BNCCORP INC, SB-2/A, 1997-05-22

BNCCORP INC
SB-2/A, 1997-05-22
NATIONAL COMMERCIAL BANKS

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<PAGE>

As filed with the Securities and Exchange Commission on May 22, 1997
Registration No. 333-26703
- -------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
BNCCORP, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 6021 45-0402816
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)

322 East Main
Bismarck, North Dakota 58501
(701) 250-3040
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

Gregory K. Cleveland
President and Chief Financial Officer
BNCCORP, Inc.
322 East Main
Bismarck, North Dakota 58501
(701) 250-3040
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

Copies to:
William B. Masters, Esq. Bruce A. Machmeier, Esq.
Jones, Walker, Waechter, Poitevent, Kristine L. Gabel, Esq.
Carrere & Denegre, L.L.P. Oppenheimer Wolff & Donnelly
201 St. Charles Avenue 3400 Plaza VII
New Orleans, Louisiana 70170 45 South 7th Street
(504) 582-8000 Minneapolis, Minnesota 55402
Fax: (504) 582-8012 (612) 344-9300
Fax: (612) 344-9376

----------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
----------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

<PAGE>

SUBJECT TO COMPLETION, DATED MAY 20, 1997

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
$15,000,000

BNCCORP, INC.

% SUBORDINATED NOTES DUE 2004

Interest on the % Subordinated Notes due 2004 (the "Notes") issued by
BNCCORP, Inc. ("BNC" or the "Company") will be payable on the first business day
of each month, commencing July 1, 1997. The Notes will mature on May 31, 2004.
The Notes will not be redeemable prior to May 31, 2000. Thereafter, the Notes
will be redeemable, in whole or in part, at the option of the Company at par
plus accrued interest to the date of redemption. The Notes will have no sinking
fund. The Notes will only be offered in denominations of $1,000 and integral
multiples thereof. The Notes will be unsecured general obligations of the
Company and subordinated to all existing and future Senior Indebtedness (as
defined herein) of the Company. The Indenture (as defined herein) does not limit
the ability of the Company or its subsidiaries to incur Senior Indebtedness or
indebtedness ranking on a parity with the Notes. Payment of principal of the
Notes may be accelerated only in the case of certain events relating to the
bankruptcy, insolvency or reorganization of the Company. There is no right to
acceleration in the case of a default in the payment of principal or interest on
the Notes or in the performance of any other covenant of the Company. See
"Description of the Notes."

The Notes will be represented by one or more global certificates
("Registered Global Securities") registered in the name of The Depository Trust
Company ("DTC") or its nominee. Beneficial interests in the Notes will be shown
on, and transfers thereof will be effected only through, records maintained by
DTC and its participants. Except as described herein, the Notes in certificate
form will not be issued in exchange for Registered Global Securities. See
"Description of the Notes--Book-Entry, Delivery and Form."

The Company does not intend to list the Notes on any securities exchange and
no active trading market is likely to develop. Although the Underwriter has
informed the Company that it intends to make a market in the Notes, the
Underwriter is not obligated to make a market in the Notes, and any market
making may be discontinued at any time at the sole discretion of the
Underwriter. See "Underwriting."

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

THE NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
---------------------

THE NOTES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, BY ANY OTHER
GOVERNMENT AGENCY OR OTHERWISE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Note................................. 100.0% % %
Total(2)................................. $15,000,000 $ $
</TABLE>

(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at $150,000.
------------------------

The Notes are being offered by the Underwriter named herein subject to prior
sale and when, as and if delivered to and accepted by the Underwriter. It is
expected that the Notes will be ready for delivery in book-entry form only
through the facilities of The Depository Trust Company in New York, New York, on
or about , 1997, against payment therefor in immediately available
funds.

2
<PAGE>
[LOGO]

The date of this Prospectus is , 1997

3
<PAGE>

BNC LOCATIONS

[LOGO]

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

The Company intends to furnish holders of the Notes with annual reports
containing audited financial statements together with a report of independent
public accountants.

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
THOSE DESCRIBED IN "UNDERWRITING."

4
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS.

THE COMPANY

BNCCORP, INC. (together with its consolidated subsidiaries, "BNC" or the
"Company") is a bank holding company headquartered in Bismarck, North Dakota,
which provides a broad range of banking and financial services to small and
mid-size businesses and individuals through its nine full service banking
facilities in North Dakota and Minnesota. BNC operates primarily through its two
commercial banking subsidiaries, BNC National Bank ("BNC-North Dakota"), which
is headquartered in Bismarck and has seven additional branches in North Dakota,
and BNC National Bank of Minnesota ("BNC-Minnesota," together with BNC-North
Dakota, the "Banks"), which is located in Minneapolis, Minnesota. In addition,
the Company provides asset-based commercial financing through its non-bank
subsidiary, BNC Financial Corporation ("BNC Financial"), located in St. Cloud,
Minnesota.

Due to its focus on customer service and local relationship banking with
small and mid-size businesses and individuals, BNC has experienced significant
growth. Management believes that the Company's entrepreneurial approach to
banking and the introduction of new products and services will continue to
attract small and mid-size businesses which are often not of sufficient size to
be of interest to the larger banks in the Company's market areas. Small and
mid-size businesses and individuals frequently have difficulty finding banking
services that meet their specific needs and have sought, and management believes
will continue to seek, banking institutions that are more relationship-oriented.
BNC offers an increasing number of banking and finance-related products and
services, including trust services, asset management, retirement planning, tax
planning and preparation, insurance and other private banking services.

BNC was formed in 1987 with the objective of acquiring and improving the
performance of strategically located banks in North Dakota. As part of this
strategy, the Company has completed several acquisitions. The largest of these
acquisitions was the Company's July 1995 acquisition of seven North Dakota
branches, with aggregate deposits of approximately $104.8 million, from First
Bank fsb. In January 1996, the Company established a DE NOVO national bank in
Minneapolis, Minnesota which primarily serves small and mid-size businesses in
the Minneapolis/St. Paul metropolitan area. In addition, the Company acquired
BNC Financial, a non-bank commercial finance company that primarily engages in
asset-based lending, in May 1996.

Management believes that these initiatives have generated significant growth
for the Company. From December 31, 1992 to March 31, 1997, the Company's net
loans increased from $69.3 million to $207.7 million, total assets increased
from $118.0 million to $307.8 million and total deposits increased from $102.7
million to $253.3 million. During this same period, the Company's ratio of
nonperforming loans to total loans decreased from 5.80% to 0.22%. The Company's
goal continues to be the creation of a well-capitalized $500 million to $1
billion financial services organization focused on local relationship banking.
Efforts are ongoing to ensure that the executive management team and operating
systems are in place to achieve this goal.

BNC was incorporated in North Dakota in 1987 and reincorporated in Delaware
in July 1995. BNC's principal executive office is located at 322 East Main,
Bismarck, North Dakota 58501, and its telephone number is (701) 250-3040.

3
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Notes Offered........ $15,000,000 principal amount of % Subordinated Notes due 2004.
See "Description of the Notes."

Denominations........ $1,000 and integral multiples thereof.

Maturity............. May 31, 2004.

Interest Payment
Dates.............. Monthly, commencing July 1, 1997, and on the first business day of
each month thereafter. The first interest payment date will represent
interest from the date of issuance of the Notes through June 30,
1997.

Sinking Fund......... None.

Optional Redemption.. The Company may elect to redeem the Notes, in whole or in part, upon
30 days' prior written notice, at any time on or after May 31, 2000,
at 100% of the principal amount thereof plus accrued interest to the
date of redemption. See "Description of the Notes--Redemption at the
Option of the Company."

Covenants............ The indenture under which the Notes will be issued (the "Indenture")
will restrict the ability of the Company, under certain
circumstances, to pay cash dividends, redeem or repurchase stock or
make other capital distributions. The Indenture does not limit the
ability of the Company or its subsidiaries to incur additional
indebtedness. See "Description of the Notes--Limitation on Dividends
and Other Payments."

Limited Rights of
Acceleration....... Payment of principal of the Notes may be accelerated only in the case
of certain events relating to the bankruptcy, insolvency or
reorganization of the Company. There is no right of acceleration in
the case of a default in the payment of principal or interest on the
Notes or a failure to fulfill any other covenant of the Company
contained in the Indenture. See "Description of the Notes--
Acceleration Events."

Subordination........ The Notes will be unsecured general obligations of BNC and will be
subordinated to all existing and future Senior Indebtedness (as
defined herein). As of May 16, 1997, the Company had approximately
$32.0 million of outstanding Senior Indebtedness (excluding
deposits). The Indenture does not limit the ability of the Company or
its subsidiaries to incur additional Senior Indebtedness or
indebtedness ranking on a parity with the Notes. See "Capitalization"
and "Description of the Notes."

Use of Proceeds...... The estimated net proceeds of approximately $14.1 million from the
sale of the Notes will be used to repay approximately $13.3 million
of indebtedness expected to be outstanding under the Revolving Lines
of Credit (as defined herein) at the time of the offering. In
subsequent periods, BNC expects to borrow additional funds under the
Revolving Lines of Credit in order to provide additional working
capital for general corporate purposes, including the funding of
loans at BNC Financial. See "Use of Proceeds."
</TABLE>

INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY
SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS.

4
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The statement of income data for the three years ended December 31, 1996,
and the statement of financial condition data as of December 31, 1996 and 1995
set forth below have been derived from the consolidated financial statements of
the Company audited by Arthur Andersen LLP and included elsewhere in this
Prospectus. The statement of financial condition data as of December 31, 1994
has been derived from financial statements not included in this Prospectus,
which have been audited by Arthur Andersen LLP. The statement of income data for
the two years ended December 31, 1993 and the statement of financial condition
data as of December 31, 1993 and 1992 have been derived from financial
statements not included in this Prospectus, which were audited by James J.
Wosepka, CPA, independent public accountant. The statement of income and
statement of financial condition data for the three months ended and as of March
31, 1997 and 1996 are derived from the unaudited consolidated financial
statements of the Company and, in the opinion of management, reflect all
adjustments (consisting only of normal recurring adjustments) necessary for fair
presentation thereof. The results for the three month period ended March 31,
1997 are not necessarily indicative of results to be expected for the full year.
The following summary historical financial data should be read in conjunction
with the Company's Consolidated Financial Statements and the notes thereto
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED AT OR FOR THE
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income................................. $ 6,060 $ 4,485 $ 20,957 $ 15,283 $ 10,263 $ 8,920 $ 9,376
Interest expense................................ 3,115 2,537 11,107 8,542 4,411 4,068 4,995
--------- --------- --------- --------- --------- --------- ---------
Net interest income............................. 2,945 1,948 9,850 6,741 5,852 4,852 4,381
Provision for loan losses....................... 170 84 739 168 179 89 236
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for loan
losses........................................ 2,775 1,864 9,111 6,573 5,673 4,763 4,145
Noninterest income(1)........................... 481 371 2,096 1,736 1,399 993 957
Noninterest expense............................. 2,340 1,966 8,213 6,511 5,202 4,207 3,916
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes...................... 916 269 2,994 1,798 1,870 1,549 1,186
Income taxes.................................... 355 127 1,147 641 679 453 267
--------- --------- --------- --------- --------- --------- ---------
Net income...................................... $ 561 $ 142 $ 1,847 $ 1,157 $ 1,191 $ 1,096 $ 919
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per common share..................... $ 0.24 $ 0.06 $ 0.79 $ 0.67 $ 0.98 $ 0.89 $ 0.83
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average common shares outstanding...... 2,338,720 2,338,720 2,338,720 1,720,030 1,218,909 1,238,100 1,103,395

STATEMENT OF FINANCIAL CONDITION DATA:
Total assets.................................... $ 307,802 $ 239,807 $ 288,558 $ 240,399 $ 147,645 $ 122,414 $ 117,958
Net loans....................................... 207,747 147,812 201,403 119,635 109,450 82,777 69,328
Investment securities........................... 61,953 73,290 59,491 94,416 25,111 26,964 35,591
Deposits........................................ 253,300 202,959 239,770 211,048 124,649 107,496 102,666
Stockholders' equity............................ 22,903 20,968 22,635 20,887 9,540 8,904 7,808
Book value per common share..................... $ 9.79 $ 8.97 $ 9.68 $ 8.93 $ 7.87 $ 7.19 $ 7.08
Tangible book value per common share............ 8.07 7.23 7.93 7.24 7.31 6.65 6.36
</TABLE>

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

(1) Includes loan origination fees of $191 and $164 for the three month periods
ended March 31, 1997 and 1996, respectively, and $1,276, $559, $650, $320
and $173 for the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively.

5
<PAGE>

<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
AT OR FOR THE
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
1997 1996 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
KEY RATIOS:(1)
Net interest margin........................................... 4.38% 3.59% 4.09% 3.71% 4.70% 4.40%
Net interest spread........................................... 3.89 3.13 3.63 3.27 4.34 4.10
Return on average assets...................................... 0.77 0.24 0.71 0.59 0.87 0.90
Return on average equity...................................... 9.87 2.70 8.53 8.11 12.34 12.92
Stockholders' equity to total assets.......................... 7.44 8.74 7.84 8.69 6.46 7.27
Nonperforming assets to total assets.......................... 0.20 0.29 0.15 0.20 0.44 1.47
Nonperforming loans to total loans............................ 0.22 0.47 0.14 0.40 0.49 1.93
Allowance for loan losses to total loans...................... 0.83 0.76 0.78 0.87 0.92 0.85
Allowance for loan losses to nonperforming loans.............. 382 164 555 218 188 44
Efficiency ratio(2)........................................... 68.32 84.80 68.75 76.81 71.74 71.98
Ratio of earnings to fixed charges:(3)
Including interest on deposits.............................. 1.29x 1.11x 1.27x 1.21x 1.42x 1.38x
Excluding interest on deposits.............................. 3.48 2.74 3.19 3.43 5.01 6.61

1992
---------
<S> <C>
KEY RATIOS:(1)
Net interest margin........................................... 4.08%
Net interest spread........................................... 3.71
Return on average assets...................................... 0.78
Return on average equity...................................... 13.70
Stockholders' equity to total assets.......................... 6.62
Nonperforming assets to total assets.......................... 3.74
Nonperforming loans to total loans............................ 5.80
Allowance for loan losses to total loans...................... 1.55
Allowance for loan losses to nonperforming loans.............. 27
Efficiency ratio(2)........................................... 73.36
Ratio of earnings to fixed charges:(3)
Including interest on deposits.............................. 1.24x
Excluding interest on deposits.............................. 4.52
</TABLE>

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

(1) Ratios for the three months ended March 31, 1997 and 1996 have been
annualized and are not necessarily indicative of the results for the entire
year.

(2) The efficiency ratio is calculated by dividing noninterest expense by an
amount equal to net interest income plus noninterest income.

(3) The consolidated ratio of earnings to fixed charges has been computed by
dividing net income plus all applicable income taxes plus fixed charges by
fixed charges. Fixed charges represent interest expense (ratios are
presented both including and excluding interest on deposits). Interest
expense (other than on deposits) includes interest on long-term debt,
federal funds purchased and securities sold under agreements to repurchase,
mortgages, commercial paper and other borrowed funds.

6
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE NOTES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS
SHOULD BE CONSIDERED CAREFULLY.

DEPENDENCE ON DIVIDENDS FROM SUBSIDIARY BANKS

As a holding company, with the substantial majority of its assets
represented by its equity interest in the Banks, the Company's ability to pay
principal and interest on the Notes depends primarily upon the cash dividends
the Company receives from the Banks, and, to a lesser extent, from BNC
Financial. Dividend payments from the Banks are subject to state and federal
regulatory limitations that are based on each Bank's earnings and capital.
Payment of dividends is also subject to regulatory restrictions if such
dividends would impair the capital of the Banks. Payment of dividends by the
Banks is also subject to the Banks' profitability, financial condition and
capital expenditures and other cash flow requirements. At March 31, 1997, the
Banks could pay total dividends to the Company of approximately $4.4 million
without prior regulatory approval. Substantially all of the consolidated assets
of the Company are held by the Banks, and, in the event of liquidation of both
the Company and either of the Banks, creditors of such Banks, including
depositors, would have first claim to such assets before holders of the Notes.
No assurance can be given that the Banks will be able to pay dividends at past
levels, or at all, in the future. See "Supervision and Regulation."

LIMITED COVENANTS

The covenants in the Indenture are limited and are not designed to protect
holders of the Notes in the event of a material adverse change in the Company's
financial condition or results of operations. The covenants also do not limit
the ability of the Company or any subsidiary to incur additional indebtedness.
The covenants in the Indenture should not be a significant factor to an investor
in evaluating whether the Company will be able to comply with its obligations
under the Notes. See "Description of the Notes."

LIMITED RIGHT OF ACCELERATION OF NOTES

Payment of principal or interest on the Notes may be accelerated only in the
case of the bankruptcy, insolvency, reorganization or other similar proceeding
of the Company. There is no right of acceleration in the case of a default in
the payment of principal or interest on the Notes or in the performance of any
other covenant of the Company. See "Description of the Notes--Acceleration
Events."

SUBORDINATION

The Notes will be unsecured general obligations of the Company and will be
subordinated to all present and future Senior Indebtedness of the Company. The
Notes also will be effectively subordinated to all of the present and future
liabilities of the Company's subsidiaries. Since the Notes are obligations of
the holding company only, the Company's subsidiaries are not obligated or
required to pay any amounts pursuant to the Notes or to make funds available
therefor in the form of dividends or advances to the Company. In the event of
bankruptcy, liquidation, reorganization or similar proceeding of the Company,
the holders of the Notes would not receive payment until all Senior Indebtedness
had been paid in full. As of May 16, 1997, the Company had approximately $32.0
million of outstanding Senior Indebtedness (excluding deposits). The Indenture
does not limit the ability of the Company or its subsidiaries to incur
additional Senior Indebtedness or indebtedness ranking on a parity with the
Notes. In the event of a payment default with respect to the Senior
Indebtedness, no payments may be made on account of the Notes until such default
has been cured or waived. See "Description of the Notes--Subordination." The
Notes are not insured by the Federal Deposit Insurance Corporation ("FDIC") or
otherwise and are not secured by any collateral or subject to any sinking fund.

7
<PAGE>
RISKS OF GROWTH STRATEGY

BNC has pursued and intends to continue to pursue an aggressive growth
strategy. This strategy is focused primarily on expanding existing account
relationships and developing new account relationships through its existing
banking locations, but may also include acquisitions and establishment of DE
NOVO banks and additional branches. The success of BNC's growth strategy will
depend primarily on its ability to generate loans at acceptable risk and pricing
levels and deposits with acceptable interest rates without proportionate
increases in noninterest expenses. In addition, no assurance can be given that
the Company will be successful in managing its internal growth and integrating
acquired businesses, if any, into its existing operations. The management of
such growth or the integration of any acquired business could result in
unforeseen operational difficulties or require a disproportionate amount of
management's attention.

The Company intends to pursue internal growth through an emphasis on
expanding its existing account relationships and by developing new relationships
with small and mid-sized business customers and individuals. The Company's
internal growth will depend in part on the economic conditions in its market
areas. There can be no assurance that BNC will be successful in implementing its
internal growth strategy. See "Business--Growth Strategy" and "--Market Area."

BNC may pursue acquisitions of community banks and other financial
institutions in its market areas and other strategic locations. BNC does not
currently have any agreements, arrangements or understandings regarding the
acquisition of any financial institution. BNC may not be successful in
identifying acquisition candidates, integrating acquired institutions into BNC's
operations, or preventing deposit erosion at acquired institutions. There are a
limited number of attractive acquisition candidates in BNC's targeted market
area, and BNC must compete with a variety of institutions, including
multi-regional bank holding companies, for potential acquisitions. This
competition, especially from multi-regional bank holding companies, is expected
to intensify with the expected increase in interstate banking and branching that
will be allowed under recently passed banking regulation. Any acquisition will
be subject to regulatory approval, and there can be no assurance that BNC will
obtain such approval. Moreover, the success of BNC's acquisition growth strategy
will depend on maintenance of acceptable capital levels. There can be no
assurance that BNC will be successful in implementing its acquisition growth
strategy. See "Business-- Growth Strategy," "--Market Area" and "Supervision and
Regulation."

The Company intends to use a portion of the net proceeds of this offering
and funds available to it under the Revolving Lines of Credit (as defined
herein) to fund loan growth at BNC Financial, a non-bank commercial finance
subsidiary acquired by the Company in 1996. Such lending often involves loans
that have higher risk of default than traditional loans made by the Banks. See
"Use of Proceeds" and "Business--Products and Services--Loans."

ALLOWANCE FOR LOAN LOSSES

The inability of borrowers to repay loans can erode earnings and capital of
banks. Like all banks, BNC maintains an allowance for loan losses to provide for
loan defaults and nonperformance. The allowance is based on prior experience
with loan losses, as well as an evaluation of the risks in the current
portfolio. BNC maintains the allowance at a level considered adequate by
management to absorb anticipated losses. The amount of future losses is
susceptible to changes in economic, operating and other conditions, including
changes in interest rates, that may be beyond BNC's control. Such future losses
may exceed current estimates of BNC's allowance for loan losses. At March 31,
1997, BNC had total nonperforming loans of $454,000 (0.22% of total loans). At
the same date, BNC's allowance for loan losses was $1.7 million (0.83% of total
loans and 382% of nonperforming loans). There can be no assurance that BNC's
allowance for loan losses will be adequate to cover actual losses. Future
additions to BNC's allowance for loan losses could result in a material decrease
in BNC's net income and capital. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition--

8
<PAGE>
Nonperforming Loans and Assets," "--Allowance for Loan Losses" and the Company's
Consolidated Financial Statements and notes thereto included elsewhere herein.

IMPACT OF INTEREST RATES AND ECONOMIC CONDITIONS

BNC's operating results may be materially and adversely affected by changes
in prevailing economic conditions, including declines in real estate market
values, rapid changes in interest rates and the monetary and fiscal policies of
the federal government. BNC's profitability is in part a function of the spread
between the interest rates earned on assets and the interest rates paid on
deposits and other interest-bearing liabilities. Since 1991, many banking
organizations, including BNC, have experienced historically high interest rate
spreads. There can be no assurance, however, that such high interest rate
spreads will continue. Although economic conditions in BNC's market area have
been generally stronger than those in other regions of the country, there can be
no assurance that such conditions will continue to prevail. Substantially all of
BNC's existing loans are to businesses and individuals in western North Dakota
and Minnesota, and any decline in the economies of these areas could have an
adverse impact on BNC. Like most banking institutions, BNC's net interest margin
will continue to be affected by general economic conditions and other factors
that influence market interest rates and BNC's ability to respond to changes in
such rates. At any given time, BNC's assets and liabilities will be affected
differently by a given change in interest rates, and as a result an increase or
decrease in rates could have a positive or negative effect on BNC's net income,
capital and liquidity. There can be no assurance that the positive trends or
developments discussed in this Prospectus will continue or that negative trends
or developments will not have a material adverse effect on BNC. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Market Area," and "Supervision and Regulation--Monetary
Policy."

DEPENDENCE ON KEY PERSONNEL

BNC is highly dependent on the continued services of Tracy J. Scott, its
Chairman of the Board and Chief Executive Officer, Gregory K. Cleveland, its
President and Chief Financial Officer, Thomas J. Resch, President and Chief
Executive Officer of BNC-Minnesota, and other key management personnel. The loss
of any of these persons could adversely affect BNC's operations. BNC has entered
into employment agreements with each of Tracy J. Scott, Gregory K. Cleveland and
Thomas J. Resch. See "Management."

COMPETITIVE BANKING ENVIRONMENT

The banking business is highly competitive. BNC competes for loans,
including asset-based loans, and deposits with other commercial banks, savings
banks, savings and loan associations, finance companies, money market funds,
brokerage houses, credit unions and other non-bank financial institutions. Many
of these competitors have substantially greater resources and lending limits
than BNC, offer certain services that BNC does not currently provide and may
offer more favorable pricing than BNC. In addition, non-depository institution
competitors are generally not subject to the extensive laws and regulations
applicable to BNC. Recent changes in federal banking laws are expected to
facilitate and increase interstate branching and mergers and acquisitions among
banks. Since September 1995, certain bank holding companies have been authorized
to acquire banks throughout the United States. In addition, after June 1, 1997,
certain banks will be permitted to merge with banks organized under the laws of
different states and to operate branches in BNC's markets without a separate
charter. These changes may result in even greater competition in the banking
business. There can be no assurance that BNC's operations and profitability will
not be adversely effected by the anticipated increase in competition in the
banking business. Moreover, increased competition from multi-regional bank
holding companies for acquisition candidates may affect BNC's ability to grow
through acquisitions. See "Business--Competition" and "Supervision and
Regulation."

9
<PAGE>
NEED FOR TECHNOLOGICAL CHANGE

The banking industry is undergoing rapid technological changes with frequent
introductions of new technology-driven products and services. In addition to
better serving customers, the effective use of technology increases efficiency
and enables financial institutions to reduce costs. The Company's future success
will depend in part on its ability to address the needs of its customers by
using technology to provide products and services that will satisfy customer
demands for convenience as well as to create additional efficiencies in BNC's
operations. Many of BNC's competitors have substantially greater resources to
invest in technological improvements. There can be no assurance that the Company
will be able to effectively implement new technology-driven products and
services or be successful in marketing such products and services to its
customers.

POTENTIAL LIABILITY FOR UNDERCAPITALIZED SUBSIDIARY

Under federal law, a bank holding company may be required to guarantee a
capital plan filed by an undercapitalized bank subsidiary with its primary
regulator. If the subsidiary defaults under the plan, the holding company may be
required to contribute to the capital of the subsidiary bank an amount equal to
the lesser of 5% of the bank's assets at the time it became undercapitalized or
the amount necessary to bring the bank into compliance with applicable capital
standards. Therefore, it is possible that BNC will be required to contribute
capital to one or both of the Banks or any other bank that it may acquire in the
event either of the Banks or such other bank becomes undercapitalized. Such
capital contribution may adversely affect BNC's operations and limit its ability
to pay principal of and interest on the Notes. See "Supervision and
Regulation--BNC--Capital Adequacy" and "--The Banks--Capital Adequacy."

GOVERNMENT REGULATION

BNC and the Banks are subject to extensive federal and state legislation,
regulation and supervision that is intended to protect depositors rather than
investors in the Company's securities. These regulations limit the manner in
which BNC conducts its business and obtains financing. Powers of bank regulatory
authorities include, but are not limited to, the ability to impose restrictions
on the operation of a financial institution, to require the classification of
assets by an institution and to dictate an increase in an institution's
allowance for loan losses. Recently enacted, proposed and future legislation and
regulations designed to strengthen the banking industry have had and may
continue to have a significant impact on the banking industry. Although some of
the legislative and regulatory changes may benefit BNC, others may increase its
costs of doing business or otherwise adversely affect it and create competitive
advantages for non-bank competitors. The Company cannot determine at this time
the effect any changes could have on the Company's operations. See "Supervision
and Regulation."

ABSENCE OF A PUBLIC MARKET FOR THE NOTES

The Notes are a new issue of securities for which there is currently no
public market. The Company does not intend to list the Notes on any securities
exchange and no active trading market is expected to develop. Although the
Underwriter has informed the Company that it intends to make a market in the
Notes, the Underwriter is not obligated to make a market in the Notes and any
market making may be discontinued at any time at the sole discretion of the
Underwriter. If a market develops for the Notes, there can be no assurance as to
the liquidity of such market, the ability of holders to sell their Notes or the
prices at which holders would be able to sell their Notes. If a market for the
Notes does develop, the Notes may trade at a discount to their principal amount,
depending upon prevailing interest rates, the market for similar securities,
performance of the Company, performance of the banking industry and other
factors. See "Underwriting."

10
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the Notes offered hereby,
after deducting the underwriting discount and estimated offering expenses, will
be approximately $14.1 million. BNC anticipates that approximately $13.3 million
of the net proceeds will be used to repay indebtedness outstanding under the
Revolving Lines of Credit.

The Company has a $12.0 million revolving line of credit with Firstar Bank
Milwaukee, N.A. (the "Firstar Line of Credit") which matures in February 1998
and bears interest at either the prime rate or LIBOR plus 2%, at the Company's
option (7.51% per annum as of May 16, 1997). The Company expects to have $12.0
million outstanding under the Firstar Line of Credit immediately prior to the
offering. BNC Financial has a $1.3 million revolving line of credit with Bank
Windsor, N.A. (the "Windsor Line of Credit" and together with the Firstar Line
of Credit, the "Revolving Lines of Credit") which matures in September 1997 and
bears interest at the prime rate plus 0.75% (9.25% per annum as of May 16,
1997). The Company expects to have $1.3 million outstanding under the Windsor
Line of Credit immediately prior to the offering.

After the completion of the offering and the application of the net proceeds
thereof as described herein, the Company and BNC Financial expect to borrow
additional funds under the Revolving Lines of Credit to provide additional
working capital for general corporate purposes, including the funding of loans
at BNC Financial.

The Notes are expected to qualify as Tier 2 capital for regulatory purposes.
As Tier 2 capital, the Notes will help to further strengthen the capital
structure of the Company.

11
<PAGE>
CAPITALIZATION

The following table sets forth the actual capitalization (including
deposits) of BNC as of March 31, 1997, and as adjusted to give effect to the
sale of the Notes offered hereby and the application of the estimated net
proceeds therefrom. This information is derived from the Company's Consolidated
Financial Statements and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the notes thereto contained
elsewhere herein.

<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deposits................................................................................. $ 253,300 $ 253,300
---------- -----------
---------- -----------
Borrowings:
Federal funds purchased................................................................ $ 3,708 $ 3,708
Securities sold under agreements to repurchase......................................... 1,598 1,598
Advances from the Federal Home Loan Bank............................................... 10,000 10,000
Notes payable:
Revolving Lines of Credit(1)......................................................... 8,485 --
Term loans........................................................................... 3,111 3,111
Subordinated Notes due 2004 offered hereby............................................. -- 15,000
---------- -----------
Total borrowings................................................................... $ 26,902 $ 33,417
---------- -----------
---------- -----------
Stockholders' equity:
Preferred Stock, $.01 par value per share, 2,000,000 shares authorized; no shares
outstanding.......................................................................... $ -- $ --
Common Stock, $.01 par value per share, 10,000,000 shares authorized; 2,364,100 shares
issued, 2,338,720 shares outstanding................................................. 23 23
Additional paid-in capital............................................................. 13,768 13,768
Retained earnings...................................................................... 9,578 9,578
Treasury stock (25,380 shares)......................................................... (216) (216)
Unrealized loss on securities available for sale, net.................................. (250) (250)
---------- -----------
Total stockholders' equity......................................................... $ 22,903 $ 22,903
---------- -----------
---------- -----------
</TABLE>

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

(1) Amounts due under the Revolving Lines of Credit are expected to be
approximately $13.3 million immediately prior to the date of this
Prospectus, which amount is expected to be paid in full with proceeds of the
offering. Upon completion of the offering and the application of the net
proceeds thereof as described in "Use of Proceeds," the Company will have
approximately $13.3 million available under the Revolving Lines of Credit.

12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING SECTION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND OTHER DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

BNC was formed in 1987 with the objective of acquiring and improving the
performance of strategically located banks in North Dakota. In 1988, BNC
acquired its initial bank, the First National Bank of Linton. In 1990, the
Company formed BNC National Bank, formerly Bismarck National Bank, and acquired
the Bismarck branch of Midwest Federal Savings Bank from the Resolution Trust
Corporation. In January 1994, BNC acquired its third bank, Farmers & Merchants
Bank of Beach ("FMB"), which had been managed and owned by certain members of
BNC's executive management team since 1985. In 1995, BNC acquired seven North
Dakota branches of First Bank fsb and sold FMB. In August 1995, the Company
merged the First National Bank of Linton and BNC National Bank of Bismarck and
changed the name of the resulting entity to BNC National Bank. In January 1996,
BNC established a DE NOVO national bank in Minneapolis, Minnesota, and in May
1996 acquired BNC Financial, a non-bank finance company located in St. Cloud,
Minnesota that primarily engages in asset-based lending.

RESULTS OF OPERATIONS

Net income was $561,000 for the three month period ended March 31, 1997
compared to $142,000 for the three month period ended March 31, 1996. Net income
was $1.8 million for the year ended December 31, 1996 as compared to $1.2
million in 1995. This earnings growth was due primarily to an increase in net
interest income, which was driven by loan growth, and an increase in noninterest
income.

Loans totaled $209.5 million at March 31, 1997, an increase of $60.5
million, or 40.6%, from March 31, 1996. Total assets increased $68.0 million, or
28.4%, to $307.8 million as of March 31, 1997 compared to $239.8 million at
March 31, 1996. Total deposits increased $50.3 million, or 24.8%, to $253.3
million at March 31, 1997 compared to $203.0 million at March 31, 1996.

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

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996

Net interest income increased $1.0 million, or 51%, to $2.9 million for the
quarter ended March 31, 1997 as compared to the same period in 1996. Total
interest income increased $1.6 million, or 35%, to $6.1 million for the first
quarter of 1997 as compared to the $4.5 million recorded in the first quarter of
1996. The increase in interest income was primarily due to loan growth, as
average earning assets increased $54.4 million, or 25%, to $272.9 million for
the three months ended March 31, 1997 as compared to $218.5 million for the same
period in 1996. The increase in net interest income between periods was also
attributable in part to an increase in the yield on average earning assets to
9.00% for the quarter ended March 31, 1997 as compared to 8.26% for the same
period in 1996. A change in mix of the earning asset portfolio contributed to
the increase in interest income. During the first quarter of 1997, loans totaled
75% of the average earning asset portfolio as compared to only 62% for the
quarter ended March 31, 1996. This increase in volume and the change in mix of
the earning asset portfolio were caused by the Company's significant loan growth
as investments were sold to fund loans. The increase in yield resulted from an
increase in loan yield of 43 basis points (to 9.84% for the first quarter of
1997 from 9.41% for the first

13
<PAGE>
quarter of 1996) and the change in mix of the earning asset portfolio from lower
yielding investments to higher yielding loans.

Total interest expense increased $578,000, or 23%, to $3.1 million for the
three months ended March 31, 1997 as compared to $2.5 million for the same
period in 1996. The increase in interest expense was caused by an increase in
volume of average interest-bearing liabilities, partially offset by decreases in
cost on these liabilities. Total average interest-bearing liabilities increased
$48.1 million, or 24%, to $247.1 million for the quarter ended March 31, 1997 as
compared to $199.0 million for the quarter ended March 31, 1996. Average
interest-bearing deposits and borrowings increased $35.2 million and $13.0
million, or 19% and 135%, respectively, for the three months ended March 31,
1997 as compared to the same period in 1996. The average cost on
interest-bearing deposits decreased 10 basis points to 4.96% for the quarter
ended March 31, 1997 as compared to 5.06% for the same period in 1996. The
average cost of borrowed funds increased 15 basis points to 6.66% for the first
quarter of 1997 as compared to 6.51% for the same period in 1996. The decrease
in cost on deposits was offset somewhat by the increased cost on borrowings
resulting in an improvement in total cost on rate related liabilities of 2 basis
points to 5.11% for the quarter ended March 31, 1997 as compared to 5.13% for
the same period in 1996.

Net interest margin for the first quarter of 1997 was 4.38% as compared to
3.59% for the same period in 1996. The improvement in the Company's net interest
margin was mainly attributable to the increase in yield on earning assets
discussed above.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995

Net interest income increased $3.1 million, or 46%, to $9.9 million for the
year ended December 31, 1996 as compared to the same period in 1995. Total
interest income increased $5.7 million, or 37%, to $21.0 million for 1996 as
compared to the $15.3 million recorded in 1995. Loan growth during 1996 caused
the increase in interest income as average earning assets increased $59.0
million, or 32%, to $240.9 million for the year ended December 31, 1996 as
compared to $181.9 million in 1995. The increase in net interest income between
periods was also attributable in part to an increase in the yield on average
earning assets to 8.70% for 1996 as compared to 8.40% for 1995. A change in mix
of the earning asset portfolio also contributed to the increase in interest
income. During 1996, the average earning asset portfolio was comprised of 29%
investments (yielding 6.50%) and 71% loans (yielding 9.54%) as compared to 36%
investments (yielding 6.13%) and 64% loans (yielding 9.58%) in 1995. The volume
increase and change in mix of the earning asset portfolio were caused by the
Company's significant loan growth as investments were sold to fund loans. The
increase in yield resulted from the increase in investment yield noted above and
the change in mix of the earning asset portfolio from lower yielding investments
to higher yielding loans.

Total interest expense increased $2.6 million, or 30%, to $11.1 million for
the year ended December 31, 1996 as compared to $8.5 million for 1995. The
increase in interest expense was caused by an increase in volume of average
interest-bearing liabilities offset by decreases in cost on these liabilities.
Total average interest-bearing liabilities increased $52.6 million, or 32%, to
$219.1 million for the year ended December 31, 1996 as compared to $166.5
million for the year ended December 31, 1995. Average interest-bearing deposits
and borrowings increased $41.6 million and $11.0 million, or 27% and 105%,
respectively, for the year ended December 31, 1996 as compared to 1995. The
average cost on interest-bearing deposits decreased 47, 55, 15 and 26 basis
points for interest-bearing checking and money market accounts, savings
accounts, time deposits under $100,000 and time deposits of $100,000 and over,
respectively. The decreased costs of deposits on a category by category basis,
however, resulted in only a 7 basis point decrease in total deposit cost to
4.93% for the year ended December 31, 1996 as compared to 5.00% for 1995.
Offsetting the by-category cost decreases was a shift in average deposit
portfolio mix as time deposits accounted for 71% of total average deposit
balances for the year ended December 31, 1996 as compared to less than 65% for
1995. This change was caused primarily by the mix of deposits acquired

14
<PAGE>
in 1995. Over 80% of the $94.2 million of such acquired and retained deposits
were time deposits (a portion of which were sold along with FMB in October
1995).

YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994

Net interest income increased $889,000, or 15%, to $6.7 million for the year
ended December 31, 1995 as compared to the $5.9 million recorded for the same
period in 1994. Total interest income increased $5.0 million, or 49%, to $15.3
million for 1995 as compared to the $10.3 million recorded in 1994. The
increased interest income was the net result of rate, volume and mix variances
in the earning asset portfolio. The most significant factor was the increase in
average earning assets of $57.4 million, or 46%, to $181.9 million for the
twelve months ended December 31, 1995 as compared to $124.5 million for the same
period in 1994. The yield on earning assets increased 16 basis points to 8.40%
for 1995 as compared to 8.24% for 1994. A change in mix of the earning asset
portfolio also occurred. During 1995, the average earning asset portfolio was
comprised of 36% investments (yielding 6.13%) and 64% loans (yielding 9.58%) as
compared to 21% investments (yielding 5.34%) and 79% loans (yielding 8.95%) in
1994. The increases in loan and investment yields were offset by the mix change
noted above. The volume increase and change in mix of the earning asset
portfolio were caused by a combination of the Company's corporate developments
in 1995, including the deposit acquisition (as acquired funds were invested),
internal loan growth and the sale of FMB.

Total interest expense increased $4.1 million, or 94%, to $8.5 million for
the year ended December 31, 1995 as compared to $4.4 million for 1994. The
increase in interest expense was caused by an increase in volume of average
interest-bearing liabilities and increases on costs of the liabilities. Total
average interest-bearing liabilities increased $53.6 million, or 47%, to $166.5
million for the year ended December 31, 1995 as compared to $112.9 million for
1994. Average interest-bearing deposits and borrowings increased $52.6 million
and $1.0 million, or 51% and 10%, respectively, for the year ended December 31,
1995 as compared to 1994. The average cost on interest-bearing deposits
increased to 5.00% for 1995 as compared to 3.81% for 1994. The increase in cost
of deposits was caused by an aggressive bid for deposits at BNC-North Dakota in
late 1994 and early 1995 and the higher than anticipated cost on the deposits
acquired in August 1995. The high percentage of time deposits to total deposits
acquired also contributed to the overall increase in average deposit cost as the
mix of the deposit portfolio changed such that a higher percentage of deposits
were in time deposits versus noninterest and low interest-bearing deposits. See
"--Financial Condition--Deposits and Borrowed Funds."

The following table sets forth, for the periods indicated, certain
information relating to BNC's average balance sheets and reflects the yield on
average assets and cost of average liabilities. Such yields and costs are
derived by dividing income and expense by the average balance of assets and
liabilities. No tax equivalent adjustments were made, and all average balances
have been derived from monthly averages which are indicative of daily averages.

15
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------
1997 1996
------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED OR YIELD OR AVERAGE EARNED OR YIELD OR
BALANCE PAID COST BALANCE PAID COST
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold.......... $ 11,840 $ 159 5.45% $ 2,769 $ 40 5.81%
Taxable investments......... 57,032 915 6.51 79,242 1,236 6.27
Tax-exempt investments...... 789 12 6.17 1,245 20 6.46
Loans(1).................... 204,931 4,974 9.84 136,317 3,189 9.41
Allowance for loan losses... (1,675) -- -- (1,081) -- --
--------- --------- --------- ---------
Total interest-earning
assets(2)............... 272,917 6,060 9.00 218,492 4,485 8.26
Noninterest-earning assets:
Cash and due from banks... 6,074 5,202
Other..................... 15,058 12,858
--------- ---------
Total assets............ $ 294,049 $ 236,552
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
NOW and money market
accounts................ $ 45,840 $ 338 2.99% $ 36,772 $ 233 2.55%
Savings................... 8,694 49 2.29 8,147 46 2.27
Certificates of deposit:
Under $100,000.......... 128,123 1,768 5.60 126,114 1,832 5.84
$100,000 and over....... 41,962 590 5.70 18,426 271 5.92
--------- --------- --------- ---------
Total interest-bearing
deposits............ 224,619 2,745 4.96 189,459 2,382 5.06
Short-term borrowings:
Securities and loans sold
under agreements to
repurchase and federal
funds purchased......... 1,346 21 6.33 5,302 70 5.31
FHLB notes payable........ 10,000 141 5.72 1,000 17 6.84
Long-term borrowings........ 11,184 208 7.54 3,272 68 8.36
--------- --------- --------- ---------
Total interest-bearing
liabilities........... 247,149 3,115 5.11 199,033 2,537 5.13
Noninterest-bearing demand
accounts.................. 19,349 12,198
--------- ---------
Total deposits and
interest-bearing
liabilities........... 266,498 211,231
Other noninterest-bearing
liabilities............... 4,484 4,225
--------- ---------
Total liabilities....... 270,982 215,456
Stockholders' equity........ 23,067 21,096
--------- ---------
Total liabilities and
stockholders'
equity................ $ 294,049 $ 236,552
--------- ---------
--------- ---------
Net interest income........... $ 2,945 $ 1,948
--------- ---------
--------- ---------
Net interest spread........... 3.89% 3.13%
--------- ---------
--------- ---------
Net interest margin........... 4.38% 3.59%
--------- ---------
--------- ---------
Ratio of average
interest-earning assets to
average interest-bearing
liabilities................. 110.43% 109.78%
--------- ---------
--------- ---------

<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------

1996 1995 1994
------------------------------- ------------------------------- -------------------------------

INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE

AVERAGE EARNED OR YIELD OR AVERAGE EARNED OR YIELD OR AVERAGE EARNED OR YIELD OR

BALANCE PAID COST BALANCE PAID COST BALANCE PAID COST

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

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold.......... $ 2,714 $ 145 5.34% $ 11,348 $ 651 5.74% $ 4,086 $ 110 2.69%

Taxable investments......... 66,547 4,359 6.55 52,154 3,213 6.16 21,260 1,211 5.70

Tax-exempt investments...... 1,090 70 6.42 1,705 134 7.86 1,287 100 7.77

Loans(1).................... 171,780 16,383 9.54 117,773 11,285 9.58 98,749 8,842 8.95

Allowance for loan losses... (1,265) -- -- (1,117) -- -- (871) -- --

--------- --------- --------- --------- --------- ---------
Total interest-earning
assets(2)............... 240,866 20,957 8.70 181,863 15,283 8.40 124,511 10,263 8.24

Noninterest-earning assets:
Cash and due from banks... 5,240 5,290 4,216
Other..................... 13,393 10,095 7,883
--------- --------- ---------
Total assets............ $ 259,499 $ 197,248 $ 136,610
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS'
Deposits:
NOW and money market
accounts................ $ 38,920 $ 1,004 2.58% $ 38,941 $ 1,187 3.05% $ 36,423 $ 990 2.72%

Savings................... 8,498 196 2.31 7,598 217 2.86 7,187 189 2.63

Certificates of deposit:
Under $100,000.......... 124,682 7,055 5.66 93,983 5,456 5.81 50,259 2,277 4.53

$100,000 and over....... 25,499 1,483 5.82 15,486 942 6.08 9,523 488 5.12

--------- --------- --------- --------- --------- ---------
Total interest-bearing
deposits............ 197,599 9,738 4.93 156,008 7,802 5.00 103,392 3,944 3.81

Short-term borrowings:
Securities and loans sold
under agreements to
repurchase and federal
funds purchased......... 7,340 408 5.56 3,546 172 4.85 3,366 60 1.78

FHLB notes payable........ 7,192 406 5.65 3,483 231 6.63 2,667 130 4.87

Long-term borrowings........ 7,027 555 7.90 3,499 337 9.63 3,525 277 7.86

--------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities........... 219,158 11,107 5.07 166,536 8,542 5.13 112,950 4,411 3.90

Noninterest-bearing demand
accounts.................. 15,147 13,233 11,942
--------- --------- ---------
Total deposits and
interest-bearing
liabilities........... 234,305 179,769 124,892
Other noninterest-bearing
liabilities............... 3,539 3,208 2,068
--------- --------- ---------
Total liabilities....... 237,844 182,977 126,960
Stockholders' equity........ 21,655 14,271 9,650
--------- --------- ---------
Total liabilities and
stockholders'
equity................ $ 259,499 $ 197,248 $ 136,610
--------- --------- ---------
--------- --------- ---------
Net interest income........... $ 9,850 $ 6,741 $ 5,852
--------- --------- ---------
--------- --------- ---------
Net interest spread........... 3.63% 3.27% 4.34%

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

Net interest margin........... 4.09% 3.71% 4.70%

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

Ratio of average
interest-earning assets to
average interest-bearing
liabilities................. 109.91% 109.20% 110.24%
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

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

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

16
<PAGE>

The following table illustrates, for the periods indicated, the changes in
BNC's net 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.

Short-term borrowings:
Securities and loans sold under
agreements to repurchase and
federal funds purchased........ (52) 3 (49) 184 52 236 3 109
FHLB notes payable............... 153 (29) 124 246 (71) 175 40 61
Long-term borrowings............... 164 (24) 140 340 (122) 218 (2) 62
----------- --------- --------- ----------- --------- --------- ----------- ---------
Total increase (decrease) in
interest expense............... 700 (122) 578 3,186 (621) 2,565 2,407 1,724
----------- --------- --------- ----------- --------- --------- ----------- ---------
Increase (decrease) in net
interest income................ $ 682 $ 315 $ 997 $ 2,349 $ 760 $ 3,109 $ 1,313 $ (424)
----------- --------- --------- ----------- --------- --------- ----------- ---------
----------- --------- --------- ----------- --------- --------- ----------- ---------

TOTAL
---------

<S> <C>
Interest-earning assets:
Federal funds sold................. $ 541
Investments........................ 2,036
Loans.............................. 2,443
---------
Total increase in interest
income......................... 5,020
---------
Interest-bearing liabilities:
NOW and money market accounts...... 197
Savings............................ 28
Certificates of deposit:
Under $100,000................... 3,179
$100,000 and over................ 454
Short-term borrowings:
Securities and loans sold under
agreements to repurchase and
federal funds purchased........ 112
FHLB notes payable............... 101
Long-term borrowings............... 60
---------
Total increase (decrease) in
interest expense............... 4,131
---------
Increase (decrease) in net
interest income................ $ 889
---------
---------
</TABLE>

PROVISION FOR LOAN LOSSES. Management determines a provision for loan
losses which it considers sufficient to maintain an adequate allowance for loan
losses. In evaluating the adequacy of the allowance for loan losses,
consideration is given to historical charge-off experience, growth of the loan
portfolio, changes in the composition of the loan portfolio, general economic
conditions, information regarding specific borrower status including financial
condition and related loan collateral values and other factors and estimates
that are subject to change over periods of time. Estimating the risk and
potential amount of loss on loans is subjective. Ultimate losses may vary from
current estimated losses. Management reviews its estimates periodically and, as
adjustments become necessary, such adjustments are reported in income through
the provision for loan losses in the appropriate period.

The provision for loan losses was $170,000 during the quarter ended March
31, 1997 as compared to $84,000 for the quarter ended March 31, 1996. The
increased provision was booked in order to allow the Company's allowance for
loan losses to keep pace with the loan growth the Company has experienced. The
allowance for loan losses as a percentage of total loans increased from 0.76% at
March 31, 1996 to 0.83% at March 31, 1997.

The provision for loan losses was $739,000 in 1996, an increase of $571,000
or 340% over the 1995 provision which was $168,000, a decrease of $11,000, or
6%, from 1994's provision for loan losses of $179,000. Management increased the
loan loss provision in 1996 due to the Company's significant loan growth.
Management believes the resulting allowance for loan losses is adequate to cover
anticipated

17
<PAGE>
losses in the loan portfolio at March 31, 1997. The decrease in the provision
for 1995 as compared to 1994 reflects the fact that $9.2 million of loans were
sold with FMB during 1995, resulting in a lower average risk grade in the
Company's loan portfolio and an allowance for loan losses considered adequate to
cover anticipated losses in the loan portfolio at December 31, 1995.

Net charge-offs through the allowance for loan losses were $28,000 for the
three month period ended March 31, 1997, while net recoveries were $4,000 for
the three month period ended March 31, 1996. Net charge-offs were $193,000 and
$41,000 for the years ended December 31, 1996 and 1995, respectively. Net
recoveries through the allowance for loan losses during 1994 were $129,000. The
allowance for loan losses was $1.7 million as of March 31, 1997 and $1.1 million
as of March 31, 1996 and 1995. See "--Financial Condition--Allowance for Loan
Losses."

NONINTEREST INCOME. The following table presents, for the periods
indicated, the major categories of the Company's noninterest income:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED
DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loan fees............................................................ $ 191 $ 164 $ 1,276 $ 559 $ 650
Service charges...................................................... 124 99 418 401 259
Rental income........................................................ 24 9 34 37 126
Net gain (loss) on sales of securities............................... (11) 5 19 (18) 28
Other noninterest income............................................. 153 94 349 757 336
--------- --------- --------- --------- ---------
Total noninterest income........................................... $ 481 $ 371 $ 2,096 $ 1,736 $ 1,399
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

Total noninterest income increased $110,000 or 30% to $481,000 for the three
months ended March 31, 1997 from $371,000 for the first quarter of 1996. This
increase resulted from small increases in loan fees, service charges and rental
income as well as an increase in other non-interest income, primarily fee income
from the Company's recently established private banking division at BNC-North
Dakota. Total noninterest income increased $360,000, or 21%, to $2.1 million for
the year ended December 31, 1996 as compared to the same period in 1995. Total
noninterest income for the year ended December 31, 1995 was $1.7 million, an
increase of $337,000, or 24%, from the $1.4 million recorded for the year ended
December 31, 1994.

LOAN FEE INCOME totaled $191,000 for the first quarter of 1997, a $27,000
increase over the same period in 1996. Loan fee income for the twelve month
period ended December 31, 1996 totaled $1.3 million, a $717,000 increase over
the same period in 1995. Loan fee income for the year ended December 31, 1995
was $559,000 as compared to $650,000 for the same period in 1994. The increase
in loan fee income for the year ended December 31, 1996 as compared to the same
period in 1995 was primarily the result of recognition of loan origination fees
on several large commercial loans originated and sold without recourse during
1996. BNC-North Dakota generated over $1.0 million of the $1.3 million in loan
fees recognized in 1996. Management cannot predict with any degree of certainty
the amount of loans which will be originated and related loan fees which will be
recognized in future periods.

SERVICE CHARGES totaled $124,000 for the first quarter of 1997 as compared
to $99,000 for the same period in 1996. Service charges for the year ended
December 31, 1996 totaled $418,000 as compared to $401,000 for the same period
in 1995. Service charges in 1995 increased $142,000, or 55%, from the $259,000
recorded in 1994. The increase in service charge income for the year ended
December 31, 1995 as compared to 1994 was due primarily to volume-related
increases in service charge income on commercial transaction accounts coupled
with increases in fees charged for certain account activity.

RENTAL INCOME was $24,000 and $9,000 for the three month periods ending
March 31, 1997 and 1996, respectively, and $34,000, $37,000 and $126,000 for the
years ended December 31, 1996, 1995 and 1994,

18
<PAGE>
respectively. The decrease in rental income in 1996 and 1995 as compared to 1994
is attributable to the Company's growth. Excess space in the Company's principal
office building in Bismarck was rented to outside entities in 1994. During 1995
and 1996, that space was occupied by BNC personnel.

NET INVESTMENT SECURITIES LOSSES were $11,000 for the three month period
ended March 31, 1997 as compared to net gains of $5,000 for the same period in
1996. For the year ended December 31, 1996, the Company had net investment
securities gains of $19,000 as compared to net losses of $18,000 and net gains
of $28,000 for the years ended December 31, 1995 and 1994, respectively. In
1996, the proceeds from securities sales were $49 million with resultant gross
gains and losses recorded of $32,000 and $13,000, respectively. In 1995, the
proceeds from securities sales were $89 million with resultant gross gains and
losses recorded of $5,000 and $23,000, respectively. In 1994, the proceeds from
securities sales were $18 million with resultant gross gains and losses recorded
of $33,000 and $5,000, respectively.

OTHER NONINTEREST INCOME, which includes various fee income items,
commission income from the sale of nondeposit investments, consulting income and
other miscellaneous income items was $153,000 and $94,000 for the three month
periods ended March 31, 1997 and 1996, respectively, and $349,000 for the year
ended December 31, 1996 as compared to $757,000 and $336,000 for the years ended
December 31, 1995 and 1994, respectively. The decrease in other noninterest
income of $408,000 for the year ended December 31, 1996 as compared to the year
ended December 31, 1995 was primarily the result of the $316,000 gain recognized
on the sale of FMB during 1995. Commission income on sales of nondeposit
investments decreased $135,000 in 1996 as compared to 1995 due to a reduction of
personnel in the nondeposit investment sales area. These items were offset by
smaller increases in other miscellaneous fee income and income derived from the
consulting activities of BNC Financial. The increase of $421,000 in other
noninterest income for 1995 as compared to 1994 was a result of the $316,000
gain on the sale of FMB recorded in 1995 and an increase of $217,000 in
commission income on the sale of nondeposit investments in 1995 as compared to
1994. The increased commission income recorded for the year ended December 31,
1995 as compared to the year ended December 31, 1994 reflects the fact that 1995
was the first full year of nondeposit investment sales activities for the
Company. The increased income from the sale of nondeposit investments and the
gain on the sale of FMB in 1995 were offset by smaller decreases in fee income,
consulting income and other miscellaneous income in 1995.

NONINTEREST EXPENSE. The following table presents, for the periods
indicated, the major categories of the Company's noninterest expense:

<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits............... $ 1,284 $ 976 $ 4,311 $ 3,352 $ 2,990
Depreciation and amortization................ 280 219 980 619 444
Occupancy.................................... 221 140 675 413 305
Office supplies, telephone and postage....... 125 121 505 521 227
Professional services........................ 81 103 360 246 236
Marketing and promotion...................... 87 112 352 424 211
FDIC and other assessments................... 41 71 239 296 308
Other........................................ 221 224 791 640 481
--------- --------- --------- --------- ---------
Total noninterest expense.................... $ 2,340 $ 1,966 $ 8,213 $ 6,511 $ 5,202
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Efficiency ratio(1).......................... 68.32% 84.80% 68.75% 76.81% 71.74%
</TABLE>

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

(1) Noninterest expense divided by an amount equal to net interest income plus
noninterest income.

Noninterest expense increased $374,000 or 19% from $2.0 million for the
three months ended March 31, 1996 to $2.3 million for the three months ended
March 31, 1997. The increase in non-interest

19
<PAGE>

expense is a function of the growth experienced by the Company during the past
24 months. Salaries and employee benefits expense increased $308,000 for the
first quarter of 1997 as compared to the same quarter in 1996, as average
full-time equivalent employees increased from 95 for the quarter ended March 31,
1996 to 116 for the quarter ended March 31, 1997. The Company also experienced
increases in occupancy, depreciation and amortization expense in the first
quarter of 1997 as compared to the same period in 1996. These increases were
caused by additional rent expense, the purchase (and related depreciation
expense) of furniture and equipment and the amortization of intangibles related
to BNC-Minnesota (chartered in January 1996), BNC Financial (acquired in May
1996), the acquisitions of the accounting firm of Gregory K. Cleveland & Company
(December 1996) and J.D. Meier Insurance Agency (early 1997) and BNC-North
Dakota's purchase of an additional office building in Bismarck (early 1997). See
"Certain Transactions." These increases in non-interest expense were partially
offset by decreases in FDIC and Office of the Comptroller of the Currency
("OCC") assessments and professional and marketing expenses.

For the year ended December 31, 1996, total noninterest expense increased
$1.7 million, or 26%, as compared to total noninterest expense for the same
period in 1995. Total noninterest expense for the year ended December 31, 1995
was $6.5 million, an increase of $1.3 million, or 25%, as compared to total
noninterest expense for the year ended December 31, 1994. The overall increases
in noninterest expense resulted from the growth and expansion the Company
experienced during this two year period.

SALARIES AND EMPLOYEE BENEFITS represent the largest category of noninterest
expense at 55%, 50%, 52%, 51% and 57% of total noninterest expense for the
quarters ended March 31, 1997 and 1996 and for the years ended December 31,
1996, 1995 and 1994, respectively. Salary and employee benefits expense includes
salaries, applicable payroll and unemployment taxes, premiums for health, life
and disability insurance, incentive bonuses and contributions to the Company's
401(k) plan. Salaries and benefits totaled $1.3 million for the first quarter of
1997, an increase of 32% over the same period in 1996, and $4.3 million for the
year ended December 31, 1996, an increase of $959,000, or 29%, as compared to
1995. The total salaries and benefits expense of $3.4 million recorded for the
year ended December 31, 1995 represented an increase of $362,000, or 12%, over
the total salaries and benefits recorded for the year ended December 31, 1994.
Salaries and incentives totaled $1.1 million, $831,000, $3.7 million, $3.0
million and $2.4 million for the three months ended March 31, 1997 and 1996 and
for the years ended December 31, 1996, 1995 and 1994, respectively. Officer and
employee insurance expenses totaled $60,000, $52,000, $215,000, $132,000 and
$140,000 for the three months ended March 31, 1997 and 1996 and for the years
ended December 31, 1996, 1995 and 1994, respectively. Increases in these
expenses are attributable to the Company's expansion which resulted in average
full-time equivalent employees of 118, 97, 105, 68 and 54 for the three months
ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 1995
and 1994, respectively.

DEPRECIATION AND AMORTIZATION EXPENSE totaled $280,000 for the first quarter
of 1997 as compared to $219,000 for the same period in 1996. For the year ended
December 31, 1996, depreciation and amortization totaled $980,000, an increase
of $361,000, or 58%, as compared to the year ended December 31, 1995. The total
depreciation and amortization expense of $619,000 recorded for the year ended
December 31, 1995 represented an increase of $175,000, or 39%, over the $444,000
recorded for the year ended December 31, 1994. Total depreciation and
amortization expense on premises, leasehold improvements and equipment recorded
for the three month periods ending March 31, 1997 and 1996 and the years ending
December 31, 1996, 1995 and 1994 was $152,000, $104,000, $499,000, $377,000 and
$348,000, respectively, with the increases resulting from additions to premises,
leasehold improvements and equipment of $850,000 and $360,000 in the first
quarters of 1997 and 1996, respectively, and $1.4 million, $2.0 million and
$345,000 in the years ending December 31, 1996, 1995 and 1994, respectively.
Amortization expense on intangible assets totaled $128,000, $115,000, $481,000,
$242,000 and $96,000 for the three month periods ending March 31, 1997 and 1996
and the years ending December 31, 1996, 1995 and 1994, respectively. This
increase is attributable to intangible assets recorded on acquisitions during
1995 and

20
<PAGE>
1996, including $3.6 million in deposit premiums and acquisition costs relating
to the August 1995 deposit acquisition, and certain smaller intangibles relating
to BNC's other acquisitions.

OCCUPANCY EXPENSE for the three months ended March 31, 1997 totaled
$221,000, a 58% increase over the same period in 1996. Occupancy expenses for
the year ended December 31, 1996 increased $262,000, or 63%, as compared to the
year ended December 31, 1995. The total occupancy expense of $413,000 recorded
for the year ended December 31, 1995 represented an increase of $108,000, or
35%, over the year ended December 31, 1994. This category includes rent expense,
building maintenance, utilities, real estate taxes, property insurance, and
furniture and fixture, EDP and other maintenance. The $262,000 increase in
occupancy expense in 1996 was caused primarily by increased rent expense of
$187,000 attributable to BNC's facilities in Minneapolis and St. Cloud,
Minnesota as well as Garrison and Watford City, North Dakota. See
"Business--Properties." The remainder of the $262,000 increase consisted of
small increases in each of the other occupancy expense categories attributable
to operation of the facilities acquired during the second half of 1995 and early
1996. The $108,000 increase in occupancy expense recorded in 1995 as compared to
1994 resulted from small increases in most of the occupancy expense categories
and was attributable to the acquisition of the North Dakota branches during
third quarter 1995 and the operation of a loan production office by BNC-North
Dakota in Minneapolis prior to BNC-Minnesota being chartered in January 1996.

OFFICE SUPPLIES, TELEPHONE AND POSTAGE EXPENSES decreased slightly for the
year ended December 31, 1996, in comparison to the same period in 1995. The
increase in expense in this category of $294,000 from the $227,000 recorded for
the year ended December 31, 1994 to the $521,000 recorded for the year ended
December 31, 1995 was caused primarily by expenses incurred in opening the loan
production office in Minneapolis and bringing the BNC-North Dakota branch
offices on line in August 1995. Such expenses totaled $125,000 in the first
quarter of 1997, a 3% increase from the same period in 1996. Expenses included
in this category are office supplies, special forms, customer checks, data
processing supplies, telephone and postage and freight expense. BNC recorded
decreases in expenses relating to office supplies, special forms, customer
checks and data processing supplies during 1996 as compared to 1995. Telephone
and postage and freight expense, however, increased in 1996 as a result of the
number of facilities operating and the additional customers acquired in the 1995
branch acquisition.

PROFESSIONAL SERVICES EXPENSE includes legal, audit and tax preparation fees
as well as software support and other consulting expense. Total professional
services expense of $81,000, $103,000, $360,000, $246,000 and $236,000 was
recorded for the three months ended March 31, 1997 and 1996 and for the years
ending December 31, 1996, 1995 and 1994, respectively. The $114,000 increase for
1996 as compared to 1995 was mainly attributable to increases in legal and audit
fees.

MARKETING AND PROMOTION EXPENSES totaled $87,000, $112,000, $352,000,
$424,000 and $211,000 for the three months ended March 31, 1997 and 1996 and for
the years ended December 31, 1996, 1995 and 1994, respectively. This category
includes advertising, public and community relations and miscellaneous
promotional campaign expenses. The $213,000 increase in this category for 1995
as compared to 1994 is almost entirely attributable to ad campaigns conducted in
connection with the 1995 branch acquisition and the reorganization of the
Company's North Dakota banks into BNC-North Dakota, and the resulting name
change for such bank.

FDIC AND OTHER ASSESSMENTS EXPENSE includes FDIC deposit insurance premiums
and OCC assessments. Total FDIC and OCC assessments were $41,000, $71,000,
$239,000, $296,000 and $308,000 for the three months ended March 31, 1997 and
1996 and for the years ended December 31, 1996, 1995 and 1994, respectively. The
decreases in this expense category have been caused primarily by changes in the
FDIC's risk related deposit insurance premiums. During 1994, the Company paid
FDIC assessments of 23 basis points annually on its deposits insured by the Bank
Insurance Fund ("BIF"). In 1995, the Company acquired approximately $94 million
of deposits insured by the Savings Association Insurance Fund ("SAIF"). The
addition of the SAIF deposits and the increased insurance expense attributable
to them was offset by the reduction of premium rates on BIF deposits to 0 basis
points for the Banks and an FDIC

21
<PAGE>
deposit insurance refund paid to BIF insured banks due to the recapitalization
of the BIF to the required level of 1.25% of insured deposits. During 1996, the
Company's assessment expenses further decreased because of the reduction of
premium rates on SAIF deposits to 0 basis points and a deposit insurance refund
paid to SAIF insured banks upon recapitalization of the SAIF to 1.25% of insured
deposits. Unless there are additional changes to the deposit insurance
regulations, management expects expense in this category to decline in 1997, as
they did in the first quarter of 1997, as the Banks are currently being assessed
only for interest payable on Financing Corporation bonds (issued between 1987
and 1989 to resolve failed savings and loan associations). The assessments are
1.30 basis points annually on BIF insured deposits and 6.48 basis points
annually on SAIF insured deposits.

OTHER NONINTEREST EXPENSE includes directors fees, blanket bond and other
insurance expense, education and development expense, correspondent changes,
travel, dues, conventions and other miscellaneous expense categories. Total
other noninterest expense was $221,000, $224,000, $791,000, $640,000 and
$481,000 for the three months ended March 31, 1997 and 1996 and the years ended
December 31, 1996, 1995 and 1994, respectively. The increase of $151,000 in this
expense category for 1996 as compared to 1995 was attributable to small
increases in several of the categories mentioned above. The increase of $159,000
for 1995 as compared to 1994 was also caused by small increases in many of the
categories mentioned above.

INCOME TAXES. Federal and state income taxes increased by $228,000 from
$127,000 for the three months ended March 31, 1996 to $355,000 for the three
months ended March 31, 1997 due to an increase in pretax income of $647,000. The
income tax provision for the years 1996, 1995 and 1994 was $1.1 million,
$641,000 and $679,000, respectively. As a percentage of pretax income, income
tax expense for 1996 was 38.3%, as compared to 35.7% in 1995 and 36.3% in 1994.
The increase in income tax expense relative to pretax income in 1996 as compared
to 1995 resulted from an increase in the percentage of taxable income on
municipal bonds. Consolidated federal income tax returns were filed for all of
the periods presented.

FINANCIAL CONDITION

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

Investments are centrally managed by the President of BNC-North Dakota in
order to aid in compliance with federal laws and regulations, which place
certain restrictions on the amounts and types of investments BNC may hold. See
"Supervision and Regulation." BNC's liquidity is monitored and managed, and the
maturity dates of the Company's investments are structured to maintain necessary
liquidity. See "--Liquidity." However, the primary goal of BNC's investment
policy is to maintain an appropriate relationship between assets and liabilities
while maximizing interest rate spreads. Accordingly, BNC monitors the
sensitivity of its assets and liabilities to changes in interest rates and
maturities and directs the Company's overall acquisition and allocation of
funds. See "--Asset/Liability Management."

As of March 31, 1997, BNC had $62.0 million of securities in its investment
portfolio as compared to $59.5 million, $94.4 million and $25.1 million for the
years ended December 31, 1996, 1995 and 1994, respectively. The decrease in
investment securities in 1996 and 1997 has resulted from the transfer of funds
from investments to loans as the Company has funded the significant loan growth
experienced during 1996 and 1997. The increase in investment securities at
December 31, 1995 as compared to 1994 resulted from the investment of the funds
received in the 1995 branch acquisition. See "--Results of Operations--Net
Interest Income" and "--Financial Condition--Loan Portfolio." Investments
accounted for 20%, 21%, 39% and 17% of total assets as of March 31, 1997 and
December 31, 1996, 1995 and 1994, respectively.

22
<PAGE>
The following table presents the amortized cost and estimated fair market
value (book value) of the securities in BNC's investment portfolio by major
category as of the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
MARCH 31, 1997 1996 1995 1994
------------------------ ------------------------ ------------------------ -----------
ESTIMATED ESTIMATED ESTIMATED
FAIR FAIR FAIR
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET AMORTIZED
COST VALUE(1) COST VALUE(1) COST VALUE(1) COST
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury securities........ $ 13,975 $ 13,917 $ 13,814 $ 13,856 $ 25,041 $ 25,101 $ 8,973
U.S. government agency mortgage-
backed securities............. 11,068 11,017 9,555 9,559 4,798 4,843 5,205
U.S. government agencies
securities.................... 5,620 5,549 3,633 3,642 7,513 7,520 7,363
Collateralized mortgage
obligations................... 23,783 23,524 23,898 23,855 44,800 44,803 1,881
Other securities................ 6,671 6,666 7,773 7,779 10,882 10,885 1,004
State and municipal bonds....... 1,248 1,280 759 800 1,162 1,264 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total........................... 62,365 61,953 59,432 59,491 94,196 94,416 24,426
----------- ----------- ----------- ----------- ----------- ----------- -----------
HELD TO MATURITY:
State and municipal bonds....... -- -- -- -- -- -- 1,148
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total........................... -- -- -- -- -- -- 1,148
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total investments............... $ 62,365 $ 61,953 $ 59,432 $ 59,491 $ 94,196 $ 94,416 $ 25,574
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------

ESTIMATED
FAIR
MARKET
VALUE(1)
-----------

<S> <C>
AVAILABLE FOR SALE:
U.S. Treasury securities........ $ 8,860
U.S. government agency mortgage-
backed securities............. 5,102
U.S. government agencies
securities.................... 7,263
Collateralized mortgage
obligations................... 1,734
Other securities................ 1,004
State and municipal bonds....... --
-----------
Total........................... 23,963
-----------
HELD TO MATURITY:
State and municipal bonds....... 1,195
-----------
Total........................... 1,195
-----------
Total investments............... $ 25,158
-----------
-----------
</TABLE>

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

(1) The estimated fair market values of the securities contained in BNC's
investment portfolio are calculated using the quoted market price, updated
monthly.
------------------------------

The following table sets forth the amortized cost and approximate yields of
the securities in BNC's investment portfolio as of March 31, 1997.

<TABLE>
<CAPTION>
MATURING
-----------------------------------------------------------------------------------------
AFTER 1 BUT AFTER 5 BUT AFTER 10
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS YEARS
------------------------ ------------------------ ------------------------ -----------
YIELD YIELD YIELD
AMOUNT (1) AMOUNT (1) AMOUNT (1) AMOUNT
----------- ----- ----------- ----- ----------- ----- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:(2)
U.S. Treasury securities............ -- -- $ 13,975 5.89% -- -- --
U.S. government agency mortgage-
backed securities(3).............. -- -- 1,799 6.87 $ 6,926 6.52% $ 2,343
U.S. government agencies
securities........................ -- -- 2,626 7.18 2,994 6.76 --
Collateralized mortgage
obligations(3).................... -- -- 310 5.93 10,128 6.07 13,345
Other securities.................... $ 6,671 6.80% -- -- -- -- --
State and municipal bonds........... 70 6.37 180 8.34 150 7.39 848
----------- ----------- ----------- -----------
Total amortized cost of investment
securities........................ $ 6,741 6.80% $ 18,890 6.18% $ 20,198 6.34% $ 16,536
----------- --- ----------- --- ----------- --- -----------
----------- --- ----------- --- ----------- --- -----------
Unrealized holding loss on
securities available for sale.....
Total investment in securities (at
estimated fair market value)......

TOTAL
------------------------
YIELD YIELD
(1) AMOUNT (1)
----- ----------- -----

<S> <C> <C> <C>
AVAILABLE FOR SALE:(2)
U.S. Treasury securities............ -- $ 13,975 5.89%
U.S. government agency mortgage-
backed securities(3).............. 6.59% 11,068 6.59
U.S. government agencies
securities........................ -- 5,620 6.96
Collateralized mortgage
obligations(3).................... 6.49 23,783 6.30
Other securities.................... -- 6,671 6.80
State and municipal bonds........... 9.61 1,248 8.98
-----------
Total amortized cost of investment
securities........................ 6.66% $ 62,365 6.43%
---
---
Unrealized holding loss on
securities available for sale..... (412)
-----------
Total investment in securities (at
estimated fair market value)...... $ 61,953 6.47%(4)
----------- ---
----------- ---
</TABLE>

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

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

(2) Based on amortized cost.

(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.

23
<PAGE>
At March 31, 1997, BNC held no securities of any single issuer, other than
the U.S. Treasury and U.S. government agencies, that exceeded 10% of
stockholders' equity. A significant portion of the Company's investment
securities portfolio (approximately 62% at March 31, 1997) is used as collateral
for public funds time deposits, securities sold under agreements to repurchase
and other BNC borrowings.

LOAN PORTFOLIO. The following table presents the composition of the
Company's loan portfolio at the end of the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------
MARCH 31,
1997 1996 1995 1994 1993
-------------------- -------------------- -------------------- -------------------- --------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial(1)... $ 96,878 46.6 $ 94,701 47.0 $ 41,639 34.8 $ 39,218 35.9 $ 23,011 27.8

Agricultural...... 20,084 9.7 20,673 10.3 18,046 15.1 22,144 20.2 16,101 19.5

Real estate
mortgage........ 49,601 23.9 47,451 23.6 36,606 30.6 32,805 30.0 31,655 38.2

Real estate
construction.... 11,597 5.6 8,806 4.4 5,884 4.9 3,992 3.6 4,462 5.4

Consumer.......... 18,738 9.0 18,734 9.3 9,960 8.3 9,331 8.5 4,937 6.0

Lease financing... 12,827 6.2 12,970 6.4 8,660 7.2 3,076 2.8 3,324 4.0
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------

Total face amount
of loans........ 209,725 101.0 203,335 101.0 120,795 100.9 110,566 101.0 83,490 100.9

Deferred loan fees
and costs....... (242) (0.1) (338) (0.2) (112) (0.1) (95) (0.1) -- --
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------

Loans............. 209,483 100.9 202,997 100.8 120,683 100.8 110,471 100.9 83,490 100.9

Less allowance for
loan losses..... (1,736) (0.9) (1,594) (0.8) (1,048) (0.8) (1,021) (0.9) (713) (0.9)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------

Net loans......... $ 207,747 100.0 $ 201,403 100.0 $ 119,635 100.0 $ 109,450 100.0 $ 82,777 100.0
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------

1992
--------------------
AMOUNT %
--------- ---------

<S> <C> <C>
Commercial and
industrial(1)... $ 17,610 25.4
Agricultural...... 21,420 30.9
Real estate
mortgage........ 20,669 29.8
Real estate
construction.... 3,227 4.7
Consumer.......... 5,119 7.4
Lease financing... 2,483 3.6
--------- ---------
Total face amount
of loans........ 70,528 101.8
Deferred loan fees
and costs....... (112) (0.2)
--------- ---------
Loans............. 70,416 101.6
Less allowance for
loan losses..... (1,088) (1.6)
--------- ---------
Net loans......... $ 69,328 100.0
--------- ---------
--------- ---------
</TABLE>

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

(1) The commercial and industrial loan category includes asset-based loans held
by BNC Financial totaling $6.5 million at March 31, 1997 and $5.6 million at
December 31, 1996.

The Company's primary source of income is interest earned on loans. The
Company's loan portfolio has grown significantly during the past three years as
a result of BNC's strategy of increasing the amount of loans outstanding to
increase net interest income. Net loans were $207.7 million at March 31, 1997, a
41% increase from net loans at March 31, 1996. Net loans increased $81.8
million, or 68%, to $201.4 million at December 31, 1996 as compared to $119.6
million at December 31, 1995. In 1995, net loans increased $10.2 million, or 9%,
as compared to December 31, 1994 ($9.2 million in loans were sold in 1995 along
with FMB).

BNC's significant loan growth is attributable in part to each of its
subsidiaries. BNC-North Dakota has experienced continued growth mainly in the
commercial and industrial loan category but also in each other loan category
presented above. BNC-Minnesota added significant loan growth, particularly in
the commercial and industrial category. BNC Financial had $6.5 million of
asset-based commercial and industrial loans as of March 31, 1997. 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 Company's Board of Directors (the "Board") based

24
<PAGE>

upon the recommendations of senior lending management and the executive credit
committee (comprised of the Company's President, BNC-North Dakota's Executive
Vice President of Corporate Finance, BNC-Minnesota's President and Chief
Executive Officer and BNC-North Dakota's Executive Vice President of Lending
(collectively, the "Loan Committee")). 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 Loan Committee based on the size of the customer's credit
relationship with BNC. Individual loan officers at the Banks are assigned loan
approval limits not exceeding $200,000. Senior lenders at BNC-North Dakota may
approve credit relationships at BNC-North Dakota above individual officer limits
up to $500,000 and $1,000,000 in the case of its Executive Vice President of
Corporate Finance. Relationships over $500,000 and $1,000,000, respectively, up
to the bank's legal lending limit must be approved by the Loan Committee. The
President and Chief Executive Officer at BNC-Minnesota may approve BNC
- -Minnesota credit relationships in excess of officer limits up to the bank's
legal lending limit, not to exceed $1 million. All BNC-Minnesota credit
relationships in excess of $1 million and up to the bank's legal lending limit
must be approved by the Loan Committee. The President/CEO of BNC Financial may
approve BNC Financial credit relationships up to $750,000. All BNC Financial
credit relationships over $750,000 must be approved by a loan committee
comprised of the Company's President and BNC-North Dakota's Executive Vice
President of Corporate Finance, BNC-Minnesota's President and Chief Executive
Officer and BNC Financial's President/CEO. All loans and commitments in excess
of $300,000 are presented to the Board on a monthly basis for summary review.
Any exceptions to loan policies and guidelines are subject to special approval
by Bank executive lenders or the Loan Committee based upon the lending authority
as described above.

LOAN PARTICIPATIONS. Pursuant to BNC's lending policy, loans do not exceed
85% of Bank lending limits (except to the extent collateralized by treasury
securities or Bank deposits and, accordingly, excluded from the Bank's lending
limit). To accommodate customers whose financing needs exceed its lending limits
and internal loan restrictions relating primarily to industry concentration, BNC
sells loan participations to outside participants without recourse. At March 31,
1997, the outstanding balances of loan participations sold by BNC to outside
banks were $58.2 million. At December 31, 1996, 1995 and 1994, the outstanding
balances of loan participations sold by BNC to outside banks were $57.3 million,
$35.0 million and $23.4 million, respectively. At March 31, 1997, loan
participations sold to outside banks totaled $55.0 million and $3.2 million for
BNC-North Dakota and BNC-Minnesota, respectively. All outstanding participations
at December 31, 1995 were attributable to BNC-North Dakota. BNC has retained
servicing rights on loan participations sold and traditionally has been able to
recognize loan origination fees received in respect to such loans. Management
cannot reliably predict BNC's ability to continue to generate or sell loan
participations or the terms of any such sales.

COMMERCIAL AND INDUSTRIAL LOANS consist primarily of loans to small and
mid-size businesses and sole proprietors in a wide variety of industries. These
loans, which are made for various purposes, generally are collateralized by
inventory, accounts receivable or other commercial assets. Commercial and
industrial loans, which have been the largest component of the Company's loan
portfolio in each of the periods presented herein, were $96.9 million at March
31, 1997, $94.7 million, $41.6 million and $39.2 million at December 31, 1996,
1995 and 1994, respectively. Commercial and industrial loans represented 47%,
47%, 35% and 36% of the Company's loan portfolio at March 31, 1997 and December
31, 1996, 1995 and 1994, respectively. As of March 31, 1997, commercial and
industrial loans totaled $63.9 million, $26.4 million, $6.5 million and $100,000
at BNC-North Dakota, BNC-Minnesota, BNC Financial and BNC, respectively. All of
BNC Financial's loans are asset-based loans. Management anticipates growth of
asset-based loans at BNC Financial could approximate $15 to $25 million during
1997. See "--Deposits and Borrowed Funds" for further discussion regarding
anticipated funding for the Company's asset-based loans.

25
<PAGE>
AGRICULTURAL LOANS include loans to feed lot operators, dairy farmers and
commercial farming organizations. These loans are generally collateralized by
accounts receivable, equipment and other assets. Agricultural loans totaled
$20.0 million at March 31, 1997. Loans of this type increased $2.6 million, or
15%, to $20.7 million at December 31, 1996 as compared to December 31, 1995. The
sale of FMB in 1995 and the strong growth in commercial and industrial loans
resulted in agricultural loans representing only 10% of the Company's loan
portfolio at March 31, 1997 and December 31, 1996 as compared to 15% and 20% at
December 31, 1995 and 1994, respectively.

REAL ESTATE MORTGAGE LOANS include various types of loans for which BNC
holds real property as collateral. A large portion of these loans (approximately
40% at March 31, 1997) are made to commercial customers where the collateral for
the loan is, among other things, the real estate occupied by the business of the
customer. Whenever practicable, the Company seeks to receive real estate as
collateral in making commercial loans in addition to other appropriate
collateral. Accordingly, many loans in this category can be characterized as
commercial loans that are secured by real estate. Real estate mortgage loans
totaled $49.6 million at March 31, 1997. Loans of this type increased $10.8
million, or 30%, to $47.4 million at December 31, 1996 as compared to $36.6
million at December 31, 1995. Approximately $4.0 million of this growth was
attributable to BNC-North Dakota, while approximately $6.8 million was
attributable to BNC-Minnesota. Real estate mortgage loans represented 24%, 24%,
31% and 30% of the total loan portfolio at March 31, 1997 and December 31, 1996,
1995 and 1994, respectively.

REAL ESTATE CONSTRUCTION LOANS are loans to finance the construction of
residential and non-residential property. These loans are generally
collateralized by first liens on the real estate. BNC conducts periodic
inspections, either directly or through an architect or other agent, prior to
approval of periodic draws on these loans. The Company generally requires that a
permanent financing commitment be in place prior to the approval of a
residential construction loan. These loans totaled $11.6 million at March 31,
1997. Loans of this type increased $2.9 million, or 50%, to $8.8 million at
December 31, 1996 as compared to $5.9 million at December 31, 1995. Construction
loans represented 6% of the Company's loan portfolio at March 31, 1997 as
compared to 4%, 5% and 4% at December 31, 1996, 1995 and 1994, respectively.

CONSUMER LOANS, which generally have terms of two to five years, include
home equity loans, credit cards and other installment loans. These loans totaled
$18.7 million at March 31, 1997. Loans of this type increased $8.7 million, or
88%, to $18.7 million at December 31, 1996 as compared to $10.0 million at
December 31, 1995. BNC-North Dakota accounted for $6.2 million of the increase
due to increased consumer loan demand in the Bismarck market and consumer loan
originations at the branches acquired in 1995. Consumer loans represented 9%,
9%, 8% and 9% of the Company's loan portfolio at March 31, 1997 and December 31,
1996, 1995 and 1994, respectively.

FINANCING LEASES are generally structured such that the Company retains
title to the assets leased in order to secure payment. The Company generally
provides lease financing to customers with whom it has other lending
relationships. Financing leases totaled $12.8 million at March 31, 1997. Loans
of this type increased $4.3 million, or 50%, to $13 million at December 31, 1996
as compared to $8.7 million at December 31, 1995. These leases represented 6% of
the Company's loan portfolio at March 31, 1997 as compared to 6%, 7% and 3% as
of December 31, 1996, 1995 and 1994, respectively.

There was no concentration of loans to any single industry exceeding 10% of
total loans (other than those listed above) nor were there any loans classified
as highly leveraged transactions as of March 31, 1997.

The following table sets forth the remaining maturities of loans in each
major category of BNC's portfolio as of March 31, 1997. Maturities are based
upon contractual maturities. 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. Floating rate loans
include loans that would

26
<PAGE>
reprice prior to maturity if base rates change. See "--Asset/Liability
Management" for further discussion regarding repricing of loans and other
assets.

<TABLE>
<CAPTION>
OVER ONE YEAR
THROUGH FIVE YEARS OVER FIVE YEARS
-------------------- --------------------
LESS THAN FIXED FLOATING FIXED FLOATING
ONE YEAR RATE RATE RATE RATE TOTAL
----------- --------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial.............................. $ 30,219 $ 19,858 $ 36,285 $ 4,560 $ 5,956 $ 96,878
Agricultural........................................... 8,903 2,994 2,796 1,521 3,870 20,084
Real estate mortgage................................... 4,708 8,730 4,584 11,408 20,171 49,601
Real estate construction............................... 11,374 -- -- -- 223 11,597
Consumer............................................... 8,765 7,829 1,587 547 10 18,738
Lease financing........................................ 1,299 8,830 2,643 55 -- 12,827
----------- --------- --------- --------- --------- ----------
Total face amount of loans......................... $ 65,268 $ 48,241 $ 47,895 $ 18,091 $ 30,230 $ 209,725
----------- --------- --------- --------- --------- ----------
----------- --------- --------- --------- --------- ----------
</TABLE>

NONPERFORMING LOANS AND ASSETS. The Company'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 proactive manner. Lenders are not
compensated for growth at the expense of credit quality. Loan officers are
responsible for ongoing and regular review of past due loans in their respective
portfolios. The Company's loan portfolio is also monitored regularly and
examined by the Company's loan review personnel. Loans demonstrating weaknesses
are downgraded and the Board receives a listing of all such loans on a monthly
basis. The Company also has an annual independent credit review which tests
credit quality, compliance with loan policy and documentation for all loans over
$100,000 and a sampling of smaller loans.

27
<PAGE>

The following table sets forth the amounts of nonperforming loans, other
real estate owned, the allowance for loan losses and certain ratios at the ends
of the periods indicated:

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans:
Loans 90 days or more delinquent and still accruing
interest.................................................. $ 236 $ 129 $ 290 $ 39 $ 87 $ 467
Nonaccrual loans(1)(2)...................................... 86 22 71 248 1,338 3,332
Restructured loans(1)(2).................................... 132 136 119 257 188 283
----------- --------- --------- --------- --------- ---------
Total nonperforming loans................................. 454 287 480 544 1,613 4,082
Other real estate owned....................................... 159 159 -- 100 193 332
----------- --------- --------- --------- --------- ---------
Total nonperforming assets.................................... $ 613 $ 446 $ 480 $ 644 $ 1,806 $ 4,414
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Allowance for loan losses..................................... $ 1,736 $ 1,594 $ 1,048 $ 1,021 $ 713 $ 1,088
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Ratio of total nonperforming loans to total loans............. 0.22% 0.14% 0.40% 0.49% 1.93% 5.80%
Ratio of total nonperforming assets to total assets........... 0.20 0.15 0.20 0.44 1.47 3.74
Ratio of allowance for loan losses to total loans............. 0.83 0.78 0.87 0.92 0.85 1.55
Ratio of allowance for loan losses to total nonperforming
loans....................................................... 382 555 218 188 44 27
</TABLE>

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

(1) If the Company's nonaccrual and restructured loans at December 31, 1996 had
been current in accordance with their original terms, additional interest
income would have been recognized into earnings in the amount of $12,000 for
the year ended December 31, 1996.

(2) The interest income on nonaccrual and restructured loans actually included
in the Company's net income was approximately $6,000 for the year ended
December 31, 1996.

LOANS 90 DAYS OR MORE DELINQUENT AND STILL ACCRUING INTEREST. This category
of loans includes loans over 90 days past due which management believes, based
on its specific analysis of the loan, do not present doubt about the collection
of interest and principal in accordance with the loan contract. Loans in this
category must be well-secured and in the process of collection. These loans are
monitored closely by BNC lending and management personnel.

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

RESTRUCTURED LOANS. 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.

28
<PAGE>

OTHER REAL ESTATE OWNED. Other real estate owned represents properties
acquired through foreclosures or other proceedings or those considered
in-substance foreclosures, and is stated at the lower of cost or fair value at
the date of acquisition. Write downs to fair value at the time of acquisition
are charged to the allowance for loan losses; write downs and costs incurred
subsequent to acquisition are charged to expense as incurred. As of March 31,
1997 and December 31, 1996, the Company had a recorded investment of $159,000 of
property acquired in foreclosure proceedings or under agreements with delinquent
borrowers. The Company had no property acquired in foreclosure proceedings at
December 31, 1995.

POTENTIAL PROBLEM LOANS. In addition to the loans presented above,
management has identified, through its internal loan monitoring activities,
approximately 19 loans with stated balances totaling $4.0 million at March 31,
1997 that exhibit a higher than normal credit risk but are not considered
impaired or nonperforming under the definitions presented above. These loans are
not in default but 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 or interest payments. The
ultimate resolution of these credits is subject to changes in economic
conditions and other factors. These loans are monitored closely to ensure that
the Company's position as a creditor is protected.

ALLOWANCE FOR LOAN LOSSES. An allowance for loan losses has been
established to provide for those loans which may not be repaid in their
entirety. It represents management's recognition of the risks of extending
credit and its evaluation of the quality of the loan portfolio. Loan losses are
primarily created from the loan portfolio, but may also be generated from other
sources, such as commitments to extend credit, guarantees, and standby letters
of credit. The allowance for loan losses is increased by provisions charged to
expense and decreased by charge-offs, net of recoveries. See "--Results of
Operations-- Provision for Loan Losses." Although a loan is charged-off by
management when deemed uncollectible, collection efforts continue and future
recoveries may occur.

The allowance is maintained at a level considered adequate to provide for
anticipated loan losses based on past loss experience, general economic
conditions, information about specific borrower situations, including their
financial position, collateral values, and other factors and estimates which are
subject to change over time. Estimating the risk of loss and amount of loss on
any loan is subjective and ultimate losses may vary from current estimates.
These estimates are reviewed periodically and, as adjustments become necessary,
they are reported in income through the provision for loan losses in the periods
in which they become known. The adequacy of the allowance for loan losses is
monitored by management and reported to the Board. Although management believes
that the allowance for loan losses is adequate to absorb any losses on existing
loans that may become uncollectible, there can be no assurance that the
allowance will prove sufficient to cover actual loan 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 loan
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.

29
<PAGE>
The following table summarizes, for the periods indicated, activity in the
allowance for loan losses, including amounts of loans charged-off, amounts of
recoveries, additions to the allowance charged to operating expense and the
ratio of net charge-offs to average total loans:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- -----------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------ ----------- ------------ ------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance for loan
losses at beginning of
period..................... $ 1,594 $ 1,048 $ 1,048 $ 1,021 $ 713 $ 1,088 $ 1,298
Charge-offs:
Commercial and industrial.. 7 1 104 114 22 641 529
Agricultural............... -- -- 22 130 -- -- --
Real estate mortgage....... 24 -- -- -- -- -- 6
Real estate construction... -- -- -- -- -- -- --
Consumer................... 8 -- 6 4 1 17 17
Lease financing............ -- -- 218 -- -- -- --
------------ ----------- ------------ ------------ ----------- ----------- -----------
Total charge-offs........ 39 1 350 248 23 658 552
------------ ----------- ------------ ------------ ----------- ----------- -----------
Recoveries:
Commercial and industrial.. 9 4 5 116 147 192 95
Agricultural............... -- 1 146 84 -- -- --
Real estate mortgage....... 1 -- 6 3 -- -- 5
Real estate construction... -- -- -- -- -- -- --
Consumer................... 1 -- -- 4 5 2 6
Lease financing............ -- -- -- -- -- -- --
------------ ----------- ------------ ------------ ----------- ----------- -----------
Total recoveries......... 11 5 157 207 152 194 106
------------ ----------- ------------ ------------ ----------- ----------- -----------
Net (charge-offs)
recoveries................. (28) 4 (193) (41) 129 (464) (446)
Provision for loan losses
charged to operations...... 170 84 739 168 179 89 236
Allowance attributable to
FMB........................ -- -- -- (100)(1) -- -- --
------------ ----------- ------------ ------------ ----------- ----------- -----------
Balance of allowance for loan
losses at end of period.... $ 1,736 $ 1,136 $ 1,594 $ 1,048 $ 1,021 $ 713 $ 1,088
------------ ----------- ------------ ------------ ----------- ----------- -----------
------------ ----------- ------------ ------------ ----------- ----------- -----------
Ratio of net (charge-offs)
recoveries to average
loans...................... (0.01)% 0.00% (0.11)% (0.03)% 0.13% (0.62)% (0.66)%
------------ ----------- ------------ ------------ ----------- ----------- -----------
------------ ----------- ------------ ------------ ----------- ----------- -----------
Average gross loans
outstanding during the
period..................... $ 204,931 $ 136,317 $ 171,780 $ 117,773 $ 98,749 $ 75,171 $ 67,265
------------ ----------- ------------ ------------ ----------- ----------- -----------
------------ ----------- ------------ ------------ ----------- ----------- -----------
</TABLE>

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

(1) In connection with the sale of FMB in October 1995, $100,000 of the
Company's allowance for loan and lease losses, together with approximately
$9.2 million of loans originated by FMB, was transferred to Community First
Bankshares, Inc.

Management regards the allowance for loan losses as a general reserve which
is available to absorb losses from all loans. However, for purposes of complying
with disclosure requirements of the Securities and Exchange Commission (the
"Commission"), the table below presents an allocation of the allowance for loan
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 loan losses
as shown in the table should neither be

30
<PAGE>
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.

<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
LOANS IN
CATEGORY
AS A
PERCENTAGE
AMOUNT OF TOTAL
OF GROSS
ALLOWANCE LOANS
---------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Commercial and
industrial........ $ 833 46%
Agricultural........ 159 10
Real estate
mortgage.......... 325 24
Real estate
construction...... 81 5
Consumer............ 95 9
Leasing............. 64 6
Unallocated......... 179 --
---------- ---
Total........... $ 1,736 100%
---------- ---
---------- ---

<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------

1996 1995 1994
----------------------- ----------------------- -----------------------
LOANS IN LOANS IN LOANS IN
CATEGORY CATEGORY CATEGORY
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
OF GROSS OF GROSS OF GROSS
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>

Commercial and
industrial........ $ 721 47% $ 355 35% $ 265 35%
Agricultural........ 176 10 318 15 395 20
Real estate
mortgage.......... 306 24 213 30 267 30
Real estate
construction...... 57 4 41 5 24 4
Consumer............ 97 9 58 8 52 8
Leasing............. 63 6 41 7 18 3
Unallocated......... 174 -- 22 -- -- --
---------- --- ---------- --- ---------- ---
Total........... $ 1,594 100% $ 1,048 100% $ 1,021 100%
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---
</TABLE>

DEPOSITS AND BORROWED FUNDS. BNC's core deposits consist of noninterest
bearing 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.

The following table sets forth the distribution of BNC's average deposit
account balances and average cost of funds rates on each category of deposits
for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, 1997 1996 1995
----------------------------------- --------------------------------- -----------------------------------
PERCENT WTD. PERCENT WTD. PERCENT WTD.
AVERAGE OF AVG. AVERAGE 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.... $ 45,840 18.79% 2.99% $ 38,920 18.29% 2.58% $ 38,941 23.01% 3.05%
Savings deposits..... 8,694 3.56 2.29 8,498 3.99 2.31 7,598 4.49 2.86
Time deposits
("CDs"):
CDs under $100,000... 128,123 52.52 5.60 124,682 58.61 5.66 93,983 55.53 5.81
CDs $100,000 and
over............... 41,962 17.20 5.70 25,499 11.99 5.82 15,486 9.15 6.08
--------- ----------- --------- ----------- --------- -----------
Total time
deposits........... 170,085 69.72 5.62 150,181 70.60 5.69 109,469 64.68 5.84
--------- ----------- --------- ----------- --------- -----------
Total interest-
bearing
deposits......... 224,619 92.07 4.96 197,599 92.88 4.93 156,008 92.18 5.00
Noninterest bearing
demand deposits.... 19,349 7.93 -- 15,147 7.12 -- 13,233 7.82 --
--------- ----------- --------- ----------- --------- -----------
Total deposits..... $ 243,968 100.00% 4.56% $ 212,746 100.00% 4.58% $ 169,241 100.0% 4.61%
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------

1994
---------------------------------
PERCENT WTD.
AVERAGE OF AVG.
BALANCE DEPOSITS RATE
--------- ----------- ---------
<S> <C> <C> <C>

Interest-bearing
demand deposits.... $ 36,423 31.58% 2.72%
Savings deposits..... 7,187 6.23 2.63
Time deposits
("CDs"):
CDs under $100,000... 50,259 43.58 4.53
CDs $100,000 and
over............... 9,523 8.26 5.12
--------- -----------
Total time
deposits........... 59,782 51.84 4.63
--------- -----------
Total interest-
bearing
deposits......... 103,392 89.65 3.81
Noninterest bearing
demand deposits.... 11,942 10.35 --
--------- -----------
Total deposits..... $ 115,334 100.00% 3.42%
--------- -----------
--------- -----------
</TABLE>

Average total deposits were $244.0 million for the first quarter of 1997, a
21% increase over the same period in 1996. Average total deposits increased
$43.5 million, or 26%, to $212.7 million for the year ended December 31, 1996,
as compared to $169.2 million for the year ended December 31, 1995. The average
total deposits of $169.2 million for 1995 represented an increase of $53.9
million, or 47%, as compared to the $115.3 million for 1994. In the first
quarter of 1997, average noninterest-bearing deposits totaled $19.3 million as
compared to $12.2 million for the same period in 1996. In 1996, average
noninterest-bearing

31
<PAGE>
deposits increased to $15.1 million as compared to $13.2 million and $11.9
million for 1995 and 1994, respectively. Total average interest-bearing deposits
totaled $224.6 million in the first quarter of 1997. Total average
interest-bearing deposits in 1996 of $197.6 million represented an increase of
$41.6 million, or 27%, as compared to the $156.0 million in 1995. The $156.0
million in 1995 represented an increase of $52.6 million, or 51%, as compared to
1994's $103.4 million. The 1995 branch acquisition and sale of FMB, coupled with
internal deposit growth, impacted the amount, composition and cost of BNC's
deposit portfolio. See "--Results of Operations--Net Interest Income."

Since 1994, earning asset growth has outpaced core deposit growth resulting
in the use of more brokered and out of market certificates of deposit and other
borrowed funds. As of March 31, 1997, BNC held a total of $15.8 million of
brokered certificates of deposit. Under current FDIC regulations, only
"well-capitalized" financial institutions may fund themselves with brokered
deposits without prior approval of regulators. BNC-North Dakota and
BNC-Minnesota were both well capitalized at March 31, 1997.

Time deposits in denominations of $100,000 and greater totaled $46.2 million
at March 31, 1997 as compared to $39.7 million, $16.6 million and $11.7 million
at December 31, 1996, 1995 and 1994, respectively. The following table sets
forth the amount and maturities of time deposits of $100,000 or more as of March
31, 1997:

<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(IN THOUSANDS)
<S> <C>
Time deposits of $100,000 and over with remaining maturity:
3 months or less............................................................ $ 24,183
Over 3 months through 6 months.............................................. 12,533
Over 6 months through 12 months............................................. 3,853
Over 12 months.............................................................. 5,633
-------
Total..................................................................... $ 46,202
-------
-------
</TABLE>

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 Federal Home Loan
Bank ("FHLB") borrowings. At March 31, 1997, short-term borrowings were $15.3
million or 5% of total liabilities as compared to $11.4 million or 4% of total
liabilities at December 31, 1996, $1.0 million or 1% of total liabilities at
December 31, 1995 and $7.4 million or 5% of total liabilities at December 31,
1994. Short-term borrowings averaged $14.5 million in 1996 as compared to $7.0
million and $6.0 million in 1995 and 1994, respectively.

The following table provides a summary of the Company's short-term
borrowings, including period end outstandings, average balances, maximum
borrowings and average borrowings outstanding and weighted average interest
rates for the periods presented:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED -------------------------------
MARCH 31, 1997 1996 1995 1994
------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Short-term borrowings outstanding at period end.............. $ 15,306 $ 11,437 $ 1,000 $ 7,360
Weighted average interest rate at period end................. 6.26% 5.60% 6.69% 4.35%
Maximum month-end balance during the period.................. $ 15,306 $ 23,416 $ 34,648 $ 8,952
Average borrowings outstanding for the period................ 11,346 14,532 7,029 6,033
Weighted average interest rate for the period................ 5.78% 5.60% 5.74% 3.15%
</TABLE>

32
<PAGE>

As of March 31, 1997, the Company's long-term debt included a $3.0 million
term loan from Firstar Bank Milwaukee, N.A., $8.3 million outstanding under the
Firstar Line of Credit and $111,000 attributable to a capital lease at BNC-North
Dakota (for the Company's mainframe computer). In addition, $185,000 was
outstanding under the Windsor Line of Credit. BNC was in compliance with all
related debt covenants as of the date of this Prospectus.

The Company's increased usage of long-term borrowings ($11.6 million at
March 31, 1997 as compared to $4.0 million and $3.4 million at March 31, 1996
and 1995, respectively) has been primarily for the purpose of funding the
asset-based lending at BNC Financial. As of March 31, 1997, BNC Financial had
outstanding loans of $6.5 million. Funding for increased loan growth will be
provided through borrowings under the Revolving Lines of Credit. See "Use of
Proceeds."

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. The risk based and
leverage capital ratios of BNC and the Banks as of March 31, 1997 and December
31, 1996 and 1995, are presented in Note 9 to the Company's Consolidated
Financial Statements included elsewhere herein.

As indicated under "Business--Properties," the Company's newly acquired
office building in Bismarck is currently undergoing remodeling. The initial cost
of the building was $525,000 and expected cost of remodeling is approximately
$250,000. Construction of a branch office in north Bismarck is expected to be
completed during 1997. Architects estimate the cost of this facility to
approximate $600,000. The cost of these two projects will be funded from current
operations.

LIQUIDITY

BNC actively manages its liquidity position to maintain sufficient funds to
respond to the needs of depositors and borrowers, as well as to take advantage
of earnings enhancement opportunities. 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. BNC-North Dakota is a member
of the FHLB, which affords the Bank the opportunity to borrow funds in terms
ranging from overnight to 10 years and beyond. Borrowings from the FHLB are
collateralized by the Bank's first mortgage residential loans and various
securities from the Company's investment portfolio.

In order to monitor its position, BNC's management measures its liquidity
position regularly. Key factors that determine the Company's liquidity are: the
reliability or stability of its deposit base; the maturity structure and the
pledged/nonpledged status of its investments; and potential loan demand. BNC's
liquidity management system divides the balance sheet into liquid assets,
illiquid assets, reliable funds, and volatile funds. The four variables and
other key factors such as expected loan demand, 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.

For the quarter ended March 31, 1997, operating activities provided cash
inflows of $940,000. During the same period, investing activities resulted in
net cash outflows of $17.3 million and included cash outflows of $7.2 million,
$2.8 million and $6.5 million for federal funds sold, investment transactions
and increases in loans, respectively. Net cash inflows from financing activities
were $18.4 million, $13.5 million from increases in deposits, and $4.9 million
from borrowing activities.

For the quarter ended March 31, 1996, operating activities resulted in net
cash outflows of $866,000. Investing activities resulted in net cash outflows of
$4.6 million, including primarily, net cash inflows from investment transactions
of $21.1 million offset by net cash outflows from increases in loans of $28.3
million.

33
<PAGE>
Financing activities resulted in net cash outflows of $175,000 for the first
quarter of 1996. Cash outflows from deposit decreases of $8.1 million was offset
by cash inflows from borrowing activities of $7.9 million.

Cash inflows from operating activities exceeded operating cash outflows by
$1.8 million in 1996, $2.6 million in 1995 and $3.4 million in 1994. Interest
received net of interest paid was the principal source of operating cash inflows
in each of these periods.

Net cash outflows from investing activities was $53.1 million in 1996 as
compared to $86.2 million in 1995 and $24.8 million in 1994. Loan growth
accounted for the majority of the cash outflows in 1996 at $82.7 million while
investment activities resulted in a net cash inflow of $34.9 million. Investment
activities was the largest component of cash outflow from investing activities
in 1995 as the Company invested the funds acquired in the 1995 branch
acquisition. The cash payment (outflow) for the acquisition was $5.4 million and
internal loan growth produced cash outflows of $20.3 million. These cash
outflows were offset somewhat by cash inflows of $16.2 million for loans and
investments and $3.8 million in sales proceeds associated with the FMB sale.
Growth in loans was the most significant source of cash outflows in 1994 at
$26.5 million.

Net cash inflows from financing activities were $46.4 million in 1996, as
compared to $89.4 million in 1995 and $21.5 million in 1994. In 1996, cash
inflows of $7.1 million and $21.6 million resulted from increases in
noninterest-bearing and low cost deposits and time deposits, respectively. Cash
inflows of $10.4 million and $9.9 million resulted from the net change in
short-term borrowings and proceeds from long-term borrowings, respectively. Cash
outflows due to repayments of long-term borrowings totaled $2.6 million. The
most significant cash inflow from financing activities in 1995 was the time
deposits of $86.6 million and the noninterest-bearing and low cost deposits of
$18.1 million acquired in the 1995 branch acquisition. Internal deposit growth
contributed $20.9 million of cash inflows while the initial public offering of
the Company's common stock, completed in July 1995, generated $9.7 million of
cash inflows. These cash inflows were offset by cash outflows of $6.4 million
from the net change in short-term borrowings and $39.3 million from the sale of
deposits in the FMB sale. Primary sources of cash inflow in 1994 were increases
in time deposits of $18.2 million, $5.1 million caused by the net change in
short-term borrowings and $1.5 million in proceeds from long-term borrowings.
These were offset by cash outflows of $2.4 million due to decreases in
noninterest-bearing and low cost deposits and $550,000 in repayments on
long-term debt.

ASSET/LIABILITY MANAGEMENT

The mismatch between maturities and interest rate sensitivities of assets
and liabilities results in interest rate risk. Rising and falling interest rate
environments can have various impacts on net interest income, depending on the
interest rate gap (I.E., the difference between the repricing of
interest-earning assets and interest-bearing liabilities), the relative changes
in interest rates that occur when various assets and liabilities reprice,
unscheduled repayments of loans and investments, early withdrawals of deposits
and other factors. As a general rule, banks with positive interest rate gaps are
more likely to be susceptible to declines in net interest income in periods of
falling interest rates, while banks with negative interest rate gaps are more
likely to experience declines in net interest income in periods of rising
interest rates. BNC's policy is to minimize interest rate risk within policy
guidelines by generally maintaining a position within a narrow range of an
"earnings neutral position," defined as the mix of assets and liabilities that
generates a net interest margin least affected by interest rate changes. At
March 31, 1997, BNC's cumulative interest rate gap for the period of less than
one year was negative 10.62%. Therefore, assuming no change in BNC's gap
position, a rise in interest rates is likely to result in decreased net interest
income, while a decline in interest rates is likely to result in increased net
interest income.

BNC's asset/liability management objectives are to manage, to the degree
possible, its exposure to interest rate risk over both a one year planning
period and a longer-term strategic period and, at the same time, provide a
stable and steadily increasing flow of net interest income. The Company's
primary

34
<PAGE>
measurement of interest rate risk is earnings at risk, which is determined
through computerized simulation modeling. The modeling estimates changes in net
interest income in response to increases or decreases in market interest rates.
The model uses the rates and maturities of the Company's existing
interest-earning assets and interest-bearing liabilities and revises each based
on how the market interest rates move and how the specific Company product would
respond to the rates. The structuring of the Company's balance sheet is
determined by ensuring that the earnings at risk do not exceed predetermined
maximum limits. The Company's policy requires that earnings at risk do not
exceed 10% for each 100 basis point increase or decrease in rates.

The Company also uses static gap analysis to monitor interest rate risk. A
static gap matrix is prepared reflecting repricing and maturity differences
between interest-earning assets and interest-bearing liabilities within specific
time periods. The Company's gap position (see chart below) is liability
sensitive in the short-term (0 to 12 months) and asset sensitive in the longer
term (over one year). Asset sensitive means net interest margin is impacted
positively during periods of rising interest rates and negatively during periods
of falling interest rates. Liability sensitive means net interest margin is
impacted negatively during periods of rising rates and positively during periods
of falling rates. During periods of rising or falling rates, the negative
impacts of rate changes are minimized through restructuring of the Company's
balance sheet. For example, in an asset sensitive position, management's
response to increases in interest rates is to extend funding to lengthen
liabilities and to modify product offerings to shorten asset maturities. In
other words, in expectation of rising rates, BNC's marketing and sales force
would emphasize floating rate loans, including home equity loans, adjustable
rate mortgages and variable rate commercial loans and longer term certificates
of deposit and demand deposits. In addition, wholesale funding such as funding
through the FHLB and/or brokered certificates of deposit would be extended in
term.

35
<PAGE>
The following table sets forth the estimated maturity or repricing, and the
resulting interest rate gap, of BNC's interest-earnings assets and
interest-bearing liabilities at March 31, 1997. Assets and liabilities are
classified by the earliest possible repricing date or maturity, whichever comes
first.

<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING AT MARCH 31, 1997
---------------------------------------------------------------
LESS THAN THREE MONTHS
THREE TO LESS ONE TO OVER
MONTHS THAN ONE YEAR FIVE YEARS FIVE YEARS TOTAL
---------- ------------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Cash equivalents.................................. $ 1,146 -- -- -- $ 1,146
Federal funds sold................................ 14,100 -- -- -- 14,100
Investment securities available for sale(1)....... 12,215 $ 10,727 $ 32,994 $ 6,017 61,953
Fixed rate loans(2)............................... 10,829 21,839 48,230 11,433 92,331
Floating rate loans(2)............................ 105,540 7,800 4,054 -- 117,394
---------- ------------- ----------- ----------- ----------
Total interest-earning assets................... $ 143,830 $ 40,366 $ 85,278 $ 17,450 $ 286,924
---------- ------------- ----------- ----------- ----------
---------- ------------- ----------- ----------- ----------
Interest-bearing liabilities(3):
NOW and money market accounts..................... $ 50,709 -- -- -- $ 50,709
Savings........................................... 8,549 -- -- -- 8,549
Time deposits under $100,000...................... 35,654 $ 54,504 $ 36,366 $ 2,214 128,738
Time deposits $100,000 and over................... 24,183 16,386 5,633 -- 46,202
Borrowings........................................ 25,717 1,185 -- -- 26,902
---------- ------------- ----------- ----------- ----------
Total interest-bearing liabilities.............. $ 144,812 $ 72,075 $ 41,999 $ 2,214 $ 261,100
---------- ------------- ----------- ----------- ----------
---------- ------------- ----------- ----------- ----------
Interest rate gap................................... $ (982) $ (31,709) $ 43,279 $ 15,236 $ 25,824
---------- ------------- ----------- ----------- ----------
---------- ------------- ----------- ----------- ----------
Cumulative interest rate gap at March 31, 1997...... $ (982) $ (32,691) $ 10,588 $ 25,824
---------- ------------- ----------- -----------
---------- ------------- ----------- -----------
Cumulative interest rate gap to total assets........ (3.19)% (10.62 )% 3.44% 8.39%
</TABLE>

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

(1) Investment securities are generally reported in the time frame representing
the earliest of the repricing date, the call date (for callable securities),
the estimated life or the 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 loan losses and are placed in
the earliest time frame in which maturity or repricing may occur.

(3) 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 has not
caused notable reductions in balances on the deposits.

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.

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

36
<PAGE>
inflation. Changes in interest rates, which are a major determinant of a
financial service organization's profitability, do not necessarily correspond to
changes in the prices of goods and services. An analysis of a banking
organization's asset and liability structure provides the best indication of how
the organization is positioned to respond to changing interest rates and
maintain profitability.

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

RECENTLY ISSUED ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), issued in February 1997 and effective January 1, 1998, supersedes
AICPA Accounting Principles Board Opinion No. 15, "Earnings per Share" ("APB
15") and other related accounting pronouncements and interpretations, and
specifies new computation, presentation and disclosure requirements for earnings
per share. Adoption of this standard is not expected to have a material effect
on the calculation of BNC's earnings per share.

Statement of Financial Accounting Standards No. 129, "Disclosure of
Information About Capital Structure" ("SFAS 129"), also issued in February 1997
and effective January 1, 1998, summarizes disclosure requirements pertaining to
an entity's capital structure. SFAS 129 is a compilation of several previously
issued standards and pronouncements, therefore, adoption of this standard is not
expected to have a material effect on BNC's consolidated financial statements.

37
<PAGE>
BUSINESS

GENERAL

The Company is a bank holding company headquartered in Bismarck, North
Dakota, which provides a broad range of banking and financial services to small
and mid-size businesses and to individuals through its nine full service banking
facilities in North Dakota and Minnesota. BNC operates primarily through its two
commercial banking subsidiaries, BNC-North Dakota, which is headquartered in
Bismarck and has seven additional branches in North Dakota, and BNC-Minnesota,
located in Minneapolis, Minnesota. In addition, the Company provides asset-based
commercial financing through its non-bank subsidiary, BNC Financial, located in
St. Cloud, Minnesota.

GROWTH STRATEGY

Due to its focus on customer service and local relationship banking with
small and mid-size businesses and individuals, BNC has experienced significant
growth. See "--Market Area." Management believes that the Company's
entrepreneurial approach to banking and the introduction of new products and
services will continue to attract small and mid-size businesses which often are
not of sufficient size to be of interest to the larger banks in its market
areas. Small and mid-size businesses and individuals frequently have difficulty
finding banking services that meet their specific needs and have sought, and
management believes will continue to seek, banking institutions that are more
relationship-oriented. BNC offers an increasing number of banking and
finance-related products and services, including trust services, asset
management, retirement planning, tax planning and preparation, insurance and
other private banking services. See "--Products and Services."

MARKET AREA

BNC's primary market areas are the Bismarck/Mandan (North Dakota)
metropolitan area, the Minneapolis/St. Paul (Minnesota) metropolitan area, and
the rural communities surrounding the branch offices of BNC-North Dakota
(Linton, Ellendale, Garrison, Stanley, Kenmare, Crosby and Watford City, North
Dakota). The asset-based lending activities of BNC Financial have been conducted
primarily in Minnesota. A substantial majority of the Company's total
consolidated net loans are attributable to customers located in western North
Dakota, although in 1996, BNC-Minnesota experienced significant loan growth in
the Minneapolis/St. Paul market area. Generally, each branch draws most of its
deposits

38
<PAGE>
from its general market area. The following table presents certain information
about each of BNC's locations:

<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
YEAR OPENED TOTAL
BANK LOCATION OR ACQUIRED DEPOSITS GROSS LOANS
- ------------------------------------------ ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BNC-North Dakota:
Bismarck................................ 1990 $ 80,748 $ 150,333
Linton.................................. 1987 47,289 10,428
Ellendale............................... 1995 12,494 907
Garrison................................ 1995 14,838 460
Stanley................................. 1995 15,408 373
Kenmare................................. 1995 17,806 527
Crosby.................................. 1995 18,904 163
Watford City............................ 1995 15,353 139
BNC-Minnesota............................. 1996 30,460 39,401
BNC Financial............................. 1996 -- 6,519
BNCCORP (parent company).................. 1987 -- 475
------------- -----------
Total................................. $ 253,300 $ 209,725
------------- -----------
------------- -----------
</TABLE>

PRODUCTS AND SERVICES

LOANS. The Company's loans primarily consist of commercial and industrial
loans, agricultural loans, real estate mortgage loans, real estate construction
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 a description of the types of lending activities engaged in by the Company,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition."

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
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. As of March 31, 1997,
approximately 56% of the loans in BNC's portfolio had interest rates that float
with BNC's base rate or some other reference rate.

The Company also offers asset-based commercial financing through BNC
Financial, the Company's non-bank subsidiary which was acquired in 1996. BNC
Financial provides asset-based working capital and term financing to small and
mid-size companies for refinancings, recapitalizations, acquisitions and
seasonal borrowing through senior loans secured by business assets such as
equipment, accounts receivable and inventory. Revolving credit facilities and
term loans are cross-collateralized. Management of BNC Financial is experienced
in this type of lending and has adopted policies and procedures to address the
risks associated with this type of lending. Asset-based lending often involves
higher risk than loans traditionally extended by banks, but often involves
higher returns.

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. Deposits are insured by
the FDIC up to statutory limits. The Banks also purchase brokered deposits from
time to time when such transactions are beneficial to the Banks. See
"Management's

39
<PAGE>
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Deposits and Borrowed Funds."

TRUST, PERSONAL BANKING, INVESTMENT AND INSURANCE PRODUCTS. Since January
1997, BNC-North Dakota's newly established Financial Services division has been
providing a wide array of trust, personal banking, investment and insurance
services for corporations and individuals. Management believes the introduction
of these new services enhances BNC's ability to meet the banking and financial
needs of its current customer base and establish new customer relationships in
its markets. The new division provides services ranging from fiduciary and
personal trust services to tax planning and preparation, payroll processing,
financial planning, retirement planning, employee stock option plans, employee
benefit plans, individual retirement accounts ("IRAs"), including custodial
self-directed IRAs, asset preservation, charitable giving and related services.
Management views the establishment of this new division as an opportunity to
solidify customer relationships by enhancing BNC's ability to identify and meet
a wide variety of customer financial needs.

CONSULTING SERVICES. In addition to its asset-based lending program, BNC
Financial manages a consulting services division which provides a number of
services including pre-funding due diligence, collateral review, problem loan
consulting, bankruptcy support and asset valuation.

INVESTMENT PORTFOLIO. The purpose of the Company's investment portfolio is
to provide a source of earnings and, secondarily, to manage liquidity.
Investments are centrally managed in order to aid in compliance with federal
laws and regulations, which place certain restrictions on the amounts and types
of investments BNC may hold. BNC maintains, through the President of BNC-North
Dakota, an investment grade portfolio oriented toward U.S. Treasury securities,
U.S. government agency securities and a small amount of investment grade
obligations of state and political subdivisions. In managing its interest rate
exposure, the Company also invests in mortgage-backed securities and floating
rate collateralized mortgage obligations. Investment securities totaled $62.0
million as of March 31, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition--Investment
Securities."

COMPETITION

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

40
<PAGE>
PROPERTIES

The principal offices of BNC and BNC-North Dakota are located in BNC's main
office building at 322 East Main, Bismarck, North Dakota. The building is owned
by BNC-North Dakota. BNC-North Dakota also owns a branch office located at 219
South 3rd Street in Bismarck. In early 1997, the Company purchased an office
building at 116 North 4th Street in Bismarck, approximately one half block from
the principal office building. Certain bank and holding company departments will
be housed at this facility upon expected completion of remodeling during the
second quarter of 1997. BNC also owns its banking facilities at Linton, Crosby,
Ellendale, Kenmare and Stanley, North Dakota.

Facilities in Garrison and Watford City, North Dakota and additional
facilities in Bismarck are leased. The Garrison and Watford City leases expire
in June 2000 and April 1998, respectively. Office facilities in Bismarck are
being leased on a month to month basis pending completion of remodeling at the
4th Street location in Bismarck. The land at BNC-North Dakota's branch office on
South 3rd Street is also leased. This lease expires in 2006.

The Company also leases the facilities occupied by BNC-Minnesota at 333
South Seventh Street, Minneapolis, Minnesota. Leases on this property expire in
June 2001. Facilities housing BNC Financial at 4150 South 2nd Street, St. Cloud,
Minnesota are leased. The lease on this property expires in April 2002.

BNC owns land in north Bismarck and intends to construct a branch office for
BNC-North Dakota on this location during 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial
Condition--Capital Resources and Expenditures."

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.

LEGAL PROCEEDINGS

BNC 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.

EMPLOYEES

At March 31, 1997, BNC had approximately 132 employees, including 118
full-time employees. None of BNC's employees is covered by a collective
bargaining agreement and management believes that its relationship with its
employees is good.

41
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information, as of April 1, 1997,
with respect to BNC's directors and executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Tracy J. Scott............................... 49 Chairman of the Board, Chief Executive Officer and
Director

Gregory K. Cleveland......................... 49 President, Chief Financial Officer and Director

John A. Malmberg............................. 52 President of BNC-North Dakota and Director

Thomas J. Resch.............................. 50 President and Chief Executive Officer of
BNC-Minnesota and Director

Brad J. Scott................................ 38 Executive Vice President of Corporate
Finance--BNC-North Dakota and Director

Jeffrey A. Reed.............................. 42 President and Chief Executive Officer of BNC
Financial

Brenda L. Rebel.............................. 38 Vice President--Corporate Controller

John A. Hipp, M.D............................ 50 Director

Richard M. Johnsen, Jr....................... 52 Director

John M. Shaffer.............................. 50 Director

Jerry R. Woodcox............................. 54 Director
</TABLE>

There are no family relationships among any of the directors and executive
officers of BNC.

TRACY J. SCOTT has served as Chairman of the Board, Chief Executive Officer
and a director of BNC since he and Gregory K. Cleveland founded the Company in
1987. He served as the President of BNC-North Dakota from September 1990 to
March 1993. Mr. Scott also served as the President of FMB from 1985 to 1990 and
as a loan officer of FMB from 1982 to 1985. Prior to 1982, Mr. Scott, a
certified public accountant, practiced accounting at an accounting firm that he
established in 1972. He was previously employed by Arthur Young and Co. from
1969 to 1972. Mr. Scott holds a B.S. in business administration with a minor in
accounting from Dickinson State College.

GREGORY K. CLEVELAND has served as an officer and director of BNC since its
inception in 1987. He has served as Chief Financial Officer of BNC since
February 1994 and as President of BNC since March 1995. From 1978 to 1996, Mr.
Cleveland, a certified public accountant, was a partner of Gregory K. Cleveland
& Company, an accounting firm which he established that was acquired by the
Company in December 1996. See "Certain Transactions." From 1974 to 1977, Mr.
Cleveland served as Vice President--Taxation for First & Merchants Corporation,
a bank holding company in Virginia that was the predecessor of Sovran Bank
Corporation. Prior to that time, Mr. Cleveland was employed by Arthur Andersen
LLP from 1970 to 1974. He holds a B.S. in business administration with a major
in accounting from the University of North Dakota.

JOHN A. MALMBERG has served as President of BNC-North Dakota and a director
since April 1993. Mr. Malmberg has over 20 years of experience in the banking
industry. He served as Executive Vice President and Chief Operating Officer of
the Bank of North Dakota from February 1989 to December 1992 at which time he
became Acting President and Chief Executive Officer, a position he held until

42
<PAGE>
April 1993. From 1977 to 1989, Mr. Malmberg served in various capacities for
First American National Bank, Wausau, Wisconsin, including a broad range of
senior managerial positions. He also served as a Trust Officer for American
National Bank, St. Paul, Minnesota from 1973 to 1977. Mr. Malmberg holds a B.S.
degree from the University of Minnesota and an M.B.A. from Golden Gate
University, San Francisco and is a graduate of the Stonier Graduate School of
Banking, Rutgers University.

THOMAS J. RESCH became President and Chief Executive Officer of
BNC-Minnesota in January 1996 and has been a director of BNC since June 1995.
From June 1995 to January 1996, he served as Senior Vice President--Loan
Production of BNC-North Dakota. Mr. Resch has over 20 years of experience in the
banking industry. He served as Vice President at National City Bank of
Minneapolis from March 1989 to May 1995 and as Department Manager of the
Business Banking division. From 1985 to 1989, Mr. Resch served as Vice President
of Midwest Federal and as Manager of the St. Paul Corporate Banking division.
From 1984 to 1985 he served as Vice President of United Financial Savings Bank.
Mr. Resch served in various capacities for American National Bank of St. Paul
from 1972 to 1984, including Managing Vice President of Commercial Lending. He
holds a B.S. degree from the University of Minnesota and is a graduate of the
Stonier Graduate School of Banking, Rutgers University.

BRAD J. SCOTT has served as BNC-North Dakota's Executive Vice President of
Corporate Finance since January 1997. He served as BNC's Chief Credit Officer
between July 1992 and January 1997 and has been a director since January 1993.
He joined BNC in January 1991 as the Senior Vice President of Commercial Lending
at BNC-North Dakota. Mr. Scott previously worked with the Bismarck branch of
First Bank, N.A. where he served as a Vice President in the Commercial Loan
Department from November 1986 to December 1990 and as Agricultural Loan Manager
from 1984 to 1986. He also served as a loan officer for Norwest Bank in
Marshall, Minnesota from 1981 to 1984. Mr. Scott holds an A.S. degree in
agricultural business from Bismarck State College and a B.S. degree in
agricultural economics from North Dakota State University.

JEFFREY A. REED became President and Chief Executive Officer of BNC
Financial in May 1996. Mr. Reed has been involved in the banking/commercial
finance industry since 1978. From March 1995 to April 1996, Mr. Reed served as
President of Cambridge Bank Professionals, LLC, a bank credit consulting firm
whose assets were acquired by BNC Financial in May 1996. See "Certain
Transactions." He served as Vice President and Manager of the Special
Loans/Collateral Audit Division at National City Bank of Minneapolis from
December 1991 to February 1995. From January 1989 to December 1991, Mr. Reed was
a self-employed consultant to commercial banks in the area of problem loan
management. Mr. Reed served as a Manager of the Business Investigations Service
Unit and Specialized Lender Services Unit during his employment with Coopers &
Lybrand LLP from October 1987 to January 1989. From November 1985 to October
1987, he served as Vice President and Team Leader, Special Loans Division of
Norwest Bank, Minneapolis. Mr. Reed also held positions with Barclays American
Corporation (Commercial Loan Officer, Manager of Work-Out Department) and
Norwest Business Credit, Inc. (Assistant Vice President and Audit Manager.) Mr.
Reed holds a B.S. degree from Bemidji State University.

BRENDA L. REBEL, a certified public accountant, has served as Vice
President--Corporate Controller since August 1995. She served as Vice
President--Regulatory Compliance from June 1991 to July 1995. From January 1990
to May 1991, she served as Financial Reporting Manager of Comprecare Health Care
Services, Inc., Aurora, Colorado. From 1988 to 1990, Ms. Rebel was employed by
Arthur Andersen LLP, Denver, Colorado. She holds a B.S. degree in social and
behavioral sciences from the University of Mary and a Master of Accountancy from
the University of North Dakota.

JOHN A. HIPP, M.D., who has been a director since 1988, has practiced
medicine in Bismarck since 1980 as a principal in Pathology Consultants, a
professional corporation specializing in medical laboratory and computer
consulting services. Dr. Hipp is board certified in anatomic and clinical
pathology by the American Board of Pathology. He holds a B.A. in history and
natural science and a B.S. in medicine from

43
<PAGE>
the University of North Dakota. Dr. Hipp earned his M.D., C.M. degree from the
Faculty of Medicine, McGill University.

RICHARD M. JOHNSEN, JR., who has been a director since June 1995, has served
since 1979 as Chairman of the Board and Chief Executive Officer of Johnsen
Trailer Sales, Inc., which sells and services trailers in Bismarck and Fargo,
North Dakota. Since 1990, Mr. Johnsen has also been a partner in Johnsen Real
Estate Partnership, which owns and operates rental property in Bismarck and
Fargo, North Dakota. He holds a B.S. degree in management from the University of
North Dakota.

JOHN M. SHAFFER, who has been a director since June 1995, has served as
President of Atlas, Inc., a ready-mix concrete producer and concrete
construction company based in Bismarck, North Dakota. Since 1979, Mr. Shaffer
has also been a partner in Capital Investments, which invests in property and
equipment in North Dakota. He attended Bismarck Junior College for 1 1/2 years
and Dickinson State College for 1 1/2 years.

JERRY R. WOODCOX, who has been a director since June 1995, has served since
1970 as President of Arrowhead Cleaners and Laundry, Inc., a laundry and dry
cleaning services business operating in Bismarck, North Dakota. He holds a B.S.
degree in industrial engineering from North Dakota State University.

DIRECTOR COMPENSATION

Each director who is not an employee of BNC is paid a director's fee of
$7,200 per year and fees of $500 for each committee meeting attended. Directors
are reimbursed for expenses incurred in attending board and committee meetings.

COMMITTEES

BNC's Board of Directors has an Executive Committee, Audit Committee and
Compensation Committee. The members of the Executive Committee are directors
Tracy J. Scott (Chairperson), Gregory K. Cleveland, Brad J. Scott, John A.
Malmberg and Thomas J. Resch as well as Michael Miller, the Executive Vice
President of Lending at BNC-North Dakota. The Executive Committee is authorized
to exercise all powers of the Board of Directors to the extent permitted by
Delaware law. All actions taken by the Executive Committee are submitted to the
full Board of Directors for ratification.

The Audit Committee, on which Messrs. Johnsen and Shaffer serve, is
responsible for (i) making recommendations to the Board of Directors concerning
the engagement of independent public accountants, (ii) consulting with the
independent public accountants with regard to the plan of audit, (iii)
consulting directly with BNC's Chief Financial Officer on any matter that the
Audit Committee or the Chief Financial Officer deems appropriate in connection
with carrying out the audit, (iv) reviewing the results of audits of BNC by its
independent public accountants and certain regulatory agencies, (v) discussing
audit recommendations with management and reporting results of its reviews to
the Board of Directors, (vi) reviewing all related party transactions and all
other potential conflict of interests situations, and (vii) performing such
other functions as may be prescribed by the Board of Directors.

The Compensation Committee is responsible for administering BNC's 1995 Stock
Incentive Plan and Incentive Bonus Plan and performing such other functions as
may be prescribed by the Board of Directors. The current members of the
Compensation Committee are Messrs. Hipp and Woodcox.

EXECUTIVE COMPENSATION

The following table summarizes the compensation that BNC paid to its chief
executive officer and each of its four most highly compensated executive
officers (the "Named Executive Officers") for each of the years ended December
31, 1996, 1995 and 1994.

44
<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------------------
---------------------------------------- RESTRICTED SECURITIES
NAME AND ALL OTHER STOCK UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS
- ---------------------------------------- --------- ---------- --------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tracy J. Scott,......................... 1996 $ 178,000 -- $ 6,247 -- --
Chairman of the Board and 1995 156,000 -- 4,902 $ 75,080 6,034
Chief Executive Officer 1994 156,000 $ 24,305 5,205 -- --

Gregory K. Cleveland,................... 1996 150,000 -- 5,997 -- --
President and Chief Financial 1995 128,000 -- 4,235 72,570 5,657
Officer 1994 128,000 19,942 4,432 -- --

John A. Malmberg,....................... 1996 140,000 -- 5,047 -- --
President of BNC-North Dakota 1995 140,000 -- 5,022 -- 3,226
1994 140,000 20,054 2,954 -- --

Thomas J. Resch,........................ 1996 123,333 -- 5,047 -- --
President and Chief Executive 1995 58,333 30,000 117 -- 3,226
Officer of BNC-Minnesota(3)

Brad J. Scott,.......................... 1996 120,000 -- 5,043 -- --
Executive Vice President of 1995 100,000 27,750 5,006 25,330 3,813
Corporate Finance of BNC-North Dakota 1994 72,000 148,720 5,171 -- --
</TABLE>

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

(1) Comprised of (i) the Company's matching contributions to the Company's
401(k) Plan in the following amounts: Mr. T. Scott ($4,750 in 1996, $4,500
in 1995 and $4,701 in 1994), Mr. Cleveland ($4,500 in 1996, $3,840 in 1995
and $3,928 in 1994), Mr. B. Scott ($4,750 in 1996, $4,620 in 1995 and $4,840
in 1994), Mr. Malmberg ($4,750 in 1996, $4,620 in 1995 and $2,450 in 1994)
and Mr. Resch ($4,750 in 1996); and (ii) premium payments in the following
amounts for life insurance policies providing death benefits to the
executive officers' beneficiaries: Mr. T. Scott ($1,497 in 1996, $402 in
1995 and $504 in 1994), Mr. Cleveland ($1,497 in 1996, $395 in 1995 and $504
in 1994), Mr. B. Scott ($293 in 1996, $386 in 1995 and $331 in 1994), Mr.
Malmberg ($297 in 1996, $402 in 1995 and $504 in 1994) and Mr. Resch ($297
in 1996 and $117 in 1995).

(2) As of December 31, 1996, the Company had outstanding a total of 20,000
restricted shares valued at $250,000 (based on the fair market value of the
Company's Common Stock at December 31, 1996 of $12.50 per share). The
restricted shares will vest in 33 1/3% increments on July 10, 1998, 1999 and
2000. The Company does not plan to pay dividends on its restricted shares.

(3) Mr. Resch joined the Company in June 1995.

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

OPTIONS

There were no stock options granted during the year ended December 31, 1996
to the Named Executive Officers. The number and value of unexercised stock
options held by the Named Executive Officers at December 31, 1996 is set forth
in the following table. No stock options were exercised during the year ended
December 31, 1996.

45
<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
------------------------------ --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------ ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Tracy J. Scott.................................. 2,414 3,620 $ 6,035 $ 9,050

Greg K. Cleveland............................... 2,263 3,394 5,658 8,485

John A. Malmberg................................ 1,290 1,936 3,225 4,840

Thomas J. Resch................................. 1,290 1,936 3,225 4,840

Brad J. Scott................................... 1,525 2,288 3,813 5,720
</TABLE>

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

(1) The value of unexercised, in-the-money options is calculated as the excess
of the market value of Common Stock at December 31, 1996 ($12.50) over the
option price. The values of unexercised in-the-money stock options at
December 31, 1996 shown above are presented pursuant to the rules of the
Commission. The actual amount, if any, realized upon exercise of stock
options will depend upon the market value of the Common Stock relative to
the exercise price per share of Common Stock of the stock option at the time
the stock option is exercised.

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

STOCK INCENTIVE PLAN

In 1995, BNC adopted the 1995 Stock Incentive Plan (the "Stock Plan") to
provide long-term incentives to its key employees, including officers and
directors who are employees of BNC (the "Eligible Employees"). Under the Stock
Plan, which is administered by the Compensation Committee of the Board (the
"Committee"), BNC may grant Eligible Employees incentive stock options,
non-qualified stock options, restricted stock, stock awards or any combination
thereof (the "Incentives"). 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.

A total of 250,000 shares of Common Stock are available for issuance under
the Stock Plan. Incentives with respect to no more than 50,000 shares of Common
Stock may be granted to any single Eligible Employee in one calendar year.
Proportionate adjustments will be made to the number of shares of Common Stock
subject to the Stock Plan, including the shares subject to outstanding
Incentives, in the event of any recapitalization, stock dividend, stock split,
combination of shares or other change in the Common Stock. In the event of such
adjustments, the purchase price of any outstanding option will be adjusted as
and to the extent appropriate, in the reasonable discretion of the Committee, to
provide participants with the same relative rights before and after such
adjustment.

All outstanding Incentives will automatically become exercisable and fully
vested and all performance criteria will be deemed to be waived by the Company
upon (a) a reorganization, merger or consolidation of BNC in which BNC is not
the surviving entity, (b) the sale of all or substantially all of the assets of
BNC, (c) a liquidation or dissolution of BNC, (d) a person or group of persons,
other than any employee benefit plan of BNC, becoming the beneficial owner of
30% or more of BNC's voting stock or (e) the replacement of a majority of BNC's
Board in a contested election (a "Significant Transaction"). The Committee also
has the authority to take several actions regarding outstanding Incentives upon
the occurrence of a Significant Transaction, including requiring that
outstanding options remain exercisable only for a limited time, providing for
mandatory conversion of outstanding options in exchange for either a cash
payment or Common Stock, making equitable adjustments to Incentives or providing
that outstanding options will become options relating to securities to which a
participant would have been entitled in connection with the Significant
Transaction if the options had been exercised.

46
<PAGE>
INCENTIVE BONUS PLAN

In 1995, BNC adopted an Incentive Bonus Plan (the "Incentive Plan") to
provide annual incentive cash bonuses to BNC's employees. Under the Incentive
Plan, which is administered solely by the Committee, each full-time employee of
BNC other than loan officers is eligible to receive a cash bonus based on a
percentage of his or her annual salary to be calculated according to a formula
based on elements of the Company's performance during the annual performance
period. Officers designated by the Committee are eligible to receive an
additional annual cash bonus based on a percentage of his or her annual salary
according to a formula based on an increase in the Company's stock price during
the annual performance period.

EMPLOYMENT AGREEMENTS

BNC and each of Messrs. T. Scott, Cleveland, B. Scott and Resch (the
"Executives") have entered into an employment agreement that provides for
minimum annual salaries of $156,000, $128,000, $120,000, and $140,000,
respectively, throughout the term of the agreement, and an annual incentive
bonus as may from time to time be fixed by the Committee. In addition, Mr. Resch
received a $30,000 bonus upon entering into his agreement. Under the agreements,
the Executives will also be provided with benefits under any employee benefit
plan maintained by BNC for its employees generally, or for its senior executive
officers in particular, on the same terms as are applicable to other senior
executives of BNC. The term of the employment agreements will continue until
June 1, 1998, unless earlier terminated as described below. Thereafter, the
employment agreements automatically renew for consecutive one year terms unless
either party terminates the agreement on 90 days' prior notice.

Each employment agreement provides for the termination of the Executive's
employment (i) upon the Executive's death; (ii) by the Company upon the
Executive's disability; (iii) by the Company for cause which includes willful
and continuing failure to perform the Executive's duties, conviction of a felony
or willful engaging in gross misconduct injurious to the Company; provided,
however, that prior to termination, three-fourths of the entire Board of
Directors, not including the Executive, must find that the Executive was guilty
of such conduct; (iv) by the Executive for good reason, which includes changing
the Executive's current position with the Company or diminishing the duties,
responsibilities or position of the Executive; (v) by either the Company or the
Executive for a material breach not cured within thirty days; or (vi) upon the
occurrence of a "change in control" of BNC. Under the agreement, a "change in
control" occurs if (a) any person or group of persons (other than an employee
benefit plan of BNC) acquires the beneficial ownership of 30% or more of BNC's
Common Stock, excluding certain acquisitions approved by BNC's Board of
Directors, or (b) a majority of BNC's Board is replaced within any two year
period by directors not approved by two-thirds of the Board. If the Executive
terminates his employment with BNC for other than good reason, the Executive
will be prohibited from competing with BNC for a two year period following such
termination.

Upon termination due to death or disability, the Company will pay the
Executive, all compensation owing through the date of termination, plus any
deferred compensation and accrued vacation (the "Accrued Obligations") and
benefits ("Other Benefits"), reduced by the amount of any disability benefits
received, if applicable. Upon termination by the Company for cause or for
termination by the Executive for other than good reason, the Executive will be
entitled to all compensation owing through the date of termination and Other
Benefits. Upon termination by the Executive for good reason, due to a change in
control or due to a breach of the agreement by the Company, the Executive is
entitled to all compensation owing through the date of termination plus three
times his current compensation and benefits, office space, secretarial
assistance and other facilities and services for a period of three years.

47
<PAGE>
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION

In accordance with the Delaware General Corporation Law, BNC's Certificate
of Incorporation (the "Certificate") contains provisions eliminating the
personal liability of the directors to BNC and its stockholders for monetary
damages for breaches of their fiduciary duties as directors to the fullest
extent permitted by Delaware law. By virtue of these provisions, under current
Delaware law a director of BNC will not be personally liable for monetary
damages for breach of his or her fiduciary duty except for liability for (a)
breach of his or her duty of loyalty to BNC or to its stockholders, (b) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (c) dividends or stock repurchases or redemptions that are
unlawful under Delaware law, and (d) any transaction from which he or she
receives an improper personal benefit. In addition, the Certificate provides
that if Delaware law is amended to authorize the further elimination or
limitation of the liability of a director, then the liability of the directors
shall be eliminated or limited to the fullest extent permitted by Delaware law,
as amended. These provisions pertain only to breaches of duty by directors as
directors and not in any other corporate capacity, such as officers, and limit
liability only for breaches of fiduciary duties under Delaware corporate law and
not for violations of other laws such as the federal securities laws.

BNC's Bylaws require BNC to indemnify its officers and directors against
expenses and costs, judgments, settlements and fines incurred in the defense of
any claim, including any claim brought by or in the right of BNC, to which they
were made parties by reason of being or having been officers or directors.

In addition, each of BNC's directors has entered into an indemnity agreement
that provides that BNC will indemnify the directors against any costs and
expenses, judgments, settlements and fines incurred in connection with any claim
involving a director by reason of his position as a director; provided that the
director meets certain standards of conduct for claims that (i) have been
successfully defended or (ii) two impartial directors have determined that, with
respect to the conduct giving rise to such claim, the officer or director acted
in good faith. No indemnification may be made, however, for claims in which the
officer or director has been adjudicated in a final judgment to be liable to BNC
except to the extent that the court finds indemnification to be proper.

Insofar as indemnification for liabilities arising under the Securities Act
of 1993, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of BNC pursuant to the foregoing provisions, or
otherwise, BNC has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

48
<PAGE>
CERTAIN TRANSACTIONS

In January 1997, BNC-North Dakota acquired all of the outstanding common
stock of the J.D. Meier Insurance Agency (the "Agency"). Each of Messrs. T.
Scott, Cleveland and David A. Erickson, a 5% stockholder of the Company, owned
25% of the common stock in the Agency. The purchase price was determined by an
independent appraisal resulting in an approximate total purchase price for
Messrs. T. Scott, Cleveland and Erickson's shares of $26,000. The Agency is
currently operating as a subsidiary of BNC-North Dakota as a general insurance
agency.

In December 1996, BNC-North Dakota acquired the accounting firm of Gregory
K. Cleveland & Co., Bismarck, North Dakota (the "Accounting Firm"). The
Accounting Firm was owned by Mr. Cleveland. The purchase price for the
Accounting Firm was approximately $368,000 and was determined by an independent
appraisal. Employees of the Accounting Firm now staff the newly established
trust and private banking division of BNC-North Dakota.

In May 1996, the Company, through BNC Financial, acquired for $85,000 the
assets of Cambridge Bank Professionals, LLC, a bank credit consulting firm in
part owned by Jeffrey A. Reed, who became an executive officer of the Company
after the acquisition. These assets now are used in the operations of BNC
Financial.

In October 1995, the Company sold FMB to Community First Bankshares, Inc.
Messrs T. Scott, Cleveland and Erickson beneficially owned 113, 112 and 50
shares of common stock of FMB, respectively, which represented 2.83%, 2.80% and
1.25% of the outstanding shares of common stock of FMB, respectively. Messrs.
Scott, Cleveland and Erickson received $121,475, $120,400 and $53,750,
respectively, in the sale of FMB.

The executive officers, directors and principal stockholders of BNC and
members of their immediate families and businesses in which they hold
controlling interests are customers of the Banks, and it is anticipated that
such parties will continue to be customers of the Banks in the future. All
outstanding loans and extensions of credit by the Banks to these parties were
made in the ordinary course of business in accordance with applicable laws and
regulations and on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other unaffiliated persons, and in the opinion of management do not involve more
than the normal risk of collectibility or present other unfavorable features. At
March 31, 1997, the aggregate balance of the Banks' loans and advances under
existing lines of credit to these parties was approximately $397,000 or 0.20% of
the Banks' total loans.

49
<PAGE>
SUPERVISION AND REGULATION

BNC 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 BNC. The following information summarizes certain material
statutes and regulations affecting BNC 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 BNC 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.

BNC

GENERAL. BNC is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended ("BHCA"), and is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System ("FRB"). The BHCA and other federal laws subject bank holding companies
to particular restrictions on the types of activities in which they may engage,
and to a range of supervisory requirements and activities, including regulatory
enforcement actions for violations of laws and regulations. The Company is
required to file quarterly and annual reports with the FRB, and such additional
information as the FRB may require pursuant to the BHCA. The FRB may examine BNC
or any of its subsidiaries, and charge BNC for the cost of such an examination.

ACQUISITIONS. As a bank holding company, BNC is required to obtain the
prior approval of the FRB before acquiring control of more than 5% of the voting
shares or substantially all the assets of another bank holding company or
merging with another bank holding company. In reviewing acquisition
applications, the FRB considers the competitive effects of the proposed
transaction, and managerial, financial, capital and other factors, including the
record of performance of the applicant and the bank or banks to be acquired
under the Community Reinvestment Act of 1977 ("CRA"). See "--The
Banks--Community Reinvestment Act."

PERMISSIBLE ACTIVITIES. A bank holding company may not engage in, or
acquire direct or indirect control of more than 5% of the voting shares of any
company engaged in a non-banking activity, unless such activity has been
determined by the FRB to be closely related to banking or managing banks. The
FRB has identified certain non-banking activities in which a bank holding
company may engage without notice or prior approval by the FRB, such as making
or servicing loans and certain types of leases, engaging in certain insurance
and discount brokerage activities, performing certain data processing services,
acting as a fiduciary or investment or financial advisor in certain
circumstances, and making investments in certain corporations or projects
designed primarily to promote community welfare.

SAFE AND SOUND BANKING PRACTICES. Activities and operations of bank holding
companies are generally subject to FRB review for unsafe and unsound banking
practices. Pursuant to such authority, the FRB may require a bank holding
company to seek FRB approval before the bank holding company may take certain
actions and cause a bank holding company to take certain steps to prevent unsafe
and unsound banking practices, such as requiring a bank holding company to make
funds available to its banking subsidiaries if the FRB believes it prudent to do
so.

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.

CAPITAL ADEQUACY. The FRB monitors on a consolidated basis the capital
adequacy of bank holding companies by using a combination of risk-based and
leverage ratios. Failure to meet the capital guidelines may result in
supervisory or enforcement actions by the FRB. Under the risk-based capital
guidelines, different categories of assets are assigned different risk weights,
based generally on the perceived credit

50
<PAGE>
risk of the asset. These risk weights are multiplied by corresponding asset
balances to determine a "risk-weighted" asset base. For purposes of the
risk-based capital guidelines, total capital is defined as the sum of "Tier 1"
and "Tier 2" capital elements, with Tier 2 capital being limited to 100% of Tier
1 capital. Tier 1 capital includes, with certain restrictions, common stock,
retained earnings, perpetual preferred stock (no more than 25% of Tier 1 capital
being comprised of cumulative preferred stock) and minority interests in
consolidated subsidiaries, less most intangible assets. Tier 2 capital includes,
with certain limitations, perpetual preferred stock not included in Tier 1
capital, certain maturing capital instruments and the allowance for loan and
lease losses (limited to 1.25% of risk-weighted assets). The Notes offered
hereby are expected to qualify as Tier 2 capital. The regulatory guidelines
require a minimum ratio of total capital to risk-weighted assets of 8% (of which
at least 4% should be in the form of Tier 1 capital). The FRB has also
implemented a leverage ratio, which is defined to be a company's Tier 1 capital
divided by its average total consolidated assets. The minimum required leverage
ratio for top-rated bank holding companies is 3%, but most companies are
required to maintain an additional cushion of at least 100 to 200 basis points.

The table below sets forth BNC's ratios of (i) total capital to
risk-weighted assets, (ii) Tier 1 capital to risk-weighted assets and (iii) Tier
1 leverage ratio, at March 31, 1997 and as adjusted to give effect to the
estimated net proceeds from the offering.

<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------------------------------
MINIMUM
RATIO ACTUAL AS ADJUSTED REQUIRED
- --------------------------------------------------------------------------------- ----------- ------------- -------------
<S> <C> <C> <C>
Total capital to risk-weighted assets............................................ 8.8% 14.8% 8.0%
Tier 1 capital to risk-weighted assets........................................... 8.1 8.1 4.0
Tier 1 leverage ratio............................................................ 6.6 6.6 3.0
</TABLE>

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

SUPPORT OF BANKS. As discussed below, the Banks are also subject to capital
adequacy requirements. BNC could be required to guarantee the capital
restoration plan of one or more of its Banks, should such Banks become
"undercapitalized," as defined in the banking laws and regulations. See "--The
Banks-- Capital Adequacy." BNC's maximum liability under any such guarantee
would be the lesser of 5% of the undercapitalized Bank's total assets at the
time it became undercapitalized or the amount necessary to bring the Bank into
compliance with the capital plan. The FRB also has stated that bank holding
companies are subject to the "source of strength doctrine," which requires bank
holding companies to serve as a source of "financial and managerial" strength to
their subsidiary banks.

Federal banking regulators are required to take "prompt corrective action"
with respect to capital-deficient institutions. In addition to requiring the
submission of a capital restoration plan, there are broad restrictions on
certain activities of undercapitalized institutions involving asset growth,
acquisitions, branch establishment, and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.

THE BANKS

GENERAL. As national banking associations, the Banks are principally
supervised, examined and regulated by the OCC. The OCC regularly examines such
areas as capital adequacy, loss reserves, loan portfolio, investments and
management practices. The Banks must also furnish quarterly and annual reports
to the OCC, and the OCC may exercise cease and desist and other enforcement
powers over the Banks if their actions represent unsafe or unsound practices or
violations of law. Since the deposits of the Banks are insured by the FDIC
through the BIF and SAIF, as applicable, the Banks are also subject to
regulations and supervision by the FDIC. The Banks are also members of the
Federal Reserve System.

51
<PAGE>
COMMUNITY REINVESTMENT ACT. The CRA requires the Banks to adequately meet
the credit needs of their communities. The CRA allows regulators to turn down an
applicant seeking, among other things, to make an acquisition or establish a
branch unless it has performed satisfactorily under the CRA. Federal regulators
regularly conduct CRA examinations to assess the performance of financial
institutions. In each of the last two examinations, the Banks received
satisfactory ratings.

TRANSACTIONS WITH AFFILIATES. The Banks are subject to Section 23A of the
Federal Reserve Act, which limits the amount of loans to, investments in, and
certain other transactions with, affiliates of the Banks, including BNC,
requires certain levels of collateral for such loans or transactions, and limits
the amount of advances to third parties that are collateralized by the
securities or obligations of affiliates, unless the affiliate is a bank and is
at least 80% owned by BNC. If the affiliate is a bank and 80% or greater
ownership exists, the transactions are generally exempted from these
restrictions, except as to "low quality" assets, as defined under the Federal
Reserve Act, provided that such transaction is consistent with safe and sound
banking practices. In addition, Section 23A generally limits transactions with
affiliates of a bank to 10% of the bank's capital and surplus and generally
limits all transactions with affiliates to 20% of the bank's capital and
surplus.

Section 23B of the Federal Reserve Act requires that certain transactions
between any of the Banks and their non-bank affiliates must be on substantially
the same terms, or at least as favorable to the Banks, as those prevailing at
the time for comparable transactions with or involving nonaffiliated companies
or, in the absence of comparable transactions, on terms and under circumstances,
including credit standards, that in good faith would be offered to or would
apply to nonaffiliated companies. The aggregate amount of an institution's loans
to officers, directors and principal shareholders (or their affiliates) is
limited to the amount of its unimpaired capital and surplus, unless the FDIC
determines that a lesser amount is appropriate.

A violation of the restrictions of Section 23A or Section 23B may result in
the assessment of civil monetary penalties on a bank or a person participating
in the conduct of the affairs of such bank or the imposition of an order to
cease and desist.

CROSS-GUARANTEE. A depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured institution in danger of default.

DIVIDEND RESTRICTIONS. Dividends paid by the Banks provide a substantial
portion of BNC's cash flow. Under both federal and state law, the approval of a
bank's principal regulator is required prior to the declaration of any dividend
by a bank if the total of all dividends declared in any calendar year exceed the
total of its net profits for that year combined with its retained net profits
for the preceding two years. North Dakota and Minnesota law prohibit the payment
of a dividend that would impair an institution's capital. In addition, a bank
cannot pay a dividend if it will cause the bank to be "undercapitalized," as
discussed below.

CAPITAL ADEQUACY. Federal regulations establish minimum requirements for
the capital adequacy of depository institutions that are generally the same as
those established for bank holding companies. See "--BNC--Capital Adequacy."
Banks with capital ratios below the required minimum are subject to certain
administrative actions, including the termination of deposit insurance and the
appointment of a receiver and may also be subject to significant operating
restrictions. See "--BNC--Support of Banks."

52
<PAGE>

The following table sets forth the respective capital ratios of BNC-North
Dakota and BNC-Minnesota at March 31, 1997.

<TABLE>
<CAPTION>
AT MARCH 31, 1997
----------------------------
MINIMUM
RATIO ACTUAL REQUIRED
- ------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Total capital to risk-weighted assets
BNC-North Dakota....................................................... 10.6% 8.0%
BNC-Minnesota.......................................................... 11.3 8.0

Tier 1 capital to risk-weighted assets
BNC-North Dakota....................................................... 9.9 4.0
BNC-Minnesota.......................................................... 10.5 4.0

Tier 1 leverage ratio
BNC-North Dakota....................................................... 7.2 4.0
BNC-Minnesota.......................................................... 11.5 4.0
</TABLE>

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

PROMPT CORRECTIVE ACTION. The OCC is required to take "prompt corrective
action" with respect to any national bank that does not meet specified minimum
capital requirements. The applicable regulations establish five capital levels,
ranging from "well capitalized" to "critically undercapitalized," which
authorize, and in certain cases require, the OCC to take certain specified
supervisory action. Under certain circumstances, a well capitalized, adequately
capitalized or undercapitalized institution may be treated as if the institution
were in the next lower capital category.

With certain exceptions, national banks will be prohibited from making
capital distributions or paying management fees to a holding company if the
payment of such distributions or fees will cause them to become
undercapitalized. Furthermore, undercapitalized national banks will be required
to file capital restoration plans with the OCC. Such a plan will not be accepted
unless, among other things, the banking institution's holding company guarantees
the plan up to a certain specified amount. Any such guarantee from a depository
institution's holding company is entitled to a priority of payment in
bankruptcy. Undercapitalized national banks also will be subject to restrictions
on growth, acquisitions, branching and engaging in new lines of business unless
they have an approved capital plan that permits otherwise. The OCC also may,
among other things, require an undercapitalized national bank to issue shares or
obligations, which could be voting stock, to recapitalize the institution or,
under certain circumstances, to divest itself of any subsidiary.

The OCC is authorized to take various enforcement actions against any
significantly undercapitalized national bank and any national bank that fails to
submit an acceptable capital restoration plan or fails to implement a plan
accepted by the OCC. These powers include, among other things, requiring the
institution to be recapitalized, prohibiting asset growth, restricting interest
rates paid, requiring primary approval of capital distributions by any bank
holding company which controls the institution, requiring divestiture by the
institution of its subsidiaries or by the holding company of the institution
itself, requiring new election of directors, and requiring the dismissal of
directors and officers.

Significantly and critically undercapitalized national banks may be subject
to more extensive control and supervision. The OCC may prohibit any such
institution from, among other things, entering into any material transaction not
in the ordinary course of business, amending its charter or bylaws, or engaging
in certain transactions with affiliates. In addition, critically
undercapitalized institutions generally will be prohibited from making payments
of principal or interest on outstanding subordinated debt. Within 90 days of a
national bank becoming critically undercapitalized, the OCC must appoint a
receiver or conservator unless certain findings are made with respect to the
prospect for the institution's continued viability.

53
<PAGE>
As of the date of this Prospectus, the Banks met the capital requirements of
"well-capitalized" institutions.

DEPOSIT INSURANCE. The deposits of the Banks are insured by the FDIC
through the BIF or SAIF, as applicable, to the extent provided by law. Under the
FDIC's risk-based insurance system, BIF- and SAIF-insured institutions are
currently assessed premiums of between zero and twenty seven cents per $100 of
eligible deposits, depending upon the institution's capital position and other
supervisory factors. Congress recently enacted legislation that, among other
things, provides for assessments against BIF- and SAIF-insured institutions that
will be used to pay certain Financing Corporation ("FICO") obligations which
currently range from $0.0130 to $0.0648.

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. In the
event a bank is placed into conservatorship or receivership, the FDIC is
required, subject to certain exceptions, to choose the method for dissolving the
institution that is least costly to the BIF, such as liquidation. In any event,
if either of the Banks was placed into conservatorship or receivership, because
of the cross-guarantee provisions of the Federal Deposit Insurance Act, as
amended, the Company as the sole shareholder of the Bank, would likely lose its
investment in the Bank.

RESTRICTIONS ON LOANS TO ONE BORROWER. Under federal law, permissible loans
to one borrower by the Banks are generally limited to 15% of their unimpaired
capital, surplus, undivided profits and loan loss reserves. The Banks seek
participations to accommodate borrowers whose financing needs exceed lending
limits.

CONSUMER LAWS AND REGULATIONS. In addition to the laws and regulations
discussed herein, the Banks are also subject to certain consumer laws and
regulations that are designed to protect customers in transactions with Banks.
These include but are not limited to the Truth in Lending Act, the Truth in
Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability
Act, the Equal Credit Opportunity Act and the Fair Housing Act. These laws and
regulations 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.

INTERSTATE BANKING AND BRANCHING

Federal legislation enacted in 1994 removed certain barriers to interstate
banking and permitted DE NOVO interstate branching for the first time. Effective
June 1, 1997, banks may engage in interstate branching by merging with banks in
those states that have not opted out of the federal legislation. Banks will also
be able to establish DE NOVO branches in states where they do not own any
depository institutions, but only if the state specifically elects to opt in to
the DE NOVO branching provisions of the federal legislation. Both North Dakota
and Minnesota have elected to opt into such provisions.

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, and the agencies have not yet
fully tested the limits of their powers. In addition, the North Dakota
Department of Banking and Financial Institutions and the Minnesota Department of
Commerce possess significant authority to address violations of their respective
state's banking laws by banks operating in their respective states by
enforcement and other supervisory actions.

The laws and regulations affecting banks and bank holding companies have
changed significantly in recent years, and there is reason to expect that
changes will continue in the future, although it is difficult to

54
<PAGE>
predict the outcome of these changes. From time to time, various bills are
introduced in the United States Congress with respect to regulation of financial
institutions. Certain of these proposals, if adopted, could significantly change
the regulation of banks and the financial services industry. BNC cannot predict
whether any of these proposals will be adopted or, if adopted, how these
proposals would affect 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 BNC and its subsidiaries cannot be predicted.

55
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth as of April 1, 1997 certain information
regarding beneficial ownership of the Common Stock by (i) each stockholder known
by BNC to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each director of BNC, (iii) each Named Executive Officer, and (iv)
all of BNC's directors and executive officers as a group. Unless otherwise
indicated, BNC believes that the stockholders listed below have sole investment
and voting power with respect to their shares based on information furnished to
BNC by such owners. As of April 1, 1997, the Company had 2,338,720 shares of
Common Stock outstanding.

<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK(1)
- ------------------------------------------------------------------------- --------------------- ----------------
<S> <C> <C>
Tracy J. Scott(2)........................................................ 129,700(3)(4)(5)(6) 5.5%
Gregory K. Cleveland..................................................... 91,182(3)(4)(5)(7) 3.9%
John A. Malmberg......................................................... 42,993(3)(5) 1.8%
Thomas J. Resch.......................................................... 8,328(3)(5)(8) *
Brad J. Scott............................................................ 36,303(3)(4)(5) 1.6%
David A. Erickson(2)..................................................... 169,191(3)(9) 7.2%
John A. Hipp, M.D........................................................ 99,900(10) 4.3%
Richard M. Johnsen, Jr................................................... 1,000 *
John M. Shaffer.......................................................... 3,500 *
Jerry R. Woodcox......................................................... 2,500 *
BNC National Bank, as Trustee of the BNCCORP, Inc. 401(k) Savings Plan
(the "Plan")(2)(11).................................................... 174,501 7.5%
FBL Investment Advisory Services, Inc. ("FBL")(2)(12).................... 151,500 6.5%
All directors and executive officers as a group (11 persons)............. 417,298(3)(4)(5) 17.8%
</TABLE>

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

* Less than 1%.

(1) Shares subject to options exercisable within 60 days of April 1, 1997 are
deemed outstanding for computing the percentage of the Company's common
stock owned by a person holding such options and for the percentage owned by
all directors and executive officers as a group but are not deemed
outstanding for computing the ownership percentage of any other person.

(2) The address of Mr. T. Scott is c/o BNCCORP, Inc., 322 East Main, Bismarck,
North Dakota 58501, the address of Mr. Erickson is 500 East Elm Street,
Linton, North Dakota, 58552, the address of the trustee of the Plan is 322
East Main, Bismarck, North Dakota 58501 and the address of FBL is 5400
University Avenue, West Des Moines, Iowa 50266.

(3) Includes shares allocated to such individuals' accounts as of April 1, 1997
under the Company's 401(k) Plan as follows: Mr. T. Scott (13,458 shares),
Mr. Cleveland (3,182 shares), Mr. Malmberg (34,443 shares), Mr. Resch (1,038
shares), Mr. B. Scott (16,105 shares), Mr. Erickson (38,871 shares) and all
directors and executive officers as a group (68,955 shares).

(4) Includes shares of restricted stock that were issued under, and are subject
to the restrictions of, the Stock Plan, as follows: Mr. T. Scott (7,508),
Mr. Cleveland (7,257), Mr. B. Scott (2,533) and all directors and executive
officers as a group (17,899). See "Management--Stock Incentive Plan."

(5) Includes shares issuable upon the exercise of stock options that will be
exercisable within 60 days: Mr. T. Scott (2,414), Mr. Cleveland (2,263), Mr.
Malmberg (1,290), Mr. Resch (1,290), Mr. B. Scott (1,525) and all directors
and executive officers as a group (9,144).

(6) Includes 2,000 shares owned of record by Mr. Scott's children.

(7) Includes 78,480 shares owned of record by Mr. Cleveland's wife.

(8) Includes 3,000 shares owned of record by Mr. Resch's wife.

(9) Includes 38,820 shares owned of record by Mr. Erickson's wife.

(10) Includes 60,000 shares owned of record by Dr. Hipp's wife and 3,000 owned
by Dr. Hipp's children.

(11) Each participant of the Plan will be entitled to direct the trustee of the
Plan as to the manner in which to vote the shares allocated to the
participant's account.

(12) Pursuant to a Schedule 13G filed on May 13, 1996, FBL reported sole voting
and dispositive power with respect to 151,500 shares of Common Stock.

56
<PAGE>
DESCRIPTION OF THE NOTES

The Notes will be issued pursuant to an Indenture dated as of May , 1997
by and between the Company and Firstar Trust Company, as Trustee (the
"Trustee"). The Notes are not savings accounts or deposits of the Banks and are
not insured by the FDIC, any other governmental agency or otherwise. A copy of
the Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The following is a summary of certain
provisions of the Notes and the Indenture. These summaries do not purport to be
complete and are subject to and qualified in their entirety by the terms of the
Notes and the Indenture. Wherever particular provisions and definitions of the
Indenture are referred to, such provisions and definitions are incorporated by
reference as part of the statements made, and the statements are qualified in
their entirety by such reference. For purposes of the following summary, the
term the "Company" excludes the Company's subsidiaries unless otherwise
provided. Capitalized terms used herein shall have the same meanings as in the
Indenture.

GENERAL

The Notes will be limited in principal amount to $15,000,000. The Notes will
be offered only in denominations of $1,000 and integral multiples thereof. The
Notes mature on May 31, 2004 and will bear interest at the rate per annum set
forth on the cover page of this Prospectus. Interest will be payable monthly, on
the first Business Day of each month, commencing with July 1, 1997, to each
person in whose name the Note is registered at the close of business on the
fifteenth day of the month immediately preceding such Interest Payment Date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Principal and interest will be payable at the offices of the Trustee,
provided that, at the option of the Company, if the Notes are no longer in the
form of Registered Global Securities, payment of interest may be made by check
mailed to the address of the person entitled thereto as it appears in the
Security Register maintained by the Security Registrar. The Notes will not be
entitled to any sinking fund.

Subject to the terms of the Indenture and the limitations applicable to
Registered Global Securities, the Notes will be transferable and exchangeable at
the office of the Registrar or any co-registrar and will be issued in fully
registered form, provided that the Company shall not be required to register a
transfer of or to exchange the Notes during the period of 15 days immediately
preceding any selection of Notes for redemption. The Company may require payment
of a sum sufficient to cover any transfer tax or other similar governmental
charge payable in connection with certain transfers and exchanges.

The Notes will not be secured by the assets of the Company or any of its
Subsidiaries or otherwise and will not have the benefit of a sinking fund for
the retirement of principal. In addition, the rights of the Company to
participate in any distribution of assets of any Subsidiary, including a Bank,
upon its liquidation or reorganization or otherwise (and thus the ability of the
Holders of the Notes to benefit indirectly from such distribution) are subject
to the prior claims of creditors of that Subsidiary. Claims on the Company's
Subsidiaries by creditors other than the Company may include substantial
obligations with respect to deposit liabilities, federal funds purchased and
securities sold under repurchase agreement and other debt obligations. There are
also limitations on the extent to which the Banks may pay dividends or make
other payments to the Company.

As long as the Company is a reporting company under the Exchange Act, the
Company will furnish to the Holders of the Notes, annual reports of the Company
containing audited financial statements. If the Company ceases to be a reporting
company under the Exchange Act, the Company will furnish to Holders of the Notes
annual audited financial statements.

The Indenture does not contain provisions that would provide protection to
Holders against a sudden and dramatic decline in credit quality resulting from
takeovers, recapitalizations or similar restructurings.

57
<PAGE>
REDEMPTION AT THE OPTION OF THE COMPANY

The Notes may not be redeemed before May 31, 2000. At any time after May 31,
2000, the Notes will be redeemable, in whole or in part, at the option of the
Company, upon notice given no more than 60 days and no less than 30 days prior
to redemption, given as provided in the Indenture, at par plus accrued interest
to the date fixed for redemption. In case of the redemption of less than all of
the outstanding Notes, the Notes to be redeemed shall be selected by the Trustee
by such method as the Trustee shall deem fair and appropriate, including the
selection for redemption of a portion of the principal amount of any Note but
not less than $1,000. On and after the Redemption Date, interest will cease to
accrue on the Notes or portions thereof called for redemption. As long as the
Notes are represented in the form of a Registered Global Security, a new
Registered Global Security or Securities will be executed and authenticated in
exchange for the unredeemed portion of the principal of any partially redeemed
Note.

SUBORDINATION

The Notes will be unsecured general obligations of the Company and will be
subordinated to all Senior Indebtedness (as defined below) of the Company and
effectively subordinated to all present and future liabilities of the Company's
Subsidiaries.

Upon any payment or distribution of assets or securities of the Company in
any dissolution, winding up, total or partial liquidation or reorganization of
the Company, if (i) an event of default has occurred and is continuing with
respect to any Senior Indebtedness or (ii) an Acceleration Event shall have
occurred and the principal and interest on, and any other amounts in respect of,
the Notes has been declared due and payable and such declaration has not been
rescinded or annulled, then all Senior Indebtedness, including any interest
occurring on such Senior Indebtedness must be paid in full before any payment of
principal or interest on the Notes can be made. By reason of such subordination,
in the event of insolvency, holders of the Notes may recover less, ratably, than
other creditors of the Company.

"Senior Indebtedness" means all Indebtedness of the Company, including
principal and interest on such Indebtedness whether outstanding on the date of
the Indenture or hereafter created, incurred, assumed or guaranteed by the
Company, unless such Indebtedness, by its terms or the terms of the instrument
creating or evidencing it is subordinate in right of payment to, or PARI PASSU
with, the Notes.

"Indebtedness" means (without duplication), with respect to any Person, (i)
any obligation, contingent or otherwise, of such Person for borrowed money, (ii)
any obligation (including the Notes) of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) any obligation of such
Person to pay the deferred purchase price of property or services (including
conditional sale and title retention arrangements and any interest accruing
subsequent to an event of default with respect to such obligation), except
accounts payable and accrued expenses incurred in the ordinary course of
business, and (iv) any obligation under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.

EVENTS OF DEFAULT

An Event of Default includes: (a) failure to pay the principal on the Notes
when due at maturity or upon redemption, as provided in the Indenture, whether
or not prohibited by the subordination provisions of the Indenture; (b) failure
to pay any interest on the Notes for 10 days after such interest shall have
become due and payable, whether or not prohibited by the subordination
provisions of the Indenture; (c) failure to perform any other covenant set forth
in the Indenture for 30 days after receipt of written notice from the Trustee or
Holders of at least 25% in principal amount of the outstanding Notes specifying
the default and requiring the Company to remedy such default; (d) default in the
payment at maturity of Indebtedness of the Company or a Subsidiary having an
outstanding principal amount due at maturity greater than $2.0 million and such
default having continued without being cured, waived or consented to or without
such Indebtedness being discharged for a period of 30 days beyond any applicable
grace period;

58
<PAGE>
(e) an event of default as defined in any mortgage, indenture or instrument of
the Company or any Subsidiary shall have happened and resulted in the
acceleration of indebtedness which together with the principal amount of any
other Indebtedness so accelerated, aggregates $2.0 million or more at any time,
and such default shall not have been cured or waived and such acceleration shall
not have been rescinded or annulled; (f) entry of a final judgment, decree or
order against the Company or any Subsidiary for the payment of money in excess
of $1.0 million and such judgment, decree or order continues unsatisfied for 60
days from the entry thereof, unless vacated, discharged or stayed pending appeal
within such 60-day period; and (g) certain events of bankruptcy, insolvency, or
reorganization of the Company. Except as described under "--Acceleration Events"
below, there is no right to acceleration in the case of an Event of Default.

The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a "default" (meaning, for this purpose, the events specified above
without grace periods), give the Holders of the Notes notice of all defaults
known to it which have occurred and remain uncured; provided, that, except in
the case of a default in the payment of principal or interest on any of the
Notes, the Trustee shall be protected in withholding such notice if and as long
as it in good faith determines that the withholding of such notice is in the
interest of the Holders.

The Company must furnish annually to the Trustee an Officers' Certificate
stating whether to the best of the knowledge of the signers the Company is in
default under any of the provisions of the Indenture, and specifying all such
defaults and the nature thereof, of which they have knowledge.

Upon the occurrence of any Event of Default the Company shall, upon demand
of the Trustee, pay to the Trustee, for the benefit of the Holders of the Notes,
the whole amount then due and payable with respect to such Notes. If an Event of
Default with respect to the Notes occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders of the Notes by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in the Indenture or such
Notes or in aid of the exercise of any power granted in the Indenture or the
Notes, or to enforce any other proper remedy.

A Holder will not have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless (a) such Holder shall have
previously given to the Trustee written notice of a continuing Event of Default,
(b) the Holders of at least 25% in aggregate principal amount of the outstanding
Notes shall have made a written request, and offered reasonable indemnity, to
the Trustee to institute such proceeding as Trustee, (c) the Trustee shall have
failed to institute such proceeding within 60 days, and (d) the Trustee shall
not have received from the Holders of a majority in aggregate principal amount
of the outstanding Notes a direction inconsistent with such requests. However,
the Holder of any Note will have an absolute right to receive payment of the
principal of and interest on such Note on or after the respective due dates and
to institute suit for the enforcement of any such payment.

ACCELERATION EVENTS

The Indenture defines an "Acceleration Event" as an Event of Default
relating to bankruptcy, insolvency or reorganization of the Company. If an
Acceleration Event shall occur and be continuing, either the Trustee or the
Holders of at least 25% in aggregate principal amount of outstanding Notes may
accelerate the maturity of all such outstanding Notes. If an Acceleration Event
has occurred and a declaration of acceleration made before a judgment or decree
for payment of money due is obtained, holders of a majority of the outstanding
Notes may rescind the acceleration of the Notes if all Acceleration Events have
been remedied and all payments due, other than those due as a result of
acceleration, have been made.

59
<PAGE>
LIMITATION ON DIVIDENDS AND OTHER PAYMENTS

The Company has agreed not to declare or pay dividends on, or purchase,
redeem or acquire its capital stock, return any capital to holders of capital
stock, or make any distribution of assets to holders of capital stock, except
that the Company (i) may declare and pay a dividend in capital stock of the
Company and (ii) declare and pay a dividend or make another distribution in cash
or property other than capital stock of the Company if the amount of such
dividend or distribution, together with the amount of all such previous
dividends and distributions after March 31, 1997, would not exceed the sum of
(A) $2 million, (B) 75% of the Company's Consolidated Net Income (or, in the
event such aggregate Consolidated Net Income shall be a loss, minus 100% of such
loss) accrued on a cumulative basis during the period beginning on April 1, 1997
and ending on the last day of the Company's fiscal quarter immediately preceding
such dividend or distribution and (C) 100% of the net proceeds received by the
Company from the issuance or sale (other than to a Subsidiary) of capital stock
of the Company, including any such shares issued upon exercise of any warrants,
options or similar rights (other than Disqualified Stock), subsequent to the
Initial Issuance Date.

MERGER, CONSOLIDATION OR SALE OF ASSETS; SUCCESSOR CORPORATION

The Indenture provides that the Company may not consolidate with, merge
with, or transfer all or substantially all of its assets to another entity
unless such other entity assumes the Company's obligations under the Indenture
and unless, after giving effect thereto, no event shall have occurred and be
continuing which, after notice or lapse of time, would become an Event of
Default, each insured institution controlled by the surviving corporation shall
be in compliance with applicable minimum capital requirements and certain other
conditions are met.

SATISFACTION, DISCHARGE AND DEFEASANCE OF INDEBTEDNESS

The Company may satisfy and discharge its obligations under the Indenture by
delivery to the Trustee for cancellation all outstanding Notes or by depositing
with the Trustee, after the Notes have become due and payable, cash sufficient
to pay at maturity all of the outstanding Notes and paying all other sums
payable under the Indenture by the Company.

Under terms satisfactory to the Trustee, the Company may discharge
substantially all of its obligations under the Indenture to holders of Notes
which by their terms are due and payable within one year (or are to be called
for redemption within one year) by depositing with the Trustee in trust for the
benefit of the holders money in an amount sufficient to pay and discharge the
principal of and interest on, the Notes then outstanding at and through the
maturity or redemption date ("defeasance"). Under terms satisfactory to the
Trustee, the Company may also discharge substantially all of its obligations
under the Indenture imposed by the covenants described above ("defeasible
events") and omit to comply with such provisions without creating an Event of
Default ("covenant defeasance"). Defeasance or covenant defeasance may be
effected only if, among other things, the Company irrevocably deposits with the
Trustee in trust for the benefit of the holders, Money in an amount of or United
States Government Obligations, which through the payment of interest and
principal will provide, prior to the due date of principal of and each
installment of interest in respect of the Notes, Money in an amount, or a
combination thereof, sufficient to pay and discharge the principal of and
interest on the Notes then outstanding at maturity or at the earliest date at
which the Company may redeem such Notes if the Company has made adequate
arrangements with the Trustee to redeem such Notes at such time and complies
with certain other requirements. The Indenture will not be discharged if, among
other things, an Event of Default (other than a defeasible event), or an event
which with notice or lapse of time would have become such an Event of Default,
shall have occurred and be continuing on the date of such deposit or during the
period ending on the 91st day after such date. In the event of any such
defeasance and discharge, the holders of the Notes will thereafter be able to
look only to such trust fund for payment of principal and interest on the Notes.

60
<PAGE>
MODIFICATION AND WAIVER

The Indenture provides that modifications and amendments to the Indenture or
the Notes may be made by the Company and the Trustee with the consent of the
holders of a majority in principal amount of the Notes then outstanding;
PROVIDED that no such modification or amendment may, without the consent of the
holder of each Note then outstanding, (i) change the maturity of the principal
of, or any installment of interest on, any Note, reduce the principal amount of
a Note or the rate of interest thereon, change the place of payment where or the
coin or currency in which amounts due on the Notes are payable; (ii) make any
reduction in the principal amount of Notes whose holders must consent to an
amendment or any waiver under the Indenture or modify the Indenture provisions
relating to such amendments or waivers; or (iii) impair or affect the right to
institute suit for the enforcement of any payment with respect to the Notes.

Without the consent of any holder of Notes, the Company and the Trustee may
amend the Indenture to (i) evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants and agreements
of the Company under the Indenture or the Notes; (ii) add covenants of the
Company for the benefit of the Holders of the Note, or to surrender any right or
power conferred upon the Company in the Indenture; (iii) secure the Notes; or
(iv) cure any ambiguity, correct or supplement any provision of the Indenture
which may be inconsistent with any other provision of the Indenture, or any such
other provisions with respect to the matters or questions arising under the
Indenture which shall not be inconsistent with the provisions of the Indenture,
provided such action pursuant to this clause (iv) shall not adversely affect the
interests of the holders of the Notes in any material respect.

The Indenture will provide that the holders of a majority in aggregate
principal amount of the Notes then outstanding may waive any past default under
the Indenture with respect to the Notes, except a default in the payment of
principal or interest.

GOVERNING LAW

The Indenture and the Notes will be governed by and construed in accordance
with the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of such state.

THE TRUSTEE

Firstar Trust Company will initially be the Trustee under the Indenture. The
Company has also appointed the Trustee as the initial Registrar and as initial
Paying Agent under the Indenture. The Indenture and provisions of the Trust
Indenture Act incorporated by reference therein contain limitations on the
rights of the Trustee, should it become a creditor of the Company to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claim as security or otherwise. The Trustee does
banking business on a regular basis with the Company and is a lender to the
Company, including under the Firstar Line of Credit, outstanding amounts under
which will be repaid with proceeds of this offering. See "Use of Proceeds."

BOOK-ENTRY, DELIVERY AND FORM

The Notes will be represented by one or more Registered Global Securities
registered in the name of DTC or its nominee. Unless and until it is exchanged
in whole or in part for Notes in definitive form, a Registered Global Security
may not be transferred except as a whole to a nominee of DTC for such Registered
Global Security, or by a nominee of DTC to DTC or another nominee of DTC, or by
DTC or any such nominee to a successor Depository or a nominee of such successor
Depository. Initially, the Notes will be registered in the name of Cede & Co.,
the nominee of DTC.

Ownership of beneficial interests in a Registered Global Security will be
limited to persons who have accounts with DTC or its nominee ("participants") or
persons who hold interests through participants.

61
<PAGE>
Ownership of beneficial interests in the Registered Global Security will be
shown on, and the transfer of these ownership interests will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons held by such participants on their behalf).

As long as DTC, or its nominee, is the registered owner or holder of a
Registered Global Security, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Registered
Global Security for all purposes under the Indenture and the Notes. In addition,
no beneficial owner of an interest in a Registered Global Security will be able
to transfer that interest except in accordance with the applicable procedures of
DTC.

Payments on a Registered Global Security will be made to DTC or its nominee,
as the registered owner thereof. None of the Company, the Trustee or any Paying
Agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Registered Global Security or for maintaining, supervising or reviewing any
records related to such beneficial ownership interests.

The Company has been advised by DTC that upon receipt of any payment in
respect of a Registered Global Security representing any Notes held by it or its
nominee, DTC will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Registered Global Security for such Notes as shown on the records
of DTC or its nominee. The Company also expects that payments by participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in the names
of nominees for such customers. Such payment will be the responsibility of such
participants. None of the Company, the Trustee or any agent of the Company, or
the Trustee shall have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial interests in a
Registered Global Security, or for maintaining, supervising or reviewing any
records relating to such beneficial interests.

Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. The laws of some states require that certain
persons take physical delivery of securities in definitive form. Consequently,
the ability to transfer beneficial interests in a Registered Global Security to
such persons may be limited. Because DTC can only act on behalf of participants,
who in turn act on behalf of indirect participants (as defined below) and
certain banks, the ability of a person having a beneficial interest in a
Registered Global Security to pledge such interest to Persons that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate of such
interest.

DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC holds securities that its participants deposit with DTC and
facilitates the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly ("indirect participants"). The rules
applicable to DTC and its participants are on file with the Commission.

Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Registered Global Security among
participants of DTC, it is under no obligation to perform

62
<PAGE>
or continue to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee will have any responsibility
for the performance by DTC or the participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.

Notes represented by a Registered Global Security will be exchangeable for
Notes in definitive form of like tenor as such Registered Global Security in
denominations of $1,000 and in any greater amount that is an integral multiple
if DTC notifies the Company that it is unwilling or unable to continue as
Depository for such Registered Global Security or if at any time DTC ceases to
be a clearing agency registered under applicable law and a successor depositary
is not appointed by the Company within 90 days or the Company in its discretion
at any time determines not to require all of the Notes to be represented by a
Registered Global Security and notifies the Trustee thereof. Any Notes that are
exchangeable pursuant to the preceding sentence are exchangeable for Notes
issuable in authorized denominations and registered in such names as DTC shall
direct. Subject to the foregoing, a Registered Global Security is not
exchangeable, except for a Registered Global Security or Registered Global
Securities of the same aggregate denominations to be registered in the name of
DTC or its nominee.

Neither the Company nor the Trustee will be liable for any delay by the
related Global Registered Security Holder or DTC in identifying the beneficial
owners of the related Notes, and each such Person may conclusively rely on, and
will be protected in relying on, instructions from such Global Registered
Security Holder or of DTC for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the Notes to
be issued).

63
<PAGE>
UNDERWRITING

Dain Bosworth Incorporated (the "Underwriter") has agreed, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the Company
an aggregate of $15,000,000 of Notes at the Price to Public less the
Underwriting Discount set forth on the cover page of this Prospectus.

The Underwriting Agreement provides that the Underwriter's obligation to pay
for and accept delivery of the Notes offered hereby is subject to certain
conditions precedent and that the Underwriter will be obligated to purchase all
such Notes if any are purchased.

The Company has been advised by the Underwriter that it proposes initially
to offer the Notes to the public at the Price to Public set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of % of principal amount of the Notes. The Underwriter may
allow and such dealers may reallow a concession not in excess of % of
principal amount of Notes to certain other brokers and dealers. After the
offering, the Price to Public, the concession and reallowances to dealers and
other selling terms may be changed by the Underwriter.

The Notes will be a new issue of securities for which there is currently no
market. The Company does not intend to list the Notes on any securities exchange
and no active trading market in the Notes is expected to develop. Although the
Underwriter has informed the Company that it currently intends to make a market
in the Notes, it is not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurances
as to the development or liquidity of any market for the Notes. If the Notes are
traded after their original issuance, they may trade at a discount to their
principal amount.

During and after the offering, the Underwriter may purchase and sell the
Notes in the open market. These transactions may include customary stabilizing
transactions which may maintain, stabilize or otherwise affect the market price
of the Notes, which may be higher than the price that might otherwise prevail in
the open market. Such stabilizing transactions, if commenced, may be
discontinued at any time.

In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriter against certain liabilities that may be incurred in connection with
the sale of the Notes, including liabilities arising under the Securities Act
and to contribute to payments that the Underwriter may be required to make with
respect thereto.

In conjunction with the Company's initial public offering of Common Stock in
July 1995, the Underwriter acquired and presently owns warrants to purchase an
aggregate of 50,000 shares of Common Stock of the Company at an exercise price
of $12.00 per share. Such warrants are exercisable at any time prior to July 13,
2000.

LEGAL MATTERS

The validity of the Notes offered hereby will be passed upon for BNC by
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New Orleans,
Louisiana. Oppenheimer Wolff & Donnelly, Minneapolis, Minnesota, is acting as
counsel for the Underwriter in connection with certain legal matters relating to
the Notes offered hereby.

64
<PAGE>
EXPERTS

The consolidated statements of financial condition of BNC as of December
1996 and 1995 and the consolidated statements of income, stockholders' equity
and cash flows for the years ended December 31, 1996, 1995 and 1994 included in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in giving said report.

In February 1995, the Company's Board of Directors replaced James J.
Wosepka, CPA with Arthur Andersen LLP as the Company's independent public
accountants. The report of James J. Wosepka, CPA on the Company's financial
statements as of and for the year ended December 31, 1993 did not contain an
adverse opinion or disclaimer of opinion and was not modified as to uncertainty,
audit scope or accounting principles. There were no disagreements with James J.
Wosepka, CPA on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure at the time of the change of
independent public accounts or with respect to the Company's financial
statements as of and for the year ended December 31, 1993. Prior to retaining
Arthur Andersen LLP, the Company had not consulted with Arthur Andersen LLP
regarding accounting principles.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the Notes being offered pursuant
to this Prospectus. This Prospectus does not contain all information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements contained herein
concerning the provisions of any documents are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement.

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. The Registration Statement, as well as such
reports, proxy statements and other information filed with the Commission by the
Company can be inspected and copied at the public reference facilities of the
Commission in Washington, D.C., at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission at
the following locations: Chicago Regional Office, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and the New York Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding issues that file electronically with the Commission
(http:// www.sec.gov). The Company's Common Stock is traded on the Nasdaq
National Market. Reports, proxy statements and other information concerning the
Company may also be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.

65
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2

Consolidated Statements of Financial Condition as of March 31, 1997 (unaudited) and December 31, 1996 and
1995..................................................................................................... F-3

Consolidated Statements of Income for the three months ended March 31, 1997 and 1996 (unaudited) and the
years ended December 31, 1996, 1995 and 1994............................................................. F-4

Consolidated Statements of Stockholders' Equity for the three months ended March 31, 1997 (unaudited) and
the years ended December 31, 1996, 1995 and 1994......................................................... F-5

Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 (unaudited) and
the years ended December 31, 1996, 1995 and 1994......................................................... F-6

Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To BNCCORP, Inc.:

We have audited the accompanying consolidated statements of financial
condition of BNCCORP, Inc. (a Delaware corporation) and Subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
BNCCORP's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
February 21, 1997

F-2
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, ------------------------
1997 1996 1995
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CASH AND DUE FROM BANKS........................... $ 8,340 $ 6,360 $ 11,259
FEDERAL FUNDS SOLD................................ 14,100 6,900 2,950
SECURITIES AVAILABLE FOR SALE (Note 3)............ 61,953 59,491 94,416
LOANS, net (Note 4)............................... 207,747 201,403 119,635
PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT,
net (Note 5).................................... 7,354 6,657 5,778
ACCRUED INTEREST RECEIVABLE....................... 2,683 2,442 1,963
OTHER ASSETS...................................... 1,805 1,440 439
COST IN EXCESS OF NET ASSETS ACQUIRED, net........ 3,820 3,865 3,959
------------- ----------- -----------
$ 307,802 $ 288,558 $ 240,399
------------- ----------- -----------
------------- ----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing............................. $ 19,102 $ 22,218 $ 16,874
Interest-bearing--
Savings, NOW and money market................. 59,258 52,483 50,732
Time deposits $100,000 and over............... 46,202 39,725 16,576
Other time deposits........................... 128,738 125,344 126,866
NOTES PAYABLE (Note 7)............................ 26,902 22,052 4,354
OTHER LIABILITIES................................. 4,697 4,101 4,110
------------- ----------- -----------
Total liabilities........................... 284,899 265,923 219,512
------------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 13 and 14)

STOCKHOLDERS' EQUITY (Note 8):
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; 2,364,100 shares issued, 2,338,720
shares outstanding............................ 23 23 23
Capital surplus................................. 13,768 13,768 13,776
Retained earnings............................... 9,578 9,017 7,170
Treasury stock (25,380 shares).................. (216) (216) (216)
Unrealized holding gain (loss) on securities
available for sale, net of income tax effects
of $162, $16 and $86 (Note 3)................. (250) 43 134
------------- ----------- -----------
Total stockholders' equity.................. 22,903 22,635 20,887
------------- ----------- -----------
$ 307,802 $ 288,558 $ 240,399
------------- ----------- -----------
------------- ----------- -----------
</TABLE>

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

F-3
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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

F-4
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
COMMON STOCK ON SECURITIES
----------------------- CAPITAL RETAINED TREASURY AVAILABLE
SHARES AMOUNT SURPLUS EARNINGS STOCK FOR SALE, NET TOTAL
---------- ----------- --------- ----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993................... 1,238,100 $ 12 $ 4,070 $ 4,822 $ -- $ -- $ 8,904
Cumulative effect of change in accounting
for securities available for sale........ -- -- -- -- -- (110) (110)
Purchase of treasury stock................. -- -- -- -- (216) -- (216)
Net income................................. -- -- -- 1,191 -- -- 1,191
Change in unrealized holding gain (loss) on
securities available for sale, net of
income taxes............................. -- -- -- -- -- (229) (229)
---------- --- --------- ----------- --------- ----- ---------
BALANCE, December 31, 1994................... 1,238,100 12 4,070 6,013 (216) (339) 9,540
Net income................................. -- -- -- 1,157 -- -- 1,157
Change in unrealized holding gain (loss) on
securities available for sale, net of
income taxes............................. -- -- -- -- -- 473 473
Shares issued.............................. 1,126,000 11 9,706 -- -- -- 9,717
---------- --- --------- ----------- --------- ----- ---------
BALANCE, December 31, 1995................... 2,364,100 23 13,776 7,170 (216) 134 20,887
Net income................................. -- -- -- 1,847 -- -- 1,847
Change in unrealized holding gain (loss) on
securities available for sale, net of
income taxes............................. -- -- -- -- -- (91) (91)
Initial public offering costs.............. -- -- (8) -- -- -- (8)
---------- --- --------- ----------- --------- ----- ---------
BALANCE, December 31, 1996................... 2,364,100 23 13,768 9,017 (216) 43 22,635
Net income (unaudited)..................... -- -- -- 561 -- -- 561
Change in unrealized holding gain (loss) on
securities available for sale, net of
income taxes (unaudited)................. -- -- -- -- -- (293) (293)
---------- --- --------- ----------- --------- ----- ---------
BALANCE, March 31, 1997 (unaudited).......... 2,364,100 $ 23 $ 13,768 $ 9,578 $ (216) $ (250) $ 22,903
---------- --- --------- ----------- --------- ----- ---------
---------- --- --------- ----------- --------- ----- ---------
</TABLE>

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

F-5
<PAGE>
BNCCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................. $ 561 $ 142 $ 1,847 $ 1,157 $ 1,191
Adjustments to reconcile net income to net cash provided by (used in)
operating activities--
Provision for loan losses............................................. 170 84 739 168 179
Depreciation and amortization......................................... 152 104 499 377 348
Amortization of intangible assets..................................... 128 115 481 242 96
Proceeds from loans recovered......................................... 11 5 157 207 152
Change in accrued interest receivable and other assets................ (689) (799) (1,866) (935) 662
(Gain) loss on sale of bank premises and equipment.................... -- (10) (10) 23 --
(Gain) loss on sale of securities..................................... 11 (5) (19) 18 (28)
Gain on sale of Farmers & Merchants Bank of Beach (Note 2)............ -- -- -- (316) --
Change in other liabilities........................................... 596 (502) (9) 1,676 766
Originations of loans to be participated.............................. (26,854) (3,982) (45,238) (44,231) (16,396)
Proceeds from participations of loans................................. 26,854 3,982 45,238 44,231 16,396
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities................. 940 (866) 1,819 2,617 3,366
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in federal funds sold........................................ (7,200) 2,950 (3,950) (2,900) 875
Purchases of investment securities...................................... (17,823) (544) (22,575) (138,385) (20,033)
Proceeds from sales of investment securities............................ 11,910 19,286 48,700 89,143 17,711
Proceeds from maturities of investment securities....................... 3,148 2,332 8,727 (26,623) 3,483
Net increase in loans................................................... (6,525) (28,266) (82,664) (20,272) (26,530)
Additions to premises, leasehold improvements and equipment............. (850) (360) (1,438) (1,973) (345)
Proceeds from sale of Farmers & Merchants Bank of Beach (Note 2)........ -- -- -- 3,811 --
Payment for branch acquisition (Note 2)................................. -- -- -- (5,357) --
Loans sold with Farmers & Merchants Bank of Beach (Note 2).............. -- -- -- 9,228 --
Investments sold with Farmers & Merchants Bank of Beach (Note 2)........ -- -- -- 7,014 --
Proceeds from sale of premises and equipment............................ -- 13 70 112 --
--------- --------- --------- --------- ---------
Net cash used in investing activities............................... (17,340) (4,589) (53,130) (86,202) (24,839)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, savings, NOW and money market
accounts.............................................................. 3,659 (9,966) 7,095 8,960 (2,399)
Net increase in time deposits........................................... 9,871 1,877 21,627 11,964 18,195
Net increase (decrease) in short-term borrowings........................ 3,869 7,272 10,437 (6,360) 5,109
Repayments of long-term borrowings...................................... (11,240) (354) (2,604) (716) (550)
Proceeds from long-term borrowings...................................... 12,221 1,000 9,865 500 1,486
Demand, savings, NOW and money market accounts acquired through branch
acquisition (Note 2).................................................. -- -- -- 18,131 --
Demand, savings, NOW and money market accounts sold with Farmers &
Merchants Bank of Beach (Note 2)...................................... -- -- -- (14,520) --
Time deposits acquired through branch acquisition (Note 2).............. -- -- -- 86,639 --
Time deposits sold with Farmers & Merchants Bank of Beach (Note 2)...... -- -- -- (24,775) --
Purchase of treasury stock.............................................. -- -- -- -- (216)
Proceeds from issuance of stock (Note 1)................................ -- -- -- 9,717 --
Stock offering costs.................................................... -- (4) (8) -- --
Dividends paid to minority stockholders................................. -- -- -- (92) (87)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities................. 18,380 (175) 46,412 89,448 21,538
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... 1,980 (5,630) (4,899) 5,863 65
CASH AND CASH EQUIVALENTS, beginning of period............................ 6,360 11,259 11,259 5,396 5,331
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.................................. $ 8,340 $ 5,629 $ 6,360 $ 11,259 $ 5,396
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid........................................................... $ 2,677 $ 2,790 $ 11,347 $ 6,383 $ 4,156
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income taxes paid....................................................... $ 81 $ 76 $ 934 $ 615 $ 309
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

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

F-6
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

1. BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES:

BNCCORP, Inc. (BNCCORP) is a bank holding company incorporated in Delaware.
The following is background information and a summary of significant accounting
policies followed by BNCCORP and its subsidiaries in the determination of
financial position, results of operations and cash flows.

ORGANIZATION

The consolidated financial statements include the accounts of BNCCORP and
its subsidiaries. All significant intercompany accounts have been eliminated in
consolidation. BNCCORP was initially incorporated under the name of Linton
Bancshares and had subsidiary banks in Linton (First National Bank of Linton)
and Bismarck (BNC National Bank of Bismarck), North Dakota. An affiliated bank
holding company, Farmers & Merchants Bancshares, had its subsidiary bank
(Farmers & Merchants Bank of Beach-FMB) in Beach, North Dakota. These two bank
holding companies were merged effective January 1, 1994. This transaction was
recorded in a manner similar to a pooling of interests due to the common
ownership of BNCCORP and Farmers & Merchants Bancshares. In August 1995, the two
BNCCORP subsidiaries, BNC National Bank of Bismarck and First National Bank of
Linton, were merged. Also in August 1995, BNC National Bank of Bismarck acquired
seven North Dakota branches from First Bank System, Inc. (former Metropolitan
Federal Bank, fsb branches). In October 1995, FMB was sold. In January 1996,
BNCCORP was granted a charter for BNC National Bank of Minnesota located in
Minneapolis, Minnesota. In May 1996, BNCCORP acquired a nonbank commercial
finance company, BNC Financial Corporation located in St. Cloud, Minnesota (see
Note 2).

As of December 31, 1996, BNCCORP's wholly owned subsidiaries were BNC
National Bank of Bismarck and Bismarck Properties, Inc. operating primarily in
North Dakota, and BNC National Bank of Minnesota and BNC Financial Corporation
operating primarily in Minnesota.

During 1995, BNCCORP sold 1,106,000 shares of common stock (including
106,000 shares sold pursuant to the underwriters' overallotment option) at
$10.00 per share in an initial public offering. Net proceeds from the offering
of approximately $9,717,000 were received by BNCCORP. A portion of the proceeds
was used in January 1996 to capitalize BNC National Bank of Minnesota (see
above) and to inject additional capital into BNC National Bank of Bismarck, with
the remaining proceeds used for working capital and general corporate purposes.
In addition, 20,000 shares of restricted stock were issued to various company
managers and employees under BNCCORP's stock incentive plan (see Note 15).

INTERIM FINANCIAL STATEMENTS

The consolidated Statement of Financial Condition and Consolidated Statement
of Stockholders' Equity as of March 31, 1997, and the related Consolidated
Statements of Income and Cash Flows for the three months ended March 31, 1997
and 1996, are unaudited and are not covered by the report of independent public
accountants. However, in the opinion of management these interim financial
statements include all adjustments (consisting of only normal recurring
adjustments) which are necessary for the fair presentation of the results for
the interim periods presented. The results of operations for the unaudited
three-month period ended March 31, 1997 are not necessarily indicative of the
results which may be expected for the entire 1997 fiscal year.

F-7
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

1. BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REGULATORY ENVIRONMENT

BNCCORP and its subsidiary banks are subject to regulations of certain state
and federal agencies, including periodic examinations by those regulatory
agencies. BNCCORP and its subsidiary banks are also subject to minimum
regulatory capital requirements. At December 31, 1996, capital levels exceed
minimum capital requirements (see Note 9).

SECURITIES

BNCCORP follows the accounting prescribed in Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). SFAS 115 addresses accounting and reporting for
all investments in debt and equity securities. Under SFAS 115, investments are
classified into three categories and accounted for as follows:

HELD-TO-MATURITY

This category includes debt securities that BNCCORP has the positive intent
and ability to hold to maturity. All securities in this category are recorded at
amortized historical cost. BNCCORP had no securities in the held-to-maturity
portfolio at March 31, 1997 or at December 31, 1996 or 1995.

TRADING SECURITIES

Trading securities are purchased and sold for the purpose of generating
profits on short-term differences in market prices and are recorded at fair
value, with any unrealized gains and losses being reflected in earnings. BNCCORP
holds no securities for trading purposes.

AVAILABLE-FOR-SALE

Available-for-sale securities do not meet the classification criteria for
held-to-maturity or trading securities and are recorded at fair value, with any
unrealized gains and losses being reflected as a separate component of
stockholders' equity, net of tax effects.

Both amortization and accretion are computed using the estimated effective
interest method. Gains or losses on sales of securities are recognized upon
disposal. The adjusted cost of specific securities sold is used to compute the
gain or loss on sale.

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. Approximate
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.
Accelerated methods of depreciation and amortization are used for income tax
purposes.

F-8
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

1. BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
OTHER REAL ESTATE OWNED

Other real estate owned, which is included in other assets, represents
properties acquired through foreclosures or other proceedings or those
considered in-substance foreclosures, and is stated at the lower of cost or fair
value at the date of acquisition. Write-downs to fair value at the time of
acquisition are charged to the allowance for loan losses; write-downs and costs
incurred subsequent to acquisition are charged to expense. At March 31, 1997 and
December 31, 1996, BNCCORP had a recorded investment in properties acquired
through foreclosures of $159,000. There were no properties acquired through
foreclosures or in-substance foreclosures recorded at December 31, 1995.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at the amount of unpaid principal net of unearned fees and
costs and an allowance for loan losses. The allowance for loan losses is
established through a provision for loan losses charged to expense. The
provision for loan losses is based upon BNCCORP's past loan loss experience,
current economic conditions and an evaluation of the loan portfolio. The
allowance for loan losses is increased by the provision for loan losses charged
to expense and is reduced by net loan charge-offs. Current and future economic
developments or other factors may have a significant impact on the market value
of real estate and other collateral. Accordingly, ultimate losses may vary from
current estimates. These estimates are reviewed in detail quarterly and
adjustments, as they become necessary, are reported in the results of operations
in the periods in which they become known. In management's opinion, the
allowance for loan losses is sufficient to adequately provide for potential loan
losses.

Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS 114), and Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures" (SFAS 118), effective January 1, 1995,
modified the accounting by creditors for impairment of a loan and in-substance
foreclosure, among other things. Adoption of these standards has not had a
material impact on BNCCORP's consolidated financial statements.

Loans, including impaired loans, are generally placed on a nonaccrual basis
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 period is reversed against interest income of
the current period. Accrued but uncollected interest income applicable to
previous periods is charged against the loan loss reserve as BNCCORP provides
for a reserve for accrued interest. While a loan is classified as nonaccrual,
collections of principal and interest are generally applied as a reduction to
principal outstanding.

Loans may be returned to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within an
acceptable period of time, and there is a sustained period of repayment
performance by the borrower, in accordance with the contractual terms of
principal and interest.

F-9
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

1. BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LOAN FEE INCOME

BNCCORP recognizes loan fees and certain direct origination costs over the
estimated life of the loan, utilizing a method that results in a constant rate
of return. Most of the loans originated by BNCCORP are short-term loans. A
significant portion of BNCCORP's loan fee income is derived from loans which are
originated and subsequently sold. Such fees are recognized in income at the date
of sale.

MORTGAGE SERVICING RIGHTS AND TRANSFERS OF FINANCIAL ASSETS

Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights" (SFAS 122), effective January 1, 1996, requires an
entity to record an asset for mortgage servicing rights when it sells mortgages
and retains the servicing, and then amortize this asset over the period during
which servicing income is expected to be received. The capitalized mortgage
servicing rights must be assessed for impairment based on the current fair value
of those rights and such impairment must be recognized through a valuation
allowance. Adoption of this standard has not had a material effect on BNCCORP's
consolidated financial statements.

Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS 125), effective January 1, 1997, supersedes SFAS 122 and establishes
accounting methods aimed at ensuring that entities recognize only assets
controlled and liabilities incurred and derecognize assets only when control has
been surrendered and liabilities only when they have been extinguished.
Statement of Financial Accounting Standards No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125" (SFAS 127), effective
January 1, 1997, defers certain provisions of SFAS 125 until January 1, 1998.
Adoption of these standards is not expected to have a material effect on
BNCCORP's consolidated financial statements.

COST IN EXCESS OF NET ASSETS ACQUIRED

Cost in excess of net assets acquired represents the premium paid for
deposits assumed and goodwill. Premiums paid for deposits assumed totaling
$4,022,000 are being amortized over their estimated lives of ten years using the
straight-line method. Accumulated amortization was $914,000 as of March 31,
1997. Goodwill totaling $900,000 represents amounts paid for subsidiaries in
excess of the fair value of identifiable assets. Goodwill is being amortized
over its estimated useful life of 15 to 25 years using the straight-line method.
Accumulated amortization was $188,000 as of March 31, 1997.

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), effective January 1, 1996, established accounting standards for the
impairment of long-lived assets. Adoption of this standard has not had a
material impact on BNCCORP's consolidated financial statements.

INCOME TAXES

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

F-10
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

1. BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 loan losses, depreciation timing differences,
unrealized gains and losses on investment securities and leases which are
treated as operating leases for tax purposes and capital leases for financial
statement purposes.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and due from banks.

EARNINGS PER SHARE

Earnings per common share are computed by dividing net profits by the
weighted average number of common and common equivalent shares of stock
outstanding during the period. Primary and fully diluted earnings per share are
the same.

The weighted average number of common and common equivalent shares of stock
utilized in the per share computations was 2,338,720, 1,720,030 and 1,218,909 in
1996, 1995 and 1994, respectively and 2,338,720 for the three month periods
ended March 31, 1997 and 1996.

USE OF ESTIMATES IN FINANCIAL STATEMENTS

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

RECENTLY ISSUED ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128), issued in February 1997 and effective January 1, 1998, supersedes
AICPA Accounting Principles Board Opinion No. 15, "Earnings per Share" (APB 15)
and other related accounting pronouncements and interpretations, and specifies
new computation, presentation and disclosure requirements for earnings per
share. Adoption of this standard is not expected to have a material effect on
the calculation of BNC's earnings per share.

Statement of Financial Accounting Standards No. 129, "Disclosure of
Information About Capital Structure" (SFAS 129), also issued in February 1997
and effective January 1, 1998, summarizes disclosure requirements pertaining to
an entity's capital structure. SFAS 129 is a compilation of several previously
issued standards and pronouncements, therefore, adoption of this standard is not
expected to have a material effect on BNC's consolidated financial statements.

2. ACQUISITIONS AND DIVESTITURES:

In August 1995, BNCCORP acquired seven North Dakota branches from First Bank
System, Inc. (former Metropolitan Federal Bank, fsb branches). The purchase
price for the seven branches was

F-11
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

2. ACQUISITIONS AND DIVESTITURES: (CONTINUED)
approximately $5,357,000. The purchase was funded with proceeds from the sale of
common stock in BNCCORP's initial public offering. The acquisition was accounted
for using the purchase method of accounting. One of the seven branches was sold
in October 1995 along with FMB (see below). The resulting premiums paid for
deposits of $3,497,000 and goodwill of $112,000 are being amortized over 10
years and 15 years, respectively.

In October 1995, BNCCORP sold FMB to Community First Bankshares, Inc.
BNCCORP received approximately $3.8 million for its 89.6% interest, resulting in
a gain of $316,000. Proceeds of approximately $238,000 were also received by two
minority shareholders of FMB who are also officers and directors of BNCCORP. As
part of the sale, BNCCORP purchased $17.7 million in loans which had been
participated to FMB and $655,000 in previously nonperforming and restructured
loans.

The following pro forma financial information has been prepared assuming the
sale of FMB had been consummated at the beginning of the respective periods.
Because there did not exist sufficient continuity of the deposits and assets
acquired in connection with the acquisition of the First Bank deposits and
because financial information related to such deposits and assets was not
divisible from the financial information of First Bank, pro forma financial
information regarding the deposits and assets acquired is not included. The pro
forma financial information is not necessarily indicative of the results of
operations that would have occurred had the transactions been consummated on the
assumed dates.

Pro forma financial information for the years ended December 31 (in
thousands, except per share data) is as follows:

<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Total interest income.................................................... $ 14,108 $ 9,157
Total interest expense................................................... 7,567 3,409
Net interest income...................................................... 6,541 5,748
Net income............................................................... 1,381 815
--------- ---------
--------- ---------
Earnings per share....................................................... $ 0.80 $ 0.67
--------- ---------
--------- ---------
</TABLE>

In January 1996, BNCCORP was granted a charter for its DE NOVO BNC National
Bank of Minnesota, Minneapolis, Minnesota, and provided initial capital of $5.0
million to the wholly-owned bank which is engaged in commercial banking
activities in the Minneapolis/Saint Paul area. The capital injection was funded
through proceeds from the sale of common stock in BNCCORP's initial public
offering (July 1995).

In May 1996, BNCCORP acquired a nonbank commercial finance company, BNC
Financial Corporation, St. Cloud, Minnesota, for $85,000. BNCCORP provided
initial capital of $1.0 million to the wholly-owned subsidiary, which is engaged
primarily in asset-based commercial financing. Goodwill of $66,000 resulting
from the transaction is being amortized over 25 years.

In December 1996, BNCCORP acquired the accounting firm of Gregory K.
Cleveland & Company, Bismarck, North Dakota (the Firm). The Firm was owned by an
executive officer/director of BNCCORP. The purchase price for the Firm was
approximately $368,000 and was based on the Firm's customer receivables,
prepaids and certain intangibles. Goodwill of $265,000 resulting from the
transaction is being

F-12
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

2. ACQUISITIONS AND DIVESTITURES: (CONTINUED)
amortized over 15 years. Employees of the Firm now staff the newly established
trust and private banking division at BNC National Bank of Bismarck.

Effective January 1997, BNCCORP acquired the stock of the J.D. Meier
Insurance Agency, Linton, North Dakota (the Agency). Three executive officers of
BNCCORP owned stock in the Agency. The purchase price for the stock was
approximately $34,000, and BNCCORP provided additional capital of $75,000 to the
wholly owned subsidiary. The Agency is operating as a subsidiary of BNC National
Bank of Bismarck and engages in insurance business.

3. SECURITIES:

BNCCORP had no securities designated as held-to-maturity or trading in its
portfolio at March 31, 1997 or at December 31, 1996 or 1995. In December 1995,
securities with an aggregate amortized cost of $1,129,000 and net unrealized
gains of $134,000 were transferred from held-to-maturity to available-for-sale
in accordance with the implementation provisions of SFAS 115.

AVAILABLE-FOR-SALE SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair
market value of securities available for sale were as follows as of December 31
(in thousands):

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
1996
U.S. Treasury securities.......................................... $ 13,814 $ 42 $ -- $ 13,856
U.S. government agency mortgage-backed securities................. 9,555 4 -- 9,559
U.S. government agencies securities............................... 3,633 13 (4) 3,642
Collateralized mortgage obligations............................... 23,898 -- (43) 23,855
Other securities.................................................. 7,773 13 (7) 7,779
State and municipal bonds......................................... 759 41 -- 800
----------- ----- ----------- -----------
$ 59,432 $ 113 $ (54) $ 59,491
----------- ----- ----------- -----------
----------- ----- ----------- -----------

1995
U.S. Treasury securities.......................................... $ 25,041 $ 63 $ (3) $ 25,101
U.S. government agency mortgage-backed securities................. 4,798 45 -- 4,843
U.S. government agencies securities............................... 7,513 7 -- 7,520
Collateralized mortgage obligations............................... 44,800 3 -- 44,803
Other securities.................................................. 10,882 7 (4) 10,885
State and municipal bonds......................................... 1,162 102 -- 1,264
----------- ----- ----------- -----------
$ 94,196 $ 227 $ (7) $ 94,416
----------- ----- ----------- -----------
----------- ----- ----------- -----------
</TABLE>

F-13
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

3. SECURITIES: (CONTINUED)
Scheduled maturities for securities available for sale were as follows as of
December 31 (in thousands):

<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less............................................ $ 11,531 $ 11,538 $ 14,563 $ 14,563
Due after one year through five years.............................. 15,062 15,117 25,703 25,796
Due after five years through ten years............................. 18,934 18,971 21,269 21,381
Due after ten years................................................ 13,905 13,865 32,661 32,676
----------- ----------- ----------- -----------
Total.......................................................... $ 59,432 $ 59,491 $ 94,196 $ 94,416
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

BNCCORP recognized net gains (losses) on sales of securities available for
sale of approximately $19,000, $(18,000) and $28,000 in 1996, 1995 and 1994,
respectively and ($11,000) and $5,000 for the three month periods ended March
31, 1997 and 1996, respectively.

4. LOANS:

The composition of the loan portfolio was as follows (in thousands):

<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, --------------------
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Commercial and industrial.................... $ 96,878 $ 94,701 $ 41,639
Agricultural................................. 20,084 20,673 18,046
Real estate:
Mortgage................................... 49,601 47,451 36,606
Construction............................... 11,597 8,806 5,884
Consumer..................................... 18,738 18,343 9,580
Lease financing.............................. 12,827 12,970 8,660
Other........................................ -- 391 380
----------- --------- ---------
Total.................................... 209,725 203,335 120,795
Less:
Allowance for loan losses.................. (1,736) (1,594) (1,048)
Deferred loan fees and costs............... (242) (338) (112)
----------- --------- ---------
$ 207,747 $ 201,403 $ 119,635
----------- --------- ---------
----------- --------- ---------
</TABLE>

Loans on a nonaccrual basis, including impaired loans, were approximately
$86,000, $61,000 and $71,000 at March 31, 1997, December 31, 1996 and 1995,
respectively. Interest on those loans included in income amounted to $1,000 and
$2,000 in 1996 and 1995, respectively. Total interest income of $12,000 and
$13,000 in 1996 and 1995, respectively, would have been recognized under the
original terms of the loans.

F-14
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

4. LOANS: (CONTINUED)
The recorded investment in loans for which impairment had been recognized in
accordance with SFAS 114 totaled $4.0 million and $1.5 million at December 31,
1996 and 1995, respectively. The allowance for loan losses on these loans was
$171,000 and $131,000 at December 31, 1996 and 1995, respectively. For the years
ended December 31, 1996 and 1995, the average recorded investment in impaired
loans was approximately $3.6 million and $2.1 million, respectively. BNCCORP
recognized $216,000 and $122,000 of interest on impaired loans, most of which
was recognized on a cash basis in 1996 and 1995, respectively.

Loans to officers, directors and employees totaled $806,000 and $527,000 at
December 31, 1996 and 1995, respectively, and loans to other related parties
totaled $259,000 and $941,000 at December 31, 1996 and 1995, respectively.

As of December 31, 1996, 66% of BNCCORP's loans were to borrowers located in
the North Dakota market area, 24% were to borrowers in the Minnesota market
area, and 10% were to borrowers in other market areas. Commercial loan borrowers
are generally small- to medium-sized corporations, partnerships and sole
proprietors in a wide variety of businesses. Loans to consumers are both secured
and unsecured. Real estate secured 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 BNCCORP
holds real property as collateral. Of the $47.5 million real estate mortgage
loans as of December 31, 1996, approximately $20 million 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 which are secured by real estate.

Transactions in the allowance for loan losses were as follows (in
thousands):

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period..................................... $ 1,594 $ 1,048 $ 1,048 $ 1,021 $ 713
Provision for loan losses...................................... 170 84 739 168 179
Loans charged off.............................................. (39) (1) (350) (248) (23)
Loans recovered................................................ 11 5 157 207 152
Allowance attributable to subsidiary sold...................... -- -- -- (100) --
--------- --------- --------- --------- ---------
Balance, end of period........................................... $ 1,736 $ 1,136 $ 1,594 $ 1,048 $ 1,021
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

F-15
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

5. PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT:

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

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
MARCH --------- ---------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Land and improvements........................................................... $ 508 $ 508 $ 264
Buildings and improvements...................................................... 3,879 3,346 3,364
Leasehold improvements.......................................................... 753 719 336
Furniture, fixtures and equipment............................................... 3,978 3,701 3,047
----------- --------- ---------
Total cost.................................................................. 9,118 8,274 7,011
Less accumulated depreciation and amortization.................................. (1,764) (1,617) (1,233)
----------- --------- ---------
Net premises, leasehold improvements and equipment.......................... $ 7,354 $ 6,657 $ 5,778
----------- --------- ---------
----------- --------- ---------
</TABLE>

Depreciation and amortization expense on premises, leasehold improvements
and equipment totaled approximately $499,000, $377,000 and $348,000 for the
years ended December 31, 1996, 1995 and 1994, respectively and $152,000 and
$104,000 for the three month periods ended March 31, 1997 and 1996,
respectively.

6. INCOME TAXES:

The provision for income taxes consists of the following (in thousands):

F-16
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

6. INCOME TAXES: (CONTINUED)
The provision for federal income taxes expected at the statutory rate
differs from the actual provision as follows (in thousands):

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

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax asset:
Loans, primarily due to differences in accounting for loan
losses.......................................................... $ 634 $ 577 $ 333
Unrealized loss on securities available for sale.................. 162 -- --
Other............................................................. 122 145 41
----- --------- ---------
Deferred tax asset............................................ 918 722 374
----- --------- ---------
Deferred tax liability:
Unrealized gain on securities available for sale.................. -- 16 86
Leases, primarily due to differences in accounting for leases..... 547 524 385
Premises and equipment, primarily due to differences in original
cost basis and depreciation..................................... 463 451 354
----- --------- ---------
Deferred tax liability........................................ 1,010 991 825
----- --------- ---------
Net deferred tax liability.................................... $ 92 $ 269 $ 451
----- --------- ---------
----- --------- ---------
</TABLE>

F-17
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

7. NOTES PAYABLE:

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

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Federal funds purchased...................................................................... $ 1,437 $ --
Advance from the Federal Home Loan Bank (FHLB), principal due August 1997, interest payable
monthly at 6.60%, secured by single-family mortgage loans and government agency
securities................................................................................. 1,000 1,000
Advances from FHLB, principal due April 1997, interest payable monthly at the one-month LIBOR
rate minus .3% (5.59% at December 31, 1996), secured by single-family mortgage loans and
government agency securities............................................................... 9,000 --
Notes payable to American National Bank, maturing in 2000 with annual paydowns of $550,000 on
March 31 of each year, interest payable quarterly at the prime rate plus .5% (9.25% at
December 31, 1995), secured by stock of subsidiary bank.................................... -- 3,354
Notes payable to Firstar Bank Milwaukee, N.A. (Firstar) including a term note for $3 million
and a revolving line of credit up to $7 million, interest payable quarterly at either the
prime rate or LIBOR rate plus 2% at BNCCORP's option (7.50% at December 31, 1996), secured
by stock of subsidiary banks............................................................... 10,000 --
Revolving line of credit with Bank Windsor, principal due September 1997, interest payable
quarterly at the prime rate plus .75% (9.00% at December 31, 1996)......................... 615 --
--------- ---------
Total.................................................................................. $ 22,052 $ 4,354
--------- ---------
--------- ---------
</TABLE>

The notes payable to American National Bank at December 31, 1995 were
refinanced with Firstar in February 1996.

The Firstar notes were amended in February 1997 to include a $3 million term
note and a $12 million revolving line of credit, both of which mature in 1998.
Collateral, interest rates and timing of payments on those notes are as
indicated above.

BNCCORP was in compliance with all debt covenants at December 31, 1996.

8. STOCKHOLDERS' EQUITY:

BNCCORP and its subsidiary banks are subject to certain minimum capital
requirements (see Note 9). In addition, certain regulatory restrictions exist
regarding the ability of the subsidiary banks to transfer funds to BNCCORP in
the form of cash dividends, loans or advances. Approval of the principal
regulator is required for the banks to pay dividends to BNCCORP in excess of the
subsidiary banks' earnings retained in the current year plus retained net
profits for the preceding two years.

Effective June 1995, BNCCORP declared a 60-for-1 stock split of BNCCORP's
common stock and reincorporated BNCCORP in Delaware, in connection with its
initial public offering. This stock split has been retroactively reflected in
the financial statements.

In connection with its initial public offering (see Note 1), BNCCORP agreed
to sell to the underwriter, for nominal consideration, a warrant to purchase
50,000 shares of common stock (the Warrant).

F-18
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

8. STOCKHOLDERS' EQUITY: (CONTINUED)
The Warrant became exercisable at $12 per share in June 1996 and remains
exercisable for a period of four years. No warrants had been exercised as of
March 31, 1997.

9. REGULATORY CAPITAL:

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

Quantitative measures established by the regulations to ensure capital
adequacy require BNCCORP and its banks to maintain minimum amounts and ratios
(set forth in the tables that follow) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes that, as of March
31, 1997, BNCCORP and the Banks meet all capital adequacy requirements to which
they are subject.

As of March 31, 1997, the most recent notifications from the Office of the
Comptroller of the Currency (OCC) categorized BNCCORP's subsidiary banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the banks must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 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.

F-19
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

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

<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996
TOTAL CAPITAL (to risk weighted assets):
Consolidated.................................... $ 20,109 8.8% $ 18,206 a8.0% N/A N/A
BNC National Bank of Bismarck................... 19,009 10.4 14,644 a8.0 $ 18,306 a10.0%
BNC National Bank of Minnesota.................. 4,981 12.2 3,255 a8.0 4,069 a10.0
TIER 1 CAPITAL (to risk weighted assets):
Consolidated.................................... 18,515 8.1 9,103 a4.0 N/A N/A
BNC National Bank of Bismarck................... 17,759 9.7 7,322 a4.0 10,983 a6.0
BNC National Bank of Minnesota.................. 4,688 11.5 1,628 a4.0 2,441 a6.0
TIER 1 CAPITAL (to average assets):
Consolidated.................................... 18,515 6.7 11,112 a4.0 N/A N/A
BNC National Bank of Bismarck................... 17,759 7.1 10,006 a4.0 12,508 a5.0
BNC National Bank of Minnesota.................. 4,688 12.9 1,453 a4.0 1,817 a5.0
AS OF DECEMBER 31, 1995
TOTAL CAPITAL (to risk weighted assets):
Consolidated.................................... 17,768 12.5 11,375 a8.0 N/A N/A
BNC National Bank of Bismarck................... 14,072 10.1 11,202 a8.0 14,003 a10.0
TIER 1 CAPITAL (to risk weighted assets):
Consolidated.................................... 16,720 11.8 5,688 a4.0 N/A N/A
BNC National Bank of Bismarck................... 13,024 9.3 5,601 a4.0 8,402 a6.0
TIER 1 CAPITAL (to average assets):
Consolidated.................................... 16,720 7.0 9,497 a4.0 N/A N/A
BNC National Bank of Bismarck................... 13,024 5.7 9,215 a4.0 11,519 a5.0
</TABLE>

F-20
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

9. REGULATORY CAPITAL: (CONTINUED)
Ratios of the Company and its subsidiary banks as of March 31, 1997 are
presented below:

<TABLE>
<CAPTION>
TO BE WELL
MINIMUM CAPITALIZED
REQUIRED UNDER PROMPT
FOR CORRECTIVE
CAPITAL ACTION
ACTUAL ADEQUACY PROVISIONS
--------- ---------- -------------
<S> <C> <C> <C>
Total Capital (to risk weighted assets):
Consolidated.............................................................. 8.8% a8.0% N/A
BNC National Bank of Bismarck............................................. 10.6 a8.0 a10.0%
BNC National Bank of Minnesota............................................ 11.3 a8.0 a10.0
Tier 1 Capital (to risk weighted assets):
Consolidated.............................................................. 8.1 a4.0 N/A
BNC National Bank of Bismarck............................................. 9.9 a4.0 a6.0
BNC National Bank of Minnesota............................................ 10.5 a4.0 a6.0
Tier 1 Capital (to average assets):
Consolidated.............................................................. 6.6 a4.0 N/A
BNC National Bank of Bismarck............................................. 7.2 a4.0 a5.0
BNC National Bank of Minnesota............................................ 11.5 a4.0 a5.0
</TABLE>

F-21
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

10. FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash, due from banks and federal funds sold.................... $ 13,260 $ 13,260 $ 14,209 $ 14,209
Securities available for sale.................................. 59,491 59,491 94,416 94,416
Loans, net..................................................... 201,403 200,669 119,635 119,959
---------- ---------- ---------- ----------
274,154 $ 273,420 228,260 $ 228,584
---------- ----------
---------- ----------
Other assets................................................... 14,404 12,139
---------- ----------
$ 288,558 $ 240,399
---------- ----------
---------- ----------
Liabilities:
Deposits, noninterest-bearing.................................. $ 22,218 $ 22,218 $ 16,874 $ 16,874
Deposits, interest-bearing..................................... 217,552 217,684 194,174 194,017
Notes payable.................................................. 22,052 22,060 4,354 4,358
---------- ---------- ---------- ----------
261,822 $ 261,962 215,402 $ 215,249
---------- ----------
---------- ----------
Other liabilities.............................................. 4,101 4,110
Stockholders' equity........................................... 22,635 20,887
---------- ----------
$ 288,558 $ 240,399
---------- ----------
---------- ----------
</TABLE>

The following methods and assumptions were used to estimate the above fair
values.

CASH AND CASH EQUIVALENTS, NONINTEREST-BEARING DEPOSITS AND DEMAND DEPOSITS

The carrying amounts for cash and cash equivalents, as well as
noninterest-bearing deposits, approximate fair value due to the short maturity
of the instruments. The fair value of demand deposits, 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 BNCCORP'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.

F-22
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

10. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
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.

11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:

BNCCORP is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.

These financial instruments include commitments to extend credit, including
loan commitments and unused portions of lines of credit, and standby letters of
credit. These instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the balance sheet. The contract or
notional amounts of these instruments reflect the extent of involvement BNCCORP
has in particular classes of financial instruments.

BNCCORP's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for the commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. BNCCORP generally requires collateral or other security
specifically to support off-balance-sheet financial instruments with credit
risk.

Financial instruments with contract amounts representing credit risk are as
follows as of December 31 (in thousands):

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Commitments to extend credit............................................ $ 59,553 $ 28,034
Standby letters of credit............................................... 1,048 714
--------- ---------
$ 60,601 $ 28,748
--------- ---------
--------- ---------
</TABLE>

12. RELATED-PARTY TRANSACTIONS:

BNCCORP has entered into transactions with its stockholders, directors,
officers and other affiliates including the accounting firm and insurance agency
purchases discussed in Note 2. In the opinion of management, such transactions
have been fair and reasonable to BNCCORP and have been entered into under terms
and rates substantially the same as those offered by BNCCORP in the ordinary
course of business.

F-23
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

13. 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 10% of compensation each year (15% effective January 1,
1997), not to exceed the dollar limit set by law. At their discretion, BNCCORP
and its subsidiaries provide matching contributions of up to 50% of employee
deferrals up to a maximum employer contribution of 5% of compensation. BNCCORP
made matching contributions of $79,000, $65,000 and $55,000 in 1996, 1995 and
1994, respectively. Under the investment options available under the 401(k)
plan, employees may elect to invest their salary deferrals in BNCCORP stock.

BNCCORP provides no significant postretirement or postemployment benefits.

14. COMMITMENTS AND CONTINGENCIES:

EMPLOYMENT AGREEMENTS

BNCCORP has entered into three-year employment agreements with its chief
executive officer, chief financial officer, executive vice president and the
chief executive officer of BNC National Bank of 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, if the
Executives' status as employees with BNCCORP is terminated for any reason other
than cause, as defined in the agreements, or if they terminate their employment
for good reason, as defined in the agreements, then the Executives will be paid
a lump-sum amount equal to three times their current annual compensation.

LEASES

BNCCORP has entered into operating lease agreements for certain facilities
and equipment used in its operations. Rent expense for the years ended December
31, 1996, 1995 and 1994, was $331,000, $100,000 and $36,000, respectively.
Minimum annual base lease payments for operating leases with remaining terms of
greater than one year are as follows:

<TABLE>
<S> <C>
1997.............................................. $ 227,520
1998.............................................. 162,169
1999.............................................. 146,072
2000.............................................. 137,191
2001.............................................. 86,920
Thereafter........................................ 93,840
</TABLE>

15. STOCK-BASED COMPENSATION PLAN:

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), issued in October 1995 and effective for
fiscal years beginning after December 15, 1995, allows two alternative methods
of accounting for employee stock options or similar instruments. Under SFAS 123,

F-24
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

15. STOCK-BASED COMPENSATION PLAN: (CONTINUED)
an entity may either implement a fair value based method of accounting for stock
options or elect to continue to measure compensation cost under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). Entities electing to continue under APB 25 must provide pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting had been applied.

BNCCORP adopted SFAS 123 on January 1, 1996 and has elected to continue to
measure compensation cost under APB 25 and comply with the pro forma disclosure
requirements of SFAS 123. A description of BNCCORP's stock-based compensation
plan accounted for under APB 25 is presented below.

BNCCORP's Stock Incentive Plan (the "Stock Plan"), adopted during 1995, is
intended to provide long-term incentives to its key employees, including
officers and directors who are employees of BNCCORP. 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, BNCCORP may grant employees
incentive stock options, nonqualified stock options, restricted stock, stock
awards or any combination thereof. The Committee establishes the exercise price
of any stock options granted under the Stock Plan provided that the exercise
price may not be less than the fair market value of a share of common stock on
the date of grant. As of December 31, 1996, 20,000 restricted shares and 30,000
options had been awarded under the Stock Plan. The restricted stock vests in
33 1/3% increments during 1998, 1999 and 2000. All of the options are
exercisable at a price of $10 per share and vest in 20% increments on January
18, 1996 and July 18, 1996, 1997, 1998 and 1999. The options expire on July 18,
2005. No options had been exercised as of December 31, 1996 or March 31, 1997.

Had compensation cost for the plan been determined consistent with SFAS 123,
BNCCORP's net income and earnings per share would have been reduced to the
following pro forma amounts:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE THREE DECEMBER 31,
MONTHS ENDED ----------------------
MARCH 31, 1997 1996 1995
-------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
NET INCOME:
As reported............................................................................ $561,000 $1,847,000 $1,157,000
Pro forma.............................................................................. 557,000 1,814,000 1,157,000
PRIMARY AND FULLY DILUTED EPS:
As reported............................................................................ $ 0.24 $ 0.79 $ 0.67
Pro forma.............................................................................. 0.24 0.77 0.67
</TABLE>

F-25
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

15. STOCK-BASED COMPENSATION PLAN: (CONTINUED)
A summary of the status of the Stock Plan at March 31, 1997, December 31,
1996 and 1995 and changes during the periods then ended is presented in the
table and narrative below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
THREE MONTHS ENDED
MARCH 31, 1997
(UNAUDITED) 1996 1995
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period.................... 30,000 $ 10 30,000 $ 10 -- $ --
Granted............................................. -- -- -- -- 30,000 10
--------- ----- --------- ----- --------- -----
Outstanding, end of period.......................... 30,000 $ 10 30,000 $ 10 30,000 $ 10
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Exercisable, end of period.......................... 12,000 $ 10 12,000 $ 10 -- $ --
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Weighted average fair value of options granted...... $ -- $ -- $ 4.50
--------- --------- ---------
--------- --------- ---------
</TABLE>

The fair value of the option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 6.08%; expected dividend yields of 0.0%; expected lives of
seven years; and expected volatility of 28.7%.

16. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS:

In May 1997 the Company filed a registration statement with the Securities
and Exchange Commission on Form SB-2 in connection with the proposed issuance of
$15,000,000 in subordinated notes. The notes will be unsecured general
obligations of the Company and subordinated in right of payment of all other
Senior Indebtedness of the Company.

F-26
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

17. CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY:

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

PARENT COMPANY ONLY
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, --------------------
1997 1996 1995
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Cash and short-term investments............................ $ 182 $ 257 $ 6,074
Investment in subsidiaries................................. 27,618 27,241 16,916
Loans...................................................... 476 545 546
Receivable from subsidiaries............................... 5,516 4,265 277
Cost in excess of net assets acquired, net................. 228 232 247
Other...................................................... 906 574 437
------------- --------- ---------
$ 34,926 $ 33,114 $ 24,497
------------- --------- ---------
------------- --------- ---------
Liabilities and stockholders' equity:
Notes payable.............................................. $ 11,549 $ 10,249 $ 3,354
Accrued expenses and other liabilities..................... 474 185 256
------------- --------- ---------
12,023 10,434 3,610
------------- --------- ---------
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;
2,364,100 shares issued, 2,338,720 shares outstanding.... 23 23 23
Capital surplus............................................ 13,768 13,768 13,776
Retained earnings.......................................... 9,578 9,062 7,170
Treasury stock............................................. (216) (216) (216)
Unrealized gain (loss) on securities available for sale.... (250) 43 134
------------- --------- ---------
22,903 22,680 20,887
------------- --------- ---------
$ 34,926 $ 33,114 $ 24,497
------------- --------- ---------
------------- --------- ---------
</TABLE>

F-27
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

17. CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY: (CONTINUED)

PARENT COMPANY ONLY
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income:
Management fee income............................................ $ 242 $ 212 $ 927 $ 606 $ 753
Consulting income................................................ -- 1 1 -- 18
Interest......................................................... 97 14 210 134 12
Other............................................................ 1 1 137 319 32
--------- --------- --------- --------- ---------
Total income................................................... 340 228 1,275 1,059 815
--------- --------- --------- --------- ---------
Expenses:
Interest......................................................... 205 68 546 336 278
Personnel expense................................................ 214 256 965 987 1,141
Legal and other professional..................................... 20 56 155 103 91
Depreciation and amortization.................................... 12 10 49 63 48
Other............................................................ 97 101 367 300 160
--------- --------- --------- --------- ---------
Total expenses................................................. 548 491 2,082 1,789 1,718
--------- --------- --------- --------- ---------
Loss before income tax benefit and equity in undistributed income
of subsidiaries.................................................. (208) (263) (807) (730) (903)
Income tax benefit................................................. 53 88 281 258 344
--------- --------- --------- --------- ---------
Loss before equity in undistributed income of subsidiaries......... (155) (175) (526) (472) (559)
Equity in undistributed income of subsidiaries..................... 671 317 2,418 1,629 1,750
--------- --------- --------- --------- ---------
Net income..................................................... $ 516 $ 142 $ 1,892 $ 1,157 $ 1,191
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

F-28
<PAGE>

BNCCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

17. CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY: (CONTINUED)

PARENT COMPANY ONLY
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH FOR THE YEARS ENDED DECEMBER
31, 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 516 $ 142 $ 1,892 $ 1,157 $ 1,191
Adjustments to reconcile net income to net cash
provided by (used in) operating activities -
Gain on sale of subsidiary...................... -- -- -- (316) --
Depreciation and amortization................... 5 5 25 27 9
Amortization of intangible assets............... 7 5 24 36 39
Equity in undistributed income of
subsidiaries.................................. (671) (317) (2,418) (1,629) (1,750)
Change in prepaid expenses and other
receivables................................... (1,595) 98 (3,816) (168) 1,266
Change in accrued expenses and other
liabilities................................... 289 (28) (71) (228) 263
Other........................................... 5 (220) (391) (142) (16)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities.................................. (1,444) (315) (4,755) (1,263) 1,002
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Net (increase) decrease in loans.................. 69 (137) 1 (546) --
Increase in investment in subsidiaries............ -- (6,000) (8,700) (6,796) (450)
Sale of investment in subsidiary.................. -- -- -- 3,811 --
Net sale (purchases) of premises, leasehold
improvements and equipment...................... -- 58 50 (108) (22)
Dividends received................................ -- -- 700 1,309 --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities.................................... 69 (6,079) (7,949) (2,330) (472)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Repayments of long-term borrowings................ (10,000) (1,004) (1,004) (716) (550)
Proceeds from long-term borrowings................ 11,300 1,650 7,899 500 216
(Costs) proceeds from issuance of stock........... -- (4) (8) 9,717 --
Payments to repurchase stock...................... -- -- -- -- (216)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities........................................ 1,300 642 6,887 9,501 (550)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... (75) (5,752) (5,817) 5,908 (20)
Cash and cash equivalents, beginning of period...... 257 6,074 6,074 166 186
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period............ $ 182 $ 322 $ 257 $ 6,074 $ 166
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow information:
Interest paid..................................... $ 148 $ 78 $ 524 $ 338 $ 268
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income tax payments received from subsidiary
banks, net of income taxes paid................. $ 75 $ 106 $ 441 $ 16 $ 600
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

F-29
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE ANY OF THE DATES ON WHICH INFORMATION IS FURNISHED HEREIN OR SINCE THE
DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 11
Capitalization................................. 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 13
Business....................................... 38
Management..................................... 42
Certain Transactions........................... 49
Supervision and Regulation..................... 50
Principal Stockholders......................... 56
Description of the Notes....................... 57
Underwriting................................... 64
Legal Matters.................................. 64
Experts........................................ 65
Available Information.......................... 65
Index to Consolidated Financial Statements F-1
</TABLE>

$15,000,000

BNCCORP, INC.

% SUBORDINATED NOTES DUE 2004

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

PROSPECTUS
-------------

DAIN BOSWORTH
INCORPORATED

, 1997

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify its directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act of 1933,
as amended. In addition, Section 9 of the Registrant's Bylaws, a copy of which
is incorporated herein by reference as Exhibit 3.2, provides for the
indemnification of directors and officers against expenses and liabilities
incurred in connection with defending actions brought against them for
negligence or misconduct in their official capacities. The Registrant also has
indemnity agreements, a form of which is incorporated by reference herein as
Exhibit 10.1, with each of its directors, which provide for indemnification of
such directors. The Registrant has purchased insurance permitted by the
Delaware General Corporation Law on behalf of directors and officers, which may
cover liabilities under the Securities Act of 1933, as amended. The
Underwriting Agreement, a form of which is filed as Exhibit 1.1 and incorporated
herein by reference, provides indemnification to directors and officers of the
Registrant under certain conditions.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

SEC registration fee. . . . . . . . . . . . . . $ 4,546
NASD filing fee . . . . . . . . . . . . . . . . 2,000
Accounting fees . . . . . . . . . . . . . . . . 20,000*
Printing expenses . . . . . . . . . . . . . . . 40,000*
Legal fees and expenses . . . . . . . . . . . . 60,000*
Trustee expenses. . . . . . . . . . . . . . . . 5,000*
Miscellaneous expenses. . . . . . . . . . . . . 18,454*
----------
Total . . . . . . . . . . . . . . . . . . . $ 150,000*
----------
----------

- ---------------------
*Estimated

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

The Company issued shares of its Common Stock in a 60 for 1 exchange in
connection with the Company's reincorporation from the State of North Dakota to
the State of Delaware in June of 1995. These shares were issued in a
transaction that did not constitute an offer or sale of securities for purposes
of the registration requirements of the Securities Act of 1933 based on Rule
145(a)(2).

The Company has periodically issued shares of its Common Stock to employees
of the Company pursuant to its 401(k) Plan. These shares were offered and sold
without registration under the Securities Act inasmuch as they were deemed not
subject to registration pursuant to the exemptions provided in Section 4(2) of
the Securities Act as securities sold in transactions not involving any public
offering.

ITEM 27. EXHIBITS.

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------

1.1 Form of Underwriting Agreement*

2.1 Plan of Merger of BNCCORP, Inc., a North Dakota corporation, into
BNCCORP, INC., a Delaware corporation, incorporated by reference to
Exhibit 2.1 to the Registrant's Registration Statement on Form SB-2
(Registration No. 33-92369)

<PAGE>

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------

2.2 Branch Purchase and Assumption Agreement dated as of January 31, 1995
between Metropolitan Federal Bank, FSB and Bismarck National Bank, a
national banking association, incorporated by reference to Exhibit 2.2
to the Registrant's Registration Statement on Form SB-2 (Registration
No. 33-92369)

2.3 Stock Purchase Agreement dated as of June 7, 1995, by and among the
Company, Gregory Cleveland, Tracy Scott and Community First
Bankshares, Inc., incorporated by reference to Exhibit 2.3 to the
Registrant's Registration Statement on Form SB-2 (Registration No.
33-92369)

2.4 Agreement and Plan of Merger of the First National Bank of Linton with
and into BNC National Bank dated July 28, 1995, incorporated by
reference to Exhibit 2.4 to the Registrant's Form 10-KSB dated as of
March 29, 1996

2.5 Contract for Sale of Assets dated December 31, 1996 by and between
Gregory K. Cleveland, P.C. and BNC National Bank, incorporated by
reference to Exhibit 2.5 to the Registrant's Form 10-KSB dated as of
March 26, 1997

2.6 Stock Purchase Agreement dated December 31, 1996 by and between
Gregory K. Cleveland, P.C. and BNC National Bank, incorporated by
reference to Exhibit 2.6 to the Registrant's Form 10-KSB dated as of
March 26, 1997

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 Form of Indenture by and between BNCCORP, Inc. and Firstar Trust
Company, as trustee*

5.1 Opinion and consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P. to the legality of the Notes**

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, Gregory K. Cleveland, and Brad J. Scott, 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 Employment Agreement between the Company, Bismarck National Bank and
Thomas Resch, incorporated by reference to Exhibit 10.8 to Amendment
No. 1 to the Registrant's Registration Statement on Form SB-2
(Registration No. 33-92369) as amended by Amendment dated June 1,
1996**

10.5 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 between the Company and each of Tracy J. Scott, Gregory
K. Cleveland, Brad J. Scott, John Malmberg, Michael Miller, and Thomas
Resch, incorporated by reference to Exhibit 10.5 to the Registrant's
Form 10-KSB dated as of March 29, 1996

10.6 Term Loan Agreement dated February 19, 1996 by and between Firstar
Bank Milwaukee, N.A. and BNCCORP, Inc., incorporated by reference to
Exhibit 10.6 to the Registrant's Form 10-KSB dated as of March 29,
1996

<PAGE>

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------

10.7 Revolving Credit Agreement dated February 19, 1996 by and between
Firstar Bank Milwaukee, N.A. and BNCCORP, Inc., incorporated by
reference to Exhibit 10.7 to the Registrant's Form 10-KSB dated as of
March 29, 1996

10.8 Amendment to Term Loan Agreement and Term Note dated February 11, 1997
by and between Firstar Bank Milwaukee, N.A. and BNCCORP, Inc.,
incorporated by reference to Exhibit 10.8 to the Registrant's Form
10-KSB dated as of March 26, 1997

10.9 Amendment to Revolving Credit Agreement and Revolving Credit Note
dated February 11, 1997 by and between Firstar Bank Milwaukee, N.A.
and BNCCORP, Inc., incorporated by reference to Exhibit 10.9 to the
Registrant's Form 10-KSB dated as of March 26, 1997

10.10 Revolving Credit Agreement dated September 27, 1996 by and between BNC
Financial Corporation and Bank Windsor, incorporated by reference to
Exhibit 10.10 to the Registrant's Form 10-KSB dated as of March 26,
1997

16.1 Letter of James J. Wosepka, CPA regarding Change in Accountants,
incorporated by reference to Exhibit 16 to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-92369)

21.1 Subsidiaries of the Company, incorporated by reference to Exhibit 21
to the Registrant's Form 10-KSB dated as of March 26, 1997

23.1 Consent of Arthur Andersen LLP**

23.2 Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P. (included in Exhibit 5)**

24.1 Power of Attorney (included on signature page)**

25.1 Statement of Eligibility of Firstar Trust Company, as Trustee**

_________________________
* Filed herewith.
** Previously filed.

ITEM 28. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The small business issuer will:

(1) For determining any liability under the Act, treat the
information omitted from the form of

<PAGE>

prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the small business issuer
under Rule 424(b)(1) or (4) or 497(h) under the Act as part of this registration
statement as of the time the Commission declared it effective.

(2) For determining any liability under the Act, treat each post-
effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.

<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment No. 1
to this Registration Statement to be signed on its behalf by the undersigned in
the City of Bismarck, State of North Dakota, on May 22, 1997.

BNCCORP, INC.

By: /s/ Tracy J. Scott
---------------------------------------
Tracy J. Scott,
Chairman of the Board
and Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.

SIGNATURE TITLE DATE
--------- ----- ----

* Director, Chairman of the Board May 22, 1997
- --------------------------- and Chief Executive Officer
Tracy J. Scott (Principal Executive Officer)

/s/ Gregory K. Cleveland Director, President and May 22, 1997
- --------------------------- Chief Financial Officer
Gregory K. Cleveland (Principal Financial and
Accounting Officer)

* Director May 22, 1997
- ---------------------------
Brad J. Scott

* Director May 22, 1997
- ---------------------------
John A. Malmberg

* Director May 22, 1997
- ---------------------------
John A. Hipp, M.D.

*. Director May 22, 1997
- ---------------------------
Richard M. Johnson, Jr.

* Director May 22, 1997
- ---------------------------
Thomas J. Resch

* Director May 22, 1997
- ---------------------------
John M. Shaffer

* Director May 22, 1997
- ---------------------------
Jerry R. Woodcox

By:/s/Gregory K. Cleveland Attorney-in-Fact May 22, 1997
- ---------------------------
Gregory K. Cleveland

<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS PAGE
- ------- ----------------------- ----

1.1 Form of Underwriting Agreement*

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 Form of Indenture by and between BNCCORP, Inc. and Firstar Trust
Company, N.A., as trustee*

5.1 Opinion and consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P. to the legality of the Notes**

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)

<PAGE>

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ----

16.1 Letter of James J. Wosepka, CPA regarding Change in Accountants,
incorporated by reference to Exhibit 16 to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-92369)

21.1 Subsidiaries of the Company, incorporated by reference to Exhibit 21
to the Registrant's Form 10-KSB dated as of March 26, 1997

23.1 Consent of Arthur Andersen LLP**

23.2 Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P. (included in Exhibit 5)**

24.1 Power of Attorney (included on signature page)**

25.1 Statement of Eligibility of Firstar Trust Company, as Trustee**

____________________
* Filed herewith.
** Previously filed herewith.

<PAGE>

DRAFT: ^ 5/19/97

$15,000,000

BNCCORP, Inc.

___% Subordinated Notes due 2004

UNDERWRITING AGREEMENT

May __, 1997

Dain Bosworth Incorporated
Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402

Ladies and Gentlemen:

BNCCORP, Inc., a Delaware corporation (the "Company"), proposes, subject to
the terms and conditions stated herein, to issue and sell to you (the
"Underwriter"), ____% Subordinated Notes due 2004 in an aggregate principal
amount of $15,000,000 (the "Notes"). The Notes will be issued under an
indenture, dated as of May ___, 1997 (the "Indenture"), between the Company and
Firstar ^ Trust Company, as trustee (the "Trustee").

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (File No. 333-^ 26703) and a
related preliminary prospectus for the registration of the Notes under the
Securities Act of 1933, as amended (the "Act"). The registration statement, as
amended at the time it was declared effective, including the information (if
any) deemed to be part thereof pursuant to Rule 430A under the Act is herein
referred to as the "Registration Statement." The form of prospectus first filed
by the Company with the Commission pursuant to Rules 424(b) and 430A under the
Act is referred to herein as the "Prospectus." Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective or
filed with the Commission pursuant to Rule 424(a) under the Act is referred to
herein as a "Preliminary Prospectus." Copies of the Registration Statement,
including all exhibits and schedules thereto, any amendments thereto and all
Preliminary Prospectuses have been delivered to you.

The Company hereby confirms its agreements with respect to the purchase of
the Notes by the Underwriter as follows:

1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

(a) The Company represents and warrants to, and agrees with, the
Underwriter that:

(i) The Registration Statement has been declared effective under
the Act, and no post-effective amendment to the Registration Statement has
been filed as of the date of this Agreement.

<PAGE>

No stop order suspending the effectiveness of the Registration Statement
has been issued and no proceeding for that purpose has been instituted or
threatened by the Commission.

(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act^ and the rules and regulations of
the Commission promulgated thereunder and Industry Guide 3, Statistical
Disclosure by Bank Holding Companies (collectively, the "Regulations"), and
did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, the Company makes no
representation or warranty as to information contained in or omitted in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriter expressly for use in the preparation thereof.

(iii) The Registration Statement conforms, and the Prospectus and
any amendments or supplements thereto will conform, in all material
respects to the requirements of the Act, the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act") and the Regulations. Neither the
Registration Statement nor any amendment thereto, and neither the
Prospectus nor any supplement thereto, contains or will contain, as the
case may be, any untrue statement of a material fact or omits or will omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representation or warranty as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by the Underwriter, expressly for use in the
preparation thereof.

(iv) The Company is a "small business issuer" as such term is
defined in Rule 405 and Regulation S-B under the Act.

(v) The Company has been duly organized, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own or lease its properties and
conduct its business as described in the Prospectus, and is duly qualified
to transact business in all jurisdictions in which the conduct of its
business or its ownership or leasing of property requires such
qualification and the failure so to qualify would have a material adverse
effect on the business or condition, financial or otherwise, of the Company
and its subsidiaries, taken as a whole. The Company is duly registered as
a bank holding company under the Bank Holding Company Act of 1956, as
amended.

(vi) The Company does not own any stock or other equity interest in
any corporation, partnership, joint venture, unincorporated association or
other entity, other than BNC National Bank of Minnesota (the "Minnesota
Bank") and BNC National Bank of Bismarck (the "Bismarck Bank")
(collectively the "Subsidiary Banks"), BNC Financial Corporation, a
Minnesota corporation ("BNC Financial") and Bismarck Properties, Inc., an
inactive North Dakota corporation ("Bismarck Properties") (the Subsidiary
Banks, BNC Financial ^, Bismarck Properties and any such other entity being
collectively referred to herein as the ^"Company Subsidiaries"). The
Company Subsidiaries do not own any stock or other equity interest in any
corporation, partnership, joint venture, unincorporated association or
other entity, other than J.D. Meier Insurance Agency ("J.D. Meier") (J.D.
Meier, the Company Subsidiaries and any such other entities being
collectively referred to herein as the "subsidiaries"). The Company or the
Company

<PAGE>

Subsidiaires, as the case may be, own all of the issued and outstanding
capital stock of the subsidiaries, free and clear of all liens,
encumbrances and security interests, except as disclosed in the Prospectus.
Except as disclosed in the Prospectus, no options, warrants or other rights
to purchase, agreements or other obligations to issue, or other rights to
convert any obligations into, shares of capital stock or ownership
interests in any of the subsidiaries ^ are outstanding. All outstanding
shares of capital stock of each of the subsidiaries ^ have been duly
authorized and validly issued, are fully paid and non-assessable.

(vii) Each of the Subsidiary Banks are national banking associations
duly organized, validly existing and in good standing under the laws of the
United States and have the power and authority to own or lease their
respective properties and conduct their respective businesses as described
in the Prospectus. The Minnesota Bank is authorized to conduct the
business of banking in the State of Minnesota and the Bismarck Bank is
authorized to conduct the business of banking in the State of North Dakota.
None of the Subsidiary Banks are required to be qualified to transact
business as a foreign corporation in any jurisdiction. The Minnesota Bank
and the Bismarck Bank are members of the Federal Reserve Bank of
Minneapolis, and are each duly authorized to operate a banking business.
Each Subsidiary Bank is a member of the Bank Insurance Fund of the Federal
Deposit Insurance Corporation (the "FDIC") and its deposit accounts are
insured by the FDIC to the fullest extent provided by law. No proceeding
for the termination of such insurance is pending or is threatened.

(viii) BNC Financial ^, Bismarck Properties and J.D. Meier have been
duly incorporated, are validly existing as corporations in good standing
under the laws of their jurisdiction of incorporation, have the corporate
power and authority to own or lease their properties and conduct their
businesses as described in the Prospectus, and are duly qualified to
transact business in all jurisdictions in which the conduct of their
business or their ownership or leasing of property requires such
qualification and the failure so to qualify would have a material adverse
effect on the business or condition, financial or otherwise, of the Company
and ^ the subsidiaries, taken as a whole. Bismarck Properties is an
inactive North Dakota corporation that does not own or lease any properties
and does not currently conduct business.

(ix) The Company has the power and authority to enter into this
Agreement and the Indenture and to authorize, issue and sell the Notes it
will sell hereunder as contemplated hereby. This Agreement and the
Indenture have been duly and validly authorized, executed and delivered by
the Company and constitute valid and binding agreements of the Company in
accordance with their terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or other similar laws relating to or
affecting the rights of creditors generally, by general principles of
equity and, with respect to Section 7 hereof, by the public policy
underlying the federal or state securities laws. The Notes to be issued
under the Indenture and sold by the Company to the Underwriter pursuant to
this Agreement ^ have been duly authorized and, when executed and
authenticated in the manner set forth in the Indenture and issued, sold and
delivered in the manner set forth herein, will be the valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms and the terms of the Indenture, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity. The Indenture has been duly qualified under
the Trust Indenture Act. The Indenture will be substantially in the form
filed as an exhibit to the Registration Statement and will comply with the
Trust Indenture Act and the regulations thereunder. The Indenture and the
Notes conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.

<PAGE>

(x) The outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and
nonassessable. All offers and sales by the Company of outstanding shares
of capital stock and other securities of the Company, prior to the date
hereof, were made in compliance with the Act and all applicable state
securities or blue sky laws. ^ Neither the filing of the Registration
Statement nor the offering or the sale of the Notes as contemplated by this
Agreement gives rise to any rights for, or relating to, the registration of
any shares of capital stock or other securities of the Company, except such
rights which have been validly waived or satisfied. Except as described in
the Prospectus and those options and shares of restricted stock issued
under the Company's 1995 Stock Incentive Plan, there are no outstanding
options, warrants, agreements, contracts or other rights to purchase or
acquire from the Company any shares of its capital stock. The Company has
the authorized and outstanding capital stock as set forth under the heading
"Capitalization" in the Prospectus. ^

(xi) The financial statements, together with the related notes and
schedules as set forth in the Registration Statement and Prospectus,
present fairly the consolidated financial position, results of operations
and changes in financial position of the Company and ^ the subsidiaries on
the basis stated in the Registration Statement at the indicated dates and
for the indicated periods. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, and such financial statements
comply in all material ^ respects with the requirements of the Act and the
Regulations and all adjustments necessary for a fair presentation of
results for such periods have been made, except as otherwise stated
therein. The summary and selected financial and statistical data included
in the Registration Statement present fairly the information shown therein
on the basis stated in the Registration Statement and have been compiled on
a basis consistent with the financial statements presented therein. No
other financial statements or schedules are required to be included in the
Registration Statement or Prospectus. The allowance for loan losses of
each of the Subsidiary Banks is adequate based on management's assessment
of various factors affecting the loan portfolio, including a review of
problem loans, business conditions, historical loss experience, evaluation
of the quality of the underlying collateral and holding and disposal costs.

(xii) There is no action or proceeding pending or, to the knowledge
of the Company, threatened or contemplated against the Company or any of ^
the subsidiaries before any court or administrative or regulatory agency
which, if determined adversely to the Company or any of ^ the subsidiaries,
would, individually or in the aggregate, result in a material adverse
change in the business or condition (financial or otherwise), results of
operations, stockholders' equity or prospects of the Company and ^ the
subsidiaries, taken as a whole, except as set forth in the Registration
Statement.

(xiii) The Company has good and marketable title to all properties
and assets reflected as owned in the financial statements referred to above
(or as described as owned in the Prospectus), in each case free and clear
of all liens, encumbrances and defects, except such as are described in the
Prospectus or do not substantially affect the value of such properties and
assets and do not materially interfere with the use made and proposed to be
made of such properties and assets by the Company and ^ the subsidiaries;
and any real property and buildings held under lease by the Company and ^
the subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company and ^ the subsidiaries.

<PAGE>

(xiv) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, and
except as disclosed in the Registration Statement and in any such
amendments or supplements, (A) there has not been any material adverse
change, or any development involving a prospective material adverse change,
in or affecting the condition, financial or otherwise, of the Company and ^
the subsidiaries, taken as a whole, or the business affairs, management,
financial position, shareholders' equity or results of operations of the
Company and ^ the subsidiaries, taken as a whole, whether or not occurring
in the ordinary course of business, including, without limitation, any
increase in the amount or number of classified assets of the Subsidiary
Banks, any decrease in net interest margin for any month to a level below ^
4.25%^, or any material decrease in the volume of loan originations, the
amount of deposits or the amount of loans, (B) there has not been any
transaction not in the ordinary course of business entered into by the
Company or any of ^ the subsidiaries which is material to the Company and ^
the subsidiaries, taken as a whole, other than transactions described or
contemplated in the Registration Statement, (C) the Company and ^ the
subsidiaries have not incurred any material liabilities or obligations,
which are not in the ordinary course of business or which could result in a
material reduction in the future earnings of the Company and ^ the
subsidiaries, (D) the Company and ^ the subsidiaries have not sustained any
material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity, whether
or not covered by insurance, (E) there has not been any change in the
capital stock of the Company (other than upon the exercise of options and
warrants described in the Registration Statement), or any material increase
in the short-term or long-term debt (including capitalized lease
obligations) of the Company and ^ the subsidiaries, taken as a whole, other
than with respect to deposits ^, Federal Home Loan Bank advances and the
Notes to be sold pursuant to this Agreement, (F) there has not been any
declaration or payment of any dividends or any distributions of any kind
with respect to the capital stock of the Company, other than any dividends
or distributions described or contemplated in the Registration Statement,
or (G) there has not been any issuance of warrants, options, convertible
securities or other rights to purchase or acquire capital stock of the
Company.

(xv) Neither the Company nor any of ^ the subsidiaries is in
violation of, or in default under, its charter or bylaws, or any statute,
or any rule, regulation, order, judgment, decree or authorization of any
court or governmental or administrative agency or body having jurisdiction
over the Company or any of ^ the subsidiaries or any of their properties,
or any indenture, mortgage, deed of trust, loan agreement, lease,
franchise, license or other agreement or instrument to which the Company or
any of ^ the subsidiaries is a party or by which it or any of them are
bound or to which any property or assets of the Company or any of ^ the
subsidiaries is subject, which violation or default would have a material
adverse effect on the business, condition (financial or otherwise), results
of operations, stockholders' equity or prospects of the Company and ^ the
subsidiaries, taken as a whole.

(xvi) The issuance and sale of the Notes by the Company and the
compliance by the Company with all of the provisions of this Agreement and
the Indenture and the consummation of the transactions contemplated herein
and therein will not violate any provision of the Certificate of
Incorporation or Bylaws of the Company or any of ^ the subsidiaries or any
statute or any order, judgment, decree, rule, regulation or authorization
of any court or governmental or administrative agency or body having
jurisdiction over the Company or any of ^ the subsidiaries or any of their
properties, and will not conflict with, result in a breach or violation of,
or constitute, either by itself or upon notice or passage of time or both,
a default under any indenture, mortgage, deed of trust,

<PAGE>

loan agreement, lease, franchise, license or other agreement or instrument
to which the Company or any of ^ the subsidiaries is a party or by which
the Company or any of ^ the subsidiaries is bound or to which any property
or assets of the Company or any of ^ the subsidiaries is subject. No
approval, consent, order, authorization, designation, declaration or filing
by or with any court or governmental agency or body is required for the
execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated, except as may be
required under the Act, the Trust Indenture Act or any state securities or
blue sky laws.

(xvii) The Company and each of ^ the subsidiaries holds and is
operating in compliance in all material respects with all licenses,
approvals, certificates and permits from governmental and regulatory
authorities, foreign and domestic, which are necessary to the conduct of
its business as described in the Prospectus. Without limiting the
generality of the foregoing, the Company ^ and the Company Subsidiaries
have all necessary approvals of the Board of Governors of the Federal
Reserve System (the "Board of Governors") and the Office of the Comptroller
of the Currency (the "OCC") to own the stock of ^ the subsidiaries.
Neither the Company nor any of ^ the subsidiaries have received notice of
nor have knowledge of any basis for any proceeding or action relating
specifically to the Company or any of ^ the subsidiaries for the revocation
or suspension of any such consent, authorization, approval, order, license,
certificate or permit or any other action or proposed action by any
regulatory authority having jurisdiction over the Company or any of ^ the
subsidiaries that would have a material adverse effect on the Company and ^
the subsidiaries, taken as a whole. Except as disclosed in the Prospectus,
neither the Company nor any Subsidiary Bank is currently subject to any
cease and desist order, written agreement or memorandum of understanding
with, or is a party to any commitment letter or similar undertaking to, or
is subject to any order or directive by, or is a recipient of any
extraordinary supervisory agreement letter from, or have adopted any board
resolutions at the request of the Board of Governors, the FDIC, the ^ OCC,
the North Dakota Department of Banking, the Minnesota Department of
Commerce or any other federal or state governmental authorities charged
with the supervision or regulation of national banking associations,
savings banks, banks, savings and loan companies or associations, bank
holding companies or savings and loan holding companies or engaged in the
insurance of bank deposits (collectively, the "Bank Regulators"), and
neither the Company nor any Subsidiary Bank has been advised by any of the
Bank Regulators that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar
undertaking.

(xviii) Arthur Andersen LLP, which have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and
the rules and regulations thereunder.

(xix) The Company has not taken and will not take, directly or
indirectly, any action designed to, or which has constituted, or which
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.

(xx) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Notes other than any Preliminary Prospectus or the Prospectus
or other materials permitted by the Act to be distributed by the Company.

<PAGE>

(xxi) The Company is in compliance with all provisions of Florida
Statutes Section 517.075 (Chapter 92-198, laws of Florida). Neither the
Company nor any of ^ the subsidiaries does business, directly or
indirectly, with the government of Cuba or with any person or entity
located in Cuba.

(xxii) The Company and ^ the subsidiaries have filed all federal,
state, local and foreign tax returns or reports required to be filed, and
have paid in full all taxes indicated by said returns or reports and all
assessments received by it or any of them to the extent that such taxes
have become due and payable, except where the Company and ^ the
subsidiaries are contesting in good faith such taxes and assessments. The
Company and each Subsidiary Bank have also filed all required applications,
reports, returns and other documents and information with all Bank
Regulators.

(xxiii) The Company and each of ^ the subsidiaries owns or possesses
all patents, patent applications, trademarks, service marks, tradenames,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, know-how, trade secrets and other similar rights ("Intellectual
Property Rights") necessary for the conduct of its business as ^ described
in the Prospectus. ^ The Company has no knowledge of any infringement by
it or any of the subsidiaries of any patents, patent applications,
trademarks, service marks, tradenames, trademark registrations, service
mark registrations, copyrights, licenses, inventions, trade secrets or
other similar rights of others, and neither the Company nor any of ^ the
subsidiaries has received any notice or claim of conflict with the asserted
rights of others with respect any of the foregoing.

(xxiv) The Company is not, and upon completion of the sale of the
Notes contemplated hereby will not be, required to register as an
"investment company" under the Investment Company Act of 1940, as amended.

(xxv) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific authorization;
(B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and the rules of Bank Regulators, and to maintain accountability
for assets; (C) access to records is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

(xxvi) Other than as contemplated by this Agreement, the Company has
not incurred any liability for any finder's or broker's fee or agent's
commission in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.

(xxvii) The minute books and stock record books of the Company and
the subsidiaries are complete and correct and accurately reflect all
material actions taken at meetings of the shareholders and directors of the
Company and the subsidiaries, and of all committees thereof, including,
without limitation, the loan committees and the audit committees of the
Subsidiary Banks, and all issuances and transfers of any shares of the
capital stock of the Company and the subsidiaries.

(xxviii) There has been no unlawful storage, treatment or disposal of
waste by the Company or any of ^ the subsidiaries (or any of their
predecessors-in-interest) at any of the

<PAGE>

facilities owned thereby, including, but not limited to, real estate owned
property, except for such violations which would not have a material
adverse effect on the condition, financial or otherwise, or the earnings,
affairs or business prospects of the Company and ^ the subsidiaries, taken
as a whole; there has been no material spill, discharge, leak, emission,
ejection, escape, dumping or release of any kind onto the properties owned
by the Company or any of ^ the subsidiaries, including, but not limited to,
real estate owned property, or into the environment surrounding those
properties of any toxic or hazardous substances as defined under any
federal, state or local regulations, laws or statutes, except for those
releases permissible under such regulations, laws or statutes or otherwise
allowable under applicable permits and except for such releases which would
not have a material adverse effect on the condition, financial or
otherwise, or the earnings, affairs or business prospects of the Company
and ^ the subsidiaries, taken as a whole.

(xxix) No material labor dispute with the employees of the Company or
any of ^ the subsidiaries exists or is imminent.

(xxx) Each employee benefit plan (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), or
other bonus, retirement, pension, profit sharing, stock bonus, thrift,
stock option, stock purchase, incentive, severance, deferred or other
compensation, cafeteria, vacation, disability, or other paid or unpaid
leave of absence, health, life or other welfare benefit plan, program,
agreement or arrangement of, or applicable to current or former employees
of ^ the Company or any of ^ the subsidiaries, which is presently in
existence, or with respect to which the Company or any subsidiary could
reasonably be expected to have, directly or indirectly, any liability
("Benefit Plans"), was or has been established, maintained and operated in
all material respects in compliance with its terms and with all applicable
federal, state, and local statutes, orders, governmental rules and
regulations, including, but not limited to, ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"). The Company and ^ the subsidiaries
do not, either directly or indirectly as a member of a controlled group
within the meaning of Sections 414(b), (c), (m) and (o) of the Code
("Controlled Group"), have any material liability that remains unsatisfied
for (A) the termination of any single employer plan under Sections 4062 or
4064 of ERISA, a cessation of operations pursuant to Section 4062(e) of
ERISA or a withdrawal from a multiple employer plan pursuant to Section
4063 of ERISA, (B) any interest payments under Section 302(e) of ERISA or
Section 412(m) of the Code, (C) any excise tax imposed by Section 4971,
Section 4972, Section 4975, Section 4976, Section 4977, Section 4979,
Section 4980B, Section 4999 or Section 5000 of the Code or civil penalty
imposed by Section 502 of ERISA, (D) any minimum funding contributions
under Section 302(c)(11) of ERISA or Section 412(c)(11) of the Code, (E)
any accumulated funding deficiency within the meaning of Section 412(a) of
the Code, whether or not waived, or (F) to the Internal Revenue Service,
the Department of Labor, the Pension Benefit Guaranty Corporation, or any
Benefit Plan under Subtitle D or Subtitle E of Title IV of ERISA, under
Subchapter D of Chapter 1 of Subtitle A of the Code or under Chapter 43 of
Subtitle D of the Code. No action, suit, grievance, arbitration or other
matter of litigation or claim with respect to any Benefit Plan (other than
routine claims for benefits made in the ordinary course of plan
administration for which plan administrative procedures have not been
exhausted) is pending or, to the Company's knowledge, threatened or
imminent against or with respect to any Benefit Plan, any member of a
Controlled Group that includes the Company, or any fiduciary within the
meaning of Section 3(21) of ERISA with respect to a Benefit Plan which, if
determined adversely to the Company, would have a material adverse effect
on the Company and ^ the subsidiaries, taken as whole. Neither the
Company, any of ^ the subsidiaries, nor any member of a Controlled Group
that includes the Company or ^ the subsidiaries, has any knowledge of any
facts with respect to any Benefit Plan

<PAGE>

that could give rise to any action, suit, grievance, arbitration or any
other manner of litigation or claim or could be expected to have a material
adverse effect on the Company and ^ the subsidiaries taken as a whole.

(xxxi) The Company and ^ the subsidiaries maintain insurance of the
types and in the amounts generally deemed adequate in their respective
businesses and consistent with insurance coverage maintained by similar
companies and businesses, and as required by the rules and regulations of
all governmental agencies having jurisdiction over the Company and ^ the
subsidiaries, including Bank Regulators, all of which insurance is in full
force and effect.

(xxxii) All transactions required to be disclosed pursuant to Item
404 of Regulation S-B between the Company and ^ the subsidiaries and the
officers, directors and shareholders who beneficially own more than 5% of
any class of the Company's voting securities of the Company and ^ the
subsidiaries have been accurately disclosed in the Prospectus.

(xxxiii) Neither the Company nor ^ the subsidiaries have, directly or
indirectly, at any time during the past five years (A) made any unlawful
contribution to any candidate for public office, or failed to disclose
fully any contribution in violation of law, or (B) made any payment to any
federal or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.

(xxxiv) Proceeds from the sale of the Notes will constitute "Tier ^
2" capital under applicable regulations promulgated by the Board of
Governors.

(b) Any certificate signed by any officer of the Company and delivered to
the Underwriter or counsel to the Underwriter shall be deemed to be a
representation and warranty of the Company to the Underwriter as to the matters
covered thereby.

2. PURCHASE, SALE AND DELIVERY OF NOTES.

(a) On the basis of the representations, warranties and covenants
contained herein, and subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriter and the Underwriter agrees to purchase
from the Company the aggregate principal amount of Notes. The Notes will be
purchased at a price of 95.0% of ^ the principal amount thereof.

(b) The Notes to be purchased by the Underwriter hereunder, will be
registered in such denominations (which shall be authorized denominations under
the Indenture) and names as Dain Bosworth Incorporated may request upon at least
forty-eight hours' prior notice to the Company, shall be delivered by or on
behalf of the Company to you for the account of the Underwriter at such time and
place as shall hereafter be designated by the Underwriter, against payment by
the Underwriter or on its behalf of the purchase price therefor by certified or
official bank check or checks, payable to the order of the Company in next day
funds or by wire transfer. The time and date of such delivery and payment shall
be, with respect to the Notes, 8:30 a.m. Minneapolis time, at the offices of
Oppenheimer Wolff & Donnelly, on June __, 1997, or such other time and date as
you and the Company may agree upon in writing, such time and date being herein
referred to as the "Closing Date," or such other time and date as you and the
Company may agree upon in writing. The Notes will be made available for
checking and packaging at least twenty-four hours prior to the Closing Date at a
location as may be designated by you.

<PAGE>

3. OFFERING BY UNDERWRITER. It is understood that the Underwriter
proposes to make a public offering of the Notes as soon as the Underwriter deems
it advisable to do so. The ^ initial price to public for the Notes will be ^
100% of the principal amount thereof. The Underwriter may from time to time
thereafter change the public offering price and other selling terms.

4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter that:

(a) The Company will prepare and timely file with the Commission under
Rule 424(b) under the Act a Prospectus containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance on Rule
430A under the Act, and will not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Underwriter shall not
previously have been advised and furnished with a copy and as to which the
Underwriter shall have objected in writing promptly after reasonable notice
thereof or which is not in compliance with the Act or the Regulations.

(b) The Company will advise the Underwriter promptly of any request of the
Commission for amendment of the Registration Statement or for any supplement to
the Prospectus or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus, of the suspension of the qualification
of the Notes for offering or sale in any jurisdiction, or of the institution or
threatening of any proceedings for that purpose, and the Company will use its
best efforts to prevent the issuance of any such stop order preventing or
suspending the use of the Prospectus or suspending such qualification and to
obtain as soon as possible the lifting thereof, if issued.

(c) The Company will endeavor to qualify the Notes for sale under the
securities laws of such jurisdictions as the Underwriter may reasonably have
designated in writing and will, or will cause counsel to, make such
applications, file such documents, and furnish such information as may be
reasonably requested by the Underwriter, provided that the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time, prepare
and file such statements, reports and other documents as are or may be required
to continue such qualifications in effect for so long a period as the
Underwriter may reasonably request for distribution of the Notes.

(d) The Company will furnish the Underwriter with as many copies of any
Preliminary Prospectus as the Underwriter may reasonably request and, during the
period when delivery of a prospectus is required under the Act, the Company will
furnish the Underwriter with as many copies of the Prospectus in final form, or
as thereafter amended or supplemented, as the Underwriter may, from time to
time, reasonably request. The Company will deliver to the Underwriter, at or
before the Closing Date, two (2) signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Underwriter such number of copies of the Registration Statement, without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request.

(e) If, during the period in which a prospectus is required by law to be
delivered by the Underwriter or any dealer, any event shall occur as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances existing at
the time the Prospectus is delivered to a purchaser, not misleading, or if for
any other reason it shall be necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the

<PAGE>

Prospectus so that the Prospectus as so amended or supplemented will not include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein in light of the circumstances
existing when it is so delivered, not misleading, or so that the Prospectus will
comply with law. In case the Underwriter is required to deliver a prospectus in
connection with sales of any Notes at any time nine months or more after the
effective date of the Registration Statement, upon the request of the
Underwriter but at the expense of the Underwriter, the Company will prepare and
deliver to the Underwriter as many copies as the Underwriter may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of the Act.

(f) The Company will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than 15 months
after the end of the Company's current fiscal quarter, an earnings statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earnings statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 thereunder and will advise you in writing when
such statement has been so made available.

(g) The Company will, for such period up to five years from the Closing
Date, deliver to the Underwriter copies of its annual report and copies of all
other documents, reports and information furnished by the Company to its
security holders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or the
Exchange Act. The Company will deliver to the Underwriter similar reports with
respect to significant subsidiaries, as that term is defined in the rules and
regulations under the Act, which are not consolidated in the Company's financial
statements.

(h) ^ The Company will apply the net proceeds from the sale of the Notes
to be sold by it hereunder substantially in accordance with the purposes set
forth under "Use of Proceeds" in the Prospectus.

(i) So long as any of the Notes are outstanding, the Company will furnish
to the Underwriter the reports required to be filed with the Trustee pursuant to
Section 704 of the Indenture, concurrently with such filing.

5. COSTS AND EXPENSES. Whether or not the transactions contemplated by
this Agreement are consummated, the Company will pay (directly or by
reimbursement) all costs, expenses and fees incident to the performance of the
obligations of the Company under this Agreement, including, without limiting the
generality of the foregoing, the following: (i) accounting fees of the Company;
(ii) the fees and disbursements of counsel for the Company; (iii) the fees and
expenses of the Trustee and counsel for the Trustee; (iv) rating agency fees, if
any; (v) the cost of preparing, printing and filing of the Registration
Statement, Preliminary Prospectuses and the Prospectus and any amendments and
supplements thereto and the printing, mailing and delivery to the Underwriter
and dealers of copies thereof and of this Agreement, any Selected Dealers
Agreement, the Underwriter's Selling Memorandum, the Blue Sky Memorandum and any
supplements or amendments thereto (excluding, except as provided below, fees and
expenses of counsel to the Underwriter); (vi) the filing fees of the Commission;
(vii) the filing fees and expenses (including legal fees and disbursements of
counsel for the Underwriter) incident to securing any required review by the
NASD of the terms of the sale of the Notes; (viii) listing fees, if any; (ix)
transfer taxes and the expenses, including the fees and disbursements of counsel
for the Underwriter incurred in connection with the qualification of the Notes
under state securities or blue sky laws; (x) the costs of preparing the Notes;
(xi) the costs and fees of any registrar or transfer agent; and (xii) all other
costs and expenses incident to the performance of its obligations hereunder
which are not otherwise specifically provided for in this Section 5.

<PAGE>

In addition, the Company will pay all travel and lodging expenses incurred by
management of the Company in connection with any informational "road show"
meetings held in connection with the offering and will also pay for the
preparation of all materials used in connection with such meetings. The Company
shall not, however, be required to pay for any of the Underwriter's expenses
(other than those related to qualification of the Notes under state securities
or blue sky laws and those incident to securing any required review by the NASD
of the terms of the sale of the Notes) except that, if this Agreement shall not
be consummated because the conditions in Section 6 hereof are not satisfied or
by reason of any failure, refusal or inability on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on its part to be performed, unless such failure to
satisfy said condition or to comply with said terms shall be due to the default
or omission of the Underwriter, then the Company shall promptly upon request by
the Underwriter reimburse the Underwriter for all out-of-pocket accountable
expenses, including fees and disbursements of counsel, incurred in connection
with investigating, marketing and proposing to market the Notes or in
contemplation of performing its obligations hereunder; but the Company shall not
in any event be liable to the Underwriter for damages on account of loss of
anticipated profits from the sale by it of the Notes.

6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITER. The obligations of the
Underwriter to purchase the Notes on the Closing Date are subject to the
condition that all representations and warranties of the Company contained
herein are true and correct, at and as of the Closing Date, the condition that
the Company shall have performed all of its covenants and obligations hereunder
and to the following additional conditions:

(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
Regulations under the Act and in accordance with Section 4(a) hereof; no stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, or any part thereof shall have been issued and no proceedings
for that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall have
been complied with to the reasonable satisfaction of the Underwriter.

(b) The Underwriter shall have received on the Closing Date, the opinion
of Jones, Walker Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel for the
Company, dated the Closing Date, addressed to the Underwriter, to the effect
that:

(i) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Prospectus. The Company is
qualified as a foreign corporation to do business in ^ all jurisdictions in
which the conduct of its business or its ownership or leasing of property
requires such qualification except where the failure to so qualify would
not have a material adverse effect on the business or condition, financial
or otherwise, of the Company and its subsidiaries, taken as a whole. The
Company is a "small business issuer" as such term is defined in Rule 405 in
Regulation S-B under the Act.

(ii) Each subsidiary ^ has been duly organized and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with corporate power and authority to
own or lease its properties and conduct its business as described in the
Prospectus. None of the Subsidiary Banks are required to be qualified to
transact business as a foreign corporation in any jurisdiction. The
outstanding shares of capital stock of each subsidiary have been duly
authorized and validly issued, are fully paid and nonassessable and are
owned, directly by the Company, free and clear of all liens, encumbrances
and security interests, other than

<PAGE>

security interests specifically disclosed in the Prospectus. To the
knowledge of such counsel, no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or ownership
interests in each such subsidiary are outstanding.

(iii) The Company has the corporate power and authority to enter
into this Agreement and to authorize, issue and sell the Notes as
contemplated hereby. This Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes the valid and binding
agreement of the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or
other similar laws relating to or affecting the rights of creditors
generally, by general principles of equity and, with respect to Section 7
hereof, by the public policy underlying the federal or state securities
laws.

(iv) The Company has all requisite corporate power to execute,
deliver and perform its obligations under the Indenture. The Indenture has
been duly and validly authorized by all requisite corporate action, duly
executed and duly delivered by the Company and constitutes a valid and
binding instrument of the Company, enforceable against the Company in
accordance with its terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity. The
Notes have been duly and validly authorized, and, when executed,
authenticated, issued and delivered in accordance with the terms of the
Indenture, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms and entitled
to the benefits of the Indenture, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles of
equity. The Notes and the Indenture conform, as to legal matters, to the
descriptions thereof contained in the Registration Statement and the
Prospectus. The Indenture complies in all material respects with the Trust
Indenture Act.

(v) The Company has authorized and outstanding capital stock as
described in the Prospectus. The outstanding shares of the Company's
capital stock have been duly authorized and validly issued and are fully
paid and nonassessable. No preemptive or, to the knowledge of such
counsel, other similar subscription rights of shareholders of the Company,
or of holders of warrants, options, convertible securities or other rights
to acquire shares of capital stock of the Company, exist, other than as
described in the Prospectus. To the knowledge of such counsel, no rights
to register outstanding shares of the Company's capital stock, or shares
issuable upon the exercise of outstanding warrants, options, convertible
securities or other rights to acquire shares of such capital stock, exist
which have not been validly exercised or waived with respect to the
Registration Statement.^

(vi) The Registration Statement has become effective under the Act
and the Indenture has been qualified under the Trust Indenture Act, and, to
the knowledge of such counsel, no stop order proceedings with respect
thereto have been instituted or are pending or threatened by the
Commission.

(vii) The Registration Statement, the Prospectus and each amendment
or supplement thereto comply as to form in all material respects with the
requirements of the Act and the Regulations thereunder (except that such
counsel need express no opinion as to the financial statements and related
schedules included therein).

<PAGE>

(viii) The descriptions in the Registration Statement and Prospectus
of statutes, legal and governmental proceedings, contracts and other
documents (A) in the Prospectus under the captions "Risk Factors --
Subordination," "--Dependence on Dividends From Subsidiary Banks,"
"--Potential Liability for Undercapitalized Subsidiary," "--Government
Regulation and Recent Legislation," "Business -- Properties," "Management
-- Stock Incentive Plan," "--Incentive Bonus Plan," "--Employment
Agreements," "Limitations of Directors' Liability and Indemnification,"
"Certain Transactions, "Supervision and Regulation" and "Description of
Notes" and (B) in the Registration Statement in Item 24, are accurate
summaries and fairly present the information called for with respect to
such matters.

(ix) Such counsel does not know of any contracts, agreements,
documents or instruments required to be filed as exhibits to the
Registration Statement^ or described in the Registration Statement or the
Prospectus which are not so filed, incorporated by reference or described
as required; and insofar as any statements in the Registration Statement or
the Prospectus constitute summaries of any contract, agreement, document or
instrument to which the Company is a party, such statements are accurate
summaries and fairly present the information called for with respect to
such matters.

(x) Such counsel knows of no legal or governmental proceeding,
pending or threatened, before any court or administrative body or
regulatory agency, to which the Company or any of ^ the subsidiaries is a
party or to which any of the properties of the Company or any of ^ the
subsidiaries is subject that are required to be described in the
Registration Statement or Prospectus and are not so described, or statutes
or regulations that are required to be described in the Registration
Statement or the Prospectus that are not so described.

(xi) The execution and performance of this Agreement, the Indenture
and the Notes and the consummation of the transactions herein and therein
contemplated do not and will not conflict with or result in a violation of
or default under the charter or bylaws of the Company or any of ^ the
subsidiaries, or under any statute, permit, judgment, decree, order, rule
or regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of ^ the subsidiaries,
including Bank Regulators, or any of their properties, or under any lease,
contract, indenture, mortgage, loan agreement or other agreement or other
instrument or obligation known to such counsel to which the Company or any
of ^ the subsidiaries is a party or by which the Company or any of ^ the
subsidiaries is bound or to which any property or assets of the Company or
any of ^ the subsidiaries is subject, except such agreements, instruments
or obligations with respect to which valid consents or waivers have been
obtained by the Company or any of ^ the subsidiaries.

(xii) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and
delivery of this Agreement, the Indenture and the Notes and the
consummation of the transactions herein and therein contemplated (other
than as may be required by state securities and blue sky laws, as to which
such counsel need express no opinion) except such as have been obtained or
made, specifying the same.

(xiii) The Company is not, and immediately upon completion of the
sale of Notes contemplated hereby will not be, required to register as an
"investment company" under the Investment Company Act of 1940, as amended.

<PAGE>

(xiv) The Company is duly registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended.

(xv) Each of the Subsidiary Banks are national banking associations
duly organized, validly existing and in good standing under the laws of the
United States and have the requisite power to carry on their respective
businesses as now conducted. The Minnesota Bank is authorized to conduct
the business of banking in the State of Minnesota. The Bismarck Bank is
authorized to conduct the business of banking in the State of North Dakota.
The Bismarck Bank and the Minnesota Bank are members of the Federal Reserve
Bank of Minneapolis, and are each duly authorized to operate a banking
business.

(xvi) The Company has all necessary approvals of the Board of
Governors to own the stock of ^ the subsidiaries. The Bismarck Bank has
all necessary approvals from the OCC to own the stock of J.D. Meier.
Except as disclosed in the Prospectus, to the knowledge of such counsel,
neither the Company nor any Subsidiary Bank is subject to any cease and
desist order, written agreement or memorandum of understanding with, or are
a party to any commitment letter or similar undertaking to, or are subject
to any order or directive by, or is a recipient of any extraordinary
supervisory agreement letter from, or has adopted any board resolutions at
the request of any of the Bank Regulators, and, to the knowledge of such
counsel, neither the Company nor any Subsidiary Bank has been advised by
any of the Bank Regulators that it is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such
order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking. To the knowledge of such counsel, neither the Company
nor any subsidiary has received notice of or has knowledge of any basis for
any proceeding or action relating specifically to the Company or ^ the
subsidiaries for the revocation or suspension of any such consent,
authorization, approval, order, license, certificate or permit or any other
action or proposed action by any regulatory authority having jurisdiction
over the Company or ^ the subsidiaries that would have a material adverse
effect on the Company or any subsidiary.

(xvii) ^ Such counsel has no reason to believe that, as of its
effective date, the Registration Statement or any further amendment thereto
made by the Company prior to the Closing Date (other than the financial
statements and related schedules therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the
Company prior to the Closing Date (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading or that, as of
the Closing Date either the Registration Statement or the Prospectus or any
further amendment or supplement thereto made by the Company prior to the
Closing Date (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; and they do not know of any amendment
to the Registration Statement required to be filed.

In rendering any such opinion, such counsel may rely (i) as to matters of
fact, to the extent such counsel deems reasonable, on certificates of
responsible officers of the Company and public officials

<PAGE>

provided that the extent of such reliance is specified in such opinion and (ii)
as to matters involving the application of laws of any jurisdiction other than
the States of Louisiana or Delaware, to the extent satisfactory in form and
scope to counsel for the Underwriter, upon the opinions of bank regulatory or
local counsel acceptable to counsel for the Underwriter provided that such
counsel shall also state that such opinions of bank regulatory or local counsel
are satisfactory to them and that the Underwriter is justified in relying on
such opinions of such counsel, and copies of such opinions shall be delivered to
the Underwriter and counsel for the Underwriter.

(c) The Underwriter shall have received from ^ in house counsel for the
Trustee, an opinion dated the Closing Date, and in form satisfactory to counsel
for the Underwriter, to the effect that:

(i) The Trustee has been duly incorporated and is validly existing
in good standing under the laws of its jurisdiction of incorporation and
has the corporate power and authority to authorize, execute, deliver and
perform its obligations under the Indenture.

(ii) The Indenture has been duly authorized, executed and delivered
by the Trustee and is a valid and binding obligation of the Trustee,
enforceable against the Trustee in accordance with its terms, except as
enforceability may be limited by general equitable principles and by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally.

(iii) The Notes being delivered on such Closing Date have been duly
authenticated by the Trustee in accordance with the Indenture.

In rendering such opinion such counsel may rely as to matters of fact, to
the extent they deem proper, on certificates of appropriate officers of the
Trustee and of public officials.

(d) On or prior to the Closing Date, the form and validity of the Notes
and the Indenture, the legality and sufficiency of the corporate proceedings and
matters relating to the incorporation of the Company and other matters incident
to the issuance of the Notes, the form of the Registration Statement and the
Prospectus and of any amendment thereof or supplement thereto filed prior to the
Closing Date (other than financial statements and schedules and other financial
or statistical data included therein), the authorization, execution, and
delivery of this Agreement and the description of the Notes and the Indenture
contained in the Prospectus shall have been reasonably approved by the
Underwriter based on the opinion of Oppenheimer Wolff & Donnelly, counsel for
the Underwriter. In connection with such opinion, the Company shall have
furnished to such counsel such documents as they may have requested for the
purpose of enabling them to pass upon such matters, and such counsel may rely
upon representations or certificates of public officials, of the Trustee and of
appropriate officers of the Company. In addition, in giving such opinion, such
counsel may rely as to matters of law, other than the law of the United States
and the State of Minnesota, upon an opinion or opinions of local counsel, who
may be counsel for the Company, which states that the Underwriter is entitled to
rely thereon, provided that any such opinion or opinions are delivered to the
Underwriter and that Oppenheimer Wolff & Donnelly shall state that they have no
reason to believe that such opinions are not correct.

(e) The Underwriter shall have received on each of the date hereof and the
Closing Date, a signed letter, dated as of the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriter, from
Arthur Andersen LLP, to the effect that they are independent public accountants
with respect to the Company and ^ the subsidiaries within the meaning of the Act
and the related rules and regulations and containing statements and information
of the type ordinarily included in

<PAGE>

accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.

(f) ^ The Underwriter shall have received on the Closing Date a
certificate or certificates of the chief executive officer and the chief
financial officer of the Company to the effect that, as of the Closing Date,
each of them severally represents as follows:

(i) The Prospectus was filed with the Commission pursuant to Rule
424(b) within the applicable period prescribed for such filing by the rules
and regulations under the Act and in accordance with Section 5 of this
Agreement; no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been
initiated or are, to his knowledge, threatened by the Commission.

(ii) The representations and warranties of the Company set forth in
Section 1 of this Agreement are true and correct at and as of the Closing
Date, and the Company has performed all of its obligations under this
Agreement to be performed at or prior to the Closing Date.

(g) The Company shall have furnished to the Underwriter such further
certificates and documents as the Underwriter may reasonably have requested.

The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects reasonably satisfactory to the Underwriter and to Oppenheimer Wolff &
Donnelly, counsel for the Underwriter.

If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriter hereunder may be terminated by the
Underwriter by notifying the Company of such termination in writing or by
facsimile at or prior to the Closing Date. In such event, the Company and the
Underwriter shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 7 hereof).

<PAGE>

7. INDEMNIFICATION.

(a) The Company agrees to indemnify and hold harmless the Underwriter,
each officer and director thereof, and each person, if any, who controls the
Underwriter within the meaning of the Act, against any losses, claims, damages
or liabilities to which the Underwriter or such persons may became subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus or the Prospectus,
including any amendments or supplements thereto^ or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made, ^ and will reimburse the Underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by the Underwriter or such controlling person in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission, made in the Registration Statement, any Preliminary Prospectus
or the Prospectus, including any amendments or supplements thereto, in reliance
upon and in conformity with written information furnished to the Company by the
Underwriter specifically for use therein^.

(b) The Underwriter agrees to indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Underwriter will be liable in each case to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by the Underwriter specifically for use therein.

(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity or
contribution may be sought pursuant to this Section 7, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 7(a) or (b) or contribution provided for
in Section 7(d) shall be available with respect to a proceeding to any party who
shall fail to give notice of such proceeding as provided in this Section 7(c) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was prejudiced by the failure to give such
notice, but the failure to give such notice shall not relieve the indemnifying
party or parties from any liability which it or they may have to the indemnified
party otherwise than on account of the provisions of Section 7(a), (b) or (c).
In case any such proceeding shall be brought against any indemnified party and
it shall notify the indemnifying party of the commencement thereof, the
indemnifying

<PAGE>

party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party and shall pay as incurred the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense. Notwithstanding
the foregoing, the indemnifying party shall pay promptly as incurred the
reasonable fees and expenses of the counsel retained by the indemnified party in
the event (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it or other
indemnified parties which are different from or additional to those available to
the indemnifying party. It is understood that the indemnifying party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
at any time for all such indemnified parties. Such firm shall be designated in
writing by the Underwriter and shall be reasonably satisfactory to the Company
in the case of parties indemnified pursuant to Section 7(a) and shall be
designated in writing by the Company and shall be reasonably satisfactory to the
Underwriter in the case of parties indemnified pursuant to Section 7(b). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.

(d) If the indemnification provided for in this Section 7 is unavailable
or insufficient to hold harmless an indemnified party under Section 7(a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriter on the other from the offering of the Notes. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriter on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriter on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bears to the total underwriting
discounts and commissions received by the Underwriter, in each case as set forth
in the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriter on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if contributions pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 7(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereto)
referred to above in this Section 7(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7(d), the Underwriter shall not be required to
contribute any

<PAGE>

amount in excess of the underwriting discounts and commissions applicable to the
Notes purchased by the Underwriter; and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.

(e) The obligations of the Company under this Section 7 shall be in
addition to any liability which the Company may otherwise have, and the
obligations of the Underwriter under this Section 7 shall be in addition to any
liability which the Underwriter may otherwise have.

8. NOTICES. All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered or telegraphed and
confirmed as follows: if to the Underwriter, to Dain Bosworth Incorporated, 60
South Sixth Street, Minneapolis, MN 55402, Attention: J. David Welch, with
copies to Oppenheimer Wolff & Donnelly, 45 South Seventh Street, Plaza VII,
Suite 3400, Minneapolis, MN 55402, Attention: Bruce A. Machmeier, Esq.; and if
to the Company, to BNCCORP, Inc., 322 East Main, Bismarck, ND 58501, Attention:
Tracy J. Scott, with copies to Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P., Place St. Charles, 201 St. Charles Avenue, New Orleans, LA
70170, Attention: William B. Masters.

9. TERMINATION. This Agreement may be terminated by you by notice to the
Company as follows:

(a) at any time prior to the earlier of (i) the time the Notes are
released by you for sale or (ii) 4:00 p.m., Minneapolis time, on the first
business day following the later of the date on which the Registration Statement
becomes effective or the date of this Agreement; or

(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change in or
affecting the condition, financial or otherwise, of the Company and ^ the
subsidiaries taken as a whole or the business affairs, management, financial
position, shareholders' equity or results of operations of the Company and ^ the
subsidiaries taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency after the date hereof or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your judgment, make the
offering or delivery of the Notes impracticable or inadvisable, (iii) suspension
of trading in securities on the New York Stock Exchange or the American Stock
Exchange or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such exchange, or a halt or suspension
of trading in securities generally which are quoted on the Nasdaq National
Market, or (iv) declaration of a banking moratorium by either federal or New
York State authorities.^

10. WRITTEN INFORMATION. For all purposes under this Agreement
(including, without limitation, Section 1, Section 2 and Section 7 hereof), the
Company understands and agrees with you that the following constitutes the only
written information furnished to the Company by or through the Underwriter
specifically for use in preparation of the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto:
(i) the information relating to stabilization on page two of the Preliminary
Prospectus and the Prospectus, ^(ii) the information set forth under the caption
"Underwriting" in the Preliminary Prospectus and the Prospectus, and (iii) the
information set forth in the final paragraph on the cover page of the
Preliminary Prospectus and the Prospectus.

<PAGE>

11. SUCCESSORS. This Agreement has been and is made solely for the
benefit of and shall be binding upon the Underwriter, the Company and their
respective successors, executors, administrators, heirs and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of the Notes merely because of such purchase.

12. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of the Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors and officers and (c) delivery of and payment for
the Notes under this Agreement.

Each provision of this Agreement shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such jurisdiction
or any provision hereof in any other jurisdiction

This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Minnesota.

<PAGE>

If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
Underwriter in accordance with its terms.

Very truly yours,

BNCCORP, Inc.

By:
-------------------------------------
Tracy J. Scott
Its: Chairman of the Board and Chief
Executive Officer

The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.

DAIN BOSWORTH INCORPORATED

By:
-------------------------------------
J. David Welch
Its:
-------------------------------------

<PAGE>

BNCCORP, INC.

AND

FIRSTAR TRUST COMPANY, Trustee

_________________

INDENTURE

Dated as of May _____, 1997

_________________

$15,000,000

_____% Subordinated Notes due 2004

<PAGE>

BNCCORP, INC.

Reconciliation and tie between Trust Indenture Act
of 1939, as amended and Indenture, dated as of May _____, 1997
between BNCCORP, INC. and
Firstar Trust Company, as Trustee.

Trust Indenture
Act Section Indenture Section
--------------- -----------------

Section 310 (a)(1). . . . . . . . . . . . . . 609
(a)(2). . . . . . . . . . . . . . 609
(a)(3). . . . . . . . . . . . . . Not Applicable
(a)(4). . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . 608, 610
(c) . . . . . . . . . . . . . . Not Applicable
Section 311 (a) . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . 613
Section 312 (a) . . . . . . . . . . . . . . . 701, 702(a)
(b) . . . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . . . 702(c)
Section 313 (a) . . . . . . . . . . . . . . . 703(a)
(b)(1). . . . . . . . . . . . . . Not Applicable
(b)(2). . . . . . . . . . . . . . 703(a)
(c) . . . . . . . . . . . . . . . 703(a)
(d) . . . . . . . . . . . . . . . 703(b)
Section 314 (a) . . . . . . . . . . . . . . . 704, 1005
(b) . . . . . . . . . . . . . . . Not Applicable
(c)(1). . . . . . . . . . . . . . 102
(c)(2). . . . . . . . . . . . . . 102
(c)(3). . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . 102
(f) . . . . . . . . . . . . . . . 1005
Section 315 (a) . . . . . . . . . . . . . . . 601
(b) . . . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . . . 514
Section 316 (a)(last sentence). . . . . . . . 101
(a)(1)(A) . . . . . . . . . . . . 512
(a)(1)(B) . . . . . . . . . . . . 502, 513
(a)(2). . . . . . . . . . . . . . Not Applicable

i
<PAGE>

Trust Indenture
Act Section Indenture Section
--------------- -----------------

(b) . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . 104(c)
Section 317 (a)(1). . . . . . . . . . . . . . 503
(a)(2). . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . 1003
Section 318 (a) . . . . . . . . . . . . . . . 107

__________________________

Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.

<PAGE>

TABLE OF CONTENTS
Page
----

Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE ONE - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 101. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS . . . . . . . . . . . 7
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE . . . . . . . . . . 8
SECTION 104. ACTS OF HOLDERS; RECORD DATES. . . . . . . . . . . . . . . 8
SECTION 105. NOTICES, ETC., TO TRUSTEE AND ISSUER . . . . . . . . . . . 9
SECTION 106. NOTICE TO HOLDERS; WAIVER. . . . . . . . . . . . . . . . .10
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT. . . . . . . . . . . . .10
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS . . . . . . . . .10
SECTION 109. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . .10
SECTION 110. SEVERABILITY CLAUSE. . . . . . . . . . . . . . . . . . . .11
SECTION 111. BENEFITS OF INDENTURE. . . . . . . . . . . . . . . . . . .11
SECTION 112. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . .11
SECTION 113. LEGAL HOLIDAYS . . . . . . . . . . . . . . . . . . . . . .11
SECTION 114. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . .11
SECTION 115. COUNTERPARTS.. . . . . . . . . . . . . . . . . . . . . . .11

ARTICLE TWO - SECURITY FORMS

SECTION 201. FORMS GENERALLY. . . . . . . . . . . . . . . . . . . . . .12
SECTION 202. CUSIP NUMBER . . . . . . . . . . . . . . . . . . . . . . .12

ARTICLE THREE - THE SECURITIES

SECTION 301. TITLE AND TERMS. . . . . . . . . . . . . . . . . . . . . .12
SECTION 302. DENOMINATIONS. . . . . . . . . . . . . . . . . . . . . . .13
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING . . . . . .13
SECTION 304. TEMPORARY SECURITIES . . . . . . . . . . . . . . . . . . .14
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. . . .15
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES . . . . .16
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED . . . . . .17
SECTION 308. PERSONS DEEMED OWNERS. . . . . . . . . . . . . . . . . . .18
SECTION 309. CANCELLATION . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 310. COMPUTATION OF INTEREST. . . . . . . . . . . . . . . . . .19

iii

<PAGE>

TABLE OF CONTENTS (Cont.)

Page

----
ARTICLE FOUR - SATISFACTION AND DISCHARGE

SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. . . . . . . . . .19
SECTION 402. DEFEASANCE AND COVENANT DEFEASANCE.. . . . . . . . . . . .20
SECTION 403. APPLICATION OF TRUST MONEY . . . . . . . . . . . . . . . .22
SECTION 404. REPAYMENT OF MONIES HELD BY PAYING AGENT . . . . . . . . .23
SECTION 405. RETURN OF MONIES HELD BY TRUSTEE AND
PAYING AGENT UNCLAIMED FOR TWO YEARS . . . . . . . . . . .23

ARTICLE FIVE - REMEDIES

SECTION 501. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . .23
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT . . . .25
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE . . . . . . . . . . . . . . . . . .25
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . . .26
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . .26
SECTION 506. APPLICATION OF MONEY COLLECTED . . . . . . . . . . . . . .27
SECTION 507. LIMITATION OF SUITS. . . . . . . . . . . . . . . . . . . .27
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST. . . . . . . . . . . . . .28
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES . . . . . . . . . . . .28
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE . . . . . . . . . . . . . .28
SECTION 511. DELAY OR OMISSION NOT WAIVER . . . . . . . . . . . . . . .29
SECTION 512. CONTROL BY HOLDERS . . . . . . . . . . . . . . . . . . . .29
SECTION 513. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . . .29
SECTION 514. UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . . .30
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS . . . . . . . . . . . . .30

ARTICLE SIX - THE TRUSTEE

SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES. . . . . . . . . . . .30
SECTION 602. NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . . . .30
SECTION 603. CERTAIN RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . .31
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES . .32
SECTION 605. MAY HOLD SECURITIES. . . . . . . . . . . . . . . . . . . .32
SECTION 606. MONEY HELD IN TRUST. . . . . . . . . . . . . . . . . . . .32
SECTION 607. COMPENSATION AND REIMBURSEMENT . . . . . . . . . . . . . .32
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS. . . . . . . . . .33
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. . . . . . . . . .33

<PAGE>
TABLE OF CONTENTS (Cont.)

Page
----

SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. . . . .33
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR . . . . . . . . . .34
SECTION 612. MERGER, CONVERSIONS, CONSOLIDATION OR SUCCESSION
TO BUSINESS. . . . . . . . . . . . . . . . . . . . . . . .35
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER . . . . .35
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT. . . . . . . . . . . .35

ARTICLE SEVEN - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER

SECTION 701. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS .37
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS . .37
SECTION 703. REPORTS BY TRUSTEE . . . . . . . . . . . . . . . . . . . .37
SECTION 704. REPORTS BY ISSUER. . . . . . . . . . . . . . . . . . . . .38

ARTICLE EIGHT - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 801. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. . . .38
SECTION 802. SUCCESSOR SUBSTITUTED. . . . . . . . . . . . . . . . . . .39

ARTICLE NINE - SUPPLEMENTAL INDENTURES

SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS . . . .40
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. . . . . .40
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES . . . . . . . . . . .41
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. . . . . . . . . . . . .41
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT. . . . . . . . . . . .41
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES . . . .41

ARTICLE TEN - COVENANTS

SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST . . . . . . . .42
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. . . . . . . . . . . . . .42
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST. . . . . .42
SECTION 1004. EXISTENCE; CONDUCT OF OPERATIONS; INSURED INSTITUTION. . .43
SECTION 1005. STATEMENT BY OFFICERS AS TO COMPLIANCE . . . . . . . . . .43
SECTION 1006. RESTRICTED PAYMENTS ON CAPITAL STOCK . . . . . . . . . . .44
SECTION 1007. MAINTENANCE OF PROPERTIES; INSURANCE . . . . . . . . . . .44
SECTION 1008. PAYMENT OF TAXES AND OTHER CLAIMS. . . . . . . . . . . . .45
SECTION 1009. BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . .45

<PAGE>
TABLE OF CONTENTS (Cont.)

Page

----
ARTICLE ELEVEN - REDEMPTION OF SECURITIES

SECTION 1101. RIGHT OF REDEMPTION. . . . . . . . . . . . . . . . . . . .46
SECTION 1102. APPLICABILITY OF ARTICLE . . . . . . . . . . . . . . . . .46
SECTION 1103. ELECTION TO REDEEM; NOTICE OF TRUSTEE. . . . . . . . . . .46
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. . . . .46
SECTION 1105. NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . .47
SECTION 1106. DEPOSIT OF REDEMPTION PRICE. . . . . . . . . . . . . . . .47
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE. . . . . . . . . . .48
SECTION 1108. SECURITIES REDEEMED IN PART. . . . . . . . . . . . . . . .48

ARTICLE TWELVE - SUBORDINATION

SECTION 1201. AGREEMENT TO SUBORDINATE . . . . . . . . . . . . . . . . .48
SECTION 1202. PAYMENT TO SECURITY HOLDERS. . . . . . . . . . . . . . . .48
SECTION 1203. SUBROGATION. . . . . . . . . . . . . . . . . . . . . . . .50
SECTION 1204. AUTHORIZATION BY HOLDERS . . . . . . . . . . . . . . . . .51
SECTION 1205. NOTICE TO TRUSTEE. . . . . . . . . . . . . . . . . . . . .51
SECTION 1206. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS. . . . . . . . .53
SECTION 1207. NO IMPAIRMENT OF SUBORDINATION . . . . . . . . . . . . . .53

TESTIMONIUM

SIGNATURES AND SEALS. . . . . . . . . . . . . . . . . . . . . . . . . . .54

SCHEDULE A - FORM OF SECURITY

<PAGE>

THIS INDENTURE, dated as of May _____, 1997, is between BNCCORP, INC., a
Delaware corporation (the "Issuer"), and Firstar Trust Company, a state banking
association duly organized and existing under the laws of the State of
Wisconsin, as Trustee (the "Trustee").

RECITALS:

The Issuer has duly authorized the creation of an issue of its _____%
Subordinated Notes due 2004 (the "Securities") of substantially the tenor and
amount hereinafter set forth, and to provide therefor, the Issuer has duly
authorized the execution and delivery of this Indenture.

All things necessary to make the Securities, when executed by the Issuer
and authenticated and delivered hereunder and duly issued by the Issuer, the
valid obligations of the Issuer, and to make this Indenture a valid, binding and
enforceable agreement of the Issuer, in accordance with their and its terms have
been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually agreed by the Issuer and the Trustee, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 101. DEFINITIONS.

For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:

(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;

(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein; and

(3) the words "herein", "hereof", and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.

"Acceleration Event" shall have the meaning specified in Section 502
hereof.

"Act" when used with respect to any Holder, has the meaning specified in
Section 104.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the

<PAGE>

purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities.

"Board of Directors" of any corporation means either the board of directors
of such corporation or any duly authorized committee of that Board.

"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the corporation to which such resolution relates as
having been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification, and delivered to the Trustee.

"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in either the Borough of
Manhattan, The City of New York, New York are authorized or obligated by law or
executive order to close.

"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, warrants, rights, options or other equivalents
(however designated) of corporate stock or any other equity interest of such
Person, including each class of common stock and preferred stock.

"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.

"Common Stock" means the common stock, $.01 par value per share, of the
Issuer or any class of stock issued by the Issuer upon a reclassification of the
Common Stock.

"Company Request" or "Company Order" means a written request or order
signed in the name of the Issuer by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
Assistant Secretary, and delivered to the Trustee.

"Consolidated Net Income" means, for any period, the net income (or loss)
of the Issuer and the Subsidiaries on a consolidated basis for such period taken
as a single accounting period, determined in accordance with GAAP, provided,
however, that there shall not be included in Consolidated Net Income (1) any net
income (loss) of a Subsidiary for any period during which it was not a
Subsidiary or (2) any net income (loss) of businesses, properties or assets
acquired or disposed of (by way of merger, consolidation, purchase, sale or
otherwise) by the Issuer or any Subsidiary for any period prior to the
acquisition thereof or subsequent to the disposition thereof.

<PAGE>

"Corporate Trust Office" means (i) the principal corporate trust office of
the Trustee located in Milwaukee, Wisconsin and (ii) for purposes of Section
1002, the corporate trust office of the Trustee's agent located in the Borough
of Manhattan, The City of New York, New York at which at any particular time its
corporate trust business shall be administered.

"Covenant Defeasance" has the meaning specified in Section 402.

"Defaulted Interest" has the meaning specified in Section 307.

"Defeasance" has the meaning specified in Section 402.

"Depositary" means, with respect to any Security issued in the form of one
or more Global Securities, the Person designated as Depositary by the Issuer in
or pursuant to this Indenture, which Person must be, to the extent required by
applicable law or regulation, a clearing agency registered under the Exchange
Act, and any successor to such Person. If at any time there is more than one
such Person, "Depositary" shall mean, with respect to any Security, the
qualifying entity which has been appointed with respect to such Securities.

"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exercisable, redeemable or exchangeable), matures, or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder thereof, in whole or in part, on or prior to, the stated
final maturity of the Securities.

"Event of Default" has the meaning specified in Section 501.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"GAAP" means generally accepted accounting principles, as in effect in the
United States of America, set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as is approved
by a significant segment of the accounting profession, which are applicable to
the circumstances as of the date of this Indenture.

"Global Security" means a Security bearing the legend specified in Section
303 evidencing all or part of the Outstanding Securities, issued to the
Depositary or its nominee and registered in the name of such Depositary or its
nominee.

"Holder" means a Person in whose name a Security is registered in the
Security Register.

<PAGE>

including conditional sale obligations and title retention arrangements,
except accounts payable and accrued expenses incurred in the ordinary course
of business and any interest accruing subsequent to any event of default with
respect to such an obligation, and (iv) any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance
with GAAP.

"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively.

"Independent Public Accountants" means a nationally recognized firm of
accountants that, with respect to the Issuer, are independent public accountants
within the meaning of the rules and regulations promulgated by the Commission
under the Securities Act, who may be the independent public accountants
regularly retained by the Issuer or who may be other independent public
accountants.

"Initial Issuance Date" means the date of the original issuance of the
Securities.

"Insured Institution" means any "insured bank," as defined in 12 U.S.C.
Section 1813(h), or a similar definition under any succeeding federal law
hereinafter enacted.

"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.

"Issuer" means the Person named as the "Issuer" in the initial paragraph of
this Indenture until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture and thereafter "Issuer" shall mean each
such successor Person.

"Maturity," when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.

"Money," with respect to any payment, deposit or other transfer pursuant to
or contemplated by the terms hereof, means United States dollars or other
equivalent unit of legal tender for payment of public or private debts in the
United States of America.

"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the President or a Vice President, and by the Controller, Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary, of the Issuer and
delivered to the Trustee. One of the officers signing an Officers' Certificate
given pursuant to Section 1005 shall be the principal executive, financial or
accounting officer of the Issuer.

"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Issuer and who shall be reasonably acceptable to the Trustee.

<PAGE>

"Outstanding" when used with respect to the Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, EXCEPT:

(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;

(ii) Securities, or portions thereof, for whose payment or redemption
Money in the necessary amount has been theretofore deposited, in accordance
with Sections 401 or 402 hereof, with the Trustee or any Paying Agent
(other than the Issuer) in trust or set aside and segregated in trust by
the Issuer (if the Issuer shall act as its own Paying Agent) for the
Holders of such Securities; PROVIDED that, if such Securities, or portions
thereof, are to be redeemed prior to Maturity, notice of such redemption
has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made; and

(iii) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid obligations of the
Issuer;

PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Issuer or any other obligor upon the Securities or any Affiliate of the
Issuer or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Securities and
that the pledgee is not the Issuer or any other obligor upon the Securities or
any Affiliate of the Issuer or of such other obligor.

"Paying Agent" means any Person authorized by the Issuer to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Issuer.

"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated association or organization or government or any agency or
political subdivision thereof.

"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.

<PAGE>

"Redemption Date," when used with respect to any Security or portion
thereof to be redeemed, means the date fixed for such redemption by or pursuant
to this Indenture.

"Redemption Price," when used with respect to any Security or portion
thereof to be redeemed, means the price fixed for such redemption by or pursuant
to this Indenture.

"Regular Record Date" for the interest payable on any Security on any
Interest Payment Date means the 15th day (whether or not a Business Day) of the
calendar month next preceding such Interest Payment Date.

"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to any particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.

"Securities" means the _____% Subordinated Notes due 2004, or any of them,
as amended or supplemented from time to time, that are authenticated and
delivered pursuant to this Indenture, including any Securities represented by a
Global Security or Securities.

"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.

"Senior Indebtedness" means all Indebtedness of the Issuer, including
principal and interest on such Indebtedness whether outstanding on the date of
this Indenture or hereafter created, incurred, assumed or guaranteed by the
Issuer, unless such Indebtedness, by its terms or the terms of the instrument
creating or evidencing it is subordinate in right of payment to, or PARI PASSU
with, the Securities.

"Special Record Date" for the payment of any Defaulted Interest on any
Security means a date fixed by the Trustee pursuant to Section 307.

"Stated Maturity," when used with respect to any Security, any Indebtedness
or any installment of interest thereon, means the date established by this
Indenture or evidence of Indebtedness as the fixed date on which the principal
of such Security or Indebtedness or such installment of interest is due and
payable.

"Subsidiary" means, with respect to the Issuer and its Subsidiaries, (A)
(i) a corporation a majority of whose Capital Stock is at the time, directly or
indirectly, owned (beneficially or of record) by the Issuer, by one or more
Subsidiaries or by the Issuer and one or more Subsidiaries or (ii) any other
Person (other than a corporation) in which the Issuer, one or more Subsidiaries
or the

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<PAGE>

Issuer and one or more Subsidiaries, directly or indirectly, at the date of
determination thereof has at least majority ownership interest and, either
directly or indirectly, has the power to direct the policies, management and
affairs thereof, economic, financial or otherwise, and (B) that, in
accordance with GAAP, the accounts of which would be included on a
consolidated basis in the Issuer's financial statements.

"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter the "Trustee"
shall mean such successor Trustee.

"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
by the Trust Indenture Reform Act of 1990 and as in force on the date of this
Indenture; PROVIDED, HOWEVER, that in the event the Trust Indenture Act of
1939 is amended after such date, "Trust Indenture Act" means to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so amended.

"U.S. Government Obligations" shall mean direct obligations of the
United States of America that are backed by its full faith and credit.

"Vice President," when used with respect to the Issuer or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."

SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.

Upon any application or request by the Issuer to the Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of
an Officers' Certificate, if to be given by an officer of the Issuer, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.

Every Officers' Certificate and Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:

(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;

(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;

(3) a statement that, in the opinion of each such individual, such
individual has made such examination or investigation as is necessary to
enable such individual to express an informed opinion as to whether or not
such covenant or condition has been complied with; and

<PAGE>

(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.

SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.

In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.

Any Officers' Certificate or opinion of an officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such Opinion of Counsel may be based,
insofar as it relates to the factual matters, upon a certificate or opinion
of, or representations by, an officer or officers of the Issuer stating that
the information with respect to such factual matters is in the possession of
the Issuer, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect
to such matters are erroneous.

Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

SECTION 104. ACTS OF HOLDERS; RECORD DATES.

(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 601) conclusive in
favor of the Trustee and the Issuer, if made in the manner provided in this
Section.

(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of

<PAGE>

any such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which the Trustee deems
sufficient.

(c) The Issuer may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining
the Holders entitled to give or take any request, demand, authorization,
direction, notice, consent, waiver or other action, or to vote on any action,
authorized or permitted to be given or taken by Holders. If not set by the
Issuer prior to the first solicitation of a Holder made by any Person in
respect of any such action, or, in the case of any such vote, prior to such
vote, the record date for any such action or vote shall be the 30th day (or,
if later, the date of the most recent list of Holders required to be provided
pursuant to Section 701) prior to such first solicitation or vote, as the
case may be. With regard to any record date, only the Holders on such date
(or their duly designated proxies) shall be entitled to give or take, or vote
on, the relevant action.

(d) If the Securities are represented by one or more Global Securities,
the Issuer may, in the circumstances permitted by the Trust Indenture Act,
fix any date as the record date for the purpose of determining the Persons
who are beneficial owners of interests in any such Global Security or
Securities held by the Depositary entitled under the procedures of such
Depositary to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action authorized
or permitted to be given or taken by such beneficial owners. If not set by
the Issuer prior to the first solicitation of a beneficial owner of interests
in such Global Security or Securities made by any Person in respect of any
such action, or, in the case of any such vote, prior to such vote, the record
date for any such action or vote shall be the 30th day prior to such first
solicitation or vote, as the case may be. With respect to any record date,
only the beneficial owners of interests in such Global Security or
Securities, determined in accordance with the procedures of the Depositary,
shall be entitled to give or take, or vote on, the relevant action.

(e) The ownership of Securities shall be proved by the Security Register.

(f) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Issuer in reliance thereon, whether or not notation of such action is
made upon such Security.

SECTION 105. NOTICES, ETC., TO TRUSTEE AND ISSUER

Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture
to be made upon, given or furnished to, or filed with,

(1) the Trustee by any Holder or by the Issuer shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, or

<PAGE>

(2) the Issuer by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Issuer addressed
to it at the address of its principal office specified on the signature
pages of this Indenture or at any other address previously furnished in
writing to the Trustee by the Issuer in accordance with this Section 105.

SECTION 106. NOTICE TO HOLDERS; WAIVER.

Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each
Holder affected by such event, at such Holder's address as it appears in the
Security Register, not later than the latest date (if any), and not earlier
than the earliest date (if any), prescribed for the giving of such notice.
In any case where notice to Holders is given by mail, neither the failure to
mail such notice, nor any defect in any notice so mailed, to any particular
Holder shall affect the sufficiency of such notice with respect to other
Holders. Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee,
but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.

In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.

SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.

If any provision hereof limits, qualifies or conflicts with the duties
imposed by any required provision of the Trust Indenture Act, by the
operation of Section 318(c) thereof, such imposed duties shall control,
except as, and to the extent, expressly excluded from this Indenture, as
permitted by the Trust Indenture Act. If any provision of this Indenture
modifies or excludes any provision of the Trust Indenture Act that may be so
modified or excluded, the latter provisions shall be deemed to apply to this
Indenture as so modified or to be excluded, as the case may be.

SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.

The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.

SECTION 109. SUCCESSORS AND ASSIGNS.

All covenants and agreements of the Issuer in this Indenture and in the
Securities shall bind its successors and assigns, whether so expressed or
not. All covenants and agreements of the Trustee in this Indenture shall bind
its successors and assigns whether so expressed or not.

<PAGE>

SECTION 110. SEVERABILITY CLAUSE.

In case any provision in this Indenture or the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby, and such provisions shall be given effect to the fullest extent
permitted by law.

SECTION 111. BENEFITS OF INDENTURE.

Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
and assigns hereunder and the Holders of Securities, any benefit or any legal
or equitable right, remedy or claim under this Indenture.

SECTION 112. GOVERNING LAW.

This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York, without regard to
principles of conflicts of law.

SECTION 113. LEGAL HOLIDAYS.

In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding
any other provision of this Indenture or of the Securities) payment of
interest or principal (and premium, if any) need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity, PROVIDED that, for purposes of computing such payment, no
interest shall accrue for the period from and after such Interest Payment
Date, Redemption Date or Stated Maturity, as the case may be.

SECTION 114. ENTIRE AGREEMENT.

This Indenture, together with any schedules attached hereto, embodies
the entire agreement and understanding of the Issuer, the Trustee and the
Holders in respect of the subject matter contained herein. This Indenture,
together with any schedules attached hereto, supersedes all prior agreements
and understandings (whether written or oral) between such parties with
respect to such subject matter.

SECTION 115. COUNTERPARTS.

This Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

<PAGE>

ARTICLE TWO

SECURITY FORMS

SECTION 201. FORMS GENERALLY.

The Securities and the Trustee's certificates of authentication shall be
in substantially the forms set forth in Schedule A to this Indenture which is
incorporated in and made a part of this Indenture. The Securities may have
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with any law or with any rules or
regulations issued pursuant thereto or the rules of any securities exchange
or which the Securities may be listed or to conform to general usage, all as
may be determined by the officers executing such Securities, as evidenced by
their execution of the Securities. Any portion of the text of any Security
may be set forth on the reverse thereof, with an appropriate reference
thereto on the face of the Security.

The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by any law or any rules or
regulations issued pursuant thereto or the rules of any securities exchange
on which the Securities may be listed or to conform to general usage, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities.

SECTION 202. CUSIP NUMBER.

The Issuer in issuing the Securities may use a "CUSIP" number, and if so
used, the Trustee may use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided, that any such notice may
state that no representation is made as to the correctness or accuracy of the
CUSIP number printed in the notice or on the Securities, and that reliance
may be placed only on the other identification numbers printed on the
Securities. The Issuer will promptly notify the Trustee of any change in the
CUSIP number.

ARTICLE THREE

THE SECURITIES

SECTION 301. TITLE AND TERMS.

The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to $15,000,000, except for
Securities authenticated and delivered upon registration of transfer of, or
in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906 or 1108. The Company Order shall specify the amount of
Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed the amount set forth in the
preceding sentence, subject to the proviso set forth therein.

<PAGE>

The Securities shall be known and designated as the "_____% Subordinated
Notes due 2004" of the Issuer. Their Stated Maturity shall be May 31, 2004
and they shall bear interest at the rate of _____% per annum from the date of
issuance or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, as the case may be, payable monthly, on the
first Business Day of each month, commencing July 1, 1997 until the principal
thereof is paid or made available for payment.

The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Issuer in the Borough of
Manhattan, The City of New York, New York maintained for such purpose and at
any other office or agency maintained by the Issuer for such purpose;
PROVIDED, HOWEVER, that, at the option of the Issuer, payment of interest may
be made by check mailed on or before the Stated Maturity to the address of
the Person entitled thereto as such address shall appear in the Security
Register.

The Securities shall be redeemable as provided in Article Eleven.

SECTION 302. DENOMINATIONS.

The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.

SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.

The Securities shall be executed on behalf of the Issuer by its Chairman
of the Board, its President, one of its Vice Presidents or the Treasurer,
under its corporate seal reproduced thereon attested by its Secretary or one
of its Assistant Secretaries. The signature of any of these officers on the
Securities may be manual or facsimile.

The Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did
not hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of
this Indenture, the Issuer may deliver Securities executed by the Issuer to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.

If the Issuer shall establish by Company Order that all or a portion of
the Securities are to be issued in the form of one or more Global Securities,
then the Issuer shall execute and the Trustee shall, in accordance with this
Section 303 and the Company Order with respect to such Securities,
authenticate and deliver one or more Global Securities that (i) shall
represent and shall be denominated in an amount equal to the aggregate
principal amount of all or a portion of the Securities issued and not yet
cancelled or exchanged to be represented by such Global Securities,

13
<PAGE>

(ii) shall be registered in the name of the Depositary for such Global
Security or Securities or the nominee of such Depositary, (iii) shall be
delivered by the Trustee to such Depositary or a nominee thereof or a
custodian therefor or pursuant to such Depositary's instructions and (iv)
shall bear a legend substantially to the following effect: "This Security is
a Registered Global Security within the meaning of the Indenture hereinafter
referred to and is registered in the name of a Depositary or a nominee
thereof. This Security may not be exchanged in whole or in part for a
Security registered, and no transfer of this Security in whole or in part may
be registered in the name of any Person other than such Depositary or a
nominee thereof, except in the limited circumstances described in the
Indenture".

Each Security shall be dated the date of its authentication.

No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence that such Security has been duly
authenticated and delivered hereunder and that the Holder is entitled to the
benefits of this Indenture. Each reference in this Indenture to authentication
by the Trustee includes an agent appointed pursuant to Section 614.

SECTION 304. TEMPORARY SECURITIES.

Pending the preparation of definitive Securities, the Issuer may
execute, and upon Company Order the Trustee shall authenticate and deliver in
the manner provided in Section 303, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of
such Securities. Such temporary Securities may be Global Securities.

Except in the case of temporary Global Securities, which shall be
exchanged in accordance with the provisions, if temporary Securities are
issued, the Issuer will cause definitive Securities to be prepared without
unreasonable delay. After the preparation of definitive Securities, the
temporary Securities shall be exchangeable for definitive Securities upon
surrender of the temporary Securities at any office or agency of the Issuer
designated pursuant to Section 1002, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Securities, the
Issuer shall execute, and the Trustee shall authenticate and deliver in
exchange therefor, a like principal amount of definitive Securities of
authorized denominations. Unless otherwise provided in or pursuant to this
Indenture with respect to a temporary Global Security, until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.

<PAGE>

SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.

The Issuer shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to
such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Securities and of transfer of Securities. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.

Upon surrender for registration of transfer of any Security at the
Corporate Trust Office or at any other office or agency of the Issuer
designated pursuant to Section 1002 for such purpose, the Issuer shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of any
authorized denominations and of a like aggregate principal amount.

At the option of the Holder Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Issuer
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.

Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary or a nominee thereof, and each such
Global Security shall constitute a single security for all purposes of this
Indenture.

Notwithstanding any other provision of this Section 305, unless and
until it is exchanged in whole or in part for Securities in definitive
registered form, a Global Security representing all or a portion of the
Securities may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary
or another nominee of the Depositary or by the Depositary or any such nominee
to a successor Depositary for such series or a nominee of such successor
Depositary.

If at any time the Depositary for any Global Securities notifies the
Issuer that it is unwilling or unable to continue as Depositary for such
Securities or is no longer eligible because it ceased to be a clearing agency
registered under the Exchange Act or any other applicable statute or
regulation, the Issuer shall appoint a successor Depositary with respect to
such Securities. If a successor Depositary for such Securities is not
appointed by the Issuer within 90 days after the Issuer receives such notice
or becomes aware of such ineligibility, the Issuer's election that such
Registered Securities be represented by one or more Global Securities shall
no longer be effective and the Issuer will execute, and the Trustee, upon
receipt of an Officers' Certificate of the Issuer for the authentication and
delivery of definitive Securities of such series, will authenticate and
deliver, Securities of such series in definitive registered form without
coupons, of like tenor in any authorized denominations, in an aggregate
principal amount equal to the principal amount of the

<PAGE>

Global Security or Securities representing such Securities in exchange for
such Global Security or Securities.

The Issuer may at any time and in its sole discretion determine that the
Securities issued in the form of one or more Global Securities shall no
longer be represented by a Global Security. In such event the Issuer will
execute, and the Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of definitive Securities of such series, will
authenticate and deliver, Securities of such series in definitive registered
form without coupons, in any authorized denominations, in an aggregate
principal amount equal to the principal amount of the Global Security or
Securities representing such Securities in exchange for such Global Security
or Securities.

None of the Issuer, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Global Security or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.

All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Issuer evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.

Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Issuer or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Issuer and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.

No service charge shall be made for any registration of transfer or
exchange of Securities, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities,
other than exchanges pursuant to Section 304, 906 or 1108 not involving any
transfer.

The Issuer shall not be required (i) to issue, register the transfer of
or exchange any Security during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of any Security being redeemed in part.

SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.

If any mutilated Security is surrendered to the Trustee, the Issuer
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount, bearing a number
not contemporaneously outstanding.

<PAGE>

If there shall be delivered to the Issuer and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and
(ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice
to the Issuer or the Trustee that such Security has been acquired by a bona
fide purchaser, the Issuer shall execute and upon its request the Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount, bearing a number
not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Issuer in its discretion
may, instead of issuing a new Security, pay such Security.

Upon the issuance of any new Security under this Section, the Issuer may
require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee or its agent)
connected therewith.

Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Issuer whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately
with any and all other Securities duly authenticated and delivered hereunder.

The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.

SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.

Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest.

Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on
the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Issuer, at its election in each
case, as provided in clause (1) or (2) below:

(1) The Issuer may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Issuer shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security

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and the date of the proposed payment, and at the same time the Issuer shall
deposit with the Trustee an amount of Money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such Money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon, the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than 15
days and not less than 10 days prior to the date of the proposed payment
and not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Issuer of such
Special Record Date and, in the name and at the expense of the Issuer,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder at such Holder's address as it appears in the Security
Register, not less than 10 days prior to such Special Record Date. Notice
of the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been so mailed, such Defaulted Interest shall be paid
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following clause (2).

(2) The Issuer may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Issuer to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.

SECTION 308. PERSONS DEEMED OWNERS.

Prior to due presentment of a Security for registration of transfer, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security shall be overdue, and neither the
Issuer, the Trustee nor any agent of the Issuer or the Trustee shall be affected
by notice to the contrary.

SECTION 309. CANCELLATION.

All Securities surrendered for payment, redemption or registration of
transfer or exchange, if surrendered to any Person other than the Trustee,
shall be delivered to the Trustee or its agent for cancellation or, if
surrendered to the Trustee, shall be promptly cancelled by it. The Issuer
may at any time deliver to the Trustee or its agent for cancellation any
Securities previously authenticated

<PAGE>

and delivered hereunder which the Issuer may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly cancelled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange
for any Securities cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee
shall be destroyed and a certificate of destruction delivered by the Trustee
to the Issuer, unless the Issuer otherwise directs the Trustee by a Company
Order. Any Securities acquired by the Issuer shall not operate as a
redemption or satisfaction of the debt represented by such Securities unless
and until such Securities are delivered to the Trustee or its agent for
cancellation.

SECTION 310. COMPUTATION OF INTEREST.

Interest on the Securities shall be computed on the basis of a year of 360
days consisting of twelve 30-day months.

ARTICLE FOUR

SATISFACTION AND DISCHARGE

SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.

This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, on demand of and at the expense of
the Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when

(1) either

(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii) Securities
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 405) have been
delivered to the Trustee for cancellation; or

(B) all such Securities not theretofore delivered to the Trustee for
cancellation

(i) have become due and payable, or

(ii) will become due and payable at their Stated Maturity within
one year, or

(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Issuer,

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<PAGE>

and the Issuer, in the case of (i), (ii) or (iii) above, has irrevocably
deposited or caused to be deposited with the Trustee as funds in trust for
such purpose Money in an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any) and interest to the
date of such deposit (in the case of Securities which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be;

(2) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer, including amounts owing to the Trustee; and

(3) the Issuer has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 607, the obligation of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Sections 403 and 405 shall
survive.

SECTION 402. DEFEASANCE AND COVENANT DEFEASANCE.

(1) In addition to discharge of the Indenture pursuant to Section 401, the
Issuer, upon the deposit with the Trustee as funds in trust for such purpose
funds sufficient to pay and discharge the entire indebtedness on the Securities
for principal (and premium, if any) and interest to the Stated Maturity shall be
deemed to have paid and discharged the entire debt on all the Securities on the
91st day after the date of such deposit and the provisions of this Indenture
shall no longer be in effect (except as to the provisions of Sections 306, 508,
607, 1002, 1003 and Article Four), (hereinafter "defeasance"), and the Trustee,
at the expense of the Issuer, shall at the Issuer's request, execute proper
instruments acknowledging the same, if the Issuer notifies the Trustee that the
provisions of this Section 402(1) are being complied with solely to effect a
defeasance and if:

(A) with reference to this provision the Issuer has deposited with
the Trustee as trust funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to,
the benefit of the Holders of the Securities (a) Money in an amount, or (b)
U.S. Government Obligations, maturing as to principal and interest at such
times and in such amounts as will insure (without investment of such cash
or reinvestment of any interest or proceeds from such U.S. Government
Obligations) the availability of Money or (c) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of Independent
Public Accountants expressed in a written certification thereof delivered
to the Trustee, to pay the principal of and interest on all Securities on
each date that such principal and interest is due and payable;

(B) no Default or Event of Default with respect to the Securities of
such series shall have occurred and be continuing on the date of such
deposit or, insofar as Section 501(7) is concerned, at any time during the
period ending on and including the 91st day after

20
<PAGE>

the date of such deposit (it being understood that this condition shall not
be deemed satisfied until the expiration of such period);

(C) such defeasance shall not cause the Trustee to have a conflicting
interest for purposes of the Trust Indenture Act with respect to any
securities of the Issuer;

(D) such defeasance shall not result in a breach or violation of, or
constitute a Default or Event of Default under, the Indenture, the
Securities or any other agreement or instrument to which the Issuer is a
party or by which it is bound;

(E) the Issuer has delivered to the Trustee an Opinion of Counsel to
the effect, and such opinion shall confirm, (i) that, based on the fact
that (x) the Issuer has received from, or there has been published by, the
Internal Revenue Service a ruling or (y) since the date hereof, there has
been a change in the applicable federal income tax law, in either case,
Holders of the Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and
in the same manner and at the same times as would have been the case if
such deposit, defeasance and discharge had not occurred; and (ii) that the
trust arising from such deposit shall not constitute an "investment
company" or an entity "controlled" by an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended; and

(F) the Issuer has paid or caused to be paid all other sums then
payable hereunder by the Issuer, including amounts owing to the Trustee,
and the Issuer has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
relating to the defeasance contemplated by this provision have been
complied with.

(2) The Issuer shall be released from its obligations under Articles Eight
and Ten, other than the obligation to provide that any successor to the Issuer,
as a condition to such succession, assume the performance of any covenant of
this Indenture of the Issuer relating to the compensation, reimbursement of
expenses and indemnities of the Trustee and any predecessor Trustee, on and
after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"). For this purpose, such covenant defeasance means that,
with respect to the Outstanding Securities, the Issuer may omit to comply with
and shall have no liability in respect of any term, condition or limitation set
forth in such Article or any such covenant, whether directly or indirectly by
reason of any reference elsewhere herein to such Article or any such covenant or
by reason of any reference in such Article to any other provision herein or in
any other document and such omission to comply shall not constitute an Event of
Default under Section 501, but the remainder of this Indenture and the
Securities shall be unaffected thereby. The following shall be the conditions
to application of this subsection (2) of this Section 402:

(A) the Issuer has deposited with the Trustee as trust funds in trust
for the purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of the
Securities, (a) Money in an amount, or (b) U.S.

21
<PAGE>

Government Obligations maturing as to principal and interest at such times
and in such amounts as will insure (without investment of such cash or
reinvestment of any interest or proceeds from such U.S. Government
Obligations) the availability of Money in an amount or (c) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
Independent Public Accountants expressed in a written certification thereof
delivered to the Trustee, to pay the principal and interest on all
Securities on each date that such principal or interest is due and payable;

(B) no Default or Event of Default or event which with notice or
lapse of time or both would become an Event or Default with respect to the
Securities shall have occurred and be continuing on the date of such
deposit or, insofar as Section 501(7) is concerned, at any time during the
period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period);

(C) such covenant defeasance will not result in a breach or violation
of, or constitute a Default or Event of Default under, this Indenture, the
Securities or any agreement or instrument to which the Issuer is a party or
by which it is bound;

(D) such covenant defeasance shall not cause the Trustee to have a
conflicting interest as defined in Section 310(b) of the Trust Indenture
Act;

(E) such covenant defeasance shall not cause any Securities then
listed on any registered national securities exchange to be delisted;

(F) the Issuer shall have delivered to the Trustee an Opinion of
Counsel to the effect (i) that the Holders of the Securities will not
recognize income, gain or loss for Federal income tax purposes as a result
of such covenant defeasance and will be subject to Federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such covenant defeasance had not occurred; and (ii) that
the trust arising from such deposit shall not constitute an "investment
company" or an entity "controlled" by an "investment company" as such terms
are defined in The Investment Company Act of 1940, as amended; and

(G) the Issuer shall have paid or cause to be paid all other sums
then payable hereunder by the Issuer, including amounts owing to the
Trustee, and the Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent relating to the covenant defeasance contemplated by this
provision have been complied with.

SECTION 403. APPLICATION OF TRUST MONEY.

Subject to the provisions of Section 405, all Money and U.S. Government
Obligations deposited with the Trustee pursuant to Sections 401 and 402 and all
Money received by the Trustee in respect of U.S. Government Obligations
deposited with the Trustee pursuant to Section 402 shall

22
<PAGE>

be held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Issuer acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee.

SECTION 404. REPAYMENT OF MONIES HELD BY PAYING AGENT.

Upon the satisfaction and discharge of this Indenture with respect to the
Securities in accordance with Section 401, all Money in excess of the amount
necessary to satisfy and discharge this Indenture (subject to Section 405
hereof) then held by any Paying Agent under the provisions of this Indenture
with respect to the Securities shall, upon demand of the Issuer, be repaid to it
or paid to the Trustee and thereupon such Paying Agent shall be released from
all further liability with respect to such Money.

SECTION 405. RETURN OF MONIES HELD BY TRUSTEE AND PAYING AGENT UNCLAIMED FOR
TWO YEARS.

Any Money deposited with or paid to the Trustee or any Paying Agent for the
payment of the principal of and interest on the Securities and not applied but
remaining unclaimed for two years after the date upon which such principal and
interest shall have become due and payable, shall, upon the written request of
the Issuer and unless otherwise required by mandatory provisions of applicable
escheat or abandoned or unclaimed property law, be repaid to the Issuer by the
Trustee or such Paying Agent, and the Holder of the Securities shall, unless
otherwise required by mandatory provisions of applicable escheat or abandoned or
unclaimed property laws, thereafter look only to the Issuer for any payment
which such Holder may be entitled to collect, and all liability of the Trustee
or any Paying Agent with respect to such monies shall thereupon cease; PROVIDED,
HOWEVER, that the Trustee or such Paying Agent, before being required to make
any such repayment with respect to Money deposited with it for any payment,
shall at the expense of the Issuer, mail by first class mail to Holders of such
Securities at their addresses as they shall appear on the Security Register
notice, that such Money remain unpaid and that, after a date specified therein,
which shall not be less than thirty days from the date of such mailing or
publication, any unclaimed balance of such money then remaining will be repaid
to the Issuer.

ARTICLE FIVE

REMEDIES

SECTION 501. EVENTS OF DEFAULT.

"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

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<PAGE>

(1) failure by the Issuer or any successor thereto to pay the
principal on any Security when due at Maturity or upon a redemption of such
Security when and as due by the terms of Article Eleven; or

(2) failure by the Issuer or any successor thereto to pay any
interest on any Security for a period of 10 days after such interest shall
have become due and payable; or

(3) failure to perform any other covenant set forth in this Indenture
and continuance of such failure for a period of 30 days after there has
been given, by registered or certified mail, to the Issuer by the Trustee
or to the Issuer and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities a written notice
specifying such default and requiring such default to be remedied and
stating that such notice is a "Notice of Default" hereunder; or

(4) default in the payment at Stated Maturity of Indebtedness of the
Issuer or a Subsidiary having an outstanding principal amount due at Stated
Maturity greater than $2.0 million and such default shall have continued
without being cured, waived or consented to or without such Indebtedness
being discharged for a period of 30 days beyond any applicable grace
period; or

(5) an event of default as defined in any mortgage, indenture or
instrument of the Issuer or any Subsidiary shall have happened and resulted
in the acceleration of Indebtedness, which together with the principal
amount of any other Indebtedness so accelerated, aggregates $2.0 million or
more at any time, and such default shall not have been cured or waived and
such acceleration shall not have been rescinded or annulled; or

(6) entry of a final judgment, decree or order against the Issuer or
any Subsidiary for the payment of money in excess of $1.0 million and such
judgment, decree or order continues unsatisfied for 60 days from the entry
thereof, unless vacated, discharged or stayed pending appeal within such
60-day period; or

(7) the entry by a court or agency or supervisory authority having
competent jurisdiction of:

(a) a decree or order for relief in respect of the Issuer or any of
its Subsidiaries in an involuntary proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law and such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or

(b) a decree or order adjudging the Issuer or any of its Subsidiaries
to be insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of the Issuer or its Subsidiaries and such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or

24
<PAGE>

(c) a decree or order appointing the Federal Deposit Insurance
Corporation (the "FDIC") or any other Person to act as a custodian, receiver,
liquidation, assignee, trustee or other similar official of the Issuer, any of
its Subsidiaries or of any substantial part of the property of the Issuer or its
Subsidiaries, as the case may be, or ordering the winding up or liquidation of
the affairs of the Issuer or its Subsidiaries and such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or

(d) the commencement by the Issuer or any of its Subsidiaries of a
voluntary proceeding under any applicable bankruptcy, insolvency, reorganization
or other similar law or of a voluntary proceeding seeking to be adjudicated
insolvent or the consent by the Issuer or any of its Subsidiaries to the entry
of a decree or order for relief in an involuntary proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any insolvency proceedings against it, or the filing by the
Issuer or any of its Subsidiaries of a petition or answer or consent seeking
reorganization or relief under any applicable law, or the consent by the Issuer
or any of its Subsidiaries to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee
or similar official of the Issuer or any of its Subsidiaries or any substantial
part of the property of the Issuer or any of its Subsidiaries or the making by
the Issuer or any of its Subsidiaries of an assignment for the benefit of
creditors, or the taking of corporate action by the Issuer or any of its
Subsidiaries in furtherance of any such action.

SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.

If an Event of Default described in Section 501(7) (an "Acceleration
Event") shall occur and be continuing, then and in every such case the Trustee
or the Holders of not less than 25% in aggregate principal amount of the
Outstanding Securities may declare the principal of all the Securities to be due
and payable immediately, by a notice in writing to the Issuer (and to the
Trustee if given by Holders), and upon any such declaration such principal and
accrued interest to the date of acceleration shall become immediately due and
payable.

At any time after such declaration of acceleration has been made and before
a judgment or decree for payment of the Money due has been obtained by the
Trustee as hereinafter in this Article provided, the Holders of a majority in
aggregate principal amount of the Outstanding Securities, by written notice to
the Issuer and the Trustee, may rescind and annul such declaration and its
consequences if all Acceleration Events have been remedied and all payments due,
other than those due as a result of acceleration, have been made.

SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.

The Issuer covenants that if an Event of Default occurs, the Issuer will,
upon demand of the Trustee, pay to it, for the benefit of the Holders of such
Securities, the whole amount of Money then due and payable on such Securities
for principal (and premium, if any) and interest, and, to the extent that
payment of such interest shall be legally enforceable, interest on any overdue
principal (and premium, if any) and on any overdue interest, at the rate borne
by the Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection,

25
<PAGE>

including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.

In the event that the Issuer fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the Money so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Issuer or any other obligor upon the Securities and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Issuer or any other obligor upon the Securities,
wherever situated.

If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.

SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.

In case of any judicial or regulatory proceeding relative to the Issuer or
any other obligor upon the Securities, its property or its creditors, the
Trustee shall be entitled and empowered (irrespective of whether the principal
of the Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Issuer for the payment of any overdue principal or interest),
by intervention in such proceeding or otherwise, to take any and all actions
authorized under the Trust Indenture Act in order to have claims of the Holders
and the Trustee allowed in any such proceeding. In particular, the Trustee
shall be authorized to collect and receive any Money or other property payable
or deliverable on any such claims and to distribute the same and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 607.

No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, agreement, adjustment or composition affecting the Securities or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.

SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.

All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the

26
<PAGE>

Trustee, its agents and counsel, be for the ratable benefit of the Holders of
the Securities in respect of which such judgment has been recovered.

SECTION 506. APPLICATION OF MONEY COLLECTED.

Any Money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such Money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment, if only partially paid, and upon surrender thereof, if
fully paid:

FIRST: To the payment of all amounts due the Trustee under Section
607;

SECOND: In the case the principal of the Securities shall not have
become due and payable, to the payment of the amounts then due and unpaid
upon the Securities for interest in respect of which or for the benefit of
which such Money has been collected, in the order of the Maturity of the
installments of such interest, with interest, to the extent that such
interest has been collected by the Trustee, upon overdue installments of
interest at the rate borne by the Securities, such payments to be made
ratably, without preference or priority of any kind, according to the
aggregate amounts due and payable on such Securities for interest;

THIRD: In the case the principal of the Securities shall have
become due and payable, to the payment of the amounts then due and unpaid
upon the Securities for principal and interest in respect of which or for
the benefit of which such Money has been collected, with interest, to the
extent that such interest has been collected by the Trustee, upon overdue
installments of interest at the rate borne by the Securities, such payments
to be made ratably, without preference or priority of any kind, according
to the aggregate amounts due and payable on such Securities for principal
and interest, respectively; and

FOURTH: The balance, if any, to the Person or Persons entitled
thereto.

SECTION 507. LIMITATION OF SUITS.

No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless

(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;

(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;

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<PAGE>

(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request (including counsel fees and expenses);

(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and

(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in aggregate principal amount of the Outstanding Securities;

it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.

SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
INTEREST.

Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption pursuant to Section 1101, on the
Redemption Date) and to institute suit for the enforcement of any such payment
and such rights shall not be impaired without the consent of such Holder.

SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.

If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Issuer, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.

SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.

Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in Section 306, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

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SECTION 511. DELAY OR OMISSION NOT WAIVER.

No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Subject to the provisions of Section 507, every right and
remedy given by this Article or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.

SECTION 512. CONTROL BY HOLDERS.

The Holders of a majority in aggregate principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, PROVIDED that

(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and

(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.

This Section 512 shall be in lieu of Section 316(a)(1)(A) of the Trust
Indenture Act, and such Section 316(a)(1)(A) is hereby expressly excluded
from this Indenture, as permitted by the Trust Indenture Act.

SECTION 513. WAIVER OF PAST DEFAULTS.

The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default

(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or

(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.

Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.

This Section 513 shall be in lieu of Section 316(a)(1)(B) of the Trust
Indenture Act, and such Section 316(a)(1)(B) is hereby expressly excluded from
this Indenture, as permitted by the Trust Indenture Act.

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SECTION 514. UNDERTAKING FOR COSTS.

In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; PROVIDED that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Issuer and any provision of the
Trust Indenture Act to such effect is hereby expressly excluded from this
Indenture, as permitted by the Trust Indenture Act.

SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.

The Issuer covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants herein or
the performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that they will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

ARTICLE SIX

THE TRUSTEE

SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.

The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.

SECTION 602. NOTICE OF DEFAULTS.

The Trustee shall give the Holders notice of any default hereunder as and
to the extent provided by the Trust Indenture Act; PROVIDED, HOWEVER, that in
the case of any default of the character specified in Section 501(3), no such
notice to Holders shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default. The Trustee shall not be deemed to have knowledge of any default or
Event of Default specified in Sections

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501(3) through 501(7) unless a Responsible Officer shall have received written
notice thereof from the Issuer or a Holder.

SECTION 603. CERTAIN RIGHTS OF TRUSTEE.

Subject to the provisions of Section 601:

(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate or any
other certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;

(b) any request or direction of the Issuer mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order; and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;

(c) Whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, conclusively rely upon an Officers' Certificate;

(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;

(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;

(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document but the Trustee, in its sole discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Issuer, personally or by agent or attorney;

(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and

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(h) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture.

SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.

The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Issuer,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture,
the Securities, or any prospectus used in connection with the sale of the
Securities. The Trustee shall not be accountable for the use or application by
the Issuer of Securities or the proceeds thereof.

SECTION 605. MAY HOLD SECURITIES.

The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Issuer, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Issuer and receive, collect, hold and
retain collections from the Issuer with the same rights it would have if it were
not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such
other agent.

SECTION 606. MONEY HELD IN TRUST.

Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Issuer.

SECTION 607. COMPENSATION AND REIMBURSEMENT.

The Issuer covenants and agrees:

(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);

(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and

(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without gross negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and

<PAGE>

expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder.

The obligations under this Section 607 to compensate and indemnify the
Trustee and to pay or reimburse the Trustee for expenses, disbursements and
advances shall constitute additional indebtedness hereunder, shall survive the
satisfaction and discharge of this Indenture or the resignation or removal of
the Trustee. When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Article Five hereof, the expenses
(including the reasonable fees and expenses of its counsel) and the compensation
for the services in connection therewith are intended to constitute expenses of
administration under any bankruptcy law.

SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.

If the Trustee has or shall acquire any conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
conflicting interest or resign in the manner provided by, and subject to the
provisions of the Trust Indenture Act and this Indenture.

SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.

There shall at all times be a Trustee hereunder which shall be a
corporation or national banking association organized and doing business under
the laws of the United States of America, any State thereof or the District of
Columbia, authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of at least $10,000,000, subject to supervision
or examination by Federal or State authority and having a Corporate Trust Office
in the Borough of Manhattan, The City of New York, New York. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect hereinafter specified in
Section 610.

SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.

(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.

(b) The Trustee may resign at any time by giving written notice thereof to
the Issuer. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.

(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Issuer.

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(d) If at any time:

(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Issuer or by any Holder who has been a bona fide
Holder of a Security for at least six months, unless the Trustee's duty to
resign is stayed in accordance with the provisions of Section 310(b) of the
Trust Indenture Act, or

(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Issuer or by any
such Holder, or

(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conversation or liquidation,

then, in any such case, (i) the Issuer by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.

(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Issuer,
by a Board Resolution shall promptly appoint a successor Trustee. If, within
one year after such resignation, removal or incapability, on the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of
majority in principal amount of the Outstanding Securities delivered to the
Issuer and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Issuer. If no successor
Trustee shall have been so appointed by the Issuer or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, remove the Trustee and
appoint a successor Trustee.

(f) The Issuer shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided for in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.

SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.

Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Issuer and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts

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<PAGE>

and duties of the retiring Trustee; but, on request of the Issuer or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all
the rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and Money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Issuer shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers
and trusts.

No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.

SECTION 612. MERGER, CONVERSIONS, CONSOLIDATION OR SUCCESSION TO BUSINESS.

Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trustee
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.

SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER.

If and when the Trustee shall be or become a creditor of the Issuer (or any
other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Issuer (or any such other obligor).

SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.

The Trustee may appoint an Authenticating Agent or Agents which shall be
authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer or partial
redemption or pursuant to Section 306, and Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. Wherever reference
is made in this Indenture to the authentication and delivery of Securities by
the Trustee or the Trustee's certificate of authentication, such reference shall
be deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Issuer and shall at all times be a corporation authorized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $10,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent

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<PAGE>

publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus
as set forth in its most recent report of condition so published. If at any
time an Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Issuer. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Issuer. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Issuer and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.

The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.

If an appointment is made pursuant to this Section, the Securities may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:

This is one of the Securities referred to in the within mentioned
Indenture.

-------------------------------------------------
As Trustee

By:
----------------------------------------------
As Authenticating Agent

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<PAGE>

By:
----------------------------------------------
Authorized Signatory

ARTICLE SEVEN

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER

SECTION 701. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.

The Issuer will furnish or cause to be furnished to the Trustee

(a) semi-annually, not more than 15 days after each June 15 and
December 15, a list in such form as the Trustee may reasonably require, of
the names and addresses of the Holders as of the applicable date, and

(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Issuer, as the case may be, of any such
request, a list of similar form and content as of a date not more than 15
days prior to the time such list is furnished;

excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.

SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.

(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.

(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.

(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Issuer and the Trustee that neither the Issuer nor the Trustee nor any
agent of any of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.

SECTION 703. REPORTS BY TRUSTEE.

(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
The interval between transmissions of reports to be

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<PAGE>

transmitted at intervals shall be twelve months or such shorter time required
by the Trust Indenture Act. If the Trust Indenture Act does not specify the
first date on which a report is due, the first such date shall be June 15
commencing with the year in which the Securities are first issued.

(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange or market upon which
the Securities are listed or quoted, with the Commission and with the Issuer.
The Issuer will notify the Trustee if the Securities are listed on any stock
exchange or quoted on any other market.

SECTION 704. REPORTS BY ISSUER.

(a) The Issuer covenants and agrees to file or cause to be filed with the
Trustee and the Commission, and transmit to Holders, such information, documents
and other reports, and such summaries thereof, as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant to such
Act; PROVIDED that any such information, documents or reports required to be
filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within 15 days after the same is so required to
be filed with the Commission.

(b) The Issuer shall transmit, or cause to be transmitted, to the Holders
of Securities within 30 days after the filing thereof with the Commission its
annual report prepared in accordance with Rule 14a-3 under the Exchange Act. If
the Issuer is no longer required to file such a report with the Commission, the
Issuer shall transmit a report prepared in accordance with Rule 14a-3 under the
Exchange Act to the Holders of Securities on or before May 31 of each year.

(c) If the Issuer is not required to furnish annual or quarterly reports
to its stockholders pursuant to the Exchange Act, the Issuer shall cause its
financial statements, including any notes thereto and, with respect to annual
reports, an auditors' report by an accounting firm of established national
reputation to be so filed with the Trustee within 120 days after the end of each
of the fiscal years and within 60 days after the end of each of the first three
quarters of each such fiscal year and, after the date such reports are so
required to be filed with the Trustee, to be furnished to each Holder. The
Issuer also shall provide the Trustee with such additional copies of such
reports as they may reasonably request, and the Trustee may provide said reports
to any other Person.

ARTICLE EIGHT

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 801. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.

The Issuer shall not consolidate with or merge into any other Person or
sell, convey, transfer or lease all or substantially all of its properties and
assets to any such Person, and the Issuer shall not permit any such Person to
consolidate with or merge into the Issuer or sell, convey, transfer or lease all
or substantially all of its properties and assets to the Issuer, unless:

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<PAGE>

(1) the Issuer shall be the continuing Person, or in case the Issuer
shall consolidate with or merge into another Person or sell, convey,
transfer or lease all or substantially all of its properties and assets to
any Person, the Person formed by such consolidation or into which the
Issuer is merged or the Person which acquires by sale, conveyance or
transfer, or which leases, all or substantially all of the properties and
assets of the Issuer, shall be a corporation organized and validly existing
under the laws of the United States of America, any State thereof or the
District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee the due and punctual payment of the principal
of (and premium, if any) and interest on all the Securities and the due and
punctual performance or observance of each of the other covenants and
agreements of this Indenture on the part of the Issuer to be performed or
observed;

(2) immediately after giving effect to such transaction, no event
which, after notice or lapse of time, or both, would become an Event of
Default shall have occurred and be continuing;

(3) immediately after giving effect to such transaction, each
Subsidiary controlled by the Company or the successor Person that is a
national or state banking association shall be in compliance with all
applicable minimum capital requirements and shall have filed a capital plan
acceptable to its primary regulator; and

(4) the Issuer has delivered to the Trustee an Officers' Certificate
and, if a supplemental indenture is required in connection with such
transaction, also an Opinion of Counsel, stating that such consolidation,
merger, conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture
comply with this Article and that all conditions precedent herein provided
for relating to such transaction have been complied with.

SECTION 802. SUCCESSOR SUBSTITUTED.

Upon any consolidation of the Issuer with, or merger of the Issuer into,
any other Person or any sale, conveyance, transfer or lease of the properties
and assets of the Issuer substantially as an entirety in accordance with Section
801, the successor Person formed by such consolidation or into which the Issuer
is merged or to which such sale, conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Issuer under this Indenture with the same effect as if such successor Person
had been named as the Issuer herein, and thereafter, except in the case of a
lease of properties and assets, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.

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<PAGE>

ARTICLE NINE

SUPPLEMENTAL INDENTURES

SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.

Without the consent of any Holders the Issuer, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:

(1) to evidence the succession of another Person to the Issuer and
the assumption by any such successor of the covenants and agreements of the
Issuer herein or in the Securities; or

(2) to add to the covenants of the Issuer for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Issuer; or

(3) to secure the Securities; or

(4) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions of
this Indenture, provided such action pursuant to this clause (4) shall not
adversely affect the interests of the Holders in any material respect.

SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.

(a) With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Issuer and the Trustee, the Issuer, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
PROVIDED, HOWEVER, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:

(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the place of payment where, or the coin or
currency in which, any Security or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or

(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this

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Indenture or certain defaults hereunder and their consequences) provided
for in this Indenture, or

(3) modify any of the provisions of this Section or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.

It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.

SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.

In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.

SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.

Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.

SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.

Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.

SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.

Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Trustee shall
so determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Issuer, to any such supplemental indenture may be prepared and
executed by the Issuer and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.

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ARTICLE TEN

COVENANTS

SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.

The Issuer will duly and punctually pay the principal of (and premium, if
any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.

SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.

The Issuer will maintain in the Borough of Manhattan, The City of New York,
New York, an office or agency where Securities may be presented or surrendered
for payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Issuer in respect of the
Securities and this Indenture may be served. The Corporate Trust Office of the
Trustee shall initially be such office or agency for all of the aforesaid
purposes. The Issuer will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuer shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Issuer hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.

The Issuer may also from time to time designate one or more other offices
or agencies (in or outside of the above location) where the Securities may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; PROVIDED, HOWEVER, that no such designation or
rescission shall in any manner relieve the Issuer of its obligation to maintain
an office or agency in the Borough of Manhattan, The City of New York, New York
for such purposes. The Issuer agrees to give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency.

The Issuer agrees to maintain, and to cause each of its Subsidiaries to
maintain, copies of all minute books, stock records, financial statements and
bank account information at the principal executive offices of the Issuer, or
those of its counsel, in the United States.

SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.

If the Issuer shall at any time act as its own Paying Agent, it will, on or
before each due date of the principal of (and premium, if any) or interest on
any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum of Money sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.

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Whenever the Issuer shall have one or more Paying Agents, it will, on or
before each due date of the principal of (and premium, if any) or interest on
any Securities, deposit with a Paying Agent a sum of Money sufficient to pay
such amount, such sum to be held as provided by the Trust Indenture Act, and
(unless such Paying Agent is the Trustee) the Issuer will promptly notify the
Trustee of its action or failure so to act.

The Issuer will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will: (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Issuer (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent as such.

The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all Money held in trust by
the Issuer or such Paying Agent, such Money to be held by the Trustee upon the
same terms as those upon which such Money was held by the Issuer or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.

SECTION 1004. EXISTENCE; CONDUCT OF OPERATIONS; INSURED INSTITUTION.

(1) Subject to Article Eight, the Issuer will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises of the Issuer and its
subsidiaries, and shall comply with all material statutes, rules, regulations
and orders of and restrictions imposed by governmental and administrative
authorities and agencies applicable to the Issuer and its Subsidiaries;
PROVIDED, HOWEVER, subject to paragraph (2) of this Section 1004, that the
Issuer shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Issuer and its Subsidiaries and
that the loss thereof is not disadvantageous in any material respect to the
Holders.

(2) The Issuer shall do or cause to be done all things necessary to
preserve and keep in full force and effect any Subsidiary that is chartered as a
bank as an Insured Institution and do all things necessary to ensure that
savings accounts of any such Subsidiary are insured by the FDIC or any successor
organization up to the maximum amount permitted by the Federal Deposit Insurance
Act and regulations thereunder or any succeeding federal law hereinafter
enacted.

SECTION 1005. STATEMENT BY OFFICERS AS TO COMPLIANCE.

(1) The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year, an Officers' Certificate, stating whether or not to the
best knowledge of the signers thereof the Issuer is in default in the
performance and observance of any of the terms, provisions and conditions

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of this Indenture, (other than a term, provision or condition specifically
dealt with in Clause (2) of this Section 1006) setting forth the arithmetical
computations required to show compliance with the provisions of Section 1007
during the previous year, and, if the Issuer shall be in default, specifying
all such defaults and the nature and status thereof of which they may have
knowledge.

(2) The Issuer will deliver to the Trustee, within five days after the
occurrence thereof, written notice of any event which after notice or lapse of
time or both would become an Event of Default.

SECTION 1006. RESTRICTED PAYMENTS ON CAPITAL STOCK.

The Issuer will not declare or pay dividends on, or purchase, redeem or
acquire its Capital Stock, return any capital to holders of Capital Stock, or
make any distribution of assets to holders of Capital Stock, except that the
Issuer (i) may declare and pay a dividend in Capital Stock of the Issuer and
(ii) declare and pay a dividend or make another distribution in cash or property
other than Capital Stock of the Issuer if the amount of such dividend or
distribution, together with the amount of all such previous dividends and
distributions after March 31, 1997, would not exceed the sum of (A) $2 million,
(B) 75% of the Issuer's Consolidated Net Income (or, in the event such aggregate
Consolidated Net Income shall be a loss, minus 100% of such loss) accrued on a
cumulative basis during the period beginning on April 1, 1997 and ending on the
last day of the Issuer's fiscal quarter immediately preceding such dividend or
distribution (treated as a single accounting period), and (C) 100% of the net
proceeds received by the Issuer from the issuance or sale (other than to a
Subsidiary) of Capital Stock of the Issuer, including any such shares issued
upon exercise of any warrants, options or similar rights (other than
Disqualified Stock), subsequent to March 31, 1997.

The foregoing provisions will not prevent the payment of any dividend or
distribution within 60 calendar days after the date of its declaration if the
dividend or distribution would have been permitted on the date of declaration.
The provisions of clause (ii) above shall not prevent (A) acquisitions of
Capital Stock from the Issuer by any Subsidiary and (B) the retirement,
redemption or exchange of any shares of the Issuer's Capital Stock by exchange
for, or out of the proceeds of the substantially concurrent sale of, other
shares of Capital Stock of the Issuer other than Disqualified Stock. For
purposes of calculating the aggregate amount of the dividends or distributions
made pursuant to clause (ii) of the immediately preceding paragraph, dividend
payments or distributions made under this paragraph shall be included in such
amount, provided that dividends or distributions paid within 60 calendar days of
the date of declaration shall be deemed to be paid at the date of declaration.

Prior to making any dividend or distribution under this Section 1006, the
Issuer shall deliver to the Trustee an Officers' Certificate setting forth the
computation by which the amount available for such dividend or distribution was
determined. The Trustee shall have no duty or responsibility to determine the
accuracy or correctness of this computation and shall be fully protected in
relying on such Officers' Certificate.

SECTION 1007 MAINTENANCE OF PROPERTIES; INSURANCE

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The Issuer will:

(1) cause its properties and the properties of its Subsidiaries used
or useful in the conduct of the business of the Issuer and its Subsidiaries
to be maintained and kept in good condition, repair and working order and
supplied with all necessary facilities and equipment and will cause to be
made all necessary repairs, renewals, replacements, and improvements
thereof, all as in the judgment of the Issuer may be necessary so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times; PROVIDED, HOWEVER, that the
foregoing shall not prevent the Issuer or a Subsidiary from discontinuing
the operation and maintenance of any of its properties if such
discontinuance is, in the judgment of the Issuer, desirable in the conduct
of its business and not disadvantageous in any material respect to any
Holder; and

(2) take all appropriate steps to preserve, protect and maintain the
trademarks, trade names, copyrights, licenses and permits used in the
conduct of the business of the Issuer and its Subsidiaries; PROVIDED,
HOWEVER, that the foregoing shall not prevent the Issuer or a Subsidiary
from selling, abandoning or otherwise disposing of any such trademark,
trade name, copyright, license or permit if such sale, abandonment or
disposition is, in the judgment of the Issuer, desirable in the conduct of
its business and not disadvantageous in any material respect to any Holder.

(3) The Issuer will maintain or cause to be maintained in effect,
with reputable insurers or associations of recognized responsibility, such
types and amounts of insurance as are customarily carried by persons
engaged in the same or similar businesses as the Issuer and may provide for
self-insurance, by way of retention or deductible, in such amounts as are
customary in the industry for persons engaged in the same or similar
businesses as the Issuer.

SECTION 1008. PAYMENT OF TAXES AND OTHER CLAIMS.

The Issuer will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Issuer or any Subsidiary or upon the income,
profits or property of the Issuer or any Subsidiary and (2) all lawful claims
for labor, material and supplies which, if unpaid, might by law become a lien
upon the property of the Issuer or any Subsidiary; PROVIDED, HOWEVER, that the
Issuer shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings and for
which disputed amounts adequate reserves have been established.

SECTION 1009. BOOKS AND RECORDS.

The Issuer shall, and shall cause each Subsidiary to, at all times keep
proper books of record and account in which proper entries shall be made in
accordance with GAAP and, to the extent applicable, regulatory accounting
principles.

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ARTICLE ELEVEN

REDEMPTION OF SECURITIES

SECTION 1101. RIGHT OF REDEMPTION.

The Securities may not be redeemed prior to May 31, 2000. On and after May
31, 2000, the Securities may be redeemed at the election of the Issuer, as a
whole or from time to time in part, at par together with accrued and unpaid
interest to the Redemption Date (subject to the right of the Holder of
Securities on a Regular Record Date for an interest payment to receive such
interest payment payable on the corresponding Interest Payment Date).

SECTION 1102. APPLICABILITY OF ARTICLE.

Redemption of Securities as permitted by any provision of this Indenture,
shall be made in accordance with such provisions and this Article.

SECTION 1103. ELECTION TO REDEEM; NOTICE OF TRUSTEE.

The election of the Issuer to redeem any Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Issuer of less than all the Securities, the Issuer shall, at
least 60 days prior to the Redemption Date fixed by the Issuer (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Securities to be redeemed.

SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.

If less than all the Securities are to be redeemed pursuant to Section
1101, the particular Securities to be redeemed shall be selected not more than
35 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $1,000 or any integral multiple thereof) of the
principal amount of Securities of a denomination larger than $1,000.

The Trustee shall promptly notify the Issuer and each Security Registrar in
writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.

For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.

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SECTION 1105. NOTICE OF REDEMPTION.

Notice of redemption of any Securities pursuant to Section 1101 shall be
given by first-class mail, postage prepaid, mailed not less than 30 days nor
more than 60 days prior to the Redemption Date, to each Holder of Securities to
be redeemed, at his address appearing in the Security Register.

All notices of redemption shall state:

(1) the Redemption Date,

(2) the Redemption Price,

(3) if less than all the Outstanding Securities are to be redeemed,
the identification (and, in the cases of partial redemption, the principal
amounts) of the particular Securities to be redeemed,

(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after said date,

(5) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder of such Security will
receive, without charge to such Holder, a new Security or Securities of
authorized denominations for the principal amount thereof remaining
unredeemed;

(6) the place or places where such Securities are to be surrendered
for payment of the Redemption Price; and

(7) the CUSIP number of such Securities, if any (or any other numbers
used by a Depositary to identify such Securities).

Notice of redemption of Securities to be redeemed shall be given by the
Issuer or, at the Issuer's request, by the Trustee in the name and at the
expense of the Issuer.

SECTION 1106. DEPOSIT OF REDEMPTION PRICE.

On or before any Redemption Date relating to a redemption pursuant to
Section 1101, the Issuer shall deposit with the Trustee or with a Paying Agent
(or, if the Issuer is acting as its own Paying Agent, segregate and hold in a
trust as provided in Section 1003) an amount of Money sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the Securities which are to be redeemed
on that date.

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SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE.

(a) Notice of redemption pursuant to Section 1105 having been given as
aforesaid, the Securities so to be redeemed shall, on the Redemption Date,
become due and payable at the Redemption Price therein specified, and from and
after such date (unless the Issuer shall default in the payment of the
Redemption Price and accrued interest) such Securities shall cease to bear
interest. Upon surrender of any such Security for redemption in accordance with
said notice, such Security shall be paid by the Issuer at the Redemption Price,
together with accrued and unpaid interest to the Redemption Date; PROVIDED,
HOWEVER, that installments of interest whose Stated Maturity is on or after the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.

(b) If any Security surrendered for redemption shall not be paid on the
Redemption Date therefor, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Security.

SECTION 1108. SECURITIES REDEEMED IN PART.

Any Security which is to be redeemed only in part shall be surrendered at
the Corporate Trust Office or at another office or agency of the Issuer
designated for that purpose pursuant to Section 1002 (with, if the Issuer or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Issuer and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Issuer shall
execute, and the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder, in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered.

ARTICLE TWELVE

SUBORDINATION

SECTION 1201. AGREEMENT TO SUBORDINATE.

The Issuer covenants and agrees, and each Holder of a Security by his
acceptance thereof, likewise covenants and agrees, that all Securities shall be
issued subject to the provisions of this Article; and each Person holding any
Security, whether upon original issue or upon transfer, assignment or exchange
thereof, accepts and agrees that the principal of and interest on all Securities
shall, to the extent and in the manner herein set forth, be subordinated and
subject in right of payment to the prior payment in full of all Senior
Indebtedness, and that the subordination is for the benefit of the holders of
the Senior Indebtedness.

SECTION 1202. PAYMENT TO SECURITY HOLDERS.

<PAGE>

In the event of the occurrence and continuation of the following: (i) the
Issuer shall commence any proceeding seeking to have an order for relief entered
on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of the Issuer or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors or seeking appointment of a
receiver, trustee, liquidator, custodian or other similar official for the
Issuer or for all or substantially all of its property or shall file an answer
or other pleading in any such proceeding admitting the material obligations of
any petition, complaint on similar pleading filed against it or consenting to
the relief sought therein; or shall take any action to authorize any of the
foregoing; (ii) any involuntary proceeding against the Issuer shall be commenced
seeking to have an order for relief entered on its behalf as a debtor or to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of the Issuer or its debts
under any law relating to bankruptcy, insolvency, reorganization or relief of
debtors or seeking appointment of a receiver, trustee, liquidator, custodian or
other similar official for the Issuer or for all or substantially all of its
property, (iii) the Issuer shall fail to pay the principal or interest on any
Senior Indebtedness when such amounts become due and payable, (iv) an event of
default relating to any Senior Indebtedness, as defined in the Senior
Indebtedness or in the mortgage, indenture or other instrument relating to or
under which the Senior Indebtedness is outstanding, permitting the holder or
holders thereof to accelerate the maturity thereof, and such default or event of
default shall not be cured or was continued beyond the period of grace, if any,
in respect thereof, and such default or event of default shall not have been
waived or shall not have ceased to exist, or (v) that the principal of and
accrued interest on the Securities shall have been declared due and payable
pursuant to Section 502 and such declaration shall not have been rescinded and
annulled as provided in Section 502, then the holders of all Senior Indebtedness
shall first be entitled to receive payment in full of all amounts due or to
become due thereon, or provision shall be made, in accordance with the terms of
such Senior Indebtedness, for such payment in money or money's worth, before the
Holders of the Securities entitled to receive a payment on account of the
principal of or interest on the indebtedness evidenced by the of Securities.

Upon any such proceeding referred to in clauses (i) or (ii) of the
immediately preceding paragraph, any payment or distribution of assets of the
Issuer of any kind or character, whether in cash, property or securities, to
which the Holders of the Securities or the Trustee under this Indenture would be
entitled, except for the provisions hereof, shall be paid by the Issuer or by
any receiver, trustee, custodian, liquidator or other Person making such payment
or distribution or, to the extent required by the next succeeding paragraph, by
the Holders of the Securities or the Trustee, if received by them or it,
directly to the holders of Senior Indebtedness (pro rata to such holders on the
basis of the respective amounts of Senior Indebtedness held by such holders) or
their respective representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all Senior Indebtedness in full after giving effect
to any concurrent payment or distribution (or provision therefor) to or for the
holders of Senior Indebtedness, before any payment or distribution is made to
the Holders of the indebtedness evidenced by the Securities or to the Trustee
under this Indenture.

<PAGE>

In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Issuer of any kind or character, whether in cash,
property or securities, prohibited by the foregoing provisions of this Section,
shall be received by the Trustee under this Indenture or the Holders of the
Securities before all Senior Indebtedness is paid in full or provision is made
for such payment in accordance with its terms, and if such fact shall, at or
prior to the time of such payment or distribution, have been known to the
Trustee, then such payment or distribution shall be held in trust for the
benefit of and shall be paid over or delivered to the holders of such Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any instruments evidencing any of such
Senior Indebtedness may have been issued, as their respective interests may
appear, for application to the payment of all Senior Indebtedness remaining
unpaid until all such Senior Indebtedness shall have been paid in full in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness.

For purposes of this Article Twelve only, the words, "cash, property or
securities" shall not be deemed to include shares of Capital Stock of the Issuer
as reorganized or readjusted, or securities of the Issuer or any other
corporation provided for by a plan of arrangement, reorganization or
readjustment, the payment of which is subordinated (at least to the extent
provided in this Article Twelve with respect to the Securities) to the payment
of all Senior Indebtedness which may at the time be outstanding; PROVIDED that
(i) the Senior Indebtedness is assumed by the new corporation, if any, resulting
from any such arrangement, reorganization or readjustment, and (ii) the rights
of the holders of the Senior Indebtedness are not, without the consent of such
holders, altered by such arrangement, reorganization or readjustment. The
consolidation of the Issuer with, or the merger of the Issuer with or into,
another corporation or the liquidation or dissolution of the Issuer following
the conveyance or transfer of all or substantially all of its assets to another
corporation upon the terms and conditions provided in Article Eight shall not be
deemed a dissolution, winding-up, liquidation or reorganization for the purposes
of this Section Twelve if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions stated
in Article Eight. Nothing in this Section Twelve shall apply to claims of, or
payments to, the Trustee under or pursuant to Article Six, except as expressly
provided therein. This Section shall be subject to the further provisions of
Section 1205.

SECTION 1203. SUBROGATION.

Subject to the payment in full of all Senior Indebtedness, the Holders of
the Securities subject to the provisions of Section 1202 shall be subrogated
(equally and ratably with the holders of all obligations of the Issuer which by
their express terms are subordinated to Senior Indebtedness of the Issuer to the
same extent as the Securities are subordinated and which are entitled to like
rights of subrogation) to the rights of the holders of Senior Indebtedness to
receive payments or distributions of cash, property or securities of the Issuer
applicable to the Senior Indebtedness until all amounts owing on the Securities
shall be paid in full; and, for the purpose of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the Trustee on their behalf
would be entitled except for the provisions of this Article, and no payment over
pursuant to the provisions of this Article to the holders of Senior Indebtedness
by Holders of the Securities or the Trustee on their behalf shall, as

<PAGE>

between the Issuer, its creditors other than holders of Senior Indebtedness
and the Holders of the Securities be deemed to be a payment by the Issuer to
or on account of the Senior Indebtedness; and no payments or distributions of
cash, property or securities to or for the benefit of the Holders pursuant to
the subrogation provision of this Article Twelve, which would otherwise have
been paid to the holders of Senior Indebtedness, shall be deemed to be a
payment by the Issuer to or for the account of the Securities. The
provisions of this Article Twelve are intended solely for the purpose of
defining the relative rights of the Holders of the Securities, on the one
hand, and the holders of the Senior Indebtedness, on the other hand.

Nothing contained in this Article Twelve or elsewhere in this Indenture or
in the Securities is intended to or shall impair, as between the Issuer, its
creditors other than the holders of Senior Indebtedness, and the Holders of the
Securities, the obligation of the Issuer, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights against the
Issuer of the Holders of the Securities and creditors of the Issuer other than
the holders of Senior Indebtedness, nor shall anything herein or therein prevent
the Holder of any Security or the Trustee on his behalf from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article Twelve of the
holders of Senior Indebtedness in respect of cash, property or securities of the
Issuer received upon the exercise of any such remedy.

Upon any payment or distribution of assets of the Issuer referred to in
this Article Twelve, the Trustee, subject to the provisions of Sections 601 and
603, and the Holders of the Securities shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such insolvency,
bankruptcy, dissolution, winding-up, liquidation, arrangement or reorganization
proceedings are pending, or a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Holders of the Securities for
the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Issuer, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
Twelve.

SECTION 1204. AUTHORIZATION BY HOLDERS.

Each Holder of a Security by his acceptance thereof authorizes the Trustee
on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article Twelve and appoints the
Trustee his attorney-in-fact for any and all such purposes.

SECTION 1205. NOTICE TO TRUSTEE.

The Issuer shall give prompt written notice to the Trustee and to any
Paying Agent of any fact known to the Issuer which would prohibit the making of
any payment of monies to or by the Trustee or any Paying Agent in respect of the
Securities pursuant to the provisions of this Article Twelve. Regardless of
anything to the contrary contained in this Article Twelve or elsewhere in this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any Senior

<PAGE>

Indebtedness or of any default or event of default with respect to any Senior
Indebtedness or of any other facts which would prohibit the making of any
payment of monies to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received notice in writing (which may be by
telegram, telecopy or other similar writing) at its Corporate Trust Office to
that effect signed by an officer of the Issuer, or by a holder or agent of a
holder of Senior Indebtedness who shall have been certified by the Issuer or
otherwise established to the reasonable satisfaction of the Trustee to be
such holder or agent, or by the trustee under any indenture pursuant to which
Senior Indebtedness shall be outstanding, and, prior to the receipt of any
such written notice, the Trustee shall, subject to Sections 601 and 603, be
entitled to assume that no such facts exist; PROVIDED that if on a date at
least two Business Days prior to the date upon which by the terms hereof any
such monies shall become payable for any purpose (including, without
limitation, the payment of the principal of or interest on any Security) the
Trustee shall not have received with respect to such monies the notice
provided for in this Section 1205, then, regardless of anything herein to the
contrary, the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which they were received, and
shall not be affected by any notice to the contrary which may be received by
it on or after such prior date.

Regardless of anything to the contrary herein (but subject, in the case of
clause (a) of this paragraph, to the second paragraph of Section 1302), nothing
shall prevent (a) any payment by the Issuer or the Trustee to the Holders of
amounts in connection with a redemption of Securities if (i) notice of such
redemption has been given pursuant to Article Eleven prior to the receipt by the
Trustee of written notice as aforesaid, and (ii) such notice of redemption is
given not earlier than 60 days before the Redemption Date, or (b) any payment by
the Trustee to the Holders of amounts deposited with it pursuant to Section 401
or 402, provided, that, in the case of Section 402, the Securities are deemed to
have been paid and discharged, and in the case of Section 401, the Trustee shall
not have received, by at least two Business Days prior to the date of execution
of instruments acknowledging the satisfaction of and discharge of this Indenture
with respect to the Securities, the notice provided in the preceding paragraph.

Subject to Sections 601 and 603, the Trustee shall be entitled to rely on
the delivery to it of a written notice by a Person representing himself to be a
holder of Senior Indebtedness (or a trustee on behalf of such holder) to
establish that such notice has been given by a holder of Senior Indebtedness or
a trustee on behalf of any such holder. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness to participate in any
payment or distribution pursuant to this Article Twelve, the Trustee may request
such Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article Twelve,
and if such evidence is not furnished the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment.

<PAGE>

SECTION 1206. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS.

The Trustee and any agent of the Issuer or the Trustee shall be entitled to
all the rights set forth in this Article Twelve with respect to any Senior
Indebtedness which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Indebtedness and
nothing in Section 614 or elsewhere in this Indenture shall deprive the Trustee
or any such agent of any of its rights as such holder. Nothing in this Article
Twelve shall apply to claims of, or payments to, the Trustee under or pursuant
to Section 607.

With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article Twelve, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Sections 601 and 603, the Trustee shall not be liable to any
holder of Senior Indebtedness if it shall in good faith pay over or deliver to
Holders of Securities, the Issuer or any other Person monies or assets to which
any holder of Senior Indebtedness shall be entitled by virtue of this Article
Twelve or otherwise.

SECTION 1207. NO IMPAIRMENT OF SUBORDINATION.

No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Issuer or
by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Issuer with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.

Address for Notices: BNCCORP, INC.
Issuer
322 East Main
P. O. Box 2316
Bismarck, ND 58502
Attention: Gregory K. Cleveland By:______________________________
Gregory K. Cleveland
President
Attest:

______________________________
Annette Eckroth
Secretary

Address for Notices: FIRSTAR TRUST COMPANY
615 East Michigan Street Trustee
Fourth Floor
P. O. Box 2077
Milwaukee, WI 53201-2077
Attention: Securities Processing
Corporate Trust
By:______________________________
Name:
Title:
Attest:

______________________________
Trust Officer

<PAGE>

SCHEDULE A

FORM OF FACE OF SECURITY.

(The immediate following legend shall be included on a Global Security only)

Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
required by an authorized representative of DTC (and any payment is made to Cede
& Co. or to such other entity as is required by an authorized representative of
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein.

THIS SECURITY IS NOT A SAVINGS ACCOUNT OR A DEPOSIT AND IS NOT INSURED BY
THE UNITED STATES OR ANY AGENCY OF THE UNITED STATES.

BNCCORP, INC.

No. ________ $________

________% Subordinated Note due 2004

BNCCORP, Inc., a corporation duly organized and existing under the laws of
Delaware (herein called the "Issuer", which term includes any successor Person
under the Indenture hereinafter referred to), for value received, hereby
promises to pay to ________, or registered assigns, the principal sum of
________ Dollars on May 31, 2004 and to pay interest thereon from the date of
issuance or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, monthly on the first Business Day of each month,
commencing July 1, 1997, at the rate of ________% per annum, until the principal
hereof is paid or made available for payment. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the 15th day
(whether or not a Business Day), of the calendar month, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this Security
will be made at the Corporate Trust Office or at another office or agency of the
Issuer maintained for that purpose in the Borough of Manhattan, The City of New
York, New York in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
PROVIDED, HOWEVER, that at the option of the Issuer payment of interest may be
made by check mailed on or before the Stated Maturity to the address of the
Person entitled thereto as such address shall appear in the Security Register.

Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

<PAGE>

IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.

Dated:
BNCCORP, INC.

By:__________________________
Attest:

______________________________

<PAGE>

FORM OF REVERSE OF SECURITY.
BNCCORP, INC.
________% Subordinated Note due 2004

This Security is one of a duly authorized issue of Securities of the Issuer
designated as its ________% Subordinated Notes due 2004 (herein called the
"Securities"), limited in aggregate principal amount to $15,000,000, issued and
to be issued under an Indenture, dated as of May ____, 1997, (herein called the
"Indenture"), between BNCCORP, INC. (the "Issuer"), and Firstar Trust Company,
as Trustee (herein called the "Trustee," which term includes any successor
trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Issuer, the
Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered.

The Securities are general unsecured obligations of the Issuer. The
Indenture imposes certain limitations on the ability of the Issuer to, among
other things, make payments in respect of its Capital Stock, merge or
consolidate with any other Person or sell, lease, transfer or otherwise dispose
of substantially all of its properties or assets. All such covenants and
limitations are subject to a number of important qualifications and exceptions.
The Issuer must report periodically to the Trustee on compliance with the
covenants in the Indenture.

An Event of Default is: (i) failure by the Issuer or any successor thereto
to pay the principal on any Security when due at Maturity or upon a redemption
of such Security when and as due by the terms of the Indenture; (ii) failure by
the Issuer or any successor thereto to pay the interest on any Security for a
period of 10 days after such interest shall have become due and payable; (iii)
failure to perform any other covenant set forth in the Indenture and continuance
of such failure for a period of 30 days after there has been given by registered
or certified mail, to the Issuer by the Trustee or to the Issuer and the Trustee
by the Holders of at least 25% in aggregate principal amount of the outstanding
Securities a written notice specifying such default and requiring such default
to be remedied and stating that such notice is a "Notice of Default" under the
Indenture; (iv) a default in any payment at Stated Maturity of Indebtedness of
the Issuer or a Subsidiary having an outstanding principal amount due at Stated
Maturity greater than $2.0 million and such default shall have continued without
being cured, waived or consented to or without such Indebtedness being
discharged for a period of 30 days beyond any applicable grace period; (v) an
event of default as defined in any mortgage, indenture or instrument of the
Issuer or any Subsidiary shall have happened and resulted in the acceleration of
Indebtedness which together with the principal amount of any other Indebtedness
so accelerated, aggregates $2.0 million or more at any time, and such default
shall not have been cured or waived and such acceleration shall not have been
rescinded or annulled; (vi) entry of a final judgment, decree or order against
the Issuer or any Subsidiary for the payment of money in excess of $1.0 million
and such judgment, decree or order continues unsatisfied for 60 days from the
entry thereof unless vacated, discharged or stayed pending appeal within such
60-day period; (vii) the entry by a court or agency or supervisory authority
having competent jurisdiction of: (a) a decree or order for relief in respect of
the Issuer or any of its Subsidiaries in an involuntary proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law and such
decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or (b) a decree or order adjudging the Issuer or any of its
Subsidiaries to be insolvent, or approving a petition seeking reorganization,
arrangement, adjustment or composition of the Issuer or its Subsidiaries and
such decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or (c) a decree or order appointing the Federal Deposit
Insurance Corporation (the "FDIC") or any other Person to act as a custodian,
receiver, liquidation, assignee, trustee or other similar official of the
Issuer, any of its Subsidiaries or of any substantial part of the property of
the Issuer or its Subsidiaries, as the case may be, or ordering the winding up
or liquidation of the affairs of the Issuer or its Subsidiaries and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (d) the commencement by the Issuer or any of its Subsidiaries of a
voluntary proceeding under any applicable bankruptcy, insolvency, reorganization
or other similar law or of a voluntary proceeding seeking to be adjudicated
insolvent or the consent by the Issuer or any of its Subsidiaries to the entry
of a decree or order for relief in an involuntary proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any insolvency proceedings against it, or the filing by the
Issuer or any of its Subsidiaries of a petition or answer or consent seeking
reorganization or relief under any applicable law, or the consent by the Issuer
or any of its Subsidiaries to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee
or similar official of the Issuer or any of its Subsidiaries or any substantial
part of the property of the Issuer or any of its Subsidiaries or the making by
the Issuer or any of its Subsidiaries of an assignment for the benefit of
creditors, or the taking of corporate action by the Issuer or any of its
Subsidiaries in furtherance of any such action. If an Event of

<PAGE>

Default described in clause (vii) above occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Securities may declare the principal of
all the Securities to be due and payable immediately and, upon such
declaration, the Securities will become immediately due and payable in the
manner and with the effect provided in the Indenture.

The indebtedness of the Issuer evidenced by the Securities, including the
principal thereof and interest thereon (including post-default interest), (1) is
expressly subordinated, to the extent and to the manner set forth in the
Indenture, in right of payment to the prior payment in full of all of the
Issuer's obligations to holders of Senior Indebtedness and (2) is unsecured by
any collateral, including the assets of the Issuer or any of its Subsidiaries or
affiliates. Each Holder of Securities, by acceptance thereof, (a) agrees to and
shall be bound by such provisions of the Indenture and all other provisions of
the Indenture; (b) authorizes and directs the Trustee to take such action on
such Holder's behalf as may be necessary or appropriate to effectuate the
subordination of the Securities as provided in the Indenture; and (c) appoints
the Trustee as such Holder's attorney-in-fact for any and all such purposes.

The Securities are not subject to any sinking fund.

The Securities will not be redeemable at the option of the Issuer prior to
May 31, 2000. On and after May 31, 2000, the Securities are subject to
redemption upon not less than 30 days' nor more than 60 days' notice by mail, at
any time as a whole or in part, at the election of the Issuer, at par together
in the case of any such redemption with accrued and unpaid interest to the
Redemption Date, but interest installments whose Stated Maturity is on or after
such Redemption Date will be payable to the Holders of such Securities, or one
or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture. If less than all Securities are redeemed, the Trustee will select
the Securities to be redeemed by such method as the Trustee may deem fair and
appropriate.

Interest installments whose Stated Maturity is on the Redemption Date will
be payable to the Holders of such Securities, or one or more Predecessor
Securities, of record at the close of business on the relevant Regular Record
Date referred to on the face hereof; all as provided in the Indenture. In the
event of redemption or repayment of this Security in part only, a new Security
or Securities for the unredeemed or unrepaid portion hereof shall be issued in
the name of the Holder hereof upon the surrender hereof.

In the event of redemption of this Security in part only, a new Security or
Securities for the unredeemed portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.

The Indenture permits, with certain exceptions, as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Securities under the Indenture at
any time by the Issuer and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding on behalf of the Holders of all the Securities, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.

No provision of this Security or of the Indenture shall alter or impair the
obligation of the Issuer, which is absolute and unconditional, to pay the
principal of (and premium, if any) and interest on this Security at the times,
place and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration at the Corporate Trust Office
or at another office or agency of the Issuer in the Borough of Manhattan, The
City of New York, New York duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Issuer and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.

<PAGE>

The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.

No service charge shall be made for any such registration of transfer or
exchange, but the Issuer may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

Prior to due presentation of this Security for registration of transfer,
the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Issuer, the
Trustee nor any such agent shall be affected by notice to the contrary.

All capitalized terms used in this Security and not specifically defined
herein are defined in the Indenture and shall have the meanings assigned to them
in the Indenture.

This is one of the Securities referred to in the within mentioned
Indenture.

FIRSTAR TRUST COMPANY
as Trustee

By:
----------------------
Authorized Signatory