**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

**BNL      FINANCIAL CORPORATION**

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

**BNL      FINANCIAL CORPORATION AND SUBSIDIARIES**

**PART      I - FINANCIAL INFORMATION**

**Item      1. Financial Statements**

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**BNL      FINANCIAL CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED      BALANCE SHEETS**

| **ASSETS**                                                                                                                                                 |   | **March                31**                                                                                                                |           | December                31,                                                                                                                                   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                            |   | **2006                (Unaudited)**                                                                                                        |           | 2005                (Audited)                                                                                                                                 |   |
| Cash                and cash equivalents                                                                                                                        |   | **$             ****       1,701,165** |           | $                                       946,272 |   |
| Investment                in fixed maturities, at fair value Available for Sale (amortized                cost                $589,816, $589,816, respectively) |   |                                                                                                                                       | **583,188**    |                                                                                                                                                          |   | 600,756 |   |
| Investment                in fixed maturities, at amortized cost, Held to Maturity (fair value                $18,650,117; $18,334,704, respectively)           |   |                                                                                                                                       | **19,121,657** |                                                                                                                                                          |   | 18,717,461 |   |
| Other                long-term investments                                                                                                                      |   |                                                                                                                                       | **1,534,802**  |                                                                                                                                                          |   | 1,543,441 |   |
| Investment                in equity securities (cost $356,056; $356,056,                respectively)                                                           |   |                                                                                                                                       | **364,570**    |                                                                                                                                                          |   | 357,792 |   |
| Total                Investments, Including Cash and Cash Equivalents                                                                                           |   |                                                                                                                                       | **23,305,382** |                                                                                                                                                          |   | 22,165,722 |   |
|                                                                                                                                                            |   |                                                                                                                                       |           |                                                                                                                                                          |   |   |   |
| Accrued                investment income                                                                                                                        |   |                                                                                                                                       | **212,407**    |                                                                                                                                                          |   | 185,286 |   |
| Funds                receivable on matured fixed security                                                                                                       |   |                                                                                                                                       | **-**          |                                                                                                                                                          |   | 807,500 |   |
| Furniture                and equipment, net                                                                                                                     |   |                                                                                                                                       | **1,449,919**  |                                                                                                                                                          |   | 1,368,975 |   |
| Deferred                policy acquisition costs                                                                                                                |   |                                                                                                                                       | **374,472**    |                                                                                                                                                          |   | 389,110 |   |
| Policy                loans                                                                                                                                     |   |                                                                                                                                       | **138,562**    |                                                                                                                                                          |   | 126,303 |   |
| Receivable                from reinsurer                                                                                                                        |   |                                                                                                                                       | **48,385**     |                                                                                                                                                          |   | 48,385 |   |
| Premiums                due and unpaid                                                                                                                          |   |                                                                                                                                       | **945,290**    |                                                                                                                                                          |   | 1,027,683 |   |
| Income                tax assets                                                                                                                                |   |                                                                                                                                       | **28,000**     |                                                                                                                                                          |   | 37,000 |   |
| Intangible                assets                                                                                                                                |   |                                                                                                                                       | **147,215**    |                                                                                                                                                          |   | 146,540 |   |
| Other                assets                                                                                                                                     |   |                                                                                                                                       | **303,942**    |                                                                                                                                                          |   | 318,973 |   |
| Total                Assets                                                                                                                                     |   | **$**                                                                                                                                      | **26,953,574** |                                                                                                                                                          | $      | 26,621,477 |   |
|                                                                                                                                                            |   |                                                                                                                                       |           |                                                                                                                                                          |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS' EQUITY**                                                                                                         |   |                                                                                                                                       |           |                                                                                                                                                          |   |   |   |
|                                                                                                                                                            |   |                                                                                                                                       |           |                                                                                                                                                          |   |   |   |
| **Liabilities:**                                                                                                                                                |   |                                                                                                                                       |           |                                                                                                                                                          |   |   |   |
| Liabilities                for future policy benefits                                                                                                           |   | **$**                                                                                                                                      | **2,531,669**  |                                                                                                                                                          | $      | 2,591,479 |   |
| Policy                claims payable                                                                                                                            |   |                                                                                                                                       | **2,335,164**  |                                                                                                                                                          |   | 2,558,565 |   |
| Annuity                deposits                                                                                                                                 |   |                                                                                                                                       | **2,806,543**  |                                                                                                                                                          |   | 2,835,552 |   |
| Deferred                annuity profits                                                                                                                         |   |                                                                                                                                       | **336,724**    |                                                                                                                                                          |   | 339,429 |   |
| Premium                deposit funds                                                                                                                            |   |                                                                                                                                       | **30,320**     |                                                                                                                                                          |   | 31,807 |   |
| Supplementary                contracts without life contingencies                                                                                               |   |                                                                                                                                       | **25,339**     |                                                                                                                                                          |   | 36,981 |   |
| Advanced                and unallocated premium                                                                                                                 |   |                                                                                                                                       | **1,187,891**  |                                                                                                                                                          |   | 803,290 |   |
| Commissions                payable                                                                                                                              |   |                                                                                                                                       | **640,702**    |                                                                                                                                                          |   | 501,821 |   |
| Accrued                taxes and expenses                                                                                                                       |   |                                                                                                                                       | **709,909**    |                                                                                                                                                          |   | 752,376 |   |
| Bonds                payable                                                                                                                                    |   |                                                                                                                                       | **1,721,664**  |                                                                                                                                                          |   | 1,747,178 |   |
| Other                liabilities                                                                                                                                |   |                                                                                                                                       | **1,026,450**  |                                                                                                                                                          |   | 1,299,637 |   |
| Total                Liabilities                                                                                                                                |   |                                                                                                                                       | **13,352,375** |                                                                                                                                                          |   | 13,498,115 |   |
|                                                                                                                                                            |   |                                                                                                                                       |           |                                                                                                                                                          |   |   |   |
| **Shareholders'                Equity:**                                                                                                                        |   |                                                                                                                                       |           |                                                                                                                                                          |   |   |   |
| Common                stock, $.02 stated value, 45,000,000 shares authorized, 17,213,170;                17,213,170 shares issued and outstanding respectively  |   |                                                                                                                                       | **344,264**    |                                                                                                                                                          |   | 344,264 |   |
| Additional                paid-in capital                                                                                                                       |   |                                                                                                                                       | **7,608,680**  |                                                                                                                                                          |   | 7,608,519 |   |
| Accumulated                other comprehensive income                                                                                                           |   |                                                                                                                                       | **(2,837)**    |                                                                                                                                                          |   | 10,622 |   |
| Accumulated                surplus                                                                                                                              |   |                                                                                                                                       | **5,932,031**  |                                                                                                                                                          |   | 5,412,928 |   |
| Treasury                stock, at cost;415,285; 383,879 shares respectively                                                                                     |   |                                                                                                                                       | **(280,939**   | **)**                                                                                                                                                         |   | (                252,971 | ) |
| Total                Shareholders' Equity                                                                                                                       |   |                                                                                                                                       | **13,601,199** |                                                                                                                                                          |   | 13,123,362 |   |
| Total                Liabilities and Shareholders' Equity                                                                                                       |   | **$**                                                                                                                                      | **26,953,574** |                                                                                                                                                          | $      | 26,621,477 |   |
|                                                                                                                                                            |   |                                                                                                                                       |           |                                                                                                                                                          |   |   |   |

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**BNL      FINANCIAL CORPORATION AND SUBSIDIARIES **

**CONSOLIDATED      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME**

|                                                                         | Three                  Months EndedMarch                  31 |
|------------------------------------------------------------------------------|--------------------------------------------------------------|
|                                                                         |                                                         | **2006****(Unaudited)** |   | 2005(Unaudited) |
| **Income:**                                                                  |                                                         |   |   |   |
| Premium                  income                                              | **$**                                                        | **11,316,687** | $ | 10,898,491 |
| Vision                  insurance income                                     |                                                         | **392,024** |   | 231,161 |
| Net                  investment income                                       |                                                         | **272,364** |   | 249,206 |
| Marketing                  fees                                              |                                                         | **33,960** |   | 29,016 |
| Realized                  gains on debt retirement                           |                                                         | **8,505** |   | 51,696 |
| Realized                  gains                                              |                                                         | **17,780** |   | 73 |
|                                                                         |                                                         |   |   |   |
| Total                  Income                                                |                                                         | **12,041,320** |   | 11,459,643 |
|                                                                         |                                                         |   |   |   |
| **Expenses:**                                                                |                                                         |   |   |   |
| Liability                  for future policy benefits expense                |                                                         | **(59,811)** |   | 148,038 |
| Policy                  benefits and other insurance costs                   |                                                         | **8,909,448** |   | 8,286,886 |
| Amortization                  of deferred policy acquisition costs           |                                                         | **3,779** |   | 8,050 |
| Operating                  expenses                                          |                                                         | **2,127,836** |   | 1,930,004 |
| Taxes,                  other than income, fees and assessments              |                                                         | **420,900** |   | 391,251 |
|                                                                         |                                                         |   |   |   |
| Total                  Expenses                                              |                                                         | **11,402,152** |   | 10,764,229 |
|                                                                         |                                                         |   |   |   |
| Income                  from Operations before Income Taxes                  |                                                         | **639,168** |   | 695,414 |
|                                                                         |                                                         |   |   |   |
| Provision                  for income taxes                                  |                                                         | **120,065** |   | 120,452 |
|                                                                         |                                                         |   |   |   |
| Net                  Income                                                  | **$**                                                        | **519,103** | $ | 574,962 |
|                                                                         |                                                         |   |   |   |
| Net                  income per common share (basic and diluted)             | **$**                                                        | **0.03** | $ | 0.03 |
|                                                                         |                                                         |   |   |   |
| Weighted                  average number of fully paid common shares         |                                                         | **16,821,440** |   | 19,046,862 |
|                                                                         |                                                         |   |   |   |
| Other                  comprehensive income (loss), net of tax:              |                                                         |   |   |   |
| Unrealized                  gains (losses) on securities:                    |                                                         |   |   |   |
| Unrealized                  holding loss arising during period (net of tax)  | **$**                                                        | **(8,526)** | $ | (53,043) |
| Reclassification                  adjustment for loss included in net income |                                                         | **(                  4,932)** |   | 3,505 |
|                                                                         |                                                         |   |   |   |
| Other                  Comprehensive Loss                                    |                                                         | **(13,458)** |   | (49,538) |
|                                                                         |                                                         |   |   |   |
| Comprehensive                  Income                                        | **$**                                                        | **505,645** | $ | 525,424 |

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**BNL      FINANCIAL CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

|                                                                                                                          | Three                Months Ended March                31, |          |
|-------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------|---------------|
| **Cash                flows from operating activities:**                                                                 | **2006****(Unaudited)**                                    |          | 2005(Unaudited) |   |
| Net                income                                                                                                     | **$**                                                      | **519,103**   |   | $ | 574,962 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities:               |                                                       |          |   |   |   |   |
| Realized                gain on investments                                                                                   |                                                       | **(12,059**   | **)** |   | (73 | )  |
| Realized                gain on furniture and fixtures                                                                        |                                                       | **(5,723**    | **)** |   | - |   |
| Realized                gain on debt retirement                                                                               |                                                       | **(8,505**    | **)** |   | (51,696 | )  |
| Decrease                in deferred tax asset                                                                                 |                                                       | **16,000**    |   |   | 16,000 |   |
| Depreciation                                                                                                                  |                                                       | **67,311**    |   |   | 47,313 |   |
| Amortization                of deferred acquisition costs, and intangibles                                                    |                                                       | **5,233**     |   |   | 9,504 |   |
| Accretion                of bond discount                                                                                     |                                                       | **(1,334)**   |   |   | 699 |   |
| Change                in assets and liabilities:                                                                              |                                                       |          |   |   |   |   |
| (Increase)                decrease in accrued investment income                                                               |                                                       | **(27,121**   | ) |   | (17,025 | )  |
| Decrease                in premiums due and unpaid                                                                            |                                                       | **82,393**    |   |   | 13,750 |   |
| Increase                (decrease) in liability for future policy benefits                                                    |                                                       | **(59,811**   | ) |   | 148,038 |   |
| Increase                (decrease) in policy claims payable                                                                   |                                                       | **(223,401**  | ) |   | 200,900 |   |
| Decrease                in annuity deposits and deferred profits                                                              |                                                       | **(31,714**   | **)** |   | (21,421 | ) |
| Decrease                in premium deposit funds                                                                              |                                                       | **(1,487**    | **)** |   | (2,313 | ) |
| Increase                in advanced and unallocated premium                                                                   |                                                       | **384,601**   |   |   | 511,199 |   |
| Increase                in commissions payable                                                                                |                                                       | **138,881**   |   |   | 63,541 |   |
| Other,                decrease                                                                                                |                                                       | **(105,644**  | ) |   | (500,478 | ) |
| Net                Cash Provided By Operating Activities                                                                      |                                                       | **736,723**   |   |   | 960,900 |   |
|                                                                                                                          |                                                       |          |   |   |   |   |
| **Cash                flows from investing activities:**                                                                      |                                                       |          |   |   |   |   |
| Proceeds                from sales of furniture and equipment                                                                 |                                                       | **11,532**    |   |   | - |   |
| Proceeds                from maturity or redemption - Held to Maturity Investments                                            |                                                       | **961,523**   |   |   | 1,997,065 |   |
| Purchase                of furniture and equipment                                                                            |                                                       | **(357,064**  | **)** |   | (5,168 | ) |
| Purchase                of fixed maturity securities - Held to Maturity                Investments                            |                                                       | **(550,000**  | **)** |   | (2,649,375 | ) |
|                        Other                investments - Line of credit payments received |                                                       | **8,638**     |   |   | - |   |
| Net                Cash Provided By (Used In) Investing Activities                                                            |                                                       | **74,629**    |   |   | (657,478 | ) |
|                                                                                                                          |                                                       |          |   |   |   |   |
| **Cash                flows from financing activities:**                                                                      |                                                       |          |   |   |   |   |
| Net                (payments) receipts on supplementary contracts                                                             |                                                       | **(11,642**   | **)** |   | (12,504 | ) |
| Purchase                of treasury stock                                                                                     |                                                       | **(28,407**   | **)** |   | (11,516 | ) |
| Bonds                payable purchased                                                                                        |                                                       | **(17,010**   | **)** |   | (76,292 | ) |
| Exercised                stock options                                                                                        |                                                       | **600**       |   |   | 6,382 |   |
| Net                Cash Used In Financing Activities                                                                          |                                                       | **(56,459**   | **)** |   | (93,930 | ) |
|  Net                Increase In Cash and Cash Equivalents                                                                |                                                       | **754,893**   |   |   | 209,492 |   |
| Cash                And Cash Equivalents, Beginning Of Period                                                                 |                                                       | **946,272**   |   |   | 3,809,913 |   |
| Cash                And Cash Equivalents, End Of Period                                                                       | **$**                                                      | **1,701,165** |   | $ | 4,019,405 |   |
|                                                                                                                          |                                                       |          |   |   |   |   |

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**BNL      FINANCIAL CORPORATION AND SUBSIDIARIES**

** **
**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**Note      1.**

**Note      2.**

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**BNL      FINANCIAL CORPORATION AND SUBSIDIARIES**

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

**Forward-Looking      Statements**

**Liquidity      and Capital Resources**

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**Consolidated      Results of Operations**

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**Item      3. Quantitative and Qualitative Disclosures About Market      Risk**

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**Item      4. Internal Control and Procedures**

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**PART      II -- OTHER INFORMATION**

**Item      1. Legal Proceedings.**

**Item      2. Changes in Securities.**

**Item      3. Defaults Upon Senior Securities.**

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

**Item      5. Other Information.**

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

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

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

**SIGNATURES**

|                                    |   | BNL                FINANCIAL CORPORATION                 |
|-----------------------------------------|--------|----------------------------------------------------------|
|                                    |   | (Registrant)                                             |
|                                    |   |  /s/                Wayne E. Ahart                  |
|  Date:                May 12, 2006 |   | By:                Wayne E. Ahart, Chairman of the Board |
|                                    |   | (Chief                Executive Officer)                 |
|                                    |   |                                                     |
|                                    |   |  /s/              Barry N. Shamas                   |
| Date:                May 12, 2006  |   | By:                Barry N. Shamas, Executive V.P.       |
|                                    |   | (Chief                Financial Officer)                 |

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