<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                 For the quarterly period ended March 31, 2000

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

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

                        Commission File Number 000-23725

                               BNC MORTGAGE, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           Delaware                                               33-0661303
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)


                 1063 McGaw Avenue Irvine, California 92614-5532
--------------------------------------------------------------------------------
           (Address of principal executive offices including ZIP Code)


                                 (949) 260-6000
--------------------------------------------------------------------------------
               (Registrants' telephone number including area code)

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 periods 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 [ ]

As of May 15, 2000 registrant had 5,151,194 outstanding shares of Common Stock.


<PAGE>   2

                               BNC MORTGAGE, INC.

                                TABLE OF CONTENTS

                                  TO FORM 10-Q

           FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2000

<TABLE>
<CAPTION>
                                                                                   PAGE
                                                                                   ----
<S>                                                                                <C>
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
         Consolidated Balance Sheet as of March 31, 2000 and June 30, 1999............3

         Consolidated Statement of Income for the Three Months and
         Nine Months Ended March 31, 2000 and 1999....................................4

         Consolidated Statement of Cash flows for the Nine Months
         Ended March 31, 2000 and 1999................................................5

         Notes to the Consolidated Financial Statements...............................6

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations........................................................9

Item 3.  Quantitative and Qualitative Disclosures about Market Risk..................15

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings...........................................................16

Item 2.  Changes in Securities.......................................................16

Item 3.  Defaults Upon Senior Securities.............................................16

Item 4.  Submission of Matters to a Vote of Securities Holders.......................16

Item 5.  Other Information...........................................................16

Item 6.  Exhibits and Reports on Form 8-K............................................16

         (a) Exhibits................................................................16

         (b) Reports on Form 8-K.....................................................16

Signatures...........................................................................17
</TABLE>


                                        2

<PAGE>   3

ITEM 1. FINANCIAL STATEMENTS

                               BNC MORTGAGE, INC.

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                         MARCH 31, 2000       JUNE 30, 1999
                                                         --------------       -------------
<S>                                                      <C>                  <C>
ASSETS
Cash and cash equivalents.............................    $ 22,103,000        $ 29,867,000
Restricted cash.......................................       1,117,000           1,105,000
Mortgage loans held for sale..........................     112,583,000         141,749,000
Property and equipment, net...........................       1,667,000           1,882,000
Goodwill, net.........................................              --           1,468,000
Deferred income taxes.................................       3,181,000           2,424,000
Notes receivable from officers........................         150,000             100,000
Other assets..........................................       2,710,000           3,384,000
                                                          ------------        ------------
        Total assets..................................    $143,511,000        $181,979,000
                                                          ------------        ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse line-of-credit..............................    $103,469,000        $142,163,000
Accounts payable and accrued liabilities..............       5,089,000           4,955,000
Income taxes payable..................................         419,000           1,945,000
                                                          ------------        ------------
        Total liabilities.............................     108,977,000         149,063,000
                                                          ------------        ------------

Stockholders' equity:
Preferred stock, $.001 par value:

Authorized shares -- 5,000,000
Issued and outstanding shares -- none at
March 31, 2000 and June 30, 1999                                    --                  --

Common stock, $0.001 par value:

Authorized Shares -- 50,000,000
Issued and outstanding shares 5,151,194 at
March 31, 2000 and 5,092,350 at June 30, 1999.........           5,000               5,000

Additional paid in capital............................      12,341,000          11,980,000

Retained earnings.....................................      22,188,000          20,931,000
                                                          ------------        ------------
        Total stockholders' equity....................      34,534,000          32,916,000
                                                          ------------        ------------
        Total liabilities and stockholders' equity....    $143,511,000        $181,979,000
                                                          ============        ============
</TABLE>

                             See accompanying notes.


                                       3

<PAGE>   4

                               BNC MORTGAGE, INC.

                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                          MARCH 31,                           MARCH 31,
                                               ------------------------------      ----------------------------
                                                   2000              1999              2000             1999
                                               ------------       -----------      -----------      -----------
<S>                                            <C>                <C>              <C>              <C>
Revenues:
Gain on sale of mortgage loans..............   $  7,003,000       $ 5,498,000      $22,848,000      $27,738,000
Loan origination income.....................      2,327,000         1,927,000        7,590,000        5,615,000
Interest income.............................      3,381,000         2,494,000       10,160,000        5,893,000
Other income................................        385,000           353,000        1,115,000        1,122,000
                                               ------------       -----------      -----------      -----------
        Total revenues......................     13,096,000        10,272,000       41,713,000       40,368,000
                                               ------------       -----------      -----------      -----------
Expenses:
Employees' salaries and commissions.........      6,796,000         5,221,000       19,698,000       18,363,000
General and administrative expenses.........      5,642,000         2,452,000       12,399,000        9,430,000
Interest expense............................      2,463,000         1,547,000        7,507,000        3,755,000
                                               ------------       -----------      -----------      -----------

        Total expenses......................     14,901,000         9,220,000       39,604,000       31,548,000

Income (loss) before income taxes...........     (1,805,000)        1,052,000        2,109,000        8,820,000

Income tax expense (credits)................       (722,000)          410,000          852,000        3,513,000
                                               ------------       -----------      -----------      -----------
        Net income (loss)...................   $ (1,083,000)      $   642,000      $ 1,257,000      $ 5,307,000
                                               ============       ===========      ===========      ===========

Basic earnings (loss) per share.............   $      (0.21)      $      0.12      $      0.25      $      0.94
                                               ============       ===========      ===========      ===========

Diluted earnings (loss) per share...........   $      (0.21)      $      0.12      $      0.24      $      0.94
                                               ============       ===========      ===========      ===========

Weighted average shares used in computing
Net income (loss) per share:
        Basic Shares........................      5,138,000         5,418,000        5,122,000        5,613,000
                                               ============       ===========      ===========      ===========

        Diluted Shares......................      5,138,000         5,418,000        5,138,000        5,613,000
                                               ============       ===========      ===========      ===========
</TABLE>

                             See accompanying notes.

                                        4

<PAGE>   5

                               BNC MORTGAGE, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      NINE MONTHS ENDED
                                                                           MARCH 31,
                                                              -----------------------------------
                                                                   2000                  1999
                                                              ---------------       -------------
<S>                                                           <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income...............................................   $     1,257,000       $   5,307,000
  Adjustment to reconcile net income to net cash
    provided by operating activities:
        Depreciation.......................................           756,000             662,000
        Amortization.......................................            75,000               8,000
        Origination of mortgage loans held for sale........    (1,248,727,000)       (877,100,000)
        Sales and principal repayments of mortgage
          loans held for sale..............................     1,277,366,000         846,032,000
        Deferred loan origination fees.....................           527,000             395,000
        Change in accounts payable and accrued liability...           134,000           2,977,000
        Change in income taxes payable.....................        (1,526,000)            937,000
        Change in deferred income taxes....................          (757,000)             (1,000)
        Change in notes receivable from officers...........           (50,000)                 --
        Change in other assets.............................           674,000            (160,000)
                                                              ---------------       -------------
Total adjustments..........................................        28,472,000         (26,250,000)
                                                              ---------------       -------------

 Net cash provided by operating activities.................        29,729,000         (20,943,000)

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.......................................          (541,000)           (654,000)
Purchase of America's Lender, Inc..........................                 0          (2,044,000)
Writeoff on Mortgage Logic.com.............................         1,393,000                   0
                                                              ---------------       -------------
Net cash used in investing activities......................           852,000          (2,698,000)


CASH FLOWS FROM FINANCING ACTIVITIES
Net change in warehouse line of credit.....................       (38,694,000)         29,334,000
Repurchase of common stock.................................          (302,000)         (2,959,000)
Proceeds from exercise of stock options....................           663,000                  --
Increase in restricted cash................................           (12,000)           (462,000)
                                                              ---------------       -------------
Net cash used in financing activities......................       (38,345,000)         25,913,000
                                                              ---------------       -------------
Net increase in cash and cash equivalents..................        (7,764,000)          2,272,000

Cash and cash equivalents, beginning of the period.........        29,867,000          25,890,000
                                                              ---------------       -------------

Cash and cash equivalents, end of the period...............   $    22,103,000       $  28,162,000
                                                              ===============       =============
</TABLE>
                             See accompanying notes.


                                        5
<PAGE>   6

                               BNC MORTGAGE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

DESCRIPTION OF THE BUSINESS

BNC Mortgage, Inc. ("BNC" or the "Company"), is a specialty finance company
engaged in the business of originating, purchasing and selling, on a whole loan
basis for cash, non-conforming and, to a lessor extent, conforming, residential
mortgage loans secured by one-to-four family residences. The term
"non-conforming loans" as used herein means (i) subprime loans, which are loans
made to borrowers who are unable or unwilling to obtain mortgage financing from
conventional mortgage sources, whether for reasons of credit impairment, income
qualification, credit history or a desire to receive funding on an expedited
basis and (ii) non-conforming loan products for primarily high credit borrowers
whose credit scores equal or exceed levels required for the sale or exchange of
their mortgage loans through the Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC"), but where the loan itself
fails to meet conventional mortgage guidelines, such as the principal balance
exceeds the maximum loan limit of $252,700 or the loan structure documentation
does not conform to agency requirements. The Company's loans are made primarily
to refinance existing mortgages, consolidate other debt, finance home
improvements, education and other similar needs, and, to a lesser extent, to
purchase single family residences. The Company originates and purchases loans
through its: (i) wholesale subprime operations through which it has
relationships with approximately 6,402 approved independent loan brokers and
which to date has accounted for the majority of the Company's total loan
originations and (ii) wholesale prime operations through which it originates
conforming loans that meet FNMA, FHLMC and other conventional mortgage
guidelines and non-conforming loan products which are not subprime loans.

The Company's wholesale prime operations consist of its internal wholesale prime
business which it established in 1998 and Mortgage Logic.com, Inc., its wholly
owned subsidiary, which it formed in February 1999. The Company is currently in
the process of discontinuing its' wholesale prime operations, which it
anticipates will be completed by the end of the calendar year. Through its
wholesale prime operations, the Company originates, purchases and sells mortgage
loans primarily made to high credit quality borrowers. The Company considers
"high credit quality borrowers" to be those whose credit scores equal or exceed
levels required for the sale or exchange of their mortgage loans through FNMA or
FHLMC. The wholesale prime operations originates a variety of mortgage loans
including (i) loans which qualify for inclusion in guarantee programs sponsored
by FNMA or FHLMC, (ii) non-conforming mortgage loans that do not meet agency
guidelines, such as the principal balance exceeds the maximum loan limit of
$252,700, or the loan structure or documentation does not conform to the
agency's requirements, or (iii) other niche loan products.

The Company currently sells all of its mortgage loans to institutional
purchasers such as investment banks, real estate investment trusts and other
large mortgage bankers for cash through whole loan sales.

BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with the instructions to Form 10-Q and Regulation S-X. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the results for the interim
periods have been included. The results of operations for the interim periods
are not necessarily indicative of the results to be expected for the full year.
In addition, this document should be read in conjunction with the financial
statements and footnotes included in the Company's Form 10-K for the fiscal year
ended June 30, 1999.

The consolidated financial statements of the Company include the accounts of the
Company and all of its wholly owned subsidiaries. All significant inter-company
transactions and balances are eliminated.

The preparation of the financial statements of the Company requires management
to make estimates and assumptions that affect reported amounts. These estimates
are based on information available as of the date of the financial statements.
Therefore, actual results could differ from those estimates.

2. MORTGAGE LOANS HELD FOR SALE

Mortgage loans held for sale are collateralized by first and second trust deeds
on underlying real properties and are used as collateral for the Company's
borrowings. Approximately 26.0% of these properties are located in California as
of March 31, 2000. Mortgage loans held for sale include net deferred fees of
$760,000 and $1,287,000 at March 31, 2000 and June 30, 1999, respectively.


                                        6

<PAGE>   7

3. WAREHOUSE LINES OF CREDIT

Until March 2000, the Company had a warehouse line-of-credit agreement with DLJ,
which provided for borrowings up to $150.0 million with interest payable monthly
at the Federal Funds rate plus 100 basis points. At March 31, 2000 and June 30,
1999 borrowings under this line of $0 and $120.0 million were collateralized by
mortgage loans held for sale. This line-of-credit matured on March 16, 2000. DLJ
did not renew the line upon its expiration.

In February 1999, the Company entered into a warehouse line-of-credit with Bank
United, which provides for borrowings up to $50.0 million with a floating
interest rate based on the LIBOR rate and a commitment fee of $125,000. As of
March 31, 2000 and June 30, 1999, borrowings under this line of $33.2 million
and $5.1 million were collateralized by mortgage loans held for sale with an
interest rate of 7.55%. This line-of-credit matured on February 1, 2000.
However, the Company is still using this warehouse line of credit and the
Company is negotiating to increase the warehouse line to $75.0 million and
extend the expiration date to October 31, 2000.

In March 2000, the Company amended its $50.0 million warehouse line-of-credit
with Residential Funding Corporation, ("RFC"), to provide for borrowings up to
$100.0 million with a floating interest rate based on the LIBOR rate and a
commitment fee of $52,000 was paid. As of March 31, 2000 and June 30, 1999,
borrowings under this line of $48.8 million and $14.7 million were
collateralized by mortgage loans held for sale with an interest rate of 7.38%.
This line-of-credit matures and is subject to renewal on July 31, 2000.

Under the Bank United and RFC agreements, the Company must comply with certain
financial and other covenants, including the maintenance of a minimum tangible
net worth of $25.0 million, a debt to tangible worth ratio not to exceed 15:1,
other financial ratios, and the maintenance of a quarterly net income not less
than zero. Further, absent the consent of Bank United, such covenants prohibit
the Company from declaring or paying any dividends on any shares of the
Company's common stock. At March 31, 2000, the Company was in compliance with
the aforementioned covenants, except for the maintenance of quarterly net
income, which all the lenders waived.

In March 2000, the Company entered into an uncommitted master loan and security
agreement with PaineWebber Real Estate Securities, Inc. ("PWRS"), which provides
for borrowings up to $150.0 million with a floating interest rate based on the
LIBOR rate. As of March 31, 2000, the borrowings under this line were $21.5
million and the interest rate was 7.13%. The warehouse line of credit with PWRS
contains certain financial covenants, including the requirement that the Company
maintain a tangible net worth of not less than $25.0 million, liquidity of not
less than $7.0 million, the maintenance of income before income taxes of not
less than zero for three consecutive quarters and a debt to tangible net worth
ratio not to exceed 15:1. The Company was in compliance with all these covenants
as of March 31, 2000, except for the quarterly income covenant which was waived
by PWRS. The warehouse line is secured by all mortgage loans used under the line
and all related rights thereto.

In February 1999, Mortgage Logic.com, Inc. entered into an uncommitted master
repurchase credit agreement with Paine Webber Real Estate Securities which
provides for borrowings up to $50.0 million with a floating interest rate based
on the LIBOR rate. As of March 31, 2000, and June 30, 1999, borrowings under
this line of $0 and $2.4 million are collateralized by mortgage loans held for
sale with an interest rate of 7.28%. The Company has discontinued using this
facility.

The weighted average interest rates on line-of-credit borrowings for the quarter
ended March 31, 2000 and the year ended June 30, 1999 were 7.34% and 6.9%,
respectively.

4. COMMITMENTS AND CONTINGENCIES

FORWARD LOAN SALES COMMITMENTS

On March 10, 2000, the Company entered into a forward loan sale contract with an
investment bank under which it has committed to deliver $434.0 million in loans
originated during the period from March 2000 to July 2000. The price received
under the commitment included adjustments for the actual weighted average
coupons, weighted average margins and prepayment terms of the loans sold. As of
March 31, 2000, $47.1 million loans were sold under this commitment.


                                       7
<PAGE>   8

On October 6, 1999, the Company entered into a forward loan sale contract with
an investment bank under which it has committed to deliver $280.0 million in
loans originated during the period from October 1999 to January 2000. The price
received under the commitment included adjustments for the actual weighted
average coupons, weighted average margins and prepayment terms of the loans
sold. As of March 31, 2000, $381.0 million loans were sold under this
commitment.

In July 1999, the Company entered into a $10.0 million mandatory delivery
commitment to sell certain nonconforming mortgage loans at current market rates
to Impac Funding Corporation. The commitment is for a 9-month period and
provides options to increase the commitment to $40.0 million. On October 8,
1999, the Company exercised its option to increase the mandatory delivery
commitment by an amount of $15.0 million. Upon expiration of the commitment
term, the Company shall pay a commitment fee equal to 0.125% of the unused
portion of the initial commitment and unused portion of any optional commitments
that were exercised. At March 31, 2000, $21.7 million loans had been sold under
this commitment.

REPURCHASE OBLIGATION

The Company engages in loan sales pursuant to agreements that generally require
the Company to repurchase or substitute loans in the event of a breach of
representation or warranty made by the Company to the loan purchaser, any
misrepresentation during the mortgage loan origination process or, in some
cases, upon any fraud or first payment default on such mortgage loans. A reserve
for potential repurchases of $1.5 million and $1.4 million at March 31, 2000 and
June 30, 1999, respectively, is included in accounts payable and accrued
liabilities.

BUSINESS ACQUISITION

On February 26, 1999, the Company acquired certain assets and the business of
America's Lender, Inc. a mortgage originator that utilizes an internet-based
wholesale mortgage lending operation that links independent mortgage brokers to
an automated underwriting and credit reporting system. The Company paid $2.0
million in cash and has agreed to pay up to an additional $1.0 million based
upon net loan originations achieved during the first 12-month period. The
earn-out is $0.001 for each dollar of net origination volume of the mortgage
business that equals or exceeds $500.0 million during the 12-month period. The
Company deposited $500,000 into an interest-bearing escrow account to
collateralize the future obligation. Should the earn-out not be earned, the
$500,000 deposit will revert back to the Company. The transaction was accounted
as a purchase and the excess of cost over fair value of the net assets acquired
is being amortized on a straight-line basis over a 15-year period. America's
Lender, Inc. is operated as the Company's wholly owned subsidiary named Mortgage
Logic.com, Inc. The operations of America's Lender, Inc. are included in the
Company's consolidated statement of operations from the date of acquisition. In
March 2000, the Company wrote off the unamortized balance of goodwill in the
amount of $1.4 million. Furthermore, the Company is currently in the process of
discontinuing its wholesale prime operations, of which Mortgage Logic.com, Inc.
is a part.

5. STOCKHOLDER'S EQUITY

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
stockholders of the Company, to issue up to 5,000,000 shares of Preferred Stock
in one or more series, and to fix the designations, rights, preferences,
privileges, qualifications and restrictions thereof including dividend rights,
conversion rights, voting rights, rights and terms of redemption, liquidation
preferences and sinking fund terms, any or all of which may be greater than the
rights of the Common Stock. 570,000 shares have been designated Series A Junior
Participating Preferred Stock. The terms and conditions of the Series A Junior
Preferred Stock could have the effect of delaying, deferring or preventing a
hostile change in control of the Company.

WARRANTS

In connection with the initial public offering, the Company issued warrants to
purchase 317,319 shares of Common Stock at an exercise price per share equal to
$10.45. The warrants are exercisable over a period of four years, commencing one
year from March 10, 1998.

COMMON STOCK REPURCHASE PLAN

The Company's Board of Directors has authorized the Company to repurchase up to
$5.0 million of the Company's common stock in open market purchases from time to
time at the discretion of the Company's management. As of March 31, 2000, the
Company had repurchased 833,629 shares of Common Stock at a cost of $4.5
million.

                                        8
<PAGE>   9

ITEM 2               MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
consolidated financial statements and notes included in Item 1 of this 10-Q.

Except for the historical information contained herein, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially. Such risks and uncertainties include, but
are not limited to, changes in the performance of the financial markets, changes
in the demand for and market acceptance of the Company's products, changes in
the mortgage lending industry or changes in general economic conditions,
including interest rates; the impact of competition; changes in the value of
real estate; the ability to maintain and increase sources of funding; and other
risks disclosed from time to time in the Company's SEC reports and filings.
Forward-looking statements used in this report can be identified by the use of
words such as: "could," "may," "will," "expects," "anticipates," "believes," and
the negatives or derivatives thereof, and similar expressions. Investors are
encouraged to fully examine such risks prior to making an investment decision in
the Company's securities.

GENERAL

BNC Mortgage, Inc. ("BNC" or the "Company"), is a specialty finance company
engaged in the business of originating, purchasing and selling, on a whole loan
basis for cash, non-conforming and, to a lessor extent, conforming, residential
mortgage loans secured by one-to-four family residences. The term
"non-conforming loans" as used herein means (i) subprime loans, which are loans
made to borrowers who are unable or unwilling to obtain mortgage financing from
conventional mortgage sources, whether for reasons of credit impairment, income
qualification, credit history or a desire to receive funding on an expedited
basis and (ii) non-conforming loan products for primarily high credit borrowers
whose credit scores equal or exceed levels required for the sale or exchange of
their mortgage loans through the Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC"), but where the loan itself
fails to meet conventional mortgage guidelines, such as the principal balance
exceeds the maximum loan limit of $252,700 or the loan structure documentation
does not conform to agency requirements. The Company's loans are made primarily
to refinance existing mortgages, consolidate other debt, finance home
improvements, education and other similar needs, and, to a lesser extent, to
purchase single family residences. The Company originates and purchases loans
through its: (i) wholesale subprime operations through which it has
relationships with approximately 6,402 approved independent loan brokers and
which to date has accounted for the majority of the Company's total loan
originations and (ii) wholesale prime operations through which it originates
conforming loans that meet FNMA, FHLMC and other conventional mortgage
guidelines and non-conforming loan products which are not subprime loans.

The Company's wholesale prime operations consist of its internal wholesale prime
business which it established in 1998 and Mortgage Logic.com, Inc., its wholly
owned subsidiary, which it formed in February 1999. Through its wholesale prime
operations, the Company originates, purchases and sells mortgage loans primarily
made to high credit quality borrowers. The Company considers "high credit
quality borrowers" to be those whose credit scores equal or exceed levels
required for the sale or exchange of their mortgage loans through FNMA or FHLMC.
The wholesale prime operations originates a variety of mortgage loans that do
not meet agency guidelines, such as the principal balance exceeds the maximum
loan limit of $252,700, or the loan structure or documentation does not conform
to the agency's requirements, or (iii) other niche loan products.

During the quarter ended March 31, 2000, the Company's wholesale prime
operations continued to reduce its staff. Furthermore, the Company continued its
legal actions against America's Lender, Inc. and it's principals for breaches of
certain provisions of the agreement for the purchase of certain assets and the
assumption of certain liabilities of America's Lender, Inc. The Company is
currently in the process of discontinuing its' wholesale prime operations, which
it anticipates will be completed by the end of the calendar year.

Approximately 14.1% of total loan production for the three months ended March
31, 2000 consisted of conforming loans. Substantially all of the Company's
mortgage loan originations are sold in the secondary market through loan sales
in which the Company disposes of its entire economic interest in the loans
including the related servicing rights for cash. As a result of this strategy,
the Company receives cash revenue, rather than recognizing non-cash revenue
attributable to residual interests in future loan payments on the loan, as is
the case with securitizations.


                                       9
<PAGE>   10
financing, Lehman Brothers will acquire certain rights in BNCM Acquisition Co.
which the Company is informed is more fully described in the investor group's
and Lehman Brother's filings with the Securities and Exchange Commission.

The following table shows the Company's mortgage loan originations, mortgage
loan sales, cash gain on sale of mortgage loans and origination locations with
account executives for the periods indicated:

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED              NINE MONTHS ENDED
                                                   MARCH 31                       MARCH 31
                                            ------------------------      ------------------------
                                              2000           1999            2000           1999
                                            --------      ----------      ----------      --------
                                             (DOLLARS IN THOUSANDS)        (DOLLARS IN THOUSANDS)
<S>                                         <C>           <C>             <C>             <C>
Mortgage loan originations
        Subprime .....................      $345,733      $  243,835      $  983,013      $717,533
        Prime ........................        56,897          99,352         265,714       163,542
                                            --------      ----------      ----------      --------
                                            $402,630      $  343,187      $1,248,727      $881,075
                                            ========      ==========      ==========      ========
Mortgage loan sales
        Subprime .....................      $350,568      $  212,999      $  999,009      $705,026
        Prime ........................        62,457          75,021         267,480       141,006
                                            --------      ----------      ----------      --------
                                            $413,025      $  288,020      $1,266,489      $846,032
                                            ========      ==========      ==========      ========
Gain on sale of mortgage loans
        Subprime .....................      $  6,732      $    5,339      $   21,880      $ 26,997
        Prime ........................           271             159             968           741
                                            --------      ----------      ----------      --------
                                            $  7,003      $    5,498      $   22,848      $ 27,738
                                            ========      ==========      ==========      ========
Origination locations at end of period            51              52              51            52
                                            ========      ==========      ==========      ========
</TABLE>

The major components of the Company's revenues are (i) the volume of loans
originated, (ii) the premium over principal amount received in loan sales, (iii)
origination points received or paid, (iv) origination fees received and (v) the
differential between the interest rate on borrowings under revolving warehouse
credit facilities and the interest rate of loans held for sale. Cash gain on
sale of mortgage loans is affected by, among other things, borrower credit risk
classification, loan- to-value ratio, interest rate and margin of the loans.
Total revenues increased 27.2% to $13.1 million for the three months ended March
31, 2000 as compared to $10.3 million for the three months ended March 31, 1999.

The major components of expenses are employees' salaries and commissions,
general and administrative, and interest. Employees' salaries and commissions,
for the three months ended March 31, 2000 and 1999 accounted for 45.6% and 56.6%
of total expenses, respectively. Employees' salaries and commissions are
primarily related to the loan origination volume because the Company's sales
force is compensated on a commission basis in addition to salaries. Total
expenses increased to $14.9 million for the three months ended March 31, 2000,
compared to $9.2 million for the three months ended March 31, 1999.

The Company's reported a net loss of $1.1 million for the three months ended
March 31, 2000, compared to $642,000 net income for the three months ended March
31, 1999. The net loss resulted primarily from a decrease in the weighted
average cash premium paid for subprime loans, an increase in expenses and the
discontinuance of the Company's wholesale prime operations and the writeoff of
$1.4 million of intangible assets associated with Mortgage Logic.com, Inc., a
wholly owned subsidiary it formed in February 1999.

Increased competition in the non-conforming mortgage industry could have the
effect of (i) lowering gains that may be realized on loan sales through lower
cash premiums paid for loans or an increase in demand for yield spread premium
paid to the mortgage brokers, (ii) reducing an individual company's volume of
loan originations and sales, (iii) increasing demand for experienced personnel
increasing the likelihood such personnel will be recruited by competitors and
(iv) lowering the industry standard for non-conforming underwriting guidelines
as competitors attempt to increase or maintain market share in the face of
increased competition. In the past, certain of these factors have caused the
revenues and net income of many participants in the non-conforming mortgage
industry, including the Company, to fluctuate from quarter to quarter.

The mortgage loan industry experienced significant turmoil during the nine
months ended March 31, 2000 due to a lack of liquidity in the mortgage and
asset-backed securitization market. These developments in the mortgage and
asset-backed securitization markets have caused a tightening in the pricing of
whole loan sales as many mortgage securitizers have been forced to sell their
loans on a whole loan basis for cash. Average prices offered by third parties
for mortgage loans in the third quarter of 2000 have been less than that which
the Company received in the comparable quarter.

In the event that declines in whole loan pricing continue, the Company expects
to see a decrease in its cash gain on sale of mortgage loans in future quarters.
If the Company is unable to increase its mortgage loan origination volume
commensurate with such pricing declines, the Company's net income would be
adversely affected. The Company made certain internal adjustments in response to
market conditions in the mortgage industry. The Company reduced yield spread
premiums paid to brokers and compensation paid to employees. The Company also
reduced its employees, raised interest rates and increased origination fees
charged to borrowers to boost profitability. While the Company would also expect
to receive some benefit from these and other adjustments with regard to
profitability of its mortgage loan originations, the effect of these adjustments
may have an adverse effect on future mortgage loan production.

In February 2000, the Company entered into a merger agreement with BNCM
Acquisition Co., a company formed by an investor group led by senior members of
the Company's management, including its current President, Kelly W. Monahan. BNC
Acquisition Co. will acquire the Company for an aggregate of approximately $47.0
million, which is equal to $10.00 per share for the outstanding shares of the
Company's common stock not retained by the investor group. If the transaction is
not consummated, under certain circumstances, including acceptance by the
Company of a superior proposal, the Company could be required to pay as much as
$2.0 million to BNCM Acquisition Co. The transaction is subject to the
satisfaction of certain conditions including stockholder approval and receipt of
necessary governmental and regulatory approvals. It is anticipated that the
transaction will be consummated on or before July 31, 2000. BNCM Acquisition Co.
has represented that it has or will have at the closing sufficient funds to
consummate the transactions and has received an executed commitment letter from
Lehman Brothers providing for the necessary financing for the proposed
acquisition, subject to certain customary conditions. In connection with the


                                       10
<PAGE>   11
RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1999

REVENUES. The following table sets forth the components of the Company's
revenues for the periods indicated:

                                             THREE MONTHS ENDED
                                                  MARCH 31
                                            ---------------------
                                              2000          1999
                                            -------       -------
                                            (DOLLARS IN THOUSANDS)
Gain on sale of mortgage loans.........     $ 7,003       $ 5,498
Loan origination income................       2,327         1,927
Interest income........................       3,381         2,494
Other income...........................         385           353
                                            -------       -------
                                            $13,096       $10,272
                                            =======       =======

The increase in revenues was due primarily to increase in the cash gain on sales
of mortgage loans. Mortgage loan originations increased $59.4 million to $402.6
million for the three months ended March 31, 2000 from $343.2 million for the
three months ended March 31, 1999. There can be no assurance that the Company
will recognize comparable levels of revenues and mortgage loan originations in
future periods.

Cash gain on sale of mortgage loans increased $1.5 million to $7.0 million for
the three months ended March 31, 2000 from $5.5 million for the three months
ended March 31, 1999. The increase was due primarily to an increase in mortgage
loan originations. The weighted average cash premium paid for subprime mortgage
loans sold was 3.20% for the three months ended March 31, 2000 and 3.43% for the
three months ended March 31, 1999. The Company makes yield spread premium
payments to its mortgage broker customers in the ordinary course of business.
The weighted average yield spread premiums paid as a percentage of subprime
mortgage loans sold for the three months ended March 31, 2000 was 1.28% and for
the three months ended March 31, 1999 was 0.92%. The weighted average cash
premiums paid for prime mortgage loans sold was 1.28% for the three months ended
March 31, 2000 and 0.93% for the three months ended March 31, 1999. The weighted
average yield spread premium as a percentage of prime mortgage loans sold was
0.84% for the three months ended March 31, 2000, and 0.71% for the three months
ended March 31, 1999.

Loan origination income increased to $2.3 million for the three months ended
March 31, 2000 from $1.9 million for the three months ended March 31, 1999. As a
percentage of total revenues, loan origination income for the three months ended
March 31, 2000 decreased to 17.8% as compared to 18.8% for the three months
ended March 31, 1999. Loan originations may be adversely affected in future
periods as a result of an increase in yield spread premiums payable to brokers
and raised interest rates charged to borrowers.

Interest income increased $887,000 to $3.4 million for the three months ended
March 31, 2000 from $2.5 million for the three months ended March 31, 1999. This
increase is due to the increase in mortgage loan originations.

Other income, which is comprised of investment income, prepayment penalties and
late charges, increased to $385,000 for the three months ended March 31, 2000 as
compared to $353,000 for the three months ended March 31, 1999 as a result of
higher interest earned on investments.

EXPENSES. The following table sets forth the components of the Company's
expenses for the periods indicated:

                                             THREE MONTHS ENDED
                                                  MARCH 31
                                            ---------------------
                                             2000          1999
                                            -------       -------
                                           (DOLLARS IN THOUSANDS)

Employees' salaries and commissions.....    $ 6,796       $ 5,221
General and administrative expenses.....      5,642         2,452
Interest expense........................      2,463         1,547
                                            -------       -------
                                            $14,901       $ 9,220
                                            =======       =======

Total expenses increased to $14.9 million for the three months ended March 31,
2000 from $9.2 million for the three months ended March 31, 1999. This increase
is related to an increase in mortgage loan originations.

Employee salaries and commissions increased $1.6 million to $6.8 million during
the three months ended March 31, 2000 from $5.2 million for the three months
ended March 31, 1999. The primary reason for the increase was due to an increase
in mortgage loan originations.

General and administrative expenses excluding the $1.4 million write off of
intangible assets increased to $4.2 million for the three months ended March 31,
2000 compared to the $2.5 million in the corresponding 1999 period.

Interest expense increased $1.0 million to $2.5 million for the three months
ended March 31, 2000 from $1.5 million for the three months ended March 31,
1999. This increase is due to the increase in mortgage loan originations.

                                       11
<PAGE>   12

NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999

REVENUES. The following table sets forth the components of the Company's
revenues for the periods indicated:

                                                 NINE MONTHS ENDED
                                                     MARCH 31,
                                               ---------------------
                                                 2000          1999
                                               -------       -------
                                               (DOLLARS IN THOUSANDS)
Gain on sale of mortgage loans..............   $22,848       $27,738
Loan origination income.....................     7,590         5,615
Interest income.............................    10,160         5,893
Other income................................     1,115         1,122
                                               -------       -------
                                               $41,713       $40,368
                                               =======       =======

The increase in revenues was due primarily to an increase in the cash gain on
sales of mortgage loans. Mortgage loan originations increased $367.6 million to
$1,248.7 million for the nine months ended March 31, 2000 from $881.1 million
for the nine months ended March 31, 1999. There can be no assurance that the
Company will recognize comparable levels of revenues and mortgage loan
originations in future periods.

Cash gain on sale of mortgage loans decreased $4.9 million to $22.8 million for
the nine months ended March 31, 2000 from $27.7 million for the nine months
ended March 31, 1999. The decrease was due primarily to a decrease in the price
paid for mortgage loans sold. The weighted average cash premium paid for
mortgage loans sold was 3.42% for the nine months ended March 31, 2000 and 4.86%
for the nine months ended March 31, 1999. There can be no assurance that the
Company will recognize comparable levels of cash gain on sale of mortgage loans
in future periods. The Company makes yield spread premium payments to its
mortgage broker customers in the ordinary course of business. Due to competitive
conditions, these payments have increased in recent periods, which adversely
affected the Company's cash gain on sale of mortgage loans for the nine months
ended March 31, 2000.

Loan origination income increased to $7.6 million for the nine months ended
March 31, 2000 from $5.6 million for the nine months ended March 31, 1999. As a
percentage of total revenues, loan origination income for the nine months ended
March 31, 2000 increased to 18.2% as compared to 13.9% for the nine months ended
March 31, 1999. This increase was a result of increase in loan origination
charges in its loan products.

Interest income increased $4.3 million to $10.2 million for the nine months
ended March 31, 2000 from $5.9 million for the nine months ended March 31, 1999.
This increase is primarily attributable to the increase in loan originations.

Other income, which is comprised of investment income, prepayment penalties and
late charges, had no significant change for the nine months ended March 31, 2000
as compared to the nine months ended March 31, 1999.

EXPENSES. The following table sets forth the components of the Company's
expenses for the periods indicated:

                                                        NINE MONTHS ENDED
                                                            MARCH 31
                                                     ------------------------
                                                      2000             1999
                                                     -------          -------
                                                      (DOLLARS IN THOUSANDS)
Employees' salaries and commissions.............     $19,698          $18,363
General and administrative expenses.............      12,399            9,430
Interest expense................................       7,507            3,755
                                                     -------          -------
                                                     $39,604          $31,548
                                                     =======          =======

Total expenses increased to $39.6 million for the nine months ended March 31,
2000 from $31.5 million for the nine months ended March 31, 1999. This increase
is related to interest paid on warehouse lines of credit and to an increase in
mortgage loan originations. Total expenses are expected to be positively
affected by decreased employee compensation, a reduction in staffing and a
decrease in loan originations.

Employee salaries and commissions increased $1.3 million to $19.7 million during
the nine months ended March 31, 2000 from $18.4 million for the nine months
ended March 31, 1999. The primary reason for the increase was due to an increase
in commissions paid to account executives due to a higher volume of loans
originated.


                                       12


<PAGE>   13
General and administrative expenses excluding the write off of intangible assets
of $1.4 million increased $1.6 million to $11.0 million for the nine months
ended March 31, 2000 from $9.4 million for the nine months ended March 31, 1999.
The increase is due to costs related to a higher volume of loans originated.

Interest expense increased $3.7 million to $7.5 million for the nine months
ended March 31, 2000 from $3.8 million for the nine months ended March 31, 1999.
This increase is due to the increase in mortgage loans originations.

DISCLOSURE ABOUT MARKET RISK

The Company's earnings can be affected significantly by the movement of interest
rates, which is the primary component of market risk to the Company. The
interest rate risk affects the value of the mortgage loans held for sale, net
interest income earned on its mortgage inventory, interest income earned on idle
cash, interest expense and cash gain on sale of mortgage loans, as well as
consumer demand for mortgage loan production.

As it relates to lending activities, the Company originates mortgage loans,
which are generally presold through forward loan sales commitments. However,
between the time that the loan is originated and sold to the ultimate investor,
the Company earns interest income. The loans are funded through the use of the
DLJ warehouse line of credit, and more recently, the Bank United warehouse line
of credit and the interest charged by PaineWebber and Bank United is generally
based upon short-term interest rates. Therefore, the net interest income that is
earned by the Company is generally dependent upon the spread between long-term
mortgage rates and short-term mortgage rates.

The Company currently does not maintain a trading portfolio. As a result, the
Company is not exposed to market risk as it relates to trading activities. The
majority of the Company's loan portfolio is held for sale which requires the
Company to perform quarterly market valuations of its portfolio in order to
properly record the portfolio at the lower of cost or market. Therefore, the
Company continually monitors the interest rates of its loan portfolio as
compared to prevalent interest rates in the market.

The Company currently does not enter into any hedging activities as it currently
sells its loan production on a monthly basis.

Based on the information available and the interest environment as of March 31,
2000, the Company believes that a 100 basis point increase in long-term interest
rates over a twelve month period, with all else being constant, would have an
adverse effect on the pricing for the Company's whole loan sales. Therefore, the
Company believes that its net income could be adversely affected in the range of
$1.3 to $2.5 million. However, the Company believes that a 100 basis point
decrease in long-term interest rates over a twelve-month period may not result
in a similar increase of its net income. These estimates are limited by the fact
that they are performed at a particular point in time and incorporate many other
factors and thus should not be used as a forecast. Therefore, there can be no
assurance that the amount of such decrease would not substantially vary from
these estimates.

YEAR 2000

The Company did not experience any adverse effects related to the Year 2000
issue neither in its internal operation systems nor with its principal service
providers. The Company will continue to monitor for any affects of the Year 2000
issue during the current quarter. Even though management does not expect any
adverse implications, there can be no assurance that the Company will not be
affected by the Year 2000 issue. The costs associated in achieving Year 2000
compliance did not have a material impact on the Company's business operations
or financial condition.

LIQUIDITY AND CAPITAL RESOURCES

The Company's sources of cash flow include cash gain on sale of mortgage loans,
origination income, net interest income and borrowings. The Company sells its
mortgage loans generally on a monthly basis to generate cash for operations. The
Company's uses of cash in the short-term include the funding of mortgage loan
originations, payment of interest, repayment of amounts borrowed under warehouse
lines of credit, operating and administrative expenses, start-up costs for new
origination locations, income taxes and capital expenditures. Long-term uses of
cash may also include the funding of securitization activities and selective
acquisitions of other specialty finance companies or portfolios of loan assets.

Capital expenditures totaled $541,000 and $654,000 for the nine months ended
March 31, 2000 and 1999, respectively. Capital expenditures were primarily
comprising furniture, fixtures and equipment software and leasehold
improvements.


                                       13


<PAGE>   14
Cash and cash equivalents were $22.1 million at March 31, 2000. The Company
invests its cash in short-term investments maintaining flexibility for funding
of loan originations and strategic opportunities. In March 1998, the Company
concluded its initial public offering and received net proceeds of $16.2 million
from the offering.

As of April 6, 1999, the Company's Board of Directors had authorized the Company
to purchase up to $5.0 million of the Company's common stock in open market
purchases from time to time at the discretion of the Company's management. As of
March 31, 2000, the Company had repurchased 833,629 shares of Common Stock at a
cost of $4.5 million.

The Company funds its operations through cash reserves, loan sales, net
earnings, revolving warehouse credit facilities and an uncommitted master loan
repurchase credit agreement, under which it borrows money to finance the
origination of mortgage loans. As of March 31, 2000, the Company had three
warehouse credit facilities, and one master repurchase credit agreement, which
provides borrowings in the aggregate up to $375.0 million.

Until March 2000, the Company had a warehouse line of credit agreement with
DLJ, which provided for borrowings of $150.0 million with interest payable
monthly at the Federal Funds rate plus 100 basis points. This line of credit
matured on March 16, 2000. DLJ did not renew the line upon its expiration.

In February 2000, the Company amended its $50.0 million warehouse line of credit
and security agreement with RFC, to provide for additional borrowings up to
$100.0 million with a floating interest rate based on the LIBOR rate. The
maturity date of this line of credit was extended to July 31, 2000 and a
commitment fee of $52,000 was paid.

As of March 31, 2000, borrowings under this line were $48.8 million and the
interest rate was 7.38%. The warehouse line of credit with RFC contains certain
financial covenants including the requirement that the Company maintain a
minimum adjusted tangible net worth of not less than $25.0 million, liquidity of
not less than $10.0 million, quarterly net income of not less than zero and a
debt to adjusted tangible worth ratio not to exceed 15:1. The Company was in
compliance with all these covenants as of March 31, 2000, except for the
quarterly net income covenant which was waived by RFC. The warehouse line is
secured by all mortgage loans used under the line and all related rights
thereto.

In February 1999, the Company entered into a warehouse line of credit with Bank
United, which provides for borrowings up to $50.0 million with a floating
interest rate based on the LIBOR rate and a commitment fee of $125,000. As of
March 31, 2000, borrowings under this line were $33.2 million and the interest
rate was 7.55%. The warehouse line of credit with Bank United contains certain
financial covenants including the requirement that the Company maintain a
minimum adjusted tangible net worth of not less than $25.0 million and a debt to
adjusted tangible net worth ratio not to exceed 15:1, each computed as of the
end of each calendar quarter. The Company was in compliance with these covenants
as of March 31, 2000. The warehouse line is secured by all mortgage loans used
under the line and all related rights thereto. This line of credit matured on
February 1, 2000. However, the Company is still using this warehouse line of
credit and is negotiating to increase the warehouse line to $75.0 million and
extend the expiration date to October 31, 2000.

In March 2000, the Company entered into an uncommitted master loan and security
agreement with PaineWebber Real Estate Securities, Inc. ("PWRS"), which provides
for borrowings up to $150.0 million with a floating interest rate based on the
LIBOR rate. As of March 31, 2000, the borrowings under this line were $21.5
million and the interest rate was 7.13%. The warehouse line of credit with PWRS
contains certain financial covenants including the requirement that the Company
maintain a tangible net worth of not less than $25.0 million, liquidity of not
less than $7.0 million, income before income tax of not less than zero for
three consecutive quarters and a debt to tangible net worth ratio not to exceed
13:1. The Company was in compliance with all these covenants as of March 31,
2000 except for the quarterly net income covenant which was waived by PWRS. The
warehouse line is secured by all mortgage loans used under the line and all
related rights thereto.

In February 1999, Mortgage Logic.com, Inc. entered into an uncommitted master
repurchase credit agreement with Paine Webber Real Estate Securities which
provides for borrowings up to $50.0 million with a floating interest rate based
on the LIBOR rate. As of March 31, 2000, and June 30, 1999, borrowings under
this line of $0 and $2.4 million are collateralized by mortgage loans held for
sale with an interest rate of 7.28%. The Company has discontinued using this
facility.

The Company is currently negotiating with other lenders to obtain additional
warehouse lines of credit with interest rates and terms that are consistent with
management's objectives, however, there is no assurance that the Company will
consummate these lines of credit. The Company repays borrowings with proceeds of
its loan sales.

During the nine months ended March 31, 2000 and 1999, the Company used cash of
$1,248.7 million and $877.1 million, respectively, for new loan originations.
During the same periods, the Company received cash proceeds from the sale of
loans of $1,277.4 million and $846.0 million, respectively, representing the
principal balance of loans sold. The Company received cash proceeds from the
premiums on such sale of loans of $22.8 million and $27.7 million, for the nine
months ended March 31, 2000 and 1999, respectively.

The Company's ability to continue to originate loans is dependent in large part
upon its ability to sell the mortgage loans at par or for a premium in the
secondary market in order to generate cash proceeds to repay borrowings under
the warehouse facility, thereby creating borrowing capacity to fund new
originations. The value of an market for the Company's loans are dependent upon
a number of factors, including the borrower credit risk classification,
loan-to-value ratios and interest rates, general economic conditions, warehouse
facility interest rates and governmental regulations.

                                       14
<PAGE>   15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DISCLOSURE ABOUT MARKET RISK

The Company's earnings can be affected significantly by the movement of interest
rates, which is the primary component of market risk to the Company. The
interest rate risk affects the value of the mortgage loans held for sale, net
interest income earned on its mortgage inventory, interest income earned on idle
cash, interest expense and cash gain on sale of mortgage loans, as well as
consumer demand for mortgage loan production.

As it relates to lending activities, the Company originates mortgage loans,
which are generally presold through forward loan sales commitments. However,
between the time that the loan is originated and sold to the ultimate investor,
the Company earns interest income. The loans are funded through the use of the
warehouse lines of credit, and the interest charged by the lenders is generally
based upon short-term interest rates. Therefore, the net interest income that
is earned by the Company is generally dependent upon the spread between long-
term mortgage rates and short-term mortgage rates.

The Company currently does not maintain a trading portfolio. As a result, the
Company is not exposed to market risk as it relates to trading activities. The
majority of the Company's loan portfolio is held for sale which requires the
Company to perform quarterly market valuations of its portfolio in order to
properly record the portfolio at the lower of cost or market. Therefore, the
Company continually monitors the interest rates of its loan portfolio as
compared to prevalent interest rates in the market.

The Company currently does not enter into any hedging activities as it currently
sells its loan production on a monthly basis.

Based on the information available and the interest environment as of March 31,
2000, the Company believes that a 100 basis point increase in long-term interest
rates over a twelve month period, with all else being constant, would have an
adverse effect on the pricing for the Company's whole loan sales. Therefore, the
Company believes that its net income could be adversely affected in the range of
$1.3 to $2.5 million. However, the Company believes that a 100 basis point
decrease in long-term interest rates over a twelve-month period may not result
in a similar increase of its net income. These estimates are limited by the fact
that they are performed at a particular point in time and incorporate many other
factors and thus should not be used as a forecast. Therefore, there can be no
assurance that the amount of such decrease would not substantially vary from
these estimates.


                                       15

<PAGE>   16

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings -

        On February 15, 2000, a complaint captioned Fox, et al. v. BNC Mortgage,
        Inc., et al. was filed against the Company and its directors in the
        Superior Court of the State of California, County of Orange, Case No.
        00CC02196. The complaint is a purported class action lawsuit claiming
        self-dealing and breach of fiduciary duties of loyalty, good faith, due
        care and candor. On February 23, 2000, a complaint captioned Glover v.
        BNC Mortgage, Inc., et. al. was filed against the Company and its
        officers and directors in the Court of Chancery in the State of Delaware
        in and for New Castle County, Case No. 17808. The complaint is a
        purported class action lawsuit claiming breach of fiduciary duties. Both
        claims allege that the Company and its Board of Directors breached the
        duty to maximize stockholder value in a sale of the Company. Both claims
        seek damages and other relief, including injunctive relief and, in one
        case, rescission of the transaction, in response to the Company's
        announcement that it has signed a merger agreement with an entity formed
        by an investor group led by senior members of the Company's management
        pursuant to which the public stockholders of the Company would receive
        $10.00 per share in cash. As these matters are in the pleading stage,
        the Company is unable to conclude as to the potential likelihood of an
        unfavorable decision. The Company and the other defendants names in the
        lawsuits deny breaching their fiduciary duties and/or self-dealing in
        connection with the proposed merger.

        On February 28, 2000, a complaint captioned Connie Waldron v. Evan
        Buckley, BNC Mortgage, Inc., BNC Equity Investors, LLC, et. al. was
        filed in the Superior Court of the State of California, County of
        Orange, Case No. 00CC02654. The complaint alleges breach of contract,
        promissory estoppel, fraud and intentional misrepresentation,
        constructive trust, replevin and conversion in connection with shares of
        common stock of the Company that the plaintiff claims should have been
        transferred to her. The Plaintiff is a former employee of the company.
        The claim seeks relief including compensatory damages, specific
        performance, general damages, special damages and special and punitive
        damages.

        The Company is a party to various routine legal proceedings arising out
        of the ordinary course of its business. Management believes that none of
        these actions, individually or in the aggregate, will have a material
        adverse effect on the consolidated financial condition or results of
        operations of the Company.

ITEM 2. Changes in Securities - See Management Discussion and Analysis of
        Financial Condition and Results of Operation Liquidity and Capital
        Resources for a discussion of the use of proceeds from the Company's
        initial public offering.

ITEM 3. Defaults upon Senior Securities - Not Applicable

ITEM 4. Submission of Matters to a Vote of Security Holders - Not Applicable

ITEM 5. Other Information - Not Applicable

ITEM 6. Exhibits and Reports on form 8-K

        (a) Exhibits

            10.17  Second Amendment to Warehousing Credit and Security Agreement
                   dated February 29, 2000 between Registrant, Mortgage
                   Logic.com, Inc., a California Corporation, and Residential
                   Funding Corporation, a Delaware Corporation

            10.18  First Amended and Restated Promissory Note dated February 29,
                   2000 between Registrant, Mortgage Logic.com, Inc., a
                   California Corporation, and Residential Funding Corporation,
                   a Delaware Corporation

            10.19  Master Loan and Security Agreement dated March 16, 2000
                   between Registrant and PaineWebber Real Estate Securities,
                   Inc., a Delaware Corporation

            11.1   Statement regarding computation of per share earnings

            27.1   Financial Statement Data Schedule (EDGAR filing only)

        (b) Reports on form 8-K

            On February 7, 2000 a Form 8-K was filed with the Securities and
            Exchange Commission reporting items 5 and 7.


                                       16

<PAGE>   17

                                   Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized, in the City of Irvine, State of California.


BNC MORTGAGE, INC.
(Registrant)

By: /s/ EVAN R. BUCKLEY                                       May 15, 2000
    -------------------------------                           ------------
        Evan R. Buckley                                           Date
        Chief Executive Officer and
        Secretary


By: /s/ KELLY W. MONAHAN                                      May 15, 2000
    -------------------------------                           ------------
        Kelly W. Monahan                                          Date
        President


By: /s/ PETER R. EVANS                                        May 15, 2000
    -------------------------------                           ------------
        Peter R. Evans                                            Date
        Vice President and
        Chief Financial Officer


                                       17

<PAGE>   18

                                  EXHIBIT INDEX


     EXHIBIT
     NUMBER                        DESCRIPTION
     -------                       -----------

      10.17        Second Amendment to Warehousing Credit and Security Agreement
                   dated February 29, 2000 between Registrant, Mortgage
                   Logic.com, Inc., a California Corporation, and Residential
                   Funding Corporation, a Delaware Corporation

      10.18        First Amended and Restated Promissory Note dated February 29,
                   2000 between Registrant, Mortgage Logic.com, Inc., a
                   California Corporation, and Residential Funding Corporation,
                   a Delaware Corporation

      10.19        Master Loan and Security Agreement dated March 16, 2000
                   between Registrant and PaineWebber Real Estate Securities,
                   Inc., a Delaware Corporation

      11.1         Statement regarding computation of per share earnings

      27.1         Financial Statement Data Schedule (EDGAR filing only)