----

| For      the transition period from |   | to |   |
|-------------------------------------|--------|----|--------|

| BNCCORP,      INC.                                         |
|------------------------------------------------------------|
| (Exact      name of registrant as specified in itscharter) |

| Delaware                                                          |   |            |   | 45-0402816                                                   |
|-------------------------------------------------------------------|--------|-----------------|--------|--------------------------------------------------------------|
| State      or other jurisdiction of incorporation or organization |   |            |   | (I.R.S.      Employer Identification No.)                    |
|                                                              |   |            |   |                                                         |
| 322      East Main Avenue,Bismarck,      North Dakota             |   | 58501           |   | (701)-250-3040                                               |
| (Address      of principal executive offices)                     |   | (Zip      Code) |   | Registrant’s      telephone number, including areacode |

| Title      of each class                     |   | Name      of each exchange on which registered |
|----------------------------------------------|--------|------------------------------------------------|
|                                         |   |                                           |
| Common      Stock, par value $0.01 per share |   | N/A                                            |

| Securities      registered pursuant to Section 12(g) of the Act:  |
|------------------------------------------------------------------------|
| Preferred      Stock Purchase Rights                                   |
| (Title      of class)                                                  |

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| Large      accelerated filer  | Accelerated      filer  | Non-accelerated      filer [x] |
|--------------------------------------------|--------------------------------------|--------------------------------|

----

|            | BNCCORP,      INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|            | ANNUAL      REPORT ON FORM 10-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|            | FOR      FISCAL YEAR ENDED DECEMBER 31, 2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
|            | TABLE      OF CONTENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|            | PART      I                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
| Item      1.    | Business                                                                                                                                                                                                            | 4      |
| Item      1a.   | Risk      Factors                                                                                                                                                                                                   | 12     |
| Item      1b.   | Unresolved      Staff      Comments                                                                                                                                                                                 | 13     |
| Item      2.    | Properties                                                                                                                                                                                                          | 14     |
| Item      3.    | Legal      Proceedings                                                                                                                                                                                              | 14     |
| Item      4.    | Submission      of Matters to a Vote of Security      Holders                                                                                                                                                       | 14     |
|            |  PART      II                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| Item      5.    | Market      for the Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 14     |
| Item      6.    | Selected      Financial      Data                                                                                                                                                                                        | 15     |
| Item      7.    | Management’s      Discussion and Analysis of Financial Condition and Resultsof      Operations                                                                                                                     | 17     |
| Item      7A.   | Quantitative      and Qualitative Disclosures about Market      Risk                                                                                                                                                     | 37     |
| Item      8.    | Financial      Statements and Supplementary      Data                                                                                                                                                                    | 40     |
| Item      9.    | Changes      in and Disagreements with Accountants on Accounting andFinancial      Disclosure                                                                                                                            | 82     |
| Item      9A(T) | Controls      and      Procedures                                                                                                                                                                                        | 82     |
| Item      9B.   | Other      Information                                                                                                                                                                                                   | 84     |
|            |  PART      III                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
| Item      10.   | Directors,      Executive Officers and Corporate      Governance                                                                                                                                                         | 84     |
| Item      11.   | Executive      Compensation                                                                                                                                                                                              | 84     |
| Item      12.   | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 85     |
| Item      13.   | Certain      Relationships and Related Transactions, and Director      Independence                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 86     |
| Item      14.   | Principal      Accounting Fees and      Services                                                                                                                                                                         | 87     |
|            |  PART      IV                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| Item      15.   | Exhibits,      Financial Statement      Schedules                                                                                                                                                                   | E-1    |

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| ·   | Banking – The Bank is a      nationally chartered bank headquartered in Phoenix, Arizona. Through the      Bank we provide banking products and services to small and mid-sized      businesses, business owners, professionals and consumers in Arizona,      Minnesota and North Dakota. As of December 31, 2007, the Bank has four      locations in Arizona with loans and deposits of $146.7 and $113.1 million,      respectively. The Bank also has four locations in Minnesota with loans and      deposits of $197.1 and $99.5 million, respectively. The Bank also has      twelve locations in North Dakota with loans and deposits of $179.2 and      $299.3 million, respectively. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Wealth Management – We      provide a variety of financial services including, trust, asset      management, financial planning, estate planning, estate administration,      tax planning, payroll services, employee benefit plan design and employee      plan administration. We also offer retirement accounts and prepare tax      returns. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Emphasize      individualized, high-level customerservice. |
|--------|--------|------------------------------------------------------------|

|   | · | Provide      diversified products and services. |
|--------|--------|-------------------------------------------------|

|   | · | Expand      into high growth markets. |
|--------|--------|---------------------------------------|

|   | · | Manage      credit risk. |
|--------|--------|--------------------------|

----

----

|                                                   |   |                |                                                                           |        | Gross      Loans Held |
|--------------------------------------------------------|--------|---------------------|--------------------------------------------------------------------------------|-------------|-----------------------|
|                                                   |   |                |                                                                           |        | for      Investment   |
| Location                                               |   | Total      Deposits |                                                                           | Outstanding |
| North      Dakota:                                     |   |                |                                                                           |        |                  |   |
|   Bismarck                                   |   | $                   |          162,967                  |        | $                     |         166,267 |
|   Crosby                                     |   |                |             20,580 |        |                  |                204 |
|   Ellendale                                  |   |                |             11,831 |        |                  |                426 |
|   Garrison                                   |   |                |             17,331 |        |                  |                755 |
|   Kenmare                                    |   |                |             12,148 |        |                  |                262 |
|   Linton                                     |   |                |             41,015 |        |                  |          10,032 |
|   Stanley                                    |   |                |             22,357 |        |                  |             1,168 |
|   Watford      City                          |   |                |            11,028       |        |                  |                105 |
| North      Dakota Totals                               |   |                |          299,257                  |        |                  |         179,219 |
| Minnesota:                                             |   |                |                                                                           |        |                  |   |
|   Golden      Valley                         |   |                |            33,851       |        |                  |           13,743 |
|   Minneapolis                                |   |                |             65,670 |        |                  |         183,337 |
| Minnesota      Totals                                  |   |                |             99,521 |        |                  |         197,080 |
| Arizona:                                               |   |                |                                                                           |        |                  |   |
|   Phoenix                                    |   |                |             45,905 |        |                  |           92,670 |
|   Scottsdale                                 |   |                |             67,191 |        |                  |           54,055 |
| Arizona      Totals                                    |   |                |          113,096                  |        |                  |         146,725 |
| Other      Deposits:                                   |   |                |                                                                           |        |                  |   |
|   Brokered      and National market deposits |   |                |             30,000 |        |                  |                     - |
|      Total                    |   | $                   |           541,874            |        | $                     |         523,024 |

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|                | 2007   |                    | 2006   |
|---------------------|--------|-------------------------|--------|
| Period              | High   |                    | Low    |   | High |   | Low |
| First      Quarter  | $      |    18.00 |   | $ |   12.98 |   | $ |    14.00 |   | $ |   12.40 |
| Second      Quarter |   |    19.15 |   |   |   15.16 |   |   |    13.35 |   |   |   12.60 |
| Third      Quarter  |   |    18.50 |   |   |   17.25 |   |   |    13.00 |   |   |   11.45 |
| Fourth      Quarter |   |    17.31 |   |   |   12.60 |   |   |    13.49 |   |   |   11.81 |

| Plan      Category                                              |   | Number      of securities to be issued upon exercise of outstanding options, warrants      and rights                                                                                                   |   | Weighted      average exercise price of outstanding options, warrants and      rights |    | Number      of securities remaining available for future issuance (excluding      securities reflected in 1st      column) |
|-----------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|---------|----------------------------------------------------------------------------------------------------------------------------|
| Equity      compensation plans approved by security holders     |   |                      107,700                                                                   |   |  $                                                                               | 11.76   |                                                                                                                       |                       256,701 |
| Equity      compensation plans not approved by security holders |   |                                  - |   |                                                                                  | -  |                                                                                                                       |                                  - |
|     Total                                   |   |                      107,700                                                                   |   | $                                                                                     | 11.76   |                                                                                                                       |                      256,701 |

----

|                                                                                           | For      the Years Ended December 31,                            |
|------------------------------------------------------------------------------------------------|------------------------------------------------------------------|
|                                                                                           | 2007                                                             |   | 2006 |   | 2005 |   | 2004 |   | 2003 |
|                                                                                           | (dollars      are in thousands, except share and per share data) |
| Income      Statement Data from Continuing Operations:                                         |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest income                                                                     | $                                                                |      44,241 |   | $ |      42,408 |   | $ |      37,264 |   | $ |      30,141 |   | $ |      28,646 |
| Total      interest expense                                                                    |                                                             |      21,994 |   |   |      23,606 |   |   |      19,718 |   |   |      14,146 |   |   |      15,337 |
| Net      interest income                                                                       |                                                             |      22,247 |   |   |      18,802 |   |   |      17,546 |   |   |      15,995 |   |   |      13,309 |
| Provision      for credit losses                                                               |                                                             |        3,750 |   |   |           210 |   |   |           250 |   |   |           175 |   |   |        1,475 |
| Non-interest      income                                                                       |                                                             |        3,853 |   |   |        5,138 |   |   |        5,823 |   |   |        5,235 |   |   |        6,184 |
| Non-interest      expense                                                                      |                                                             |      28,147 |   |   |      23,075 |   |   |      21,859 |   |   |      19,924 |   |   |      16,604 |
| Income      tax provision (benefit)                                                            |                                                             |     (2,728) |   |   |        (363) |   |   |           238 |   |   |         (177) |   |   |           138 |
| Income      (loss) from continuing operations                                                  | $                                                                |     (3,069) |   | $ |        1,018 |   | $ |        1,022 |   | $ |        1,308 |   | $ |        1,276 |
| Balance Sheet Data: (at      end of period)                                                    |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                              | $                                                                |   699,591 |   | $ |    692,276 |   | $ |    740,016 |   | $ |    673,710 |   | $ |    621,477 |
| Investments      available for sale                                                            |                                                             |   122,899 |   |   |    182,974 |   |   |    227,185 |   |   |    235,916 |   |   |    262,568 |
| Federal      Funds Sold                                                                        |                                                             |               - |   |   |      24,000 |   |   |              - |   |   |                - |   |   |                - |
| Federal      Reserve Bank and Federal Home Loan Bank stock                                     |                                                             |          4,918 |   |   |        5,003 |   |   |        5,791 |   |   |        7,541 |   |   |        7,596 |
| Loans      held for sale                                                                       |                                                             |               - |   |   |        1,669 |   |   |           266 |   |   |      25,682 |   |   |           245 |
| Participating      interests in mortgage loans                                                 |                                                             |      24,357 |   |   |      56,125 |   |   |    101,336 |   |   |      34,515 |   |   |                - |
| Loans      and leases held for investment, net of unearned income                              |                                                             |      497,556 |   |   |     333,934 |   |   |    310,368 |   |   |    293,814 |   |   |    283,310 |
| Allowance      for credit losses                                                               |                                                             |     (6,599) |   |   |     (3,370) |   |   |    (3,188) |   |   |      (3,335) |   |   |      (4,763) |
| Total      deposits                                                                            |                                                             |    541,874 |   |   |    529,252 |   |   |    548,790 |   |   |    455,343 |   |   |    395,942 |
| Short-term      borrowings                                                                     |                                                             |        5,365 |   |   |        9,709 |   |   |      21,416 |   |   |      33,697 |   |   |      31,833 |
| Federal      Home Loan Bank advances                                                           |                                                             |      61,400 |   |   |      62,200 |   |   |      82,200 |   |   |      97,200 |   |   |    112,200 |
| Long-term      borrowings                                                                      |                                                             |               - |   |   |        1,167 |   |   |        3,850 |   |   |      10,079 |   |   |        8,640 |
| Guaranteed      preferred beneficial interests in Company’s subordinated      debentures |                                                             | 23,075 |   |   |      22,711 |   |   |      22,648 |   |   |      22,509 |   |   |      22,397 |
| Common      stockholders’ equity                                                         |                                                             |      59,730 |   |   |      55,602 |   |   |      51,612 |   |   |      42,596 |   |   |      38,686 |
| Book      value per common share outstanding                                                   | $                                                                |        17.11 |   | $ |        15.44 |   | $ |        14.97 |   | $ |        14.77 |   | $ |        14.07 |
| Tangible      book value                                                                       | $                                                                |        16.99 |   | $ |         7.15 |   | $ |          6.63 |   | $ |          4.42 |   | $ |          5.54 |
| Earnings      Performance / Share Data from Continuing Operations:                             |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return      (loss) on average total assets                                                     |                                                             | (0.47)% |   |   | 0.14% |   |   | 0.14% |   |   | 0.21% |   |   | 0.21% |
| Return      (loss) on average common stockholders’ equity                                |                                                             | (5.25)% |   |   | 1.92% |   |   | 2.14% |   |   | 2.86% |   |   | 2.96% |
| Efficiency      ratio                                                                          |                                                             | 107.85% |   |   | 96.39% |   |   | 93.54% |   |   | 93.85% |   |   | 85.18% |
| Net      interest margin                                                                       |                                                             | 3.81% |   |   | 3.04% |   |   | 2.79% |   |   | 2.85% |   |   | 2.46% |
| Net      interest spread                                                                       |                                                             | 3.31% |   |   | 2.73% |   |   | 2.58% |   |   | 2.71% |   |   | 2.19% |
| Basic      earnings (loss) per common share                                                    | $                                                                |       (0.89) |   | $ |          0.29 |   | $ | 0.33 |   | $ |          0.39 |   | $ | 0.43 |
| Diluted      earnings (loss) per common share                                                  | $                                                                |       (0.89) |   | $ |         0.29 |   | $ |         0.33 |   | $ |          0.38 |   | $ |        0.42 |
| Average      common shares outstanding                                                         |                                                             | 3,456,993 |   |   | 3,473,670 |   |   | 2,988,440 |   |   | 2,813,531 |   |   | 2,705,602 |
| Average      common and common equivalent shares                                               |                                                             | 3,515,852 |   |   | 3,515,216 |   |   | 3,048,139 |   |   | 2,896,241 |   |   | 2,764,816 |
| Shares      outstanding at year end                                                            |                                                             | 3,491,337 |   |   | 3,600,467 |   |   | 3,447,945 |   |   | 2,884,876 |   |   | 2,749,196 |
| Balance      Sheet and Other Key Ratios from Continuing Operations:                            |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming      assets to total assets                                                      |                                                             | 0.77% |   |   | 0.02% |   |   | 0.02% |   |   | 0.09% |   |   | 1.34% |
| Nonperforming      loans to loans and leases held for investment                               |                                                             | 1.09% |   |   | 0.03% |   |   | 0.03% |   |   | 0.17% |   |   | 2.81% |
| Net      loan charge-offs to average loans and leases held for      investment                 |                                                             | (0.129)% |   |   | (0.008)% |   |   | (0.130)% |   |   | (0.579)% |   |   | (0.560)% |
| Allowance      for credit losses to total loans                                                |                                                             | 1.26% |   |   | 0.86% |   |   | 0.77% |   |   | 1.02% |   |   | 1.68% |
| Allowance      for credit losses to total nonperforming loans                                  |                                                             | 122% |   |   | 3,304% |   |   | 2,229% |   |   | 607% |   |   | 60% |
| Average      common stockholders’ equity to average total assets                         |                                                             | 9.16% |   |   | 7.87% |   |   | 6.75% |   |   | 6.79% |   |   | 6.50% |

----

|                                                                                                  |    | 2007               |   |          | 2006   |
|-------------------------------------------------------------------------------------------------------|---------|-------------------------|--------|---------------|-------------|
| Net      income (loss) attributable to continuing operations                                          | $  | (3,069)                 |   |        $ |  1,018 |
| Net      income attributable to discontinued operations                                               |    |    5,049 |   |          |  2,603 |
| Net      income attributable to common shareholders                                                   | $       |   1,980       |   | $             |  3,621 |
|    Net      income per share                                                           |    |                    |   |          |        |
|       Basic      earnings (loss) per share from continuing operations   | $       | (0.89)                  |   | $             | 0.29        |
|       Basic      earnings per share from discontinued operations        | $       | 1.46                    |   | $             | 0.75        |
|       Basic      earnings per share                                     | $       | 0.57                    |   | $             | 1.04        |
|                                                                                                  |    |                    |   |          |        |
|       Diluted      earnings (loss) per share from continuing operations | $       | (0.89)                  |   | $             | 0.29        |
|       Diluted      earnings per share from discontinued operations      | $       | 1.46                    |   | $             | 0.74        |
|       Diluted      earnings per share                                   | $       | 0.57                    |   | $             | 1.03        |

| ·   | Sale      of BNC Insurance resulted in thefollowing: |
|--------------------|------------------------------------------------------|

| ·   | pre-tax      gain of approximately $6.083million, |
|--------------------|---------------------------------------------------|

| ·   | significantly      reduced intangible assets, |
|--------------------|-----------------------------------------------|

| ·   | increased      liquidity, and; |
|--------------------|--------------------------------|

| ·   | increased      regulatory capital; |
|--------------------|------------------------------------|

| ·   | Investment      securities were sold and FHLB advances were prepaid to improve net      interest margin; |
|--------------------|----------------------------------------------------------------------------------------------------------|

| ·   | Subordinated      debentures aggregating $15 million were refinanced to a lower adjustable      rate of Libor plus 1.40%; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·   | Loans      and leases held for investment increased $163.6 million to $497.6      million; |
|--------------------|--------------------------------------------------------------------------------------------|

| ·   | Net      interest income increased approximately 18.3% to $22.247      million; |
|--------------------|---------------------------------------------------------------------------------|

| ·   | Net      interest margin increased to 3.81% from3.04%; |
|--------------------|--------------------------------------------------------|

| ·   | Non-interest      income, excluding losses from sales of securities, increased to $7.130      million from $5.223 million, or36.5%; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Non-interest      expense, excluding debt extinguishment costs and amounts awarded to one of      the founders of BNC upon retirement, increased by $1.188 million, or      5.1%; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Wealth      management revenues grew to $2.041 million, or  87.1%; |
|--------------------|--------------------------------------------------------------------|

| ·   | Assets      under administration increased to $358.6, an increase of      26.8%; |
|--------------------|----------------------------------------------------------------------------------|

| ·   | Custodial      Trust accounts increased to 362 accounts on December 31, 2007 from 16      accounts on December 31, 2006. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                              | For      the Year ended December 31, |                                                      | For      the Year ended December 31, |     | For      the Year ended December 31,                                |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|-----------------------------------------------------------|--------------------------------------|----------|---------------------------------------------------------------------|---------|
|                                                                                                                                                              | 2007                                 |                                                      | 2006                                 |     | 2005                                                                |    |
|                                                                                                                                                              |                                 |                                                      |                                 | Interest |                                                                | Average |   |   |   |   | Interest |   | Average |   |   |   | Interest |   | Average |   |   |
|                                                                                                                                                              | Average                              |                                                      | earned                               |     | yield      or                                                       |    |   | Average |   | earned |   | yield      or |   | Average |   | earned |   | yield      or |   |   |
|                                                                                                                                                              | balance                              |                                                      | or      owed                         |     | cost                                                                |    |   | balance |   | or      owed |   | cost |   | balance |   | or      owed |   | cost |   |   |
|                                                                                                                                                              | (dollars      are in thousands)      | (dollars      are in thousands)                           | (dollars      are in thousands)      |     |                                                                |
| Assets                                                                                                                                                            |                                 |                                                      |                                 |     |                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Federal      funds sold/interest-bearing due from                                                                                         | $                                    |     14,616                            |                                 | $        |        754                       |    | 5.16% |   | $ |  42,121 |   | $ |   2,069 |   | 4.91% |   | $ |   8,068 |   | $ |      304 |   | 3.77% |   |   |
|     Taxable      investments                                                                                                                  |                                 |  124,242                                             |                                 |     |     6,001                                       |    | 4.83% |   |   |  174,995 |   |   |   8,044 |   | 4.60% |   |   |  192,990 |   |   |   7,949 |   | 4.12% |   |   |
|     Tax-exempt      investments                                                                                                               |                                 |    18,815                                  |                                 |     |        926                       |    | 4.92% |   |   |  36,249 |   |   |   1,644 |   | 4.54% |   |   |   43,494 |   |   |   1,942 |   | 4.46% |   |   |
|     Loans      held for sale                                                                                                                  |                                 |          417 |                                 |     |            - |    | 0.00% |   |   |  1,088 |   |   |           - |   | 0.00% |   |   |  20,073 |   |   |     738 |   | 3.68% |   |   |
|     Participating      interests in mortgage loans                                                                                            |                                 |    27,469                                  |                                 |     |     2,137                                       |    | 7.78% |   |   |  33,180 |   |   |   2,344 |   | 7.06% |   |   |  63,493 |   |   |  3,814 |   | 6.01% |   |   |
|     Loans      and leases held for investment                                                                                                 |                                 |  402,616                                             |                                 |     |   34,423                                                  |    | 8.55% |   |   |  334,058 |   |   | 28,307 |   | 8.47% |   |   |  305,074 |   |   | 22,517 |   | 7.38% |   |   |
|     Allowance      for credit losses                                                                                                          |                                 |    (4,335)                                 |                                 |     |            - |    |   |   |   |  (3,326) |   |   |           - |   |   |   |   |   (3,377) |   |   |           - |   |   |   |   |
|            Total      interest-earning assets                                                              |                                 |  583,840                                             |                                 |     |   44,241                                                  |    | 7.58% |   |   |   618,365 |   |   | 42,408 |   | 6.86% |   |   |  629,815 |   |   | 37,264 |   | 5.92% |   |   |
|     Non-interest-earning      assets:                                                                                                         |                                 |                                                      |                                 |     |                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|            Assets      from discontinued operations                                                        |                                 |   13,344                                        |                                 |     |                                                                |    |   |   |   |  31,129 |   |   |   |   |   |   |   |   30,888 |   |   |   |   |   |   |   |
|            Cash      and due from banks                                                                    |                                 |    12,468                                  |                                 |     |                                                                |    |   |   |   |   15,360 |   |   |   |   |   |   |   |   15,823 |   |   |   |   |   |   |   |
|            Other                                                                                           |                                 |    41,653                                  |                                 |     |                                                                |    |   |   |   |   40,004 |   |   |   |   |   |   |   |   37,356 |   |   |   |   |   |   |   |
|                   Total      assets                                     | $                                    |   651,305                                       |                                 |     |                                                                |    |   |   | $ |  704,858 |   |   |   |   |   |   | $ |  713,882 |   |   |   |   |   |   |   |
|                                                                                                                                                              |                                 |                                                      |                                 |     |                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities      and Stockholders’ Equity                                                                                                                   |                                 |                                                      |                                 |     |                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Deposits:                                                                                                                                 |                                 |                                                      |                                 |     |                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|            Interest      checking and money market accounts                                                | $                                    |     249,246                           |                                 |     |         8,007               |    | 3.21% |   | $ |  246,476 |   |   |      7,440 |   | 3.02% |   | $ |  236,832 |   |   |     5,036 |   | 2.13% |   |   |
|            Savings                                                                                         |                                 |      8,399                       |                                 |     |          66            |    | 0.79% |   |   |   8,398 |   |   |        66 |   | 0.79% |   |   |    7,935 |   |   |        63 |   | 0.79% |   |   |
|     Time      deposits:                                                                                                                       |                                 |                                                      |                                 |     |                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|            Under      $100,000                                                                             |                                 |  149,010                                             |                                 |     |     7,141                                       |    | 4.79% |   |   |  150,194 |   |   |   6,440 |   | 4.29% |   |   |  114,157 |   |   |   3,547 |   | 3.11% |   |   |
|            $100,000      and over                                                                          |                                 |    44,824                                  |                                 |     |    2,319                                             |    | 5.17% |   |   |   54,155 |   |   |   2,499 |   | 4.61% |   |   |   79,977 |   |   |   3,196 |   | 4.00% |   |   |
|     Total      interest-bearing deposits                                                                                                      |                                 |  451,479                                             |                                 |     |   17,533                                                  |    | 3.88% |   |   |  459,223 |   |   | 16,445 |   | 3.58% |   |   |  438,901 |   |   | 11,842 |   | 2.70% |   |   |
|     Borrowings:                                                                                                                               |                                 |                                                      |                                 |     |                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|            Short-term      borrowings                                                                      |                                 |      8,706                       |                                 |     |        398                       |    | 4.57% |   |   |  14,480 |   |   |      685 |   | 4.73% |   |   |  24,001 |   |   |      757 |   | 3.15% |   |   |
|            FHLB      advances                                                                              |                                 |    32,991                                  |                                 |     |     1,915                                       |    | 5.80% |   |   |   73,060 |   |   |   4,020 |   | 5.50% |   |   |   96,997 |   |   |   4,613 |   | 4.76% |   |   |
|            Long-term      borrowings                                                                       |                                 |         131       |                                 |     |          11            |    | 8.40% |   |   |    2,659 |   |   |      201 |   | 7.56% |   |   |   8,316 |   |   |      468 |   | 5.63% |   |   |
|            Subordinated      debentures                                                                    |                                 |    22,641                                  |                                 |     |     2,137                                       |    | 9.44% |   |   |   22,458 |   |   |  2,255 |   | 10.04% |   |   |   22,358 |   |   |   2,036 |   | 9.11% |   |   |
|     Total      interest-bearing liabilities                                                                                                   |                                 |   515,948                                       |                                 |     |   21,994                                                  |    | 6.92% |   |   |  571,880 |   |   | 23,606 |   | 4.13% |   |   |   590,573 |   |   | 19,716 |   | 3.34% |   |   |
|          Non-interest-bearing      demand accounts                                                                   |                                 |     68,277                            |                                 |     |                                                                |    |   |   |   |   68,743 |   |   |   |   |   |   |   |  65,707 |   |   |   |   |   |   |   |
|             Total      deposits and interest-bearing liabilities                                      |                                 |  584,225                                             |                                 |     |                                                                |    |   |   |   |  640,623 |   |   |   |   |   |   |   |  656,280 |   |   |   |   |   |   |   |
| Liabilities      from discontinued operations                                                                                                                     |                                 |       2,584                 |                                 |     |                                                                |    |   |   |   |   6,062 |   |   |   |   |   |   |   |   6,281 |   |   |   |   |   |   |   |
| Other      non-interest-bearing liabilities                                                                                                                       |                                 |       6,089                 |                                 |     |                                                                |    |   |   |   |    5,161 |   |   |   |   |   |   |   |  4,851 |   |   |   |   |   |   |   |
|                   Total      liabilities                                |                                 |   592,898                                       |                                 |     |                                                                |    |   |   |   |   651,846 |   |   |   |   |   |   |   |  667,412 |   |   |   |   |   |   |   |
| Stockholders’      equity                                                                                                                                   |                                 |     58,407                            |                                 |     |                                                                |    |   |   |   |    53,012 |   |   |   |   |   |   |   |  46,470 |   |   |   |   |   |   |   |
|                   Total      liabilities and stockholders’ equity | $                                    |   651,305                                       |                                 |     |                                                                |    |   |   | $ |  704,858 |   |   |   |   |   |   | $ |  713,882 |   |   |   |   |   |   |   |
| Net      interest income                                                                                                                                          |                                 |                                                      |                                 | $        |   22,247                                                  |    |   |   |   |   |   | $ | 18,802 |   |   |   |   |   |   | $ | 17,548 |   |   |   |   |
|                                                                                                                                                              |                                 |                                                      |                                 |     |                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest spread                                                                                                                                          |                                 |                                                      |                                 |     |                                                                |    | 3.32% |   |   |   |   |   |   |   | 2.73% |   |   |   |   |   |   |   | 2.58% |   |   |
| Net      interest margin                                                                                                                                          |                                 |                                                      |                                 |     |                                                                |    | 3.81% |   |   |   |   |   |   |   | 3.04% |   |   |   |   |   |   |   | 2.79% |   |   |
|     Ratio      of average interest-earning assets to average interest-bearing      liabilities                                           |                                 | 113.16%                                                   |                                 |     |                                                                |    |   |   |   | 108.13% |   |   |   |   |   |   |   | 106.64% |   |   |   |   |   |   |   |

----

|                                                                             | For      the Year Ended December 31, |                                                          | For      the Year Ended December 31, |   |
|----------------------------------------------------------------------------------|--------------------------------------|---------------------------------------------------------------|--------------------------------------|--------|
|                                                                             | 2007      Compared to 2006           |                                                          | 2006      Compared to 2005           |   |
|                                                                             | Change      Due to                   |                                                          |                                 |   |   | Change      Due to |   |   |   |   |
|                                                                             | Volume                               |                                                          | Rate                                 |   | Total |   | Volume |   | Rate |   | Total |   |
|                                                                             | (in      thousands)                  | (in      thousands)                                           |                                 |
| Interest      Earned on Interest-Earning Assets                                  |                                 |                                                          |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Federal      funds sold/interest-bearing due from        | $                                    | (1,425)                                                       |                                 | $      |    110 |   | $ | (1,315) |   | $ |   1,647 |   | $ |    118 |   | $ |  1,765 |   |
|     Taxable      investments                                 |                                 | (2,477)                                                       |                                 |   |    434 |   |   | (2,043) |   |   |    (389) |   |   |    484 |   |   |       95 |   |
|     Tax-exempt      investments                              |                                 |    (873)                                       |                                 |   |    155 |   |   |    (718) |   |   |    (329) |   |   |      31 |   |   |   (298) |   |
|     Loans      held for sale                                 |                                 |           - |                                 |   |        - |   |   |          - |   |   |    (359) |   |   | (379) |   |   |    (738) |   |
|     Participating      interests in mortgage loans           |                                 |    (503)                                       |                                 |   |    296 |   |   |    (207) |   |   | (2,329) |   |   |    859 |   |   | (1,470) |   |
|     Loans      held for investment                           |                                 |   5,859                                             |                                 |   |    257 |   |   |   6,116 |   |   |   2,263 |   |   | 3,527 |   |   |   5,790 |   |
|        Total      increase in interest income |                                 |      581                             |                                 |   | 1,252 |   |   |   1,833 |   |   |      504 |   |   | 4,640 |   |   |   5,144 |   |
| Interest      Expense on Interest-Bearing Liabilities                            |                                 |                                                          |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Interest      checking and money market accounts         |                                 |        84                  |                                 |   |    483 |   |   |      567 |   |   |      213 |   |   | 2,190 |   |   |   2,403 |   |
|     Savings                                                  |                                 |           - |                                 |   |        - |   |   |           - |   |   |          4 |   |   |     (1) |   |   |          3 |   |
|     Time      deposits:                                      |                                 |                                                          |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Under      $100,000                    |                                 |      (50)                            |                                 |   |    751 |   |   |      701 |   |   |   1,313 |   |   | 1,580 |   |   |   2,893 |   |
|        $100,000      and over                 |                                 |    (606)                                       |                                 |   |    426 |   |   |    (180) |   |   | (1,339) |   |   |    642 |   |   |    (697) |   |
|     Short-term      borrowings                               |                                 |    (265)                                       |                                 |   |   (22) |   |   |    (287) |   |   |      277 |   |   | (349) |   |   |      (72) |   |
|     FHLB      advances                                       |                                 | (2,339)                                                       |                                 |   |    234 |   |   | (2,105) |   |   | (1,629) |   |   | 1,036 |   |   |    (593) |   |
|     Long-term      borrowings                                |                                 |    (215)                                       |                                 |   |      25 |   |   |    (190) |   |   |    (539) |   |   |    272 |   |   |    (267) |   |
|     Subordinated      debentures                             |                                 |        19                  |                                 |   | (137) |   |   |    (118) |   |   |          9 |   |   |    210 |   |   |      219 |   |
|     Total      increase (decrease) in interest expense       |                                 | (3,372)                                                       |                                 |   | 1,760 |   |   | (1,612) |   |   | (1,691) |   |   | 5,580 |   |   |   3,889 |   |
|     Increase      (decrease) in net interest income          | $                                    |   3,953                                             |                                 | $      | (508) |   | $ |   3,445 |   | $ |   2,195 |   | $ | (940) |   | $ |   1,255 |   |

----

|                                 |                                  |                                                  | Increase      ( Decrease) |
|--------------------------------------|---------------------------------------|-------------------------------------------------------|---------------------------|
|                                 | For      the Years Ended December 31, |                                                  | 2007      – 2006    |
|                                 | 2007                                  |                                                  |                      | 2006 |   | $ |   | % |
|                                 |                                  |                                                  |                      |   |   |   |   |   |
| Bank      charges and service fees   | $                                     |         2,010 |                      | $ |           1,818 |   | $ |       192 |   |     11 | % |   |
| Wealth      management revenues      |                                  |         2,041 |                      |   |           1,091 |   |   |       950 |   |      87 | % | (a) |
| Gain      on sales of loans          |                                  |         1,889 |                      |   |          1,745 |   |   |       144 |   |        8 | % | (b) |
| Net      loss on sales of securities |                                  |        (3,277)     |                      |   | (84) |   |   |  (3,193) |   | (3,801) | % | (c) |
| Other                                |                                  |         1,190 |                      |   |              568 |   |   |       622 |   |    110 | % | (d) |
| Total      non-interest income       |  $                               |         3,853 |                      |  $ |           5,138 |   | $ |  (1,285) |   |   (25) | % |   |

|   | (a) | Wealth      management revenues increased because assets under management      increased.  We also earned higher custodial fees for      accumulating and maintaining documents related to insurance products sold      by others. The volume of transactions for which we performed custodial      services increased significantly in2007. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Gains      on sales of loans primarily relates to sales of commercial real estate      loans. The gains can fluctuate significantly from period to      period. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Gains      and losses on sales of securities vary depending on the nature and volume      of transactions. In 2007, we sold a relatively large volume of securities      at a loss in order to improve net interest income in future      periods. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Other      income in 2007 was much higher than in 2006 primarily due to rent received      for space formerly occupied by BNC Insurance. In the first quarter of      2007, we received a fee of approximately $176,000 when we were taken out      of a loan. This fee was recognized on a cash basis in non-interest income      because we could not reasonably estimate when receipt would      occur. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                        |                                  |                                                            |                   |   |                                                                |   | Increase      (Decrease) |                                                                      |
|---------------------------------------------|---------------------------------------|-----------------------------------------------------------------|------------------------|--------|---------------------------------------------------------------------|--------|--------------------------|---------------------------------------------------------------------------|
|                                        | For      the Years Ended December 31, |                                                            | 2007      – 2006 |   |
|                                        | 2007                                  |                                                            | 2006                   |   | $                                                                   |   | %                        |                                                                      |
|                                        |                                  |                                                            |                   |   |                                                                |   |                     |
| Salaries      and employee benefits         | $                                     |    14,868                                        |                   | $      |   12,677                                                  |   | $                        |      2,191                                       |   |   17 | % | (a) |
| Debt      extinguishment costs              |                                  |      2,724                             |                   |   |            - |   |                     | 2,724                                                                     |   | 100 | % | (b) |
| Occupancy                                   |                                  |        2,146                 |                   |   |      2,349                                 |   |                     |       (203)                                 |   |   (9) | % |   |
| Depreciation      and amortization          |                                  |        1,585                 |                   |   |      1,467                                 |   |                     |         118                       |   |    8 | % |   |
| Professional      services                  |                                  |        1,198                 |                   |   | 1,014                                                               |   |                     | 184                                                                       |   | 18 | % |   |
| Data      processing                        |                                  |        1,141                 |                   |   |     1,242                                       |   |                     | (101)                                                                     |   | (8) | % |   |
| Office      supplies, telephone and postage |                                  |       1,048                       |                   |   |     1,040                                       |   |                     |             8 |   |     1 | % |   |
| Marketing      and promotion                |                                  |           703 |                   |   |         865                 |   |                     |       (162)                                 |   | (19) | % |   |
| Correspondent      charges                  |                                  |           531 |                   |   |         535                 |   |                     |           (4)           |   |   (1) | % |   |
| FDIC      and other assessments             |                                  |           228 |                   |   |         198                 |   |                     |           30            |   |   15 | % |   |
| Amortization      of intangible assets      |                                  |           112 |                   |   |        112                       |   |                     |           -             |   |      - | % |   |
| Other                                       |                                  |        1,863                 |                   |   |      1,576                                 |   |                     |         287                       |   |   18 | % |   |
| Total      non-interest expense             | $                                     |   28,147                                              |                   | $      |    23,075                                            |   | $                        | 5,072                                                                     |   |   22 | % |   |
| Efficiency      ratio                       |                                  | 107.85%                                                         |                   |   | 96.39%                                                              |   |                     | 11.46%                                                                    |   |   |   |   |

|   | (a) | Compensation      expense increased by $1.160 million because one of the founders of BNC      retired in 2007 and he was awarded bonuses. Compensation expense also      increased because management bonuses were $410 thousand in 2007 compared      to $0 in 2006. Employees were also granted merit  increases. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Debt      extinguishment costs were incurred in 2007 when FHLB advances were prepaid      and subordinated debentures were refinanced. These costs were incurred in      order to improve net interest margin in future  periods. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                |                    |                                                                |                   |   |                                |   | Increase      (Decrease) |                                                                   |
|-------------------------------------------------------------------------------------|-------------------------|---------------------------------------------------------------------|------------------------|--------|-------------------------------------|--------|--------------------------|------------------------------------------------------------------------|
|                                                                                | As      of December 31, |                                                                | 2007      – 2006 |   |
|                                                                                | 2007                    |                                                                | 2006                   |   | $                                   |   | %                        |                                                                   |
|                                                                                |                    |                                                                |                   |   |                                |   |                     |                                                                   |   |   |   |   |
| Cash      and Cash Equivalents                                                      | $                       |    14,856                                            |                   | $      |    18,216            |   | $                        |       (3,360)                            |   |    (18) | % |   |
| Federal      Funds Sold                                                             |                    |            - |                   |   |    24,000            |   |                     |     (24,000)                                       |   |    100 | % | (a) |
| Investment      securities available for sale                                       |                    |  122,899                                                       |                   |   |  182,974                       |   |                     |     (60,075)                                       |   |    (33) | % | (b) |
| Federal      Reserve Bank and Federal Home Loan Bank stock                          |                    |      4,918                                 |                   |   |      5,003 |   |                     |            (85) |   |      (2) | % |   |
| Loans      held for sale                                                            |                    |            - |                   |   |      1,669 |   |                     |       (1,669)                            |   |  (100) | % |   |
| Participating      interests in mortgage loans                                      |                    |    24,357                                            |                   |   |    56,125            |   |                     |     (31,768)                                       |   |    (57) | % | (c) |
| Loans      and leases held for investment, net                                      |                    |  490,957                                                       |                   |   |  330,564                       |   |                     |     160,393                                        |   |      49 | % | (d) |
| Premises      and equipment, net                                                    |                    |    19,448                                            |                   |   |    19,916            |   |                     |          (468)            |   |      (2) | % |   |
| Interest      receivable                                                            |                    |      3,290                                 |                   |   |      3,309 |   |                     |            (19) |   |      (1) | % |   |
| Other      assets                                                                   |                    |    14,874                                            |                   |   |    13,643            |   |                     |         1,231                  |   |        9 | % |   |
| Intangible      assets, net                                                         |                    | 409                                                                 |                   |   | 521                                 |   |                     |          (112)            |   |  (21) | % |   |
| Assets      from discontinued operations                                            |                    |           11      |                   |   |    32,680            |   |                     |     (32,669)                                       |   |  (100) | % | (e) |
| Premises      and equipment held for sale, net                                      |                    |      3,572                                 |                   |   |      3,656 |   |                     |            (84) |   |      (2) |   |   |
|            Total      assets | $                       |  699,591                                                       |                   | $      |  692,276                       |   | $                        |         7,315                  |   |        1 | % |   |

|   | (a) | Federal      Funds Sold decreased because yields on short term investments were      relatively attractive at the end of 2006. In 2007, increases in loans and      leases were partially financed by using Federal Funds  Sold. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | The      balance of investments declined in 2007 because approximately $59.5      million of investments were sold to finance the repayment of FHLB      advances. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Participating      interests in mortgage loans are collateralized by loans held for sale by      mortgage banking counterparties. These balances will vary depending on the      volume of loans originated by the counterparties. During 2007, the balance      declined because one of our counterparties ceased    operating. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | In      2007, loans and leases have increased because we purchased loans,      repurchased participations previously sold and funded organic growth. We      have emphasized loan growth to grow net interest  income. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | Assets      from discontinued operations declined due to the sale of substantially all      of the assets of BNC Insurance. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------|

----

|                                                                           | December      31, |
|--------------------------------------------------------------------------------|-------------------|
|                                                                           | 2007              |   | 2006 |   | 2005 |
|                                                                           |              |   |   | Estimated |   |   |   |   | Estimated |   |   |   |   | Estimated |
|                                                                           | Amortized         |   | fair      market |   | Amortized |   | fair      market |   | Amortized |   | fair      market |
|                                                                           | cost              |   | value |   | cost |   | value |   | cost |   | value |
| U.S.      government agency mortgage-backed securities guaranteed by      GNMA | $                 |        1,799 |   | $ |        1,784 |   | $ |       2,165 |   | $ |        2,122 |   | $ |         2,639 |   | $ |          2,602 |
| U.S.      government agency mortgage-backed securities issued byFNMA           |              |        3,329 |   |   |        3,333 |   |   |       8,149 |   |   |        8,139 |   |   |         5,947 |   |   |          5,948 |
| Collateralized      mortgage obligations guaranteed by GNMA                    |              |        2,394 |   |   |        2,413 |   |   |       9,533 |   |   |        9,370 |   |   |         7,592 |   |   |          7,429 |
| Collateralized      mortgage obligations issued by FNMA or FHLMC               |              |      62,384 |   |   |      63,306 |   |   |   148,119 |   |   |    144,477 |   |   |     168,473 |   |   |      164,234 |
| Other      collateralized mortgage obligations                                 |              |      32,830 |   |   |      33,079 |   |   |               - |   |   |                - |   |   |                - |   |   |                  - |
| State      and municipal bonds                                                 |              |      17,885 |   |   |      18,984 |   |   |     17,727 |   |   |      18,866 |   |   |       44,915 |   |   |        46,972 |
| Total      investments                                                         | $                 | 120,621 |   | $ | 122,899 |   | $ | 185,693 |   | $ |  182,974 |   | $ | 229,566 |   | $ | 227,185 |

|                                                                                   |               |                                                    |                |   |                 | 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) |
| U.S.      government agency mortgage-backed securities guaranteed by GNMA (2)      (3) | $                  |         -       |                | 0.00%  |                 | $                |       73                  |             | 5.50%  |   | $              |       384                       |   | 6.54%  |                 | $      |      1,342 |   | 4.92% |   | $ |      1,799 |   | 5.29% |
| U.S.      government agency mortgage-backed securities issued by FNMA (2)      (3)     |               |          - |                | 0.00%  |                 |             |          - |             | 0.00%  |   |           |           - |   | 0.00%  |                 |   |      3,329 |   | 5.91% |   |   |      3,329 |   | 5.91% |
| Collateralized      mortgage obligations guaranteed by GNMA (2) (3)                    |               |          - |                | 0.00%  |                 |             |          - |             | 0.00%  |   |           |           - |   | 0.00%  |                 |   |      2,394 |   | 5.25% |   |   |      2,394 |   | 5.25% |
| Collateralized      mortgage obligations issued by FNMA or FHLMC (2) (3)               |               |          - |                | 0.00%  |                 |             |          - |             | 0.00%  |   |           |  17,310                                                  |   | 4.70%  |                 |   |    45,074            |   | 5.07% |   |   |    62,384 |   | 4.97% |
| Other      collateralized mortgage obligations (2) (3)                                 |               |         -       |                | 0.00%  |                 |             |          - |             | 0.00%  |   |           | -                                                             |   | 0.00%  |                 |   |    32,830            |   | 5.46% |   |   |    32,830 |   | 5.46% |
| State      and municipal bonds (2)                                                     |               |    370                                   |                | 8.11%  |                 |             |  3,806                                             |             | 8.07%  |   |           |    6,150                                       |   | 7.56%  |                 |   |    7,559             |   | 7.23% |   |   |    17,885 |   | 7.54% |
| Total      book value of investment securities                                         | $                  |      370                       |                | 8.11%  |                 | $                |  3,879                                             |             | 8.02%  |   | $              |  23,844                                                  |   | 5.47%  |                 | $      |    92,528            |   | 5.42% |   | $ |  120,621 |   | 5.52% |
| Unrealized      holding gain on securities available for sale                          |               |                                                    |                |   |                 |             |                                                    |             |   |   |           |                                                          |   |   |                 |   |                                |   |   |   |   |      2,278 |   |   |
| Total      investment in securities available for sale                                 |               |                                                    |                |   |                 |             |                                                    |             |   |   |           |                                                          |   |   |                 |   |                                |   |   |   |  $ |  122,899 |   | 5.42% |

| (1) | Yields      include adjustments for tax-exemptincome. |
|-----|-------------------------------------------------------|

| (2) | Based      on amortized cost rather than fairvalue. |
|-----|-----------------------------------------------------|

| (3) | Maturities      of mortgage-backed securities and collateralized obligations are based on      contractual maturities. Actual maturities may vary because      obligors may have the right to call or prepay obligations with or      without call or prepaymentpenalties. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                              | December      31, |
|-------------------------------------------------------------------|-------------------|
|                                                              | 2007              |   | 2006 |   | 2005 |   | 2004 |   | 2003 |
|                                                              | Amount            |   | % |   | Amount |   | % |   | Amount |   | % |   | Amount |   | % |   | Amount |   | % |
| Commercial      and industrial                                    | $                 |  125,555 |   |     24.4 |   | $ |  100,127 |   |    25.9 |   | $ |    88,467 |   |    21.6 |   | $ |   75,460 |   |    23.2 |   | $ |    73,001 |   |    26.2 |
| Real      estate mortgage                                         |              |  181,000 |   |    35.1 |   |   |  124,551 |   |    32.2 |   |   | 122,785 |   |    30.1 |   |   | 129,321 |   |   39.8 |   |   | 129,198 |   |    46.4 |
| Real      estate construction                                     |              |  167,345 |   |     32.5 |   |   |    89,619 |   |    23.2 |   |   |    80,296 |   |    19.7 |   |   |   68,967 |   |    21.2 |   |   |   60,056 |   |    21.5 |
| Agricultural                                                      |              |    17,074 |   |       3.3 |   |   |    14,286 |   |      3.7 |   |   |    12,706 |   |      3.1 |   |   |   13,919 |   |      4.3 |   |   |   12,529 |   |      4.5 |
| Consumer/other                                                    |              |      5,878 |   | 1.1 |   |   |      4,237 |   |      1.1 |   |   |      4,718 |   |      1.2 |   |   | 5,480 |   |      1.7 |   |   |     6,277 |   |      2.3 |
| Participating      interests in mortgage loans                    |              |    24,357 |   |       4.7 |   |   |    56,125 |   |    14.5 |   |   |  101,336 |   |    24.8 |   |   |  34,515 |   |    10.6 |   |   |             - |   |          - |
| Lease      financing                                              |              |      1,815 |   |       0.4 |   |   |      1,800 |   |      0.5 |   |   |      2,131 |   |      0.5 |   |   |     1,540 |   |      0.5 |   |   |     2,757 |   |      1.0 |
| Total      principal amount of loans                              |              |  523,024 |   |   101.5 |   |   |  390,745 |   |  101.1 |   |   |  412,439 |   |  101.0 |   |   | 329,202 |   |  101.3 |   |   |  283,818 |   |  101.9 |
| Unearned      income and net unamortized deferred fees and costs  |              |    (1,111) |   |     (0.2) |   |   |      (686) |   |   (0.2) |   |   |      (735) |   |   (0.2) |   |   |      (873) |   |   (0.3) |   |   |      (508) |   |    (0.2) |
| Loans,      net of unearned income and unamortized fees and costs |              |  521,913 |   |   101.3 |   |   |  390,059 |   |  100.9 |   |   |  411,704 |   |  100.8 |   |   | 328,329 |   |  101.0 |   |   |  283,310 |   |  101.7 |
| Less      allowance for credit  losses                  |              |    (6,599) |   |     (1.3) |   |   |   (3,370) |   |   (0.9) |   |   |   (3,188) |   |   (0.8) |   |   |   (3,335) |   |   (1.0) |   |   |   (4,763) |   |    (1.7) |
| Net      loans                                                    | $                 | 515,314 |   |   100.0 |   | $ |  386,689 |   |  100.0 |   | $ |  408,516 |   |  100.0 |   | $ | 324,994 |   |  100.0 |   | $ | 278,547 |   |  100.0 |

----

|                                                                          |                    |                                                  |                   |   |                                                                    |   | Increase      (Decrease) |                                                                                         |
|-------------------------------------------------------------------------------|-------------------------|-------------------------------------------------------|------------------------|--------|-------------------------------------------------------------------------|--------|--------------------------|----------------------------------------------------------------------------------------------|
|                                                                          | As      of December 31, |                                                  | 2007      – 2006 |   |
|                                                                          | 2007                    |                                                  | 2006                   |   | $                                                                       |   | %                        |                                                                                         |
|                                                                          |                    |                                                  |                   |   |                                                                    |   |                     |                                                                                         |   |   |   |   |
| Commercial      and industrial                                                | $                       | 125,555                                               |                   | $      |        100,127                       |   | $                        |         25,428                                       |   |    25 | % | (a) |
| Real      estate mortgage                                                     |                    |     181,000                       |                   |   |        124,551                       |   |                     |         56,449                                       |   |    45 | % | (b) |
| Real      estate construction                                                 |                    |     167,345                       |                   |   |          89,619            |   |                     |         77,726                                       |   |    87 | % | (b) |
| Agricultural                                                                  |                    |       17,074            |                   |   |          14,286            |   |                     |           2,788                            |   |    20 | % |   |
| Consumer/other                                                                |                    |         5,878 |                   |   |            4,237 |   |                     |           1,641                            |   |    39 | % |   |
| Participating      interests in mortgage loans                                |                    |       24,357            |                   |   |          56,125            |   |                     |       (31,768)                                                 |   |  (57) | % | (c) |
| Lease      financing                                                          |                    |         1,815 |                   |   |            1,800 |   |                     |                15 |   |      1 | % |   |
| Total      principal amount of loans                                          |                    |     523,024                       |                   |   |        390,745                       |   |                     |       132,279                                                  |   |    34 | % |   |
| Unearned      income and net unamortized deferred fees and costs              |                    |      (1,111)                 |                   |   |            (686) |   |                     |            (425)                      |   |    62 | % |   |
| Loans,      net of unearned income and unamortized deferred fees and    costs |                    |     521,913                       |                   |   |        390,059                       |   |                     |       131,854                                                  |   |    34 | % |   |
| Less      allowance for credit  losses                              |                    |      (6,599)                 |                   |   |          (3,370)           |   |                     |         (3,229)                                      |   |    96 | % |   |
| Net      loans                                                                | $                       |     515,314                       |                   | $      |        386,689                       |   | $                        |       128,625                                                  |   |    33 | % |   |

|   | (a) | The      increase in commercial and industrial loans is organic and is occurring in      all markets (Arizona, Minnesota, NorthDakota). |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Real      estate loans have increased because our lending limit increased      significantly after the sale of BNC Insurance. As a result we were able to      purchase loans, repurchase participations previously sold and increase      investment in loans originated. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Participating      interests in mortgage loans are collateralized mortgage loans held for      sale by mortgage banking counterparties. These loans will vary      significantly depending on the volume of originations by the      counterparties. During 2007, the balance declined because one of our      counterparties ceased operating. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   |  Loan Participations Sold      (1) |   |
|--------|-----------------------------------------|--------|
|   |  December      31,            |   |
|   |  (in      thousands)               |   |

|                                       2007 | $      |        201,776 |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|
|                                            2006 |   |        188,994 |
|                                           2005       |   |        183,795 |
|                                           2004       |   |        131,317 |
|                                           2003       |   |        146,988 |

| Maturities of      Loans(1) |
|-----------------------------|

|                                           |                 |                                                                                        |   | Over      1 year |                                                                                        |   |   |                                                                            |     |   |
|------------------------------------------------|----------------------|---------------------------------------------------------------------------------------------|--------|------------------|---------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------|----------|--------|
|                                           | through      5 years | Over      5 years                                                                           |   |
|                                           | One      year        |                                                                                        | Fixed  |             | Floating                                                                                    |   | Fixed  |                                                                            | Floating |   |   |   |
| or      less                                   | rate                 | rate                                                                                        | rate   | rate             | Total                                                                                       |
|                                           |                 |
| Commercial      and industrial                 | $                    |       76,916                                                  |   | $                | 16,629                                                                                      |   | $      |     11,423                                                  |     | $      |  14,303 |   | $ |    6,284 |   | $ |  125,555 |
| Real      estate mortgage                      |                 |       26,203                                                  |   |             |      34,015                                                        |   |   |     66,697                                                  |     |   |  27,602 |   |   |  26,483 |   |   |  181,000 |
| Real      estate construction                  |                 |       83,499                                                  |   |             |       1,519                                                   |   |   |     73,446                                                  |     |   |       197 |   |   |     8,684 |   |   |  167,345 |
| Agricultural                                   |                 |         8,340                                       |   |             |       4,537                                                   |   |   |          233                       |     |   |    2,653 |   |   |     1,311 |   |   |    17,074 |
| Consumer/other                                 |                 |         2,671                                       |   |             |       2,315                                                   |   |   |          506                       |     |   |       136 |   |   |       250 |   |   |      5,878 |
| Participating      interests in mortgage loans |                 |       24,357                                                  |   |             |        1,815                                             |   |   |              - |     |   |            - |   |   |             - |   |   |    26,172 |
| Lease      financing                           |                 |                - |   |             |                - |   |   |              - |     |   |            - |   |   |             - |   |   |             - |
| Total      principal amount of loans           | $                    |     221,986                                                             |   | $                |      60,830                                                        |   | $      |   152,305                                                             |     | $      |  44,891 |   | $ |   43,012 |   | $ |  523,024 |

| (1) | Maturities      are based on contractual maturities. Floating rate loans include loans      that would reprice prior to maturity if base rates  change. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| (dollars      are in thousands)                                                                            | For      the Years ended December 31, |
|------------------------------------------------------------------------------------------------------------|---------------------------------------|
|                                                                                                       | 2007                                  |   | 2006 |   | 2005 |   | 2004 |   | 2003 |
| Balance      of allowance for credit losses, beginning of period                                           | $                                     |      3,370 |   | $ |      3,188 |   | $ |      3,335 |   | $ |       4,763 |   | $ |         5,006 |
| Charge-offs:                                                                                               |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Commercial      and industrial                             |                                  |      1,504 |   |   |           19 |   |   |         534 |   |   |       1,578 |   |   |       1,508 |
|         Real      estate mortgage                                  |                                  |         500 |   |   |             - |   |   |           24 |   |   |              - |   |   |          189 |
|         Real      estate construction                              |                                  |              - |   |   |             - |   |   |             - |   |   |              - |   |   |              - |
|         Agricultural                                               |                                  |              - |   |   |             - |   |   |             - |   |   |            97 |   |   |            10 |
|         Consumer/other                                             |                                  |         123 |   |   |           32 |   |   |           31 |   |   |          208 |   |   |            23 |
|         Lease      financing                                       |                                  |              - |   |   |             - |   |   |             - |   |   |  -- |   |   |            90 |
|               Total      charge-offs |                                  |      2,127 |   |   |           51 |   |   |         589 |   |   |       1,883 |   |   |       1,820 |
| Recoveries:                                                                                                |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Commercial      and industrial                             |                                  |      1,500 |   |   |             3 |   |   |           95 |   |   |          141 |   |   |           73 |
|         Real      estate mortgage                                  |                                  |              - |   |   |             - |   |   |           10 |   |   |            33 |   |   |              7 |
|         Real      estate construction                              |                                  |              - |   |   |             - |   |   |           16 |   |   |              - |   |   |              - |
|         Agricultural                                               |                                  |              - |   |   |             - |   |   |             - |   |   |              - |   |   |              - |
|         Consumer/other                                             |                                  |         106 |   |   |           20 |   |   |           69 |   |   |            97 |   |   |            11 |
|         Lease      financing                                       |                                  |              - |   |   |             - |   |   |             2 |   |   |              9 |   |   |            11 |
|               Total      recoveries  |                                  |      1,606 |   |   |           23 |   |   |         192 |   |   |          280 |   |   |         102 |
| Net      charge-offs                                                                                       |                                  |       (521) |   |   |         (28) |   |   |       (397) |   |   |    (1,603) |   |   |    (1,718) |
| Provision      for credit losses charged to operations                                                     |                                  |      3,750 |   |   |         210 |   |   |         250 |   |   |          175 |   |   |      1,475 |
| Balance      of allowance for credit losses, end of period                                                 | $                                     |      6,599 |   | $ |      3,370 |   | $ |      3,188 |   | $ |       3,335 |   | $ |      4,763 |
| Ratio      of net charge-offs to average total loans                                                       |                                  | (0.121)% |   |   | (0.008)% |   |   | (0.102)% |   |   | (0.548)% |   |   | (0.558)% |
| Ratio      of net charge-offs to average loans and leases held for      investment                         |                                  | (0.129)% |   |   | (0.008)% |   |   | (0.130)% |   |   | (0.579)% |   |   | (0.560)% |
| Average      gross loans and leases held for investment                                                    | $                                     |  402,615 |   | $ |  334,058 |   | $ |  305,073 |   | $ | 276,652 |   | $ |   306,949 |
| Ratio      of allowance for credit losses to loans and leases held for      investment                     |                                  | 1.33% |   |   | 1.01% |   |   | 1.03% |   |   | 1.14% |   |   | 1.68% |
| Ratio      of allowance for credit losses to total nonperformingloans                                      |                                  | 122% |   |   | 3,304% |   |   | 2,229% |   |   | 607% |   |   | 60% |

----

|                                           | December      31, |
|------------------------------------------------|-------------------|
|                                           | 2007              |   | 2006 |   | 2005 |   | 2004 |   | 2003 |
|                                           |              |   |   | Loans      in |   |   |   |   | Loans      in |   |   |   |   | Loans      in |   |   |   |   | Loans      in |   |   |   |   | Loans      in |
|                                           |              |   |   | category      as a |   |   |   |   | category      as a |   |   |   |   | category      as a |   |   |   |   | category      as a |   |   |   |   | category      as a |
|                                           | Amount            |   | percentage |   | Amount |   | percentage |   | Amount |   | percentage |   | Amount |   | percentage |   | Amount |   | percentage |
|                                           | of                |   | of      total |   | of |   | of      total |   | of |   | of      total |   | of |   | of      total |   | of |   | of      total |
|                                           | allowance         |   | gross      loans |   | allowance |   | gross      loans |   | allowance |   | gross      loans |   | allowance |   | gross      loans |   | allowance |   | gross      loans |
|                                           |              |   |
| Commercial      and industrial                 | $                 |    1,410 |   | 24% |   | $ |     1,602 |   | 26% |   | $ |     1,632 |   | 21% |   | $ |     1,583 |   | 23% |   | $ |     2,093 |   | 26% |
| Real      estate mortgage (a)                  |              |    1,956 |   | 35% |   |   |        838 |   | 32% |   |   |        846 |   | 30% |   |   |     1,116 |   | 39% |   |   |     1,976 |   | 46% |
| Real      estate construction (a)              |              |    2,740 |   | 32% |   |   |        534 |   | 23% |   |   |        467 |   | 19% |   |   |        379 |   | 21% |   |   |        395 |   | 21% |
| Agricultural                                   |              |       276 |   | 3% |   |   |        171 |   | 4% |   |   |        158 |   | 3% |   |   |        186 |   | 4% |   |   |        211 |   | 4% |
| Consumer/other                                 |              |       112 |   | 1% |   |   |          70 |   | 1% |   |   |          73 |   | 1% |   |   |          62 |   | 2% |   |   |          68 |   | 2% |
| Participating      interests in mortgage loans |              |         85 |   | 5% |   |   |        140 |   | 14% |   |   |            - |   | 25% |   |   |             - |   | 11% |   |   |             - |   | 0% |
| Lease      financing                           |              |         20 |   | - |   |   |          15 |   | - |   |   |          12 |   | 1% |   |   |            9 |   | 0% |   |   |          20 |   | 1% |
| Total                                          |  $           |    6,599 |   | 100% |   |  $ |     3,370 |   | 100% |   | $ |     3,188 |   | 100% |   | $ |     3,335 |   | 100% |   | $ |     4,763 |   | 100% |

----

|                                                                                                                            | December      31, |
|---------------------------------------------------------------------------------------------------------------------------------|-------------------|
|                                                                                                                            | 2007              |   | 2006 |   | 2005 |   | 2004 |   | 2003 |
| Nonperforming      loans:                                                                                                       |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Loans      90 days or more delinquent and still accruinginterest                 | $                 |          - |   | $ |          2 |   | $ |            - |   | $ |      25 |   | $ |        38 |
|        Non-accrual      loans                                                                |              |  5,399 |   |   |      100 |   |   |       143 |   |   |     524 |   |   |   7,913 |
|                 Total      nonperforming loans  | $                 |  5,399 |   | $ |      102 |   | $ |       143 |   | $ |     549 |   | $ |   7,951 |
|                 Total      nonperforming assets | $                 |  5,399 |   | $ |      102 |   | $ |      143 |   | $ |     549 |   | $ |   7,951 |
| Allowance      for credit losses                                                                                                | $                 |  6,599 |   | $ |   3,370 |   | $ |   3,188 |   | $ | 3,335 |   | $ |   4,763 |
| Ratio      of total nonperforming loans to total loans                                                                          |              | 1.03% |   |   | 0.03% |   |   | 0.03% |   |   | 0.16% |   |   | 2.80% |
| Ratio      of total nonperforming loans to loans and leases held for      investment                                            |              | 1.09% |   |   | 0.03% |   |   | 0.05% |   |   | 0.19% |   |   | 2.81% |
| Ratio      of total nonperforming assets to total assets                                                                        |              | 0.77% |   |   | 0.02% |   |   | 0.02% |   |   | 0.09% |   |   | 1.34% |
| Ratio      of allowance for credit losses to nonperforming loans                                                                |              | 122% |   |   | 3,304% |   |   | 2,229% |   |   | 607% |   |   | 60% |

|                 2007 | $      |      2,585                            |
|------------------------------------------------------------------------|--------|----------------------------------------------------------------|
|                 2006 |   |           54 |
|                 2005 |   |           91 |
|                 2004 |   |           -  |
|                 2003 |   |           -  |

|                                               | 2007   |
|----------------------------------------------------|--------|
| Interest      income that would have been recorded | $      | 262 |
| Interest      income recorded                      |   | 146 |
| Effect      on interest income                     | $      | 116 |

----

----

|                                                                                           |                    |                                                                |                   |   |                                |   | Increase      (Decrease) |                                                |
|------------------------------------------------------------------------------------------------|-------------------------|---------------------------------------------------------------------|------------------------|--------|-------------------------------------|--------|--------------------------|-----------------------------------------------------|
|                                                                                           | As      of December 31, |                                                                | 2007      – 2006 |   |
|                                                                                           | 2007                    |                                                                | 2006                   |   | $                                   |   | %                        |                                                |
| Deposits:                                                                                      |                    |                                                                |                   |   |                                |   |                     |                                                |   |   |   |   |
| Non-interest-bearing                                                                           | $                       |    72,234                                            |                   | $      |    84,184            |   | $                        |  (11,950)                                      |   |  (14) | % | (a) |
| Interest-bearing-                                                                              |                    |                                                                |                   |   |                                |   |                     |                                                |   |   |   |   |
|     Savings,      interest checking and money market                       |                    |  245,722                                                       |                   |   |  253,408                       |   |                     |    (7,686)                           |   |    (3) | % |   |
|     Time      deposits $100,000 and over                                   |                    |    44,038                                            |                   |   |    44,955            |   |                     |       (917)           |   |    (2) | % |   |
|     Other      time deposits                                               |                    |  179,880                                                       |                   |   |  146,705                       |   |                     |    33,175                            |   |    23 | % | (b) |
| Short-term      borrowings                                                                     |                    |      5,365                                 |                   |   |      9,709 |   |                     |    (4,344)                           |   |  (45) | % | (c) |
| FHLB      advances                                                                             |                    |    61,400                                            |                   |   |    62,200            |   |                     |       (800)           |   |    (1) | % | (d) |
| Long-term      borrowings                                                                      |                    |            - |                   |   |      1,167 |   |                     |    (1,167)                           |   | (100) | % | (e) |
| Guaranteed      preferred beneficial interests in Company's subordinated      debentures       |                    |    23,075                                            |                   |   |    22,711            |   |                     |         364 |   |      2 | % | (f) |
| Accrued      expenses                                                                          |                    |      3,387                                 |                   |   |      1,640 |   |                     |      1,747                 |   |  107 | % |   |
| Other      liabilities                                                                         |                    |      4,172                                 |                   |   |      3,319 |   |                     |         853 |   |    26 | % |   |
| Liabilities      from discontinued operations                                                  |                    |         588                 |                   |   |      6,676 |   |                     |    (6,088)                           |   |  (91) | % | (g) |
|             Total      liabilities |                    |  639,861                                                       |                   |   |  636,674                       |   |                     |      3,187                 |   |      1 | % |   |
| Stockholders'      equity                                                                      |                    |    59,730                                            |                   |   |    55,602            |   |                     |      4,128                 |   |      7 | % | (h) |
|             Total                  | $                       |  699,591                                                       |                   | $      |  692,276                       |   | $                        |      7,315                 |   |      1 | % |   |

| (a)   | These      accounts fluctuate daily due to the cash management activities of our      customers. |
|-----------------|--------------------------------------------------------------------------------------------------|

| (b)   | The      increase is due to deposits we have purchased in the CDARs      Network. |
|-----------------|-----------------------------------------------------------------------------------|

| (c)   | Short-term      borrowings can fluctuate significantly depending on our need to finance      assets and opportunities to borrow from  customers. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| (d)   | During      2007, we prepaid all of the advances outstanding at the end of 2006. At      the end of 2007, we have elected to finance growth in loans and leases      held for investment with short term advances in order to manage our      interest rate risk profile. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e)   | Long-term      liabilities were repaid in 2007 because the rates on these borrowing were      high compared to alternativeborrowings. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------|

| (f)   | During      2007, we refinanced $15 million of subordinated debentures in order to      lower the rate paid on thedebentures. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------|

| (g)   | Liabilities      of discontinued operations decreased in 2007 because we sold substantially      all of BNC Insurance. |
|-----------------|------------------------------------------------------------------------------------------------------------------------|

| (h)   | Stockholders’      equity has increased due to earnings and the increase of unrealized gains      in the investment portfolio. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------|

----

|                                      |    | For      the Years Ended December 31, |
|-------------------------------------------|---------|---------------------------------------|
|                                      | 2007    |                                  | 2006 |   | 2005 |
|                                      |    |                                  |   | Percent |   | Wgtd. |   |   |   |   | Percent |   | Wgtd. |   |   |   |   | Percent |   | Wgtd. |
|                                      | Average |                                  | of |   | avg. |   | Average |   | of |   | avg. |   | Average |   | of |   | avg. |
|                                      | balance |                                  | deposits |   | rate |   | balance |   | deposits |   | rate |   | balance |   | deposits |   | rate |
| Interest      checking and MMDAs          | $       | 249,246                               |   | 47.95% |   | 3.21% |   | $ | 246,476 |   | 46.68% |   | 3.02% |   | $ | 236,832 |   | 46.93% |   | 2.13% |
| Savings      deposits                     |    |     8,399         |   | 1.62% |   | 0.79% |   |   |     8,398 |   | 1.59% |   | 0.79% |   |   |     7,935 |   | 1.57% |   | 0.79% |
| Time      deposits (CDs):                 |    |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CDs      under $100,000                   |    | 149,010                               |   | 28.67% |   | 4.79% |   |   | 150,194 |   | 28.45% |   | 4.29% |   |   | 114,157 |   | 22.62% |   | 3.11% |
| CDs      $100,000 and over                |    |   44,824                    |   | 8.62% |   | 5.17% |   |   |   54,155 |   | 10.26% |   | 4.61% |   |   |   79,977 |   | 15.85% |   | 4.00% |
| Total      time deposits                  |    | 193,834                               |   | 37.29% |   | 4.88% |   |   | 204,349 |   | 38.70% |   | 4.37% |   |   | 194,134 |   | 38.47% |   | 3.47% |
| Total      interest-bearing deposits      |    | 451,479                               |   | 86.86% |   | 3.88% |   |   | 459,223 |   | 86.98% |   | 3.58% |   |   | 438,901 |   | 86.98% |   | 2.70% |
| Non-interest-bearing      demand deposits |    |     68,277        |   | 13.14% |   |            - |   |   |     68,743 |   | 13.02% |   |          - |   |   |    65,707 |   | 13.02% |   |         - |
| Total      deposits                       | $       | 519,756                               |   | 100.00% |   | 3.37% |   | $ | 527,966 |   | 100.00% |   | 3.11% |   | $ | 504,608 |   | 100.00% |   | 2.35% |

| Maturing      in:                    |   |                    |
|--------------------------------------|--------|-------------------------|
| 3      months or less                | $      |    8,115 |
| Over      3 months through 6 months  |   |    9,160 |
| Over      6 months through 12 months |   | 25,131                  |
| Over      12 months                  |   | 1,632                   |
| Total                                | $      | 44,038                  |

|                                                 | 2007   |              | 2006   |   | 2005        |
|------------------------------------------------------|--------|-------------------|--------|--------|-------------|
| Short-term      borrowings outstanding at period end | $      |   5,365 |   | $      |  9,709 |   | $ | 21,416 |
| Weighted      average interest rate at period end    |   | 3.59%             |   |   | 4.81%       |   |   | 3.98% |
| Maximum      month-end balance during the period     | $      | 15,518            |   | $      | 21,059      |   | $ | 48,516 |
| Average      borrowings outstanding for the period   | $      |   8,706 |   | $      | 14,480      |   | $ | 24,001 |
| Weighted      average interest rate for the period   |   | 4.57%             |   |   | 4.73%       |   |   | 3.15% |

----

|                         | Tier      1 Risk- |             | Total      Risk- |   | Tier      1 Leverage |
|------------------------------|-------------------|------------------|------------------|--------|----------------------|
|                         | Based      Ratio  | Based      Ratio | Ratio            |
| As      of December 31, 2007 |              |             |             |   |                 |
| BNCCORP,      consolidated   | 12.58%            |             | 14.26%           |   | 12.01%               |
| BNC      National Bank       | 13.18%            |             | 14.26%           |   | 12.57%               |
|                         |              |             |             |   |                 |
| As      of December 31, 2006 |              |             |             |   |                 |
| BNCCORP,      consolidated   | 9.49%             |             | 10.89%           |   | 7.12%                |
| BNC      National Bank       | 10.26%            |             | 10.94%           |   | 7.70%                |

----

|                                                                 | Payments      due by period |
|----------------------------------------------------------------------|-----------------------------|
|                                                                 | Less      than 1            |   |   |   |   |   |   |   |   |   |   |   |   |
| Contractual      Obligations:                                        | year                        | 1      to 3 years | 3      to 5 years | After      5 years | Total |
|                                                                 |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      borrowings                                                |  $                     |  66,765 |   |  $ | - |   |  $ | - |   |  $ |       23,075 |   |  $ |       89,840 |
| Annual      rental commitments under non-cancelable operating leases |                        |       577 |   |   |         1,336 |   |   |            905 |   |   |         1,680 |   |   |         4,498 |
| Total                                                                |  $                     |  67,342 |   |  $ |         1,336 |   |  $ |         905 |   |  $ |       24,755 |   |  $ |       94,338 |

|                                          | Amount      of Commitment - Expiration by Period |
|-----------------------------------------------|--------------------------------------------------|
|                                          | Less      than 1                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      Commitments:                       | year                                             | 1      to 3 years | 3      to 5 years | After      5 years | Total |
|                                          |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commitments      to lend                      |  $                                          | 146,768 |   |  $ |       50,350 |   |  $ |         3,448 |   |  $ |         2,584 |   |  $ |     203,150 |
| Standby      and commercial letters of credit |                                             |     8,181 |   |   |            911 |   |   |              40 |   |   |                 - |   |   |         9,132 |
| Total                                         |  $                                          | 154,949 |   |  $ |       51,261 |   |  $ |         3,488 |   |  $ |         2,584 |   |  $ |     212,282 |

----

|                                                                  | For      the Years Ended December 31, |
|-----------------------------------------------------------------------|---------------------------------------|
|                                                                  | 2007                                  |   | 2006 |
| Proceeds      of Federal Home Loan Bank advances                      | $                                     |    319,400 |   | $ |              - |
| Repayments      of Federal Home Loan Bank advances                    |                                  | (320,200) |   |   |    (20,000) |
| Originations      paid of loans to be participated                    |                                  | (205,929) |   |   | (141,603) |
| Proceeds      received from participations of loans                   |                                  |    205,929 |   |   |    141,603 |
| Net      increase in loans held for investment                        |                                  | (163,622) |   |   |   (23,566) |
| Net      decrease in participating interests in mortgage loans        |                                  |      31,768 |   |   |      45,211 |
| Net      increase (decrease) in deposits                              |                                  |      12,622 |   |   |    (19,538) |
| Change      in Federal Funds sold, net                                |                                  |      24,000 |   |   |    (24,000) |
| Proceeds      from sales of investment securities                     |                                  |    106,450 |   |   |      43,691 |
| Purchases      of investment securities                               |                                  |   (71,196) |   |   |    (26,053) |
| Proceeds      from maturities of investment securities                |                                  |      26,379 |   |   |      25,053 |
| Proceeds      from sale of loans held for sale                        |                                  |      13,033 |   |   |      24,250 |
| Funding      of originations of loans held for sale                   |                                  |   (11,364) |   |   |    (25,923) |
| Proceeds      from sale of insurance operations, net                  |                                  |      35,204 |   |   |               - |
| Proceeds      from long-term borrowings and subordinated debentures   |                                  |      15,000 |   |   |               - |
| Repayments      from long-term borrowings and subordinated debentures |                                  |   (16,167) |   |   |      (2,682) |

----

----

| Movement      in interest rates                |    | -300bp                                    |   |   | -200bp                                    |   |    | -100bp                                        |   |    | Unchanged                                                                                                     |   |    | +100bp                              |   |    | +200bp                                          |   |   | +300bp                                                     |
|------------------------------------------------|---------|-------------------------------------------|--------|--------|-------------------------------------------|--------|---------|-----------------------------------------------|--------|---------|---------------------------------------------------------------------------------------------------------------|--------|---------|-------------------------------------|--------|---------|-------------------------------------------------|--------|--------|------------------------------------------------------------|
| Projected      12-month net interest income    |  $ |     27,716            |   | $      |     27,599            |   |  $ |   27,001                            |   |  $ |         26,154                                                        |   | $       |  26,042                        |   |  $ |     26,044                  |   | $      |     26,059                             |
| Dollar      change from unchanged scenario     |  $ |       1,562 |   | $      |       1,445 |   |  $ |        847 |   |    |                   - |   |  $ |      (112) |   |  $ |        (110) |   | $      |          (95) |
| Percentage      change from unchanged scenario |    | 5.97%                                     |   |   | 5.52%                                     |   |    | 3.24%                                         |   |    |                   - |   |    | (0.43)                              |   |    | (0.42)                                          |   |   | (0.36)                                                     |
| Policy      guidelines (decline limited to)    |    | (15.00)%                                  |   |   | (10.00)%                                  |   |    | (5.00)%                                       |   |    |                   - |   |    | (5.00)%                             |   |    | (10.00)%                                        |   |   | (15.00)%                                                   |

----

|                                                                                                                  | Estimated      maturity or repricing at December 31, 2007 |
|-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------|
|                                                                                                                  | 0–3                                                 |   | 4–12 |   | 1–5 |   | Over |   |   |   |
| months                                                                                                                | months                                                    | years | 5      years | Total |
|                                                                                                                  |                                                      | (dollars      are in thousands) |
| Interest-earning      assets:                                                                                         |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Interest-bearing      deposits with banks                                   | $                                                         |                  - |   | $ |                   - |   | $ |                  - |   | $ |                  - |   | $ |                - |
|        Investment      securities                                                  |                                                      |          8,220 |   |   |         20,222 |   |   |        60,897 |   |   |        33,560 |   |   |     122,899 |
|        FRB      and FHLB stock                                                     |                                                      |          4,918 |   |   | - |   |   | - |   |   | - |   |   |         4,918 |
|        Fed      Funds Sold                                                         |                                                      |                  - |   |   | - |   |   | - |   |   | - |   |   |               - |
|        Loans      held for sale, fixed rate                                        |                                                      |                  - |   |   |                   - |   |   | - |   |   | - |   |   |                - |
|        Loans      held for sale, floating rate                                     |                                                      |                  - |   |   |         24,357 |   |   | - |   |   | - |   |   |       24,357 |
|        Loans      held for investment, fixed rate                                  |                                                      |        12,675 |   |   |         48,673 |   |   |        62,953 |   |   |        21,454 |   |   |     145,755 |
|        Loans      held for investment, floating rate                               |                                                      |      326,098 |   |   |           3,367 |   |   |        20,675 |   |   |          1,661 |   |   |     351,801 |
|              Total      interest-earning assets      | $                                                         |      351,911 |   | $ |         96,619 |   | $ |      144,525 |   | $ |        56,675 |   | $ |     649,730 |
|                                                                                                                  |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                                                                                    |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Interest      checking and money market accounts                            | $                                                         |      237,334 |   | $ |                   - |   | $ |                  - |   | $ |                  - |   | $ |     237,334 |
|        Savings                                                                     |                                                      |          8,388 |   |   |                   - |   |   |                  - |   |   |                  - |   |   |         8,388 |
|        Time      deposits under $100,000                                           |                                                      |          8,115 |   |   |         34,291 |   |   |          1,632 |   |   |                  - |   |   |       44,038 |
|        Time      deposits $100,000 and over                                        |                                                      |        80,936 |   |   |         92,159 |   |   |          6,311 |   |   |             474 |   |   |     179,880 |
|        Short-term      borrowings                                                  |                                                      |          5,365 |   |   |                   - |   |   |                  - |   |   |                  - |   |   |         5,365 |
|        FHLB      advances                                                          |                                                      |        61,400 |   |   |                   - |   |   |                  - |   |   |                  - |   |   |       61,400 |
|        Long-term      borrowings                                                   |                                                      |                  - |   |   |                   - |   |   |                  - |   |   |                  - |   |   |                - |
|        Subordinated      debentures                                                |                                                      |                  - |   |   |                   - |   |   |                  - |   |   |        23,075 |   |   |       23,075 |
|              Total      interest-bearing liabilities | $                                                         |      401,538 |   | $ |       126,450 |   | $ |          7,943 |   | $ |        23,549 |   | $ |     559,480 |
| Interest      rate gap                                                                                                | $                                                         |      (49,627) |   | $ |       (29,831) |   |   |      136,582 |   | $ |        33,126 |   | $ |       90,250 |
| Cumulative      interest rate gap at December 31, 2007                                                                | $                                                         |      (49,627) |   | $ |       (79,458) |   | $ |      57,124 |   |   | 90,250 |   |   |   |
| Cumulative      interest rate gap to total assets                                                                     |                                                      | (7.09)% |   |   | (11.36)% |   |   | 8.17% |   |   | 12.90% |   |   |   |

----

| INDEX      TO CONSOLIDATED FINANCIAL STATEMENTS                                                                   |   |
|-------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                              |   |
| Consolidated      Financial Statements:                                                                           | Page   |
|                                                                                                              |   |
| Report      of Independent Registered Public Accounting Firm                                                      | 41     |
|                                                                                                              |   |
| Consolidated      Balance Sheets as of December 31, 2007 and 2006                                                 | 42     |
|                                                                                                              |   |
| Consolidated      Statements of Income for the years ended December 31, 2007 and      2006                        | 43     |
|                                                                                                              |   |
| Consolidated      Statements of Comprehensive Income for the years ended December 31,      2007and      2006 | 45     |
|                                                                                                              |   |
| Consolidated      Statements of Cash Flows for the years ended December 31, 2007 and      2006               | 46     |
|                                                                                                              |   |
| Consolidated      Statements of Stockholders' Equity for the years ended December 31, 2007      and 2006          | 47     |
|                                                                                                              |   |
| Notes      to Consolidated Financial Statements                                                                   | 48     |

----

----

|                                                                                                                                                                            |    |                                                                                                                                              |   |    |                                                                                                                                   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------|
| ASSETS                                                                                                                                                                          | 2007    |                                                                                                                                              | 2006   |
|                                                                                                                                                                            |    |                                                                                                                                              |   |    |                                                                                                                                   |
| CASH      AND CASH EQUIVALENTS                                                                                                                                                  | $       |   14,856                                                                                                                                |   | $       |             18,216                                                         |
| FEDERAL      FUNDS SOLD                                                                                                                                                         |    |                        -       |   |    |               24,000                                             |
| INVESTMENT      SECURITIES AVAILABLE FOR SALE                                                                                                                                   |    |             122,899                                                                   |   |    |             182,974                                                        |
| FEDERAL      RESERVE BANK AND FEDERAL HOME LOAN BANK STOCK                                                                                                                      |    |                  4,918                                       |   |    |                  5,003                            |
| LOANS      HELD FOR SALE                                                                                                                                                        |    |                         - |   |    |                  1,669                            |
| PARTICIPATING      INTERESTS IN MORTGAGE LOANS                                                                                                                                  |    |                24,357                                                  |   |    |                56,125                                       |
| LOANS      AND LEASES HELD FOR INVESTMENT                                                                                                                                       |    |              497,556                                                             |   |    |              333,934                                                  |
| ALLOWANCE      FOR CREDIT LOSSES                                                                                                                                                |    |                (6,599)                                                 |   |    |                (3,370)                                      |
|       Net      loans and leases                                                                                                                   |    |              515,314                                                             |   |    |              386,689                                                  |
| PREMISES      AND EQUIPMENT, net                                                                                                                                                |    |                19,448                                                  |   |    |                19,916                                       |
| INTEREST      RECEIVABLE                                                                                                                                                        |    |                  3,290                                       |   |    |                  3,309                            |
| OTHER      ASSETS                                                                                                                                                               |    |                14,874                                                  |   |    |                13,643                                       |
| INTANGIBLE      ASSETS, net                                                                                                                                                     |    | 409                                                                                                                                               |   |    | 521                                                                                                                                    |
| ASSETS      FROM DISCONTINUED OPERATIONS                                                                                                                                        |    |                       11            |   |    |                32,680                                       |
| PREMISES      AND EQUIPMENT HELD FOR SALE, net                                                                                                                                  |    |                  3,572                                       |   |    |                  3,656                            |
|                                                                                                                                                                            |  $ |              699,591                                                             |   |  $ |              692,276                                                  |
|                                                                                                                                                                            |    |                                                                                                                                              |   |    |                                                                                                                                   |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                                                                                                 |    |                                                                                                                                              |   |    |                                                                                                                                   |
| DEPOSITS:                                                                                                                                                                       |    |                                                                                                                                              |   |    |                                                                                                                                   |
|       Non-interest-bearing                                                                                                                        | $       |                72,234                                                  |   | $       |                84,184                                       |
|       Interest-bearing      –                                                                                                               |    |                                                                                                                                              |   |    |                                                                                                                                   |
|              Savings,      interest checking and money market                                                  |    |              245,722                                                             |   |    |              253,408                                                  |
|              Time      deposits $100,000 and over                                                              |    |                44,038                                                  |   |    |                44,955                                       |
|              Other      time deposits                                                                          |    |              179,880                                                             |   |    |              146,705                                                  |
|       Total      deposits                                                                                                                         |    |              541,874                                                             |   |    |              529,252                                                  |
| SHORT-TERM      BORROWINGS                                                                                                                                                      |    |                  5,365                                       |   |    |                  9,709                            |
| FEDERAL      HOME LOAN BANK ADVANCES                                                                                                                                            |    |                61,400                                                  |   |    |                62,200                                       |
| LONG-TERM      BORROWINGS                                                                                                                                                       |    | -                                                                                                                                                 |   |    |                  1,167                            |
| GUARANTEED      PREFERRED BENEFICIAL INTERESTS IN COMPANY’S SUBORDINATED      DEBENTURES                                                                                  |    |                23,075                                                  |   |    |                22,711                                       |
| ACCRUED      EXPENSES                                                                                                                                                           |    |                  3,387                                       |   |    |                 1,640                                  |
| OTHER      LIABILITIES                                                                                                                                                          |    |                  4,172                                       |   |    |                  3,319                            |
| LIABILITIES      FROM DISCONTINUED OPERATIONS                                                                                                                                   |    |                     588                       |   |    |                 6,676                                  |
|                        Total      Liabilities                |    |              639,861                                                             |   |    |              636,674                                                  |
| STOCKHOLDERS’      EQUITY:                                                                                                                                                |    |                                                                                                                                              |   |    |                                                                                                                                   |
| Common      stock, $.01 par value – 10,000,000 shares authorized; 3,491,337 and      3,600,467 shares issued and outstanding                                              |    |                       35            |   |    |                       36 |
|       Capital      surplus – common stock                                                                                                   |    |                26,355                                                  |   |    |                25,950                                       |
|       Retained      earnings                                                                                                                      |    |                34,105                                                  |   |    |               32,125                                             |
|       Treasury      stock (150,116 and 49,186 shares)                                                                                             |    |                (2,424)                                                 |   |    |                   (598)                      |
|       Accumulated      other comprehensive income (loss), net                                                                                     |    |                  1,659                                       |   |    |                (1,911)                                      |
|                        Total      stockholders’ equity |    |                59,730                                                  |   |    |                55,602                                       |
|                                                                                                                                                                            |  $ |              699,591                                                             |   |  $ |              692,276                                                  |

----

|                                                                                                                            | 2007    |                                                     | 2006   |
|---------------------------------------------------------------------------------------------------------------------------------|---------|----------------------------------------------------------|--------|
| INTEREST      INCOME:                                                                                                           |    |                                                     |   |   |   |
|     Interest      and fees on loans                                                                         | $       |    36,560                                 |   | $ |    30,651 |
|     Interest      and dividends on investments -                                                            |    |                                                     |   |   |   |
|         Taxable                                                                         |    |      6,541                      |   |   |      9,869 |
|         Tax-exempt                                                                      |    |        926            |   |   |      1,644 |
|         Dividends                                                                       |    |        214            |   |   |        244 |
|                 Total      interest income      |    |    44,241                                 |   |   |    42,408 |
| INTEREST      EXPENSE:                                                                                                          |    |                                                     |   |   |   |
|     Deposits                                                                                                |    |    17,533                                 |   |   |    16,445 |
|     Short-term      borrowings                                                                              |    |        398            |   |   |        685 |
|     Federal      Home Loan Bank advances                                                                    |    |      1,915                      |   |   |      4,020 |
|     Long-term      borrowings                                                                               |    |          11 |   |   |        201 |
|     Subordinated      debentures                                                                            |    |      2,137                      |   |   |      2,255 |
|                 Total      interest expense     |    |    21,994                                 |   |   |    23,606 |
|                 Net      interest income        |    |    22,247                                 |   |   |    18,802 |
| PROVISION      FOR CREDIT LOSSES                                                                                                |    |      3,750                      |   |   |        210 |
| NET      INTEREST INCOME AFTER PROVISION FOR   CREDIT      LOSSES                                                |    |    18,497                                 |   |   |    18,592 |
| NON-INTEREST      INCOME:                                                                                                       |    |                                                     |   |   |   |
|     Bank      charges and service fees                                                                      |    |      2,010                      |   |   |      1,818 |
|     Wealth      management revenues                                                                         |    |      2,041                      |   |   |      1,091 |
|     Gains      on sales of loans                                                                            |    |      1,889                      |   |   |      1,745 |
|     Net      losses on sales of securities                                                                  |    |    (3,277)                                |   |   |        (84) |
|     Other                                                                                                   |    |      1,190                      |   |   |        568 |
|                 Total      non-interest income  |    |      3,853                      |   |   |      5,138 |
| NON-INTEREST      EXPENSE:                                                                                                      |    |                                                     |   |   |   |
|     Salaries      and employee benefits                                                                     |    |    14,868                                 |   |   |    12,677 |
|     Debt      extinguishment costs                                                                          |    |      2,724                      |   |   |            - |
|     Occupancy                                                                                               |    |      2,146                      |   |   |      2,349 |
|     Depreciation      and amortization                                                                      |    |      1,585                      |   |   |      1,467 |
|     Professional      services                                                                              |    |      1,198                      |   |   |      1,014 |
|     Data      processing                                                                                    |    |      1,141                      |   |   |      1,242 |
|     Office      supplies, telephone and postage                                                             |    |      1,048                      |   |   |      1,040 |
|     Marketing      and promotion                                                                            |    |        703            |   |   |        865 |
|     Correspondent      charges                                                                              |    |        531            |   |   |        535 |
|     FDIC      and other assessments                                                                         |    |        228            |   |   |        198 |
|     Amortization      of intangible assets                                                                  |    |        112            |   |   |        112 |
|     Other                                                                                                   |    |      1,863                      |   |   |      1,576 |
|                 Total      non-interest expense |    |    28,147                                 |   |   |    23,075 |
| Income      (loss) from continuing operations before income taxes                                                               |    |    (5,797)                                |   |   |        655 |
| Income      tax benefit                                                                                                         |    |    (2,728)                                |   |   |       (363) |
| Income      (loss) from continuing operations                                                                                   |  $ |    (3,069)                                |   | $ |      1,018 |

----

|                                                                                                                              | 2007   |                                            | 2006   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|
| Discontinued      Operations:                                                                                                     |   |                                            |   |   |   |
| Income  from      discontinued insurance segment, (including a gain on sale of $6,083 in      2007) before income taxes | $      |        8,116 |   | $ |        4,133 |
| Income      tax provision                                                                                                         |   |        3,067 |   |   |        1,530 |
| Income      from discontinued operations                                                                                          |   |       5,049       |   |   |         2,603 |
| NET      INCOME                                                                                                                   | $      |        1,980 |   | $ |        3,621 |
|                                                                                                                              |   |                                            |   |   |   |
| BASIC      EARNINGS PER COMMON SHARE:                                                                                             |   |                                            |   |   |   |
| Income      (loss) from continuing operations                                                                                     | $      | (0.89)                                          |   | $ | 0.29 |
| Income      from discontinued insurance segment, net of income taxes                                                              |   | 1.46                                            |   |   | 0.75 |
| Basic      earnings per common share                                                                                              | $      | 0.57                                            |   | $ | 1.04 |
|                                                                                                                              |   |                                            |   |   |   |
| DILUTED      EARNINGS PER COMMON SHARE                                                                                            |   |                                            |   |   |   |
| Income      (loss) from continuing operations                                                                                     | $      | (0.89)                                          |   | $ | 0.29 |
| Income      from discontinued insurance segment, net of income taxes                                                              |   | 1.46                                            |   |   | 0.74 |
| Diluted      earnings per common share                                                                                            | $      | 0.57                                            |   | $ | 1.03 |

----

|                                                                                                     | 2007   |                              | 2006   |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
| NET      INCOME                                                                                          |   |                              |   | $ | 1,980 |   |   |   |   | $ |   3,621 |
|    Unrealized      gain (loss) on cash flow hedge, net                                    | $      |      690 |   |   |   |   | $ |   (363) |   |   |   |
|    Unrealized      gain (loss) on securities available for sale                           |   |   1,720                 |   |   |   |   |   |   (422) |   |   |   |
|    Reclassification      adjustment for losses included in net income                     |   |  3,277                       |   |   |   |   |   |         84 |   |   |   |
|          Other      comprehensive income (loss), before tax |   | 5,687                             |   |   |   |   |   | (701) |   |   |   |
| Income      tax (expense) benefit related to items of other comprehensive      income                    |   | (2,117)                           |   |   |   |   |   | 266 |   |   |   |
| Other      comprehensive income (loss)                                                                   |   | 3,570                             |   |   | 3,570 |   |   | (435) |   |   | (435) |
| TOTAL      COMPREHENSIVE INCOME                                                                          |   |                              |   | $ | 5,550 |   |   |   |   | $ | 3,186 |

----

|                                                                                                      | 2007   |                                                                                        | 2006   |
|-----------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|
| OPERATING      ACTIVITIES:                                                                                |   |                                                                                        |   |   |   |
| Net      income                                                                                           | $      |         1,980                                       |   | $ |         3,621 |
| Adjustments      to reconcile net income to net cash provided by operating activities      -              |   |                                                                                        |   |   |   |
| Provision      for credit losses                                                                          |   |         3,750                                       |   |   |            210 |
| Depreciation      and amortization                                                                        |   |         1,752                                       |   |   | 1,640 |
| Net      amortization of premiums and discounts on investment securities and      subordinated debentures |   |            452                       |   |   |         1,098 |
| Share-based      compensation                                                                             |   | 298                                                                                         |   |   | 321 |
| Charge-off      of loans net of recoveries                                                                |   | (521)                                                                                       |   |   |          (28) |
| Change      in interest receivable and other assets, net                                                  |   |         (419)                                       |   |   |      (2,337) |
| Losses      on disposals of premises and equipment, net                                                   |   |              11            |   |   |              32 |
| Net      realized losses on sales of investment securities                                                |   |         3,277                                       |   |   |              84 |
| Provision      for deferred income taxes                                                                  |   |      (1,325)                                                       |   |   |         (152) |
| Change      in dividend distribution payable                                                              |   |                - |   |   |              30 |
| Change      in other liabilities, net                                                                     |   |         1,733                                       |   |   |         1,539 |
| Originations      of loans to be participated                                                             |   |  (205,929)                                                                             |   |   |  (141,603) |
| Proceeds      from participations of loans                                                                |   |     205,929                                                             |   |   |     141,603 |
| Funding      of originations of loans held for sale                                                       |   |    (11,364)                                                                  |   |   |    (25,923) |
| Proceeds      from sale of loans held for sale                                                            |   |       13,033                                                  |   |   |       24,520 |
| Change      in operating accounts of discontinued operations                                              |   |     (2,540)                                                             |   |   |         (399) |
| Gain      on sale of discontinued operations                                                              |   |      (6,083)                                                       |   |   | - |
| Net      cash provided by operating activities                                                            |   |         4,034                                       |   |   |        4,256 |
| INVESTING      ACTIVITIES:                                                                                |   |                                                                                        |   |   |   |
| Changes      in  Federal Funds sold, net                                                        |   |       24,000                                                  |   |   |    (24,000) |
| Purchases      of investment securities                                                                   |   |    (71,196)                                                                  |   |   |    (26,053) |
| Proceeds      from sales of investment securities                                                         |   |     106,450                                                             |   |   |       43,691 |
| Proceeds      from maturities of investment securities                                                    |   |       26,379                                                  |   |   |       25,053 |
| Purchases      of Federal Reserve and Federal Home Loan Bank Stock                                        |   |      (2,817)                                                       |   |   |         (102) |
| Redemptions      of Federal Reserve and Federal Home Loan Bank Stock                                      |   |        2,902                                             |   |   |            890 |
| Net      decrease in participating interests in mortgage loans                                            |   |      31,768                                                        |   |   |       45,211 |
| Net      increase in loans held for investment                                                            |   |  (163,622)                                                                             |   |   |    (23,566) |
| Additions      to premises and equipment, net                                                             |   |      (1,889)                                                       |   |   |      (2,604) |
| Sales      of premises and equipment, net                                                                 |   |            836                       |   |   |              60 |
| Investing      activities of discontinued operations                                                      |   | -                                                                                           |   |   |            483 |
| Proceeds      from sale of insurance operations, net                                                      |   |       35,204                                                  |   |   |               - |
| Net      cash (used) provided by investing activities                                                     |   |    (11,985)                                                                  |   |   |       39,063 |
| FINANCING      ACTIVITIES:                                                                                |   |                                                                                        |   |   |   |
| Net      increase (decrease) in deposits                                                                  |   |       12,622                                                  |   |   |    (19,538) |
| Net      decrease in short-term borrowings                                                                |   |      (4,344)                                                       |   |   |    (11,707) |
| Repayments      of Federal Home Loan Bank advances                                                        |   |  (320,200)                                                                             |   |   |    (20,000) |
| Proceeds      from Federal Home Loan Bank advances                                                        |   |     319,400                                                             |   |   |                - |
| Repayments      of long-term borrowings and subordinated debentures                                       |   |    (16,167)                                                                  |   |   |      (2,682) |
| Proceeds      from long-term borrowings and subordinated debentures                                       |   |      15,000                                                        |   |   |               - |
| Purchase      of treasury stock                                                                           |   |      (1,720)                                                       |   |   | - |
| Net      cash provided (used) by financing activities                                                     |   |         4,591                                       |   |   |    (53,927) |
| NET      DECREASE IN CASH AND CASH EQUIVALENTS                                                            |   |      (3,360)                                                       |   |   |    (10,608) |
| CASH      AND CASH EQUIVALENTS, beginning of period                                                       |   |      18,216                                                        |   |   |      28,824 |
| CASH      AND CASH EQUIVALENTS, end of period                                                             | $      |      14,856                                                        |   | $ |      18,216 |
| SUPPLEMENTAL      CASH FLOW INFORMATION:                                                                  |   |                                                                                        |   |   |   |
| Interest      paid                                                                                        | $      |      21,981                                                        |   | $ |       23,050 |
| Income      taxes paid                                                                                    | $      |         3,367                                       |   | $ |            762 |

----

|   | Common      Stock                       |                                                                      | Capital      Surplus Common Stock |   |                                                                                        | Retained      Earnings |   |                                                                            | Treasury      Stock |    | Accumulated      Other Comprehensive Income                               |   | Total  |
|--------|-----------------------------------------|---------------------------------------------------------------------------|-----------------------------------|--------|---------------------------------------------------------------------------------------------|------------------------|--------|---------------------------------------------------------------------------------|---------------------|---------|---------------------------------------------------------------------------|--------|--------|
| Shares |                                    |                                                                      | Amount                            |
|   | BALANCE,      December 31, 2005         | 3,497,445                                                                 |                              | $      |           35                              |                   | $      |   25,108                                                              |                |  $ |    28,504                                                  |   | $      |       (559) |   |  $ |         (1,476) |   |  $ |     51,612 |
|   | Net      income                         |           -             |                              |   |              -             |                   |   |             -       |                |    |      3,621                                       |   |   |               - |   |   |                   - |   |   |       3,621 |
|   | Other      comprehensive loss           |  -                                                                   |                              |   |                - |                   |   |              - |                |    |             - |   |   |               - |   |   |            (435) |   |   |       (435) |
|   | Impact      of share-based compensation |    64,537                                                  |                              |   |               1       |                   |   |         359                             |                |    |             - |   |   |           (39) |   |   |                   - |   |   |          321 |
|   | Issuance      of common shares          |    38,485                                                  |                              |   |                - |                   |   |         483                             |                |    |             - |   |   |               - |   |   |                   - |   |   |          483 |
|   | BALANCE,      December 31, 2006         | 3,600,467                                                                 |                              | $      |             36                  |                   | $      |    25,950                                                        |                |  $ |    32,125                                                  |   | $      |         (598) |   |  $ |         (1,911) |   |  $ |     55,602 |
|   | Net      income                         |             - |                              |   |                - |                   |   |              - |                |    |      1,980                                       |   |   |               - |   |   |                   - |   |   |       1,980 |
|   | Other      comprehensive income         |  -                                                                   |                              |   |                - |                   |   |              - |                |    |             - |   |   |               - |   |   |           3,570 |   |   |       3,570 |
|   | Impact      of share-based compensation | (14,348)                                                                  |                              |   |                - |                   |   |         405                             |                |    |             - |   |   |         (107) |   |   |                   - |   |   |          298 |
|   | Purchase      of treasury shares        | (94,782)                                                                  |                              |   |             (1)                 |                   |   |              - |                |    |             - |   |   |      (1,719) |   |   |                   - |   |   |     (1,720) |
|   | BALANCE,      December 31, 2007         | 3,491,337                                                                 |                              | $      |             35                  |                   | $      |    26,355                                                        |                |  $ |    34,105                                                  |   | $      |      (2,424) |   |  $ |           1,659 |   |  $ |     59,730 |

----

----

----

----

----

----

----

----

----

| ·   | Monetizes      the value of a segment the Company hadnurtured; |
|--------------------|----------------------------------------------------------------|

| ·   | Strengthens      the regulatory capital of Company; |
|--------------------|-----------------------------------------------------|

| ·   | Decreases      the risk of impaired revenue due to a decline in contingency      income; |
|--------------------|------------------------------------------------------------------------------------------|

| ·   | Decreases      exposure to the cyclicality of the insurance business;  and |
|--------------------|----------------------------------------------------------------------------|

| ·   | Permits      replacement of a significant portion of the income generated by the      agency. |
|--------------------|-----------------------------------------------------------------------------------------------|

----

|                                                                           |      |                                                                                        |       | Gross  |                                                                                        | Gross  |   | Estimated                                                                                   |
|--------------------------------------------------------------------------------|-----------|---------------------------------------------------------------------------------------------|------------|--------|---------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------|
|                                                                           | Amortized |                                                                                        | Unrealized |   | Unrealized                                                                                  |   | Fair   |
| 2007                                                                           | Cost      |                                                                                        | Gains      |   | Losses                                                                                      |   | Value  |
| U.S.      government agency mortgage-backed securities guaranteed by      GNMA | $         |       1,799                                                   |       | $      |                1 |   | $      |           (16)                            |   | $ |     1,784 |
| U.S.      government agency mortgage-backed securities issued byFNMA           |      |        3,329                                             |       |   |              33            |   |   |           (29)                            |   |   |     3,333 |
| Collateralized      mortgage obligations guaranteed by GNMA                    |      |        2,394                                             |       |   |              19            |   |   |                - |   |   |     2,413 |
| Collateralized      mortgage obligations issued by FNMA or FHLMC               |      |      62,384                                                        |       |   |           933                             |   |   |           (11)                            |   |   |   63,306 |
| Other      collateralized mortgage obligations                                 |      |      32,830                                                        |       |   |            312                       |   |   |           (63)                            |   |   |   33,079 |
| State      and municipal bonds                                                 |      |     17,885                                                              |       |   |        1,099                                             |   |   |                - |   |   |   18,984 |
|                                                                           | $         |    120,621                                                                   |       | $      |         2,397                                       |   | $      |         (119)                                       |   | $ | 122,899 |
|                                                                           |      |                                                                                        |       |   |                                                                                        |   |   |                                                                                        |   |   |   |
|                                                                           |      |                                                                                        |       | Gross  |                                                                                        | Gross  |   | Estimated                                                                                   |
|                                                                           | Amortized |                                                                                        | Unrealized |   | Unrealized                                                                                  |   | Fair   |
| 2006                                                                           | Cost      |                                                                                        | Gains      |   | Losses                                                                                      |   | Value  |
| U.S.      government agency mortgage-backed securities guaranteed by      GNMA | $         |        2,165                                             |       | $      |               -       |   | $      |          (43)                                  |   | $ |     2,122 |
| U.S.      government agency mortgage-backed securities issued byFNMA           |      |        8,149                                             |       |   |             56                  |   |   |          (66)                                  |   |   |     8,139 |
| Collateralized      mortgage obligations guaranteed by GNMA                    |      |       9,533                                                   |       |   |               -       |   |   |        (163)                                             |   |   |     9,370 |
| Collateralized      mortgage obligations issued by FNMA or FHLMC               |      |    148,119                                                                   |       |   |             16                  |   |   |     (3,658)                                                             |   |   | 144,477 |
| Other      collateralized mortgage obligations                                 |      |                - |       |   |               -       |   |   |               -       |   |   |            - |
| State      and municipal bonds                                                 |      |      17,727                                                        |       |   |        1,139                                             |   |   |               -       |   |   |   18,866 |
|                                                                           | $         |    185,693                                                                   |       | $      |        1,211                                             |   | $      |    (3,930)                                                                   |   | $ | 182,974 |

|                                        | Amortized |                                                                                                            | Estimated       |
|---------------------------------------------|-----------|-----------------------------------------------------------------------------------------------------------------|-----------------|
|                                        | Cost      |                                                                                                            | Fair      Value |
| Due      in one year or less                | $         |                   370 |            | $ |                  375 |
| Due      after one year through five years  |      |                3,880                 |            |   |               4,025 |
| Due      after five years through ten years |      |             23,843                                  |            |   |             24,357 |
| Due      after ten years                    |      |              92,528                            |            |   |             94,142 |
|       Total   | $         |           120,621                                             |            | $ |          122,899 |

----

|                       | 2007   |                                                                                        | 2006   |
|----------------------------|--------|---------------------------------------------------------------------------------------------|--------|
| Sales      proceeds        | $      |    106,450                                                                   |   | $ |      43,691 |
| Gross      realized gains  |   |                - |   |   |           644 |
| Gross      realized losses |   |      (3,277)                                                       |   |   |         (728) |

| As      of December 31, 2007                                                   | Less      than 12 months |   | 12      months or more                                              |   | Total                                                               |
|--------------------------------------------------------------------------------|--------------------------|--------|---------------------------------------------------------------------|--------|---------------------------------------------------------------------|
| Description      of                                                            |                     | Fair   | Unrealized                                                          |   |                                                                | Fair | Unrealized |   |   | Fair | Unrealized |
| Securities                                                                     | #                        | Value  | Loss                                                                |   | #                                                                   | Value | Loss |   | # | Value | Loss |
| U.S.      government agency mortgage-backed securities guaranteed by      GNMA |   -            | $      |            - | $      |            - |   | 3 | $ |   1,399 | $ |      (16) |   |    3 | $ |      1,399 | $ |      (16) |
| U.S.      government agency mortgage-backed securities issued byFNMA           |   -            |   |            - |   |            - |   |   5 |   |   2,194 |   |      (29) |   |    5 |   |      2,194 |   |     (29) |
| Collateralized      mortgage obligations guaranteed by GNMA                    |   -            |   |            - |   |            - |   |     - |   |           - |   |           - |   |    - |   |             - |   |           - |
| Collateralized      mortgage obligations issued by FNMA or FHLMC               |  2                  |   |       514                             |   |         (2)                 |   |    2 |   |   2,499 |   |        (9) |   |    4 |   |      3,013 |   |      (11) |
| Other      collateralized mortgage obligations                                 |  3                  |   |  11,704                                                        |   |       (63)                            |   |     - |   |           - |   |           - |   |    3 |   |    11,704 |   |      (63) |
| Total      temporarily impaired securities                                     |  5                  | $      |  12,218                                                        | $      |      (65)                                  |   | 10 | $ |   6,092 | $ |      (54) |   |  15 | $ | 18,310 | $ |  (119) |

| As      of December 31, 2006                                                   | Less      than 12 months  |   | 12      months or more                                              |   | Total                                                               |
|--------------------------------------------------------------------------------|---------------------------|--------|---------------------------------------------------------------------|--------|---------------------------------------------------------------------|
| Description      of                                                            |                      | Fair   | Unrealized                                                          |   |                                                                | Fair | Unrealized |   |   | Fair | Unrealized |
| Securities                                                                     | #                         | Value  | Loss                                                                |   | #                                                                   | Value | Loss |   | # | Value | Loss |
| U.S.      government agency mortgage-backed securities guaranteed by      GNMA |     - | $      |            - | $      |            - |   | 4 | $ |      1,779 | $ |      (43) |   |    4 | $ |     1,779 | $ |       (43) |
| U.S.      government agency mortgage-backed securities issued byFNMA           |     3 |   |       489                             |   |       (12)                            |   |    1 |   |      2,044 |   |      (54) |   |    4 |   |    2,533 |   |       (66) |
| Collateralized      mortgage obligations guaranteed by GNMA                    |     1 |   |    3,273                                             |   |       (28)                            |   |    1 |   |      6,097 |   |    (135) |   |    2 |   |     9,370 |   |     (163) |
| Collateralized      mortgage obligations issued by FNMA or FHLMC               |    8       |   |  20,250                                                        |   |     (120)                                       |   |  22 |   |  123,348 |   | (3,538) |   |   30 |   | 143,598 |   |  (3,658) |
| Other      collateralized mortgage obligations                                 |    -       |   |  -                                                             |   |          -             |   |     - |   |             - |   |           - |   |    - |   |    - |   | - |
| Total      temporarily impaired securities                                     | 12                        | $      |  24,012                                                        | $      |     (160)                                       |   | 28 | $ |  133,268 | $ | (3,770) |   | 40 | $ | 157,280 | $ |  (3,930) |

----

|                                       | 2007   |                                                        | 2006   |
|--------------------------------------------|--------|-------------------------------------------------------------|--------|
| Federal      Reserve Bank Stock, at cost   | $      |          1,297 |   | $ |          1,297 |
| Federal      Home Loan Bank Stock, at cost |   |          3,621 |   |   |          3,706 |
|   Total                          | $      |          4,918 |   | $ |          5,003 |

|                                                                                                          | 2007   |                                                                  | 2006   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|
| Commercial      and industrial                                                                                | $      |     125,555                                       |   |  $ |     100,127 |
| Real      estate:                                                                                             |   |                                                                  |   |   |   |
|    Mortgage                                                                                    |   |     181,000                                       |   |   |     124,551 |
|    Construction                                                                                |   |     167,345                                       |   |   |       89,619 |
| Agricultural                                                                                                  |   |       17,074                            |   |   |       14,286 |
| Consumer                                                                                                      |   |         5,445                 |   |   |         3,939 |
| Lease      financing                                                                                          |   |         1,815                 |   |   |         1,800 |
| Other                                                                                                         |   |            433 |   |   |            298 |
|    Subtotal                                                                                    |   |     498,667                                       |   |   |     334,620 |
| Participating      interests in mortgage loans                                                                |   |       24,357                            |   |   |       56,125 |
|          Total      gross loans held for investment              |   |     523,024                                       |   |   |     390,745 |
|       Unearned      income and net unamortized deferred fees and costs          |   | (1,111)                                                               |   |   | (686) |
|        Loans,      net of unearned income and unamortized fees and costs   |   | 521,913                                                               |   |   | 390,059 |
|        Allowance      for credit losses                                    |   | (6,599)                                                               |   |   | (3,370) |
|               Net      loans and leases | $      | 515,314                                                               |   | $ | 386,689 |

----

|                                                                     | 2007   |                     | 2006   |
|--------------------------------------------------------------------------|--------|--------------------------|--------|
| Minnesota                                                                | $      |  193,149            |   |    37 | % |   | $ |  110,685 |   |    28 | % |
| North      Dakota                                                        |   |  154,972            |   |    30 |   |   |   |  126,425 |   |    32 |   |
| Arizona                                                                  |   |  136,371            |   |    26 |   |   |   |  123,845 |   |    32 |   |
| Other                                                                    |   |    38,532 |   |      7 |   |   |   |    29,790 |   |      8 |   |
|            Totals | $      |  523,024            |   |  100 | % |   | $ |  390,745 |   |  100 | % |

|                                                                     | 2007   |                                | 2006   |
|--------------------------------------------------------------------------|--------|-------------------------------------|--------|
| North      Dakota                                                        | $      |  160,506                       |   |    31 | % |   | $ |    127,472 |   |   33 | % |
| Minnesota                                                                |   |  130,085                       |   |    25 |   |   |   |      93,969 |   |   24 |   |
| Arizona                                                                  |   |  120,931                       |   |    23 |   |   |   |    111,379 |   |   29 |   |
| Texas                                                                    |   |    26,966            |   |      5 |   |   |   |        3,026 |   |     1 |   |
| California                                                               |   |    20,715            |   |      4 |   |   |   |        6,331 |   |     2 |   |
| Kentucky                                                                 |   |      9,916 |   |      2 |   |   |   |              3 |   |      - |   |
| Georgia                                                                  |   |      6,566 |   |      1 |   |   |   |        3,466 |   |   1 |   |
| Idaho                                                                    |   |      5,621 |   |      1 |   |   |   |        2,177 |   |    1 |   |
| Wisconsin                                                                |   |      5,573 |   |      1 |   |   |   |        4,909 |   |    1 |   |
| Arkansas                                                                 |   |      5,171 |   |      1 |   |   |   |        1,000 |   |    1 |   |
| Other                                                                    |   |    30,974            |   |      6 |   |   |   |      37,013 |   |    7 |   |
|            Totals | $      |  523,024                       |   |  100 | % |   | $ |    390,745 |   | 100 | % |

|                                                                     | 2007   |         | 2006   |
|--------------------------------------------------------------------------|--------|--------------|--------|
| Land      and land development loans                                     | $      |  78,992 |   | 15 | % |   | $ |    56,131 |   | 14 | % |
| Construction      loans                                                  |   |  68,849 |   | 13 |   |   |   |    41,517 |   | 11 |   |
|            Totals | $      | 147,841      |   | 28 | % |   | $ |    97,648 |   | 25 | % |

----

|                                                                      | 2007                     |                                                                                  | 2006                     |
|---------------------------------------------------------------------------|--------------------------|---------------------------------------------------------------------------------------|--------------------------|
|                                                                      | Recorded      Investment |                                                                                  | Valuation      Allowance |   | Recorded      Investment |   | Valuation      Allowance |
| Impaired      loans -                                                     |                     |                                                                                  |                     |   |   |   |   |   |   |   |   |
|     Valuation      allowance required                 | $                        |      16,397                                                  |                     |  $ |     1,572 |   | $ |      1,259 |   |  $ |       274 |
|     No      valuation allowance required              |                     |               - |                     |   |           - |   |   |              - |   |   |           - |
|         Total      impaired loans | $                        |      16,397                                                  |                     |  $ |     1,572 |   | $ |       1,259 |   |  $ |       274 |

|                                                                                           | 2007   |   | 2006   |
|------------------------------------------------------------------------------------------------|--------|--------|--------|
| Average      recorded investment in impaired loans                                             | $      | 16,228 |   | $ |                       1,357 |
| Average      recorded investment in impaired loans as a percentage of average total      loans |   | 3.26%  |   |   | 0.41% |

|                                                                               | Twelve      Months Ended |   | Twelve      Months Ended |
|------------------------------------------------------------------------------------|--------------------------|--------|--------------------------|
|                                                                               | December      31, 2007   |   | December      31, 2006   |
| Interest      income recognized on impaired loans                                  | $                        | 159    |                     | $ | 90 |
| Interest      income recognized on a cash basis during the time of      impairment | $                        | 18     |                     | $ | - |

----

| 2008                                     | $       |         580                       |
|------------------------------------------|---------|---------------------------------------------------------------------------|
| 2009                                     |    |         503                       |
| 2010                                     |    |         258                       |
| 2011                                     |    |         225                       |
| 2012                                     |    |           24            |
| Thereafter                               |    |             - |
| Total      future minimum lease payments |    |      1,590                                       |
| Unguaranteed      residual values        |    |         430                       |
| Total      all payments                  |    |      2,020                                       |
| Unearned      income                     |    |       (205)                                 |
| Net      outstanding principal amount    |  $ |      1,815                                       |

|                                                                 | 2007    |                                                  | 2006   |
|----------------------------------------------------------------------|---------|-------------------------------------------------------|--------|
| Balance,      beginning of year                                      |  $ |         3,370 |   |  $ |         3,188 |
|       Provision      for credit losses |    |         3,750 |   |   |            210 |
|       Loans      charged off           |    |       (2,127)           |   |   |             (51) |
|       Loans      recovered             |    |         1,606 |   |   |              23 |
| Balance,      end of year                                            |  $ |         6,599 |   |  $ |         3,370 |

|                                                                 | 2007   |                                                                    | 2006   |
|----------------------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|
| Land      and improvements                                           | $      |            6,692 |   | $ |            6,717 |
| Buildings      and improvements                                      |   |          11,108            |   |   |          10,933 |
| Leasehold      improvements                                          |   |            1,686 |   |   |            1,730 |
| Furniture,      fixtures and equipment                               |   |            8,085 |   |   |            9,796 |
|       Total      cost                  |   |          27,571            |   |   |          29,176 |
| Less      accumulated depreciation and amortization                  |   |          (8,123)           |   |   |          (9,260) |
|       Premises      and equipment, net | $      |          19,448            |   | $ |          19,916 |

----

|                         | Balance           |                                                                        |       |   |                                                                                              |   |              |                                                                                                          | Balance |
|------------------------------|-------------------|-----------------------------------------------------------------------------|------------|--------|---------------------------------------------------------------------------------------------------|--------|-------------------|---------------------------------------------------------------------------------------------------------------|---------|
|                         | December      31, |                                                                        | Impairment |   | Accumulated                                                                                       |   | December      31, |
| (in      thousands)          | 2006              |                                                                        | Amount     |   | Amortization                                                                                      |   | 2007              |
|                         |              |                                                                        |       |   |                                                                                              |   |              |                                                                                                          |    |   |   |
| Goodwill                     | $                 |             409 |       | $      |                 - |   | $                 |                   - |    | $ |             409 |
| Other      Intangible Assets |              |             112 |       |   |                 - |   |              |               112                       |    |   |                 - |
|    Total      | $                 |             521 |       | $      |                 - |   | $                 |               112                       |    | $ |             409 |

| 2008       | $      |           215,501                                       |
|------------|--------|-----------------------------------------------------------------------------------------------------------|
| 2009       |   |               5,811                 |
| 2010       |   |               1,224                 |
| 2011       |   |                  507 |
| 2012       |   |                  401 |
| Thereafter |   |                  474 |
|       | $      |           223,918                                       |

|                                                                                                                                                                                                                                       | 2007   |                                | 2006   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
| Federal      funds purchased and U. S. Treasury tax and loan retainer                                                                                                                                                                      | $      |      1,876 |   | $ |      2,269 |
| Repurchase      agreements with customers, renewable daily, interest payable monthly,      rates ranging from 3.15% to 4.00%, and 2.45% to 5.00%, respectively,      secured by government agency collateralized mortgage      obligations |   |     3,489       |   |   |      7,440 |
|                                                                                                                                                                                                                                       | $      |      5,365 |   | $ |      9,709 |

----

|                  | 2007   |                                                                      | 2006   |
|-----------------------|--------|---------------------------------------------------------------------------|--------|
|                  |   |                                                                      |   | Weighted |   |   |   |   | Weighted |
|                  |   |                                                                      |   | Average |   |   |   |   | Average |
| Year      of Maturity |   | Amount                                                                    |   | Rate |   |   | Amount |   | Rate |
| 2008                  | $      |     61,400                                            |   |             4.26 | % |   | $ |             - |   |                  - | % |
| 2009                  |   |             - |   |                  - |   |   |   |    10,000 |   |             5.64 |   |
| 2010                  |   |             - |   |                  - |   |   |   |    52,200 |   |             6.09 |   |
|                  | $      |     61,400                                            |   | 4.26 | % |   | $ |     62,200 |   | 6.02 | % |

|                                                                                                                                                                                                                                                  | 2007 |                                                                            | 2006   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|---------------------------------------------------------------------------------|--------|
| Note      payable to the Bank of North Dakota, principal and interest due each March      31, beginning on March 31, 2005 and ending March 31, 2019, interest      payable at 30-day LIBOR plus 2.45%, secured by the stock of BNC National      Bank | $    |              - |   | $ |      1,167 |

----

----

----

|                                              | 2007       |                                | 2007   |
|---------------------------------------------------|------------|-------------------------------------|--------|
|                                              |       |                                |   | Wealth |   | Bank |   |   |   |   | Intersegment |   | Consolidated |
|                                              | Banking    |                                | Mgmt   |   | Holding      Co. |   | Totals |   | Elimination |   | Total |
| Net      interest income (loss)                   | $          |    24,189            |   | $ |        164 |   | $ |         (2,172) |   | $ |    22,181 |   | $ | 66 |   | $ |            22,247 |
| Other      revenue-external customers             |       |      1,834 |   |   |     2,248 |   |   |                 66 |   |   |      4,148 |   |   |             (295) |   |   |               3,853 |
| Net      income (loss) from continuing operations |       |      1,024 |   |   |      (641) |   |   |         (3,507) |   |   |     (3,124) |   |   | 55 |   |   |           (3,069) |
| Segment      assets from continuing operations    |       |  666,777                       |   |   |   32,242 |   |   |          83,775 |   |   |  782,794 |   |   |        (83,214) |   |   |         699,580 |
|                                              |       |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                              |  2006 |                                | 2006   |
|                                              |       |                                |   | Wealth |   | Bank |   |   |   |   | Intersegment |   | Consolidated |
|                                              | Banking    |                                | Mgmt   |   | Holding      Co. |   | Totals |   | Elimination |   | Total |
| Net      interest income (loss)                   | $          |    20,226            |   | $ |        999 |   | $ |         (2,492) |   | $ |    18,733 |   | $ |                  69 |   | $ |            18,802 |
| Other      revenue-external customers             |       |      4,050 |   |   |     1,263 |   |   |                 85 |   |   |      5,398 |   |   |             (260) |   |   |               5,138 |
| Net      income (loss) from continuing operations |       |      3,338 |   |   |      (355) |   |   |         (1,918) |   |   |      1,065 |   |   |               (47) |   |   |              1,018 |
| Segment      assets from continuing operations    |       |  630,795                       |   |   |   28,660 |   |   |          82,792 |   |   |  742,247 |   |   |        (82,651) |   |   |         659,596 |

----

|                                                       | Actual |               |   | For      Capital Adequacy Purposes |   | To      be Well Capitalized Under Prompt Corrective Action    Provisions |
|------------------------------------------------------------|--------|--------------------|--------|------------------------------------|--------|--------------------------------------------------------------------------|
|                                                       | Amount |               | Ratio  |                               |   | Amount                                                                   |   | Ratio |   |   | Amount |   | Ratio |
| 2007                                                       |   |               |   |                               |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
| Total      Capital(to      risk-weighted assets):          |   |               |   |                               |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
|       Consolidated           | $      |   87,338 |   | 14.26                              | %      |                                                                     | $ |  48,991 |   | >8.0 | % |   | $ |  N/A |   | N/A |
|       BNC      National Bank |   |   87,240 |   | 14.26                              |   |                                                                     |   |  48,959 |   | >8.0 |   |   |   | 61,199 |   | >10.0 |
| Tier 1      Capital(to      risk-weighted assets):         |   |               |   |                               |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
|       Consolidated           |   |   77,021 |   | 12.58                              |   |                                                                     |   |  24,496 |   | >4.0 |   |   |   |  N/A |   | N/A |
|       BNC      National Bank |   |   80,641 |   | 13.18                              |   |                                                                     |   |  24,479 |   | >4.0 |   |   |   | 36,719 |   | >6.0 |
| Tier      1 Capital (to      average assets):         |   |               |   |                               |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
|       Consolidated           |   |   77,021 |   | 12.01                              |   |                                                                     |   | 25,648 |   | >4.0 |   |   |   |  N/A |   | N/A |
|       BNC      National Bank |   |   80,641 |   | 12.57                              |   |                                                                     |   |  25,668 |   | >4.0 |   |   |   | 32,085 |   | >5.0 |
|                                                       |   |               |   |                               |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
| 2006                                                       |   |               |   |                               |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
| Total      Capital(to      risk-weighted assets):          |   |               |   |                               |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
|       Consolidated           | $      |   53,744 |   | 10.89                              | %      |                                                                     | $ |  39,488 |   | >8.0 | % |   | $ |  N/A |   | N/A |
|       BNC      National Bank |   |   54,008 |   | 10.94                              |   |                                                                     |   |  39,489 |   | >8.0 |   |   |   | 49,362 |   | >10.0 |
| Tier      1 Capital (to      risk-weighted assets):   |   |               |   |                               |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
|       Consolidated           |   |   46,833 |   | 9.49                               |   |                                                                     |   |  19,744 |   | >4.0 |   |   |   |  N/A |   | N/A |
|       BNC      National Bank |   |   50,638 |   | 10.26                              |   |                                                                     |   |  19,745 |   | >4.0 |   |   |   | 29,617 |   | >6.0 |
| Tier      1 Capital (to      average assets):         |   |               |   |                               |   |                                                                     |   |   |   |   |   |   |   |   |   |   |
|       Consolidated           |   |   46,833 |   | 7.12                               |   |                                                                     |   |  26,306 |   | >4.0 |   |   |   |  N/A |   | N/A |
|       BNC      National Bank |   |   50,638 |   | 7.70                               |   |                                                                     |   |  26,301 |   | >4.0 |   |   |   | 32,877 |   | >5.0 |

----

|                                                                                                                | 2007     |                                                                                              | 2006   |
|---------------------------------------------------------------------------------------------------------------------|----------|---------------------------------------------------------------------------------------------------|--------|
|                                                                                                                | Carrying |                                                                                              | Fair   |   | Carrying |   | Fair |
|                                                                                                                | Amount   |                                                                                              | Value  |   | Amount |   | Value |
| Assets:                                                                                                             |     |                                                                                              |   |   |   |   |   |   |   |   |   |
|        Cash      and cash equivalents                                            | $        |       14,856                                                        |   | $ |     14,856 |   | $ |     18,218 |   | $ |    18,218 |
|        Federal      Funds Sold                                                   |     |                 - |   |   |               - |   |   |     24,000 |   |   |    24,000 |
|        Investment      securities available for sale                             |     |     122,899                                                                   |   |   |   122,899 |   |   |   182,974 |   |   |  182,974 |
|        Federal      Reserve Bank and Federal Home Loan Bank stock                |     |         4,918                                             |   |   |       4,918 |   |   |         5,003 |   |   |       5,003 |
|        Loans      held for sale                                                  |     |                 - |   |   |               - |   |   |       1,669 |   |   |       1,669 |
|        Participating      interests in mortgage loans                            |     |       24,357                                                        |   |   |     24,357 |   |   |     56,125 |   |   |     56,125 |
|        Loans      and leases held for investment, net                            |     |     490,957                                                                   |   |   |   492,251 |   |   |   330,564 |   |   |   325,844 |
|        Accrued      interest receivable                                          |     |         3,290                                             |   |   |       3,290 |   |   |       3,309 |   |   |       3,309 |
|        Derivative      financial instruments                                     |     |            761                             |   |   |          761 |   |   |          188 |   |   |          188 |
|                                                                                                                |     |     662,038                                                                   |   | $ |   663,332 |   |   |   622,050 |   | $ |   617,330 |
| Other      assets                                                                                                   |     |       37,553                                                        |   |   |   |   |   |     70,226 |   |   |   |
|                                                                                                                | $        |     699,591                                                                   |   |   |   |   | $ |   692,276 |   |   |   |
| Liabilities      and Stockholders’ Equity:                                                                    |     |                                                                                              |   |   |   |   |   |   |   |   |   |
|        Deposits,      non-interest-bearing                                       | $        |       72,234                                                        |   | $ |     72,234 |   | $ |     84,184 |   | $ |     84,184 |
|        Deposits,      interest-bearing                                           |     |     469,640                                                                   |   |   |   470,297 |   |   |   445,068 |   |   |   445,376 |
|        Borrowings      and advances                                              |     |       66,765                                                        |   |   |     66,760 |   |   |     73,076 |   |   |     74,668 |
|        Accrued      interest payable                                             |     |         2,843                                             |   |   |       2,843 |   |   |       2,830 |   |   |       2,830 |
|        Guaranteed      preferred beneficial interests in subordinated debentures |     |       23,075                                                        |   |   |     20,906 |   |   |     22,711 |   |   |     23,300 |
|                                                                                                                |     |     634,557                                                                   |   | $ |   633,040 |   |   |   627,869 |   | $ |   630,358 |
|        Other      liabilities                                                    |     |         5,304                                             |   |   |   |   |   |       8,805 |   |   |   |
|                                                                                                                |     |                                                                                              |   |   |   |   |   |   |   |   |   |
|        Stockholders’      equity                                           |     |       59,730                                                        |   |   |   |   |   |     55,602 |   |   |   |
|                                                                                                                | $        |     699,591                                                                   |   |   |   |   | $ |   692,276 |   |   |   |
|                                                                                                                |     |                                                                                              |   |   |   |   |   |   |   |   |   |
| Financial      instruments with off-balance-sheet risk:                                                             |     |                                                                                              |   |   |   |   |   |   |   |   |   |
|        Commitments      to extend credit                                         |     |                                                                                              |   | $ |          562 |   |   |   |   | $ |          416 |
|        Standby      and commercial letters of credit                             |     |                                                                                              |   |   |            91 |   |   |   |   |   |          123 |
|                                                                                                                |     |                                                                                              |   | $ |          653 |   |   |   |   | $ |          539 |

----

|                                          | 2007    |                                                      | 2006     |
|-----------------------------------------------|---------|-----------------------------------------------------------|----------|
|                                          | Fixed   |                                                      | Variable |   | Fixed |   | Variable |
|                                          | Rate    |                                                      | Rate     |   | Rate |   | Rate |
| Commitments      to extend credit             |  $ |     15,497                            |     |  $ |       187,653 |   |  $ |     10,458 |   |  $ |       124,297 |
| Standby      and commercial letters of credit |    |          273 |     |   |           8,859 |   |   |          148 |   |   |         12,157 |

----

|                                                                      | 2007   |    | 2006   |
|---------------------------------------------------------------------------|--------|---------|--------|
| Continuing      operations -                                              |   |    |   |   |   |
|    Current:                                                |   |    |   |   |   |
|       Federal                               | $      | (1,133) |   | $ | (158) |
|       State                                 |   | (270)   |   |   | (53) |
|                                                                      |   | (1,403) |   |   | (211) |
|    Deferred:                                               |   |    |   |   |   |
|       Federal                               |   | (1,057) |   |   | (135) |
|       State                                 |   | (268)   |   |   | (17) |
|                                                                      |   | (1,325) |   |   | (152) |
|       Total      from continuing operations | $      | (2,728) |   | $ | (363) |

----

|                                                                                                         | 2007   |    | 2006   |
|--------------------------------------------------------------------------------------------------------------|--------|---------|--------|
| Tax      (benefit) at 34% statutory rate                                                                     | $      | (1,971) |   | $ | 223 |
|       State      taxes (net of Federal benefit)                                |   | (262)   |   |   | 21 |
|       Tax-exempt      interest                                                 |   | (283)   |   |   | (490) |
|       Increase      in cash surrender values of bank-owned life insurance      |   | (172)   |   |   | (158) |
|       Tax      benefit as a result of the change in uncertain tax    positions |   | (62)    |   |   | (88) |
|       Other,      net                                                          |   | 22      |   |   | 129 |
|                                                                                                         | $      | (2,728) |   | $ | (363) |

|                                                                                                                                       | 2007   |                                                                                                                | 2006   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|
| Deferred      tax asset:                                                                                                                   |   |                                                                                                                |   |   |   |
|       Loans,      primarily due to differences in accounting for credit    losses                            | $      |            2,856                                             |   | $ |               1,208 |
|       Difference      between book and tax amortization of branch premium acquisition      costs             |   |               206                             |   |   |                  295 |
|       Unrealized      loss on securities available for sale                                                  |   |                    - |   |   |               1,171 |
|       Alternative      minimum tax credits                                                                   |   |                    - |   |   |                  288 |
|       Other                                                                                                  |   |                 37                  |   |   |                  331 |
|            Deferred      tax asset                                                  |   |            3,099                                             |   |   |               3,293 |
| Deferred      tax liability:                                                                                                               |   |                                                                                                                |   |   |   |
|       Unrealized      gain on securities available for sale                                                  |   |               945                             |   |   |                       - |
|       Leases,      primarily due to differences in accounting for leases                                |   |               334                             |   |   |                  430 |
|       Difference      between book and tax amortization of acquired intangibles                              |   |               (59)                            |   |   |               1,880 |
|       Premises      and equipment, primarily due to differences in original cost basis and      depreciation |   |               563                             |   |   |                  759 |
|            Deferred      tax liability                                              |   |            1,783                                             |   |   |               3,069 |
|            Valuation      allowance                                                 |   |             (249)                                       |   |   |                 (271) |
|            Net      deferred tax asset (liability)                                  | $      |            1,067                                             |   | $ |                   (47) |

----

| Balance      at January 1, 2007                                      | $      | 218                                   |
|----------------------------------------------------------------------|--------|---------------------------------------|
|                                                                 |   |                                  |
| Increase      in unrecognized tax benefits as a result               |   |                                  |
|   of      tax positions taken in a prior year              |   |      13      |
| Decrease      in unrecognized tax benefits as a result               |   |                                  |
|   of      tax positions taken in a prior year              |   |    (14)                |
| Increase      in unrecognized tax benefits as a result               |   |                                  |
|   of      tax positions taken in the current year          |   |      28      |
| Decrease      in unrecognized tax benefits as a result               |   |                                  |
|   of      tax positions taken in the current year          |   |       - |
| Decreases      in unrecognized tax benefits relating to              |   |                                  |
|   settlements      with taxing authorities                 |   |       - |
| Reductions      to unrecognized tax benefits as a result             |   |                                  |
|   of      a lapse of the applicable statute of limitations |   |    (89)                |
|                                                                 |   |                                  |
| Balance      at December 31, 2007                                    | $      |    156                 |

|                                                                                            | 2007          |                                                             | 2006   |
|-------------------------------------------------------------------------------------------------|---------------|------------------------------------------------------------------|--------|
| Denominator      for basic earnings per share:                                                  |          |                                                             |   |   |   |
|   Average      common shares outstanding                                              |          | 3,456,993                                                        |   |   | 3,473,670 |
|   Dilutive      common stock options                                                  |          | 59,145                                                           |   |   | 41,039 |
|   Denominator      for diluted earnings per share                                     |          | 3,516,138                                                        |   |   | 3,514,709 |
|                                                                                            |          |                                                             |   |   |   |
| Numerator:      Net income (loss) attributable to continuing operations                         |        $ |        (3,069)                |   |        $ | 1,018 |
| Numerator:      Net income attributable to discontinued operations                              |          | 5,049                                                            |   |   | 2,603 |
| Numerator:      Net income attributable to common shareholders                                  | $             |         1,980            |   | $ |        3,621 |
|   Net      income per share                                                           |          |                                                             |   |   |   |
|      Basic      earnings (loss) per share from continuing operations   | $             |         (0.89)           |   | $ | 0.29 |
|      Basic      earnings per share from discontinued operations        | $             |           1.46 |   | $ |          0.75 |
|      Basic      earnings per common share                              | $             |           0.57 |   | $ |          1.04 |
|                                                                                            |          |                                                             |   |   |   |
|      Diluted      earnings (loss) per share from continuing operations | $             |         (0.89)           |   | $ | 0.29 |
|      Diluted      earnings per share from discontinued operations      | $             |           1.46 |   | $ | 0.74 |
|      Diluted      earnings per common share                            | $             |           0.57 |   | $ | 1.03 |

----

|                            | 2007   |   | 2006   |
|---------------------------------|--------|--------|--------|
| Quarter      ended March 31     | 55,800 |   | 57,450 |
| Quarter      ended June 30      | 55,600 |   | 55,800 |
| Quarter      ended September 30 | 54,500 |   | 55,800 |
| Quarter      ended December 31  | 54,500 |   | 55,800 |

----

| 2008       | $      |          577 |
|------------|--------|-----------------------------------------------------------|
| 2009       |   |          664 |
| 2010       |   |          672 |
| 2011       |   |          493 |
| 2012       |   |          412 |
| Thereafter |   |       1,680                 |

|                              | 2007       |                                                                                                    | 2006   |
|-----------------------------------|------------|---------------------------------------------------------------------------------------------------------|--------|
|                              | Number     | Weighted                                                                                                |   | Number | Weighted |
|                              | Restricted | Average                                                                                                 |   | Restricted | Average |
|                              | Stock      | Grant      Date                                                                                         |   | Stock | Grant      Date |
|                              | Shares     | Fair      Value                                                                                         |   | Shares | Fair      Value |
| Nonvested,      beginning of year |       |      100,500                                                                   | $      |       13.07 |   |   |    49,500 | $ |       15.25 |
| Granted                           |       |                  - |   |               - |   |   |    65,000 |   |       11.90 |
| Vested                            |       |      (34,734)                                                                  |   |       13.15 |   |   | (14,000) |   |       15.34 |
| Forfeited                         |       |      (14,000)                                                                  |   |       15.05 |   |   |              - |   | - |
| Nonvested,      end of year       |       |        51,766                                                        |   |       12.50 |   |   |  100,500 |   |       13.07 |

----

|   | 2007 |   | 2006 |
|--------|------|--------|------|

|                                          |   | Options      to                                                                                   |   |   | Weighted                                                                                          |   |   | Options      to                                                                                         |   | Weighted            |
|-----------------------------------------------|--------|---------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------|--------|---------------------|
|                                          |   | Purchase                                                                                          |   |   | Average                                                                                           |   |   | Purchase                                                                                                |   | Average             |
|                                          |   | Shares                                                                                            |   |   | Exercise      Price                                                                               |   |   | Shares                                                                                                  |   | Exercise      Price |
|                                          |   |                                                                                              |   |   |                                                                                              |   |   |                                                                                                    |   |                |   |
| Outstanding,      beginning of year           |   |      115,000                                                             |   | $      |            11.49                           |   |   |      118,250                                                                   |   | $                   |            11.50 |
| Granted                                       |   |                 - |   |   |                 - |   |   |                  - |   |                |                 - |
| Exercised                                     |   |        (6,000)                                                 |   |   |              6.15                |   |   |       (1,600)                                                             |   |                |              5.96 |
| Forfeited                                     |   |        (1,300)                                                 |   |   |            17.00                           |   |   |       (1,650)                                                             |   |                |            17.30 |
| Outstanding,      end of year                 |   |      107,700                                                             |   |   |            11.76                           |   |   |      115,000                                                                   |   |                |            11.49 |
| Exercisable,      end of year                 |   |      107,700                                                             |   |   |            11.76                           |   |   |      115,000                                                                   |   |                |            11.49 |
| Weighted      average fair value of options:  |   |                                                                                              |   |   |                                                                                              |   |   |                                                                                                    |   |                |   |
|       Granted   | $      |  -                                                                                           |   |   |                                                                                              |   | $      |  -                                                                                                 |   |                |   |
|       Exercised | $      |            2.99                            |   |   |                                                                                              |   | $      |            2.87                                  |   |                |   |
|       Forfeited | $      |            7.60                            |   |   |                                                                                              |   | $      |            7.20                                  |   |                |   |

----

|                                                                              | Outstanding      Options |   | Exercisable      Options                         |
|-----------------------------------------------------------------------------------|--------------------------|--------|--------------------------------------------------|
|                                                                              | Number                   |   | Weighted      Average Remaining Contractual Life |   | Weighted      Average Exercise Price |   | Number |   | Weighted      Average Exercise Price |
| Options      with exercise prices ranging from:                                   |                     |   |                                             |   |   |   |   |   |   |   |   |
|           $17.00      to $17.75 | 54,500                   |   | 0      years                                     |   | $ |     17.04 |   | 54,500 |   | $ |      17.04 |
|           $5.94      to $10.00  | 53,200                   |   | 3.3      years                                   |   |   | 6.27 |   | 53,200 |   |   | 6.27 |
|                                                                              | 107,700                  |   |                                             |   |   |   |   | 107,700 |   |   |   |

|                                                                                                                                     |   |                                                                                                                                        |   |   |                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                     | 2007   |                                                                                                                                        | 2006   |
| Assets:                                                                                                                                  |   |                                                                                                                                        |   |   |                                                                                                                       |
|      Cash      and cash equivalents                                                                             | $      |                   954                             |   | $      |                   885            |
|      Investment      in subsidiaries                                                                            |   |              83,254                                                        |   |   |              79,127                                       |
|      Receivable      from subsidiaries                                                                          |   |                   545                             |   |   |                   575            |
|      Deferred      charges and intangible assets, net                                                           |   |                   154                             |   |   |                   154            |
|      Other                                                                                                      |   |                   525                             |   |   |                   140            |
|                                                                                                                                     | $      |              85,432                                                        |   | $      |              80,881                                       |
| Liabilities      and stockholders’ equity:                                                                                         |   |                                                                                                                                        |   |   |                                                                                                                       |
|      Subordinated      debentures                                                                               | $      |              23,112                                                        |   | $      |              22,777                                       |
|      Long      term note                                                                                        |   |                        - |   |   |                1,167                            |
|      Accrued      expenses and other liabilities                                                                |   |                2,590                                             |   |   |                1,335                            |
|                                                                                                                                     |   |              25,702                                                        |   |   |              25,279                                       |
|  Common      stock, $.01 par value – 10,000,000 shares authorized; 3,491,337 and      3,600,467 shares issued and outstanding |   |                     35                  |   |   |                     36 |
|      Capital      surplus – common stock                                                                  |   |              26,355                                                        |   |   |              25,950                                       |
|      Retained      earnings                                                                                     |   |              34,105                                                        |   |   |              32,125                                       |
|      Treasury      stock (150,116 and 49,186 shares)                                                            |   |               (2,424)                                                 |   |   |                 (598)                      |
|      Accumulated      other comprehensive income, net of income taxes                                           |   |                1,659                                             |   |   |              (1,911)                                      |
|      Total      stockholders’ equity                                                                      |   |              59,730                                                        |   |   |              55,602                                       |
|                                                                                                                                     | $      |              85,432                                                        |   | $      |              80,881                                       |

----

|                                                                                             |   |                                                                                                    |   |   |                                                                                                    |
|--------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------|
|                                                                                             | 2007   |                                                                                                    | 2006   |
| Income:                                                                                          |   |                                                                                                    |   |   |                                                                                                    |
|      Management      fee income                                         | $      |           1,730                                       |   | $      |           1,418                                       |
|      Interest                                                           |   |                40            |   |   |                28            |
|      Other                                                              |   |                65            |   |   |                83            |
|            Total      income              |   |           1,835                                       |   |   |           1,529                                       |
| Expenses:                                                                                        |   |                                                                                                    |   |   |                                                                                                    |
|      Interest                                                           |   |           2,212                                       |   |   |           2,520                                       |
|      Personnel      expense                                             |   |           2,392                                       |   |   |              746                       |
|      Legal      and other professional                                  |   |              669                       |   |   |              708                       |
|      Depreciation      and amortization                                 |   |                  4 |   |   |                  8 |
|      Other                                                              |   |           1,890                                       |   |   |              445                       |
|            Total      expenses            |   |           7,167                                       |   |   |           4,427                                       |
| Loss      before income tax benefit and equity in undistributed income of      subsidiaries |   |        (5,332)                                                       |   |   |         (2,898)                                                 |
| Income      tax benefit                                                                          |   |           2,078                                       |   |   |           1,190                                       |
| Loss      before equity in undistributed income of subsidiaries                                  |   |        (3,254)                                                       |   |   |         (1,708)                                                 |
| Equity      in undistributed income of subsidiaries                                              |   |           5,234                                       |   |   |           5,329                                       |
|            Net      income                | $      |           1,980                                       |   | $      |           3,621                                       |

----

|                                                                                                                                                       | 2007    |                                                                                        | 2006   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------|--------|
| Operating      activities:                                                                                                                                 |    |                                                                                        |   |   |   |
|       Net      income                                                                                                        |  $ |         1,980                                       |   | $ |         3,621 |
|       Adjustments      to reconcile net income to net cash used in operating activities      -                               |    |                                                                                        |   |   |   |
|             Depreciation      and amortization                                                 |    | 51                                                                                          |   |   |                8 |
|             Equity      in undistributed income of subsidiaries                                |    | (5,234)                                                                                     |   |   | (5,329)  |
|             Change      in prepaid expenses and other receivables                              |    |          (359)                                 |   |   |          (277) |
|             Change      in accrued expenses and other liabilities                              |    |         1,255                                       |   |   |            238 |
|             Unamortized      premium related to early extinguishment of debt                   |    |            289                       |   |   | - |
|             Other                                                                              |    |                1 |   |   |              44 |
|                   Net      cash used by operating activities     |    |       (2,018)                                                 |   |   |       (1,695) |
| Investing      activities:                                                                                                                                 |    |                                                                                        |   |   |   |
|       Increase      in investment in subsidiaries                                                                            |    |         4,675                                       |   |   |         3,311 |
|                   Net      cash provided by investing activities |    |         4,675                                       |   |   |         3,311 |
| Financing      activities:                                                                                                                                 |    |                                                                                        |   |   |   |
|       Repayments      of long term borrowings                                                                                |    | (1,167)                                                                                     |   |   | (2,666) |
|       Proceeds      from issuance of share-based compensation                                                                |    |            298                       |   |   |            359 |
|       Purchase      of treasury stock                                                                                        |    |       (1,720)                                                 |   |   |            (39) |
|                   Net      cash used by financing activities     |    |       (2,589)                                                 |   |   |       (2,346) |
| Net      increase (decrease) in cash and cash equivalents                                                                                                  |    |              69            |   |   |          (730) |
| Cash      and cash equivalents, beginning of year                                                                                                          |    |            885                       |   |   |         1,615 |
| Cash      and cash equivalents, end of year                                                                                                                |  $ |            954                       |   | $ |            885 |
| Supplemental      cash flow information:                                                                                                                   |    |                                                                                        |   |   |   |
|       Interest      paid                                                                                                     |  $ |         2,314                                       |   | $ |         2,701 |
|       Income      tax payments received from subsidiary bank, net of income taxes      paid                                  |  $ |         3,322                                       |   | $ |         1,050 |

----

| Unaudited      (in thousands, except per share data)                                                                                                 | 2007   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                 |   | First      Quarter |   |   | Second      Quarter |   |   | Third      Quarter |   |   | Fourth      Quarter |   |
| Interest      income                                                                                                                                 | $      |        10,875 |   | $ |        11,133 |   | $ |        10,988 |   | $ |        11,245 |   |
| Interest      expense                                                                                                                                |   |          6,076 |   |   |          5,773 |   |   |          5,047 |   |   |          5,098 |   |
| Net      interest income                                                                                                                             |   |          4,799 |   |   |          5,360 |   |   |          5,941 |   |   |          6,147 |   |
| Provision      for credit losses                                                                                                                     |   |             250 |   |   |             700 |   |   |          2,800 |   |   |                  - |   |
| Net      interest income after provision for credit losses                                                                                           |   |          4,549 |   |   |          4,660 |   |   |          3,141 |   |   |          6,147 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      income (loss)                                                                                                                      |   |          1,697 |   |   |           (284) |   |   |             310 |   |   |          2,130 |   |
| Non-interest      expense                                                                                                                            |   |          5,986 |   |   |          7,739 |   |   |          6,859 |   |   |          7,563 |   |
| Income      (loss) from continuing operations before income taxes                                                                                    |   |             260 |   |   |        (3,363) |   |   |        (3,408) |   |   |             714 |   |
| Income      tax provision (benefit)                                                                                                                  |   |                (1) |   |   |        (1,386) |   |   |        (1,345) |   |   |                 4 |   |
|   Income      (loss) from continuing operations                                                                                            |   |             261 |   |   |        (1,977) |   |   |        (2,063) |   |   |             710 |   |
| Discontinued      operations:                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
|    Income      (loss) from discontinued insurance segment,  (including a gain      on sale of $6,083 in the second quarter) |   |          2,070 |   |   |          6,084 |   |   |             (12) |   |   |              (26) |   |
|    Income      tax provision (benefit)                                                                                                |   |             774 |   |   |          2,280 |   |   |               62 |   |   |            (49) |   |
|    Income      (loss) from discontinued operations                                                                                    |   |          1,296 |   |   |          3,804 |   |   |             (74) |   |   |               23 |   |
| Net      income (loss)                                                                                                                               | $      |          1,557 |   | $ |          1,827 |   | $ |        (2,137) |   | $ |             733 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      earnings (loss) per common share:                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) from continuing operations                                                                                                        | $      | 0.06 |   | $ | (0.56) |   | $ | (0.60) |   | $ | 0.21 |   |
| Income      (loss) from discontinued insurance segment, net of income      taxes                                                                     |   | 0.40 |   |   | 1.08 |   |   | (0.02) |   |   | - |   |
| Basic      earnings (loss) per common share                                                                                                          | $      | 0.      46 |   | $ | 0.52 |   | $ | (0.62) |   | $ | 0.21 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted      earnings (loss) per common share:                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) from continuing operations                                                                                                        | $      | 0.07 |   | $ | (0.56) |   | $ | (0.60) |   | $ | 0.20 |   |
| Income      (loss) from discontinued insurance segment, net of income      taxes                                                                     |   | 0.39 |   |   | 1.08 |   |   | (0.02) |   |   | 0.01 |   |
| Diluted      earnings (loss) per common share                                                                                                        | $      | 0.46 |   | $ | 0.52 |   | $ | (0.62) |   | $ | 0.21 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Average      common shares:                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                |   |   3,500,810 |   |   |   3,501,544 |   |   |   3,414,670 |   |   |   3,439,571 |   |
| Diluted                                                                                                                                              |   |   3,556,323 |   |   |   3,573,181 |   |   |   3,475,599 |   |   |   3,487,268 |   |

----

| Unaudited      (in thousands, except per share data)                 | 2006    |
|----------------------------------------------------------------------|---------|
|                                                                 |    | First      Quarter |   |   | Second      Quarter |   |   | Third      Quarter |   |   | Fourth      Quarter |
| Interest      income                                                 | $       |        10,361 |   | $ |        10,670 |   | $ |        10,689 |   | $ |        10,688 |
| Interest      expense                                                |    |          5,666 |   |   |          5,770 |   |   |          6,035 |   |   |          6,135 |
| Net      interest income                                             |    |          4,695 |   |   |          4,900 |   |   |          4,654 |   |   |          4,553 |
| Provision      for credit losses                                     |    |             210 |   |   |                  - |   |   |                  - |   |   |                  - |
| Net      interest income after provision for credit losses           |    |          4,485 |   |   |          4,900 |   |   |          4,654 |   |   |          4,553 |
|                                                                 |    |   |   |   |   |   |   |   |   |   |   |
| Non-interest      income                                             |    |             780 |   |   |          1,486 |   |   |          1,396 |   |   |          1,476 |
| Non-interest      expense                                            |    |          5,546 |   |   |          5,610 |   |   |          5,788 |   |   |          6,131 |
| Income      (loss) from continuing operations before income taxes    |    |           (281) |   |   |             776 |   |   |             262 |   |   |            (102) |
| Income      tax provision (benefit)                                  |    |           (292) |   |   |             131 |   |   |              (50) |   |   |           (152) |
|   Income      from continuing operations                   |    |               11 |   |   |             645 |   |   |             312 |   |   |               50 |
| Discontinued      operations:                                        |    |   |   |   |   |   |   |   |   |   |   |
|    Income      from discontinued insurance segment    |    |          1,726 |   |   |             779 |   |   |             787 |   |   |             841 |
|    Income      tax provision                          |    |             720 |   |   |             329 |   |   |             296 |   |   |             185 |
|    Income      from discontinued operations           |    |          1,006 |   |   |             450 |   |   |             491 |   |   |             656 |
| Net      income                                                      | $       |          1,017 |   | $ |          1,095 |   |  $ |             803 |   | $ |             706 |
|                                                                 |    |   |   |   |   |   |   |   |   |   |   |
| Basic      earnings per common share:                                |    |   |   |   |   |   |   |   |   |   |   |
| Income      from continuing operations                               | $       | 0.01 |   | $ | 0.18 |   | $ | 0.09 |   | $ | 0.01 |
| Income      from discontinued insurance segment, net of income taxes |    | 0.29 |   |   | 0.13 |   |   | 0.14 |   |   | 0.19 |
| Basic      earnings per common share                                 | $       | 0.30 |   | $ | 0.31 |   | $ | 0.23 |   | $ | 0.20 |
|                                                                 |    |   |   |   |   |   |   |   |   |   |   |
| Diluted      earnings per common share:                              |    |   |   |   |   |   |   |   |   |   |   |
| Income      from continuing operations                               |  $ | 0.01 |   |  $ | 0.18 |   |  $ | 0.09 |   |  $ | 0.01 |
| Income      from discontinued insurance segment, net of income taxes |    | 0.28 |   |   | 0.13 |   |   | 0.14 |   |   | 0.19 |
| Diluted      earnings per common share                               | $       | 0.29 |   | $ | 0.31 |   | $ | 0.23 |   | $ | 0.20 |
|                                                                 |    |   |   |   |   |   |   |   |   |   |   |
| Average      common shares:                                          |    |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                |    | 3,449,067 |   |   | 3,463,495 |   |   | 3,490,363 |   |   | 3,491,731 |
| Diluted                                                              |    | 3,485,940 |   |   | 3,504,583 |   |   | 3,532,686 |   |   | 3,535,601 |

----

----

----

| Summary      Compensation Table  |
|----------------------------------|
| Name      and Principal Position |   | Year |   | Salary |   | Bonus |   | Stock      Awards |   | Option      Awards |   | Non-Equity      Incentive Plan Compensation |   | Non      Qualified Deferred Compensation Earnings |   | All      Other Compensation |   | Total |   |
|                             |   |   |   | ($) |   | ($)  (1) |   | ($)  (2) |   |  ($) |   | ($) |   | ($) |   | ($) |   | ($) |   |
| Gregory      K. Cleveland        |   | 2007 |   | 300,000 |   | 175,000 |   |             - |   |            - |   |           - |   |                   - |   |         28,978 |   |      503,978 |   |
| Tracy      Scott                 |   | 2007 |   |  275,000 |   | 60,000 |   |             - |   |            - |   |            - |   |                   - |   |         12,395 |   |      347,395 |   |
| Timothy      J. Franz            |   | 2007 |   |  172,500 |   |  80,000 |   |     17,850 |   |          - |   |             - |   |                - |   |           3,627 |   |      273,977 |   |

| (1)   | Included      in the bonuses for Mr. Cleveland, Mr. Scott and Mr. Franz are $100,000,      $60,000 and $50,000, respectively that were rewarded for the successful      sale of BNC Insurance. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | The      value of the restricted stock award is based on the amount recognized in      2007 in compliance with SFAS 123R.  Mr. Franz’s stock vests in      three equal installments on December 31, 2007, December 31, 2008 and      December 31, 2009. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Name                      |   | 401(k)      Match |   | Employer      Paid Life Insurance Premiums |   | Imputed      Value of Split Dollar Life Insurance |   | Company      Car                                                                            |   | Club      Dues                                                            |   | Parking                                                                         |   | Other                                                                           |   | Total                                                       |
|---------------------------|--------|-------------------|--------|--------------------------------------------|--------|---------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|-------------------------------------------------------------|
|                      |   | ($)               |   | ($)                                        |   | ($)                                               |   |  ($)                                                                                   |   | ($)                                                                       |   | ($)                                                                             |   | ($)                                                                             |   | ($)                                                         |
| Gregory      K. Cleveland |   | 10,250            |   | 189                                        |   | 1,956                                             |   |         7,873                                       |   |      7,570                                       |   |      1,140                                             |   |             -       |   |        28,978            |
| Tracy      Scott          |   | 10,250            |   | 189                                        |   | 1,956                                             |   |                - |   |             - |   |              - |   |              - |   |        12,395            |
| Timothy      J. Franz     |   | 3,438             |   | 189                                        |   | -                                                 |   |                - |   |             - |   |              - |   |              - |   |          3,627 |

----

| Outstanding      Equity Awards At December 31, 2007 |
|-----------------------------------------------------|
|                                                |   | Option      Awards |   | Stock      Awards |
| Name                                                |   | Number      of Securities Underlying Unexercised Options Exercisable |   | Number      of Securities Underlying Unexercised Options Unexercisable |   | Option      Exercise Price($) |   | Option      Expiration Date |   | Number      of Shares or Units of Stock That Have Not Vested |   | Market      Value of Shares or Units of Stock That Have Not Vested($) |
| Gregory      K. Cleveland                           |   | 24,000 |   | - |   | 17.00 |   | 1/2/2008 |   | - |   | - |   |
|                                                |   | 24,000 |   | - |   | 5.94 |   | 1/5/2011 |   | - |   | - |   |
| Tracy      Scott                                    |   | 12,000 |   | - |   | 17.00 |   | 1/2/2008 |   | - |   | - |   |
|                                                |   | 8,000 |   | - |   | 5.94 |   | 1/5/2011 |   | - |   | - |   |
| Timothy      J. Franz                               |   | - |   | - |   | - |   | - |   | 3,333 |   | 43,296 |   |

|                                                                                                               |   |                    |   | Percent      of   |
|--------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-------------------|
|                                                                                                               |   | Number      of Shares   |   | Outstanding       |
| Name      and Address of Beneficial Owner                                                                          |   | Beneficially      Owned |   | Common      Stock |
| Kenneth      H. Johnson1331      South FederalChicago,      Illinois 60605                                         |   | 418,302                 |   | 11.98%            |
|                                                                                                               |   |                    |   |              |
| Financial      Stocks Capital Partners IV, L.P.507      Carew Tower441      Vine StreetCincinnati,      Ohio 45202 |   | 337,500                 |   | 9.67%             |
|                                                                                                               |   |                    |   |              |
| Jeffrey      L. Gendell, et      al55      Railroad AvenueGreenwich,      Connecticut 06830                        |   | 259,240                 |   | 7.42%             |

----

| Name      of Beneficial Owner                                                                                |   | Number      of Shares Beneficially Owned |    | Percent      of Outstanding Common Stock |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|---------|------------------------------------------|
|                                                                                                         |   |                                     |    |                                     |
| Gregory      K. Cleveland                                                                                    |   | 108,137                                  | (2),(3) | 3.66%                                    |
| Tracy      Scott                                                                                             |   | 127,920                                  | (1),(2) | 3.10%                                    |
| Timothy      J. Franz                                                                                        |   | 8,000                                    |    | *                                        |
| Mark      W. Sheffert                                                                                        |   | -                                        |    | -                                        |
| Richard      M. Johnsen, Jr.                                                                                 |   | 7,150                                    | (2)     | *                                        |
| Gaylen      Ghylin                                                                                           |   | 16,698                                   |    | *                                        |
| Jerry      R. Woodcox                                                                                        |   | 7,312                                    | (2),(4) | *                                        |
| Stephen      H. Roman                                                                                        |   | -                                        |    | -                                        |
| Bradley      D. Bonga                                                                                        |   | 160,369                                  |    | 4.59%                                    |
| BNC      National Bank, as Trustee (the “Trustee”) of the BNCCORP. INC. 401(k)      Savings Plan |   | 145,011                                  | (5)     | 4.15%                                    |
| All      directors and executive officers as a group                                                         |   | 435,586                                  |    | 12.48%                                   |

| (1)   | Includes      the following number of shares allocated to such individual’s account as      of December 31, 2007 under the Company’s 401(k) Savings Plan: Mr. Scott      (24,046). |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Includes      shares that may be acquired within 60 days through exercise of stock      options: Mr. Scott (8,000), Mr. Cleveland (24,000), Mr. Johnsen (650), Mr.      Woodcox (650). |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Includes      78,480 shares owned by Mr. Cleveland’swife. |
|-----------------|-----------------------------------------------------------------|

| (4)   | Includes      2,266 shares owned by Mr. Woodcox’swife. |
|-----------------|--------------------------------------------------------------|

| (5)   | Each      participant of the Company’s 401(k) Savings Plan is entitled to direct the      Trustee as to the manner in which to vote the shares allocated to the      participant’s account. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Name                             |   | Fees      Earned or Paid in Cash ($) |
|----------------------------------|--------|-------------------------------------------|
| Mark      W. Sheffert (1)        |   | 57,000                                    |
| Richard      M. Johnsen, Jr. (1) |   | 51,500                                    |
| Gaylen      Ghylin               |   | 36,500                                    |
| Jerry      R. Woodcox            |   | 34,500                                    |
| Stephen      H. Roman            |   | 29,500                                    |
| Bradley      D. Bonga (2)        |   | 6,500                                     |

| (1)   | Mr.      Sheffert and Mr. Johnsen were each compensated $15,000 related to their      service on the Board’s Special Committee and their efforts in connection      with the Company’s sale of substantially all of the assets of BNC      Insurance Services, Inc. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Mr.      Bonga was elected to the Board in November2007. |
|-----------------|----------------------------------------------------------|

----

|                                |   | 2007         |   |   | 2006    |   |
|-------------------------------------|--------|--------------|--------|--------|---------|--------|
| Audit      Fees                     | $      | 156      000 |   | $      | 147,000 |   |
| Audit-Related      Fees             |   | 50,200       |   |   | 22,700  |   |
| Tax                                 |   | -            |   |   | -       |   |
| Out      of pocket expenses         |   | 37,362       |   |   | 42,763  |   |
| All      Other Fees                 |   | -            |   |   | 2,900   |   |
|      Total | $      | 243,562      |   | $      | 215,363 |   |

| (a) | Exhibits. |
|-----|-----------|

|   | Reference      is made to the Exhibit Index beginning on page E-1 hereby. We 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      our expenses in furnishing suchexhibit. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   |
|--------|
| By:    | /s/      Gregory K. Cleveland |
|   | Gregory      K. ClevelandPresident      and Chief Executive Officer |

| /s/      Gregory K. Cleveland    |   |                                                                                                           | March      27, 2008 |
|----------------------------------|--------|----------------------------------------------------------------------------------------------------------------|---------------------|
| Gregory      K. Cleveland        |   | President,      Chief Executive Officer and Director (Principal Executive      Officer)                        |                |
|                             |   |                                                                                                           |                |
| /s/      Timothy J. Franz        |   |                                                                                                           | March      27, 2008 |
| Timothy      J. Franz            |   | Chief      Financial Officer and Director(Principal      Financial Officer)(Principal      Accounting Officer) |                |
|                             |   |                                                                                                           |                |
|                             |   |                                                                                                           |                |
| /s/ Mark W.      Sheffert        |   |                                                                                                           |                |
| Mark      W. Sheffert            |   | Chairman      of the Board and Director                                                                        | March      27, 2008 |
|                             |   |                                                                                                           |                |
| /s/      Bradley D. Bonga        |   |                                                                                                           | March      27, 2008 |
| Bradley      D. Bonga            |   | Director                                                                                                       |                |
|                             |   |                                                                                                           |                |
| /s/      Gaylen Ghylin           |   |                                                                                                           | March      27, 2008 |
| Gaylen      Ghylin               |   | Director                                                                                                       |                |
|                             |   |                                                                                                           |                |
| /s/      Richard M. Johnsen, Jr. |   |                                                                                                           | March      27, 2008 |
| Richard      M. Johnsen, Jr.     |   | Director                                                                                                       |                |
|                             |   |                                                                                                           |                |
| /s/      Stephen H. Roman        |   |                                                                                                           | March      27, 2008 |
| Stephen      H. Roman            |   | Director                                                                                                       |                |
|                             |   |                                                                                                           |                |
| /s/      Tracy Scott             |   |                                                                                                           | March      27, 2008 |
| Tracy      Scott                 |   | Director                                                                                                       |                |
|                             |   |                                                                                                           |                |
| /s/      Jerry R. Woodcox        |   |                                                                                                           | March      27, 2008 |
| Jerry      R. Woodcox            |   | Director                                                                                                       |                |
|                             |   |                                                                                                           |                |

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| ExhibitNo. |  Exhibit      Description                                                                                                                                                                                                                                                                                                                                                                               |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 3.1 to the      Registrant’s Form 8-K dated January 11, 2006.                                                                                                                                                                                                                                                                    |
| 3.3        | Amended      Section 7 of the Bylaws of the Company, incorporated by reference to      Exhibit 3.1 to the Company’s Form 8-K dated December 18,2007.                                                                                                                                                                                                                                              |
| 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        | Rights      Agreement, dated as of May 30, 2001, between BNCCORP, Inc. and American      Stock Transfer and Trust Company, as Rights Agent, incorporated by      reference to Exhibit 1 to the Registrant’s Form 8-A dated June 5,      2001.                                                                                                                                                     |
| 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. 1995 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       | 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.                                                                                                                                                         |
| 10.6       | Amended      and Restated Declaration of Trust, dated July 30, 2007, among      BNCCORP, Inc., as sponsor, Wilmington Trust Company, as institutional      trustee, Wilmington Trust Company, as Delaware trustee, and the      Administrators named therein, incorporated by reference to Exhibit      10.1 to the Registrant’s Current Report on Form 8-K filed August 3,      2007.  |
| 10.7       | Indenture,      dated July 30, 2007, between BNCCORP, Inc., as issuer, and Wilmington      Trust Company, as trustee, incorporated by reference to Exhibit 10.2 to      the Registrant's Current Report on Form 8-K filed August 3,      2007.                                                                                                                                                          |

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| Exhibit No. |  Exhibit      Description                                                                                                                                                                                                                                                                                                                                                                    |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8        | Guarantee      Agreement, dated July 30, 2007, between BNCCORP, Inc., as guarantor, and      Wilmington Trust Company, as guarantee trustee, incorporated by reference      to Exhibit 10.3 to the Company's Current Report on Form 8-K filed August      3, 2007.                                                                                                                           |
| 10.9        | Form      of BNCCORP, Inc. 2002 Stock Incentive Plan, incorporated by reference to      Appendix A to the Company’s Definitive Proxy Statement dated as of May 17,      2002.                                                                                                                                                                                                          |
| 10.10       | Form      of BNCCORP, Inc. 2006 Stock Incentive Plan, incorporated by reference to      Appendix B to the Company’s Definitive Proxy Statement dated as of May 1,      2006.                                                                                                                                                                                                           |
| 10.11       | Restricted      Stock Agreement, incorporated by reference to Exhibit 10.1 to Form 8-K      dated August 30, 2006.                                                                                                                                                                                                                                                                           |
| 10.12       | Employment      Agreement, dated October 1, 2006, by and between BNC Insurance, Inc., and      Richard W. Milne, Jr., incorporated by reference to the registrant’s Form      8-K filed on October 25, 2006.                                                                                                                                                                           |
| 10.13       | Purchase      and Sale Agreement among the Company, BNC Insurance Services, Inc., an      Arizona corporation and wholly-owned indirect subsidiary of the Company,      and Hub International of California Insurance Services, Inc., a California      corporation, dated as of March 14, 2007, incorporated by reference to the      registrant’s Form 8-K filed on March 15, 2007.  |
| 21.1        | Subsidiaries      of Company.                                                                                                                                                                                                                                                                                                                                                                |
| 31.1        | Chief      Executive Officer’s Certification Under Section 302 of the Sarbanes-Oxley      Act of 2002.                                                                                                                                                                                                                                                                                 |
| 31.2        | Chief      Financial Officer’s Certification Under Section 302 of the Sarbanes-Oxley      Act of 2002.                                                                                                                                                                                                                                                                                 |
| 32.1        | Certification      Under Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                                                                                                                                          |

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