 2,000
  Capital surplus                                   42,000                42,000
  Undivided profits                                282,729               225,966
  Accumulated other comprehensive income               568                 1,683

      Total equity                                 327,297               271,649

             Total liabilities and equity     $ 4,029,927        $   3,959,669

See Notes to Financial Statements                                                  2
BANK OF NORTH DAKOTA
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2010 AND 2009


                                                 (In Thousands)

                                              2010            2009

INTEREST INCOME
  Federal funds sold                      $        96     $           256
  Securities                                   11,332              11,967
  Loans, including fees                       121,972             120,054

      Total interest income                   133,400             132,277

INTEREST EXPENSE
  Deposits                                     24,443              33,346
  Federal funds purchased
   and repurchase agreements                      911                843
  Short and long-term debt                     19,834             16,805

      Total interest expense                   45,188             50,994

NET INTEREST INCOME                            88,212             81,283

PROVISION FOR LOAN LOSSES                      12,100             10,300

NET INTEREST INCOME AFTER
 PROVISION FOR LOAN LOSSES                     76,112              70,983

NONINTEREST INCOME
  Service fees and other                        6,113               6,160
  Gain on available-for-sale securities              -                 46

      Total noninterest income                  6,113               6,206

NONINTEREST EXPENSE
  Salaries and benefits                        11,188             10,474
  Data processing                               4,084              3,631
  Occupancy and equipment                         823                951
  Other operating expenses                      4,279              4,050
     Total noninterest expenses                20,374             19,106

NET INCOME                                $    61,851     $        58,083




See Notes to Financial Statements                                           3
BANK OF NORTH DAKOTA
STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 2010 AND 2009


                                                                               (In Thousands)

                                                                                                 Accumulated
                                                                                                    Other
                                                                     Capital     Undivided      Comprehensive
                                                          Capital    Surplus      Profits        Income (Loss)      Total

BALANCE, DECEMBER 31, 2008                             $ 2,000      $ 42,000    $ 182,883       $ (2,961)       $ 223,922
Comprehensive income
   Net income                                                                      53,083                          58,083
   Unrealized gain on securities available for sale                                                 4,644           4,644
        Total comprehensive income                                                                                 62,727
    Transfer to state general fund                                                (15,000)                       (15,000)


BALANCE, DECEMBER 31, 2009                             $ 2,000      $ 42,000    $ 225,966         $ 1,683       $ 271,649
Comprehensive income
   Net income                                                                      61,851                         61,851
   Unrealized gain on securities available for sale                                                (1,115)        (1,115)
        Total comprehensive income                                                                                 60,736

    Transfer to other state departments                                            (5,088)                        (5,088)

BALANCE, DECEMBER 31, 2010                            $    2,000    $ 42,000    $ 282,729          $ 568        $ 327,297




 See Notes to Financial Statements                                                                                         4
BANK OF NORTH DAKOTA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2010 AND 2009


                                                                              (In Thousands)

                                                                       2010                    2009

OPERATING ACTIVITIES
  Net income                                                       $     61,851         $         58,083
  Adjustments to reconcile net income
   to net cash from operating activities
      Depreciation and amortization                                       1,130                    1,100
      Provision for loan losses                                          12,100                   10,300
      Net amortization/(accretion) of securities                            530                     (358)
      Gain on sale of securities                                               -                     (46)
      Gain on sale of residential loans                                      (13)                      -
      Loss on retirement of premises and equipment                             -                       1
      Gain on sale of foreclosed assets                                       (5)                    (21)
      (Increase)/Decrease in interest receivable                         (4,596)                     710
      (Increase)/Decrease in other assets                                  (105)                      76
      Decrease in other liabilities                                        (559)                  (6,733)

NET CASH FROM OPERATING ACTIVITIES                                       70,333                   63,112

INVESTING ACTIVITIES
   Securities available for sale transactions
       Purchase of securities                                          (247,549)                (214,790)
       Proceeds from sales, maturities, and principal repayments        107,491                  159,311
   Purchase of Federal Home Loan Bank stock                               (1,179)                 (4,808)
   Sale of Federal Home Loan Bank stock                                       40                       -
   Purchase of other equity securities                                      (352)                   (873)
   Sale of other equity securities                                           117                     250
   Proceeds from sales of loans                                            1,122                       -
   Net increase in loans                                               (110,454)                (100,197)
   Purchases of premises and equipment                                      (507)                   (438)
   Proceeds from sale of foreclosed assets                                   818                     238

NET CASH USED FOR INVESTING ACTIVITIES                                 (250,453)                (161,307)

FINANCING ACTIVITIES
   Net increase/(decrease) in non-interest bearing deposits             (55,827)                 128,967
   Net increase in interest bearing deposits                            175,494                  164,736
   Net increase/(decrease) in federal funds purchased and
      repurchase agreements                                              (96,902)                 33,607
   Proceeds from issuance of short and long-term debt                     15,131                 105,387
   Payment of short and long-term debt                                   (22,771)                (15,986)
   Payment of transfers                                                   (5,044)                (30,000)

NET CASH FROM FINANCING ACTIVITIES                                       10,081                  386,711

NET CHANGE IN CASH AND CASH EQUIVALENTS                                (170,039)                 288,516

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                            841,239                  552,723

CASH AND CASH EQUIVALENTS, END OF YEAR                             $    671,200         $        841,239




See Notes to Financial Statements                                                                           5
BANK OF NORTH DAKOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009


 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Bank of North Dakota (BND) is owned and operated by the State of North Dakota under the supervision of the
Industrial Commission as provided by Chapter 6-09 of the North Dakota Century Code. BND is a unique
institution combining elements of banking, fiduciary, investment management services, and other financial
services, and state government with a primary role in financing economic development. BND is a participation
lender; the vast majority of its loans are made in tandem with financial institutions throughout the State of North
Dakota. BND’s primary deposit products are interest-bearing accounts for state and political subdivisions.

Bank of North Dakota is included as part of the primary government in the State of North Dakota’s reporting
entity. As such, BND is required to follow the pronouncements of the Government Accounting Standards Board
(GASB), which is the nationally accepted standard setting body for establishing generally accepted accounting
principles for governmental entities. In accordance with GASB Statement No. 20, BND follows all applicable
GASB pronouncements and all applicable Financial Accounting Standards Board (FASB) pronouncements
issued, including those issued after November 30, 1989, unless they conflict with the GASB pronouncements.

However, the accompanying financial statements are prepared in accordance with Financial Accounting Standards
Board Accounting Standards Codification, which are generally accepted accounting principles for financial
institutions. This basis of accounting is a comprehensive basis of accounting other than generally accepted
accounting principles applicable to governmental units.

BND also prepares financial statements in accordance with GASB pronouncements.

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date
of the balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Material estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the allowance for loan losses.

Significant Group Concentrations of Credit Risk

Most of the Bank’s lending activities are with customers within the State of North Dakota. Due to the pervasive
nature of agriculture in the economy of the state, all loans, regardless of type, are impacted by agriculture. The
Bank’s loan portfolio is comprised of the following concentrations as of December 31, 2010 and 2009:

                                                                                 2010               2009

   Student loans, of which 97% and 97% are guaranteed                                37%                 34%
   Commercial loans, of which 5% and 5% are federally guaranteed                     36%                 38%
   Residential loans, of which 83% and 83% are federally guaranteed                  17%                 18%
   Agricultural loans, of which 7% and 8% are federally guaranteed                   10%                 10%

                                                                                    100%                100%



                                                                              Continued on next page             6
NOTES TO FINANCIAL STATEMENTS


Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents include cash and balances due from banks
and federal funds sold, all with original maturities of three months or less.

Securities

Securities that may be sold before maturity in response to changes in interest rates or prepayment risk, or due to
liquidity needs or changes in funding sources or terms are classified as available for sale. These securities are
recorded at fair value, with unrealized gains and losses, reported in equity. The change in unrealized gains and
losses are excluded from earnings and reported in other comprehensive income. Securities that management has
the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of
the securities. Declines in the fair value of securities below their cost that are deemed to be other than temporary
are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management
considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment
in the issue for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on
the sale of securities are recorded on the settlement date and are determined using the specific identification
method.

In order to borrow from the Federal Home Loan Bank (FHLB), the Bank is required to hold FHLB stock. The
amount of stock that the Bank must hold is equal to .12% of total bank assets plus 4.45% of total FHLB advances.
Since ownership of this stock is restricted, these securities are carried at cost and evaluated periodically for
impairment.

Nonmarketable equity securities represent venture capital equity securities that are not publicly traded. The Bank
reviews these assets at least annually for possible other-than-temporary impairment. These securities do not have
a readily determinable fair value and are stated at cost. The Bank reduces the asset value when it considers
declines in value to be other than temporary. We recognize the estimated loss as a loss from equity securities in
noninterest income.

Loans Held For Sale

Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Bank. The carrying
value of the mortgage loans sold is reduced by the cost allocated to the associated mortgage servicing rights. Loans
held for sale are carried at the lower of aggregate cost or market value. Gains or losses on sale of mortgage loans are
recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.

Loans

Loans are reported at the outstanding unpaid principal balances, adjusted for charge-offs, unamortized deferred
fees and costs on originated loans and premiums or discounts on purchased loans. Interest income on loans is
accrued at the specific rate on the unpaid principal balance. Unearned income, deferred fees and costs, and
discounts and premiums are amortized to income over the estimated life of the loan using the interest or straight
line method.




                                                                                Continued on next page              7
NOTES TO FINANCIAL STATEMENTS


The accrual of interest is discontinued when, in management’s opinion, the borrower may be unable to meet
payments as they become due. Past due status is based on contractual terms of the loan. In all cases, loans are
placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
When interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. Future
payments are generally applied against principal until the loan balance is at zero. Any further payments are then
recorded as interest income on the cash basis. Loans can be returned to accrual status when all the principal and
interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The Bank uses the allowance method in providing for loan losses. Accordingly, the allowance is increased by the
current year’s provision for loan losses charged to operations and reduced by net charge-offs. Loan losses are
charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.

The adequacy of the allowance for loan losses and the provision for loan losses charged to operations are based on
management’s evaluation of a number of factors, including recent loan loss experience, continuous evaluation of
the loan portfolio quality, current and anticipated economic conditions, and other pertinent factors. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more
information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans
that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired,
an allowance is established when the discounted cash flows (or collateral value or observable market price) of the
impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans
and is based on historical loss experience adjusted for qualitative factors. An unallocated component is
maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated
component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be
unable to collect the scheduled payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by management in determining impairment include payment status,
collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of
the delay, the reasons for the delay, the borrower’s prior payment record, and amount of the shortfall in relation to
the principal and interest owed.

Impairment is measured on a loan-by-loan basis for commercial, agricultural, farm real estate, state institution and
bank stock loans by either the present value of expected future cash flows discounted at the loan’s effective interest
rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the
Bank does not separately identify individual guaranteed student and residential loans for impairment disclosures,
except for such loans that are placed on nonaccrual.




                                                                               Continued on next page              8
NOTES TO FINANCIAL STATEMENTS


Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the
transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.

Bank Premises, Equipment, and Software

Bank premises, equipment, hardware and software are stated at cost less accumulated depreciation or
amortization. Depreciation and amortization are provided over the estimated useful lives of the individual assets
using the straight-line method.

Foreclosed Assets

Foreclosed assets, which are included in other assets, represent assets acquired through loan foreclosure or other
proceedings. Foreclosed assets are recorded at the lower of the amount of the loan or fair market value of the assets.
Any write-down to fair market value at the time of the transfer to foreclosed assets is charged to the allowance for
loan losses. Subsequent to foreclosure, valuations are periodically performed by management and the assets are
carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and
change in the valuation allowance are included in other operating expenses. Foreclosed assets totaled $360,000 as of
December 31, 2009. There were no foreclosed assets as of December 31, 2010.

Defined Benefit Plan

The Bank funds amounts equal to pension costs accrued.

Income Taxes

Bank of North Dakota is a governmental agency of the State of North Dakota and, as such, is not subject to
federal or state income taxes.

 NOTE 2 - RESTRICTION AND CONCENTRATION ON CASH AND DUE FROM BANKS

Federal Reserve Board regulations require the Bank to maintain reserve balances with the Federal Reserve Bank.
The average required reserve balances maintained at the Federal Reserve Bank were approximately $49,977,000
in 2010 and $40,000,000 in 2009.

The Bank has depository relationships where it is a requirement of the other institution in order to have a business
relationship. Deposits at these institutions are insured up to $250,000 with the Federal Deposit Insurance
Company except for deposits with the Federal Reserve Bank and the Federal Home Loan Bank. The amount of
cash deposits not covered by FDIC insurance was $514,771,000 and $639,767,000 as of December 31, 2010 and
2009, respectively. Of these amounts, $489,882,000 and $597,229,000 were deposited at the Federal Reserve
Bank.




                                                                               Continued on next page              9
NOTES TO FINANCIAL STATEMENTS


 NOTE 3 - DEBT AND EQUITY SECURITIES

Debt and equity securities have been classified in the financial statements according to management’s intent. The
carrying value of securities as of December 31, 2010 and 2009 consists of the following:

                                                                                   (In Thousands)

                                                                              2010                2009

   Securities available for sale, at fair value                          $    509,794        $      371,382
   Federal Home Loan Bank stock, at cost                                       23,333                22,193
   Other equity securities, at cost                                             4,030                 3,795

                                                                         $    537,157        $      397,370




                                                                             Continued on next page             10
NOTES TO FINANCIAL STATEMENTS




The amortized cost and fair value of securities with gross unrealized gains and losses follows:

                                                                   (In Thousands)

                                                               Gross              Gross
                                          Amortized          Unrealized         Unrealized             Fair
                                            Cost               Gains             Losses               Value

   DECEMBER 31, 2010

   Securities available for sale
      Federal agency                  $     142,647      $        1,914     $          800        $   143,761
      Mortgage-backed                       357,711               5,233              5,779            357,165
      State and municipal                     8,868                    -                  -             8,868

                                      $     509,226      $        7,147     $        6,579        $   509,794

                                                                   (In Thousands)

                                                               Gross              Gross
                                          Amortized          Unrealized         Unrealized             Fair
                                            Cost               Gains             Losses               Value

   DECEMBER 31, 2009

   Securities available for sale
      Federal agency                  $       74,678      $        2,469    $            17       $     77,130
      Mortgage-backed                        284,153               4,885              5,654            283,384
      State and municipal                     10,868                   -                  -             10,868

                                      $      369,699     $         7,354    $         5,671       $    371,382

Securities carried at $352,000 and $8,511,000 at December 31, 2010 and 2009, respectively were used to secure
repurchase agreements and for other required pledging purposes. FHLB stock totaling $23,333,000 and
$22,193,000 at December 31, 2010 and 2009, respectively are pledged on the FHLB advances (Note 9).




                                                                                Continued on next page           11
NOTES TO FINANCIAL STATEMENTS


The maturity distribution of debt securities at December 31, 2010, is shown below. The distribution of mortgage-
backed securities is based on average expected maturities. Actual maturities may differ because issuers may have
the right to call or prepay obligations.

                                                (In Thousands)

                                               Available for Sale

                                        Amortized                   Fair
                                          Cost                     Value

    Within one year                 $          26,108      $         26,471
    Over one year
     through five years                      352,756                357,694
    Over five years
     through ten years                       100,447                 97,925
    Over ten years                            29,915                 27,704

                                    $        509,226       $        509,794

For the year ended December 31, 2010, proceeds from the sale of securities available for sale were $1,157,000. There
were no realized gains or losses on these sales. For the year ended December 31, 2009, proceeds from the sale of
securities available for sale were $5,250,000. Gross realized gains were $151,000 and gross realized losses were
$99,000.

Information pertaining to securities with gross unrealized losses at December 31, 2010, aggregated by investment
category and length of time that individual securities have been in a continuous loss position, follows:

                                                                           (In Thousands)

                                              Less Than Twelve Months                     Over Twelve Months

                                               Gross                                     Gross
                                             Unrealized              Fair              Unrealized          Fair
                                              Losses                Value               Losses            Value

    Securities available for sale
       Mortgage-backed                   $         2,751       $      163,301      $         3,828    $         7,664

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of
time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period
of time sufficient to allow for any anticipated recovery in fair value.




                                                                                       Continued on next page           12
NOTES TO FINANCIAL STATEMENTS


At December 31, 2010, two privatized collateralized mortgage obligation securities and one government agency
collateralized mortgage obligation security have unrealized losses with aggregate depreciation of 21% from the
amortized cost basis. At December 31, 2009, four privatized collateralized mortgage obligation securities have
unrealized losses with aggregate depreciation of 28% from the amortized cost basis.          In analyzing these
obligations, management reviews payment performance, defaults, credit support and credit coverage status. As
the Bank does not intend to sell these securities and it is more likely than not that management will not be
required to sell prior to recovery, the decline is not deemed to be other than temporary.

 NOTE 4 - LOANS

The composition of the loan portfolio at December 31, 2010 and 2009 is as follows:

                                                                                 (In Thousands)

                                                                             2010               2009

   Student                                                              $ 1,044,442        $     932,323
   Commercial                                                             1,022,002            1,038,589
   Residential                                                              471,411              475,124
   Agricultural                                                             276,693              267,575
                                                                          2,814,548            2,713,611
       Allowance for loan losses                                             46,613               42,468

                                                                        $ 2,767,935        $   2,671,143

Unamortized deferred student loan costs totaled $12,504,000 and $11,770,000 as of December 31, 2010 and 2009,
respectively. Net unamortized loan premiums and discounts, including purchased servicing rights, on residential
loans totaled $3,100,000 and $1,860,000 as of December 31, 2010 and 2009, respectively.

The composition of the allowance for loan losses for the years ended December 31, 2010 and 2009 is as follows:

                                                                                 (In Thousands)

                                                                             2010               2009

   Balance - beginning of year                                          $      42,468      $         36,750

       Provision for loan losses                                               12,100                10,300
       Loans charged off                                                       (8,166)               (4,907)
       Recoveries                                                                 211                   325

   Balance - end of year                                                $      46,613      $         42,468




                                                                            Continued on next page             13
NOTES TO FINANCIAL STATEMENTS


The following is a summary of information pertaining to impaired, non-accrual and restructured loans:

                                                                                      (In Thousands)

                                                                                         December 31,

                                                                                  2010                  2009

    Impaired loans with a valuation allowance                                $      40,301       $        15,944

    Valuation allowance related to impaired loans                            $       5,507       $         3,128
    Average investment in impaired loans                                            17,023                16,604
    Total non-accrual loans                                                         12,161                15,944
    Total loans past-due ninety days or more and still accruing                     47,254                37,923
    Restructured loans                                                              33,825                50,090

The interest income recorded on impaired loans is not significant.

Accruing loans 90 days or more past due include guaranteed student loans of $37,600,000 and $29,792,000 as of
December 31, 2010 and 2009, respectively. The Bank is entitled to reimbursement from the guarantor 270 days
after default in the case of a student loan payable in monthly installments and 330 days in the case of a student
loan payable in less frequent installments.

Residential loans of $4,433,000 and $6,662,000 as of December 31, 2010 and 2009, respectively, are also
included in accruing loans 90 days or more past due. In the event of a foreclosure a residential loan guaranteed by
the Federal Housing Administration will be paid in full and the property title is transferred to them. The
Department of Veterans Affairs has the option of paying their guaranty percentage and the Bank keeps the
foreclosed property as well as any gain or loss from the sale or they can pay the loan in full and title is transferred
to them.

There were no material commitments to lend additional funds to customers whose loans were classified as
impaired or restructured at December 31, 2010 and 2009.

 NOTE 5 - LOAN SALES AND LOAN SERVICING

A summary of BND loan sales during 2010 and 2009 follows:

                                                                                      (In Thousands)

                                                                                  2010                  2009

    Residential loans sold on the secondary market                           $       1,109       $             -

BND recognized gains on sale of loans of $13,000 in 2010 which is included in non-interest income on the
Statements of Income.




                                                                                 Continued on next page             14
NOTES TO FINANCIAL STATEMENTS


BND has contracts to provide servicing of loans for others. These loans are not included in the accompanying
balance sheets. The unpaid principal balances of loans serviced for others as of December 31, 2010 and 2009 were
as follows:

                                                                                   (In Thousands)

                                                                               2010               2009

   Student loans
      North Dakota Student Loan Trust                                     $      47,160       $        53,185
      Others                                                                           -                6,013

   Residential loans
      Fannie Mae                                                                 11,025                12,734

   Other state fund loans
      Board of University and School Lands                                       43,890                63,386
      Community Water Facility Loan Fund                                         17,316                17,724
      Beginning Farmer Revolving Loan Fund                                        8,572                 9,008
      Developmentally Disabled Facility Loan Program                                648                   840
      Department of Human Services                                                8,271                 8,680
      Information Technology Department                                           2,758                     -
      Workforce Safety                                                               86                    29

                                                                          $     139,726       $     171,599

Under existing student loan servicing agreements, the Bank generally agrees to reimburse lenders for all principal,
accrued interest and special allowance which the lender has been denied if the denial resulted from the actions or
inactions of the Bank. Under the existing residential loan servicing agreement with Fannie Mae, the Bank will
indemnify Fannie Mae and hold them harmless against all losses, damages, judgments or legal expenses that
result from the Bank’s failure in any way to perform its services and duties.




                                                                              Continued on next page            15
NOTES TO FINANCIAL STATEMENTS


 NOTE 6 - BANK PREMISES, EQUIPMENT, AND SOFTWARE

A summary of changes in bank premises, equipment, furniture, and software at December 31, 2010 and 2009 is as
follows:

                                                                    (In Thousands)
                                              Balance                                              Balance
                                               2009          Additions       Retirements            2010

   Land                                   $      1,171      $            -    $            -   $      1,171
   Building                                     10,212                   -                 -         10,212
   Equipment                                       987                 26               257             756
   Furniture                                       679                   -                 -            679
   Hardware                                      1,267                 41               681             627
   Software                                      6,564                440             1,491           5,513
                                                20,880                507             2,429          18,958
       Less accumulated depreciation             7,963              1,130             2,429           6,664

                                          $     12,917      $        (623)   $             -   $     12,294

                                                                     (In Thousands)
                                              Balance                                              Balance
                                               2008             Additions     Retirements           2009

   Land                                   $       1,171     $            -    $           -    $       1,171
   Building                                      10,212                  -                -           10,212
   Equipment                                        985                 42               40              987
   Furniture                                        679                  -                -              679
   Hardware                                       1,288                 22               43            1,267
   Software                                       6,192                372                -            6,564
                                                 20,527                436               83           20,880
       Less accumulated depreciation              6,946              1,100               83            7,963

                                          $      13,581     $        (664)   $             -   $      12,917

Depreciation and amortization expense on the above assets amounted to $1,130,000 and $1,100,000 in 2010 and 2009.

 NOTE 7 - DEPOSITS

The aggregate amount of locally sold certificates of deposit larger than $100,000 was $2,030,887,000 and
$1,711,836,000 as of December 31, 2010 and 2009, respectively.




                                                                             Continued on next page            16
NOTES TO FINANCIAL STATEMENTS


At December 31, 2010, the scheduled maturities of certificates of deposits are as follows:

                                   (In Thousands)

   One year or less                $    1,801,363
   One to three years                     115,642
   Over three years                       138,667

                                   $    2,055,672

 NOTE 8 - REPURCHASE AGREEMENTS

The Bank enters into agreements to repurchase the same securities that it previously sold. These agreements may have
a fixed maturity or be open-ended, callable at any time. These agreements are secured by Fed book-entry securities.
The aggregate amount of repurchase agreements was $8,117,000 as of December 31, 2009. There were no repurchase
agreements as of December 31, 2010.

 NOTE 9 - SHORT AND LONG-TERM DEBT

Short and long-term debt consists of:

                                                                                     (In Thousands)

                                                                                2010               2009

   Federal Home Loan Bank advances - long-term                             $    396,200        $      403,779
   ND Public Finance Authority, 3%, matures
    from September 2014 through September 2020                                     1,165                1,226

                                                                           $    397,365        $      405,005

A summary, by years, of future minimum payments required to amortize the outstanding short and long-term debt
is as follows:

                                                                          (In Thousands)

                                                           Principal           Interest            Total

   2011                                                $       16,043      $       18,104      $       34,147
   2012                                                         3,160              17,213              20,373
   2013                                                        65,281              15,514              80,795
   2014                                                        18,407              13,782              32,189
   2015                                                        13,530              13,374              26,904
   Later years                                                280,944              39,110             320,054

       Totals                                          $      397,365      $      117,097      $      514,462




                                                                               Continued on next page            17
NOTES TO FINANCIAL STATEMENTS


The FHLB long-term advances outstanding at December 31, 2010, mature from December 2011 through March
2025. The FHLB long-term advances have fixed rate interest, ranging from 3.01% to 7.35%. The advances must
be secured by minimum qualifying collateral maintenance levels. Residential loans with carrying values of
$449,554,000 and $467,699,000 at December 31, 2010 and 2009, respectively, are currently being used as
security to meet these minimum levels.

The money borrowed from the ND Public Finance Authority is unsecured and is used to fund irrigation and
livestock waste program loans.

 NOTE 10 -       OTHER LIABILITIES

Other liabilities consist of:

                                                                                  (In Thousands)

                                                                              2010               2009

    Interest payable                                                     $       2,419       $        2,546
    Salary and benefits payable                                                    968                  978
    Student loan related payables                                                  339                  569
    Transfers payable                                                               44                    -
    Accounts payable, accrued expenses and other liabilities                     2,044                2,236

                                                                         $       5,814       $        6,329

The Sixtieth North Dakota Legislature passed House Bill 1014 which provides for transfers during the biennium
beginning July 1, 2007 and ending June 30, 2009 totaling $60,000,000 from the current earnings and the
accumulated undivided profits of the Bank. The moneys must be transferred in the amounts and at the times
requested by the director of the Office of Management and Budget. The Bank transferred $30,000,000 to the
State’s General Fund in both 2009 and 2008 to satisfy the $60,000,000 obligation. The Bank does not have to
transfer any funds to the State’s General Fund for the biennium beginning July 1, 2009 and ending June 30, 2011.

 NOTE 11 -       PENSION PLAN

Bank of North Dakota participates in the North Dakota Public Employees’ Retirement System (NDPERS)
administered by the State of North Dakota. Following is a brief description of the plan.

NDPERS is a cost-sharing multiple-employer defined benefit pension plan covering substantially all classified
employees of Bank of North Dakota. The plan provides retirement, disability, and death benefits. If an active
employee dies with less than three years of credited service, a death benefit equal to the value of the employee’s
accumulated contributions, plus interest, is paid to the employee’s beneficiary. If the employee has earned more
than three years of credited service, the surviving spouse will be entitled to a single payment refund, lifetime
monthly payments in an amount equal to 50% of the employee’s accrued normal retirement benefit, 60 monthly
payments equal to the employee’s accrued normal retirement benefit calculated as if the employee were age 65
the day before death occurred, or monthly payments in an amount equal to the employee’s accrued 100% joint
and survivor retirement benefit if the member had reached normal retirement age prior to date of death. If the
surviving spouse dies before the employee’s accumulated pension benefits are paid, the balance will be payable to
the surviving spouse’s designated beneficiary.




                                                                             Continued on next page            18
NOTES TO FINANCIAL STATEMENTS


Eligible employees who become totally disabled after a minimum of 180 days of service receive monthly
disability benefits that are equal to 25% of their final average salary with a minimum benefit of $100. To qualify
under this section, the employee must meet the criteria established by the Retirement Board for being considered
totally disabled.

Employees are entitled to unreduced monthly pension benefits equal to 2.0% of their final average salary for each
year of service beginning when the sum of age and years of credited service equal or exceed 85, or at normal
retirement age (65). The plan permits early retirement at ages 55-64, with five or more years of service.

Benefit and contribution provisions are administered in accordance with chapter 54-52 of the North Dakota
Century Code. This state statute requires that 4% of the participant’s salary be contributed to the plan by either the
employee or by the employer under a “salary reduction” agreement. Bank of North Dakota has implemented a
salary reduction agreement and is currently contributing the employees share. Bank of North Dakota is required to
contribute 4.12% of each participant’s salary as the employer’s share. In addition to the 4.12% employer
contribution, the employer is required to contribute 1% of each participating employee’s gross wage to a
prefunded retiree health insurance program. The required contributions are determined using an entry age normal
actuarial funding method. The North Dakota Retirement Board was created by the State Legislature and is the
governing authority of NDPERS. Bank of North Dakota’s required and actual contributions to NDPERS for the
fiscal years ending December 31, 2010 and 2009 were approximately $710,000 and $677,000, respectively.

NDPERS issues a publicly available financial report that includes financial statements and the required
supplementary information for NDPERS. That report may be obtained by writing to NDPERS; 400 East
Broadway, Suite 505; PO Box 1657; Bismarck, ND 58502-1657.

 NOTE 12 -      COMMITMENTS AND CONTINGENT LIABILITIES

Legislative Action- Various legislative bills provide state agencies the authority to borrow money from the Bank
of North Dakota during the biennium beginning July 1, 2009 and ending June 30, 2011 and in one case provide a
source of payment of principal and interest payable on bonds issued. Following is a summary of legislative action
and/or North Dakota Statute in effect:

H.B. 1002, Section 3 – Subject to budget section approval, the secretary of state may borrow up to $3,400,698
from the Bank of North Dakota, which is appropriated to the secretary of state for the purpose of implementing
the North Dakota business development engine computer project, during the biennium beginning July 1, 2009,
and ending June 30, 2011. The secretary of state may request budget section approval only if the revenues
projected by the secretary of state and the office of management and budget to be generated as a result of
provisions of chapter 102 of the 2007 Session Laws over the term of the proposed loan based on the trend of
actual corporate charters granted are anticipated to be sufficient to repay the proposed loan, including interest over
the term of the loan.

H.B. 1012, Section 4 – If the caseload/utilization of medical services, long-term care, and developmental
disabilities services is more than anticipated by the sixty-first legislative assembly, the Department of Human
Services, subject to budget section approval, may borrow the sum of $8,500,000, or so much of the sum as may be
necessary, from the Bank of North Dakota, which is appropriated for the purpose of providing the state matching
share of additional medical assistance grants for medical services, long-term care, and developmental disabilities
services, for the biennium beginning July 1, 2009, and ending June 30, 2011. The Department of Human Services
shall request funding from the sixty-second legislative assembly to repay any loan obtained pursuant to provisions
of this section, including accrued interest.

H.B. 1013, Section 20 – The School for the Deaf may borrow the sum of $835,000, or so much of the sum as may
be necessary, from the Bank of North Dakota, for the purpose of remodeling the trades building on the campus of
the School for the Deaf.
                                                                               Continued on next page              19
NOTES TO FINANCIAL STATEMENTS


H.B. 1400, Section 60 – The Department of Public Instruction may borrow the necessary funds to reimburse
school districts for the excess costs of serving the one percent of special education students statewide who require
the greatest school district expenditures in order to be provided with special education and related services. No
borrowing limit was established. The Superintendant of Public Instruction shall file for introduction legislation
requesting the legislative assembly to return any amount transferred under this bill.

S.B. 2012, Section 16 – The Department of Transportation, subject to the approval of the emergency commission,
may borrow moneys from the Bank of North Dakota to advance and match federal emergency relief funds. No
borrowing limit was established.

S.B 2332, Sections 8 and 9 – The Health Information Technology Office Director may request the Bank of North
Dakota to transfer up to $8,000,000 to the Health Information Technology Loan Fund to meet any required match
for federal funds or to the Electronic Health Information Exchange Fund to meet any required match for federal
funds or as directed, a portion to both funds to meet any required match for federal funds. The Health Information
Technology Office Director shall request fund transfers from the Bank only as necessary to comply with federal
requirements and to meet cash flow needs of the funds. The Health Information Technology Office Director may
request the Bank of North Dakota to transfer up to $5,000,000 to the Health Information Technology Planning
Loan Fund. The Health Information Technology Office Director shall request transfers from the Bank only as
necessary to meet cash flow needs of the fund. For the year ended December 31, 2010, the Bank had transferred
$5,000,000 to this fund.

State Water Commission

Under chapter 61-02.1-04 of North Dakota Century Code, principal and interest on bonds issued are payable from
transfers to be made and appropriated by the legislative assembly from the water development trust fund as
provided in section 61-02.1-05, then from transfers to be made and appropriated by the legislative assembly from
revenues in the resources trust fund other than revenues from state taxes, then from appropriations of other
available revenues in the then current biennium, and then from any other revenues the State Water Commission
makes available during the then current biennium for that purpose, including any federal moneys received by the
state for the construction of flood control or reduction projects to pay bonds issued for that project. If sufficient
funds from these sources are not available, then from transfers to be made and appropriated by the legislative
assembly from the first available current biennial earnings of the Bank of North Dakota not to exceed $6,500,000
per biennium prorated with any other bonds payable from transfers to be made and appropriated by the legislative
assembly from the available current biennial earnings of the Bank of North Dakota, to be credited by the trustee to
the fund established for paying principal and interest on the bonds under a trust indenture. If the bank has to
provide a transfer to the state water commission to make principal and interest payments on these bonds, the state
water commission would then have to request from the next legislative assembly funding to repay the transfer
made by the bank.




                                                                              Continued on next page              20
NOTES TO FINANCIAL STATEMENTS


Farm Real Estate Loan Guarantee Program

Chapter 6-09.7-09 provides that the Bank of North Dakota may guarantee the loan of money by banks, credit
unions, lending institutions that are part of the farm credit system, and savings and loan associations in this state
to eligible persons for the purchase of agricultural real estate or the restructuring of agricultural real estate loans,
provided the transactions do not exceed a loan to value ratio of 80% and further provided that no single loan
exceeds $400,000. The Bank may have no more than $8,000,000 in outstanding loan guarantees under this
program. The Bank may guarantee up to 75% of the amount of principal due the lender. The guarantee term may
not exceed 5 years. As of December 31, 2010 and 2009, the Bank has guarantees outstanding totaling $1,116,000
and $1,342,000, respectively. The Bank had no guarantee commitments outstanding as of December 31, 2010
and December 31, 2009 included in commitments to extend credit.

Beginning Entrepreneur Loan Guarantee Program

Chapter 6-09.15 provides that the Bank of North Dakota provide a Beginning Entrepreneur Loan Guarantee
Program. The program includes an agreement with a lender that in the event of default by a beginning
entrepreneur under a note and mortgage or other loan or financing agreement, the Bank shall pay the lender the
amount agreed upon up to 85 percent of the amount of principal due the lender on a loan at the time the claim is
approved. The total outstanding loans that the Bank may guarantee cannot exceed 5% of the Bank’s tier one
capital as defined by the Department of Financial Institutions. A lender may apply to the Bank for a loan
guarantee for a loan of up to $100,000. The term of the guarantee may not exceed five years. As of December 31,
2010 and 2009, the Bank has guarantees outstanding totaling $4,045,000 and $4,223,000, respectively, and had
guarantee commitments outstanding of $38,000 and $202,000, respectively, included in commitments to extend
credit.

Livestock Loan Guarantee Program

Chapter 6-09-41 of the North Dakota Century Code provides that the Bank of North Dakota establish and
administer a loan guarantee program that is designed to expand livestock feeding and dairy farming in this state.
This program was effective through June 30, 2009.

The Bank may guarantee loans made by the bank, credit union, a savings and loan association, or any other
lending institution in this state to the owner of a commercial livestock feeding operation or to the owner of a new
or expanding dairy operation. In the event of a default, the Bank shall pay to the lender the amount agreed upon,
provided that the amount may not exceed 85% of the principal due the lender at the time the claim is approved.

As of December 31, 2010 and 2009, the Bank has guarantees outstanding totaling $850,000 and $1,466,000,
respectively. The Bank had no guarantee commitments outstanding as of December 31, 2010 and December 31,
2009 included in commitments to extend credit.

 NOTE 13 -       RELATED PARTY TRANSACTIONS

The Bank, because of its unique relationship with the State of North Dakota, is a party in many business
transactions with other entities of state government. All state funds and funds of all state penal, education, and
industrial institutions must be deposited in the Bank under state law. These transactions are a normal part of bank
business and, accordingly, are included in the Bank’s financial statements.

See Note 5 for disclosure relating to loans sold to other state funds and/or loans serviced for other state funds,
including the North Dakota Student Loan Trust.

Dakota Education Alternative Loans are fully guaranteed by the North Dakota Guaranteed Student Loan Program
which is administered by the Bank.
                                                                                 Continued on next page              21
NOTES TO FINANCIAL STATEMENTS


 NOTE 14 -      OFF-BALANCE-SHEET ACTIVITIES

The Bank is a party to credit related financial instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of its customers. These financial instruments include commitments to extend
credit and financial standby letters of credit. Such commitments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the balance sheet. The Bank’s exposure to credit loss
is represented by the contractual amount of these commitments. The Bank follows the same credit policies in
making commitments as it does for on-balance-sheet instruments.

At December 31, 2010 and 2009, the following financial instruments were outstanding whose contract amounts
represent credit risk:
                                                                             Contract Amount
                                                                              (In Thousands)

                                                                                2010               2009

   Commitments to extend credit                                            $    497,044        $     585,960
   Financial standby letters of credit                                          360,878              396,951

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of
collateral obtained by the Bank upon extension of credit is based on management’s credit evaluation of the
customer. Collateral held may include accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.

Financial standby letters of credit are conditional commitments issued by the Bank to guarantee the performance
of a customer to a third party. Those letters of credit are primarily issued to support public borrowing
arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The likelihood of funding any of these letters of credit is considered to be
remote. The Bank generally holds collateral supporting those commitments if deemed necessary.

Financial standby letters of credit include letters of credit pledged for public deposits by North Dakota banks for
$257,270,000 and $275,550,000 at December 31, 2010 and 2009, respectively. These letters of credit are an
authorized form of collateral for public deposits per North Dakota Century Code 21-04-09.

 NOTE 15 -      FAIR VALUE OF FINANCIAL INSTRUMENTS

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine
fair value disclosures. Available for sale securities are recorded at fair value on a recurring basis.

Effective January 1, 2008, the Bank adopted Statement of Financial Accounting Standards Accounting Standards
Codification (ASC) 820-10, Fair Value Measurements. ASC 820-10 defines fair value and establishes a
consistent framework for measuring fair value under generally accepted accounting principles and expands
disclosure requirements for fair value measurements.




                                                                               Continued on next page            22
NOTES TO FINANCIAL STATEMENTS


Fair Value Hierarchy

Under ASC 820-10, we group our assets and liabilities at fair value in three levels, based on the markets in which
the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These
levels are:

        Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
        Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices
        for identical or similar instruments in markets that are not active, and model-based valuation techniques
        for which all significant assumptions are observable in the market.
        Level 3 – Valuation is generated from model-based techniques that use significant assumptions not
        observable in the market. These unobservable assumptions reflect our own estimates of assumptions that
        market participants would use in pricing the asset or liability. Valuation techniques include use of option
        pricing models, discounted cash flow models and similar techniques.

Determination of Fair Value

Under ASC 820-10, we base our fair values on the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. It is our policy to
maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value
measurements, in accordance with the fair value hierarchy of ASC 820-10.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value and
for estimating fair value for financial instruments not recorded at fair value (ASC 825-10 disclosures).

Cash and Cash Equivalents

Cash and cash equivalents, include cash and due from banks, items out for collection, and federal funds sold.
These assets are carried at historical cost. The carrying amounts of cash and cash equivalents approximate fair
value due to the relatively short period of time between the origination of the instruments and their expected
realization.

Securities Available for Sale

Securities available for sale, consist primarily of Federal agencies and mortgage backed securities. Securities
available for sale are recorded at fair value on a recurring basis. Fair value is based upon quoted prices, if
available. If quoted market prices are not available, fair values are measured using observable market prices from
independent pricing models, or other model-based valuation techniques such as the present value of future cash
flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss
assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock
Exchange, as well as U.S. Treasury, other U.S. government and agency mortgage-backed securities that are traded
by dealers or brokers in active over-the-counter markets. Level 2 securities include privatized collateralized
mortgage obligations and state and political subdivision securities. Securities classified as Level 3 are FHLB
stock and equity securities that are not publicly traded and do not have a readily determinable fair value.

Loans

The carrying value of loans is described in note 1, “Summary of Significant Accounting Policies”. We do not
record loans at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are
primarily for estimating fair value for ASC 825-10 disclosure purposes. However, from time to time, we record
nonrecurring fair value adjustments to loans to reflect (1) partial write-downs that are based on the observable
market price or current appraised value of the collateral, or (2) the full charge-off of the loan carrying value.
                                                                                 Continued on next page           23
NOTES TO FINANCIAL STATEMENTS


The fair value estimates for ASC 825-10 purposes differentiates loans based on their financial characteristics,
such as product classification, loan category, pricing features and remaining maturity. Prepayment and credit loss
estimates are evaluated by product and loan rate.

        The fair value of student loans is based on market values as established by the secondary market.
        For real estate 1-4 family first and junior lien mortgages, fair value is based on market values as
        established by the secondary market.
        The fair value of all other loans is calculated by discounting contractual cash flows using discount rates
        that reflect our current pricing for loans with similar characteristics and remaining maturity.
        Off-Balance Sheet Credit-Related Instruments include loans commitments, standby letters of credit, and
        guarantees. These instruments generate ongoing fees at our current pricing levels, which are recognized
        over the term of the commitment period. The fair value of these instruments is estimated based upon fees
        charged for similar agreements. The carrying value of the deferred fees is a reasonable estimate of the
        fair value of the commitments.

Interest Receivable

The carrying amount of interest receivable approximates fair value due to the relatively short period of time
between accrual and expected realization.

Non-Maturity Deposits

The fair value for deposits with no stated maturity, such as demand deposits, savings, NOW, and money market
accounts, are disclosed as the amount payable upon demand.

Deposits with Stated Maturities

The fair value for interest bearing certificates of deposit has been estimated by discounted future cash flows using
rates currently offered for deposits of similar remaining maturities.

Federal Funds Purchased and Repurchase Agreements

The carrying amount of federal funds purchased and repurchase agreements approximates fair value due to the
relatively short period of time between the origination of the instruments and their expected payments.

Interest payable

The carrying amount of interest payable approximates fair value due to the relatively short period of time between
accrual and expected payment.

Short and Long-Term Debt

Current market prices were used to estimate the fair value of short and long-term debt using current market rates
of similar maturity debt.

Other Liabilities

The carrying amount of other liabilities approximates fair value due to the short period of time until expected payment.




                                                                                 Continued on next page               24
NOTES TO FINANCIAL STATEMENTS


Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis at December
31, 2010.

                                                                         (In Thousands)
                                                   Total             Level 1             Level 2           Level 3

    Available-for-sale debt securities
      Mortgage-backed securities
          Agency                          $          77,501     $       77,501       $             -   $             -
      Collateralized mortgage obligations
          Agency                                    153,080            153,080                   -                   -
          Non-agency                                 11,704                  -              11,704                   -
      Agency bonds                                  143,761            143,761                   -                   -
      Corporate bonds                               114,880            114,880                   -                   -
      Municipal bonds                                 8,868                  -               8,868                   -
                                                    509,794            489,222              20,572                   -
    FHLB stock                                       23,333                    -                   -          23,333
    Nonmarketable equity securities                   4,030                    -                   -           4,030
    Total                                     $     537,157     $      489,222       $      20,572     $      27,363

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis, at December 31, 2010,
are summarized as follows:

                                                Securities
                                               available for
                                                   sale

    Balance, beginning of year                $      25,988
       Purchases                                       1,532
       Sales and maturities                             (157)
    Balance, end of year                      $      27,363

ASC 825-10, Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates as of December 31, 2010 and 2009, for financial instruments, as
defined by ASC 825-10. The carrying amounts in the following table are recorded in the balance sheet under the
indicated captions. In accordance with ASC 825-10, we have not included assets and liabilities that are not financial
instruments in our disclosure, such as our premises and equipment and other assets. Additionally, the amounts in the
table have not been updated since year end, therefore the valuations may have changed significantly since that point in
time. For these reasons, the total of the fair value calculations presented does not represent, and should not be
construed to represent, the underlying value of the Bank.




                                                                                   Continued on next page                25
NOTES TO FINANCIAL STATEMENTS


The carrying amounts and estimated fair values of the Bank’s financial instruments as of December 31, 2010 and
2009 were as follows:
                                                                    (In Thousands)
                                                                             2010
                                           Carrying         Fair
                                           Amount           Value           Level 1        Level 2      Level 3
  Financial assets
     Cash and cash equivalents         $     671,200    $ 671,200       $ 671,200      $          -     $        -
     Securities available for sale           537,157       537,157        489,222             20,572         27,363
     Interest receivable                      39,146        39,146             -              39,146             -
     Loans, net                            2,767,935     2,843,766             -           2,843,766             -

  Financial liabilities
     Non-maturity deposits           $ 1,003,054        $ 1,003,054     $        -     $ 1,003,054      $       -
     Deposits with stated maturities   2,055,672          2,071,554              -       2,071,554              -
     Federal funds purchased
       and repurchase agreements         240,725            240,725              -          240,725             -
     Short and long-term debt            397,365            420,601              -          420,601             -
     Other liabilities                     5,814              5,814              -            5,814             -


                                                                             2009
                                           Carrying         Fair
                                           Amount           Value           Level 1        Level 2          Level 3
  Financial assets
     Cash and cash equivalents         $      841,239   $     841,239   $ 841,239      $          -     $       -
     Securities available for sale            397,370         397,370     346,211              25,171        25,988
     Interest receivable                       34,550          34,550         -                34,550           -
     Loans, net                             2,671,143       2,816,318         -             2,816,318           -

  Financial liabilities
     Non-maturity deposits             $    1,202,332   $ 1,202,332     $        -     $ 1,202,332      $       -
     Deposits with stated maturities        1,736,727     1,777,422              -       1,777,422              -
     Federal funds purchased
        and repurchase agreements             337,627        337,627             -           337,627            -
     Short and long-term debt                 405,005        416,150             -           416,150            -
     Other liabilities                          6,329          6,329             -             6,329            -




                                                                              Continued on next page                  26
NOTES TO FINANCIAL STATEMENTS


 NOTE 16 -       COMPREHENSIVE INCOME

The Bank recognizes and includes revenue, expenses, gains and losses in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet, such items, along with net income, are components of
comprehensive income.

Changes in and determination of accumulated other comprehensive income (loss) is as follows:

                                                                                       (In Thousands)

                                                                                  Unrealized Gain (Loss) on
                                                                                 Securities Available for Sale

                                                                                  2010                  2009

    Balance, beginning of year                                               $       1,683        $       (2,961)

       Unrealized holding gains (losses) arising during the period                   (1,115)               4,690
       Reclassification adjustment for gains realized
         in net income                                                                     -                   (46)

       Other comprehensive income                                                    (1,115)               4,644

    Balance, end of year                                                     $           568      $        1,683

 NOTE 17 -       SUPPLEMENTAL DISCLOSURES RELATED TO STATEMENTS OF CASH FLOWS

                                                                                       (In Thousands)

                                                                                  2010                  2009

Supplemental disclosures of cash flow information
   Cash payments for:
      Interest paid to customers                                             $      24,567        $       39,993
      Interest paid on federal funds purchased and
       securities sold under repurchase agreements                                     913                   843
      Interest paid on short and long-term debt                                     19,835                16,803

Supplemental schedule of noncash investing and financing activities
   Transfers from undivided
    profits to other liabilities                                                     5,088                15,000
   Net change in unrealized gain
    (loss) on securities available for sale                                          (1,115)               4,644
   Other real estate and property owned
    acquired in exchange for loans                                                       453                   404




                                                                                 Continued on next page               27
NOTES TO FINANCIAL STATEMENTS


NOTE 18- SUBSEQUENT EVENTS

No significant events occurred subsequent to the Bank’s year end. Subsequent events have been evaluated
through March 1, 2011, which is the date these financial statements were available to be issued.




                                                                                                          28
Bank of North Dakota
Ten Year Summary


TEN YEAR SUMMARY                                          2010        2009        2008        2007

OPERATING RESULTS (in thousands)
Interest income                                       $133,400    $132,277    $148,613    $152,416
Interest expense                                        45,188      50,994      71,801      87,090
Net interest income                                     88,212      81,283      76,812      65,326
Provision for loan losses                               12,100      10,300       8,900       3,100
Net interest income after provision for loan losses     76,112      70,983      67,912      62,226
Non-interest income                                      6,113       6,206       7,617       6,673
Non-interest expense                                    20,374      19,106      18,485      17,813
Net income                                              61,851      58,083      57,044      51,086
Payments to general fund                                     0      30,000      30,000      30,000
Payments to other funds                                  5,044           0          46          46

BALANCE SHEET - YEAR END (in thousands)
TOTAL ASSETS                                          4,029,927   3,959,669   3,516,965   2,779,360

FEDERAL FUNDS SOLD AND RESELL AGREEMENTS 33,100                     24,190      75,675     277,565

SECURITIES                                             537,157     397,370     331,416     235,551

LOANS                                                 2,814,548   2,713,611   2,618,402   2,004,999
 Student                                              1,044,442     932,323     776,473     643,297
 Commercial                                           1,022,002   1,038,589   1,064,811     689,150
 Residential                                            471,411     475,124     509,052     419,700
 Agriculture                                            276,693     267,575     268,066     252,852

DEPOSITS                                              3,058,726   2,939,059   2,645,356   1,871,767
 Non-interest bearing                                   387,040     442,867     313,900     317,949
 Interest bearing                                     2,671,686   2,496,192   2,331,456   1,553,818

FEDERAL FUNDS PURCHASED AND
 REPURCHASE AGREEMENTS                                 240,725     337,627     304,020     434,061

SHORT AND LONG-TERM DEBT                               397,365     405,005     315,604     245,070

EQUITY                                                 327,297     271,649     223,922     192,471
Capital                                                  2,000       2,000        2,000      2,000
Capital surplus                                         42,000      42,000       42,000     42,000
                                                       282,729     225,966     182,883     145,843
Accumulated other comprehensive income (loss)              568       1,683      (2,961)      2,628




                                                                                              29
Bank of North Dakota
Ten Year Summary


         2006        2005        2004        2003        2002        2001        2000


    $ 126,598    $ 98,086    $ 80,133    $ 79,463    $ 90,315    $ 114,490   $ 117,163
       71,284      51,623      38,392      41,755      50,666       82,840      75,774
       55,314      46,463      41,741      37,708      39,649       41,650      41,389
        3,400       2,400       2,400       2,000       2,200        2,700       2,700
       51,914      44,063      39,341      35,708      37,449       38,950      38,689
        7,748       9,332      11,248      11,474       9,764        8,646       7,224
       16,808      17,038      16,373      15,488      15,022       14,537      13,331
       42,854      36,357      34,216      31,694      32,191       33,059      32,582
       30,000      30,000      30,000      34,000      30,000       50,000           -
           43          43          37          37          36           36          35


     2,326,693   2,062,247   2,014,525   1,953,178   1,974,448   2,107,456   1,806,517

      129,135     195,370     122,230      89,915     209,205     257,830     271,510

      219,412     157,623     253,186     284,272     235,365     329,632     192,093

     1,755,562   1,467,061   1,456,256   1,391,583   1,329,985   1,276,334   1,156,614
       561,178     459,287     417,356     372,362     364,816     399,002     376,535
       564,946     431,068     480,870     469,912     432,940     392,206     362,940
       388,043     342,786     322,044     318,067     309,267     271,385     213,009
       241,395     233,920     235,986     231,242     222,962     213,741     204,130

    1,617,136    1,352,516   1,198,586   1,057,386   1,070,853   1,208,601   1,135,731
      230,993      205,854     208,277     214,275     209,112     193,354     130,470
    1,386,143    1,146,662     990,309     843,111     861,741   1,015,247   1,005,261


      249,145     248,932     201,959     190,597     296,688     315,713     215,072

      257,209     275,926     436,593     525,795     421,065     399,553     254,439

      163,542     161,824     152,776     153,744     149,113     170,496     153,045
        2,000        2,000       2,000       2,000      2,000       2,000       2,000
       42,000       42,000      42,000      42,000     42,000      42,000      42,000
      119,894     119,894     110,947     110,947     104,237     126,237     108,707
        (352)      (2,070)     (2,171)     (1,203)        876         259         338




                                                                               30

				
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