================================================================================



                       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 September 30, 2001

     [ ] 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. 0-16880

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



                            BNL FINANCIAL CORPORATION
             (Exact name of Registrant as specified in its charter)

           IOWA                                          42-1239454
(State of incorporation)                    (I.R.S. Employer Identification No.)

           2100 W. William Cannon, Suite L
                    Austin, Texas                                        78745
      (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__ No____


As of September 30, 2001, the Registrant had 23,311,944 shares of Common Stock,
no par value, outstanding.




<PAGE>





PART I - FINANCIAL INFORMATION
------------------------------

Item 1. Financial Statements
----------------------------


                                               INDEPENDENT ACCOUNTANTS' REPORT




To The Board of Directors
BNL Financial Corporation


We have reviewed the accompanying Consolidated Balance Sheet of BNL Financial
Corporation and Subsidiaries as of September 30, 2001 and the related
Consolidated Statements of Income and Comprehensive Income, Changes in
Shareholders' Equity and Cash Flows for the nine-month periods ended September
30, 2001 and 2000. These financial statements are the responsibility of the
Corporation's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, 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 such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the Consolidated Balance Sheet of BNL Financial Corporation and
Subsidiaries as of December 31, 2000 and the related Consolidated Statements of
Income and Comprehensive Income, Shareholders' Equity, and Cash Flows for the
year then ended (not presented herein); and in our report dated February 10,
2001, 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, 2000 is fairly stated, in all
material respects, in relation to the Consolidated Balance Sheet from which it
has been derived.





Oklahoma City, Oklahoma                                SMITH, CARNEY & CO., p.c.
November 14, 2001


<PAGE>








<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------------------------------------------------
  ASSETS
                                                                         September 30,          December 31,
                                                                             2001                   2000
                                                                          (Unaudited)             (Audited)
                                                                      ------------------     ------------------
<S>                                                                   <C>                    <C>
Cash and cash equivalents                                                   $  2,111,176             $  932,816
Investments available for sale, at fair value (amortized cost
  $12,396,462;  $13,737,999 respectively)                                     12,638,845             13,561,719
Note receivable                                                                1,357,407                      0
Investment in equity securities at market
   (cost $131,592; $37,147 respectively)                                          60,142                 66,532
                                                                       ------------------     ------------------
               Total Investments, Including Cash and                          16,167,570
                     Cash Equivalents                                                                14,561,067

Accrued investment income                                                        233,232                248,297
Furniture and equipment, net                                                     397,208                374,876
Deferred policy acquisition costs                                                278,824                308,102
Policy loans                                                                     106,694                 98,863
Receivable from reinsurer                                                         29,630                 29,630
Premiums due and unpaid                                                          956,577                946,775
Income tax assets                                                                605,000                767,000
Other assets                                                                     327,869                245,661
                                                                       ------------------     ------------------

               Total Assets                                                  $19,102,604            $17,580,271
                                                                       ==================     ==================

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Liabilities for future policy benefits                                   $  1,409,673            $ 1,392,584
   Policy claims payable                                                       2,368,350              2,446,350
   Annuity deposits                                                            2,850,696              2,805,220
   Deferred annuity profits                                                      478,474                469,623
   Premium deposit funds                                                          63,556                101,491
   Supplementary contracts without life contingencies                             68,222                 80,295
   Advanced and unallocated premium                                              464,338                656,615
   Commissions payable                                                           509,890                440,640
   Contingent settlement expenses payable (Note 3)                               575,000                      0
   Accrued taxes and expenses                                                    474,142                450,409
   Contingent long-term liabilities (Note 3)                                   4,425,000                      0
   Other liabilities                                                             231,034                230,119
                                                                       ------------------     ------------------

Total Liabilities                                                             13,918,375              9,073,346
                                                                       ------------------     ------------------

Shareholders' Equity:
   Common stock, $.02 stated value, 45,000,000 shares
      Authorized 23,311,944 shares issued and outstanding                        466,239                466,239
   Additional paid-in capital                                                 14,313,000             14,308,230
   Accumulated other comprehensive income (loss)
                                                                                 223,013              (140,215)
   Accumulated deficit                                                       (5,386,698)            (6,063,224)
   Contingent Treasury stock, 2,950,000; 0 shares respectively
          (Note 3)                                                           (4,425,000)                      0
   Treasury stock, at cost; 13,695; 138,795 shares respectively                  (6,325)               (64,105)
                                                                       ------------------     ------------------

               Total Shareholders' Equity                                      5,184,229              8,506,925
                                                                       ------------------     ------------------

 Total Liabilities and Shareholders' Equity                                  $19,102,604            $17,580,271
                                                                       ==================     ==================

------------------------------------------------------------------------------
          (See accompanying notes and Independent Accountants' Report)
------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
--------------------------------------------------------------------------------

                                                                      Three Months Ended                    Nine Months Ended
                                                                         September 30                         September 30
                                                              ----------------------------------    -------------------------------

                                                                       2001               2000              2001            2000
                                                                (Unaudited)        (Unaudited)        (Unaudited)        (Unaudited)
                                                              ---------------    ---------------    --------------  ----------------
<S>                                                           <C>                <C>                <C>             <C>

Income:
   Premium income                                                  $ 9,675,833        $ 8,962,095       $28,506,328      $26,433,690
   Net investment income                                               270,399            243,870           766,877          648,611
   Marketing fees                                                       22,989                  0            22,989                0
   Realized gains (loss)                                                 1,314          (105,804)            12,957        (103,784)
                                                               ---------------    ---------------    --------------  ---------------


             Total Income                                            9,970,535          9,100,161        29,309,151      26,978,517
                                                                ---------------    ---------------    --------------  --------------


Expenses:
 Increase (decrease) in liability for future policy benefits             5,188              8,199            17,088         (88,253)
 Policy benefits and other insurance costs                           7,566,698          6,637,284        22,044,979       20,091,878
 Amortization of deferred policy acquisition costs                       4,571              3,155            29,278           26,664
 Class Action settlement expense (Note 3)                              575,000                  0           575,000                0
 Operating expenses                                                  1,743,369          1,412,158         4,852,013        4,194,585
 Taxes, other than on income                                           326,850            276,588           915,974          825,506
                                                               ---------------    ---------------    -------------- ----------------


   Total Expenses                                                   10,221,676          8,337,384        28,434,332       25,050,380
                                                               ---------------    ---------------    -------------- ----------------


   Income (Loss) from Operations before
        Income Taxes                                                 (251,141)            762,777           874,819        1,928,137

 Provision for income taxes (benefit)                                 (53,707)          (637,392)           198,293        (637,392)
                                                               ---------------    ---------------    -------------- ----------------


    Net Income (Loss)                                             $  (197,434)         $1,400,169          $676,526       $2,565,529
                                                               ===============    ===============    ============== ================


Net income (loss) per common share (basic and diluted)                 $(0.01)              $0.06             $0.03            $0.11
                                                               ===============    ===============    ============== ================


   Weighted average number of fully
        Paid common shares                                          23,311,944         23,311,944        23,311,944       23,311,944
                                                               ===============    ===============    ============== ================


   Other comprehensive income, net of tax:
      Unrealized gains on securities:
        Unrealized holding gain arising during period                $ 145,141            $88,546          $376,184         $250,468
        Reclassification adjustment for gain (loss) included
         in net income                                                 (1,313)            105,804          (12,956)          103,784
                                                               ---------------    ---------------    -------------- ----------------

             Other Comprehensive Income                               143,828             194,350           363,228          354,252
                                                              ---------------     ---------------    -------------- ----------------


             Comprehensive Income (Loss)                         $   (53,606)          $1,594,519       $ 1,039,754      $ 2,919,781
                                                              ===============     ===============    ============== ================





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

          (See accompanying notes and Independent Accountants' Report)
--------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

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


                                                                                                    Accumulated
                                    Common Stock               Additional                              Other
                          ------------------------------        Paid-In          Accumulated        Comprehensive        Treasury
                             Shares            Amount           Capital            Deficit              Income            Stock
                          -------------    -------------    --------------     -----------------    --------------    --------------
<S>                       <C>              <C>              <C>                <C>                  <C>               <C>
Balance, December 31, 1999   23,311,944         $466,239       $14,308,230         $(9,507,706)          $(897,523)        ($64,105)
                          =============    =============    ==============     =================    ==============    ==============


Accumulated other
    Comprehensive gain             -                 -                 -                   -               354,521            -

Net income                         -                 -                 -             2,535,530                -               -
                           ------------    -------------     --------------    -----------------    --------------    --------------
Balance, September 30, 2000
(Unaudited)                  23,311,944         $466,239        $14,308,230        $(6,942,176)          $(543,272)        $(64,105)
                           ============    =============     ==============    =================    ==============    ==============




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

Balance, December 31, 2000   23,311,944         $466,239        $14,308,230         ($6,063,224)         $(140,215)        $(64,105)
                          =============    =============     ==============    =================    ==============    ==============


Accumulated other
     Comprehensive income          -                -                  -                    -              363,228             -
Contingent treasury stock
     (See Note 3)                  -                -                  -                    -                  -         (4,425,000)
Sale of treasury stock             -                -                 4,770                 -                  -              57,780
Net income                         -                -                  -                 676,526               -               -
                          ------------    -------------      --------------    -----------------    --------------    --------------
Balance, September 30, 2001
(Unaudited)                 23,311,944         $466,239         $14,313,000       $  (5,386,698)          $223,013      ($4,431,325)
                          ============    =============      ==============    =================    ==============    ==============


























--------------------------------------------------------------------------------
          (See accompanying notes and Independent Accountants' Report)
--------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

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

                                                                                                  Nine Months Ended
                                                                                                     September 30,
                                                                                       -------------------------------------
                                                                                              2001                2000
                                                                                          (Unaudited)          (Unaudited)
                                                                                        -----------------    ----------------
<S>                                                                                     <C>                  <C>
Cash flows from operating activities:
     Net income                                                                                $ 676,526         $ 2,565,529
     Adjustments to reconcile net income to net cash
        Provided by operating activities:
            Realized (loss) gain on investments                                                 (12,958)             103,784
            (Increase) decrease in deferred tax asset                                            162,000           (679,129)
            Depreciation                                                                          85,265              93,948
            Amortization of deferred acquisition costs,
               Organization costs and state licenses acquired                                     32,579              28,996
            Accretion of bond discount                                                             1,200               1,373
        Change in assets and liabilities:
             (Increase) decrease in accrued investment income                                     15,065           (114,560)
             (Increase) decrease in premiums due and unpaid                                      (9,802)               2,285
             Increase (decrease) in liability for future policy benefits                          17,089            (88,253)
             Decrease in policy claims payable                                                  (78,000)           (204,825)
             Increase (decrease) in annuity deposits and deferred                                 54,327           (189,299)
profits
             Decrease in premium deposit funds                                                  (37,935)            (10,297)
             Decrease in advanced and unallocated premium                                      (192,277)           (302,252)
             Increase in commissions payable                                                      69,250              15,216
             Increase in contingent settlement expense                                           575,000                   0
             Other, decrease (increase)                                                         (47,496)                 633
                                                                                        -----------------    ----------------


                    Net Cash Provided by Operating Activities                                  1,309,833           1,223,149
                                                                                        -----------------    ----------------


Cash flows from investing activities:
     Proceeds from sales of furniture and equipment                                                (294)                 800
     Proceeds from sales of fixed maturity securities                                          5,963,852             452,249
     Proceeds from sales of equity securities                                                     84,877            -
     Purchase of furniture and equipment                                                       (107,597)            (59,506)
     Purchase of fixed maturity securities                                                   (4,620,674)         (1,947,572)
     Purchase of equity securities                                                             (123,511)            -
     Note receivable                                                                         (1,357,407)            -
                                                                                        -----------------    ----------------

                     Net Cash Provided by (Used In) Investing Activities                       (160,754)         (1,554,029)
                                                                                        -----------------    ----------------


Cash flows from financing activities:
     Purchase of contingent Treasury Stock                                                   (4,425,000)            -
     Contingent long term debt                                                                 4,425,000            -
     Sale of Treasury Stock                                                                       62,550            -
     Net payments on supplementary contracts                                                    (33,269)            (18,486)
                                                                                        -----------------    ----------------


  Net Cash Provided By (Used In) Financing Activities                                           (29,281)            (18,486)
                                                                                        -----------------    ----------------


Net increase (decrease) in cash and cash equivalents                                           1,178,360           (349,366)

Cash and cash equivalents, beginning of period                                                   932 816           1,419,618
                                                                                        -----------------    ----------------


Cash and cash equivalents, end of period                                                      $2,111,176          $1,070,252
                                                                                        =================    ================





--------------------------------------------------------------------------------
          (See accompanying notes and Independent Accountant's Report)


--------------------------------------------------------------------------------
</TABLE>
<PAGE>

 BNL FINANCIAL CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


Note 1.

The accompanying Consolidated Financial Statements (unaudited) as of September
30, 2001 and September 30, 2000 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 September 30, 2001, and the results of operations for the periods
ended September 30, 2001 and September 30, 2000, and the cash flows for the
periods ended September 30, 2001 and September 30, 2000.

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-KSB for the year ended December 31, 2000, previously filed
with the Commission, for financial statements for the year ended December 31,
2000, prepared in accordance with GAAP. Net income per share of common stock is
based on the weighted average number of outstanding common shares.

Note 2.

Estimated incurred but not reported claims at December 31, 2000 was
overestimated by approximately $145,000. This over-estimation of the claims
liability had the effect of reducing claims expense in 2001. Due to the monthly
fluctuation in claims received and the lag time in receiving the claims, this
accrual is difficult to estimate.

Note 3.

On November 5, 2001, the boards of directors of the Company and BNL Equity
Corporation approved a settlement in the class action case of Myra Jo Pearson,
Paul Pearson and James Stilwell v. BNL Equity Corporation (Formerly Known as
United Arkansas Corporation), BNL Financial Corporation (Formerly Known as
United Iowa Corporation), and Wayne E. Ahart, Kenneth Tobey and Barry N. Shamas,
Pulaski County Circuit Court, Third Division, No. 96-4971. The settlement, which
was preliminarily approved by the Pulaski County Circuit Court on October 29,
2001, is subject to various conditions, including the approvals by the Arkansas
Insurance Commissioner, any other applicable regulatory authorities and final
approval by the Court. Also, the settlement is conditioned upon compliance with
federal and state securities laws.

As a part of the settlement agreement, BNL Financial Corporation ("BNL") (parent
company of BNLE) shall issue and exchange its bonds in the principal amount of
$1.50 for each share of the common stock of BNL owned by the members of the
Class. The Bonds shall be for a term of twelve years with principal payable at
maturity and shall bear interest at the rate of 6% per annum payable annually
from the previous fiscal year's earnings of BNL. If any interest payment is not
made, it will be added to the principal and paid at maturity. The Bonds shall be
fully callable and redeemable at par at any time by BNL.

The settlement includes a provision for paying Class Counsel collectively the
single sum of $575,000 for all legal fees, costs and expenses.

The terms of the settlement  are explained  more  thoroughly in Part II, Item 1.
Legal Proceedings.

<PAGE>



-------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Note 4.

On July 25, 2001, one of the Company's subsidiaries, BNL Equity Corporation
("BNLE") entered into an agreement to expand the Company's business relationship
with EPSI Benefits Inc. ("EBI") a Texas Corporation. EBI is the parent company
of Employer Plan Services Inc. ("EPSI") which provides dental claims processing
and adjudication for the Company's insurance subsidiary, Brokers National Life
Assurance Company ("BNLAC"). BNLAC loaned BNLE a sum of $1,457,407, with
interest accruing on the outstanding balance of such loan at 7.5% per year. BNLE
loaned EBI $1,357,407 to purchase 51% of the common stock of EBI, which was
owned by EBI's majority stockholder. The common stock was retired as treasury
stock on the books of EBI. BNLE will use the additional $100,000 of the loan to
pay expenses incurred in connection with the negotiation and execution of the
agreement. BNLAC pledged $335,000 of bonds to secure the operating line of
credit of EPSI in conjunction with this transaction.

The loan from BNLE to EBI will be repaid through the issuance by EBI of a
debenture at an annual rate of 14%. To protect its interest, BNLE can convert
the debenture into 51% of EBI common stock, subject to regulatory approval.
Until and unless the debenture is converted, the loan will be repaid in
accordance with the Convertible Debenture Agreement. BNLE will also receive a
marketing fee from EBI.

Note 5.

Investment in equity securities includes an $8,104 investment in call options on
common stock held for trading purposes. These are stated at $3,000, which
approximates market value.



<PAGE>






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 nine
months ended September 30, 2001 and 2000 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) customer
response to new products and marketing initiatives: (iii) mortality, morbidity
and other factors which may affect the profitability of our products; (iv)
changes in the federal income tax laws and regulations which may affect the
relative income tax advantages of our products; (v) 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 (vi) the risk
factors or uncertainties listed from time to time in our filings with the
Securities and Exchange Commission.

Liquidity and Capital Resources

At September 30, 2001, we had liquid assets of $2,111,176 in cash, money market
savings accounts, government agency discount notes and short-term certificates
of deposit.

The major components of operating cash flows are premium income, annuity
deposits and investment income. In the first nine months of 2001, BNLAC
collected $28,408,347 of premiums and annuity deposits (gross before
reinsurance) and we had consolidated investment income of $766,877.

Our investments are primarily in U.S. Government, Government Agency and other
investment grade bonds which have been marked to market and classified as
available for sale. We do not hedge our investment income through the use of
derivatives.

On July 25, 2001, one of the Company's subsidiaries, BNL Equity Corporation
("BNLE") entered into an agreement to expand the Company's business relationship
with EPSI Benefits Inc. ("EBI") a Texas Corporation. EBI is the parent company
of Employer Plan Services Inc. ("EPSI") which provides dental claims processing
and adjudication for the Company's insurance subsidiary, Brokers National Life
Assurance Company ("BNLAC"). BNLAC loaned BNLE a sum of $1,457,407, with
interest accruing on the outstanding balance of such loan at 7.5% per year. BNLE
loaned EBI $1,357,407 to purchase 51% of the common stock of EBI, which was
owned by EBI's majority stockholder. The common stock was retired as treasury
stock on the books of EBI. BNLE will use the additional $100,000 of the loan to
pay expenses incurred in connection with the negotiation and execution of the
agreement. BNLAC pledged $335,000 of bonds to secure the operating line of
credit of EPSI in conjunction with this transaction.

The loan from BNLE to EBI will be repaid through the issuance by EBI of a
debenture. To protect its interest, BNLE can convert the debenture into 51% of
EBI common stock at any time, subject to regulatory approval. Until and unless
the debenture is converted, the loan will be repaid in accordance with the
Convertible Debenture Agreement. BNLE will also receive a marketing fee from
EBI. We estimate the Company and its subsidiaries will have a positive cash flow
of $315,000 in 2002 from the EBI transaction.
<PAGE>

On November 5, 2001 the Company's Board of Directors approved a settlement of
the class action lawsuit (see Part II, Item 1, Legal Proceedings) that includes
a $575,000 payment to Class Counsel. The payment is subject to various
conditions and regulatory approval, however we believe it is probable that it
will occur in the first part of next year. The $575,000 will be paid by BNLAC
either directly, or through dividends paid to BNL Financial Corporation.

Another term of the settlement is the issue and exchange of Company bonds in the
principal amount of $1.50 for each share of the Company's common stock owned by
the members of the class. The bonds have a 12-year term and bear interest at the
rate of 6% per annum, payable annually from the previous fiscal year's earnings.
We estimate the total principal amount of the bonds will be approximately
$4,425,000 and the annual interest expense will be $266,000. We expect BNLAC
will pay dividends to BNL Financial Corporation for the payment of interest to
the bondholders. The Company has no plan to start a sinking fund for payment of
the principal at maturity.

We believe liquid assets, along with investment income, premium income and
marketing fees 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 September 30, 2001,
BNLAC had statutory capital and surplus of $7,602,878. 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 $3,000,000. 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 third quarter of 2001 was $9,675,833 compared to
$8,962,095 for the third quarter of 2000. For the first nine months of 2001
premium income was $28,506,328 compared to $26,433,690 for the same period in
2000. The increase of 8% for the third quarter and 8% for the first nine months
was due to an increase in group dental insurance premiums written.

Net investment income was $270,399 for the third quarter of 2001 compared to
$243,870 for the third quarter of 2000. Net investment income was $766,877 for
the nine-month period ended September 30, 2001 compared to $648,611 for the same
period in 2000. The 11% increase for the third quarter and 18% increase for the
first nine months was primarily due to an increase in the amount of investments
purchased from the cash generated from operations. The third quarter reflected a
decline in the interest rate earned on the bond portfolio due to the
reinvestment of proceeds from called bonds at a lower interest rate.

The Company received two months of marketing fees from EPSI Benefits Inc.,
totaling $22,989 during the third quarter of 2001. The fees are part of the
agreement with EPSI Benefits Inc. described above.

Realized gains on investments were $1,314 for the third quarter of 2001 and
$12,957 for the first nine months of 2001 compared to a realized loss of
$105,804 for the third quarter of 2000 and loss of $103,784 for the first nine
months of 2000. The increase for the nine-month period in 2001 was primarily due
to gains on the sale of common stock in the second quarter. The loss in 2000 was
due to the write-down in book value of common stock to reflect the decline in
their market value.

For the third quarter of 2001, increase in liability for future policy benefits
was $5,188 compared to $8,199 for the same period in 2000. For the nine-month
period ended September 30, 2001, liability for future policy benefits expense
was $17,088 compared to ($88,253) for the same period in 2000. The decrease of
$3,011 for the third quarter of 2001 was due to fewer policies in force compared
to the same time last year. The $105,341 increase in future policy benefits
expense for the first nine months of 2001 was due to a decline in lapsed life
insurance policies in 2001 compared to 2000.

Policy benefits and other insurance costs consist primarily of commission
expense and group dental insurance claims expense. Policy benefits and other
insurance costs for the third quarter of 2001 were $7,566,698 compared to
$6,637,284 for the third quarter of 2000. The claims ratio on dental insurance,
which represents the ratio of claims incurred to premium earned, was 68.4% for
the third quarter of 2001 compared to 58.3% for the third quarter in 2000. In

<PAGE>

the first nine months of 2001, policy benefits and other insurance costs were
$22,044,979 compared to $20,091,878 for the same period in 2000. The increase in
other insurance costs for the first nine months was due in part to an increase
in commissions resulting from the increase in premium income. In the first nine
months of 2001, policy benefits increased by $1,732,699 compared to the same
period in 2000. The claims ratio during the first nine months of 2001 was 66.8%
compared to 64.9% for the same period in 2000. Based on claim experience during
2001 and 2000, the estimate of claims liability at December 31, 2000 and
December 31, 1999 was overstated by approximately $145,000 and $513,000,
respectively. The over estimates of this liability contributed a corresponding
decrease in expense during the first nine months of 2001 and 2000.

Amortization of deferred policy acquisition costs was $4,571 and $3,155 for the
third quarter and $29,278 and $26,664 for the first nine months of 2001 and
2000, respectively. Amortization of deferred policy acquisition costs vary in
relation to lapses or surrenders of existing policies.

In the third quarter of 2001, the Company expensed the $575,000 award to the
Class Counsel. The payment is subject to various conditions and regulatory
approval; however we believe it is probable that it will occur. In our opinion
the settlement of the class action lawsuit is in the best interests of our
Company and its shareholders. We have always felt and continue to feel strongly
about our version and the lack of merit in the plaintiff's case. However, this
settlement opportunity, in light of its terms and the ability to eliminate risks
which are inherent in such litigation, provided an opportunity to put an end to
a protracted, expensive and time-consuming matter. The Company's management can
now focus on the business of the Company and the opportunities in the
marketplace.

For the third quarter of 2001 operating expenses were $1,743,369 compared to
$1,412,158 for the same period in 2000. Expenses increased in the third quarter
due to legal fees, bonus incentive plan expense (see 8-K Filing during the
period) and payroll expense. Operating expenses were $4,852,013 in the first
nine months of 2001 compared to $4,194,585 for the same period in 2000. The
increase in the first nine months operating expenses was primarily due to legal
fees, incentive bonus plan expense and payroll expense. The additional payroll
expense in the third quarter and first three quarters was attributable to the
increased volume of business in force.

Taxes, other than on income, fees and assessments, were $326,850 for the third
quarter of 2001 compared to $276,588 for the third quarter of 2000. The increase
was primarily due to an increase in premium taxes on the increase in premiums
collected in the third quarter of 2001. Taxes, other than on income, fees and
assessments were $915,974 for the first nine months of 2001 compared to $825,506
for the same period in 2000. The increase for the year was primarily due to an
increase in premium taxes on the increased premiums collected.

The provision for federal income taxes in the third quarter of 2001 includes
($1,707) current credit and $53,000 deferred tax expense compared to $41,737
current federal tax expense and ($679,129) deferred tax credit in the third
quarter of 2000. The provision for federal income taxes in the first three
quarters of 2001 includes $36,293 current expense and $162,000 deferred tax
expense compared to $41,737 current federal tax expense and ($679,129) deferred
tax credit for the same period in 2000. In the third quarter of 2000, the
Company set up a deferred tax asset that recognized the future benefit that will
be realizable from $7,600,000 in loss carry-forwards that expire in various
amounts between 2001-2012. In 2001, the Company is reducing the deferred tax
asset appropriately as net operating loss carryovers are utilized.

Income (loss) from operations for the third quarter of 2001 was ($251,141)
compared to $762,777 for the same period in 2000. The decrease of $1,013,918 was
primarily due to the increase in operating expenses, policy benefits expense and
class action settlement expense for the quarter. The income from operations for
the first nine months of 2001 was $874,819 compared to $1,928,137 for the same
period in 2000. The reduction in operating profits was due to the increase in
policy benefits, operating expenses and class action settlement expense. Based
on claim experience during 2001 and 2000, the estimate of claims liability at
December 31, 2000 and December 31, 1999 was overstated by approximately $145,000
and $513,000, respectively. The over estimates for this liability contributed a
corresponding increase in income during both periods.

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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 September 30, 2001 and December 31,
2000. We held various financial instruments at September 30, 2001 and 2000,
consisting of financial assets reported in our Consolidated Balance Sheets. (For
additional information regarding these financial instruments, refer to Note 4 to
our annual consolidated financial statements.) In the second quarter of 2001 we
invested $8,104 in call options for common stock for trading purposes. Our risk
on this investment is limited to our cost.

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 September 30, 2001 and December 31, 2000 was $12,638,845 and
$13,561,719, respectively.

A one percentage point increase in prevailing interest rates would result in a
decrease in the estimated fair value of fixed maturity securities held at
September 30, 2001 of $310,000. 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 nine months of 2001 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 September 30, 2001 totaled
$60,142, or only .4% 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.


<PAGE>


PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings.

On November 5, 2001, the boards of directors of the Company and BNL Equity
Corporation approved a settlement in the class action case of Myra Jo Pearson,
Paul Pearson and James Stilwell v. BNL Equity Corporation (Formerly Known as
United Arkansas Corporation), BNL Financial Corporation (Formerly Known as
United Iowa Corporation), and Wayne E. Ahart, Kenneth Tobey and Barry N. Shamas,
Pulaski County Circuit Court, Third Division, No. 96-4971. The settlement, which
was preliminarily approved by the Pulaski County Circuit Court on October 29,
2001, is subject to various conditions including the approvals by the Arkansas
Insurance Commissioner, any other applicable regulatory authorities and final
approval by the Court. Also, the settlement is conditioned upon compliance with
federal and state securities laws. The basic terms of the settlement are:

1.   BNL Financial Corporation ("BNL") shall issue and exchange its bonds in the
     principal  amount of $1.50 for each share of the common  stock of BNL owned
     by the members of the Class.  The Class  generally  consists of persons who
     purchased  securities of United  Arkansas  Corporation in public  offerings
     during the period  from May 1, 1989,  through  May 1, 1992,  excluding  opt
     outs.  The Bonds  shall be for a term of twelve  (12) years with  principal
     payable at maturity and shall bear interest at the rate of six percent (6%)
     per  annum  payable  annually  each year from the  previous  fiscal  year's
     earnings of BNL. If any interest  payment is not made,  it will be added to
     the principal and paid at maturity.  The Bonds shall be fully  callable and
     redeemable in whole, or in part, at par at any time by BNL.

2.   BNL shall pay Class  Counsel  collectively  the single sum of five  hundred
     seventy five  thousand  dollars  ($575,000)  for all legal fees,  costs and
     expenses.

3.   Wayne E.  Ahart,  Barry N.  Shamas  and  Kenneth  D.  Tobey  shall not have
     increases in their  salaries  for any year for which  interest has not been
     paid on the Bonds.

4.   If  there is a change  in  control  of BNL,  each  individual  owner of the
     outstanding Bonds shall have the option to have his Bond redeemed at par.

5.   Wayne E.  Ahart,  Barry N. Shamas and Kenneth D. Tobey agree not to compete
     with BNL or Brokers  National Life Assurance  Company  ("BNLAC") during the
     time the Bonds are outstanding.

6.   Mutual  releases  have been given and the lawsuit  shall be dismissed  with
     prejudice.

On November 6, 2001, a notice of the settlement was mailed to the Class Members.
The deadline for objections to the settlement is December 6, 2001, and the
hearing to consider final approval of the settlement is scheduled for December
10, 2001. If all approvals are obtained and no objections are lodged, the
Company intends to issue the Bonds in the Exchange in approximately April or
May, 2002.

The  Company  is the  result of a 1994  business  combination  of two  insurance
holding  companies - United Arkansas  Corporation and United Iowa  Corporation -
and their respective  subsidiaries - United Arkansas Life Assurance  Company and
Iowa Life  Assurance  Company.  The two insurance  holding  companies  were each
publicly owned but by a different set of public  shareholders.  United  Arkansas
Corporation was generally owned by approximately  1,400 shareholders in Arkansas
and  United  Iowa  Corporation  was  generally  owned  by  approximately   3,200
shareholders in Iowa. Only the former United Arkansas  Corporation  shareholders
will be affected by the settlement and the Exchange.  The Company estimates that
it will  issue  approximately  $4,425,000  in  principal  amount of Bonds in the
settlement  Exchange.  If the settlement is consummated  and the Bonds issued in
the Exchange,  the Company will convert  approximately 1,400 persons from public
shareholders to public Bondholders.  As a result of the settlement Exchange,  it
is estimated  that the Company will have  remaining  approximately  3,200 public
shareholders.

<PAGE>

Item 2.  Changes in Securities.

None of the rights of the holders of any of the Company's securities were
materially modified during the period covered by this report. In addition, no
class of securities of the Company was issued or modified which materially
limited or qualified any class of its registered securities.

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 submitted to a vote of security holders during the time period
covered by this filing.

Item 5.  Other Information.

None

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

None


(b) Reports on Form 8-K.

On September 17, 2001 the Company filed a Form 8-K for the purpose of filing
with the Securities and Exchange Commission a copy of the Company's Incentive
Bonus Plan which was adopted and approved by the Company's Board of Directors.

The 2001 Incentive Bonus Plan provides for the payment of cash bonuses to
certain executive officers of the Company based upon the Company's operating
results. Bonuses are payable based upon the measure of pre-tax operating income
for the six-month periods ending on June 30 and December 31 of each fiscal year.
The aggregate bonuses payable under the Plan equal ten percent (10%) of such
pre-tax operating income amounts.



                                   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)



Date: November 14, 2001                 /s/ Wayne E. Ahart
                                       ___________________________________
                                       By: Wayne E. Ahart, Chairman of the Board
                                          (Chief Executive Officer)


Date: November 14, 2001                /s/ Barry N. Shamas
                                       ____________________________________
                                       By: Barry N. Shamas, Executive V.P.
                                          (Chief Financial Officer)





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