SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-Q





x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES


EXCHANGE
ACT OF 1934




For
the Quarter Ended: March 31,
2009




o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934




For
the transition period from______to_____




Commission
File No. 000-16880







BNL
FINANCIAL CORPORATION


(Exact
name of Registrant as specified in its charter)





IOWA
                42-1239454(State
      of incorporation)
                (I.R.S.
      Employer Identification No.)  7010
      Hwy 71 W., Ste 100Austin,
      Texas
                78735(Address
      of principal executive offices)
                (Zip
      Code)





Registrant's
telephone number, including area code: (512) 383-0220





Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x Noo





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
the Exchange Act. (Check one):





Large accelerated
      filer o
            Accelerated
      filer o
            Non-accelerated
      filer x
            Smaller Reporting
      Company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o            No
x





As of
March 31, 2009, the Registrant had 15,174,899 shares of Common Stock, no par
value, outstanding.





Table of Contents






Table of
Contents




PagePART
      I   Financial InformationItem
      1.
                              Financial
      Statements
                              3Item
      2.
                              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                              8Item
      3.
                              Quantitative
      and Qualitative Disclosures About Market Risk
                              9Item
      4.
                              Internal Control and Procedures
                              9Item
      4T.
                              Controls and
      Procedures
                              10PART
      II  Other InformationItem
      1.
                              Legal
      Proceedings
                              10Item
      1A.
                              Risk
      Factors
                              10Item
      2.
                              Unregistered
      Sales of Equity Securities and Use of Proceeds
                              10Item
      3.
                              Defaults Upon
      Senior Securities
                              10Item
      4.
                              Submission of
      Matters to a Vote of Security Holders.
                              10Item
      5.
                              Other
      Information
                              10Item
      6.
                              Exhibits
                              11Signatures
                              12





Table of Contents




BNL FINANCIAL CORPORATION AND
SUBSIDIARIES




PART I -
FINANCIAL INFORMATION





Item 1. Financial
Statements




REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





To The
Board of Directors


BNL
Financial Corporation








We have
reviewed the accompanying Consolidated Balance Sheet of BNL Financial
Corporation and Subsidiaries as of March 31, 2009 and the related Consolidated
Statements of Income and Comprehensive Income for the three-month periods ended
March 31, 2009 and 2008 and the Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 2009 and 2008.  These interim
financial statements are the responsibility of the Corporation’s
management.





We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.





Based on
our review, we are not aware of any material modifications that should be made
to the accompanying
interim consolidated financial statements referred to above for them to
be in conformity with U.S. generally accepted accounting
principles.





We have
previously audited, in accordance with auditing standards of the Public Company
Accounting Oversight Board, the Consolidated Balance Sheet of BNL Financial
Corporation and Subsidiaries as of December 31, 2008 and the related
Consolidated Statements of Income and Comprehensive Income, Changes in
Shareholders’ Equity and Cash Flows for the year then ended (not presented
herein); and in our report dated March 30, 2009, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying Consolidated Balance Sheet as of
December 31, 2008 is fairly stated, in all material respects, in relation
to the Consolidated Balance Sheet from which it has been derived.








/s/ Smith, Carney &
Co.


Oklahoma
City,  Oklahoma                                                                                      
SMITH, CARNEY & CO., p.c.


May 14,
2009







3
 Table of Contents


BNL
FINANCIAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS




ASSETS
                        
                        March
      31,2009
      (Unaudited)
                        
                        
                        December
      31,2008
      (Audited)Cash
      and cash equivalents
                        
                        $
                        4,995,835
                        
                        
                        $
                        4,989,381Investment
      in fixed maturities, at fair value Available for Sale (amortized cost
      $344,976; $444,976, respectively)
                        
                        
                        459,350
                        
                        
                        
                        543,925Investment
      in fixed maturities, at amortized cost, Held to Maturity (fair value
      $20,430,349; $19,393,473, respectively)
                        
                        
                        20,777,885
                        
                        
                        
                        19,597,008Other
      long-term investments (fair value $940,679,
$951,436)
                        
                        
                        1,213,852
                        
                        
                        
                        1,224,609Investment
      in equity securities (cost $699,829)
                        
                        
                        436,130
                        
                        
                        
                        429,745Total
      Investments, Including Cash and Cash Equivalents
                        
                        
                        27,883,052
                        
                        
                        
                        26,784,668Accrued
      investment income
                        
                        
                        233,001
                        
                        
                        
                        181,522Furniture
      and equipment, net
                        
                        
                        1,012,841
                        
                        
                        
                        1,048,673Deferred
      policy acquisition costs
                        
                        
                        287,545
                        
                        
                        
                        283,561Policy
      loans
                        
                        
                        196,979
                        
                        
                        
                        191,010Receivable
      from reinsurer
                        
                        
                        46,554
                        
                        
                        
                        46,554Premiums
      due and unpaid
                        
                        
                        1,029,049
                        
                        
                        
                        1,113,301Income
      tax assets
                        
                        
                        101,000
                        
                        
                        
                        97,000Intangible
      assets
                        
                        
                        129,769
                        
                        
                        
                        131,212Other
      assets
                        
                        
                        155,086
                        
                        
                        
                        135,282Total
      Assets
                        
                        $
                        31,074,876
                        
                        
                        $
                        30,012,783LIABILITIES
      AND SHAREHOLDERS' EQUITYLiabilities:Liabilities
      for future policy benefits
                        
                        $
                        2,165,684
                        
                        
                        $
                        2,208,948Policy
      claims payable
                        
                        
                        1,670,612
                        
                        
                        
                        1,712,140Annuity
      deposits
                        
                        
                        2,551,317
                        
                        
                        
                        2,523,185Deferred
      annuity profits
                        
                        
                        269,410
                        
                        
                        
                        231,263Premium
      deposit funds
                        
                        
                        21,934
                        
                        
                        
                        21,849Supplementary
      contracts without life contingencies
                        
                        
                        33,340
                        
                        
                        
                        2,782Advanced
      and unallocated premium
                        
                        
                        1,363,319
                        
                        
                        
                        1,036,123Commissions
      payable
                        
                        
                        651,318
                        
                        
                        
                        595,488Accrued
      taxes and expenses
                        
                        
                        548,780
                        
                        
                        
                        566,809Bonds
      payable
                        
                        
                        1,395,411
                        
                        
                        
                        1,443,282Other
      liabilities
                        
                        
                        1,052,194
                        
                        
                        
                        1,062,497Total
      Liabilities
                        
                        
                        11,723,319
                        
                        
                        
                        11,404,366Shareholders'
      Equity:Common
      stock, $.02 stated value, 45,000,000 shares authorized,
      15,463,965  shares issued and outstanding
                        
                        
                        309,279
                        
                        
                        
                        309,279Additional
      paid-in capital
                        
                        
                        5,748,465
                        
                        
                        
                        5,748,465Accumulated
      other comprehensive income (loss)
                        
                        
                        (143,202
                        )
                        
                        
                        (160,934
                        )Accumulated
      surplus
                        
                        
                        13,798,348
                        
                        
                        
                        13,032,655Treasury
      stock, at cost; 289,066; 256,838 shares respectively
                        
                        
                        (361,333
                        )
                        
                        
                        (321,048
                        )Total
      Shareholders' Equity
                        
                        
                        19,351,557
                        
                        
                        
                        18,608,417Total
      Liabilities and Shareholders' Equity
                        
                        $
                        31,074,876
                        
                        
                        $
                        30,012,783




See
accompanying notes and Independent Accountants’ Report




4
 Table of Contents





BNL
FINANCIAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME





Three
      Months Ended
                  March
      31,2009
                  (Unaudited)
                
                
                2008
                  (Unaudited)Income:Premium
      income
                
                $
                10,545,125
                
                
                $
                11,142,672Vision
      insurance income
                
                
                601,519
                
                
                
                627,551Net
      investment income
                
                
                296,732
                
                
                
                311,778Realized
      gains on debt retirement
                
                
                11,968
                
                
                
                9,812Realized
      gains
                
                
                197
                
                
                
                8,838Total
      Income
                
                
                11,455,541
                
                
                
                12,100,651Expenses:Liability
      for future policy benefits expense
                
                
                (43,264
                )
                
                
                30,941Policy
      benefits and other insurance costs
                
                
                8,053,413
                
                
                
                8,502,811Amortization
      of deferred policy acquisition costs
                
                
                (3,983
                )
                
                
                (5,599
                )Operating
      expenses
                
                
                2,098,156
                
                
                
                2,192,972Taxes,
      other than income, fees and assessments
                
                
                422,087
                
                
                
                454,717Total
      Expenses
                
                
                10,526,409
                
                
                
                11,175,842Income
      from Operations before Income Taxes
                
                
                929,132
                
                
                
                924,809Provision
      for income taxes
                
                
                163,439
                
                
                
                173,320Net
      Income
                
                $
                765,693
                
                
                $
                751,489Net
      income per common share (basic and diluted)
                
                $
                0.05
                
                
                $
                0.05Weighted
      average number of fully paid common shares
                
                
                15,199,069
                
                
                
                15,213,712Other
      comprehensive income (loss), net of tax:Unrealized
      gains (losses) on securities:Unrealized
      holding gain (loss) arising during period (net of
    tax)
                
                $
                17,895
                
                
                $
                (129,246
                )Reclassification
      adjustment for loss included in net income
                
                
                (163
                )
                
                
                (4,006
                )Other
      Comprehensive Income (Loss)
                
                
                17,732
                
                
                
                (133,252
                )Comprehensive
      Income
                
                $
                783,425
                
                
                $
                618,237





See
accompanying notes and Independent Accountants’ Report





5
 Table of Contents








BNL
FINANCIAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS




Three
      Months Ended
                                                                      March
      31,2009
                                                                      (Unaudited)
                                                                    
                                                                    
                                                                    2008
                                                                      (Unaudited)Cash
      flows from operating activities:Net
      income
                                                                    
                                                                    $
                                                                    765,693
                                                                    
                                                                    
                                                                    $
                                                                    751,489Adjustments
      to reconcile net income to net cash provided by operating
      activities:Realized
      gain on investments
                                                                    
                                                                    
                                                                    (197
                                                                    )
                                                                    
                                                                    
                                                                    (8,838
                                                                    )Realized
      gain on debt retirement
                                                                    
                                                                    
                                                                    (11,968
                                                                    )
                                                                    
                                                                    
                                                                    (9,812
                                                                    )Decrease
      in deferred tax asset
                                                                    
                                                                    
                                                                    (7,000
                                                                    )
                                                                    
                                                                    
                                                                    (4,602
                                                                    )Depreciation
                                                                    
                                                                    
                                                                    63,519
                                                                    
                                                                    
                                                                    
                                                                    72,093Amortization
      of deferred acquisition costs, and intangibles
                                                                    
                                                                    
                                                                    (2,529
                                                                    )
                                                                    
                                                                    
                                                                    (4,146
                                                                    )Accretion
      of bond discount
                                                                    
                                                                    
                                                                    4,968
                                                                    
                                                                    
                                                                    
                                                                    161Change
      in assets and liabilities:(Increase)
      decrease in accrued investment income
                                                                    
                                                                    
                                                                    (51,479
                                                                    )
                                                                    
                                                                    
                                                                    24,823Decrease
      in premiums due and unpaid
                                                                    
                                                                    
                                                                    84,252
                                                                    
                                                                    
                                                                    
                                                                    314,074Increase
      in liability for future policy benefits
                                                                    
                                                                    
                                                                    43,264
                                                                    
                                                                    
                                                                    
                                                                    30,941Decrease
      in policy claims payable
                                                                    
                                                                    
                                                                    (41,528
                                                                    )
                                                                    
                                                                    
                                                                    (46,267
                                                                    )Increase
      in annuity deposits and deferred profits
                                                                    
                                                                    
                                                                    66,279
                                                                    
                                                                    
                                                                    
                                                                    38,852Increase
      (decrease) in premium deposit funds
                                                                    
                                                                    
                                                                    86
                                                                    
                                                                    
                                                                    
                                                                    (1,449
                                                                    )Increase
      (decrease) in advanced and unallocated premium
                                                                    
                                                                    
                                                                    327,195
                                                                    
                                                                    
                                                                    
                                                                    (459,231
                                                                    )Increase
      in commissions payable
                                                                    
                                                                    
                                                                    55,830
                                                                    
                                                                    
                                                                    
                                                                    80,569Other,
      increase (decrease)
                                                                    
                                                                    
                                                                    (52,743
                                                                    )
                                                                    
                                                                    
                                                                    318,625Net
      Cash Provided By Operating Activities
                                                                    
                                                                    
                                                                    1,243,642
                                                                    
                                                                    
                                                                    
                                                                    1,097,282Cash
      flows from investing activities:Proceeds
      from maturity or redemption - Held to Maturity
      Investments
                                                                    
                                                                    
                                                                    1,676,648
                                                                    
                                                                    
                                                                    
                                                                    7,132,133Purchase
      of equity securities
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    (198,222
                                                                    )Purchase
      of furniture and equipment
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    (51,319
                                                                    )Purchase
      of fixed maturity securities - Held to Maturity
      Investments
                                                                    
                                                                    
                                                                    (2,863,104
                                                                    )
                                                                    
                                                                    
                                                                    (1,448,772
                                                                    )Other
      investments – Line of credit payments received
                                                                    
                                                                    
                                                                    10,757
                                                                    
                                                                    
                                                                    
                                                                    9,922Net
      Cash Provided By (Used In) Investing Activities
                                                                    
                                                                    
                                                                    (1,175,699
                                                                    )
                                                                    
                                                                    
                                                                    5,443,742Cash
      flows from financing activities:Net
      payments on supplementary contracts
                                                                    
                                                                    
                                                                    (765
                                                                    )
                                                                    
                                                                    
                                                                    (2,932
                                                                    )Purchase
      of treasury stock
                                                                    
                                                                    
                                                                    (40,285
                                                                    )
                                                                    
                                                                    
                                                                    (6,750
                                                                    )Bonds
      payable purchased
                                                                    
                                                                    
                                                                    (20,439
                                                                    )
                                                                    
                                                                    
                                                                    (22,596
                                                                    )Exercised
      stock options
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    9,600Net
      Cash Used In Financing Activities
                                                                    
                                                                    
                                                                    (61,489
                                                                    )
                                                                    
                                                                    
                                                                    (22,678
                                                                    )Net
      Increase In Cash and Cash Equivalents
                                                                    
                                                                    
                                                                    6,454
                                                                    
                                                                    
                                                                    
                                                                    6,518,346Cash
      And Cash Equivalents, Beginning Of Period
                                                                    
                                                                    
                                                                    4,989,381
                                                                    
                                                                    
                                                                    
                                                                    4,937,983Cash
      And Cash Equivalents, End Of Period
                                                                    
                                                                    $
                                                                    4,995,835
                                                                    
                                                                    
                                                                    $
                                                                    11,456,329




See
accompanying notes and Independent Accountant’s Report






6
 Table of Contents




BNL
FINANCIAL CORPORATION AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




1.  Basis
of Presentation





The
accompanying Consolidated Financial Statements (unaudited) as of March 31, 2009
have been reviewed by independent certified public accountants. In the opinion
of management, the aforementioned financial statements contain all adjustments
necessary to present fairly the financial position as of March 31, 2009, and the
results of operations and cash flows for the period ended March 31,
2009.  All such adjustments are of a normal and recurring
nature.





The
statements have been prepared to conform to the requirements of Form 10-Q and do
not necessarily include all disclosures required by generally accepted
accounting principles (GAAP). The reader should refer to the Company's Annual
Report on Form 10-K for the year ended December 31, 2008, previously filed with
the Commission, for financial statements for the year ended December 31, 2008,
prepared in accordance with GAAP. Net income per share of common stock is based
on the weighted average number of outstanding common shares.





2.  Change
in Accounting Estimate





The group
dental claims loss ratio was 61.9% during the first three months of 2009
compared to 62.3% for the same period in 2008.  The claims liability
at December 31, 2008 was over estimated by approximately $140,000, which had the
effect of reducing claims expense in 2009 in accordance with the FASB #154
requirements regarding accounting for a change in estimate.  The over
estimation of claims liability at December 31, 2008 resulted in an increase in
net income of approximately $115,000, net of tax, or $.01 per share for the
three months ended March 31, 2009.   Due to the monthly
fluctuation in claims incurred this accrual is difficult to
estimate.





3.  Fair
Value Measurements





Effective
January 1, 2008, the Company adopted SFAS No. 157, which, among other
things, requires enhanced disclosures about assets and liabilities carried at
fair value.  SFAS No. 157 establishes a hierarchal disclosure
framework associated with the level of pricing observability utilized in
measuring assets and liabilities at fair value.  The three broad
levels defined by SFAS No. 157 hierarchy are as follows:





Level 1 –
Fair value is based on unadjusted quoted prices in active markets that are
accessible to the Company for identical assets or liabilities.  These
generally provide the most reliable evidence and are used to measure fair value
whenever available.  The Company’s level 1 assets and liabilities
primarily include equity securities and derivative contracts that are traded in
an active exchange market.  Valuations are obtained from readily
available pricing sources for market transactions involving identical assets or
liabilities.





Level 2 –
Fair value is based on significant inputs, other than Level 1 inputs, that are
observable for the asset or liability, either directly or indirectly, for
substantially the full term of the asset or liability through corroboration with
observable market data.  Level 2 inputs include quoted market prices
in active markets for similar assets and liabilities, quoted market prices in
markets that are not active for identical or similar assets or liabilities and
other observable inputs.  The Company’s Level 2 assets and liabilities
include: fixed maturities (corporate public bonds, most government securities,
certain asset-backed and mortgage-backed securities, etc.), certain equity
securities, short-term investments and cash equivalents (primarily money market
funds).  Valuations are generally obtained from third party pricing
services for identical or comparable assets or liabilities.





Level 3 –
Fair value is based on significant unobservable inputs for the asset or
liability.  These inputs reflect the Company’s assumptions about the
assumptions market participants would use in pricing the asset or
liability.  The Company’s Level 3 assets and liabilities primarily
include certain private fixed maturities.  Valuations are determined
using valuation methodologies such as discounted cash flow models and other
similar techniques.





The table
below presents the balances of assets and liabilities measured at fair value on
a recurring basis, as of March 31, 2009.





Level1
                    
                    
                    Level
      2
                    
                    
                    Level
      3
                    
                    
                    TotalFixed
      Maturities , held to maturity
                    
                    $
                    -
                    
                    
                    $
                    20,430,349
                    
                    
                    $
                    -
                    
                    
                    $
                    20,430,349Fixed
      maturities, available for sale
                    
                    
                    -
                    
                    
                    
                    459,350
                    
                    
                    
                    -
                    
                    
                    
                    459,350Equity
      securities, available for sale
                    
                    
                    436,130
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    436,130Other
      long term investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    940,679
                    
                    
                    
                    940,679Cash
      and cash equivalents
                    
                    
                    2,859,312
                    
                    
                    
                    2,136,523
                    
                    
                    
                    -
                    
                    
                    
                    4,995,835Total
      assets
                    
                    $
                    3,295,442
                    
                    
                    $
                    23,026,222
                    
                    
                    $
                    940,679
                    
                    
                    $
                    27,262,343





The following table
provides a summary of the changes in fair value of Level 3 assets and
liabilities for the period January 1, 2009 to March 31, 2009, as well as the
portion of gains or losses included in income attributable to unrealized gains
or losses related to those assets and liabilities still held at March 31,
2009.





Other
      Long-term Investments*Fair
      value, beginning of period
                      
                      $
                      951,436Purchases,
      sales, issuances and settlements
                      
                      
                      (10,757
                      )$
                      940,679





* There
were no unrealized gains or losses for the period relating to those level 3
assets that were held by the Company at the end of the period




7
 Table of Contents




BNL FINANCIAL CORPORATION AND
SUBSIDIARIES





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





In this
section, we review the consolidated results of operations for the three months
ended March 31, 2009 and 2008 and significant changes in the consolidated
financial condition of the Company. This discussion should be read in
conjunction with the accompanying consolidated financial statements, notes and
selected financial data.





Forward-Looking
Statements





All
statements, trend analyses and other information contained in this report and
elsewhere (such as in filings by us with the Securities and Exchange Commission,
press releases, presentations by us or our management or oral statements)
relative to markets for our products and trends in our operations or financial
results, as well as other statements including words such as “anticipate,”
“believe,” “plan,” “estimate,” “expect,” “intend,” and other similar
expressions, constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
known and unknown risks, uncertainties and other factors which may cause actual
results to be materially different from those contemplated by the
forward-looking statements. Such factors include, among other things: (i)
general economic conditions and other factors, including prevailing interest
rate levels and stock and credit market performance which may affect (among
other things) our ability to sell our products, our ability to access capital
resources and the costs associated therewith, the market value of our
investments and the lapse rate and profitability of policies; (ii) world
conflict, including but not limited to the war in Iraq, which may affect
consumers spending trends and priorities; (iii) customer response to new
products and marketing initiatives: (iv) mortality, morbidity and other factors
which may affect the profitability of our products; (v) changes in the federal
income tax laws and regulations which may affect the relative income tax
advantages of our products; (vi) regulatory changes or actions, including those
relating to regulation of financial services affecting (among other things) bank
sales and underwriting of insurance products and regulation of the sale,
underwriting and pricing of products; and (vii) the risk factors or
uncertainties listed from time to time in our filings with the Securities and
Exchange Commission.





Liquidity and Capital
Resources




At March
31, 2009, we had liquid assets of $4,995,835 in cash, money market savings
accounts, money market funds, short-term government agency funds and short-term
certificates of deposit. All of the non-cash liquid assets can readily be
converted to cash.





The major
components of operating cash flows are premium income and investment income
while policy benefits are the most significant cash outflow. During the first
three months of 2009, BNLAC collected $10,833,289 of premiums and annuity
deposits (gross before reinsurance) and we had consolidated investment income of
$296,732. Other sources of cash flow in the first three months of 2009 were
override commissions of $601,519 on vision products. The Company paid $6,499,027
of policy benefits in the first three months of 2009.





The
Company's investments are primarily in U.S. Government, Government Agency and
other investment grade bonds. We do not hedge our investment income through the
use of derivatives.





Other
long term investments of $1,213,852 consist of, in part, a convertible debenture
(“debenture”) loan in the amount of $1,152,825 to EPSI Benefits, Inc.
(“EBI”).  On July 14, 2008, the Company and EBI, amended the Debenture
whereby the monthly principal payments and the maturity date were extended five
years.  For various business reasons, management of both companies deemed
the amendment as advantageous.





Because
of the amendment to the debenture, the Company analyzed discounted expected
future cash flows and estimated an adjustment in the book value of the
Debenture of ($204,582), from $1,357,407 down to $1,152,825 in
2008.





The note
is one of several agreements entered into by the Company's subsidiary which
expand the business relationship with EBI and its subsidiary, Employer Plan
Services, Inc. (EPSI), which provides substantially all of the A&H claims
processing and adjudication for the Company's insurance subsidiary, Brokers
National Life Assurance Company ("BNLAC").





Other
long-term investments also include an operating line of credit agreement in the
amount of $61,027. On October 15, 2002 BNLAC and EPSI entered into a loan
agreement whereby BNLAC will provide EPSI with a $200,000 line of credit
maturing October 15, 2004. The line of credit was renewed and extended with
interest only payments to August 1, 2006. Thereafter EPSI will pay principal and
interest over 60 equal monthly installments until paid in full. The line of
credit is at 6.75% and interest and principal payments are current.





In prior
years the Company became a third party indemnitor by entering into a series of
bond indemnity and guarantee agreements totaling approximately $545,000 in
conjunction with a marketing agreement with, EPSI Benefits Inc. and Employer
Plan Services Inc. (EPSI). The purpose of these agreements is to assist EPSI to
become licensed in additional states. The Company received personal guarantees
from the owners of EPSI to effectively limit potential liability under the
guarantee agreement. With regard to the bond indemnities, the Company will be
obligated only if EPSI, EPSI’S parent and its shareholders, who are the primary
obligors, were all to become insolvent. Management considers the likelihood of
the Company realizing a liability under these agreements to be
remote.





We
believe liquid assets, along with investment income and premium income will be
sufficient to meet our long and short-term liquidity needs. We do not have any
current plans to borrow money for operations.





Our
insurance operations are conducted through BNLAC. At March 31, 2009, BNLAC had
statutory capital and surplus of $17,747,105. BNLAC is required to maintain
minimum levels of statutory capital and surplus, which differ from state to
state, as a condition to conducting business in those states in which it is
licensed. The State of Arkansas, which is the legal domicile of BNLAC, requires
a minimum of $2,300,000 in capital and surplus. The highest requirement in any
state in which BNLAC is licensed is $5,000,000. Management monitors the minimum
capital and surplus requirements to maintain compliance in each state in which
it is licensed.





Consolidated Results of
Operations





Premium
income for the first quarter of 2009 was $10,545,125 compared to $11,142,676 for
the same period in 2008. The decrease of $597,551 for the quarter was primarily
due to a 4.8% decrease in group dental premium as a result of the impact of the
recession on voluntary employee benefits.





BNLAC
markets group and individual vision insurance products that are underwritten by
other insurance companies, and BNLAC does not have any exposure to underwriting
(claims) losses.  The Company had vision insurance income of $601,519,
in 2009 compared to $627,551 in 2008.  The vision income decreased by
$26,032 in 2009 as a result of the impact of the recession on voluntary employee
benefits.




8
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Net
investment income was $296,732 for the first quarter of 2009 compared to
$311,778 for the first quarter of 2008.  The decrease for the quarter
was due to the decrease in interest rates on short term investments and fixed
securities.





The
Company had a realized gain on debt extinguishments of $11,968 in 2009, compared
to $9,812 in 2008 due to the purchase of debentures payable at less than par
value.  The Company purchased more debentures in 2009 which resulted
in more realized gains on debt extinguishments.





Realized
gains were $197 for the first quarter of 2009 compared to a gain of $8,838 for
the same period in 2008.  The realized gains in 2008 resulted
primarily from the maturity of bonds and sales of fixed assets.





For the
first quarter of 2009, liability for future policy benefits expense was
($43,264) compared to $30,941 for the same period in 2008.  The
decrease in future policy benefits in 2009 was primarily due to an increase in
surrendered policies in 2009 compared to 2008.





Policy
benefits and other insurance costs were $8,053,413 in the first quarter of 2009
compared to $8,502,811 for the same period in 2008.  The decrease was
primarily due to a decrease in the claims expense ratio and a reduction in
policies in force.  The statutory claims ratio on group dental
insurance, which represents the ratio of claims expense incurred to premiums
earned, was 61.9% for the first three months of 2009 compared to 62.3% for the
first quarter of 2008. The claims ratio decrease on group dental business was
primarily due to a reduction in utilization of our dental insurance by
insureds.  The Company had a $390,000 over estimation of unpaid claims
at December 31, 2007 compared to an over estimation of $140,000 at December 31,
2008.  The liability for unpaid claims is difficult to estimate and
normally results in a variance from actual results.





Amortization
of deferred policy acquisition costs was ($3,983) and ($5,599) for the first
quarter 2009 and 2008, respectively.  Amortization of deferred policy
acquisition costs varies in relation to lapses or surrenders of existing
policies.





For the
first quarter of 2009 operating expenses were $2,098,156 compared to $2,192,972
for the same period in 2008.  The decrease for the quarter is
primarily due to a decrease in legal fees and bonuses.





Taxes,
other than on income, fees and assessments, were $422,087 for the first quarter
of 2009 compared to $454,717 for the same period in 2008.  The
decrease for the current year is primarily due to a decrease in premium
taxes.





The
provision for income taxes in the first quarter of 2009 includes $170,439
current tax expense and $7,000 deferred tax credit compared to $177,921 current
tax expense and $4,601 deferred tax credit in 2008.  Tax expense is
consistent between the two periods in relation to net
income.  Deferred tax expense is based on the estimated change in book
versus tax assets and liabilities.





Income
from operations before income taxes for the first quarter of 2009 was $929,132
compared to $924,809 for the same period in 2008.  The increase in
2009 was primarily due to the decrease in operating expenses and the decrease in
the loss ratio on the group dental business.





Item 3.
Quantitative and Qualitative Disclosures About Market
Risk





Market
risk represents the potential loss resulting from adverse changes in the value
of financial instruments, either derivative or non-derivative, caused by
fluctuations in interest rates, foreign exchange rates, commodity prices, and
equity security prices. We handle market risks in accordance with our
established policies. We did not have financial instruments to manage and reduce
the impact of changes in interest rates at March 31, 2009 and December 31, 2008.
We held various financial instruments at March 31, 2009 and 2008, consisting of
financial assets reported in our Consolidated Balance Sheets.





Interest
Rate Risk - We are subject to interest rate risk through the investment in fixed
maturity securities, such as U.S. Government and Government Agency securities
and other investment grade bonds. The fair market value of long-term,
fixed-interest rate debt is subject to interest rate risk. Generally, the fair
value of fixed-interest rate debt will increase as interest rates fall and will
decrease as interest rates rise. The estimated fair value of our fixed maturity
securities at March 31, 2009 and December 31, 2008 was $20,889,699 and
$19,937,398, respectively.





Based on
testing at December 31, 2008, a one-percentage point increase in interest rates
would result in a decrease in the estimated fair value of fixed maturity
securities of $422,000.  Initial fair values were determined using the
current rates at which we could enter into comparable financial instruments with
similar remaining maturities. The estimated earnings and cash flows impact for
the first three months of 2009 resulting from a one percentage point increase in
interest rates would be immaterial, holding other variables
constant.





Foreign-Exchange
Rate Risk - We currently have no exposure to foreign exchange rate risk because
all of our financial instruments are denominated in U.S. dollars.





Commodity
Price Risk - We have no financial instruments subject to commodity price
risk.





Equity
Security Price Risk - Equity securities at March 31, 2009 totaled $436,130, or
1.6% of total investments and cash on a consolidated basis.





The
preceding discussion of estimated fair value of our financial instruments and
the sensitivity analyses resulting from hypothetical changes in interest rates
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements reflect our current expectations
and involve uncertainties. These forward-looking market risk disclosures are
selective in nature and only address the potential impact from financial
instruments. They do not include other potential effects which could impact our
business as a result of changes in interest rates, foreign-exchange rates,
commodity prices, or equity security prices.





Item 4. Internal
Control and Procedures





Not
applicable




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Item
4T.  Controls and Procedures




The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company's reports pursuant to
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and its Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurances of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.





Within 90
days prior to the date of this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures, as
that term is defined in Rule 13a-14(c) under the Securities Exchange Act of
1934, as amended. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective in timely alerting the Company's Chief Executive
Officer and Chief Financial Officer to material information required to be
disclosed in the periodic reports filed with the SEC.





In
addition, the Company's Chief Executive Officer and Chief Financial Officer have
reviewed the Company's internal controls, and there have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect those controls subsequent to the date of the last
evaluation.





PART II -- OTHER
INFORMATION





Item 1. Legal
Proceedings.





The
Company was not a part of any new legal proceedings during the first quarter of
2009.





Item
1A.  Risk Factors.





No
material changes from the Company’s response in its 2008 10-K to Item 1A, Part
I.





Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds.





The
following table reports the purchases by the Company of its Common Stock during
the first quarter of 2009.





Issuer
Purchases of Equity Securities





Period
                  
                  (a)
                    Total
                    Number
      of
                    Shares
                    Purchased
                  
                  
                  (b)
                    Average
                    Price
                    Paid
                    Per
      Share
                  
                  (c)
                    Total
      number of shares purchased as part of publicly announced plans or
      programs
                  (d)
                    Maximum
      number of shares that may yet be purchased under the plans or
      programsMonth
      #1, Jan 1 thru Jan 31, 2009
                  
                  
                  11,064
                  
                  
                  $
                  1.25
                  
                  None
                  NoneMonth
      #1, Feb 1 thru Feb 28, 2009
                  
                  
                  5,880
                  
                  
                  $
                  1.25
                  
                  None
                  NoneMonth
      #3, Mar 1 thru 31, 2009
                  
                  
                  15,284
                  
                  
                  $
                  1.25
                  
                  None
                  NoneTotals
                  
                  
                  32,228




Item 3.
Defaults Upon Senior Securities.


During
the period covered by this report there was no material default in the payment
of any principal, interest, sinking or purchase fund installment, or any other
material default not cured within 30 days with respect to any indebtedness of
the Company.





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


No
matters were subject to a vote of security holders during the period covered by
this report.





Item 5. Other
Information.


None




10
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Item 6.
Exhibits and Reports on Form 10-Q.




(a)
Exhibits Index




No.
                          
                          Description
                          
                          Page
      or Method of Filing3.1
                          
                          Articles
      of Incorporation of BNL Financial Corporation, dated January 27, 1984 and
      Amendment to Articles of Incorporation of BNL Financial Corporation, dated
      November 13, 1987.
                          
                          Incorporated
      by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K
      for the period ending December 31, 1993.3.2
                          
                          By-laws
      of BNL Financial Corporation.
                          
                          Incorporated
      by reference to Exhibit 3.2 of the Company’s Registration Statement No.
      33-703184.1
                          
                          Instruments
      defining the rights of security holders, including
    indentures.
                          
                          Incorporated
      by reference to Exhibit 4 of the Company's Registration Statement No.
      2-94538 and Exhibits 3.5 and 4 of Post-Effective Amendment No. 3
      thereto.4.2
                          
                          Articles
      of Incorporation of BNL Financial Corporation, dated January 27, 1984 and
      Amendment to Articles of Incorporation on BNL Financial Corporation, dated
      November 13, 1987.
                          
                          Incorporated
      by reference to Exhibits 4.2 of the Company's Annual Report on Form 10-KSB
      for the period ending December 31, 1998.10.1
                          
                          Form
      of Agreement between Commonwealth Industries Corporation, American
      Investors Corporation and Wayne E. Ahart regarding rights to purchase
      shares of the Company.
                          
                          Incorporated
      by reference to Exhibit I of the Company's Quarterly Report on 10-QSB for
      the period ended September 30, 1994.10.2
                          
                          Agreement
      dated December 21, 1990 between Registrant and C. Donald Byrd granting
      Registrant right of first refusal as to future transfers of Mr. Byrd's
      shares of the Company's common stock.
                          
                          Incorporated
      by reference to Exhibit I of the Company's Quarterly Report on 10-QSB for
      the period ended March 31, 1996.10.3
                          
                          Convertible
      Debenture Agreement dated July 25, 2001 between BNL Equity Corporation and
      EPSI Benefits Inc.
                          
                          Incorporated
      by reference to Exhibit 10.9 of the Company's Annual Report on 10-K for
      the period ended December 31, 2005.10.4
                          
                          Claims
      Service Agreement dated June 1, 1999 between Brokers National Life
      Assurance Company and Employer Plan Services Inc.
                          
                          Incorporated
      by reference to Exhibit 10.5 of the Company's Annual Report on 10-K for
      the period ended December 31, 2005.10.5
                          
                          Office
      lease agreement dated January 21, 2005, between Brokers National Life
      Assurance Company and KIMCO for premises in Austin.
                          
                          Incorporated
      by reference to Exhibit 10.6 of the Company's Annual Report on 10-K for
      the period ended December 31, 2005.10.6
                          
                          Line
      of Credit Agreement dated October 15, 2004 between Brokers National Life
      Assurance Company and Employer Plan Services Inc.
                          
                          Incorporated
      by reference to Exhibit 10.7 of the Company's Annual Report on 10-K for
      the period ended December 31, 2005.10.7
                          
                          Marketing
      Agreement dated July 25, 2001 between BNL Equity Corporation and Employer
      Plan Services Inc. and EPSI Benefits Inc.
                          
                          Incorporated
      by reference to Exhibit 10.8 of the Company's Annual Report on 10-K for
      the period ended December 31, 2005.10.8
                          
                          Outsourcing
      Agreement dated May 1, 2007 between Brokers National Life Assurance
      Company and Virtual Item Processing Systems, Inc.
                          
                          Incorporated
      by reference as filed with the Company’s Annual Report on 10-K for the
      period ended December 31, 200710.9
                          
                          Amended
      Convertible Debenture Date July 14, 2008 between BNL Financial Corporation
      and EPSI Benefits Inc.
                          
                          Incorporated
      by reference to Exhibit 1 of the Company’s periodic Report on Form 8-K
      dated July 14, 2008.11
                          
                          Statement
      Re computation of per share earnings.
                          
                          Reference
      is made to the computation of per share earnings as shown page 5
      herein and the explanation in Note 1 to the Notes to Consolidated
      Financial Statements (unaudited), on page 7
herein.18
                          
                          Letter
      Re Change in accounting principles
                          
                          None.  Not
      applicable.22
                          
                          Published
      report regarding matters submitted to vote of security
    holders
                          
                          The
      Company’s definitive proxy statement dated May 2, 2009, as filed with the
      SEC on Schedule 14A on April 28, 2009, is incorporated by reference
      herein.23
                          
                          Consents
      of experts and counsel incorporated by reference into a previously filed
      Securities Act registration statement
                          
                          Not
      applicable.31.1
                          
                          Certification of Chief Executive OfficerSection 302
                          
                          Filed
      herewith - E131.2
                          
                          Certification
      of Chief Financial OfficerSection
      302
                          
                          Filed
      herewith - E332
                          
                          Certification
      of Chief Executive Officer and Chief Financial OfficerSection
      906
                          
                          Filed
      herewith - E5


(b) Material Contracts -
Reports on Form 8-K.


No
      items were reported on Form 8-K during the period covered by this
      report.






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SIGNATURES




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




BNL
      FINANCIAL CORPORATION(Registrant)/s/
      Wayne E. AhartDate:
      May 14, 2009
              By:
      Wayne E. Ahart, Chairman of the Board(Chief
      Executive Officer)/s/
      Barry N. ShamasDate:
      May 14, 2009
              By:
      Barry N. Shamas, Executive V.P.(Chief
      Financial Officer)













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