U.S. SECURITIES AND EXCHANGE COMMISSION
                                   Washington, D.C. 20549

                                         FORM 10-K

[X]   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934 For the fiscal year ended December 31, 1999
                                             or
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
                                Commission File No. 0-26290

                                       BNCCORP, INC.
                   (Exact name of registrant as specified in its charter)
                  Delaware                              45-0402816
       (State or other jurisdiction of    (I.R.S. Employer Identification No.)
       incorporation or organization)

                322 East Main                                    58501
           Bismarck, North Dakota                             (Zip Code)
  (Address of principal executive offices)

       Registrant's telephone number, including area code: (701) 250-3040
           Securities registered under Section 12(b) of the Act: None
              Securities registered under Section 12(g) of the Act:

                          Common Stock, $.01 par value
                                (Title of class)

      Indicate by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X  No ___

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      The aggregate market value of the voting stock held by  non-affiliates  of
the Registrant at March 15, 2000 was $10,626,000.

      The number of shares of the Registrant's common stock outstanding on March
15, 2000 was 2,399,980.

      Documents  incorporated by reference.  Portions of the Registrant's  proxy
statement to be filed with the Securities and Exchange  Commission in connection
with the  Registrant's  2000 annual meeting of stockholders  are incorporated by
reference into Part III hereof.



<PAGE>


                                       BNCCORP, INC.

                                 ANNUAL REPORT ON FORM 10-K
                          FOR FISCAL YEAR ENDED DECEMBER 31, 1999

                                     TABLE OF CONTENTS
                                                                         Page

                                           PART I
Item 1. Business.........................................................  3
Item 2. Properties.......................................................  9
Item 3. Legal Proceedings................................................  9
Item 4. Submission of Matters to a Vote of Security Holders.............. 10

                                          PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
           Matters....................................................... 10
Item 6. Selected Financial Data.......................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and
           Results of Operations......................................... 12
Item 7a.Quantitative and Qualitative Disclosures about Market Risk....... 33
Item 8. Financial Statements and Supplementary Data...................... 37
Item 9. Changes In and Disagreements With Accountants on Accounting and
        Financial Disclosure............................................. 76

                                          PART III
Item 10 Directors and Executive Officers of the Registrant............... 76
Item 11.Executive Compensation........................................... 76
Item 12.Security Ownership of Certain Beneficial Owners and Management... 76
Item 13.Certain Relationships and Related Transactions................... 76

                                          PART IV
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 76


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                                           PART I


Item 1. Business

General

BNCCORP,  Inc.  ("BNCCORP"),  a Delaware  corporation,  is a  multibank  holding
company  registered  under the Bank  Holding  Company  Act of 1956 (the  "BHCA")
headquartered in Bismarck, North Dakota. BNCCORP (together with its consolidated
subsidiaries,  "BNC" or the  "Company")  provides a broad  range of banking  and
financial services to small and mid-size businesses, private banking clients and
consumers  through its 17  facilities  in North  Dakota and  Minnesota.  BNCCORP
operates primarily through its two commercial banking subsidiaries, BNC National
Bank (together with its wholly-owned  subsidiaries,  BNC Insurance, Inc. and BNC
Asset Management, Inc., "BNC--North Dakota"), which is headquartered in Bismarck
and  has 15  additional  offices  in  North  Dakota,  and BNC  National  Bank of
Minnesota  ("BNC--Minnesota,"  together with  BNC--North  Dakota,  the "Banks"),
which is located in  Minneapolis,  Minnesota.  On December 31, 1999, the Company
sold  its  asset-based  lending  subsidiary,  BNC  Financial  Corporation  ("BNC
Financial").  See Note 2 to the Consolidated Financial Statements included under
Item 8 of Part II for further details related to the sale of BNC Financial.

Growth Strategy

BNCCORP was formed in 1987 with the  objective of acquiring  and  improving  the
performance of strategically located banks in North Dakota. Since that time, the
banking  industry has undergone  rapid change.  Many non-bank  competitors  have
entered into the banking business. The proliferation of non-bank competitors has
resulted in the availability of a multitude of financial  products and services.
Technological  advances  have  improved  delivery  systems  and given  customers
immediate access to these products and services.  To remain  competitive in this
rapidly  changing  environment,   BNCCORP  has  expanded  its  objectives.   See
"--Products and Services." The Company is committed to moving into the future as
a full-service  provider of financial  services including  traditional  banking,
trust,  asset management,  brokerage,  insurance,  financial  planning and other
services.

BNC  aims to  achieve  its  objectives  through  expanded  product  and  service
offerings  and an emphasis on customer  service and local  relationship  banking
with small and  mid-size  businesses,  private  banking  clients and  consumers.
Management believes that the Company's  entrepreneurial  approach to banking and
the introduction of new products and services will continue to attract small and
mid-size  businesses which often are not of sufficient size to be of interest to
the larger banks in its market  areas.  See  "--Market  Areas." Such  businesses
frequently  have difficulty  finding  banking  services that meet their specific
needs and have sought,  and management  believes will continue to seek,  banking
institutions that are more relationship-oriented.

Acquisitions have played an important role in BNC's growth strategy. The Company
has  completed  several  bank and  non-bank  acquisitions.  The largest of these
acquisitions  was the  Company's  July 1995  acquisition  of seven North  Dakota
branches,  with aggregate deposits of approximately  $104.8 million,  from First
Bank fsb. See Note 2 to the  Consolidated  Financial  Statements  included under
Item 8 of Part II for a summary of mergers and acquisitions  consummated  during
the  three-year  period ended  December 31, 1999.  Management  believes that its
increased   product  and  service  offerings  and  acquisitions  have  generated
significant  growth for the  Company.  BNC's total  assets have  increased  from
$118.0  million at December 31, 1992 to $456.9 million at December 31, 1999. The
Company's goal continues to be the creation of a  well-capitalized  $500 million

<PAGE>

to $1 billion  financial  services  organization  focused on local  relationship
banking.  Efforts are ongoing to ensure that the executive  management  team and
operating  systems are in place to achieve this goal.  The Company's  management
team  combines  experienced,  conscientious  overseers  of  traditional  banking
services with  aggressive and  innovative  marketers and managers of diversified
financial services. BNC will continue to emphasize  internally-generated growth.
The Company will also seek growth opportunities through acquisition of financial
services  companies or de novo  branching in North and South  Dakota,  Minnesota
and,  possibly,  Iowa,  Nebraska and Wisconsin.  The Company expanded its growth
opportunities by opening a branch in Fargo, North Dakota during February 1999.

Segments

The Company has provided  disclosure  of financial and  descriptive  information
about reportable operating segments, including revenues from external customers,
a measure of profit or loss and total  assets for each of the last three  fiscal
years in Note 20 to the Consolidated  Financial Statements included under Item 8
of Part II.

Market Areas

BNC's  primary  market areas are the  Bismarck/Mandan  and Fargo (North  Dakota)
metropolitan areas, the  Minneapolis/St.Paul  (Minnesota)  metropolitan area and
the rural  communities  surrounding  the  branch  offices of  BNC--North  Dakota
(Crosby,  Ellendale,  Garrison, Kenmare, Linton, Stanley and Watford City, North
Dakota).  During 1999,  BNC--Minnesota  continued to generate loan growth in the
Minnesota market area.  BNC--North Dakota's Fargo branch also contributed to the
Company's  loan growth.  As of December 31,  1999,  46 percent of the  Company's
loans were to borrowers located in North Dakota and 43 percent were to borrowers
located in Minnesota.  The remaining 11 percent represents loans to borrowers in
other  states.   Other  than  brokered   certificates   of  deposit  and  direct
non-brokered certificates of deposit obtained through national deposit networks,
each banking branch draws most of its deposits from its general market area. The
following  table presents total deposits and loans  originated by segment and at
each of BNC's geographic locations:

                                                       December 31, 1999
                                                     -----------------------
                                           Year
                                          Opened
                                            or         Total         Loans
                    Location              Acquired    Deposits     Originated
          -----------------------------  ----------  ----------   ----------
                                                         (in thousands)
          BNC--North Dakota...........
            Bismarck.................         1990   $ 125,924    $ 124,852
            Crosby...................         1995      18,702          191
            Ellendale................         1995       9,901          758
            Fargo....................         1999       7,939        8,541
            Garrison.................         1995      14,292          292
            Kenmare..................         1995      15,900          180
            Linton...................         1987      47,379        9,699
            Stanley..................         1995      14,597          502
            Watford City.............         1995      11,306          115
          BNC--Minnesota..............        1996      58,771      117,124
          BNCCORP (parent company)...         1987          --           16
                                                     ----------   ----------
               Total ................                $ 324,711    $ 262,270
                                                     ==========   ==========

Products and Services

Loans.  The  Company's  loans,  generated by both the North Dakota and Minnesota
segments,  primarily  consist of commercial  and industrial  loans,  real estate
mortgage loans, real estate  construction loans,  agricultural  loans,  consumer
loans and lease financing. In allocating its assets among loans, investments and
other earning  assets,  BNC attempts to maximize  return while  managing risk at
acceptable  levels.  BNC's  primary  lending  focus is on  commercial  loans and

<PAGE>

owner-occupied   real  estate  loans  to  small  and  mid-size   businesses  and
professionals. The Company offers a broad range of commercial and retail lending
services,  including  commercial  revolving  lines of  credit,  residential  and
commercial real estate mortgage loans,  consumer loans and equipment  financing.
For more information on the lending activities of the Company, see "Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations--Financial  Condition--Loan  Portfolio" included under Item 7 of Part
II.

Interest  rates  charged  on loans  may be fixed or  variable  and vary with the
degree of risk, loan term, underwriting and servicing costs, loan amount and the
extent of other  banking  relationships  maintained  with  customers.  Rates are
further subject to competitive pressures, the current interest rate environment,
availability of funds and government regulations.

Deposits.  Each of BNC's bank  branches for both the North Dakota and  Minnesota
segments offers the usual and customary range of depository products provided by
commercial  banks,  including  checking,  savings and money market  deposits and
certificates of deposit.  During 1999, the Company  introduced its Wealthbuilder
NOW and  money  market  deposit  accounts  into each of its  markets.  These are
floating rate accounts  indexed to the  three-month  Treasury Bill. The accounts
have been  well-received  by the public and have enabled the Company to increase
core  deposits  significantly.  Deposits  are  insured  by the  Federal  Deposit
Insurance  Corporation  ("FDIC") up to statutory limits. The Banks also purchase
brokered deposits and obtain direct non-brokered certificates of deposit through
national  deposit  networks when such  transactions are beneficial to the Banks.
See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Deposits" included under Item 7 of Part II.

Trust and Financial Services.  Since January 1997, BNC--North Dakota's Financial
Services  Division  has  provided  a wide  array of trust  and  other  financial
services.   Such  services   include   employee   benefit  and  personal   trust
administration services,  financial,  tax, business and estate planning,  estate
administration,    agency   accounts,   employee   benefit   plan   design   and
administration,  individual  retirement  accounts ("IRAs"),  including custodial
self-directed  IRAs, asset management,  tax preparation,  accounting and payroll
services.

Brokerage Services.  BNC--North Dakota's subsidiary, BNC Asset Management, Inc.,
with offices in  Bismarck,  North Dakota and  Minneapolis,  Minnesota,  provides
access  to  trading,  investment  management  of  institutional  and  individual
accounts, company-sponsored mutual funds and investment banking.

Insurance  Services.  Insurance services are offered through BNC--North Dakota's
subsidiary,  BNC  Insurance,  Inc. Such  services  include:  personal  insurance
products such as home,  automobile and other vehicle insurance,  liability,  and
universal and mortgage life  insurance;  business  insurance  such as commercial
property and general liability,  workers' compensation,  business automobile and
excess liability  coverage;  bonds;  life,  health and annuities;  farm and crop
insurance;  and commercial  trucking  insurance.  The broad base of products and
services  offered by the Company  provides  opportunities  to solidify  customer
relationships  by  meeting  more  of the  banking  and  financial  needs  of the
Company's  current  customer base. They also present  opportunities to establish
new customer relationships in the markets served by BNC.

Distribution Methods

BNC offers its banking and financial  products and services through  traditional
industry  distribution  methods  including its network of bank, branch and other
offices.  In addition,  the Company offers 24-hour  telephone  banking  services
through its voice response system, BNC Bankline.  The Company also provides cash
management  services  to  its  commercial  customers  through  its  Xpress  Cash
Management  system.  This system allows  customers to process  funds  transfers,
wires,  automated clearing house (ACH)  transactions,  stop payments and account
history  inquiries  using  their  office  computers  and  modems.  During  1999,
BNC--North Dakota obtained regulatory approval to operate mobile branches in the
Bismarck and Fargo, North Dakota market areas. Once operational,  these branches

<PAGE>

are expected to be of great convenience to bank customers.  The Company has also
established  an  internet  web site  which is  currently  being  used to provide
corporate financial  information,  current investment news and stock prices. The
Company  anticipates  that it will begin  offering full Internet  banking during
2000 in  order to  provide  online  banking  to  customers  at any time and from
anywhere.

Risk Management

The uncertainty of whether events,  expected or otherwise,  will have an adverse
impact on the Company's  capital or earnings is an  inevitable  component of the
business of banking.  To ensure that the risks  inherent in BNC's  business  are
identified,  measured,  controlled and monitored,  the Company has established a
management  committee composed of senior management from across the organization
(the  "Management  Committee").  The  Management  Committee is  responsible  for
determining the desired risk profile of the Company, allocating resources to the
lines of business,  approving major investment programs that are consistent with
strategic  priorities and risk appetite and making capital management  decisions
to  appropriately  fund the Company's  portfolio of investments.  The Management
Committee addresses each of the major risk categories  identified by the banking
regulators,  if applicable,  as well as any additional identified risks inherent
in the Company's business.  Such risks include,  but are not limited to, credit,
liquidity,  interest  rate,  transaction,  compliance,  strategic and reputation
risk. In each identified risk area, the Management  Committee measures the level
of risk to the Company  based on the business it conducts and develops  plans to
bring risks within  acceptable  tolerances.  See  "Management's  Discussion  and
Analysis  of   Financial   Condition   and   Results  of   Operations--Financial
Condition--Loan  Portfolio  and  --Liquidity,  Market and Credit Risk"  included
under Item 7 of Part II and Item 7a of Part II,  "Quantitative  and  Qualitative
Disclosures About Market Risk," for further discussion of credit,  liquidity and
interest rate risk.

Competition

The deregulation of the banking  industry,  the increasing  number of state laws
that permit  multi-bank  holding  companies and the increasing  availability  of
nationwide  interstate  banking have  heightened  the level of competition in an
already  intensely  competitive  market.  The North Dakota and Minnesota  market
areas are highly competitive banking environments. Competition is encountered in
seeking  deposits,  obtaining  loan  customers and in providing all of the other
banking  and  financial   products  and  services  offered  by  BNC.   Principal
competitors  include  multi-regional  financial  institutions  such  as  Norwest
Corporation,  U.S. Bancorp and Community First Bankshares, Inc. as well as large
and small  thrifts,  independent  banks,  credit  unions and many  national  and
regional  brokerage  houses.  BNC also  competes with other  non-bank  financial
institutions,  including  retail stores that maintain their own credit  programs
and  government  agencies  that make low cost or guaranteed  loans  available to
certain  borrowers.   Some  of  these  competitors  have  substantially  greater
resources and lending  limits than BNC, and may offer certain  services that BNC
does not provide. In addition,  some of the non-bank financial institutions that
compete  with BNC are not  subject to the  extensive  federal  regulations  that
govern BNC.  Management  believes that many competitors  have emphasized  retail
banking and financial  services,  leaving the small and mid-size business market
underserved. This has allowed BNC to compete effectively by emphasizing customer
service,  establishing  long-term customer  relationships and providing services
meeting the needs of such businesses and the  individuals  associated with them.
The banking and financial services  industries are highly  competitive,  and the
future  profitability  of the Company  will depend on its ability to continue to
compete    successfully   in   its   market   areas.    See   "Supervision   and
Regulation--Recently Enacted Legislation."

Supervision and Regulation

General. BNCCORP and the Banks are extensively regulated under federal and state
laws and  regulations.  These laws and  regulations  are  primarily  intended to
protect depositors and the federal deposit insurance funds, not investors in the
securities of BNCCORP.  The following  information  briefly  summarizes  certain
material  statutes  and  regulations  affecting  BNCCORP  and the  Banks  and is

<PAGE>

qualified  in  its  entirety  by  reference  to  the  particular  statutory  and
regulatory provisions.  Any change in applicable laws, regulations or regulatory
policies may have a material effect on the business, operations and prospects of
BNCCORP and the Banks.  The Company is unable to predict the nature or extent of
the effects that fiscal or monetary  policies,  economic controls or new federal
or state  legislation  may have on its business and earnings in the future.  See
"--Recently Enacted Legisation."

Primary Regulators. BNCCORP is a bank holding company registered under the BHCA,
and is  subject  to  regulation,  supervision  and  examination  by the Board of
Governors of the Federal  Reserve  System  ("FRB").  BNCCORP is required to file
periodic  reports  with the FRB and such other  reports  as the FRB may  require
pursuant  to the BHCA.  The  Banks are  national  banking  associations  and are
subject  to  supervision,  regulation  and  examination  by  the  Office  of the
Comptroller of the Currency ("OCC"). Since the deposits of the Banks are insured
by the FDIC,  the Banks are also subject to regulation  and  supervision  by the
FDIC. Additionally, the Banks are members of the Federal Reserve System.

Acquisitions and Permissible  Activities.  As a registered bank holding company,
BNCCORP is  restricted  in its  acquisitions,  certain  of which are  subject to
approval by the FRB. A bank holding company may not acquire,  or may be required
to give certain notice regarding acquisitions of, companies considered to engage
in activities  other than those  determined by the FRB to be closely  related to
banking or managing banks.

Transactions with Affiliates.  Under Section 23A of the Federal Reserve Act (the
"Act"),  certain restrictions are placed on loans and other extensions of credit
by the Banks to BNCCORP who is defined as an  "affiliate" of the Banks under the
Act. Section 23B of the Act places standards of fairness and  reasonableness  on
other of the Banks' transactions with their affiliates.

Anti-Tying  Restrictions.  Bank  holding  companies  and  their  affiliates  are
prohibited from tying the provision of certain  services,  such as extensions of
credit, to other services offered by a holding company or its affiliates.

Restrictions on Loans to One Borrower.  Under federal law,  permissible loans to
one  borrower  by banks  are  generally  limited  to 15  percent  of the  bank's
unimpaired  capital,  surplus,  undivided profits and credit loss reserves.  The
Banks seek participations to accommodate  borrowers whose financing needs exceed
their lending limits.

Loans to Executive  Officers,  Directors  and  Principal  Stockholders.  Certain
limitations and reporting  requirements  are also placed on extensions of credit
by the Banks to principal  stockholders  of BNCCORP and to directors and certain
executive  officers  of the Banks  (and  BNCCORP  and its  nonbank  subsidiaries
provided certain criteria are met) and to "related  interests" of such principal
stockholders,  directors and officers.  In addition,  any director or officer of
BNCCORP or the Banks or principal  stockholder  of BNCCORP may be limited in his
or her ability to obtain credit from financial institutions with which the Banks
maintain correspondent relationships.

Interstate Banking and Branching. Interstate banking and branching provisions of
federal  and state  laws may place  certain  limitations  on  expansion  by bank
holding companies or banks.

Capital Adequacy.  The capital adequacy of BNCCORP and the Banks is monitored by
the federal  regulatory  agencies using a combination of risk-based and leverage
ratios.  Failure to meet the applicable capital guidelines could subject BNCCORP
or the Banks to supervisory or enforcement  actions. In addition,  BNCCORP could
be required to guarantee a capital restoration plan of one or more of its Banks,
should such Banks become  "undercapitalized" under capital guidelines.  See Note
11 to the Consolidated Financial Statements included under Item 8 of Part II for
further discussion regarding the capital status of BNCCORP and its subsidiaries.

<PAGE>

Dividend  Restrictions.  Federal  rules  also  limit  a  bank's  ability  to pay
dividends to its parent bank holding  company in excess of certain amounts or if
the payment would result in the bank being considered  "undercapitalized"  under
capital guidelines.

Community  Reinvestment Act. Under the Community  Reinvestment Act ("CRA"),  the
Banks are encouraged to respond to the credit and other needs of the communities
they  serve.  Bank  performance  under the CRA is  periodically  tested  and the
federal  bank  regulatory  agencies  consider  CRA  ratings in  connection  with
acquisitions involving the change in control of a financial institution.

Deposit Insurance.  FDIC-insured depository institutions that are members of the
FDIC's Bank Insurance Fund and Savings Association  Insurance Fund pay insurance
premiums  at rates  based  on their  assessment  risk  classification,  which is
determined  in part  based on the Bank's  capital  ratios and in part on factors
that the FDIC deems  relevant  to  determine  the risk of loss to the  insurance
funds.  The Banks also pay additional  assessments  that are used to pay certain
Financing Corporation obligations issued between 1987 and 1989 to resolve failed
savings and loan associations.

Cross-Guarantee.  The Financial  Institutions,  Reform, Recovery and Enforcement
Act of  1989  provides  for  cross-guarantees  of  the  liabilities  of  insured
depository  institutions pursuant to which any bank subsidiary of a bank holding
company may be required to reimburse the FDIC for any loss or  anticipated  loss
to the FDIC that arises from a default of any of such  holding  company's  other
subsidiary  banks or  assistance  provided to such an  institution  in danger of
default.

Support of Banks.  Bank  holding  companies  are also  subject to the "source of
strength doctrine" which requires such holding companies to serve as a source of
"financial and managerial" strength for their subsidiary banks.

Conservator  and  Receivership  Powers.  Federal  banking  regulators have broad
authority to place depository  institutions into conservatorship or receivership
to include,  among  other  things,  appointment  of the FDIC as  conservator  or
receiver of an  undercapitalized  institution  under certain  circumstances.  If
either of the Banks was placed into conservatorship or receivership,  because of
the cross-guarantee provisions of the Federal Deposit Insurance Act, as amended,
BNCCORP,  as the sole  stockholder of the Bank, would likely lose its investment
in the Bank.

Consumer Laws and Regulations. In addition to the laws and regulations discussed
herein, the Banks are also subject to certain consumer laws and regulations that
are designed to protect customers in transactions with banks. These include, but
are not  limited to, the Truth in Lending  Act,  the Truth in Savings  Act,  the
Electronic Funds Transfer Act, the Expedited Funds  Availability  Act, the Equal
Credit  Opportunity  Act and the Fair  Housing Act.  These laws mandate  certain
disclosure  requirements and regulate the manner in which financial institutions
must deal with customers when taking deposits or making loans to such customers.

Recently Enacted  Legislation.  In November 1999,  President Clinton signed into
law the Gramm-Leach-Bliley  Act, wide-reaching  legislation which modernizes the
laws governing the financial  services  industry (the  "Financial  Modernization
Act"). This comprehensive  legislative package contains provisions of benefit to
the banking industry,  including  language which expands the powers of banks and
bank holding  companies  to sell any  financial  product or service,  closes the
unitary thrift  loophole,  reforms the Federal Home Loan Bank ("FHLB") System to
increase   community  banks'  access  to  loan  funding,   protects  banks  from
discriminatory  state  insurance  regulation and establishes a new framework for
the  regulation  of bank and  bank  holding  company  securities  brokerage  and
underwriting  activities.  The law also  includes new  provisions in the privacy
area,  restricting  the ability of  financial  institutions  to share  nonpublic
personal customer information with third parties.

The Company is in the  process of  reviewing  the  provisions  of the  Financial
Modernization  Act  as  well  as  related  implementing   regulations  as  these
regulations  are being  released  by the  respective  bank  regulatory  or other
federal agencies.  A comprehensive  action plan for implementing the new law and

<PAGE>

regulations  is in the process of being  developed.  This plan will include such
revisions to BNC's operations, policies and procedures as are deemed appropriate
to ensure compliance with the new legislation and its implementing regulations.

Changing Regulatory Structure. The FRB, OCC and FDIC have extensive authority to
police  unsafe or  unsound  practices  and  violations  of  applicable  laws and
regulations  by  depository  institutions  and  their  holding  companies.   The
agencies' authority has been expanded by federal legislation in recent years. In
addition,  the North Dakota Department of Banking and Financial Institutions and
the Minnesota  Department of Commerce possess  significant  authority to address
violations of their respective  state's banking laws by banks operating in their
respective  states by enforcement and other supervisory  actions.  Additionally,
under  the  Financial  Modernization  Act some  bank and  bank  holding  company
securities  brokerage  activities  could become  regulated by the Securities and
Exchange Commission.

As indicated  above,  the laws and regulations  affecting banks and bank holding
companies  have changed  significantly  in recent years,  and there is reason to
expect that  changes  will  continue in the future,  although it is difficult to
predict the outcome of these changes.

Monetary Policy.  The monetary policy of the FRB has a significant effect on the
operating results of bank holding companies and their subsidiaries. The FRB uses
the various means at its disposal to influence  overall growth and  distribution
of bank loans,  investments  and deposits and interest rates charged on loans or
paid on deposits.  FRB monetary policies have materially affected the operations
of  commercial  banks in the past and are  expected  to continue to do so in the
future.  The nature of future monetary  policies and the effect of such policies
on the  business  and  earnings  of  BNCCORP  and  its  subsidiaries  cannot  be
predicted.

Employees

At December 31, 1999, BNC had 190 employees,  including 179 full-time equivalent
employees.  None of  BNC's  employees  is  covered  by a  collective  bargaining
agreement and management  believes that its  relationship  with its employees is
good.

Item 2.     Properties

The principal offices of BNCCORP and BNC--North Dakota are located in BNC's main
office building at 322 East Main Avenue, Bismarck, North Dakota. The building is
owned by BNC--North  Dakota.  BNC--North  Dakota also owns branch offices at 219
South 3rd Street and 807 East Century Avenue and an additional  office  building
at 116 North 4th Street in  Bismarck.  It also owns its  banking  facilities  in
Linton,  Crosby,  Ellendale,  Kenmare  and  Stanley,  North  Dakota as well as a
temporary  facility  located on its permanent site in Fargo,  North Dakota.  The
Company plans to complete  construction of a permanent  facility in Fargo by May
2000.

BNC--North Dakota's  facilities at 100 West Main Street (Mandan),  500 North 9th
Street (Bismarck), Watford City and Garrison, North Dakota and the land at South
3rd Street (Bismarck) are leased. BNC-North Dakota is also leasing a facility at
4656 Amber Valley Parkway in Fargo, pending completion of its permanent facility
to be located at 3137 32nd Avenue SW. The facilities  occupied by BNC--Minnesota
and BNC  Asset  Management,  Inc.  at 333  South  Seventh  Street,  Minneapolis,
Minnesota are also leased.

All owned and leased properties are considered in good operating  condition and,
except for the Fargo location,  are believed  adequate for the Company's present
and  foreseeable  future  operations.  BNC does not anticipate any difficulty in
leasing  additional  suitable space upon expiration of present lease terms.  See
Note 16 to the Consolidated  Financial  Statements included under Item 8 of part
II for  additional  information  concerning  lease  and  other  commitments  and
construction of the Fargo facility.


<PAGE>


Item 3.     Legal Proceedings

The  Company's  material  pending  legal actions are discussed in Note 17 to the
Consolidated  Financial  Statements  included  under  Item 8 of  Part II and are
incorporated herein by reference.

The Company is currently not a party to any other  material  legal  proceedings.
Periodically,  and in the  ordinary  course  of  business,  various  claims  and
lawsuits  which are  incidental to BNC's  business may be brought  against or by
BNC, such as claims to enforce liens,  condemnation proceedings on properties in
which BNC holds security interests, claims involving the making and servicing of
real property loans and other issues  incidental to the Company's  business.  In
the opinion of  management,  the  resolution  of these  matters  will not have a
material  adverse  effect on the  Company's  financial  position  or  results of
operations.

Item 4.     Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the quarter ended
December 31, 1999.

                                          PART II

Item 5.     Market for the Registrant's Common Equity and Related Stockholder
            Matters

BNCCORP's common stock, $.01 par value ("Common Stock"), is traded on the Nasdaq
Stock Market under the symbol "BNCC".

The following  table lists the high and low sales prices of the Common Stock for
the  periods  indicated  as  reported  by the Nasdaq  Stock  Market.  The quotes
represent  "inter-dealer"  prices without adjustment or mark-ups,  mark-downs or
commissions and may not represent actual transactions.


                    January 1 - Current date   For the Years Ended December 31,
                    ------------------------ -----------------------------------
                            2000                   1999               1998
                    ------------------------ ----------------  -----------------
Period                  High         Low      High      Low      High      Low
                    ----------- ------------ -------  -------  -------   -------
First Quarter...... $      7.25  $     5.81 $ 11.25   $ 8.63   $ 20.50   $ 16.25
Second Quarter.....          --          -- $  9.38   $ 7.63   $ 23.25   $ 16.88
Third Quarter......          --          -- $  9.00   $ 7.25   $ 19.00   $ 12.88
Fourth Quarter.....          --          -- $  8.25   $ 5.75   $ 13.00   $  9.00

On March 15,  1999,  there  were 110  record  holders  and  approximately  1,300
beneficial owners of the Company's Common Stock.

BNCCORP's  policy  is to  retain  its  earnings  to  support  the  growth of its
business. The board of directors of BNCCORP has never declared cash dividends on
its  Common  Stock  and does not plan to do so in the  foreseeable  future.  The
ability of BNCCORP to pay cash dividends  largely  depends on the amount of cash
dividends paid to it by the Banks. Capital  distributions,  including dividends,
by the  Banks  are  subject  to  federal  regulatory  restrictions  tied to each
institution's  earnings and capital.  See "Supervision and  Regulation--Dividend
Restrictions" included under Item 1 of Part I.

Item 6.     Selected Financial Data

The selected  consolidated  financial  data  presented  below under the captions
"Income  Statement  Data" and "Balance Sheet Data" as of and for the years ended
December 31, 1999,  1998,  1997,  1996 and 1995 are derived from the  historical
audited  consolidated  financial  statements  of the Company.  The  Consolidated
Balance  Sheets as of December  31,  1999,  1998,  1997 and 1996 and the related
Consolidated  Statements of Income,  Comprehensive Income,  Stockholders' Equity
and Cash Flows for each of the five years in the period ended  December 31, 1999

<PAGE>

were  audited  by Arthur  Andersen  LLP,  independent  public  accountants.  The
financial data below should be read in conjunction with and are qualified by the
Consolidated Financial Statements and the notes thereto included under Item 8.

<TABLE>
<CAPTION>
                                Selected Financial Data (1)

                                               For the Years Ended December 31,
                                     ---------------------------------------------------
                                      1999       1998      1997       1996       1995
                                     --------   --------  --------   --------  ---------
                                           (dollars in thousands, except share data)
<S>                                 <C>         <C>       <C>       <C>        <C>
   Income Statement Data:
   Total interest income............ $ 28,931   $ 27,801  $ 25,232   $ 20,597  $ 15,289
                                     --------   --------  --------   --------  ---------
   Total interest expense...........   16,574     15,152    13,132     10,945     8,583
                                     --------   --------  --------   --------  ---------
   Net interest income..............   12,357     12,649    12,100      9,652     6,706
   Provision for credit losses......    1,138      1,201     2,518        690       168
   Noninterest income...............    6,068      4,843     3,928      3,622     3,397
   Noninterest expense..............   18,215     13,379    11,256     10,286     8,094
   Income taxes (benefit)...........     (399)     1,030       955      1,152       679
                                     --------   --------  --------   --------- ---------
   Income (loss) from continuing
      operations.................... $   (529)  $  1,882  $  1,299   $  1,146  $  1,162
                                     ========   ========  ========   ========  =========
   Balance Sheet Data: (at end of
   period)
   Total assets..................... $456,877   $372,240  $345,630   $283,716  $241,014
   Investments and federal funds
      sold.......................... 154,492      96,601    94,624     66,391    97,366
   Loans............................ 262,051     247,181   220,149    197,435   120,683
   Allowance for credit losses......  (2,872)     (2,854)   (2,919)    (1,545)   (1,048)
   Total deposits................... 324,711     284,499   262,824    239,770   211,048
   Short-term borrowings............  88,700      49,290    46,503     11,437     1,000
   Long-term borrowings.............  14,470       9,195     8,285      5,937     3,354
   Stockholders' equity............. 23,149       25,255    23,148     21,595    20,628
   Book value per common share
      outstanding................... $ 9.65(2)   $ 10.57(3)$  9.64(4) $  8.99(4)$  8.59(4)
   Earnings Performance Data:
   Return on average total assets...  (.14)%        .54%      .42%       .44%      .59%
   Return on average stockholders'
      equity........................ (2.50)%       8.48%     6.16%      5.52%     8.25%
   Net interest margin..............  3.41%        3.88%     4.27%      4.05%     3.69%
   Net interest spread..............  3.09%        3.43%     3.82%      3.61%     3.26%
   Basic earnings (loss) per common
      share.........................$ (0.22)      $0.79     $0.54      $0.48     $0.63
   Diluted earnings (loss) per
      common share..................$ (0.22)      $0.75     $0.54      $0.48     $0.63
   Balance Sheet and Other Key
   Ratios:
   Nonperforming assets to total
      assets........................   0.63%      1.21%      .43%       .16%       .20%
   Nonperforming loans to total
      loans.........................   0.63%       .97%      .68%       .15%       .40%
   Net loan charge-offs to average
      loans.........................   (.45)%     (.54)%    (.53)%     (.11)%     (.03)%
   Allowance for credit losses to
      total loans...................   1.10%      1.15%     1.33%       .78%       .87%
    Allowance for credit losses
      to nonperforming loans........    273%       119%      195%       540%       218%
   Average stockholders' equity to
      average total assets..........   5.41%      6.33%     6.89%      8.05%      7.11%
</TABLE>
-------------------------
(1)   From continuing operations for all periods presented.
(2)   Based on total common shares outstanding of 2,399,980.
(3)   Based on total common shares outstanding of 2,390,184.
(4)   Based on total common shares outstanding of 2,402,126

<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Overview

The Company's  financial  performance  in 1999  reflected  the growing  customer
acceptance  of  BNC's  broadened  financial  services  offerings  as  well as an
expanding  deposit base,  although the benefits of the deposit  growth were more
than offset by changes in market  interest  rates.  Net interest  income for the
year ended  December 31, 1999,  was $12.4  million,  as compared  with $12.6 and
$12.1 million reported in the previous two years.  Noninterest  income,  largely
from insurance commissions, loan fees and brokerage income, rose sharply to $6.1
million in 1999 from $4.8 and $3.9 million in 1998 and 1997,  respectively,  due
primarily to the dramatic growth of BNC's insurance and brokerage businesses.

1999 results  reflected a one-time  $438,000  gain on the sale of the  Company's
former asset-based lending subsidiary, as well as $2.3 million in write-downs to
the value of  certain  nonperforming  assets.  The  Company  sold BNC  Financial
effective  December 31, 1999. The Company  recorded 1999 net income of $242,000,
or $0.10 per share on a diluted basis, compared with net income of $2.3 million,
or $0.91 per share (diluted),  for 1998 and net income of $1.4 million, or $0.59
per share (diluted), for 1997.

Performance highlights include:

     *Deposits  increased 14 percent during 1999, to $324.7 million;  the growth
      was driven by the introduction of the Wealthbuilder  family of indexed NOW
      and money  market  accounts and the opening of  BNC-North  Dakota's  Fargo
      branch.

     *Loans and leases  increased 6 percent,  to $262.1 million due primarily to
      loan growth in the Fargo and Minneapolis markets.

     *Total assets increased 15 percent, to $456.9 million.

     *Long-term  debt was  reduced by $24.5  million  during the 4th  quarter of
      1999; the Company used proceeds from the sale of BNC Financial to pay down
      long-term  debt which had been incurred  primarily for purposes of funding
      BNC Financial's asset-based loan portfolio.

Results of Operations

Net Interest Income.  Net interest income, the difference between total interest
income   earned  on  earning   assets  and  total   interest   expense  paid  on
interest-bearing liabilities, is the Company's principal source of earnings. The
amount of net  interest  income is  affected by changes in the volume and mix of
earning assets, the level of rates earned on those assets, the volume and mix of
interest-bearing liabilities and the level of rates paid on those liabilities.

The following table sets forth, for the periods indicated,  certain  information
relating  to BNC's  average  balance  sheets and  reflects  the yield on average
assets and costs of average  liabilities.  Such  yields and costs are derived by
dividing  income and expense by the average  balance of assets and  liabilities.
All  average  balances  have  been  derived  from  monthly  averages  which  are
indicative of daily averages.

<PAGE>

<TABLE>
<CAPTION>


                Analysis of Average Balances, Interest and Yields/Rates (1)

                                                               For the Years ended December 31,
                               --------------------------------------------------------------------------------------------
                                             1999                            1998                         1997
                               ------------------------------ ------------------------------- -----------------------------
                                          Interest   Average              Interest   Average            Interest    Average
                                 Average   earned     yield     Average    earned     Yield    Average   earned      yield
                                 Balance     or        or       Balance      or        or      Balance     or         or
                                            paid      cost                  paid      Cost                paid       cost
                               ---------- --------- --------- ---------- ---------- --------- ---------- --------- --------
                                                    (dollars in thousands)
<S>                            <C>        <C>        <C>      <C>        <C>        <C>       <C>        <C>       <C>
Assets
     Federal funds sold....... $   1,818  $     90      4.95%  $  5,336  $     289     5.42%  $   5,650  $    306     5.42%
     Taxable investments......   105,145     6,372      6.06%    87,464      5,269     6.02%     64,803     4,158     6.42%
     Tax-exempt investments...     7,788       386      4.96%     1,775         95     5.35%      1,112        71     6.38%
     Loans (2)................   250,158    22,083      8.83%   234,342     22,148     9.45%    214,053    20,697     9.67%
     Allowance for credit
        losses................    (2,890)       --               (2,941)        --               (2,205)       --
                               ---------- ---------           ---------- ----------           ---------- ---------
          Total interest-earning
             assets (3).......   362,019    28,931      7.99%   325,976     27,801     8.53%    283,413    25,232     8.90%
  Noninterest-earning assets:
           Cash and due from
               banks..........     7,704                          6,733                           6,074
           Other..............    22,584                         17,728                          16,726
                               ----------                     ----------                      ----------
                Total assets.. $ 392,307                      $ 350,437                       $ 306,213
                               ==========                     ==========                      ==========

Liabilities and Stockholders'
   Equity
  Deposits:
          NOW and money market
             accounts......... $  91,671     3,632      3.96% $  63,115      2,128     3.37%  $  50,582     1,580     3.12%
          Savings.............     6,294       129      2.05%     8,717        197     2.26%      8.904       206     2.31%
  Certificates of deposit:
          Under $100,000......   125,470     6,469      5.16%   130,759      7,332     5.61%    127,092     7,110     5.59%
          $100,000 and over...    43,140     2,307      5.35%    36,704      2,152     5.86%     41,581     2,386     5.74%
                               ---------- ---------           ---------- ----------           ---------- ---------
     Total interest-bearing
        deposits..............   266,575    12,537      4.70%   239,295     11,809     4.93%    228,159    11,282     4.94%
  Short-term borrowings:
          Securities and loans
             sold under
             agreements to
             repurchase and
             federal funds
             purchased........    21,685     1,129      5.21%     6,745        348     5.16%      7,262       413     5.69%
           FHLB notes payable.    40,308     2,174      5.39%    42,831      2,346     5.48%     15,468       881     5.70%
     Long-term borrowings.....     9,872       734      7.44%     8,290        649     7.83%      7,599       556     7.32%
                               ---------- ---------           ---------- ----------           ---------- ---------
               Total interest-
               bearing
               liabilities....   338,440    16,574      4.90%   297,161     15,152     5.10%    258,488    13,132     5.08%
Noninterest-bearing demand
   accounts...................    27,094                         24,827                          20,357
                               ----------                     ----------                      ----------
      Total deposits and
         interest-bearing
         liabilities...........  365,534                        321,988                         278,845
Other noninterest-bearing
   liabilities................     5,567                          6,264                           6,262
                               ----------                     ----------                      ----------
      Total liabilities.......   371,101                        328,252                         285,107
Stockholders' equity..........    21,206                         22,185                          21,106
                               ----------                     ----------                      ----------
      Total liabilities and
         stockholders'
         equity............... $ 392,307                      $ 350,437                       $ 306,213
                               ==========                     ==========                      ==========
Net interest income..........             $ 12,357                        $ 12,649                       $ 12,100
                                          =========                       =========                      =========
Net interest spread...........                         3.09%                           3.43%                          3.82%
                                                     ========                        ========                       ========
Net interest margin...........                         3.41%                           3.88%                          4.27%
                                                     ========                        ========                       ========
  Ratio of average
     interest-earning assets
     to average interest-
     bearing liabilities......   106.97%                       109.70%                          109.64%
                              ===========                     ==========                      ==========
</TABLE>
 --------------------

(1) From continuing operations for all periods presented.

(2)   Interest  income does not include loan  origination  fees other than those
      amortized and included as an  adjustment  to loan yield as required  under
      Statement  of  Financial  Accounting  Standards  No. 91,  "Accounting  for
      Nonrefundable  Fees and Costs  Associated  with  Originating  or Acquiring
      Loans and Initial Direct Costs of Leases."  Average  nonaccrual  loans are
      included in average loans outstanding.

(3)   Yields do not include  adjustments  for tax-exempt  interest  because such
      interest is not material.


<PAGE>

The following table illustrates, for the periods indicated, the dollar amount of
changes in BNC's interest income and interest  expense for the major  components
of interest-earning  assets and  interest-bearing  liabilities and distinguishes
between the increase related to higher  outstanding  balances and the volatility
of interest  rates.  Changes in net interest  income due to both volume and rate
have been included in the changes due to rate:

<TABLE>
<CAPTION>

                         Analysis of Changes in Net Interest Income (1)

                                                 For the Years Ended December 31,
                                           ----------------------------------------------
                                           1999 Compared to 1998    1998 Compared to 1997
                                           ---------------------  ------------------------
                                            Change Due to           Change Due to
                                           ----------------       ----------------
                                           Volume   Rate   Total  Volume   Rate   Total
                                           ------- ------- ------ ------- ------ -------
                                                           (in thousands)
<S>                                        <C>     <C>     <C>     <C>    <C>    <C>
  Interest-Earning Assets
     Federal funds sold....................$ (190) $   (9) $ (199)$   (17)$   -- $   (17)
     Investments........................... 1,424     (30)  1,394   1,496   (361)  1,135
     Loans................................. 1,495  (1,560)    (65)  1,962   (511)  1,451
                                           ------- ------- ------ ------- ------ -------
        Total increase (decrease) in
           interest income................. 2,729  (1,599)  1,130   3,441   (872)  2,569
                                           ------- ------- ------ ------- ------ -------
  Interest-Bearing Liabilities
     NOW and money market accounts.........   962     542   1,504     392    156     548
     Savings...............................   (55)    (13)    (68)     (4)    (5)     (9)
     Certificates of Deposit:
        Under $100,000.....................  (297)   (566)   (863)    206     16     222
        $100,000 and over..................   377    (222)    155    (280)    46    (234)
     Short-term borrowings:
        Securities and loans sold under
           agreements to repurchase and
           federal funds purchased.........   771      10     781     (29)   (36)    (65)
        FHLB notes payable.................  (138)    (34)   (172)  1,558    (93)  1,465
     Long-term borrowings..................   124     (39)     85      50     43      93
                                           ------- ------- ------ ------- ------ -------
        Total increase (decrease) in
            interest expense..............  1,744    (322)  1,422  1,893     127   2,020
                                           ======= ======= ====== ======= ====== =======
        Increase (decrease) in net
           interest income................ $  985  $(1,277)$ (292)$1,548  $ (999)$   549
                                           =======  ======= ====== ======= ====== =======
</TABLE>

----------------------
(1)  From continuing operations for all periods presented.

Year ended  December 31, 1999  compared to year ended  December  31,  1998.  Net
interest income decreased $292,000, or 2.3 percent, to $12.4 million as compared
to $12.6 million.  Net interest  spread and net interest margin declined to 3.09
and 3.41 percent,  respectively.  The following condensed information summarizes
the major factors combining to create the changes to net interest income, spread
and margin.  Lettered explanations  following the summary describe causes of the
changes in these major factors.


<PAGE>

<TABLE>
<CAPTION>

                                Net Interest Income Analysis (1)

                                                   For the Years
                                                  Ended December         Change
                                                        31,
                                                 ------------------  ----------------
                                                  1999      1998
                                                 -------  ---------
                                                    (amounts in
                                                     millions)
<S>                                              <C>      <C>        <C>       <C>
Total interest income increased.............     $  28.9  $    27.8  $   1.1      4%
  Due to:
    Increase in average earning assets......     $ 362.0  $   326.0  $  36.0     11%
  Driven by:
    Increase in average loans (a)...........     $ 250.2  $   234.3  $  15.9      7%
        Increase in average investments (b).     $ 112.9  $    89.2  $  23.7     27%
     The increases in average earning assets
        volume were offset by:
    Decreased yield on earning assets.......       7.99%      8.53%   -0.54%     -6%
      Driven by:
    Decreased yield on loans (c)............       8.83%      9.45%   -0.62%     -7%
    Mix change in earning asset portfolio--
      Average loans as a percent of total
         interest-earning assets ...........         69%        72%    -3.0%     -4%
Total interest expense increased............    $  16.6   $   15.2   $  1.4       9%
  Due to:
    Increase in average interest-bearing
       liabilities..........................    $ 338.4   $  297.2   $ 41.2      14%
  Driven by:
    Increase in average interest-bearing
       deposits (d).........................    $ 266.6   $  239.3   $ 27.3      11%
    Increase in average borrowings (e)......    $  71.9   $   57.9   $ 14.0      24%
     These increases were somewhat offset by:
    Decrease in cost of interest-bearing
       deposits (f).........................      4.70%      4.93%    -0.23%     -5%
    Decrease in cost of borrowings (g)......      5.62%      5.78%    -0.16%     -3%

</TABLE>
--------------------
(1)  From continuing operations for all periods presented.

(a) Loan growth  primarily  attributable  to  increases in loans  originated  at
BNC-Minnesota and BNC-North Dakota's Fargo location.

(b) The Company has  increased  its  investment  securities  holdings  primarily
 through FHLB borrowings.

(c) The decreased  loan yield is reflective of the 75 basis point decline in the
 prime rate late in 1998 as well as a decrease in loan  pricing  spread to prime
 rate due to competitive pressures in all markets.

(d)  Deposit  growth   primarily   attributable  to  the   introduction  of  the
 Wealthbuilder NOW and money market accounts.

(e)  Increased  FHLB  borrowings  for  the  purpose  of  purchasing   investment
securities.

(f) Reduced  costs on  certificates  of deposit  ("CDs")  caused by the  overall
 decreased  rate  environment  and related lower CD renewal and offering  rates.
 These rate  reductions  were somewhat  offset by increased costs in the NOW and
 money market deposit category (related to the Wealthbuilder accounts).

(g) Rates are reflective of the overall decreased rate environment.

Net interest income and margin in future periods are expected to be impacted by
several  factors.  Recent  increases  in the prime rate will  improve  interest
income and yields on loans. Additionally, the Company has increased its earning
asset portfolio by purchasing  investment  securities  funded primarily through
FHLB  borrowings.  While the  additional  investments  will  increase  interest
income,  net interest  income and earnings,  they can be expected to negatively
impact yield on earning  assets and net interest  margin because yields on such
investments are typically lower than those achieved in the loan portfolio.

<PAGE>

Many factors,  including, but not limited to, the competitive environment in the
markets in which the Company operates, the multitude of financial and investment
products  available  to the public and the  monetary  policies  of the FRB,  can
materially impact the Company's operating results. Therefore,  management cannot
predict,  with any degree of  certainty,  prospects  for net interest  income in
future periods.  See "Supervision and Regulation Monetary Policy" included under
Item 1 of Part I. See also Item 7a,  "Quantitative  and Qualitative  Disclosures
About  Market  Risk," for  information  relating  to the  impact of  fluctuating
interest rates on the Company's net interest income.

Year ended  December 31, 1998  compared to year ended  December  31,  1997.  Net
interest income increased  $549,000,  or 5 percent, to $12.6 million as compared
to $12.1 million.  Net interest  spread and net interest margin declined to 3.43
and 3.88 percent,  respectively.  The following condensed information summarizes
the major factors combining to create the changes to net interest income, spread
and margin.  Lettered explanations  following the summary describe causes of the
changes in these major factors:

<TABLE>
<CAPTION>
                                Net Interest Income Analysis (1)

                                                   For the Years
                                                 Ended December 31,         Change
                                                 ------------------  ----------------
                                                  1998      1997
                                                 -------  ---------
                                                    (amounts in
                                                     millions)
<S>                                              <C>      <C>        <C>       <C>
Total interest income increased.............     $ 27.8   $    25.2  $    2.6     10%
  Due to:
    Increase in average earning assets......     $326.0   $   283.4  $   42.6     15%
  Driven by:
    Increase in average loans (a)...........     $234.3   $   214.1  $   20.2      9%
        Increase in average taxable
           investments (b)..................     $ 87.5   $    64.8  $   22.7     35%
     The increases in average earning assets
        volume were offset by:
    Decreased yield on earning assets.......      8.53%       8.90%     -0.37%    -4%
      Driven by:
    Decreased yield on loans (c)............      9.45%       9.67%     -0.22%    -2%
        Decreased yield on taxable
           investments (d)..................      6.02%       6.42%     -0.40%    -6%
    Mix change in earning asset portfolio --
      Average loans as a percent of total
         interest-earning assets (e)........        72%         76%      -4.0%    -5%
Total interest expense increased............    $ 15.2    $   13.1   $    2.1     16%
  Due to:
    Increase in average interest-bearing
       liabilities..........................    $297.2    $  258.5   $   38.7     15%
    Increased cost on interest-bearing
       liabilities..........................      5.10%       5.08%      0.02%   0.4%
  Driven by:
    Increase in average interest-bearing
       deposits (f).........................    $239.3    $  228.2   $   11.1      5%
    Increase in average borrowings (g)......    $ 57.9    $   30.3   $   27.6     91%
    Mix change in interest-bearing liability
       portfolio --
      Average borrowings as a percent of
         total interest-bearing liabilities(h)     19%          12%         7%    58%
     These increases with somewhat offset by:
    Decrease in cost of borrowings (i)......     5.78%        6.10%     -0.32%    -5%

</TABLE>
--------------------
(1)  From continuing operations for all periods presented.

(a)     Loan growth primarily attributable to increases in loans originated at
   BNC-Minnesota.

(b) Increase in average  taxable  investments is primarily  attributable  to the
 purchase of $18.8 million of fixed rate mortgage-backed securities late in 1997
 as part of an interest rate risk management strategy.

<PAGE>

(c) 75 basis point decline in prime rate late in 1998 coupled with  decreases in
 loan pricing spread to prime rate due to competitive pressures in all markets.

(d) Primarily  attributable  to the  significant  decrease in the Treasury yield
 curve that occurred during the second half of 1998 and the reinvestment of cash
 flows from maturing  mortgage-backed  securities and other  investments at then
 current, lower rates.

(e) Average loans increased by 9 percent.  However,  average taxable investments
 increased by $22.7 million, or 35 percent.  Late in 1997, the Company purchased
 $18.8 million of fixed rate  mortgage-backed  securities funded with an advance
 from the FHLB as part of an interest rate risk management strategy.

(f) Deposit growth from both BNC-North Dakota and BNC-Minnesota, primarily money
 market deposit accounts.

(g) The Company  relied more heavily on  borrowings  to fund  growth,  including
 increased FHLB  borrowings.  The borrowing rates charged by the FHLB were often
 cost effective compared to offering top of market rates for time CD's. Increase
 also reflects issuance of the Company's 8 5/8 percent Subordinated Notes in May
 1997 (outstanding 12 months during 1998 versus 7 months during 1997).

(h)  Increased   reliance  on  borrowing  caused  a  higher  percentage  of  the
 interest-bearing  liabilities  portfolio  to be comprised  of  borrowings  with
 generally higher costs than interest-bearing  deposits.  However, the borrowing
 rates charged by the FHLB were often cost effective compared to offering top of
 market rates for time certificates of deposits,  although these borrowing rates
 are higher than costs of interest-bearing checking and money market accounts.

(i) Lower overall  average cost on federal funds  purchased and FHLB  borrowings
 due to 75 basis point  decline in federal  funds rate late in 1998 along with a
 similar decrease in rates at the FHLB.

Provision for Credit Losses. Management determines a provision for credit losses
which it considers  sufficient  to maintain the  Company's  allowance for credit
losses at a level  considered  adequate  to provide  for an estimate of probable
losses  related to  specifically  identified  loans as well as  probable  losses
inherent in the remaining loan and lease portfolio that have been incurred as of
each balance sheet date.  See Note 1 to the  Consolidated  Financial  Statements
included under Item 8 and "--Financial Condition--Loan  Portfolio--Allowance for
Credit  Losses" for further  discussion  of the  components of the allowance for
credit  losses and the Company's  methodology  for assessing the adequacy of the
allowance.

The provision  for credit  losses for the year ended  December 31, 1999 was $1.1
million as compared to $1.2 million in 1998 and $2.5 million in 1997.

Noninterest Income. The following table presents, for the periods indicated, the
major categories of the Company's  noninterest  income as well as the amount and
percent of change between each of the periods presented. Related information and
material changes are discussed in lettered explanations following the table:

<TABLE>
<CAPTION>
                                     Noninterest Income (1)
                                                            Increase (Decrease)
                                                    -------------------------------------
                         For the Years Ended          1999 - 1998          1998 -1997
                             December 31,
                      ---------------------------   -----------------    ----------------
                       1999      1998      1997        $         %         $        %
                      --------  --------  -------   -------   -------    -----  ---------
                            (in thousands)
<S>                   <C>       <C>       <C>       <C>       <C>        <C>    <C>
Insurance Commissions  $2,045    $1,769    $1,694    $ 276       16% (a) $ 75         4%
Fees on loans........   1,435     1,376       884       59        4%      492        56% (b)
Brokerage income.....     797        53        46      744    1,404% (c)    7        15%
Service charges......     536       566       471      (30)      (5)%      95        20%
Net gain on sales of
  securities ........     198       130         8       68       52%      122     1,525% (d)
Rental income........     121        43        56       78      181%      (13)      (23)%
Other................     936       906       769       30        3%      137        18% (e)
                      --------  --------  -------   -------              -----
Total noninterest
income...............  $6,068    $4,843   $3,928    $1,225       25%      915        23%
                      ========  ========  =======   =======              =====
</TABLE>
--------------------
<PAGE>
(1)  From continuing operations for all periods presented.

(a) Increased  insurance  commissions  resulted  from an increase in the average
  number of insurance  producers  as well as  successful  efforts to  cross-sell
  insurance to bank customers.

(b) The increase in loan fees is largely  attributable  to loans  generated  and
  sold by BNC-Minnesota.  Management cannot predict with any degree of certainty
  the amount of loans which will be originated  and related loan fees which will
  be recognized in future periods.

(c) Increase is  attributable  to the addition of  brokerage  staff in BNC-North
  Dakota's subsidiary, BNC Asset Management, Inc.

(d) Proceeds  from  securities  sold were $58.9  million in 1998 as  compared to
  $27.2 million in 1997.  See Note 4 to the  Consolidated  Financial  Statements
  included under Item 8 for further  information  related to sales of investment
  securities.

(e) The  increase  in other  noninterest  income in 1998 was  attributable  to a
  combination  of  factors  including  increased  revenue  from  trust and other
  professional services and increased income from automated teller machines.


Noninterest  Expense.  The following table presents,  for the periods indicated,
the major categories of the Company's  noninterest expense as well as the amount
and percent of change between each of the periods presented. Related information
and material changes are discussed in lettered explanations below the table:

<TABLE>
<CAPTION>
                                    Noninterest Expense (1)
                                                                 Increase (Decrease)
                                                       -------------------------------------
                               For the Years Ended
                                   December 31,             1999 - 1998          1998 - 1997
                          ---------------------------  ------------------   -----------------
                           1999     1998      1997       $          %         $         %
                          -------  --------  --------  -------   --------   -------   ------
                                (in thousands)
 <S>                      <C>      <C>       <C>      <C>        <C>        <C>       <C>
 Salaries and employee
    benefits............  $ 8,854  $  7,463  $ 6,184   $ 1,391       19% (a)$ 1,279      21% (a)
 Write-down of other real
  estate owned and
  repossessed assets....    2,271         2       --     2,269           (b)      2      --
 Depreciation and
    amortization........    1,586     1,498    1,310        88        6%        188      14% (c)
 Occupancy..............    1,248       988      948       260       26% (a)     40       4%
 Professional services..    1,214       766      552       448       58% (d)    214      39% (d)
 Office supplies,
  telephone and postage.      941       749      647       192       26% (a)    102      16% (a)
 Marketing and promotion      621       455      363       166       36% (e)     92      25%
 FDIC and other assessments   191       184      171         7        4%         13       8%
  Other..................   1,289     1,274    1,081        15        1%        193      18% (a)
                           -------  --------  -------  --------               -------
  Total noninterest
     expense............. $ 18,215  $13,379   $11,256  $ 4,836       36%       2,123      19%
                           =======  ========  =======  ========               =======
  Efficiency ratio (f)...    98.86%   76.49%    70.23%    22.37%           (f)  6.26%
</TABLE>
--------------------
(1) From continuing operations for all periods presented.

(a) Increases represent  personnel additions at BNC Asset Management,  Inc., BNC
Insurance,  Inc.  and  BNC-North  Dakota's  Fargo  branch  as  well  as  related
occupancy, supplies, telephone, postage and other miscellaneous expenses.

(b)Write-downs  to estimated  net  realizability  of other real estate owned and
   repossessed assets.

(c) Increase in the amount of fixed assets being  depreciated  including  assets
related to BNC Asset Management, Inc. and BNC-North Dakota's Fargo branch.

(d)Increase  represents an increase in brokerage costs at BNC Asset  Management,
   Inc., legal fees related to the proceedings against a former loan officer and
   other costs associated with other real estate owned and repossessed assets.

(e) Increased advertising,  public relations and promotional expenses, including
fees paid to an investor relations firm engaged late in 1998.

(f)  Noninterest  expense divided by an amount equal to net interest income plus
noninterest income. Management does not expect this negative trend in efficiency
ratio will  continue.  Noninterest  expense for 1999  included  $2.3  million in
write-downs of nonperforming assets. Excluding these write-downs, the efficiency
ratio for 1999  would have been 86.53  percent.  Additionally,  during the third
quarter of 1999, the Company reorganized. Average full time equivalent employees
for the fourth  quarter of 1999 and for the first two months of 2000 were 177 as
compared to 198 for the third quarter of 1999. The year-to-date efficiency ratio
for 2000  through  the month of  February  was 79.01  percent.  For the month of
February 2000, the efficiency ratio was 75.41 percent,  an improvement over both
the adjusted 1999 and 1998 ratios.

<PAGE>

Financial Condition

Investment Securities. BNC's investment policy is designed to enhance net income
and return on equity through prudent  management of risk,  ensure  liquidity for
cash-flow  requirements,  help manage interest rate risk,  ensure  collateral is
available for public  deposits,  advances and  repurchase  agreements and manage
asset  diversification.  In managing the  portfolio and the  composition  of the
entire balance  sheet,  the Company seeks a balance among  earnings,  credit and
liquidity  considerations,  with a goal of maximizing  the  longer-term  overall
profitability of the Company.

Investments are centrally managed in order to maximize  compliance (federal laws
and  regulations  place  certain  restrictions  on  the  amounts  and  types  of
investments BNC may hold) and effectiveness of overall investing activities. The
primary  goal  of  BNC's  investment  policy  is to  contribute  to the  overall
profitability  of the Company.  The objective is to purchase and own  securities
and  combinations of securities with good  risk/reward  characteristics.  "Good"
risk/reward  securities are those identified  through  thorough  analysis of the
cash flows and potential cash flows as well as market value and potential market
value of the  security  in  question  given  various  interest  rate  scenarios.
Investment  strategies  are developed in light of constant view of the Company's
overall  asset/liability  position. As it relates to investment strategies,  the
focus of the Asset/Liability  management committee is to determine the impact of
interest-rate  changes on both future  income and market value of  securities in
the portfolio.  See Item 7a,  "Quantitative  and Qualitative  Disclosures  about
Market Risk," for additional  information  relating to the impact of fluctuating
interest rates on the Company's net interest income.

The following  table presents the  composition  of the  investment  portfolio by
major category as of the dates indicated:

<TABLE>
<CAPTION>
                              Investment Portfolio Composition (1)

                                                         December 31,
                             ---------------------------------------------------------------------
                                     1999                    1998                   1997
                             ---------------------  ---------------------  ----------------------
                                        Estimated               Estimated               Estimated
                                          fair                    fair                    fair
                             Amortized    market    Amortized    market     Amortized    market
                               cost       value       cost       value         cost       value
                             ---------  ----------  ---------   ---------   ---------  -----------
                                                        (in thousands)
<S>                          <C>        <C>         <C>         <C>         <C>        <C>
Available for Sale:
U.S. Treasury securities...  $     --   $      --   $  5,098    $  5,109    $ 12,489   $   12,532
U.S. government agency
   Mortgage-backed
   securities..............    26,697      26,295     51,194      51,444      32,136       32,236
U.S. government agencies
   securities..............     4,654       4,468     13,096      12,998      20,039       20,006
Collateralized mortgage
   obligations.............    97,243      95,038     19,602      19,607      21,291       21,325
State and municipal bonds..    20,272      19,548      3,355       3,420       1,166        1,289
Equity securities..........     5,643       5,643      4,024       4,023       7,236        7,236
                             ---------  ----------  ---------   ---------   ---------  -----------
Total investments..........  $154,509   $ 150,992   $ 96,369    $ 96,601    $ 94,357    $  94,624
                             =========  ==========  =========   =========   =========  ===========

</TABLE>
---------------------
(1)  From continuing operations for all periods presented.

The following  table presents  maturities for all securities  available for sale
(other than equity  securities)  and yields for all  securities in the Company's
investment portfolio at December 31, 1999:


<PAGE>



                         Investment Portfolio -- Maturity and Yields


<TABLE>
<CAPTION>

                                                Maturing
                        ---------------------------------------------------------
                                        After 1 but    After 5 but
                          Within 1        within 5      within 10      After 10       Total
                            year           years          years          years
                        ------------- ------------- -------------  -------------- --------------
                        Amount  Yield Amount  Yield Amount  Yield   Amount  Yield  Amount  Yield
                                 (1)           (1)           (1)             (1)            (1)
                        ------- ----- ------- ----- ------- ------ ------- ------ ------- ------
<S>                     <C>     <C>   <C>     <C>   <C>     <C>    <C>     <C>    <C>     <C>
Available for Sale:(2)                     (dollars in thousands)
  U.S. government
   agency Mortgage-
   backed
   securities (3).....  $  973  5.62% $ 1,438 5.79% $ 4,027  6.65% $20,259  6.43% $26.697  6.40%
  U.S. government
   agencies
   Securities.........     290  5.09%      --   --      895  5.82%   3,469  6.04%   4,654  5.94%
  Collateralized
   mortgage
   obligations (3)....      --    --    1,252 6.20%  15,431  6.46%  80,560  6.62%  97,243  6.59%
  State and municipal
    bonds.............     150  9.98%   1,230 7.20%     354  7.83%  18,538  7.70%  20,272  7.69%
                        ------- ----- ------- ----- ------- ------ ------- ------ ------- ------
    Total book value
      of investment
      securities......  $ 1,413 5.98% $ 3,920 6.36% $20,707  6.49% $122,826 6.74% $148,866 6.69%
                        ======= ===== ======= ===== ======= ====== ======== ===== ======== =====
  Unrealized holding
     loss on securities
     available for
     sale..............                                                            (3,517)
  Equity securities....                                                           $ 5,643  6.26%
                                                                                  -------- -----
    Total investment in
       securities
       available for
       sale............                                                           $150,992 6.83%(4)
                                                                                  ======== =====
</TABLE>
--------------------

(1)Yields do not  include  adjustments  for  tax-exempt  interest  because  such
   interest is not  material;  yields also do not reflect  changes in fair value
   that are reflected as a separate component of stockholders' equity (except as
   noted in (4) below).

(2) Based on amortized cost/book value.

(3)Maturities  of  mortgage-backed   securities  and   collateralized   mortgage
   obligations are based on contractual maturities.

(4)Yield  reflects  changes  in fair  value  that are  reflected  as a  separate
   component of stockholders' equity.

As of December 31, 1999,  BNC had $151.0 million of securities in the investment
portfolio as compared to $96.6 and $94.6  million at December 31, 1998 and 1997,
respectively.  During  1999,  the  Company  increased  its  holdings  in  agency
collateralized  mortgage  obligations  ("CMOs") and municipal bonds by $75.4 and
$16.1  million,  respectively.  During the year,  the Company  also  reduced the
investment  portfolio's  allocation to U.S. Treasury securities by $5.1 million,
agency  mortgage-backed  securities  by  $25.1  million  and  government  agency
securities by $8.5 million.

The shift between sectors was the result of the investment  portfolio management
process and the  investment  objectives as indicated  above.  Over the course of
1999,  principal  cash  flows as well as  sales  proceeds  from  mortgage-backed
securities  were  invested in CMOs  because  they  offered a better  risk/reward
profile  (due to the  structure of CMO cash flows)  relative to  mortgage-backed
securities. New investment purchases were primarily directed toward CMOs as well
due to their  risk/reward  profile and structure  relative to other sectors.  In
addition,  proceeds from the maturity of U.S. Treasury securities and government
agency  securities were reinvested into alternate  sectors that offered a better
relative   risk/reward   profile  than  U.S.   Treasury  and  government  agency
securities. Consistent with the Investment Officer's objective of purchasing and
owning  combinations  of good  risk/reward  securities,  the  level of state and
municipal  bonds  increased  as well.  The  risk/reward  profile  of  state  and
municipal bonds complimented that of the increased portfolio allocation to CMOs.
The resulting  allocation  among security  sectors is more  consistent  with the
primary goal of the Company's investment policy.

At December 31, 1999,  BNC held no securities of any single  issuer,  other than
the U.S. government agencies  securities and agency  mortgage-backed  securities
and CMOs that  exceeded  ten  percent of  stockholders'  equity.  A  significant
portion of the  Company's  investment  securities  portfolio  (approximately  84
percent at December 31, 1999) was pledged as collateral for public  deposits and
borrowings, including borrowings with the FHLB.

<PAGE>

Loan  Portfolio.  The Company's  primary source of income is interest  earned on
loans. The Company's loan portfolio has grown significantly during the past four
years as a result of BNC's  strategy of  increasing  the amount of high  quality
loans  outstanding to increase net interest  income.  Net loans  increased $14.9
million,  or 6 percent,  to $259.2  million at December  31, 1999 as compared to
$244.3 million at December 31, 1998. In 1998, net loans increased $27.1 million,
or 13 percent,  as compared to December 31, 1997.  The following  table presents
the composition of the Company's loan portfolio as of the dates indicated:

<TABLE>
<CAPTION>
                                 Loan Portfolio Composition (1)
                                                                December 31,
                     ----------------------------------------------------------------------------------------
                           1999             1998              1997               1996              1995
                     ---------------- ----------------- ---------------- ------------------- ----------------
                      Amount    %      Amount     %      Amount     %     Amount      %      Amount     %
                     -------- ------- -------- -------- -------- ------- --------- -------- -------- --------
                                               (dollars in thousands)
<S>                  <C>      <C>     <C>      <C>      <C>      <C>     <C>       <C>      <C>      <C>
Commercial and
   industrial ...... $111,236    42.9 $107,886     44.2 $ 96,780    44.5 $  89,065     45.4 $ 41,639     34.8
Real estate
   mortgage.........   91,906    35.5   76,692     31.4   56,408    26.0    47,451     24.2   36,606     30.6
Real estate
   construction.....   16,026     6.2   20,831      8.5   18,215     8.4     8,806      4.5    5,884      4.9
Agricultural........   16,679     6.4   19,777      8.1   21,064     9.7    20,673     10.6   18,046     15.1
Consumer............   15,116     5.8   14,761      6.1   18,726     8.6    18,734      9.6    9,960      8.3
Lease financing.....   11,307     4.4    7,422      3.0    9,211     4.2    12,970      6.6    8,660      7.2
                     -------- ------- -------- -------- -------- ------- --------- -------- -------- --------
  Total face amount
     of loans.......  262,270   101.2  247,369    101.3  220,404   101.4   197,699    100.9  120,795    100.9
Unearned income.....     (219)   (0.1)    (188)    (0.1)    (255)   (0.1)     (264)    (0.1)    (112)    (0.1)
                     -------- ------- -------- -------- -------- ------- --------- -------- -------- --------
Loans, net of
   unearned income..  262,051   101.1  247,181    101.2  220,149   101.3   197,435    100.8  120,683    100.8
Less allowance for
   credit losses....   (2,872)   (1.1)  (2,854)    (1.2)  (2,919)   (1.3)   (1,545)    (0.8)  (1,048)    (0.8)
                     -------- ------- -------- -------- -------- ------- --------- -------- -------- --------
Net loans........... $259,179   100.0 $244,327    100.0 $217,230   100.0  $195,890    100.0 $119,635    100.0
                     ======== ======= ======== ======== ======== ======= ========= ======== ======== ========

</TABLE>
-------------------------
(1)  From continuing operations for all periods presented.

The following table presents, for the periods indicated,  the amount and percent
of change in each category of loans in the Company's  loan  portfolio.  Material
changes are discussed in lettered explanations below the table:

                        Change in Loan Portfolio Composition (1)
                                                Increase (Decrease)
                              --------------------------------------------------
                                  1999 - 1998                1998 - 1997
                              ---------------------     ----------------------
                                  $           %             $           %
                              -----------  --------     ----------   ---------
                                            (dollars in thousands)
  Commercial and industrial.. $    3,350       3%       $  11,106       11% (a)
  Real estate mortgage.......     15,214      20% (b)      20,284       36% (a)
  Real estate construction...     (4,805)    (23)%          2,616       14%
  Agricultural...............     (3,098)    (16)%         (1,287)      (6)%
  Consumer...................        355       2%          (3,965)     (21)%
  Lease financing............      3,885      52%          (1,789)     (19)%
                              -----------               ----------
  Total face amount of loans.     14,901       6%          26,965       12%
  Unearned income............        (31)    (16)%             67       26%
                              -----------               ----------
  Loans, net of unearned
     income..................     14,870       6%          27,032       12%
  Allowance for credit losses        (18)     (1)%             65        2%
                              -----------               ----------
  Net Loans.................. $   14,852       6%       $  27,097       12%
                              ===========               ==========
--------------------
(1)  From continuing operations for all periods presented.

(a)  Increases are primarily  attributable  to loan volume  generated out of the
Minnesota market area.

(b)  Increases  are  attributable  to loan  volume  generated  out of  both  the
Minnesota and North Dakota markets.

While prospects for continued loan growth appear favorable,  particularly in the
Minnesota  and Fargo  markets,  management  cannot  predict  with any  degree of
certainty the Company's future loan growth potential.

Credit Policy and Approval Procedures.  BNC follows a uniform credit policy that
sets forth  underwriting  and loan  administration  criteria.  The loan  policy,
including  lending  guidelines  for the various  types of credit  offered by the

<PAGE>

Company,  is  established by the Board of Directors (the "Board") based upon the
recommendations  of senior lending  management and such credit committees as are
established at either the bank or corporate  level.  The loan policy is reviewed
and reaffirmed by the Board at least annually.  Underwriting  criteria are based
upon the  risks  associated  with  each  type of  credit  offered,  the  related
borrowers and types of collateral.

The Company delegates lending decision  authority among various lending officers
and  the  credit   committees  based  on  the  size  of  the  customer's  credit
relationship with BNC. All loans and commitments  approved in excess of $300,000
are presented to the Board on a monthly basis for summary review. Any exceptions
to loan  policies  and  guidelines  are  subject  to  special  approval  by bank
executive lenders or the credit committees.

Loan  Participations.  Pursuant to BNC's lending policy, loans may not exceed 85
percent of bank legal lending  limits  (except to the extent  collateralized  by
U.S. Treasury  securities or bank deposits and,  accordingly,  excluded from the
bank's legal lending  limit).  To accommodate  customers  whose  financing needs
exceed  lending  limits and internal  loan  restrictions  relating  primarily to
industry   concentration,   the  Banks  sell  loan   participations  to  outside
participants  without recourse.  Loan participations sold on a nonrecourse basis
to outside financial institutions were as follows as of the dates indicated:

                              Loan Participations Sold (1)

                                                 December 31,
                         -------------------------------------------------------
                           1999        1998       1997        1996       1995
                         ----------  ---------  ---------   ---------  ---------
                                             (in thousands)
   BNC--North Dakota..... $  67,700   $ 32,300   $ 55,500   $  54,100  $  35,000
   BNC--Minnesota........    52,400     24,400     10,300       3,200         --
                         ----------  ---------  ---------   ---------  ---------
     Total............... $ 120,100   $ 56,700   $ 65,800   $  57,300  $  35,000
                         ==========  =========  =========   =========  =========
----------------------
(1)  From continuing operations for all periods presented.

The Banks  generally  retain the right to service the loans as well as the right
to receive a portion of the interest  income on the loans.  The vast majority of
the loans sold by the Banks are  commercial  lines of credit for which  balances
and related payment streams cannot be reasonably estimated in order to determine
the fair value of the servicing rights and/or future interest income retained by
the Banks. See Note 1 to the Consolidated  Financial  Statements  included under
Item  8  for  further  discussion  of  accounting  policies  related  to  loans.
Management cannot reliably predict BNC's ability to continue to generate or sell
loan participations or the terms of any such sales.

Concentrations   of   Credit.    The   Company's   credit   policies   emphasize
diversification  of risk among industries,  geographic areas and borrowers.  For
purposes of the  analysis of  concentrations  of credit as of December 31, 1999,
total  outstanding  loans  as  well as all  outstanding  loan  commitments  were
included.  As of December 31, 1999,  the Company  identified  concentrations  of
loans  exceeding  ten percent of total loans and loan  commitments  outstanding.
These   concentrations   were  in  construction  and  real  estate  loans  which
represented  11.2 and  15.9  percent,  respectively,  of  total  loans  and loan
commitments outstanding. Loans and commitments in the construction category were
extended to 76 customers who are located in Minnesota,  Iowa and North and South
Dakota and who can be generally categorized as indicated below:

                                                                Percent of
                                                                  total
                                                                outstanding
                                                                 loans and
                                                  Number of        loan
                                                  customers     commitments
                                                -------------  -------------
          General building contractors.......             21           3.1%
          Heavy construction, excluding
             building........................             28           6.6%
          Special trade contractors..........             27           1.5%
                                                -------------  -------------
               Total.........................             76          11.2%
                                                =============  =============


<PAGE>

The  contractors are involved in various  aspects of the  construction  industry
including  highway  and street  construction,  water/sewer  drilling,  plumbing,
heating and air  conditioning,  commercial  painting,  electrical,  concrete and
excavating and foundation  contractors.  Loans in this category are secured,  in
many cases, by construction equipment.

The real estate loans and  commitments  were  extended to 132  customers who are
diversified  across  the  Company's  market  areas  and  who  can  be  generally
categorized as indicated below:



                                                Percent of
                                                    total
                                                outstanding
                                                  loans and
                                   Number of         loan
                                   customers     commitments
                                 -------------  --------------
Non-residential and apartment
  building operators,
  developers and lessors of
  real property................            77           11.8%
Real estate holding companies..            55            4.1%
                                 -------------  --------------
Total..........................           132           15.9%
                                 =============  ==============

The Company  continually  monitors  industry and other credit  concentrations as
part of its  credit  risk  management  strategies.  In cases  where  significant
concentrations  exist without  sufficient  diversification  and other mitigating
factors,  BNC  generally  sells  loans  without  recourse  to outside  financial
institutions.

Agricultural Loans. BNC's agricultural loan portfolio totals approximately $16.7
million,  or  6  percent  of  total  loans.  Within  the  portfolio,  loans  are
diversified  by type and  include  loans to grain  and/or  livestock  producers,
agricultural  real estate  loans,  machinery  and  equipment  and other types of
loans.  The  majority  of the  Company's  agricultural  loans  are  extended  to
borrowers  located in North Dakota,  and are diversified over several  counties.
The Company has been monitoring its agricultural  loans closely.  As of December
31, 1999, nonperforming agricultural loans totaled $12,000.

Loan  Maturities.  The following  table sets forth the  remaining  maturities of
loans in each major category of BNC's portfolio as of December 31, 1999.  Actual
maturities may differ from the contractual maturities shown below as a result of
renewals and prepayments.  Loan renewals are evaluated in the same manner as new
credit applications:

<TABLE>
<CAPTION>
                                  Maturities of Loans (1)
                                       Over 1 Year
                                     Through 5 years       Over 5 Years
                                    -------------------  -----------------
                         One year    Fixed    Floating     Fixed  Floating
                         or less      Rate      Rate       Rate     Rate      Total
                         ---------  --------  ---------  -------- --------  ---------
                                               (in thousands)

<S>                      <C>        <C>       <C>        <C>      <C>       <C>
 Commercial and
    industrial.......... $  55,706  $ 18,042  $  28,861  $  2,825 $  5,802  $ 111,236
 Real estate mortgage...     7,530    12,316     27,273    25,408   19,379     91,906
 Real estate
    construction........    13,767        --      2,259        --       --     16,026
 Agricultural...........     7,683     3,456      1,330     1,426    2,784     16,679
 Consumer...............     7,628     6,496        399       515       78     15,116
 Lease financing........     1,462     9,058         --       787       --     11,307
                         ---------  --------  ---------  -------- --------  ---------
 Total face amount of
    loans............... $  93,776  $ 49,368  $  60,122  $ 30,961  $28,043  $ 262,270
                         =========  ========  =========  ======== ========  =========
</TABLE>
--------------------

(1)  Maturities  are based  upon  contractual  maturities.  Floating  rate loans
include loans that would  reprice  prior to maturity if base rates  change.  See
Item 7a,  "Quantitative  and  Qualitative  Disclosures  about Market  Risk," for
further discussion regarding repricing of loans and other assets.

<PAGE>

Interest  Rate Floors.  From time to time the Company may use  off-balance-sheet
instruments,  principally  interest  rate floors,  to adjust the  interest  rate
sensitivity of on-balance-sheet items, including loans. See -"Liquidity,  Market
and Credit  Risk," Item 7a,  "Quantitative  and  Qualitative  Disclosures  about
Market  Risk,"  and  Notes  1 and 13 to the  Consolidated  Financial  Statements
included  under  Item  8  for  further  discussion  about  accounting   policies
applicable  to  derivative  financial   instruments  and  currently  outstanding
instruments.

Nonperforming  Loans and Assets.  BNC's lending  personnel are  responsible  for
continuous monitoring of the quality of the loan portfolio. Officer compensation
depends,  to a substantial  extent, on maintaining loan quality and dealing with
credit issues in a timely and proactive manner.  Lenders are not compensated for
growth at the expense of credit  quality.  Loan  officers  are  responsible  for
ongoing and regular review of past due loans in their respective portfolios. The
loan  portfolio is also  monitored  regularly and examined by the Company's loan
review  personnel.  Loans  demonstrating  weaknesses  are downgraded in a timely
fashion and the Board  receives a listing of all such loans on a monthly  basis.
The Company  also has an annual  independent  credit  review  which tests credit
quality,  compliance  with loan  policy  and  documentation  for all loans  over
$100,000 and a sampling of smaller loans.

The  following  table sets  forth,  as of the dates  indicated,  the  amounts of
nonperforming  loans and other  assets,  the  allowance  for  credit  losses and
certain related ratios:

<TABLE>
<CAPTION>

                                    Nonperforming Assets (1)

                                                       December 31,
                                      -----------------------------------------------
                                       1999      1998      1997      1996     1995
                                      --------  -------   -------   -------  --------
                                                  (dollars in thousands)
 <S>                                  <C>       <C>       <C>       <C>      <C>
 Nonperforming loans:
    Loans 90 days or more delinquent
       and still
       accruing interest............. $     22  $   307   $ 1,016   $   129  $    290
    Nonaccrual loans (2) (3).........    1,620    2,042       376        22        71
    Restructured loans (2) (3).......       16       44       104       136       119
                                      --------  -------   -------   -------  --------
       Total nonperforming loans.....    1,658    2,393     1,496       287       480
    Other real estate owned and
       repossessed assets............    1,207    2,112        --       159        --
                                      --------  -------   -------   -------  --------
         Total nonperforming assets.. $  2,865  $ 4,505   $ 1,496   $   446  $    480
                                      ========  =======   =======   =======  ========
 Allowance for credit losses......... $  2,872  $ 2,854   $ 2,919   $ 1,545  $  1,048
                                      ========  =======   =======   =======  ========
 Ratio of total nonperforming loans
    to total loans...................     .63%     .97%      .68%      .15%      .40%
 Ratio of total nonperforming assets
    to total assets..................     .63%    1.21%      .43%      .16%      .20%
</TABLE>
--------------------

(1) From continuing operations for all periods presented.

(2)If the  Company's  nonaccrual  and  restructured  loans had been  current  in
   accordance  with their original terms,  BNC would have recognized  additional
   interest income of $112,000, $49,000 and $30,000 for the years ended December
   31, 1999, 1998 and 1997, respectively.

(3)The interest income on nonaccrual and  restructured  loans actually  included
   in the Company's  net income was $29,000,  $175,000 and $26,000 for the years
   ended December 31, 1999, 1998 and 1997, respectively.

Loans 90 days or more delinquent and still accruing  interest include loans over
90 days past due which management  believes,  based on its specific  analysis of
the loans,  do not present doubt about the  collection of interest and principal
in  accordance  with  the  loan  contract.   Loans  in  this  category  must  be
well-secured and in the process of collection. These loans are monitored closely
by BNC lending and management personnel.

Nonaccrual  loans  include  loans on which  the  accrual  of  interest  has been
discontinued.  Accrual of interest is  discontinued  when  management  believes,
after considering economic and business conditions and collection efforts,  that
the  borrower's  financial  condition is such that the collection of interest is
doubtful.  A delinquent  loan is generally  placed on nonaccrual  status when it
becomes  90 days or more past due  unless  the loan is  well-secured  and in the
process of collection.  When a loan is placed on nonaccrual status,  accrued but

<PAGE>

uncollected  interest  income  applicable  to the  current  reporting  period is
reversed against interest income of the current period.  Accrued but uncollected
interest income applicable to previous  reporting periods is charged against the
allowance  for credit  losses.  No  additional  interest  is accrued on the loan
balance until the collection of both principal and interest  becomes  reasonably
certain.  When a problem loan is finally  resolved,  there may  ultimately be an
actual write down or charge-off  of the principal  balance of the loan which may
necessitate additional charges to earnings.

Restructured loans are those for which concessions, including a reduction of the
interest rate or the deferral of interest or principal, have been granted due to
the borrower's weakened financial  condition.  Interest on restructured loans is
accrued at the  restructured  rates when it is  anticipated  that no loss of its
original principal will occur.

Other real estate owned represents  properties  acquired through, or in lieu of,
loan  foreclosure.  Such  properties are included in other assets in the balance
sheets.  They are  initially  recorded at fair value at the date of  acquisition
establishing  a new  cost  basis.  Write-downs  to  fair  value  at the  time of
acquisition are charged to the allowance for credit losses.  After  foreclosure,
valuations  are  periodically  performed  by  management  and the real estate is
carried  at the  lower of  carrying  amount  or fair  value  less  cost to sell.
Write-downs,  revenues and  expenses  incurred  subsequent  to  foreclosure  are
charged to operations as recognized / incurred.

Potential  Problem Loans. In accordance with accounting  standards,  the Company
identifies loans considered impaired and the valuation allowance attributable to
these  loans.  Impaired  loans  generally  include  loans  on  which  management
believes,  based on current  information  and events,  it is  probable  that the
Company will not be able to collect all amounts due in accordance with the terms
of the loan agreement and which are analyzed for a specific  reserve  allowance.
BNC generally  considers all loans risk-graded  substandard and doubtful as well
as nonaccrual and restructured loans as impaired. Impaired loans at December 31,
1999,  not including the past due,  nonaccrual and  restructured  loans reported
above,  totaled $4.3 million.  A  significant  portion of these loans are not in
default but may have characteristics such as recent adverse operating cash flows
or general risk characteristics that the loan officer feels might jeopardize the
future  timely  collection  of  principal  and interest  payments.  The ultimate
resolution  of these  credits is subject to changes in economic  conditions  and
other  factors.  These loans are closely  monitored to ensure that the Company's
position as creditor is protected to the fullest extent possible.

Customer  Year 2000 Issues.  The Company  implemented  a Year 2000 due diligence
program  relating  to its major  borrowers  and  depositors  which  incorporated
guidelines established by regulatory agencies (the "Program").  Major components
of the Program  included  assignment of  accountability  for the various Program
initiatives,  establishment of critical Program completion dates, identification
of material borrowers and depositors  (hereinafter  collectively  referred to as
"customers"),   a  risk   assessment  of  all   identified   customers  and  the
establishment of risk controls.

The Company managed the Program with available staff.  Therefore,  no additional
salary and benefit  expenses  were incurred in the process of  implementing  and
administering  the  Program.  Other  expenses  incurred,  such  as  postage  and
materials,  were not significant.  No material adverse  circumstances related to
Year 2000 issues of customers have been identified.

Assessment of customer  status with respect to Year 2000 issues,  while critical
to the  banking  industry,  is by nature  subjective  and  imprecise.  While the
Company  has  used  due  diligence  in  assessing  customer  status  and  taking
appropriate  actions based on the results of such  assessments,  there can be no
assurance  that each of its  customers  has been  adequately  prepared and, as a
result,  the potential of an adverse  impact on the Company cannot be completely
eliminated.  See also "Year 2000 Issue" for further information on the Company's
Year 2000 program.

<PAGE>

Allowance for Credit  Losses.  BNCCORP  maintains an allowance for credit losses
sufficient  to absorb  inherent  losses  in the loan  portfolio.  The  allowance
represents  management's  recognition  of the risks of extending  credit and its
evaluation  of the  quality of the loan  portfolio.  The  allowance  is adjusted
through the provision for credit losses, which is charged to income.

At yearend 1999, the Company's total allowance was $2.9 million which equates to
approximately  1.8 and 2.7 times the average  charge-offs for the last three and
five years, respectively,  and 2.4 and 3.8 times the average net charge-offs for
the  same  three-  and  five-year  periods,  respectively.   Because  historical
charge-offs  are not necessarily  indicative of future  charge-off  levels,  the
Company also gives  consideration  to other risk indicators when determining the
appropriate  allowance  level.  The  Company's  charge-off  policy is  generally
consistent with regulatory standards.

The three components to the allowance for credit losses, the specific allowance,
allocated inherent allowance and unallocated  inherent allowance,  are discussed
in Note 1 to the  Consolidated  Financial  Statements  included  under Item 8. A
comprehensive  analysis  of the  adequacy  of the  allowance  for loan losses is
performed  by the Company on a  quarterly  basis.  Additionally,  peer review of
allowance  levels of other  financial  institutions  is  conducted  on an annual
basis.

Historically,   senior   lending   management  in  each  of  BNCCORP's   banking
subsidiaries  has been  responsible for assessing the adequacy of the respective
subsidiary's  allowance for credit losses and making provision for credit losses
recommendations  to the  appropriate  board of directors.  The Company  recently
established  an  Allowance  for Credit  Losses  Review  Committee  (the  "Review
Committee"),   which  now  has  the   responsibility   of  affirming   allowance
methodology,  performing an annual credit loss migration  analysis and assessing
the allowance  components in relation to estimated and actual charge-off trends.
The  Review  Committee  is  responsible  for  assessing  and  reporting  on  the
appropriateness  of the  allowance  for  credit  losses as well as  recommending
revisions  to the  Company's  methodology  for  determining  the adequacy of the
allowance as they become necessary.

Concentrations of credit risk are discussed under  "--Concentrations of Credit."
Concentrations  exist in  construction  and real estate loans.  Additionally,  a
geographic  concentration  of credit risk also arises because  BNCCORP  operates
primarily  in the upper  midwest  with 89  percent  of loans  outstanding  as of
December  31, 1999 having been  extended to  customers  in  Minnesota  and North
Dakota.   Other  groups  of  credit  risk  may  not   constitute  a  significant
concentration,  but are  analyzed  based on other  evident  risk factors for the
purpose of determining an adequate allowance level.

Nonperforming  and  potential  problem  loans are  defined and  discussed  under
"--Nonperforming   Loans  and   Assets"   and   "--Potential   Problem   Loans."
Nonperforming  loans  decreased  from $4.5  million at December 31, 1998 to $2.9
million at December 31, 1999. Many of these loans are specifically  analyzed for
purposes of determining the adequacy of the allowance for credit losses.

Estimating  the risk and amount of loss on any loan is  subjective  and ultimate
losses may vary from current estimates.  Although  management  believes that the
allowance  for credit  losses is adequate to cover  losses  inherent in the loan
portfolio, there can be no assurance that the allowance will prove sufficient to
cover  actual  credit  losses in the future.  In  addition,  various  regulatory
agencies, as an integral part of their examination process,  periodically review
the adequacy of the  Company's  allowance for credit  losses.  Such agencies may
require BNC to make  additional  provisions  to the  allowance  based upon their
judgments about information available to them at the time of their examination.

The  following  table  summarizes,  for the periods  indicated,  activity in the
allowance for credit losses, including amounts of loans charged-off,  amounts of
recoveries,  additions to the allowance charged to operating expense,  the ratio
of net  charge-offs to average total loans,  the ratio of the allowance to total
loans at the end of each period and the ratio of the allowance to  nonperforming
loans:

<PAGE>

<TABLE>
<CAPTION>
                          Analysis of Allowance for Credit Losses (1)
                                             For the Years ended December 31,
                                       ---------------------------  --------  -------
                                        1999     1998      1997      1996      1995
                                       -------  --------  --------  --------  -------
                                                  (dollars in thousands)
<S>                                    <C>      <C>       <C>       <C>       <C>
Balance of allowance for credit
losses, beginning of period   ........ $ 2,854  $  2,919  $  1,545  $  1,048  $ 1,021
                                       -------  --------  --------  --------  -------
Charge-offs:
   Commercial and industrial..........   1,090     1,316     1,319       104      114
   Real estate mortgage...............      10        66        24        --       --
   Agricultural.......................      35        --        --        22      130
   Consumer...........................     137        73       107         6        4
   Lease financing....................      18        --       471       218       --
                                       -------  --------  --------  --------  -------
      Total charge-offs...............   1,290     1,455     1,921       350      248
                                       -------  --------  --------  --------  -------
Recoveries:
   Commercial and industrial..........      86       151       744         5      116
   Real estate mortgage...............       1        26         9         6        3
   Agricultural.......................      --        --        --       146       84
   Consumer...........................      71        12        24        --        4
   Lease financing....................      12        --        --        --       --
                                       -------  --------  --------  --------  -------
      Total recoveries................     170       189       777       157      207
                                       -------  --------  --------  --------  -------
Net charge-offs.......................  (1,120)   (1,266)   (1,144)     (193)     (41)
Provision for credit losses charged
   to operations......................   1,138     1,201     2,518       690      168
Allowance attributable to FMB sale....      --        --        --        --     (100)
                                       -------  --------  --------  --------  -------
Balance of allowance for credit
   losses, end of period.............. $ 2,872  $  2,854  $  2,919  $  1,545  $ 1,048
                                       =======  ========  ========  ========  =======
Ratio of net charge-offs to average
   loans..............................  (.45%)    (.54%)    (.53%)    (.11%)   (.03%)
                                       =======  ========  ========  ========  =======
Average gross loans outstanding
   during the period..................$250,158 $234,342  $214,053  $169,264  $117,773
                                       ======= ========  ========  ========   =======
Ratio of allowance for credit losses
   to total loans.....................   1.10%     1.15%     1.33%      .78%     .87%
                                       =======  ========  ========  ========  =======
Ratio of allowance for credit losses
   to nonperforming loans............. 273.00%   119.00%   195.00%   540.00%  218.00%
                                       =======  ========  ========  ========  =======
</TABLE>
----------------------
(1) From continuing operations for all periods presented.

Included in the data above relating  exclusively to a former officer are special
provisions of $454,000 and $1.9 million,  charge-offs of approximately  $639,000
and $1.8 million and recoveries of  approximately  $153,000 and $690,000 for the
years ended December 31, 1998 and 1997,  respectively.  The recoveries primarily
represent payments from the Company's fidelity bond carrier.  See Note 17 to the
Consolidated  Financial  Statements included under Item 8 for further discussion
related to proceedings against the loan officer.

The table  below  presents,  for the periods  indicated,  an  allocation  of the
allowance for credit losses among the various loan categories and sets forth the
percentage  of loans in each  category to gross  loans.  The  allocation  of the
allowance for credit losses as shown in the table should  neither be interpreted
as an indication of future charge-offs, nor as an indication that charge-offs in
future  periods  will  necessarily  occur in these  amounts or in the  indicated
proportions.


<PAGE>

<TABLE>
<CAPTION>
                                                         Allocation of the Allowance for Loan Losses (1)
                                                                          December 31,
                  ------------------------------------------------------------------------------------------------------------------
                             1999                   1998                     1997                  1996                 1995
                  ------------------------ ---------------------- ---------------------- ---------------------- --------------------
                             Loans in                  Loans in               Loans in                Loans in             Loans
                            category as              category as            category as             category as          catagory as
                   Amount   a percentage    Amount   a percentage  Amount   a percentage   Amount  a percentage Amount  a percentage
                     of      of total         of     of total       of        of total       of      of total      of     of total
                 allowance gross loans    allowance gross loans  allowance gross loans   allowance gross loans allowance gross loans
                 --------- -------------- --------- ------------ --------- ------------- --------- ------------ -------- -----------
                                                                   (dollars in thousands)
<S>              <C>       <C>            <C>       <C>          <C>       <C>           <C>       <C>          <C>
Commercial and
    industrial.. $   1,356            43% $     931          44% $     931           44% $     672          45% $    355         31%
 Real estate
    mortgage....       712            35%       667          31%       441           26%       306          24%      213         30%
 Real estate
    construction       151             6%       129           8%       311            8%        57           4%       41          5%
 Agricultural...       220             6%       252           8%       139           10%       176          11%      318         15%
 Consumer.......       138             6%       217           6%       174            8%        97           9%       58          8%
 Leasing........        88             4%       133           3%       136            4%        63           7%       41          4%
 Unallocated....       207             0%       301           0%       787            0%       174           0%       22          7%
                 --------- -------------- --------- ------------ --------- ------------- --------- ------------ -------- -----------
 Total.......... $   2,872           100% $   2,854         100%  $  2,919          100% $   1,545         100% $  1,048        100%
                 ========= ============== ========= ============ ========= ============= ========= ============ ======== ===========
</TABLE>
---------------------
(1) From continuing operations for all periods presented.

Deposits.  BNC's core  deposits  consist of  noninterest-  and  interest-bearing
demand  deposits,  savings  deposits,  certificates  of deposit under  $100,000,
certain  certificates  of deposit of $100,000 and over and public  funds.  These
deposits, along with other borrowed funds are used by the Company to support its
asset base. See "--Borrowed Funds."

The following table sets forth, for the periods  indicated,  the distribution of
BNC's average deposit  account  balances and average cost of funds rates on each
category of deposits.  See "Results of  Operations--Net  Interest Income" for an
explanation of changes in deposit volume and costs during the periods presented:

<TABLE>
<CAPTION>
                             Average Deposits and Deposit Costs (1)

                                            For the Years Ended December 31,
                        ---------------------------------------------------------------------------
                                 1999                     1998                    1997
                        ------------------------ ----------------------- --------------------------
                                Percent  Wgtd.           Percent  Wgtd.            Percent   Wgtd.
                        Average   of      avg.   Average   of      avg.    Average    of      avg.
                        balance deposits  rate   balance deposits  rate    balance  deposits  rate
                        ------- -------- ------- ------- -------- ------  -------- --------- -------
                                                 (dollars in thousands)
<S>                    <C>      <C>      <C>     <C>     <C>      <C>     <C>      <C>       <C>
Interest-bearing
    demand deposits....$ 91,671   31.22%   3.96%$ 63,115   23.90%  3.37%  $ 50,582    20.36%   3.12%
 Savings deposits......   6,294    2.14%   2.05%   8,717    3.30%  2.26%     8,904     3.58%   2.31%
 Time deposits (CDs):
 CDs under $100,000.... 125,470   42.72%   5.16% 130,759   49.50%  5.61%   127,092    51.14%   5.59%
 CDs $100,000 and over.  43,140   14.69%   5.35%  36,704   13.90%  5.86%    41,581    16.73%   5.74%
                        ------- --------         -------- -------         --------  --------
 Total time deposits... 168,610   57.41%   5.20% 167,463   63.40%  5.66%   168,673    67.87%   5.63%
                        ------- --------         -------- -------         -------- ---------
 Total
    interest-bearing
    deposits........... 266,575   90.77%   4.70% 239,295   90.60%  4.93%   228,159   91.81%    4.94%
 Noninterest-bearing
 demand deposits.......  27,094    9.23%     --   24,827    9.40%    --     20,357    8.19%      --
                        ------- --------         -------- -------         -------- -------
 Total deposits........ 293,669   100.0%   4.27%$264,122   100.0%  4.47%  $248,516   100.0%    4.54%
                        ======= ========         ======== =======         ======== =======
</TABLE>
------------------------
(1) From continuing operations for all periods presented.

In recent years, earning asset growth has outpaced core deposit growth resulting
in the use of  brokered  and out of market  certificates  of  deposit  and other
borrowed  funds.  See  "--Borrowed  Funds."  This  trend has been  common in the
banking  industry because of the  proliferation of non-bank  competitors and the
multitude of financial and  investment  products  available to customers.  As of
December 31, 1999, BNC held a total of $13.4 million of brokered certificates of
deposit.  Under  current FDIC  regulations,  only "well  capitalized"  financial
institutions  may fund themselves with brokered  deposits without prior approval
of regulators.  BNC--North Dakota and BNC--Minnesota  were both well capitalized
at December  31,  1999.  See Note 11 to the  Consolidated  Financial  Statements
included  under  Item 8 for a  summary  of  capital  status of the  Banks.

<PAGE>

Time  deposits in  denominations  of $100,000 and more totaled  $46.8 million at
December  31, 1999 as compared to $39.2 and $36.3  million at December  31, 1998
and 1997, respectively. The following table sets forth the amount and maturities
of time deposits of $100,000 or more as of December 31, 1999:

                             Time Deposits of $100,000 and Over
                                       (in thousands)
                    Maturing in:
                    3 months or less................... $  22,368
                    Over 3 months through 6 months.....    12,710
                    Over 6 months through 12 months....     9,844
                    Over 12 months.....................     1,857
                                                        ----------
                       Total........................... $  46,779
                                                        ==========

Borrowed Funds. BNC uses short-term  borrowings to support its asset base. These
borrowings  include federal funds purchased and U.S.  Treasury tax and loan note
option  accounts,  securities  sold  under  agreements  to  repurchase  and FHLB
borrowings.  At December 31, 1999,  short-term borrowings were $88.7 million, or
20 percent of total liabilities,  as compared to $49.3 million, or 13 percent of
total  liabilities,  at December  31, 1998 and $46.5  million,  or 14 percent of
total  liabilities,  at  December  31,  1997.  See  Note 9 to  the  Consolidated
Financial  Statements  included  under  Item  8  for  a  listing  of  borrowings
outstanding at December 31, 1999 and 1998, including interest rates and terms.

The following  table provides a summary of the Company's  short-term  borrowings
and related cost information as of, or for the periods ended, December 31:

<TABLE>
<CAPTION>
                                   Short-Term Borrowings (1)

                                                           1999      1998       1997
                                                         --------  --------   --------
                                                           (dollars in thousands)
<S>                                                      <C>        <C>       <C>
  Short-term borrowings outstanding at period end......  $ 88,700   $ 49,290  $ 46,503
  Weighted average interest rate at period end.........     5.74%      4.99%     5.77%
  Maximum month-end balance during the period..........  $ 94,300   $ 58,416  $ 46,503
  Average borrowings outstanding for the period........  $ 61,993   $ 49,576  $ 22,730
  Weighted average interest rate for the period........     5.33%      5.44%     5.69%
</TABLE>
---------------------
(1)  From continuing operations for all periods presented.

As of December 31, 1999, the Company's only  outstanding  long-term debt was its
Subordinated Notes totaling $14.5 million. See Notes 1 and 9 to the Consolidated
Financial  Statements  included under Item 8 for more details.  During  February
2000 the Company retired $814,000 of the Subordinated  Notes. See Note 22 to the
Consolidated  Financial  Statements  included under Item 8 for a summary of this
transaction.

The Company's  decreased  usage of long-term  borrowings at December 31, 1999 is
attributable  to the sale of BNC Financial.  BNC  Financial's  asset-based  loan
portfolio was funded primarily with long-term debt.

Capital   Resources  and  Expenditures.   BNC's  management   actively  monitors
compliance with bank regulatory capital  requirements,  including risk-based and
leverage  capital  measures.  Under the  risk-based  capital  method of  capital
measurement,  the ratio  computed is dependent on the amount and  composition of
assets  recorded  on the  balance  sheet,  and the  amount  and  composition  of
off-balance  sheet  items,  in addition to the level of capital.  Note 11 to the
Consolidated  Financial  Statements  included under Item 8 includes a summary of
the risk-based and leverage capital ratios of BNC and its subsidiary banks as of

<PAGE>

December  31, 1999 and 1998.  As of each of those  dates,  BNCCORP and the Banks
exceeded  capital  adequacy  requirements  and the Banks were  considered  "well
capitalized" under prompt corrective action provisions.

The Company is currently in the process of  constructing  an office  building in
Fargo,  North Dakota.  The total cost to complete the  construction  and provide
furniture  and  equipment for the building is estimated at between $4.0 and $4.5
million and has been funded  through cash  generated  from  operations.  Capital
expenditures for Fargo were  approximately  $3.6 million during 1999. There were
no other major capital expenditures made during 1999 or 1998.

Liquidity, Market and Credit Risk

The  Company's  business  activities  generate,  in  addition  to  other  risks,
significant   liquidity,   market  and  credit  risks.  Liquidity  risk  is  the
possibility of being unable to meet all present and future financial obligations
in a timely manner.  Market risk arises from changes in interest rates, exchange
rates,  commodity  prices and equity prices and represents the possibility  that
changes in future  market  rates or prices  will have a  negative  impact on the
Company's  earnings or value.  The Company's  principal  market risk is interest
rate risk. See Item 7a,  "Quantitative and Qualitative  Disclosures about Market
Risk." Credit risk is the  possibility of loss from the failure of a customer to
perform  according  to the terms of a contract.  BNC is a party to  transactions
involving  financial  instruments  that  create  risks  that  may or may  not be
reflected on a traditional  balance sheet.  These  financial  instruments can be
subdivided into three categories:

   Cash  financial  instruments,  generally  characterized  as  on-balance-sheet
   items, include investments,  loans,  mortgage-based securities,  deposits and
   other debt obligations.

   Credit-related    financial   instruments,    generally    characterized   as
   off-balance-sheet  items,  include such  instruments as commitments to extend
   credit and standby letters of credit.

   Derivative   financial   instruments,   also   generally   characterized   as
   off-balance-sheet  items,  include such instruments as interest rate, foreign
   exchange,  commodity price and equity price  contracts,  including  forwards,
   swaps and options.

The  Company's  risk  management  policies  are  intended  to monitor  and limit
exposure  to  liquidity,  market and credit  risks that arise from each of these
financial instruments.  See "--Loan Portfolio" for a discussion of the Company's
credit risk management strategies.

Liquidity Risk Management.  Liquidity risk management  encompasses the Company's
ability to meet all present and future financial obligations in a timely manner.
The objectives of liquidity  management policies are to maintain adequate liquid
assets,  liability  diversification among instruments,  maturities and customers
and a  presence  in both the  wholesale  purchased  funds  market and the retail
deposit market.

The  Consolidated  Statements  of  Cash  Flows  in  the  Consolidated  Financial
Statements  included  under  Item 8  present  data on cash and cash  equivalents
provided  by and used in  operating,  investing  and  financing  activities.  In
addition to liquidity  from core deposit  growth,  together with  repayments and
maturities  of loans and  investments,  BNC utilizes  brokered  deposits,  sells
securities under agreements to repurchase and borrows  overnight  federal funds.
The Banks are both members of the FHLB,  which affords them the  opportunity  to
borrow funds in terms ranging from overnight to ten years and beyond. Borrowings
from the FHLB are  generally  collateralized  by the Banks'  mortgage  loans and
various investment securities.  See "--Investment  Securities" and Notes 4 and 9
to the Consolidated  Financial Statements included under Item 8. The Company has

<PAGE>

also  obtained  funding  through  long-term  borrowings  and the issuance of its
Subordinated  Notes.  See  "--Borrowed  Funds"  and  Note 9 to the  Consolidated
Financial Statements included under Item 8.

The  following  table sets forth,  for the periods  indicated,  a summary of the
Company's major sources and (uses) of funds. This summary information is derived
from the Consolidated Statements of Cash Flows included under Item 8:

                              Major Sources and Uses of Funds (1)

<TABLE>
<CAPTION>
                                                   For the Years Ended December 31,
                                                   ----------------------------------
                                                       1999      1998        1997
                                                   ----------  ----------  ----------
                                                            (in thousands)
<S>                                                <C>         <C>         <C>
 Proceeds from sales and maturities of
   investment secuirities.......................   $ 127,403   $   89,926  $   39,335
 Net increase in deposits.......................      40,212       21,675      23,054
 Increase in short-term borrowings..............      39,410        2,787      35,066
 Net increase (decrease) in long-term borrowings     (14,520)       8,750      11,151
 Purchases of  investment securities............    (185,958)     (91,981)    (74,121)
 Net increase in loans..........................     (16,160)     (37,131)    (34,124)

</TABLE>
----------------------
(1) From continuing operations for all periods presented.

BNC's  liquidity  is measured by its ability to raise cash when it needs it at a
reasonable  cost and with a minimum of loss.  Given the uncertain  nature of our
customer's demands as well as the Company's desire to take advantage of earnings
enhancement  opportunities,  the Company must have  adequate  sources of on- and
off-balance  sheet funds that can be acquired in time of need.  Accordingly,  in
addition to the  liquidity  provided by balance  sheet cash flows,  liquidity is
supplemented with additional  sources such as credit lines with the FHLB, credit
lines  with  correspondent  banks  for  federal  funds,   wholesale  and  retail
repurchase agreements,  brokered certificates of deposit and direct non-brokered
national  certificates  of deposit  through  national  deposit  networks.  BNC's
management  measures its liquidity position on a monthly basis. Key factors that
determine  the  Company's  liquidity  are the  reliability  or  stability of its
deposit base, the  pledged/nonpledged  status of its  investments  and potential
loan demand.  BNC's liquidity  management  system divides the balance sheet into
liquid assets,  and short-term  liabilities that are assumed to be vulnerable to
non-replacement  under  abnormally  stringent  conditions.  The excess of liquid
assets over short-term  liabilities is measured over a 30-day planning  horizon.
Assumptions  for  short-term  liabilities  vulnerable to  non-replacement  under
abnormally  stringent  conditions  are  based on a  historical  analysis  of the
month-to-month  percentage changes in deposits. The excess of liquid assets over
short-term  liabilities  and other key factors  such as expected  loan demand as
well as  access  to other  sources  of  liquidity  such as lines  with the FHLB,
federal  funds,  and those  other  supplemental  sources  listed  above are tied
together  to  provide a measure of the  Company's  liquidity.  Management  has a
targeted  range and  manages  its  operations  such that  these  targets  can be
achieved.   Management   believes  that  its  prudent  management  policies  and
guidelines will ensure adequate levels of liquidity to fund anticipated needs of
on- and  off-balance-sheet  items.  In  addition,  a  contingency  funding  plan
identifies actions to be taken in response to an adverse liquidity event.

The Company's  asset/liability  committee  implemented a liquidity  plan for the
period  spanning the Year 2000 date change.  The Company did not  experience any
liquidity-related problems as a result of the Year 2000 date change.


<PAGE>


Year 2000 Issue

The Company implemented a Year 2000 program which included the following phases:
awareness, assessment,  renovation, testing / validation and implementation (the
"Y2K Program"). The Y2K Program applied to all IT and non-IT systems, as well as
any providers who service and maintain these systems.

The Company  managed  the Y2K Program  with  available  staff  (other than a few
isolated  instances  where  consultants  were engaged for a specific  activity).
Therefore,  the Company did not incur  additional  salary and benefits  expenses
related to the development and implementation of the Y2K Program.

The Company invested  approximately $156,000 in hardware and software (primarily
for the Y2K lab  and  some  non-compliant  computers  and  software  which  were
replaced).  Other Y2K Program  costs  incurred  were  approximately  $48,000 and
included  costs for items such as materials,  supplies,  postage and rental of a
generator. Management's initial projection for Y2K Program expenses was $200,000
to $400,000.  All costs associated with the Y2K Program have been funded through
cash generated from operations.

While the Company has remained in close  communication  with customers,  vendors
and other intermediaries,  it has had no control over the remediation efforts of
these third  parties with whom it has material  business  relationships  and the
failure of certain of these parties to  successfully  remediate  their Year 2000
issues could  potentially  have a material  adverse  affect on the Company.  The
Company  received  initial  assurances  from certain of these third parties that
their ability to perform their  obligations  to the Company were not expected to
be  materially  adversely  affected by the Year 2000  problem.  The Company also
tested, to the extent possible,  systems,  software and interfaces through which
business  transactions  with such third parties are effected.  Management is not
aware  of  any  materially  adverse  circumstances  related  to  the  Year  2000
remediation efforts of third parties with whom the Company has material business
relationships.

The Company  completed a contingency  plan to handle its most reasonably  likely
worst case Y2K scenarios.  It did not become  necessary to implement any portion
of the contingency plan in response to Y2K-related events.

All  forecasts,  estimates  and  other  statements  relating  to the  Year  2000
readiness of the Company and its customers and business partners have been based
on  information  and  assumptions  about future  events.  Such "forward  looking
statements"  are subject to various  known and unknown  risks and  uncertainties
that  could  cause  actual  events  to  differ  from  such   statements.   These
uncertainties included, but are not limited to, the understanding of the Company
that its core  application  and other  systems are and will  continue to be Year
2000  compliant,  the ability to identify,  repair or replace  mission  critical
non-IT  equipment in a timely  fashion,  the ability of certain third parties to
ensure their  systems are Year 2000  compliant and the ability of the Company to
test  interfaces  with  certain  of these  third  parties,  the  performance  of
telecommunications,  data transmission and utilities  providers,  the failure or
impairment of certain third parties with which the Company  transacts  business,
systemic  occurrences  in the banking  industry which could impact the Company's
liquidity and undiscovered problems in the Company's Year 2000 testing plans and
processes.  While the Company has exercised due diligence in the  development of
its  Year  2000  plans  and has  taken  appropriate  actions  based  on the best
available  information,  there can be no assurance that events and circumstances
will transpire as expected and, as a result, the potential of a material adverse
impact on the Company cannot be completely eliminated.

Forward Looking Statements

Statements  included  in  Item  7,  "Management's  Discussion  and  Analysis  of
Financial  Condition  and Results of  Operations"  which are not  historical  in
nature are  intended  to be,  and are  hereby  identified  as  "forward  looking
statements"  for  purposes  of the safe  harbor  provided  by Section 21E of the
Securities  Exchange Act of 1934, as amended.  The Company cautions readers that

<PAGE>

forward looking statements,  including without limitation, those relating to the
Company's  future business  prospects,  revenues,  working  capital,  liquidity,
capital  needs,  interest  costs and income,  are  subject to certain  risks and
uncertainties  that could cause actual results to differ  materially  from those
indicated in the forward looking  statements due to several  important  factors.
These factors  include,  but are not limited to: risks of loans and investments,
including dependence on local economic conditions; competition for the Company's
customers from other providers of financial  services;  possible adverse effects
of changes in interest  rates;  risks of  unanticipated  and still  unidentified
consequences  related to the impact of the Year 2000 Issue on the Company or its
customers and business partners; risks associated with the Company's acquisition
strategy;  and other risks which are  difficult to predict and many of which are
beyond the control of the Company.

Effects of Inflation

Unlike  most  industrial  companies,  the assets and  liabilities  of  financial
institutions are primarily monetary in nature. Therefore,  banking organizations
do not  necessarily  gain or lose due to the  effects of  inflation.  Changes in
interest  rates,   which  are  a  major   determinant  of  a  financial  service
organization's  profitability,  do not necessarily  correspond to changes in the
prices of goods and services. An analysis of a banking  organization's asset and
liability  structure  provides the best  indication of how the  organization  is
positioned to respond to changing interest rates and maintain profitability.

The financial  statements and  supplementary  financial data have been prepared,
primarily,  on a  historical  basis  which is  mandated  by  generally  accepted
accounting  principles.  Fluctuations  in the  relative  value of  money  due to
inflation or recession are generally not considered.

Recent Accounting Pronouncements

Note 1 to the Consolidated  Financial  Statements included under Item 8 includes
discussions of recent accounting pronouncements applicable to the activities and
financial reporting of BNC.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Market risk arises from changes in interest rates, exchange rates, and commodity
prices and equity prices and represents the  possibility  that changes in future
market rates or prices will have a negative impact on the Company's  earnings or
value. The Company's principal market risk is interest rate risk.

Interest rate risk arises from changes in interest rates. Interest rate risk can
result from: (1) Re-pricing risk - timing differences in the maturity/re-pricing
of assets, liabilities,  and off-balance sheet contracts; (2) Options risk - the
effect of embedded options, such as loan prepayments, interest rate caps/floors,
and deposit withdrawals; (3) Basis risk - risk resulting from unexpected changes
in the spread between two or more different rates of similar  maturity,  and the
resulting  impact on the  behavior of lending and funding  rates;  and (4) Yield
curve risk - risk resulting from unexpected changes in the spread between two or
more rates of different maturities from the same type of instrument. The Company
has risk  management  policies  to monitor and limit  exposure to interest  rate
risk.  To date the Company has not  conducted  trading  activities as a means of
managing  interest  rate  risk.  BNC's  asset/liability  management  process  is
utilized to manage the Company's interest rate risk. The measurement of interest
rate risk  associated  with financial  instruments  is meaningful  only when all
related and offsetting on- and  off-balance-sheet  transactions  are aggregated,
and the resulting net positions are identified.

<PAGE>

Interest rate risk exposure is actively  managed with the goal of minimizing the
impact of interest rate  volatility on current  earnings and on the market value
of equity.  In general,  the assets and liabilities  generated  through ordinary
business activities do not naturally create offsetting positions with respect to
repricing or maturity  characteristics.  Access to the derivatives market can be
an important  element in maintaining  the Company's  interest rate risk position
within  policy  guidelines.  Using  off-balance-sheet  instruments,  principally
interest  rate  floors and caps,  the  interest  rate  sensitivity  of  specific
on-balance-sheet  transactions,  as well as pools of assets or  liabilities,  is
adjusted  to  maintain  the  desired  interest  rate risk  profile.  See "--Loan
Portfolio-Interest Rate Floors" and Notes 1 and 13 to the Consolidated Financial
Statements  included  under  Item 7 for a summary  of the  Company's  accounting
policies pertaining to such instruments.

The Company's  primary tool in measuring and managing  interest rate risk is net
interest  income  simulation.  This  exercise  includes  management  assumptions
regarding  the  level of  interest  rate or  balance  changes  on  indeterminate
maturity deposit products (savings, NOW, money market and demand deposits) for a
given  level of market  rate  changes.  These  assumptions  have been  developed
through a  combination  of  historical  analysis  and  future  expected  pricing
behavior. Interest rate caps and floors are included to the extent that they are
exercised in the 12-month simulation period. Additionally, changes in prepayment
behavior of the residential mortgage and mortgage-backed  securities  portfolios
in each rate  environment  are captured using  industry  estimates of prepayment
speeds for various  coupon  segments of the  portfolio.  Finally,  the impact of
planned  growth and  anticipated  new business  activities  is factored into the
simulation model.

It is the  Company's  objective  to manage its  exposure to interest  rate risk,
bearing in mind that the  Company  will  always be in the  business of taking on
rate risk and that rate risk immunization is not entirely possible.  Also, it is
recognized  that as exposure to  interest  rate risk is reduced,  so too may the
overall level of net interest income.

The Company monitors the results of net interest income  simulation on a monthly
basis at regularly scheduled Asset/Liability management committee meetings. Each
month net interest  income is simulated  for the  upcoming  12-month  horizon in
seven interest  scenarios.  The scenarios modeled are parallel interest ramps of
+/- 100bp, 200bp, and 300bp along with a rates unchanged scenario.  The parallel
movement of interest rates means all projected  market interest rates move up or
down by the same  amount.  A ramp in  interest  rates  means that the  projected
change in market interest rates occurs over the 12-month horizon projected.  For
example, in the +100bp scenario, the projected prime rate will increase from its
starting  point of 8.75 percent to 9.75 percent 12 months later.  The prime rate
in this example will increase 1/12th of the overall increase of 100 basis points
each month.

The net interest income simulation  results for the 12-month horizon that covers
the calendar year of 2000 is shown below.  The growth  assumption  used for this
simulation  was based on the growth  projections  built into the Company's  2000
budget.  The impact of each  interest  rate  scenario on projected  net interest
income is displayed  before and after the impact of the $25.0  million  notional
interest rate floor on the prime rate with an 8.50 percent strike.

<PAGE>
<TABLE>
<CAPTION>

                               Net Interest Income Simulation
                                   (amounts in thousands)
<S>                            <C>       <C>      <C>      <C>        <C>     <C>     <C>
Movement in interest rates      -300bp   -200bp   -100bp   Unchanged  +100bp  +200bp  +300bp
                               -------  -------  -------   --------- ------- ------- -------
Projected 12-month net
   interest income............ $16,494  $16,305  $16,123   $  15,943 $15,582 $15,535 $14,905

Dollar change from rates
   unchanged scenario.........     551      362      180           -    (361)   (708) (1,038)
Percentage change from rates
   unchanged scenario.........   3.46%    2.27%    1.13%       0.00%   -2.26%  -4.44%  -6.51%

Benefit/(cost) from $25MM
   floor (1)..................     188       57     (87)       (224)    (224)   (224)   (224)

Total net interest income
   impact with floor..........  16,682   16,362  16,036      15,719   15,358  15,011  14,681
Dollar change from flat w/
   floor......................     963      643     317           -     (361)   (708) (1,038)
Percentage change from
   unchanged w/floor..........    6.13%    4.09%   2.02%       0.00%   -2.30%  -4.50%  -6.60%

Benefit from amortization of
   deferred gain on
   sale of interest rate
   swaps (2)..................      53       53      53           53      53       53      53

Total net interest income
   impact w/floor & swap
   gain....................... $16,735  $16,415  $16,089    $  15,772  $15,441 $15,064 $14,734
Dollar change from flat
   w/floor & swap............. $   963  $   643  $   317            -  $  (361)$  (708)$(1,038)
Percentage change from flat
   w/floor & swap.............   6.11%    4.08%    2.01%        0.00%   -2.29%   -4.49%  -6.58%

POLICY LIMITS.................  -9.00%   -6.00%   -3.00%        0.00%    3.00%    6.00%   9.00%

</TABLE>

(1) In  September  1998,  the  Company  purchased  an interest  rate floor.  The
notional  amount of the floor is $25.0 million with a maturity date of September
29,  2003.  The floor's  reference  rate is the prime rate with a strike of 8.50
percent.  The Company paid a premium of $1,120,000  or (4.48% per million).  The
premium is being amortized on a straight-line  basis over the 5-year term of the
option.  See "-Loan  Portfolio-Interest  Rate  Floors"  and Note 1 and 13 to the
Consolidated  Financial Statements included under Item 7 for further information
on accounting policies related to derivative financial investments.

(2) The swaps were sold in October and November 1997. Gains recognized upon sale
of the swaps are being  amortized  as a reduction  of interest  expense over the
remaining lives of the original swap contracts.

The Company's rate sensitivity  position over the projected twelve month horizon
is  liability  sensitive.  This is evidenced  by the  projected  decrease of net
interest income in the rising  interest rate scenarios,  and the increase in net
interest income in falling rate scenarios.  The primary reason for this interest
rate risk profile is the growth of the new Wealthbuilder  deposit products along
with the continued growth in these products that is projected into 2000, as well
as the growth and mix of components of the asset side of the balance sheet.

The Company's  general policy is to limit the percentage change in projected net
interest income to +/- 3%, 6%, and 9% from the rates unchanged  scenario for the
+/-100bp,  200bp,  and 300bp  interest rate ramp  scenarios,  respectively.  The
Company was within its policy  limits for each  projected  scenario in the table
above.

Static gap  analysis is another  tool which may be used for  interest  rate risk
measurement.  The net  differences  between  the amount of assets,  liabilities,
equity and off-balance-sheet  instruments repricing within a cumulative calendar
period is  typically  referred  to as the "rate  sensitivity  position"  or "gap
position."  The  following  table  sets  forth the  Company's  rate  sensitivity
position as of December 31, 1999.  Assets and  liabilities are classified by the
earliest possible repricing date or maturity, whichever occurs first:

<PAGE>

<TABLE>
<CAPTION>
                             Interest Sensitivity Gap Analysis

                                          Estimated maturity or repricing at December 31,
                                                                1999
                                         ---------------------------------------------------
                                           0-3        4-12      1-5       Over
                                          months     months    years    5 Years     Total
                                         ---------  --------- --------- --------- ----------
                                                       (dollars in thousands)
 <S>                                      <C>        <C>      <C>         <C>      <C>
 Interest-earning assets:
    Cash equivalents.................... $  5,565   $     -- $      --   $    --  $   5,565
    Federal Funds sold..................    3,500         --        --        --      3,500
    Investment securities (1)...........      289      1,119     3,886   145,698    150,992
    Fixed rate loans (2)................    5,989      9,596    49,367    30,961     95,913
    Floating rate loans (2).............  147,138      8,868     9,962       389    166,357
                                         ---------  --------- --------- --------- ----------
       Total interest-earning assets.... $162,481   $ 19,583  $ 63,215  $177,048  $ 422,327
                                         =========  ========= ========= ========= ==========
 Interest-bearing liabilities:
    NOW and money market accounts....... $122,288   $     --  $     --  $     --  $ 122,288
    Savings.............................    5,166         --        --        --      5,166
    Time deposits under $100,000........   40,257     65,323    14,389       711    120,680
    Time deposits $100,000 and over.....   22,368     22,554     1,631       226     46,779
    Borrowings..........................   88,700         --    14,470        --    103,170
                                         ---------  --------- --------- --------- ----------
       Total interest-bearing
          liabilities................... $278,779   $ 87,877  $ 30,490  $    937  $ 398,083
                                         =========  ========= ========= ========= ==========
 Interest rate gap...................... $(116,298) $(68,294) $ 32,725  $176,111  $  24,244
                                         =========  ========= ========= ========= ==========
 Cumulative interest rate gap at
    December 31, 1999................... $(116,298) $(184,592)$(151,867)$ 24,244
                                         =========  ========= ========= =========
 Cumulative interest rate gap to
    total assets........................   (25.45)%  (40.40)%  (33.24)%     5.31%

</TABLE>
--------------------

(1) Investment  securities are generally reported in the timeframe  representing
the earliest of repricing date, call date (for callable  securities),  estimated
life or  maturity  date.  Estimated  lives  of  mortgage-backed  securities  and
collateralized  mortgage  obligations are based on published industry prepayment
estimates for securities with  comparable  weighted  average  interest rates and
contractual maturities.

(2) Loans are stated gross of the  allowance for credit losses and are placed in
the earliest timeframe in which maturity or repricing may occur.

The table assumes that all savings and interest-bearing  demand deposits reprice
in  the  earliest  period  presented,   however,  BNC's  management  believes  a
significant  portion  of these  accounts  constitute  a core  component  and are
generally  not rate  sensitive.  Management's  position is supported by the fact
that aggressive reductions in interest rates paid on these deposits historically
has not caused notable reductions in balances.

The table does not  necessarily  indicate the future impact of general  interest
rate  movements on the  Company's net interest  income  because the repricing of
certain assets and  liabilities is  discretionary  and is subject to competitive
and other pressures.  As a result, assets and liabilities indicated as repricing
within the same period may in fact reprice at  different  times and at different
rate levels.

Static gap  analysis  does not fully  capture  the impact of  embedded  options,
lagged interest rate changes,  administered  interest rate products,  or certain
off-balance-sheet sensitivities to interest rate movements. Therefore, this tool
cannot  be used in  isolation  to  determine  the  level of  interest  rate risk
exposure in more complex banking institutions.

Since there are  limitations  inherent in any  methodology  used to estimate the
exposure to changes in market interest rates, these analyses are not intended to
be a forecast of the actual effect of changes in market  interest  rates such as
those  indicated  above on the Company.  Further,  this analysis is based on the
Company's  assets  and  liabilities  as  of  December  31,  1999  (with  forward

<PAGE>

adjustments for planned growth and anticipated business activities) and does not
contemplate  any actions the Company  might  undertake in response to changes in
market interest rates.

Item 8. Financial Statements and Supplementary Data

                         INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements:                                        Page

Report of Independent Public Accountants................................   41

Consolidated Balance Sheets as of December 31, 1999 and 1998............   42

Consolidated Statements of Income for the years ended December 31, 1999,
   1998 and 1997........................................................   43

Consolidated Statements of Comprehensive Income (Loss) for the years ended
   December 31, 1999, 1998 and 1997.....................................   44

Consolidated Statements of Stockholders' Equity for the years ended
   December 31, 1999, 1998 and 1997.....................................   45

Consolidated Statements of Cash Flows for the years ended December 31,
   1999, 1998 and 1997..................................................   46

Notes to Consolidated Financial Statements..............................   47



<PAGE>
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To BNCCORP, Inc.:

We have audited the accompanying consolidated balance sheets of BNCCORP, Inc. (a
Delaware corporation) and Subsidiaries as of December 31, 1999 and 1998, and the
related  consolidated   statements  of  income,   comprehensive  income  (loss),
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 1999. These financial  statements are the  responsibility  of
BNCCORP's  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
audits to obtain reasonable assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial  position of BNCCORP,  Inc. and
Subsidiaries  as of  December  31,  1999  and  1998,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
                                              ARTHUR ANDERSEN LLP


Minneapolis,  Minnesota,
   February  8, 2000


<PAGE>


                        BNCCORP, INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets
                               As of December 31
                (In thousands, except share and per share data)

                          ASSETS                               1999       1998
                                                            ----------  --------
CASH AND DUE FROM BANKS.................................... $   12,816 $  7,475
INTEREST-BEARING DEPOSITS WITH BANKS.......................      5,565    2,809
FEDERAL FUNDS SOLD.........................................      3,500       --
INVESTMENT SECURITIES AVAILABLE FOR SALE...................    150,992   96,601
LOANS AND LEASES, net of unearned income...................    262,051  247,181
ALLOWANCE FOR CREDIT LOSSES................................     (2,872)  (2,854)
                                                             ---------- --------
   Net loans and leases....................................    259,179  244,327
PREMISES, LEASEHOLD IMPROVEMENTS AND
   EQUIPMENT, net..........................................     12,006    8,786
INTEREST RECEIVABLE........................................      2,613    2,356
OTHER ASSETS...............................................      6,945    5,929
DEFERRED CHARGES AND INTANGIBLE ASSETS, net................      3,261    3,957
ASSETS OF DISCONTINUED OPERATION...........................         --   24,092
                                                             --------- ---------
                                                            $  456,877 $396,332
                                                             ========= =========
           LIABILITIES AND STOCKHOLDERS' EQUITY

DEPOSITS:
   Noninterest-bearing..................................... $   29,798 $ 28,475
   Interest-bearing --
      Savings, NOW and money market........................    127,454   89,887
      Time deposits $100,000 and over......................     46,779   39,162
      Other time deposits..................................    120,680  126,975
                                                            ---------- ---------
   Total deposits..........................................    324,711  284,499
NOTES PAYABLE..............................................    103,170   58,485
OTHER LIABILITIES..........................................      5,847    6,362
 LIABILITIES OF DISCONTINUED OPERATION.....................         --   21,731
                                                            ---------- ---------
         Total liabilities.................................    433,728  371,077
                                                            ---------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 16 and 17)
STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value, 2,000,000 shares
      authorized; no shares issued or outstanding..........         --       --
   Common stock, $.01 par value, 10,000,000 shares
      authorized; 2,399,980 and 2,390,184 shares issued and
      outstanding (excluding 42,880 shares held in treasury)
      in 1999 and 1998, respectively.......................         24       24
  Capital surplus..........................................     13,976   13,951
   Retained earnings.......................................     11,893   11,651
   Treasury stock (42,880 shares)..........................       (513)    (513)
   Accumulated other comprehensive income (loss),
      net of income tax effects............................     (2,231)     142
                                                            ---------- ---------
         Total stockholders' equity........................     23,149   25,255
                                                            ---------- ---------
                                                            $  456,877 $ 396,332
                                                            ========== =========
    The accompanying notes are an integral part of these consolidated balance
                                    sheets.


<PAGE>


                         BNCCORP, INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                         For the Years Ended December 31
                      (In thousands, except per share data)

                                                      1999      1998      1997
                                                    --------  --------  --------
INTEREST INCOME:
   Interest and fees on loans...................... $ 22,083  $ 22,148  $ 20,697
   Interest and dividends on investment securities--
   Taxable.........................................    6,090     4,977     3,714
   Tax-exempt......................................      386        95        71
   Dividends.......................................      263       304       446
   Other...........................................      109       277       304
                                                    --------  --------  --------
         Total interest income.....................   28,931    27,801    25,232
                                                    --------  --------  --------
INTEREST EXPENSE:
   Interest on deposits............................   12,537    11,809    11,282
   Interest on short-term borrowings...............    3,303     2,694     1,294
   Interest on long-term borrowings................      734       649       556
                                                    --------  --------  --------
         Total interest expense....................   16,574    15,152    13,132
                                                    --------  --------  --------
         Net interest income.......................   12,357    12,649    12,100
PROVISION FOR CREDIT LOSSES........................    1,138     1,201     2,518
                                                    --------  --------  --------
NET INTEREST INCOME AFTER PROVISION FOR
   CREDIT LOSSES...................................   11,219    11,448     9,582
                                                    --------  --------  --------
NONINTEREST INCOME:
   Insurance commissions...........................    2,045     1,769     1,694
   Fees on loans...................................    1,435     1,376       884
   Brokerage income................................      797        53        46
   Service charges.................................      536       566       471
   Net gain on sales of securities.................      198       130         8
   Rental income...................................      121        43        56
   Other...........................................      936       906       769
                                                    --------  --------  --------
         Total noninterest income..................    6,068     4,843     3,928
                                                    --------  --------  --------
NONINTEREST EXPENSE:
   Salaries and employee benefits..................    8,854     7,463     6,184
   Write-down of other real estate owned and
      repossessed assets...........................    2,271         2        --
   Depreciation and amortization...................    1,586     1,498     1,310
   Occupancy.......................................    1,248       988       948
   Professional services...........................    1,214       766       552
   Office supplies, telephone and postage..........      941       749       647
   Marketing and promotion.........................      621       455       363
   FDIC and other assessments......................      191       184       171
   Other...........................................    1,289     1,274     1,081
                                                    --------  --------  --------
         Total noninterest expense.................   18,215    13,379    11,256
                                                    --------  --------  --------
Income (loss) before income taxes..................     (928)    2,912     2,254
Income taxes.......................................     (399)    1,030       955
                                                    --------  --------  --------
Income (loss) from continuing operations...........     (529)    1,882     1,299

<PAGE>

                         BNCCORP, INC. AND SUBSIDIARIES
                  Consolidated Statements of Income, continued
                         For the Years Ended December 31
                      (In thousands, except per share data)

                                                      1999      1998      1997
                                                    --------  --------  --------
Discontinued Operation:
   Income from operations of discontinued
      asset-based lending subsidiary (less
      applicable income taxes of $292, $263 and
      $89 for the years ended December 31, 1999,
      1998 and 1997, respectively).................      429       385       127
   Gain on disposal of asset-based lending
      subsidiary, including operating income
      of $50 during phase-out period
      (less applicable income taxes of $268).......      438        --        --
                                                    --------  --------  --------
Income before cumulative effect of change in
   accounting principle............................      338     2,267     1,426
Cumulative effect of change in accounting
   principle, net of income tax effects............      (96)       --        --
                                                    --------  --------  --------
NET INCOME......................................... $    242  $  2,267  $  1,426
                                                    ========  ========  ========

BASIC EARNINGS PER COMMON SHARE:
Income (loss) from continuing operations........... $  (0.22) $   0.79  $   0.54
Income from operations of discontinued asset-based
   lending subsidiary (less applicable income
   taxes)..........................................     0.18      0.16      0.05
Gain on disposal of asset-based lending subsidiary
   (less applicable income taxes)..................     0.18        --        --
Cumulative effect of change in accounting
   principle, net of income tax effects............    (0.04)       --        --
                                                    --------  --------  --------
Earnings per share, basic.......................... $   0.10  $   0.95  $   0.59
                                                    ========  ========  ========

DILUTED EARNINGS PER COMMON SHARE:

Income (loss) from continuing operations........... $  (0.22) $   0.75  $   0.54
Income from operations of discontinued asset-based
   lending subsidiary (less applicable
   income taxes) ..................................     0.18      0.16      0.05
Gain on disposal of asset-based lending subsidiary
   (less applicable income taxes)..................     0.18        --        --
Cumulative effect of change in accounting
   principle, net of income tax effects............    (0.04)       --        --
                                                    --------   --------  -------
Earnings per share, diluted........................ $   0.10   $  0.91   $  0.59
                                                    =========  ========  =======

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


<PAGE>


                         BNCCORP, INC. AND SUBSIDIARIES
             Consolidated Statements of Comprehensive Income (Loss)
                         For the Years Ended December 31
                                 (In thousands)

                                                 1999       1998       1997
                                              ---------  ---------  ---------
NET INCOME............................        $     242  $   2,267  $   1,426
OTHER COMPREHENSIVE INCOME --
   Unrealized gains (losses) on securities:
      Unrealized holding gains (losses)
      arising during the period, net of
      income tax effects..............           (2,373)       (28)       127
      Less: reclassification adjustment
      for gains included in net income,
      net of income tax effects.......             (121)       (79)        (5)
                                              ---------  ---------  ---------
OTHER COMPREHENSIVE INCOME (LOSS).....           (2,494)      (107)       122
                                              ---------  ---------  ---------
COMPREHENSIVE INCOME (LOSS)...........        $  (2,252) $   2,160  $   1,548
                                              =========  =========  =========


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


<PAGE>

<TABLE>
<CAPTION>

                               BNCCORP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Stockholders' Equity
                             (In thousands, except share data)

                                                                                      Accumulated
                                                                                         Other
                                    Common Stock      Capital   Retained   Treasury  Comprehensive
                                  Shares     Amount   Surplus   Earnings     Stock    Income (Loss)   Total
                                 ------------------  ---------  ---------  --------- --------------  --------
<S>                              <C>        <C>      <C>        <C>        <C>       <C>             <C>
BALANCE, December 31, 1996...    2,427,506  $    24  $  13,786  $   7,985  $   (216) $          43   $ 21,595
   Net income................           --       --         --      1,426        --             --      1,426
   Other comprehensive income-
    Change in unrealized
    holding gain on
    securities available for
    sale, net of income tax
    effects..................           --       --         --         --        --            127        127
                                 ---------  -------  ---------  ---------  --------- --------------  --------
BALANCE, December 31, 1997...    2,427,506       24     13,786      9,384      (216)           170     23,148
   Net income................           --       --         --      2,267        --             --      2,267
   Other comprehensive income-
    Change in unrealized
    holding gain on
    securities available for
    sale, net of income tax
    effects..................           --       --         --         --        --            (28)       (28)
Other........................        5,558       --        165         --        --             --        165
Purchase of treasury stock...           --       --         --         --      (297)            --       (297)
                                ----------  -------  ---------  ---------  --------- --------------  ---------
BALANCE, December 31, 1998...    2,433,064       24     13,951     11,651      (513)           142     25,255
   Net Income................           --       --         --        242        --             --        242
   Other comprehensive income-
    Change in unrealized
    holding gain on
    securities available for
    sale, net of income tax
    effects..................           --       --         --         --        --         (2,373)    (2,373)
Other........................        9,796       --         25         --        --             --         25
                                ----------  -------  ---------  ---------  --------- --------------  ---------
BALANCE, December 31, 1999...    2,442,860  $    24  $  13,976  $  11,893  $   (513) $      (2,231)  $ 23,149
                                ==========  =======  =========  =========  ========= ==============  =========
</TABLE>

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




<PAGE>


                         BNCCORP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                         For the Years Ended December 31
                                 (In thousands)
<TABLE>
<CAPTION>
                                                              1999       1998       1997

                                                           ---------  ---------- ----------
<S>                                                        <C>        <C>        <C>
OPERATING ACTIVITIES:
   Net income..............................................$     242  $   2,267  $   1,426
   Adjustments to reconcile net income to net cash provided
      by operating activities --
      Provision for credit losses............................  1,138      1,290      2,619
      Depreciation and amortization..........................  1,045        901        718
      Amortization of intangible assets......................    541        606        599
      Net premium amortization (discount accretion) on           612        172       (131)
         investment securities...............................
      Proceeds from loans recovered..........................    170        189        777
      Write down of other real estate owned and repossessed    2,271          2         --
         assets..............................................
      Change in interest receivable and other assets, net....   (796)    (3,049)    (1,998)
      Gain on disposal of asset-based lending subsidiary.....   (438)        --         --
      (Gain) loss on sale of bank premises and equipment.....     10        117         (2)
      Net realized gains on sales of investment securities...    198       (130)        (8)
      Deferred income taxes.................................. (2,503)      (190)      (367)
      Change in other liabilities, net.......................   (515)       (74)       654
      Originations of loans to be sold......................(117,299)   (47,412)   (58,305)
      Proceeds from sale of loans............................117,299     47,412     58,305
                                                             --------  --------- ----------
         Net cash provided by operating activities...........  1,975      2,101      4,287
                                                             --------  --------- ----------
INVESTING ACTIVITIES:
   Purchases of investment securities.......................(185,958)   (91,981)   (74,121)
   Proceeds from sales of investment securities.............. 39,732     58,855     27,198
   Proceeds from maturities of investment securities......... 87,671     31,071     12,137
   Net increase in loans.....................................(16,160)   (37,131)   (34,124)
   Additions to premises, leasehold improvements and
      equipment.............................................. (4,396)    (1,254)    (2,693)
   Proceeds from sale of premises and equipment..............    121         26         82
   Disposition of discontinued asset-based lending
      subsidiary............................................. 23,373         --         --
                                                             --------  --------- ----------
         Net cash used in investing activities...............(55,617)   (40,414)   (71,521)
                                                             --------  --------- ----------
FINANCING ACTIVITIES:
   Net increase in demand, savings, NOW and money market
      accounts............................................... 38,890     16,937     26,724
   Net increase (decrease) in time deposits..................  1,322      4,738     (3,670)
   Net increase in short-term borrowings..................... 39,410      2,787     35,066
   Repayments of long-term borrowings........................(29,520)   (13,492)   (23,293)
   Proceeds from long-term borrowings........................ 15,000     22,242     34,444
   Amortization of discount on subordinated notes............     92         84         46
   Amortization of deferred charges..........................     20         18         10
   Repurchase of stock.......................................     --       (297)        --
   Other, net................................................     25        165         --
                                                             --------  --------- ----------
         Net cash provided by financing activities........... 65,239     33,182     69,327
                                                             --------  --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 11,597     (5,131)     2,093
CASH AND CASH EQUIVALENTS, beginning of year................. 10,284     15,415     13,322
                                                             --------  --------- ----------
CASH AND CASH EQUIVALENTS, end of year.......................$21,881   $ 10,284  $  15,415
                                                             ========  ========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
   Interest paid.............................................$16,494   $ 14,091  $  13,689
                                                             ========  ========= ==========
   Income taxes paid.........................................$ 1,107   $  1,648  $   1,664
                                                             ========  ========= ==========
</TABLE>

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


<PAGE>


                         BNCCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 1999 and 1998


1.  Summary of Significant Accounting Policies

BNCCORP,  Inc.  ("BNCCORP") is a registered  bank holding  company  incorporated
under the laws of  Delaware.  It is the  parent  company  of BNC  National  Bank
(together with its wholly-owned subsidiaries,  BNC Insurance, Inc. and BNC Asset
Management,  Inc.,  "BNC-North  Dakota")  and BNC  National  Bank  of  Minnesota
("BNC-Minnesota"  and,  together with BNC-North  Dakota,  "the Banks").  Through
these wholly-owned subsidiaries, which operate from seventeen locations in North
Dakota and  Minnesota,  BNCCORP  provides a broad range of banking and financial
services  to small  and  mid-size  businesses  and  individuals.  An  additional
wholly-owned subsidiary, Bismarck Properties, Inc., is inactive.

The  accounting  and  reporting   policies  of  BNCCORP  and  its   subsidiaries
(collectively,   the  "Company")  conform  to  generally   accepted   accounting
principles and general  practices within the financial  services  industry.  The
more significant  accounting policies are summarized below. On December 31, 1999
the Company sold its asset-based lending subsidiary,  BNC Financial Corporation,
which is treated as a discontinued operation.

Business Combinations. Business combinations which have been accounted for under
the  purchase  method of  accounting  include the results of  operations  of the
acquired  businesses from the date of  acquisition.  Net assets of the companies
acquired  were  recorded  at  their  estimated  fair  value  as of the  date  of
acquisition.  Other  business  combinations  have been  accounted  for under the
pooling-of-interests method of accounting which requires the assets, liabilities
and stockholders' equity of the merged entity to be retroactively  combined with
the Company's  respective  accounts at recorded  value.  Prior period  financial
statements have been restated to give effect to business combinations  accounted
for under this method.

Discontinued  Operation.  The results of the discontinued operation and any gain
or loss on disposal are reported  separately from continuing  operations.  Prior
period   financial   statements  have  been  restated  to  give  effect  to  the
discontinued operation accounted for under this method.

Principles of Consolidation.  The accompanying consolidated financial statements
include  the  accounts  of  BNCCORP  and  its  wholly-owned  subsidiaries.   All
significant  intercompany  transactions  and balances  have been  eliminated  in
consolidation.

Cash and Cash  Equivalents.  For the purpose of presentation in the consolidated
statements  of  cash  flows,  the  Company  considers  amounts  included  in the
consolidated   balance   sheet   captions   "cash  and  due  from   banks"   and
"interest-bearing deposits with banks" to be cash equivalents.

Investment  Securities.  Investment  and  mortgage-backed  securities  which the
Company  intends to hold for indefinite  periods of time,  including  securities
that  management  intends  to use as  part  of  its  asset/liability  management
strategy,  or that may be sold in response to changes in interest rates, changes
in prepayment risk, the need to increase  regulatory capital or similar factors,
as well as securities on which call options have been written, are classified as
available for sale.  Available-for-sale  securities  are measured at fair value.
Net unrealized  gains and losses,  net of deferred  income taxes, on investments
and   mortgage-backed   securities   available  for  sale,   while  included  in
comprehensive  income (see "Comprehensive  Income"),  are excluded from earnings
and reported as a separate component of stockholders' equity until realized. All
securities  were  classified  as available  for sale as of December 31, 1999 and
1998.  Investment and  mortgage-backed  securities  which the Company intends to
hold until maturity are stated at cost,  adjusted for  amortization  of premiums
and  accretion  of  discounts  using a method  that  approximates  level  yield.

<PAGE>

Declines in the fair value of individual  available-for-sale or held-to-maturity
securities  below  their  cost which are other than  temporary  could  result in
write-downs of the individual  securities to their fair value. Such write-downs,
should they occur, would be included in earnings as realized losses.  There were
no such write-downs during 1999, 1998 or 1997.

Securities  purchased and sold for purposes of generating  profits on short-term
differences  in market  prices are  classified  as trading  securities.  Trading
securities  are stated at fair value and  adjustments to fair value are reported
in noninterest income. The Company held no securities for trading purposes as of
December 31, 1999 or 1998.

Realized  gains and losses on sales of investment  securities are computed using
the  specific  identification  method  at the time of sale and are  recorded  in
noninterest income.

Loans and Leases. Loans are stated at their outstanding  principal amount net of
unearned income and an allowance for credit losses.

Loans are generally  placed on a nonaccrual  status for  recognition of interest
income when, in the opinion of management, uncertainty exists as to the ultimate
collection of principal or interest.  At the time a loan is placed on nonaccrual
status,  accrued  but  uncollected  interest  income  applicable  to the current
reporting  period is reversed  against  interest  income of the current  period.
Accrued but uncollected interest income applicable to previous reporting periods
is charged  against  the credit  loss  reserve.  While a loan is  classified  as
nonaccrual,  collections  are  generally  applied as a  reduction  to  principal
outstanding.

Allowance  for Credit  Losses.  The Company  maintains  its allowance for credit
losses at a level  considered  adequate  to provide  for an estimate of probable
losses  related to  specifically  identified  loans as well as  probable  losses
inherent in the remaining loan and lease portfolio that have been incurred as of
each balance sheet date. The loan and lease portfolio and other credit exposures
are reviewed  regularly to evaluate  the  adequacy of the  allowance  for credit
losses.  In determining  the level of the allowance,  the Company  evaluates the
allowance  necessary for specific  nonperforming loans and also estimates losses
inherent in other credit exposures. The resultant three allowance components are
as follows:

   Specific  Allowance.  This  component is  determined  through a  loan-by-loan
   analysis of  nonperforming  loans that considers  expected future cash flows,
   the value of  collateral  and other  factors  that may impact the  borrower's
   ability to pay.

   Allocated  Inherent  Allowance.  This  component  is  based  on loss  factors
   assigned to the  Company's  credit  exposures  based on internal  credit risk
   ratings.  These loss factors are  primarily  based on  management's  judgment
   concerning  the effect of the business cycle on the  creditworthiness  of the
   Company's borrowers as well as historical charge-off experience.

   Unallocated Inherent Allowance.  The unallocated portion of the inherent loss
   allowance  is based on  factors  that  cannot be  associated  with a specific
   credit or loan risk rating  categories.  These factors  include  management's
   subjective evaluation of local and national economic and business conditions,
   portfolio  concentrations  and changes in the  character and size of the loan
   portfolio.  The unallocated  portion of the inherent loss allowance  reflects
   management's  attempt  to ensure  that the  overall  allowance  appropriately
   reflects a margin for the  imprecision  necessarily  inherent in estimates of
   expected credit losses.

Continuous  credit monitoring  processes and the quarterly  analysis of specific
and inherent loss  components is the principal  method relied upon by management
to ensure that  changes in  estimated  credit loss levels are  reflected  in the
Company's  allowance  for  credit  losses  on a timely  basis.  Management  also
considers experience of peer institutions and regulatory guidance in addition to
the Company's own experience.

<PAGE>

Loans, leases and other extensions of credit deemed uncollectible are charged to
the  allowance.  Subsequent  recoveries,  if any, are credited to the allowance.
Actual  losses may vary from current  estimates  and the amount of the provision
may be either  greater  than or less than  actual net  charge-offs.  The related
provision for credit losses, which is charged to income, is the amount necessary
to adjust the allowance to the level determined  appropriate through application
of the above process.

Loan  Origination  Fees and Costs.  Loan  origination fees and costs incurred to
extend  credit are deferred and  amortized  over the term of the loan as a yield
adjustment.  Loan fees representing  adjustments of yield are generally deferred
and amortized into interest  income over the term of the loan using the interest
method.   Loan  commitment  fees  are  generally  deferred  and  amortized  into
noninterest income on a straight-line basis over the commitment period.

Mortgage  Servicing and Transfers of Financial Assets.  The Banks regularly sell
loans to others on a  non-recourse  basis.  Sold loans are not  included  in the
accompanying balance sheets. The Banks generally retain the right to service the
loans as well as the right to  receive a portion of the  interest  income on the
loans.  At December 31, 1999 and 1998,  the Banks were  servicing  loans for the
benefit of others with aggregate unpaid  principal  balances of $148.7 and $73.8
million,  respectively.  The vast  majority  of the loans  sold by the Banks are
commercial lines of credit for which balances and related payment streams cannot
be  reasonably  estimated in order to determine  the fair value of the servicing
rights and/or future interest income retained by the Banks.

Premises, Leasehold Improvements and Equipment. Premises, leasehold improvements
and  equipment  are  reported  at  cost  less   accumulated   depreciation   and
amortization.  Depreciation and amortization for financial reporting purposes is
charged to operating expense using the  straight-line  method over the estimated
useful  lives of the  assets.  Estimated  useful  lives  are up to 40 years  for
buildings  and  three  to ten  years  for  furniture  and  equipment.  Leasehold
improvements  are amortized  over the shorter of the lease term or the estimated
useful  life of the  improvement.  The costs of  improvements  are  capitalized.
Maintenance and repairs, as well as gains and losses on dispositions of premises
and equipment, are included in noninterest expense as incurred.

Other Real Estate Owned and  Repossessed  Property.  Real estate  properties and
other assets acquired  through,  or in lieu of, loan foreclosure are included in
other assets in the balance sheet and are stated at the lower of carrying amount
or fair value less cost to sell.  When an asset is  acquired,  the excess of the
recorded  investment  in the asset over fair  value,  if any,  is charged to the
allowance for credit  losses.  Subsequent  declines in the estimated fair value,
net  operating  results  and gains and  losses on  disposition  of the asset are
included in other noninterest expenses.  The Company's investment in such assets
at December 31, 1999 and 1998 was $1.2 and $2.1 million, respectively.

Deferred Charges and Intangible  Assets.  Deferred charges and intangible assets
includes  premiums paid for deposits assumed,  goodwill,  debt related costs and
other miscellaneous intangibles. Deposit premiums are being amortized over their
estimated lives of ten years using the straight-line method. Goodwill represents
the aggregate excess of the cost of subsidiaries acquired over the fair value of
their  net  assets  at dates of  acquisition  and is  being  amortized  over its
estimated  useful life of 15 to 25 years using the  straight-line  method.  Debt
related costs represent legal, accounting and other fees and expenses associated
with the issuance of such indebtedness. These costs are being amortized over the
term of the notes  using the  effective  interest  rate  method.  The  Company's
intangible assets are monitored to assess  recoverability  and determine whether
events  and  circumstances   require  adjustment  to  the  recorded  amounts  or
amortization periods. See "Impairment of Long-Lived Assets."

Impairment of Long-Lived  Assets.  The Company  periodically  reviews long-lived
assets including property and equipment,  certain  identifiable  intangibles and
goodwill for  impairment.  If impairment is  identified,  the assets are written
down to their  fair  value  through a charge  to  noninterest  expense.  No such
impairment losses were recorded during 1999, 1998 or 1997.

<PAGE>

Securities Sold Under  Agreements to Repurchase.  From time to time, the Company
enters into sales of securities  under  agreements to repurchase,  generally for
periods of less than 90 days. Fixed coupon agreements are treated as financings,
and the  obligations to repurchase  securities sold are reflected as a liability
in the balance sheets.  The cost of securities  underlying the agreements remain
in the asset accounts.

Fair Values of Financial Instruments. The following methods and assumptions were
used by the  Company in  estimating  fair  values of  financial  instruments  as
disclosed herein:

   Cash and Cash Equivalents,  Noninterest-Bearing Deposits and Demand Deposits.
   The carrying amounts  approximate fair value due to the short maturity of the
   instruments. The fair value of deposits with no stated maturity, such as NOW,
   savings and money market  accounts,  is equal to the amount payable on demand
   at the reporting date.

   Securities.  The fair value of the Company's securities equals the quoted
   market price.

   Loans.  Fair values for loans are estimated by  discounting  future cash flow
   payment  streams using rates at which current loans to borrowers with similar
   credit ratings and similar loan maturities are being made.

   Interest-Bearing   Deposits.   Fair   values  of   interest-bearing   deposit
   liabilities  are estimated by  discounting  future cash flow payment  streams
   using rates at which comparable  current deposits with comparable  maturities
   are being issued.

   Borrowings.  The carrying amount of short-term  borrowings  approximates fair
   value due to the short maturity and the instruments' floating interest rates,
   which are tied to market conditions. The fair values of long-term borrowings,
   for which the maturity  extends beyond one year, are estimated by discounting
   future cash flow payment streams using rates at which  comparable  borrowings
   are currently being offered.

Derivative  Financial  Instruments.  As part of managing its interest rate risk,
the Company may, from time to time, use derivative financial instruments such as
interest rate swaps,  floors and caps. Such instruments are used to hedge market
values and to alter the cash flow  characteristics  of certain  on-balance sheet
instruments.  The derivative  instruments  used to manage interest rate risk are
linked  with a  specific  asset or  liability  or a group of  related  assets or
liabilities at the inception of the  derivative  contract and have a high degree
of correlation  with the associated  balance sheet item during the hedge period.
Net interest  income or expense on derivative  contracts  used for interest rate
risk  management  is accrued.  Realized  gains and losses on  contracts,  either
settled or terminated,  are deferred and are recorded as either an adjustment to
the  carrying  value of the related  on-balance  sheet asset or  liability or in
other assets or other liabilities.  Deferred amounts are amortized into interest
income or expense  over either the  remaining  original  life of the  derivative
instrument or the expected life of the associated asset or liability. Unrealized
gains or losses on these contracts are not recognized on the balance sheet.  The
Company  does  not  conduct  trading  activities  or hold  derivative  financial
instruments for speculative purposes.

Trust Fees.  Trust fees are recorded on the accrual basis of accounting.

Income Taxes.  BNCCORP and its subsidiaries  file a consolidated  federal income
tax return. State income tax returns are filed separately by each subsidiary. In
accordance with a tax sharing arrangement,  BNCCORP collects for or pays to each
of its subsidiaries  the tax or tax benefit  resulting from its inclusion in the
consolidated federal return.

Deferred  income taxes are reported for temporary  differences  between items of
income or expense reported for financial  statement  purposes and those reported
for income tax purposes.  The  differences  relate  primarily to  differences in

<PAGE>

accounting for loan losses,  depreciation timing  differences,  unrealized gains
and losses on investment securities,  deferred compensation and leases which are
treated as operating  leases for tax purposes and capital  leases for  financial
statement purposes.

Earnings Per Common Share.  Basic earnings per share is computed by dividing net
income by the weighted average common shares  outstanding  during the applicable
period. Diluted earnings per share is computed based on the amount of net income
that would be available for each common share,  assuming all dilutive  potential
common shares were issued.  Such dilutive  potential common shares include stock
options and warrants (see Note 19).

Comprehensive  Income (Loss).  The Company presents a consolidated  statement of
comprehensive  income  (loss)  detailing  changes in the  amounts of items which
bypass the income  statement  and are reported  with a balance in  stockholders'
equity.

Segment  Disclosures.  The Company has  provided  disclosure  of  financial  and
descriptive information about reportable operating segments in Note 20.

Other  Recently  Issued  Accounting  Standards.  On January 1, 1999, the Company
adopted  Statement  of  Position  98-5,  "Reporting  on the  Costs  of  Start-Up
Activities"  ("SOP  98-5"),  which  requires  costs of start-up  activities  and
organization  costs  to be  expensed  as  incurred.  SOP  98-5  did not  require
restatement of prior period financial statements.  The impact of adoption of SOP
98-5 is  presented  in the  consolidated  financial  statements  as a cumulative
effect of change in accounting principle.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities,"  ("SFAS 133").  SFAS 133  establishes  accounting  and
reporting  standards  requiring  that  every  derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
balance sheet as either an asset or liability  measured at its fair value.  SFAS
133 requires that changes in the derivative=s fair value be recognized currently
in  earnings  unless  specific  hedge  accounting   criteria  are  met.  Special
accounting  for  qualifying  hedges  allows a  derivative's  gains and losses to
offset related results on the hedged item in the income statement,  and requires
that a company must formally document,  designate,  and assess the effectiveness
of transactions that receive hedge accounting.

SFAS 133 is effective for fiscal years  beginning after June 15, 2000 and cannot
be applied retroactively. SFAS 133 must be applied to (a) derivative instruments
and (b) certain  derivative  instruments  embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 (and, at the
Company's election, before January 1, 1998).

The Company  plans to adopt SFAS 133 on January 1, 2001 and is  currently in the
process of  developing  applicable  policy  statements,  effecting any necessary
system  changes and  quantifying  the impact of the  adoption of SFAS 133 on its
financial  statements.  Adoption  of  the  accounting  standard  could  increase
volatility in earnings and other comprehensive income.

Regulatory Environment.  BNCCORP and its subsidiaries are subject to regulations
of certain state and federal agencies,  including periodic examinations by those
regulatory  agencies.  BNCCORP  and its  subsidiary  banks are also  subject  to
minimum  regulatory capital  requirements.  At December 31, 1999, capital levels
exceed minimum capital requirements (see Note 11).

Reclassifications.  Certain amounts in the financial  statements for prior years
have been reclassified to conform with the current year's presentation.

<PAGE>

Use of  Estimates.  The  preparation  of  consolidated  financial  statements in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during  the  reporting  period.  The  actual  results  could  differ  from those
estimates.

2.  Acquisitions and Divestitures:

On December 31, 1999, the Company sold its asset-based lending  subsidiary,  BNC
Financial  Corporation ("BNC Financial"),  to Associated Banc-Corp of Green Bay,
Wisconsin.  The Company  received $5.3 million in cash for all of the issued and
outstanding common stock of BNC Financial.

Operating  results of BNC Financial for the nine months ended September 30, 1999
are shown separately in the accompanying  consolidated  statement of income. The
gain on disposal of BNC Financial of $438,000  (pretax gain of $706,000,  net of
income tax effects of $268,000)  included  operating  results for the subsidiary
during  the phase out period of October 1 through  December  31,  1999 and other
adjustments  related to the  winding  down of BNC  Financial's  operations.  The
income  statements  for the years  ended  December  31,  1998 and 1997 have been
restated to reflect the operating results of BNC Financial as discontinued.

Net interest income and noninterest income for BNC Financial for the years ended
December 31, 1999,  1998 and 1997 were $1.6 million and  $266,000,  $1.1 million
and  $208,000,  and $528,000 and $196,000,  respectively.  These amounts are not
included  in net  interest  income and  noninterest  income in the  accompanying
consolidated income statements.

The net assets and  liabilities  of BNC  Financial at December 31, 1998 and 1997
have been separately classified in the accompanying consolidated balance sheets.

The following mergers and acquisitions  were consummated  during the three years
ended December 31, 1999:

In January 1997,  BNC-North  Dakota  acquired the stock of J.D. Meier  Insurance
Agency, Inc., Linton,  North Dakota ("J.D. Meier") for $34,000.  Three executive
officers of the Company owned stock in J.D. Meier.

In August  1997,  BNC-North  Dakota  purchased a  management  agreement  between
Preferred  Investment  Services,  Inc., and Preferred Pension Investors I-87, an
Illinois   Partnership   (the   "Agreement")   for   $394,000.    An   executive
officer/director of BNCCORP owned stock in Preferred Investment  Services,  Inc.
Under the Agreement,  BNC-North Dakota, through its trust and financial services
division,  provides  administrative  management  services  for  pension  assets.
Goodwill of $394,000  resulting from the  transaction is being amortized over 15
years.

On January 1, 1998, the Company  acquired Lips & Lahr, Inc. ("Lips & Lahr") in a
business combination accounted for as a pooling of interests. Lips & Lahr, which
engages in the insurance business was merged into J.D. Meier and became a wholly
owned  subsidiary of BNC-North  Dakota  through the exchange of 63,406 shares of
BNCCORP common stock for all of the  outstanding  stock of Lips & Lahr. The name
of the combined  agency was  subsequently  changed to BNC Insurance,  Inc. ("BNC
Insurance"). Under the provisions of the agreement and plan of merger related to
the business  combination,  former  stockholders of Lips & Lahr had the right to
receive  additional  shares of BNCCORP common stock on the first  anniversary of
the  initial  share  distribution  date  based on a  formula  relating  to final
resolution of contingencies pending at the consummation date.

<PAGE>

3. Restrictions on Cash and Due From Banks:

BNCCORP's  subsidiary  banks are required to maintain  reserve  balances in cash
with the Federal Reserve Bank. The amount of those reserve balances was $1.5 and
$1.3 million as of December 31, 1999 and 1998, respectively.

4.  Debt and Equity Securities:

Debt and equity  securities  have been  classified in the  consolidated  balance
sheets  according  to  management's   intent.  The  Company  had  no  securities
designated as trading or  held-to-maturity in its portfolio at December 31, 1999
or 1998. The carrying amount of securities and their  approximate  market values
were as follows as of December 31 (in thousands):

<TABLE>
<CAPTION>

                                                  Gross       Gross     Estimated
                                    Amortized   Unrealized  Unrealized    Market
                                      Cost        Gains       Losses      Value
                                    ----------  ----------  ----------- -----------
   <S>                              <C>         <C>         <C>         <C>
     Available-for-Sale Securities
                 1999
   U.S. government agency mortgage-
      backed securities...........  $  26,697     $     2    $   (404)   $  26,295
   U.S. government agencies             4,654          --        (186)       4,468
   securities.....................
   Collateralized mortgage             97,243          50      (2,255)      95,038
   obligations....................
   State and municipal bonds......     20,272          15        (739)      19,548
   Equity securities..............      5,643          --           --       5,643
                                    ----------  ----------  ----------- -----------
                                    $ 154,509     $    67   $  (3,584)   $ 150,992
                                    ==========  ==========  =========== ===========
     Available-for-Sale Securities
                 1998
   U.S. Treasury securities.......  $   5,098   $      11    $      --   $   5,109
   U.S. government agency mortgage-
      backed securities...........     51,194         329         (79)      51,444
   U.S. government agencies            13,096           5        (103)      12,998
   securities.....................
   Collateralized mortgage             19,602         127        (122)      19,607
   obligations....................
   State and municipal bonds......      3,355          72          (7)       3,420
   Equity securities..............      4,024          --          (1)       4,023
                                    ----------  ----------  ----------  ----------
                                    $  96,369   $     544   $    (312)   $  96,601
                                    ==========  ==========  ==========  ==========

</TABLE>

The amortized cost and estimated  fair market value of securities  available for
sale (other than equity  securities)  classified  according to their contractual
maturities at December 31, 1999, were as follows (in thousands):

<PAGE>



                                     Available-for-Sale
                                         Securities
                                    ----------------------
                                    Estimated
                                    Amortized    Market
                                      Cost       Value
                                    ---------- -----------
Due in one year or less...........  $   1,413   $   1,409
Due after one year through five         3,920       3,886
years.............................
Due after five years through ten       20,707      20,452
years.............................
Due after ten years...............    122,826     119,602
                                    ---------- -----------
   Total..........................  $ 148,866  $  145,349
                                    ========== ===========

Securities  carried at  approximately  $126.5 and $83.8  million at December 31,
1999 and 1998, respectively,  were pledged as collateral for public deposits and
borrowings, including borrowings with the Federal Home Loan Bank ("FHLB").

Sales proceeds and gross  realized gains and losses on securities  available for
sale were as follows for the years ended December 31 (in thousands):

                                     1999          1998         1997
                                  -----------   -----------  -----------
        Sales proceeds........    $   39,732    $   58,855   $   27,198
        Gross realized gains..    $      239    $      164   $       40
        Gross realized losses.    $       41    $       34   $       32

Income taxes applicable to net gains and losses on securities available for sale
were $75,000, $49,000 and $3,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

5. Loans and Leases:

Composition of Loan and Lease  Portfolio.  The composition of the loan and lease
portfolio was as follows as of December 31 (in thousands):

                                   1999         1998
                                 ----------  -----------
Commercial and industrial.....   $ 111,236   $  107,886
Real estate:
   Mortgage...................      91,906       76,692
   Construction...............      16,026       20,831
Agricultural..................      16,679       19,777
Consumer......................      13,232       14,345
Lease financing...............      11,307        7,422
Other.........................       1,884          416
                                 ----------  -----------
   Total......................     262,270      247,369
Less:
   Allowance for credit losses      (2,872)      (2,854)
   Unearned income............        (219)        (188)
                                 ----------  -----------
      Net loans and leases....   $ 259,179   $  244,327
                                 ==========  ===========
<PAGE>

Geographic  Location and Types of Loans.  Loans were to borrowers located in the
following market areas as of December 31:

                                             1999         1998
                                            --------     -------
                  North Dakota............      46%         42%
                  Minnesota...............      43           49
                  Other...................      11            9
                                            ========     =======
                        Totals............     100%         100%
                                            ========     =======

Commercial  loan  borrowers  are generally  small- and  mid-sized  corporations,
partnerships  and sole  proprietors  in a wide variety of  businesses.  Loans to
consumers  are both  secured  and  unsecured.  Real  estate  loans  are fixed or
variable rate and include both  amortizing and revolving  line-of-credit  loans.
Real estate  mortgage loans include various types of loans for which the Company
holds real  property as  collateral.  Of the $91.9 and $76.7 million real estate
mortgages as of December 31, 1999 and 1998,  respectively,  approximately  $38.2
and $35.0 million,  respectively,  were loans made to commercial customers where
the collateral for the loan is, among other things,  the real estate occupied by
the business of the customer.  Accordingly,  certain loans  categorized  as real
estate mortgage loans can be  characterized as commercial loans that are secured
by real estate.  Single- and  multi-family  residential  mortgage loans totaling
$9.6 million at December 31, 1999 and 1998 were pledged as  collateral  for FHLB
borrowings.  Commercial  loans  totaling $30.9 million at December 31, 1999 were
pledged as collateral for borrowings, including FHLB borrowings.

The  Company's  credit  policies   emphasize   diversification   of  risk  among
industries,  geographic areas and borrowers.  The only  concentrations  of loans
exceeding 10 percent of total loans at December 31, 1999 are construction  loans
and real estate loans such as loans to  non-residential  and apartment  building
operators  and lessors of real  property.  Loans  within  these  categories  are
diversified across different types of contractors and operators,  geographically
dispersed  and  secured  by many  different  types  of  real  estate  and  other
collateral.

Impaired Loans. As of December 31, the Company's recorded investment in impaired
loans and the related valuation allowance were as follows (in thousands):

                                        1999                      1998
                               ------------------------  -----------------------
                               Recorded     Valuation     Recorded     Valuation
                               Investment   Allowance    Investment    Allowance
                               -----------  -----------  ----------   ----------
Impaired loans --
   Valuation allowance
      required...............    $  5,255   $      911   $   8,639    $     960
   No valuation allowance
      required..................      742           --         624           --
                               ===========  ===========  ==========   ==========
      Total impaired loans...    $  5,997   $      911   $   9,263    $     960
                               ===========  ===========  ==========   ==========

Impaired loans generally  include loans on which management  believes,  based on
current information and events, it is probable that the Company will not be able
to collect  all  amounts  (i.e.,  contractual  principal  and  interest)  due in
accordance  with the terms of the loan  agreement  and which are  analyzed for a
specific  reserve   allowance.   The  Company  generally   considers  all  loans
risk-graded  substandard  and doubtful as well as  nonaccrual  and  restructured
loans as impaired loans.

The  valuation  allowance  on impaired  loans is included in the  allowance  for
credit losses noted above.

Interest  payments  received on impaired  loans are recorded as interest  income
unless collection of the remaining recorded investment is doubtful at which time
payments received are recorded as reductions of principal.  The average recorded

<PAGE>

investment in impaired loans and approximate interest income recognized for such
loans were as follows for the years ended December 31 (in thousands):

                                               1999       1998       1997
                                             ---------  ---------  ---------
    Average recorded investment in impaired
       loans..............................   $  8,977   $  9,542   $  7,308
                                             =========  =========  =========
    Interest income recognized on impaired
       loans..............................   $    914   $    992   $    747
                                             =========  =========  =========
    Average recorded investment in impaired
       loans as a percentage of average total
       loans..............................        3.6%       4.1%       3.4%
                                             =========  =========  =========

Nonaccrual and Restructured Loans. As of December 31, 1999 and 1998, the Company
had $1.6 and $2.0 million,  respectively,  of  nonaccrual  loans and $16,000 and
$44,000, respectively, of restructured loans (included as impaired loans above).
The  following  table  indicates  the effect on income if interest on such loans
outstanding at year-end had been recognized at original contractual rates during
the year ended December 31 (in thousands):

                                                  1999       1998       1997
                                                ---------  ---------  ---------
       Interest income that would have been
         recorded..............................  $   141    $   224   $    56
       Interest income recorded..............         29        175        26
                                                =========  =========  =========
       Effect on interest income.............    $   112    $    49   $    30
                                                =========  =========  =========

As of December 31, 1999, the Company had no commitments to lend additional funds
to  borrowers  with  loans  whose  terms have been  modified  in  troubled  debt
restructurings.

Allowance  for Credit  Losses.  Transactions  in the allowance for credit losses
were as follows for the years ended December 31 (in thousands):

                                               1999       1998       1997
                                             ---------  ---------  ---------
    Balance, beginning of year.............  $  2,854   $  2,919   $  1,545
       Provision for credit losses.........     1,138      1,201      2,518
       Loans charged off...................    (1,290)    (1,455)    (1,921)
       Loans recovered.....................       170        189        777
                                             =========  =========  =========
    Balance, end of year...................   $ 2,872   $  2,854   $  2,919
                                             =========  =========  =========

6. Premises, Leasehold Improvements and Equipment:

Premises,  leasehold  improvements  and equipment  consisted of the following at
December 31 (in thousands):

                                                      1999           1998
                                                    ----------     ----------
   Land and improvements..........................  $   1,118      $     530
   Buildings and improvements.....................      7,732          5,046
   Leasehold improvements.........................        971            892
   Furniture, fixtures and equipment..............      6,759          5,896
                                                    ----------     ----------
      Total cost..................................     16,580         12,364
   Less accumulated depreciation and amortization.     (4,574)        (3,578)
                                                    ----------     ----------
      Net premises, leasehold improvements and
         equipment................................     12,006          8,786
                                                    ==========     ==========

<PAGE>

Depreciation and amortization  expense on premises,  leasehold  improvements and
equipment charged to continuing  operations totaled  approximately $1.0 million,
$887,000  and $706,000  for the years ended  December  31, 1999,  1998 and 1997,
respectively.

7. Deferred Charges and Intangible Assets:

Deferred charges and intangible assets consisted of the following at December 31
(in thousands):

                                                       1999          1998
                                                    -----------   -----------
   Premiums paid for deposits assumed.............  $    4,022    $    4,022
   Goodwill.......................................       1,115         1,115
   Covenants not to compete.......................         480           480
   Debt related costs.............................         161           161
   Other miscellaneous intangibles................         112           472
                                                    -----------   -----------
      Total costs.................................       5,890         6,250
   Less accumulated amortization .................      (2,629)       (2,293)
                                                    -----------   -----------
      Net deferred charges and intangible assets..  $    3,261    $    3,957
                                                    ===========   ===========

Amortization expense charged to continuing operations was $541,000, $611,000 and
$585,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

8. Income Taxes:

The provision (benefit) for income taxes consists of the following for the years
ended December 31 (in thousands):

                                               1999        1998       1997
                                              --------   ---------   --------
   Continuing Operations--
     Current................................  $   726    $  1,136    $ 1,375
     Deferred income taxes from the following
        timing differences:
          Provision for credit losses.......      117         (80)      (550)
          Depreciation......................      (66)         46         40
          Write-downs of other real estate
           owned and repossessed assets.....     (829)         --         --
          Leases............................      (69)        (38)        18
          Other.............................     (278)        (34)        72
                                              --------   ---------   --------
                                              $  (399)   $  1,030    $   955
                                              ========   =========   ========

<PAGE>
                                               1999        1998       1997
                                              --------   ---------   --------
   Discontinued Operation--
     Current................................  $   410    $    331    $   126
     Deferred income taxes from the following
        timing differences:
          Provision for credit losses.......       98         (36)       (42)
          Depreciation......................        4          --          2
          Other.............................       48         (32)         3
                                              --------   ---------   --------
                                              $   560    $    263    $    89
                                              ========   =========   ========

The provision  (benefit) for federal income taxes expected at the statutory rate
differs from the actual provision as follows for the years ended December 31 (in
thousands):



<PAGE>


                                             1999        1998       1997
                                            --------   ---------   --------
Tax at 34% statutory rate................   $  (316)   $    990    $   766
Increase (decrease) resulting from:
   State taxes (net of federal benefit)..        (1)         43        154
   Tax-exempt interest...................      (142)        (28)       (20)
   Other, net............................        60          25         55
                                            --------   ---------   --------
                                            $  (399)   $  1,030    $   955
                                            ========   =========   ========

Temporary  differences  between the financial statement carrying amounts and tax
bases of assets and  liabilities  that  result in  significant  portions  of the
Company's  deferred tax assets and  liabilities are as follows as of December 31
(in thousands):

                                                           1999       1998
                                                          --------   --------
   Deferred tax asset:
      Loans, primarily due to differences in accounting
         for credit losses..............................  $ 1,087    $ 1,165
      Unrealized loss on securities available for sale..    1,288         --
      Write-downs of other real estate owned and
   repossessed assets...................................      829         --
      Net operating loss carry forwards.................       18         18
      Other.............................................      420        294
                                                          --------   --------
            Deferred tax asset..........................    3,642      1,477
                                                          --------   --------
   Deferred tax liability:
      Unrealized gain on securities available for sale..       --         90
      Leases, primarily due to differences in accounting
         for leases.....................................      435        504
      Premises and equipment, primarily due to
         differences in original cost basis and
         depreciation...................................      469        535
       Other............................................       97        210
                                                          --------   --------
            Deferred tax liability......................    1,001      1,339
                                                          ========   ========
            Net deferred tax asset......................  $ 2,641    $   138
                                                          ========   ========

<PAGE>

9. Notes Payable:

The  Company's  notes  payable  consist of the  following  as of December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                                                         1999       1998
                                                                                       --------  ---------
<S>                                                                                    <C>       <C>
BNCCORP:
 Notes payable to Firstar Bank Milwaukee, N.A. ("Firstar") including a term note for
   $3.0 million and a revolving line of credit up to $12.0 million, interest payable
   quarterly at either the prime rate or 90 day LIBOR rate plus 2.00% at BNCCORP's
   option (7.28% at December 31, 1998), secured by stock of subsidiary banks.......... $     --  $  14,520
 8 5/8% Subordinated  Notes, due May 31, 2004, interest payable monthly (plus
   unamortized discount of $530 and $621 at December 31, 1999 and 1998,
   respectively-effective rate 9.61%), unsecured (see below)..........................   14,470     14,379
                                                                                       --------  ---------
             Total BNCCORP............................................................   14,470     28,899
 Subsidiaries:
 Federal funds purchased and U. S. Treasury tax and loan note option accounts (1).....    1,700      6,030
 Floating  rate  advances  from  FHLB,  principal  due March 2000 and June 2000,
   interest  payable  monthly at 1-month  Libor minus .05%,  secured by mortgage
   loans, government agency mortgage-backed securities and government agency
   collateralized mortgage obligations (1)............................................   22,000         --
 Repurchase advances from FHLB,  renewable weekly,  interest payable at renewal,
   rates  ranging from 5.00% to 5.95% at December 31, 1999,  secured by mortgage
   loans, government agency mortgage-backed securities and government agency
   collateralized mortgage obligations (1)............................................   27,000     15,000
 Fixed rate advances from FHLB,  callable quarterly and annually,  principal due
   March and July 2000, April 2008 and October 2009, interest payable monthly at
   rates ranging from 5.06% to 5.64%, secured by mortgage loans, government agency
   mortgage-backed securities and government agency collateralized mortgage
   obligations (1)....................................................................   37,500     26,500
 Revolving line of credit up to the lesser of $10.0 million or 40% of the unpaid and
  outstanding  principal  amount of certain of BNC Financial's asset-based  loans,
  payable to Firstar,  interest payable quarterly at either the prime  rate or 90 day
  LIBOR  rate plus  2.00% at BNC  Financial's  option (7.28% at December 31,  1998),
  secured by certain  assets of BNC Financial.........................................       --      1,700
 Other (1)............................................................................      500      1,807
                                                                                       --------  ---------
             Subtotal.................................................................  103,170     79,936
 Less: Notes payable related to discontinued operation................................       --    (21,451)
                                                                                       --------  ---------
             Total.................................................................... $103,170  $  58,485
                                                                                       ========  =========
</TABLE>
----------------
(1) The weighted average interest rate on short-term  borrowings  outstanding as
    of December 31, 1999 and 1998 was 5.74% and 4.99%, respectively.

In January  2000,  the Company  reduced its fixed rate FHLB  borrowings by $16.5
million and increased its FHLB repurchase agreements by $43.5 million. Terms and
rates on the new advances are comparable to those indicated above.

The  Subordinated  Notes,  which qualify as Tier 2 capital up to a certain limit
under the Federal Reserve Board's  risk-based  capital guidelines (76 percent at
December 31, 1999),  are considered  unsecured  general  obligations of BNCCORP.
They are redeemable,  at the option of BNCCORP,  at par plus accrued interest to
the date of redemption,  beginning on May 31, 2000.  Payment of principal of the
Notes  may be  accelerated  only  in the  case of  certain  events  relating  to
bankruptcy,  insolvency or  reorganization  of BNCCORP.  An initial  discount of
$750,000 is being amortized to interest expense over the term of the Notes using
the effective interest rate method.

The  indenture  pursuant to which the  Subordinated  Notes were issued  contains
covenants which,  among other matters,  restrict or limit the ability of BNCCORP
and its subsidiaries, under certain circumstances, to pay cash dividends, redeem
or repurchase stock or make other capital distributions, or allow liens or other
encumbrances  on property owned or acquired.  The Company was in compliance with
the indenture covenants as of December 31, 1999 and 1998.

10.   Stockholders' Equity:

BNCCORP  and its  subsidiary  banks  are  subject  to  certain  minimum  capital
requirements (see Note 11). In addition,  certain regulatory  restrictions exist
regarding the ability of the  subsidiary  banks to transfer  funds to BNCCORP in
the  form of cash  dividends,  loans  or  advances.  Approval  of the  principal
regulator is required for the Banks to pay dividends to BNCCORP in excess of the
subsidiary  banks'  earnings  retained in the  current  year plus  retained  net
profits for the preceding two years.

In connection with its initial public  offering in 1995,  BNCCORP agreed to sell
to the  underwriters,  for nominal  consideration,  a warrant to purchase 50,000
shares of common stock (the  "Warrant").  The Warrant became  exercisable at $12
per share in June 1996 and expires on July 18, 2000. No warrants were  exercised
as of December 31, 1999.

11.   Regulatory Capital:

BNCCORP  and its  subsidiary  banks are  subject to various  regulatory  capital
requirements  administered  by the  federal  banking  agencies.  Failure to meet
minimum  capital  requirements  can  initiate  certain  mandatoryCand   possibly
additional discretionaryCactions by regulators that, if undertaken, could have a
direct  material  effect on the Company's  financial  statements.  Under capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
BNCCORP and its  subsidiary  banks must meet specific  capital  guidelines  that
involve  quantitative   measures  of  their  assets,   liabilities  and  certain
off-balance-sheet  items as calculated  under regulatory  accounting  practices.
Capital amounts and classifications of BNCCORP and its banks are also subject to
qualitative  judgments by the regulators about  components,  risk weightings and
other factors.

Quantitative  measures established by the regulations to ensure capital adequacy
require BNCCORP and its banks to maintain  minimum amounts and ratios (set forth
in the  tables  that  follow)  of total and Tier I capital  (as  defined  in the
regulations)  to  risk-weighted  assets (as defined),  and of Tier I capital (as
defined)  to average  assets  (as  defined).  Management  believes  that,  as of
December 31, 1999,  BNCCORP and its banks met all capital adequacy  requirements
to which they are subject.

As of December 31, 1999,  the most recent  notifications  from the Office of the
Comptroller  of the  Currency  categorized  BNCCORP's  subsidiary  banks as well
capitalized under the regulatory  framework for prompt corrective  action. To be
categorized  as  well  capitalized,   the  banks  must  maintain  minimum  total
risk-based,  Tier I  risk-based  and Tier I leverage  ratios as set forth in the
table that follows.  There are no  conditions or events since that  notification
that management believes have changed the institutions' categories.

Actual  capital  amounts  and ratios of BNCCORP and its  subsidiary  banks as of
December 31 are also presented in the tables (dollar amounts in thousands):

<TABLE>
<CAPTION>

                                                                            To be Well
                                                                         Capitalized Under
                                                        For Capital      Prompt Corrective
                                       Actual        Adequacy Purposes   Action Provisions
                                 -----------------  ------------------  --------------------
                                  Amount   Ratio     Amount    Ratio    Amount      Ratio
                                 --------- -------  --------- --------  --------  ----------
<S>                              <C>       <C>      <C>       <C>       <C>       <C>
     As of December 31, 1999
Total Capital (to risk-weighted
   assets):
   Consolidated................  $ 36,050    11.6 % $ 24,855      8.0 %      N/A        N/A
   BNC-North Dakota............    25,595    10.9     18,715      8.0   $ 23,393       10.0 %
   BNC-Minnesota...............     9,987    12.3      6,497      8.0      8,121       10.0
Tier I Capital (to risk-weighted
   assets):
   Consolidated................    22,119     7.1     12,428      4.0        N/A        N/A
   BNC-North Dakota............    23,726    10.1      9,357      4.0     14,036        6.0
   BNC-Minnesota...............     8,984    11.1      3,248      4.0      4,872        6.0
Tier I Capital (to average
   assets):
   Consolidated................    22,119     4.8     18,428      4.0        N/A        N/A
   BNC-North Dakota............    23,726     6.8     13,874      4.0     17,343        5.0
   BNC-Minnesota...............     8,984     8.1      4,442      4.0      5,552        5.0
     As of December 31, 1998
Total Capital (to risk-weighted
   assets):
   Consolidated................  $ 34,680    11.0 % $ 25,216      8.0 %      N/A        N/A
   BNC-North Dakota............    21,900    10.3     17,091      8.0   $ 21,364       10.0 %
   BNC-Minnesota...............     7,433    10.3      5,778      8.0      7,223       10.0
Tier I Capital (to risk-weighted
   assets):
   Consolidated................    21,058     6.7     12,608      4.0        N/A        N/A
   BNC-North Dakota............    19,859     9.3      8,546      4.0     12,818        6.0
   BNC-Minnesota...............     6,621     9.2      2,889      4.0      4,334        6.0
Tier I Capital (to average
   assets):
   Consolidated................    21,058     5.5     15,278      4.0        N/A        N/A
   BNC-North Dakota............    19,859     6.5     12,242      4.0     15,303        5.0
   BNC-Minnesota...............     6,621     9.1      2,913      4.0      3,642        5.0


</TABLE>
<PAGE>



12.   Fair Value of Financial Instruments:

The estimated fair values of the Company's financial  instruments are as follows
as of December 31 (in thousands):

<TABLE>
<CAPTION>
                                              1999                    1998
                                      ----------------------  ---------------------
                                      Carrying      Fair      Carrying     Fair
                                       Amount       Value      Amount      Value
                                      ----------  ----------  ---------- ----------
<S>                                   <C>         <C>         <C>        <C>
Assets:
   Cash, due from banks and federal
      funds sold....................  $  21,881   $  21,881   $  10,284  $  10,284
   Investment securities available
      for sale......................    150,992     150,992      96,601     96,601
   Loans and leases, net............    259,179     236,719     244,327    246,392
    Loans of discontinued operation,
       net..........................         --          --      23,456     20,398
                                      ----------  ----------  ---------  ----------
                                        432,052   $ 409,592     374,668  $ 373,675
                                                  ==========             ==========
   Other assets.....................     24,825                  21,028
    Other assets of discontinued
       operation....................         --                     636
                                      ==========              ==========
                                      $ 456,877               $ 396,332
                                      ==========              ==========
Liabilities:
   Deposits, noninterest-bearing....  $  29,798   $  29,798   $  28,475  $  28,475
   Deposits, interest-bearing.......    294,913     289,904     256,024    256,775
   Notes payable....................    103,170     100,926      58,485     69,567
    Notes payable of discontinued
    operation.......................         --          --      21,451     11,105
                                      ----------  ----------  ---------- ----------
                                        427,881   $ 420,628     364,435  $ 365,922
                                                  ==========             ==========
   Other liabilities................      5,847                   6,362
   Other liabilities of discontinued
      operation.....................         --                     280
   Stockholders/ equity.............     23,149                  25,255
                                      ==========              ==========
                                      $ 456,877               $ 396,332
                                      ==========              ==========
</TABLE>

13.   Financial Instruments With Off-Balance-Sheet Risk:

In the normal  course of business,  the Company uses various  off-balance  sheet
financial  instruments  to meet the needs of its  customers  and to  manage  its
interest rate risk. These instruments carry varying degrees of credit,  interest
rate or liquidity risk.

Commitments  to extend  credit are  legally  binding  and  generally  have fixed
expiration dates or other termination clauses. The contractual amount represents
the  Company's  exposure to credit loss in the event of default by the borrower.
The  Company  manages  this  credit  risk by using the same  credit  policies it
applies  to  loans.  Collateral  is  obtained  to  secure  commitments  based on
management's  credit  assessment of the  borrower.  The  collateral  may include
marketable securities,  receivables, inventory, equipment and real estate. Since
the Company expects many of the commitments to expire without being drawn, total
commitment  amounts do not necessarily  represent the Company's future liquidity
requirements related to such commitments.

Standby  letters of credit are  conditional  commitments  the Company  issues to
guarantee the performance of a customer to a third party.  Commercial letters of
credit are issued on behalf of  customers  to ensure  payment or  collection  in
connection with trade transactions. In the event of a customer's nonperformance,

<PAGE>

the Company's credit loss exposure is the same as in any extension of credit, up
to the letter's contractual amount. Management assesses the borrower's credit to
determine the necessary  collateral,  which may include  marketable  securities,
real estate,  accounts receivable and inventory.  Since the conditions requiring
the Company to fund  letters of credit may not occur,  the  Company  expects its
liquidity  requirements  related  to such  letters of credit to be less than the
total outstanding commitments.

Interest rate swaps are  contracts to exchange  fixed and floating rate interest
payment  obligations based on a notional  principal  amount.  The Company enters
into swaps to hedge its balance sheet against  fluctuations  in interest  rates.
Interest  rate  caps  and  floors  are  also  used to  minimize  the  impact  of
fluctuating interest rates on earnings. The credit risk related to interest rate
contracts is that  counterparties may be unable to meet the contractual terms of
the  agreements.  This risk is estimated by calculating the present value of the
cost to replace  outstanding  contracts  in a gain  position  at current  market
rates, reported on a net basis by counterparties. The Company manages the credit
risk of its interest rate contracts  through  bilateral  collateral  agreements,
credit approvals,  limits and monitoring procedures.  Additionally,  the Company
reduces the assumed  counterparty  credit risk through master netting agreements
that  permit  the  Company  to  settle  interest  rate  contracts  with the same
counterparty on a net basis.

The  contractual  or notional  amounts of these  financial  instruments  were as
follows as of December 31 (in thousands):

                                                  1999         1998
                                                ----------   ----------
         Commitments to extend credit........   $  68,932    $  82,311
         Letters of credit...................       2,399        1,840
         Interest rate floors................      25,000       25,000

The $25.0  million  prime based  interest  rate floor was purchased in September
1998.  The contract is for a term of five years and is  designated as a hedge of
floating rate commercial loans. The strike rate on the floor is 8.50 percent.  A
$1.1 million  premium paid upon  acquisition of the contract is being  amortized
over the life of the  contract.  Market  value of the  contract,  defined as the
contract's current replacement value, was approximately $400,000 at December 31,
1999.

The Company  entered into three  interest  rate swap  agreements  and closed out
those  agreements  during  1997.  The  resulting  gains of  $430,000  have  been
amortized  over  the life of the  contracts.  At  December  31,  1999 and  1998,
deferred gains of $271,000 and $332,000,  respectively,  resulting from the sale
of interest rate swap  contracts  during 1997 were included in the balance sheet
and were being  amortized as a reduction  of interest  expense over the original
lives of the swap contracts.


14.   Related-Party Transactions:

The Company has entered into  transactions  with related  parties  including the
insurance agency and management  agreement purchases discussed in Note 2. In the
opinion of management,  such  transactions  have been fair and reasonable to the
Company and have been entered into under terms and conditions  substantially the
same as those offered by the Company to unrelated parties.

In the normal  course of  business,  loans are  granted to  executive  officers,
directors,  principal  stockholders  and to  associates  of  such  persons.  The
aggregate  dollar amount of these loans,  exclusive of loans to any such persons
which in the aggregate did not exceed $60,000, were $1.4 million and $969,000 at
December 31, 1999 and 1998,  respectively.  During  1999,  $630,000 of new loans
were made and repayments  totaled $245,000.  Loans to these parties were made on
substantially the same terms, including interest rates and collateral,  as those

<PAGE>

prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility.

15. Write Downs of Other Real Estate Owned and Repossessed Assets:

The Company  recorded write downs to estimated net  realizability  of other real
estate  owned and  repossessed  assets of $2.3  million and $2,000 for the years
ended  December 31, 1999 and 1998,  respectively.  The  Company's  investment in
other real estate  owned and  repossessed  assets of $1.2 million as of December
31, 1999 represents  management's current estimate of net realizable value based
upon current outstanding offers received by the Company.

16.   Benefit Plans:

BNCCORP has a 401(k) plan covering all employees of BNCCORP and its subsidiaries
who meet specified age and service requirements. Eligible employees may elect to
defer up to 15 percent of compensation  each year not to exceed the dollar limit
set by law. At their discretion,  BNCCORP and its subsidiaries  provide matching
contributions of up to 50 percent of employee deferrals up to a maximum employer
contribution   of  5  percent  of   compensation.   The  Company  made  matching
contributions  of  $171,000,  $172,000,  and  $131,000  in 1999,  1998 and 1997,
respectively.  Under the  investment  options  available  under the 401(k) plan,
employees may elect to invest their salary deferrals in BNCCORP stock.

17.   Commitments and Contingencies:

Employment  Agreements and Noncompete  Convenants.  The Company has entered into
three-year  employment  agreements  with its chief  executive  officer  ("CEO"),
president and chief  operating  officer  ("COO") and the presidents of BNC-North
Dakota's Fargo Branch and BNC-Minnesota (the "Executives").  The Executives will
be paid minimum  annual  salaries  throughout  the terms of the  agreements  and
annual  incentive  bonuses as may,  from time to time,  be fixed by the board of
directors. The Executives will also be provided with benefits under any employee
benefit  plan  maintained  by BNCCORP for its  employees  generally,  or for its
senior executive officers in particular,  on the same terms as are applicable to
other senior executives of BNCCORP.  Under the agreements of the CEO and COO, if
status as employees  with BNCCORP is terminated for any reason other than death,
disability,  cause,  as defined in the  agreements,  or if they terminate  their
employment for good reason, as defined in the agreements,  or following a change
in control of the Company,  as defined in the  agreements,  then the CEO and COO
will be paid a  lump-sum  amount  equal  to three  times  their  current  annual
compensation. Under the agreement with the president of BNC-Minnesota, if status
as an employee with the Company is  terminated  for any reason other than death,
disability,  cause,  or if the  president  terminates  his  employment  for good
reason,  except in the event of a change in control of the Company, then he will
be paid a lump-sum  amount  equal to 1/12th of his current  annual  compensation
multiplied by the number of partial or full months  remaining in the  employment
agreement.  If status as an employee with the Company is terminated  following a
change in control of the Company,  then he will be paid a lump-sum  amount equal
to three times his current annual compensation.

In  conjunction  with the  business  combination  with Lips & Lahr,  the Company
assumed  five-year  employment  agreements with two officers of Lips & Lahr (the
"Officers"). The agreements, which originally provided for salaries based upon a
percentage  of all net annual  commissions  received  by Lips & Lahr on business
written by the  Officers,  were amended to provide for minimum  annual  salaries
through the remainder of the contract term which runs through December 31, 2000.
Additionally, the contracts provide for the payment of deferred compensation for
a term of ten years commencing on February 1, 2001 and continuing  monthly until
paid in full. Finally, as separate  consideration for the release of all present
and future  claims to the  Officer's  book of business at the end of the term of
the  employment   contract  and  for  other  terms  of  the  contract  involving
confidentiality,  nonpiracy and a restrictive covenant covering a period of five
years after the term of the agreement,  the  agreements  provide for 120 monthly

<PAGE>

payments also commencing on February 1, 2001. Both of the Officers  resigned and
are  now  acting  as  consultants  to  BNC  Insurance   pursuant  to  consulting
agreements.  Under these agreements,  the Officers' annual salaries are replaced
with annual consulting fees and the Company remains obligated under the deferred
compensation and non-compete provisions of the original employment agreements.

In the  business  combination  with  Lips &  Lahr,  BNC  Insurance  assumed  two
additional  non-compete  agreements with former officers of Lips & Lahr. Monthly
payments  under these  agreements,  which  commenced in 1996,  are  scheduled to
continue into 2006.

Leases.  The Company has entered into  operating  lease  agreements  for certain
facilities  and  equipment  used in its  operations.  Rent expense for the years
ended  December 31, 1999,  1998 and 1997,  was $467,000,  $333,000 and $324,000,
respectively.  Minimum  annual base lease  payments  for  operating  leases with
remaining terms of greater than one year are as follows:

                        2000...............   $ 512,000
                        2001...............     496,000
                        2002...............     488,000
                        2003...............     450,000
                        2004...............     367,000
                        Thereafter.........     418,000

Property and Equipment.  The Company is in the process of constructing an office
building in Fargo, North Dakota. The total cost to complete the construction and
provide  furniture  and  equipment for the building is estimated at between $4.0
and  $4.5  million  and has been  funded  though  available  cash.  The  Company
anticipates  that excess  office  space in the new  building  will be rented out
until  such  time as the  Company's  Fargo  operations  require  use of the full
building.

Legal Proceedings. In September 1998, BancInsure, BNC--North Dakota's insurer of
employee  fidelity,  brought a  declaratory  judgment  action in  federal  court
against the bank and a former loan  officer.  The bank has filed  proofs of loss
with  BancInsure  claiming a loss in excess of $2.9 million  resulting  from the
officer's  unauthorized  activities while she was a senior loan officer with the
bank.  The bank alleged that the officer's  unauthorized  activities  consist of
misrepresentation  to management,  conflicts of interest and breach of fiduciary
duties  to the bank in  conjunction  with her  handling  of her loan  portfolio.
BancInsure  paid the bank the sum of $886,000  under a reservation of rights and
in its  lawsuit  BancInsure  requested  that the  court  determine  BancInsure's
obligations to the bank under the fidelity insurance  agreement it issued to the
bank.  BancInsure also requested that in the event the court  determines that it
is obligated to pay the bank under its  insuring  agreement,  that a judgment of
indemnity be entered for that amount against the officer. The bank filed a cross
claim against the officer in the federal action for the losses  sustained by the
bank as a result of the officer's unauthorized  activities.  Prior state actions
were dismissed and all claims will be litigated in federal court.  The matter is
set for trial  February 28, 2000.  The key issues to be  determined at the trial
are whether the bank should be required to refund any of the  $886,000  received
from BancInsure  and/or whether  BancInsure should be required to pay additional
amounts to the bank under its insuring agreement. Management does not anticipate
that the court will require the bank to refund any of the amount  received  from
BancInsure  and is  uncertain  as to how the  court  will  rule on the  issue of
BancInsure's further obligations to the bank.

In April  1999,  a  complaint  was filed in federal  district  court by a former
customer of BNC--North Dakota (the  "Plaintiff")  against the bank, three of the
bank's officers or employees, a second bank and two former customers of the bank
(the  "Customers").  The Plaintiff  alleged  violation of the federal  Racketeer
Influenced and Corrupt Organizations Act ("RICO"), fraud and breach of fiduciary
duty. The Plaintiff alleged that these violations  occurred in the course of his
purchase of two  businesses  from the  Customers  in 1995.  The  Plaintiff  also
alleged that the same senior loan officer  referred to in the legal  proceedings

<PAGE>

with BancInsure, with the assistance of the Customers and others, misrepresented
the true  financial  state of the  businesses to convince him to purchase  these
businesses  and  thereby  keep  the  bank  (and  the  Customers)  from  taking a
significant  financial  loss. On September 22, 1999 the federal  district  judge
dismissed the federal action based on failure to state a federal claim under the
RICO statute.  On September  28, 1999 the Plaintiff  refiled the matter in state
district  court with  essentially  the same  allegations  and  against  the same
parties.  Motions to dismiss have been filed by all  defendants and a hearing on
these  motions  was heard on  February  7, 2000.  The court has taken the matter
under  advisement and the bank is awaiting a decision in the matter.  Management
considers  this suit a  frivolous  action  without  merit and  expects the state
district  court  also to dismiss  the  action  based on failure to state a claim
under the RICO statute.

18.   Stock-Based Compensation:

BNCCORP's  Stock  Incentive  Plan (the  "Stock  Plan") is  intended  to  provide
long-term incentives to its key employees,  including officers and directors who
are  employees  of the Company.  The Stock Plan,  which is  administered  by the
compensation committee of the board of directors (the "Committee"), provides for
an  authorization  of 250,000  shares of common stock for  issuance  thereunder.
Under the Stock Plan, the Company may grant  employees  incentive stock options,
nonqualified  stock options,  restricted stock,  stock awards or any combination
thereof.  The  Committee  establishes  the exercise  price of any stock  options
granted under the Stock Plan  provided  that the exercise  price may not be less
than the fair market value of a share of common  stock on the date of grant.  As
of December 31, 1999,  31,500 restricted shares were outstanding under the Stock
Plan. 20,000 shares of restricted stock vest in 33 1/3 percent increments during
1998,  1999 and 2000.  5,000 shares vest 60 percent in 2002 and an additional 20
percent in each of 2003 and 2004.  5,500  shares  vest in 10 percent  increments
from 1999 through 2008 and the remaining 1,000 shares vest 30 percent in each of
2000 and 2001 and an  additional  40 percent in 2002.  The  Company  records the
compensation  expense  related to restricted  stock over the applicable  service
period.  A total of 186,700  options had been awarded under the Stock Plan as of
December 31, 1999.

The Company's Nonemployee Director Stock Option Plan (the "Directors' Plan") was
adopted during 1998 and was also  administered by the Committee.  The Directors'
Plan  provided  for 650  options to be issued to each  nonemployee  director  of
BNCCORP and its subsidiaries who was serving as a director immediately following
each annual meeting of stockholders. The exercise price of stock options granted
under  the  Directors'  Plan was  equal to the fair  market  value of a share of
common stock on the date of grant.  As of December 31, 1999,  4,550  options had
been awarded under the Directors'  Plan. The options are  exercisable at a price
of $17.75 per share and became fully vested on December 17, 1998. The Directors'
Plan was terminated during 1999.

The  Company  applies  Accounting  Principles  Board  Opinion No. 25 and related
interpretations  in accounting for both the Stock Plan and the Directors'  Plan.
Accordingly,  no  compensation  cost has been  recognized for the options issued
under the plans in 1999, 1998 or 1997. For the restricted stock issued under the
Stock Plan,  compensation cost charged to operations was $70,000 and $146,000 in
1999  and  1998,  respectively.  There  was  no  compensation  cost  related  to
restricted stock charged to operations  during 1997. Had compensation  cost been
determined  on the  basis of fair  value  pursuant  to  Statement  of  Financial
Accounting  Standards  No. 123, net income and earnings per share  ("EPS") would
have been reduced as follows:

<PAGE>
                                     1999            1998            1997
                                 -----------     ------------    -----------
Net Income:
   As Reported................    $ 242,000      $ 2,267,000     $1,426,000
   Pro Forma..................      139,000        2,118,000      1,412,000
Basic EPS:
   As Reported................         0.10             0.95           0.59
   Pro Forma..................         0.06             0.85           0.58
Diluted EPS:
   As reported................         0.10             0.91           0.59
   Pro Forma..................         0.06             0.80           0.58


A summary of the status of stock options under the Stock Plan and the Directors'
Plan at December 31, 1999 and 1998 and changes  during the years then ended,  is
presented in the tables and narrative below:


             Stock Plan                  1999                  1998
                                 ---------------------  --------------------
                                 Options    Weighted    Options    Weighted
                                    To       Average       to      Average
                                 Purchase   Exercise    Purchase   Exercise
                                  Shares      Price      Shares     Price
                                 ---------  ----------  ---------  ---------
    Outstanding, beginning of
       year....................   146,210    $  15.92     27,926   $  10.00
    Granted....................    14,500        7.17    142,200      17.00
    Exercised..................        --          --      1,935      10.00
    Forfeited..................    42,826       16.29     21,981      15.92
                                 ---------  ----------  ---------  ---------
    Outstanding, end of year...   117,884    $  14.71    146,210   $  15.92
                                 =========  ==========  =========  =========
    Exercisable, end of year...    47,384    $  11.73     18,088   $  10.00
                                 =========  ==========  =========  =========
    Weighted average fair
    value of options:
         Granted...............  $   3.18               $   7.60
                                 =========              =========
         Exercised.............  $     --               $   4.50
                                 =========              =========
         Forfeited.............  $   7.29               $   7.12
                                 =========              =========

<PAGE>

<TABLE>
<CAPTION>

          Directors' Plan                  1999                      1998
                                 ------------------------- -------------------------
                                  Options      Weighted      Options      Weighted
                                     To         Average        To         Average
                                  Purchase     Exercise     Purchase      Exercise
                                   Shares        Price       Shares         Price
                                 -----------  ------------ ------------  -----------

<S>                              <C>          <C>          <C>           <C>
    Outstanding, beginning of
       year....................       4,550      $  17.75           --   $       --
    Granted....................          --            --        4,550
                                                                              17.75
                                 ===========  ============ ============  ===========
    Outstanding, end of year...       4,550      $  17.75        4,550   $    17.75
                                 ===========  ============ ============  ===========
    Exercisable, end of year...       4,550      $  17.75        4,550   $    17.75
                                 ============ ===========  ============  ============
    Weighted average fair value
       of options granted......                             $     6.58
                                                           ============
</TABLE>

The fair value of each option  granted is  estimated on the grant date using the
Black-Scholes  option  pricing  model.  The following  assumptions  were made in
estimating fair value:

<TABLE>
<CAPTION>
                      Stock       Stock       Stock       Stock       Stock       Director's
   Assumption         Plan        Plan        Plan        Plan        Plan        Plan
                      12/99       9/99        6/99        1998        1995        1998
                      Grant       Grant       Grant       Grant       Grant       Grant
------------------  ----------  ----------  ----------  ----------  ----------  ---------
<S>                 <C>         <C>         <C>         <C>         <C>         <C>
Dividend yield...       0.00%       0.00%       0.00%       0.00%       0.00%      0.00%
Risk-free
   interest rate.       6.55%       6.06%       6.09%       5.63%       6.08%      5.49%
Expected life....     7 years     7 years     7 years     7 years     7 years    5 years
Expected
   volatility....      27.25%      26.40%      28.08%      29.79%      28.69%     30.39%

</TABLE>

Following  is a summary of the status of options  outstanding  under each of the
Company's plans at December 31, 1999:

<TABLE>
<CAPTION>
                                  Outstanding Options               Exercisable Options
                       ------------------------------------------  ----------------------
                                        Weighted
                                        Average         Exercise               Exercise
                         Number        Remaining         Price      Number       Price
                                    Contractual Life
                       -----------  -----------------   ---------  ----------  ----------
<S>                    <C>          <C>                 <C>        <C>         <C>
 Stock Plan:               19,384          5.5 years     $ 10.00      19,384     $ 10.00
                           85,000          8.0 years     $ 17.00      17,000     $ 17.00
                            2,500          9.5 years     $  8.75          --          --
                            5,000         9.75 years     $  7.56       5,000     $  7.56
                            6,000         10.0 years     $  5.88       6,000     $  5.88
 Director's Plan:           4,550          8.5 years     $ 17.75       4,550     $ 17.75

</TABLE>

19.  Earnings Per Common Share:

The  following  table shows the amounts used in computing  EPS and the effect on
weighted average number of shares of potential dilutive common stock issuances:

<PAGE>



                                          Net
                                        Income         Shares       Per-Share
                                        (Loss)      (Denominator)     Amount
                                      (Numerator)
                                      ------------  --------------  -----------
                1999
      Basic earnings per share:
Loss from continuing operations....   $ (529,000)       2,406,618    $  (0.22)
Income from operations of
   discontinued asset- based lending
   subsidiary......................      429,000        2,406,618        0.18
Gain on disposal of asset-based
   lending subsidiary..............      438,000        2,406,618        0.18
Cumulative effect of change in
   accounting principle, net
   of income tax effects...........      (96,000)       2,406,618       (0.04)
                                      ============                  ===========
Income available to common
   stockholders....................   $  242,000        2,406,618    $   0.10
                                      ============                  ===========
Effect of dilutive shares --
   Options.........................                           400
                                                    --------------
     Diluted earnings per share:
Loss from continuing operations....   $ (529,000)       2,407,018   $   (0.22)
Income from operations of
   discontinued asset-based lending
   subsidiary......................      429,000        2,407,018        0.18
Gain on disposal of asset-based
   lending subsidiary..............      438,000        2,407,018        0.18
Cumulative effect of change in
   accounting principle, net
   of income tax effects...........      (96,000)       2,407,018       (0.04)
                                      ============  ==============  ===========
Income available to common
   stockholders....................   $  242,000        2,407,018   $    0.10
                                      ============  ==============  ===========



<PAGE>



                                          Net
                                        Income         Shares       Per-Share
                                        (Loss)      (Denominator)     Amount
                                      (Numerator)
                                      ------------  --------------  -----------
                1998
      Basic earnings per share:
Income from continuing operations..   $ 1,882,000       2,397,340    $    0.79
Income from operations of
   discontinued asset-based lending
   subsidiary......................       385,000       2,397,340         0.16
                                      ============                  ===========
Income available to common
   stockholders....................   $ 2,267,000       2,397,340    $    0.95
                                      ============                  ===========
Effect of dilutive shares --
   Options.........................                        58,013
   Warrants........................                        48,182
                                                    --------------
     Diluted earnings per share:
Income from continuing operations..   $ 1,882,000       2,503,535   $     0.75
Income from operations of
   discontinued asset-based lending
   subsidiary......................       385,000       2,503,535         0.16
                                      ============  ==============  ===========
Income available to common
   stockholders....................   $ 2,267,000       2,503,535    $    0.91
                                      ============  ==============  ===========

                1997
      Basic earnings per share:
Income from continuing operations..   $ 1,299,000       2,402,126    $    0.54
Income from operations of
   discontinued asset-based lending
   subsidiary......................       127,000       2,402,126         0.05
                                      ============                  ===========
Income available to common
   stockholders....................   $ 1,426,000       2,402,126    $    0.59
                                      ============                  ===========
Effect of dilutive shares --
   Options.........................                         5,831
   Warrants........................                         4,791
                                                    --------------
     Diluted earnings per share:
Income from continuing operations..   $ 1,299,000       2,412,748    $    0.54
Income from operations of
   discontinued asset-based lending
   subsidiary......................       127,000       2,412,748         0.05
                                      ============  ==============  ===========
Income available to common
   stockholders....................   $ 1,426,000       2,412,748    $    0.59
                                      ============  ==============  ===========

The following options and warrants,  with exercise prices ranging from $5.875 to
$17.75,  were outstanding  during the periods indicated but were not included in
the computation of diluted EPS because their effects were antidilutive:

<TABLE>
<CAPTION>

3/97    6/97    9/97   12/97   3/98  6/98    9/98    12/98     3/99     6/99     9/99    12/99
------  ------  -----  -----   ----  -----  -------  -------  -------  -------  -------  -------
<S>     <C>     <C>    <C>     <C>   <C>    <C>      <C>      <C>      <C>      <C>      <C>
   --   78,617    --     --     --     --   142,050  178,150  170,134  170,234  170,034  172,434

</TABLE>
<PAGE>


20.  Segment Disclosures:

BNCCORP segments its operations into two separate business activities,  based on
the nature of the products and services for each segment: BNC - North Dakota and
BNC - Minnesota.

The  operations  of BNC - North Dakota  provide  traditional  community  banking
services to  individuals  and small and mid-size  businesses,  such as accepting
deposits,  consumer and mortgage banking activities and making commercial loans.
The mortgage and  commercial  banking  activities  include the  origination  and
purchase of loans as well as servicing of loans to others.  In addition to these
banking services,  BNC - North Dakota also provides  brokerage,  trust and other
financial services and sells insurance products.

BNC - Minnesota also provides traditional banking services,  but this segment is
identified primarily from its commercial banking activities in Minnesota.

The accounting  policies of the two segments are the same as those  described in
the summary of  significant  accounting  policies,  which  conform to  generally
accepted  accounting  principles.  The information shown in the following tables
have been  restated to give the effect of any  business  combinations  that have
been accounted for under the pooling-of-interests method.

The  Company's  financial  information  for each  segment  is  derived  from the
internal profitability reporting system used by management to monitor and manage
the  financial  performance  of the company.  The  operating  segments have been
determined by how  management  has  organized the business for making  operating
decisions and assessing performance.

The following tables present segment profit or loss, assets and a reconciliation
of  segment  information  as of,  and for the  periods  ended,  December  31 (in
thousands):
                                                      1999
                                 -----------------------------------------------
                                    BNC-
                                   North          BNC-       Other
                                   Dakota      Minnesota      (a)        Total
                                 -----------  -----------  ---------  ----------
Net interest income (loss)..     $    9,540   $    3,547   $   (730)   $ 12,357
Other revenue-external
   customers................          5,035        1,033         --       6,068
Other revenue-from other
   segments.................            282           --      1,870       2,152
Depreciation and amortization         1,385          135         66       1,586
Equity in the net income of
  investees.................             --           --         96          96
Other significant noncash
items:
   Provision for credit
      losses................            719          417         18       1,154
Income tax expense (benefit).          (211)         245       (433)       (399)
Segment profit (loss)from
  continuing operations.....           (164)         338       (703)       (529)
Income from operations of
  discontinued asset-based
  lending subsidiary........             --           --        429         429
Gain on disposal of
  asset-based lending
  subsidiary................             --           --        438         438
Cumulative effect of change
  in accounting principle,
  net of income tax effects.            (43)         (35)       (18)        (96)
Segment profit..............           (207)         303        146         242
Segment assets..............        359,944      120,949     40,894     521,787
Expenditures for additions to
   assets...................          4,099          324         21       4,444


<PAGE>



                                                     1999
                               -------------------------------------------------
                                                            Inter-
                               Reportable     Other        segment  Consolidated
                                Segments       (a)       Elimination    Total
                               -----------  -----------  ----------- -----------
Net interest income (loss).    $    13,087  $     (730)  $       --  $   12,357
Other revenue-external
   customers...............          6,068          --           --       6,068
Other revenue - from other
  segments.................            282       1,870       (2,152)         --
Depreciation and
   amortization............          1,520          66           --       1,586
Equity in the net income
  of investees.............             --          96          (96)         --
Other significant noncash
items:
   Provision for credit
      losses...............          1,136          18          (16)      1,138
Income tax expense
   (benefit)...............             34        (433)          --        (399)
Segment profit (loss) from
  continuing operations....            174        (703)          --        (529)
Income from operations of
  discontinued asset-based
  lending subsidiary.......             --         429           --         429
Gain on disposal of
  asset-based lending
  subsidiary...............             --         438           --         438
Cumulative effect of
  change in accounting
  principle, net of income
  tax effects..............            (78)        (18)          --         (96)
Segment profit.............             96         146           --         242
Segment assets.............        480,893      40,894      (64,910)    456,877
Expenditures for additions
  to assets................          4,423          21           --       4,444
---------------

(a) The financial  information  presented in the "Other"  column is for the bank
holding  company.  This component of the Company is not intended to earn revenue
and does not qualify as an operating segment.  The profit presented for the bank
holding company includes the  undistributed  income from BNCCORP's  consolidated
subsidiaries.


<PAGE>



                                                    1998
                               ------------------------------------------------
                                  BNC-
                                  North         BNC-        Other
                                 Dakota       Minnesota      (a)        Total
                               ------------  ----------   ---------  ----------
Net interest income (loss).      $   9,830   $   3,422    $   (603)  $  12,649
Other revenue-external
   customers...............          3,945         868          30       4,843
Other revenue - from other
  segments.................            216          --       4,423       4,639
Depreciation and
   amortization............          1,303         124          71       1,498
Equity in the net income of
  investees................             --          --       2,612       2,612
Other significant noncash
  items:
  Provision for
     credit losses.........            871         330          --       1,201
Income tax expense (benefit)           710         661        (341)      1,030
Segment profit (loss) from
  continuing operations....          1,662         950        (730)      1,882
Income from operations of
  discontinued asset-based
  lending subsidiary.......             --          --         385         385
Segment assets from
  continuing operations....        318,216      74,226      55,334     447,776
Expenditures for additions
to assets.................             877         176          74       1,127

                                                     1998
                               -------------------------------------------------
                                                           Inter-
                               Reportable     Other       segment   Consolidated
                                Segments       (a)      Elimination      Total
                               -----------  -----------  ----------  -----------
Net interest income (loss).    $    13,252  $     (603)  $      --   $   12,649
Other revenue-external
   customers...............          4,813          30          --        4,843
Other revenue - from other
  segments.................            216       4,423      (4,639)           0
Depreciation and
amortization...............          1,427          71          --        1,498
Equity in the net income
  of investees.............             --       2,612      (2,612)           0
Other significant noncash
items:
  Provision for credit
     losses                          1,201          --          --        1,201
Income tax expense
   (benefit)...............          1,371        (341)         --        1,030
Segment profit (loss) from
  continuing operations....          2,612        (730)         --        1,882
Income from operations of
  discontinued asset-based
  lending subsidiary.......            --          385          --          385
Segment assets from
  continuing operations....       392,442       55,334     (75,536)     372,240
Expenditures for additions
  to assets................         1,053           74          --        1,127
---------------
(a) The financial  information  presented in the "Other"  column is for the bank
holding  company.  This component of the Company is not intended to earn revenue
and does not qualify as an operating segment.  The profit presented for the bank
holding company includes the  undistributed  income from BNCCORP's  consolidated
subsidiaries.

<PAGE>



                                                    1997
                               -----------------------------------------------
                                  BNC-
                                 North          BNC-       Other
                                 Dakota      Minnesota      (a)        Total
                               -----------  -----------  ---------  ----------
Net interest income (loss).     $  10,168   $    2,388   $   (501)  $  12,055
Other revenue-external
customers..................         3,469          450          9       3,928
Other revenue-from other
  segments.................           155           --      2,972       3,127
Depreciation and
   amortization............         1,141          111         58       1,310
Equity in the net income
  of investees.............            --           --      1,879       1,879
Other significant noncash
items:
  Provision for credit
      losses                        2,260          258         --       2,518
Income tax expense
   (benefit)...............           909          328       (282)        955
Segment profit (loss) from
  continuing operations....         1,405          474       (625)      1,254
Income from operations of
  discontinued asset-based
  lending subsidiary.......            --           --        127         127
Segment assets from
  continuing operations....       309,946       57,796     45,768     413,510
Expenditures for additions
  to assets................         2,628           46         12       2,686

<TABLE>
<CAPTION>
                                                          1997
                               ------------------------------------------------------------
                                                            Inter-
                               Reportable     Other         segment             Consolidated
                                Segments       (a)        Elimination  Other       Total
                               -----------  -----------  ----------  ---------  -----------
<S>                            <C>          <C>          <C>         <C>        <C>
Net interest income (loss).     $  12,556   $     (501)  $      --   $     45   $   12,100
Other revenue-external
   customers...............         3,919            9          --         --        3,928
Other revenue - from
   other segments..........           155        2,972      (3,127)        --            0
Depreciation and
   amortization............         1,252           58          --         --        1,310
Equity in the net income
   of investees............            --        1,879      (1,879)        --            0
Other significant noncash
items:
   Provision for credit
      losses...............         2,518           --          --         --        2,518
Income tax expense
   (benefit)...............         1,237         (282)         --         --          955
Segment profit (loss)
   from continuing
   operations..............         1,879         (625)                    45        1,299
Income from operations
   of discontinued asset-
   based lending subsidiary.           --          127          --         --          127
Segment assets from
   continuing operations...       367,742       45,768     (67,880)        --      345,630
Expenditures for additions
   to assets...............         2,674           12          --         --        2,686
</TABLE>

---------------
(a) The financial  information  presented in the "Other"  column is for the bank
holding  company.  This component of the Company is not intended to earn revenue
and does not qualify as an operating segment.  The profit presented for the bank
holding company includes the  undistributed  income from BNCCORP's  consolidated
subsidiaries.

<PAGE>


21.   Condensed Financial InformationCParent Company Only:

Condensed financial  information of BNCCORP on a parent company only basis is as
follows:

                                 Parent Company Only
                              Condensed Balance Sheets
                                  As of December 31
                   (In thousands, except share and per share data)

                                                        1999         1998
                                                      ----------  ------------
  Assets:
     Cash and cash equivalents.....................   $   3,832   $       353
     Investment in subsidiaries....................      33,471        33,151
     Loans.........................................          16           341
     Receivable from subsidiaries..................         194        20,106
     Deferred changes and intangible assets, net...         298           360
     Other.........................................         852         1,023
                                                      ----------  ------------
                                                      $  38,663   $    55,334
                                                      ==========  ============
  Liabilities and stockholders' equity:
     Notes payable.................................   $  14,708   $    29,148
     Accrued expenses and other liabilities........         806           931
                                                      ----------  ------------
                                                         15,514        30,079
                                                      ----------  ------------
     Preferred stock, $.01 par value, 2,000,000
        shares authorized; no shares issued or
        outstanding................................          --            --
     Common stock, $.01 par value, 10,000,000 shares
        authorized; 2,399,980 and 2,390,184 shares
        issued and outstanding
        (excluding 42,880 shares held in treasury)
        in 1999 and 1998, respectively.............          24            24
     Capital surplus...............................      13,976        13,951
     Retained earnings.............................      11,893        11,651
     Treasury stock (42,880 shares)................        (513)         (513)
     Accumulated other comprehensive income (loss),
         net of income tax effects.................      (2,231)          142
                                                      ----------  ------------
      Total stockholders' equity...................      23,149        25,255
                                                      ----------  ------------
                                                      $  38,663   $    55,334
                                                      ==========  ============




<PAGE>



                                 Parent Company Only
                           Condensed Statements of Income
                           For the Years Ended December 31
                                   (In thousands)

                                                    1999       1998       1997
                                                 ---------- ---------- ---------
Income:
   Management fee income.......................  $   1,606  $    1,426 $    965
   Interest....................................      1,757       1,623      847
   Other.......................................          9          30        9
                                                 ---------- ---------- ---------
      Total income.............................      3,372       3,079    1,821
                                                 ---------- ---------- ---------
Expenses:
   Interest....................................      2,486       2,226    1,348
   Personnel expense...........................      1,320       1,268      849
   Legal and other professional................        134         188      103
   Depreciation and amortization...............         66          71       58
   Other.......................................        502         397      370
                                                 ---------- ---------- ---------
      Total expenses...........................      4,508       4,150    2,728
                                                 ---------- ---------- ---------
Loss before income tax benefit and equity in
   undistributed income of subsidiaries........     (1,136)     (1,071)    (907)
Income tax benefit.............................        433         341      282
                                                 ---------- ---------- ---------
Loss before equity in undistributed income of
   subsidiaries................................       (703)       (730)    (625)
Equity in undistributed income of subsidiaries.         96       2,612    1,879
                                                 ---------- ---------- ---------
Income (loss) from continuing operations.......       (607)      1,882    1,254
Equity in undistributed income from operations
    of discontinued asset-based lending
    subsidiary.................................        429         385      127
                                                 ---------- ---------- ---------
Income (loss) before gain on disposal of
    asset-based lending subsidiary.............       (178)      2,267    1,381
Gain on disposal of asset-based lending
   subsidiary..................................        438          --       --
                                                 ---------- ---------- ---------
Income before cumulative effect of change in
    accounting principle.......................        260       2,267    1,381
Cumulative effect of change in accounting
    principle, net of income tax effects.......        (18)         --       --
                                                 ========== ========== =========
      Net income...............................  $     242  $    2,267 $  1,381
                                                 ========== ========== =========



<PAGE>
<TABLE>
<CAPTION>

                                 Parent Company Only
                         Condensed Statements of Cash Flows
                           For the Years Ended December 31
                                   (In thousands)
                                                        1999      1998       1997
                                                      --------- ---------- ---------
<S>                                                   <C>       <C>        <C>
Operating activities:
   Net income.......................................  $    242  $   2,267  $  1,381
   Adjustments to reconcile net income to net cash
      provided by (used in) operating activities --
      Gain on sale of discontinued operation........      (438)        --        --
      Depreciation and amortization.................        46         53        48
      Equity in undistributed income of subsidiaries       (96)    (2,612)   (1,879)
      Equity in undistributed income from operations
        of discontinued asset-based lending
        subsidiary..................................      (429)      (385)     (127)
      Change in prepaid expenses and other
         receivables................................    19,922     (5,858)  (10,174)
      Change in accrued expenses and other
         liabilities................................        28        290       456
      Other.........................................        --          7        64
                                                      --------- ---------- ---------
         Net cash provided by (used in) operating
            activities..............................    19,275     (6,238)  (10,231)
                                                      --------- ---------- ---------
Investing activities:
   Disposition of discontinued operation............     2,100         --        --
   Net decrease in loans............................      (325)      (158)      (46)
   Increase in investment in subsidiaries ..........    (3,157)    (1,307)     (641)
   Purchases of premises, leasehold improvements and
      equipment.....................................       (19)       (67)      (12)
                                                      --------- ---------- ---------
         Net cash used in investing activities......    (1,401)    (1,532)     (699)
                                                      --------- ---------- ---------
Financing activities:
   Repayments of long-term borrowings...............   (29,532)    (9,785)  (21,190)
   Proceeds from long-term borrowings...............    15,000     16,870    32,875
   Amortization of discount on subordinated notes...        92         84        46
   Amortization of deferred charges.................        20         18        10
   Purchase of treasury stock.......................        --      (297)        --
   Other, net.......................................        25        165        --
                                                      --------- ---------- ---------
         Net cash provided by (used in) financing
           activities...............................   (14,395)     7,055    11,741
                                                      --------- ---------- ---------
Net increase (decrease) in cash and cash equivalents     3,479       (715)      811
Cash and cash equivalents, beginning of year........       353      1,068       257
                                                      --------- ---------- ---------
Cash and cash equivalents, end of year..............  $  3,832  $     353  $  1,068
                                                      ========= ========== =========
Supplemental cash flow information:
   Interest paid....................................  $  2,582  $   2,187  $  1,262
                                                      ========= ========== =========
   Income tax payments received from subsidiary
      banks, net of income taxes paid...............  $    243  $     438  $    322
                                                      ========= ========== =========

</TABLE>
22.  Subsequent Event:

During  February 2000, the Company retired  $814,000 of its 8 5/8%  Subordinated
Notes due in 2004.  The Company  paid a discount to debenture  holders,  and the
transaction  resulted in an extraordinary gain of $121,000 ($.05 per share), net
of income taxes of $63,000.  The  debentures  were retired using cash  generated
from the sale of BNC Financial.



<PAGE>



23.  Quarterly  Financial Data  (unaudited,  in thousands,  except  earnings per
share):
<TABLE>
<CAPTION>
                                                            1999
                                        ---------------------------------------------
                                         First       Second      Third       Fourth
                                         Quarter     Quarter     Quarter    Quarter
                                        ----------  ----------  ----------  ---------
<S>                                     <C>         <C>         <C>         <C>
Interest income......................   $   6,836   $   6,717   $   7,353   $  8,025
Interest expense.....................       3,794       3,680       4,240      4,860
                                        ----------  ----------  ----------  ---------
Net interest income..................       3,042       3,037       3,113      3,165
Provision for credit losses..........         213         309         354        262
                                        ----------  ----------  ----------  ---------
Net interest income after provision
  for credit losses..................       2,829       2,728       2,759      2,903

Noninterest income...................       1,424       1,567       1,486      1,591
Noninterest expense..................       3,914       4,009       4,280      6,012
                                        ----------  ----------  ----------  ---------
Income (loss) before income taxes....         339         286         (35)    (1,518)
Provision for income taxes...........         122         117         (39)      (599)
                                        ----------  ----------  ----------  ---------
Income (loss) from continuing
   operations........................         217         169           4       (919)
Discontinued Operation:
  Income from operations of
   discontinued operation (less
   applicable income taxes)..........         139         104         186         --
  Gain on disposal of discontinued
     operation.......................          --          --          --        438
                                        ----------  ----------  ----------  ---------
Income before cumulative effect of
  change in accounting principle.....         356         273         190       (481)
Cumulative effect of change in
  accounting principle (net of income
  tax effects).......................         (96)         --          --         --
                                        ----------  ----------  ----------  ---------
Net income (loss)....................   $     260   $     273   $     190   $   (481)
                                        ==========  ==========  ==========  =========
Earnings per common share:
Basic income (loss) from continuing
   operations........................   $    0.09    $   0.07   $    0.00   $  (0.38)
Discontinued operation...............        0.06        0.04        0.08       0.18
Cumulative effect of change in
  accounting principle...............       (0.04)         --          --         --
                                        ----------  ----------  ----------  ---------
Basic net income (loss)..............   $    0.11   $    0.11   $    0.08   $  (0.20)
                                        ==========  ==========  ==========  =========
Diluted income (loss) from continuing
  operations.........................   $    0.09   $    0.07   $    0.00   $  (0.38)
Discontinued operation...............        0.06        0.04        0.08       0.18
Cumulative effect of change in
  accounting principle...............       (0.04)         --          --         --
                                        ----------  ----------  ----------  ---------
Diluted net income (loss)............   $    0.11   $     0.11  $     0.08  $  (0.20)
                                        ==========  ==========  ==========  =========
Average common shares:
Basic................................   2,405,891   2,410,980   2,409,654   2,399,980
Diluted..............................   2,405,891   2,410,999   2,410,035   2,399,980

</TABLE>


<PAGE>

<TABLE>
<CAPTION>
                                                            1998
                                        ---------------------------------------------
                                         First       Second      Third       Fourth
                                         Quarter     Quarter     Quarter    Quarter
                                        ----------  ----------  ----------  ---------
<S>                                     <C>         <C>         <C>         <C>
Interest income......................   $   6,663   $   6,933   $   7,302   $  6,903
Interest expense.....................       3,610       3,757       3,949      3,836
                                        ----------  ----------  ----------  ---------
Net interest income..................       3,053       3,176       3,353      3,067
Provision for credit losses..........          80          80         711        330
                                        ----------  ----------  ----------  ---------
Net interest income after provision
  for credit losses..................       2,973       3,096       2,642      2,737
Noninterest income...................       1,072       1,264       1,195      1,312
Noninterest expense..................       3,141       3,197       3,419      3,622
                                        ----------  ----------  ----------  ---------
Income before income taxes...........         904       1,163         418        427
Provision for income taxes...........         346         454         175         55
                                        ----------  ----------  ----------  ---------
Income from continuing operations....         558         709         243        372

Discontinued Operation:
   Income from operations of
      discontinued operation (less
      applicable income taxes).......         132          59          99         95
                                        ----------  ----------  ----------  ---------
Net income...........................   $     690   $     768   $     342   $    467
                                        ==========  ==========  ==========  =========

Earnings per common share:
Basic income from continuing
   operations........................   $    0.23   $    0.30   $    0.10   $   0.16
Discontinued operation...............        0.06        0.02        0.04       0.04
                                        ----------  ----------  ----------  ---------
Basic net income.....................   $    0.29    $   0.32   $    0.14   $   0.20
                                        ==========  ==========  ==========  =========

Diluted income from continuing
   operations........................   $    0.22     $  0.28   $    0.09   $   0.16
Discontinued operation...............        0.06        0.02        0.04       0.04
                                        ----------  ----------  ----------  ---------
Diluted net income...................   $    0.28     $  0.30   $    0.13   $   0.20
                                        ==========  ==========  ==========  =========

Average common shares:
Basic................................   2,401,584   2,402,838   2,391,939   2,393,152
Diluted..............................   2,438,422   2,499,920   2,414,170   2,393,941

</TABLE>

<PAGE>

Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

None

                                          PART III

Item 10.  Directors and Executive Officers of the Registrant

Information  concerning the Company's  directors and officers called for by this
item will be included in the Company's  definitive  Proxy Statement  prepared in
connection  with the 2000 Annual  Meeting of  Stockholders  and is  incorporated
herein by reference.

Item 11.  Executive Compensation

Information  concerning the compensation of the Company's  executives called for
by this  item will be  included  in the  Company's  definitive  Proxy  Statement
prepared in  connection  with the 2000  Annual  Meeting of  Stockholders  and is
incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Information  concerning  security  ownership  of certain  beneficial  owners and
management called for by this item will be included in the Company's  definitive
Proxy  Statement  prepared  in  connection  with  the  2000  Annual  Meeting  of
Stockholders and is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions called for
by this  item will be  included  in the  Company's  definitive  Proxy  Statement
prepared in  connection  with the 2000  Annual  Meeting of  Stockholders  and is
incorporated herein by reference.

                                          PART IV


Item 14.        Exhibits, Financial Statement Schedules, and Reports on Form 8-K

   (a)   Exhibits.
      Reference is made to the Exhibit Index  beginning on page E-1 hereby.  The
      Company will furnish to any eligible stockholder,  upon written request of
      such  stockholder,  a copy of any  exhibit  listed  upon the  payment of a
      reasonable fee equal to the Company's expenses in furnishing such exhibit.

   (b) Reports on Form 8-K.
      No reports on Form 8-K were filed  during the quarter  ended  December 31,
      1999.


<PAGE>



                                         Signatures

Pursuant to the  requirements  of Section 13 or 15(d) of the  Exchange  Act, the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized, on March 29, 2000.

                                                      Name of Issuer
                                                      By:   /s/ Tracy Scott
                                                      Chief Executive Officer

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the Registrant and in the capacities  indicated,
on March 29, 2000.

                                          Chairman of the Board, Chief Executive
      /s/ Tracy Scott                              Officer and Director
                                                (Principal Executive Officer)
                                         President, Chief Operating Officer and
      /s/ Gregory K. Cleveland                             Director
                                                 (Principal Financial Officer)
                                                (Principal Accounting Officer)
   /s/ Brenda L. Rebel                                     Director

   /s/ James D. LaBreche                                   Director

   /s/ John A. Hipp, M.D.                                  Director

   /s/ Richard M. Johnsen, Jr.                             Director

   /s/ John M. Shaffer                                     Director

   /s/ Jerry R. Woodcox                                    Director

   /s/ Brad J. Scott                                       Director



<PAGE>


                                 EXHIBIT INDEX


--------------------------------------------------------------------------------
 Exhibit
   No.                             Exhibit Description
--------------------------------------------------------------------------------
      2.1 Contract for Sale of Assets dated December 31, 1996 by and between
          Gregory K. Cleveland, P.C. and BNC National Bank, incorporated by
          reference to Exhibit 2.5 to the  Registrant's  Form 10-KSB dated as of
          March 26, 1997.
      2.2 Stock Purchase Agreement dated February 26, 1997 by and between BNC
          National Bank and Shareholders of J.D. Meier Insurance Agency,
          incorporated  by  reference  to Exhibit 2.6 to the  Registrant's  Form
          10-KSB dated as of March 26, 1997.
      2.3 Amended and Restated  Agreement and Plan of Merger dated  December 19,
          1997 among BNCCORP, Inc., J.D. Meier Insurance Agency, Inc. and Lips &
          Lahr, Inc., William Wade, Dale Ely, Laif Olson, Richard Lahr and David
          Clausnitzer,   incorporated   by  reference  to  Exhibit  2.7  to  the
          Registrant's Form 10-KSB dated as of March 25, 1998.
      2.4 Stock Purchase Agreement dated as of December 6, 1999, by and
          between BNCCORP, Inc. and Associated Banc-Corp, incorporated by
          reference  to  Exhibit  2.1 to the  Registrant's  Form 8-K dated as of
          January 14, 2000.
      3.1 Certificate of Incorporation of the Company, incorporated by
          reference to Exhibit 3.1 to the Registrant's Registration Statement
          on Form SB-2 (Registration No. 33-92369).
      3.2 Bylaws of the Company, incorporated by reference to Exhibit 3.2 to the
          Registrant's Registration Statement on Form SB-2 (Registration
          No. 33-92369).
      4.1 Specimen of Common  Stock  Certificate,  incorporated  by reference to
          Exhibit  4  to  Amendment  No.  1  to  the  Registrant's  Registration
          Statement on Form SB-2 (Registration No. 33-92369).
      4.2 Warrant to Subscribe for and Purchase Common Stock of BNCCORP, Inc.
          by and between the Company and Dain Bosworth Incorporated,
          incorporated  by  reference  to Exhibit 4.2 to the  Registrant's  Form
          10-KSB dated as of March 29, 1996.
      4.3 Form of  Indenture  by and between  BNCCORP,  Inc.  and Firstar  Trust
          Company,  as Trustee,  incorporated by reference to Exhibit 4.1 to the
          Registrant's Registration Statement on Form SB-2 (Registration No.
          333-26703).
     10.1 Form of Indemnity Agreement by and between the Company and each of
          the Company's Directors, incorporated by reference to Exhibit 10.1
          to the Registrant's Registration Statement on Form SB-2
          (Registration No. 33-92369).
     10.2 Form of Employment Agreement between the Company and each of Tracy
          J. Scott and Gregory K. Cleveland, incorporated by reference to
          Exhibit 10.2 to the Registrant's Registration Statement on Form SB-2
          (Registration No. 33-92369).

<PAGE>
     10.3 Form of BNCCORP, INC. Stock Incentive Plan, incorporated by
          reference to Exhibit 10.3 to the Registrant's Registration Statement
          on Form SB-2 (Registration No. 33-92369).
     10.4 Form of Stock Option  Agreement for the Grant of  Non-Qualified  Stock
          Options Under the BNCCORP,  INC. 1995 Stock Incentive Plan dated as of
          June  7,  1995,  incorporated  by  reference  to  Exhibit  10.5 to the
          Registrant's Form 10-KSB dated as of March 29, 1996.
     10.5 Form of Stock Option Agreement for the Grant of Incentive Stock
          Options Under the BNCCORP, Inc. 1995 Stock Incentive Plan dated as
          of January 2, 1998 between the Company and each of Tracy J. Scott,
          Gregory K. Cleveland and Brad J. Scott, incorporated by reference to
          Exhibit  10.15 to the  Registrant's  Form 10-KSB dated as of March 25,
          1998.
     10.6 Contract  of Sale  dated as of August 29,  1997,  by and  between  BNC
          National Bank and Preferred Investment Services, Inc., incorporated by
          reference to Exhibit 10.16 to the Registrant's Form 10-KSB dated
          as of March 25, 1998.
     10.7 Assignment Agreement dated as of August 29, 1997, by and between
          Preferred Investment Services, Inc. and BNC National Bank,
          incorporated by reference to Exhibit 10.17 to the Registrant's Form
          10-KSB dated as of March 25, 1998.
     10.8 Form of Amended and Restated Employment Agreement Between J.D. Meier
          Insurance Agency, Inc. and each of David Clausnitzer, Dale Ely,
          Richard Lahr and Laif Olson, dated as of June 30, 1998, incorporated
          by reference to Exhibit 10.18 to the Registrant's Form 10-QSB dated as
          of August 13, 1998.
     10.9 Employment Agreement Among BNCCORP, Inc., BNC National Bank and
          David J. Sorum dated as of October 13, 1998, incorporated by
          reference to Exhibit 10.23 to the Registrant's Form 10-QSB dated as of
          November 13, 1998.
    10.10 Employment Agreement Among BNCCORP, Inc., BNC National Bank of
          Minnesota and James LaBreche dated as of March 1, 1999, incorporated
          by reference to Exhibit 10.25 to the Registrant's Form 10-KSB dated as
          of March 29, 1999.
    10.11 Form of Restricted Stock Agreement Under the BNCCORP, Inc. 1995
          Stock Incentive Plan dated as of October 15, 1998 and March 1, 1999
          between BNCCORP, Inc. and David J. Sorum and James D. LaBreche,
          incorporated  by reference to Exhibit 10.28 to the  Registrant's  Form
          10-KSB dated as of March 29, 1999.
     21.1 Subsidiaries of Company.
     23.1 Consent of Arthur Andersen LLP
       27 Financial Data Schedule