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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-QSB

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

                    For the Quarter Ended September 30, 1996

     [ ] 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

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

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

                         301 Camp Craft Road, Suite 200
                               Austin, Texas 78746
               (Address of principal executive offices) (Zip Code)



Registrant's telephone number, including area code:  (512) 327-3065

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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, 1996, the Registrant had 23,311,944  shares of Common Stock,
no par value, outstanding.

Transitional Small Business Disclosure Format  (check one)  Yes___ No__X__


<PAGE>



<TABLE>

Item 1.  Financial Statements

                       BNL FINANCIAL CORPORATION AND SUBSIDIARY
                             CONSOLIDATED BALANCE SHEET

<CAPTION>


                                             September 30
     ASSETS                                       1996       December 31,
                                              (Unaudited)        1995
                                              -----------    ------------
<S>                                         <C>             <C>

Investments:
   Investments available for sale, at
        fair value .......................   $12,013,804     $11,504,802
   Equity securities, common stock .......        40,625          41,870
   Cash and cash investments .............       501,714       1,910,596
                                             -----------     -----------
        Total Investments                     12,556,143      13,457,268
Accrued investment income ................       252,746         252,617
Furniture and equipment ..................       276,713         303,262
Deferred policy acquisition costs ........       483,863         514,561
Receivable from reinsurer ................        21,942         142,677
Other assets .............................       445,045         433,827
                                             -----------      ----------
       TOTAL ASSETS                          $14,036,452     $15,104,212
                                             ===========      ==========
     LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Liability for future policy benefits .     $1,892,546      $1,877,749
   Premium deposit fund .................        184,034         195,542
   Annuity deposits .....................      3,527,139       3,435,834
   Deferred annuity profits .............        610,536         602,719
   Supplementary contracts without
       life contingencies ...............         74,016          84,213
   Other liabilities ....................        389,718         315,358
                                              ----------      ----------
       Total liabilities                       6,677,989       6,511,415
                                              ----------      ----------
SHAREHOLDERS' EQUITY:
   Common stock .........................        466,239         466,239
   Additional paid-in capital ...........     14,308,230      14,308,230
   Unrealized appreciation (depreciation)
        of securities ...................        (64,531)        478,783
   Treasury stock .......................        (64,105)        (64,105)
   Accumulated deficit ..................     (7,287,370)     (6,596,350)
                                              ----------     -----------
     Total shareholders' equity                7,358,463       8,592,797
                                              ----------      ----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY     $14,036,452     $15,104,212
                                              ==========      ==========
<FN>
       (See Notes to Consolidated Financial Statements)
</FN>
</TABLE>
                             2
<PAGE>
<TABLE>
                    BNL FINANCIAL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (Unaudited)


<CAPTION>

                                                             Three Months Ended            Nine Months Ended
                                                                September 30,                 September 30,
                                                        ---------------------------    --------------------------
                                                            1996             1995          1996            1995
                                                        -----------     -----------    -----------     -----------
<S>                                                     <C>             <C>            <C>             <C>

REVENUES:
   Premium income ..................................   $  1,834,379    $    670,947   $  5,224,694    $  1,851,338
   Investment income ...............................        213,941         211,576        647,450         650,751
   Realized gains on investments ...................         22,586          11,577         39,045         162,522
                                                        -----------     -----------     ----------      ----------
    Total income ...................................      2,070,906         894,100      5,911,189       2,664,611
                                                        -----------     -----------     ----------      ----------

EXPENSES:
   Policy benefits and other insurance costs .......      1,597,839         494,207      4,599,957       1,546,129
   Increase in liability for future policy benefits           4,594             251         (3,468)         16,668
   Amortization of deferred policy acquisition costs          8,346          29,174         30,698          56,989
   Operating expenses ..............................        576,635         456,766      1,788,079       1,317,691
   Taxes, other than on income .....................         59,208          30,052        186,945          79,926
                                                        -----------     -----------     ----------      ----------

    Total expenses .................................      2,246,622       1,010,450      6,602,211       3,017,403
                                                        -----------     -----------     ----------      ----------

    OPERATING INCOME (LOSS) ........................       (175,716)       (116,350)      (691,022)       (352,792)

Provision for income taxes .........................              0               0              0               0
                                                        -----------     -----------     ----------      ----------

    NET INCOME (LOSS) ..............................   ($   175,716)  ($    116,350)  ($   691,022)   ($   352,792)
                                                        ===========     ===========     ==========      ==========

   Net loss per share ..............................   ($      0.01)  ($       0.01)  ($      0.03)   ($      0.02)
                                                        ===========     ===========     ==========      ==========

    Weighted average number
    of shares ......................................     23,311,944      23,173,149     23,311,944      23,173,149
                                                        ===========     ===========     ==========      ==========


<FN>

                  (See Notes to Consolidated Financial Statements)
</FN>
</TABLE>
                                       3
<PAGE>





<TABLE>

                 BNL FINANCIAL CORPORATION AND SUBSIDIARY
                   CONSOLIDATED STATEMENT OF CASH FLOWS
                              (Unaudited)
<CAPTION>

                                                                    Nine Months
                                                               Ended          Ended
                                                              09/30/96       09/30/95
                                                              --------       --------
<S>                                                         <C>            <C>
Cash flows from operating activities:
Net loss ................................................   ($  691,022)   ($  352,792)
Adjustments to reconcile  net loss to net cash
    provided by (used in) operating activities:
 Realized (gain) loss on investments ....................       (39,045)      (162,522)
 Depreciation ...........................................        67,457         44,771
 Amortization of deferred acquisition
    costs and state licenses acquired ...................        33,029         39,217
 Accretion of bond discount .............................        (4,111)        (5,864)

Change in assets and liabilities:
 Increase in accrued investment income ..................          (129)       (28,580)
 Decrease in premium deposit fund .......................       (11,508)       (17,286)
 Increase in annuity deposits and deferred profits ......        99,122        114,502
 Increase in liability for future policy
    benefits ............................................        14,797         66,968
 Other net ..............................................       182,439        120,385
                                                              ----------      ---------
     Total adjustments ..................................       342,051        171,591
                                                             ----------      ---------
     Total cash provided by (used in)
         operating activities ...........................      (348,971)      (181,201)

Cash flows from investing activities:
  Sales of debt securities ..............................     1,635,498      2,570,871
  Sales of equity securities ............................             0         22,625
  Sales of furniture and equipment ......................         9,000          7,341
  Purchase of equity securities .........................             0              0
  Purchase of furniture and equipment ...................       (47,029)      (141,595)
  Purchase of fixed maturity securities .................    (2,647,183)    (2,095,155)
                                                              ---------      ---------
      Net cash provided by (used in) investing activities    (1,049,714)       364,087
                                                              ---------      ---------
Cash flows from financing activities:
  Payments on supplementary contracts ...................       (13,500)       (90,288)
  Interest credited on supplementary contracts ..........         3,303          4,223
                                                              ---------     ----------
      Net cash provided by (used in) financing activities       (10,197)       (86,065)
                                                              ---------     ----------
Net increase (decrease) in cash and cash equivalents ....    (1,408,882)        96,821

Cash and cash equivalents, beginning of year ............     1,910,596      2,207,537
                                                              ---------      ---------
Cash and cash equivalents, end of period ................   $   501,714    $ 2,304,358
                                                              =========      =========
<FN>
        (See notes to Consolidated Financial Statements)
</FN>

</TABLE>
     

                                       4
<PAGE>

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The financial  statements  included herein reflect all adjustments which are, in
the opinion of management,  necessary to present a fair statement of the interim
results on a basis  consistent  with the prior period.  The statements have been
prepared to conform to the  requirements  of Form 10-QSB 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, 1995, previously filed with the Commission,  for
financial  statements  for  the  year  ended  December  31,  1995,  prepared  in
accordance  with GAAP.  Net income  (loss) per share of common stock is based on
the weighted average number of outstanding common shares.


                                       5


<PAGE>




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

Liquidity and Capital Resources

The  Company's  insurance  operations  are  conducted  through its wholly  owned
subsidiary,  Brokers National Life Assurance  Company (BNLAC).  At September 30,
1996, BNLAC had statutory capital and surplus  exceeding $5.2 million,  which is
sufficient  to meet BNLAC's  capital  requirements  in the states in which it is
licensed and which  management  believes is  sufficient  to support  anticipated
future growth.

At September 30, 1996, the Company had liquid assets of $501,714 in cash,  money
market savings accounts and short-term certificates of deposit, all of which can
readily be converted  to cash.  The  Company's  cash and cash  investments  have
decreased by $1,408,882 since December 31, 1995 primarily due to investing short
term cash investments in long term bonds.

The major  components of operating cash flows are premium,  annuity deposits and
investment income. In the first nine months of 1996, BNLAC collected  $5,631,899
of premiums and annuity deposits (gross before  reinsurance) and the Company had
consolidated investment income of $647,450.

The  Company's  investments  are  primarily in U.S.  Government  and  Government
Agencies and other  investment  grade bonds which have been marked to market and
classified as available for sale. The unrealized appreciation  (depreciation) of
securities  decreased  from  $478,783  at  December  31,  1995 to  ($64,105)  at
September  30,  1996.  The decrease was due to a decrease in the market value of
the Company's  bond  portfolio,  which are classified as available for sale. The
Company does not hedge its investment income through the use of derivatives.

Results of Operations
Premium  income for the first nine  months of 1996 was  $5,224,694  compared  to
$1,851,338 for the same period in 1995. The increase of $3,373,356 was due to an
increase in dental insurance premiums written and an increase in dental premiums
retained by BNLAC from 50% in 1995 to 100% in 1996.  Effective November 1, 1995,
BNLAC began  retaining 100% of the group dental business and  administering  the
dental business.

Net  investment  income was  $647,450 for the period  ended  September  30, 1996
compared to $650,751 for the same period in 1995. In the first three quarters of
1995,  the  Company  received  approximately  $19,000 of  interest  on GIC bonds
compared  to $6,000 in 1996.  Interest  and  principal  payments  payments  will
continue on the GIC bonds  through  1998,  though the majority of the funds have
been distributed at this time.

Realized  gains on  investments  were  $39,045 in the first nine  months of 1996
compared to $162,522 for the same period in 1995. In the first three quarters of
1995,  the Company  received  approximately  $70,000  return of principal on GIC
bonds that exceeded the book value of the bonds compared to $21,000 in 1996.

In the first nine months of 1996, policy benefits and other insurance costs were
$3,745,723  compared to $1,190,450 for the same period in 1995. The increase was
due to an  increase in claims and  commissions  resulting  from the  increase in
dental business in force and the change in retention of dental business from 50%
to 100% in the fourth  quarter of 1995.  The percentage of dental claims paid to
dental premium income decreased from 74% in 1995 to 70% in 1996.

For the period ended  September 30, 1996,  the increase  (decrease) in liability
for future  policy  benefits  was  ($3,468)  compared  to  $16,668 in 1995.  The
decrease in 1996 was due to a decrease in group dental unearned premium reserves
for the year.

Amortization of deferred policy  acquisition  costs were $30,698 and $56,989 for
the first three quarters of 1996 and 1995 respectively. Amortization of deferred
policy  acquisition  costs  should  continue to decrease as the asset is reduced
over the upcoming years.

Operating expenses increased from $1,317,691 in the first three quarters of 1995
to $1,788,079 in 1996. The increase in operating  expenses in 1996 was primarily
due to an increase in home office staff,  office supplies,  printing expense and
claims administrative expense - all of which are attributable to taking over the
administration  of the group dental business.  As a result,  BNLAC is processing
$7.3 million of annual dental premium income representing 19,260 insureds. BNLAC
expects that continued increases in new insurance premium can be administered by
the company at lower per unit costs.

Taxes,  other than on income,  fees and assessments  were $186,945 for the first
nine months of 1996 compared to $79,926 for the same period in 1995. These costs
increased in direct proportion to the increase in premium income retained by the
company.

The net loss from  operations  for the first three quarters of 1996 was $691,021
compared to $352,792 for the same period in 1995.  The increase is primarily due
to the increase in operating expenses, policy benefits and other insurance costs
discussed above.



                                       6

<PAGE>




                          PART II -- OTHER INFORMATION


Item 1.  Legal Proceedings.
On April  30,  1996,  Myra Jo  Pearson  and Paul  Pearson  filed a class  action
complaint in the Circuit Court of Pulaski County, Arkansas (3rd Division) naming
the Company,  BNL Equity  Corporation  and several  officers of the Company,  as
defendants. On July 19, 1996, the plaintiffs filed their first amended complaint
and on and after July 24, 1996, the defendants were first served and notified of
the complaint and first amended complaint.  The plaintiffs have alleged that the
defendants   violated  the  Arkansas  Securities  Act  in  several  respects  in
connection  with the public  offerings  of  securities  made by United  Arkansas
Corporation ("UAC") (now known as BNL Equity Corporation) during the period from
January 1989 until May, 1992. The plaintiffs have filed on behalf of themselves,
as well as all other similarly  situated persons who acquired UAC stock in these
offerings.  The crux of the plaintiffs'  allegations is that the defendants made
alleged  misrepresentations  and  omissions  concerning  the  business  plan and
marketing strategy of UAC in connection with the public offerings.

The Company has  retained  the firm of Friday,  Eldredge & Clark,  Little  Rock,
Arkansas,  to handle the defense of the action on behalf of all defendants.  The
company  believes the action is frivolous and that  substantial  evidence exists
which directly refutes the allegations. The Company intends to vigorously defend
the matter and on August  13,  1996,  filed an answer  denying  all  substantive
alleged  violations.  The Company is analyzing the pursuit of sanctions  against
appropriate parties.

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  exceeding 5 per cent of the total  assets of the Company and its
consolidated subsidiary.

Item 4.  Submission of Matters to a Vote of Security Holders.
No items were  submitted  for a vote of  security  holders  during  the  covered
period.

Item 5.  Other Information.
None


                                       7

<PAGE>

<TABLE>


 Item 6. Exhibits and Reports on Form 10-QSB
<CAPTION>

  No.                            Description                                      Page or Method of Filing
---------    ----------------------------------------------------    ---------------------------------------------------
<S>          <C>                                                     <C>

  3.1        Articles  of  Incorporation of BNL Financial            Incorporated  by reference to Exhibit 3.1 of the 
             Corporation (formerly United Iowa Corporation),         Company's Annual Report on Form 10-K for the 
             dated January 27, 1984 and Amendment to Articles        period ending December 31, 1993.
             of Incorporation of BNL Financial Corporation,
             dated November 13, 1987.

  3.2        Bylaws of BNL Financial Corporation                     Incorporated by reference to Exhibit 3.2 of the
                                                                     Company's Registration Statement No. 33-70318

  4.1        Instruments defining the rights of security             Incorporated by reference to Exhibit 4 of the
             holders, including indentures                           Company's Registration Statement No. 2-94538 and
                                                                     Exhibits 3.5 and 4 of Post-Effective Amendment
                                                                     No. 3 thereto.

  4.2        Articles of Incorporation of BNL  Financial             Incorporated  by reference to Exhibit 3.1 of the  
             Corporation (formerly  United Iowa Corporation),        Company's Annual Report on Form 10-K for the 
             dated January 27, 1984 and Amendment to Articles        period ending December 31, 1993.
             of Incorporation on BNL Financial Corporation,
             dated November 13, 1987.

  10.1       Office Lease dated January 1, 1985 between              Incorporated by reference to Exhibit 10.4 of
             Registrant and William L. Kopatick.                     Pre-Effective Amendment No. 1 of the Company's
                                                                     Registration Statement No. 2-94538.

  10.2       Form of Agreement between Commonwealth Industries       Filed with 10-QSB for the period ended September
             Corporation, American Investors Corporation and         30, 1994.
             Wayne E. Ahart regarding rights to purchase shares
             of the Company.

  10.3       Agreement dated December 21, 1990 between               Filed with 10-QSB for the period ended March 31,
             Registrant and C. Donald Byrd granting Registrant       1996.
             right of first refusal as to future transfers of
             Mr. Byrd's shares of the Company's common stock.

  10.4       Quota Share Reinsurance Agreement dated 8/10/91         Incorporated by reference to Exhibit 10.10 of the
             between Registrant and UniLife Insurance Co. of         Company's Annual Report on Form 10-K for the year
             San Antonio, Texas.                                     ended December 31, 1991.


  10.5       Subscription Agreement dated March 2, 1994              Incorporated by reference to S-4 Registration
                                                                     Statement No. 33-70318

  10.6       Stock Escrow Agreement dated February 28, 1994          Incorporated by reference to S-4 Registration
                                                                     Statement No. 33-70318

  10.7       Merger Agreement between United Arkansas                Incorporated by reference to S-4 Registration
             Corporation and USSA Acquisition Inc. dated             Statement No. 33-70318
             February 11, 1994

  10.8       Merger Agreement between Iowa Life Assurance            Filed with 10-QSB for the period ended March 31,
             Company and United Arkansas Life Assurance Company      1994
             dated March  2, 1994

  10.9       Office lease dated March 24, 1994, between Brokers      Filed with 10-QSB for the period ended September
             National Life Assurance Company (formerly Iowa          30, 1994
             Life Assurance Company) and Enclave KOW, Ltd., for
             premises in Austin, Texas.


 10.10       Amendment Number Two to the Quota Share                 Filed with Form 8-K dated January 18, 1995
             Reinsurance Agreement dated 8/10/91 between
             Registrant and UniLife Insurance Co. of San
             Antonio, Texas

   11        Statement re computation of per share earnings          Not applicable

   12        Statements re computation of ratios                     Not applicable

   22        BNL Brokerage Corporation, Brokers National Life
             Assurance Company and BNL Equity Corporation, all
             wholly owned by Registrant

</TABLE>



(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for the period covered by this report





                                   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: October 21, 1996                     __________________________________
                                       By: Wayne E. Ahart, Chairman of the Board
                                           (Chief Executive Officer)


Date: October 21, 1996                     __________________________________
                                       By: Barry N. Shamas, Executive V.P.
                                           (Chief Financial Officer)




                                       8
<PAGE>