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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 March 31, 1997

     [ ] 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 March 31, 1997,  the
Registrant had 23,311,944 shares of Common Stock, no par value, outstanding.

Transitional Small Business Disclosure Format  (check one)  Yes___ No__X__



Item 1.  Financial Statements

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


                                                March 31
     ASSETS                                       1997       December 31,
                                              (Unaudited)        1996
                                              -----------    ------------
<S>                                         <C>             <C>

Investments:
   Investments available for sale, at
        fair value .......................   $11,829,278     $11,885,909
   Equity securities, common stock .......        30,438          35,438
   Cash and cash investments .............       246,610         702,769
                                             -----------     -----------
        Total Investments                     12,106,326      12,624,116
Accrued investment income ................       231,040         222,101
Furniture and equipment ..................       269,302         266,234
Deferred policy acquisition costs ........       465,199         474,667
Receivable from reinsurer ................        23,301          28,462
Other assets .............................       785,395         485,995
                                             -----------      ----------
       TOTAL ASSETS                          $13,880,563     $14,101,575
                                             ===========      ==========
     LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Liability for future policy benefits .     $1,407,969      $1,382,280
   Policy claims payable.................        950,000         816,500
   Premium deposit fund .................        140,152         177,909
   Annuity deposits .....................      3,456,954       3,495,571
   Deferred annuity profits .............        615,737         610,536
   Supplementary contracts without
       life contingencies ...............         66,955          70,515
   Other liabilities ....................        453,392         415,901
                                              ----------      ----------
       Total liabilities                       7,091,159       6,969,212
                                              ----------      ----------
SHAREHOLDERS' EQUITY:
   Common stock .........................        466,239         466,239
   Additional paid-in capital ...........     14,308,230      14,308,230
   Unrealized appreciation (depreciation)
        of securities ...................        (199,683)       (41,679)
   Treasury stock .......................        (64,105)        (64,105)
   Accumulated deficit ..................     (7,721,277)     (7,536,322)
                                              ----------     -----------
     Total shareholders' equity                6,789,404       7,132,363
                                              ----------      ----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY     $13,880,563     $14,101,575
                                              ==========      ==========
<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         
                                                                March 31,              
                                                        ---------------------------   
                                                            1997             1996       
                                                        -----------     -----------    
<S>                                                     <C>             <C>            <C>             <C>

REVENUES:
   Premium income ..................................   $  2,267,090    $  1,615,379  
   Investment income ...............................        209,567         215,290        
   Realized gains on investments ...................         18,764           3,913        
                                                        -----------     -----------     
    Total income ...................................      2,495,421       1,834,582     
                                                        -----------     -----------    

EXPENSES:
   Policy benefits and other insurance costs .......      1,878,840       1,454,981     
   Increase in liability for future policy benefits          19,189         (16,294)        
   Amortization of deferred policy acquisition costs          9,468           7,376        
   Operating expenses ..............................        664,099         582,620      
   Taxes, other than on income .....................        108,780          61,493      
                                                        -----------     -----------     

    Total expenses .................................      2,680,376       2,090,176   
                                                        -----------     -----------     

    OPERATING INCOME (LOSS) ........................       (184,955)       (255,594)      

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

    NET INCOME (LOSS) ..............................   ($   184,955)  ($    255,594) 
                                                        ===========     ===========     

   Net loss per share ..............................   ($      0.01)  ($       0.01)  
                                                        ===========     ===========    
    Weighted average number
    of shares ......................................     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>

                                                                    Three Months
                                                               Ended          Ended
                                                              03/31/97       03/31/96
                                                              --------       --------
<S>                                                         <C>            <C>
Cash flows from operating activities:
Net loss ...................................................($  184,955)   ($  255,594)
Adjustments to reconcile  net loss to net cash  provided by (used in)  operating
    activities:
 Realized (gain) loss on investments .......................    (22,843)          (143)
 Realized (gain) loss on sale of furniture and equipment....      4,079         (3,770)
 Depreciation ..............................................     22,921         22,486
 Amortization of deferred acquisition
    costs and state licenses acquired ......................      9,468          8,153
 Accretion of bond discount ................................     (1,038)        (3,179)

Change in assets and liabilities:
 Increase in accrued investment income .....................     (8,939)        (7,160)
 Decrease (increase) in receivable from reinsurer...........      5,161        (29,757)  
 Decrease in premium deposit fund ..........................    (37,757)        (8,366)
 Increase (decrease)in annuity deposits and deferred profits    (33,416)        88,371
 Increase in liability for future policy
    benefits ...............................................     25,689         32,718
 Increase in policy claims payable..........................    133,500        313,735  
 Other net .................................................   (261,911)      (332,145)
                                                              ----------      ---------
     Total adjustments .....................................   (165,086)        80,943
                                                              ----------      ---------
     Total cash provided by (used in)
         operating activities ..............................   (350,041)      (174,651)

Cash flows from investing activities:
  Sales of debt securities .................................    726,760        897,765
  Sales of equity securities ...............................          0              0 
  Sales of furniture and equipment .........................        201          9,000
  Purchase of equity securities ............................          0              0
  Purchase of furniture and equipment ......................    (30,269)       (34,216)
  Purchase of fixed maturity securities ....................   (799,250)    (2,047,067)
                                                              ---------      ---------
      Net cash provided by (used in) investing activities      (102,558)    (1,174,518)
                                                              ---------      ---------
Cash flows from financing activities:
  Payments on supplementary contracts ......................     (3,560)        (3,360)
                                                               ---------     ----------
      Net cash provided by (used in) financing activities        (3,560)        (3,360)
                                                              ---------     ----------
Net increase (decrease) in cash and cash equivalents .......   (456,159)    (1,352,529)

Cash and cash equivalents, beginning of year ............       702,769      1,910,596
                                                              ---------      ---------
Cash and cash equivalents, end of period ................   $   246,610    $   558,067
                                                              =========      =========
<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, 1996,  previously  filed with the  Commission,  for financial
statements  for the year ended  December 31, 1996,  prepared in accordance  with
GAAP.  Net  income  (loss)  per share of common  stock is based on the  weighted
average number of outstanding common shares.



<PAGE>




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

Liquidity and Capital Resources

At March 31,  1997,  the  Company had liquid  assets of $246,610 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 quarter of 1997, BNLAC collected  $2,333,000 of
premiums and annuity  deposits  (gross before  reinsurance)  and the Company had
consolidated investment income of $209,567.

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 March 31, 1997,
BNLAC had statutory  capital and surplus  exceeding  $5.4  million.  In February
1997, the Company and BNL Equity Corporation  contributed  $500,000 to the gross
paid in and contributed surplus of BNLAC.

Results of Operations

Premium  income for the first three  months of 1997 was  $2,267,090  compared to
$1,615,379  for the same period in 1996. The increase of $651,711 or 40% was due
to increase in sales of group  dental  insurance  in the last three  quarters of
1996 and first quarter of 1997.

Net investment  income was $209,567 for the period ended March 31, 1997 compared
to $215,290 for the same period in 1996.  The decrease was due to a reduction in
the amount of investments in 1997 compared to 1996.

Realized  gains on  investments  were  $18,764 in the first nine  months of 1997
compared to $3,913 for the same period in 1996.  The increase in realized  gains
was due to bonds sold in the normal course of the Company's investment activity.

In the first three months of 1997,  policy  benefits and other  insurance  costs
were $1,878,840 compared to $1,454,981 for the same period in 1996. The increase
was due to an increase in claims and commissions  resulting from the increase in
dental business in force.

For the period ended March 31, 1997,  the increase  (decrease)  in liability for
future policy  benefits was $19,189  compared to $(16,294) in 1996. The increase
in 1997 was due to an increase in group dental unearned premium reserves for the
year and an increase in GAAP life reserves.

Amortization of deferred policy acquisition costs were $9,468 and $7,376 for the
first quarter of 1997 and 1996  respectively.  Amortization  of deferred  policy
acquisition  costs should  continue to decrease as the asset is reduced over the
upcoming years.

Operating  expenses  increased  from  $582,620  in the first  quarter of 1996 to
$664,099 in 1997.  The increase in operating  expenses was  primarily  due to an
increase in printing  expense and claims  administrative  expense - all of which
are attributable to the increase volume of dental insurance in force.

Taxes,  other than on income,  fees and assessments  were $108,780 for the first
three  months of 1997  compared  to  $61,493  for the same  period in 1996.  The
increase  was due to an  increase  in premium  taxes on the  increased  premiums
collected and an increase in state filing fees for  advertising  and policy form
approval.

The net loss from operations for the first quarter of 1997 was $184,955 compared
to $255,594  for the same period in 1996.  The  decrease is  primarily  due to a
reduction in policy benefits and other insurance costs and operating expenses as
a percentage of premium income in 1997 versus 1996. Manangement anticipates this
trend will continue as increased dental business is put in force.






<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
insurance 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  alleged
violations. The Company is pursuing 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
te of
security holders during the covered period. Item 5. Other Information. None



<PAGE>



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

   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: May 9,  1997                        __________________________________
                                      By: Wayne E. Ahart, Chairman of the Board
                                          (Chief Executive Officer)


Date: May 9, 1997                         __________________________________
                                      By: Barry N. Shamas, Executive V.P.
                                          (Chief Financial Officer)





<PAGE>