PUBLIC BANKING WORKS
Conference Call with BND Representatives
Prepared by Debbie Hillman 847/328-7175
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Public Banking Institute
Conference Call with Bank of North Dakota
Representatives

March 23, 2012
Prepared by Debbie Hillman
Transcribed by Mari Eliza
Edited by Elinor Averyt

Speakers included:
Eric Hardmeyer, President, BND
Rick Clayburgh, President, North Dakota Bankers Association
Karl Bollingberg, SVP, Alerus Financial
Gary Petersen, President, Lakeside State Bank

Moderator:
Michael Sauvante, Founder, Commonwealth Group
Marc Armstrong, Executive Director, Public Banking Institute

Overview
As expected and hoped, the four North Dakota bankers on the call took a very practical view towards state banking in general. They had some very succinct and wise thoughts about public bank initiatives. The ND bankers and Marc Armstrong from Public Banking Institute were very clear that the call was only about the BND bank. Eric Hardmeyer, BND's President/CEO, did offer some limited advice to other public bank initiatives.

Main points from call:

1. BND is a banker’s bank, partnering with existing financial institutions,
especially community banks.

2. A public bank initiative should want to be helpful to the state (or other
government jurisdiction), not harmful to existing financial institutions.

3. Operationally, it's best to work with bankers verses "economic development"
officials.

4. BND's governance:
•Industrial Commission: consisting of 3 members: Governor, Attorney
General, Agriculture Commissioner
•Advisory Committee: consisting of mostly or all bankers (day-to-day
operations)
•Legislature: Can provide occasional guidance on loan policy, e.g.
North Dakota's recent flooding crises.

5. BND offers community bankers and other local financial institutions a
place to call, real people to talk to, based on real relationships.

6. There is a constant balancing act that BND officials have to perform
between the public mandate and the function of the bank---to make a
profit.

Remaining questions:
1. Why isn't the Treasurer on the BND governing board?

2. Is the Advisory Committee 100% all bankers, or any other sectors represented, e.g.,
a citizen-at-large?

3. If South Dakota created a state bank tomorrow, would SD's financial situation
improve noticeably and quickly?

4. Can you provide an example of when there was some juggling
(balancing) between the public mandate and the nature of a bank – to make a profit?

5. If a state, city, or county wanted to create a public bank, is there any interim step
that could be promoted (e.g., as an emergency step) to:
(a) ameliorate the credit crisis in that jurisdiction (e.g., in a particular sector
-- food system, housing, health care, education, energy), and
(b) put a public bank initiative on a fast track (without compromising due
diligence and due legislative process)?


Official Transcript

Friday 3/30/12
Transcribed by Mari Eliza

Moderator (Michael): We have a number of individuals in N. Dakota that I’m going to be introducing that are going to be active participants in the front end of this call, and I’ll introduce them in a second. But in addition, I’d like to acknowledge that we have three parties that are calling in at minimum that I know of from Germany with their banking group back there.

We have Moreles and Doctor Thomas, I think that is Keidel, forgive me if I have mispronounced names, and one other gentleman that I think is Patrick Kramer that we would like to acknowledge and welcome from Germany, to listen in on this call.

On this end, we have with the Bank of North Dakota, the President, Eric Hardmeyer, along with Rick Clayburg, who are both in the same room on the same speakerphone with us, from the Bank of N. Dakota. In addition, it is my understanding that we have several others that are with the banking community there, one in particular, Karl Bollingberg, that I’m not sure if I am pronouncing your name correctly, sir, but as the individuals there, I believe you are from Grand Fork, with Alerus Financial and Gary Petersen from Lakeside Bank.

What we would like to do, is to start this off by asking Eric, as the president of the Bank of ND, to share some thoughts with the group about the nature of his bank and his perception of the role they perform in connection with the state and in particular the state’s role in the community banks. And then at that point, I would like to pass it over to Rick and switch the perspective from that of the community bankers to the gentleman who is the president of the ND Banker’s Association. Following their two thoughts and comments, we would like to open it up to comments from other community bankers there in ND and anybody else who has had direct associations with the bank, so that we can get a variety of perspectives as to how this is working out, what is it doing in terms of the nature of the relationship, etc. With the whole idea in mind of trying to give the audience here a good perspective of how this BND and community bankers’ relationship is working out.

With that is in mind, I’m going to turn the mic over.

Eric: OK good morning, good afternoon, good evening, to all of you. As said my name is Eric Hardmeyer. I’m the president of the BND. Just give you a little background on myself, I have been at the bank for 27 years, the last 12 as president and CEO. The previous 15 years were
basically spent in various lending capacities.

By way of a little background, as I said, I have been here for 27 years, I have seen the economy of ND go from one spectrum to the other. In the 80’s we suffered drought and severe economic turndown. The state of ND today is in a bit of a Renaissance period with a significant oil boom and coming off of three or four years of great agricultural conditions. So I have seen the swing of our economic fortunes in the last 25 to 30 years, and the BND has played a different role in each of those capacities.

A couple of things that I wanted to mention on the front end, BND has been around for 93 years now, and we are guided by a couple of principals that were put into place when this bank was created in 1919. I want to share with you the two important principals that guide us today. I’m just going to read a couple of quick little things about the bank and when it was created. This comes from those that created the bank 90 plus years ago. The two very critical things that really form how we think about the bank.

The first one is to fix in the minds of our citizens, the exact purpose and scope of the bank’s activities. So when I talk to groups about this bank, that is the first thing I always tell them. “You have to understand and determine what it is that you want the bank to do in your state or in your political division, or whatever entity is proposing this.” That is number one.

The other king that has always guided me, and others in this capacity, that is very important, and that was set out 90 years ago, but it reads like this. “To be helpful to and to assist in the development of state and national banks and other financial institutions and public corporations within the state, and not in any manner to destroy or to be harmful to existing
financial institutions.”

So when I speak to groups, those are the important things for me if you are really interested in this model, and I will not advocate for this model anywhere. I have been asked to do that. I will not do that. I think it is a local, state decision that has to be made on that basis. But I will tell people if they are interested, my advice is in three pieces:

One is, structure it so you are partnering with the financial community, not competing with them.

Second, staff it with bankers, not economic developers. Economic developers have yet to see a deal they don’t like, and the harsh reality of being a bankers is sometimes you just have toy say no.

And third is what I talked about earlier. Understand what it is that you want your bank to be.

There are a couple of things that people come to me with, as the very basis for the discussions of this whole bank two or three years ago. They felt that the local banks, the big banks were not lending, and so they looked at our model, they looked at the state and said, here is a different operating model. You have a state that has a state owned bank and they
can actually assist with making sure that capital continues to flow. So that was one reason we were looked at.

The other, of course the fortunes of our state in ND have been very positive in the last two, three years, and as states have run up major budgets our state has been a little bit of an outlier in that we are generating revenue which has never been seen before in our state. And so
they have looked at that and said, well what is so different about the state of ND. And they have come to the conclusion that it is because they have a state owned bank that there fortunes are so good and I’m quick to point out that that is not really the case. The case is that we have this economic boom happening. We have three or four years of solid good agricultural
conditions and a fairly well diversified manufacturing retail base.

So that really forms the basis of my comments, I will tell you that there are two big things we do here at the bank - two main purposes.

One is we serve as a bankers’ bank to the 90 plus banks in the state, credit unions and S&Ls. And secondly we were formed with a specific mission to promote and encourage business, agriculture and commerce. And that gives us a wide latitude to work from.

So with that let me make one other point. Rick Clayburg is here today. Rick, described earlier, but let me give you a little background. Rick Clayburg is the president of the ND Bankers Association, and as such, he manages the trade association of the state, which has members of
80 to 90 members plus. He is also a former politician in the state, tax commissioner, banker and that is kind of the background of Rick. I will also tell you in complete transparency, that Cark Bollinberg who you are going to visit with, and Gary Petersen are also members of the BND’s advisory board. They are independent bankers from different areas of the
state, but they serve on an advisory board of the BND and they have for many years, and their capacity there is to bring to the BND things that are happening in their community so that we can have help to further develop our mission.

With that, I’m gong to stop and turn it back over to you Michael or Marc.

Marc: Eric, I have a question for you. Is Alerus Financial, is that federally chartered, or Carl, you should probably answer that, let me give you the mic. It is interesting because Alerus is federally charted and Lakeside Bank, Gary Petersen is the president of that, that is state
chartered right Gary, is that correct?

Gary: It is.

Marc: Ok, then two different types of charters and they are represented by
both Carl and Gary. Michael, let me hand it over to you.

Michael: Again we would like to go back to Eric and Rick, and Rick if you would pick up the ball again, and extrapolating from what Eric was saying to try to get the perspective again, and from the community bankers’ standpoint, that even though Eric modestly kind of discounted the extent to which the bank has been able to improve the whole economy of the state, that
from all outside perspective it looks like your community, the community bankers there are a lot healthier than most such community banks in the country. From an outside perspective the only thing we can see that is different is that you have the support of BND. We’d like your thoughts from that standpoint as well, if you would pick up the thread from there. I would
appreciate it.

Rick: Thank you Michael and good morning and afternoon and evening to everyone. As Eric had mentioned I head up the N Dakota Banker’s Association. We represent about 80-85% of all the banks in ND. We represent the largest bank doing business and we also represent the
smallest bank. And the BND is one of our members. In fact, Eric is a past chairman of our association. The bank plays a very intricate role within the banking community. Eric mentioned they are much like a banker’s bank. They serve a role as well because of its tie to the state. For the most part, our member banks look at the bank (BND) as an ally and as a partner, and do not look at it in terms of competition. I know there are times that, in
the 93 year history, there has probably been some instances where it may have had a concern here or there, but for the most part, the bank is a very good partner for our banks in the state.

And I’ll give a little background on a couple of those things to which you mentioned specifically, Michael about the health of our banks in the state. I think there is a lot of reasons in that, but, a few years back when we started facing the meltdown within the economy and the country, the BND was in a position that they were able to purchase some loans from some
of our banks, predominantly our smaller banks in the state that helped them to improve their equity and helped them ride out the beginning of that economic downturn.

We have faced some issues here in ND. We are an agricultural state. Agriculture plays a big role in our economy, still probably the top in our economy, but we also have oil interests, and energy and oil, both and coal and natural gas, has done wonders to our state. Gary and Carl will both have a discussion with you in a few minutes and as Eric mentioned they
are both on the advisory committee, but they are also both members of our
association.

Gary comes from a true community bank in the state. He is in the western part of the state, and is dealing with the issues in the west. Probably dealing with too many deposits and the issues with very quick, very fast, economic improvements. Carl is from the eastern part of the state, and their model is focusing on the eastern part of ND and then off toward the Minneapolis metropolitan area with their models and deals with the issues, there’s not so much oil activity or the impacts of the oil in that part of the state.

But what I think I can tell you from more of a standpoint of the trade association. Our members trust the bank, but because of the size of our state, we have population of roughly 670K people, our politicians are close to the voters, our legislators, our governor. Our governor doesn’t have protection. You can see the governor down at the local gas station filling his car - a very accessible political structure in ND.

The BND is overseen by an industrial commission that is basically the board of directors for the BND. It is made up of our Governor, our Attorney General and our Ag Commissioner. So three elected officials oversee the operations of the bank through their involvement on the industrial commission. The bank then has an Advisory committee made up of
bankers that provide day-to-day oversight, more of the hands-on Board of Directors side that you probably see in most banks. But the oversight to all of that is our legislature through the laws that are enacted by our legislature.

There are some things that the legislature and the industrial commission allow the bank to get into where they have the bank probably pick up some additional risk that a normal bank just can’t do with the regulatory structures. So that is an important tool both in the type of participation loans that they may have, but, also this past year we have been dealing
with flooding disasters here in ND and through some programs the legislature has authorized the bank to assist in some redevelopment or some rebuilding, but in all of those cases, for the most part it is through the participation of the local lenders in those communities. And I think that is an important and intricate part of what the bank has, but also the oversight
of the legislature.

I will say that I think what is interesting in the 93 year history that for the most part the elected leaders in our state, the legislature and our three members that oversee the industrial commission, they understand the role they play, but for the most part have kept politics out of it. They have allowed the bank to operate as a bank. It is staffed by wonderful bankers. It has developed itself into a very important part of our banking community in the state and our legislative branch has really worked and our three elected officials have really worked to keep the politics and the partisanship out of it and have tried to use the banks as a tool, to the
benefit of the taxpayers in the state but also understanding that key role that they play in their mission not to be a direct competition to our lending community in the state. And because of that, our lenders have become very comfortable with that relationship and work closely with the bank. The bank serves on the legislature committee of our association. We work in
concert when we go to the legislature on issues and lobby on behalf of the bank at times and the bank will also lobby at times on behalf of issues that are important to the industry as a whole.

I’ll just wrap up with a couple more points. I think it is also important to point out, one of the reasons that the state is I think as successful as we are, in dealing with the issues we are dealing with. You know there is oil in, not in all parts of this country, but there are a number of states that have significant oil reserves as well. I know in some areas it is easy to dismiss
what is happening in ND to say, “Oh, it is just the energy industry that is
doing it”.

But, in those other states they are also dealing with the deficits and they are dealing with a lot of other issues that we are not dealing with. I think part of that has to do with our legislature, and our governors over the years, who have been fairly business friendly, and have worked to
maintain reasonable regulations but have not gone overboard, so when the economy was ready to take off here in ND, both in agriculture and in energy, there were not as many barriers in the weight of that development, and things took off rather quickly to the point that we are dealing with basically zero unemployment.

I think our unemployment is about 2.4 percent. We’ve got about 40k some jobs to be filled in the state. We are dealing with a state that has a tremendous housing shortage. As a private sector we are looking with the bank to try to fulfill some of those housing needs in the state.

So as I end I will just say that here is ND, and with the banks in the state of ND, the BND has become a very known commodity. It has become a very useful tool. It is something we know. I would suggest though, that if the BND did not exist, and our legislature was starting to look at it from scratch, our association and our member banks would probably be
opposed to it. But, because it is something that has developed over 93 years, it has developed into a very good partner with our banks. And I think this would be a very good segue Michael, just to turn this over both to Gary and Carl now to address it from the standpoint of what the BND means to the banks here in ND.

Michael: Thank you very much for your comments, Rick, and if I may do one other little interjection. I would like to recognize, speaking of legislators, that on the opposite end of the geography here, from Hawaii, we have a representative Marcus Oshiro who is one of the active members on legislative efforts that is going on in Hawaii right now. I just
wanted to share that Hawaii is looking like it is extremely close in possibly replicating a model somewhat similar to the BND model and his interest in participating in this conversation and hearing the perspective of the state, the legislative role and so on and so forth. I would like to acknowledge and recognize and thank you Representative Oshiro for joining us today.

And also here in Ohio, friend and colleague of mine that I would like to recognize is Bob Palmer who is he CEO of the Community Bankers Association of Ohio, and your counterpart out here. I assume you two know each other. We have been in active dialougue with looking at this whole concept here in the state of Ohio and so we all value very much your perspective.

If I may turn it over to Gary and Carl, decide who would like to take the reigns first, Gary go right ahead.

Gary: Well thank you again this is Gary Peterson, I am Chairman of the Board and CEO of Lakeside State Bank in Newton, ND and we are in the NW part of the state, considered historically a pretty rural area. Our primary business model for many years was centered in agriculture, both farming and ranching loans, small town main street commercial, but,
mostly in the Ag sector. As the guys have mentioned that has changed. The last 4 years we are really in the epicenter of one of the largest oil plays in the country. Our growth has been substantial, although Ag is still near and dear to our heart, oil and the related activity to that has become a big part of our business.

We are a 250 million dollar bank, which from a national perspective is a very small bank, but, from in-state perspective we are above average, probably in the top 25 of the community banks in ND.

Quickly, our activity with BND is primarily two-fold. They act as a banker’s bank for us, or a correspondent bank, providing item clearing, bond safe keeping, wire transfer activity within the state, and loan participation transactions with other banks in the state, where we are participating in loans with other community banks. We all have a concept in BND so
our payment activity goes through them.

On the loan side we participate in loans with the BND by selling lines to them, usually because of either risk factors or size factors. We also participate in certain loan programs that would require us to participate with the BND. I can add more if people have questions about those particular kinds of services. But I would like to quickly reaffirm what Eric and Rick and some of the others have said.

The success of the BND is truly because of their partnership with ND banks. That is how we see it. That is how they come to us as true partners in activities that we do. I have to say I really admire Eric and his staff, because it is at times a very difficult balancing act for them. It is a state owned bank and you have politicians who are ultimately overseeing the
operations of that bank and there are days when they are quickly reminded they are a state-owned bank and need to respond in one way, but, when it comes to profitability they are quickly reminded that they are a bank and they need to act like bankers. That balancing act is often a delicate one and they do a very fine job of it.

Eric did discount I guess the bank’s contribution to the state’s success. I truly think he is spot on. If the bank wasn’t there, would we still exist? Would the state still be doing well? I think so, but from my standpoint, I could go out and try to find participants for my loans. It would be much more difficult, and I could see where some of the loans that I have been
able to book in my bank probably wouldn’t have happened, but for the BND. Could I find a correspondent bank out there to handle the services they are handling as a bank? Sure I could, but it would be far more difficult, not nearly as much fun.

And I’ll just close with what I think is one of the key successes of the BND. About a year ago we brought in a number of bank staff from throughout the state, all the way from IT people, to lenders, to operations people, and, really the major consensus of all those people participating in that meeting, for their willingness to work with the bank, and the bank’s success, was
the people behind it. Unlike a lot of places, if you pick up a phone and call the bank, somebody answers. There is somebody there with a solution whether it’s operations, safekeeping investments, the lending area, they are truly there to help. And I think that is the key to the success is that we have people in our backyard that know us, know our communities, that are willing to come out any time we ask and that is truly a major contributor to the success of the BND.

Marc: Thank you so much for that. It is always good to hear your perspective. I’m going to hand this over to Carl. Carl is the Senior VP for Alerus Financial and he is out of Grand Fork, ND. Go ahead Carl.

Carl: Thank you for the opportunity to participate in this today. Many of my comments would mirror Gary’s comments. I’m going to take a little different attack on some things that we do with the bank, but, first of all our bank is about a billion in size, and we have about 10 billion in assets under management on the wealth management side. We are a community bank, but we are a little bit unique in the fact that we do have significant other business that
we do as a part of our company.

We are headquartered in Eastern North Dakota on the border of Minnesota, primarily in Grand Forks and Fargo, recently expanded into the twin cities, Minnapolis-St. Paul., and also the Phoenix markets. So that gives you a little bit of sense for the size of our company.

We have had a relationship with the Bank of North Dakota that would go back, I’ve been with this bank for 25 years and it’s certainly been all of that and maybe even a bit longer. I think Eric’s opening comments were that the BND has always tried to be a partner for North Dakota banks vs.competing. And I can say over the past twenty five years, that we have worked
with them that is very much the case, that I have never felt like we are in competition with the bank, and that the services and the things they try to provide truly allow us to do more business, and I’d say do better business. They have clearly stayed on that path and stuck to that mission.

The things that I would say we probably use the bank for the most, just to give you an idea, we probably would have today have somewhere between a hundred and a hundred 10 million of loans that we participate with the bank, and it would be like Gary said, for some reasons, because the credits are larger, and we need to overline them and participate in those
credits, in some instances we are taking advantage of programs that the bank creates, that are advantageous to customers that are trying to grow their business. And I think the bank has been very creative over the years in coming up with solutions that they think can help grow business and help grow the economy in ND. That is something that most banks in the
state are able to and do take advantage of.

Another thing that Rick touched on briefly, but I want to say it again, because we experienced it here is Grand Forks. In 1997 we had a significant flood, and a fire in our downtown. And we basically had to evacuate much of the community, relocate much of the community for a period of time. And what I would say, while that was gong on, and you had FEMA coming in
and you had USBA coming in, the BND played a very significant role in trying to come in and access how they could create programs that were complimentary with what HBA normally comes in and does.

To create those programs to try to help communities such as ours get back on its feet and help businesses and individuals try to get back on their feet from that type of a disaster. It has not just been in Grand Forks, they recently have done the same thing in Minot ND, that suffered
from a flood and I’d say they have also done that in the Agriculture sector, because ND is predominantly Ag driven.

You can imagine how over the years we have different weather disasters, and again the bank has been very in coming up with ways to help in those situations, where it might be difficult for normal banks to jump in to some of those because the risk may be too high, or the lending rates that the BND offered are lower than we probably would be able to afford customers.

Couple of other areas that I’d say we do enjoy that relationship, is we do residential real estate loans. We sell them to the BND, so that helps households in the states get into home ownership.

We also use the bank with letters of credit. We do have a number of public entities, that deposit with us. And those deposits typically need to be collateralized. So the bank of ND again came up with a creative way to use letters of credit to collateralize those public deposits. And that’s been a tool that we have found very useful.

Another place that we, and a number of other banks, have used the bank is though bank stock loans. In our instance, it allows us to be able to increase the capital in the bank, to be able to go out and look for more growth opportunities. So that has been a tool that we have used and other banks in the state have used.

Gary also made a comment that if the BND wasn’t here, could we go and find participants and could we go over line credit? And I would say we probably maybe could, but I will tell you this, in this last recession that we went through, one of the things that I would say that clearly dried up or became much tighter was the flow of credit, and your ability to find
participants during a lengthy period of time, was virtually impossible. And I would say all though that time the BND never blinked, were always there to say, “how can we help credit keep flowing?” Cause that was very important at the time. And I would give the BND a lot of praise for the uninterrupted service that they provided during a time when the country was in some real trouble, and the flow of credit in some instances had just about stalled out.
And that was very good.

I know that best thing is probably for people to ask questions so I will stop
my comments there.

Marc: OK, Thank you Carl. Let me bring Michael on. Go ahead Michael.

Michael: OK. I was going to thank both Carl and Gary for speaking. They anticipated the key question that I was going to ask both of them and that is for to contemplate what the world would be like for them if BND was not there. I think they did an excellent job of anticipating that.

To sort of summarize: Comment, from what Carl just said, if BND were not there that it could have significant negative impact in their abilities to carry out their role and missions. I think that is a key issue that we are trying to get others to see Lots of times it is difficult to talk positively about something until you look at it in the negative, saying, well if it wasn’t there, what kind of effect would it have. That was some excellent comments on both your parts that we very much appreciate.

Marc, do you have thoughts about anybody else there in ND that should
now be opened to making some comments for us.

Marc: OK, I think now we will switch over the questions.

Ellen: Thank you all for speaking. It is great to have this connection, and affirmation of what we are doing. That last speaker said something about purchasing stock shares, I didn’t quite understand that about bank stock. If Bank of ND is trying to help with liquidity I understand and also has helped with capital requirements. Capital requirements are aided by guarantees,
or how does that work.

Carl: In Eric should also check in, but let me just relate with you our experience with our company. What we’ve got with the BND is basically a line of credit at the holding company, which we can borrow on. I think that is a line of credit secured by our bank stock. But then we can take that money from the holding company, put it down into the bank in the form of
capital. So it’s a tool for us to be able to augment the capital in our company by that borrowing commitment that we have from the BND.

Ellen: Wow that’s great. That is what we have heard around here. Is that they are getting flooded with deposits now with all this move your money but they don’t have the capital to support it. So they are having to turn away some big offers of deposits.

Eric: Our role, as we have talked about is really to support the banking community. And so in Carl’s case, we provided bank stock financing for activity to go out and push the size of their bank and look at some acquisition type of activities. We also do it for other banks, other stock
holders, who wish to buy ownership shares of the bank that they are in. It is kind of a two-fold approach. One is to help banks to grow and to acquire, and it’s also to help individuals as they look to purchase part of the bank that they work in, so a couple of different ways that we work there.

Marc: Thanks Ellen. Do you have a follow up or does that answer your question?

Ellen: That’s enough for now.

Marc: Steve from DC

Steve: I have a question for the community bankers and the state bank association. I’m wondering if you were in the position of many of us around the country talking to bankers about the advantages of a state bank, what should the key points be?

Gary: I go back to my earlier comments about the true partnership between the BND and ND banks. You really have to emphasize that this isn’t going to displace business activity within the existing financial framework. It is going to compliment it and provide tools to the banks that will enhance their ability to lend and to operate successfully. I will tell you
that I would be somewhat skeptical like Rick said. If the bank didn’t exist and it was being proposed, I would look at it as something that is going to potentially compete with me and hurt my business model, and so somehow you have to overcome that. And I was say if you read the history of the BND, it was truly a perfect storm of economics or people, of
the times, that enabled this bank to get off the ground, and then as it sort of morphed over the years, into what it is today, there are a lot of things that could have happened that would have really slowed the bank in terms of its existence now.

It is going to take a lot of education and a lot of convincing of the existing financial framework, that this is a good thing for them as well.

Marc: Thank you Gary. Carl you are up next.

Carl: Let me just give a specific example of what I think a community bank allows regardless of your size what it allows you to do and that is, today our legal lending limit is somewhere in the neighborhood of 15 million dollars and we typically set concentration thresholds at 7 to 8
million, and we have a number of credits in this company that have lending needs beyond those thresholds. If we didn’t have a tool like the BND, unfortunately, many of those relationships would go to some of the very large banks that we compete against. The Wells Fargos, the US Banks of the world, and we simply wouldn’t have a way to accommodate the
additional credit needs that might be out there So, if you are talking to community bankers, they have probably learned to live within a certain size element of the business that they do, but, we clearly have been able to go toe to toe with some of the larger banks, to be able to deliver credit beyond what we would normally be able to have the capacity to do.

Marc: Thanks Carl. That is a great perspective. To round this out, Eric and
Rick

Rick: For quick clarification here in ND there are two trade associations, there is the Independent Community Bankers of ND, and the ND Bankers Association. There are approximately 52 members that are members of both organizations. From a representation size, we represent by far the largest number of banks in the state, and really NBA is the largest
community bankers association because of the size of our state and the membership of our banks. I think from the standpoint of what I have heard, and the discussions that I have been involved in over the last couple of years. I’ve done multiple newspaper interviews, I’ve talked to various legislative groups and political candidates, about the bank, and I think from the standpoint of telling of trying to bring the stakeholders together if your state is really looking at this, I’ve heard in some circles that some states are interested in a state bank to provide competition and to provide services, there is a perception that are not occurring within the current framework. I’d actually argue that much of what has occurred in drying up
some of the credit has been a regulatory overreach and overreaction to the meltdown. States and our regulators in this country have to take a look at that as well as trying to help open up lending for businesses in this country.

But from the standpoint of having a partnership, if you can bring the banking community on board, early and talk about what the intent is and working with them, part of the framework in structure of building it, I think that they would probably come on board and you could have that team work like we’ve developed in ND. I think the bottom line is if any state is looking at creating a bank, you need to ensure that you are properly capitalized and that you bring a good group of bankers together to run it. And that it is allowed to operate and run like a bank. And that in time it will become a tool. That the industry the state, all can come together and
create a good partnership that is good to the state as a whole.

Marc: Thank you Rick. Eric do you want to add to that?

Eric: Let me just add a couple of things. I think Carl Gary and Rick have pretty much hit it. There are a couple things I would add. Carl alluded to this. Our ability to finance things that are difficult in terms of economic conditions, Ag disaster, natural disasters. We’ve designed programs that would go out and help ND residents that are struggling with very difficult
time in agriculture whether its low commodity prices, beef prices, whatever it is, we have the ability to design and to work with the local community to help their customers. Sometimes it isn’t necessary be beneficial to the bank, but it reaches down and is beneficial to the North Dakota residents. That is why we were created. To help the state and its residents.

The other thing that Carl talked about was, one of the biggest things we do is, we allow banks to leverage off of the BND to provide a level of service that they would not be able to do. The smallest banks in the state can almost act in the same capacity as the BND. We have the expertise and the willingness to help those banks with their credit needs.

We haven’t really talked about the size of the bank. We are a bout a 5, 5.5 billion dollar bank with a lending limit of about 60 million. When Carl talks about leveraging with the BND, he could tap the BND for upwards of another 60 million to help his customers. That I think is important.

The New England Public Policy Center did a review of the bank about a year ago, and one of their findings was that the BND plays a role of sharing risks with smaller banks, ensuring larger scale project get funded.

They also found that it enhances the viability of small banks in ND. I would echo those sentiments.

I think that is what we do. We understand the economics. We are prepared to react quickly to solve those issues and to partner with our banks to solve that issue. So we are not going to act unilaterally. WE are always going to.

Marc: Thank you, very much Eric. This is Marc Armstrong. I want to bring Mike Krauss into the conversation.

Mike: Thank you gentlemen for your participation this morning and for helping to navigate this public banking effort through the Pennsylvania poltics, etc. I heard a comment about regulatory overreach and in a conversation I had with a deputy in our banking department, he
indicated that a number of Federally chartered banks in Pennsylvania are abandoning their federal charters and seeking state charters, because they think they will find a more understanding regulatory environment. I’m just curious if that is happening at all in ND. Are any federally chartered banks in the state moving toward a state charter?

Rick: I am happy to address that, in fact here is ND again because of our size, we’ve got good relationships with our state banking examiners in regular discussions. We have not seen any charter shift here in the state. I think because of the overreach of Dodd Frank, we are seeing the impact of the regulations hitting our state banks our small to large state banks,
and our national banks all at the same level. The larger banks have a little better ability to absorb that impact. But at this point we are not seeing any charter shifts here is ND.

Marc: Thank you, very much Rick. I’m going to bring Representative Oshiro into the conversation.

Gene: Oloha, this is Representative Gene Ward, one of his colleagues that is on the finance committee that is around the phone this morning. Gentlemen this has been interesting and informative. Just to get your comments and advice on three things.

One of them is the credibility and accuracy of the study that was done by the Boston Federal Reserve Bank. Secondly we have legislation that is proposing to buy toxic mortgages, your advice on that. And then thirdly, how much money would it take to actually get a BND started now? Thank you.

Marc: I’m going to bring that to Eric. The scope of this call is to talk about the Bank of North Dakota and the state of North Dakota. And we did not mean to have the BND weigh in on legislative efforts in other states. That being said, though, Eric why don’t you make a comment if you care to.

Eric: The New England Public Policy Study, I’ve read through that a couple of times. There’s good points, valid points, and I think you have to take that for the value you get out of it yourself.

I think that when you talk to the bankers that you have heard from today, from me and Rick, that is the value that it provides our state. I have been very clear about that. You have to in your own mind determine what it is that you want your bank to be for your state.

And as Gary talked about, our history has been long, it’s been tumultuous at times. We have morphed/evolved into a pretty fair and good model at this point, but it hasn’t always been that way. Listen to your constituents to understand what the economic needs are of the state.

We also play a very vital role in working with the state economic development commerce department to understand what their needs are and how we can play into that role. I’m not going to get into whether it’s a good idea to purchase toxic assets or not. That goes back to my earlier statement. You have to decide which you want to do.

Marc: Thank you Eric. We have time for a couple more questions. Ruth go ahead.

Ruth: I wanted to find out how the president of the BND is selected.

Eric: Rick pointed out earlier that the BND is managed by the Industrial Committee, which is made of the Governor, the Attorney General, and the Agricultural Commissioner. I report to those three politicians, and I am selected by that group of three. I am selected by a vote of those three members.

Marc: Thank you Eric. Mike, I’m handing this back to you. If you can made a closing comment, and wrap it up. What we will do then is throw open all the mics, we’ve got quite a few, probably at least 40 people on this phone call. If any of you would like to stay on, we’ll have a half hour of open discussion.

Mike: I would like to echo Marc’s gratitude and emphasize that we are very appreciative of the generous time that you gentlemen have given us today, and your insights. As much as I have been involved with this for some time, I think that this is one of the best sessions that I have been able to gather information.

We can’t thank you enough for your very generous time today and we wish you all the best in North Dakota. Sounds like you guys are doing a fabulous job.