U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                                          DRAFT 3-26-2002
                                    FORM 10-K

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 for the fiscal year ended  December  31, 2001 or

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 Commission File No. 0-26290

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

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

       Registrant's telephone number, including area code: (701) 250-3040

           Securities registered under Section 12(b) of the Act: None

              Securities registered under Section 12(g) of the Act:

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

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

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

     The aggregate  market value of the voting stock held by  non-affiliates  of
the Registrant at March 15, 2002 was $14,594,000.

     The number of shares of the Registrant's  common stock outstanding on March
15, 2002 was 2,399,170.

     Documents  incorporated by reference.  Portions of the  Registrant's  proxy
statement to be filed with the Securities and Exchange  Commission in connection
with the  Registrant's  2002 annual meeting of stockholders  are incorporated by
reference into Part III hereof.



<PAGE>


                                  BNCCORP, INC.

                           ANNUAL REPORT ON FORM 10-K
                     FOR FISCAL YEAR ENDED DECEMBER 31, 2001

                                TABLE OF CONTENTS
                                                                            Page

                                     PART I
Item 1.    Business........................................................   3
Item 2     Properties......................................................   9
Item 3.    Legal Proceedings...............................................   9

Item 4.    Submission of Matters to a Vote of Security Holders.............  10

                                     PART II
Item 5.    Market for the Registrant's Common Equity and
           Related Stockholder Matters........... 10
Item 6.    Selected Financial Data........................................   10
Item 7.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations..... 12
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk......  37
Item 8.    Financial Statements and Supplementary Data.....................  41
Item 9.    Changes In and Disagreements With Accountants on Accounting
           and Financial Disclosure........................................  79
                                    PART III
Item 10.   Directors and Executive Officers of the Registrant..............  79
Item 11.   Executive Compensation..........................................  79
Item 12.   Security Ownership of Certain Beneficial Owners and Management..  79
Item 13.   Certain Relationships and Related Transactions..................  79

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


<PAGE>






                                     PART I

Item 1.Business

General

BNCCORP,  Inc. ("BNCCORP"),  a Delaware  corporation,  is a bank holding company
registered under the Bank Holding Company Act of 1956 (the "BHCA") headquartered
in Bismarck, North Dakota. BNCCORP (together with its consolidated subsidiaries,
"BNC" or the "Company") provides a broad range of banking and financial services
to small and mid-size businesses,  private banking clients and consumers through
its 18  facilities  in North Dakota,  Minnesota  and Arizona.  BNCCORP  operates
primarily  through  its  commercial  banking  subsidiaries,  BNC  National  Bank
(together with its wholly-owned subsidiaries,  BNC Insurance, Inc. and BNC Asset
Management,   Inc.,   "BNC-Minnesota")   and  BNC   National   Bank  of  Arizona
("BNC-Arizona"), together with BNC-Minnesota, the "Banks."

Growth Strategy

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

BNC emphasizes  expanded  product and service  offerings,  customer  service and
local relationship banking with small and mid-size  businesses,  private banking
clients and consumers.  Management  believes that the Company's  entrepreneurial
approach to banking and the  introduction  of new  products  and  services  will
continue to attract small and mid-size  businesses.  Such businesses  frequently
have difficulty finding banking services that meet their specific needs and have
sought banking institutions that are more relationship-oriented.

Expansion,  mergers  and  divestitures  have played an  important  role in BNC's
strategy.  During the three years ended December 31, 2001, the Company completed
the following transactions: established a new banking subsidiary, BNC-Arizona in
July 2001; merged BNC-North Dakota with and into BNC-Minnesota in November 2000;
and sold its  asset-based  lending  subsidiary,  BNC  Financial  Corporation  in
December  1999. See Note 2 to the  Consolidated  Financial  Statements  included
under Item 8 of Part II for a summary of these transactions.

Management  believes  that its  increased  product  and  service  offerings  and
acquisitions  have  generated  significant  growth for the Company.  BNC's total
assets have increased from $118.0 million at December 31, 1992 to $585.1 million
at December 31, 2001. The Company's  goal is the creation of a  well-capitalized
$1  billion  financial  services  organization  focused  on  local  relationship
banking.  Efforts are ongoing to ensure that the executive  management  team and
operating  systems  are in place to achieve  this  goal.  BNC will  continue  to
emphasize  internally-generated  growth.  The  Company  will  also  seek  growth
opportunities  through  acquisition of financial  services  companies or de novo
branching in North and South Dakota,  Minnesota,  Arizona and,  possibly,  Iowa,
Nebraska and Wisconsin.

<PAGE>

Market Areas

BNC's primary market areas are the Minneapolis/St. Paul (Minnesota) metropolitan
area, the Tempe/Phoenix/  Mesa (Arizona)  metropolitan area (where BNC - Arizona
operates from 3 locations in Tempe and Phoenix),  the  Bismarck/Mandan and Fargo
(North Dakota)  metropolitan  areas and the rural  communities  surrounding  the
branch offices of BNC - Minnesota (Crosby, Ellendale, Garrison, Kenmare, Linton,
Stanley and Watford City, North Dakota).  As of December 31, 2001, 33 percent of
the Company's loans were to borrowers  located in Minnesota,  41 percent were to
borrowers  located in North Dakota, 8 percent were to borrowers located in South
Dakota,  and 16 percent were to borrowers  located in Arizona.  The  remaining 2
percent  represents  loans to borrowers  in other  states.  Other than  brokered
certificates of deposit and direct non-brokered certificates of deposit obtained
through  national  deposit  networks,  each  banking  branch  draws  most of its
deposits  from its general  market area.  The  following  table  presents  total
deposits held and net loans outstanding at each of BNC's locations:
<TABLE>
<CAPTION>


                                   December 31, 2001
                                -----------------------
           Location               Total      Net Loans
                                 Deposits   Outstanding (1)
-----------------------------   ----------  -----------
                                    (in thousands)
<S>                             <C>         <C>

BNC-Minnesota:
  Bismarck.................      $194,881    $118,973
  Crosby...................        18,263         277
  Ellendale................        11,636         655
  Fargo....................        31,815      29,148
  Garrison.................        15,570         412
  Kenmare..................        13,955         219
  Linton...................        43,966      10,312
  Minneapolis..............        41,218     113,845
  Stanley..................        16,154         832
  Watford City.............        11,834         103
BNC-Arizona:
   Tempe...................         7,019      37,073
   Phoenix.................         1,658       9,453
BNCCORP (parent company)...            --           5
                                ----------  ----------
     Total ................      $407,969    $321,307
                                ==========  ==========
 ------------------
<FN>

(1)  Before  allowance for credit losses,  unearned  income and net  unamortized
     deferred fees and costs.
</FN>
</TABLE>


Products and Services

Loans. The Company's loans primarily consist of commercial and industrial loans,
real estate mortgage loans, real estate construction loans,  agricultural loans,
consumer  loans and lease  financing.  In  allocating  its assets  among  loans,
investments  and other  earning  assets,  BNC attempts to maximize  return while
managing risk at acceptable levels. BNC's primary lending focus is on commercial
loans and owner-occupied  real estate loans to small and mid-size businesses and
professionals. The Company offers a broad range of commercial and retail lending
services,  including  commercial  revolving  lines of  credit,  residential  and
commercial real estate mortgage loans,  consumer loans and equipment  financing.
For more information on the lending activities of the Company, see "Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations-Financial Condition-Loan Portfolio" included under Item 7 of Part II.

<PAGE>

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

Deposits.  Each of BNC's bank branches  offers the usual and customary  range of
depository products provided by commercial banks,  including  checking,  savings
and money market deposits and certificates of deposit.  During 2001, the Company
continued to increase core deposits largely through the continued success of its
Wealthbuilder  NOW and money market  deposit  accounts  introduced  during 1999.
These are  competitively  priced  floating rate accounts with rates  variable at
management's  discretion.  Deposits are insured by the Federal Deposit Insurance
Corporation  ("FDIC")  up to  statutory  limits.  The Banks also issue  brokered
deposits and obtain direct non-brokered certificates of deposit through national
deposit  networks  when such  transactions  are  beneficial  to the  Banks.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations-Financial Condition-Deposits" included under Item 7 of Part II.

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

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

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

The  variety  of  products  and  services   offered  by  the  Company   provides
opportunities to solidify customer  relationships by meeting more of the banking
and financial  needs of the Company's  current  customer base. They also present
opportunities  to establish new customer  relationships in the markets served by
BNC.

Distribution Methods

BNC offers its banking and financial  products and services through  traditional
industry distribution methods including its network of offices. In addition, the
Company offers 24-hour  telephone  banking  services  through its voice response
system,  BNC  Bankline.  The Company  also  provides  internet  banking and cash
management services through its internet banking site at  www.bncbank.com.  This
system allows customers to process account transactions, funds transfers, wires,
automated clearing house "(ACH)" transactions,  stop payments and obtain account
history and other information using their personal computers and modems.  Mobile
branches operating in Fargo,  North Dakota and Tempe,  Arizona are also of great
convenience to Bank customers.





<PAGE>


Risk Management

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

Competition

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

Supervision and Regulation

General. BNCCORP and the Banks are extensively regulated under federal and state
laws and  regulations.  These laws and  regulations  are  primarily  intended to
protect depositors and the federal deposit insurance funds, not investors in the
securities of BNCCORP.  The following  information  briefly  summarizes  certain
material  statutes  and  regulations  affecting  BNCCORP  and the  Banks  and is
qualified  in  its  entirety  by  reference  to  the  particular  statutory  and
regulatory provisions.  Any change in applicable laws, regulations or regulatory
policies may have a material effect on the business, operations and prospects of
BNCCORP and the Banks.  The Company is unable to predict the nature or extent of
the effects that fiscal or monetary  policies,  economic controls or new federal
or state  legislation  may have on its business and earnings in the future.  See
"-Recently Enacted Legislation."

<PAGE>

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

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

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

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

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

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

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

Capital Adequacy.  The capital adequacy of BNCCORP and the Banks is monitored by
the federal  regulatory  agencies using a combination of risk-based and leverage
ratios.  Failure to meet the applicable capital guidelines could subject BNCCORP
or the Banks to supervisory or enforcement  actions. In addition,  BNCCORP could
be required to  guarantee a capital  restoration  plan of the Banks,  should the
Banks become  "undercapitalized"  under capital  guidelines.  See Note 12 to the
Consolidated  Financial  Statements included under Item 8 of Part II for further
discussion regarding the capital status of BNCCORP and the Banks.

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


Community  Reinvestment Act. Under the Community  Reinvestment Act ("CRA"),  the
Banks are encouraged to respond to the credit and other needs of the communities
they  serve.  Bank  performance  under the CRA is
<PAGE>

periodically  tested and the  federal  bank  regulatory  agencies  consider  CRA
ratings in  connection  with  acquisitions  involving the change in control of a
financial institution.

Deposit Insurance.  FDIC-insured depository institutions that are members of the
FDIC's Bank Insurance Fund and Savings Association  Insurance Fund pay insurance
premiums  at rates  based  on their  assessment  risk  classification,  which is
determined  in part  based on the Banks'  capital  ratios and in part on factors
that the FDIC deems  relevant  to  determine  the risk of loss to the  insurance
funds.

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

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

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

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

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

Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act (the "Financial Modernization
Act") has expanded  the powers of banks and bank  holding  companies to sell any
financial product or service,  closed the unitary thrift loophole,  reformed the
Federal Home Loan Bank ("FHLB")  System to increase  community  banks' access to
loan funding, protected banks from discriminatory state insurance regulation and
established a new framework for the regulation of bank and bank holding  company
securities brokerage and underwriting  activities.  The Financial  Modernization
Act also included new provisions in the privacy area, restricting the ability of
financial  institutions to share nonpublic  personal  customer  information with
third parties.  Throughout  2001,  the Company has been  reviewing  implementing
regulations and other guidance issued by bank regulatory agencies in response to
the  Financial  Modernization  Act and  establishing  policies,  procedures  and
programs required or recommended by such regulations and guidelines.

Changing Regulatory Structure. The FRB, OCC and FDIC have extensive authority to
police  unsafe or  unsound  practices  and  violations  of  applicable  laws and
regulations  by  depository  institutions  and  their  holding  companies.   The
agencies' authority has been expanded by federal legislation in recent years. In
addition,

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


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

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

Employees

At December 31, 2001, BNC had 229 employees,  including 219 full-time equivalent
employees.  None of  BNC's  employees  is  covered  by a  collective  bargaining
agreement and management  believes that its  relationship  with its employees is
good.

Item 2.     Properties

The principal offices of BNCCORP are located at 322 East Main Avenue,  Bismarck,
North Dakota.  The building is owned by BNC National Bank. The principal  office
of BNC  National  Bank is  located  at 333 South  Seventh  Street,  Minneapolis,
Minnesota.  BNC National  Bank also owns branch  offices at 219 South 3rd Street
and 807 East Century Avenue and an additional  office  building at 116 North 4th
Street in Bismarck.  It also owns its banking  facilities in Crosby,  Ellendale,
Fargo, Kenmare, Linton and Stanley, North Dakota.

BNC National Bank's  facilities at 100 West Main Street  (Mandan),  Garrison and
Watford  City,  North  Dakota  and the land at South 3rd Street  (Bismarck)  are
leased.  The  facilities  occupied by BNC National Bank and BNC AMI at 333 South
Seventh Street,  Minneapolis,  Minnesota, and facilities occupied by BNC-Arizona
at 640 and 660 South Mill Avenue, Tempe, Arizona, along with 2725 East Camelback
Road, Phoenix, Arizona are also leased.

All owned and leased  properties are considered in good operating  condition and
are  believed  adequate  for  the  Company's  present  and  foreseeable   future
operations.  BNC  does not  anticipate  any  difficulty  in  leasing  additional
suitable  space upon  expiration  of  present  lease  terms.  See Note 20 to the
Consolidated  Financial  Statements  included  under  Item  8  of  Part  II  for
additional information concerning lease and other commitments.

Item 3.     Legal Proceedings

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


<PAGE>

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

No matters were submitted to a vote of security holders during the quarter ended
December 31, 2001.



                                     PART II

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

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

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

<TABLE>
<CAPTION>

                            2002                2001               2000
                     -----------------   -----------------  ------------------
Period                High      Low       High      Low      High       Low
                     -------   -------   -------   -------  --------  --------
<S>                  <C>       <C>       <C>       <C>      <C>       <C>

First Quarter......   $8.90     $7.28     $8.56     $5.94    $ 7.25     $5.81
Second Quarter.....      --        --      9.50      7.00      6.94      5.88
Third Quarter......      --        --      9.41      7.51      6.56      5.75
Fourth Quarter.....      --        --      8.45      7.28      6.50      5.38

</TABLE>

On March 15, 2002, there were 92 record holders and 996 beneficial owners of the
Company's Common Stock.

BNCCORP's  policy  is to  retain  its  earnings  to  support  the  growth of its
business. The board of directors of BNCCORP has never declared cash dividends on
its  Common  Stock  and does not plan to do so in the  foreseeable  future.  The
ability of BNCCORP to pay cash dividends  largely  depends on the amount of cash
dividends paid to it by the Banks. Capital  distributions,  including dividends,
by the Banks are subject to federal  regulatory  restrictions tied to the banks'
earnings and capital. Approval of the OCC, the Banks' principal regulator, would
be  required  for the Banks to pay  dividends  in excess of the Banks'  earnings
retained in the current  year plus  retained net profits for the  preceding  two
years.  See "Supervision and  Regulation-Dividend  Restrictions"  included under
Item 1 of Part I.

Item 6.     Selected Financial Data

The selected  consolidated  financial  data  presented  below under the captions
"Income  Statement  Data" and "Balance Sheet Data" as of and for the years ended
December 31, 2001,  2000,  1999,  1998 and 1997 are derived from the  historical
audited  consolidated  financial  statements  of the Company.  The  Consolidated
Balance  Sheets as of  December  31,  2001,  2000,  1999,  1998 and 1997 and the
related Consolidated Statements of Income,  Comprehensive Income,  Stockholders'
Equity and Cash Flows for each of the five  years in the period  ended  December
31, 2001 were audited by Arthur Andersen LLP,  independent  public  accountants.
The financial data below should be read in conjunction with and are qualified by
the Consolidated  Financial Statements and the notes thereto included under Item
8.


<PAGE>
<TABLE>
<CAPTION>

                           Selected Financial Data (1)

                                    For the Years Ended December 31,
                             ---------------------------------------------------
                             2001       2000      1999       1998       1997
                             --------  ---------  --------  ---------  ---------
                         (dollars in thousands, except share and per share data)
<S>                           <C>       <C>        <C>       <C>        <C>

Income Statement Data:
Total interest income........ $ 39,201  $ 41,763   $28,931   $ 27,801   $ 25,232
Total interest expense.......   23,544    28,117    16,574     15,152     13,132
                               -------- ---------  --------  ---------  --------
Net interest income..........   15,657    13,646    12,357     12,649     12,100
Provision for credit losses..    1,699     1,202     1,138      1,201      2,518
Noninterest income...........    8,975     7,773     6,068      4,843      3,928
Noninterest expense..........   20,833    17,430    18,215     13,379     11,256
Provision for (benefit from)
   income taxes..............      608       906     (399)      1,030        955
                               -------- ---------  --------  ---------  --------
Income (loss) from
continuing operations........ $  1,492  $  1,881   $ (529)   $  1,882   $  1,299
                              ======== ==========  ========  ========= =========
Balance Sheet Data:
(at end of period)
Total assets................. $585,057  $570,016   $456,877  $372,240   $345,630
Investments and federal
   funds sold                  226,681    263,185   154,492    96,601     94,624
Loans, net of unearned
    income...................  320,791    268,925   262,051   247,181    220,149
Allowance for credit losses..   (4,325)    (3,588)   (2,872)   (2,854)    (2,919)
Total deposits...............  407,969    362,464   324,711   284,499    262,824
Short-term borrowings........  117,960    150,428    88,700    49,290     46,503
Long-term borrowings.........       13     12,642    14,470     9,195      8,285
Guaranteed preferred
   beneficial interests in
   Company's subordinated
   debentures................   22,244      7,606        --        --         --
Stockholders' equity.........   30,679     29,457    23,149    25,255     23,148
Book value per common share
    outstanding.............. $  12.79  $   12.30  $   9.65  $  10.57   $   9.64
Earnings Performance Data (1):
Return on average total
    assets...................    0.22%      0.35%   (0.13)%     0.54%      0.42%
Return on average stockholders'
   equity....................    4.04%      7.68%   (2.13)%     8.48%      6.16%
Net interest margin..........    2.95%      2.72%     3.41%     3.88%      4.27%
Net interest spread..........    2.51%      2.41%     3.09%     3.43%      3.82%
Basic earnings (loss) per
   common share.............. $  0.62   $   0.78   $ (0.22)  $   0.79    $  0.54
Diluted earnings (loss) per
common share................. $  0.62   $   0.78   $ (0.22)  $   0.75    $  0.54
Balance Sheet and Other Key
     Ratios (1):
Nonperforming assets to total
   assets....................   0.76%      0.12%     0.63%      1.21%      0.43%
Nonperforming loans to total
   loans....................    1.36%      0.22%     0.63%      0.97%      0.68%
Net loan charge-offs to
   average loans............   (0.31)%    (0.19)%   (0.45)%    (0.54)%    (0.53)%
Allowance for credit losses
   to total loans...........
 Allowance for credit losses    1.35%      1.33%     1.10%      1.15%      1.33%
   to nonperforming loans...      99%       619%      173%       119%       195%
Average stockholders' equity to
   average total assets......   5.42%      4.56%     6.32%      6.33%      6.89%
-------------------------
<FN>

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



<PAGE>


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

Overview

The Company's  financial  performance in 2001 reflected  continued growth in net
interest income and noninterest  income driven by lending  opportunities  in new
and  existing  markets  and a  strategic  shift of the  earning  asset  mix from
investment securities to loans. The Company saw continued progress in the growth
of its  Wealthbuilder  family  of NOW and money  market  deposit  products.  The
average balance of NOW and money market  deposits  increased $22.7 million or 17
percent to $159.2  million for 2001 from an average of $136.5  million for 2000.
Net interest income for the year ended December 31, 2001, was $15.7 million,  as
compared  with $13.6  million and $12.4  million  reported in the  previous  two
years.  Noninterest  income rose to $9.0  million in 2001 from $7.8  million and
$6.1  million in 2000 and 1999,  respectively.  In the process of  shifting  the
earning asset mix to loans from investment securities,  in addition to adjusting
the investment portfolio's risk/reward profile in response to the dramatic shift
in interest  rates during the year,  net realized  gains on sales of  securities
increased by $1.1 million to $1.4 million in 2001.  The increase in net realized
gains on  sales of  securities  accounted  for 93  percent  of the  increase  in
noninterest  income as insurance  commissions,  loan fees,  brokerage income and
trust and  financial  services,  remained  relatively  steady in the face of the
challenging  national economic  environment.  Noninterest  expense rose to $20.8
million  in 2001 from $17.4  million  in 2000  reflecting  higher  salaries  and
employee benefits,  occupancy,  and marketing expense primarily  associated with
the Company's  establishment  of a banking  subsidiary in Arizona.  In addition,
noninterest  expense increased due to the expense  associated with the Company's
issuances of trust preferred securities in 2000 and 2001.

The Company  recorded 2001 net income of $1.2  million,  or $0.51 per share on a
diluted basis,  compared to net income of $2.3 million,  or $0.96 per share on a
diluted  basis for 2000,  and net  income of  $242,000,  or $0.10 per share on a
diluted  basis for 1999.  Income from  continuing  operations  for 2001 was $1.5
million or $0.62 per share on a diluted basis. This compares to $1.9 million, or
$0.78  per  share  on a  diluted  basis  for  2000  and a loss  from  continuing
operations of $529,000 or $0.22 per share on a diluted basis in 1999.

Performance highlights in the year 2001 included:

     *    Loans and leases increased 19 percent,  to $320.8 million. In addition
          to the 19  percent  increase  in net loans  outstanding,  gross  loans
          originated  continued  to  increase  as the total  loans sold to other
          financial institutions on a nonrecourse basis increased $19.8 million,
          or 9%, to $235.8 million.

     *    Expansion  into the  Tempe/Phoenix,  Arizona  marketplace  though  the
          establishment of a banking subsidiary, BNC-Arizona.

     *    Issuance of $15.0 million in floating rate trust preferred  securities
          and  retirement of the remaining  $12.6 million of the Company's 8 5/8
          percent  subordinated  notes  due  May 31,  2004.  See  Note 9  "Notes
          Payable" and Note 10  "Guaranteed  Preferred  Beneficial  Interests in
          Company's   Subordinated   Debentures"   under  Item  8  for   further
          information related to the Company's trust preferred securities.

     *    Investment  securities  decreased  17 percent to $219.2  million  from
          $263.2  million the prior year  reflecting  a  strategic  shift in the
          earning asset mix from  investment  securities  to loan  opportunities
          arising from the Company's new and existing markets.

     *    Deposits increased 12.6 percent,  to $408 million.  The deposit growth
          was driven by continued success of the Wealthbuilder family of NOW and
          money market accounts.

     *    Noninterest income increased 15.5 percent to $9.0 million.
<PAGE>

Results of Operations

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

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


<PAGE>
<TABLE>
<CAPTION>
            Analysis of Average Balances, Interest and Yields/Rates (1)

                                                 For the Years ended December 31,
                                 -----------------------------------------------------------------
                                         2001                  2000                  1999
                                 --------------------- --------------------- ---------------------
                                         Interest Average            Interest Average            Interest Average
                                 Average  earned  yield of  Average   earned  yield or  Average   earned  yield or
                                 balance or paid    cost    balance  or paid    cost    balance  or paid    cost
                                -------- -------- --------  -------  -------- --------  ------- --------- --------
                                                             (dollars in thousands)
<S>                            <C>       <C>       <C>      <C>       <C>      <C>      <C>       <C>        <C>
Assets
  Federal funds sold/interest
     bearing due from........  $  1,830  $     51   2.79%   $  5,660  $   242   4.28%   $  1,818  $     90   4.95%
   Taxable investments........  206,572    12,716   6.16%    225,559   16,054   7.12%    105,145     6,372   6.06%
  Tax-exempt investments......   16,453       829   5.04%     17,624      940   5.33%      7,788       386   4.96%
  Loans (2)...................  309,661    25,605   8.27%    255,798   24,527   9.59%    250,158    22,083   8.83%
  Allowance for credit losses.   (4,153)      --              (3,405)     --              (2,890)       --
                                -------- --------           --------  --------           -------  --------
     Total interest-earning     530,363    39,201   7.39%    501,236   41,763   8.33%    362,019    28,931   7.99%
     assets (3)...............
  Noninterest-earning assets:
     Cash and due from banks..   11,997                        8,939                                 7,704
     Other....................   25,712                       27,579                                22,584
                               --------                     --------                              --------
         Total assets........  $568,072                     $537,754                              $392,307
                               ========                     ========                              ========
Liabilities and Stockholders'
Equity
  Deposits:
    NOW and money market
       accounts............... $159,198  $  4,987   3.13%   $136,450   7,341    5.38%   $ 91,671    3,632    3.96%
    Savings...................    3,813        57   1.49%      4,097      86    2.10%      6,294      129    2.05%
  Certificates of deposit:
    Under $100,000............  104,802     5,631   5.37%    108,170   6,033    5.58%    125,470    6,469    5.16%
    $100,000 and over.........   77,140     4,447   5.76%     54,177   3,406    6.29%     43,140    2,307    5.35%
                               --------  --------           -------- --------           -------- ---------
  Total interest-bearing        344,953    15,122   4.38%    302,894  16,866    5.57%    266,575   12,537    4.70%
  deposits....................
  Short-term borrowings:
    Securities and loans sold
      under agreements to
      repurchase and federal
      funds purchased.........   10,206       449   4.40%    97,682    6,326    6.48%     21,685    1,129    5.21%
    FHLB notes payable........  118,705     7,178   6.05%    60,561    3,673    6.07%     40,308    2,174    5.39%
  Long-term borrowings........    8,378       777   9.27%    13,497    1,252    9.28%      9,872      734    7.44%
                               --------  -------- --------  ------- --------            -------- ---------
         Total interest
         bearing labilities...  482,242    23,526   4.88%   474,634   28,117    5.92%    338,440   16,574    4.90%
Noninterest-bearing demand
   accounts..................    32,152                      28,656                       27,094
                                -------                     -------                     --------
         Total deposits and
          interest-bearing
          liabilities......... 514,394                      503,290                      365,534
Other noninterest-bearing
   liabilities................   8,766                        6,850                        5,567
                                -------                     -------                     --------
         Total liabilities.... 523,160                      510,140                      371,101
Subordinated debentures.......  13,542                        3,108                           --
Stockholders' equity..........  31,370                       24,506                       21,206
                               -------                      -------                     --------
         Total liabilities and
          stockholders' equity $568,072                    $537,754                     $392,307
                               ========                    ========                     ========
Net interest income...........            $15,675                    $13,646                      $12,357
                                          =======                    ======                       =======
Net interest spread...........                      2.51%                       2.41%                        3.09%
                                                   ======                       ======                      ======
Net interest margin...........                      2.95%                       2.72%                        3.41%
                                                   ======                       ======                      ======
  Ratio of average interest-
    earning assets to average
    interest-bearing
    liabilities...............  109.98%                     105.60%                     106.97%
                              ========                      =======                    =======
 --------------------
<FN>
(1)   From continuing operations for all periods presented.
(2)   Average nonaccrual loans are included in average loans outstanding.
(3)   Yields do not include adjustments for tax-exempt interest.

</FN>
</TABLE>

<PAGE>


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

                   Analysis of Changes in Net Interest Income (1)

                                        For the Years Ended December 31,
                                ------------------------------------------------
                                2001 Compared to 2000     2000 Compared to 1999
                                ------------------       --------------
                                  Change Due to           Change Due to
                                -----------------        --------------
                                  Volume   Rate   Total  Volume  Rate   Total
                                --------- ------- ------ ------ ------ --------
                                                 (in thousands)
<S>                             <C>      <C>     <C>      <C>   <C>     <C>

Interest-Earning Assets
  Federal funds sold/interest-
     bearing due from.......... $  (164) $  (27) $ (191)  $ 190 $  (38) $   152
  Investments..................  (1,409) (2,040) (3,449)  7,794  2,442   10,236
  Loans........................   5,165  (4,087)  1,078     498  1,946    2,444
                                -------- ------- -------- ----- ------- -------
    Total increase (decrease)
    in interest income.........   3,592  (6,154) (2,562)  8,482  4,350   12,832
                                -------- ------- -------- ----- ------- -------
Interest-Bearing Liabilities
  NOW and money market accounts   1,224  (3,578) (2,354)  1,774  1,935    3,709
  Savings......................      (6)    (23)    (29)    (45)     2      (43)
  Certificates of Deposit:
    Under $100,000.............    (188)   (214)   (402)   (892)   456     (436)
    $100,000 and over..........   1,444    (403)  1,041     590    509    1,099
  Short-term borrowings:
    Securities and loans sold
     under agreements to
     repurchase and federal
     funds purchased.......      (5,665)   (212) (5,877)  3,957  1,240    5,197
    FHLB notes payable.........   3,526     (21)  3,505   1,092    407    1,499
  Long-term borrowings.........    (475)     --    (475)    270    248      518
                                -------- ------- -------- ----- ------- -------
  Total increase (decrease) in
  interest expense.............   (140)  (4,451) (4,591)  6,746  4,797   11,543
                                ======== ======= ======= ====== ======= =======
  Increase (decrease) in net
     interest income
  income.......................$  3,732 $(1,703) $2,029  $1,736 $ (447) $ 1,289
                                ======== ======= ======= ====== ======= =======
<FN>

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

Year ended  December 31, 2001  compared to year ended  December  31,  2000.  Net
interest  income  increased $2.0 million,  or 14.7 percent,  to $15.6 million as
compared to $13.6 million. Net interest spread and net interest margin increased
to 2.51 and 2.95  percent,  respectively.  The following  condensed  information
summarizes  the major  factors  combining  to create the changes to net interest
income, spread and margin.  Lettered explanations following the summary describe
causes of the changes in these major factors.


<PAGE>

<TABLE>
<CAPTION>

                  Net Interest Income Analysis - 2001 vs. 2000 (1)

                                                  For the Years
                                               Ended December 31,      Change
                                                       31,
                                               ------------------ --------------
                                                2001      2000
                                               -------  ---------
                                              (amounts in millions)
<S>                                            <C>       <C>      <C>       <C>

Total interest income decreased.............   $ 39.2    $  41.8  $ (2.6)   (6)%

  Due to:
    Increase in average earning assets......   $530.4    $ 501.2  $  29.2     6%
  Driven by:
    Decrease in average investments (a).....   $223.0    $ 243.2  $         (8)%
    Increase in average loans (b)...........   $309.7    $ 255.8  $  53.9    21
  The increases in average earning assets
  volume were
    offset by:
    Decreased yield on earning assets.......     7.39%     8.33%  (0.94)%  (11)%
  Driven by:
    Decreased yield on loans (c)............     8.27%     9.59%  (1.32)%  (14)%
    Decreased yield on investments (d)......     6.07%     6.99%  (0.92)%  (13)%
  These decreases were somewhat offset by:
    Mix change in earning asset portfolio -
      Average loans as a percent of total
      interest-earning assets (e)...........       58%       51%       7%    14%
Total interest expense decreased............   $ 23.5   $  28.1   $ (4.6)  (16)%
  Due to:
    Increase in average interest-bearing
    liabilities.............................   $ 482.2  $ 474.6   $  7.6      2%
  Driven by:
    Increase in average interest-bearing
    deposits (f)............................   $ 345.0  $ 302.9   $ 42.1     14%
    Decrease in average borrowings (g)......   $ 137.3  $ 171.7   $(34.3)  (20)%

  These increases in average interest-
  bearing liabilities were offset by:
    Decrease in cost of interest-bearing         4.38%    5.57%   (1.19)%  (21)%
    deposits (h)............................
    Decrease in cost of borrowings (i)......     6.12%    6.55%   (0.43)%   (7)%
--------------------
<FN>

(1)  From continuing operations for all periods presented.

(a)  Reflecting strategic shift in earning asset mix from investment  securities
     to loans arising from lending opportunities in the Minnesota,  North Dakota
     and Arizona markets.

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

(c)  The decreased  loan yield is  reflective  of a 475bp  decrease in the prime
     rate over the  course  of 2001 as  monetary  policy  eased in  response  to
     weakening national economic conditions.

(d)  The decreased  investment yield reflects the lower rate environment in 2001
     as well as the  reduction in the size of  investment  portfolio in order to
     shift the earning asset mix toward loans.

(e)  The decrease in investment  securities noted in (a) along with the increase
     in average  loans noted in (b) caused this change in the mix of the earning
     asset portfolio.

(f)  Deposit growth is primarily  attributable  to the continued  success of the
     Wealthbuilder  family of NOW and  money  market  accounts  in  addition  to
     increased use of direct  non-brokered  "National"  certificates  of deposit
     obtained via posting rates on national networks. "National" certificates of
     deposit were $34.0  million as of December 31, 2001  compared to $9 million
     on December 31, 2000.



<PAGE>


(g)  Decreased FHLB borrowings due to greater use of "National"  certificates of
     deposit  as a  wholesale  funding  source  in order to  maintain  borrowing
     capacity at the FHLB, support the earning asset base, and take advantage of
     favorable  costs of "National"  certificates  of deposits  relative to FHLB
     borrowings.  In addition,  the Company redeemed the remaining $12.6 million
     of its 8 5/8  percent  subordinated  notes  due May 31,  2004  through  the
     exercise of its call option.

(h)  Decreased  cost of  interest-bearing  deposits is reflective of the rise in
     volume of  Wealthbuilder  NOW and money market  accounts and the associated
     decreases in cost as interest rates declined during 2001. The Wealthbuilder
     accounts  carry  rates  that  are  variable  at  management's   discretion.
     Management  lowered  the rates  paid for these  deposits  in  response  the
     monetary  easing  that  took  place  during  2001  while   maintaining  the
     competitive  nature of the Wealthbuilder  products in the Company's various
     markets.   Additionally,   in  a  lower  rate  environment,   the  cost  of
     certificates of deposit also decreases with renewals and new accounts.

(i)  Rates are reflective of the overall  decreased rate  environment in 2001 as
     compared to 2000.
</FN>
</TABLE>

Net interest  income and margin in future periods are expected to be impacted by
several  factors.  Recent  decreases  in the prime rate will  negatively  impact
interest income and yields on loans but will positively  impact interest expense
and the cost of deposits and borrowings.

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

Year ended  December 31, 2000  compared to year ended  December  31,  1999.  Net
interest  income  increased $1.3 million,  or 10.4 percent,  to $13.6 million as
compared to $12.4 million.  Net interest spread and net interest margin declined
to 2.41 and 2.72  percent,  respectively.  The following  condensed  information
summarizes  the major  factors  combining  to create the changes to net interest
income, spread and margin.  Lettered explanations following the summary describe
causes of the changes in these major factors:


<PAGE>

<TABLE>
<CAPTION>

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

                                                 For the Years
                                                Ended December         Change
                                                      31,
                                               ------------------  ----------------
                                                2000      1999
                                               -------  ---------
                                                  (amounts in
                                                   millions)
<S>                                            <C>       <C>       <C>        <C>

Total interest income increased.............   $41.8     $  28.9   $  12.9     45%

  Due to:
    Increase in average earning assets......   $501.2    $ 362.0   $ 139.2     38%
  Driven by:
    Increase in average investments (a).....   $243.2    $ 112.9   $ 130.3    115%

    Increase in average loans (b)...........   $255.8    $ 250.2    $  5.6      2%
  The increases in average earning assets
  volume were coupled with:
    Increased yield on earning assets.......    8.33%      7.99%     0.34%      4%
  Driven by:
    Increased yield on loans (c)............    9.59%      8.83%     0.76%      9%
    Increased yield on investments (d)......    6.99%      5.98%     1.01%     17%
  These increases were somewhat offset by:
    Mix change in earning asset portfolio -
      Average loans as a percent of total
      interest-earning assets (e).. ........      51%        69%     (18)%   (26)%
Total interest expense increased............   $ 28.1    $  16.6   $  11.5     69%
  Due to:
    Increase in average interest-bearing
    liabilities.............................   $474.6    $ 338.4   $ 136.2     40%
  Driven by:
    Increase in average interest-bearing
    deposits (f)............................   $302.9    $ 266.6   $  36.3     14%
    Increase in average borrowings (g)......   $171.7    $  71.9   $  99.8    139%
   These increases were coupled with:
    Increase in cost of interest-bearing        5.57%      4.70%     0.87%     19%
    deposits (h)............................
    Increase in cost of borrowings (i)......    6.55%      5.62%     0.93%     17%
<FN>

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

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

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

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

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

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

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

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

<PAGE>

(h)  Increased cost of interest-bearing  deposits is reflective of the volume of
     Wealthbuilder NOW and money market accounts and the associated increases in
     cost as  interest  rates  rose  during  2000.  During  2000 and  1999,  the
     Wealthbuilder  accounts  were indexed to and floated with the 90 day T-bill
     rate. Additionally,  in a higher rate environment, the cost of certificates
     of deposit also increases with renewals and new accounts.

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


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

The provision  for credit  losses for the year ended  December 31, 2001 was $1.7
million as compared to $1.2 million in 2000 and $1.1 million in 1999.

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

                             Noninterest Income (1)

                                                             Increase (Decrease)
                                                    --------------------------------------
                          For the Years Ended         2001 - 2000         2000 - 1999
                             December 31,
                      ----------------------------  -----------------   ----------------
                       2001      2000      1999        $        %          $        %
                      --------  --------  --------  --------  -------   --------  ------
                            (in thousands)
<S>                    <C>      <C>       <C>       <C>       <C>       <C>      <C>


Fees on loans........  $2,063   $ 1,941   $ 1,435    $  122       6% (a) $  506     35% (a)
Insurance commissions   1,891     2,003     2,045      (112)    (6)% (b)   (42)    (2)% (b)
Brokerage income.....   1,407     1,466       797       (59)    (4)% (c)    669     84% (c)
Net gain on sales of
  securities ........   1,396       276       198     1,120     406% (d)     78     39%
Trust and financial
services.............     899     1,064       589      (165)   (16)% (e)    475     81% (e)
Service charges......     689       604       536        85      14% (f)     68     13% (f)
Rental income........     133        56       121        77     138%       (65)   (54)%
Other................     497       363       347       134      37%         16      5%
                      --------  --------  --------  --------            --------
Total noninterest
income...............  $8,975   $7,773    $ 6,068   $ 1,202      15%     $1,705     28%
                      ========  ========  ========  ========            ========
<FN>
--------------------
(1) From continuing operations for all periods presented.

(a)  The  increase  in loan fees for 2001 and 2000 is  largely  attributable  to
     loans  originated  and sold. In 2000, BNC AMI also generated some loan fees
     upon  placement  of credit into the  secondary  market.  Management  cannot
     predict  with any degree of  certainty  the  amount of loans  which will be
     originated  or placed and  related  loan fees which will be  recognized  in
     future periods.

(b)  In 2000,  insurance  commissions  remained  relatively stable in spite of a
     reduction in the number of insurance agents. In 2001, insurance commissions
     experienced a decline in the face of a challenging economic environment.

(c)  Increase for 2000 is attributable to the addition of brokerage staff at BNC
     AMI  and  successful  efforts  to  cross-sell  brokerage  services  to bank
     customers. In 2001, brokerage income was relatively stable in the face of a
     challenging  economic environment and a prolonged period of soft conditions
     in equity markets.
<PAGE>


(d)  Net  gain on  sales  of  securities  increased  as a  function  of  selling
     investment securities in the process of shifting the earning asset mix from
     investment  securities to loan opportunities  available in new and existing
     markets.  In  addition,  given the  significant  decline in interest  rates
     during 2001,  sales of  investment  securities  were  necessary in order to
     adjust the forward-looking risk/reward profile of the investment portfolio.

(e)  The 2000  increase is  attributable  to fees  associated  with the BNC U.S.
     Opportunities  Fund,  LLC which  was  formed  on  September  1, 1999 and is
     managed by the  BNC-Minnesota's  Financial Services Division.  In 2001, the
     fees from the BNC U.S.  Opportunities Fund, LLC decreased as the fees are a
     function  of the  asset  size  of the  fund.  The  fund's  asset  size  was
     negatively impacted by the overall decline in equity markets.

(f)  Service  charges  increased  in 2001 and 2000 as the Company  continued  to
     increase  its  Wealthbuilder  NOW and money  market  volume  along  with an
     increase in  non-interest  bearing  deposits  which are primarily  business
     deposit  relationships  that tend to utilize a greater  level of  fee-based
     deposit services.

</FN>
</TABLE>

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

                             Noninterest Expense (1)
                                                                      Increase (Decrease)
                                                            -------------------------------------
                                 For the Years Ended
                                     December 31,             2001 - 2000           2000 - 1999
                              ---------------------------  -------------------    -----------------
                               2001      2000      1999       $          %         $        %
                              --------  -------   -------  ---------  --------    --------  -------
     <S>                      <C>       <C>       <C>      <C>        <C>         <C>       <C>

                                 (in thousands)
     Salaries and employee
        benefits...............$10,355  $ 8,891   $ 8,854   $  1,464       16% (a)  $  37       --
     Occupancy.................  1,925    1,360     1,248        565       42% (b)    112       9%
     Depreciation and
     amortization..............  1,846    1,659     1,586        187       11%         73       5%
     Minority interest in
      income of subsidiaries...  1,377      399        --        978      245% (c)    399       -- (c)
     Professional services.....  1,349    1,290     1,214         59        5%         76       6%
     Office supplies,
      telephone and postage      1,001      940       941         61        6%        (1)       --
     Marketing and promotion...    877      597       621        280       47% (d)   (24)     (4)%
     FDIC and other assessments    193      200       191         (7)     (4)%         9        5%
     Repossessed and impaired
      asset expenses/write-offs    141      470     2,271       (329)    (70)% (e) (1,801)    (79%) (e)
     Other.....................  1,769    1,624     1,289        145        9%        335      26%  (f)
                               --------  -------   -------  ---------            --------
      Total noninterest
      expense..................$20,833   $17,430  $18,215   $  3,403       20%    $ (785)      (4)%
                               ========  =======   =======  =========             ========
     Efficiency ratio (g)...... 84.57%   81.38%    98.86%      3.19%              (17.48)%
<FN>
--------------------
(1)  From continuing operations for all periods presented.

(a)  2001 increase reflects additions to personnel associated with the Company's
     establishment  of a banking  subsidiary  in Arizona  along with  additional
     personnel in the Minneapolis market.

(b)  Increase in 2001 associated with new facilities due to the establishment of
     a banking  subsidiary  in  Arizona,  along  with  recording  a full  year's
     occupancy expense for BNC - Minnesota's Fargo, North Dakota branch.

(c)  This is the interest expense associated with the trust preferred securities
     issued in July 2000 and the additional  interest  expense from the floating
     rate trust preferred  securities  issued in July 2001. The increase in 2001
     reflects a the full year  expense  of the July 2000  issue  along with five
     months  of  expense  on  the  July  2001  issuance.  See  Note  10  to  the
     Consolidated  Financial  Statements  included  under  Item  8  for  further
     information related to the Company's trust preferred offerings.

(d)  Increased  marketing  costs  reflecting  development  of the  Company's new
     markets in Arizona and Fargo, North Dakota.

(e)  1999  included  write-downs  to estimated net  realizability  of other real
     estate owned and repossessed  assets.  The Company had no assets classified
     as other real estate owned at December 31, 2001 and repossessed assets were
     valued at $84,000.

<PAGE>

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

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


Financial Condition

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

The following table presents the Company's assets by category as of December 31,
2001,  2000 and 1999,  as well as the amount and  percent of change  between the
dates.  Material  changes are  discussed in lettered  notes  following the table
(amounts     are     in     thousands):
<TABLE>
<CAPTION>

                                     Assets
                                                               Increase (Decrease)
                                                      -------------------------------------
                            As of December 31,          2001 - 2000          2000 - 1999
                      ----------------------------    ----------------    -----------------
                        2001      2000      1999        $          %          $         %
                      -------   --------  --------    ------    ------    --------   ------
<S>                   <C>       <C>       <C>         <C>       <C>       <C>        <C>

Cash and due from
 banks............... $16,346   $ 14,988  $ 12,816    $1,358        9%    $  2,172      17%
Interest-bearing
 deposits with banks      126        595     5,565      (469)    (79)%      (4,970)   (89)%
Federal funds sold..    7,500         --     3,500     7,500      100%      (3,500)  (100)%
Investment
 securities
 available for sale.  219,181    263,185   150,992   (44,004)    (17)% (a) 112,193      74% (a)
Loans and leases, net 316,466    265,337   259,179    51,129       19% (b)   6,158       2% (b)
Premises, leasehold
 improvements and
 equipment, net.....   15,403     14,873    12,006       530        4%       2,867      24%
Interest receivable.    3,008      3,854     2,613      (846)    (22)%       1,241      47%
Other assets........    4,856      4,465     6,945       391        9%      (2,480)   (36)%
Deferred changes and
 intangible assets,
 net................    2,171      2,719     3,261      (548)    (20)%        (542)   (17)%
                      --------  --------- --------   --------            ---------
    Total assets.... $585,057   $570,016  $456,877   $15,041        3%    $113,139      25%
                      ========  ========= ========   ========            =========

<FN>

(a)  The Company  implemented a balance sheet leveraging strategy beginning late
     in 1999  whereby the earning  asset  portfolio  was  increased  through the
     purchase of additional investment securities funded primarily by borrowings
     from the FHLB. In 2001, the Company began to strategically shift the larger
     earning asset base to loans from investment securities.

(b)  In 2001,  the Company  increased its net loans and leases by  strategically
     shifting its earning asset mix toward loans from investment securities. The
     increase in net loans and leases reflected  commercial real estate and real
     estate  construction  loans  arising  from  opportunities  primarily in the
     Arizona and Minnesota markets. The 2000 increase is primarily  attributable
     to an  increase  in real  estate  construction  loans.  Although  net loans
     outstanding  did not increase  materially,  gross loans  originated  by the
     Company increased  significantly in 2000 as the Company originated and sold
     portions of loans to other  lenders on a  nonrecourse  basis.  Loans may be
     sold to accommodate  customers  whose  financing needs exceed legal lending
     limits and/or  internal loan  restrictions  relating  primarily to industry
     concentrations.  Outstanding  balances  of  loan  participations  sold on a
     nonrecourse basis were $235.8, $216.0, and $148.7 million, respectively, as
     of December 31, 2001, 2000 and 1999.
</FN>
</TABLE>




<PAGE>


The following  table presents the Company's  liabilities,  guaranteed  preferred
beneficial  interests in  subordinated  debentures and  stockholders'  equity by
category  as of  December  31,  2001,  2000 and 1999,  as well as the amount and
percent of change between the dates.  Material changes are discussed in lettered
notes following the table (amounts are in thousands):
<TABLE>
<CAPTION>

           Liabilities, Subordinated Debentures and Stockholders' Equity
                                                              Increase (Decrease)
                                                     --------------------------------------
                           As of December 31,          2001 - 2001          2000 - 1999
                      -----------------------------  -----------------   ------------------
                       2001       2000      1999        $        %          $         %
                      --------  ---------  --------  --------  -------   --------- --------
<S>                   <C>       <C>        <C>       <C>       <C>       <C>       <C>

Deposits:
Noninterest-bearing. $ 43,055   $ 31,459  $ 29,798   $11,596      37% (a) $  1,661       6%
Interest-bearing -
 Savings, NOW and
   money market.....  170,653    169,425   127,454     1,228       1%       41,971      33% (b)
 Time deposits
   $100,000 and over   83,809     61,720    46,779    22,089      36% (c)   14,941      32% (c)
 Other time deposits  110,452     99,860   120,680    10,592      11% (b) (20,820)    (17)% (b)
Short term borrowings 117,960    150,428    88,700   (32,468)   (22)% (d)   61,728      70% (d)
Long term borrowings       13     12,642    14,470   (12,629)  (100)% (e)   (1,828)   (13)%
Other liabilities...    6,192      7,419     5,847   (1,227)    (17)%        1,572      27%
                     ---------  ---------  --------  --------             ---------
    Total liabilities 532,134    532,953   433,728     (819)       --       99,255      23%
Guaranteed preferred
 beneficial interest
 in Company's
 subordinated
 debentures.........   22,244      7,606        --    14,638     192% (f)    7,606       -- (f)
Stockholders' equity   30,679     29,457    23,149     1,222       4% (g)    6,308      27% (g)
                     ---------  --------- ---------  --------             ---------
    Total........... $585,057   $570,016  $456,877   $15,041       3%     $113,139      25%
                     =========  ========= =========  ========             =========

<FN>

(a)  Noninterest-bearing  deposits can fluctuate  significantly on a daily basis
     due to transactions associated primarily with commercial customers.

(b)  Increases in the "savings,  NOW and money market" category are attributable
     to the popularity of the Company's Wealthbuilder deposit products.  Success
     of these  products  has also  contributed  to a decrease in the "other time
     deposits" category as some customers have elected to transfer maturing time
     deposits  to  the  more  liquid  and  competitively   priced  Wealthbuilder
     products.  During 2001, the "other time deposits" category increased due to
     certain special promotions in select markets.

(c)  Brokered  deposits  totaled  $34.4 million at December 31, 2001 compared to
     $30.7  and $13.4  million  at  December  31,  2000 and 1999,  respectively.
     "National"  certificates of deposit  increased to $34.0 million at December
     31, 2001  compared to $9 million at December 31, 2000 due to greater use of
     "National"  certificates of deposit as a wholesale  funding source in order
     to maintain  borrowing capacity at the FHLB and take advantage of favorable
     costs of "National" certificates of deposits relative to FHLB borrowings.

(d)  Increases in short term borrowings for 2000 are attributable to the balance
     sheet  leveraging  strategy.  Decrease in 2001 reflects a reduction in FHLB
     borrowings  resulting  from  a  decrease  in  the  size  of  the  Company's
     investment  securities  portfolio  as  well as a shift  to  greater  use of
     "National"  certificates  of  deposit  as a  wholesale  funding  source  as
     described above.

(e)  On August 31,  2001,  the  Company  retired  its  remaining  8 5/8  percent
     subordinated  notes due May 31, 2004 through exercise of its call option by
     using a portion of the proceeds  from the  issuance of floating  rate trust
     preferred securities in July 2001.

(f)  Issuance of trust preferred securities in July 2000 and floating rate trust
     preferred  securities  in  July  2001.  See  Note  10 to  the  Consolidated
     Financial  Statements included under Item 8 for further information related
     to the Company's trust preferred securities.

(g)  Increase for 2001 is due to earnings of $1.2 million.  Increase for 2000 is
     attributable  to earnings of $2.3 million and  unrealized  holding gains on
     securities available for sale arising during the period of $3.9 million.
</FN>
</TABLE>

<PAGE>


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

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

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

                      Investment Portfolio Composition (1)

                                                 December 31,
                      --------------------------------------------------------------------
                              2001                    2000                   1999
                      ---------------------   ---------------------   --------------------
                                  Estimated               Estimated              Estimated
                      Amortized    fair       Amortized   fair        Amortized  fair
                        cost      market        cost       market       cost      market
                                   value                   value                  value
                      ---------   ---------   ---------   ---------   ---------  ---------
<S>                   <C>         <C>         <C>         <C>         <C>        <C>
                                                 (in thousands)
Available for Sale:
U.S. government
  agency
  mortgage-backed
  securities......... $ 42,027    $ 41,946    $ 44,272    $ 44,468    $ 26,697   $ 26,295
U.S. government
  agency securities..    4,396       4,495       4,880       4,890       4,654      4,468
Collateralized
  mortgage
  obligations........  135,423     137,268     164,221     165,404      97,243     95,038
State and municipal
bonds                   16,952      17,481      20,782      20,905      20,272     19,548
Corporate bonds......   10,329      10,611      16,968      17,899          --         --
Equity securities....    7,380       7,380       9,619       9,619       5,643      5,643
                      ---------   ---------   ---------   ---------   ---------  ---------
Total investments.... $216,507    $219,181    $260,742    $263,185    $154,509   $150,992
                      =========   =========   =========   =========   =========  =========
<FN>

(1)     From continuing operations for all periods presented.

</FN>
</TABLE>

<PAGE>



The following  table presents  maturities for all securities  available for sale
(other than equity  securities)  and yields for all  securities in the Company's
investment portfolio at December 31, 2001:
<TABLE>
<CAPTION>

                     Investment Portfolio - Maturity and Yields
                                            Maturing
                   -----------------------------------------------------------
                                  After 1 but    After 5 but
                     Within 1       within 5      within 10          After 10         Total
                       year          years          years              years
                   -------------  -------------  --------------  ---------------- ---------------
                   Amount  Yield  Amount Yield   Amount  Yield   Amount    Yield  Amount   Yield
                           (1)           (1)             (1)                (1)             (1)
                   ------  -----  ------ ------  ------- ------  --------  ------ -------  ------
<S>                <C>     <C>    <C>    <C>     <C>     <C>     <C>       <C>    <C>      <C>
Available for
  sale:  (2)
===================
U.S. government
  agency
  mortgage-backed
  securities (3).. $  16   5.86%  $  --     --   $ 3,234  6.37%  $ 38,777   6.12% $ 42,027   6.13%
U.S. government
  agency
  securities......    --     --      927  11.21%     --     --      3,469   6.04%    4,396   7.13%
Collateralized
  mortgage
  obligations (3).   494   5.83%   4,960   6.53% $24,836  5.34%  $105,133   5.42%  135,423   5.45%
State and
municipal bonds...    --     --       15  13.18%     293  7.25%    16,644   7.28%   16,952   7.28%
Corporate bonds...    --     --       --     --    1,000  7.50%     9,329   8.27%   10,329   8.19%
                   ------          ------        -------           ------          -------
Total book value
  of  investment
  securities...... $ 510   5.84%  $5,902   7.28% $29,363  5.54%  $173,352   5.92%  209,127   5.91%
                   ======         ======         =======          ========         -------
Unrealized
  holding gain on
  securities
  available for
  sale................                                                               2,674
Equity securities.....                                                               7,380   2.58%
                                                                                   -------
Total investment
  in securities
  available for
  sale................                                                            $219,181   5.73% (4)
                                                                                   =======
<FN>

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

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

(2)  Based on amortized cost/book value.

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

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

</FN>
</TABLE>

As of December 31, 2001,  BNC had $219.2 million of securities in the investment
portfolio  as  compared to $263.2 and $151.0  million at  December  31, 2000 and
1999, respectively. As part of the strategic shift in the earning asset mix from
investment   securities  to  loans,  the  Company   decreased  its  holdings  in
collateralized  mortgage  obligations,  corporate bonds, and state and municipal
bonds by $28.1, $7.3 and $3.4 million respectively.  Equity securities decreased
by $2.2  million as the Company  was  required to hold less stock in the Federal
Home Loan Bank of Des Moines as a result of a decrease in its FHLB borrowings.

In  addition,  as a result of 475bp of monetary  easing over the course of 2001,
the yield curve  experienced a significant  downward shift and increase in slope
relative  to 2000.  The ongoing  portfolio  management  process  and  individual
security  risk/reward  analysis  described  above led to the sale of  individual
securities whose forward-looking risk/reward profile given various interest rate
scenarios was inferior to other securities  available for purchase.  The need to
optimize the risk/reward  profile of the portfolio as a whole in addition to the
reduction in the  portfolio  size as more  earning  assets were shifted to loans
resulted in transactions  that generated net realized  securities  gains of $1.4
million.

During 2000, the Company had increased its holdings in  collateralized  mortgage
obligations  ("CMOs"),  U.S.  government agency  mortgage-backed  securities and
corporate bonds by $70.4,  $18.2 and $17.9 million,  respectively as part of the
Company's  strategy  to increase  its  earning  asset  portfolio  by  purchasing
investment  securities  primarily funded through FHLB borrowings.  The portfolio
management process,  investment

<PAGE>
objectives,  and  risk/reward  analysis  described above led the increase in the
investment  portfolio to be over-weighted  toward CMOs due to their  risk/reward
characteristics. In addition, over the course of 2000, principal cash flows were
primarily  reinvested in CMOs because they offered a better risk/reward  profile
(due to the  structure  of the  CMO  cash  flows)  relative  to  mortgage-backed
securities.

At December 31, 2001,  BNC held no securities of any single  issuer,  other than
U.S.  government  agency  securities and agency  mortgage-backed  securities and
CMOs, that exceeded ten percent of stockholders'  equity. A significant  portion
of the Company's investment  securities  portfolio  (approximately 85 percent at
December 31, 2001) was pledged as collateral for public deposits and borrowings,
including borrowings with the FHLB.


Loan  Portfolio.  The Company's  primary source of income is interest  earned on
loans.  Net loans increased $51.1 million,  or 19 percent,  to $316.5 million at
December 31, 2001 as compared to $265.3  million at December 31, 2000.  In 2000,
net loans  increased $6.2 million,  or 2.4 percent,  as compared to December 31,
1999.  The  following  table  presents the  composition  of the  Company's  loan
portfolio as of the dates indicated:
<TABLE>
<CAPTION>

                           Loan Portfolio Composition (1)
                                                         December 31,
                     ------------------------------------------------------------------------------------
                            2001           2000              1999            1998              1997
                     --------------- ----------------- ---------------- ---------------- ----------------
                       Amount   %      Amount     %     Amount      %     Amount    %     Amount      %
                     -------- ------  -------  ------- --------  ------ -------- ------- --------  -------
<S>                  <C>      <C>     <C>      <C>     <C>       <C>    <C>      <C>     <C>       <C>

                                               (dollars in thousands)
Commercial and
industrial ......... $109,143   34.5  $112,407   42.4  $111,236   42.9  $107,886    44.2  $ 96,780   44.5
Real estate mortgage  136,219   43.0    90,622   34.2    91,906   35.5    76,692    31.4    56,408   26.0
Real estate            34,872   11.0    25,301    9.6    16,026    6.2    20,831     8.5    18,215    8.4
construction........
Agricultural........   19,810    6.3    15,775    5.9    16,679    6.4    19,777     8.1    21,064    9.7
Consumer/other......   13,685    4.3    14,888    5.6    15,116    5.8    14,761     6.1    18,726    8.6
Lease financing.....    7,578    2.4    10,202    3.8    11,307    4.4     7,422     3.0     9,211    4.2
                     -------- ------  -------- ------  --------  ----- ---------  ------  --------  -----
Total face amount
of loans............  321,307  101.5   269,195  101.5   262,270  101.2   247,369   101.3   220,404  101.4
Unearned income and
  net unamortized
  deferred fees and
  costs.............     (516)  (0.1)     (270)  (0.1)     (219)  (0.1)     (188)   (0.1)     (255)  (0.1)
                     -------- ------  -------- ------  --------  ----- ---------  ------  --------  -----
Loans, net of
  unearned income
  and unamortized
  fees and costs....  320,791  101.4   268,925  101.4   262,051  101.1   247,181   101.2   220,149  101.3
Less allowance for
  credit  losses....  (4,325)   (1.4)   (3,588) (1.4)   (2,872)   (1.1)   (2,854)   (1.2)    (2,919) (1.3)
                     -------- ------  -------- ------  --------   ----- ---------  ------  -------- -----
Net loans........... $316,466  100.0  $265,337 100.0   $259,179  100.0  $244,327   100.0   $217,230 100.0
                     ========  =====  ======== =====   ========  =====  ========   =====   ======== =====
<FN>

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


<PAGE>


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

<TABLE>
<CAPTION>

                     Change in Loan Portfolio Composition (1)
                                            Increase (Decrease)
                               -----------------------------------------------
                                    2001 - 2000              2000 - 1999
                               ----------------------    ---------------------
                                   $           %             $          %
                               -----------  ---------    ----------  ---------
<S>                            <C>          <C>          <C>         <C>
                                           (dollars in thousands)
Commercial and industrial..     $  (3,264)      (3)%      $  1,171         1%
Real estate mortgage.......        45,597        50% (a)    (1,284)      (1)%
Real estate construction...         9,571        38% (b)     9,275        58%
Agricultural...............         4,035        26%          (904)      (5)%
Consumer/other.............        (1,203)      (8)%          (228)      (2)%
Lease financing.............       (2,624)     (26)%        (1,105)     (10)%
                               -----------               ----------
Total face amount of loans.        52,112        19%         6,925         3%
Unearned income/unamortized
  fees and costs...........          (246)     (91)%           (51)     (23)%
                               -----------               ----------
Loans, net of unearned             51,866        19%         6,874         3%
  income/unamortized fees
  and costs................
Allowance for credit losses          (737)     (21)%          (716)     (25)%
                               -----------               ----------
Net Loans..................      $ 51,129        19% (c)  $  6,158         2%(c)
                               ===========               ==========
<FN>

(1)  From continuing operations for all periods presented.

(a)  Increase  in 2001 is  attributable  to  commercial  real estate loan volume
     generated out of Minnesota, Arizona, and North Dakota.

(b)  Increased   originations  of  commercial  real  estate  construction  loans
     primarily in the Minnesota and Arizona markets.

(c)  Net loans  outstanding did not increase  significantly in 2000 although the
     Company  generated and sold a significant  volume of loans during the year.
     During  2001,  the  Company  increased  its net loans  $51.1  million or 19
     percent  as part  of a  strategic  shift  in the  earning  asset  mix  from
     investment  securities to loans,  primarily  commercial  real estate loans.
     Despite  the solid  rise in net loans in 2001,  the  increase  in net loans
     presented in the above table for the prior 24 months is not  reflective  of
     the business generated by the Company. Loans originated were $533.5 million
     at December 31, 2001  compared  with $459.0 and $382.4  million at December
     31, 2000 and 1999,  respectively.  Loans are  originated and sold primarily
     for legal lending limit and industry concentration reasons.
</FN>
</TABLE>

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

Credit Policy and Approval Procedures.  BNC follows a uniform credit policy that
sets forth  underwriting  and loan  administration  criteria.  The loan  policy,
including  lending  guidelines  for the various  types of credit  offered by the
Company,  is  established by the Board of Directors (the "Board") based upon the
recommendations  of  senior  lending   management.   Credit  committees  may  be
established at either the Bank or corporate  level.  The loan policy is reviewed
and reaffirmed by the Board at least annually.  Underwriting  criteria are based
upon the  risks  associated  with  each  type of  credit  offered,  the  related
borrowers and types of collateral.

The Company delegates lending decision  authority among various lending officers
and  the  credit   committees  based  on  the  size  of  the  customer's  credit
relationship with BNC. All loans and commitments  approved in excess of $300,000
are presented to the Board on a monthly basis for summary review. Any exceptions
to loan policies and guidelines,  to the extent the credit  relationship  amount
exceeds  individual  loan officer  lending  authorities,  are subject to special
approval by the Banks' Chief Credit Officer or the Executive Credit Committee.

<PAGE>


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

   Loan Participations Sold (1)

           December 31,
-----------------------------------
          (in thousands)
   <S>                  <C>

   2001...........      $212,167
   2000...........       189,763
   1999...........       120,100
   1998...........        56,700
   1997...........        65,800

<FN>

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

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

Concentrations   of   Credit.    The   Company's   credit   policies   emphasize
diversification  of risk among industries,  geographic areas and borrowers.  For
purposes of the analysis of concentrations of credit as of December 31, 2001 the
total  outstanding  loans  as  well as all  outstanding  loan  commitments  were
included.  As of December 31, 2001, the Company identified three  concentrations
of loans exceeding ten percent of total loans and loan commitments  outstanding.
These concentrations were in real estate, lodging places and construction, which
represented 25.1, 11.2 and 12.1 percent,  respectively,  of total loans and loan
commitments outstanding.

The real estate loans and  commitments  were  extended to 136  customers who are
diversified  across  the  Company's  market  areas  and  who  can  be  generally
categorized as indicated below:
<TABLE>
<CAPTION>

                                                 Percent of
                                                    total
                                  Number of      outstanding
                                  customers       loans and
                                                    loan
                                                 commitments
                                 -------------  --------------
<S>                              <C>            <C>
Non-residential and apartment
  building operators,
  developers and lessors of
  real property................            81           18.8%
Real estate holding companies..            55            6.3%
                                 -------------  --------------
     Total.....................           136           25.1%
                                 =============  ==============
</TABLE>

The lodging loans and commitments were extended to 23 customers whose properties
are  located  throughout  the United  States.  Loans in this  category  are made
primarily  to  borrowers  that  have  seasoned  hotel  portfolios  that are well
diversified by location, property type and chain.
<PAGE>

Loans and commitments in the construction category were extended to 76 customers
who are located primarily in Minnesota,  Iowa and North and South Dakota and who
can be generally categorized as indicated below:
<TABLE>
<CAPTION>


                                                       Percent of
                                                         total
                                        Number of     outstanding
                                        customers      loans and
                                                          loan
                                                      commitments
                                       -------------  -------------
<S>                                    <C>            <C>

General building contractors.......              33           8.3%
Heavy construction, excluding
building...........................              18           3.0%
Special trade contractors..........              25            .8%
                                       -------------  -------------
     Total.........................              76          12.1%
                                       =============  =============
</TABLE>

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

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

Agricultural Loans. BNC's agricultural loan portfolio totals approximately $19.8
million,  or 6.3  percent  of total  loans.  Within  the  portfolio,  loans  are
diversified  by type and  include  loans to grain  and/or  livestock  producers,
agricultural  real estate  loans,  machinery  and  equipment  and other types of
loans.  The  majority  of the  Company's  agricultural  loans  are  extended  to
borrowers located in North Dakota, and are diversified over several counties. As
of  December  31,  2001,   there  were  no  agricultural   loans  classified  as
nonperforming.

Loan  Maturities.  The following  table sets forth the  remaining  maturities of
loans in each major category of BNC's portfolio as of December 31, 2001.  Actual
maturities may differ from the contractual maturities shown below as a result of
renewals and prepayments.  Loan renewals are evaluated in the same manner as new
credit applications:
<TABLE>
<CAPTION>

                             Maturities of Loans (1)
                                       Over 1 year
                                     through 5 years      Over 5 years
                                    ------------------- ------------------
                         One year    Fixed    Floating   Fixed    Floating
                         or less      rate       rate      rate     rate      Total
                         --------   --------  --------- --------- --------  ---------
<S>                     <C>         <C>        <C>      <C>       <C>       <C>

                                               (in thousands)
Commercial and
  industrial............$ 43,970    $23,038    $33,692  $  1,588  $ 6,855   $109,143
Real estate mortgage....  28,874     23,015     43,979    26,861   13,490    136,219
Real estate construction  20,110        235     14,527        --       --     34,872
Agricultural............  11,412      3,559      1,787     1,100    1,952     19,810
Consumer/other..........   7,156      3,472      2,671       386       --     13,685
Lease financing.........     328      6,911         --       339       --      7,578
                         --------   --------  --------- --------- --------  ---------
Total face amount of
loans...................$111,850    $60,230   $ 96,656  $ 30,274  $22,297   $321,307
                         ========   ========  ========= ========= ========  =========
--------------------
<FN>


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

<PAGE>

Interest  Rate  Caps  and  Floors.  From  time  to  time  the  Company  may  use
off-balance-sheet  instruments,  principally  interest rate caps and floors,  to
adjust the interest rate sensitivity of on-balance-sheet items, including loans.
See -"Liquidity, Market and Credit Risk," Item 7A, "Quantitative and Qualitative
Disclosures about Market Risk," and Notes 1 and 14 to the Consolidated Financial
Statements  included  under  Item  8 for  further  discussion  about  accounting
policies   applicable  to  derivative   financial   instruments   and  currently
outstanding instruments.

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

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

                            Nonperforming Assets (1)

                                                      December 31,
                                     -----------------------------------------------
                                      2001      2000      1999      1998     1997
                                     --------  --------  -------   -------  --------
<S>                                  <C>       <C>       <C>       <C>      <C>
                                                 (dollars in thousands)
Nonperforming loans:
   Loans 90 days or more delinquent
     and still accruing interest....  $  983   $   221   $   22    $  307   $ 1,016
   Nonaccrual loans (2) (3) (4).....   3,391       343    1,620     2,042       376
   Restructured loans (2) (3).......       5        16       16        44       104
                                     --------  --------  -------   -------  --------
      Total nonperforming loans.....   4,379       580    1,658     2,393     1,496
   Other real estate owned and
   repossessed assets...............      70        84    1,207     2,112        --
                                     --------  --------  -------   -------  --------
      Total nonperforming assets.... $ 4,449   $   664   $2,865    $4,505   $ 1,496
                                     ========  ========  =======   =======  ========
Allowance for credit losses......... $ 4,325   $ 3,588   $2,872    $2,854   $ 2,919
                                     ========  ========  =======   =======  ========
Ratio of total nonperforming loans     1.36%      .22%     .63%      .97%      .68%
to total loans......................
Ratio of total nonperforming assets     .76%      .12%     .63%     1.21%      .43%
to total assets
--------------------
<FN>

(1)  From continuing operations for all periods presented.

(2)  If the  Company's  nonaccrual  and  restructured  loans had been current in
     accordance with their original terms, BNC would have recognized  additional
     interest  income of  $84,000,  $29,000  and  $112,000  for the years  ended
     December 31, 2001, 2000 and 1999, respectively.

(3)  The interest income on nonaccrual and restructured  loans actually included
     in the  Company's  net income was $3,000,  $6,000 and $29,000 for the years
     ended December 31, 2001, 2000 and 1999, respectively.

(4)  Of the $3.4 million of loans classified as nonaccrual at December 31, 2001,
     $3.0 million  relates to two commercial  customers.  Loans for one of these
     customers are partially SBA-guaranteed.
</FN>
</TABLE>


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

<PAGE>


Nonaccrual  loans  include  loans on which  the  accrual  of  interest  has been
discontinued.  Accrual of interest is  discontinued  when  management  believes,
after considering economic and business conditions and collection efforts,  that
the  borrower's  financial  condition is such that the collection of interest is
doubtful.  A delinquent  loan is generally  placed on nonaccrual  status when it
becomes  90 days or more past due  unless  the loan is  well-secured  and in the
process of collection.  When a loan is placed on nonaccrual status,  accrued but
uncollected  interest  income  applicable  to the  current  reporting  period is
reversed against interest income of the current period.  Accrued but uncollected
interest income applicable to previous  reporting periods is charged against the
allowance  for credit  losses.  No  additional  interest  is accrued on the loan
balance until the collection of both principal and interest  becomes  reasonably
certain.  When a problem loan is finally  resolved,  there may  ultimately be an
actual write down or charge-off  of the principal  balance of the loan which may
necessitate  additional charges to earnings. As noted above, of the $3.4 million
of loans in this  category at December  31, 2001,  $3.0  million  relates to two
commercial  customers  and  loans  for  one of  these  customers  are  partially
SBA-guaranteed.

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

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

Potential  Problem Loans. In accordance with accounting  standards,  the Company
identifies loans considered impaired and the valuation allowance attributable to
these  loans.  Impaired  loans  generally  include  loans  on  which  management
believes,  based on current  information  and events,  it is  probable  that the
Company will not be able to collect all amounts due in accordance with the terms
of the loan agreement and which are analyzed for a specific  reserve  allowance.
BNC generally  considers all loans risk-graded  substandard and doubtful as well
as nonaccrual and restructured loans as impaired. Impaired loans at December 31,
2001,  not including the past due,  nonaccrual and  restructured  loans reported
above,  totaled $11.6 million.  A significant  portion of these loans are not in
default but may have characteristics such as recent adverse operating cash flows
or general risk characteristics that the loan officer feels might jeopardize the
future  timely  collection  of  principal  and interest  payments.  The ultimate
resolution  of these  credits is subject to changes in economic  conditions  and
other  factors.  These loans are closely  monitored to ensure that the Company's
position as creditor is protected to the fullest extent possible.

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

     Specific Reserve.  The amount of specific reserves is determined  through a
     loan-by-loan  analysis of problem loans over a minimum size that  considers
     expected future cash flows,  the value of collateral and other factors that
     may impact the  borrower's  ability to make payments when due.  Included in
     this  group are those

<PAGE>
     nonaccrual  or  renegotiated   loans  which  meet  the  criteria  as  being
     "impaired" under the definition in SFAS 114. A loan is impaired when, based
     on current  information and events,  it is probable that a creditor will be
     unable to collect all amounts due according to the contractual terms of the
     loan  agreement.  Problem  loans also include  those credits that have been
     internally  classified as credits requiring  management's  attention due to
     underlying  problems in the  borrower's  business or  collateral  concerns.
     Ranges of loss are determined  based on best- and worst-case  scenarios for
     each loan.

     Reserves for Homogeneous Loan Pools. The Company makes a significant number
     of loans and leases which, due to their underlying similar characteristics,
     are assessed for loss as "homogeneous"  pools.  Included in the homogeneous
     pools are loans and leases  from the retail  sector  and  commercial  loans
     under a certain size,  which have been  excluded from the specific  reserve
     allocation previously discussed.  The Company segments the pools by type of
     loan or lease  and  using  historical  loss  information  estimates  a loss
     reserve for each pool.

     Special  Reserve.  The Company's  senior lending  management also allocates
     reserves  for  special  situations,  which are  unique  to the  measurement
     period. These include environmental factors, such as economic conditions in
     certain geographical or industry segments of the portfolio, economic trends
     in the retail lending sector and peer-group loss history.

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

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

At year end 2001, the Company's  total  allowance was $4.3 million which equates
to  approximately  3.9 times and 3.2 times the average  charge-offs for the last
three  and five  years  respectively,  and 5.1 and 4.3  times  the  average  net
charge-offs  for the same three-and  five-year  periods,  respectively.  Because
historical  charge-offs  are not  necessarily  indicative  of future  charge-off
levels,  the Company  also gives  consideration  to other risk  indicators  when
determining the appropriate  allowance level. The Company's charge-off policy is
generally consistent with regulatory standards.

Historically,   senior   lending   management  in  each  of  BNCCORP's   banking
subsidiaries  has been  responsible for assessing the adequacy of the respective
subsidiary's  allowance for credit losses and making provision for credit losses
recommendations  to the appropriate board of directors.  However,  the Company's
Vice President-Chief Internal Credit Review Manager and Chief Credit Officer now
have the  responsibility  of  affirming  the  Company's  allowance  methodology,
performing an annual credit loss migration  analysis and assessing the allowance
components in relation to estimated and actual charge-off trends.  This analysis
is  presented  to members of  BNCCORP's  Credit  Loss Review  Committee  who are
responsible for assessing and reporting on the  appropriateness of the allowance
for credit losses as well as recommending revisions to the Company's methodology
for determining the adequacy of the allowance as they become necessary.

Concentrations of credit risk are discussed under  "-Concentrations  of Credit."
Concentrations  exist  in  real  estate,  lodging  and  construction  loans  and
commitments. Additionally, a geographic concentration of credit risk also arises
because  BNCCORP has operated  primarily in the upper midwest with 82 percent of
loans  outstanding  as of
<PAGE>

December 31, 2001 having been extended to customers in  Minnesota,  North Dakota
and South Dakota.  Other groups of credit risk may not  constitute a significant
concentration,  but are  analyzed  based on other  evident  risk factors for the
purpose of determining an adequate allowance level.

Nonperforming  and  potential  problem  loans are  defined and  discussed  under
"-Nonperforming  Loans and Assets" and "-Potential Problem Loans." Nonperforming
loans  increased  from $580,000 at December 31, 2000 to $4.4 million at December
31,  2001.  Many of these  loans  are  specifically  analyzed  for  purposes  of
determining the adequacy of the allowance for credit losses. Of the $4.4 million
of  nonperforming  loans at  December  31,  2001,  $3.0  million  relates to two
commercial customers.

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

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


<PAGE>

<TABLE>
<CAPTION>


                    Analysis of Allowance for Credit Losses (1)
                                             For the Years ended December 31,
                                       ---------------------------  --------  -------
                                        2001     2000      1999      1998      1997
                                       -------  --------  --------  --------  -------
                                                  (dollars in thousands)
<S>                                   <C>       <C>       <C>       <C>       <C>

Balance of allowance for credit
losses, beginning of period...........$  3,588  $  2,872  $  2,854  $  2,919  $  1,545
                                      --------  --------  --------  --------- --------
Charge-offs:
   Commercial and industrial..........     542       574     1,090     1,316     1,319
   Real estate mortgage...............      99        58        10        66        24
   Agricultural.......................      --        16        35        --        --
   Consumer/other.....................     213        39       137        73       107
   Lease financing....................     411        68        18        --       471
                                      --------  --------  --------  --------- --------
      Total charge-offs...............   1,265       755     1,290     1,455     1,921
                                      --------  --------  --------  --------- --------
Recoveries:
   Commercial and industrial..........     140       100        86       151       744
   Real estate mortgage...............      30        96         1        26         9
   Agricultural.......................       1        33        --        --        --
   Consumer/other.....................     132        25        71        12        24
   Lease financing....................      --        15        12        --        --
                                      --------  --------  --------  --------- --------
      Total recoveries................     303       269       170       189       777
                                      --------  --------  --------  --------- --------
Net charge-offs.......................    (962)     (486)   (1,120)   (1,266)   (1,144)
Provision for credit losses charged
  to operations.......................   1,699     1,202     1,138     1,201     2,518
                                      --------  --------  --------  --------- --------
Balance of allowance for credit
  losses, end of period...............$  4,325  $  3,588  $  2,872  $  2,854  $  2,919
                                      ========  ========  ========  ========  ========
Ratio of net charge-offs to average
   loans..............................  (.31%)     (.19%)    (.45%)    (.54%)    (.53%)
                                      ========  ========  ========  ========  ========
Average gross loans outstanding
  during the period...................$309,661  $255,798  $250,158  $234,342  $214,053
                                      ========  ========  ========  ========  ========
Ratio of allowance for credit losses
  to total loans......................   1.35%     1.33%      1.10%     1.15%    1.33%
                                      ========  ========  ========  ========  =======
Ratio of allowance for credit losses
  to nonperforming loans..............     99%      619%       173%      119%     195%
                                      ========  ========  ========  ========  =======
<FN>

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

Included in the data above relating  exclusively to a former officer are special
provisions of $454,000 and $1.9 million,  charge-offs of approximately  $639,000
and $1.8 million and recoveries of  approximately  $153,000 and $690,000 for the
years ended December 31, 1998 and 1997,  respectively.  The recoveries primarily
represent payments from the Company's fidelity bond carrier.

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


<PAGE>
<TABLE>
<CAPTION>

                                                       Allocation of the Allowance for Loan Losses (1)
                                                                           December 31,
               ---------------------------------------------------------------------------------------------------------------------
                        2001                   2000                    1999                   1998                     1997
             ----------------------- ----------------------- ----------------------  ----------------------  -----------------------
                          Loans in                Loans in                Loans in                Loans in                Loans in
                        category as              category as            category as             category as             category as
               Amount   a percentage   Amount   a percentage   Amount   a percentage   Amount   a percentage   Amount   apercentage
                 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
             ---------  ------------ ---------  -----------  ---------  -----------  ---------  -----------  ---------  -----------
<S>          <C>        <C>          <C>        <C>          <C>        <C>          <C>        <C>          <C>        <C>
                                                                   (dollars in thousands)
Commercial and
 industrial...  $2,586       34%      $  2,066       42%     $ 1,356        43%       $  1,155        44%     $   931       44%
Real estate
mortgage......   1,038       42%           702       34%         712        35%            667        31%         441       26%
Real estate
construction..     137       11%           112       10%         151         6%            129         8%         311        8%
Agricultural..     267        6%           342        6%         220         6%            252         8%         139       10%
Consumer/other     118        5%           128        5%         138         6%            217         6%         174        8%
Lease
financing.....     179        2%           145        3%          88         4%            133         3%         136        4%
Unallocated...      --        0%            93        0%         207         0%            301         0%         787        0%
                ------     -----      --------     -----     -------      -----       --------      -----    --------     -----
Total.........  $4,325      100%      $  3,588      100%     $ 2,872       100%       $  2,854       100%    $  2,919      100%
                ======     =====      ========     =====     =======      =====       ========      =====    ========     =====
<FN>
(1)   From continuing operations for all periods presented.
</FN>
</TABLE>
Deposits. BNC's core deposits consist of noninterest-and interest-bearing demand
deposits,  savings  deposits,  certificates of deposit under  $100,000,  certain
certificates  of deposit of $100,000 and over and public funds.  These deposits,
along with other  borrowed  funds are used by the  Company to support  its asset
base. See "-Borrowed Funds."

The following table sets forth, for the periods  indicated,  the distribution of
BNC's average deposit  account  balances and average cost of funds rates on each
category of deposits.  See "Results of  Operations-Net  Interest  Income" for an
explanation of changes in deposit volume and costs during the periods presented:
<TABLE>
<CAPTION>
                     Average Deposits and Deposit Costs (1)

                                          For the Years Ended December 31,
                        ----------------------------------------------------------------------
                                2001                    2000                    1999
                        ----------------------  ----------------------  ----------------------
                                Percent  Wgtd.  Average  Percent  Wgtd.           Percent  Wgtd.
                        Average   of     avg.              of     avg.   Average   of      avg.
                        balance deposits rate   balance  deposits rate   balance  deposits rate
                        ------- -------- -----  -------  -------  -----  -------  -------  ------
<S>                     <C>     <C>      <C>    <C>      <C>      <C>    <C>      <C>      <C>
                                               (dollars in thousands)
Interest-bearing
demand deposits....... $159,198   42.22%  3.13% $135,450  41.15%   5.38%  $91,671  31.22%  3.96%
Savings deposits......    3,813    1.01%  1.49%    4,097   1.24%   2.10%    6,294   2.14%  2.05%
Time deposits (CDs):
CDs under $100,000....  104,802   27.79%  5.37%  108,170  32.63%   5.58%  125,470  42.72%  5.16%
CDs $100,000 and over.   77,140   20.46%  5.75%   54,177  16.34%   6.29%   43,140  14.69%  5.35%
                        -------  --------       --------  -------        --------  ------
Total time deposits...  181,942   48.25%  5.54%  162,347  48.97%   5.81%  168,610  57.41%  5.20%
                        -------  --------       --------  -------        --------  ------
Total interest-bearing
deposits..............  344,953   91.48%  4.38%  302,894  91.36%   5.57%  266,575  90.77%  4.70%
Noninterest-bearing
  demand deposits.....   32,152    8.52%    --    28,656   8.64%     --    27,094   9.23%    --
                       --------  --------       --------  -------        --------  ------
Total deposits........ $377,105  100.00%  4.01% $331,550  100.0%   5.09% $293,669  100.0%  4.27%
                       ========  =======        ========  =======        ========  ======
<FN>
(1)   From continuing operations for all periods presented.
</FN>
</TABLE>
In recent years, earning asset growth has outpaced core deposit growth resulting
in the use of  brokered  and out of market  certificates  of  deposit  and other
borrowed funds. See "-Borrowed Funds." This trend has been common in the banking
industry because of the proliferation of non-bank  competitors and the multitude


<PAGE>
of financial and investment  products available to customers as well as the need
to utilize  such funds in the process of the  Company's  overall  balance  sheet
management. At times, access to brokered and out of market deposits is available
at maturities  and rates more  favorable  than those  available in the Company's
local  markets.  As of December 31, 2001,  BNC held a total of $34.0  million of
"National"  market  certificates  of  deposit  and  $34.4  million  of  brokered
certificates of deposit. Under current FDIC regulations, only "well capitalized"
financial  institutions may fund themselves with brokered deposits without prior
approval  of  regulators.  BNC -  Minnesota  and BNC -  Arizona  were  both well
capitalized  at December 31,  2001.  See Note 12 to the  Consolidated  Financial
Statements included under Item 8 for a summary of capital status of the Banks.

Time  deposits in  denominations  of $100,000 and more totaled  $83.8 million at
December  31, 2001 as compared to $61.7 and $46.8  million at December  31, 2000
and 1999, respectively. The following table sets forth the amount and maturities
of time deposits of $100,000 or more as of December 31, 2001:
<TABLE>

                       Time Deposits of $100,000 and Over
                                 (in thousands)
<S>                                   <C>

Maturing in:
3 months or less....................  $  9,693
Over 3 months through 6 months......     9,306
Over 6 months through 12 months.....    20,348
Over 12 months......................    44,462
                                     ----------
   Total............................  $ 83,809
                                     ==========
</TABLE>

Borrowed Funds. BNC uses short-term  borrowings to support its asset base. These
borrowings  include federal funds purchased and U.S.  Treasury tax and loan note
option  accounts,  securities  sold  under  agreements  to  repurchase  and FHLB
borrowings.  At December 31, 2001, short-term borrowings were $118.0 million, or
22 percent of total liabilities, as compared to $150.4 million, or 28 percent of
total  liabilities,  at December  31, 2000 and $88.7  million,  or 20 percent of
total  liabilities,  at  December  31,  1999.  See  Note 9 to  the  Consolidated
Financial  Statements  included  under  Item  8  for  a  listing  of  borrowings
outstanding at December 31, 2001 and 2000, including interest rates and terms.

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

                            Short-Term Borrowings (1)

                                                     2001      2000      1999
                                                    -------   --------  --------
                                                         (dollars in thousands)
<S>                                                 <C>       <C>       <C>

Short-term borrowings outstanding at period end...  $117,973  $150,428  $ 88,700
Weighted average interest rate at period end......     5.01%     6.30%     5.74%
Maximum month-end balance during the period.......  $153,759  $197,024  $ 94,300
Average borrowings outstanding for the period.....  $128,911  $158,244  $ 61,993
Weighted average interest rate for the period.....     5.92%     6.32%     5.33%
<FN>

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


As of December 31, 2001, the Company had no outstanding  long-term debt.  During
2001,  the  Company   purchased  and  retired  $82,000  of  its  8  5/8  percent
subordinated  notes due May 31,  2004 ("the  Notes")  at a  discount  using cash
generated  from the sale of BNC  Financial.  On August  31,  2001,  the  Company
redeemed the remaining $12.6 million of the Notes at par through exercise of its
call option on the Notes. The remaining $12.6 million of the Notes were redeemed
using a portion  of the cash  generated  from the  issuance  of trust  preferred

<PAGE>
securities  through the  establishment  of BNC  Statutory  Trust II (see Note 10
under  Item  8  for  further   discussion  of  the  Company's   trust  preferred
securities).  The  transactions  and  redemption  of the  Notes  resulted  in an
extraordinary  loss of $134,000 ($0.06 per diluted share) net of income taxes of
($70,000).

Guaranteed Preferred Beneficial Interests in Company's Subordinated  Debentures.
In July 2000, the Company established a special purpose trust for the purpose of
issuing $7.5 million trust preferred securities.  The trust preferred securities
qualify as Tier 1 capital of the  Company up to certain  limits.  See Note 10 to
the  Consolidated  Financial  Statements  included  under  Item 8 for a complete
description of the trust preferred securities.

In July 2001, the Company  established an additional  special  purpose trust for
the  purpose  of  issuing  $15.0  million  of  floating  rate  trust   preferred
securities.  The trust  preferred  securities  qualify  as Tier 1 capital of the
Company up to certain  limits.  The Company  used $12.6  million of the proceeds
from the special purpose trust established in 2001 to retire its remaining $12.6
million 8 5/8 percent  subordinated  notes due May 31, 2004.  See Note 10 to the
Consolidated   Financial  Statements  included  under  Item  8  for  a  complete
description of the trust preferred securities.

Capital   Resources  and  Expenditures.   BNC's  management   actively  monitors
compliance with bank regulatory capital  requirements,  including risk-based and
leverage  capital  measures.  Under the  risk-based  capital  method of  capital
measurement,  the ratio  computed is dependent on the amount and  composition of
assets  recorded  on the  balance  sheet,  and the  amount  and  composition  of
off-balance  sheet  items,  in addition to the level of capital.  Note 12 to the
Consolidated  Financial  Statements  included under Item 8 includes a summary of
the risk-based and leverage capital ratios of BNC and its subsidiary banks as of
December  31,  2001 and  2000.  As of each of  those  dates,  BNC and the  Banks
exceeded  capital  adequacy  requirements  and the Banks were  considered  "well
capitalized" under prompt corrective action provisions.

During 2000, the Company completed  construction of an office building in Fargo,
North Dakota.  The total cost to complete the construction and provide furniture
and  equipment  for the building  was $6.4  million and was funded  through cash
generated from operations.  There were no other major capital  expenditures made
during 2001, 2000 or 1999.

Liquidity, Market and Credit Risk

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

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

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

     Derivative financial  instruments,  on-balance-sheet items as of January 1,
     2001,   include  such  instruments  as  interest  rate,  foreign  exchange,
     commodity price and equity price contracts,  including forwards,  swaps and
     options.

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

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

The  Consolidated  Statements  of  Cash  Flows  in  the  Consolidated  Financial
Statements  included  under  Item 8  present  data on cash and cash  equivalents
provided  by and used in  operating,  investing  and  financing  activities.  In
addition to liquidity  from core deposit  growth,  together with  repayments and
maturities  of loans and  investments,  BNC utilizes  brokered  deposits,  sells
securities under agreements to repurchase and borrows  overnight  federal funds.
The Banks are members of the FHLB,  which affords them the opportunity to borrow
funds in terms ranging from overnight to ten years and beyond.  Borrowings  from
the FHLB are generally  collateralized  by the Banks' mortgage loans and various
investment  securities.  See  "-Investment  Securities" and Notes 4 and 9 to the
Consolidated  Financial  Statements  included under Item 8. The Company has also
obtained  funding  through  the  issuance  of its  Subordinated  Notes and trust
preferred  securities.  See "-Borrowed Funds," "Guaranteed  Preferred Beneficial
Interests  in  Company's  Subordinated  Debentures"  and  Notes  9 and 10 to the
Consolidated  Financial Statements included under Item 8 for further information
on these instruments.

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

                       Major Sources and Uses of Funds (1)

                                               For the Years Ended December 31,
                                               ---------------------------------
                                                   2001      2000        1999
                                               ----------  ----------  ---------
                                                            (in thousands)
<S>                                            <C>         <C>         <C>
Proceeds from sales and maturities of
   investment securities....................... $205,808    $ 72,134  $ 127,403
Net increase in deposits.......................   45,505      37,753     40,212
Proceeds from issuance of subordinated notes...   14,429       7,220         --
Purchases of  investment securities............ (162,321)   (178,827)  (185,958)
Net increase in loans..........................  (53,132)     (7,630)   (16,160)
Net increase (decrease) in short-term
  borrowings...................................  (32,467)     61,728     39,410
Net decrease in long-term borrowings...........  (13,000)     (1,921)   (14,520)

<FN>

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

BNC's  liquidity  is measured by its ability to raise cash when it needs it at a
reasonable  cost and with a minimum of loss.  Given the uncertain  nature of our
customers' demands as well as the Company's desire to take advantage of earnings
enhancement  opportunities,  the Company must have  adequate  sources of on- and
off-balance  sheet funds that can be acquired in time of need.  Accordingly,  in
addition to the  liquidity  provided by balance  sheet cash flows,  liquidity is
supplemented with additional  sources such as credit lines with the FHLB, credit
lines  with  correspondent  banks  for  federal  funds,   wholesale  and  retail
repurchase agreements,  brokered certificates of

<PAGE>

deposit  and direct  non-brokered  "National"  certificates  of deposit  through
national deposit networks. BNC's management measures its liquidity position on a
monthly  basis.  Key factors that  determine  the  Company's  liquidity  are the
reliability or stability of its deposit base, the pledged/non-pledged  status of
its investments and potential loan demand.  BNC's  liquidity  management  system
divides the balance sheet into liquid assets,  and short-term  liabilities  that
are assumed to be  vulnerable  to  non-replacement  under  abnormally  stringent
conditions.  The excess of liquid assets over short-term liabilities is measured
over  a  30-day  planning  horizon.   Assumptions  for  short-term   liabilities
vulnerable to non-replacement under abnormally stringent conditions are based on
a historical analysis of the month-to-month  percentage changes in deposits. The
excess of liquid assets over  short-term  liabilities and other key factors such
as expected loan demand as well as access to other sources of liquidity  such as
lines with the FHLB, federal funds, and those other supplemental  sources listed
above  are tied  together  to  provide  a measure  of the  Company's  liquidity.
Management  has a targeted  range and  manages  its  operations  such that these
targets  can be  achieved.  Management  believes  that  its  prudent  management
policies  and  guidelines  will  ensure  adequate  levels of  liquidity  to fund
anticipated needs of on- and off-balance-sheet items. In addition, a contingency
funding  policy  statement  identifies  actions  to be taken in  response  to an
adverse liquidity event.

Forward Looking Statements

Statements  included  in  Item  7,  "Management's  Discussion  and  Analysis  of
Financial  Condition  and Results of  Operations"  which are not  historical  in
nature are  intended  to be,  and are  hereby  identified  as  "forward  looking
statements"  for  purposes  of the safe  harbor  provided  by Section 21E of the
Securities  Exchange Act of 1934, as amended.  The Company cautions readers that
forward looking statements,  including without limitation, those relating to the
Company's  future business  prospects,  revenues,  working  capital,  liquidity,
capital  needs,  interest  costs and income,  are  subject to certain  risks and
uncertainties  that could cause actual results to differ  materially  from those
indicated in the forward looking  statements due to several  important  factors.
These factors  include,  but are not limited to: risks of loans and investments,
including dependence on local economic conditions; competition for the Company's
customers from other providers of financial  services;  possible adverse effects
of changes in interest rates;  risks  associated with the Company's  acquisition
strategy;  and other risks which are  difficult to predict and many of which are
beyond the control of the Company.

Effects of Inflation

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

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

Recently Issued Accounting Pronouncements

The Company  adopted  the  Financial  Accounting  Standards  Board's  ("FASB's")
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging  Activities,"  ("SFAS 133"),  as amended,  on January 1,
2001. SFAS 133 requires all derivative financial instruments,  including certain
derivative  instruments  embedded  in  other  contracts,   be  recorded  in  the
consolidated  balance sheet as either an asset or liability measured at its fair
value.  The fair value of the  Company's  derivative  financial  instruments  is

<PAGE>

determined  based on  quoted  market  prices  for  comparable  transactions,  if
available,  or a valuation  model that  calculates the present value of expected
future cash flows. Changes in the fair value of derivative financial instruments
are  required to be  recognized  currently  in earnings  unless  specific  hedge
accounting  criteria are met. Special  accounting for qualifying hedges allows a
derivative's  gains and losses to offset  related  results on the hedged item in
the  income  statement,  and  requires  formal  documentation   designation  and
assessment of effectiveness of transactions that receive hedge  accounting.  See
Note 1 to the  Consolidated  Financial  Statements  included  under Item 8 for a
summary of the impact of the Company's adoption of SFAS 133.

On June 29, 2001, the FASB issued  Statement of Financial  Accounting  Standards
No. 141,  "Business  Combinations"  and No. 142,  "Goodwill and Other Intangible
Assets" ("SFAS 141" and "SFAS 142"). SFAS 141 requires all business combinations
initiated  after June 30, 2001 to be accounted  for using the  purchase  method.
Under SFAS 142,  goodwill and intangible  assets with  indefinite  lives will no
longer be amortized but are reviewed  annually (or more frequently if impairment
indicators  arise) for  impairment.  Separable  intangible  assets  that are not
deemed to have indefinite  lives will continue to be amortized over their useful
lives (but with no maximum life). The Company has adopted the provisions of SFAS
142 effective January 1, 2002.

In July 2001,  the  Securities  and  Exchange  Commission  ("SEC")  issued Staff
Accounting  Bulletin No. 102,  "Selected  Loan Loss  Allowance  Methodology  and
Documentation  Issues"  ("SAB 102").  SAB 102 expresses the SEC staff's views on
the development,  documentation,  and application of a systematic methodology as
required by its Financial Reporting Release No. 28 (issued in December 1986) for
determining  allowances  for loan and lease losses in accordance  with generally
accepted  accounting  principles.  In  particular,  the guidance  focuses on the
documentation  the staff  normally  would  expect a  registrant  to prepare  and
maintain in support of its  allowance  for loan losses.  Also in July 2001,  the
federal banking  agencies  issued their "Policy  Statement on Allowance for Loan
and  Lease  Losses   Methodologies  and  Documentation  for  Banks  and  Savings
Institutions" (the "Policy Statement"). Developed in collaboration with the SEC,
the Policy Statement clarifies the agencies'  expectations and provides guidance
regarding methodologies and documentation support for the allowance for loan and
lease  losses.  SAB 102 and the Policy  Statement  do not change the guidance in
generally  accepted  accounting  principles  and in previous SEC and  regulatory
agency  statements but,  rather,  are intended to improve the allowance for loan
and lease losses  process and  documentation.  Therefore,  adoption of these two
issuances did not materially impact the Company.

In August 2001, the FASB issued Statement of Financial  Accounting Standards No.
144,  "Accounting  for the  Impairment or Disposal of Long-Lived  Assets" ("SFAS
144").  SFAS  144  supersedes  FASB  Statement  No.  121,  "Accounting  for  the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets To Be Disposed Of",
and the  accounting and reporting  provisions of APB Opinion No. 30,  "Reporting
the Results of  Operations - Reporting the Effects of Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
Transactions,"  for the  disposal  of a segment  of a  business  (as  previously
defined in that opinion).  SFAS 144 requires that one  accounting  model be used
for long-lived  assets to be disposed of by sale,  whether  previously  held and
used or newly acquired, and broadens the presentation of discontinued operations
to include more  disposal  transactions  than were  included  under the previous
standards. The Company will adopt SFAS 144 on January 1, 2002; however, adoption
of the statement is not expected to have a material impact.

Critical Accounting Policies

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

     Specific Reserve.  The amount of specific reserves is determined  through a
     loan-by-loan  analysis of problem loans over a minimum size that  considers
     expected future cash flows,  the value of collateral and other factors that
     may impact the  borrower's  ability to make payments when due.  Included in
     this  group are those  nonaccrual  or  renegotiated  loans  which  meet the
     criteria as being  "impaired"  under the  definition in SFAS 114. A loan is
     impaired when, based on current information and events, it is probable that
     a creditor  will be unable to collect  all  amounts  due  according  to the
     contractual  terms of the loan agreement.  Problem loans also include those
     credits  that  have  been  internally   classified  as  credits   requiring
     management's  attention  due  to  underlying  problems  in  the  borrower's
     business or collateral  concerns.  Ranges of loss are  determined  based on
     best- and worst-case scenarios for each loan.

     Reserves for Homogeneous Loan Pools. The Company makes a significant number
     of loans and leases which, due to their underlying similar characteristics,
     are assessed for loss as "homogeneous"  pools.  Included in the homogeneous
     pools are loans and leases  from the retail  sector  and  commercial  loans
     under a certain size,  which have been  excluded from the specific  reserve
     allocation previously discussed.  The Company segments the pools by type of
     loan or lease  and  using  historical  loss  information  estimates  a loss
     reserve for each pool.

     Special  Reserve.  The Company's  senior lending  management also allocates
     reserves  for  special  situations,  which are  unique  to the  measurement
     period. These include environmental factors, such as economic conditions in
     certain geographical or industry segments of the portfolio, economic trends
     in the retail lending sector and peer-group loss history.

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

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

Mortgage  Servicing and Transfers of Financial Assets.  The Banks regularly sell
loans to others on a  non-recourse  basis.  Sold loans are not  included  in the
accompanying balance sheets. The Banks generally retain the right to service the
loans as well as the right to  receive a portion of the  interest  income on the
loans.  At December 31, 2001 and 2000,  the Banks were  servicing  loans for the
benefit of others with aggregate unpaid principal  balances of $235.8 and $216.0
million, respectively.  Many of the loans sold by the Banks are commercial lines
of credit for which  balances and related  payment  streams cannot be reasonably
estimated in order to determine  the fair value of the  servicing  rights and/or
future interest  income retained by the Banks.  Upon sale, any unearned net loan
fees or costs are  recognized  in income.  Gains on sales of loans were $22,000,
$71,000 and $0 for 2001, 2000 and 1999,  respectively,  and are included in fees
on loans.

Revenue  Recognition.  The Company  recognizes  revenue on an accrual  basis for
interest and dividend income on loans, investment securities, federal funds sold
and interest bearing due from accounts. Noninterest income is recognized when it
has been  realized or is  realizable  and has been earned.  In  accordance  with
existing accounting and industry standards, as well as recent guidance issued by
the SEC, the Company  considers  revenue to be

<PAGE>

realized or  realizable  and earned when the  following  criteria have been met:
persuasive  evidence of an arrangement exists  (generally,  there is contractual
documentation);  delivery  has  occurred or  services  have been  rendered;  the
seller's  price to the buyer is fixed or  determinable;  and  collectibility  is
reasonably  assured.  Additionally,  there can be no  outstanding  contingencies
which could  ultimately cause the revenue to be passed back to the payor. In the
isolated  instances  where  these  criteria  have not  been  met,  receipts  are
generally placed in escrow until such time as they can be recognized as revenue.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Interest rate risk arises from changes in interest rates. Interest rate risk can
result from: (1) Re-pricing risk-timing  differences in the  maturity/re-pricing
of assets, liabilities,  and off-balance sheet contracts; (2) Options risk - the
effect of embedded options, such as loan prepayments, interest rate caps/floors,
and deposit withdrawals; (3) Basis risk - risk resulting from unexpected changes
in the spread between two or more different rates of similar  maturity,  and the
resulting  impact on the  behavior of lending and funding  rates;  and (4) Yield
curve risk - risk resulting from unexpected changes in the spread between two or
more rates of different maturities from the same type of instrument. The Company
has risk  management  policies  to monitor and limit  exposure to interest  rate
risk.  To date the Company has not  conducted  trading  activities as a means of
managing  interest  rate  risk.  BNC's  asset/liability  management  process  is
utilized to manage the Company's interest rate risk. The measurement of interest
rate risk  associated  with financial  instruments  is meaningful  only when all
related and offsetting on-and off-balance-sheet transactions are aggregated, and
the resulting net positions  are  identified.  The Company's  interest rate risk
exposure is  actively  managed  with the  objective  of  managing  the level and
potential  volatility of net interest income in addition to the long-term growth
of equity,  bearing in mind that the Company  will always be in the  business of
taking on rate risk and that rate risk  immunization  is not entirely  possible.
Also, it is recognized that as exposure to interest rate risk is reduced, so too
may the overall level of net interest income and equity. In general,  the assets
and liabilities  generated through ordinary business activities do not naturally
create   offsetting   positions   with   respect  to   repricing   or   maturity
characteristics. Access to the derivatives market can be an important element in
maintaining the Company's  interest rate risk position within policy guidelines.
Using  derivative  instruments,  principally  interest rate floors and caps, the
interest rate sensitivity of specific  transactions,  as well as pools of assets
or liabilities,  is adjusted to maintain the desired interest rate risk profile.
See "-Loan  Portfolio-Interest  Rate Caps and  Floors" and Notes 1 and 14 to the
Consolidated  Financial  Statements  included  under Item 8 for a summary of the
Company's accounting policies pertaining to such instruments.

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

The  Company  monitors  the  results  of net  interest  income  simulation  on a
quarterly  basis at regularly  scheduled  Asset/Liability  management  committee
meetings.  Each  quarter  net  interest  income is  simulated  for the  upcoming
12-month horizon in seven interest scenarios. The scenarios modeled are parallel
interest  ramps of +/- 100bp,  200bp,  and 300bp  along  with a rates  unchanged
scenario.  The parallel  movement of interest  rates means all

<PAGE>
projected  market  interest rates move up or down by the same amount.  A ramp in
interest rates means that the projected  change in market  interest rates occurs
over the 12-month horizon projected.  For example,  in the -100bp scenario,  the
projected  prime rate will decrease from its starting point at December 31, 2001
of 4.75 percent to 3.75 percent 12 months later.  The prime rate in this example
will  decrease  1/12th of the overall  decrease of 100 basis  points each month.
Given  the  historically  low  absolute  level of  market  interest  rates as of
December 31, 2001, the declining  rate scenario  analyses were limited to -100bp
and -200bp for the summary table presented below.

The net interest income simulation  results for the 12-month horizon that covers
the calendar year of 2002 is shown below.  The growth  assumption  used for this
simulation  was based on the growth  projections  built into the Company's  2002
budget.  The impact of each  interest  rate  scenario on projected  net interest
income is  displayed  before and after the impact of the $20 million  cumulative
notional 3-year interest rate cap positions on 3-month LIBOR with a 4.50% strike
and the $20 million  cumulative  notional  5-year interest rate cap positions on
3-month LIBOR with a 5.50% strike. The impact of the cap positions is calculated
by  determining  the fair  value  of the  contracts  at the end of the  12-month
horizon using an interest rate option  valuation model. The change in fair value
plus any expected cash flow in the various rate scenarios is summed to determine
the total net  benefit/(cost)  of the portfolio of interest rate cap  contracts.
See Note 1 "Summary of Significant  Accounting  Policies" and Note 14 "Financial
Instruments"  included  under  Item  8 for  further  discussion  related  to the
Company's interest rate caps.
<TABLE>
<CAPTION>

                         Net Interest Income Simulation
                             (amounts in thousands)

Movement in interest rates   -200bp  -100bp  Unchanged +100bp   +200bp   +300bp
                            -------- ------- --------- -------  -------  -------
<S>                         <C>      <C>     <C>       <C>      <C>      <C>
Projected 12-month net
interest income.............$18,446  $18,706  $19,861  $20,423  $20,859  $21,400

Dollar change from rates
  unchanged scenario........ (1,415)  (1,155)      --      562      998    1,539
Percentage change from rates
  unchanged scenario......... (7.13)%  (5.82)%     --    2.83%    5.03%    7.75%

Net Benefit/(Cost) of
Cumulative $40MM Caps (1)...   (834)    (711)    (501)    (191)     229      774

Total net interest income
impact with caps............ 17,612   17,995   19,360   20,232   21,088   22,174
Dollar change from unchanged
w/caps...................... (1,748)  (1,365)      --      872    1,728    2,814
Percentage change from
unchanged w/caps............ (9.03)%  (7.05)%      --    4.51%    8.93%   14.54%

<FN>
(1)  In May and  June  2001,  the  Company  purchased  four  interest  rate  cap
     contracts  on 3-month  LIBOR with strikes at 4.50% each in the amount of $5
     million  notional with original  terms of three years for total notional of
     $20 million. The Company also purchased four interest rate cap contracts on
     3-month  LIBOR  with  strikes  at 5.50%  each in the  amount of $5  million
     notional  with  original  terms of five  years  for total  notional  of $20
     million. On January 1, 2001, the Company adopted SFAS 133,  "Accounting for
     Derivative    Instruments    and    Hedging    Activities."    See   "-Loan
     Portfolio-Interest  Rate  Caps  and  Floors"  and  Notes  1 and  14 to  the
     Consolidated  Financial  Statements  included  under  Item  8  for  further
     information  on  accounting   policies  related  to  derivative   financial
     investments and the adoption of SFAS 133.
</FN>
</TABLE>

The Company's rate sensitivity position over the projected  twelve-month horizon
is asset sensitive.  This is evidenced by the projected increase of net interest
income in the rising interest rate  scenarios,  and the decrease in net interest
income in falling rate scenarios.

Static gap  analysis is another  tool which may be used for  interest  rate risk
measurement.  The net  differences  between  the amount of assets,  liabilities,
equity and off-balance-sheet  instruments repricing within a cumulative calendar
period is  typically  referred  to as the "rate  sensitivity  position"  or "gap
position."  The  following  table

<PAGE>

sets forth the  Company's  rate  sensitivity  position as of December  31, 2001.
Assets and liabilities are classified by the earliest possible repricing date or
maturity, whichever occurs first:

<TABLE>
<CAPTION>

                        Interest Sensitivity Gap Analysis

                                     Estimated maturity or repricing at December 31,
                                                           2001
                                     -------------------------------------------------
                                       0-3       4-12       1-5       Over
                                      months    months     years    5 Years    Total
                                     --------- ---------  --------  --------- --------
                                                  (dollars in thousands)
<S>                                  <C>       <C>        <C>       <C>       <C>
Interest-earning assets:
    Cash equivalents................ $  7,626  $     --   $    --   $     --  $  7,626
    Investment securities (1).......   23,994    29,692     98,847     66,648  219,181
    Fixed rate loans (2)............    9,246    18,316                30,274  118,066
                                                            60,230
    Floating rate loans (2).........  200,303     1,099      1,741         98  203,241
                                     -------- ---------   --------  --------- --------
      Total interest-earning assets. $241,169  $ 49,107   $160,818   $ 97,020 $548,114
                                     ========= =========  ========  ========= ========

Interest-bearing liabilities:
    NOW and money market accounts... $166,486  $     --   $     --   $166,486 $166,486
    Savings.........................    4,167        --         --         --    4,167
    Time deposits under $100,000....   25,388    47,092     37,493        479  110,452
    Time deposits $100,000 and over.    9,693    29,654     44,343        119   83,809
    Borrowings......................  117,973        --         --         --  117,973
                                     --------- ---------   --------  --------- --------
      Total interest-bearing
      liabilities................... $323,707  $ 76,746   $ 81,836   $    598 $482,887
                                     ========= =========  =========  ======== ========
Interest rate gap................... $(82,538) $(27,639)  $ 78,982   $ 96,422 $ 65,227
                                     ========= =========  =========  ======== ========
Cumulative interest rate gap at
  December 31, 2001................. $(82,538) $(110,177) $(31,195)  $ 65,227
                                     ========= =========  ========   =========
Cumulative interest rate gap to
total assets........................  (14.11%)   (18.83%)   (5.33%)     11.15%
--------------------
<FN>

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

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

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

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

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

Since there are  limitations  inherent in any  methodology  used to estimate the
exposure to changes in market interest rates, these analyses are not intended to
be a forecast of the actual effect of changes in market  interest  rates such as
those  indicated  above on the Company.  Further,  this analysis is based on the
Company's  assets  and  liabilities  as  of  December  31,  2001  (with  forward
adjustments for planned growth and anticipated business activities) and does not
contemplate  any actions the Company  might  undertake in response to changes in
market interest rates.

Item 8. Financial Statements and Supplementary Data


                     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements:                                          Page

Report of Independent Public Accountants...................................   46

Consolidated Balance Sheets as of December 31, 2001 and 2000...............   47

Consolidated Statements of Income for the years ended December 31, 2001,
2000 and 1999..............................................................   48

Consolidated Statements of Comprehensive Income (Loss) for the years
ended December 31, 2001, 2000 and 1999......................................  50

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999............................................  51

Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999........................................................   52

Notes to Consolidated Financial Statements.................................   53




<PAGE>





                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To BNCCORP, Inc.:

We have audited the accompanying consolidated balance sheets of BNCCORP, Inc. (a
Delaware corporation) and Subsidiaries as of December 31, 2001 and 2000, and the
related  consolidated   statements  of  income,   comprehensive  income  (loss),
stockholders'  equity and cash  flows for each of the three  years in the period
ended  December  31,  2001.  These  consolidated  financial  statements  are the
responsibility  of BNCCORP's  management.  Our  responsibility  is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United  States.  Those  standards  require  that we plan and  perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial  position of BNCCORP,  Inc. and
Subsidiaries  as of  December  31,  2001  and  2000,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.

As  explained  in Note 1 to the  consolidated  financial  statements,  effective
January 1, 2001,  the Company  adopted the  provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities."

Arthur Andersen LLP


Minneapolis, Minnesota,
February 4, 2002


<PAGE>
<TABLE>

                         BNCCORP, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                                As of December 31
                 (In thousands, except share and per share data)
--------------------------------------------------------------------------------
<CAPTION>
                          ASSETS                            2001        2000
                                                         ---------   ---------
<S>                                                      <C>         <C>

CASH AND DUE FROM BANKS................................. $ 16,346    $  14,988
INTEREST-BEARING DEPOSITS WITH BANKS....................      126          595
FEDERAL FUNDS SOLD......................................    7,500           --
                                                         ----------- -----------
      Cash and cash equivalents.........................   23,972       15,583
INVESTMENT SECURITIES AVAILABLE FOR SALE................  219,181      263,185
LOANS AND LEASES, net of unearned income................  320,791      268,925
ALLOWANCE FOR CREDIT LOSSES.............................   (4,325)      (3,588)
                                                         ----------- -----------
   Net loans and leases.................................  316,466      265,337
PREMISES, LEASEHOLD IMPROVEMENTS AND
   EQUIPMENT, net.......................................   15,403       14,873
INTEREST RECEIVABLE.....................................    3,008        3,854
OTHER ASSETS............................................    4,856        4,465
DEFERRED CHARGES AND INTANGIBLE ASSETS, net.............    2,171        2,719
                                                         ----------- -----------
                                                         $585,057     $570,016
                                                         =========== ===========
           LIABILITIES AND STOCKHOLDERS' EQUITY

DEPOSITS:
   Noninterest-bearing.................................. $ 43,055     $ 31,459
                                                           43,055
   Interest-bearing -
      Savings, NOW and money market.....................  170,653      169,425
      Time deposits $100,000 and over...................   83,809       61,720
      Other time deposits...............................  110,452       99,860
                                                         ----------- -----------
   Total deposits.......................................  407,969      362,464
NOTES PAYABLE...........................................  117,973      163,070
OTHER LIABILITIES.......................................    6,192        7,419
                                                         ----------- -----------
         Total liabilities..............................  532,134      532,953
                                                         ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 14 and 20)
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN
    COMPANY'S SUBORDINATED DEBENTURES...................   22,244        7,606

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value, 2,000,000 shares
      authorized;                                              --           --
      no shares issued or outstanding...................
   Common stock, $.01 par value, 10,000,000 shares
      authorized;
      2,399,170 and 2,395,030 shares issued and
      outstanding
       (excluding 42,880 shares held in treasury).......       24           24
   Capital surplus......................................   14,084       14,050
   Retained earnings....................................   15,435       14,190
   Treasury stock (42,880 shares).......................     (513)        (513)
   Accumulated other comprehensive income, net of
      income taxes......................................    1,649        1,706
                                                         ----------- -----------
         Total stockholders' equity.....................   30,679       29,457
                                                         ----------- -----------
                                                         $585,057    $ 570,016
                                                         =========== ===========
<FN>
     The accompanying notes are an integral part of these consolidated balance
sheets.
</FN>
</TABLE>

<PAGE>
<TABLE>

                         BNCCORP, INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                         For the Years Ended December 31
                      (In thousands, except per share data)
<CAPTION>
                                                     2001      2000      1999
                                                    --------  --------  --------
<S>                                                <C>       <C>        <C>
INTEREST INCOME:
   Interest and fees on loans....................  $ 25,606  $ 24,527  $22,083
   Interest and dividends on investment
   securities -
      Taxable....................................    12,354    15,420    6,090
      Tax-exempt.................................       829       940      386
      Dividends..................................       362       634      263
   Other.........................................        50       242      109
                                                    --------  --------  -------
         Total interest income...................    39,201    41,763   28,931
                                                    --------  --------  --------
INTEREST EXPENSE:
   Interest on deposits..........................    15,141    16,866   12,537
   Interest on short-term borrowings.............     7,626     9,999    3,303
   Interest on long-term borrowings..............       777     1,252      734
                                                    --------  --------  --------
         Total interest expense..................    23,544    28,117   16,574
                                                    --------  --------  --------
         Net interest income.....................    15,657    13,646   12,357
PROVISION FOR CREDIT LOSSES......................     1,699     1,202    1,138
                                                    --------  --------  --------

NET INTEREST INCOME AFTER PROVISION FOR CREDIT
   LOSSES..........................................  13,958    12,444   11,219
                                                    --------  --------  --------
NONINTEREST INCOME:
  Fees on loans....................................   2,063     1,941    1,435
  Insurance commissions............................   1,891     2,003    2,045
  Brokerage income.................................   1,407     1,466      797
  Net gain on sales of securities..................   1,396       276      198
  Trust and financial services.....................     899     1,064      589
  Service charges..................................     689       604      536
  Rental income....................................     133        56      121
  Other............................................     497       363      347
                                                    --------  -------- ---------
         Total noninterest income..................   8,975     7,773    6,068
                                                    --------  -------- ---------
NONINTEREST EXPENSE:
  Salaries and employee benefits...................  10,355     8,891    8,854
  Occupancy........................................   1,925     1,360    1,248
  Depreciation and amortization....................   1,846     1,659    1,586
  Minority interest in income of subsidiaries......   1,377       399       --
  Professional services............................   1,349     1,290    1,214
  Office supplies, telephone and postage...........   1,001       940      941
  Marketing and promotion..........................     877       597      621
  FDIC and other assessments.......................     193       200      191
  Repossessed and impaired asset
  expenses/write-offs..............................     141       470    2,271
  Other............................................   1,769     1,624    1,289
                                                    --------  -------- ---------
         Total noninterest expense.................  20,833    17,430   18,215
                                                    --------  -------- ---------
Income (loss) before income taxes..................   2,100     2,787     (928)
Provision for (benefit from) income taxes..........     608       906     (399)
                                                    --------  -------- ---------
Income (loss) from continuing operations...........   1,492     1,881     (529)

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


<PAGE>

<TABLE>

                         BNCCORP, INC. AND SUBSIDIARIES
                  Consolidated Statements of Income, continued
                         For the Years Ended December 31
                           (In thousands, except per share data)
<CAPTION>
                                                     2001      2000      1999
                                                    --------  --------  --------
<S>                                                 <C>       <C>       <C>
Discontinued Operation:
 Income from operations of discontinued
   asset-based lending ubsidiary, net of
   income taxes of $292...........................  $   --    $   --    $  429
 Gain on disposal of asset-based lending
    subsidiary, net of income taxes of $82
    and $268 .....................................      --        159      438
                                                    --------  --------  --------
 Income before extraordinary item and cumulative
   effect of change in accounting principles......    1,492     2,040      338
Extraordinary item - gain (loss) on early
   extinguishment of debt, net of income taxes
   of  $(70) and $132.............................     (134)      257       --
Cumulative effect of change in accounting
   principles, net of income taxes of $(66)and
   $(56)..........................................     (113)       --      (96)
                                                    --------  --------  --------
NET INCOME........................................  $ 1,245   $ 2,297   $  242
                                                    ========  ========  ========

BASIC EARNINGS PER COMMON SHARE:
Income (loss) from continuing operations..........  $  0.62   $  0.78   $(0.22)

Income from operations of discontinued asset-based
   lending subsidiary,net of income taxes.........      --       --       0.18
Gain on disposal of asset-based lending
   subsidiary, net of income taxes.................     --      0.07      0.18
Extraordinary item - gain (loss) on early
   extinguishment of debt, net of income taxes.....   (0.05)    0.11        --
Cumulative effect of change in accounting
   principles, net of income taxes.................   (0.05)      --     (0.04)
                                                    --------  --------  --------
Earnings per share, basic.......................... $  0.52   $ 0.96    $ 0.10
                                                    ========  ========  ========

DILUTED EARNINGS PER COMMON SHARE:
Income (loss) from continuing operations........... $  0.62   $ 0.78    $(0.22)
Income from operations of discontinued asset-based
   lending subsidiary, net of income taxes...           --        --      0.18
Gain on disposal of asset-based lending
   subsidiary, net of income taxes..........            --      0.07      0.18
Extraordinary item - gain (loss) on early
   extinguishment of debt, net of income taxes....   (0.06)     0.11        --
Cumulative effect of change in accounting
   principles, net of income taxes................   (0.05)       --     (0.04)
                                                    --------  --------  --------
Earnings per share, diluted........................ $ 0.51    $ 0.96    $ 0.10
                                                    ========  ========  ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>

<PAGE>

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

<CAPTION>
                                              2001       2000         1999
                                            ---------  ----------   ---------
<S>                                          <C>        <C>         <C>

NET INCOME............................       $ 1,245    $  2,297    $    242
OTHER COMPREHENSIVE INCOME -
   Unrealized gains (losses) on securities:
      Unrealized holding gains (losses)
      arising during the period, net of
      income taxes of $283, $2,022, and
      $1,377..........................           885       4,123      (2,252)

       Less: reclassification
       adjustment for gains included in
       net income, net of income taxes          (942)       (186)       (121)
                                            ---------  ----------   ---------

OTHER COMPREHENSIVE INCOME (LOSS).....           (57)      3,937      (2,373)
                                            ---------  ----------   ---------

COMPREHENSIVE INCOME (LOSS)...........      $  1,188    $  6,234    $ (2,131)
                                            =========  ==========   =========

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


<PAGE>

<TABLE>

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

                                                                            Accumulated
                              Common Shares                                   Other
                             ----------------   Capital  Retained Treasury  Comprehensive
                              Shares    Amount  Surplus  Earnings  Stock    Income (Loss)   Total
                             ---------  ------  -------- -------- --------  ------------- -------
<S>                          <C>        <C>     <C>      <C>      <C>        <C>          <C>
BALANCE, December 31, 1998.. 2,433,064  $   24  $ 13,951 $11,651  $  (513)   $    142     $25,255

  Net income................        --      --        --     242       --          --         242
  Change in unrealized
    holding gains on
    securities available
    for sale, net of
    income taxes and
    reclassification
    adjustment.............         --      --        --      --       --      (2,373)     (2,373)

  Other....................      9,796      --        25      --       --          --          25
                             --------- ------- --------- -------  -------    --------     -------
BALANCE, December 31, 1999.. 2,442,860      24    13,976  11,893     (513)     (2,231)     23,149
  Net income................        --      --        --   2,297       --          --       2,297
  Change in unrealized
    holding losses on
    securities available
    for sale, net of
    income taxes and
    reclassification
    adjustment.............        --       --       --      --        --       3,937       3,937
  Other....................    (4,950)      --       74      --        --          --          74
                             --------- ------- --------- -------  -------    --------     -------
BALANCE, December 31, 2000.. 2,437,910      24    14,050  14,190     (513)      1,706      29,457
  Net income.................       --      --        --   1,245       --          --       1,245
  Change in unrealized
    holding gains on
    securities available
    for sale, net of
    income taxes and
    reclassification
    adjustment...............       --      --        --      --       --         (57)        (57)
  Other......................    4,140      --        34      --       --          --          34
                             --------- ------- --------- -------  -------    --------     -------
BALANCE, December 31, 2001.. 2,442,050 $    24 $  14,084 $15,435  $  (513)   $  1,649     $30,679
                             ========= ======= ========= =======  =======    =======      =======

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


<PAGE>
<TABLE>

                         BNCCORP, INC. AND SUBSIDIARIES
                        Consolidated Statements of Cash Flows
                         For the Years Ended December 31
                                 (In thousands)
<CAPTION>
                                                   2001       2000       1999
                                                 --------  ---------   --------
<S>                                               <C>        <C>        <C>
OPERATING ACTIVITIES:
  Net income...................................   $ 1,245    $ 2,297     $  242
  Adjustments to reconcile net income to net
     cash provided by operating activities -
     Provision for credit losses...............     1,699      1,202      1,138
     Depreciation and amortization.............     1,364      1,131      1,045
     Amortization of intangible assets.........       482        508        541
     Net premium amortization on investment
        securities.............................     2,144        737        612
     Proceeds from loans recovered.............       303        269        170
     Write down of other real estate owned and
        repossessed assets.....................        49        470      2,271
     Change in interest receivable and other
        assets, net............................       541     (1,834)      (400)
     Gain on disposal of asset-based lending
        subsidiary.............................        --       (159)      (438)
     Loss on sale of bank premises and equipment        5         57         10
     Net realized gains on sales of investment
        securities.............................    (1,396)      (276)      (198)
     Deferred income taxes.....................      (342)       603     (2,503)
     Change in dividend distribution payable...       413        398         --
     Change in other liabilities, net..........    (1,233)     1,572       (515)
     Originations of loans to be sold..........  (122,180)  (130,563)   117,299)
     Proceeds from sale of loans...............   122,180    130,563    117,299
                                                  --------  ---------  --------

            Net cash provided by operating
               activities.....................       5,265     6,966      1,975
                                                  --------  ---------  --------
INVESTING  ACTIVITIES:
  Purchase of investment securities............   (162,321) (178,827)  (185,958)
  Proceeds from sales of investment securities.    119,394     23,789    39,732
  Proceeds from maturities of investment
     securities................................     86,414     48,345    87,671
  Net increase in loans........................    (53,132)    (7,630)  (16,160)
  Additions to premises, leasehold improvements
     and equipment.............................     (1,965)    (4,296)   (4,396)
  Proceeds from sale of premises and equipment.         66        241       121
  Disposition of discontinued asset-based lending
  subsidiary...................................         --        159    23,373
                                                   --------  ---------  --------
            Net cash used in investing activities  (11,544)  (118,219)  (55,617)
                                                   --------  ---------  --------
 FINANCING  ACTIVITIES:
  Net increase in demand, savings, NOW and
     money market accounts.....................     12,824     43,632    38,890
  Net increase (decrease) in time deposits.....     32,681     (5,879)    1,322
  Net increase (decrease) in short-term
     borrowings................................    (32,467)    61,728    39,410
  Repayments of long-term  borrowings..........    (13,000)    (2,009)  (29,520)
  Proceeds from long-term borrowings...........         --         88    15,000
  Amortization of discount on subordinated
     notes.....................................        371         93        92
  Amortization of deferred charges.............         --         20        20
  Proceeds from issuance of subordinated
     debentures................................     14,429      7,220        --
  Amortization of discount on subordinated
      debentures...............................        (50)       (12)       --
  Other, net...................................       (120)        74        25
                                                  --------  ---------   --------
            Net cash provided by financing
              activities.......................     14,668    104,955    65,239
                                                  --------  ---------   --------
NET  INCREASE  (DECREASE)  IN  CASH  AND  CASH
EQUIVALENTS....................................      8,389     (6,298)   11,597
CASH  AND  CASH  EQUIVALENTS, beginning of year     15,583     21,881    10,284
                                                  --------  ---------   --------

CASH  AND  CASH  EQUIVALENTS, end of year......    $23,972   $ 15,583   $21,881
                                                  ========  =========   ========
SUPPLEMENTAL  CASH  FLOW  INFORMATION:
  Interest paid................................    $24,601   $ 27,431   $16,494
                                                  ========  =========   ========
   Income taxes paid............................   $   920   $    541   $ 1,107
                                                  ========  =========   ========
<FN>
  The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>

<PAGE>


                         BNCCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2001 and 2000



1.  Summary of Significant Accounting Policies

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

On July 9, 2001, BNCCORP established a new banking subsidiary, BNC National Bank
of Arizona,  headquartered in Tempe,  Arizona. On November 20, 2000, the Company
merged BNC National Bank ("BNC-North Dakota") with and into BNC National Bank of
Minnesota  ("BNC-Minnesota")  and then changed the name of the combined  bank to
BNC National Bank. On December 31, 1999 the Company sold its asset-based lending
subsidiary,  BNC  Financial  Corporation,  which is  treated  as a  discontinued
operation.

The  accounting  and  reporting   policies  of  BNCCORP  and  its   subsidiaries
(collectively,   the  "Company")  conform  to  accounting  principles  generally
accepted  in the  United  States and  general  practices  within  the  financial
services  industry.  The more  significant  accounting  policies are  summarized
below.

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

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

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

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

Investment  Securities.  Investment  and  mortgage-backed  securities  which the
Company  intends to hold for indefinite  periods of time, or that may be sold in
response to changes in interest rates,  changes in prepayment  risk, the need to
increase  regulatory capital or similar factors,  as well as securities on which
call  options  have  been  written,   are  classified  as  available  for  sale.
Available-for-sale  securities are measured at fair value.  Net unrealized gains
and losses,  net of deferred income taxes,  on investments  and  mortgage-backed
securities   available  for  sale  are  reported  as  a  separate  component  of
stockholders' equity (see "Comprehensive Income") until realized. All securities
were  classified  as  available  for sale as of  December  31,  2001  and  2000.
Investment  and  mortgage-backed  securities  which the Company  intends to hold
until  maturity are stated at cost,  adjusted for  amortization  of premiums and
accretion of discounts using a method that approximates level yield. Declines in

<PAGE>
the fair value of individual  available-for-sale or held-to-maturity  securities
below their cost which are other than  temporary  could result in write-downs of
the individual  securities to their fair value.  Such  write-downs,  should they
occur,  would be included in  earnings  as realized  losses.  There were no such
write-downs during 2001, 2000, or 1999.

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

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

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

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

     Specific Reserve.  The amount of specific reserves is determined  through a
     loan-by-loan  analysis of problem loans over a minimum size that  considers
     expected future cash flows,  the value of collateral and other factors that
     may impact the  borrower's  ability to make payments when due.  Included in
     this  group are those  nonaccrual  or  renegotiated  loans  which  meet the
     criteria as being  "impaired"  under the  definition in SFAS 114. A loan is
     impaired when, based on current information and events, it is probable that
     a creditor  will be unable to collect  all  amounts  due  according  to the
     contractual  terms of the loan agreement.  Problem loans also include those
     credits  that  have  been  internally   classified  as  credits   requiring
     management's  attention  due  to  underlying  problems  in  the  borrower's
     business or collateral  concerns.  Ranges of loss are  determined  based on
     best- and worst-case scenarios for each loan.

     Reserves for Homogeneous Loan Pools. The Company makes a significant number
     of loans and leases which, due to their underlying similar characteristics,
     are assessed for loss as "homogeneous"  pools.  Included in the homogeneous
     pools are loans and leases  from the retail  sector  and  commercial  loans
     under a certain size,  which have been  excluded from the specific  reserve
     allocation previously discussed.  The Company segments the pools by type of
     loan or lease  and  using  historical  loss  information  estimates  a loss
     reserve for each pool.

     Special  Reserve.  The Company's  senior lending  management also allocates
     reserves  for  special  situations,  which are  unique  to the  measurement
     period. These include environmental factors, such as economic conditions in
     certain geographical or industry segments of the portfolio, economic trends
     in the retail lending sector and peer-group loss history.


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

<PAGE>

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

Loan  Origination  Fees and Costs.  Loan  origination fees and costs incurred to
extend  credit are deferred and  amortized  over the term of the loan as a yield
adjustment.  Loan fees representing  adjustments of yield are generally deferred
and amortized into interest  income over the term of the loan using the interest
method.   Loan  commitment  fees  are  generally  deferred  and  amortized  into
noninterest  income on a straight-line  basis over the commitment  period.  Loan
fees not  representing  adjustments  of yield are also  included in  noninterest
income.

Mortgage  Servicing and Transfers of Financial Assets.  The Banks regularly sell
loans to others on a  non-recourse  basis.  Sold loans are not  included  in the
accompanying balance sheets. The Banks generally retain the right to service the
loans as well as the right to  receive a portion of the  interest  income on the
loans.  At December 31, 2001 and 2000,  the Banks were  servicing  loans for the
benefit of others with aggregate unpaid principal  balances of $235.8 and $216.0
million, respectively.  Many of the loans sold by the Banks are commercial lines
of credit for which  balances and related  payment  streams cannot be reasonably
estimated in order to determine  the fair value of the  servicing  rights and/or
future interest  income retained by the Banks.  Upon sale, any unearned net loan
fees or costs are  recognized  in income.  Gains on sales of loans were $22,000,
$71,000 and $0 for 2001, 2000 and 1999,  respectively,  and are included in fees
on loans.

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

Other Real Estate Owned and  Repossessed  Property.  Real estate  properties and
other assets acquired  through,  or in lieu of, loan foreclosure are included in
other assets in the balance sheet and are stated at the lower of carrying amount
or fair value less cost to sell.  When an asset is  acquired,  the excess of the
recorded  investment  in the asset over fair  value,  if any,  is charged to the
allowance for credit  losses.  Subsequent  declines in the estimated fair value,
net  operating  results  and gains and  losses on  disposition  of the asset are
included in other noninterest expenses.  The Company's investment in such assets
at December 31, 2001 and 2000 was $70,000 and $84,000, respectively.

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

Impairment of Long-Lived  Assets.  The Company  periodically  reviews long-lived
assets,  including property and equipment,  certain identifiable intangibles and
goodwill for  impairment.  If impairment is  identified,  the assets are written
down to their  fair  value  through a charge  to  noninterest  expense.  No such
impairment losses were recorded during 2001, 2000 or 1999.

<PAGE>

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

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

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

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

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

     Derivative  Financial   Instruments.   The  fair  value  of  the  Company's
     derivatives equals the quoted market price.

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

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

Derivative  Financial  Instruments.  The Company adopted  Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS 133"), as amended,  which requires all derivative  financial
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,  be recorded in the consolidated  balance sheet as either an asset or
liability measured at its fair value. The fair value of the Company's derivative
financial instruments is determined based on quoted market prices for comparable
transactions,  if available,  or a valuation  model that  calculates the present
value of expected future cash flows.

Changes in the fair value of derivative financial instruments are required to be
recognized  currently in earnings unless specific hedge accounting  criteria are
met. Special  accounting for qualifying  hedges allows a derivative's  gains and
losses to offset related results on the hedged item in the income statement, and
requires formal  documentation  designation and assessment of  effectiveness  of
transactions that receive hedge accounting.

As part of  managing  its  interest  rate  risk,  the  Company  may  enter  into
derivative  financial  instruments such as interest rate swaps, caps and floors.
Interest  rate  swaps are used to  exchange  fixed and  floating  rate  interest
payment  obligations  and caps and  floors  are used to  minimize  the impact of
fluctuating interest rates on earnings.

The Company's  derivative financial instrument (an interest rate floor contract)
qualified  as a cash  flow  hedge on  January  1,  2001,  and as a result of the
adoption,  the Company  recognized  its derivative  financial  instrument on its
balance  sheet at its fair  value  with an  offsetting  charge  to  earnings  of
$113,000,  net of taxes, for the derivative  instrument's loss excluded from the
assessment of hedge  effectiveness.  This amount is presented as the  cumulative
effect of a change in accounting principle for the year ended December 31, 2001.
During 2001,  the Company  recognized  in earnings  $348,000 for the  derivative
instrument's  gain and a loss of $(120,000) was reclassified  into earnings as a
result of the discontinuance of its cash flow hedge.

<PAGE>

The Company entered into additional derivative financial instruments during 2001
to mitigate its interest rate risk, but has not designated these instruments as
cash flow hedges.

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

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

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

Deferred  income taxes are reported for temporary  differences  between items of
income or expense reported for financial  statement  purposes and those reported
for income tax purposes.  The  differences  relate  primarily to  differences in
accounting for credit losses, depreciation timing differences,  unrealized gains
and losses on investment securities,  deferred compensation and leases which are
treated as operating  leases for tax purposes and capital  leases for  financial
statement purposes.

Earnings Per Common Share.  Basic earnings per share is computed by dividing net
income by the weighted average common shares  outstanding  during the applicable
period. Diluted earnings per share is computed based on the amount of net income
that would be available for each common share,  assuming all dilutive  potential
common shares were issued.  Such dilutive  potential common shares include stock
options and warrants (see Note 18).

Comprehensive  Income (Loss).  The Company presents a consolidated  statement of
comprehensive  income  (loss)  which  is a total  of net  income  and all  other
non-owner  changes in equity.  Non-owner  changes are transactions  that did not
occur as a result of stockholder action.

Segment Disclosures. Banking is the primary operational activity of the Company.
There are no other  operational  segments which are material and are required to
be separately disclosed for financial statement purposes.  Therefore,  there are
no segment disclosures included in these consolidated financial statements.

Recently  Issued  Accounting  Pronouncements.  On January 1, 1999,  the  Company
adopted  Statement  of  Position  98-5,  "Reporting  on the  Costs  of  Start-Up
Activities"  ("SOP  98-5"),  which  requires  costs of start-up  activities  and
organization  costs  to be  expensed  as  incurred.  SOP  98-5  did not  require
restatement of prior period financial statements.  The impact of adoption of SOP
98-5 is  presented  in the  consolidated  financial  statements  as a cumulative
effect of change in accounting principle for the year ended December 31, 1999.

On June 29, 2001,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial Accounting Standards No. 141, "Business Combinations" and
No. 142,  "Goodwill and Other  Intangible  Assets"  ("SFAS 141" and "SFAS 142").
SFAS 141 requires all business combinations  initiated after June 30, 2001 to be
accounted for using the purchase method. Under SFAS 142, goodwill and intangible
assets  with  indefinite  lives  will no longer be  amortized  but are  reviewed
annually (or more  frequently if impairment  indicators  arise) for  impairment.
Separable  intangible  assets that are not deemed to have indefinite  lives will
continue to be amortized over their useful lives (but with no maximum life). The
Company has adopted the  provisions  of SFAS 142  effective  January 1, 2002.

<PAGE>

In July 2001, the SEC issued Staff Accounting  Bulletin No. 102,  "Selected Loan
Loss  Allowance  Methodology  and  Documentation  Issues"  ("SAB 102").  SAB 102
expresses  the  SEC  staff's  views  on  the  development,   documentation,  and
application of a systematic  methodology as required by its Financial  Reporting
Release No. 28 (issued in December 1986) for determining allowances for loan and
lease losses in accordance with generally  accepted  accounting  principles.  In
particular,  the guidance focuses on the  documentation the staff normally would
expect a registrant to prepare and maintain in support of its allowance for loan
losses.  Also in July 2001, the federal  banking  agencies  issued their "Policy
Statement on Allowance for Loan and Lease Losses Methodologies and Documentation
for Banks and Savings  Institutions"  (the  "Policy  Statement").  Developed  in
collaboration  with  the SEC,  the  Policy  Statement  clarifies  the  agencies'
expectations and provides  guidance  regarding  methodologies  and documentation
support  for the  allowance  for loan and lease  losses.  SAB 102 and the Policy
Statement do not change the guidance in generally accepted accounting principles
and in previous SEC and regulatory agency  statements but, rather,  are intended
to improve the  allowance for loan and lease losses  process and  documentation.
Therefore,  adoption  of these  two  issuances  did not  materially  impact  the
Company.

In August 2001, the FASB issued Statement of Financial  Accounting Standards No.
144,  "Accounting  for the  Impairment or Disposal of Long-Lived  Assets" ("SFAS
144").  SFAS  144  supersedes  FASB  Statement  No.  121,  "Accounting  for  the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets To Be Disposed Of",
and the  accounting and reporting  provisions of APB Opinion No. 30,  "Reporting
the Results of  Operations - Reporting the Effects of Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
Transactions,"  for the  disposal  of a segment  of a  business  (as  previously
defined in that opinion).  SFAS 144 requires that one  accounting  model be used
for long-lived  assets to be disposed of by sale,  whether  previously  held and
used or newly acquired, and broadens the presentation of discontinued operations
to include more  disposal  transactions  than were  included  under the previous
standards.  BNCCORP will adopt SFAS 144 on January 1, 2002; however, adoption of
the statement is not expected to have a material impact.

Regulatory Environment.  BNCCORP and its subsidiaries are subject to regulations
of certain state and federal agencies,  including periodic examinations by those
regulatory  agencies.  BNCCORP  and  the  Banks  are  also  subject  to  minimum
regulatory  capital  requirements.  At December 31, 2001,  capital levels exceed
minimum capital requirements (see Note 12).

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

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

2.  Expansion, Mergers and Divestitures:

The following  expansion,  mergers and divestitures  transpired during the three
years ended December 31, 2001:

On July 9, 2001, the Company established a new banking subsidiary,  BNC National
Bank of Arizona headquartered in Tempe, Arizona.

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

On December 31, 1999, the Company sold its asset-based lending  subsidiary,  BNC
Financial  Corporation ("BNC Financial"),  to Associated Banc-Corp of Green Bay,
Wisconsin.  The Company  received $5.3 million in cash for all of the issued and
outstanding  common stock of BNC Financial.  Operating  results of BNC Financial
for the nine  months  ended  September  30,  1999 are  shown  separately  in the
accompanying  consolidated statement of income. The 1999 gain on disposal of BNC
Financial of $438,000  (pretax  gain of  $706,000,  net of income tax

<PAGE>

effects of $268,000)  included  operating  results for the subsidiary during the
phase out period of October 1 through  December  31, 1999 and other  adjustments
related to the  winding  down of BNC  Financial's  operations.  The 2000 gain on
disposal  of $159,000  (pretax  gain of  $241,000,  net of income tax effects of
$82,000) resulted from recoveries on a credit charged off in 1999 at the time of
the sale of BNC Financial.

Net interest income and noninterest  income for BNC Financial for the year ended
December 31, 1999 were $1.6 and $1.1  million,  respectively.  These amounts are
not included in net interest income and noninterest  income in the  accompanying
consolidated statements of income.

3.  Restrictions on Cash and Due From Banks:

The Banks are required to maintain  reserve  balances  with the Federal  Reserve
Bank under the Federal Reserve Act and Regulation D. Required  reserve  balances
were $4.2 and $2.4 million as of December 31, 2001 and 2000, respectively.

4.  Debt and Equity Securities:

Debt and equity  securities  have been  classified in the  consolidated  balance
sheets  according  to  management's   intent.  The  Company  had  no  securities
designated as trading or  held-to-maturity in its portfolio at December 31, 2001
or  2000.  The  carrying  amount  of  available-for-sale  securities  and  their
approximate fair values were as follows as of December 31 (in thousands):

<TABLE>
<CAPTION>
                                                Gross       Gross     Estimated
                                 Amortized    Unrealized  Unrealized     Fair
                                    Cost        Gains      Losses       Value
                                 -----------  ----------  ----------  ----------
<S>                               <C>          <C>        <C>          <C>
              2001
U.S. government agency mortgage-
   backed securities...........   $  42,027    $    243   $   (324)    $  41,946
U.S. government agency
securities.....................       4,396          99         --         4,495
Collateralized mortgage
obligations....................     135,423       2,236       (391)      137,268
State and municipal bonds......      16,952         649       (120)       17,481
   Corporate debt securities......   10,329         376        (94)       10,611
Equity securities..............       7,380          --         --         7,380
                                 -----------  ----------  ----------  ----------
                                 $  216,507   $   3,603   $   (929)   $  219,181
                                 ===========  ==========  ==========  ==========


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




<PAGE>


The amortized  cost and estimated fair market value of  available-for-sale  debt
securities classified according to their contractual  maturities at December 31,
2001, were as follows (in thousands):

<TABLE>
<CAPTION>

                                               Estimated
                                    Amortized     Fair
                                       Cost      Value
                                    ---------- -----------
<S>                                  <C>        <C>

Due in one year or less...........   $    510   $     517
Due after one year through five
   years..........................      5,902       6,139
Due after five years through ten
   years..........................     29,363      29,931
Due after ten years...............    173,352     175,214
                                    ----------  ----------
   Total..........................  $ 209,127   $  211,801
                                    ==========  ==========
</TABLE>

Securities  carried at  approximately  $186.0 and $215.4 million at December 31,
2001 and 2000,  respectively,  were pledged as  collateral  for public and trust
deposits and  borrowings,  including  borrowings with the Federal Home Loan Bank
("FHLB").

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

                              2001         2000          1999
                           -----------  ------------  -----------
<S>                        <C>          <C>           <C>

Sales proceeds........      $ 119,394     $  23,789   $   39,732
Gross realized gains..      $   1,530     $     324   $      239
Gross realized losses.      $     134     $      48   $       41
</TABLE>


Income taxes applicable to net gains and losses on securities available for sale
were $405,000,  $90,000, and $75,000 for the years ended December 31, 2001, 2000
and 1999, respectively.

5. Loans and Leases:

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

                                        2001         2000
                                      ----------  -----------
<S>                                   <C>         <C>
Commercial and industrial.........    $ 109,143   $ 112,407
Real estate:
   Mortgage.......................      136,219      90,622
   Construction...................       34,872      25,301
Agricultural......................       19,810      15,775
Consumer..........................       12,119      12,016
Lease financing...................        7,578      10,202
Other.............................        1,566       2,872
                                      ----------  -----------
   Total..........................      321,307     269,195
Less:
  Allowance for credit losses.....       (4,325)     (3,588)
  Unearned income and net
    unamortized deferred fees and
    costs.........................         (516)       (270)
                                      ----------  -----------
      Net loans and leases........    $ 316,466   $ 265,337
                                      ==========  ===========
</TABLE>



<PAGE>


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

                            2001         2000
                           -------      -------
<S>                        <C>          <C>
North Dakota............     41%           47%
Minnesota...............     33            33
Arizona.................     16            --
South Dakota............      8            13
Other...................      2             7
                           -------      -------
      Totals............    100%          100%
                           =======      =======
</TABLE>

Commercial  loan  borrowers  are generally  small- and  mid-sized  corporations,
partnerships  and sole  proprietors  in a wide variety of  businesses.  Loans to
consumers  are both  secured  and  unsecured.  Real  estate  loans  are fixed or
variable rate and include both  amortizing and revolving  line-of-credit  loans.
Real estate  mortgage loans include various types of loans for which the Company
holds real  property  as  collateral.  Of the  $136.2 and $90.6  million of real
estate mortgages as of December 31, 2001 and 2000,  respectively,  approximately
$54.9 and $44.6 million,  respectively,  were loans made to commercial customers
where the  collateral  for the loan is,  among  other  things,  the real  estate
occupied by the business of the customer. Accordingly, certain loans categorized
as real estate mortgage loans can be  characterized as commercial loans that are
secured by real estate.  Single- and  multi-family  residential  mortgage  loans
totaling $6.6 and $7.0 million at December 31, 2001 and 2000, respectively, were
pledged as collateral for FHLB  borrowings.  Commercial loans totaling $35.6 and
$17.2  million at December  31,  2001 and 2000,  respectively,  were  pledged as
collateral for borrowings, including FHLB borrowings.

The  Company's  credit  policies   emphasize   diversification   of  risk  among
industries,  geographic areas and borrowers.  The only  concentrations  of loans
exceeding 10 percent of total loans at December 31, 2001 are real estate  loans,
such as loans to non-residential and apartment building operators and lessors of
real  property,  and loans  related to hotels and other  lodging  places.  Loans
within these  categories are  diversified  across  different types of borrowers,
geographically dispersed, and secured by many different types of real estate and
other collateral.

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

                                        2001                      2000
                               ------------------------  -----------------------
                               Recorded     Valuation     Recorded     Valuation
                               Investment   Allowance    Investment    Allowance
                               -----------  -----------  ----------   ----------
<S>                            <C>          <C>          <C>          <C>
Impaired loans -
   Valuation allowance
   required..................   $  11,571     $    769   $   6,506    $   1,389
   No valuation allowance
   required..................          17           --          33           --
                               -----------  -----------  ----------   ----------
      Total impaired loans...   $  11,588     $    769   $   6,539    $   1,389
                               ===========  ===========  ==========   ==========
</TABLE>

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





<PAGE>
The valuation allowance on impaired loans is included in the Company's allowance
for credit losses.

Interest  payments  received on impaired  loans are recorded as interest  income
unless collection of the remaining recorded investment is doubtful at which time
payments received are recorded as reductions of principal.  The average recorded
investment in impaired loans and approximate interest income recognized for such
loans were as follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
                                           2001       2000        1999
                                         ---------  ---------   ---------
<S>                                      <C>        <C>         <C>
Average recorded investment in impaired
   loans..............................    $ 9,101   $ 7,393     $ 8,977
                                         =========  =========   =========
Interest income recognized on impaired
   loans..............................     $  761    $  791      $  914
                                         =========  =========   =========
Average recorded investment in impaired
   loans ss a percentage of average
   total loans........................       2.9%      2.9%       3.6%
                                         =========  =========   =========
</TABLE>

Nonaccrual and Restructured Loans. As of December 31, 2001 and 2000, the Company
had $3.4 million and $343,000,  respectively, of nonaccrual loans and $5,000 and
$16,000, respectively, of restructured loans (included as impaired loans above).
The  following  table  indicates  the effect on income if interest on such loans
outstanding at year-end had been recognized at original contractual rates during
the year ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                           2001       2000       1999
                                         ---------  ---------  ---------
<S>                                      <C>        <C>        <C>
Interest income that would have been
   recorded...........................      $  87      $  35      $ 141
Interest income recorded..............          3          6         29
                                         ---------  ---------  ---------
Effect on interest income.............      $  84      $  29      $ 112
                                         =========  =========  =========
</TABLE>

As of December 31, 2001, the Company had no commitments to lend additional funds
to  borrowers  with  loans  whose  terms have been  modified  in  troubled  debt
restructurings.

Allowance  for Credit  Losses.  Transactions  in the allowance for credit losses
were as follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
                                           2001       2000       1999
                                         ---------  ---------  ---------
<S>                                      <C>        <C>        <C>
Balance, beginning of year.............  $  3,588   $  2,872    $  2,854

    Provision for credit losses........     1,699      1,202       1,138
    Loans charged off..................    (1,265)      (755)     (1,290)
    Loans recovered....................       303        269         170
                                         ---------  ---------  ---------
Balance, end of year...................  $  4,325   $  3,588    $  2,872
                                         =========  =========  =========
</TABLE>
6. Premises, Leasehold Improvements and Equipment:

Premises,  leasehold  improvements  and equipment  consisted of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
                                                    2001          2000
                                                  ---------     ----------
<S>                                               <C>           <C>
Land and improvements..........................   $  1,168       $ 1,107
Buildings and improvements.....................     10,899        10,494
Leasehold improvements.........................      1,035         1,101
Furniture, fixtures and equipment..............      8,843         7,802
                                                  ---------     ----------
   Total cost..................................     21,945        20,504
Less accumulated depreciation and amortization.     (6,542)       (5,631)
                                                  ---------     ----------
   Net premises, leasehold improvements and
     equipment.................................   $ 15,403      $ 14,873
                                                  =========     ==========
</TABLE>

<PAGE>

Depreciation and amortization  expense on premises,  leasehold  improvements and
equipment charged to continuing  operations totaled approximately $1.4, $1.1 and
$1.0 million for the years ended December 31, 2001, 2000 and 1999, respectively.

7. Deferred Charges and Intangible Assets:

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

<TABLE>
<CAPTION>
                                                    2001          2000
                                                  ----------   -----------
<S>                                               <C>          <C>
Premiums paid for deposits assumed.............   $   4,022     $  4,022
Goodwill.......................................       1,115        1,115
Covenants not to compete.......................         480          480
Debt related costs.............................          --          147
Other miscellaneous intangibles................         112          112
                                                  ----------   -----------
   Total costs.................................       5,729        5,876
Less accumulated amortization .................      (3,558)      (3,157)
                                                  ----------   -----------
   Net deferred charges and intangible assets..   $   2,171    $   2,719
                                                  ==========   ===========
</TABLE>

Amortization expense charged to continuing operations was $482,000, $528,000 and
$541,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

8. Deposits:

The scheduled maturities of time deposits as of December 31, 2001 are as follows
(in thousands):
<TABLE>
<CAPTION>
                <S>                                <C>

                2002.............................  $  111,827
                2003.............................      40,397
                2004.............................      33,599
                2005.............................       4,790
                2006.............................       3,050
                Thereafter.......................         598
                                                   ------------
                                                   $  194,261
                                                   ============
</TABLE>



<PAGE>


9. Notes Payable:

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

                                                               2001       2000
                                                             --------  ---------
<S>                                                          <C>       <C>
 BNCCORP:
 8 5/8% Subordinated Notes, due May 31, 2004,
   interest payable monthly (plus unamortized
   discount of $0 and $371 at December 31, 2001
   and 2000, respectively - effective rate 9.61%),
   unsecured (see below).................................      $   --    $12,580
 Subsidiaries:
 Federal funds purchased and U. S. Treasury tax
   and loan note option accounts (1).....................         447     32,692
 Repurchase advances from FHLB, renewable weekly,
   interest payable at renewal, rates ranging from
   6.47% to 6.59% at December 31, 2000, secured by
   mortgage loans, government agency mortgage-backed
   securities and government agency collateralized
   mortgage obligations (1)..............................          --     55,000
 Fixed rate advances from FHLB, callable quarterly
   and annually, principal due in 2009 and 2010,
   interest payable monthly at rates ranging from
   5.64% to 6.27%, secured by mortgage loans,
   government agency mortgage-backed securities
   and government agency collateralized mortgage
   obligations (1).......................................      62,200     62,200
 Fixed rate advances from FHLB, principal due in
   2002 through 2005, interest payable monthly at
   rates ranging from 2.83% to 5.46%, secured by
   mortgaged-backed securities and government agency
   collateralized mortgage obligations (1)...............      55,000         --
 Other (1)...............................................         326        598
                                                             --------  ---------
             Total.......................................    $163,070  $ 117,973
                                                             ========  =========


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

(1) The weighted average interest rate on short-term  borrowings  outstanding as
of December 31, 2001 and 2000 was 5.01% and 6.30%, respectively.
</FN>
</TABLE>

The 8 5/8 percent  Subordinated  Notes (the "Notes"),  which qualified as Tier 2
capital up to a certain  limit  under the  Federal  Reserve  Board's  risk-based
capital guidelines (60 percent at December 31, 2000), were considered  unsecured
general obligations of BNCCORP. They were redeemable,  at the option of BNCCORP,
at par plus accrued interest to the date of redemption.  Payment of principal of
the Notes could be accelerated  only in the case of certain  events  relating to
bankruptcy,  insolvency or  reorganization  of BNCCORP.  An initial  discount of
$750,000  was being  amortized  to interest  expense  over the term of the Notes
using the effective interest rate method.

During  2001,  the  Company  purchased  and  retired  $82,000  of the notes at a
discount  using cash  generated  from the sale of BNC  Financial.  On August 31,
2001,  the Company  redeemed  the  remaining  $12.6  million of the Notes at par
through  exercise of the option of BNCCORP  discussed above. The remaining $12.6
million of the Notes were redeemed  using a portion of the cash  generated  from
issuing trust preferred  securities  through the  establishment of BNC Statutory
Trust II (see Note 10). The transactions and redemption of the Notes resulted in
an extraordinary  loss of $134,000 ($0.06 per diluted share) net of income taxes
of ($70,000).

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


<PAGE>


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

In July 2001, the Company  established a special  purpose  trust,  BNC Statutory
Trust II, for the  purpose  of issuing  $15.0  million  of  floating  rate trust
preferred  securities.  The floating rate trust preferred securities were issued
at an  initial  rate of 7.29  percent  and adjust  quarterly  to a rate equal to
3-month  LIBOR plus 3.58  percent.  Prior to July 31,  2011,  the rate shall not
exceed 12.5 percent. The proceeds from the issuance,  together with the proceeds
of the related  issuance of $464,000  of common  securities  of the trust,  were
invested in $15.5 million of junior subordinated  deferrable interest debentures
of the  Company.  The  floating  rate junior  subordinated  deferrable  interest
debentures  were issued at an initial rate of 7.29 percent and adjust  quarterly
to a rate equal to 3-month LIBOR plus 3.58 percent.  Prior to July 31, 2011, the
rate  shall  not  exceed  12.5  percent.  Concurrent  with the  issuance  of the
preferred  securities  by the  trust,  the  Company  fully  and  unconditionally
guaranteed  all  obligations  of the special  purpose trust related to the trust
preferred securities.  The trust preferred securities provide the Company with a
more  cost-effective  means of obtaining Tier 1 capital for regulatory  purposes
than if the Company itself were to issue  preferred stock because the Company is
allowed to  deduct,  for income  tax  purposes,  amounts  paid in respect of the
debentures  and  ultimately  distributed  to the holders of the trust  preferred
securities. The sole assets of the special purpose trust are the debentures. The
Company owns all of the common  securities of the trust.  The common  securities
and debentures, along with the related income effects, are eliminated within the
consolidated financial statements.  The preferred securities issued by the trust
rank  senior to the common  securities.  For  presentation  in the  consolidated
balance  sheet,  the  securities  are shown net of discount and direct  issuance
costs.

The trust preferred  securities are subject to mandatory  redemption on July 31,
2031,  the stated  maturity  date of the  debentures,  or upon  repayment of the
debentures,  or  earlier,  pursuant to the terms of the trust  agreement.  On or
after July 31,  2006,  the trust  preferred  securities  may be redeemed and the
corresponding debentures may be prepaid at the option of the Company, subject to
Federal Reserve Board approval,  at declining  redemption prices.  Prior to July
31,  2006,  the  securities  may be redeemed at the option of the Company on the
occurrence  of certain  events  that result in a negative  tax impact,  negative
regulatory  impact  on the  trust  preferred  securities  or  negative  legal or
regulatory impact on the special purpose trust which would cause it to be deemed
to be an "investment company" for regulatory purposes. In addition,  the Company
has the right to defer  payment of interest on the  debentures  and,  therefore,
distributions on the trust preferred securities for up to five years.

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

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



<PAGE>


11.   Stockholders' Equity:

BNCCORP and the Banks are subject to certain minimum capital  requirements  (see
Note 12).  BNCCORP  is also  subject to  certain  restrictions  on the amount of
dividends it may declare  without prior  regulatory  approval in accordance with
the Federal  Reserve Act. In addition,  certain  regulatory  restrictions  exist
regarding  the ability of the Banks to transfer  funds to BNCCORP in the form of
cash  dividends.  Approval  of the  Office of the  Comptroller  of the  Currency
("OCC"),  the  Banks'  principal  regulator,  is  required  for the Banks to pay
dividends  to BNCCORP in excess of the Banks'  earnings  retained in the current
year plus retained net profits for the preceding two years. At December 31, 2001
approximately $5.9 million of retained earnings were available for bank dividend
declaration without prior regulatory approval.

On May 30, 2001, the Company's Board of Directors adopted a rights plan intended
to protect stockholder interests in the event the Company becomes the subject of
a takeover  initiative that the Company's Board of Directors believes could deny
the Company's  stockholders the full value of their  investment.  This plan does
not prohibit the Board from considering any offer that it deems  advantageous to
its  stockholders.  The Company has no knowledge  that anyone is  considering  a
takeover.

The rights were issued to each common stockholder of record on May 30, 2001, and
they will be exercisable only if a person acquires,  or announces a tender offer
that  would  result  in  ownership  of,  15  percent  or more  of the  Company's
outstanding  common  stock.  The  rights  will  expire on May 30,  2011,  unless
redeemed or exchanged at an earlier date.

Each right  entitles  the  registered  holder to  purchase  from the Company one
one-hundredth of a share of Series A Participating  Cumulative  Preferred Stock,
$.01 par value (the  "Preferred  Stock"),  of the Company at a price of $100 per
one  one-hundredth  of a share,  subject to adjustment.  Each share of Preferred
Stock will be entitled to a minimum  preferential  quarterly dividend payment of
$1.00 but will be entitled to an  aggregate  dividend of 100 times the  dividend
declared per share of common stock. In the event of liquidation,  the holders of
the  Preferred  Stock will be  entitled  to a minimum  preferential  liquidation
payment of $0.01 per share but will be entitled to an  aggregate  payment of 100
times the payment made per share of common stock.  Each share of Preferred Stock
will have 100 votes,  voting  together  with the common stock.  Finally,  in the
event of any merger, consolidation or other transaction in which common stock is
exchanged,  each share of Preferred  Stock will be entitled to receive 100 times
the  amount  received  per share of common  stock.  Because of the nature of the
Preferred Stock's dividend,  liquidation and voting rights, the value of the one
one-hundredth  of a share of Preferred Stock  purchasable  upon exercise of each
right should approximate the value of one share of common stock.

12.   Regulatory Capital:

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

Quantitative  measures established by the regulations to ensure capital adequacy
require BNCCORP and the Banks to maintain  minimum amounts and ratios (set forth
in the  tables  that  follow)  of total and Tier I capital  (as  defined  in the
regulations)  to  risk-weighted  assets (as defined),  and of Tier I capital (as
defined)  to average  assets  (as  defined).  Management  believes  that,  as of
December 31, 2001,  BNCCORP and the Banks met all capital adequacy  requirements
to which they are subject.



<PAGE>


As of December 31, 2001, the most recent  notifications from the OCC categorized
the  Banks  as well  capitalized  under  the  regulatory  framework  for  prompt
corrective  action.  To be  categorized  as well  capitalized,  the  Banks  must
maintain minimum total risk-based,  Tier I risk-based and Tier I leverage ratios
as set forth in the table that follows.  There are no conditions or events since
that  notification  that  management  believes  have  changed the  institutions'
categories.

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

                                                                            To be Well
                                                       For Capital       Capitalized Under
                                      Actual        Adequacy Purposes    Prompt Corrective
                                                                         Action Provisions
                                 -----------------  ------------------  --------------------
                                  Amount    Ratio    Amount    Ratio    Amount      Ratio
                                 ---------  ------  --------- --------  --------  ----------
<S>                              <C>        <C>     <C>       <C>       <C>       <C>

     As of December 31, 2001
Total Capital (to risk-weighted
assets):
   Consolidated................  $ 53,428   12.96%  $ 32,969      8.0%      N/A       N/A
   BNC National Bank...........    44,098   11.01     32,053      8.0   $40,067      10.0%
   BNC National Bank of Arizona     2,657   22.93        927      8.0     1,159      10.0
Tier I Capital (to risk-
weighted assets):
   Consolidated................    36,536    8.87     16,485      4.0       N/A       N/A
   BNC National Bank...........    39,916    9.96     16,027      4.0    24,040       6.0
   BNC National Bank of Arizona     2,514   21.70        464      4.0       695       6.0
Tier I Capital (to average
assets):
   Consolidated................    36,536    6.33     23,074      4.0       N/A       N/A
   BNC National Bank...........    39,916    6.96     22,940      4.0    28,675       5.0
   BNC National Bank of Arizona     2,514   20.10        500      4.0       625       5.0
     As of December 31, 2000
Total Capital (to risk-weighted
assets):
   Consolidated................  $ 43,774   11.97%  $ 29,261      8.0%      N/A       N/A
   BNC National Bank...........    39,745   10.92     29,122      8.0   $ 36,403     10.0%
Tier I Capital (to risk-weighted
assets):
   Consolidated................    32,638    8.92     14,631      4.0       N/A       N/A
   BNC National Bank...........    36,156    9.93     14,561      4.0    21,842       6.0
Tier I Capital (to average
assets):
   Consolidated................    32,638    5.88     22,195      4.0       N/A       N/A
   BNC National Bank...........    36,156    6.53     22,159      4.0    27,699       5.0
</TABLE>



<PAGE>


13.   Fair Value of Financial Instruments:

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

<TABLE>
<CAPTION>


                                              2001                    2000
                                    ----------------------  --------------------
                                     Carrying     Fair      Carrying     Fair
                                      Amount      Value      Amount      Value
                                    ----------  ----------  ---------  ---------
<S>                                 <C>         <C>         <C>        <C>
Assets:
   Cash, due from banks and
      federal funds sold...........   $23,972   $  23,972   $  15,583  $  15,583
   Investment securities available
      for sale.....................   219,181     219,181     263,185    263,185
   Loans and leases, net...........   316,466     319,502     265,337    261,103
   Derivative financial instruments       915         915          --         --
                                    ----------  ----------  ---------- ---------
                                      560,534   $ 563,570     544,105   $539,871
                                                ==========             =========
   Other assets....................    24,523                  25,911
                                    ----------              ----------
                                    $ 585,057                $570,016
                                    ==========              ==========
Liabilities:
   Deposits, noninterest-bearing... $  43,055   $  43,055   $  31,459  $  31,459
   Deposits, interest-bearing......   364,914     367,040     331,005    331,674
   Notes payable...................   117,973     118,846     163,070    162,137
   Guaranteed preferred beneficial
       interests in Company's
       subordinated debentures.....    22,244      22,915       7,606      7,347
                                     ---------  ---------   --------- ----------
                                      548,186   $ 551,856     533,140  $ 532,617
                                                =========             ==========
   Other liabilities................    6,192                   7,419

   Stockholders' equity.............   30,679                  29,457
                                     ---------              ----------
                                     $585,057               $ 570,016
                                     =========              ==========
</TABLE>

14.   Financial Instruments:

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

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

Standby  letters of credit are  conditional  commitments  the Company  issues to
guarantee the performance of a customer to a third party.  Commercial letters of
credit are issued on behalf of  customers  to ensure  payment or  collection  in
connection with trade transactions. In the event of a customer's nonperformance,
the Company's credit loss exposure is the same as in any extension of credit, up
to the letter's contractual amount. Management assesses the borrower's credit to
determine the necessary  collateral,  which may include  marketable  securities,
real estate,  accounts receivable and inventory.  Since the conditions requiring
the Company to fund  letters of credit may not occur,  the  Company  expects its
liquidity  requirements  related  to such  letters of credit to be less than the
total outstanding commitments.

<PAGE>

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

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

                                          2001         2000
                                       -----------  -----------
<S>                                    <C>          <C>

Commitments to extend credit........    $ 113,333    $  77,902
Letters of credit...................          739        6,159
Interest rate floors................           --       25,000
Interest rate caps..................       40,000           --
</TABLE>

15.   Related-Party/Affiliate Transactions:

The Company has entered into  transactions  with related parties such as opening
deposit  accounts for and extending  credit to employees of the Company.  In the
opinion of management,  such  transactions  have been fair and reasonable to the
Company and have been entered into under terms and conditions  substantially the
same as those offered by the Company to unrelated parties.

In the  normal  course of  business,  loans are  granted  to, and  deposits  are
received  from,  executive  officers,  directors,   principal  stockholders  and
associates  of such  persons.  The  aggregate  dollar  amount  of  these  loans,
exclusive of loans to any such  persons  which in the  aggregate  did not exceed
$60,000, were $1.8 and $1.4 million at December 31, 2001 and 2000, respectively.
During  2001,  $1.0  million  of new  loans  were  made and  repayments  totaled
$587,000.  The total amount of deposits received from these parties was $1.8 and
$1.6 million at December 31, 2001 and 2000, respectively. Loans to, and deposits
received  from,  these  parties  were  made on  substantially  the  same  terms,
including  interest rates and  collateral,  as those  prevailing at the time for
comparable  transactions with unrelated persons and do not involve more than the
normal risk of collection.

The  Federal  Reserve  Act  limits  amounts  of,  and  requires  collateral  on,
extensions of credit by the Banks to BNCCORP,  and with certain exceptions,  its
non-bank affiliates. There are also restrictions on the amounts of investment by
the Banks in stocks and other  subsidiaries  of BNCCORP and such  affiliates and
restrictions  on the  acceptance of their  securities as collateral for loans by
the  Banks.  As of  December  31,  2001,  BNCCORP  and  its  affiliates  were in
compliance with these requirements.

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

The Company  recorded write downs to estimated net  realizability  of other real
estate owned and repossessed  assets, and related collection and other expenses,
of $40,000,  $470,000  and $2.3  million for the years ended  December 31, 2001,
2000 and 1999,  respectively.  The Company's investment in repossessed assets of
$70,000 as of December 31, 2001 represents  management's current estimate of net
realizable value based upon current valuation of the assets.



<PAGE>

17.   Income Taxes:

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

                                             2001       2000       1999
                                            --------   --------   --------
<S>                                         <C>        <C>        <C>
Continuing Operations -
  Current................................   $   950     $ 303     $  726
  Deferred income taxes from the following
   timing differences:
       Provision for credit losses.......      (241)     (342)       117
       Depreciation......................        74        41        (66)
       Write-downs of other real estate
        owned and repossessed assets.....        --       829       (829)
       Leases............................        42       (54)       (69)
       Other.............................      (217)      129       (278)
                                            --------   --------   --------
                                            $   608     $ 906     $ (399)
                                            ========   ========   ========

                                             2001       2000       1999
                                            --------   --------   --------
Discontinued Operation -
  Current................................   $    --     $   82    $  410

  Deferred income taxes from the following
  timing differences:
       Provision for credit losses.......        --        --         98
       Depreciation......................        --        --          4
       Other.............................        --        --         48
                                            --------   --------   --------
                                            $    --    $   82     $  560
                                            ========   ========   ========
</TABLE>

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

                                             2001        2000       1999
                                            --------   ---------   --------
<S>                                         <C>        <C>         <C>
Tax at 34% statutory rate................   $   714    $   947     $ (316)
Increase (decrease) resulting from:
   State taxes (net of federal benefit)..        99        266         (1)
   Tax-exempt interest...................      (250)      (321)      (142)
   Other, net............................        45         14         60
                                            --------   ---------   --------
                                             $  608    $   906      $(399)
                                            ========   =========   ========
</TABLE>

<PAGE>


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

                                                         2001       2000
                                                        --------   --------
<S>                                                     <C>        <C>
Deferred tax asset:
   Loans, primarily due to differences in accounting
     for credit losses...............................   $ 1,490    $ 1,429
   Difference between book and tax amortization of
     branch premium acquisition costs................       276        233
    Other.............................................      392         94
                                                        --------   --------
         Deferred tax asset..........................     2,158      1,756
                                                        --------   --------
Deferred tax liability:
   Unrealized gain on securities available for sale..     1,016        733
   Leases, primarily due to differences in accounting
      for leases.....................................       420        381
   Premises and equipment, primarily due to
      differences in original cost basis and
      depreciation...................................       578        510
    Other............................................        --        115
                                                        --------   --------
         Deferred tax liability......................     2,014      1,739
                                                        --------   --------
         Net deferred tax asset......................    $  144      $  17
                                                        ========   ========
</TABLE>


<PAGE>


18.  Earnings Per Share:

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

                                          Net
                                        Income
                                        (Loss)         Shares       Per-Share
                                      (Numerator)   (Denominator)     Amount
                                       ----------   -------------  ------------
<S>                                    <C>          <C>            <C>
                  2001
       Basic earnings per share:
Income from continuing operations....  $1,492,000    $ 2,395,353     $   0.62
Extraordinary item - loss on early
   extinguishment of debt, net of
   income taxes......................    (134,000)     2,395,353        (0.05)
Cumulative effect of change in
   accounting principle, net of
   income taxes......................    (113,000)     2,395,353        (0.05)
                                       ----------                    ----------
Income available to common
stockholders                           $1,245,000                    $   0.52
                                       ==========                    ==========
Effect of dilutive shares -
   Options...........................                    25,760
                                                   -------------
       Diluted earnings per share:
Income from continuing operations....  $1,492,000     2,421,113      $   0.62
Extraordinary item - loss on early
   extinguishment of debt, net of
   income taxes......................    (134,000)    2,421,113         (0.06)
Cumulative effect of change in
   accounting principle, net of income
   taxes.............................    (113,000)    2,421,113         (0.05)
                                       ----------                    ----------
Income available to common
   stockholders......................  $1,245,000                    $   0.51
                                       ==========                    ==========


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

</TABLE>



<PAGE>


<TABLE>
<CAPTION>


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

</TABLE>


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

                                            2001         2000         1999
                                         -----------  -----------  -----------
<S>                                      <C>          <C>          <C>
Quarter ended March 31.............         101,570      159,934      170,134
Quarter ended June 30..............          97,177      152,548      170,234
Quarter ended September 30.........          95,508      114,131      170,034
Quarter ended December 31..........          95,508      120,512      172,434
</TABLE>

19.   Benefit Plans:

BNCCORP has a 401(k) plan covering all employees of BNCCORP and its subsidiaries
who meet specified age and service requirements. Eligible employees may elect to
defer up to 15 percent of compensation  each year not to exceed the dollar limit
set by law. At their discretion,  BNCCORP and its subsidiaries  provide matching
contributions of up to 50 percent of employee deferrals up to a maximum employer
contribution   of  5  percent  of   compensation.   The  Company  made  matching
contributions  of  $207,000,  $188,000  and  $171,000  in 2001,  2000 and  1999,
respectively.  Under the  investment  options  available  under the 401(k) plan,
employees may elect to invest their salary deferrals in BNCCORP common stock.

<PAGE>

20.   Commitments and Contingencies:

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

In  conjunction  with the  business  combination  with Lips & Lahr,  the Company
assumed  five-year  employment  agreements with two officers of Lips & Lahr (the
"Officers"). The agreements, which originally provided for salaries based upon a
percentage  of all net annual  commissions  received  by Lips & Lahr on business
written by the  Officers,  were amended to provide for minimum  annual  salaries
through the remainder of the contract term which ran through  December 31, 2000.
Additionally,  the agreements  provide for the payment of deferred  compensation
for a term of ten years  commencing on February 1, 2001 and  continuing  monthly
until paid in full.  Finally,  as separate  consideration for the release of all
present and future  claims to the  Officers'  book of business at the end of the
term of the  employment  contract and for other terms of the contract  involving
confidentiality,  nonpiracy and a restrictive covenant covering a period of five
years after the term of the agreement,  the  agreements  provide for 120 monthly
payments also commencing on February 1, 2001. The deferred compensation payments
have been accrued for as of December 31, 2001. Both of the Officers resigned and
are now acting as  consultants  to BNC  Insurance,  Inc.  pursuant to consulting
agreements.  Under these agreements,  the Officers' annual salaries are replaced
with annual consulting fees and the Company remains obligated under the deferred
compensation and non-compete provisions of the original employment agreements.

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

Leases.  The Company has entered into  operating  lease  agreements  for certain
facilities  and  equipment  used in its  operations.  Rent expense for the years
ended  December 31, 2001,  2000 and 1999,  was $676,000,  $431,000 and $467,000,
respectively,  for facilities,  and $94,000, $43,000 and $39,000,  respectively,
for equipment and other items.  Minimum annual base lease payments for operating
leases with remaining terms of greater than one year are as follows:
<TABLE>

                <S>                     <C>
                2002...............     $914,000
                2003...............      816,000
                2004...............      771,000
                2005...............      622,000
                2006...............      254,000
                Thereafter.........           --
</TABLE>

<PAGE>

Legal  Proceedings.  In the normal course of business the Company may be a party
to certain claims arising in the ordinary course of business.  In the opinion of
management,  based upon the advice of legal counsel, the outcomes of such claims
are not expected to be material to the Company's financial position,  results of
operations or cash flows.

21.   Stock-Based Compensation:

BNCCORP's  Stock  Incentive  Plan (the  "Stock  Plan") is  intended  to  provide
long-term incentives to its key employees,  including officers and directors who
are  employees  of the Company.  The Stock Plan,  which is  administered  by the
compensation committee of the board of directors (the "Committee"), provides for
an  authorization  of 250,000  shares of common stock for  issuance  thereunder.
Under the Stock Plan, the Company may grant  employees  incentive stock options,
nonqualified  stock options,  restricted stock,  stock awards or any combination
thereof.  The  Committee  establishes  the exercise  price of any stock  options
granted under the Stock Plan  provided  that the exercise  price may not be less
than the fair  market  value of a share of  common  stock on the date of  grant.
Vesting requirements,  which may vary, are determined by the Committee,  and the
maximum term of options granted is generally ten years.

As of December 31, 2001,  24,473  restricted  shares issued under the Stock Plan
were outstanding.  19,473 of the shares were fully vested.  5,000 shares vest 60
percent  in 2002 and an  additional  20  percent  in each of 2003 and 2004.  The
Company records the  compensation  expense related to restricted  stock over the
applicable  service period.  Compensation cost charged to operations was $9,000,
$74,000 and $70,000 in 2001, 2000 and 1999, respectively.

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

                                               2001      2000     1999
                                             --------  -------  ----------
   <S>                                       <C>       <C>      <C>
   Number...................................    --        --     17,500
   Weighted average grant-date fair value...    --        --     $10.12
</TABLE>

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

The Company  applies APB 25 and related  interpretations  in accounting for both
the Stock Plan and the Directors' Plan.  Accordingly,  no compensation  cost has
been recognized for the options issued under the plans in 2001, 2000 or 1999. As
of December 31,  2001,  210,633  options had been awarded  under the Stock Plan.
6,775 of them had been exercised and 203,858 remained outstanding. 4,550 options
awarded under the Directors' Plan remained  outstanding.  Had compensation  cost
been  determined  on the basis of fair value  pursuant to Statement of Financial
Accounting  Standards  No.  123,  net income and EPS would have been  reduced as
follows:
<TABLE>
<CAPTION>

                                    2001            2000            1999
                                 -----------     ------------    -----------
<S>                              <C>             <C>             <C>
Net Income:
   As Reported................   $1,245,000       $2,297,000      $ 242,000
   Pro Forma..................    1,145,000        2,237,000        139,000
Basic EPS:
   As Reported................         0.52             0.96           0.10
   Pro Forma..................         0.45             0.89           0.06
Diluted EPS:
   As Reported................         0.51             0.96           0.10
   Pro Forma..................         0.44             0.89           0.06

</TABLE>

<PAGE>

Following is a summary of stock option transactions for the years ended December
31:
<TABLE>
<CAPTION>

                              2001               2000                 1999
                      ------------------ ------------------- -------------------
                       Options  Weighted  Options  Weighted   Options   Weighted
                         To     Average      to     Average      to      Average
                       Purchase Exercise  Purchase Exercise   Purchase  Exercise
                        Shares   Price     Shares   Price      Shares    Price
                       -------- --------- -------- ---------- --------- --------
<S>                    <C>      <C>       <C>      <C>        <C>       <C>
Outstanding, beginning
of year................ 118,148   $13.84  122,434   $ 14.82   150,760   $  15.98
Granted................ 109,840     6.16   18,500      6.03    14,500       7.17
Exercised..............  (4,840)    5.94       --        --        --         --
Forfeited.............. (14,740)    8.21  (22,786)    12.80   (42,826)     16.29
                       --------           --------             -------
Outstanding, end of
   year...............  208,408    10.37  118,148     13.84   122,434      14.82
                       ========           ========            ========

Exercisable, end of
   year...............  106,948    12.88   62,688     13.11    51,934      12.26
                       ========           ========            ========
Weighted average fair
value of options:
   Granted............     2.91           $  3.05             $  3.18
                       ========           ========            ========
   Exercised.......... $   2.83                --                  --
                       ========           =======             ========
   Forfeited.......... $   3.88           $  5.84             $  7.29
                       ========           ========            ========
</TABLE>

The fair value of each option  granted is  estimated on the grant date using the
Black-Scholes  option  pricing  model.  The following  assumptions  were made in
estimating fair value of options granted for the years ended December 31:
<TABLE>
<CAPTION>

Weighted average -                2001        2000        1999
                                ----------  ----------  ----------
<S>                             <C>         <C>         <C>
  Dividend yield...........         0.00%       0.00%       0.00%
  Risk-free  interest  rate -
   7 year treasury yield...         5.00%       6.30%       6.27%
  Volatility...............        35.36%      36.08%      27.16%
  Expected life............     7.0 years   7.0 years   7.0 years
</TABLE>

Following  is a summary of the status of options  outstanding  at  December  31,
2001:
<TABLE>
<CAPTION>

                               Outstanding Options          Exercisable Options
                       ------------------------------------ --------------------
                                                  Weighted            Weighted
                                 Weighted Average  Average             Average
                                     Remaining    Exercise             Exercise
                         Number  Contractual Life   Price     Number    Price
                       --------- ---------------- --------- --------- ----------
<S>                    <C>       <C>              <C>       <C>       <C>
Options with exercise
  prices ranging from:

   $17.00 to $17.75       73,410    6.0 years     $  17.05     59,650   $  17.06
   $5.88 to $10.00       134,998    8.2 years     $   6.74     47,298   $   7.61
                        --------                             --------
                         208,408                              106,948
                        ========                             ========
</TABLE>

<PAGE>


22.   Condensed Financial Information-Parent Company Only:

Condensed financial  information of BNCCORP on a parent company only basis is as
follows:
<TABLE>
<CAPTION>

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

                                                      2001          2000
                                                    ----------   -----------
<S>                                                 <C>          <C>
Assets:
   Cash and cash equivalents.....................   $  6,250      $  8,543
   Investment in subsidiaries....................     46,847        40,611
   Loans.........................................          5            16
   Receivable from subsidiaries..................         86           462
   Deferred charges and intangible assets, net...        154           249
   Other.........................................        782           732
                                                    ----------   -----------
                                                    $ 54,124      $ 50,613
                                                    ==========   ===========
Liabilities and stockholders' equity:
   Subordinated notes............................   $     --      $ 12,580
   Subordinated debentures.......................     22,398         7,451
   Accrued expenses and other liabilities........      1,047         1,125
                                                    ----------   -----------
                                                      23,445        21,156
                                                    ----------   -----------
   Preferred stock, $.01 par value, 2,000,000
      shares authorized; no shares issued or
      outstanding................................         --            --
   Common stock, $.01 par value, 10,000,000
      shares authorized; 2,399,170 and 2,395,030
      shares issued and outstanding (excluding
      42,880 shares held in treasury)............         24            24
   Capital surplus...............................     14,084        14,050
   Retained earnings.............................     15,435        14,190
   Treasury stock (42,880 shares)................       (513)         (513)
   Accumulated other comprehensive income, net of
       income taxes..............................      1,649         1,706
                                                    ----------   -----------
    Total stockholders' equity...................     30,679        29,457
                                                    ----------   -----------
                                                    $ 54,124      $ 50,613
                                                    ==========   ===========
</TABLE>


<PAGE>


<TABLE>
<CAPTION>

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

                                                  2001        2000       1999
                                                ----------  ---------- ---------
<S>                                             <C>         <C>        <C>
Income:
   Management fee income....................... $    703    $  1,426   $  1,606
   Interest....................................      322         322      1,757
   Other.......................................       70          53          9
                                                ----------  ---------- ---------
      Total income.............................    1,095       1,801      3,372
                                                ----------  ---------- ---------
Expenses:
   Interest....................................    2,207       1,677      2,486
   Personnel expense...........................      512       1,162      1,320
   Legal and other professional................      144         124        134
   Depreciation and amortization...............       57          68         66
   Other.......................................      307         361        502
                                                ----------  ---------- ---------
      Total expenses...........................    3,227       3,392      4,508
                                                ----------  ---------- ---------
Loss before income tax benefit and equity in
  undistributed income of subsidiaries........    (2,132)     (1,591)    (1,136)
Income tax benefit.............................      691         518        433
                                                ----------  ---------- ---------
Loss before equity in undistributed income of     (1,441)     (1,073)      (703)
   subsidiaries................................
Equity in undistributed income of subsidiaries.    2,820       2,954         96
                                                ----------  ---------- ---------
Income (loss) from continuing operations.......    1,379       1,881       (607)
Equity in undistributed income from operations
    of discontinued asset-based lending                                     429
    subsidiary.................................       --          --
                                                ----------  ---------- ---------
Income (loss) before gain on disposal of
    asset-based lending subsidiary.............    1,379       1,881       (178)
Gain on disposal of asset-based lending
subsidiary.....................................       --         159        438
                                                ----------  ---------- ---------
Income before extraordinary item and cumulative
    effect of change in accounting principle...    1,379       2,040        260
Extraordinary item-gain (loss) on early
    extinguishment of debt, net of income taxes     (134)        257         --
Cumulative effect of change in accounting
    principle, net of income taxes.............       --          --        (18)
                                                ----------  ---------- ---------
      Net income............................... $  1,245    $  2,297   $    242
                                                ==========  ========== =========
</TABLE>



<PAGE>

<TABLE>
<CAPTION>

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

                                                    2001      2000       1999
                                                  --------- ---------- ---------
<S>                                               <C>       <C>        <C>
Operating activities:
   Net income.................................... $ 1,245   $  2,297   $   242
   Adjustments to reconcile net income to net
   cash provided by (used in) operating
   activities -
      Gain on sale of discontinued operation.....      --       (159)     (438)
      Depreciation and amortization..............      43         48        46
      Equity in undistributed income of
         subsidiaries...........................   (2,820)    (2,954)      (96)
      Equity in undistributed income of
         subsidiary - BNC Capital Trust I  -
         BNC Statutory Trust II...............         (7)       (12)       --
      Equity in undistributed income from
        operations of discontinued asset-based
        lending subsidiary.......................      --         --      (429)
      Change in prepaid expenses and othe
        receivables...............................   (104)        32    19,922
      Change in accrued expenses and other
        liabilities..............................     332         98        28
      Other......................................     386         14        --
                                                  --------- ---------- ---------
         Net cash provided by (used in) operating
            operating activities.................    (925)      (636)   19,275
                                                  --------- ---------- ---------
Investing activities:
   Disposition of discontinued operation.........      --         --     2,100
   Net decrease in loans.........................      11         --      (325)
   Increase in investment in subsidiaries .......  (3,464)      (232)   (3,157)
   Additions to premises, leasehold improvements
      and equipment, net.........................      12        (59)      (19)
                                                  --------- ---------- ---------
         Net cash used in investing activities...  (3,441)      (291)   (1,401)
                                                  --------- ---------- ---------
Financing activities:
   Repayments of long-term borrowings............ (13,172)    (2,001)  (29,532)
   Proceeds from long-term borrowings............      --         --    15,000
   Amortization of discount on subordinated
     notes.......................................     371         93        92
   Amortization of deferred charges..............      14         20        20
   Proceeds from issuance of subordinated
     debentures                                    14,893      7,440        --
   Amortization of discount on subordinated
   debentures....................................      53         12        --
   Other, net....................................     (86)        74        25
                                                  --------- ---------- ---------
         Net cash provided by (used in)
           financing activities..................   2,073      5,638   (14,395)
                                                  --------- ---------- ---------
Net increase (decrease) in cash and cash
   equivalents...................................  (2,293)     4,711     3,479
Cash and cash equivalents, beginning of year.....   8,543      3,832       353
                                                  --------- ---------- ---------
Cash and cash equivalents, end of year........... $ 6,250   $  8,543   $ 3,832
                                                  ========= ========== =========
Supplemental cash flow information:
   Interest paid................................. $ 2,143   $  1,293   $ 2,582
                                                  ========  ========== =========

   Income tax payments received from subsidiary
      banks, net of income taxes paid............ $   652   $     69   $   243
                                                  ========  ========== =========
</TABLE>

<PAGE>


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

                                                        2001
                                    --------------------------------------------
                                      First      Second     Third       Fourth
                                     Quarter     Quarter    Quarter    Quarter
                                    ----------  ---------- ----------  ---------
<S>                                 <C>         <C>        <C>         <C>
Interest income..................... $ 10,493    $ 10,197   $  9,333    $ 9,178
Interest expense....................    6,715       6,062      6,278      4,489
                                    ----------  ---------- ----------  ---------
Net interest income.................    3,778       4,135      3,055      4,689
Provision for credit losses.........      350         600        500        249
                                    ----------  ---------- ----------  ---------
Net interest income after provision     3,428       3,535      2,555      4,440
  for credit losses.................

Noninterest income..................    2,327       2,516      1,863      2,269
Noninterest expense.................    4,631       5,011      5,412      5,779
                                    ----------  ---------- ----------  ---------
Income (loss) before income taxes...    1,124       1,040       (994)       930
Provision for (benefit from) income
taxes...............................      335         353       (418)       338
                                    ----------  ---------- ----------  ---------
Income (loss) before extraordinary
  item and cumulative effect of
  change in accounting principle....      789         687       (576)       592

Extraordinary item - gain (loss) on
  on early extinguishment of debt,
  net of income taxes...............        4           4       (142)        --
Cumulative effect of change in
  accounting principle, net of
  income taxes......................     (113)         --         --         --
                                    ----------  ---------- ----------  ---------
Net income (loss)...................  $   680     $   691    $  (718)    $  592
                                    ==========  ========== ==========  =========

Basic earnings per common share:
Income (loss) before extraordinary
  item and cumulative effect of
  change in accounting principle....  $  0.33     $  0.29    $ (0.24)    $ 0.25
Extraordinary item - loss on early
  extinguishment of debt, net of
  income taxes......................       --          --      (0.06)        --
Cumulative effect of change in
  accounting principle, net of
  income taxes......................    (0.05)         --         --         --
                                     ----------  ---------- ----------  --------
Basic net income (loss)............   $  0.28     $  0.29    $ (0.30)    $ 0.25
                                     ==========  ========== ==========  ========

Diluted earnings per common share:
Income (loss) before extraordinary
  item and cumulative effect of
  change in accounting principle...  $   0.33     $  0.28    $ (0.24)    $ 0.24
Extraordinary item - loss on
  early extinguishment of debt,
  net of income taxes..............        --          --      (0.06)       --
Cumulative effect of change in
  accounting principle, net of
  income taxes.....................     (0.05)         --         --        --
                                     ----------  ----------  ---------  --------
Diluted net income (loss)..........   $  0.28     $ 0.28     $ (0.30)    $ 0.24
                                     ==========  ==========  =========  ========


Average common shares:
Basic.............................   2,394,610   2,394,330  2,398,118  2,399,170
Diluted...........................   2,411,482   2,426,269  2,398,118  2,421,819

</TABLE>



<PAGE>

<TABLE>
<CAPTION>

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

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

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

Basic and diluted earnings per
  common share:
Income from continuing operations....  $  0.18    $  0.23    $  0.22   $  0.15
Gain on disposal of discontinued
operation, net of income taxes.......       --       0.01         --      0.06
Extraordinary item - gain on early
  extinguishment of debt, net of
  income taxes.......................     0.05       0.02       0.03      0.01
                                     ---------- ---------- ---------- ---------
Basic and diluted net income.........  $  0.23    $  0.26    $  0.25   $  0.22
                                     ========== ========== ========== =========

Average common shares:
Basic................................2,399,980  2,399,436  2,395,030  2,395,030
Diluted..............................2,400,486  2,399,835  2,395,321  2,395,030

</TABLE>


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

None

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

Information  concerning the Company's  directors and officers called for by this
item will be included in the Company's  definitive  Proxy Statement  prepared in
connection  with the 2002 Annual  Meeting of  Stockholders  and is  incorporated
herein by reference.

Item 11.  Executive Compensation

Information  concerning the compensation of the Company's  executives called for
by this  item will be  included  in the  Company's  definitive  Proxy  Statement
prepared in  connection  with the 2002  Annual  Meeting of  Stockholders  and is
incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Information  concerning  security  ownership  of certain  beneficial  owners and
management called for by this item will be included in the Company's  definitive
Proxy  Statement  prepared  in  connection  with  the  2002  Annual  Meeting  of
Stockholders and is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions called for
by this  item will be  included  in the  Company's  definitive  Proxy  Statement
prepared in  connection  with the 2002  Annual  Meeting of  Stockholders  and is
incorporated herein by reference.

                                     PART IV


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

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

(b)  Reports on Form 8-K.  No reports on Form 8-K were filed  during the quarter
     ended December 31, 2001.


<PAGE>



                                   Signatures

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 26 , 2002.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities indicated, on March 26 , 2002.


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

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


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

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

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

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

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

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

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


<PAGE>


                                  EXHIBIT INDEX


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

2.1    Stock  Purchase  Agreement  dated as of December 6, 1999,  by and between
       BNCCORP,  Inc. and  Associated  Banc-Corp,  incorporated  by reference to
       Exhibit 2.1 to the Registrant's Form 8-K dated as of January 14, 2000.


3.1    Certificate of Incorporation of the Company, incorporated by reference to
       Exhibit  3.1 to the  Registrant's  Registration  Statement  on Form  SB-2
       (Registration No. 33-92369).

3.2    Bylaws of the  Company,  incorporated  by reference to Exhibit 3.2 to the
       Registrant's  Registration  Statement  on  Form  SB-2  (Registration  No.
       33-92369).

4.1    Specimen  of Common  Stock  Certificate,  incorporated  by  reference  to
       Exhibit 4 to Amendment No. 1 to the Registrant's  Registration  Statement
       on Form SB-2 (Registration No. 33-92369).

4.2    Form of Indenture by and between BNCCORP, Inc. and Firstar Trust Company,
       as Trustee,  incorporated by reference to Exhibit 4.1 to the Registrant's
       Registration Statement on Form SB-2 (Registration No. 333-26703).

4.3    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. Stock Incentive Plan,  incorporated by reference to
       Exhibit  10.3 to the  Registrant's  Registration  Statement  on Form SB-2
       (Registration No. 33-92369).

10.4   Form of Stock  Option  Agreement  for the  Grant of  Non-Qualified  Stock
       Options  Under the BNCCORP,  Inc. 1995 Stock  Incentive  Plan dated as of
       June  7,  1995,   incorporated  by  reference  to  Exhibit  10.5  to  the
       Registrant's Form 10-KSB dated as of March 29, 1996.

10.5   Form of Stock Option  Agreement for the Grant of Incentive  Stock Options
       Under the BNCCORP,  Inc. 1995 Stock Incentive Plan dated as of January 2,
       1998 between the Company and each of Tracy J. Scott, Gregory K. Cleveland
       and Brad J. Scott,  incorporated  by  reference  to Exhibit  10.15 to the
       Registrant's Form 10-KSB dated as of March 25, 1998.
<PAGE>

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


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

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

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

10.9   Indenture  between  BNCCORP,  Inc., as issuer,  and State Street Bank and
       Trust Company of Connecticut,  National Association, as Trustee, Floating
       Rate Junior  Subordinated  Deferrable Interest Debentures Due 2031, dated
       July  31,  2001,  incorporated  by  reference  to  Exhibit  10.1  to  the
       Registrant's Form 10-Q dated as of August 13, 2001.

10.10  Guarantee  Agreement by and between  BNCCORP,  Inc. and State Street Bank
       and Trust Company of Connecticut,  National  Association,  dated July 31,
       2001,  incorporated by reference to Exhibit 10.2 to the Registrant's Form
       10-Q dated as of August 13, 2001.

10.11  Amended and Restated  Declaration of Trust by and among State Street Bank
       and Trust Company of Connecticut,  National Association, as Institutional
       Trustee, BNCCORP, Inc., as Sponsor, and Gregory K. Cleveland, Tracy Scott
       and Brenda L. Rebel, as Administrators, dated July 31, 2001, incorporated
       by reference to Exhibit  10.3 to the  Registrant's  Form 10-Q dated as of
       August 13, 2001.

21.1   Subsidiaries of Company.

23.1   Consent of Arthur Andersen LLP

99.1   Representations of Arthur Andersen LLP