SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

        X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                       --

                              EXCHANGE ACT OF 1934

           For the Fiscal Year Ended December 31, 2000 [Fee Required]
                                       or

          ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

  For the transition period from _____________to_____________ [No Fee Required]

Commission File No. 0-16880

--------------------------------------------------------------------------------
                            BNL FINANCIAL CORPORATION

             (Exact name of registrant as specified in its charter)

          IOWA                                               42-1239454
(State of incorporation)                       (IRS Employer Identification No.)

2100 West William Cannon, Suite L
Austin, TX                                                       78745
(Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code: (512) 383-0220

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

Securities  registered  pursuant to Section  12(b) of the Act:  None  Securities
registered pursuant to Section 12(g) of the Act:

                           Common Stock, No Par Value

                                (Title of Class)

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 __

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. _____

BNL Financial Corporation revenues for fiscal year 2000 were $36,182,730.

The estimated  aggregate market value of the voting stock held by non-affiliates
of the  Registrant  as of December 31,  2000,  cannot be  determined  due to the
limited trading in the Company's  stock  throughout the year (see also Item 5 of
Form 10-KSB regarding the limited trading market for the Company's shares).

As of December  31, 2000,  the  Registrant  had  outstanding  23,173,149  shares
(excluding  treasury  shares)  of Common  Stock,  no par value  (which  includes
10,616,702 shares owned by affiliates of the Registrant).

                       DOCUMENTS INCORPORATED BY REFERENCE

Location in Form 10-KSB                                   Incorporated Document

Transitional Small Business Disclosure Format Yes ___  No _X__

<PAGE>

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


                                     PART 1

                                ITEM 1. BUSINESS

General

BNL  Financial  Corporation  (the  "Company"  or  "Registrant")  is an insurance
holding   company   incorporated   in  Iowa  in  January  1984.   The  Company's
administrative offices are located at 2100 West William Cannon, Suite L, Austin,
Texas 78745; its telephone number is (512) 383-0220

The Company owns (directly or indirectly)  four wholly owned  subsidiaries,  BNL
Equity Corporation ("BNLE"),  Brokers National Life Assurance Company ("BNLAC"),
BNL  Brokerage  Corporation  and  Consumers  Protective   Association  (formerly
National Dental Benefit Association,  Inc.) Consumers Protective  Association is
an inactive association that was purchased for the purpose of marketing services
to members, including insurance products.



      BNL Financial Corporation  ----------- Consumer Protective Association
                 |                                (Inactive Association)
                 |
                 |
                 |
        BNL Equity Corporation
                 |
                 |
                 |
                 |
 Brokers National Life Assurance Company
                 |
                 |
                 |
                 |
     BNL Brokerage Corporation



 Industry Segments

The  operations  of the  Company  are  conducted  through  BNLAC,  which in 2000
marketed life and accident and health insurance  policies in 26 states.  In 1987
BNLAC began selling  insurance in Iowa, and in 1992, BNLAC expanded its sales to
other states through the  acquisition of Statesman Life Insurance  Company.  The
Company has no foreign operations.

BNLAC is licensed in 26 states to offer life and accident  and health  insurance
on an  individual  and group basis.  Most of BNLAC's  premium  revenues are from
sales of group dental insurance sold primarily on a payroll  deduction basis. In
February  1999,  the  Company  was  notified  that the State of  Washington  had
increased its paid-in capital stock  requirements from $1,200,000 to $2,400,000.
Since  sales in  Washington  were less  than 1% of total  premium,  the  Company
decided to voluntarily  withdraw its  Certificate of Authority from the State of
Washington.

The Company conducts business in the industry segment "life, accident and health
insurers".  Financial information relating thereto is contained below, in Item 6
and the Exhibits attached to this Report.

Sales and Marketing

The Company markets its products through  independent agents and brokers.  BNLAC
emphasizes  the marketing of  specialized  or "niche" life and health  insurance
products including:  a 10-year level term policy,  hospital indemnity policy and
dental  insurance.  These  products  are all  designed  to be sold on a group or
payroll deduction basis.
                                      I-1
<PAGE>

Statistics by line of business are as follows (gross before reinsurance):
<TABLE>
<CAPTION>

                                                                             2000                1999
                                                                        ----------------    ---------------
I. Annualized Premiums and Annuity Deposits In Force:
-----------------------------------------------------
<S>                                                                    <C>                  <C>
Ordinary Life Insurance                                                        $275,000           $306,000
Individual Annuities(1)                                                         147,000            179,000
Group Dental Insurance                                                       34,784,000         32,233,000
Miscellaneous A&H insurance                                                      56,000             93,000
                                                                        ----------------    ---------------

          Total                                                             $35,262,000        $32,811,000
                                                                        ================    ===============


II. Collected Premiums and Annuity Deposits:

Ordinary Life Insurance                                                     $290,000              $324,000
Individual Annuities(1)                                                      144,000               155,000
Group Dental Insurance                                                    34,464,000            29,049,000
Miscellaneous A&H insurance                                                   80,000               109,000
                                                                    -----------------    ------------------

          Total                                                          $34,978,000           $29,637,000
                                                                    =================    ==================

III. Face Value of Insurance:

Ordinary Life Insurance                                                  $28,000,000           $31,000,000
Accidental Death Insurance                                                23,000,000           102,000,000
                                                                    -----------------    ------------------

          Total                                                          $51,000,000          $133,000,000
                                                                    =================    ==================

        (1) Classified as a deposit liability on the financial statements.
</TABLE>
<TABLE>
<CAPTION>

Premiums collected by state are reflected in the following table:

<S>                        <C>                       <C>                      <C>                          <C>
                                                                                 Group Dental &
        State                 Life Premiums                Annuity              Accidental Death                 Total
-----------------------    --------------------      --------------------     ----------------------      --------------------

Georgia                                 10,648                         -                  3,331,583                 3,342,231

Minnesota                                6,566                       100                  2,756,745                 2,763,411

Michigan                                 5,529                         -                  2,388,558                 2,394,087

Arkansas                                26,764                         -                  2,228,143                 2,254,907

Oregon                                     646                         -                  2,106,211                 2,106,857

Indiana                                  9,326                         -                  1,977,090                 1,986,416

Iowa                                   192,287                   142,476                  1,521,716                 1,856,479

Utah                                     2,886                         -                  1,741,278                 1,744,164

Mississippi                              2,699                         -                  1,427,529                 1,430,228

All Other States                        32,627                     1,000                 15,064,969                15,098,596

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

Total                                 $289,978                  $143,576                $34,543,822               $34,977,376
                           ====================      ====================     ======================      ====================
</TABLE>
                                      I-2
<PAGE>

B. Group Dental Insurance and Incurred Loss %.

The following chart shows group dental insurance  premiums collected for each of
the five years ended December 31.

                                              Gross
                                            Premiums
       Group Dental Insurance               Collected
       ----------------------            ----------------
                2000                          34,464,000
                1999                          29,049,000
                1998                          20,294,000
                1997                          10,877,000
                1996                           6,926,000

The following chart shows group dental  insurance claims paid net of reinsurance
and  incurred  loss  ratios for each of the five years  ended  December  31. The
incurred loss ratio represents the ratio of incurred claims to premiums earned.

                                              Gross              Incurred
       Group Dental Insurance              Claims Paid            Loss %
       ----------------------            ----------------     ----------------
                2000                         $22,504,000                 63.8%
                1999                          20,694,000                 72.4
                1998                          14,859,000                 78.4
                1997                           7,842,000                 75.7
                1996                           4,653,000                 73.6

Agent's Commissions

On December 31, 2000, BNLAC had 3,693 general agents and brokers in 26 states to
market its policies compared to 3,418 agents and brokers on December 31, 1999

On all of its products except the dental policies,  BNLAC pays as commissions to
agents a  relatively  large  portion of the first  year's  premiums  and smaller
portions  of  subsequent  premiums.  For the dental  policies,  commissions  are
normally two percent  higher in the first year and then level in all  subsequent
years.  These  practices  are  common  in the  industry.  There is  considerable
competition   for   insurance   agents   and   BNLAC   competes   with   larger,
well-established  life  insurance  companies  for the services of agents.  BNLAC
believes  it is  able  to  attract  competent  agents  by  offering  competitive
compensation,  efficient  service  to agents  and  customers  and by  developing
products to fill special needs within the marketplace.

BNLAC also collects overwrite  commissions on sales of vision insurance policies
issued by Vision Service Plan and marketed by BNLAC's agency force.

Reinsurance

BNLAC  reinsures  with  other  insurance  companies  portions  of the  risks  it
underwrites  on sales of life and  accident  and health  insurance.  Reinsurance
enables BNLAC, as the "ceding  company," to reduce the amount of its risk on any
particular  policy and to write policies in amounts larger than it could without
such agreements.

The reinsurer receives a portion of the premium on the reinsured policies. BNLAC
remains directly liable to policyholders to perform all policy obligations,  and
bears the contingent risk of the reinsurer's insolvency.

Before submitting an application for a policy to the reinsurer, BNLAC determines
whether the applicant is insurable,  but BNLAC rejects any application  which is
not accepted by the reinsurer.

BNLAC  reinsures its life  insurance  under  agreements  which are classified as
either "automatic" or "facultative."  Under an "automatic" treaty, the reinsurer
agrees  that it will  assume  liability  automatically  for the excess  over the
ceding company's  retention  limits on any application  acceptable to the ceding
company. Under a "facultative" treaty, the reinsurer retains the right to accept
or reject any reinsurance submitted after reviewing each application.
                                      I-3
<PAGE>

A. Life and Accident Insurance.

Until December 31, 2000,  BNLAC reinsured its "Family Shield"  accidental  death
life insurance policies with Business Mens Assurance Company (BMA), Kansas City,
Mo.,  under an automatic  treaty where BMA assumes  liability for all risks over
$25,000.  Business Mens  Assurance  Company was rated"A"  (Excellent) by AM Best
Company for 1998. The Company discontinued this plan in 2000.

The Company reinsures 100% of its Accidental Death and  Dismemberment  insurance
under a Quota  Share  reinsurance  contract  with IOA Re,  Inc.,  on  behalf  of
Continental Casualty Company.

BNLAC's  Accidental  Death Benefit  riders are reinsured 100% through a Bulk ADB
reinsurance agreement with Business Mens Assurance Company.

All other BNLAC life insurance  products in excess of $35,000 are reinsured with
BMA under an automatic treaty up to $175,000 and under a facultative  treaty for
amounts over $175,000.

Effective December 31, 1999, BMA terminated the assumption agreement whereby the
Company assumed a block of group life business from BMA.

The following chart shows life insurance in force net of reinsurance for each of
the five years ended December 31.
<TABLE>
<CAPTION>

                                              Gross                                                         Net
                                            Insurance          Reinsurance          Reinsurance          Insurance
                                            In Force              Ceded               Assumed             In Force
                                         ----------------    -----------------    ----------------    -----------------
                    <S>                       <C>                 <C>                  <C>                 <C>
     Life Insurance
                2000                         $28,127,000          $ 7,722,000           $0                 $20,405,000
                1999                          31,213,000           11,371,000           9,986,000           29,828,000
                1998                          34,877,000           13,684,000           9,229,000           30,422,000
                1997                          36,828,000           11,971,000           8,226,000           33,083,000
                1996                          33,796,000           11,091,000           7,252,000           29,957,000


     Accidental Death Insurance

                2000                         $23,000,000          $23,000,000                  $0                   $0
                1999                         102,000,000           96,425,000                   0            5,575,000
                1998                         114,000,000          107,250,000                   0            6,750,000
                1997                         119,000,000          112,250,000                   0            6,750,000
                1996                         148,000,000          139,725,000                   0            8,275,000

</TABLE>
The Company began  marketing a Hospital  Indemnity Plan in 1998 and retained 50%
of the  risk  up  through  September  1,  2000.  The  Company  discontinued  the
reinsurance  agreement due to favorable claims  experience and currently retains
100% of the risk.

Investments

BNLAC invests its available funds in certificates of deposit,  US Government and
Agency  bonds,  corporate  bonds  and other  investment  grade  securities.  The
earnings from such  investments  represent a substantial part of BNLAC's income.
For each of the five years ended December 31, BNLAC's net investment  income and
ratio of net return on mean invested assets were as follows:

                       Net             Net Return on
                    Investment         Mean Invested
    Year              Income              Assets
--------------    ---------------    ------------------
    2000                $870,482            6.5%
    1999                 755,552            6.2
    1998                 777,937            6.6
    1997                 790,000            7.1
    1996                 757,000            6.8
                                      I-4
<PAGE>

For  information   concerning  realized  and  unrealized  gains  and  losses  on
securities see Note 4 of the Notes to Consolidated  Financial  Statements,  page
E-10.

Special  Factors  Relating to Accounting and  Regulatory  Reporting of Insurance
Companies

State  insurance laws and  regulations  govern the accounting  practices and the
form of financial  reports of  insurance  companies  filed with state  insurance
regulatory  agencies.  Most states have adopted the uniform rules established by
the  National  Association  of  Insurance  Commissioners.  Reports  prepared  in
accordance with statutory  accounting practices reflect primarily the ability of
an  insurance  company  to meet  its  obligations  to  policyholders  and do not
necessarily  reflect  its  going-concern  value.  Certain  statutory  accounting
practices differ from generally accepted accounting principles as applied to the
Company's audited financial statements.

Life  insurance  company  revenues are  generated  primarily  from  premiums and
investment  income.  Commissions  and other  sales cost may exceed the amount of
first year  premiums  but are  generally  lesser in later policy  years.  Policy
lapses and surrenders tend to occur more frequently in the earlier years after a
policy is sold.  Statutory  accounting rules for insurance companies require all
acquisition  costs to be expensed  immediately  and not spread over the expected
duration of the policies. This makes it difficult for a new or growing insurance
company to show net profits.

Statutory  accounting  practices also require that a relatively large portion of
premiums be held as reserves for the protection of policyholders.  The amount of
such reserves is based upon actuarial  calculations  and the annual  increase in
reserves  is  treated  as an  expense.  Such  calculations  must be  based  upon
conservative  assumptions  as to  mortality  costs and  earnings.  Premiums  are
earnings  only  to  the  extent  that  they  exceed  reserve   requirements  and
commissions.   BNLAC  calculates  reserves  using  the  Commissioner's   Reserve
Valuation  Method.  This method provides a lower reserve in the early years of a
policy to partially offset the higher  first-year costs of the policy.  Although
such  reserves  are  treated as  liabilities  and are not  available  for use in
operations,  a company  is free to  invest  such  reserves  in  accordance  with
applicable state laws.  Interest earned on invested reserves is operating income
to the life  insurance  company  to the  extent  that it  exceeds  the  interest
required to be added to the reserves.

The Company's  consolidated  financial statements are required to be prepared in
conformity with generally accepted accounting principles. The objective of these
financial statements is to provide reliable financial information about economic
resources and obligations of a business  enterprise and changes in net resources
resulting  from its business  activities,  measured as a going  concern.  To the
extent that the accounting practices prescribed or permitted by state regulatory
authorities differ from generally accepted  accounting  principles,  appropriate
adjustments will be made, including (but not limited to) the following:

     a) Premiums are reported as earned over the premium paying period. Benefits
        and expenses are associated  with earned premiums so as to result in the
        matching of  expenses  with the  related  premiums  over the life of the
        contracts.  This is  accomplished  through the provision for liabilities
        for  future  policy  benefits  and  the  deferral  and  amortization  of
        acquisition costs.

     b) Certain  assets  designated  as  "non-admitted  assets"  for  statutory
        purposes are reinstated to the accounts.

     c) The asset valuation  reserve is reclassified as retained earnings rather
        than as a liability.  The interest  maintenance  reserve is reclassified
        from a liability to investment income.

     d) Deferred  federal  income taxes are  provided for income and  deductions
        which are  recognized  in the financial  statements at a different  time
        than  for  federal   income  tax   purposes.   These  items   (temporary
        differences) relate primarily to different methods of calculating policy
        reserves,  treatment of acquisition  costs,  and recognition of deferred
        and uncollected premiums.

     e) Premium  payments  received on annuities are not reported as revenue but
        are recorded as increases to a deposit  liability  account.  The profits
        are then deferred over the life of the policy  instead of being realized
        when the payments are received.

     f) Realized gains and losses from the sale of investments are  reclassified
        to a separate  component  of summary of  operations.  Taxes  thereon are
        included in the tax provision.

     g) Investments in fixed maturity securities that are available for sale are
        carried at fair value with the  unrealized  appreciation  (depreciation)
        recorded to shareholders' equity.

The  ability  of BNLAC to pay  dividends  to the  Company  is  restricted  under
Arkansas insurance laws.
                                      I-5
<PAGE>

Competition

The life and health insurance business is highly competitive, and BNLAC competes
in many instances with individual  companies and groups of affiliated  companies
that have  substantially  greater financial  resources,  larger sales forces and
more widespread agency and brokerage  relationships than BNLAC. Certain of these
companies  operate on a mutual basis which may give them an advantage over BNLAC
since their profits accrue to the policyholders rather than the shareholders. In
the last quarter of 2000, BNLAC's A. M. Best's financial  performance rating was
raised from "B- " (fair) to "B" (fair).

BNLAC focuses its marketing efforts on sales of its products to small and medium
size groups of employees,  association members and others. These groups range in
size from three to approximately 2,038 persons. BNLAC also sells its products to
individuals. BNLAC is a small insurance company which has no identifiable market
share. BNLAC is not ranked according to its size or volume of sales.

BNLAC  competes for the services of agents and brokers in several  ways.  First,
the Company's  dental  insurance  products are attractive to brokers and general
agents  because  they  can be sold  as an  "add-on"  to  other  group  insurance
products.  Second, BNLAC strives to provide a high level of service to agents by
offering products that meet their clients' needs and by providing individualized
service in the  administration  of such  products.  Finally,  BNLAC  attempts to
structure the levels of premiums, benefits and commissions on insurance products
to compare favorably with competitors.

Insurance Regulations

BNLAC is  subject to  regulation  and  supervision  by the states in which it is
admitted to transact business.  Each state has an insurance department which has
broad  administrative  and  supervisory  powers to grant and revoke  licenses to
transact business,  regulate trade practices,  establish guaranty  associations,
license agents,  approve policy forms,  regulate premium rates for some lines of
business,   establish  reserve   requirements,   regulate  competitive  matters,
prescribe  the form and content of required  financial  statements  and reports,
determine the  reasonableness  and adequacy of statutory capital and surplus and
regulate the type and amount of investments permitted.

Most states have also enacted  legislation  which  regulates  insurance  holding
company systems,  including acquisitions,  extraordinary dividends, the terms of
surplus notes,  the terms of affiliate  transactions  and other related matters.
BNLAC is registered as a holding company system pursuant to such  legislation in
Arkansas and BNLAC routinely reports to other jurisdictions.

Recently,  increased  scrutiny  has been  placed upon the  insurance  regulatory
framework. A number of state legislatures have considered or enacted legislative
proposals  that  alter,  and in many  cases  increase,  the  authority  of state
agencies to regulate  insurance  companies  and this could result in the federal
government assuming some role in the regulation of the insurance  industry.  The
Subcommittee  on Oversight  and  Investigations  of the  Committee on Energy and
Commerce of the US House of  Representatives  has made  inquiries  and conducted
hearings as part of a broad study of the regulation of US insurance companies.

The National  Association of Insurance  Commissioners  (NAIC), an association of
state  regulators and their staffs,  attempts to coordinate the state regulatory
process and  continually  re-examines  existing laws and  regulations  and their
application to insurance companies. Recently, this re-examination has focused on
insurance  interpretations  of existing law, the development of new laws and the
implementation of non-statutory  guidelines.  The NAIC has formed committees and
appointed  advisory groups to study and formulate  regulatory  proposals on such
diverse  issues as the use of surplus  debentures,  accounting  for  reinsurance
transactions and the adoption of risk-based  capital ("RBC") rules. In addition,
in  connection  with its  accreditation  of states to conduct  periodic  company
examinations,  the NAIC  has  encouraged  states  to adopt  model  NAIC  laws on
specific  topics,  such as holding  company  regulations  and the  definition of
extraordinary  dividends.  It is not  possible to predict  the future  impact of
changing state and federal regulation on operations of BNLAC.

The NAIC has  adopted  model RBC  requirements,  to  evaluate  the  adequacy  of
statutory  capital and surplus in relation to  investment  and  insurance  risks
associated  with: (i) asset quality;  (ii) mortality and morbidity;  (iii) asset
and liability  matching;  and (iv) other  business  factors.  The RBC formula is
designed to be used by the states as an early warning tool to identify  possible
weakly capitalized companies for the purpose of initiating regulatory action. In
addition,  the  formula  defines  a new  minimum  capital  standard  which  will
supplement  the  prevailing  system of low fixed  minimum  capital  and  surplus
requirements on a state-by-state basis.

The RBC requirements  provide for four different levels of regulatory  attention
depending on the ratio of a company's  total  adjusted  capital  (defined as the
total of its statutory  capital,  surplus,  asset  valuation  reserve and 50% of
apportioned  dividends) to its RBC. The "Company Action Level" is triggered if a
company's total adjusted  capital is less than 100% but greater than or equal to
75% of its RBC,  or if total  adjusted  capital  is less  than 125% of RBC and a
                                      I-6
<PAGE>


negative  trend has  occurred.  The trend  test  calculates  the  greater of any
decreases in the margin (i.e.,  the amount in dollars by which a company's total
adjusted  capital  exceeds its RBC)  between the current year and the prior year
and  between  the  current  year and the  average of the past three  years,  and
assumes  that the decrease  could occur again in the coming  year.  If a similar
decrease  in the margin in the coming  year would  result in an RBC of less than
95%, then Company Action Level would be triggered.  At the Company Action Level,
a company must submit a  comprehensive  plan to the regulatory  authority  which
discusses  proposed  corrective  actions to improve  its capital  position.  The
"Regulatory  Action Level" is triggered if a company's total adjusted capital is
less than 75% but  greater  than or equal to 50% of its RBC.  At the  Regulatory
Action Level the regulatory  authority will perform a special examination of the
company and issue an order specifying  corrective actions that must be followed.
The  "Authorized  Control  Level" is  triggered  if a company's  total  adjusted
capital is less than 50% but  greater  than or equal to 35% of its RBC,  and the
regulatory  authority may take any action it deems necessary,  including placing
the company under regulatory control. The "Mandatory Control Level" is triggered
if a  company's  total  adjusted  capital  is less than 35% of its RBC,  and the
regulatory  authority  is  mandated  to place the  company  under  its  control.
Calculations  using the NAIC  formula at December  31, 2000  indicated  that the
ratios of total adjusted capital to RBC for BNLAC would have been  significantly
above the Company Action Level.

As part of their  routine  regulatory  process,  approximately  once every three
years,   insurance   departments  conduct  detailed   examinations   ("triennial
examinations")  of the  books,  records  and  accounts  of  insurance  companies
domiciled in their states.  Such triennial  examinations are generally conducted
in cooperation with the departments of other states under guidelines promulgated
by the NAIC.

In  July  2000,  the  Arkansas  Insurance  Department  conducted  its  triennial
statutory  examination  for the period ended  December 31, 1999. No  adjustments
were made to the financial statements as a result of the examination.

BNLAC's  management  is not aware of any failure to comply with any  significant
insurance regulatory requirement to which BNLAC is subject at this time.

Personnel

At  December  31,  2000,  BNLAC had four  executive  officers  and 42  full-time
administrative  personnel.  BNLAC's administrative staff supervises services for
the agency force, policy underwriting,  policy issuance and service, billing and
collections, life claims, accounting and bookkeeping,  preparation of reports to
regulatory  authorities  and other matters.  The Company has not experienced any
work  stoppages or strikes and considers  its  relations  with its employees and
agents to be excellent. None of the Company's employees is presently represented
by a union. BNLAC uses a third party administrator to process dental claims.

                               ITEM 2. PROPERTIES

Neither the Company, nor any of its subsidiaries own any real estate.

BNLAC  leases 288 square feet of office  space in Des Moines,  IA at a rental of
$633 per month ($7,601 per year).  The rent includes the services of a secretary
that is shared with other tenants of the building.

The Company leases 12,150 square feet of office space in Austin,  Texas, under a
seven year,  triple net lease.  The annual base rental was  $127,944 in 2000 and
this rate will continue until the initial term of the lease expires in 2005. The
Company may renew the lease for  another  ten years at the rate of $126,000  for
the first five years and $129,000 for the second five years.

BNLE leases  office space in Sherwood,  Arkansas at a rental of $1,200 per month
($14,400 per year). BNLAC incurs 100% of the rental expense.

The Company  owns the  furniture  and  equipment  used in the  operation  of its
business.

                            ITEM 3. 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
                                      I-7
<PAGE>

The  Company  retained  the  firm of  Friday,  Eldredge  & Clark,  Little  Rock,
Arkansas,  to handle the defense of the action on behalf of all  defendants.  On
March 3, 1998, the plaintiffs  filed a Second Amended Class Action  Complaint in
which they dropped  certain claims,  including  allegations of common law fraud,
fraudulent concealment,  tolling of the statute of limitations,  and the request
for punitive damages.

Discovery  is underway  and the matter is set for trial  October 15,  2001.  The
Company continues to believe strongly that the case is without merit.

           ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's  Annual Meeting of Shareholders was held on May 16, 2000 in Little
Rock, Arkansas. At the annual meeting, the following individuals were elected to
the Company's  Board of Directors.  The number of shares voted for each director
is set forth next to his name.
<TABLE>
<CAPTION>
<S>            <C>              <C>             <C>              <C>                   <C>
Wayne E. Ahart (12,281,300)     Eugene A. Cernan(12,275,498)     James A. Mullins      (12,282,500)

C. Donald Byrd (12,282,500)     Hayden Fry      (12,272,916)     C. James McCormick    (12,275,498)

Kenneth Tobey  (12,282,500)     John Greig      (12,282,500)     Robert Rigler         (12,273,998)

Barry N. Shamas(12,282,500)     Roy Keppy       (12,273,998)     Chris Schenkel        (12,275,498)

Cecil Alexander(12,275,498)     Roy Ledbetter   (12,282,500)     L. Stanley Schoelerman(12,282,500)

Richard Barclay(12,275,498)     John E. Miller  (12,282,500)     Orville Sweet         (12,282,500)

A total of 45,777 shares were voted against all directors.
</TABLE>

The  shareholders  ratified  the  selection  of  Smith,  Carney  &  Co.,  as the
Corporation's  independent auditors for the fiscal year 2000.  12,266,582 shares
were voted in favor; 14,802 were voted against; and 46,893 shares abstained.

                                      I-8
<PAGE>



================================================================================
================================================================================
                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS

Market for Stock

During 2000 the stock of the Company  was traded on a workout  basis.  There has
been a limited  trading  market for the Company's  securities  during 2000.  The
stock is not traded on any recognized market.

In connection with an offering of common stock and preferred stock by BNL Equity
Corporation  (formerly  United Arkansas  Corporation)  organizers of the Company
received  5,563,212  shares  which were held in escrow  until  their  release on
August 1, 1999.

Holders

As of December 31, 2000,  there were 4,682  accounts of record of the  Company's
common stock.

Dividends

The Company has not declared  any  dividends on its common stock to date and has
no present plans to pay any dividends in the foreseeable  future.  The Company's
ability to declare and pay  dividends in the future will be  dependent  upon its
earnings and the cash needs for expansion. In addition,  payment of dividends by
BNLAC is regulated under Arkansas insurance laws.

Transfer Agent and Registrar

Regions Bank, Little Rock, Arkansas, is the Registrar and Transfer Agent for the
Company's common stock.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

In this section,  we review the consolidated  financial condition of the Company
at December 31, 2000 and 1999 and the consolidated results of operations for the
periods  ended  December  31,  2000 and 1999.  Please  read this  discussion  in
conjunction with the accompanying  consolidated financial statements,  notes and
selected financial data.

Forward-Looking Statements

All statement, trend analyses and other information contained in this report and
elsewhere (such as in filings by us with the Securities and Exchange Commission,
press  releases,  presentations  by us or our  management  or  oral  statements)
relative to markets for our products and trends in our  operations  or financial
results,  as well as other  statements  including  words  such as  "anticipate,"
"believe,"   "plan,"   "estimate,"   "expect,"   "intend,"   and  other  similar
expressions,  constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995. These  forward-looking  statements are subject to
known and unknown risks,  uncertainties and other factors which may cause actual
results   to  be   materially   different   from  those   contemplated   by  the
forward-looking statements. Such factors include, among other things: (i)general
economic conditions and other factors, including prevailing interest rate levels
and stock and credit  market  performance  which may affect (among other things)
our ability to sell our products,  our ability to access  capital  resources and
the costs  associated  therewith,  the market value of our  investments  and the
lapse rate and profitability of policies;  (ii)customer response to new products
and marketing initiatives: (iii)mortality, morbidity and other factors which may
affect the  profitability of our products  (iv)changes in the federal income tax
laws and regulations  which may affect the relative income tax advantages of our
products   (v)regulatory  changes  or  actions,   including  those  relating  to
regulation of financial  services  affecting (among other things) bank sales and
underwriting of insurance products and regulation of the sale,  underwriting and
pricing of products  (vi)the risk factors or  uncertainties  listed from time to
time in our filings with the Securities and Exchange Commission
                                      II-1
<PAGE>

Liquidity and Capital Resources

At December 31, 2000,  the Company had liquid assets of $932,816 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 premiums,  annuity deposits and
investment  income.  In 2000,  BNLAC  collected  approximately  $35  million  of
premiums  and  annuity  deposits  (gross  before  reinsurance)  and  $888,237 of
investment income. Another source of cash flow in 2000 was overwrite commissions
of $194,478 on vision products.

The  Company's  investments  are  primarily in U.S.  Government  and  Government
Agencies  ($12,869,104)  and other  investment grade bonds ($692,615) which have
been marked to market and classified as available for sale. The Company does not
hedge its investment income through the use of derivatives.

Management  believes that liquid assets along with investment and premium income
exceed the Company's long and short-term  liquidity  needs. The Company does not
plan to borrow money for operations.

The  Company  conducts  its  insurance   operations  through  its  wholly  owned
subsidiary,  BNLAC. At December 31, 2000 BNLAC had statutory capital and surplus
of $7,003,585. BNLAC is required to maintain minimum levels of statutory capital
and  surplus,  which differ from state to state,  as a condition  to  conducting
business in those states in which it is licensed.  The State of Arkansas,  which
is the legal domicile of BNLAC,  requires a minimum of $2,300,000 in capital and
surplus.  The  highest  requirement  in any state in which  BNLAC is licensed is
$3,000,000.  Some  states  in  which  BNLAC is  licensed  have  increased  these
requirements  to as much as $5,000,000,  but, in general,  BNLAC may continue to
operate  under the lower  minimum  requirements  in effect when it first  became
licensed in the applicable state. BNLAC voluntarily  withdrew its license in the
state of Washington  due to an increased  minimum  capital  requirement  in that
state  of  $2,400,000.   Management  monitors  these  developments  to  maintain
compliance with the requirements of each state. For additional information,  see
Note 2 to the financial statements.

Results of Operations

Premium  income for 2000 was  $35,396,913  compared to  $29,730,251  in 1999, an
increase of  $5,666,662  or 19%.  This  increase is due to the increase in group
dental insurance premiums written.

Net investment  income was $888,238 in 2000 and $775,148 in 1999, an increase of
15%.  The  Company  used  its  positive  operating  cash  flow to  increase  its
investment  portfolio  during  the  year,  which  resulted  in the  increase  in
investment income.

Realized gain (loss) was  ($102,421)  in 2000  compared to $27,745 in 1999.  The
realized  loss in 2000 was  primarily  due to the write down in value of certain
equity  securities.  The  gains in 1999  were due to gains on bonds  sold in the
normal course of the Company's investment activity.

Decrease in liability for future policy benefits was $85,852 in 2000 compared to
an increase of $83,703 for the same period in 1999.  The change of $169,555  was
primarily due to the higher surrender values of lapsed policies.

Policy benefits and other  insurance costs were  $26,679,474 in 2000 compared to
$24,954,260  in  1999.  The  increase  was  due to an  increase  in  claims  and
commissions  resulting  from the increase in insurance  premium  collected.  The
claims ratio on dental insurance,  which represents the ratio of claims incurred
to premium earned, was 63.8% for 2000 compared 72.4% in 1999.

Amortization  of  deferred  policy  acquisition  costs was  $44,084  in 2000 and
$27,732 in 1999.  The increase was due to a write-off of the remaining  deferred
policy  acquisition  asset on an Accidental  Death Plan that was discontinued in
2000.

Operating expenses were $5,726,013 in 2000 and $4,390,661 in 1999. This increase
was a result of higher claims administration and personnel costs attributable to
the increase in volume of group dental business  processed in 2000. Despite this
increase,  the amount of such expenses expressed as a percentage of premiums (on
a statutory basis) increased slightly from 14.2% in 1999 to 14.8% in 2000.

Taxes,  other than on income were $1,084,528 for 2000 and $869,809 for 1999. The
increase  was due to the  premium  taxes  on the  increased  insurance  premiums
collected.
                                      II-2
<PAGE>

For  2000,  the  consolidated  net  income  from  operations  before  taxes  was
$2,734,483  compared  to  income of  $206,979  in 1999.  Based on actual  claims
experience  during 2000,  the estimate of claims  liability at December 31, 1999
was found to be overstated by $648,816. The over estimate for this liability has
contributed  a  corresponding  increase  in income  during  the year  2000.  The
remaining  increase  in net  income  from  operations  was  primarily  due to an
increase  in premium  income and a  reduction  in the claims  ratio on the group
dental  business.  Modifications  to rates and benefits on the dental  policies,
which were implemented prior to and during 1999, have been effective in reducing
the claims ratio in 2000.


The  provision  for income taxes was a $710,000  benefit for 2000 compared to $0
for the same period in 1999.  The Company  has reduced its  valuation  allowance
against  its  deferred  tax  asset  and  recorded  a net  deferred  tax asset of
$767,000, reflecting the benefit expected from using approximately $6,700,000 in
loss  carryforwards  that expire in various  amounts  between years 2001 - 2014.
Realization  is  dependent  on  generating  sufficient  taxable  income prior to
expiration of the loss carryforward. For the period ended December 31, 2000, the
Company  had  $57,000 of current  federal  tax  expense  which was offset by the
$767,000 deferred tax credit. See note 3 to the audited financial statements.

For the year ended  December  31,  2000 other  comprehensive  gain was  $757,308
compared  to  ($1,105,812)  loss  for the  same  period  in  1999.  The  gain in
comprehensive  income  in 2000 was due to a  decrease  in  interest  rates  that
substantially  increased  the  market  value of the  Company's  bond  portfolio.
Although the bonds are marked  available  for sale,  the Company has  sufficient
working  capital and other sources of funds  available  which should not make it
necessary to sell any bonds at a loss.

Market Risk

The Company's conservative investment philosophies minimize market risk and risk
of default  by  investing  in high  quality  debt  instruments,  with  staggered
maturity  dates.  The Company does not hedge  investment risk through the use of
derivative financial instruments.  The market value of the Company's investments
in debt  instruments  varies  with  changes in  interest  rates.  A  significant
increase  in  interest  rates  could  cause  decreases  in the market  values of
investments and have a negative effect on comprehensive income and capital.

               ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  information  on pages E-1  through  E-14  attached to this Report is hereby
incorporated by reference.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE
------------------------------------------------------------------------

None

                                      II-3
<PAGE>



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


                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>

                                                First Became
                                                Director or
                                                  Executive
           Name                   Age              Officer                              Position
----------------------------    --------    ---------------------    -----------------------------------------------
<S>                             <C>         <C>                      <C>
Wayne E. Ahart                    60                1984                   Chairman of the Board and Director

C. Donald Byrd                    59                1984                Vice Chairman of the Board and Director

Kenneth Tobey                     42                1994                         President and Director

Barry N. Shamas                   53                1984                 Executive Vice President, Treasurer and
                                                                                        Director

Cecil Alexander                   64                1994                                Director

Richard Barclay                   63                1994                                Director

Eugene A. Cernan                  66                1994                                Director

Hayden Fry                        71                1984                                Director

John Greig                        65                1984                                Director

Roy B. Keppy                      77                1984                                Director

Roy Ledbetter                     70                1994                                Director

John E. Miller                    71                1994                                Director

James A. Mullins                  66                1984                                Director

C. James McCormick                75                1984                                Director

Robert R. Rigler                  77                1989                                Director

Chris Schenkel                    76                1994                                Director

L. Stan Schoelerman               75                1984                                Director

Orville Sweet                     76                1984                                Director
---------------------------- -- -------- -- ---------------------
</TABLE>

The  term  of  office  of  each  director  expires  at  the  annual  meeting  of
shareholders upon election and qualification of such director's  successor.  The
Company's  executive  officers  serve at the pleasure of the Board of Directors.
The above officers and directors serve in the same capacity for BNLAC.

Identification of Certain Significant Employees

         Not applicable.

Family Relationships

No family relationship exists between any director or executive officer
of the Company.

                                     III-1
<PAGE>

Business Experience

The following is a brief description of the business  experience during the past
five years of the directors and executive officers of the Company.

Wayne E. Ahart has served as  Chairman  of the Board of BNL since 1984 and BNLAC
since 1986. He has served as Chairman of the Board of BNLE since 1988 and served
as Chairman  of the Board of United  Arkansas  Life from 1990 to 1994.  Prior to
that time, Mr. Ahart served as Board Chairman of: Investors Trust,  Inc. ("ITI")
and  its  subsidiary,  Investors  Trust  Assurance  Company  ("ITAC"),  both  of
Indianapolis,     Indiana    (1973-1987);     Liberty    American    Corporation
("LAC")(President  since 1981) and its  subsidiary  Liberty  American  Assurance
Company ("LAAC"),  both of Lincoln,  Nebraska (1975-1987);  (President) American
Investors Corporation ("AIC") and its subsidiary, Future Security Life Insurance
Company ("FSL"), both of Austin, Texas (1980-1987). Mr. Ahart has been owner and
Chairman of the Board of Lone Star Pizza Garden Inc. from 1986 to the present.

C. Don Byrd has been Vice  Chairman  of the Board of BNL,  BNLE and BNLAC  since
August 1, 1994.  Mr.  Byrd was  President  and a Director of BNL and BNLAC since
1984 and 1986,  respectively.  Mr. Byrd was Agency  Director of FSL from 1983 to
1984 and  Regional  Director of AIC 1981 to 1983.  He was an agent and  Regional
Director of ITI and ITAC from 1974 to 1981.

Kenneth  Tobey has been  President and director of BNLAC and BNL since August 1,
1994.  Mr.  Tobey has  served as  President  of BNLE  since  1988 and  served as
president of United  Arkansas  Life from 1990 to 1994. He served as Assistant to
the  President  and Training  Director of BNLAC from 1986 to 1988.  From 1981 to
1986, Mr. Tobey served in various  capacities for AIC and FSL,  including Agent,
Regional Manager, Executive Sales Director and Assistant to the President.

Barry N. Shamas has served as Executive vice-president,  Secretary and Treasurer
of BNLE  since 1988 and United  Arkansas  Life from 1990 to 1994.  From 1984 and
1986,  respectively,  he has served as Executive  Vice President and Director of
BNL and  BNLAC,  which  positions  he  presently  holds.  He served  in  various
capacities for ITI and ITAC,  including  Executive Vice  President,  Senior Vice
President,  Treasurer and  Financial  Vice  President  beginning in 1976 through
1987. Mr. Shamas served as Executive Vice President,  Secretary/Treasurer and as
Director of AIC and FSL from 1980 and 1983, respectively,  until 1987. From 1978
through  1987,  Mr.  Shamas  served as a Director and a member of the  Executive
Committee of LAC and LAAC.

Cecil L.  Alexander is currently  Vice  President of Public Affairs for Arkansas
Power & Light Company,  where he has been employed since 1980.  Prior to joining
the AP&L  Executive  Staff,  Mr.  Alexander  served for 16 years in the Arkansas
General   Assembly,   and  during   1975-76,   was   Speaker  of  the  House  of
Representatives.  Since 1971 Mr.  Alexander has been involved in the real estate
business as a partner in Heber  Springs  Realty.  He is a past  president of the
Cleburne  County  Board of Realtors and has served on the  governmental  affairs
committee of the Arkansas Association of Realtors. Alexander is currently on the
Board of Directors of Mercantile  Bank of Heber Springs,  the Board of Directors
of the Arkansas Tourism  Development  Foundation,  and the Board of Directors of
Baptist Foundation.

Richard L. Barclay,  a Certified Public  Accountant,  has been engaged in public
accounting  since  1961.  He is a Partner  in the firm of Beall,  Barclay & Co.,
Certified Public  Accountants in Rogers,  Arkansas and an Executive  Director of
the Policy and Budget  committee for the Arkansas  office of the governor.  From
1961 to 1997,  he was a  Partner  in the firm of  Barclay,  Yarborough  & Evans,
Certified Public Accountants in Rogers, Arkansas. He is a member of the Arkansas
Society  of  Certified  Public  Accountants  and of the  American  Institute  of
Certified  Public  Accountants.  He  was a  member  of  the  Arkansas  House  of
Representatives  from 1977 until  1991.  He  presently  serves as a Director  of
Federal  Savings Bank,  Rogers,  Arkansas;  and Vice  President,  Arkansas State
Chamber of Commerce.

Eugene A.  Cernan has been  President  and  Chairman  of the Board of The Cernan
Corporation,  since 1981. In addition,  he recently became Chairman of the Board
of Johnson Engineering  Corporation which provides the National  Aeronautics and
Space Administration (NASA) with Flight Crew Systems Development. Captain Cernan
retired from the U. S. Navy in 1976 after  serving 20 years as a naval  aviator,
13 of which were dedicated to direct involvement with the U. S. Space Program as
a NASA  astronaut.  Captain Cernan was the pilot on the Gemini 9 mission and the
second  American  to walk in  space;  lunar  module  pilot  of  Apollo  10;  and
Spacecraft  Commander of Apollo 17, which  resulted in the  distinction of being
the last man to have left his footprints on the surface of the moon. In 1973, he
served as a Senior United  States  Negotiator  in  discussions  with USSR on the
Apollo-Soyuz  Mission. Mr. Cernan served as Executive  Consultant- Aerospace and
Government  of Digital  Equipment  Corporation  from 1986 to 1992,  and he was a
Director and Vice  President-International  of Coral Petroleum,  Inc.,  Houston,
Texas from 1976 to 1981.  Captain  Cernan is  presently  a  Director  of Up With
People, an international  educational foundation for young men and women; United
States  Space  Foundation;   the  Young  Astronaut  Council;   Alaska  Aerospace
Development Corporation,  Explorer's Club, International MicroSpace; and Johnson
Engineering  Corporation.  Captain Cernan is also on the President's Engineering
Committee,  Purdue University and is a member of the Board of Trustees of the U.
S. Naval Aviation  Museum,  NFL Alumni and Major League Baseball Players Alumni.
In addition,  Captain Cernan has served as a consultant commentator to ABC News.
He served on the Board of AIC and FSL from 1980 and 1983, respectively, to 1987.
                                     III-2
<PAGE>

Hayden Fry was Head Football  Coach at the University of Iowa from 1979 to 1998,
now retired.  He was Head Football  Coach at North Texas State  University  from
1973 to 1978 and at  Southern  Methodist  University  from 1962 to 1972.  He was
named Football Coach of the Year in the Big Ten (1981, 1990, 1991), the Missouri
Valley Conference (1973), and the Southwest Conference (1962, 1966 and 1968). He
is on the Board of Advisors of Wilson  Sporting Goods (1962 to date);  the Board
of Trustees of Pop Warner  Football  (1962 to date);  and the American  Football
Coaches  Association (1983 to date) and is the 1993 President.  He was President
of  Hawkeye  Marketing  Group  from 1979 - 1984.  He is a member of the Board of
Directors of the PPI Group.

John Greig has been  President of Greig and Co. since 1967.  He is a Director of
Boatmen's  Bank of Iowa,  NW.,  Estherville,  Iowa. He has been President of the
Iowa Cattlemen's Association (1975-1976) and a member of the Executive Committee
of the National Cattlemen's Association (1975-1976). He was a member of the Iowa
Board  of  Regents  from  1985  to  1991.  He  was  elected  as  an  Iowa  State
Representative in 1993.

Roy Keppy has operated his grain and livestock  farming  operation in Davenport,
Iowa since  1946.  In 1982,  he and his son founded  Town and  Country  Meats in
Davenport and he currently  serves as its Vice  President.  He was a Director of
Eldridge Cooperative Elevator Company for 33 years, retiring in 1982, serving as
President for 6 years. He is now a Director of First State Bank N.A., Davenport,
Iowa. He is a past Chairman of the National Livestock and Meat Board, and was on
its Board of  Directors  from 1970 to 1986.  He was on the Board of Directors of
the  National  Pork  Producers  from 1965 to 1972,  serving as its  President in
1970-1971.

Roy E. Ledbetter  presently  serves as President and Chief Executive  Officer of
Highland Industrial Park, a division of Highland Resources, Inc. in East Camden,
Arkansas.  He holds a Bachelor  of Science  Degree in  Education  from  Southern
Arkansas  University at Magnolia,  a Masters  Degree in Education from Henderson
State  University  at  Arkadelphia  and an AMP from Harvard  Business  School at
Boston. In 1966, Mr. Ledbetter joined Highland  Resources,  Inc. and coordinated
organization of Southern Arkansas  University  Technical Branch; was promoted to
division Manager (1972), Vice President and Division Manager (1975), Senior Vice
President  (1980),  and  President in 1984.  He is past  President of the Camden
Chamber of Commerce; was 1977 Camden Jaycee's Man of the Year; was awarded first
annual Camden Area Chamber of Commerce  Community  Service Award in 1983; served
on Education Standards Committee of the State of Arkansas;  and presently serves
on the Boards of East Camden and  Highland  Railroad,  Shumaker  Public  Service
Corporation,  Merchants and Planters Bank of Camden, and First United Bancshares
of El Dorado.

C.  James  McCormick  is  Chairman  of the Board of  McCormick,  Inc.,  Best Way
Express,  Inc.,  Emeritus,  Inc.,  and  President of JAMAC  Corporation,  all of
Vincennes, Indiana. He is also Vice Chairman of Golf Hosts, Inc. He is the owner
of CJ Leasing.  Mr.  McCormick is Chairman of the Board of Directors  and CEO of
First Bancorp,  Vincennes,  Indiana; First Vice Chairman of Vincennes University
and a Life  Director of the  Indiana  Chamber of  Commerce;  and a member of the
Indiana President's Organization and the Indiana Automobile Dealers Association.
He is a former Chairman of the Board of the American Trucking Associations.  Mr.
McCormick is a Past Chairman of the National Board of Trustees of The Fellowship
of Christian Athletes.

John E.  Miller was a member of the State of Arkansas  House of  Representatives
from 1959 to 1999. He has been  self-employed in the insurance,  abstract,  real
estate,  heavy  construction  and farming  business  for more than 20 years.  He
presently serves on the Board of Directors of Calico Rock Medical Center, Easy K
Foundation, National Conference of Christians and Jews, Lions World Services for
the Blind, State Board of Easter Seals, and Ouachita Baptist University Board of
Trustees.

James A. Mullins has owned and operated Prairie Flat Farms,  Corwith, Iowa since
1969.  He was a director  of the Omaha  Farm  Credit  Bank from 1985 to 1994,  a
director of the Federal Farm Credit Banks Funding Corporation from 1986 to 1994,
and director of the US Meat Export  Federation  from 1988 to 1995.  He served as
Chairman of the Foreign Trade Committee,  National Cattlemen's Association (1988
- 1993).  He was Chairman of the US Meat Export  Federation  until 1994.  He was
Chairman of the  National  Livestock & Meat Board in 1983;  Chairman of the Beef
Industry Council in 1979 and 1980; and Chairman of the Omaha Farm Credit Bank in
1988 and 1989.

Robert R.  Rigler has been  Chairman of the Board of  Security  State Bank,  New
Hampton,  Iowa since 1989; he served as its President and CEO from 1968 to 1989.
Mr. Rigler was Iowa Superintendent of Banking from 1989 to 1991. He was a member
of the  Iowa  Transportation  Commission  from  1971 to 1986 and  served  as its
Chairman  from 1973 to 1986.  He was a member of the Iowa State Senate from 1955
to 1971 and served as a Majority and Minority Floor Leader.

Chris  Schenkel is retired  television  sportscaster  with Capitol  Cities - ABC
Sports.  From 1964 to 1997 he was a  full-time  television  sportscaster  of ABC
Sports,  New York, New York. He also served as Spokesperson for  Owens-Illinois,
Toledo,  Ohio, from 1976 to present, for whom he speaks as voice on commercials,
personal appearances,  conventions and shows. Mr. Schenkel served as Chairman of
the Board of  Directors  of Counting  House Bank,  North  Webster,  Indiana from
1974-1982. He also served as a director of ITI and ITAC from 1978 to 1986 and on
the Board of Haskell Indian Junior College, Lawrence, Kansas.

L. Stanley  Schoelerman  was President and a partner of Petersen  Sheep & Cattle
Co., Spencer,  Iowa from 1964 to 2000. He was a Director of Home Federal Savings
& Loan, Spencer,  Iowa, from 1969 to 1988; and Honeybee  Manufacturing,  Everly,
Iowa, from 1974 to 1986. He was President of  Topsoil-Schoenewe,  Everly,  Iowa,
from 1974 to 1986. Mr.  Schoelerman  was  Commissioner of the Iowa Department of
Transportation  from 1974 to 1978 and was a member of the National Motor Carrier
Advisory Board of the Federal Highway Administration from 1981 to 1985.
                                     III-3
<PAGE>

Orville Sweet served as a Visiting  Industry  Professor at Iowa State University
from 1989 to 1990 and is President of Sweet and  Associates,  a consulting  firm
for agricultural  organizations.  He was Executive Vice President of the 100,000
member National Pork Producers Council,  Des Moines, Iowa, from 1979 to 1989. He
was President of the American Polled Hereford Association, Kansas City, Missouri
in 1963-79.  He is past President of the US Beef Breeds Council and the National
Society of Livestock Records  Association and was a Director of the Agricultural
Hall of Fame and the US Meat Export  Federation.  He is a member of the American
Society  of Animal  Science.  He has  served  as a member  of the USDA  Advisory
Council Trade Policy,  the State  Department  Citizens Network and the Executive
Committee of the Agricultural Council of America.

                         ITEM 10. EXECUTIVE COMPENSATION

Executive Compensation

The following  table sets forth certain  information  regarding  remuneration of
executive  officers in excess of $100,000  during the three years ended December
31.
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                                                                               Long Term Compensation
                                                                                               ----------------------
                                           Annual Compensation                 Awards        Payouts
            (A)                 (B)       (C)          (D)         (E)           (F)            (G)          (H)           (I)
                                                                  Other
                                                                 Annual       Restricted                                All Other
     Name and Principal                                        Compensation     Stock       Options/SARs     LTIP      Compensation
          Position             Year      Salary      Bonus $        $         Award(s) $        (#)       Payouts $         $
----------------------------- ------- ------------- ---------- ------------ --------------- ------------ ------------- ------------
<S>                           <C>     <C>           <C>        <C>          <C>             <C>          <C>           <C>
Wayne E Ahart, CEO             2000     $125,000      $10,739      $10,025        $0             -            $0           $0

             "                 1999     $125,000           $0       $9,416        $0             -            $0           $0

             "                 1998     $125,000           $0       $8,605        $0             -            $0           $0


 Barry N. Shamas, Executive
            V.P.
                               2000     $106,700      $10,189       $7,220        $0             -            $0           $0

             "                 1999     $95,000            $0       $1,096        $0             -            $0           $0

             "                 1998     $95,000            $0       $1,671        $0             -            $0           $0


    C. Donald Byrd, Vice
   Chairman of the Board
                               2000     $90,000       $58,031       $3,893        $0             -            $0           $0

             "                 1999     $80,500            $0       $3,463        $0             -            $0           $0

             "                 1998     $79,375            $0       $3,101        $0             -            $0           $0

  Kenneth Tobey, President

                               2000     $75,000       $56,781       $2,874        $0             -            $0           $0

             "                 1999     $65,500            $0       $2,643        $0             -            $0           $0

             "                 1998     $64,375            $0       $2,331        $0             -            $0           $0
</TABLE>

The total  number of  executive  officers  of the  Company is four and the total
remuneration paid to all executive  officers,  as a group is $556,451  including
accrued  bonuses of $50,000 each for Mr. Byrd and Mr. Tobey under the  Company's
stock bonus plan. The Company does not have  employment  agreements  with any of
its officers.

Compensation of Directors

Effective  August 8, 2000 each  director  will receive a fee of $500 per company
(previously was $100),  plus reasonable  travel expenses for each meeting of the
Board of Directors attended.  No director receives any other remuneration in the
capacity of director.

                                     III-4
<PAGE>

Benefit Plans

In 1994, the Board of Directors and  stockholders  approved the 1994 Brokers and
Agents'  Nonqualified  Stock Option Plan. This plan was established as incentive
to sales persons of BNLAC.  Initially  250,000 shares were  available  under the
plan.  Options for an additional one million shares have been  authorized by the
Board of Directors, including 500,000 shares in November 1997 and 500,000 shares
in March  2000.  The  option  period  may not  exceed a term of 5 years  and the
duration  of the  plan  is ten  years.  A  four-member  committee  of  Directors
administers  the plan.  During  2000 and 1999 the  Company  granted  184,575 and
185,150 stock options respectively, with an exercise price of $.50 per share. At
December  31,  2000,  there were 935,075  options  outstanding.  No options were
exercised  in 2000 or 1999.  Under the fair  value  method,  total  compensation
recognized for grant of stock options was $0. The fair value of options  granted
is estimated at $1,200 and $600 in 2000 and 1999 respectively. These values were
computed  using  a  binomial  method  as  prescribed  in SFAS  123  and  certain
assumptions  include risk free interest rate of 5.5%,  expected life of 3 years,
expected  volatility  of  10.6%  and no  expected  dividends  due  to  statutory
limitations. The estimated weighted average remaining life of the options is 1.7
years.

In May 1997, the Board of Directors  approved a stock bonus plan for the benefit
of certain officers of the  corporation.  The plan provides for a bonus based on
consolidated  after-tax profits subject to specified  limits.  The bonus amount,
net of taxes,  will be used to purchase stock in the Company on the open market.
Stock bonuses in the amount of $100,000 were granted in 2000.

On January 1, 1997 the Brokers  National Life Employee Pension Plan was adopted.
The plan is a qualified  retirement  plan under the Internal  Revenue Code.  All
employees are eligible who have  attained age 21 and have  completed one year of
service.  Employer  contributions are discretionary,  however the Company is not
contributing at this time.

Indebtedness of Management

No officer, director or nominee for director of the Company or associate of such
person was  indebted to the  Company at any time during the year ended  December
31,  2000,  other  than for  ordinary  travel  and  expense  advances  and other
reimbursable expenses, if any.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

The  following  table  reflects  the  persons  known  to the  Company  to be the
beneficial  owners  of more than 5% of the  Company's  voting  securities  as of
December 31, 2000:
<TABLE>
<CAPTION>

                                                                        Amount and Nature of          Percent of Class as of
  Title of Class             Name and Address of Beneficial Owner      Beneficial Ownership (1)          December 31, 2000
 ----------------          --------------------------------------    --------------------------    -------------------------
<S>                          <C>                                              <C>                            <C>
Common Stock                 Wayne E. Ahart                                   4,845,505(2)(3)                 20.91%
                             #14 Club Estates Parkway
                             Austin, Texas 78738

Common Stock                 Barry N. Shamas                                  2,801,816(5)                    12.09%
                             1095 Hidden Hills Dr.
                             Dripping Springs, Texas 78620

Common Stock                 Universal Guaranty Life Insurance                2,216,776(2)                     9.57%
                             Company
                             5250 S. Sixth St. Rd.
                             Springfield, Illinois 62705

Common Stock                 C. Donald Byrd                                   1,452,719(4)                     6.27%
                             631 47th Street
                             W. Des Moines, IA 37076

     (1)To the Company's  knowledge,  all shares are beneficially  owned by, and
        the sole  voting  and  investment  power is held by the  persons  named,
        except as otherwise indicated.

     (2)Wayne E. Ahart and Commonwealth  Industries,  Inc. ("CIC"),  a parent of
        Universal Guaranty Life Insurance Company ("UGL"), have agreed: (a) that
        if Mr. Ahart sells his shares of the Company to a third party, Mr. Ahart
        or the third party must also purchase UGL's shares of the Company at the
        same price and on the same  terms;  and (b) in the event UGL  receives a
        bona fide offer to purchase its shares of the  Company,  Mr. Ahart has a
        first  right of refusal to  purchase  such  shares on the same terms and
        conditions.

     (3)Includes 2,400,000 shares held in the name of National Iowa Corporation
        and  2,178,926 shares held in the name of Arkansas National Corporation
        both of which are controlled by Mr. Ahart.

     (4)All of Mr.  Byrd's shares are subject to a right of first refusal of the
        Company to acquire said shares on the same terms and  conditions as any
        proposed sale or other transfer by Mr. Byrd.
                                     III-5
<PAGE>

     (5)Includes  1,400,000  shares held in the name of Life Industries of Iowa,
        Inc.,  and  1,335,171  shares held in the name of Arkansas  Industries
        Corporation, both of which are controlled by Mr. Shamas.
</TABLE>

Security Ownership of Management

The  following  table sets forth,  as of December 31, 2000  certain  information
concerning  the  beneficial  ownership  of the  Company's  Common  Stock by each
director of the Company and by all directors and officers as a group:
<TABLE>
<CAPTION>

                                                                    Amount and Nature of
                                                                        Beneficial             Percent of Class as of
Title of Class                  Name of Beneficial Owner                 Ownership(1)              December 31, 2000
-----------------------    -----------------------------------    -------------------------    ---------------------------
<S>                        <C>                                    <C>                          <C>
     Common Stock          Wayne E. Ahart                                 4,845,505(2)                    20.91%

          "                Barry N. Shamas                                2,801,816(4)                    12.09%

          "                C. Donald Byrd                                 1,452,719(3)                     6.27%

          "                Kenneth Tobey                                    761,762                        3.29%

          "                Cecil Alexander                                   37,088                         .16%

          "                Richard Barclay                                   46,088                         .20%

          "                Eugene A. Cernan                                  37,088                         .16%

          "                Hayden Fry                                        69,047                         .30%

          "                John Greig                                        50,102                         .22%

          "                Roy Keppy                                         51,001                         .22%

          "                Roy Ledbetter                                     37,088                         .16%

          "                C. James McCormick                               137,084(5)                      .59%

          "                John E. Miller                                    46,088                         .20%

          "                James A. Mullins                                  50,000                         .22%

          "                Robert R. Rigler                                   3,295                         .01%

          "                Chris Schenkel                                    37,088                         .16%

          "                L. Stanley Schoelerman                            50,000                         .22%

          "                Orville Sweet                                     50,000                         .22%

          "                All executive officers and
                           directors as a group (18 persons)
                                                                         10,562,859                       45.58%
----------------------- -- -----------------------------------

     (1)To the Company's  knowledge,  all shares are beneficially  owned by, and
        the persons  named,  except as otherwise  indicated hold the sole voting
        and investment power.

     (2)Includes 2,400,000 shares held in the name of National Iowa Corporation
        and 2,178,926 shares held in the name of Arkansas National Corporation,
        both of which are controlled by Mr. Ahart.

     (3)All of Mr. Byrd's shares are subject to a right of first refusal of the
        Company to acquire said shares on the same terms and conditions as any
        proposed sale or other transfer by Mr. Byrd.

     (4)Includes  1,400,000  shares held in the name of Life Industries of Iowa
        Inc.,  and  1,335,171  shares held in the name of Arkansas  Industries
        Corporation, both of which are controlled by Mr. Shamas.

     (5)Includes  10,000  shares  held in the  name of C.  James  McCormick  and
        90,000  shares  divided  equally  among  and  held in the  names  of Mr.
        McCormick's four children.
</TABLE>

             Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None

                                     III-6
<PAGE>

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

                                    PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  1.  Financial Statements

The information required by this section is set forth on page E-2 of this Report
and is incorporated herein by reference.

     2.  Financial Statement Schedules Included in item 14(a)

                                                               Page Number Form
                                                                     10-KSB
                                                            --------------------

Report of Independent Accountants on Financial Statement Schedule   E-16


     3.  Exhibits
<TABLE>
<CAPTION>
    No.                                Description                                          Page or Method of Filing
-------------    --------------------------------------------------------    -------------------------------------------------------
<S>             <C>                                                          <C>
    3.1          Articles of Incorporation of BNL Financial                  Incorporated by reference to Exhibits 3.1 of the
                 Corporation, dated January 27, 1984 and Amendment to        Company's Annual Report on Form 10-K for the period
                 Articles of Incorporation of BNL Financial                  ending December 31, 1993.
                 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 holders,        Incorporated by reference to Exhibit 4 of the
                 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 Exhibits 4.2 of the
                 Corporation, dated January 27, 1984 and Amendment to        Company's Annual Report on Form 10-KSB for the period
                 Articles of Incorporation on BNL Financial                  ending December 31, 1998.
                 Corporation, dated November 13, 1987.

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

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

    10.3         Office lease assumption and assignment agreement dated      Incorporated by reference to Exhibits 10.9 of the
                 September 1, 1998, between Brokers National Life            Company's Annual Report on Form 10-KSB for the period
                 Assurance Company and Walgreen Company and Charles H.       ending December 31, 1998.
                 Morrison for premises in Austin
                                     IV-1
<PAGE>

    10.4         Sublease dated January 20, 1999 between Brokers             Incorporated by reference to Exhibits 10.10 of the
                 National Life Assurance Company and PRG, Inc.               Company's Annual Report on Form 10-KSB for the period
                                                                             ending December 31, 1998.

     11          Statement re computation of per share earnings.             Reference is made to the explanation of the
                                                                             computation of per share earnings as shown in Note 1
                                                                             to the Notes to Consolidated Financial Statements
                                                                             filed herewith under item 14(a)(1) above which clearly
                                                                             describes the same.

     12          Statements re computation of ratios.                        Not applicable.

     16          Letter Re Change in Certifying Accountant                   Filed with Form 8-K dated September 14, 1995.

     22          Subsidiaries of Registrant                                  Filed herewith.

</TABLE>


(b) Reports on Form 8-K

The  Company  did not file  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,  on the 30th day of March
2001.
                                          BNL FINANCIAL CORPORATION


                                          /S/ Wayne E. Ahart
                                          ------------------------
                                      By: Wayne E. Ahart, Chairman of the Board



Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated:

                 Signature                                      Date

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


             /S/ Wayne E. Ahart
                                                             3/30/01
---------------------------------------------        --------------------------
               Wayne E. Ahart
      Chairman of the Board, Director
         (Principal Executive Officer)


             /S/ C. Donald Byrd
                                                              3/20/01
---------------------------------------------         --------------------------
               C. Donald Byrd
   Vice Chairman of the Board and Director
                                      IV-2
<PAGE>

             /S/ Kenneth Tobey
                                                               3/20/01
---------------------------------------------         --------------------------
               Kenneth Tobey
          President and Director


            /S/ Barry N. Shamas
                                                                3/20/01
---------------------------------------------         --------------------------
              Barry N. Shamas
   Executive Vice President, Treasurer and
Director (Principal Financial and Accounting Officer)


               /S/ Hayden Fry
                                                              03/20/01
---------------------------------------------         --------------------------
                Hayden Fry
                 Director


               /S/ John Greig

                                                              03/20/01
---------------------------------------------         --------------------------
                 John Greig
                  Director


               /S/ Roy Keppy
                                                               3/20/01
---------------------------------------------         --------------------------
                 Roy Keppy
                  Director



           /S/ C. James McCormick
                                                               3/20/01
---------------------------------------------         --------------------------
             C. James McCormick
                  Director


            /S/ James A. Mullins
                                                               3/20/01
---------------------------------------------         --------------------------
              James A. Mullins
                 Director


            /S/ Robert R. Rigler
                                                               3/20/01
---------------------------------------------        --------------------------
              Robert R. Rigler
                 Director


          /S/ Stanley Schoelerman
                                                               3/20/01
---------------------------------------------         --------------------------
            Stanley Schoelerman
                  Director


             /S/ Orville Sweet
                                                                3/20/01
---------------------------------------------         --------------------------
               Orville Sweet
               Director
                                      IV-3
<PAGE>


            /S/ Cecil Alexander
                                                                3/20/01
---------------------------------------------         --------------------------
              Cecil Alexander
                  Director


            /S/ Richard Barclay
                                                                 3/20/01
---------------------------------------------         --------------------------
              Richard Barclay
                  Director


            /S/ Eugene A. Cernan
                                                                  3/20/01
---------------------------------------------         --------------------------
              Eugene A. Cernan
                  Director


             /S/ Roy Ledbetter
                                                                  3/20/01
---------------------------------------------         --------------------------
               Roy Ledbetter
                  Director



---------------------------------------------         --------------------------
               John E. Miller
                  Director



---------------------------------------------         --------------------------
               Chris Schenkel
                  Director
                                      IV-4

<PAGE>


BNL Financial Corporation - 2000 Form 10-KSB

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


                          ANNUAL REPORT ON FORM 10-KSB

                              ITEM 14 (a) AND 14 (d)

                              FINANCIAL STATEMENTS

                       FOR THE YEAR ENDED DECEMBER 31, 2000



                   BNL FINANCIAL CORPORATION AND SUBSIDIARIES

                                DES MOINES, IOWA

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

                     Financial Statements Required by Item 8
<TABLE>
<CAPTION>

                                                                                                        Page Number of 2000
                                                                                                             Form 10-KSB
                                                                                                      -------------------------
<S>                                                                                                   <C>
Consolidated Balance Sheet, December 31, 2000 and 1999                                                          E-2

Consolidated Statement of Operations and Comprehensive Income for the years ended December 31,                  E-3
2000 and 1999

Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 2000                 E-4
and 1999

Consolidated Statement of Cash Flows for the years ended December 31, 2000 and 1999                             E-5

Notes to Consolidated Financial Statements                                                                      E-6

Report of Independent Accountants on Financial Statements                                                       E-16

</TABLE>
                                      E-1
<PAGE>


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
BNL Financial Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2000 and 1999
------------------------------------------------------------------------------------------------------------------------------------

ASSETS

                                                                         December 31,           December 31,
                                                                             2000                   1999
                                                                      ------------------     ------------------
<S>                                                                   <C>                    <C>
Cash and cash equivalents                                                     $  932,816            $ 1,419,619
Investments available for sale, at fair value (amortized cost
 $13,737,999; $11,144,220; respectively)                                      13,561,719             10,344,845
Investment in equity securities, common stock
   at market  (cost $37,147; $108,123 respectively)                               66,532                  3,312
                                                                       ------------------     ------------------
               Total Investments, Including Cash and
                     Cash Equivalents                                         14,561,067             11,767,776

Accrued investment income                                                        248,297                193,337
Furniture and equipment, net                                                     374,876                438,147
Deferred policy acquisition costs                                                308,102                352,186
Policy loans                                                                      98,863                135,680
Receivable from reinsurer                                                         29,630                 40,051
Premiums due and unpaid                                                          946,775                760,941
Income tax assets                                                                767,000                  --
Other assets                                                                     245,661                261,282
                                                                       ------------------     ------------------

               Total Assets                                                  $17,580,271            $13,949,400
                                                                       ==================     ==================

                         LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

   Liabilities for future policy benefits                                    $ 1,392,584            $ 1,488,857
   Policy claims payable                                                       2,446,350              2,729,175
   Annuity deposits                                                            2,805,220              2,982,839
   Deferred annuity profits                                                      469,623                500,000
   Premium deposit funds                                                         101,491                118,703
   Supplementary contracts without life contingencies                             80,295                105,120
   Advanced and unallocated premium                                              656,615                714,482
   Commissions payable                                                           440,640                410,903
   Other liabilities                                                             680,528                594,187
                                                                       ------------------     ------------------

               Total Liabilities                                               9,073,346              9,644,266
                                                                       ------------------     ------------------

Commitments and contingencies (Note 6)
Shareholders' Equity:
   Common stock, $.02 stated value, 45,000,000 shares
     Authorized; 23,311,944 shares issued and outstanding                        466,239                466,239
   Additional paid-in capital                                                 14,308,230             14,308,230
   Accumulated other comprehensive income (loss)                               (140,215)              (897,523)
   Accumulated deficit                                                       (6,063,224)            (9,507,707)
   Treasury stock, at cost, 138,795 shares                                      (64,105)               (64,105)
                                                                       ------------------     ------------------

               Total Shareholders' Equity                                      8,506,925              4,305,134
                                                                       ------------------     ------------------

               Total Liabilities and Shareholders' Equity                    $17,580,271            $13,949,400
                                                                       ==================     ==================

------------------------------------------------------------------------------------------------------------------------------------
                         The  accompanying  notes  are an  integral  part of the consolidated financial statements.


</TABLE>
                                      E-2
<PAGE>


<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
BNL Financial Corporation and Subsidiaries Consolidated Statements of Operations
and Comprehensive Income For the years ended December 31, 2000, and 1999
------------------------------------------------------------------------------------------------------------------------------------

                                                                        2000                 1999
                                                                   ----------------     ----------------
<S>                                                                <C>                  <C>
Income:

   Premium income                                                      $35,396,913          $29,730,251
   Net investment income                                                   888,238              775,148
   Realized gains (losses)                                               (102,421)               27,745
                                                                   ----------------     ----------------

               Total Income                                             36,182,730           30,533,144
                                                                   ----------------     ----------------

Expenses:

   Increase (decrease) in liability for future policy                     (85,852)               83,703
   Policy benefits and other insurance costs                            26,679,474           24,954,260
   Amortization of deferred policy acquisition costs                        44,084               27,732
   Operating expenses                                                    5,726,013            4,390,661
   Taxes, other than on income                                           1,084,528              869,809
                                                                   ----------------     ----------------

                Total Expenses                                          33,448,247           30,326,165
                                                                   ----------------     ----------------

                Income from Operations before
                   Income Taxes                                          2,734,483              206,979

   Provision for income taxes                                            (710,000)                  -
                                                                   ----------------     ----------------

               Net Income                                              $ 3,444,483            $ 206,979
                                                                   ================     ================

Net income per common share (basic and diluted)                              $0.15                $0.01
                                                                   ================     ================

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

Other comprehensive income, net of tax:
     Unrealized gains on securities:
       Unrealized holding gain (loss) arising during
           period                                                         $652,723         $(1,078,067)
       Reclassification adjustment for gain (loss)
           included in net income                                          104,585             (27,745)
                                                                   ----------------     ----------------

                Other comprehensive income (loss)                          757,308          (1,105,812)
                                                                   ----------------     ----------------

                Comprehensive income (loss)                            $ 4,201,791          $ (898,833)
                                                                   ================     ================











------------------------------------------------------------------------------------------------------------------------------------
                         The  accompanying  notes  are an  integral  part of the consolidated financial statements.
</TABLE>
                                      E-3
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
BNL Financial Corporation and Subsidiaries Consolidated Statements of Changes in
Shareholders' Equity For the years ended December 31, 2000 and 1999
------------------------------------------------------------------------------------------------------------------------------------


                                                                                                      Accumulated
                                    Common Stock                Additional                              Other
                          -------------------------------         Paid-In          Accumulated       Comprehensive       Treasury
                              Shares            Amount            Capital            Deficit             Income            Stock
                          --------------    -------------     --------------    -----------------    --------------    -------------
<S>                       <C>               <C>               <C>               <C>                  <C>               <C>
Balance, January 1, 1999      23,311,944         $466,239        $14,308,230         $(9,714,686)          $208,289        $(64,105)
                          ==============    =============     ==============    =================    ==============    =============

Accumulated other
   comprehensive loss                 -               -                -                     -          (1,105,812)             -

Net income                            -               -                -                 206,979                -               -
                          --------------    -------------     --------------    -----------------    --------------    -------------

Balance, December 31, 1999    23,311,944         $466,239        $14,308,230         $(9,507,707)        $(897,523)        $(64,105)
                          ==============    =============     ==============    =================    ==============    =============

Accumulated other
   comprehensive income              -                -                -                     -              757,308             -

Net income                           -                -                -                3,444,483               -               -
                          --------------    -------------     --------------    -----------------    --------------    -------------

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






























------------------------------------------------------------------------------------------------------------------------------------
                         The  accompanying  notes  are an  integral  part of the consolidated financial statements.

</TABLE>
                                      E-4
<PAGE>
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
BNL Financial Corporation and Subsidiaries Consolidated Statements of Cash Flows
For the years ended December 31, 2000 and 1999
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Year Ended December 31,
                                                                                          -----------------------------------
                                                                                                2000               1999
                                                                                           ---------------    ---------------
<S>                                                                                        <C>                <C>
Cash flows from operating activities:

     Net income                                                                                $3,444,483          $ 206,979
     Adjustments to reconcile net income to net cash
         Provided by operating activities:
            Realized (gain) loss on investments                                                   104,585           (28,399)
            Realized (gain) loss on sale of furniture and equipment                               (2,163)                654
            Depreciation                                                                          146,952            133,364
            Increase in deferred tax asset                                                      (767,000)               -
            Amortization of deferred acquisition costs,
               Organization costs and state licenses acquired                                      44,084             30,841
            Accretion of bond discount                                                              1,250                285
        Change in assets and liabilities:
             (Increase) decrease in accrued investment income                                    (54,960)              2,315
             (Increase) decrease in receivable from reinsurer                                      10,421            (6,520)
             Increase in premiums due and unpaid                                                (185,834)          (149,155)
             Increase (decrease) in liability for future policy benefits                         (96,273)             90,224
             Increase (decrease) policy claims payable                                          (282,825)            221,000
             Decrease in annuity deposits and deferred profits                                  (207,996)          (297,568)
             Increase (decrease) in premium deposit funds                                        (17,212)              3,862
             Increase (decrease) in advanced and unallocated premium                             (57,867)            361,483
             Increase in commissions payable                                                       29,737            100,599
             Other, decrease                                                                      138,889             11,029
                                                                                           ---------------    ---------------
                    Net Cash Provided by Operating Activities                                   2,248,271            680,993
                                                                                           ---------------    ---------------

Cash flows from investing activities:

     Proceeds from sales of investments                                                          -                   420,000
     Proceeds from maturity or redemption of investments                                        1,052,149          2,562,937
     Proceeds from sale of furniture and equipment                                                  2,163              4,000
     Purchase of equity securities                                                               (34,724)              -
     Purchase of furniture and equipment                                                         (83,682)          (250,449)
     Purchase of fixed maturity securities                                                    (3,646,155)        (4,400,000)
                                                                                           ---------------    ---------------
                                                                                              (2,710,249)        (1,663,512)
                                                                                           ---------------    ---------------

Cash flows from financing activities:

     Net payments on supplementary contracts                                                     (24,825)           (24,825)
                                                                                           ---------------    ---------------

                      Net Cash Used In Financing Activities                                      (24,825)           (24,825)
                                                                                           ---------------    ---------------

Net decrease in cash and cash equivalents                                                       (486,803)        (1,007,344)

Cash and cash equivalents, beginning of period                                                  1,419,619          2,426,963
                                                                                           ---------------    ---------------

Cash and cash equivalents, end of period                                                        $ 932,816         $1,419,619
                                                                                           ===============    ===============



------------------------------------------------------------------------------------------------------------------------------------
                         The  accompanying  notes  are an  integral  part of the consolidated financial statements.

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

                                      E-5
<PAGE>


--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

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

1.  Summary of Significant Accounting Policies:
    ------------------------------------------

The  consolidated  financial  statements  include the accounts of BNL  Financial
Corporation and its wholly owned subsidiaries,  BNL Equity Corporation,  Brokers
National Life Assurance Company (BNLAC), BNL Brokerage Corporation and Consumers
Protective  Association,  Inc. All significant  intercompany  balances have been
eliminated.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

The Company's  principal  activity is the sale of individual  and group life and
accident and health insurance within the United States. The Company's plan is to
utilize dental  insurance to attract agents who will market other BNLAC products
along  with  dental.  The  significant  premium  growth is  primarily  due to an
increase  in sales of dental  insurance  for which the  maximum  annual risk per
policy is $2,000.  See Note 10. The  Company is licensed to sell in 26 states as
of December  31,  2000.  See Note 2.  Substantially  all of the  Company's  life
insurance in force is nonparticipating business.

Premiums  from  accident  and health  insurance  are reported as earned when due
since these policies are short duration contracts.

Benefits  and expenses are  associated  with earned  premiums so as to result in
recognition  over the life of the policy.  Such  recognition is  accomplished by
means of the provision for future policy  benefits and  amortization of deferred
policy acquisition costs.

Costs of  acquiring  new business  and certain  expenses of policy  issuance and
underwriting  have been deferred;  these deferred policy  acquisition  costs are
being amortized over the  premium-paying  period of the policies  (maximum of 30
years) in  proportion  to the ratio of annual  premium  revenue to total premium
revenue anticipated.

The income tax benefit includes  management's  estimate of the future benefit to
be derived from net operating loss carry forwards.  In assessing the realization
of deferred income tax assets,  management  considers  whether it is more likely
than not that the  deferred  income tax assets will be  realized.  The  ultimate
realization of deferred income tax assets depends upon generating future taxable
income.  If future  income is not  generated  as expected,  deferred  income tax
assets may need to be written off (no such write-offs  have occurred).  See Note
3.

Liability  for  future  policy  benefits  for  traditional  and  limited-payment
contracts has been  determined  primarily by the net level premium  method using
the 1975 through 1980 Select and Ultimate Mortality Table,  interest assumptions
starting  at 7%  graded  to 5% at the end of the  sixteenth  year and  estimated
future withdrawals based upon Linton Tables B or C.

For annuity  contracts  without mortality risk, net premium deposits and benefit
payments are recorded as  increases or decreases in a liability  account  rather
than as revenue and expense.  Expenses  incurred and fees charged upon  issuance
are deferred and recognized in  relationship  to the amount of funds held.  This
deferred  annuity  profit  is  being  amortized  based on  lapse  and  mortality
assumptions  (maximum of 30 years) which were revised as described in Note 11 to
reflect  actual  experience.  Increases  in the  liability  account for interest
credited to  contracts  are charged to expense.  The interest  rate  assumptions
ranged from 5.5% to 6.75% during 2000 and 1999.

The liability for policy claims  payable is composed of claims  reported but not
paid and claims incurred but not reported. The Company has developed a procedure
for  calculating  incurred but not reported  dental  claims based on prior years
claims using dates incurred,  reported to the insurance company and subsequently
paid.  Differences  in estimates may result in revised  claims  expense which is
recognized in the period in which the difference is determined.

The Company classifies its fixed maturity  investments as investments  available
for sale.  Such  securities  may be sold prior to maturity  due to changes  that
might occur in market interest rates, changes in the security's prepayment risk,
the Company's  liquidity  needs,  and similar  factors,  including the Company's
asset/liability management strategy.  Investments available for sale are carried
at fair  value.  Unrealized  gains and  losses  resulting  from  changes  in the
valuation  of  fixed  maturity   securities  are  recorded  as  a  component  of
comprehensive  income.  Realized  gains or  losses  on sale of  investments  are
determined on a specific identification basis.  Investments in equity securities
are carried at fair value.
                                      E-6

<PAGE>

1.  Summary of Significant Accounting Policies (continued):
    ------------------------------------------------------

Cash equivalents are carried at amortized cost, which  approximates  fair value.
Cash  equivalents  represent other  short-term  securities.  For purposes of the
Statement of Cash Flows,  the Company  considers  all highly  liquid  short-term
investments to be cash equivalents. For purpose of cash flow disclosures,  there
has been no material  interest  paid for 2000 or 1999.  The Company  paid income
taxes of $41,000 in 2000. No income taxes were paid in 1999.

Furniture  and  equipment  are  recorded  at cost.  Maintenance  and repairs are
charged to expense as incurred.  Provision for depreciation is made on the basis
of estimated useful lives of 3 to 10 years utilizing the  straight-line  method.
Accumulated  depreciation totaled $348,045 and $560,184 at December 31, 2000 and
1999, respectively. Depreciation expense was $146,952 and $133,364 for the years
ended December 31, 2000 and 1999, respectively.

Other  assets  include  agents'  balances of $49,135 and $57,808 at December 31,
2000 and 1999, respectively, after reduction for allowance of doubtful accounts.
The allowance  account had bad debt expense recorded in operations of $8,200 for
the year ended  December 31, 2000 and a $9,000 credit  recorded  during the same
period in 1999.

Other assets also include the cost of 26 state licenses acquired in 1991 as part
of the Statesmen Life Insurance Company acquisition. Such licenses are amortized
over  the  related   estimated   life  of  the  license  (40  years)  using  the
straight-line method.  Amortization expense of approximately $3,109 was recorded
for each of the years ended December 31, 2000 and 1999.

The Company accounts for the 1994 Brokers and Agents Stock Option Plan using the
fair value method as required by SFAS # 123. Under this method the fair value of
the options granted is recorded as expense at the date of grant. See Note 9.

Net gain per share is based on net gain divided by the weighted  average  number
of fully paid shares.

2.  Shareholders' Equity:
    --------------------

At  December  31, 2000 and 1999,  shareholders'  equity  includes  approximately
$7,886,000 and $3,876,000 respectively,  of BNLAC net assets,  substantially all
of which are restricted  from  distribution  to the parent  company  without the
prior approval of the Arkansas Insurance Department.

BNLAC reports to state  regulatory  authorities on a statutory  accounting basis
that  differs  from  the  basis  used  herein.  Due  to an  Arkansas  regulatory
requirement  associated with the  redomestication in 1994, BNLAC must maintain a
minimum of $2,300,000 in capital and surplus. Additionally,  each state in which
BNLAC is licensed  has  statutory  minimum  capital  requirements  required  for
maintaining its license to sell.  Minimum capital and surplus  requirements vary
from $300,000 to as much as $3,000,000 in the states in which BNLAC is licensed.

The states periodically  increase minimum capital  requirements,  often allowing
companies with existing  Certificates of Authority to continue doing business in
the state under the previous existing requirements  (grandfathering).  States in
which BNLAC is licensed to do business have increased minimum requirements to as
much as $5,000,000.  Management actively monitors these developments to maintain
compliance  with the  requirements  of each state. In February 1999, the Company
was notified  that the State of Washington  had  increased  its paid-in  capital
requirements  from $1,200,000 to $2,400,000.  Insurance sales in Washington were
less than 1% of total  premium and  management  believed  that it was not in the
Company's  best  interest  to  invest  additional  surplus  funds at that  time.
Therefore,  the Company  voluntarily  withdrew its Certificate of Authority from
the State of Washington.

Capital and  surplus and net loss of BNLAC as reported on a statutory  basis are
as follows:

                                                 December 31,
                                 -----------------------------------------
                                         2000                  1999
                                         ----                  ----

Capital and surplus                   $7,003,585            $4,130,351
                                      ==========            ==========

Net income                            $2,853,930             $335,458
                                      ==========             ========

                                      E-7

<PAGE>

2.       Shareholders' Equity (continued):
         --------------------------------

The following is a  reconciliation  of consolidated  net loss and  shareholders'
equity per the financial  statements included herein to BNLAC unconsolidated net
loss and capital and surplus on a statutory basis:
<TABLE>
<CAPTION>

                                                          December 31, 2000                           December 31, 1999
                                               -----------------------------------------  ------------------------------------------
                                                    Income         Capital and Surplus         Income         Capital and Surplus
                                               -----------------  ---------------------   ----------------   ---------------------
<S>                                            <C>                <C>                      <C>               <C>
Consolidated Reporting Under
  Generally Accepted Accounting Principles           $3,444,483             $8,506,925            $206,979             $4,305,135
Attributable to Parent Company and BNL Equity           123,143                620,681             128,529                428,703
                                               -----------------  ---------------------   -----------------  ---------------------

Brokers National Life Assurance Company               3,321,340              7,886,244             335,508              3,876,432
                                               -----------------  ---------------------   -----------------  ---------------------

Deferred Acquisition Costs                               44,083              (308,101)              27,732              (352,185)
Reserve and Premium Adjustments                        (60,502)                 40,799               (121)                154,507
Interest Maintenance Reserve/AVR                         20,604              (395,843)             (3,829)              (388,472)
Unrealized Appreciation of Securities                        -                 127,854                 -                  785,038
Annuity Deposits and Related Adjustments               (30,377)                541,979            (21,209)                499,999
Income tax credit                                     (548,000)              (548,000)                 -
Other                                                   106,782              (341,347)             (2,623)              (444,968)
                                               -----------------  ---------------------   -----------------  ---------------------

   BNLAC Statutory Basis                             $2,853,930             $7,003,585            $335,458             $4,130,351
                                               =================  =====================   =================  =====================
</TABLE>

3.  Income Taxes:
    ------------

The Company follows Statement of Financial  Accounting Standards (SFAS) No. 109,
"Accounting  for  Income  Taxes,"  which  prescribes  the  liability  method  of
accounting  for deferred  income taxes.  Under the liability  method,  companies
establish  a deferred  tax  liability  or asset for the  future  tax  effects of
temporary  differences  between  book and tax basis of assets  and  liabilities.
Changes in future tax rates will  result in  immediate  adjustments  to deferred
taxes.

At December 31, 2000,  the Company had federal income tax loss carry forwards of
approximately  $6.7 million  available  for use on future tax  returns.  The net
operating loss carry  forwards  expire in years 2001 - 2014. The Company and its
Subsidiaries will file consolidated income tax returns for 2000.

A deferred tax asset of $2,300,000  resulted from net operating loss  carryovers
and temporary  differences  primarily related to the life insurance  subsidiary.
The Company has  recognized a  corresponding  valuation  allowance of $1,533,000
against the deferred tax asset. This represents a net decrease of $1,200,000 and
$1,967,000  in the  deferred  tax  asset  for 2000 and  corresponding  valuation
allowance, respectively over the previous year.

In 2000 the Company  reduced the  valuation  allowance  against its deferred tax
asset  and  recorded  a net  deferred  tax  asset  of  $767,000.  This  reflects
management's revised estimate of the future benefit that will be realizable from
use of  approximately  $6,700,000 in loss carry  forwards that expire in various
amounts  between  years 2001 - 2014.  Realization  is  dependent  on  generating
sufficient  taxable  income  prior  to  expiration  of the loss  carry  forward.
Although realization is not assured,  management believes it is more likely than
not that all of the net deferred tax asset will be realized. However, the amount
of the deferred  tax asset  considered  realizable  could be reduced in the near
term if estimates of future  taxable  income during the carry forward period are
reduced.  Recording  the  deferred  tax asset  reduces the  current  federal tax
expense of $57,000 by a credit amount of $767,000, for a net federal tax benefit
of $710,000 at December 31, 2000.
                                      E-8
<PAGE>

3.  Income Taxes (continued):
    -------------------------

Income tax benefit was as follows:
                                                  2000                 1999
                                          -------------------    ---------------

Current tax provisions                                $57,000          $ -
Deferred tax benefit                                (767,000)            -
                                          -------------------    ---------------

Total income tax provision (benefit)                 $710,000          $ -
                                          ===================    ===============



The  reconciliation of income taxes computed at the federal statutory income tax
rate to total income taxes for the years ended  December 31, 2000 and 1999 is as
follows:

                                                    2000               1999
                                             -----------------    --------------

Book income before tax                              $2,734,483          $206,979
                                             =================    ==============


Income tax computed at statutory rate (34%)            929,724            70,373
Valuation allowance for AMT credit                      57,000               -
Revision of valuation allowance                    (1,231,862)          (70,373)
Rate differential                                    (464,862)              -
                                             -----------------    --------------

Total income tax provision (benefit)                $(710,000)          $   -
                                             =================    ==============



The Company  has net  operating  loss carry  forwards  available  for income tax
purposes at December 31, 2000 are as follows:

                        Expiring
                        ---------------------

                                        2001            $170,721
                                        2002             283,675
                                        2003              99,275
                                        2004              24,065
                                        2005              72,992
                                        2006             545,898
                                        2007             327,344
                                        2008             341,837
                                        2009             249,082
                                        2010             796,287
                                        2011             847,677
                                        2012           1,264,783
                                        2013           1,524,871
                                        2014             130,716
                                                 ----------------
                                                      $6,679,223
                                                 ================

                                      E-9
<PAGE>


4.  Investments

The amortized  cost and estimated  market value of investments in fixed maturity
securities are as follows:
<TABLE>
<CAPTION>

                                                                               Gross            Gross           Estimated
                                                                             Unrealized        Unrealized         Market
December 31, 2000                                        Amortized Cost         Gains            Losses            Value
-----------------                                       ---------------    --------------    -------------    --------------
<S>                                                     <C>                <C>               <C>              <C>
US Treasury securities and obligations of
  US government corporations and agencies                 $ 13,020,746         $ 195,222      $ (353,693)      $ 12,862,275
Obligations of states and political subdivisions               298,028               972            (500)           298,500
Corporate securities                                           211,000               -           (10,885)           200,115
Mortgage-backed securities
   GNMA                                                          9,006               -            (2,177)             6,829
Public utility bonds                                           199,218             3,782          (9,000)           194,000
                                                        ---------------    --------------    -------------    --------------

Totals                                                     $13,737,998          $199,976       $(376,255)       $13,561,719
                                                        ===============    ==============    =============    ==============


December 31, 1999

US Treasury securities and obligations of
  US government corporations and agencies                 $ 10,524,992          $ 88,021      $ (828,099)       $ 9,784,914
Obligations of states and political subdivisions               297,871               -           (19,051)           278,820
Corporate securities                                           211,000               -           (25,003)           185,997
Mortgage-backed securities
   GNMA                                                         10,257               307             -               10,564
Public utility bonds                                           100,000               -           (15,450)            84,550
                                                        ---------------    --------------    -------------    --------------

Totals                                                     $11,144,120          $ 88,328       $(887,603)       $10,344,845
                                                        ===============    ==============    =============    ==============
</TABLE>

The amortized  cost and estimated  fair value of  investments  in fixed maturity
securities  at  December  31,  2000 by  contractual  maturity  are shown  below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay  obligations with or without call or prepayment
penalties  and because  most  mortgage-backed  securities  provide for  periodic
payments throughout their life.

                                                       December 31, 2000
                                              ----------------------------------
                                                                     Estimated
                                               Amortized Cost      Market Value
                                              ---------------    ---------------

Due in one year or less                           $ -                 $
Due after one year through five years               1,027,770          1,008,265
Due after five years through ten years              4,044,622          3,993,985
Due after ten years                                 8,656,600          8,552,640
                                              ---------------    ---------------
                                                   13,728,992         13,554,890
Mortgage-backed securities                              9,006              6,829
                                              ---------------    ---------------

                                                 $13,737,998        $13,561,719
                                              ===============    ===============
                                      E-10

<PAGE>

4.  Investments (continued):
    ------------------------

Proceeds from sales and maturities of  investments in fixed maturity  securities
for the years ended December 31, 2000 and 1999 were  $1,052,149 and  $2,982,937,
respectively.  Gross gains of $1,220 and $28,119 and gross losses or write downs
of $105,804 and $374 as of December 31, 2000 and 1999, respectively.

Investment in equity  securities at December 31, 2000 and 1999 represents common
stock investments as follows:
<TABLE>
<CAPTION>

                                          2000                              1999
                              ------------------------------    ------------------------------
                                  Cost          Market Value     Market Value        Cost
                              -------------    --------------    ------------    -------------
<S>                           <C>              <C>               <C>             <C>
  Banks, trusts and
     insurance companies            $37,147           $66,532         $ 2,423          $ 2,062

  Industrial, savings
     And loans and other            -                 -               105,700            1,250
                              -------------    --------------    ------------    -------------

                                    $37,147           $66,532        $108,123           $3,312
                              =============    ==============    ============    =============

</TABLE>

Net  investment  income for the years  ended  December  31,  2000 and 1999 is as
follows:

                                                           December 31,
                                                 ------------------------------
                                                     2000             1999
                                                 -------------    -------------

Interest on debt securities and
   cash investments                               $   908,487       $  792,116
Dividends on equity securities                            -                -
                                                 -------------    -------------

                                                      908,487          792,116
Investment expenses                                  (20,249)         (16,968)
                                                 -------------    -------------

Net investment income                                $888,238         $775,148
                                                 =============    =============


Net realized gains and losses are summarized below:

                                                          December 31,
                                                 -----------------------------
                                                     2000             1999
                                                 -------------    -------------

Debt securities                                      $  1,120          $28,399
Equity securities                                   (105,705)          -
Fixed assets                                            2,164            (654)
                                                 -------------    -------------

                                                   $(102,421)          $27,745
                                                 =============    =============

The Company's conservative investment philosophies minimize market risk and risk
of default  by  investing  in high  quality  debt  instruments,  with  staggered
maturity  dates.  The Company does not hedge  investment risk through the use of
derivative financial instruments.  The market value of the Company's investments
in debt  instruments  varies  with  changes in  interest  rates.  A  significant
increase  in  interest  rates  could  cause  decreases  in the market  values of
investments and have a negative effect on comprehensive income and capital.
                                      E-11
<PAGE>

5.  Fair Value of Financial Instruments
<TABLE>
<CAPTION>

                                                                      2000                                  1999
                                                        ---------------- ----------------     ---------------- ----------------
                                                           Carrying           Fair               Carrying           Fair
Assets                                                      Amount            Value               Amount            Value
------                                                  ---------------- ----------------    ---------------- ----------------
<S>                                                     <C>              <C>                  <C>              <C>
Cash and Cash Equivalents
       (Note 1)                                               $ 932,816        $ 932,816   (a)   $ 1,419,619      $ 1,419,619   (a)
Investments-fixed maturity, available for sale
       (Note 4 & Note 1)                                     13,561,719       13,561,719   (b)    10,344,845       10,344,845   (b)
Investments -equity securities )
       (Note 4 & Note 1)                                         66,532           66,532   (b)         3,313            3,313   (b)
Other financial instruments-Assets                              347,160          347,160   (a)       329,018          329,018   (a)
                                                        ---------------- ----------------     ---------------- ----------------

Total financial instruments-Assets                          $14,908,227      $14,908,227         $12,096,795      $12,096,795
                                                        ================ ================     ================ ================


Liabilities

Premium deposit funds                                         $ 101,491        $ 101,491    (a)    $ 118,703        $ 118,703    (a)
Supplementary contracts without life contingencies
       (Note 1)                                                  80,295           80,295    (a)      105,120          105,120    (a)
Annuity deposits
       (Note 1)                                               2,805,220        2,805,220    (a)    2,982,839        2,982,839    (a)
                                                        ---------------- ----------------    ---------------- ----------------

Total financial instruments-Liabilities                      $2,987,006       $2,987,006          $3,206,662       $3,206,662
                                                        ================ ================    ================ ================

(a) The  indicated  assets and  liabilities  are  carried at book  value,  which
approximate fair value.

(b) Fair value of  investments is based on quoted market price or dealer quotes,
    when available. If quotes are not available, fair values are based on quoted
    prices of comparable instruments.
</TABLE>

6.  Commitments and Contingencies

The  Company,  BNL Equity  Corporation  and several  officers in the Company are
defendants in a pending class action lawsuit alleging  violation of the Arkansas
Securities Act. The Arkansas Supreme Court affirmed  certification of the class.
Discovery  is underway  and the matter is set for trial  October 15,  2001.  The
Company  expects to obtain a  favorable  judgment in the case and  believes  the
action is frivolous and that substantial  evidence exists which directly refutes
the allegations.  However, the ultimate outcome of this litigation is unknown at
the present time. Accordingly, no provisions for any liability that might result
have  been  made  in the  financial  statements.  The  Company  has  expended  a
substantial  amount in legal expenses  since the suit was filed in 1996.  Future
costs are not estimable at this time. In the opinion of management, the existing
litigation is without merit and the Company  intends to seek  sanctions  against
appropriate parties to the extent permitted by law.

The Company has entered into noncancelable operating leases for office space and
equipment. Future minimum payments under the leases are as follows:

                                           2001                          177,000
                                           2002                          164,000
                                           2003                          151,000
                                           2004                          136,000
                                           Thereafter                     89,000
                                                                  --------------

                                           Total                        $717,000
                                                                  ==============
                                      E-12
<PAGE>

6.  Commitments and Contingencies (continued):
    ------------------------------------------

Related lease cost  incurred for the years ended  December 31, 2000 and 1999 was
$218,301 and $197,175, respectively.

The  Company's  wholly  owned  insurance  subsidiary  might be subject to losses
related to guaranty fund assessments.  Such assessments  result from liquidation
of troubled  insurers by state  regulators.  The assessment to BNLAC, if any, is
not  reasonably  estimable,  nor  expected  to  have a  material  effect  on the
financial statements.

Cash deposits in excess of federally insured limits are  approximately  $476,320
at December 31, 2000.

For information  regarding minimum capital requirements to maintain a license to
sell in various states, see Note 2.

7.  Liability for Unpaid Claims

Activity in the liability for unpaid claims is summarized as follows.
<TABLE>
<CAPTION>

                                                           --------------           --------------
                                                               2000                     1999
                                                           --------------           --------------
<S>                                                       <C>                       <C>
Balance at January 1                                          $2,729,175               $2,508,175
   Less reinsurance recoverable                                    -                        -
                                                           --------------           --------------
Net Balance at January 1                                       2,729,175                2,508,175
                                                           --------------           --------------


Incurred related to:
   Current year                                               22,872,405               20,829,383
   Prior years                                                 (648,816)                  113,360
                                                           --------------           --------------
Total Incurred                                                22,223,589               20,942,743
                                                           --------------           --------------

Paid related to:
   Current year                                               20,426,055               18,100,208
   Prior years                                                 2,080,359                2,621,535
                                                           --------------           --------------
Total Paid                                                    22,506,414               20,721,743
                                                           --------------           --------------

Net Balance at December 31                                     2,446,350                2,729,175
   Plus reinsurance recoverable                                     -                      -
                                                           --------------           --------------
Balance at December 31                                        $2,446,350               $2,729,175
                                                           ==============           ==============
</TABLE>

8.  Reinsurance:
    -----------

Liability  for  future  policy  benefits  is  reported  before  the  effects  of
reinsurance.  Reinsurance  receivable  (including  amounts  related to insurance
liabilities)  is  reported  as  assets.   Estimated  reinsurance  receivable  is
recognized in a manner consistent with the liabilities related to the underlying
reinsurance  contracts.  Such amounts have been  presented  in  accordance  with
Statement  of  Financial  Standards  No.  113,  "Accounting  and  Reporting  for
Reinsurance  of Short  Duration  and Long  Duration  Contracts."  The Company is
liable if the reinsuring  companies are unable to meet their  obligations  under
the reinsurance agreements.

The Company  retains a maximum of $35,000 on any one risk for its life insurance
policies and reinsures the remainder with Business Mens Assurance  Company.  The
rating by A.M. Best Company of Business Mens Assurance Company, the primary life
reinsurer, was "A" (Excellent) for 1998.

The Company began  marketing a Hospital  Indemnity Plan in 1998 and retained 50%
of the  risk  up  through  September  1,  2000.  The  Company  discontinued  the
reinsurance  agreement  due to the  favorable  claims  experience  and currently
retains 100% of the risk.

                                      E-13
<PAGE>

8.  Reinsurance (continued):
    -----------------------

Following is a summary of reinsurance for December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                                                      Percentage
                                                                Ceded To        Assumed From                           Of Amount
                                                Gross             Other            Other             Net                Assumed
December 31, 2000                               Amount          Companies         Companies         Amounts              To Net
-----------------                          ---------------    -------------    --------------     --------------     -------------
<S>                                        <C>                <C>              <C>                <C>                <C>
Life Insurance in force  (in thousands)         $  28,127          $ 7,722          $ -               $  20,405          0.0%
                                           ===============    =============    ==============     ==============     =============

Premiums-life insurance                         $ 292,961         $(3,102)          $ -               $ 296,064          0.0%
Premiums-accident and health                   34,904,579           22,723            -              34,881,856          0.0%
                                           ---------------    -------------    --------------     --------------     -------------
Total insurance premiums                      $35,197,540          $19,621          $ -             $35,177,920          0.0%
                                           ===============    =============    ==============     ==============     =============

December 31, 1999

Life Insurance in force  (in thousands)         $  31,213          $11,371           $ 9,986          $  29,828         33.5%
                                           ===============    =============    ==============     ==============     =============

Premiums-life insurance                         $ 323,302          $60,155          $ 28,617          $ 291,764          9.8%
Premiums-accident and health                   29,155,507           36,057            99,146         29,218,596          0.3%
                                           ---------------    -------------    --------------     --------------     -------------
Total insurance premiums                      $29,478,809          $96,212         $ 127,763        $29,510,360          0.4%
                                           ===============    =============    ==============     ==============     =============
</TABLE>

9.  Benefit Plans for Certain Brokers/Agents and Employees

In 1994, the Board of Directors and  shareholders  approved the 1994 Brokers and
Agents'  Nonqualified  Stock  Option  Plan.  This  plan  was  established  as an
incentive to sales persons of BNLAC.  Initially  250,000  shares were  available
under  the  plan.  Options  for an  additional  one  million  shares  have  been
authorized by the Board of Directors,  including 500,000 shares in November 1997
and  500,000  shares in March 2000.  The option  period may not exceed a term of
five years and the duration of the plan is ten years. A four-member committee of
Directors administers the plan. During 2000 and 1999 the Company granted 184,575
and 185,150  stock  options,  respectively,  with an exercise  price of $.50 per
share.  There were 935,075  stock options  outstanding  at December 31, 2000. No
options have been exercised  since  inception of the plan.  Under the fair value
method,  total  compensation  recognized  for grant of stock options was $0. The
fair value of options  granted is estimated at $1,200 and $600 in 2000 and 1999,
respectively.  These values were computed using a binomial  method as prescribed
in SFAS 123 and certain  assumptions  include a risk free interest rate of 5.5%,
expected  life of 3.0  years,  expected  volatility  of  10.6%  and no  expected
dividends due to statutory limitations. The estimated weighted average remaining
life of the options is 1.7 years.  The options do not have a dilutive  effect on
earnings per share at this time, but may have such an effect in the future.  See
Note 1.

 The Company  has a stock bonus plan for the benefit of certain  officers of the
corporation.  The plan  provides  for a bonus  based on  consolidated  after-tax
profits subject to specified  limits.  The bonus amount,  net of taxes,  will be
used to purchase  stock in the Company on the open market.  Stock bonuses in the
amount of $100,000 were granted in 2000.

The Company has an Employee  Pension  Plan that is a qualified  retirement  plan
under the Internal Revenue Code. All employees who have attained age 21 and have
completed one year of service are eligible to contribute. Employer contributions
are discretionary and the Company did not contribute in 2000 or 1999.

10.  Concentrations

The majority of the Company's  premium income growth and gross income  continues
to be generated by the dental insurance  products.  This concentration makes the
Company  increasingly  dependent  upon the success of this block of business and
any economic factors and risks unique to dental insurance. See Note 1.

                                      E-14
<PAGE>

11.  Change in Accounting Estimate

Based on claims experience in 2000, the estimate of claims liability at December
31,  1999 was  overstated  $648,816.  The over  estimate of this  liability  has
contributed a corresponding decrease in claims expense in 2000.

In 2000 the  Company  revised the  estimated  valuation  allowances  against its
deferred tax asset. See Note 3.

12.  Subsequent Events

No events  have  occurred  subsequent  to the close of the books on  December 31
2000, which have a material effect on the financial condition of the Company.

                                      E-15
<PAGE>


--------------------------------------------------------------------------------
BNL Financial Corporation and Subsidiaries
Report of Independent Accountants

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


To the Board of Directors and Shareholders
BNL Financial Corporation and Subsidiaries

We have audited the  accompanying  Consolidated  Balance Sheets of BNL Financial
Corporation  and  Subsidiaries  as of December 31, 2000 and 1999 and the related
Consolidated  Statements  of Operations  and  Comprehensive  Income,  Changes in
Shareholders'   Equity,   and  Cash  Flows  for  the  years  then  ended.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of BNL
Financial Corporation and Subsidiaries as of December 31, 2000 and 1999, and the
consolidated  results of their operations and their  consolidated cash flows for
the  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.


                                                        /s/ Smith Carney & Co.
Oklahoma City, Oklahoma                                 SMITH, CARNEY & CO., p.c
February 10, 2001



















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