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



                       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 June 30, 1998

     [ ] 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.)

                         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

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


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 June 30, 1998, 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>
Item 1.  Financial Statements

                       BNL FINANCIAL CORPORATION AND SUBSIDIARY
                             CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>


                                            June 30, 1998   December 31,
                                              (Unaudited)        1997
                                             -----------    ------------
<S>                                         <C>             <C>
ASSETS
Investments:
   Investments available for sale, at
        fair value .......................   $11,939,318     $11,765,947
   Equity securities, common stock .......         7,438          20,438
   Cash and cash investments .............       258,754         714,539
                                             -----------     -----------
        Total Investments                     12,205,509      12,500,924
Accrued investment income ................       234,246         225,042
Furniture and equipment ..................       244,644         261,312
Deferred policy acquisition costs ........       419,093         433,695
Receivable from reinsurer ................        26,677          26,677
Premiums due and unpaid...................       479,203         355,793
Other assets .............................       359,771         344,410
                                             -----------      ----------
       TOTAL ASSETS                          $13,969,144     $14,147,853
                                             ===========      ==========
     LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Liability for future policy benefits .     $1,392,938      $1,352,555
   Policy claims payable.................      1,628,000       1,368,630
   Premium deposit fund .................        120,174         127,697
   Annuity deposits .....................      3,274,241       3,336,323
   Deferred annuity profits .............        617,872         615,737
   Supplementary contracts without
       life contingencies ...............         48,482          56,031
   Advanced and unallocated premium......        338,361         328,814 
   Commissions payable...................        263,531         184,677
   Other liabilities ....................        346,366         364,429
                                              ----------      ----------
       Total liabilities                       8,029,965       7,734,893
                                              ----------      ----------
SHAREHOLDERS' EQUITY:
   Common stock .........................        466,239         466,239
   Additional paid-in capital ...........     14,308,230      14,308,230
   Accumulated other comprehensive 
        income...........................        126,553         170,530
   Treasury stock .......................        (64,105)        (64,105)
   Accumulated deficit ..................     (8,897,739)     (8,467,934)
                                              ----------     -----------
     Total shareholders' equity                5,939,178       6,412,960
                                              ----------      ----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY     $13,969,143     $14,147,853
                                              ==========      ==========
<FN>
       (See Notes to Consolidated Financial Statements)
</FN>
</TABLE>
                                        2
<PAGE>

                      BNL FINANCIAL CORPORATION AND SUBSIDIARY
                       CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
                      
                                                         Three Months Ended               Six Months Ended
                                                             June 30                            June 30,        
                                                    ---------------------------        -----------------------------  
                                                         1998           1997                1998            1997     
                                                    -------------   -----------        -------------     -----------  
<S>                                                   <C>            <C>               <C>              <C>

REVENUES:
   Premium income ..................................  $5,042,166     $2,555,179        $  9,392,413    $  4,823,349  
   Investment income ...............................     198,094        229,940             416,998         439,507  
   Realized gains on investments ...................       2,343         23,147              54,518          41,911  
                                                    -------------   ------------        -----------     -----------  
    Total income ...................................   5,242,603      2,808,266           9,863,929       5,304,767  
                                                    -------------   ------------        -----------     -----------  

EXPENSES:
   Policy benefits and other insurance costs .......   4,486,719      2,268,801           8,224,627       4,148,721  
   Increase in liability for future policy benefits.      (1,610)       (15,048)             40,383           4,141  
   Amortization of deferred policy acquisition costs       8,116         15,373              14,602          24,841  
   Operating expenses ..............................     848,706        695,132           1,692,033       1.359,231  
   Taxes, other than on income .....................     169,055         90,860             322,089         199,640  
                                                    -------------   ------------        -----------     -----------  

    Total expenses .................................   5,510,986      3,055,118          10,293,734       5,736,574  
                                                    -------------   ------------        -----------     -----------  

    OPERATING LOSS .................................   ($268,383)     ($246,852)           (429,805)       (431,807) 

Provision for income taxes .........................           0              0                   0               0  
                                                    -------------   ------------        -----------     -----------  
    NET LOSS .......................................   ($268,383)     ($246,852)          ($161,423)      ($184,955) 
                                                    =============   ============        ===========     =========== 
Other comprehensive income, net of tax:
   Unrealized gains on securities:
      Unrealized holding gains arising during 
         period.....................................     $35,374        183,308             $10,541         $44,068 
   Reclassification adjustment for gains
         included in net income.....................      (2,343)       (23,147)            (54,518)        (41,911)
                                                    -------------   ------------        -----------     -----------
Other comprehensive income (loss)...................      33,031        160,161             (43,977)          2,157
                                                    -------------   ------------        -----------     -----------

     COMPREHENSIVE LOSS ............................   ($235,352)      ($86,691)          ($473,782)      ($429,650)
                                                    =============   ============        ===========     ===========

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

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


<FN>

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

       

<TABLE>

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

                                                                    Six Months
                                                               Ended          Ended
                                                              06/30/98       06/30/97
                                                              --------       --------
<S>                                                         <C>            <C>
Cash flows from operating activities:
Net loss ...................................................($  429,805)   ($  431,807)
Adjustments to reconcile  net loss to net cash
  provided by (used in) operating activities:
 Realized (gain) loss on investments .......................    (54,518)       (45,990)
 Realized (gain) loss on sale of furniture and equipment....          0          4,079
 Depreciation ..............................................     50,432         46,923
 Amortization of deferred acquisition
    costs and state licenses acquired ......................     16,156         24,841
 Accretion of bond discount ................................     (1,830)        (1,782)

Change in assets and liabilities:
 (Increase) decrease in accrued investment income ..........     (9,204)       (13,622)
 Increase in receivable from reinsurer......................   (123,410)         5,161  
 Decrease in premium deposit fund ..........................     (7,523)       (38,543)
 Decrease in annuity deposits and deferred profits..........    (59,947)       (68,566)
 Increase in liability for future policy
    benefits ...............................................     40,383         10,641 
 Increase in policy claims payable..........................    259,370         68,500
 Increase in advanced and unallocated premium...............      9,546        (96,148)
 Increase in commissions payable............................     78,854        127,684
 Other net .................................................    (34,005)        93,398                                             
                                                              ----------      ---------
     Total Adjustments .....................................    164,304        116,576
                                                              ----------      ---------
     Total cash provided by (used in)
         operating activities ..............................   (265,501)      (315,231)
                                                              ----------      ---------
Cash flows from investing activities:
  Sales of debt securities .................................  4,705,813      1,496,496
  Sales of equity securities ...............................          0              0 
  Sales of furniture and equipment .........................          0            201
  Purchase of equity securities ............................          0              0
  Purchase of furniture and equipment ......................    (34,736)       (41,963)
  Purchase of fixed maturity securities .................... (4,853,811)    (1,497,209)
                                                              ---------      ---------
      Net cash provided by (used in) investing activities      (182,734)       (42,475)
                                                              ---------      ---------
Cash flows from financing activities:
  Payments on supplementary contracts ......................     (7,550)        (7,148)
                                                               ---------     ----------
      Net cash provided by (used in) financing activities        (7,550)        (7,148)
                                                              ---------     ----------
Net increase (decrease) in cash and cash equivalents .......   (455,785)      (364,854)

Cash and cash equivalents, beginning of year ............       714,539        702,769
                                                              ---------      ---------
Cash and cash equivalents, end of period ................   $   258,754    $   337,915
                                                              =========      =========
<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, 1997, previously filed with the Commission,  for
financial  statements  for  the  year  ended  December  31,  1997,  prepared  in
accordance  with GAAP.  Net income  (loss) per share of common stock is based on
the weighted  average number of outstanding  common shares. 

The Company  adopted  SFAS # 130  "Reporting  Comprehensive  Income"  during the
second  quarter of 1998.  SFAS #130  requires  the Company to report the year to
date change in unrealized  gains or losses on its  investments as  comprehensive
income on the Statement of Income.  Unrealized  gains or losses  reported in the
equity  section  of the  balance  sheet  have been  renamed  accumulated  other
comprehensive income.

                                       5


<PAGE>




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

Liquidity and Capital  Resources At June 30, 1998, the Company had liquid assets
of $258,954 in cash, money market savings  accounts and short-term  certificates
of deposit,  all of which can readily be converted to cash.

The major  components of operating cash flows are premium,  annuity deposits and
investment  income.  In the first half of 1998,  BNLAC  collected  $9,522,400 of
premiums and annuity  deposits  (gross before  reinsurance)  and the Company had
consolidated investment income of $416,998.

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  Company's  insurance  operations  are  conducted  through its wholly  owned
subsidiary,  Brokers National Life Assurance Company (BNLAC).  At June 30, 1998,
BNLAC had statutory capital and surplus exceeding $4,851,789.  BNLAC is required
to maintain  minimum  levels of statutory  capital and surplus as a condition to
conducting business in the states in which it is licensed.  Each of these states
had different rules regarding the minimum level of capital and surplus  required
in that  state.  The state of  Arkansas,  which is the legal  domicile of BNLAC,
requires a minimum of $2,300,000 in capital and surplus.
Results of Operations

Premium income for the first half of 1998 was $9,392,413  compared to $4,823,349
for the same period in 1997. The increase of  $4,569,064,  or 95%, was due to an
increase in insurance premiums written during 1997 and the first half of 1998.

Net  investment  income was $416,998 for the period ended June 30, 1998 compared
to  $439,507  for the same  period in 1997.  The  decrease  was due to  interest
received on GIC bonds in 1997 but not in 1998.

Realized  gains on  investments  were  $54,518  in the first six  months of 1998
compared to $41,911 for the same period in 1997.  The increase in realized gains
was due to bonds sold in the normal course of the Company's investment activity.

In the first  half of 1998,  policy  benefits  and other  insurance  costs  were
$8,224,627  compared to $4,148,721 for the same period in 1997. The increase was
due to an  increase in claims and  commissions  resulting  from the  increase in
insurance in force.

For the period ended June 30, 1998,  the increase in liability for future policy
benefits was $40,383 compared to $4,141 in 1997. The increase in 1998 was due to
an increase in unearned premium reserves.

Amortization of deferred policy  acquisition costs were $14,4602 and $24,841 for
the first half of 1998 and 1997  respectively.  Amortization  of deferred policy
acquisition costs may vary in the future in relation to new life insurance sales
and lapses or surrenders of existing policies.

Operating expenses increased to $1,692,033 in the first half of 1998 compared to
$1,359,231 for the same period in 1997.  The increase in operating  expenses was
primarily  due to an increase  in data  processing  expense,  payroll and claims
administrative  expense - which are all  attributable  to the increase volume of
insurance  in force.  An  increase  in legal  expense of  approximately  $28,000
relating to legal proceedings  described in Part II, Item 1, was another primary
factor in the increase in operating expense.

Taxes,  other than on income,  fees and assessments  were $322,090 for the first
half of 1998 compared to $199,640 for the same period in 1997.  The increase was
primarily  due  to an  increase  in  premium  taxes  on the  increased  premiums
collected.

The net loss from operations for the first half of 1998 was $429,805 compared to
$431,807  for the same  period in 1997.  The  decrease  is  primarily  due to an
increase  in  realized  gains and a  reduction  in  general  and  administrative
expenses as a percentage of premium  income in 1998 versus 1997.  These positive
results  were  off set by the  claims  ratio on group  dental  business  running
approximately 1.5% higher than the same period in 1997.  Management  anticipates
the  rate  increases  on  new  business,   product  modifications  and  stricter
underwriting  guidelines  that took affect on June 1, 1998 will begin  having an
impact on reducing the claims ratio in the second half of 1998.

The Company  adopted  SFAS # 130  "Reporting  Comprehensive  Income"  during the
second  quarter of 1998.  SFAS #130  requires  the Company to report the year to
date change in unrealized  gains or losses on its  investments as  comprehensive
income on the Statement of Income.  Unrealized  gains or losses  reported in the
equity  section  of the  balance  sheet  have been  renamed accumulated  other
comprehensive  income. During the first half of 1998 other comprehensive income
was  ($43,977)  compared to $2,157 for the same period in 1997.  The decrease in
1998 was due to a  reduction  in the market  value of an equity  security  and a
reduction in the market value of the bond portfolio since December 31, 1997.

<PAGE>

PART II -- OTHER INF0RMATION 

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.  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 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 is  vigorously
defending  the  matter  and is in  the  process  of  seeking  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.

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

The Company's  Annual Meeting of Shareholders was held on May 20, 1998 in Little
Rock, Arkansas. At the annual meeting, the following individuals were elected to
the Company's  Board of  Directors.  Wayne E. Ahart  Richard  Barclay  Eugene A.
Cernan John Greig Tom Landry C. James  McCormick James A. Mullins Chris Schenkel
Barry Shamas  Kenneth Tobey Cecil  Alexander C. Donald Byrd Hayden Fry Roy Keppy
Roy Ledbetter John E. Miller Robert R. Rigler L. Stanley  Schoelerman Orville E.
Sweet  13,961,651  shares  were voted in favor of Messrs.  Miller,  Mullins  and
Greig;  13,960,451 voted in favor of Mr. Tobey; 13,960,451 shares voted in favor
of  Mr.Sweet;  13,959,449  shares voted in favor of Mr Byrd;  13,958,651  shares
voted in  favor  of Mr.  Schoelerman;  13,955,909  shares  voted in favor of Mr.
Shamas;  13,954,247 shares voted in favor of Mr. Ahart;  13,953,365 shares voted
in favor of Mr. Rigler;  13,952,825 shares voted in favor of Messrs.  McCormick,
Barclay  and  Alexander;  13,952,627  shares  voted in  favor of Mr.  Ledbetter;
13,951,865 shares voted in favor of Mr. Schenkel; and 13,951,823 shares voted in
favor of Mr.  Keppy;  13,951,325  shares  voted in favor of  Messrs.  Cernan and
Landry; 13,949321 shares voted in favor of Mr. Fry. 111,594 shares were withheld
from all directors.  

The  shareholders  ratified  the  selection  of  Smith, Carney  &  Co.,  as  the
Corporation's  independent auditors for the fiscal year 1998.  13,913,496 shares
were voted in favor; 54,261 were voted against; and 105,488 shares abstained.
  
                                        7

<PAGE>


<TABLE>
<CAPTION>

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

  10.2       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.


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

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

  10.5       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

  10.6       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

  10.7       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.


  10.8       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

  10.9       Stock Bonus Agreement between BNL Financial             Filed with 10-QSB for the period ended June
             Corporation and C. Donald Bryd and Kenneth Tobey        30, 1997

   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: August 14, 1998                  /s/ Wayne E. Ahart
                                      --------------------------------   
                                      By: Wayne E. Ahart, Chairman of the Board
                                          (Chief Executive Officer)


Date: August 14, 1998                 /s/ Barry N. Shamas
                                     ---------------------------------   
                                     By: Barry N. Shamas, Executive V.P.
                                         (Chief Financial Officer)


                                    8


<PAGE>