Informe Banco Desarrollo de América del Norte 2010

8/6/2019 Informe Banco Desarrollo de Amrica del Norte 2010

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A n n u a l R e p o r t

North American Development Ban


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Restored Map of San Antonio de Bjar (1767)*

Prominently displayed in the lobby of the Banks headquarters is a stained glass map of the city of San Antonio and its

river dating back to 1767, designed by Mexican Architect Jos Escalera Chagoyn and produced by Vitrum de Len,

S.A. in Mexico, which became the inspiration for the cover of this years annual report. As Architect Escalera pointed

out in his design concept presentation:

[The map] symbolizes mans capacity to organize natural resources and reap their economic benefits: river water

controlled by ditches; land distributed in parcels; space set aside for government, security, defense, social life

and living quarters. All these basic elements are still linked to human endeavors and represent the historical,

multicultural vocation of our kind host, the people of San Antonio.

Comparing the environment of the past with that of the present gives us the opportunity to contemplate the changes

and recognize the importance of caring for our natural resources, which were and still are the productive engine

of an economy. Throughout its history, the City of San Antonio has been shaped by shifting political, social, and

cultural conditions. Its river continues to be the vital element, a place where the activities of contemporary life

mesh perfectly with the importance of water conservation and development, as well as with respect for plant life.

These aspects of the Banks environmental mission give meaning to its work.

* Restored map of San Antonio de Bjar (1767), British Museum, London. Taken from GONE FROM TEXAS, Our Lost Architectural Heritageby

Willard B. Robinson (College Station: Texas A&M University Press, 1981), p. 13.

About our cover


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north american development bank1

In 2009, the North American Development Bank (NADB) marked its 15th anniversary in operation withunparalleled lending activity. As a result, the Bank surpassed the billion-dollar mark in total loan and grantfinancing for the implementation of infrastructure projects aimed at providing a cleaner and healthierenvironment for residents of the U.S.-Mexico border region. New single-year records were also establishedin terms of loans approved, contracted and disbursed.

Approximately US$212 million in new loans and an additional US$6.4 million in grants were contractedduring the course of the year to support 14 projects, including the two largest loans authorized by the Boardof Directors to date. The first is a US$53 million loan to support a storm water project that will help solve therecurring problem of severe flooding in and around El Paso, Texas. The second is a US$45 million loan tosupport a major air quality project to rehabilitate 4.3 million square meters of primary roadways in Tijuana,Baja California. With this activity, NADB came close to doubling its portfolio of contracted loans fromUS$245.3 million to US$456.0 million during the 12-month period ending in December 2009.

In addition to the financing contracted, the Bank ended the year with an estimated US$94 million inapproved loan commitments for six projects that are expected to be signed in the first half of 2010. Thesecommitments include financing for the Banks first project involving solar energy, a Property-AssessedClean Energy (PACE) program for San Diego County, California, that will allow homeowners to make

energy conservation retrofits to their homes, including the installation of photovoltaic systems to generateclean and renewable energy.

This aggressive growth in its loan portfolio has positioned NADB to fully utilize its capital resources andbegin leveraging itself in the capital markets. As the year drew to a close, NADB completed the process ofobtaining credit ratings from two rating agencies in anticipation of its first debt issuance. In January 2010,Moodys Investor Service published a credit rating of Aaa for NADB, and Standard & Poors issued itsrating of AA+. Both agencies cited the Banks strong capitalization and liquidity in assigning their respectiveratings. In February 2010, NADB closed on a US$250 million bond issuance. These funds will be used tocontinue the Banks mission, increasing its capacity to finance more infrastructure projects that will improveenvironmental and health conditions for a larger number of communities.

message from managementapril 2010


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north american development bank 2

Since inception, NADB has contracted US$1.08 billion in loans and grants for the development andimplementation of 132 projects with a total construction value of US$3.0 billion, which will benefit morethan 12.6 million people by providing basic infrastructure that greatly impacts their quality of life. Thisinfrastructure will support and promote sustainable growth in this dynamic region that is vital to the social

and economic relationships between our two countries.

As always, we must thank the staff and leadership of our Board of Directors and at our sister institution,the Border Environment Cooperation Commission (BECC), for their continued collaboration in pursuingour shared objectives. We also offer thanks to all of our partners at the various local, state and federalstakeholder agencies that work with us on a daily basis to identify needs, plan for addressing these needs,and strive to overcome various challenges in order that we may continue to fulfill our mission.

It is with a sense of pride and achievement, as well as anticipation for the work yet to be done, that wepresent to you the 2009 North American Development Bank Annual Report.

Jorge C. Garcs Hctor CamachoManaging Director Deputy Managing Director

our mission is to serve as a binational partner andcatalyst in communities along the U.S.-Mexico border in

order to enhance the aordability, nancing, long-term

development and eective operation of infrastructure that

promotes a clean, healthy environment for the citizens.


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financing activity

The North American Development Bank (NADB) concluded 15 years in operation in 2009 with recordlevels of financing for the implementation of environmental infrastructure projects, primarily driven by theunprecedented growth of its loan portfolio. The Bank set a record high in lending for the third consecutiveyear with US$211.9 million in loans contracted during the year, a sum which represents 46% of all loans

contracted since inception. As a result of this strong growth, the Bank also reached another significantinstitutional milestone, surpassing the US$1 billion mark in total project financing.

In addition to loans, NADB also provided US$6.4 million in grants across all of its grant programs for atotal of US$218.3 million in financing contracted in 2009 for 14 certified projects. Furthermore, US$185.9million in total loans and grants were disbursed during the year to the sponsors of 60 different projects

benefitting 63 communities along the border.

Significant strides were also achieved in project implementation with 22 projects completing constructionand 11 breaking ground for construction. Altogether, these 33 projects will contribute to a cleaner andhealthier environment for more than three million border residents.

Details concerning the Banks financing and project activity are provided in the following sections.


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north american development bank

lendingactivity2007-2009

chart 1

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2007 2008 2009

Lending Operations

By any measure 2009 was an exceptional year for lending, signifying substantial new infrastructureinvestments in the border region. As illustrated in Chart 1 above, loan approvals, closings, and disbursementsgreatly surpassed activity in prior years.

During 2009, the Bank signed eight loan agreements totaling US$211.9 million, which represents almosttriple the amount contracted in 2008 (US$72.1 million) and almost quadruple the amount in 2007 (US$53.9million). Loan disbursements, likewise, surged far beyond previous levels with a total of US$134.8 millionfor the year. This represents a 174% increase over 2008 disbursements (US$49.1 million) and an 80% increaseover 2007 disbursements (US$74.8 million), the previous record for the Bank.

As a result of this lending activity, loans outstanding increased 67% from US$186.4 million in 2008 toUS$310.6 million in 2009, excluding the effect of foreign currency exchange rate adjustments. With anestimated US$103 million in contracted loan commitments pending disbursement and US$94 million inloan approvals pending signing at the end of the year, NADB expects the outstanding balance to continueto grow at a consistent pace in 2010.

A summary of the Banks lending activity for past three fiscal years, as well as its cumulative figures as ofDecember 31, 2009, are presented in Table 1.

US$millions


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2007 2008 2009cumulative

as of 12/31/09

Loan closings $ 53.9 $ 72.1 $ 211.9 $ 456.0

Loan disbursements 74.8 49.1 134.8 353.1Principal payments (6.9) (10.0) (10.7) (42.5)

Outstanding balance* 147.3 186.4 310.6 310.6

Signed commitments, not disbursed** $ 3.9 $ 27.0 $ 86.6 $ 102.9Additional approvals, not contracted*** 57.2 54.5 73.2 93.9

* Excludes the effect of foreign currency exchange rate adjustments.

** Fiscal year figures reflect the amount contracted during the year that was not disbursed; the cumulative figure reflects allcontracted loan funds not disbursed at the end of 2009.

*** Fiscal year figures reflect the amount approved during the year that was not contracted; the cumulative figure reflects allapproved loan funds not contracted at the end of 2009.

table 1Lending activity for scal years 2007 2009 andcumulatively as of december 31, 2009(US$ millions)

Details about each loan approved and/or contracted during the fiscal year are shown in Table 2. Thisfinancing activity included the full disbursement of a US$53 million loan for the storm drainage and floodprevention project in El Paso, TX, the largest loan made to a single borrower to date. It accounted for 39%of the loan funds disbursed in 2009. This loan is also noteworthy for its innovative financing structure, as itinvolved the purchase of Build America Bonds issued by the City of El Paso, under the American Recoveryand Reinvestment Act of 2009.


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table 2NADB loans in scal year 2009(US$ millions)

community benefitted type amount

interest

rate borrower

date

approved

date

contracted

loan closings

1 Nuevo Laredo, TAMPS** AQ $ 36.35 Market Public 16-Dec-08 30-Jan-09

2 San Luis Ro Colorado, SON (Cucap)** AQ 10.13 Market Private 29-Oct-08 12-Feb-09

3 Playas de Rosarito, B.C. AQ 16.60 Market Public 30-Oct-07 26-May-09

4 Nuevo Laredo, TAMPS* AQ 26.34 Market Public 10-Jul-09 13-Jul-09

5 Tijuana, B.C.1 WW 2.41 Market Public 16-Dec-08 16-Jul-09

6 Tijuana & Playas de Rosarito, B.C. (tranche 1)2* W/WW 22.07 Market Public 21-Jul-09 18-Sep-09

7 El Paso, TX** SD 53.00 Market Public 4-Sep-09 29-Sep-09

8 Tijuana, B.C. (Cemex)3 AQ 45.00 Market Public 24-Jul-09 13-Oct-09

Total loans conctracted: $ 211.90

additional loan approvals

1 Tijuana & Playas de Rosarito, B.C. (tranche 2)2 W/WW $ 5.89 Market Public 21-Jul-09 -

2 San Diego County, CA (Renewable Fuels) CE 60.00 Market Private 10-Dec-09 -3 Ciudad Jurez, CHIH (Degremont) WW 7.35 Market Private 10-Dec-09 -

Total additional loans approved: $ 73.24

* Partially disbursed during 2009 ** Totally disbursed during 20091 Loan for two wastewater collection projects: Coastal Areas and River Basin.2 Signing of the US$27.96 million loan approved for this project was divided into two tranches.3 Additional NADB financing for this project is under review.

AQ = Air quality; CE = Clean energy; SD = Storm drainage; W= Water; WW = Wastewater


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cumulative loans contracted at the end of 2008 loans contracted in 2009

US$ millions

clean energy

solid waste

air quality

storm drainage

water/wastewater

0 25.00 50.00 75.00 100.00 125.00 150.00 175.00 200

lendingactivity byenvironmentalsectorin 2009

chart 2

The majority of the new loans contracted and disbursed during the year are for air quality projects involvingstreet paving and roadway improvement works, particularly in Mexico, as well as the relocation of acommercial port of entry outside a densely-populated urban area. These projects generally help improve airquality for border residents by reducing the dust churned up by vehicles on dirt roads, as well as by reducingexhaust emissions through better traffic circulation, which results in shorter travel and idling times.

The newly contracted loans were all made at market rates, and all the borrowers were local governmentsor public utilities, except in the case of the San Luis Ro Colorado international crossing project, where the

loan was contracted with a private concessionaire under a public-private partnership with the municipality.The loan for the roadway rehabilitation project in Tijuana, Baja California, was also contracted under aninnovative public-private financing structure designed to provide long-term debt financing for the project.Under this arrangement the private contractor enters into a short-term, pass-through loan which becomes along-term debt obligation for the municipality. It is worth noting that the sponsors have requested additionalNADB financing for this project, which is currently under review.

During 2009, the Bank also received approximately US$10.7 million in principal payments, including thefinal payment of the first loan made to the water utility in Tijuana, Baja California in March 1999, for theexpansion and rehabilitation of the San Antonio de Los Buenos Sewage Treatment Plant.

Portfolio Diversification

While in prior years the majority of lending has generally been in the water and wastewater sector, 63%

of new loans contracted in 2009 went to air quality projects. This increased diversification in lending isillustrated in Chart 2 below. As a result, the cumulative dollar value of the Banks air quality loans came veryclose to matching that of water/wastewater loans by the end of the year.


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Between 2008 and 2009, the value of air quality loans in the NADBs outstanding portfolio practicallytripled from US$32.5 million to US$96.6 million. As a result, at the end of 2009, water and wastewaterprojects constituted 42% of the Banks outstanding loan portfolio (down from 68.5% in 2008), followed byair quality projects at 31% and storm drainage projects at 25%. The remainder was almost evenly divided

between solid waste projects (1%) and clean energy projects (1%).

Towards the end of the year, NADB approved a US$60 million loan for another clean energy project, itsfirst involving solar energy. Sponsored through a public-private partnership between Renewable Funding,LLC and San Diego County, California, the FronteraFIRST Municipal Financing Program will providelong-term financing to individual property owners to cover the upfront capital costs of installing solarphotovoltaic, thermal solar, and energy efficiency systems in homes and small businesses. The first US$20million tranche of this loan commitment is scheduled to be contracted in the first half of 2010. Under thispreliminary phase, 545 households are expected to take advantage of the program, producing an estimated2.34 megawatt hours of clean energy annually.

With respect to borrowers, approximately 94% of outstanding loans were with governmental borrowers atyear-end. Although only one loan was contracted with a private borrower during 2009, half of the six loancommitments approved during the year were for projects involving public-private arrangements. Two of those

commitments are expected to be contracted with the private entity in the first half of 2010. Furthermore, asa result of the full disbursement of the storm drainage loan to El Paso, TX, outstanding loans held by U.S.

borrowers increased from 14.9% in 2008 to 25.5% in 2009.

During 2009 no new loans were made under the Banks Low-Interest Rate Lending Facility (LIRF), as noneof the projects met the eligibility requirements for the program. As of December 31, 2009, 77.9% of theBanks outstanding loans had been made at market rates and 22.1% at LIRF rates.


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table 3NADB grant activity in scal year 2009

(US$ millions)

community benefitted typedate certified& approved amount type

datecontracted

grants contracted

1 Dr. Gonzlez & Los Herreras, N.L. SW 16-Dec- 08 $ 0.12 SWEP 13-Mar-09

2 Frontera Riberea, TAMPS* SW 16-Dec-08 1.54 SWEP 13-Apr-09

3 Cameron Cameron ID No. 6, TX WC 16-Dec-08 0.99 WCIF 16-Apr-09

4 Tijuana, B.C. (Coastal Areas) WW 16-Dec-08 0.80 BEIF 16-Jul-09

5 Tijuana, B.C. (River Basin) WW 16-Dec-08 2.77 BEIF 16-Jul-09

6 Colonia Esperanza, CHIH W 21-Jul-09 0.17 BEIF 1-Oct-09

Total grants contracted: $ 6.39

additional grant approvals

1 Playas de Rosarito, B.C.** WW 21-Jul-09 $ 0.84 BEIF -

2 Playas de Rosarito, B.C. WW 21-Jul-09 1.36 BEIF -3 Ciudad Jurez, CHIH (South) WW 10-Dec-09 8.00 BEIF -

4 Ciudad Jurez, CHIH (South-south) WW 10-Dec-09 8.00 BEIF -

5 Clint, TX WW 10-Dec-09 2.30 BEIF -

6 Yuma County, AZ WW 10-Dec-09 2.25 BEIF -

7 Nogales, SON SW 18-Dec-09 1.00 SWEP -

Total additional grants approved: $ 23.75

* Project encompasses the municipalities of Camargo, Guerrero, Gustavo Daz Ordaz, Mier and Miguel Alemn.

** Grant for three separate projects in Colonia Atzln, Colonia Independencia & Lomas de Rosarito.

ID = Irrigation District; SW = Solid waste; W= Water; WC = Water conservation; WW = Wastewater

Grant Operations

In addition to its loan program, NADB also provides and administers grant financing to help makemunicipal infrastructure projects more affordable for border communities where debt financing options areoften limited. In some cases grants serve as an essential component of the financing package to help reduceproject debt to a manageable level.

NADB channels grant financing through three programs designed to address specific needs. These programs

include the Border Environment Infrastructure Fund (BEIF), which is funded by the U.S. EnvironmentalProtection Agency (EPA), as well as the Solid Waste Environmental Program (SWEP) and the WaterConservation Investment Fund (WCIF), both of which are funded from the Banks retained earnings uponBoard approval. However, only the first two programs are currently active as WCIF funding was fullycommitted in 2009.

As shown in Table 3, NADB contracted grants totaling US$6.4 million for six projects benefiting elevencommunities in 2009. Of those funds, US$3.74 million were from EPA BEIF funds and US$2.65 millionfrom NADB retained earnings through its two programs. Seven additional grants totaling US$23.8 millionwere authorized for nine projects, almost entirely with EPA BEIF funds. These grants are expected to becontracted in early 2010. A summary of financing activity by program is provided below.


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Water and Wastewater Grants

NADB administers the Border Environment Infrastructure Fund (BEIF), which is fully funded by EPA,for the purpose of financing municipal drinking water and wastewater infrastructure projects within 100

km of both sides of the U.S.-Mexico border. In the case of Mexican projects, it should be noted that BEIFfunding is matched by Mexican grants, mainly through the federal water agency, Comisin Nacional del Agua(CONAGUA), which also plays an important role in the authorization of these projects in Mexico.

Since the programs inception in April1997, a total of US$532.7 million in BEIFgrants has been contracted for 78 water andwastewater projects in the United States andMexico.1 NADB has also provided loanstotaling US$105.3 million as part of thefinancing package for 29 of those projects.

At the close of 2009, 94% of the BEIF grantscontracted for projects had been disbursed,

and 54 projects had been completed and werein operation, benefitting an estimated 5.8million border residents. In particular, BEIFgrants for projects in Mexico have contributedto significant improvements in wastewatertreatment in the border region, with treatmentcoverage in that country increasing from 21%in 1995 to 82% in 2009.2

1 There are 72 certified projects with BEIF funding contracted; however, one of those projects (the Texas Plan) consists of sevenseparate hookup projects with seven individual grants, for a total of 78 water and wastewater projects.

2 Source: BECC

table 4Annual and cumulative BEIF activity(US$ millions)

2009 cumulative

EPA funding allocations* $ 2.3 $ 613.6

Approvals 22.9 556.2

Signings 3.7 532.7

Disbursements 47.2 500.2

Cancellations** (10.6)

Contracted grants, not yet disbursed $ 32.5Additional approvals, not yet contracted 23.5

Funding available for future projects 57.4

* Since program inception, EPA has allocated a total of US$634.7 million tothis fund. Of that amount, US$21.4 million has been set aside to coverNADB administrative expenses, leaving a balance of US$613.6 million forprojects, including a nominal amount in interest earnings.

** Unused funds deobligated from 16 completed projects and returned to theBEIF program for future projects.


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table 5Annual and cumulative SWEP activity(US$ millions)

2009 cumulative

Retained earnings allocated $ - $ 13.5

Approvals 1.0 9.8

Signings 1.7 8.8Disbursements 3.1 7.8

Contracted grants, not yet disbursed $ 1.0

Additional approvals, not yet contracted 1.0

Funding available for future projects 3.7

Municipal Solid Waste Grants

The Solid Waste Environmental Program (SWEP) was created in 1999 to provide grants for the constructionand equipment components of municipal solid waste projects, as well as for the proper closure of dumpsites.

The program is funded from the Banks retained earnings, subject to the availability of funds.

Since the programs creation ten years ago, NADB has financed 15 projects with SWEP grants totaling US$8.8million. These grants have been complemented by NADB loans totaling US$4.3 million. In December 2009,NADB approved a US$1.0 million grant for construction of a new transfer station and expansion of thesanitary landfill in Nogales, Sonora. This project is the second phase of a previous solid waste equipmentproject certified in 2007, which NADB financed with a US$2.4 million loan.

At the close of 2009, 88% of contracted SWEP grants had been disbursed to the sponsors of 14 of the 15projects, and 12 projects had been completed and were in operation.


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Water Conservation Grants

The Water Conservation Investment Fund (WCIF) was created by the Board of Directors in August 2002to address an urgent need for water conservation financing in the border region. The Board made a one-

time allocation of US$80 million in retained earnings for that purpose, with US$40 million specificallyreserved for use in each country. At the close of 2009, all of the funds allocated to this program had beenfully committed to support 23 water conservation projects, and 92% of the funds had been disbursed. Ofthose projects, 16 have been completed and are in operation. As a result of all the projects funded under thisprogram, more than 371,600 acre-feet of water is expected to be saved annually in the agriculture sector.

table 6Annual and cumulative WCIF activity(US$ millions)

2009 cumulative

Retained earnings allocated $ - $ 80.0

Approvals - 80.0

Signings 1.0 80.0Disbursements 0.8 73.2

Contracted grants, not yet disbursed $ 6.8

Additional approvals, not yet contracted -

Funding available for future projects -


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Technical Assistance

In addition to direct project financing, NADB also uses a limited portion of its retained earnings to providetechnical assistance and training to project sponsors for the purpose of strengthening their financial

performance and ensuring the long-term sustainability of their infrastructure. By training professionalson the ground to support project operation, the Bank is effectively enhancing the creditworthiness of its

borrowers, as well as facilitating the development of a variety of projects for financing.

In order to streamline the administration of its technical assistance programs, NADB merged its two previousprogramsthe Institutional Development Cooperation Program (IDP) and the Project DevelopmentProgram (PDP)into a single program in April 2009. Since the two original programs were already verysimilar, the general objectives, criteria and operating procedures of the merged program remain basicallyunchanged.

Under the merged programcalled the Technical Assistance Program (TAP)grants may be provided tohelp finance studies related to the design and implementation of environmental infrastructure works, as wellas for capacity-building measures aimed at achieving the effective and efficient operation of public services.Assistance is available to support sponsors of projects that have been certified by BECC, or sponsors who

are actively developing specific projects for certification by BECC and financing by NADB.

During 2009, ten studies were completed, including the final designs for paving works in Nuevo Laredo,Tamaulipas, and for the sanitary landfill and transfer station in Nogales, Sonora. In addition, technicalassistance totaling US$402,250 was approved for three projects under development, as well as for projectmanagement support for the implementation of the sanitary landfill project in Ascensin, Chihuahua.

At the close of the year, the Bank had US$4.12 million in grants committed to the development of 23 studiesthat are currently in process.


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Training

The Utility Management Institute (UMI), funded and managed by NADB, continues to offer an annualseries of seminars aimed at providing practical instruction in the financial administration and planning of

water utilities, both at its home-base in San Antonio, Texas, as well as on site to regional groups. Throughthis program, NADB is investing directly in the people responsible for operating and maintaining the watersystems and infrastructure it finances.

UMI concluded its tenth year of seminars in 2009, training a total of 199 water utility professionals,representing 56 border communities, through its basic management program. These sessions included thefirst on-site training module presented to a regional group in the United States. Working in collaborationwith the Water Infrastructure Finance Authority of Arizona (WIFA) and the Rural Water InfrastructureCommittee (RWIC), UMI designed a special condensed version of the key elements of its basic programfor presentation to 24 utility professionals from eight communities in the Arizona border region. The specialsession focused on fundamental financial tools and their effective use to create a solid financial basis forthe sustainable operation and efficient management of water utilities; as well as leadership skills in team

building and change management to meet new trends and challenges in providing safe and reliable waterand wastewater services. NADB hopes to repeat the session with other regional groups in the U.S. border

states in 2010.

In addition to its basic program, UMI also offers specialized graduate sessions to participants who haveattended all four basic modules. During 2009, two intensive seminars were sponsored by the Sonora statewater agency, Comisin Estatal de Agua de Sonora (CEA), in Hermosillo. The first focused on providingquality service and improving customer relations and was presented in March to 34 utility professionalsrepresenting eight communities in Sonora. The second covered the basic elements for how to plan andmanage an infrastructure project and was attended by 31 participants from 17 communities in June.

For more information about the training program and the 2010 seminar schedule, visit our website at www.nadb.org.

Interaction between the presentersand the participants assisted me in

understanding some key dierencesbetween a public and private utilityand allowed me to see that we domany things right in our utility butalso taught me there was room for

improvement.

Je Nichols, Division Manager of Financial Services,Pima County Regional Wastewater Reclamation

Department, and participant of the regional module

in Arizona


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project activity

Project implementation also registered significant advances in 2009 as 22 projects completed construction andwent into operation, while 11 new projects broke ground for construction. Moreover, efforts to expedite thedevelopment process so that projects are ready to begin construction shortly after certification and financing,are also producing positive results. Of the 14 projects financed in 2009, 11 were under construction during

the year, and three of those projects were completed before year end.

Details about the projects that initiated and/or concluded construction during 2009 are highlighted in thefollowing pages.

Project Completion

At the close of 2009, 81 projects financed by NADB were completed and in operation. These projectsrepresent a total investment of more than US$1.3 billion, and are generating social and environmental

benefits for approximately 6.2 million border residents through improved air quality, cleaner water resourcesand proper waste disposal. NADB provided US$507.3 million in loans and grants in support of thoseprojects.

Project Construction

At the end of the same period, 44 projects financed by NADB were in various stages of construction. Theseprojects represent a total investment of approximately US$1.6 billion, with NADB financing participationtotaling an estimated US$507.3 million.

For more detailed information on all NADB-funded projects, visit our website at www.nadb.org


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eligibleenvironmentalsectors

Water:Potable water supply, wastewatertreatment and reuse, waterconservation, storm drainage

Waste Management:Sanitary landlls, collection &disposal equipment, dumpsiteclosure, recycling

Air Quality:Street paving & bypasses,methane capture, publictransportation, industrialemissions

Cleaner/renewable energy:Solar, wind, biogas, biofuels,hydroelectric, geothermal

Energy eciency:Industrial equipment retrots,public lighting & building

upgrades

Industrial/ hazardous waste:Treatment & disposal facilities,industrial site remediation

100 kilometersWithin 100 kilometers(about 62 miles) north of theinternational boundary in thefour U.S. states of Arizona,California, New Mexico, andTexas; or

300 kilometersWithin 300 kilometers (about186 miles) south of theborder in the six Mexicanstates of Baja California,Chihuahua, Coahuila,Nuevo Len, Sonora, andTamaulipas.

* Projects beyond these areasmay be eligible if they remedy atransboundary environmental orhealth problem

NADBgeographicjurisdiction *


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9 wastewater treatment plants with a combined capacity of 26.80 mgd

3 water treatment plants with a combined capacity of 15.65 mgd

4 water storage tanks/basins with a combined capacity of 7.70 million gallons

2,760water hookups in 3 communities8,419wastewater hookups in 7 communities

communitypopulationbenefitted project cost

NADBfinancing

(US$ millions)construction completed1 Agua Prieta, SON 2,956 Sewer lines and hookups (809) $ 0.65 $ 0.23

2 Calexico, CA 26,400 Water treatment plant expansion and upgrade (6.0 mgd),water storage tank (6,000,000 gal.)

11.33 6.48

3 Lordsburg, NM 3,379 Well-site water treatment system to remove excess fluoride 2.00 0.70

4 Nogales, AZ 220,974 WWTP (17.2 mgd) 74.10 59.50

5 Playas de Rosarito, B.C. 25,552 Sewer lines in 6 subdivisions (1,642 hookups); waterlinesin 1 subdivision (218 hookups)

10.02 4.19

6 Porfirio Parra, CHIH 1,294 WWTP (336,000 gd), sewer system, hookups (126) 2.00 0.54

7 Praxedis, CHIH 3,431 WWTP (323,450 gd), sewer system, hookups (666) 4.28 0.83

8 Roma, TX 21,000 Water treatment plant (3.65 mgd), water storage tank (200,000 gal.), WWTP (2.0 mgd), sewer hookups (2,374)

34.18 5.57

9 San Benito, TX 28,168 Water treatment plant (6 mgd), water storage tank (1,000,000

gal.), rehabilitation of existing water treatment plant, newWWTP (3.75 mgd)

32.44 25.91

10 Somerton, AZ 7,905 WWTP replacement (800,000 gd) 7.88 3.94

11 Tornillo, TX 3,176 WWTP (734,000 gd) 21.77 7.60

construction initiated1 Ciudad Mier, TAMPS 6,539 WWTP (456,500 mgd), water and sewer system

expansion and rehabilitation, water hookups (2,442),sewer hookups (2,442)

$ 3.37 $ 1.38

2 Fabens, TX 7,066 WWTP (1.2 mgd), water storage reservoir (500,000 gal.) 12.00 6.10

* WWTP = Wastewater treatment plant; (m)gd = (million) gallons a day

drinking water supply / wastewater treatment


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NADBfinancing

(US$ millions)

construction completed

1 Puerto Peasco, SON 33,115 Paving of 169,920 m2 of streets $ 4.55 $ 3.94

construction initiated

1 Naco, SON 6,108 Paving of 16,206 m2 of streets $ 0.91 $ 0.42

2 Nuevo Laredo, TAMPS (I) 120,000 Paving of 737,029 m2 of streets 47.49 36.35

3 Nuevo Laredo, TAMPS (II) 310,915 Expansion of 3 major roadways 44.91 26.34

4 Playas de Rosarito, B.C. 80,000 Paving of 595,000 m2 of streets 40.91 16.60

5 San Luis Ro Colorado, SON 180,886 Relocation of international commercialcrossing

15.39 10.13

air quality improvement

1,518,155 m2 of dirt streets, paved or being paved


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NADBfinancing

(US$ millions)construction completed

1 Dr. Gonzlez, N.L. 3,092 New sanitary landill, dumpsite closure$ 0.24 $ 0.12

2 Los Herreras, N.L. 1,877 New sanitary landill, dumpsite closure

3 Jim Hogg County, TX 5,281 Closed landfill repair 1.00 0.45

4 Matamoros/Valle Hermoso, TAMPS 524,350 New sanitary landfill, 1 transfer station,closure of 2 dumspites

8.55 2.00

5 Patagonia, AZ* 881 Landfill expansion 0.66 0.33

6 Tijuana, B.C.* 1,540,072 Purchase of 14 collection trucks, 3 semitrucks, 13 transfer station trailer boxes,and 2 roll-off trucks

4.54 2.22


1 Frontera Riberea, TAMPS** 67,035 New regional sanitary landfill, 2 transfer

stations, closure of 5 dumpsites

$ 3.43 $ 1.54

* Projects that both initiated and completed implementation during 2009.

** Project encompasses the municipalities of Camargo, Guerrero, Gustavo Daz Ordaz, Mier and Miguel Alemn.

solid waste management

5 sanitary landlls serving 10 communities

9 dumpsites closed or being closed that had a total capacity of 805.7 tons/day

2,039 estimated tons of garbage, combined daily collection of 11 communities


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irrigation district project costNADB

financing

(US$ millions)construction completed

1 Gila Gravity Main Canal, Yuma County, AZ Canal sediment removal and sealing; watercontrol systems

$ 1.76 $ 0.83

2 Hidalgo County Irrigation District No. 6, TX Canal lining rehabilitation (approx.9 miles); slide gate replacement (17);reservoir storage system expansion;telemetry system

3.00 1.50

3 Imperial Irrigation District, CA (I) Canal lining rehabilitation (approx. 23miles)

5.00 2.50


1 Imperial Irrigation District, CA (II) Automated gate installation (10) in VailCanal laterals

$ 2.52 $ 1.26

water conservation

51,866 estimated acre/feet of watersaved annually


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Organization

NADB is a binational financial institution capitalized and governed equally by the United States andMexico. Its headquarters are located in San Antonio, Texas. In addition, it has established a non-regulated,

multi-purpose financial institution in Mexicoknown by its acronym as COFIDANto channel its loansto state and local public entities in that country.

It is governed by a ten-member Board of Directors comprised of three representatives from each federalgovernment, a representative of a border state from each country, and a representative of the general publicwho resides in the border region from each country. The chairmanship alternates between the U.S. andMexico each year. All powers of NADB are vested in the Board of Directors, which determines policywithin the framework of the Charter, and approves all its operations and programs, including financingproposals with NADB funds.

Under the direction of the Board, the business of the Bank is conducted by the Managing Director and DeputyManaging Director, who oversee its daily operations, as well as develop its current and long-range objectives,policies and procedures. In carrying out these functions, they are assisted by a staff of 50 employees.

Capitalization

The total authorized capital of NADB is US$3 billion with equal commitments from the United States andMexico. Each country authorized the subscription of 150,000 shares of the Banks capital stock with a parvalue of US$10,000 per share: US$225 million in paid-in capital, payable in installments as agreed by thetwo member countries, and US$1.275 billion in callable capital.

Fifteen percent of NADBs authorized capital is in the form of paid-in capital, with the remaining eighty-fivepercent being callable capital. Paid-in capital (US$450 million) consists of cash funds contributed to NADB

by the two governments. Callable capital (US$2.55 billion) is composed of funds which must be provided

administration and nances


24/68


Mexico United States

Secretary of Finance and Public Credit *

Ernesto Javier Cordero Arroyo

Secretary of the Treasury

Timothy F. Geithner

Secretary of Foreign RelationsPatricia Espinosa Cantellano

Secretary of StateHillary Rodham Clinton

Secretary of the Environment and NaturalResourcesJuan Rafael Elvira Quesada

Administrator of the EnvironmentalProtection AgencyLisa Jackson

Mexican Border State RepresentativeGovernor Jos Guadalupe Osuna Milln

U.S. Border State RepresentativeLorenzo A. Larranaga

Mexican Border Resident RepresentativeRoberto Zambrano Villarreal

U.S. Border Resident RepresentativeVacant

board

directors in2009

* Board chair, 2009

to NADB by the two governments if required to meet its own outstanding debt obligations or guarantieson project loans. Callable capital may not be used to make loans and constitutes, in effect, backing for theBanks outstanding indebtedness and guaranties.

As set forth in its charter at inception, 90% of NADBs authorized capital is used to finance environmentalinfrastructure projects in the border region, and 10% of the capital subscribed by each country went tofinance community adjustment and investment throughout the United States and Mexico in support of the

purposes of the North American Free Trade Agreement (NAFTA) (the domestic programs). Therefore,of US$450 million in paid-in capital, US$405 million relates to NADBs environmental financing programand US$45 million to the domestic programs for community adjustment and investment.

The paid-in capital for the domestic programs was divided equally between the two countries with eachreceiving US$22.5 million for its respective program. The balance of paid-in capital and related earnings forthe Mexican domestic program was subsequently transferred to the Mexican federal government as of June1999. In the case of the U.S. domestic program, NADB continues to hold and administer the balance of itspaid-in capital, related earnings and grant appropriations; therefore, its accounts are reported and includedwith those of NADBs environmental program.

In May 2009, the governments of both countries completed their initial subscription to the authorizedcapital stock of the Bank with a final capital contribution of US$13,998,393, each. Thus, the Bank was fullycapitalized as of May 20, 2009.

Financial Operations

NADBs capital resources include paid-in and callable capital stock, the proceeds of any NADB borrowings, andfunds derived from its loan operations. As of December 31, 2009 NADB had no outstanding borrowings in theform of debt on its balance sheet. However, in light of the rapid growth of its loan portfolio, Bank Managementdeveloped a Borrowing Plan for 2010, which the Board of Directors authorized in December 2009.

NADB has established a Special Reserve and a General Reserve. The General Reserve is funded in anamount equal to the net income of NADB, after any required deposit to the Special Reserve, plus transfersfrom paid-in capital for the U.S. domestic program. As of December 31, 2009, the General Reserve balance


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for the years ended

12/31/2009 12/31/2008

expense category

Personnel $ 4,430,887 $ 4,218,188

Administration 1,017,348 1,192,317

Consultants and contractual services 1,056,797 942,837

TOTAL $ 6,505,032 $ 6,353,342

* These figures are prepared in accordance with budgetary accounting of expenditures.

table 7Operational expenditures for the environmental program*(U.S. dollars)

NADB management

Jorge C. Garcs, Managing Director and Chief Executive Officer

Hctor Camacho, Deputy Managing Director and Chief Operating Officer

NADB directors

Oscar Cabra, Jr., Director of Technical Services

Juan Antonio Flores, Associate Director of Public Affairs

Lisa A. Roberts, General Counsel

Jos Ruiz, Director of Project Development

Henry E. Sauvignet, Director of Administration

Conrad K. Sterrett, Chief Financial Officer

was US$68.83 million, with US$57.96 million relating to NADBs environmental program and the remainingbalance of US$10.86 million relating to the U.S. domestic program.

The Special Reserve is available to offset losses on any loan or guaranty and to pay expenses relating to theenforcement of the Banks rights under outstanding loans and guaranty agreements. As of December 31, 2009,the Special Reserve balance was US$10.47 million, with US$10.35 million relating to NADBs environmentalprogram and the remaining balance of US$0.12 million relating to the U.S. Domestic Program.

NADBs administrative operations are financed with income from lending operations and earnings oninvestments from paid-in capital, while NADB-funded grant activities are financed from designatedretained earnings accumulated in past years. Operating income for the environmental program before grantdisbursements for the financial year ended December 31, 2009 was US$16.02 million. Net income for thesame period was US$10.33 million after all operating and program expenses.

Operational ExpendituresThe annual operating budget for the environmental program is developed by Bank staff and reviewed andapproved by the Board of Directors. For fiscal year 2009, the Board authorized an operating budget ofUS$6.85 million. Actual operating expenditures for the year ended December 31, 2009, totaled US$6.51million. A breakdown of operational expenses by category is shown in Table 7.


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Program ExpendituresNADB uses a portion of its retained earnings to finance its grant and technical assistance programs. Thesefunds are designated by the Board as needed and subject to availability. As of December 31, 2009, retainedearnings totaled US$57.96 million for the environmental program, of which US$18.80 million wasdesignated to specific grant programs. Grant disbursements for studies, training and project implementationfor the year ended December 31, 2009, came to US$5.70 million, as shown in Table 8.

Domestic Programs

As outlined in the Charter, ten percent of NADBs capital is designated for community adjustment andinvestment programs in the two countries. Each country has independently developed a domestic programwithin this framework to address its specific needs. Unlike the environmental program, the projects fundedunder these programs are not limited to communities located within the border zone and do not requireBECC certification.

MexicoThe Mexican domestic program, which is entitled Programa Complementario de Apoyo a Comunidades yEmpresas (Mexican CAIP), is designed to support basic infrastructure development throughout Mexico,as well as to help communities and businesses benefit from NAFTA. In June 1996, the Mexican federalgovernment, through the Ministry of Finance and Public Credit (SHCP), entered into a mandate agreementwith the Mexican federal development bank, Banco Nacional de Obras y Servicios Pblicos, S.N.C. (Banobras)

to operate the program and administer its funds. Consequently, NADB does not track or report on MexicanCAIP activities. For more information about the Mexican CAIP program, contact Banobras.

United StatesThe U.S. domestic program, which is entitled Community Adjustment and Investment Program (USCAIP),is designed to assist communities and the private sector in creating new jobs and preserving existing jobsin areas adjusting to changes in their economies as a result of NAFTA. USCAIP operates under thedirection of a Finance Committee that is comprised of representatives of the U.S. Departments of theTreasury, Agriculture (USDA), and Housing and Urban Development (HUD), and the U.S. Small BusinessAdministration (SBA), along with other agencies selected by the Department of the Treasury, which servesas Finance Committee chair.

for the years ended

12/31/2009 12/31/2008

program

Technical Assistance Program $ 1,456,637 $ 1,196,370

Utility Management Institute 364,194 448,358

Solid Waste Environmental Program 3,119,687 585,278

Water Conservation Investment Fund 757,108 1,491,287

TOTAL $ 5,697,626 $ 3,721,293

table 8

Grant disbursements under the environmental program(U.S. dollars)


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NADB invests and disburses USCAIP funds under the direction of the Finance Committee, which isresponsible for endorsing all financing decisions under USCAIP. In addition to making direct loans fromits capital, the U.S. government expanded the program in October 1998 to include grants funded withcongressional appropriations totaling US$13.43 million, all of which were fully allocated to projects in 1999

and 2000.

In January 2009, the Finance Committee determined that the best way to use the remaining USCAIP capitaland have the greatest possible impact on USCAIP eligible communities would be principally through aTargeted Grant Program. Targeted grants may be awarded to entities with a proven capacity to managegrant funds, projects ready to be implemented, and the ability to create or preserve additional private sector

jobs in designated eligible areas.

In 2009 six grants totaling US$3.98 million were awarded under the USCAIP Targeted Grant Program. Asummary of these grant awards is provided in Table 9.

Since its inception, US$7.83 million in loans and US$17.40 million in grants have been authorized underUSCAIP for 56 projects in over 40 communities in 19 states. Of those funds, all of the loans and US$13.33million of the grants have been disbursed to project sponsors. As of December 31, 2009, USCAIP had an

outstanding loan balance of US$3.99 million.

USCAIP also supports qualifying loans and loan guarantees provided by the SBA and USDA for businessesin USCAIP-eligible communities. Through these agency programs, USCAIP has helped support more thanUS$500 million in loan transactions, which are contributing to the creation or preservation of more than15,000 jobs.


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grant recipientamount(US$)

projected job creation orpreservation

ACCION Texas, Inc.

San Antonio, Texas

To expand its Lower Rio Grande Valley Microloan Initiative and establisha small business incubator in the DEA of Cameron, Hidalgo, Starr andWillacy Counties, TX

$600,000 75 full-time, private-sector jobscreated

California Coastal Rural Development Corporation

Salinas, California

To provide capital to agricultural businesses in the DEA of Monterey, SanBenito, and portions of Santa Cruz Counties, CA

$1,000,000 70 full-time, private-sector jobscreated and 600 retained

Centro del Obrero Fronterizo de La Mujer Obrera

El Paso, Texas

For expansion of its microenterprise marketplace program, which trainsentrepreneurs and provides incubator space and technical assistance to smallbusinesses, in the DEA of El Paso County, TX

$1,000,000 41 full-time, private-sector jobscreated and 69 retained

Northern Economic Initiatives Corporation

Marquette, Michigan

Assistance in developing a nature and cultural travel/tourism strategy toattract visitors to the Upper Peninsula of Michigan on Lake Superior in theDEA of Ontonagon and Gogebic Counties, MI

$100,000 40 full-time, private-sector jobscreated and 80 jobs retained

San Benito Economic Development Corporation, Inc.

San Benito, Texas

To renovate two existing retail spaces and construct one new retail space inthe DEA of Cameron County, TX

$496,497 35 full-time, private-sector jobscreated

University of Texas at San Antonio

San Antonio, Texas

To conduct research, develop economic development strategies, traincommunity leaders and entrepreneurs, and provide development assistanceto small businesses in the DEA of the 30 Texas counties along the Mexicanborder

$779,740 500 full-time, private-sectorjobs created and 400 retained

* DEA = Designated eligible area(s)

table 92009 grant awards under the USCAIP targeted grant program

Expenditures directly related to the operation of the Los Angeles and San Antonio offices of the U.S.domestic program are paid out of its capital funds. Actual expenditures for the fiscal years ended December31, 2009 and 2008 totaled US$441,912 and US$509,571, respectively.

For more information on USCAIP projects and funding, visit www.nadbank-caip.org.


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consolidated nancial statements andsupplemental information

North American Development BankYears Ended December 31, 2009 and 2008With Report of Independent Auditors


30/68


report of independent auditors

The Board of Directors

North American Development Bank

We have audited the accompanying consolidated balance sheets of North American Development Bank(the Bank) as of December 31, 2009 and 2008, and the related consolidated statements of income, changes

in equity, and cash flows for the years then ended. These financial statements are the responsibility of the

Banks management. Our responsibility is to express an opinion on these financial statements based on our

audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement. We were not engaged to perform an audit of

the Banks internal control over financial reporting. Our audits included consideration of internal control

over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,

but not for the purpose of expressing an opinion on the effectiveness of the Banks internal control over

financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a

test basis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, and evaluating the overall

financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the

consolidated financial position of North American Development Bank at December 31, 2009 and 2008,

and the consolidated results of its operations and its cash flows for the years then ended, in conformity with

U.S. generally accepted accounting principles.

Our audits were conducted for the purpose of forming an opinion on the financial statements taken as a

whole. The supplemental information is presented for purposes of additional analysis and is not a required

part of the financial statements. Such information has been subjected to the auditing procedures applied in

our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation

to the financial statements taken as whole.

Ernst & Young LLP

March 31, 2010


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29 north american development bank

consolidated balance sheets

December 31

2009 2008

Assets

Cash and cash equivalents:

Held at other financial institutions in demand deposit accounts $ 62,343 $ 60,057

Held at other financial institutions in interest bearing accounts 38,202,868 55,614,248

Repurchase agreements 3,200,000 13,300,000

41,465,211 68,974,305

Held-to-maturity investment securities, at amortized cost 3,653,538 3,129,660

Available-for-sale investment securities, at fair value 132,258,881 192,603,451

Loans outstanding, net of allowance for loan losses of $4,859,639 and$4,104,161 at December 31, 2009 and 2008, respectively, and net ofeffect of foreign currency exchange rate adjustment decrease of$23,241,182 and $33,132,496 at December 31, 2009 and 2008, respectively 286,444,665 153,031,533

Interest receivable 3,154,537 2,719,379

Grant and other receivable 1,419,471 352,928

Furniture, equipment, and leasehold improvements, net 182,339 188,089

Other assets 33,139,327 56,509,353

Total assets $ 501,717,969 $ 477,508,698

Liabilities and equityLiabilities:

Accounts payable $ 536,331 $ 328,607

Accrued liabilities 608,395 586,002

Undisbursed grant funds 105,248 677,253

Total liabilities 1,249,974 1,591,862

Equity:

Total paid-in capital 405,000,000 405,000,000

Scheduled (27,996,786)

Net funded paid-in capital 405,000,000 377,003,214

General reserve:

Allocated paid-in capital 10,935,510 10,935,510Retained earnings:

Designated 18,726,950 22,488,849

Undesignated 39,162,713 29,786,101

Special reserve 10,465,593 5,978,361

Accumulated other comprehensive income 16,171,175 29,718,805

Minority interest 6,054 5,996

Total equity 500,467,995 475,916,836

Total liabilities and equity $ 501,717,969 $ 477,508,698

The accompanying notes are an integral part of these consolidated financial statements.


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consolidated statements of income

Years Ended December 31

2009 2008

Income:

Interest:

Investment income $ 8,361,254 $ 10,051,592Loan income 11,566,496 8,527,538

Gain on sales of available-for-sale investment securities, net 3,557,090 611,783

Fee income 12,537 25,182

Other 590,064 798,146

Total revenues 24,087,441 20,014,241

Operating expenses:

Personnel 4,430,887 4,218,188

Consultants 1,191,797 997,837

General and administrative 668,685 883,862

Operational travel 210,728 240,264

Depreciation and amortization 53,580 50,796

Provision for loan losses 800,000

Relocation 15,206 23,802

Other 475,017

U.S. Domestic Program 441,912 509,571

Total operating expenses 8,287,812 6,924,320

Income before program activities 15,799,629 13,089,921

Program activities:

U.S. Environmental Protection Agency (EPA) grant income 1,755,135 1,763,730

EPA grant administration expense (1,755,135) (1,763,730)

Technical Assistance Program expense (1,820,831) (1,644,728)

Solid Waste Environmental Program expense (3,119,687) (585,278)

Water Conservation Investment Fund expense (757,108) (1,491,287)

Net program expenses (5,697,626) (3,721,293)

Income before minority interest 10,102,003 9,368,628

Net income attributable to minority interest 58 166

Net income attributable to NADB $ 10,101,945 $ 9,368,462



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northamericandevelopmentbank

31

consolidatedsta

tementsofchanges

inequity

Paid-In

Capital

GeneralReserve

Spec

ial

Reserve

AccumulatedOther

Comprehensive

Income(Loss)

Minority

Interest

Total

Equity

Allocated

Paid-InCapital

Retained

Earnings

Beginningbalance,January1,2008

$331,032,500

$10,935,510

$44,281,661

$4,603,188

$

5,476,572$

5,830$396,335,261

Capitalcontributions

45,970,714

45,970,714

Transferfromretainedearningstospecialreserve

(1,375,173)

1,375,173

Comprehensiveincome:

Netincome

9,368,462

9,368,462

Unrealizedgainonavailable-for-saleinvestment

securities,net

4,604,434

4,604,434

Foreigncurrencytranslationadjustment

(21,365)

(21,365)

Unrealizedgain(loss)onhedgingactivities:


(34,560,231)

(34,560,231)

Fairvalueofcross-currencyinterestrateswaps

54,219,395

54,219,395

Totalcomprehensiveincome

33,610,695

Minorityinterest

166

166

Endingbalance,December31,

2008

377,003,214

10,935,510

52,274,950

5,978,361

29,718,805

5,996

475,916,836

Capitalcontributions

27,996,786

27,996,786

Transferfromretainedearningstospecialreserve

(4,487,232)

4,487

,232

Comprehensiveincome:

Netincome

10,101,945

10,101,945

Unrealizedlossonavailab

le-for-saleinvestment

securities,net

(1,485,839)

(1,485,839)


(28,174)

(28,174)

Unrealizedgain(loss)onhedgingactivities:


9,891,313

9,891,313

Fairvalueofcross-currencyinterestrateswaps

(21,924,930)

(21,924,930)

Totalcomprehensiveloss

(3,445,685)

Minorityinterest

58

58

Endingbalance,December31,

2009

$405,000,000

$10,935,510

$57,889,663

$10,465

,593

$

16,171,175

$

6,054

$500,467,995

Theaccompanyingnotesareanintegra

lpartoftheseconsolidatedfinancialstatements.


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Years Ended December 31

2009 2008

Cash flows from operating activities

Net income $ 10,101,945 $ 9,368,462

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 53,580 50,796

Amortization of net premium (discount) on investments 160,515 (44,273)Change in fair value of cross-currency interest rate swaps 446,842 (875,258)

Minority interest 58 166

Gain on sales of available-for-sale investment securities, net (3,557,090) (611,783)

Provision for loan losses 800,000

Change in other assets and liabilities:

(Increase) decrease in interest receivable (435,158) 213,573

(Increase) decrease in receivable and other assets (140,987) 86,288

Increase (decrease) in accounts payable 207,724 (376,299)

Increase (decrease) in accrued liabilities 22,393 (49,980)

Net cash provided by operating activities 7,659,822 7,761,692

Cash flows from lending, investing, and development activities

Capital expenditures (47,830) (74,536)Loan principal repayments 11,249,971 10,781,961

Loan disbursements (135,527,266) (49,255,624)

Purchase of held-to-maturity investments (2,130,000) (1,162,175)

Purchase of available-for-sale investments (32,904,397) (53,809,487)

Proceeds from sales and maturities of held-to-maturity investments 1,603,000 1,427,000

Proceeds from sales and maturities of available-for-sale investments 95,162,825 52,200,672

Net cash used in lending, investing, and development activities (62,593,697) (39,892,189)

Cash flows from financing activities

Capital contributions 27,996,786 45,970,714

Grant funds from the Environmental Protection Agency (EPA) 48,978,457 91,044,686

Grant disbursements EPA (48,974,964) (91,045,368)

Grant activity U.S. Domestic Program (575,498) (183,678)

Net cash provided by financing activities 27,424,781 45,786,354

Net increase (decrease) in cash and cash equivalents (27,509,094) 13,655,857

Cash and cash equivalents at January 1, 2009 and 2008 68,974,305 55,318,448

Cash and cash equivalents at December 31, 2009 and 2008 $ 41,465,211 $ 68,974,305

Significant noncash transactions

Foreign currency translation adjustment $ 9,891,313 $ (34,560,231)

Change in fair value of cross-currency interest rate swaps $ (21,924,930) $ 54,219,395

Change in fair value of available-for-sale investments $ (1,485,839) $ 4,604,434


consolidated statements of cash ows


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1. Organization and Purpose

The North American Development Bank (the Bank) was established by an agreement between the governments

of the United States of America (the United States or U.S.) and the United Mexican States (Mexico) that was

signed by their respective Presidents on November 16 and 18, 1993 (the Charter). The Bank was created tofinance environmental infrastructure projects in the U.S.-Mexico border region (the International Program) and

community adjustment and investment projects throughout the U.S. and Mexico in support of the purposes

of the North American Free Trade Agreement (NAFTA) (the Domestic Programs). On March 16, 1994, the

President of the United States issued an Executive Order designating the Bank an International Organization

under the International Organization Immunities Act.

The Bank began its operations on November 10, 1994, with initial capital subscriptions by the United States and

Mexico. The Bank is governed by a Board of Directors appointed by the two countries. The Banks operations

are subject to certain limitations outlined in the Charter, as amended on August 6, 2004. The amended charter

includes expanding the geographic jurisdiction of the International Program from 100 to 300 kilometers in

Mexico, as well as allowing the Bank to provide a limited amount of grants from its paid-in capital.

Under its International Program, the Bank provides loan and grant financing and technical assistance for

environmental infrastructure projects certified by the Border Environment Cooperation Commission (BECC),

as appropriate, and administers grant funding provided by other entities. Under the Domestic Programs, the

Bank contributed funds from its equity to establish the program of each country and it continues to administer

the funds of the U.S. Domestic Program (see Note 7).

On June 2, 1998, the Banks Board of Directors adopted a resolution authorizing the Bank to establish a

Sociedad Financiera de Objeto Limitado (SOFOL) for the purpose of facilitating Bank lending to the Mexican

public sector. In January 1999, the Corporacin Financiera de Amrica del Norte, S.A. de C.V. SOFOL (COFIDAN)

began operations in Mexico City, and in October 2006, COFIDAN was converted from a SOFOL to a non-

regulated, multipurpose financial institution (SOFOM, E.N.R.), and its name was modified to Corporacin

Financiera de Amrica del Norte, S.A. de C.V. SOFOM E.N.R. As of December 31, 2009, COFIDAN is 99.88%

owned by the Bank and 0.12% owned by the Mexican government. The accounts of COFIDAN are consolidated

with the Bank, and all material intercompany accounts and transactions are eliminated in consolidation. The

minority interest reflected in the consolidated balance sheets and consolidated income statements represents

the ownership of the Mexican government through the Ministry of Finance and Public Credit (SHCP).

The Bank is located in San Antonio, Texas. An additional office has been established in Los Angeles, California,

to assist the United States in administering the U.S. Domestic Program.

notes to consolidated nancial statementsdecember 31, 2009 and 2008


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2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates in Financial Statements

The financial statements have been prepared in conformity with accounting principles generally accepted in

the United States of America (GAAP). The financial statements are presented in a manner consistent with thatof an international organization. The preparation of financial statements in conformity with GAAP requires

management to make estimates and assumptions that affect the reported amounts of assets and liabilities at

the date of the financial statements and the reported amounts of revenues and expenses during the reporting

period. These estimates include investments, allowance for loan loss, and other assets. Actual results could

differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Bank and its subsidiary (COFIDAN). All

significant intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents

For purposes of the statement of cash flows, all highly liquid investments with an original maturity of three

months or less are considered to be cash equivalents.

Repurchase Agreements

The Bank has entered into agreements with two major financial institutions to purchase various U.S.

government and federally sponsored agency securities under an agreement to resell. The purchase and resale

of these securities occur daily, and the obligation to repurchase is backed by the assets of the related financial

institutions. The underlying securities related to the repurchase transaction are held in the possession of the

respective financial institutions.

Investment Securities

The Banks investments are classified into the following categories:

Held-to-maturity This category is composed of those debt securities for which the Bank has the positive

intent and ability to hold to maturity. These securities are carried at amortized cost.

Trading This category is composed of debt securities that are bought and held for resale in the near

term. These securities are carried at fair value, and changes in market value are recognized in the income

statement.

Available-for-sale This category is composed of debt securities that are not classified as either trading or

held-to-maturity securities. These securities are carried at fair value, with unrealized holding gains and

losses excluded from earnings and reported as a net amount in a separate component of comprehensive

income or loss until realized.



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2. Summary of Significant Accounting Policies (continued)

The accretion of discounts and the amortization of premiums are computed using the interest method. Realized

gains and losses are determined using the specific identification method. Investments in a loss position are

reviewed in order to determine whether the unrealized loss, which is considered impairment, is temporary orother-than-temporary. In the event of other-than-temporary impairment, the cost basis of the investment would

be written down to its fair value, and the loss would be included in current earnings. The Bank had no securities

classified as other than temporarily impaired as of December 31, 2009 and 2008.

Taxation

As an international organization, the Bank is exempt from all federal, state, and local taxation to the extent

implemented by law under the U.S. International Organizational Immunities Act of 1945.

Furniture, Equipment, and Leasehold Improvements

Furniture and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line

method. The estimated useful life is three years for computers and five years for furniture and equipment. Leasehold

improvements are recorded at cost and amortized over five years, or the life of the lease, whichever is less.

General Reserve

The Board of Directors of the Bank defines the general reserve as retained earnings plus allocated paid-in capital

for the Domestic Programs, as described in Note 7.

Special Reserve

The Board of Directors defines the special reserve in the equity section to be 3% of the balance of disbursed

loans, 1% of the undisbursed loan commitments, and 3% of the balance of guaranties, if any. The special reserve

is established by transfers-in from retained earnings. Amounts in the special reserve are to be used to pay costs

associated with the enforcement of the Banks rights under its loan and guaranty agreements, and to offset losses

on any loan or guaranty.

Loans and Allowance for Loan Losses

Loans are reported at the principal amount, net of allowance for loan losses. Interest income on loans and

commitment fees are recognized in the period earned.

Loans that are past due 90 days or more as to principal or interest, or where reasonable doubts exist as to

timely collection, including loans that are individually identified as being impaired, are generally classified as

nonperforming loans unless well secured and in process of collection.

Loans are generally placed in nonaccrual status when principal or interest is delinquent for 180 days (unless

adequately secured and in the process of collection) or circumstances indicate that full collection of principal

and interest is in doubt. When a loan is placed in nonaccrual status, accrued interest deemed uncollectible is

either reversed (if current year interest) or charged against current year interest (if prior year interest).



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Payments received on nonaccrual loans are generally applied to the recorded investment in the loan asset.

If collection of the recorded investment in the loan is fully expected and the loan does not have a remaining

unrecovered prior charge-off associated with it, payments are recognized as interest income. Nonaccrual loansmay be returned to accrual status when contractual principal and interest are current, prior charge-offs have been

recovered, the ability of the borrower to fulfill the contractual repayment terms is fully expected, and the loan

is not classified as doubtful or loss. If previously unrecognized interest income exists upon reinstatement

of a nonaccrual loan to accrual status, interest income will only be recognized upon receipt of cash payments

applied to the loan.

In cases whereby a borrower experiences financial difficulties and the Bank makes certain monetary concessions

to the borrower through modifications of the contractual terms of the loan, the loan is classified as a restructured

troubled loan. If the borrowers ability to meet the revised payment schedule is uncertain, the loan is classified

as a nonaccrual loan.

The allowance for loan losses is a valuation account used to reasonably estimate loan losses incurred as of the

financial statement date. Determining the appropriate allowance for loan losses involves significant judgment

about when a loss has been incurred and the amount of that loss. The determination of the allowance for loan

losses is based on managements current judgments about the credit quality of its loan portfolio. A specific

allowance may be established for impaired loans. Impairment of these loans is measured based on the present

value of expected future cash flows, discounted at the loans effective interest rate, or fair value of the collateral

if the loan is collateral-dependent.

The allowance for loan losses is maintained at a level considered adequate by management to provide for

probable and estimable losses inherent in the loan portfolio. The allowance is increased through provisions for

loan losses and is decreased through reversals of provision for loan losses and loan charge-offs.

Program Activities

Program income represents reimbursed administrative expenses associated with the U.S. Environmental

Protection Agency (EPA) grant activities. Such amounts are earned and recognized as program income in the

accompanying consolidated statements of income as the associated expenses are incurred.

Program expenses include grant disbursements made by the Bank and administrative costs associated with EPA

grant activities. Grants are recognized at the date the Bank becomes obligated under the terms of the grant

agreements and associated costs are recognized as incurred. EPA and U.S. Domestic Program grant receipts

and disbursements reflected in the consolidated statements of cash flows are not reflected in the accompanying

consolidated statements of income, as these grants are approved and funded by the respective entities noted

above. The Banks role is to administer these funds.



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Foreign Currency

COFIDAN is located in Mexico and operates primarily using the local functional currency. Accordingly, all

assets and liabilities of COFIDAN are translated using the exchange rate in effect at the end of the period,and revenues and costs are translated using average exchange rates for the period. The resulting cumulative

translation adjustment is included in accumulated other comprehensive income (loss).

The Banks lending activities include making loans that are denominated in Mexican pesos. For such loans,

the Bank enters into cross-currency interest rate swaps (swaps) that mitigate its exposure to fluctuations in

foreign currency exchange rates and interest rates. Since October 1996, the swap counterparty has been Fondo

de Apoyo a Estados y Municipios (FOAEM), a fund owned by the government of Mexico and administered

by the federally run development bank,Banco Nacional de Obras y Servicios Publicos, S.N.C(Banobras). In July

2009, the Bank entered into a direct relationship with Banobras to serve as the swap counterparty, outside the

FOAEM arrangement. The foreign currency translation adjustment on loans denominated in Mexican pesos

as of December 31, 2009 and 2008, was ($23,241,182) and ($33,132,496), respectively. The value of the swaps

related to such loans was in excess of those adjustments at December 31, 2009 and 2008, respectively.

All swaps have been designated as cash flow hedges of the Banks lending activities and recognized in the

accompanying consolidated balance sheets at their fair value. Changes in the fair value of the swaps are reported

in other comprehensive income, and are reclassified to earnings at the time of the hedged loan repayment. At

December 31, 2009 and 2008, the fair value of the swaps was reported as other assets of $33,139,327 and

$55,539,274, respectively, in the accompanying consolidated balance sheets.

The Bank discontinues hedge accounting prospectively if it determines that the derivative is no longer highly

effective in offsetting changes in the fair value or cash flows of the hedged item, or if it is no longer probable

that the hedged loan repayment will occur. If hedge accounting is discontinued because the hedge ceases to be

effective, the Bank will continue to record the swap at fair value with changes in value reflected in earnings. If it

is probable that the hedged loan repayments will not occur, gains and losses accumulated in other comprehensive

income (loss) are recognized immediately in earnings.

Fair Value

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability

(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction

between market participants on the measurement date.

The Bank carries cross-currency interest rate swaps and available-for-sale debt securities at fair value. The Bank

determines the fair market values of its financial instruments based on the fair value hierarchy, which requires an

entity to maximize the use of observable inputs based on market data obtained from sources independent of the

reporting entity and minimize the use of unobservable inputs based on the reporting entitys own assumptions



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about market participant assumptions developed on the best information available in the circumstances. The

three levels of inputs that may be used to measure fair value are:

Level 1 Quoted prices in active markets for identical assets or liabilities, which the reporting entity has the

ability to access at the measurement date. This category generally includes U.S. government securities.

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities,

quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by

observable market data for substantially the full term of the assets or liabilities. This category generally

includes agency securities, corporate debt securities, other fixed income securities, United Mexican States

(UMS) securities, and mortgage-backed debt securities, all of which are classified as available-for-sale

investments.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant in

determining the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments

whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques,

as well as instruments for which the determination of fair value requires significant management judgment or

estimation. This category includes cross-currency interest rate swaps where independent pricing information

is not available for a significant portion of the underlying assets.

Additional information on the fair value of the Banks financial instruments is provided in Note 11.

Other Comprehensive Income

The components of comprehensive income have been reported in the accompanying consolidated statement of

changes in equity for all periods presented and in Note 6.

Reclassifications

Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the

current year consolidated financial statement presentation.



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AmortizedCost

Gross Unrealized FairValueGains Losses

December 31, 2009

Held-to-maturity:

U.S. government and agency securities $ 3,653,538 $ $ (177) $ 3,653,361

Total held-to-maturity investment securities 3,653,538 (177) 3,653,361

Available-for-sale:

U.S. government and agency securities 43,360,730 2,666,068 46,026,798

Corporate debt securities 34,650,311 1,676,332 (113,114) 36,213,529

Other fixed income securities 9,166,582 422,449 (1,026) 9,588,005

Mexican government securities (UMS) 21,327,490 1,501,744 (9,234) 22,820,000

Mortgage-backed securities 16,866,220 744,329 17,610,549

Total available-for-sale investmentsecurities 125,371,333 7,010,922 (123,374) 132,258,881

Total investment securities $ 129,024,871 $ 7,010,922 $ (123,551) $ 135,912,242

December 31, 2008

Held-to-maturity:

U.S. government and agency securities $ 3,129,660 $ 82,612 $ $ 3,212,272

Total held-to-maturity investment securities 3,129,660 82,612 3,212,272

Available-for-sale:

U.S. government and agency securities 84,710,196 6,818,542 91,528,738

Corporate debt securities 48,756,253 681,374 (991,576) 48,446,051Other fixed income securities 14,782,575 72,714 (147,440) 14,707,849

Mexican government securities (UMS) 14,037,369 1,370,131 15,407,500

Mortgage-backed securities 21,943,671 576,557 (6,915) 22,513,313

Total available-for-sale investmentsecurities 184,230,064 9,519,318 (1,145,931) 192,603,451

Total investment securities $ 187,359,724 $ 9,601,930 $ (1,145,931) $ 195,815,723


3. Investments

All investments held by the Bank are classified as either held-to-maturity or available-for-sale securities. The

following schedule summarizes investments as of December 31, 2009 and 2008.


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Less Than 12 Months 12 Months or More Total

FairValue

UnrealizedLosses

FairValue

UnrealizedLosses

FairValue

UnrealizedLosses

U.S. government and agencysecurities $ $ $ $ $ $

Corporate debt securities 10,075,000 9,234 667,408 113,114 10,742,408 122,348

Other fixed incomesecurities 813,495 1,026 813,495 1,026

Mexican governmentsecurities (UMS)

Mortgaged-backed securities

Total temporarily impairedsecurities $ 10,888,495 $ 10,260 $ 667,408 $ 113,114 $ 11,555,903 $ 123,374

3. Investments (continued)

The following schedule summarizes unrealized losses and fair value of investments, aggregated by category and

length of individual securities, that have been in a continuous unrealized loss position, as of December 31, 2009.

None of the unrealized losses identified above are considered to be other-than-temporary since, as of December

31, 2009, the

Informe Banco Desarrollo de América del Norte 2010

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