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, 2000
                                       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              (I.R.S. Employer Identification No.)
of incorporation or organization)

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

       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. [ X]

     The aggregate  market value of the voting stock held by  non-affiliates  of
the Registrant at March 15, 2001 was $12,195,000.

     The number of shares of the Registrant's  common stock outstanding on March
15, 2001 was 2,394,330.

     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  2001 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, 2000

                                TABLE OF CONTENTS
                                                                          Page

                                     PART I
Item 1.    Business....................................................     3
Item 2.    Properties..................................................     9
Item 3.    Legal Proceedings...........................................    10
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.....................................    10
Item 7.    Management's Discussion and Analysis of
            Financial Condition and Results of Operations..............    12
Item 7A.   Quantitative and Qualitative Disclosures
            about Market Risk...........................................   36
Item 8.    Financial Statements and Supplementary Data..................   40
Item 9.    Changes In and Disagreements With Accountants
            on Accounting and Financial Disclosure......................   79
                                    PART III
Item 10.   Directors and Executive Officers of the Registrant...........   79
Item 11.   Executive Compensation.......................................   79
Item 12.   Security Ownership of Certain Beneficial
            Owners and Management.......................................   79
Item 13.   Certain Relationships and Related Transactions...............   79

                                     PART IV
Item 14.   Exhibits, Financial Statement Schedules and
            Reports on Form 8-K.........................................   79


<PAGE>



                                     PART I


Item 1. Business

General

BNCCORP,  Inc. ("BNCCORP"),  a Delaware  corporation,  is a bank 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,  Minnesota  and Arizona.  BNCCORP  operates
primarily through its commercial banking subsidiary, BNC National Bank (together
with  its  wholly-owned   subsidiaries,   BNC  Insurance,  Inc.  and  BNC  Asset
Management,  Inc.,  "BNC  National  Bank" or the  "Bank"),  with 17  offices  in
Minnesota, North Dakota and Arizona.

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 products and services.
The Company is  committed  to acting as a  full-service  provider  of  financial
services,  including  traditional banking,  trust, asset management,  brokerage,
insurance, financial planning and other services. See "-Products and Services."

BNC aims to achieve its objectives  through 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.  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.

BNC's total assets have  increased  from $118.0  million at December 31, 1992 to
$570.0  million at December 31, 2000.  The  Company's  goal is the creation of a
well-capitalized  $1 billion financial  services  organization  focused on local
relationship  banking.  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 early  2001,  the Bank
expanded  its  growth  opportunities  by opening a loan and  deposit  production
office in Tempe, Arizona.

<PAGE>

Market Areas

BNC's primary market areas are the Minneapolis/St. Paul (Minnesota) metropolitan
area, the  Bismarck/Mandan  and Fargo (North Dakota)  metropolitan areas and the
rural communities surrounding the branch offices of the bank (Crosby, Ellendale,
Garrison, Kenmare, Linton, Stanley and Watford City, North Dakota). The recently
opened loan and  deposit  production  office  will serve the  Tempe/Phoenix/Mesa
(Arizona)  metropolitan  area.  As of  December  31,  2000,  47  percent  of the
Company's  loans were to  borrowers  located in  Minnesota,  33 percent  were to
borrowers  located in North Dakota and 13 percent  were to borrowers  located in
South  Dakota.  The remaining 7 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 net  loans  outstanding  at each of  BNC's
locations:
<TABLE>
<CAPTION>

                                                     December 31, 2000
                                              ---------------------------------

                Location                          Total           Net Loans
                                                Deposits         Outstanding
------------------------------------------    --------------   ----------------
                                                       (in thousands)
<S>                                           <C>              <C>
BNC-National Bank:
  Bismarck..............................          $ 161,665          $ 126,647
  Crosby................................             18,929                288
  Ellendale.............................             11,684                715
  Fargo.................................             29,556             16,710
  Garrison..............................             15,240                331
  Kenmare...............................             15,353                189
  Linton................................             43,753             10,160
  Minneapolis...........................             38,283            113,341
  Stanley...............................             16,023                645
  Watford City..........................             11,978                153
BNCCORP (parent company)................                 --                 16
                                              --------------   ----------------
     Total .............................          $ 362,464          $ 269,195
                                              ==============   ================
</TABLE>

Products and Services

Loans. The Company's loans 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 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  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 2000, the Company
continued  to  increase  core  deposits  largely  through  the  success  of  its
Wealthbuilder  NOW and money market  deposit  accounts  introduced  during 1999.

<PAGE>

These are floating  rate  accounts  indexed to the  three-month  Treasury  Bill.
Deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
statutory limits.  The Bank also purchases  brokered deposits and obtains direct
non-brokered certificates of deposit through national deposit networks when such
transactions  are  beneficial  to the Bank.  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.  The Bank's Financial Services Division provides 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.  The Bank's  subsidiary,  BNC Asset Management,  Inc. ("BNC
AMI"),  with  offices in  Bismarck  and  Fargo,  North  Dakota and  Minneapolis,
Minnesota,   provides  trading,   investment  management  of  institutional  and
individual accounts, company-sponsored mutual funds and investment banking.

Insurance   Services.   Insurance  services  are  provided  through  the  Bank's
subsidiary,  BNC Insurance,  Inc.  ("BNC  Insurance").  These  services  include
personal  insurance  products  such  as  home,   automobile  and  other  vehicle
insurance;  universal and mortgage life  insurance;  business  insurance such as
commercial  property  and general  liability,  workers'  compensation,  business
automobile and excess liability coverage;  life, health and annuities;  farm and
crop insurance; and commercial trucking insurance.

The  variety  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 offices. In addition, the
Company offers 24-hour  telephone  banking  services  through its voice response
system,  BNC  Bankline.  The Company  also  provides  internet  banking and cash
management services through its internet banking site at  www.bncbank.com.  This
system allows customers to process account transactions, funds transfers, wires,
automated  clearing house (ACH)  transactions,  stop payments and obtain account
history and other  information  using their  personal  computers  and modems.  A
mobile branch operating in Fargo,  North Dakota is also of great  convenience to
Bank customers.

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  members (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

<PAGE>

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 and the increasing  availability  of
nationwide  interstate  banking have  increased the level of  competition in the
Company's already intensely competitive market areas. 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 Wells Fargo,
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 Bank 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  Bank  and is
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 Bank.  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 Legislation."

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 Bank is a national banking  association and is subject
to  supervision,  regulation and examination by the Office of the Comptroller of
the  Currency  ("OCC").  Since the deposits of the Bank are insured by the FDIC,
the  Bank  is  also  subject  to  regulation   and   supervision  by  the  FDIC.
Additionally, the Bank is a member 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 Bank to BNCCORP  who is defined as an  "affiliate"  of the Bank under the
Act. Section 23B of the Act places standards of fairness and  reasonableness  on
other of the Bank's transactions with its affiliates.

<PAGE>

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
Bank seeks participations to accommodate  borrowers whose financing needs exceed
its lending limits.

Loans to Executive  Officers,  Directors  and  Principal  Stockholders.  Certain
limitations and reporting  requirements  are also placed on extensions of credit
by the Bank to principal  stockholders  of BNCCORP and to directors  and certain
executive  officers  of the  Bank  (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 Bank or principal stockholder of BNCCORP may be limited in his or
her ability to obtain  credit from  financial  institutions  with which the Bank
maintains 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 Bank 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 Bank to supervisory or enforcement actions. In addition, BNCCORP could be
required to guarantee a capital  restoration  plan of the Bank,  should the Bank
become  "undercapitalized"  under  capital  guidelines.   See  Note  12  to  the
Consolidated  Financial  Statements included under Item 8 of Part II for further
discussion regarding the capital status of BNCCORP and the Bank.

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
Bank is encouraged  to respond to the credit and other needs of the  communities
it serves. 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.

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 the

<PAGE>

Bank  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.

Bank Secrecy Act. The Bank Secrecy Act requires  financial  institutions to keep
records and file reports that are determined to have a high degree of usefulness
in  criminal,  tax  and  regulatory  matters,  and  to  implement  counter-money
laundering programs and compliance procedures.

Consumer Laws and Regulations. In addition to the laws and regulations discussed
herein,  the Bank is 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,  the Home  Mortgage  Disclosure  Act,  the Real Estate
Settlement  Procedures  Act, the Fair Credit  Reporting  Act, the Flood Disaster
Protection  Act, the Fair  Housing Act and the Right to  Financial  Privacy 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.

Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act (the "Financial Modernization
Act") has expanded  the powers of banks and bank  holding  companies to sell any
financial product or service,  closed the unitary thrift loophole,  reformed the
Federal Home Loan Bank ("FHLB")  System to increase  community  banks' access to
loan funding, protected banks from discriminatory state insurance regulation and
established a new framework for the regulation of bank and bank holding  company
securities brokerage and underwriting  activities.  The Financial  Modernization
Act also included new provisions in the privacy area, restricting the ability of
financial  institutions to share nonpublic  personal  customer  information with
third parties.  Throughout  2000,  the Company has been  reviewing  implementing
regulations and other guidance issued by bank regulatory agencies in response to
the  Financial  Modernization  Act and  establishing  policies,  procedures  and
programs required or recommended by such regulations and guidelines.

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,  state banking authorities  possess  significant  authority to address
violations of their state's banking laws by banks operating in their  respective
states by enforcement and other supervisory actions.

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

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, 2000, BNC had 190 employees,  including 181 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.

<PAGE>

Item 2. Properties

The principal offices of BNCCORP are located at 322 East Main Avenue,  Bismarck,
North Dakota.  The building is owned by BNC National Bank. The principal  office
of BNC  National  Bank is  located  at 333 South  Seventh  Street,  Minneapolis,
Minnesota.  BNC National  Bank 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 Crosby,  Ellendale,
Fargo, Kenmare, Linton and Stanley, North Dakota.

BNC National Bank's  facilities at 100 West Main Street  (Mandan),  Garrison and
Watford  City,  North  Dakota  and the land at South 3rd Street  (Bismarck)  are
leased.  The  facilities  occupied by BNC National Bank and BNC AMI at 333 South
Seventh Street, Minneapolis, Minnesota, and facilities at 660 South Mill Avenue,
Tempe, Arizona are also leased.

All owned and leased  properties are considered in good operating  condition and
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 20 to the
Consolidated  Financial  Statements  included  under  Item  8  of  part  II  for
additional information concerning lease and other commitments.

Item 3. Legal Proceedings

The  Company's  material  pending  legal actions are discussed in Note 20 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, 2000.

                                     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.


<PAGE>

<TABLE>
<CAPTION>


                           2001              2000              1999
                     ----------------  ----------------  ----------------
Period                High      Low     High      Low      High     Low
                     -------  -------  -------  -------  -------  -------
<S>                  <C>      <C>      <C>      <C>      <C>      <C>
First Quarter....... $  8.56  $ 5.94   $  7.25  $ 5.81   $ 11.25  $ 8.63
Second Quarter......      --      --   $  6.94  $ 5.88   $  9.38  $ 7.63
Third Quarter.......      --      --   $  6.56  $ 5.75   $  9.00  $ 7.25
Fourth Quarter......      --      --   $  6.50  $ 5.38   $  8.25  $ 5.75

</TABLE>

On March 15, 2001, there were 97 record holders and approximately 963 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 Bank. Capital distributions, including dividends, by
the Bank are  subject  to  federal  regulatory  restrictions  tied to the bank'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, 2000,  1999,  1998,  1997 and 1996 are derived from the  historical
audited  consolidated  financial  statements  of the Company.  The  Consolidated
Balance  Sheets as of December  31,  2000,  1999,  1998 and 1997 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, 2000
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.


<PAGE>


<TABLE>

                           Selected Financial Data (1)
<CAPTION>

                                           For the Years Ended December 31,
                                ------------------------------------------------------
                                   2000       1999       1998       1997       1996
                                ---------- ---------- ---------- ---------- ----------
                                (dollars in thousands, except share and per share data)
<S>                             <C>        <C>        <C>        <C>        <C>
Income Statement Data:
Total interest income...........$  41,763  $  28,931  $  27,801  $  25,232  $  20,597
Total interest expense..........   28,117     16,574     15,152     13,132     10,945
                                ---------- ---------- ---------- ---------- ----------
Net interest income.............   13,646     12,357     12,649     12,100      9,652
Provision for credit losses.....    1,202      1,138      1,201      2,518        690
Noninterest income..............    7,773      6,068      4,843      3,928      3,622
Noninterest expense.............   17,430     18,215     13,379     11,256     10,286
Income taxes (benefit)..........      906       (399)     1,030        955      1,152
                                ---------- ---------- ---------- ---------- ----------
Income (loss) from
  continuing operations.........$   1,881  $    (529) $   1,882  $   1,299  $   1,146
                                ========== ========== ========== ========== ==========
Balance Sheet Data:
  (at end of period)
Total assets....................$ 570,016  $ 456,877  $ 372,240  $ 345,630  $ 283,716
Investments and federal
  funds sold....................  263,185    154,492     96,601     94,624     66,391
Loans...........................  268,925    262,051    247,181    220,149    197,435
Allowance for credit losses.....  (3,588)    (2,872)    (2,854)    (2,919)    (1,545)
Total deposits..................  362,464    324,711    284,499    262,824    239,770
Short-term borrowings...........  150,428     88,700     49,290     46,503     11,437
Long-term borrowings............   12,642     14,470      9,195      8,285      5,937
Stockholders' equity............   29,457     23,149     25,255     23,148     21,595
Book value per common share
  outstanding...................$   12.30  $    9.65  $   10.57  $    9.64  $    8.99

Earnings Performance Data (1):
Return on average total
  assets........................     0.35%     (.13)%       .54%       .42%       .44%
Return on average
  stockholders' equity..........     7.68%    (2.13)%      8.48%      6.16%      5.52%
Net interest margin.............     2.72%      3.41%      3.88%      4.27%      4.05%
Net interest spread.............     2.41%      3.09%      3.43%      3.82%      3.61%
Basic earnings (loss) per
  common share..................$    0.78  $  (0.22)  $    0.79  $    0.54  $    0.48
Diluted earnings (loss) per
  common share..................$    0.78  $  (0.22)  $    0.75  $    0.54  $    0.48
Balance Sheet and Other Key
  Ratios (1):
Nonperforming assets to
  total assets..................     0.12%      0.63%      1.21%      .43%        .16%
Nonperforming loans to total
  loans.........................     0.22%      0.63%       .97%      .68%        .15%
Net loan charge-offs to
  average loans.................    (.19)%     (.45)%     (.54)%    (.53)%      (.11)%
Allowance for credit
  losses to total loans.........     1.33%      1.10%      1.15%     1.33%        .78%
Allowance for credit losses
  to nonperforming loans........      619%       173%       119%      195%        540%
Average stockholders' equity
  to average total assets.......     4.56%      6.32%      6.33%     6.89%       8.05%
-------------------------
<FN>
(1)  From continuing operations for all periods presented.
</FN>
</TABLE>


<PAGE>


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

Overview

The  Company's  financial  performance  in 2000  reflected  continued  growth in
noninterest income,  increases in the asset and deposit base and stronger credit
quality.  Net interest  income for the year ended  December 31, 2000,  was $13.6
million,  as compared with $12.4 and $12.6 million  reported in the previous two
years.  Noninterest  income,  largely  from  insurance  commissions,  loan fees,
brokerage income and trust and financial services,  rose sharply to $7.8 million
in 2000 from $6.1 and $4.8 million in 1999 and 1998, respectively.

The Company  recorded 2000 net income of $2.3  million,  or $0.96 per share on a
diluted  basis,  compared  with net  income  of  $242,000,  or $0.10  per  share
(diluted),  for  1999  and net  income  of $2.3  million,  or  $0.91  per  share
(diluted), for 1998.

Performance highlights in the year 2000 included:

    *    Investment   securities   increased  74  percent,   to  $263.2  million
         reflecting  further  implementation  of the  balance  sheet  leveraging
         strategy initiated late in 1999. Total assets increased 25 percent,  to
         $570.0 million.

    *    Loans and leases  increased  3 percent,  to $268.9  million.  While net
         loans outstanding did not increase  materially,  gross loans originated
         did as the  total  loans  sold to  other  financial  institutions  on a
         nonrecourse basis increased $69.7 million, or 58%, to $189.8 million.

    *    A determined  focus by senior  management on loan portfolio  management
         resulted in a dramatic improvement in credit quality.

    *    Deposits  increased 12 percent,  to $362.5 million.  The deposit growth
         was driven by continued success of the Wealthbuilder  family of indexed
         NOW and money market accounts.

    *    Noninterest income increased 28 percent to $7.8 million.

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 primary 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 sheet 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>

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

<CAPTION>
                                                                  For the Years ended December 31,
                                   -----------------------------------------------------------------------------------
                                               2000                        1999                       1998
                                   --------------------------- --------------------------- ---------------------------
                                             Interest Average            Interest Average            Interest Average
                                    Average   earned  yield or  Average   earned  Yield or  Average   earned  yield or
                                    Balance  or paid    cost    balance  or paid    Cost    Balance  or paid    cost
                                   --------- -------- -------- --------- -------- -------- --------- -------- --------
                                                                    (dollars in thousands)
<S>                                <C>       <C>      <C>      <C>       <C>      <C>      <C>       <C>      <C>
Assets
  Federal funds sold/interest-
  bearing due from................ $   5,660 $    242    4.28% $   1,818 $     90    4.95% $   5,336 $    289    5.42%
  Taxable investments.............   225,559   16,054    7.12%   105,145    6,372    6.06%    87,464    5,269    6.02%
  Tax-exempt investments..........    17,624      940    5.33%     7,788      386    4.96%     1,775       95    5.35%
  Loans (2).......................   255,798   24,527    9.59%   250,158   22,083    8.83%   234,342   22,148    9.45%
  Allowance for credit losses.....   (3,405)       --            (2,890)       --            (2,941)       --
                                   --------- --------          --------- --------          --------- --------
     Total interest-earning
       assets (3).................   501,236   41,763    8.33%   362,019   28,931    7.99%   325,976   27,801    8.53%
  Noninterest-earning assets:
      Cash and due from banks.....     8,939                       7,704                       6,733
      Other.......................    27,579                      22,584                      17,728
                                   ---------                   ---------                   ---------
            Total assets.......... $ 537,754                   $ 392,307                   $ 350,437
                                   =========                   =========                   =========

Liabilities and Stockholders'
  Equity
  Deposits:
    NOW and money market
      accounts.................... $ 136,450    7,341    5.38% $  91,671    3,632    3.96% $  63,115    2,128    3.37%
    Savings.......................     4,097       86    2.10%     6,294      129    2.05%     8,717      197    2.26%
  Certificates of deposit:
    Under $100,000................   108,170    6,033    5.58%   125,470    6,469    5.16%   130,759    7,332    5.61%
    $100,000 and over.............    54,177    3,406    6.29%    43,140    2,307    5.35%    36,704    2,152    5.86%
                                   --------- --------          --------- --------          --------- --------
  Total interest-bearing
    deposits......................   302,894   16,866    5.57%   266,575   12,537    4.70%   239,295   11,809    4.93%
  Short-term borrowings:
    Securities and loans
      sold under agreements
      to repurchase and
      federal funds purchased.....    97,682    6,326    6.48%    21,685    1,129    5.21%     6,745      348    5.16%
    FHLB notes payable............    60,561    3,673    6.07%    40,308    2,174    5.39%    42,831    2,346    5.48%
Long-term borrowings..............    13,497    1,252    9.28%     9,872      734    7.44%     8,290      649    7.83%
                                   --------- --------          --------- --------          --------- --------
            Total interest-
              bearing
              liabilities.........   474,634   28,117    5.92%   338,440   16,574    4.90%   297,161   15,152    5.10%
Noninterest-bearing demand
  accounts........................    28,656                      27,094                      24,827
                                   ---------                   ---------                   ---------
            Total deposits and
              interest-bearing
              liabilities.........   503,290                     365,534                     321,988
Other noninterest-bearing
  liabilities.....................     6,850                       5,567                       6,264
                                   ---------                   ---------                   ---------
            Total liabilities.....   510,140                     371,101                     328,252
Subordinated debentures...........     3,108                          --                          --
Stockholders' equity..............    24,506                      21,206                      22,185
                                   ---------                   ---------                   ---------
            Total liabilities
              and stockholders'
              equity.............. $ 537,754                   $ 392,307                   $ 350,437
                                   =========                   =========                   =========
Net interest income...............           $ 13,646                    $ 12,357                    $ 12,649
                                             ========                    ========                    ========
Net interest spread...............                        2.41%                      3.09%                       3.43%
                                                      =========                   ========                    ========
Net interest margin...............                        2.72%                      3.41%                       3.88%
                                                      =========                   ========                    ========
  Ratio of average interest-
    earning assets to
    average interest-
    bearing liabilities...........   105.60%                     106.97%                     109.70%
                                   =========                   =========                   =========
<FN>

 --------------------

(1)      From continuing operations for all periods presented.

(2)      Average nonaccrual loans are included in average loans outstanding.

(3)      Yields do not include adjustments for tax-exempt interest.

</FN>
</TABLE>


<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>

                 Analysis of Changes in Net Interest Income (1)
<CAPTION>

                                        For the Years Ended December 31,
                               -------------------------------------------------
                                2000 Compared to 1999    1999 Compared to 1998
                               ------------------------ ------------------------
                               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/interest-
   bearing due from............$  (38) $   190 $    152 $ (190) $    (9) $ (199)
 Investments...................  2,442   7,794   10,236   1,424     (30)   1,394
 Loans.........................  1,946     498    2,444   1,495  (1,560)    (65)
                               ------- ------- -------- ------- -------- -------
    Total increase (decrease)
      in interest income.......  4,350   8,482   12,832   2,729  (1,599)   1,130
                               ------- ------- -------- ------- -------- -------
Interest-Bearing Liabilities
 NOW and money market
   accounts....................  1,935   1,774    3,709     962      542   1,504
 Savings.......................      2    (45)     (43)    (55)     (13)    (68)
 Certificates of Deposit:
   Under $100,000..............    456   (892)    (436)   (297)    (566)   (863)
   $100,000 and over...........    509     590    1,099     377    (222)    155
 Short-term borrowings:
   Securities and loans sold
     under agreements to
     repurchase and federal
     funds purchased...........  1,240   3,957    5,197     771       10     781
   FHLB notes payable..........    407   1,092    1,499   (138)     (34)   (172)
 Long-term borrowings..........    248     270      518     124     (39)      85
                               ------- ------- -------- ------- -------- -------
 Total increase (decrease)
   in interest expense.........  4,797   6,746   11,543   1,744    (322)   1,422
                               ======= ======= ======== ======= ======== =======
 Increase (decrease) in net
   interest income.............$ (447) $ 1,736 $  1,289 $   985 $(1,277) $ (292)
                               ======= ======= ======== ======= ======== =======
<FN>

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

Year ended  December 31, 2000  compared to year ended  December  31,  1999.  Net
interest  income  increased $1.3 million,  or 10.4 percent,  to $13.6 million as
compared to $12.4 million.  Net interest spread and net interest margin declined
to 2.41 and 2.72  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>

                Net Interest Income Analysis - 2000 vs. 1999 (1)

<CAPTION>
                                For the Years Ended
                                   December 31,           Change
                                -------------------  ----------------
                                  2000       1999
                                --------   --------
                               (amounts in millions)
<S>                             <C>        <C>       <C>       <C>
Total interest income
  increased.................... $  41.8    $  28.9   $  12.9     45%
  Due to:
    Increase in average
    earning assets............. $ 501.2    $ 362.0   $ 139.2     38%
  Driven by:
    Increase in average
      investments (a).......... $ 243.2    $ 112.9   $ 130.3    115%
    Increase in average
      loans (b)................ $ 255.8    $ 250.2   $   5.6      2%
  The increases in average
    earning assets volume
    were coupled with:
    Increased yield on
      earning assets...........    8.33%      7.99%     0.34%     4%
  Driven by:
    Increased yield on
      loans (c)................    9.59%      8.83%     0.76%     9%
    Increased yield on
      investments (d)..........    6.99%      5.98%     1.01%    17%
  These increases were
    somewhat offset by:
    Mix change in earning
      asset portfolio -
      Average loans as a
        percent of total
        interest-earning
        assets (e).............      51%        69%   (18.0)%  (26)%
Total interest expense
  increased.................... $  28.1    $  16.6   $  11.5     69%
  Due to:
    Increase in average
      interest-bearing
      liabilities.............. $ 474.6    $ 338.4   $ 136.2     40%
  Driven by:
    Increase in average
      interest-bearing
      deposits (f)............. $ 302.9    $ 266.6   $  36.3     14%
    Increase in average
      borrowings (g)........... $ 171.7    $  71.9   $  99.8    139%
  These increases were
    coupled with:
    Increase in cost of
      interest-bearing
        deposits (h)...........    5.57%      4.70%     0.87%    19%
    Increase in cost of
      borrowings (i)...........    6.55%      5.62%     0.93%    17%
--------------------
<FN>

(1)  From continuing operations for all periods presented.

     (a)  Reflecting  further  implementation  of the balance  sheet  leveraging
          strategy  initiated  late in 1999,  the Company  purchased  investment
          securities and funded them with FHLB borrowings.

     (b)  Loan growth is attributable  to increases in loans  originated in both
          the Minnesota and North Dakota markets.

     (c)  The improved loan yield is reflective of prime rate  increases in 2000
          offset by some  decreases in loan pricing  spread to prime rate due to
          competitive pressures in all markets.

     (d)  The improved  investment yield reflects the higher rate environment in
          2000  as  well  as  the  mix of  investment  types  in  the  Company's
          investment portfolio.

     (e)  The increase in investment  securities noted in (a) caused this change
          in the mix of the earning asset portfolio. While such a mix change has
          a negative  effect on yield on  earning  assets  (because  investments
          typically  yield  less than  loans),  the  strategy  is  accretive  to
          earnings.

     (f)  Deposit growth is primarily  attributable to the continued  success of
          the Wealthbuilder family of NOW and money market accounts.

     (g)  Increased  FHLB  borrowings  for the purpose of purchasing  investment
          securities. See (a) above.

<PAGE>

     (h)  Increased  cost of  interest-bearing  deposits  is  reflective  of the
          volume  of  Wealthbuilder  NOW  and  money  market  accounts  and  the
          associated  increases in cost as interest  rates rose during 2000. The
          Wealthbuilder accounts are indexed to and float with the 90 day T-bill
          rate.  Additionally,  in  a  higher  rate  environment,  the  cost  of
          certificates of deposit also increases with renewals and new accounts.

     (i)  Rates are reflective of the overall increased rate environment in 2000
          as compared to 1999.
</FN>
</TABLE>


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

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, 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>

                Net Interest Income Analysis - 1999 vs. 1998 (1)
<CAPTION>

                               For the Years Ended
                                   December 31,           Change
                                -------------------  ----------------
                                  2000       1999
                                --------   --------
                               (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)%   (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)%
<FN>
--------------------
(1)  From continuing operations for all periods presented.

     (a)  Loan growth primarily attributable to increases in loans originated at
          Minneapolis and Fargo locations.

     (b)  The Company  increased its investment  securities  holdings  primarily
          through FHLB borrowings with the  implementation  of the balance sheet
          leveraging strategy late in 1999.

     (c)  The decreased  loan yield was 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.
</FN>
</TABLE>

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 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

<PAGE>

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, 2000 was $1.2
million as compared to $1.1 million in 1999 and $1.2 million in 1998.

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>

                             Noninterest Income (1)


<CAPTION>

                                                            Increase (Decrease)
                             For the Years Ended    -----------------------------------
                                December 31,          2000 - 1999         1999 - 1998
                         -------------------------- ----------------   ----------------
                           2000     1999     1998      $        %         $        %
                         -------- -------- -------- -------- -------   -------- -------
                               (in thousands)
<S>                      <C>      <C>      <C>      <C>      <C>       <C>      <C>
Insurance commissions... $ 2,003  $ 2,045  $ 1,769  $  (42)    (2)%(a) $   276     16%(a)
Fees on loans...........   1,941    1,435    1,376      506     35%(b)      59      4%
Brokerage income........   1,466      797       53      669     84%(c)     744  1,404%(c)
Trust and financial
  services..............   1,064      589      517      475     81%(d)      72     14%

Service charges.........     604      536      566       68     13%       (30)    (5)%
Net gain on sales of
   securities ..........     276      198      130       78     39%         68     52%
Rental income...........      56      121       43     (65)   (54)%         78    181%
Other...................     363      347      389       16      5%       (42)   (11)%
                         -------- -------- -------- --------           --------
Total noninterest
  income................ $ 7,773  $ 6,068  $ 4,843    1,705     28%    $ 1,225     25%
                         ======== ======== ======== ========           ========
--------------------
<FN>

(1)  From continuing operations for all periods presented.

     (a)  Increased  insurance  commissions in 1999 resulted from an increase in
          the  average  number  of  insurance  producers  as well as  successful
          efforts to cross-sell insurance to bank customers.  In 2000, insurance
          commissions  remained relatively stable in spite of a reduction in the
          number of insurance agents.

     (b)  The increase in loan fees is largely  attributable to loans originated
          and sold.  BNC AMI also  generated  some loan fees upon  placement  of
          credit into the secondary  market.  Management cannot predict with any
          degree of certainty  the amount of loans which will be  originated  or
          placed  and  related  loan fees  which  will be  recognized  in future
          periods.

     (c)  Increases are  attributable  to the addition of brokerage staff at BNC
          AMI and successful  efforts to cross-sell  brokerage  services to bank
          customers.

     (d)  The 2000 increase is attributable to fees associated with the BNC U.S.
          Opportunities  Fund LLC which was formed on  September  1, 1999 and is
          managed by the Bank's Financial Services Division.
</FN>
</TABLE>

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:


<PAGE>


<TABLE>
                             Noninterest Expense (1)

<CAPTION>

                                                            Increase (Decrease)
                             For the Years Ended       -----------------------------------
                                December 31,             2000 - 1999         1999 - 1998
                         ----------------------------- ----------------   ----------------
                           2000      1999      1998       $        %          $       %
                         --------- --------- --------- -------- -------   -------- -------
                                (in thousands)
<S>                      <C>       <C>       <C>       <C>      <C>       <C>      <C>
Salaries and employee
  benefits.............. $  8,891  $  8,854  $  7,463  $    37      --    $ 1,391     19%(a)
Depreciation and
  amortization..........    1,659     1,586     1,498       73       5%        88      6%
Occupancy...............    1,360     1,248       988      112       9%       260     26%(a)
Professional services...    1,290     1,214       766       76       6%       448     58%(b)
Office supplies,
  telephone and
  postage...............      940       941       749      (1)      --        192     26%(a)
Marketing and
  promotion.............      597       621       455     (24)     (4)%       166     36%(c)
Repossessed and
  impaired asset
  expenses/write-
  offs..................      470     2,271         2  (1,801)    (79)%(d)  2,269     -- (d)
Minority interest in
  income of
  subsidiaries..........      399        --        --      399      -- (e)     --     --
FDIC and other
  assessments...........      200       191       184        9       5%         7      4%
Other...................    1,624     1,289     1,274      335      26%(f)     15      1%
                         --------- --------- --------- --------           --------
Total noninterest
  expense............... $ 17,430  $ 18,215  $ 13,379  $  (785)    (4)%   $ 4,836     36%
                         ========= ========= ========= ========           ========
Efficiency ratio (g)....    81.38%    98.86%    76.49%  (17.48)%            22.37%
--------------------
<FN>

(1)  From continuing operations for all periods presented.

     (a)  1999 increases represent personnel additions at BNC AMI, BNC Insurance
          and the Bank's  Fargo branch as well as related  occupancy,  supplies,
          telephone, postage and other miscellaneous expenses.

     (b)  1999 increase  represents  an increase in brokerage  costs at BNC AMI,
          legal fees  related to the  proceedings  against a former loan officer
          and other legal  costs  associated  with other real  estate  owned and
          repossessed  assets.  Professional  services expenses in 2000 remained
          relatively flat.

     (c)  1999 included increased advertising,  public relations and promotional
          expenses,  including  fees paid to an investor  relations firm engaged
          late in 1998.

     (d)  1999 included write-downs to estimated net realizability of other real
          estate  owned  and  repossessed  assets.  The  Company  had no  assets
          classified  as other  real  estate  owned  at  December  31,  2000 and
          repossessed assets were valued at $84,000.

     (e)  This is the  interest  expense  associated  with the  trust  preferred
          securities  issued  in July  2000.  See  Note  10 to the  Consolidated
          Financial  Statements  included  under Item 8 for further  information
          related to the trust preferred offering.

     (f)  Increase  in 2000  represents  a number  of  immaterial  increases  in
          various miscellaneous expense categories.

     (g)  Noninterest  expense divided by an amount equal to net interest income
          plus  noninterest  income.  Noninterest  expense  for  2000  and  1999
          included  $470,000 and $2.3 million,  respectively,  in write-downs of
          nonperforming assets.  Excluding these write-downs and the interest on
          the trust  preferred  securities,  the efficiency  ratios for 2000 and
          1999 would have been 77.30 and 86.53 percent, respectively.
</FN>
</TABLE>


Financial Condition

Overview.  Although  subsequent  sections  of this  discussion  and  analysis of
financial  condition  address  certain aspects of the Company's major assets and
liabilities in significant  detail,  the following two tables are presented as a
general overview of the financial condition of the Company.

<PAGE>

The following table presents the Company's assets by category as of December 31,
2000,  1999 and 1998,  as well as the amount and  percent of change  between the
dates.  Material  changes are  discussed in lettered  notes  following the table
(amounts are in thousands):

<TABLE>

                                     Assets
<CAPTION>

                                                              Increase (Decrease)
                                                       -----------------------------------
                              As of December 31,         2000 - 1999        1999 - 1998
                         ----------------------------- ----------------   ----------------
                           2000      1999      1998       $        %          $       %
                         --------- --------- --------- -------- -------   -------- -------
<S>                      <C>       <C>       <C>       <C>      <C>       <C>      <C>
Cash and due from
  banks................. $  14,988 $  12,816 $   7,475 $  2,175     17%   $  5,341     71%
Interest-bearing
  deposits with
  banks.................       595     5,565     2,809  (4,970)   (89)%      2,756     98%
Federal funds sold......        --     3,500        --  (3,500)  (100)%      3,500     --
Investment securities
  available for sale....   263,185   150,992    96,601  112,193     74%(a)  54,391     56%(a)
Loans and leases, net...   265,337   259,179   244,327    6,158      2%(b)  14,852      6%(b)
Premises, leasehold
  improvements and
  equipment, net........    14,873    12,006     8,786    2,867     24%      3,220     37%
Interest receivable.....     3,854     2,613     2,356    1,241     47%        257     11%
Other assets............     4,465     6,945     5,929  (2,480)   (36)%      1,016     17%
Deferred charges and
  intangible assets,
  net...................     2,719     3,261     3,957    (542)   (17)%      (696)   (18)%
Assets of
  discontinued
  operation.............        --        --    24,092       --     --    (24,092)  (100)%(c)
                         --------- --------- --------- ---------          --------
      Total assets...... $ 570,016 $ 456,877 $ 396,332 $ 113,139    25%   $ 60,545     15%
                         ========= ========= ========= =========          ========

<FN>

(a)  The Company  implemented a balance sheet leveraging strategy beginning late
     in 1999  whereby the earning  asset  portfolio  was  increased  through the
     purchase of additional investment securities funded primarily by borrowings
     from the FHLB.

(b)  The 1999 increase is primarily  attributable  to an increase in real estate
     mortgage loans originated in Minnesota and North Dakota.  The 2000 increase
     is primarily attributable to an increase in real estate construction loans.
     Although net loans outstanding have not increased  materially,  gross loans
     originated by the Company have increased  significantly  as the Company has
     originated  and sold  portions of loans to other  lenders on a  nonrecourse
     basis.  Loans may be sold to accommodate  customers  whose  financing needs
     exceed legal lending  limits and/or  internal  loan  restrictions  relating
     primarily  to  industry   concentrations.   Outstanding  balances  of  loan
     participations  sold on a nonrecourse  basis were $189.8,  $120.1 and $56.7
     million, respectively, as of December 31, 2000, 1999 and 1998.

(c)  Sale  of  BNC  Financial   Corporation,   BNCCORP's   asset-based   lending
     subsidiary, on December 31, 1999.


</FN>
</TABLE>

<PAGE>


The following  table presents the Company's  liabilities,  guaranteed  preferred
beneficial  interests in  subordinated  debentures and  stockholders'  equity by
category  as of  December  31,  2000,  1999 and 1998,  as well as the amount and
percent of change between the dates.  Material changes are discussed in lettered
notes following the table (amounts are in thousands):

<TABLE>

          Liabilities, Subordinated Debentures and Stockholders' Equity
<CAPTION>

                                                              Increase (Decrease)
                                                       -----------------------------------
                              As of December 31,         2000 - 1999        1999 - 1998
                         ----------------------------- -----------------   ----------------
                           2000      1999      1998        $        %          $       %
                         --------- --------- --------- --------- -------   -------- -------
<S>                      <C>       <C>       <C>       <C>       <C>       <C>      <C>
Deposits:
Noninterest-bearing..... $  31,459 $  29,798 $  28,475 $   1,661     6%    $  1,323     5%
Interest-bearing -
  Savings, NOW and
    money market........   169,425   127,454    89,887    41,971    33%(a)   37,567    42%(a)
  Time deposits
    $100,000 and over...    61,720    46,779    39,162    14,941    32%(b)    7,617    19%(b)
  Other time deposits...    99,860   120,680   126,975  (20,820)  (17)%(a)  (6,295)   (5)%(a)
Short term borrowings...   150,428    88,700    49,290    61,728    70%(c)   39,410    80%(c)
Long term borrowings....    12,642    14,470     9,195   (1,828)  (13)%       5,275    57%
Other liabilities.......     7,419     5,847     6,362     1,572    27%       (515)   (8)%
Liabilities of
  discontinued
  operation.............        --        --    21,731        --    --     (21,731) (100)%(d)
                         --------- --------- --------- ---------           --------
      Total
        liabilities.....   532,953   433,728   371,077    99,255    23%      62,651    17%
                         --------- --------- --------- ---------           --------
Guaranteed preferred
  beneficial interests
  in Company's
  subordinated
  debentures............     7,606        --        --     7,606    -- (e)       --    --
Stockholders' equity....    29,457    23,149    25,255     6,308    27%(f)  (2,106)    (8)%
                         --------- --------- --------- ---------           --------
      Total............. $ 570,016 $ 456,877 $ 396,332 $ 113,139    25%    $ 60,545     15%
                         ========= ========= ========= =========           ========
<FN>

(a)  Increases in the "savings,  NOW and money market" category are attributable
     to the popularity of the Company's Wealthbuilder deposit products.  Success
     of these  products  has also  contributed  to a decrease in the "other time
     deposits" category as some customers have elected to transfer maturing time
     deposits  to  the  more  liquid  and  competitively   priced  Wealthbuilder
     products.

(b)  Brokered  deposits  totaled  $30.7 million at December 31, 2000 compared to
     $13.4 and $5.0 million at December 31, 1999 and 1998, respectively.

(c)  Increases in short term  borrowings are  attributable  to the balance sheet
     leveraging strategy.

(d)  Sale of BNC Financial Corporation on December 31, 1999.

(e)  Issuance of trust  preferred  securities  in July 2000.  See Note 10 to the
     Consolidated  Financial  Statements  included  under  Item  8  for  further
     information related to the trust preferred securities.

(f)  Increase is attributable to earnings of $2.3 million and unrealized holding
     gains on securities  available  for sale arising  during the period of $3.9
     million.
</FN>
</TABLE>

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,  the Company seeks a balance
among  yield and the  management  of credit and  liquidity  risks with a goal of
maximizing the longer-term overall profitability of the Company.

<PAGE>

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>
                      Investment Portfolio Composition (1)
<CAPTION>

                                                  December 31,
                       ----------------------------------------------------------------
                               2000                  1999                  1998
                       --------------------- --------------------- --------------------
                                  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
U.S. government
  agency mortgage-
  backed securities...    44,272     44,468     26,697     26,295    51,194    51,444
U.S. government
  agency securities...     4,880      4,890      4,654      4,468    13,096    12,998
Collateralized
  mortgage
  obligations.........   164,221    165,404     97,243     95,038    19,602    19,607
State and municipal
  bonds...............    20,782     20,905     20,272     19,548     3,355     3,420
Corporate bonds.......    16,968     17,899         --         --        --        --
Equity securities.....     9,619      9,619      5,643      5,643     4,024     4,023
                       ---------- ---------- ---------- ---------- --------- ---------
Total investments..... $ 260,742  $ 263,185  $ 154,509  $ 150,992  $ 96,369  $ 96,601
                       ========== ========== ========== ========== ========= =========
<FN>

(1)        From continuing operations for all periods presented.

</FN>
</TABLE>

<PAGE>


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, 2000:

<TABLE>

                                                  Investment Portfolio - Maturity and Yields
<CAPTION>

                                                                   Maturing
                          ------------------------------------------------------------------------
                                               After 1 but       After 5 but
                            Within 1 Year     within 5 years   within 10 years    After 10 years       Total
                          ----------------- ----------------- ----------------- ------------------ ------------------
                           Amount  Yield(1)  Amount  Yield(1)  Amount  Yield(1)  Amount   Yield(1)  Amount   Yield(1)
                          -------- -------- -------- -------- -------- -------- --------- -------- --------- --------
<S>                       <C>      <C>      <C>      <C>      <C>      <C>      <C>       <C>      <C>       <C>
Available for sale:(2)
U.S. government agency
  mortgage-backed
  securities (3)......... $    44    5.42%  $   977    6.15%  $  5,497   6.46%  $  37,754   7.71%  $  44,272   7.52%
U.S. government agency
  securities.............      --      --     1,411    5.78%        --     --       3,469   6.04%      4,880   5.96%
Collateralized mortgage
  obligations (3)........      --      --     2,275    7.11%    48,454   6.86%    113,492   6.85%    164,221   6.86%
State and municipal
  bonds..................       5   14.33%    1,215    8.92%     1,128   7.15%     18,434   7.30%     20,782   7.39%
Corporate bonds..........      --      --        --      --         --     --      16,968   9.22%     16,968   9.22%
                          --------          --------          --------          ---------          ---------
Total book value of
  investment securities.. $    49    6.32%  $ 5,878    7.00%  $ 55,079   6.83%  $ 190,117   7.26%    251,123   7.16%
                          ========          ========          ========          =========          ---------
Unrealized holding
  gain on securities
  available for sale.....                                                                              2,443
Equity securities........                                                                              9,619   6.94%
                                                                                                   ---------
Total investment in
  securities available
  for sale...............                                                                          $ 263,185   7.09%(4)
                                                                                                   =========

--------------------
<FN>

(1)  Yields include  adjustments  for tax-exempt  income;  yields 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.

</FN>
</TABLE>

As of December 31, 2000,  BNC had $263.2 million of securities in the investment
portfolio as compared to $151.0 and $96.6 million at December 31, 1999 and 1998,
respectively.  During  2000,  the  Company  increased  its  holdings  in  agency
collateralized   mortgage   obligations   ("CMOs"),   U.S.   government   agency
mortgage-backed  securities  and  corporate  bonds by  $70.4,  $18.2,  and $17.9
million, respectively.

The  increased  volume of these  sectors and the portfolio as a whole is part of
the  Company's  strategy to increase its earning  asset  portfolio by purchasing
investment  securities funded primarily  through FHLB borrowings.  The portfolio
management process,  investment  objectives,  and risk/reward analysis described
above led the increase in the investment  portfolio to be  over-weighted  toward
CMOs due to their risk/reward  characteristics.  In addition, over the course of
2000,  principal  cash flows were  primarily  reinvested  in CMOs  because  they
offered  a better  risk/reward  profile  (due to the  structure  of the CMO cash
flows) relative to mortgage-backed securities.

At December 31, 2000,  BNC held no securities of any single  issuer,  other than
U.S.  government  agency  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 82 percent at
December 31, 2000) 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.  Net loans increased $6.2 million,  or 2.4 percent,  to $265.3 million at
December 31, 2000 as compared to $259.2  million at December 31, 1999.  In 1999,
net loans  increased  $14.9 million,  or 6 percent,  as compared to December 31,
1998.  The  following  table  presents the  composition  of the  Company's  loan
portfolio as of the dates indicated:

<TABLE>

                                               Loan Portfolio Composition (1)
<CAPTION>

                                                                  December 31,
                          -----------------------------------------------------------------------------------------
                                 2000              1999              1998              1997              1996
                          ----------------- ----------------- ----------------- ----------------- -----------------
                            Amount     %      Amount     %      Amount     %      Amount     %      Amount     %
                          --------- ------- --------- ------- --------- ------- --------- ------- --------- -------
                                                                          (dollars in thousands)
<S>                       <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>
Commercial and
  industrial ............ $ 112,407   42.4  $ 111,236   42.9  $ 107,886   44.2  $  96,780   44.5  $  89,065   45.4

Real estate
  mortgage...............    90,622   34.2     91,906   35.5     76,692   31.4     56,408   26.0     47,451   24.2
Real estate
  construction...........    25,301    9.6     16,026    6.2     20,831    8.5     18,215    8.4      8,806    4.5
Agricultural.............    15,775    5.9     16,679    6.4     19,777    8.1     21,064    9.7     20,673   10.6
Consumer/other...........    14,888    5.6     15,116    5.8     14,761    6.1     18,726    8.6     18,734    9.6
Lease financing..........    10,202    3.8     11,307    4.4      7,422    3.0      9,211    4.2     12,970    6.6
                          --------- ------- --------- ------- --------- ------- --------- ------- --------- -------
Total face amount of
  loans..................   269,195  101.5    262,270  101.2    247,369  101.3    220,404  101.4    197,699  100.9
Unearned income and
  net unamortized
  deferred fees and
  costs..................     (270)  (0.1)      (219)  (0.1)      (188)  (0.1)      (255)  (0.1)      (264)  (0.1)
                          --------- ------- --------- ------- --------- ------- --------- ------- --------- -------
Loans, net of unearned
  income and
  unamortized fees
  and costs..............   268,925  101.4    262,051  101.1    247,181  101.2    220,149  101.3    197,435  100.8
Less allowance for
  credit losses...........  (3,588)  (1.4)    (2,872)  (1.1)    (2,854)  (1.2)    (2,919)  (1.3)    (1,545)  (0.8)
                          --------- ------- --------- ------- --------- ------- --------- ------- --------- -------
Net loans.................$ 265,337 100.00  $ 259,179  100.0  $ 244,327  100.0  $ 217,230  100.0  $ 195,890  100.0
                          ========= ======= ========= ======= ========= ======= ========= ======= ========= =======

<FN>

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


<PAGE>


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:

<TABLE>

                    Change in Loan Portfolio Composition (1)
<CAPTION>

                                          Increase (Decrease)
                              ----------------------------------------
                                 2000 - 1999           1999 - 1998
                              ------------------    ------------------
                                  $         %           $         %
                              ---------  -------    ---------  -------
                                        (dollars in thousands)
<S>                           <C>        <C>        <C>        <C>
Commercial and industrial.... $  1,171       1%     $  3,350       3%
Real estate mortgage.........  (1,284)     (1)%       15,214      20%(a)
Real estate construction.....    9,275      58%(b)   (4,805)    (23)%
Agricultural.................    (904)     (5)%      (3,098)    (16)%
Consumer/other...............    (228)     (2)%          355       2%
Lease financing..............  (1,105)    (10)%        3,885      52%
                              ---------             ---------
Total face amount of loans...    6,925       3%       14,901       6%
Unearned income/unamortized
  fees and costs.............     (51)    (23)%         (31)    (16)%
                              ---------             ---------
Loans, net of unearned
  income/unamortized
  fees and costs.............    6,874       3%       14,870       6%
Allowance for credit losses..    (716)    (25)%         (18)     (1)%
                              ---------             ---------
Net Loans.................... $  6,158       2%     $ 14,852       6%(c)
                              =========             =========

<FN>

(1)  From continuing operations for all periods presented.

     (a)  Increase  in 1999 is  attributable  to loan  volume  generated  out of
          Minnesota and North Dakota.

     (b)  Increased originations of commercial real estate construction loans.

     (c)  As  previously   noted,  net  loans  outstanding  have  not  increased
          significantly in the last 24 months;  however,  this is not reflective
          of the loans originated by the Company which totaled $459.0 million at
          December 31, 2000 compared with $382.4 and $304.1  million at December
          31, 1999 and 1998,  respectively.  Loans are  originated  and sold for
          legal  lending  limit,  concentration  and other  reasons.  See "-Loan
          Participations."
</FN>
</TABLE>

While prospects for continued loan growth appear  favorable,  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
Company,  is  established by the Board of Directors (the "Board") based upon the
recommendations  of senior lending  management and credit  committees.  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,  to the extent the credit  relationship  amount
exceeds  individual  loan officer  lending  authorities,  are subject to special
approval by Bank executive lenders or the credit committees.

<PAGE>

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  Bank  sells  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:

<TABLE>
                          Loan Participations Sold (1)

                                  December 31,
                  ----------------------------------------------
                                 (in thousands)
                        <S>                     <C>
                        2000................... $ 189,763
                        1999...................   120,100
                        1998...................    56,700
                        1997...................    65,800
                        1996...................    57,300
<FN>

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

The Bank  generally  retains the right to service the loans as well as the right
to receive a portion of the interest income on the loans. Many of the loans sold
by the Bank 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
Bank. 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, 2000 the
total  outstanding  loans  as  well as all  outstanding  loan  commitments  were
included.  As of December 31, 2000, the Company identified three  concentrations
of loans exceeding ten percent of total loans and loan commitments  outstanding.
These concentrations were in real estate, lodging places and construction, which
represented 20.1, 10.4 and 10.3 percent,  respectively,  of total loans and loan
commitments outstanding.

The real estate loans and  commitments  were  extended to 112  customers who are
diversified  across  the  Company's  market  areas  and  who  can  be  generally
categorized as indicated below:

<TABLE>
<CAPTION>

                                             Percent of
                                                total
                                             outstanding
                                                loans
                                Number of     and loan
                                customers    commitments
                               -----------  -------------
<S>                            <C>          <C>
Non-residential and
  apartment building
  operators, developers
  and lessors of real
  property...................         58          15.9%
Real estate holding
  companies..................         54           4.2%
                               -----------  -------------
      Total..................        112          20.1%
                               ===========  =============
</TABLE>

The lodging loans and commitments were extended to 18 customers whose properties
are located  throughout  the United  States.  Loans in this category are made to
borrowers  that have seasoned  hotel  portfolios  that are well  diversified  by
location, property type and flag.

<PAGE>

Loans and commitments in the construction category were extended to 56 customers
who are located primarily in Minnesota,  Iowa and North and South Dakota and who
can be generally categorized as indicated below:

<TABLE>
<CAPTION>

                                             Percent of
                                                total
                                             outstanding
                                                loans
                                Number of     and loan
                                customers    commitments
                               -----------  -------------
<S>                            <C>          <C>
General building
  contractors................         13           2.3%
Heavy construction,
  excluding building.........         21           6.7%
Special trade contractors....         22           1.3%
                               -----------  -------------
     Total...................         56          10.3%
                               ===========  =============
</TABLE>


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 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 $15.8
million, or 6 percent of total loans at December 31, 2000. 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, 2000, there were no agricultural loans classified as nonperforming.

Loan  Maturities.  The following  table sets forth the  remaining  maturities of
loans in each major category of BNC's portfolio as of December 31, 2000.  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>
                             Maturities of Loans (1)
<CAPTION>

                                            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.... $ 46,126  $ 19,293  $  37,044  $  3,829  $  6,115  $ 112,407
Real estate mortgage.........    9,340    17,896     20,630    29,619    13,137     90,622
Real estate construction.....    7,400       112     16,736        --     1,053     25,301
Agricultural.................    7,390     3,635      1,659     1,110     1,981     15,775
Consumer/other...............    8,164     4,783      1,349       520        72     14,888
Lease financing..............      332     9,491         --       379        --     10,202
                              --------- --------- ---------- --------- --------- ----------
Total face amount of loans... $ 78,752  $ 55,210  $  77,418  $ 35,457  $ 22,358  $ 269,195
                              ========= ========= ========== ========= ========= ==========
--------------------
<PAGE>
<FN>

(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.
</FN>
</TABLE>

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 14 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  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>

                            Nonperforming Assets (1)
<CAPTION>


                                                December 31,
                              ------------------------------------------------
                                2000      1999      1998      1997      1996
                              --------  --------  --------  --------  --------
                                           (dollars in thousands)
<S>                           <C>       <C>       <C>       <C>       <C>
Nonperforming loans:
  Loans 90 days or more
    delinquent and still
    accruing interest........ $   221   $    22   $   307   $ 1,016   $   129
  Nonaccrual loans (2)(3)....     343     1,620     2,042       376        22
  Restructured loans (2)(3)..      16        16        44       104       136
                              --------  --------  --------  --------  --------
    Total nonperforming
      loans..................     580     1,658     2,393     1,496       287
  Other real estate owned
    and repossessed assets...      84     1,207     2,112        --       159
                              --------  --------  --------  --------  --------
    Total nonperforming
      assets................. $   664   $ 2,865   $ 4,505   $ 1,496   $   446
                              ========  ========  ========  ========  ========
Allowance for credit
  losses..................... $ 3,588   $ 2,872   $ 2,854   $ 2,919   $ 1,545
                              ========  ========  ========  ========  ========
Ratio of total non-
  performing loans
  to total loans.............     .22%      .63%      .97%      .68%      .15%
Ratio of total non-
  performing assets
  to total assets............     .12%      .63%     1.21%      .43%      .16%
<FN>

--------------------

(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  $29,000,  $112,000  and  $49,000  for the years  ended
     December 31, 2000, 1999 and 1998, respectively.

(3)  The interest income on nonaccrual and restructured  loans actually included
     in the Company's net income was $6,000,  $29,000 and $175,000 for the years
     ended December 31, 2000, 1999 and 1998, respectively.
</FN>
</TABLE>


The Company achieved significant improvement in the level of nonperforming loans
and  assets  during  2000.  A  determined  focus by  senior  management  on loan
portfolio management resulted in a dramatic improvement in credit quality.

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

<PAGE>

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
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 and repossessed  assets represents  properties and other
assets acquired through,  or in lieu of, loan  foreclosure.  Such properties and
assets 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 or assets are 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,
2000,  not including the past due,  nonaccrual and  restructured  loans reported
above,  totaled $6.0 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.

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 2000, the Company's total allowance was $3.6 million which equates to
approximately  3.1 times the  average  charge-offs  for the last  three and five
years,  and 3.8 and 4.3 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.

<PAGE>

The three components to the allowance for credit losses, the specific allowance,
allocated  allowance and unallocated  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.
Certain  members of the Review  Committee  are  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  real  estate,  lodging  and  construction  loans  and
commitments. Additionally, a geographic concentration of credit risk also arises
because BNCCORP operates primarily in the upper midwest with 93 percent of loans
outstanding  as of  December  31, 2000 having  been  extended  to  customers  in
Minnesota,  North Dakota and South  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 $1.7 million at December 31, 1999 to $580,000 at December
31,  2000.  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>

                   Analysis of Allowance for Credit Losses (1)

<CAPTION>

                                      For the Years Ended December 31,
                              ------------------------------------------------
                                2000      1999      1998      1997      1996
                              --------- --------- --------- --------- ---------
                                           (dollars in thousands)
<S>                           <C>       <C>       <C>       <C>       <C>
Balance of allowance for
  credit losses, beginning
  of period.................. $   2,872 $   2,854 $   2,919 $   1,545 $   1,048
                              --------- --------- --------- --------- ---------
Charge-offs:
  Commercial and
    industrial...............       574     1,090     1,316     1,319       104
  Real estate mortgage.......        58        10        66        24        --
  Agricultural...............        16        35        --        --        22
  Consumer/other.............        39       137        73       107         6
  Lease financing............        68        18        --       471       218
                              --------- --------- --------- --------- ---------
    Total charge-offs........       755     1,290     1,455     1,921       350
                              --------- --------- --------- --------- ---------
Recoveries:
  Commercial and industrial..       100        86       151       744         5
  Real estate mortgage.......        96         1        26         9         6
  Agricultural...............        33        --        --        --       146
  Consumer/other.............        25        71        12        24        --
  Lease financing............        15        12        --        --        --
                              --------- --------- --------- --------- ---------
    Total recoveries.........       269       170       189       777       157
                              --------- --------- --------- --------- ---------
Net charge-offs...............    (486)   (1,120)   (1,266)   (1,144)     (193)
Provision for credit losses
  charged to operations.......    1,202     1,138     1,201     2,518       690
                              --------- --------- --------- --------- ---------
Balance of allowance for
  credit losses, end of
  period..................... $   3,588 $   2,872 $   2,854 $   2,919 $   1,545
                              ========= ========= ========= ========= =========
Ratio of net charge-offs
  to average loans...........    (.19%)    (.45%)    (.54%)    (.53%)    (.11%)
                              ========= ========= ========= ========= =========
Average gross loans
  outstanding during the
  period..................... $ 255,798 $ 250,158 $ 234,342 $ 214,053 $ 169,264
                              ========= ========= ========= ========= =========
Ratio of allowance for
  credit losses to total
  loans......................     1.33%     1.10%     1.15%     1.33%      .78%
                              ========= ========= ========= ========= =========
Ratio of allowance for
  credit losses to
  nonperforming loans........      619%      173%      119%      195%      540%
                              ========= ========= ========= ========= =========
<FN>

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

Included in the data  above,  relating  to the  lending  activities  of 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 20 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>

                 Allocation of the Allowance for Loan Losses (1)
<CAPTION>

                                                             December 31,
                  -------------------------------------------------------------------------------------------------------
                         2000                 1999                  1998                1997                 1996
                  -------------------  -------------------  -------------------  -------------------  -------------------
                             Loans in             Loans in             Loans in             Loans in             Loans in
                             category             category             category             category             category
                              as a                 as a                 as a                 as a                 as a
                   Amount    percent    Amount    percent    Amount    percent    Amount    percent    Amount    percent
                     of      of total     of      of total     of      of total     of      of total     of      of total
                  allowance   loans    allowance   loans    allowance   loans    allowance   loans    allowance   loans
                  ---------  --------  ---------  --------  ---------  --------  ---------  --------  ---------  --------
                                                                       (dollars in thousands)
<S>               <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Commercial and
  industrial..... $  2,066      42%    $  1,356       43%    $ 1,155       44%   $    931       44%   $    672       45%
Real estate
  mortgage.......      702      34%         712       35%        667       31%        441       26%        306       24%
Real estate
  construction...      112      10%         151        6%        129        8%        311        8%         57        4%
Agricultural.....      342       6%         220        6%        252        8%        139       10%        176       11%
Consumer/other...      128       5%         138        6%        217        6%        174        8%         97        9%
Lease financing..      145       3%          88        4%        133        3%        136        4%         63        7%
Unallocated......       93       0%         207        0%        301        0%        787        0%        174        0%
                  ---------  --------  ---------  --------  ---------  --------  ---------  --------  ---------  --------
Total............ $  3,588     100%    $  2,872      100%   $  2,854      100%   $  2,919      100%   $  1,545      100%
                  =========  ========  =========  ========  =========  ========  =========  ========  =========  ========
<FN>

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

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>

                     Average Deposits and Deposit Costs (1)
<CAPTION>


                                             For the Years Ended December 31,
                  --------------------------------------------------------------------------------------
                              2000                         1999                         1998
                  ---------------------------- ---------------------------- ----------------------------
                             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....... $ 136,450    41.15%   5.38%  $  91,671    31.22%   3.96%  $  63,115    23.90%   3.37%
Savings
  deposits.......     4,097     1.24%   2.10%      6,294     2.14%   2.05%      8,717     3.30%   2.26%
Time deposits
  (CDs):
CDs under
  $100,000.......   108,170    32.63%   5.58%    125,470    42.72%   5.16%    130,759    49.50%   5.61%
CDs $100,000
  and over.......    54,177    16.34%   6.29%     43,140    14.69%   5.35%     36,704    13.90%   5.86%
                  --------- ----------         --------- ----------         --------- ----------
Total time
  deposits.......   162,347    48.97%   5.81%    168,610    57.41%   5.20%    167,463    63.40%   5.66%
                  --------- ----------         --------- ----------         --------- ----------
Total interest-
  bearing
  deposits.......   302,894    91.36%   5.57%    266,575    90.77%   4.70%    239,295    90.60%   4.93%
Noninterest-
  bearing demand
  deposits.......    28,656     8.64%      --     27,094     9.23%      --     24,827     9.40%      --
                  --------- ----------         --------- ----------         --------- ----------
Total deposits... $ 331,550    100.0%   5.09%  $ 293,669    100.0%   4.27%  $ 264,122    100.0%   4.47%
                  ========= ==========         ========= ==========         ========= ==========

<FN>

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

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,
2000, the Bank held a total of $9.0 million of national  market  certificates of
deposit and $30.7 million of brokered certificates of deposit. Under current

<PAGE>

FDIC  regulations,  only  "well  capitalized"  financial  institutions  may fund
themselves with brokered deposits without prior approval of regulators. The Bank
was well  capitalized  at December  31,  2000.  See Note 12 to the  Consolidated
Financial  Statements  included  under Item 8 for a summary of capital status of
the Bank.

Time  deposits in  denominations  of $100,000 and more totaled  $61.7 million at
December  31, 2000 as compared to $46.8 and $39.2  million at December  31, 1999
and 1998, respectively. The following table sets forth the amount and maturities
of time deposits of $100,000 or more as of December 31, 2000:

<TABLE>
                       Time Deposits of $100,000 and Over
                                 (in thousands)
          <S>                                                  <C>
          Maturing in:
          3 months or less.................................... $  5,428
          Over 3 months through 6 months......................   23,533
          Over 6 months through 12 months.....................   28,888
          Over 12 months......................................    3,871
                                                               ---------
              Total........................................... $ 61,720
                                                               =========
</TABLE>


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, 2000, short-term borrowings were $150.4 million, or
28 percent of total liabilities,  as compared to $88.7 million, or 20 percent of
total  liabilities,  at December  31, 1999 and $49.3  million,  or 13 percent of
total  liabilities,  at  December  31,  1998.  See  Note 9 to  the  Consolidated
Financial  Statements  included  under  Item  8  for  a  listing  of  borrowings
outstanding at December 31, 2000 and 1999, 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>

                            Short-Term Borrowings (1)

<CAPTION>
                                          2000       1999       1998
                                       ---------- ---------- ----------
                                            (dollars in thousands)
<S>                                    <C>        <C>        <C>
Short-term borrowings outstanding
  at period end....................... $ 150,428  $  88,700  $  49,290
Weighted average interest rate at
  period end..........................     6.30%      5.74%      4.99%
Maximum month-end balance during
  the period.......................... $ 197,024  $  94,300  $  58,416
Average borrowings outstanding
  for the period...................... $ 158,244  $  61,993  $  49,576
Weighted average interest rate
  for the period......................     6.32%      5.33%      5.44%

<FN>

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

As of December 31, 2000, the Company's only  outstanding  long-term debt was its
Subordinated Notes totaling $12.6 million. See Notes 1 and 9 to the Consolidated
Financial  Statements  included  under Item 8 for more details.  During 2000 the
Company retired a total of $2.0 million of the Subordinated Notes. See Note 9 to
the  Consolidated  Financial  Statements  included under Item 8 for a summary of
these transactions.

Guaranteed Preferred Beneficial Interests in Company's Subordinated  Debentures.
In July 2000, the Company established a special purpose trust for the purpose of
issuing trust preferred  securities.  The trust preferred  securities qualify as
Tier 1  capital  of  the  Company  up to  certain  limits.  See  Note  10 to the
Consolidated   Financial  Statements  included  under  Item  8  for  a  complete
description of this transaction.

<PAGE>

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 12 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  bank(s) as
of December 31, 2000 and 1999. 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.

During 2000, the Company completed  construction of an office building in Fargo,
North Dakota.  The total cost to complete the construction and provide furniture
and  equipment  for the building  was $6.4  million and was funded  through cash
generated from operations.  There were no other major capital  expenditures made
during 2000 or 1999.

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,   until  January  1,  2001  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 Bank is a member of the FHLB,  which  affords it the  opportunity  to borrow

<PAGE>

funds in terms ranging from overnight to ten years and beyond.  Borrowings  from
the FHLB are generally  collateralized  by the Bank's 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 also
obtained  funding  through  the  issuance  of its  Subordinated  Notes and trust
preferred  securities.  See "-Borrowed Funds," "Guaranteed  Preferred Beneficial
Interests  in  Company's  Subordinated  Debentures"  and  Notes  9 and 10 to the
Consolidated  Financial Statements included under Item 8 for further information
on these instruments.

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:
<TABLE>

                       Major Sources and Uses of Funds (1)
<CAPTION>

                                        For the Years Ended December 31,
                                       --------------------------------
                                          2000       1999       1998
                                       ---------- ---------- ----------
                                                (in thousands)
 <S>                                   <C>        <C>        <C>
 Proceeds from sales and maturities
   of investment securities........... $  72,134  $ 127,403  $  89,926
 Net increase in short-term
  borrowings..........................    61,728     39,410      2,787
 Net increase in deposits.............    37,753     40,212     21,675
 Proceeds from issuance of
  subordinated notes..................     7,220         --         --
 Purchases of  investment
   securities......................... (178,827)  (185,958)   (91,981)
 Net increase in loans................   (7,630)   (16,160)   (37,131)
 Net increase (decrease) in
   long-term borrowings...............   (1,921)   (14,520)      8,750
<FN>

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

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
customers' 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  policy
statement  identifies  actions to be taken in response  to an adverse  liquidity
event.

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

<PAGE>

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
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  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 14 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 at December 31, 2000 of 9.00 percent to 10.00  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 2001 is shown below.  The growth  assumption  used for this
simulation  was based on the growth  projections  built into the Company's  2001
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>

                         Net Interest Income Simulation
                             (amounts in thousands)
<CAPTION>

Movement in interest rates   -300bp   -200bp   -100bp  Unchanged  +100bp   +200bp   +300bp
                            -------- -------- -------- --------- -------- -------- --------
<S>                         <C>      <C>      <C>      <C>       <C>      <C>      <C>
Projected 12-month net
  interest income.......... $ 14,920 $ 14,751 $ 14,538 $  14,282 $ 13,976 $ 13,640 $ 13,294

Dollar change from rates
  unchanged scenario.......      638      469      256        --    (306)    (642)    (988)
Percentage change from
  rates unchanged
  scenario.................    4.47%    3.28%    1.79%        --  (2.14)%  (4.50)%  (6.92)%

Cost of  $25MM floor (1)...     (27)    (159)    (282)     (319)    (423)    (435)    (435)

Total net interest
  income impact with
  floor....................   14,893   14,592   14,256    13,963   13,553   13,205   12,859
Dollar change from flat
  w/floor..................      930      629      293        --    (410)    (758)  (1,104)
Percentage change from
  unchanged w/floor........    6.66%    4.50%    2.10%        --  (2.94)%  (5.43)%  (7.91)%

Benefit from amortization
  of deferred gain on
  sale of interest
  rate swap (2)............       50       50       50        50       50       50       50

Total net interest income
  impact w/floor & swap
  gain.....................   14,943   14,642   14,306    14,013   13,603   13,255   12,909
Dollar change from flat
  w/floor & swap...........      930      629      293        --    (410)    (758)  (1,104)
Percentage change from
  flat w/floor & swap......    6.64%    4.49%    2.09%        --  (2.93)%  (5.41)%  (7.88)%

POLICY LIMITS +/-..........    9.00%    6.00%    3.00%        --    3.00%    6.00%    9.00%

<FN>

(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). Through December 31, 2000, the premium was being amortized on
     a straight-line basis. On January 1, 2001, the Company adopted Statement of
     Financial   Accounting   Standards  No.  133,  "Accounting  for  Derivative
     Instruments and Hedging  Activities."  See "-Loan  Portfolio-Interest  Rate
     Floors" and Note 1 and 14 to the Consolidated Financial Statements included
     under Item 7 for further  information  on  accounting  policies  related to
     derivative financial investments.

(2)  The swap was sold in 1997.  The gain  recognized  upon  sale of the swap is
     being amortized as a reduction of interest  expense over the remaining life
     of the original swap contract.
</FN>
</TABLE>


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 Wealthbuilder deposit products along with
the continued  growth in these  products that is projected into 2001, 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, 2000.  Assets and  liabilities are classified by the
earliest possible repricing date or maturity, whichever occurs first:

<PAGE>

<TABLE>
                        Interest Sensitivity Gap Analysis
<CAPTION>

                              Estimated maturity or repricing at December 31, 2000
                            ---------------------------------------------------------
                                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......... $      595  $       --  $       --  $      --  $     595
  Investment
    securities (1).........      5,056      44,089       5,868    208,172    263,185
  Fixed rate loans (2).....      5,149       8,860      55,210     35,457    104,676
  Floating rate loans (2)..     18,400      46,343      77,418     22,358    164,519
                            ----------- ----------- ----------- ---------- ----------
    Total interest-earning
      assets............... $   29,200  $   99,292  $  138,496  $ 265,987  $ 532,975
                            =========== =========== =========== ========== ==========
Interest-bearing
  liabilities:
  NOW and money market
    accounts............... $  165,902  $       --  $       --  $      --  $ 165,902
  Savings..................      3,523          --          --         --      3,523
  Time deposits under
    $100,000...............     26,746      57,033      15,518        563     99,860
  Time deposits $100,000
    and over...............      5,428      23,533      32,759         --     61,720
  Borrowings...............    150,490          --      12,580         --    163,070
                            ----------- ----------- ----------- ---------- ----------
    Total interest-
      bearing liabilities.. $  352,089  $   80,566  $   60,857  $     563  $ 494,075
                            =========== =========== =========== ========== ==========
Interest rate gap.......... $(322,889)  $   18,726  $   77,639  $ 265,424  $  38,900
                            =========== =========== =========== ========== ==========
Cumulative interest rate
  gap at December 31,
  2000..................... $(322,889)  $(304,163)  $(226,524)  $  38,900
                            =========== =========== =========== ==========
Cumulative interest rate
  gap to total assets......   (56.65)%    (53.36)%    (39.74)%      6.82%

--------------------
<FN>

(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.
</FN>
</TABLE>

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,  2000  (with  forward
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.

<PAGE>

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, 2000 and 1999.........   42

Consolidated Statements of Income for the years ended
  December 31, 2000, 1999 and 1998...................................   43

Consolidated Statements of Comprehensive Income (Loss)
  for the years ended December 31, 2000, 1999 and 1998...............   45

Consolidated Statements of Stockholders' Equity for
  the years ended December 31, 2000, 1999 and 1998...................   46

Consolidated Statements of Cash Flows for the years
  ended December 31, 2000, 1999 and 1998.............................   47

Notes to Consolidated Financial Statements...........................   48



<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, 2000 and 1999, 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, 2000. 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,  2000  and  1999,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.


ARTHUR ANDERSEN LLP


Minneapolis, Minnesota,
January 25, 2001


<PAGE>
<TABLE>


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

<CAPTION>

                         ASSETS                       2000          1999
                                                  ------------  ------------
<S>                                               <C>           <C>

CASH AND DUE FROM BANKS........................... $   14,988    $   12,816
INTEREST-BEARING DEPOSITS WITH BANKS..............        595         5,565
FEDERAL FUNDS SOLD................................         --         3,500
INVESTMENT SECURITIES AVAILABLE FOR SALE..........    263,185       150,992
LOANS AND LEASES, net of unearned income..........    268,925       262,051
ALLOWANCE FOR CREDIT LOSSES.......................     (3,588)       (2,872)
                                                  ------------  ------------
     Net loans and leases.........................    265,337       259,179
PREMISES, LEASEHOLD IMPROVEMENTS AND
     EQUIPMENT, net...............................     14,873        12,006
INTEREST RECEIVABLE...............................      3,854         2,613
OTHER ASSETS......................................      4,465         6,945
DEFERRED CHARGES AND INTANGIBLE ASSETS, net.......      2,719         3,261
                                                  ------------  ------------
                                                   $  570,016    $  456,877
                                                  ============  ============
         LIABILITIES AND STOCKHOLDERS' EQUITY

DEPOSITS:
     Noninterest-bearing.......................... $   31,459    $   29,798
     Interest-bearing -
         Savings, NOW and money market............    169,425       127,454
         Time deposits $100,000 and over..........     61,720        46,779
         Other time deposits......................     99,860       120,680
                                                  ------------  ------------
     Total deposits...............................    362,464       324,711
NOTES PAYABLE.....................................    163,070       103,170
OTHER LIABILITIES.................................      7,419         5,847
                                                  ------------  ------------
              Total liabilities...................    532,953       433,728
                                                  ------------  ------------
COMMITMENTS AND CONTINGENCIES (Notes 14 and 20)
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN
  COMPANY'S SUBORDINATED DEBENTURES...............      7,606            --

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 authoized; 2,395,030 and 2,399,980
       shares issued and outstanding (excluding
       42,880 shares held in treasury) in
       2000 and 1999, respectively................         24            24
     Capital surplus..............................     14,050        13,976
     Retained earnings............................     14,190        11,893
     Treasury stock (42,880 shares)...............       (513)         (513)
     Accumulated other comprehensive income
       (loss), net of income taxes................      1,706        (2,231)
                                                  ------------  ------------
              Total stockholders' equity..........     29,457        23,149
                                                  ------------  ------------
                                                   $  570,016    $  456,877
                                                  ============  ============
<FN>
     The accompanying notes are an integral part of these  consolidated  balance
sheets.
</FN>
</TABLE>


<PAGE>

<TABLE>

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


                                            2000         1999         1998
                                         ----------   ----------   ----------
<S>                                      <C>          <C>          <C>

INTEREST INCOME:
  Interest and fees on loans............  $ 24,527     $ 22,083     $ 22,148
  Interest and dividends on
    investment securities -
      Taxable...........................    15,420        6,090        4,977
      Tax-exempt........................       940          386           95
      Dividends.........................       634          263          304
  Other.................................       242          109          277
                                         ----------   ----------   ----------
             Total interest income......    41,763       28,931       27,801
                                         ----------   ----------   ----------
INTEREST EXPENSE:
  Interest on deposits..................    16,866       12,537       11,809
  Interest on short-term borrowings.....     9,999        3,303        2,694
  Interest on long-term borrowings......     1,252          734          649
                                         ----------   ----------   ----------
             Total interest expense.....    28,117       16,574       15,152
                                         ----------   ----------   ----------
             Net interest income........    13,646       12,357       12,649
PROVISION FOR CREDIT LOSSES.............     1,202        1,138        1,201
                                         ----------   ----------   ----------
NET INTEREST INCOME AFTER PROVISION
  FOR CREDIT LOSSES.....................    12,444       11,219       11,448
                                         ----------   ----------   ----------
NONINTEREST INCOME:
  Insurance commissions.................     2,003        2,045        1,769
  Fees on loans.........................     1,941        1,435        1,376
  Brokerage income......................     1,466          797           53
  Trust and financial services..........     1,064          589          517
  Service charges.......................       604          536          566
  Net gain on sales of securities.......       276          198          130
  Rental income.........................        56          121           43
  Other.................................       363          347          389
                                         ----------   ----------   ----------
             Total noninterest income...     7,773        6,068        4,843
                                         ----------   ----------   ----------
NONINTEREST EXPENSE:
  Salaries and employee benefits........     8,891        8,854        7,463
  Depreciation and amortization.........     1,659        1,586        1,498
  Occupancy.............................     1,360        1,248          988
  Professional services.................     1,290        1,214          766
  Office supplies, telephone
    and postage.........................       940          941          749
  Marketing and promotion...............       597          621          455
  Repossessed and impaired asset
    expenses/write-offs.................       470        2,271            2
  Minority interest in income of
    subsidiaries........................       399           --           --
  FDIC and other assessments............       200          191          184
  Other.................................     1,624        1,289        1,274
                                         ----------   ----------   ----------
             Total noninterest expense..    17,430       18,215       13,379
                                         ----------   ----------   ----------
Income (loss) before income taxes.......     2,787         (928)       2,912
Income taxes............................       906         (399)       1,030
                                         ----------   ----------   ----------
Income (loss) from continuing
  operations............................     1,881         (529)       1,882


</TABLE>

<PAGE>


<TABLE>

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

                                             2000        1999        1998
                                          ----------  ----------  ----------
<S>                                       <C>         <C>         <C>

Discontinued Operation:
  Income from operations of
    discontinued asset-based lending
    subsidiary, net of income taxes
    of $292 and $263.....................        --         429         385
  Gain on disposal of asset-based
    lending subsidiary, net of income
    taxes of $82 and $268................       159         438          --
                                          ----------  ----------  ----------
Income before extraordinary item and
  cumulative effect of change in
  accounting principle...................     2,040         338       2,267
Extraordinary item - gain on
  early extinguishment of debt, net
  of income taxes of $132................       257          --          --
Cumulative effect of change in
  accounting principle, net of
  income taxes...........................        --         (96)         --
                                          ----------  ----------  ----------
NET INCOME...............................  $  2,297    $    242    $  2,267
                                          ==========  ==========  ==========

BASIC EARNINGS PER COMMON SHARE:
Income (loss) from continuing
  operations.............................  $   0.78    $  (0.22)   $   0.79
Income from operations of
  discontinued asset-based lending
  subsidiary, net of income taxes........        --        0.18        0.16
Gain on disposal of asset-based
  lending subsidiary, net of income
  taxes..................................      0.07        0.18          --
Extraordinary item - gain on early
  extinguishment of debt, net of
  income taxes...........................      0.11          --          --
Cumulative effect of change in
  accounting principle, net of
  income taxes...........................        --       (0.04)         --
                                          ----------  ----------  ----------
Earnings per share, basic................  $   0.96    $   0.10    $   0.95
                                          ==========  ==========  ==========

DILUTED EARNINGS PER COMMON SHARE:
Income (loss) from continuing
  operations.............................  $   0.78    $  (0.22)   $   0.75
Income from operations of
  discontinued asset-based lending
  subsidiary, net of income taxes........        --        0.18        0.16
Gain on disposal of asset-based
  lending subsidiary, net of income
  taxes..................................      0.07        0.18          --
Extraordinary item - gain on early
  extinguishment of debt, net of
  income taxes...........................      0.11          --          --
Cumulative effect of change in
  accounting principle, net of
  income taxes...........................        --       (0.04)         --
                                          ----------  ----------  ----------
Earnings per share, diluted..............  $   0.96    $   0.10    $   0.91
                                          ==========  ==========  ==========
<FN>

     The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>


<PAGE>

<TABLE>

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

<CAPTION>

                                             2000        1999        1998
                                          ----------  ----------  ----------
<S>                                       <C>         <C>         <C>

NET INCOME...............................  $  2,297    $    242    $  2,267
OTHER COMPREHENSIVE INCOME -
  Unrealized gains (losses)
    on securities:

     Unrealized holding gains
     (losses) arising during
     the period, net of income
     taxes of $2,022, $1,377 and $7......     3,937      (2,373)        (28)

     Less: reclassification
     adjustment for gains included
     in net income, net of income
     taxes...............................      (186)       (121)        (79)
                                          ----------  ----------  ----------

OTHER COMPREHENSIVE INCOME (LOSS)........     3,751      (2,494)       (107)
                                          ----------  ----------  ----------
COMPREHENSIVE INCOME (LOSS)..............  $  6,048    $ (2,252)   $  2,160
                                          ==========  ==========  ==========
<FN>

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

</FN>
</TABLE>

<PAGE>

<TABLE>

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

                                                                                   Accumulated
                                   Common Shares                                      Other
                                -------------------  Capital  Retained  Treasury  Comprehensive
                                 Shares     Amount   Surplus  Earnings    Stock   Income (Loss)    Total
                                ---------- --------  --------  -------- --------  -------------  --------
<S>                             <C>        <C>       <C>       <C>      <C>       <C>            <C>
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 taxes.............        --      --         --        --      --            (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 taxes.............        --      --         --        --      --         (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
  Net income....................        --      --         --     2,297      --             --      2,297
  Other comprehensive income-
    Change in unrealized
    holding loss on securities
    available for sale, net
    of income taxes.............        --      --         --        --      --          3,937      3,937
   Other........................    (4,950)     --         74        --      --             --         74
                                ----------- ------   --------  -------- --------  -------------  --------
BALANCE, December 31, 2000...... 2,437,910  $   24   $ 14,050  $ 14,190  $ (513)   $     1,706   $ 29,457
                                =========== ======   ========  ======== ========  =============  ========
<FN>

     The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>




<PAGE>
<TABLE>
                         BNCCORP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                         For the Years Ended December 31
                                 (In thousands)
<CAPTION>
                                             2000         1999        1998
                                          ----------   ----------  ----------
<S>                                       <C>          <C>         <C>
OPERATING ACTIVITIES:
  Net income............................. $   2,297    $     242   $   2,267
  Adjustments to reconcile net income
    to net cash provided by operating
    activities -
      Provision for credit losses........     1,202        1,138       1,290
      Depreciation and amortization......     1,131        1,045         901
      Amortization of intangible assets..       508          541         606
      Net premium amortization on
        investment securities............       737          612         172
      Proceeds from loans recovered......       269          170         189
      Write down of other real estate
        owned and repossessed assets.....       470        2,271           2
      Change in interest receivable
        and other assets, net............    (1,843)        (400)     (3,049)
      Gain on disposal of asset-based
        lending subsidiary...............      (159)        (438)         --
      Loss on sale of bank premises
        and equipment....................        57           10         117
      Net realized gains on sales
        of investment securities.........      (276)        (198)       (130)
      Deferred income taxes..............       603       (2,503)       (190)
      Change in dividend distribution
        payable..........................       398           --          --
      Change in other liabilities,
        net..............................     1,572         (515)        (74)
      Originations of loans to be
        sold.............................  (130,563)    (117,299)    (47,412)
      Proceeds from sale of loans........   130,563      117,299      47,412
                                          ----------   ----------  ----------
        Net cash provided by operating
          activities.....................     6,966        1,975       2,101
                                          ----------   ----------  ----------
INVESTING ACTIVITIES:
  Purchases of investment securities.....  (178,827)    (185,958)    (91,981)
  Proceeds from sales of investment
    securities...........................    23,789       39,732      58,855
  Proceeds from maturities of
    investment securities................    48,345       87,671      31,071
  Net increase in loans..................    (7,630)     (16,160)    (37,131)
  Additions to premises, leasehold
    improvements and equipment...........    (4,296)      (4,396)     (1,254)
  Proceeds from sale of premises
    and equipment........................       241          121          26
  Disposition of discontinued
    asset-based lending subsidiary.......       159       23,373          --
                                          ----------   ----------  ----------
    Net cash used in investing
      activities.........................  (118,219)     (55,617)    (40,414)
                                          ----------   ----------  ----------
FINANCING ACTIVITIES:
  Net increase in demand, savings,
    NOW and money market accounts........    43,632       38,890      16,937
  Net increase (decrease) in
    time deposits........................    (5,879)       1,322       4,738
  Net increase in short-term
    borrowings...........................    61,728       39,410       2,787
  Repayments of long-term borrowings.....    (2,009)     (29,520)    (13,492)
  Proceeds from long-term borrowings.....        88       15,000      22,242
  Amortization of discount on
    subordinated notes...................        93           92          84
  Amortization of deferred charges.......        20           20          18
  Proceeds from issuance of
    subordinated debentures..............     7,220           --          --
  Amortization of discount on
    subordinated debentures..............       (12)          --          --
  Repurchase of stock....................        --           --        (297)
  Other, net.............................        74           25         165
                                          ----------   ----------  ----------
    Net cash provided by financing
      activities.........................   104,955       65,239      33,182
                                          ----------   ----------  ----------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS...................    (6,298)      11,597      (5,131)
CASH AND CASH EQUIVALENTS,
  beginning of year......................    21,881       10,284      15,415
                                          ----------   ----------  ----------
CASH AND CASH EQUIVALENTS,
  end of year............................ $  15,583    $  21,881   $  10,284
                                          ==========   ==========  ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid.......................... $  27,431    $  16,494   $  14,091
                                          ==========   ==========  ==========
  Income taxes paid...................... $     541    $   1,107   $   1,648
                                          ==========   ==========  ==========
<FN>

     The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>


<PAGE>


                         BNCCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999


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 National Bank" or "the Bank"). 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.

On November 20, 2000, the Company merged BNC National Bank ("BNC-North  Dakota")
with and into BNC National Bank of Minnesota  ("BNC-Minnesota") and then changed
the name of the  combined  bank to BNC National  Bank.  On December 31, 1999 the
Company sold its  asset-based  lending  subsidiary,  BNC Financial  Corporation,
which is treated as a discontinued operation.

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.

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," "interest-bearing
deposits with banks" and "federal funds sold" to be cash equivalents.

Investment  Securities.  Investment  and  mortgage-backed  securities  which the
Company  intends to hold for indefinite  periods of time, 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,  2000  and  1999.  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.  Declines in the fair value of
individual  available-for-sale  or held-to-maturity  securities below their cost

<PAGE>

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
2000, 1999 or 1998.

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, 2000 or 1999.

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,  net unamortized  deferred fees and costs 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 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 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  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  Allowance.  The  unallocated  portion of the 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  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 analysis of specific,  allocated
and  unallocated  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.

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

<PAGE>

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.  Loan
fees not  representing  adjustments  of yield are also  included in  noninterest
income.

Mortgage  Servicing and Transfers of Financial Assets.  The Bank regularly sells
loans to others on a  non-recourse  basis.  Sold loans are not  included  in the
accompanying balance sheets. The Bank generally retains 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,  2000 and 1999,  the Bank was  servicing  loans for the
benefit of others with aggregate unpaid principal  balances of $216.0 and $148.7
million,  respectively.  Many of the loans sold by the Bank 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 Bank.

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 income or 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, 2000 and 1999 was $84,000 and $1.2 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 2000, 1999 or 1998.

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.

<PAGE>

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.  See "Other  Recently Issued  Accounting
Standards."

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
accounting for credit 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 18).

<PAGE>

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.  During 2000, the Company merged its two subsidiary  banks
which were  previously  reported as operating  segments in  accordance  with the
Financial   Accounting  Standards  Board's  ("FASB's")  Statement  of  Financial
Accounting Standards No. 131. Banking is the primary operational activity of the
Company.  There are no other  operational  segments  which are  material and are
required to be separately disclosed for financial statement purposes. Therefore,
there  are no  segment  disclosures  included  in these  consolidated  financial
statements.

Revenue  Recognition.  The Company  recognizes  revenue on an accrual  basis for
interest and dividend income on loans, investment securities, federal funds sold
and interest bearing due from accounts. Noninterest income is recognized when it
has been  realized or is  realizable  and has been earned.  In  accordance  with
existing accounting and industry standards, as well as recent guidance issued by
the  Securities  and Exchange  Commission  ("SEC") (see "Other  Recently  Issued
Accounting  Standards"),  the  Company  considers  revenue  to  be  realized  or
realizable  and earned when the  following  criteria  have been met:  persuasive
evidence   of  an   arrangement   exists   (generally,   there  is   contractual
documentation);  delivery  has  occurred or  services  have been  rendered;  the
seller's  price to the buyer is fixed or  determinable;  and  collectibility  is
reasonably  assured.  Additionally,  there can be no  outstanding  contingencies
which could  ultimately cause the revenue to be passed back to the payor. In the
isolated  instances  where  these  criteria  have not  been  met,  receipts  are
generally placed in escrow until such time as they can be recognized as revenue.

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 FASB 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.

In June 1999, the FASB issued  Statement of Financial  Accounting  Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the  Effective  Date of FASB  Statement No. 133," ("SFAS 137") which delayed the
effective  date of SFAS 133 to fiscal years  beginning  after June 15, 2000.  In
June 2000, the FASB issued Statement of Financial  Accounting Standards No. 138,
"Accounting for Certain Derivative  Instruments and Certain Hedging Activities -
An Amendment of FASB Statement No. 133," ("SFAS 138").  The Company adopted SFAS
133, as amended by SFAS 137 and SFAS 138, on January 1, 2001.

From time to time, the Company enters into derivative contracts such as interest
rate swaps, caps and floors. Interest rate swaps are contracts to exchange fixed
and floating rate interest  payment  obligations  based on a notional  principal
amount and are used to hedge the Company's 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. If such contracts meet certain
requirements, they may qualify as fair value or cash flow hedges under SFAS 133.
SFAS 133 provides  that the gain or loss on a derivative  instrument  designated
and  qualifying as a fair value hedging  instrument,  as well as the  offsetting
loss or gain on the hedged item  attributable  to the hedged risk, be recognized
currently in earnings in the same accounting  period. The standard provides that
the effective portion of the gain or loss on a derivative  instrument designated
and  qualifying as a cash flow hedging  instrument be reported as a component of

<PAGE>

other comprehensive income and be classified into earnings in the same period or
periods in which the hedged transaction affects earnings.  The remaining gain or
loss on the  derivative  instrument,  if any,  must be  recognized  currently in
earnings.

The Company has  established  a hedging  policy  statement  which sets forth the
documentation and other requirements necessary to achieve hedge accounting under
SFAS 133. The Company's  currently  outstanding $25 million prime based interest
rate floor qualifies, and is now classified as, a cash flow hedge. On January 1,
2001, the Company recognized the interest rate floor on its balance sheet at its
then fair value of $436,000. The impact of the adoption of SFAS 133, as amended,
was an after tax charge to  earnings of $113,000  and will be  presented  in the
Company's 2001 consolidated  financial  statements as the cumulative effect of a
change in accounting  principle.  In subsequent periods,  the Company will apply
the cash flow hedge accounting rules explained above.

The Company has reviewed its other financial  instruments and contracts in order
to identify any  additional  derivatives  to be accounted for under SFAS 133, as
amended. Other noted derivatives could be considered clearly and closely related
to their host contracts or were otherwise  excluded from  derivative  accounting
treatment  under SFAS 133, as amended.  As demonstrated  above,  the adoption of
SFAS 133 will increase volatility of earnings and other comprehensive income and
may result in changes in certain of the Company's business practices.

In December 1999,  the SEC issued Staff  Accounting  Bulletin No. 101,  "Revenue
Recognition in Financial  Statements," ("SAB 101"). SAB 101, indicates that if a
transaction  is  within  the scope of  specific  authoritative  literature  that
provides  revenue  recognition  guidance,  SEC  registrants  should  apply  such
literature.  In the absence of  authoritative  literature  addressing a specific
arrangement or a specific industry,  the registrant should consider the existing
authoritative  accounting  standards  as well as the broad  revenue  recognition
criteria  specified  in the  FASB's  conceptual  framework  that  contain  basic
guidelines for revenue  recognition.  Based on these guidelines,  revenue should
not be recognized until it is realized or realizable and earned. BNCCORP adopted
SAB 101 in 2000 with no material impact to the Company.

In March  2000,  the FASB  issued  Interpretation  44,  "Accounting  for Certain
Transactions  Involving Stock Compensation (An Interpretation of APB Opinion No.
25)," ("FIN 44").  Although  FIN 44 became  effective  on July 1, 2000,  certain
conclusions  in the  interpretation  cover  specific  events that occurred after
either  December  15,  1998 or January  12,  2000.  FIN 44 was issued to address
application  questions,  and diversity in practice which has developed since the
issuance of Accounting  Principles  Board Opinion No. 25,  "Accounting for Stock
Issued  to  Employees,"  ("APB  25")  in  October  1972.  FIN 44  clarifies  the
application of ABP 25 for only certain issues including, but not limited to, the
definition  of  "employee"  for  purposes of applying  APB 25, the  criteria for
determining  whether a plan qualifies as a noncompensatory  plan, the accounting
consequence of various  modifications  to the terms of a previously  fixed stock
option or award and the accounting for an exchange of stock compensation  awards
in a business  combination.  The Company has reviewed FIN 44 and determined that
its accounting policies under APB 25 comply with the FASB's conclusions.

In September 2000, the FASB issued Statement of Financial  Accounting  Standards
No. 140,  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
Extinguishments  of Liabilities,"  ("SFAS 140"). SFAS 140 replaces  Statement of
Financial  Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial  Assets and  Extinguishments  of  Liabilities,"  ("SFAS  125").  It
revises the standards for accounting for  securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it carries
over  most  of  SFAS  125's  provisions  without  reconsideration.  SFAS  140 is
generally  effective  for  transfers  and  servicing  of  financial  assets  and
extinguishments  of liabilities  occurring  after March 31, 2001. The disclosure
requirements  are  effective for  financial  statements  for fiscal years ending
after  December 15, 2000.  Since the Company does not enter into  securitization
transactions,  the  securitization  disclosure  provisions  of SFAS  140 are not
applicable.  The Company  continues to account for other  transfers of financial
assets and  extinguishments  of liabilities in accordance with the provisions of
SFAS 140, most of which are unchanged from SFAS 125.

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 the Bank are also subject to minimum regulatory

<PAGE>

capital  requirements.  At December  31, 2000,  capital  levels  exceed  minimum
capital requirements (see Note 12).

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

Use of  Estimates.  The  preparation  of  consolidated  financial  statements in
conformity with accounting  principles  generally  accepted in the United States
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.  Mergers, Acquisitions and Divestitures:

The following mergers, acquisitions and divestitures were consummated during the
three years ended December 31, 2000:

On  November  20,  2000,  the  Company  merged  BNC-North  Dakota  with and into
BNC-Minnesota  and changed the name of the combined  bank to BNC National  Bank.
The transaction was accounted for as a pooling of interests.

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
1999 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 2000
gain on disposal of $159,000 (pretax gain of $241,000, net of income tax effects
of $82,000) resulted from recoveries on a credit charged off in 1999 at the time
of the sale of BNC Financial.  The income  statement for the year ended December
31, 1998 has 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 and 1998 were $1.6 million and $266,000,  and $1.1 million and
$208,000,  respectively.  These amounts are not included in net interest  income
and noninterest income in the accompanying consolidated income statements.

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 Insurance Agency,
Inc., a subsidiary of BNC-North Dakota,  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").

3.  Restrictions on Cash and Due From Banks:

The Bank is required to maintain reserve balances with the Federal Reserve Bank.
The amount of those  reserve  balances  was $2.4 and $1.5 million as of December
31, 2000 and 1999, 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, 2000

<PAGE>

or 1999. 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
            2000
U.S. government agency mortgage-
  backed securities....................... $      44,272    $        435    $      (239)    $    44,468
U.S. government agency securities.........         4,880              35            (25)          4,890
Collateralized mortgage obligations.......       164,221           1,919           (736)        165,404
State and municipal bonds.................        20,782             385           (262)         20,905
Corporate debt securities.................        16,968             931             --          17,899
Equity securities.........................         9,619              --             --           9,619
                                          ---------------  --------------  --------------  -------------
                                           $     260,742    $      3,705    $    (1,262)    $   263,185
                                          ===============  ==============  ==============  =============

  Available-for-Sale Securities
            1999
U.S. government agency mortgage-
  backed securities....................... $      26,697    $          2    $      (404)    $    26,295
U.S. government agency securities.........         4,654              --           (186)          4,468
Collateralized mortgage obligations.......        97,243              50         (2,255)         95,038
State and municipal bonds.................        20,272              15           (739)         19,548
Equity securities.........................         5,643              --             --           5,643
                                          ---------------  --------------  --------------  -------------
                                           $     154,509    $         67    $    (3,584)    $   150,992
                                          ===============  ==============  ==============  =============

</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, 2000, were as follows (in thousands):

<TABLE>
<CAPTION>

                                           Available-for-Sale Securities

                                          --------------------------------
                                                             Estimated
                                            Amortized          Market
                                               Cost            Value
                                          ---------------  ---------------
<S>                                       <C>              <C>
Due in one year or less.................   $          49    $          49
Due after one year through five years...           5,878            5,868
Due after five years through ten years..          55,079           55,456
Due after ten years.....................         190,117          192,193
                                          ---------------  ---------------
     Total..............................   $     251,123    $     253,566
                                          ===============  ===============
</TABLE>

Securities  carried at  approximately  $215.4 and $126.5 million at December 31,
2000 and 1999,  respectively,  were pledged as  collateral  for public and trust
deposits and  borrowings,  including  borrowings with the Federal Home Loan Bank
("FHLB").

<PAGE>

Sales proceeds and gross  realized gains and losses on securities  available for
sale were as follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
                             2000            1999               1998
                          ----------     ------------       ------------
<S>                       <C>            <C>                <C>
Sales proceeds............ $ 23,789       $   39,732         $   58,855
Gross realized gains...... $    324       $      239         $      164
Gross realized losses..... $     48       $       41         $       34

</TABLE>

Income taxes applicable to net gains and losses on securities available for sale
were $90,000,  $75,000 and $49,000 for the years ended  December 31, 2000,  1999
and 1998, 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):
<TABLE>
<CAPTION>

                                                  2000              1999
                                             ---------------    --------------
<S>                                          <C>                <C>
Commercial and industrial..............       $    112,407       $    111,236
Real estate:
  Mortgage............................              90,622             91,906
  Construction........................              25,301             16,026
Agricultural...........................             15,775             16,679
Consumer...............................             12,016             13,232
Lease financing........................             10,202             11,307
Other..................................              2,872              1,884
                                             ---------------    --------------
     Total.............................            269,195            262,270
Less:
  Allowance for credit
    losses.............................             (3,588)            (2,872)
  Unearned income and net
    unamortized deferred fees
    and costs.........................               (270)               (219)
                                             ---------------    --------------
         Net loans and leases..........       $    265,337       $    259,179
                                             ===============    ==============
</TABLE>


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

                                           2000              1999
                                        ----------        ----------
<S>                                     <C>               <C>
Minnesota..........................          47%               43%
North Dakota.......................          33                46
South Dakota.......................          13                 8
Other..............................           7                 3
                                        ----------        ----------
         Totals....................         100%              100%
                                        ==========        ==========
</TABLE>

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 $90.6 and $91.9 million real estate
mortgages as of December 31, 2000 and 1999,  respectively,  approximately  $44.6
and $38.2 million,  respectively,  were loans made to commercial customers where

<PAGE>

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
$7.0 and $9.6 million at December 31, 2000 and 1999, respectively,  were pledged
as collateral  for FHLB  borrowings.  Commercial  loans totaling $17.2 and $30.9
million at December 31, 2000 and 1999, respectively,  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, 2000 are real estate  loans,
such as loans to non-residential and apartment building operators and lessors of
real  property,  and loans  related to hotels and other  lodging  places.  Loans
within these  categories are  diversified  across  different types of borrowers,
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 was as follows (in thousands):
<TABLE>
<CAPTION>

                                              2000                 1999
                                      -------------------- --------------------
                                       Recorded  Valuation  Recorded  Valuation
                                      Investment Allowance Investment Allowance
                                      ---------- --------- ---------- ---------
<S>                                   <C>        <C>       <C>        <C>
Impaired loans -
  Valuation allowance
    required...................       $   6,506  $  1,389  $   5,255  $    911
  No valuation allowance
    required...................              33        --        742        --
                                      ---------- --------- ---------- ---------
      Total impaired loans.....       $   6,539  $  1,389  $   5,997  $    911
                                      ========== ========= ========== =========

</TABLE>

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 Company's allowance
for credit losses.

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

                                       2000       1999       1998
                                    ---------- ---------- ----------
<S>                                 <C>        <C>        <C>
Average recorded investment
  in impaired loans................  $  7,393   $  8,977   $  9,542
                                    ========== ========== ==========
Interest income recognized
  on impaired loans................  $    791   $    914   $    992
                                    ========== ========== ==========
Average recorded investment
  in impaired loans as a
  percentage of average
  total loans.....................       2.9%       3.6%       4.1%
                                    ========== ========== ==========
</TABLE>


Nonaccrual and Restructured Loans. As of December 31, 2000 and 1999, the Company
had $343,000 and $1.6 million,  respectively, of nonaccrual loans and $16,000 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):

<PAGE>

<TABLE>
<CAPTION>

                                       2000       1999       1998
                                    ---------- ---------- ----------
<S>                                 <C>        <C>        <C>
Interest income that would
  have been recorded..............   $     35   $    141   $    224
Interest income recorded..........          6         29        175
                                    ---------- ---------- ----------
Effect on interest income.........   $     29   $    112   $     49
                                    ========== ========== ==========
</TABLE>

As of December 31, 2000, 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):

<TABLE>
<CAPTION>

                                       2000       1999       1998
                                    ---------- ---------- ----------
<S>                                 <C>        <C>        <C>
Balance, beginning of year........   $  2,872   $  2,854   $  2,919
  Provision for credit losses.....      1,202      1,138      1,201
  Loans charged off...............       (755)    (1,290)    (1,455)
  Loans recovered.................        269        170        189
                                    ---------- ---------- ----------
Balance, end of year..............   $  3,588   $  2,872   $  2,854
                                    ========== ========== ==========
</TABLE>

6.   Premises, Leasehold Improvements and Equipment:

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

                                               2000           1999
                                           ------------   ------------
<S>                                        <C>            <C>
Land and improvements.....................  $    1,107     $    1,118
Buildings and improvements................      10,494          7,732
Leasehold improvements....................       1,101            971
Furniture, fixtures and equipment.........       7,802          6,759
                                           ------------   ------------
     Total cost...........................      20,504         16,580
Less accumulated depreciation
  and amortization......................        (5,631)        (4,574)
                                           -------------  ------------
     Net premises, leasehold
       improvements and equipment.........  $   14,873     $   12,006
                                           =============  ============
</TABLE>

Depreciation and amortization  expense on premises,  leasehold  improvements and
equipment charged to continuing  operations totaled  approximately $1.1 million,
$1.0 million and $887,000 for the years ended December 31, 2000,  1999 and 1998,
respectively.

7.   Deferred Charges and Intangible Assets:

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

                                               2000           1999
                                           ------------   ------------
<S>                                        <C>            <C>
Premiums paid for deposits assumed........  $    4,022     $    4,022
Goodwill..................................       1,115          1,115
Covenants not to compete..................         480            480
Debt related costs........................         147            161
Other miscellaneous intangibles...........         112            112
                                           ------------   ------------
     Total costs..........................       5,876          5,890
Less accumulated amortization ............      (3,157)        (2,629)
                                           ------------   ------------
     Net deferred charges and
       intangible assets..................  $    2,719     $    3,261
                                           ============   ============
</TABLE>

<PAGE>

Amortization expense charged to continuing operations was $528,000, $541,000 and
$611,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

8.   Deposits:

The scheduled maturities of time deposits as of December 31, 2000 are as follows
(in thousands):
<TABLE>
          <S>                             <C>
          2001............................ $  141,762
          2002............................     16,191
          2003............................      1,464
          2004............................      1,012
          2005............................        479
          Thereafter......................        672
                                          ------------
                                           $  161,580
                                          ============
</TABLE>

9.   Notes Payable:

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

                                                         2000          1999
                                                      ----------    ----------
<S>                                                   <C>           <C>
BNCCORP:
8 5/8%  Subordinated  Notes, due May 31, 2004,
  interest payable monthly (plus unamortized
  discount  of $371  and $530 at  December  31,
  2000  and  1999, respectively - effective
  rate 9.61%), unsecured (see below)................. $  12,580     $  14,470

Subsidiaries:
Federal funds purchased and U. S. Treasury tax
  and loan note option accounts (1)..................    32,692         1,700

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 6.47% to 6.59% at December 31, 2000,
  secured by mortgage loans, government agency
  mortgage-backed securities and government
  agency collateralized mortgage obligations (1).....    55,000        27,000

Fixed rate advances from FHLB, callable
  quarterly and annually, principal due
  in 2009 and 2010, interest payable monthly
  at rates ranging from 5.64% to 6.27%,
  secured by mortgage loans, government agency
  mortgage-backed  securities and government
  agency collateralized mortgage obligations (1).....    62,200        37,500
Other (1)............................................       598           500
                                                      ----------    ----------
                 Total............................... $ 163,070     $ 103,170
                                                      ==========    ==========
----------------
<FN>

(1)  The weighted average interest rate on short-term borrowings  outstanding as
     of December 31, 2000 and 1999 was 6.30% and 5.74%, respectively.
</FN>
</TABLE>

The 8 5/8 percent  Subordinated  Notes (the  "Notes"),  which  qualify as Tier 2
capital up to a certain  limit  under the  Federal  Reserve  Board's  risk-based
capital  guidelines (60 percent at December 31, 2000), 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.  Payment of principal of

<PAGE>

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.

During the twelve  months  ended  December 31,  2000,  the Company  retired $2.0
million of the Notes.  The Company  purchased  the Notes at a discount,  and the
transactions  resulted in extraordinary  gains of $257,000 ($.11 per share), net
of income taxes of $132,000.  The Notes were retired using cash  generated  from
the sale of BNC Financial.

The indenture  pursuant to which the 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, 2000 and 1999.


10.  Guaranteed  Preferred   Beneficial  Interests  in  Company's   Subordinated
Debentures:

In July 2000, the Company established a special purpose trust, BNC Capital Trust
I, for the purpose of issuing $7.5  million of 12.045  percent  trust  preferred
securities.  The proceeds from the  issuance,  together with the proceeds of the
related  issuance of $232,000 of 12.045 percent common  securities of the trust,
were invested in $7.7 million of 12.045 percent junior  subordinated  deferrable
interest  debentures  of  the  Company.  Concurrent  with  the  issuance  of the
preferred  securities  by the  trust,  the  Company  fully  and  unconditionally
guaranteed  all  obligations  of the special  purpose trust related to the trust
preferred securities.  The trust preferred securities provide the Company with a
more  cost-effective  means of obtaining Tier 1 capital for regulatory  purposes
than if the Company itself were to issue  preferred stock because the Company is
allowed to  deduct,  for income  tax  purposes,  amounts  paid in respect of the
debentures  and  ultimately  distributed  to the holders of the trust  preferred
securities. The sole assets of the special purpose trust are the debentures. The
Company owns all of the common  securities of the trust.  The common  securities
and debentures, along with the related income effects, are eliminated within the
consolidated financial statements.  The preferred securities issued by the trust
rank  senior to the common  securities.  For  presentation  in the  consolidated
balance  sheet,  the  securities  are shown net of discount and direct  issuance
costs.

The trust preferred  securities are subject to mandatory  redemption on July 19,
2030,  the stated  maturity  date of the  debentures,  or upon  repayment of the
debentures,  or  earlier,  pursuant to the terms of the trust  agreement.  On or
after July 19,  2010,  the trust  preferred  securities  may be redeemed and the
corresponding debentures may be prepaid at the option of the Company, subject to
Federal Reserve Board approval,  at declining  redemption prices.  Prior to July
19,  2010,  the  securities  may be redeemed at the option of the Company on the
occurrence  of certain  events  that result in a negative  tax impact,  negative
regulatory  impact  on the  trust  preferred  securities  or  negative  legal or
regulatory impact on the special purpose trust which would cause it to be deemed
to be an "investment company" for regulatory purposes. In addition,  the Company
has the right to defer  payment of interest on the  debentures  and,  therefore,
distributions on the trust preferred securities for up to five years.


11.  Stockholders' Equity:

BNCCORP and the Bank are subject to certain  minimum capital  requirements  (see
Note 12).  BNCCORP  is also  subject to  certain  restrictions  on the amount of
dividends it may declare  without prior  regulatory  approval in accordance with
the Federal  Reserve Act. In addition,  certain  regulatory  restrictions  exist
regarding  the ability of the Bank to  transfer  funds to BNCCORP in the form of
cash  dividends.  Approval  of the  Office of the  Comptroller  of the  Currency
("OCC"),  the  Bank's  principal  regulator,  is  required  for the  Bank to pay
dividends  to BNCCORP in excess of the Bank's  earnings  retained in the current
year plus retained net profits for the preceding two years.


<PAGE>


12.  Regulatory Capital:

BNCCORP  and the Bank are  subject to various  regulatory  capital  requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate  certain   mandatory  -  and  possibly   additional
discretionary - actions 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 the Bank 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 the  Bank  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 the Bank 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, 2000, BNCCORP and the Bank met all capital adequacy requirements to
which they are subject.

As of December 31, 2000, the most recent  notifications from the OCC categorized
the  Bank  as  well  capitalized  under  the  regulatory  framework  for  prompt
corrective action. To be categorized as well capitalized, the Bank 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 institution's category.

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

<TABLE>
<CAPTION>

                                                                                       To be Well
                                                                                    Capitalized Under
                                                              For Capital Adequacy  Prompt Corrective
                                                 Actual             Purposes        Action Provisions
                                           ------------------- ------------------- ------------------
                                             Amount    Ratio     Amount    Ratio     Amount    Ratio
                                           ---------- -------- ---------- -------- ---------- -------
<S>                                        <C>        <C>      <C>        <C>      <C>        <C>
       As of December 31, 2000
Total Capital (to risk-weighted assets):
     Consolidated.......................... $ 43,774  11.97 %  $ 29,261     8.0 %        N/A    N/A
     BNC National Bank.....................   39,745  10.92      29,122     8.0     $ 36,403   10.0 %
Tier I Capital (to risk-weighted assets):
     Consolidated..........................   32,638   8.92      14,631     4.0          N/A    N/A
     BNC National Bank.....................   36,156   9.93      14,561     4.0       21,842    6.0
Tier I Capital (to average assets):
     Consolidated..........................   32,638   5.88      22,195     4.0          N/A    N/A
     BNC National Bank.....................   36,156   6.53      22,159     4.0       27,699    5.0
       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

</TABLE>


<PAGE>



13.  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>


                                                2000                       1999
                                     -------------------------- --------------------------
                                        Carrying       Fair        Carrying       Fair
                                         Amount        Value        Amount        Value
                                     -------------- ----------- -------------- -----------
<S>                                  <C>            <C>         <C>            <C>
Assets:
  Cash, due from banks and
    federal funds sold..............  $     15,583   $  15,583   $     21,881   $  21,881
  Investment securities available
    for sale........................       263,185     263,185        150,992     150,992
  Loans and leases, net.............       265,337     261,103        259,179     236,719
                                     -------------- ----------- -------------- -----------
                                           544,105   $ 539,871        432,052   $ 409,592
                                                    ===========                ===========
  Other assets......................        25,911                     24,825
                                     --------------             --------------
                                      $    570,016               $    456,877
                                     ==============             ==============
Liabilities:
  Deposits, noninterest-bearing.....  $     31,459   $  31,459   $     29,798   $  29,798
  Deposits, interest-bearing........       331,005     331,674        294,913     289,904
  Notes payable.....................       163,070     162,137        103,170     100,926
                                     -------------- ----------- -------------- -----------
                                           525,534   $ 525,270        427,881   $ 420,628
                                                    ===========                ===========
  Other liabilities.................         7,419                      5,847
  Guaranteed preferred
    beneficial interests in
    company's subordinated
    debentures......................         7,606                         --
  Stockholders' equity..............        29,457                     23,149
                                     --------------             --------------
                                      $    570,016               $    456,877
                                     ==============             ==============

</TABLE>


14.  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,
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

<PAGE>

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):
<TABLE>
<CAPTION>

                                           2000               1999
                                      --------------     --------------
<S>                                   <C>                <C>
     Commitments to extend credit....  $     77,902       $     68,932
     Letters of credit...............         6,159              2,399
     Interest rate floors............        25,000             25,000
</TABLE>

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 $436,000 at December 31,
2000.

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,  2000 and  1999,
deferred gains of $188,000 and $271,000,  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.


15.  Related-Party/Affiliate Transactions:

The Company has entered into  transactions  with related parties such as opening
deposit  accounts for and extending  credit to employees of the Company.  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, and  deposits  are
received  from,  executive  officers,  directors,   principal  stockholders  and
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  $804,000  at  December  31,  2000 and  1999,
respectively.  The  December 31, 1999 amount has been revised due to a change in
composition  of the group of officers,  directors,  principal  stockholders  and
associates.  During 2000, $646,000 of new loans were made and repayments totaled
$159,000.  The total  amount of deposits  received  from these  parties was $1.6
million at December  31, 2000 and 1999.  Loans to, and deposits  received  from,
these  parties were made on  substantially  the same terms,  including  interest
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions with unrelated persons and do not involve more than the normal risk
of collectibility.


<PAGE>

The  Federal  Reserve  Act  limits  amounts  of,  and  requires  collateral  on,
extensions of credit by the Bank to BNCCORP,  and with certain  exceptions,  its
non-bank affiliates. There are also restrictions on the amounts of investment by
the Bank in stocks and other  subsidiaries  of BNCCORP and such  affiliates  and
restrictions  on the  acceptance of their  securities as collateral for loans by
the Bank. As of December 31, 2000, BNCCORP and its affiliates were in compliance
with these requirements.


16.  Repossessed and Impaired Asset Expenses/Write-Offs:

The Company  recorded write downs to estimated net  realizability  of other real
estate owned and repossessed  assets, and related collection and other expenses,
of $470,000, $2.3 million and $2,000 for the years ended December 31, 2000, 1999
and 1998,  respectively.  The  Company's  investment  in  repossessed  assets of
$84,000 as of December 31, 2000 represents  management's current estimate of net
realizable value based upon current valuation of the assets.


17.  Income Taxes:

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

<TABLE>
<CAPTION>

                                             2000         1999        1998
                                          ----------   ----------  ----------
<S>                                       <C>          <C>         <C>
Continuing Operations -
  Current..............................    $    303     $    726    $  1,136
  Deferred income taxes from the
    following timing differences:
      Provision for credit losses......        (342)         117         (80)
      Depreciation.....................          41          (66)         46
      Write-downs of other real
        estate owned and
        repossessed assets.............         829         (829)         --
      Leases...........................         (54)         (69)        (38)
      Other............................         129         (278)        (34)
                                          ----------   ----------  ----------
                                           $    906     $   (399)   $  1,030
                                          ==========   ==========  ==========
</TABLE>


<TABLE>
<CAPTION>

                                             2000         1999        1998
                                          ----------   ----------  ----------
<S>                                       <C>          <C>         <C>
Discontinued Operation -
  Current..............................    $     82     $    410    $    331
  Deferred income taxes from the
    following timing differences:
    Provision for credit losses........          --           98         (36)
    Depreciation.......................          --            4          --
    Other..............................          --           48         (32)
                                          ----------   ----------  ----------
                                           $     82     $    560    $    263
                                          ==========   ==========  ==========
</TABLE>


<PAGE>

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):

<TABLE>
<CAPTION>

                                             2000         1999        1998
                                          ----------   ----------  ----------
<S>                                       <C>          <C>         <C>
Tax at 34% statutory rate..............    $    947     $   (316)   $    990
Increase (decrease) resulting from:
  State taxes (net of
    federal benefit)...................         266           (1)         43
  Tax-exempt interest..................        (321)        (142)        (28)
  Other, net...........................          14           60          25
                                          ----------   ----------  ----------
                                           $    906     $   (399)   $  1,030
                                          ==========   ==========  ==========
</TABLE>


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):
<TABLE>
<CAPTION>


                                                2000            1999
                                             ----------      ----------
<S>                                          <C>             <C>
Deferred tax asset:
  Loans, primarily due to
    differences in accounting
    for credit losses..................       $  1,429        $  1,087
  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
  Other................................            327             420
                                             ----------      ----------
        Deferred tax asset.............          1,756           3,642
                                             ----------      ----------
Deferred tax liability:
  Unrealized gain on securities
    available for sale.................            733              --
  Leases, primarily due to
    differences in accounting
    for leases.........................            381             435
  Premises and equipment,
    primarily due to differences
    in original cost basis
    and depreciation...................            510             469
  Other................................            115              97
                                             ----------      ----------
    Deferred tax liability.............          1,739           1,001
                                             ----------      ----------
    Net deferred tax asset.............       $     17        $  2,641
                                             ==========      ==========

</TABLE>

18.  Earnings Per Common Share:

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


<PAGE>

<TABLE>
<CAPTION>

                                           Net
                                      Income (Loss)    Shares     Per-Share
                                       (Numerator)  (Denominator)   Amount
                                      ------------- ------------- ----------
<S>                                   <C>           <C>           <C>
           2000
    Basic earnings per share:
Income from continuing
  operations........................   $ 1,881,000     2,397,356   $   0.78
Gain on disposal of asset-based
  lending subsidiary, net of
  income taxes......................       159,000     2,397,356       0.07
Extraordinary item - gain on
  early extinguishment of debt,
  net of income taxes...............       257,000     2,397,356       0.11
                                      -------------               ----------
Income available to common
  stockholders......................   $ 2,297,000     2,397,356   $   0.96
                                      =============               ==========
Effect of dilutive shares -
  Options...........................                       1,197
                                                    -------------
    Diluted earnings per share:
Income from continuing
  operations........................   $ 1,881,000     2,398,553   $   0.78
Gain on disposal of asset-based
  lending subsidiary, net of
  income taxes......................       159,000     2,398,553       0.07
Extraordinary item - gain on
  early extinguishment of debt,
  net of income taxes...............       257,000     2,398,553       0.11
                                      -------------               ----------

Income available to common
  stockholders......................   $ 2,297,000     2,398,553   $   0.96
                                      =============               ==========



           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, net of
  income taxes......................       429,000     2,406,618       0.18
Gain on disposal of asset-based
  lending subsidiary, net of
  income taxes......................       438,000     2,406,618       0.18
Cumulative effect of change in
  accounting principle, net of
  income taxes......................       (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, net
  of income taxes...................       429,000     2,407,018       0.18
Gain on disposal of asset-based
  lending subsidiary, net of
  income taxes......................       438,000     2,407,018       0.18
Cumulative effect of change in
  accounting principle, net of
  income taxes......................       (96,000)    2,407,018      (0.04)
                                      -------------               ----------
Income available to common
  stockholders......................   $   242,000     2,407,018   $   0.10
                                      =============               ==========

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                           Net
                                      Income (Loss)    Shares     Per-Share
                                       (Numerator)  (Denominator)   Amount
                                      ------------- ------------- ----------
<S>                                   <C>           <C>           <C>
          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, net
  of income taxes...................       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, net
  of income taxes...................       385,000     2,503,535       0.16
                                      -------------               ----------
Income available to common
  stockholders......................   $ 2,267,000     2,503,535   $   0.91
                                      =============               ===========

</TABLE>


The following  options and warrants,  with exercise prices ranging from $5.88 to
$17.75,  were outstanding  during the periods indicated but were not included in
the  computation of diluted EPS because their  exercise  prices were higher than
the average price of the Company's common stock for the period:

<TABLE>
<CAPTION>

                                        2000       1999       1998
                                     ---------- ---------- ----------
<S>                                  <C>        <C>        <C>
Quarter ended March 31.............    159,934    170,134         --
Quarter ended June 30..............    152,548    170,234         --
Quarter ended September 30.........    114,131    170,034    142,050
Quarter ended December 31..........    120,512    172,434    178,150
</TABLE>


19.  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  $188,000,  $171,000,  and  $172,000  in 2000,  1999 and 1998,
respectively.  Under the  investment  options  available  under the 401(k) plan,
employees may elect to invest their salary deferrals in BNCCORP common stock.

20.  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 president of the Bank's
Minnesota office (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

<PAGE>

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 Minnesota office president,  if his 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 his
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 ran 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
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, 2000,  1999 and 1998,  was $431,000,  $467,000 and $333,000,
respectively,  for facilities,  and $43,000, $39,000 and $39,000,  respectively,
for equipment and other items.  Minimum annual base lease payments for operating
leases with remaining terms of greater than one year are as follows:

<TABLE>
     <S>                                  <C>
     2001........................         $ 633,000
     2002........................           631,000
     2003........................           575,000
     2004........................           553,000
     2005........................           477,000
     Thereafter..................           237,000
</TABLE>

Legal Proceedings.  In September 1998, BancInsure,  the Bank's employee fidelity
insurer, brought a declaratory judgment action in federal court against the Bank
and a former loan officer. The Bank had claimed a loss in excess of $2.9 million
resulting from the officer's  fraudulent  activities.  BancInsure  paid the Bank
$886,000  while  reserving  its  rights.  After a trial,  the Court  ruled  that
$405,000 of the $886,000  previously  paid to the Bank be repaid to  BancInsure.
The Bank has appealed the trial court's  finding.  The Bank's claims against the
former  officer  were  settled with the former  officer  agreeing to  personally
guaranty  $100,000 of a $473,000 note to the Bank and/or BancInsure by a company
owned by the former officer and her husband. In a post judgment proceeding,  the
Court found that BancInsure had subrogation rights in approximately  $181,000 of
the  settlement  amount  and the Bank is  contesting  that  claim as part of its
appeal.  In the opinion of management  and outside  counsel,  settlement of this
litigation will not have a material adverse effect on the financial  position or
future operating results of the Company.

In April  1999,  a  complaint  was filed in federal  district  court by a former
customer of the Bank (the  "Plaintiff")  against  the Bank,  three of the Bank's
officers,  a second bank and two former  customers  of the Bank.  The  Plaintiff
alleged,  among other things,  violation of the federal Racketeer Influenced and
Corrupt Organizations Act ("RICO"), fraud and breach of fiduciary duty. The case

<PAGE>

was  dismissed  in federal  court.  The  Plaintiff  refiled  the matter in state
district  court and,  on March 15,  2000,  the court  dismissed  all RICO claims
against the Bank and all other defendants. The Bank's officers were also totally
dismissed,  with prejudice,  from the lawsuit. The remaining claims are not of a
material nature. In the opinion of management and outside counsel, settlement of
this  litigation  will not  have a  material  adverse  effect  on the  financial
position or future operating results of the Company.

21.  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.
Vesting requirements,  which may vary, are determined by the Committee,  and the
maximum term of options granted is generally ten years.

As of December 31, 2000,  25,173  restricted  shares issued under the Stock Plan
were outstanding.  19,173 of the shares were fully vested.  5,000 shares vest 60
percent in 2002 and an additional  20 percent in each of 2003 and 2004,  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.  Compensation
cost charged to operations was $74,000,  $70,000 and $146,000 in 2000,  1999 and
1998, respectively.

The number and weighted average grant-date fair value of nonvested stock were as
follows for the years ended December 31:
<TABLE>
<CAPTION>


                                     2000              1999            1998
                                 -------------     ------------    ------------
<S>                              <C>               <C>             <C>
 Number.........................          --           17,500          5,000
 Weighted average
   grant-date fair value........          --        $   10.12       $  16.88
</TABLE>

The Company's Nonemployee Director Stock Option Plan (the "Directors' Plan") was
adopted during 1998, administered by the Committee and terminated during 1999.

The Company  applies APB 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 2000, 1999 or 1998. As
of December 31,  2000,  115,533  options had been awarded  under the Stock Plan.
1,935 of them had been exercised and 113,598 remained outstanding. 4,550 options
awarded under the Directors' Plan remained  outstanding.  Had compensation  cost
been  determined  on the basis of fair value  pursuant to Statement of Financial
Accounting  Standards  No.  123,  net income and EPS would have been  reduced as
follows:
<TABLE>
<CAPTION>

                                             2000         1999        1998
                                          ----------   ----------  ----------
<S>                                       <C>          <C>         <C>
Net Income:
     As Reported.......................   $2,297,000   $ 242,000   $2,267,000
     Pro Forma.........................    2,237,000     139,000    2,118,000
Basic EPS:
     As Reported.......................         0.96        0.10         0.95
     Pro Forma.........................         0.89        0.06         0.85
Diluted EPS:
     As reported.......................         0.96        0.10         0.91
     Pro Forma.........................         0.89        0.06         0.80

</TABLE>

<PAGE>

Following is a summary of stock option transactions for the years ended December
31:

<TABLE>
<CAPTION>

                                           2000                1999                1998
                                    ------------------- ------------------- -------------------
                                     Options   Weighted  Options   Weighted  Options   Weighted
                                        To     Average      to     Average      to     Average
                                     Purchase  Exercise  Purchase  Exercise  Purchase  Exercise
                                      Shares    Price     Shares    Price     Shares    Price
                                    ---------- -------- ---------- -------- ---------- --------
<S>                                 <C>        <C>      <C>        <C>      <C>        <C>
Outstanding, beginning of year.....   122,434  $ 14.82    150,760  $ 15.98     27,926  $ 10.00
Granted............................    18,500     6.03     14,500     7.17    146,750    17.02
Exercised..........................        --       --         --       --     (1,935)   10.00
Forfeited..........................   (22,786)   12.80    (42,826)   16.29    (21,981)   15.92
                                    ----------          ----------          ----------
Outstanding, end of year...........   118,148    13.84    122,434    14.82    150,760    15.98
                                    ==========          ==========          ==========
Exercisable, end of year...........    62,688    13.11     51,934    12.26     22,638    11.56
                                    ==========          ==========          ==========
Weighted average fair value of
  options:

    Granted..............            $   3.05             $  3.18            $   7.57
                                    ==========          ==========          ==========
    Exercised......................        --                  --            $   4.50
                                    ==========          ==========          ==========
    Forfeited......................  $   5.84            $   7.29            $   7.12
                                    ==========          ==========          ==========

</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 of options granted for the years ended December 31:

<TABLE>
<CAPTION>

Weighted average -                  2000              1999             1998
                               --------------    --------------   --------------
<S>                            <C>               <C>              <C>
   Dividend yield..............       0.00%             0.00%            0.00%
   Risk-free interest rate.....       6.30%             6.27%            5.63%
   Volatility..................      36.08%            27.16%           29.81%
   Expected life...............   7.0 years         7.0 years        6.9 years

</TABLE>

Following  is a summary of the status of options  outstanding  at  December  31,
2000:
<TABLE>
<CAPTION>

                                     Outstanding Options             Exercisable Options
                           --------------------------------------- -----------------------
                                         Weighted
                                          Average       Weighted                Weighted
                                         Remaining       Average                 Average
                                        Contractual     Exercise                Exercise
                             Number        Life          Price       Number      Price
                           ---------- --------------- ------------ ---------- ------------
<S>                        <C>        <C>             <C>          <C>        <C>
Options with exercise
  prices ranging from:
$17.00 to $17.75..........    76,150       7.0 years   $    17.04     33,190   $    17.10
$5.88 to $10.00...........    41,998       7.2 years   $     8.01     29,498   $     8.62
                           ----------                              ----------
                             118,148                                  62,688
                           ==========                              ==========

</TABLE>


<PAGE>


22.  Condensed Financial Information-Parent Company Only:

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

<TABLE>

                               Parent Company Only
                            Condensed Balance Sheets
                                As of December 31
                        (In thousands, except share data)
<CAPTION>

                                                     2000               1999
                                              --------------    ---------------
<S>                                           <C>               <C>
Assets:
  Cash and cash equivalents................... $     8,543       $      3,832
  Investment in subsidiaries..................      40,611             33,471
  Loans.......................................          16                 16
  Receivable from subsidiaries................         462                194
  Deferred charges and intangible
    assets, net...............................         249                298
  Other.......................................         732                852
                                              --------------    ---------------
                                               $    50,613       $     38,663
                                              ==============    ===============
Liabilities and stockholders' equity:
  Subordinated notes.......................... $    12,580        $    14,708
  Subordinated debentures.....................       7,451                 --
  Accrued expenses and other
    liabilities...............................       1,125                806
                                              --------------    ---------------
                                                    21,156             15,514
                                              --------------    ---------------
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; 2,395,030
  and 2,399,980 shares issued and
  outstanding  (excluding  42,880 shares
  held in treasury) in 2000 and 1999,
  respectively................................          24                 24
Capital surplus...............................      14,050             13,976
Retained earnings.............................      14,190             11,893
Treasury stock (42,880 shares)................        (513)              (513)
Accumulated other comprehensive income
  (loss), net of income taxes.................       1,706             (2,231)
                                              --------------    ---------------
     Total stockholders' equity...............      29,457             23,149
                                              --------------    ---------------
                                               $    50,613       $     38,663
                                              ==============    ===============

</TABLE>



<PAGE>


<TABLE>

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


                                             2000         1999        1998
                                          ----------   ----------  ----------
<S>                                       <C>          <C>         <C>
Income:
     Management fee income.............    $  1,426     $  1,606    $  1,426
     Interest..........................         322        1,757       1,623
     Other.............................          53            9          30
                                          ----------   ----------  ----------
         Total income..................       1,801        3,372       3,079
                                          ----------   ----------  ----------
Expenses:
     Interest..........................       1,677        2,486       2,226
     Personnel expense.................       1,162        1,320       1,268
     Legal and other professional......         124          134         188
     Depreciation and amortization.....          68           66          71
     Other.............................         361          502         397
                                          ----------   ----------  ----------
         Total expenses................       3,392        4,508       4,150
                                          ----------   ----------  ----------
Loss before income tax benefit
  and equity in undistributed
  income of subsidiaries...............      (1,591)      (1,136)     (1,071)
Income tax benefit.....................         518          433         341
                                          ----------   ----------  ----------
Loss before equity in
  undistributed income
  of subsidiaries......................      (1,073)        (703)       (730)
Equity in undistributed
  income of subsidiaries...............       2,954           96       2,612
                                          ----------   ----------  ----------
Income (loss) from continuing
  operations...........................       1,881         (607)      1,882
Equity in undistributed income
  from operations of discontinued
  asset-based lending subsidiary.......          --          429         385
                                          ----------   ----------  ----------
Income (loss) before gain on
  disposal of asset-based lending
  subsidiary...........................       1,881         (178)      2,267
Gain on disposal of asset-based
  lending subsidiary...................         159          438          --
                                          ----------   ----------  ----------
Income before extraordinary item
  and cumulative effect of change
  in accounting principle..............       2,040          260       2,267
Extraordinary item-gain on
  early extinguishment of debt,
  net of income taxes..................         257           --          --
Cumulative effect of change in
  accounting principle, net
  of income taxes......................          --          (18)         --
                                          ----------   ----------  ----------
         Net income....................    $  2,297     $    242    $  2,267
                                          ==========   ==========  ==========
</TABLE>



<PAGE>


<TABLE>
                               Parent Company Only
                       Condensed Statements of Cash Flows
                         For the Years Ended December 31
                                 (In thousands)
<CAPTION>

                                             2000         1999        1998
                                          ----------   ----------  ----------
<S>                                       <C>          <C>         <C>
Operating activities:
Net income.............................    $  2,297     $    242    $  2,267
Adjustments to reconcile net
  income to net cash provided
  by (used in)operating activities -
  Gain on sale of
    discontinued operation.............        (159)        (438)         --
  Depreciation and amortization........          48           46          53
  Equity in undistributed income
    of subsidiaries....................      (2,954)         (96)     (2,612)
  Equity in undistributed income
    of subsidiary - BNC
      Capital Trust I..................         (12)          --          --
  Equity in undistributed income
    from operations of discontinued
    asset-based lending subsidiary.....          --         (429)       (385)
  Change in prepaid expenses and
    other receivables..................          32       19,922      (5,858)
  Change in accrued expenses and
    other liabilities..................          98           28         290
  Other................................          14           --           7
                                          ----------   ----------  ----------
       Net cash provided by
         (used in) operating
         activities....................        (636)      19,275      (6,238)
                                          ----------   ----------  ----------
Investing activities:
  Disposition of discontinued
    operation..........................          --        2,100          --
  Net decrease in loans................          --         (325)       (158)
  Increase in investment in
    subsidiaries ......................        (232)      (3,157)     (1,307)
  Additions to premises, leasehold
    improvements and equipment, net....         (59)         (19)        (67)
                                          ----------   ----------- ----------
           Net cash used in
             investing activities......        (291)      (1,401)     (1,532)
                                          ----------   ----------- ----------
Financing activities:
  Repayments of long-term
    borrowings.........................      (2,001)     (29,532)     (9,785)
  Proceeds from long-term
    borrowings.........................          --       15,000      16,870
  Amortization of discount
    on subordinated notes..............          93           92          84
  Amortization of deferred
    charges............................          20           20          18
  Proceeds from issuance of
    subordinated debentures............       7,440           --          --
  Amortization of discount
    on subordinated debentures.........          12           --          --
  Purchase of treasury stock...........          --           --        (297)
  Other, net...........................          74           25         165
                                          ----------   ----------  ----------
           Net cash provided by
            (used in) financing
            activities.................       5,638      (14,395)      7,055
                                          ----------   ----------  ----------
Net increase (decrease) in
  cash and cash equivalents............       4,711        3,479        (715)
Cash and cash equivalents,
  beginning of year....................       3,832          353       1,068
                                          ----------   ----------  ----------
Cash and cash equivalents,
  end of year..........................    $  8,543     $  3,832    $    353
                                          ==========   ==========  ==========
Supplemental cash flow
  information:
     Interest paid.....................    $  1,293     $  2,582    $  2,187
                                          ==========   ==========  ==========
     Income tax payments received
       from subsidiary banks,
       net of income taxes paid........    $     69     $    243    $    438
                                          ==========   ==========  ==========

</TABLE>


<PAGE>


23.  Quarterly  Financial  Data  (unaudited,  in  thousands,  except  shares and
earnings per share):

<TABLE>
<CAPTION>

                                                                 2000
                                   -----------------------------------------------------------------
                                      First            Second            Third            Fourth
                                     Quarter           Quarter          Quarter          Quarter
                                   -------------    --------------    -------------    -------------
<S>                                <C>              <C>               <C>              <C>
Interest income   ................  $     9,183      $     10,604      $    10,950      $    11,026
Interest expense  ................        5,939             7,199            7,482            7,497
                                   -------------    --------------    -------------    -------------
Net interest income...............        3,244             3,405            3,468            3,529
Provision for credit losses.......          482               337              107              276
                                   -------------    --------------    -------------    -------------
Net interest income after
  provision for credit losses.....        2,762             3,068            3,361            3,253

Noninterest income................        1,763             1,870            1,983            2,157
Noninterest expense...............        3,901             4,112            4,563            4,854
                                   -------------    --------------    -------------    -------------
Income before income taxes........          624               826              781              556
Provision for income taxes........          191               266              249              200
                                   -------------    --------------    -------------    -------------
Income from continuing
  operations......................          433               560              532              356

Discontinued Operation:
  Gain on disposal of
    discontinued operation,
    net of income taxes...........           --                10               --              149
                                   -------------    --------------    -------------    -------------
Income before extraordinary
  item............................          433               570              532              505
Extraordinary item - gain on
  early extinguishment of debt,
  net of income taxes.............          122                47               65               23
                                   -------------    --------------    -------------    -------------
Net income........................  $       555      $        617      $       597      $       528
                                   =============    ==============    =============    =============

Earnings per common share:
Basic and diluted income from
  continuing operations...........  $      0.18      $       0.23      $      0.22      $      0.15
Gain on disposal of
  discontinued operation..........           --              0.01               --             0.06
Extraordinary item - gain
  on early extinguishment
  of debt.........................         0.05              0.02             0.03             0.01
                                   -------------    --------------    -------------    -------------
Basic and diluted net income......  $      0.23      $       0.26      $      0.25      $      0.22
                                   =============    ==============    =============    =============
Average common shares:
Basic.............................    2,399,980         2,399,436        2,395,030        2,395,030
Diluted...........................    2,400,486         2,399,835        2,395,321        2,395,030


</TABLE>



<PAGE>


<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             1,566            1,486             1,592
Noninterest expense...............        3,914             4,009            4,279             6,013
                                    -------------    --------------    -------------    -------------
Income (loss) before
  income taxes....................          339               285              (34)           (1,518)
Income tax provision
  (benefit).......................          124               116              (38)             (601)
                                    -------------    --------------    -------------    -------------
Income (loss) from continuing
  operations......................          215               169                4              (917)

Discontinued Operation:
  Income from operations
    of discontinued operation,
    net of income taxes...........          139               104              186                --
  Gain on disposal of
    discontinued operation,
    net of income taxes...........           --                --               --               438
                                    -------------    --------------    -------------    -------------
Income before cumulative
  effect of change in accounting
  principle.......................          354               273              190              (479)
Cumulative effect of change
  in accounting principle, net
  of income taxes.................          (96)               --               --                --
                                    -------------    --------------    -------------    -------------
Net income (loss).................   $      258       $       273       $      190       $      (479)
                                    =============    ==============    =============    =============

Earnings per common share:
Basic and 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)               --               --                --
                                    -------------    --------------    -------------    -------------
Basic and 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>

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 2001 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 2001  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  2001  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 2001  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, 2000.


<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 28, 2001.

                                                  BNCCORP, Inc.
                                                  By:     /s/ Tracy Scott
                                                     -------------------------
                                                       Chairman of the Board

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 28, 2001.


 /s/ Tracy Scott                       Chairman of the Board and Director
-------------------------------


 /s/ Gregory K. Cleveland        President, Chief Executive Officer and Director
-------------------------------              (Principal Executive Officer)
                                          (Principal Financial Officer)


 /s/ Brenda L. Rebel                   Chief Financial Officer and Director
-------------------------------              (Principal Accounting Officer)


/s/ Denise Forte-Pathroff, M.D.                         Director
-------------------------------

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

 /s/ Richard M. Johnsen, Jr.                            Director
-------------------------------

 /s/ David A. Erickson                                  Director
-------------------------------

 /s/ Jerry R. Woodcox                                   Director
-------------------------------

 /s/ Brad J. Scott                                      Director
-------------------------------


<PAGE>


                                  EXHIBIT INDEX


Exhibit
  No.                       Exhibit Description
--------------------------------------------------------------------------------

2.1  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  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).

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 Junior  Subordinated  Indenture  between  BNCCORP,  Inc.  and  First  Union
     National  Bank as  Trustee  dated  as of July  12,  2000,  incorporated  by
     reference to Exhibit 10.1 to the Registrant's  Form 10-Q dated as of August
     2, 2000.



<PAGE>



Exhibit
  No.                       Exhibit Description
--------------------------------------------------------------------------------


10.7 Guarantee  Agreement  between  BNCCORP,  Inc. as Guarantor  and First Union
     National Bank as Guarantee  Trustee dated as of July 12, 2000 - BNC Capital
     Trust I, incorporated by reference to Exhibit 10.2 to the Registrant's Form
     10-Q dated as of August 2, 2000.

10.8 Amended and Restated  Trust  Agreement  among  BNCCORP,  Inc. as Depositor,
     First Union National Bank as Property  Trustee,  First Union Trust Company,
     National  Association as Delaware Trustee and the  Administrative  Trustees
     dated as of July 12, 2000 - BNC Capital Trust I,  incorporated by reference
     to the Registrant's Form 10-Q dated as of August 2, 2000.

21.1 Subsidiaries of Company.

23.1 Consent of Arthur Andersen LLP