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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, 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__


<PAGE>

Item 1.  Financial Statements

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


                                              September 30
     ASSETS                                       1997       December 31,
                                              (Unaudited)        1996
                                              -----------    ------------
<S>                                         <C>             <C>

Investments:
   Investments available for sale, at
        fair value .......................   $11,707,701     $11,885,909
   Equity securities, common stock .......        20,438          35,438
   Cash and cash investments .............       828,595         702,769
                                             -----------     -----------
        Total Investments                     12,556,734      12,624,116
Accrued investment income ................       183,936         222,101
Furniture and equipment ..................       257,508         266,234
Deferred policy acquisition costs ........       441,737         474,667
Receivable from reinsurer ................        23,301          28,462
Other assets .............................       589,500         485,995
                                             -----------      ----------
       TOTAL ASSETS                          $14,052,716     $14,101,575
                                             ===========      ==========
     LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Liability for future policy benefits .     $1,400,246      $1,382,280
   Policy claims payable.................      1,145,000         816,500
   Premium deposit fund .................        136,251         177,909
   Annuity deposits .....................      3,425,613       3,495,571
   Deferred annuity profits .............        615,737         610,536
   Supplementary contracts without
       life contingencies ...............         59,729          70,515
   Other liabilities ....................        680,301         415,901
                                              ----------      ----------
       Total liabilities                       7,462,876       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 ...................         10,701         (41,679)
   Treasury stock .......................        (64,105)        (64,105)
   Accumulated deficit ..................     (8,131,226)     (7,536,322)
                                              ----------     -----------
     Total shareholders' equity                6,589,839       7,132,363
                                              ----------      ----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY     $14,052,715     $14,101,575
                                              ==========      ==========
<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
                                                                September 30,                September 30,
                                                        ---------------------------    --------------------------
                                                            1997            1996          1997            1996
                                                        -----------     -----------    -----------     -----------
<S>                                                     <C>             <C>            <C>             <C>

REVENUES:
   Premium income ..................................   $  3,042,004    $  1,834,379   $  7,864,273    $  5,224,694
   Investment income ...............................        213,311         213,941        652,818         647,450
   Realized gains on investments ...................         33,842          22,586         75,753          39,045
                                                        -----------     -----------     ----------      ----------
    Total income ...................................      3,289,157       2,070,906      8,592,844       5,911,189
                                                        -----------     -----------     ----------      ----------

EXPENSES:
   Policy benefits and other insurance costs .......      2,679,266       1,597,839      6,826,907       4,599,957
   Increase in liability for future policy benefits           7,325           4,594         11,466          (3,468)
   Amortization of deferred policy acquisition costs          8,089           8,346         32,930          30,698
   Operating expenses ..............................        663,104         576,635      2,022,335       1,788,079
   Taxes, other than on income .....................         94,470          59,207        294,110         186,944
                                                        -----------     -----------     ----------      ----------

    Total expenses .................................      3,452,254       2,246,621      9,187,748       6,602,210
                                                        -----------     -----------     ----------      ----------

    OPERATING INCOME (LOSS) ........................       (163,097)       (175,715)      (594,904)       (691,021)

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

    NET INCOME (LOSS) ..............................   ($   163,097)  ($    175,715)  ($   594,904)   ($   691,021)
                                                        ===========     ===========     ==========      ==========

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

    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>

                                                                   Nine Months
                                                               Ended          Ended
                                                              09/30/97       09/30/96
                                                              --------       --------
<S>                                                         <C>            <C>
Cash flows from operating activities:
Net loss ...................................................($  594,904)   ($  691,021)
Adjustments to reconcile  net loss to net cash
  provided by (used in) operating activities:
 Realized (gain) loss on investments .......................    (79,833)       (35,275)
 Realized (gain) loss on sale of furniture and equipment....      4,079         (3,770)
 Depreciation ..............................................     70,130         67,457
 Amortization of deferred acquisition
    costs and state licenses acquired ......................     32,930         33,029
 Accretion of bond discount ................................     (2,711)        (4,111)

Change in assets and liabilities:
 Increase in accrued investment income .....................     38,165           (129)
 Decrease (increase) in receivable from reinsurer...........      5,161              0   
 Decrease in premium deposit fund ..........................    (41,658)       (11,508)
 Increase (decrease)in annuity deposits and deferred profits    (64,757)        99,122
 Increase in liability for future policy
    benefits ...............................................     17,966         14,797 
 Increase in policy claims payable..........................    328,500        164,000  
 Other net .................................................    164,023         18,439 
                                                              ----------      ---------
     Total adjustments .....................................    471,995        342,051 
                                                              ----------      ---------
     Total cash provided by (used in)
         operating activities ..............................   (122,909)      (348,970)

Cash flows from investing activities:
  Sales of debt securities .................................  2,744,592      1,635,498
  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 ......................    (68,812)       (47,029)
  Purchase of fixed maturity securities .................... (2,416,459)    (2,647,183)
                                                              ---------      ---------
      Net cash provided by (used in) investing activities       259,522     (1,049,714)
                                                              ---------      ---------
Cash flows from financing activities:
  Payments on supplementary contracts ......................    (10,787)       (10,198)
                                                               ---------     ----------
      Net cash provided by (used in) financing activities       (10,787)       (10,198)
                                                              ---------     ----------
Net increase (decrease) in cash and cash equivalents .......    125,826     (1,408,882)

Cash and cash equivalents, beginning of year ............       702,769      1,910,596
                                                              ---------      ---------
Cash and cash equivalents, end of period ................   $   829,595    $   501,714
                                                              =========      =========
<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

At September 30, 1997, the Company had liquid assets of $828,595 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 nine months of 1997, BNLAC collected  $8,041,636
of premiums and annuity deposits (gross before  reinsurance) and the Company had
consolidated investment income of $652,818.

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 September 30,
1997,  BNLAC had statutory  capital and surplus  exceeding  $5.108  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 nine  months of 1997 was  $7,864,273  compared  to
$5,224,694 for the same period in 1996. The increase of $2,639,579,  or 51%, was
due to increase in sales of group dental insurance.

Net  investment  income was  $652,818 for the period  ended  September  30, 1997
compared  to  $647,450  for the same  period in 1996.  The  increase  was due to
interest received on GIC bonds.

Realized  gains on  investments  were  $75,754 in the first nine  months of 1997
compared to $39,045 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 nine months of 1997, policy benefits and other insurance costs were
$6,826,907  compared to $4,599,957 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  September 30, 1997,  the increase  (decrease) in liability
for future  policy  benefits  was $11,466  compared  to  $(3,468)  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 $32,930 and $30,698 for
the first nine months of 1997 and 1996  respectively.  Amortization  of deferred
policy  acquisition  costs  should  remain  relatively  constant as the asset is
reduced over the upcoming years.

Operating expenses increased from $2,022,335 in the first nine months of 1996 to
$1,788,079 in 1997.  The increase in operating  expenses was primarily due to an
increase in data processing expense,  printing expense and claims administrative
expense - which are all  attributable to the increase volume of dental insurance
in force.

Taxes,  other than on income,  fees and assessments  were $294,111 for the first
nine  months of 1997  compared  to  $186,944  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  nine  months of 1997 was  $594,904
compared to $691,021 for the same period in 1996.  The decrease is primarily due
to a reduction in other insurance  costs and operating  expenses as a percentage
of premium income in 1997 versus 1996.  Management  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.


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 and its consolidated subsidiary.

Item 4.  Submission of Matters to a Vote of Security Holders.
No  matters  were  submitted  to a vote of  security  holders  during the period
covered by this report.

Item 5.  Other Information.
None


                                    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: November 11,  1997              /s/ Wayne E. Ahart
                                      --------------------------------   
                                      By: Wayne E. Ahart, Chairman of the Board
                                          (Chief Executive Officer)


Date: November 11, 1997              /s/ Barry N. Shamas
                                     ---------------------------------   
                                     By: Barry N. Shamas, Executive V.P.
                                         (Chief Financial Officer)


                                    8


<PAGE>