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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
        X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
           For the Fiscal Year Ended December 31, 2003 [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
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                            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 __

Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K 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-K or any amendment to this Form 10-K._____

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
                                       Yes___  No_X__
                    -

BNL Financial Corporation revenues for fiscal year 2003 were $42,505,179.

The estimated aggregate market value of the voting stock held by non-affiliates
of the Registrant as of December 31, 2003, cannot be determined due to the
limited trading in the Company's stock throughout the year (see also Item 5 of
Form 10-K regarding the limited trading market for the Company's shares).

As of December 31, 2003, the Registrant had outstanding 19,441,969 shares
(excluding treasury shares) of Common Stock, no par value (which includes
10,899,678 shares owned by affiliates of the Registrant).

                       DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K                                     Incorporated Document
       None                                                        None

Transitional Small Business Disclosure Format Yes ___ No _X__ Total # of pages
including cover page 51.




<PAGE>



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                                     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 has 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, including insurance products to
members.

 -------------------------------------       ----------------------------------
       BNL Financial Corporation        ---   Consumer's 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 2003
marketed life and accident and health insurance. 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.

In 2003, BNLAC received Certificates of Authority to market insurance in West
Virginia and Alaska. This increased the number of states in which it is licensed
to do business from 33 to 35. BNLAC is currently licensed in 35 states to offer
life and accident and health insurance on an individual and group basis.

The Company conducts business in the "life, accident and health insurers"
industry segment. Most of BNLAC's premium revenues are from sales of group
dental insurance sold primarily on a payroll deduction basis. Financial
information relating thereto is contained in the Selected Financial Data below
and the Financial Statements included as Exhibits 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, group life, hospital indemnity
policy, and group dental insurance. These products are all designed to be sold
on a group or payroll deduction basis.
<TABLE>
<CAPTION>
Statistics by line of business are as follows (gross before reinsurance):
                                       1

<PAGE>

                                                                              2003                2002
                                                                        ----------------    ---------------
<S>                                                                     <C>                 <C>
I. Annualized Premiums and Annuity Deposits In Force:
Ordinary Life Insurance                                                      $  254,000          $ 277,000
Individual Annuities(1)                                                         112,000            124,000
Group Dental Insurance                                                       38,207,000         39,996,000
Miscellaneous A&H insurance                                                   1,303,000            531,000
                                                                        ----------------    ---------------

          Total                                                             $39,876,000        $40,928,000
                                                                        ================    ===============

II. Collected Premiums and Annuity Deposits:
Ordinary Life Insurance                                                      $ 292,000           $ 296,000
Individual Annuities(1)                                                        112,000             106,000
Group Dental Insurance                                                      38,813,000          39,734,000
Miscellaneous A&H insurance                                                  1,016,000             564,000
                                                                      -----------------    ----------------

          Total                                                            $40,233,000         $40,700,000
                                                                      =================    ================

III. Face Value of Insurance:
Ordinary Life Insurance                                                    $38,000,000         $37,000,000
Accidental Death Insurance                                                  52,000,000          44,000,000
                                                                      -----------------    ----------------

          Total                                                            $90,000,000         $81,000,000
                                                                      =================    ================
<FN>
        (1) Classified as a deposit liability on the financial statements.
</FN>
</TABLE>

<TABLE>
<CAPTION>
Premiums collected by state are reflected in the following table:

                                                                                  Accident and
        State                 Life Premiums                Annuity                   Health                      Total
-----------------------    --------------------      --------------------     ----------------------      --------------------
<S>                        <C>                       <C>                      <C>                         <C>
Georgia                              $  13,270                        $-                 $3,394,666                $3,407,936
Oregon                                   1,199                         -                  3,251,133                 3,252,332
Minnesota                                6,005                         -                  2,855,210                 2,861,215
Arkansas                                23,909                         -                  2,491,276                 2,515,185
Michigan                                 8,086                         -                  2,412,165                 2,420,251
Louisiana                               15,343                         -                  2,382,226                 2,397,569
Ohio                                       869                         -                  1,978,319                 1,979,188
Idaho                                      281                         -                  1,954,415                 1,954,696
Indiana                                  7,538                         -                  1,856,636                 1,864,174
All Other States                       215,928                   112,910                 17,252,597                17,581,435
                           --------------------      --------------------     ----------------------      --------------------
Total                                 $292,428                  $112,910                $39,828,643               $40,233,981
                           ====================      ====================     ======================      ====================
</TABLE>

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


                                              Gross
                                            Premiums
       Group Dental Insurance               Collected
       ---------------------             ----------------
                2003                         $38,813,000
                2002                          39,734,000
                2001                          38,083,000
                2000                          34,464,000
                1999                          29,049,000
                                       2
<PAGE>

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

                                              Gross               Claims
       Group Dental Insurance              Claims Paid             Ratio
       ----------------------            ----------------     ----------------
                2003                          24,279,000                62.7%
                2002                          25,772,000                64.9%
                2001                          24,821,000                65.5%
                2000                          22,504,000                63.8%
                1999                          20,694,000                72.4%

Agents' Commissions
On December 31, 2003, BNLAC had 4,590 general agents and brokers that market its
policies in 34 states compared to 4,083 agents and brokers on December 31, 2002

On all of its products BNLAC pays competitive commissions to agents. 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 collects overwrite commissions on sales of vision insurance policies
issued by Vision Service Plan and Security Life Insurance Company of America.
The vision policies are 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.

Prior to October 31, 2002, the Company reinsured 100% of its Accidental Death
and Dismemberment insurance under a quota share reinsurance contract with TIG.
TIG is rated "B++" Superior. Effective November 1, 2002, the Company entered
into a quota share reinsurance agreement with Hannover Life Reassurance Company
of America. Hannover Life Reassurance Company of America accepts 90% of the
risk. Hannover Life Reassurance Company of America was rated "A" (Excellent) by
AM Best Company in 2002.

All other individual BNLAC life insurance products in excess of $35,000 are
reinsured with Generali USA Life Reassurance Company (formerly Business Mens
Assurance Company) under an automatic treaty up to $175,000 and under a
facultative treaty for amounts over $175,000. Generali USA Life Reassurance
Company of America was rated "A" (Excellent) by AM Best Company in 2002.

BNLAC's Group Life and AD&D insurance are reinsured under a Quota Share
reinsurance agreement with Hannover Life Reassurance Company of America. The
reinsurer is liable for 90% of the risk on the life of each insured up to the
policy maximum of $65,000.

                                       3

<PAGE>

BNLAC's Short Term Disability insurance is reinsured under a Quota Share
reinsurance agreement with Fortis Benefits Insurance Company of Kansas City,
Missouri. The reinsurer is liable for 75% of the risk on each policy. Fortis
Benefits Insurance Company was rated "A" by AM Best Company for 2002.

The following chart shows life insurance and accidental death insurance in force
net of reinsurance for each of the five past 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
                2003                         $37,832,000          $12,782,000             $     0          $25,050,000
                2002                          37,045,000           11,443,000                   0           25,602,000
                2001                          34,515,000            9,098,000                   0           25,417,000
                2000                          28,127,000            7,722,000                   0           20,405,000
                1999                          31,213,000           11,371,000           9,986,000           29,828,000


     Accidental Death Insurance
                2003                         $52,095,000          $46,885,500              $    0           $5,209,500
                2002                          44,000,000           39,600,000                   0            4,400,000
                2001                          37,000,000           37,000,000                   0                    0
                2000                          23,000,000           23,000,000                   0                    0
                1999                         102,000,000           96,425,000                   0            5,575,000
</TABLE>

The Company has no direct exposure and does not consider any of its reinsurance
recoverable to be of doubtful collectibility due to the events of September 11,
2001.

Investments
BNLAC invests its available funds in a certificate of deposit, US Treasury
Bills, 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
--------------    ---------------    ------------------
    2003                $854,548                  4.2%
    2002               1,041,679                  5.6%
    2001                 977,578                  6.2%
    2000                 870,482                  6.5%
    1999                 755,552                  6.2%

For information concerning realized and unrealized gains and losses on
securities see Note 4 of the Notes to Consolidated Financial Statements, page
F-11.

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  ("naic").
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  going-concern  considerations.
Certain statutory accounting practices differ from generally accepted accounting
principles as applied to the company's audited financial statements.
                                       4

<PAGE>

Life insurance company revenues are generated primarily from premiums and
investment income. Commissions and other sales cost may exceed the amount of
first year life premiums but are generally less in later policy years. Life
insurance lapses and surrenders tend to occur more frequently in the earlier
years after a policy is sold. Statutory accounting rules for life insurance
companies require all life insurance policy acquisition costs be expensed
immediately and not spread over the expected duration of the policies. Health
insurance premiums are recorded the same for both Statutory and GAAP.

Statutory accounting practices also require that a relatively large portion of
life 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 concerning mortality costs and earnings. Life
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 to bring such Financial Statements into accordance with
generally accepted accounting principles, 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) 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;

     e) 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; and

     f) 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 and must be approved by the insurance commissioner of
the State of Arkansas, if it exceeds the lesser of 10% of surplus or net gain
from operations for the year.

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,
                                       5

<PAGE>

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 activities, including acquisitions, extraordinary dividends, the terms
of surplus notes, the terms of affiliate transactions and other related matters.
The Company and BNLAC are registered as a holding company group pursuant to such
legislation in Arkansas and BNLAC routinely reports to other jurisdictions as
well.

The NAIC, through the member regulatory 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 the 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
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 the 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, 2003 indicated that the
ratios of total adjusted capital to RBC for BNLAC would have been in excess of
1,042% and, therefore, 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 of the Company 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.
                                       6
<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 fiscal year 2002, BNLAC's A. M. Best's financial performance
rating was raised from "B " (Fair) to "B+" (Very Good).

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 662 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 of their popularity in the employee benefit market. 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.

Personnel
At December 31, 2003 BNLAC had four executive officers and 59 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. The Company currently has no employees which are
represented by a union. BNLAC currently uses a third party administrator to
process dental claims.

                               ITEM 2. PROPERTIES

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

During the first half of 2002 the Company leased 12,150 square feet of office
space in Austin, Texas, under a seven year, triple net lease. In July 2002 the
Company expanded its offices in an adjacent building and increased the space it
leases by 1,596 square feet. The annual base rent for the 12,150 square feet was
$137,578 a year and the cost for the additional space is $19,152 per year. The
lease rate will remain in affect until the initial term of the lease expires in
2005. Effective January 1, 2003, the Company leased an additional 798 square
feet in the adjacent building at a rate of $9,576 per year. The Company plans to
lease an additional 798 square feet effective January 1, 2004 for $9,576 a year.
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 of the new lease
term on the initial 12,150 square feet of office space.

BNLE leases approximately 1,400 square feet of office space in Sherwood,
Arkansas at a rental of $16,500 per year. BNLAC incurs 100% of the rental
expense.

BNLAC leases 288 square feet of office space in Des Moines, IA at a rental of
$7,230 per year. The rent includes the services of a secretary that is shared
with other tenants of the building.

The Company and its subsidiaries own the majority of the furniture and equipment
used in the operation of its business.

                            ITEM 3. LEGAL PROCEEDINGS

In 2001, the Board of Directors of the Company and BNL Equity Corporation
approved a settlement in the class action case brought by certain shareholders.
The settlement, which was approved by the Pulaski County Circuit Court and the
                                       7

<PAGE>

Arkansas Insurance Commissioner, was subject to various conditions, including
the approvals by any other applicable regulatory authorities and conditioned
upon compliance with federal and state securities laws. As of December 31, 2002,
all requisite approvals were received and redemption of the stock began in 2003.

As part of the settlement agreement, the Company issued its Bonds in the
principal amount of $1.50 in exchange for each share of common stock of BNL
owned by the members of the Class. The Bonds are for a term of twelve years,
effective December 15, 2002, with principal payable at maturity and bear
interest at the rate of 6% per annum payable annually from the previous fiscal
year's earnings of BNL and will impact earnings per share to the extent of
approximately $.013 per share. If any interest payment is not made, it will be
added to the principal and paid at maturity. The Bonds are fully callable and
redeemable at par at any time by BNL.

During 2003, the Company reclassified Contingent Long Term Liabilities and
Contingent Treasury Stock in the amount of $3,637,288 to Bonds Payable and
Treasury Stock, respectively, in accordance with the character of the litigation
settlement of 2001 and the performance of all duties there under. The $3,637,288
of Treasury Stock was retired and returned to authorized but not issued status.
The remaining Contingent Long Term Liabilities and Contingent Treasury Stock in
the amount of $660,447 represents shares that may or may not have rights to
exchange under the settlement and, as such, are contingent on determination of
their status.

The settlement is reflected in the December 31, 2003 financials as bonds payable
of $3,025,499, contingent long-term liabilities of $660,447 and contingent
treasury stock of same amount and had no effect on the Statement of Cash Flows
other than the purchase of bonds mentioned above and interest payments. In 2002
the class action settlement was reflected on the Balance Sheet as contingent
long-term liabilities of $4,269,404 and contingent treasury stock of a like
amount and had no effect on the Statement of Cash Flows. The settlement included
a provision for paying Class Counsel collectively the single sum of $575,000 for
all legal fees, costs and expenses which was paid in December, 2002.

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

No matters were submitted for a vote during the fourth quarter of 2003.


                                     PART II

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

Market for Stock
During 2003 the Company made two separate offers to its shareholders to redeem
their stock for its book value of $.47 and $.53 a share; respectively. The
offers resulted in the purchase of 974,541 shares of stock for $477,023. The
stock is not traded on any established trading market.

Holders
As of December 31, 2003 there were 3,071 record holders of the Company's common
stock without consideration for contingent treasury shares to be redeemed.

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.

Equity Compensation Plan Information
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
                                       8

<PAGE>

under the plan. Options for an additional 1.75 million shares have been
authorized by the Board of Directors. 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 2003, 2002 and 2001, the Company granted
131,925, 154,855 and 119,525 stock options, respectively, with an exercise price
of $1.00 per share for those granted in 2003, $.75 per share for those granted
in 2002 and $.50 per share for those granted in 2001. There were 624,230 stock
options outstanding at December 31, 2003. The number of options expiring or
forfeited were 437,500 and 185,575 in 2003 and 2002, respectively. There were
38,525 options exercised in 2003 and 55,550 options exercised in 2002. Under the
fair value method, total compensation recognized for grant of stock options was
$0. The fair value of options granted is estimated at $0, $1,596 and $800 in
2003, 2002 and 2001, respectively. These values were computed using a binomial
method as prescribed in SFAS No. 123 and certain assumptions include a risk free
interest rate of 4.5%, expected life of 3.0 years, expected volatility of 14.6%
and no expected dividends due to statutory limitations. The estimated weighted
average remaining life of the options is 1.3 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.

In March 2002, the Board of Directors approved the 2002 Non-Director,
Non-Executive Stock Option Plan, subject to any necessary authorizations from
any regulatory authority. The plan is intended to assist the Company in
attracting and retaining individuals of outstanding ability and to promote
concurrence of their interests with those of the Shareholders of the Company.
During 2002, the Company granted 55,900 options with an exercise price of $.50.
No options were granted in 2003. The fair value of options granted is estimated
at $10,940 in 2002. This value was computed using a binomial method as
prescribed in SFAS No. 123 and certain assumptions include a risk free interest
rate of 4.5%, expected life of 10.0 years, expected volatility of 14.6% and no
expected dividends due to statutory limitations. The estimated weighted average
remaining life of the options is 9.88 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 table below reflects the Equity Compensation Plans as of December 31, 2003.
<TABLE>
<CAPTION>
                                                  a                                b                                 c
                                                                                                    Number of securities remaining
                                                                                                     available for future issuance
                                                                                                       under equity compensation
                                   Number of Securities to be        Weighted Average exercise        plans (excluding securities
                                     issued upon exercise of            price of outstanding           reflected in column (a))
        Plan Category                  outstanding options                    options
------------------------------   --------------------------------    ---------------------------    --------------------------------
<S>                              <C>                                 <C>                            <C>

Approved by security holders
------------------------------
     Brokers and Agents Plan
                                                         624,230                           $.67                           1,403,900

Not approved by security
   holders
------------------------------
     Employee Plan                                        55,900                           $.50                             194,100
</TABLE>

Transfer Agent and Registrar
BNL Financial Corporation is the Registrar and Transfer Agent for the Company's
common stock.

                         ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data presented below as of the end of and
for each of the years in the five-year period ended December 31, 2003 are
derived from the Company's consolidated financial statements. The consolidated
financial statements as of December 31, 2003 and 2002, and for each of the years
in the three-year period ended December 31, 2003 are included elsewhere in this
Form 10-K.
                                       9
<PAGE>

<TABLE>
<CAPTION>


                                         2003                 2002                 2001                 2000                 1999
                               -----------------    -----------------    -----------------    -----------------     ----------------
<S>                            <C>                  <C>                  <C>                  <C>                   <C>
Total Income........................$42,505,179           $42,367,834          $39,569,741          $36,182,730          $30,533,144
Net Income (Loss)................... $2,736,355            $2,500,727           $1,283,478           $3,444,483            $ 206,979
Net Income (Loss) Per
  Common Share......................$       .14              $    .12             $    .06             $    .15             $    .01
Total Assets........................$24,555,254           $22,133,342          $20,173,856          $17,580,271          $13,949,400
Total Liabilities...................$13,204,072           $13,822,575          $14,499,547           $9,073,346           $9,644,266
Average Shares Outstanding...........20,082,075            20,469,480           22,802,610           23,311,944           23,311,944
<FN>

*This information should be read in conjunction with the disclosure concerning
 the Management's Discussion and Analysis of Financial Condition and the
 audited Financial Statements and Notes thereto set forth elsewhere in this
 Form 10-K.

</FN>
</TABLE>

ITEM 7.  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, 2003, 2002 and 2001 and the consolidated results of operations
for the periods ended December 31, 2003, 2002 and 2001. Please read this
discussion in conjunction with the accompanying consolidated financial
statements and notes.

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) world
conflict, including but not limited to the war in Iraq, which may affect
consumers spending trends and priorities (iii) customer response to new products
and marketing initiatives: (iv) mortality, morbidity and other factors which may
affect the profitability of our products (v) changes in the federal income tax
laws and regulations which may affect the relative income tax advantages of our
products (vi) 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 (vii) the risk factors or uncertainties listed from time to
time in our filings with the Securities and Exchange Commission.

Management believes the Company's current critical accounting policies are
comprised of the following:

Reserves for unpaid policy claims are a sensitive accounting estimate unique to
the insurance industry. Management uses an independent actuary to formulate this
estimate. Differences in the estimates may result in revised claims expense
which is recognized in the period in which the difference is determined. See
Note 11 to our financial statements for the effect on the year 2003.

The valuation allowance against deferred taxes is a sensitive accounting
estimate. 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.

At December 31, 2003 and 2002, respectively, the Company had gross deferred tax
assets of $1,004,000 and $1,080,000 with corresponding valuation allowances of
$808,865 and $758,000 resulting from net operating loss carryovers and temporary
                                       10

<PAGE>
differences primarily related to the life insurance subsidiary. The resulting
net deferred tax asset is $195,136 and $322,000 at December 31, 2003 and 2002,
respectively. Realization of the deferred tax asset 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.

The provision for income tax is as follows:
<TABLE>
<CAPTION>
                                                        2003                   2002                  2001
                                                 -------------------    -------------------    ------------------
<S>                                              <C>                    <C>                    <C>
Current tax provisions                                    $ 519,949              $ 174,000              $ 52,993
Deferred tax provision                                       85,036                202,000               243,000
                                                 -------------------    -------------------    ------------------


Total income tax provision                                 $604,985               $376,000              $295,993
                                                 ===================    ===================    ==================
</TABLE>


The reconciliation of income taxes computed at the federal statutory income tax
rate to total income taxes for the years ended December 31, 2003, 2002 and 2001
is as follows:
<TABLE>
<CAPTION>

                                                                    2003                    2002                 2001
                                                          -------------------     --------------------    --------------------
<S>                                                       <C>                     <C>                     <C>

Book income before tax                                            $3,341,340               $2,876,727              $1,579,471
                                                          ===================     ====================    ====================


Income tax computed at statutory rate (34%)                      $ 1,136,056                $ 978,088               $ 537,020
Valuation allowance for AMT credit                                   138,507                   56,000                  52,993
Revision of valuation allowance                                    (101,550)                (169,045)                (25,510)
Rate differential                                                  (568,028)                (489,043)               (268,510)
                                                          -------------------     --------------------    --------------------


Total income tax provision (benefit)                               $ 604,985                $ 376,000               $ 295,993
                                                          ===================     ====================    ====================

</TABLE>


The Company has net operating loss carry forwards for income tax purposes at
December 31, 2003 as follows:


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

                                        2005           $  38,024
                                        2006             545,898
                                        2007             286,096
                                        2008             202,779
                                        2009             162,019
                                        2010             185,160
                                        2011              65,880
                                        2012             310,402
                                        2018             347,054
                                        2019             130,716
                                        2020              65,199
                                        2023             121,507
                                                 ----------------

                                                      $2,460,734
                                                 ================

                                       11
<PAGE>

Financial Condition
<TABLE>
<CAPTION>
                                                 2003                    2002                  2001
                                          -------------------     --------------------    ----------------
<S>                                       <C>                     <C>                     <C>
 Income from Operations before
    Income Taxes                                  $3,341,340               $2,876,727          $1,579,471
Book Value Per Share                                   $0.55                    $0.41               $0.28
Statutory Capital and Surplus of
    Insurance Subsidiary                         $12,348,394              $10,716,560          $7,858,222
Stockholders' Equity - GAAP                      $10,690,735               $8,310,767          $5,674,309
A.M. Best Financial Rating                                B+                       B+                   B
</TABLE>

The Company's financial condition strengthened during 2003 due to the increase
in net income.

Liquidity and Capital Resources
At December 31, 2003 the Company had liquid assets of $3,398,661 in cash, U.S.
Treasury Bills, money market savings accounts, and short-term certificates of
deposit. All of the non-cash liquid assets can readily be converted into cash.

The major components of operating cash flows are premiums and investment income
while policy benefits are the most significant cash outflow. In 2003, BNLAC
collected approximately $40.2 million of premiums and annuity deposits (gross
before reinsurance) and $970,382 of investment income. Another source of cash
flow in 2003 was overwrite commissions of $332,566 on vision products. At the
same time the Company paid $30,108,152 in policy benefits and other insurance
costs.

Approximately $1.46 million of the bond portfolio is classified as Available for
Sale and carried on the Balance Sheet at market value with the unrealized gain
or loss recorded in the surplus section of the Balance Sheet. The bonds include;
telecommunication, utilities, automobile bonds and U. S. Treasury Bonds that
have large unrealized profits. The Company may sell these bonds before they
mature.

Approximately $15.1 million of the bond portfolio is classified as Held to
Maturity and is carried on the Balance Sheet at amortized cost. This
classification reflects management's ability and intent to hold the bonds until
maturity. No adjustments to surplus are made as bond values change.

The table below discloses the unrealized gains and losses on the "Held to
Maturity" bonds.

Portfolio Designated "Held to Maturity"
<TABLE>
<CAPTION>

                                                                              Gross            Gross
                                                                            Unrealized       Unrealized       Estimated
                                                        Amortized Cost         Gains            Loss         Market Value
December 31, 2003                                      ---------------    --------------    -------------    --------------
<S>                                                     <C>                <C>               <C>              <C>
US Treasury securities and obligations of
   US government corporations and agencies                $ 11,541,392          $ 63,196         $ 70,725       $11,533,863
Obligations of states and political subdivisions               298,566             8,434                -           307,000
Corporate securities                                         1,958,402            62,704            2,531         2,018,575
Mortgage-backed securities
   GNMA                                                      1,321,736               509            8,193         1,314,052
                                                        ---------------    --------------    -------------    --------------

Totals                                                     $15,120,096          $134,843          $81,449       $15,173,490
                                                        ===============    ==============    =============    ==============
</TABLE>

The Company did not sell any of the bonds designated as Held to Maturity in
2003.

The Company's investments are primarily in U.S. Government and Government
Agencies ($11,590,917 amortized book value) and other investment grade bonds
($3,980,214 amortized book value). The Company does not hedge its investment
income through the use of derivatives.

Other long term investments of $1,527,407 consists of, in part, a convertible
debenture loan in the amount of $1,357,407 from one of the Company's
subsidiaries, BNL Equity Corporation (BNLE), to EPSI Benefits, Inc. (EBI), a
Texas Corporation. The loan bears interest at an annual rate of 14%, payable
                                       12

<PAGE>

monthly, with principal payments commencing September 15, 2008 and a maturity
date of August 15, 2015. To protect its interest, BNLE may convert the debenture
into 51% of the outstanding common stock of EBI, subject to regulatory approval.
The note is one of several agreements entered into by the Company's subsidiaries
which expand the business relationship with EBI and its subsidiary, Employer
Plan Services, Inc. (EPSI), which provides substantially all of the A&H claims
processing and adjudication for the Company's insurance subsidiary, BNLAC. BNLE
receives a marketing fee from EBI under a related marketing agreement.

Other long-term investments also include an operating line of credit agreement
with an advance amount of $170,000. On October 15, 2002 BNLAC and EPSI entered
into a loan agreement whereby BNLAC will provide EPSI with a $200,000 line of
credit maturing October 15, 2004. The line of credit is at prime, 4.50%, with
interest payable monthly to BNLAC.

On November 5, 2001 the Company's Board of Directors approved a settlement of
the class action lawsuit (see "Legal Proceedings") that included a $575,000
payment to Class Counsel, which was paid in December 2002.

Another term of the settlement is the issuance of Company bonds in the principal
amount of $1.50 in exchange for each share of the Company's common stock owned
by the members of the class. The bonds have a 12-year term and bear interest at
the rate of 6% per annum, effective December 15, 2002 payable annually from the
previous fiscal year's earnings. The total principal amount of verified class
action bondholders is $3,025,499. Contingent bond liability is $660,447. Bond
interest expense was $189,985 in 2003. BNLAC will pay dividends to BNL Financial
Corporation for the payment of interest to the bondholders. The maximum amount
of dividends, which can be paid by Arkansas domiciled insurance companies to
shareholders without prior approval of the insurance commissioner, is subject to
restrictions relating to statutory surplus. The Arkansas Insurance Commissioner
has reviewed and approved the settlement. The Company does not expect the
dividend restrictions to impact its ability to meet its cash needs. The Company
has no plan to start a sinking fund for payment of the principal at maturity.

In 2002, BNLAC paid dividends totaling $857,734 to BNLE and BNLF for the
purchase of Company stock and bonds and for other general operating funds.

The following table reflects all long-term contractual obligations of the
Company as of December 31, 2003.
<TABLE>
<CAPTION>

Long-Term Contractual Obligations                           Total       < 1 Year         1-3 Years        3-5 Years       > 5 Years
---------------------------------                           -----       --------         ---------        ---------       ---------
<S>                                                      <C>            <C>              <C>              <C>             <C>

Bonds and Related Future Interest Payable*               $5,027,499      $182,000         $364,000         $364,000      $4,117,499
Operating Lease Obligations                                 430,000       248,000          180,000           18,000               -
Liability  for  Future  Policy  Benefits & Annuity
    Deposits**                                                    -             -                -                -               -
Supplementary Contracts                                      80,500        27,000           34,500           19,000               -
<FN>
*  Interest payments are made only if the Company is profitable.
** Payment of liability is dependent on death of the insured or demand of the
annuitant.
</FN>
</TABLE>

We believe liquid assets, along with investment income, premium income and
marketing fees will be sufficient to meet our long and short-term liquidity
needs. We do not have any current plans to borrow money for operations.

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 $5,000,000 in the states in which BNLAC is licensed.

Results of Operations
Premium income was $40,809,336 in 2003, $41,237,420 in 2002, and $38,463,464 in
2001. The decrease of 1% in 2003 was due to the loss of three large dental
groups at the end of 2002 and the first quarter of 2003. The increase in 2002
was due to an increase in group dental insurance premiums written. In 2003,
group dental insurance premium income made up 92.4% of total premium income.
                                       13

<PAGE>
Net investment income was $970,382 in 2003, $1,148,225 in 2002, and $1,029,457
in 2001, a decrease of 15% in 2003, and an increase of 12% in 2002. The decrease
in 2003 was primarily due to the general decline in interest rates. The Company
transferred some of its short-term investments and used its positive operating
cash flow to increase its fixed maturity investment portfolio in 2003. In 2002,
several of the Company's investments in fixed maturities decreased due to
government agency bonds that were called and reinvested in short term
investments.

The  Company  receives  marketing  fees  from  EBI per the  marketing  agreement
mentioned  above.  The Company  received  marketing fees of $146,107 in 2003 and
$143,619 in 2002.

Realized capital gains and (losses) on investments was $154,628 in 2003,
($161,430) in 2002 and $16,231 in 2001. The realized gain in 2003 is primarily
from the sale of U.S. Treasury bonds. The realized loss in 2002 was primarily
due to the write down in value of MCI Bonds and Conseco Inc. common stock. The
Company had a realized gain on debt extinguishments of $424,726 in 2003 due to
the purchase of debentures payable at less than par value.

Increase in liability for future policy benefits was $34,377 in 2003, $93,518 in
2002 and $56,063 in 2001. The decrease in 2003 was due to a slight decrease in
the number of whole life insurance policies in force. The increase in 2002 and
2001 was due to increases in life insurance in force.

Policy benefits and other insurance costs increased from $29,570,207 in 2001, to
$30,789,481 in 2002 and decreased to $30,108,152 in 2003. The decrease in 2003
was the result of a $900,000 reduction in group dental claims and the increase
in 2002 was due to an increase in claims and commissions resulting from the
increase in group dental insurance in force. The claims ratio on group dental
insurance, which represents the ratio of claims incurred to premium earned, was
62.7% in 2003, 64.1% in 2002 and 65.5% in 2001. The claims ratio has steadily
decreased over the last three years due to the Company's constant monitoring of
rates and trends in dental costs.

Amortization of deferred policy acquisition costs was $30,403 in 2003, $26,918
in 2002 and $29,844 in 2001. Amortizaton of deferred policy acquisition costs
varies in relation to lapses or surrenders of existing policies.

Operating expenses were $7,664,081 in 2003, $7,249,662 in 2002 and $6,525,350 in
2001. The increase in expenses in 2003 was due to an increase in executive bonus
incentive plan expenses, which increase with profits, payroll expense and
marketing expense associated with increased product and sales promotion. The
increase in expenses in 2002 was due to an increase in payroll expense, employee
insurance expense and depreciation expense.

Taxes other than on income were $1,326,826 in 2003, $1,331,528 in 2002 and
$1,233,806 for 2001. The decrease in 2003 was due to a decrease in premium taxes
on fewer premiums collected. The increase in 2002 was due to the premium taxes
on the increased insurance premiums collected.

For 2003, the consolidated net income from operations before taxes was
$3,341,340 compared to $2,876,727 in 2002 and $1,579,471 in 2001. The increase
in 2003 was due to a decrease in claims on group dental business and an increase
in realized gains. The increase in 2002 was due to a decrease in the dental loss
ratio, and increases in premium revenue, investment income and marketing fees.

Earnings per share was $.14, $.12, and $.06 in 2003, 2002 and 2001,
respectively. The effect of the treasury shares described in Note 6 to the
financial statements was immaterial in 2003 and 2001 and increased earnings per
share $.015 in 2002.

The provision for income taxes was $604,985 in 2003, $376,000 in 2002 and
$295,993 in 2001. For the periods ended December 31, 2003, 2002 and 2001, the
Company had $519,949, $174,000 and $52,993 of current federal tax expense and
$85,036, $202,000 and $243,000 of deferred tax expense; respectively. The
increase in 2003 is due to the net operating losses of the life insurance
subsidiary being fully utilized in 2002.
                                       14

<PAGE>

For the year ended December 31, 2003, other comprehensive income was $56,053
compared to $171,170 in 2002 and $90,760 for the same period in 2001. The
comprehensive income in 2003 and 2001 was due to a decrease in interest rates
that increased the market value of the Company's bond portfolio. The increase in
comprehensive income for the period ended December 31, 2002 was due to the
reclassification adjustment for realized losses of $161,429 in 2002.

Looking Forward
BNLAC plans to apply for authority to market insurance products in additional
states in the upcoming year. In March 2003 we received approval to market
insurance in Alaska and West Virginia and we currently have applications pending
for certificates of authority in Wisconsin and New Mexico.

Market risk represents the potential loss resulting from adverse changes in the
value of financial instruments, either derivative or non-derivative, caused by
fluctuations in interest rates, foreign exchange rates, commodity prices, and
equity security prices. We handle market risks in accordance with our
established policies. The Company's conservative investment philosophies
minimize market risk and risk of default by investing in high quality debt
instruments, with staggered maturity dates. We did not have financial
instruments to manage and reduce the impact of changes in interest rates at
December 31, 2003 and December 31, 2002. We held various financial instruments
at December 31, 2003 and 2002, consisting of financial assets reported in our
Consolidated Balance Sheets (refer to Note 4).

Interest Rate Risk - We are subject to interest rate risk through the investment
in fixed maturity securities, such as U.S. Government and Government Agency
securities and other investment grade bonds. The fair market value of long-term,
fixed-interest rate debt is subject to interest rate risk. Generally, the fair
value of fixed-interest rate debt will increase as interest rates fall and will
decrease as interest rates rise. The estimated fair value of our fixed maturity
securities at December 31, 2003 and December 31, 2002 was $16,631,478 and
$12,401,507, respectively.

A one percentage point increase in prevailing interest rates would result in a
decrease in the estimated fair value of fixed maturity securities held at
December 31, 2003 of approximately $469,000. Initial fair values were determined
using the current rates at which we could enter into comparable financial
instruments with similar remaining maturities. The estimated earnings and cash
flows impact for the twelve months of 2004, resulting from a one percentage
point increase in interest rates, would be immaterial, holding other variables
constant.

Foreign-Exchange Rate Risk - We currently have no exposure to foreign exchange
rate risk because all of our financial instruments are denominated in U.S.
dollars and because we do not currently engage in any operations outside of the
United States.

Commodity Price Risk - We have no financial instruments subject to commodity
price risk.

Equity Security Price Risk - Fair value of equity securities at December 31,
2003 totaled $373,214, or only 1.7% of total investments and cash on a
consolidated basis. We do not hedge our equity price risk. As of December 31,
2003, a 20% adverse change in equity prices would result in an approximate
$76,000 decrease in the fair value of our equity securities.

The preceding discussion of estimated fair value of our financial instruments
and the sensitivity analyses resulting from hypothetical changes in interest
rates are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements reflect our current
expectations and involve uncertainties. These forward-looking market risk
disclosures are selective in nature and only address the potential impact from
financial instruments. They do not include other potential effects which could
impact our business as a result of changes in interest rates, foreign-exchange
rates, commodity prices, or equity security prices.

                                       15
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information on pages F-1 through F-22 attached to this Report is hereby
incorporated by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None

ITEM 9A INTERNAL CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's reports
pursuant to the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to the Company's management, including its Chief Executive Officer and its Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurances of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures, as
that term is defined in Rule 13a-14 ( c ) under the Securities Exchange Act of
1934, as amended. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective in timely alerting the Company's Chief Executive
Officer and Chief Financial Officer to material information required to be
disclosed in the periodic reports filed with the SEC.


In addition, the Company's Chief Executive Officer and Chief Financial Officer
have reviewed the Company's internal controls, and there have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect those controls subsequent to the date of the last
evaluation.


                                       16

<PAGE>


                                    PART III

           ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

                                                First Became
                                                Director or
           Name                   Age         Executive Officer                          Position
----------------------------    --------    ---------------------    -----------------------------------------------
<S>                             <C>         <C>                      <C>

Wayne E. Ahart                    63                1984                   Chairman of the Board and Director
C. Donald Byrd                    62                1984                Vice Chairman of the Board and Director
Kenneth Tobey                     45                1994                         President and Director
Barry N. Shamas                   56                1984                 Executive Vice President, Treasurer and
                                                                                        Director
Cecil Alexander                   67                1994                                Director
Richard Barclay                   66                1994                                Director
Eugene A. Cernan                  69                1994                                Director
Hayden Fry                        74                1984                                Director
John Greig                        68                1984                                Director
Roy B. Keppy                      80                1984                                Director
Roy Ledbetter                     73                1994                                Director
John E. Miller                    73                1994                                Director
James A. Mullins                  69                1984                                Director
C. James McCormick                78                1984                                Director
Robert R. Rigler                  80                1989                                Director
Chris Schenkel                    79                1994                                Director
L. Stan Schoelerman               78                1984                                Director
Orville Sweet                     79                1984                                Director
---------------------------- -- -------- -- ---------------------
</TABLE>

The term of office of each director expires at the annual meeting of
shareholders upon the 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 with
BNLAC.

Identification of Certain Significant Employees
Not applicable.

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

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); and (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.
                                       17
<PAGE>

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. Since 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 retired 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 Advisory Board of
Directors of V.E. Bank of Heber Springs, the Board of Directors of the Arkansas
Tourism Development Foundation, and the Board of Directors of the Baptist
Foundation.

Richard L. Barclay, a Certified Public Accountant, recently retired as Director
of Arkansas Department of Finance and Administration and as the state's Chief
Fiscal Officer. He has returned to private practice with Beall, Barclay & Co.,
Certified Public Accountants in Rogers, Arkansas. He is an advisory Director of
Regions Bank of Rogers. He serves as past President and Board member of the
Arkansas Society of Certified Public Accountants and is a member of the American
Institute of Certified Public Accountants. He was a member of the Arkansas House
of Representatives from 1977 until 1992.

Eugene A. Cernan has been President and Chairman of the Board of The Cernan
Corporation since 1981. 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 of 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 National Air and Space Museum
and Smithsonian Educational Foundation. Captain Cernan is also a member of the
Board of Trustees of the U. S. Naval Aviation Museum, NFL Alumni and Major
League Baseball Players Alumni Association. In addition, Captain Cernan has
served as a consultant commentator to ABC News.

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 was the 1993 President of the AFCA. 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, after
serving as President for 6 years. 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 is retired 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.
                                       18

<PAGE>

C. James McCormick is former 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 the former Vice Chairman of Golf Hosts, Inc. He
is the owner of CJ Leasing, LLC. Mr. McCormick is former Chairman of the Board
of Directors and CEO of First Bancorp, Vincennes, Indiana; former Chairman of
the Vincennes University board of trustees and a Life Director of the Indiana
Chamber of Commerce; and a former member of the Young President's Organization.
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 2000. 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, State Advocacy Services,
Lions World Services for the Blind, State Board of Easter Seals, Williams
Baptist College Board of Trustees and Izard County Chapter of the American Red
Cross.

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 a retired television sportscaster of CBS Sports and ABC
Sports, New York, New York, from 1952 to 1999. He also served as Spokesperson
for Owens-Illinois, Toledo, Ohio, from 1976 to 1995, for whom he spoke as voice
over 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 University, Lawrence,
Kansas. He has three Honorary Doctorate Degrees and a Lifetime Achievement Emmy.

L. Stanley Schoelerman was President and a Partner of Petersen Sheep & Cattle
Co., Spencer, Iowa from 1964 to 2001. 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.

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.

Audit Committee

The  Company's  audit  committee  consists  of  three  members  of the  board of
directors,  Richard  Barclay,  Robert  Rigler and John  Greig.  Mr.  Barclay,  a
Certified  Public  Accountant,  is  the  committee's  financial  expert  and  is
independent  of  management.  See  description  of board members for  additional
information.

Code of Ethics

The Company has a code of ethics that applies to all officers of the Company. To
receive a copy of the Company's code of ethics without charge, contact:



                                Ms. Pam Randolph
                            BNL Financial Corporation
                                  7530 Hwy. 107
                            Sherwood, Arkansas 72120

                                       19

<PAGE>

                         ITEM 11. 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      Restricted
     Name and Principal                                            Annual        Stock      Options/SARs     LTIP        All Other
          Position             Year      Salary        Bonus     Compensation  Award(s)         (#)         Payouts    Compensation
----------------------------- -------- ------------ ------------ ----------- -------------- ------------ ------------- ------------
<S>                           <C>      <C>          <C>          <C>         <C>            <C>          <C>           <C>
    Wayne E. Ahart, CEO        2003     $125,000       $184,288     $42,658       $0             -            $0           $0
             "                 2002     $125,000       $154,506     $54,086       $0             -            $0           $0
             "                 2001     $125,000        $60,417     $10,462       $0             -            $0           $0
 Barry N. Shamas, Executive
            V.P.               2003     $110,600       $100,347     $18,028       $0             -            $0           $0
             "                 2002     $110,600        $62,430     $18,237       $0             -            $0           $0
             "                 2001     $110,600        $39,217        $809       $0             -            $0           $0
    C. Donald Byrd, Vice
   Chairman of the Board
                               2003      $95,824        $98,769     $26,734       $0             -            $0           $0
             "                 2002      $92,500        $51,283     $26,570       $0             -            $0           $0
             "                 2001      $92,500        $43,545      $3,922       $0             -            $0           $0
  Kenneth Tobey, President
                               2003      $79,583       $105,009      $9,369       $0             -            $0           $0
             "                 2002      $77,500        $55,033     $12,136       $0             -            $0           $0
             "                 2001      $77,500        $42,295      $3,256       $0             -            $0           $0
</TABLE>

The total number of executive officers of the Company is four and the total
remuneration paid to all executive officers in 2003, as a group, is $996,209
including bonuses of approximately $100,000 under the Company's stock bonus plan
and $388,413 under the executive incentive bonus plan. In addition, executives
have accrued bonuses payable at December 31, 2003, of approximately $100,000
under the stock bonus plan and approximately $71,000 under the executive bonus
plan. The Company does not have employment agreements with any of its officers.

The Company does not have any employment or severance agreements with officers
or employees.

Compensation of Directors
Each director receives a fee of $500 per company, plus reasonable travel
expenses for each meeting of the Board of Directors attended. The Audit
Committee receives $500 for each meeting attended.

Benefit Plans
See Equity Compensation Plans for a description of the Agents' Nonqualified
Stock Option Plan and the 2002 Non-Director, Non-Executive Stock Option Plan.

In 2001, the Board of Directors approved the 2001 Incentive Bonus Plan for the
benefit of certain Officers of the Company. The plan provides for semi-annual
payment of cash bonuses based on 10% of consolidated pre-tax operating income.
The life company subsidiary bears its prorata share of the bonus expense based
on its pre-tax statutory profits. Bonus expense was $334,134, $287,673 and
$144,662 under this plan for 2003, 2002 and 2001, respectively.

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. Stock bonuses in the amount of $100,000,
$100,000 and $51,674 were granted in 2003, 2002 and 2001, respectively.
                                       20
<PAGE>

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. The Company contributed $46,138, $32,565 and $0 in 2003, 2002
and 2001, respectively.

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, 2003, other than for ordinary travel and expense advances and other
reimbursable expenses, if any.

     ITEM 12. 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, 2003:
<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, 2003
-------------------          --------------------------------------    --------------------------    -------------------------
<S>                          <C>                                       <C>                           <C>

Common Stock                 Wayne E. Ahart                                  4,845,505(2)(3)                  24.92%
                             #14 Club Estates Parkway
                             Austin, Texas 78738
Common Stock                 Barry N. Shamas                                 2,801,816(5)                     14.41%
                             1095 Hidden Hills Dr.
                             Dripping Springs, Texas 78620
Common Stock                 Universal Guaranty Life Insurance               2,216,776(2)                     11.40%
                             Company
                             5250 S. Sixth St. Rd.
                             Springfield, Illinois 62705
Common Stock                 C. Donald Byrd                                  1,615,743(4)                     8.31%
                             631 47th Street
                             W. Des Moines, IA 37076
<FN>

     (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.

     (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.
</FN>
</TABLE>

Security Ownership of Management
The following table sets forth, as of December 31, 2003, 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>

                                       21

<PAGE>

                                                                   Amount and Nature of           Percent of Class as of
Title of Class                  Name of Beneficial Owner          Beneficial Ownership (1)          December 31, 2003
-----------------------    -----------------------------------    -------------------------    ---------------------------
<S>                        <C>                                    <C>                          <C>
     Common Stock          Wayne E. Ahart                                 4,845,505(2)                    24.92%
          "                Barry N. Shamas                                2,801,816(4)                    14.41%
          "                C. Donald Byrd                                 1,615,743(3)                     8.31%
          "                Kenneth Tobey                                    914,786                        4.70%
          "                C. James McCormick                               137,084(5)                      .70%
          "                Hayden Fry                                        69,047                         .36%
          "                John Greig                                        50,102                         .26%
          "                Roy Keppy                                         51,001                         .26%
          "                James A. Mullins                                  50,000                         .26%
          "                L. Stanley
                           Schoelerman                                       50,000                         .26%
          "                Orville Sweet                                     50,000                         .26%
          "                Richard Barclay                                   46,088                         .23%
          "                John E. Miller                                    47,111                         .24%
          "                Cecil Alexander                                   37,088                         .19%
          "                Eugene A. Cernan                                  37,088                         .19%
          "                Roy Ledbetter                                     37,088                         .19%
          "                Chris Schenkel                                    37,088                         .19%
          "                Robert R. Rigler                                   3,295                         .02%
          "                All Executive Officers and
                           Directors as a group (18 persons)             10,879,930                       55.95%
----------------------- -- -----------------------------------
<FN>
     (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.
</FN>
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    None

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this item is incorporated by reference from our
2004 Proxy Statement.



                                       22

<PAGE>


                                     PART IV


ITEM 15. 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 F-1 to F-19 of
this Report and is incorporated herein by reference.

     2.  The following financial statement schedule required to be filed by
Paragraph (d) of Item 15 of Form 10-K is submitted as a separate section of this
report.

Schedule III - Condensed Financial Information of Registrant F-20 to F-22

Schedules I and VI have been omitted as all required data is included in the
Notes to Consolidated Financial Statements.

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.

     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 Exhibit 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          By-laws 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
                 Corporation, dated January 27, 1984 and Amendment to        Incorporated by reference to Exhibits 4.2 of the
                 Articles of Incorporation on BNL Financial                  Company's Annual Report on Form 10-KSB for the period
                 Corporation, dated November 13, 1987.                       ending December 31, 1998.

    10.1         Form of Agreement between Commonwealth Industries           Incorporated by reference to Exhibit I of the
                 Corporation, American Investors Corporation and Wayne       Company's Quarterly Report on 10-QSB for the period
                 E. Ahart regarding rights to purchase shares of the         ended September 30, 1994.
                 Company.

    10.2         Agreement dated December 21, 1990 between Registrant        Incorporated by reference to Exhibit I of the
                 and C. Donald Byrd granting Registrant right of first       Company's Quarterly Report on 10-QSB for the period
                 refusal as to future transfers of Mr. Byrd's shares of      ended March 31, 1996.
                 the Company's common stock.
                                       23

<PAGE>

    10.3         Office lease assumption and assignment agreement dated      Incorporated by reference to Exhibit 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.

    10.4         Sublease dated January 20, 2000 between Brokers             Incorporated by reference to Exhibit 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.                  Incorporated by reference to Exhibit I of the
                                                                             Company's periodic Report on Form 8-K dated September
                                                                             14, 1995.

     21         Subsidiaries of Registrant.                                  Filed herewith.

     31.1       Certification of Chief Executive Officer                     Filed herewith - E1
                Section 302

     31.2       Certification of Chief Financial Officer                     Filed herewith - E2
                Section 302

     32.1       Certification of Chief Executive Officer                     Filed herewith - E3
                Section 906

     32.2       Certification of Chief Financial Officer                     Filed herewith - E3
                Section 906
</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
2004.

                                                     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:
<TABLE>
<CAPTION>


                 Signature                                         Title                                  Date
---------------------------------------------    ------------------------------------------     --------------------------
<S>                                              <C>                                            <C>


             /S/ Wayne E. Ahart                                                                        03/30/2004
---------------------------------------------                                                   --------------------------
               Wayne E. Ahart                        Chairman of the Board, Director
                                                      (Principal Executive Officer)


             /S/ C. Donald Byrd                                                                        03/16/2004
---------------------------------------------                                                   --------------------------
               C. Donald Byrd                    Vice Chairman of the Board and Director


             /S/ Kenneth Tobey                                                                         03/16/2004
---------------------------------------------                                                   --------------------------
               Kenneth Tobey                               President and Director

                                       24

<PAGE>

            /S/ Barry N. Shamas                                                                        03/30/2004
---------------------------------------------                                                   --------------------------
              Barry N. Shamas                     Executive Vice President, Treasurer and
                                                     Director (Principal Financial and
                                                            Accounting Officer)


               /S/ Hayden Fry                                                                          03/16/2004
---------------------------------------------                                                   --------------------------
                 Hayden Fry                                       Director


               /S/ John Greig                                                                          03/16/2004
---------------------------------------------                                                   --------------------------
                 John Greig                                       Director


               /S/ Roy Keppy                                                                           03/16/2004
---------------------------------------------                                                   --------------------------
                 Roy Keppy                                        Director


           /S/ C. James McCormick                                                                      03/16/2004
---------------------------------------------                                                   --------------------------
             C. James McCormick                                    Director


            /S/ James A. Mullins                                                                       03/16/2004
---------------------------------------------                                                   --------------------------
              James A. Mullins                                    Director


            /S/ Robert R. Rigler                                                                       03/16/2004
---------------------------------------------                                                   --------------------------
              Robert R. Rigler                                    Director


          /S/ Stanley Schoelerman                                                                      03/16/2004
---------------------------------------------                                                   --------------------------
            Stanley Schoelerman                                   Director


             /S/ Orville Sweet                                                                         03/16/2004
---------------------------------------------                                                   --------------------------
               Orville Sweet                                      Director


            /S/ Cecil Alexander                                                                        03/16/2004
---------------------------------------------                                                   --------------------------
              Cecil Alexander                                     Director


            /S/ Richard Barclay                                                                        03/16/2004
---------------------------------------------                                                   --------------------------
              Richard Barclay                                     Director
                                       25
<PAGE>

            /S/ Eugene A. Cernan                                                                       03/16/2004
---------------------------------------------                                                   --------------------------
              Eugene A. Cernan                                    Director


             /S/ Roy Ledbetter                                                                         03/16/2004
---------------------------------------------                                                   --------------------------
               Roy Ledbetter                                      Director


             /S/ John E. Miller                                                                        03/16/2004
---------------------------------------------                                                   --------------------------
               John E. Miller                                     Director


             /S/ Chris Schenkel                                                                        03/16/2004
---------------------------------------------                                                   --------------------------
               Chris Schenkel                                     Director

</TABLE>

                                       26
<PAGE>

<PAGE>





                           ANNUAL REPORT ON FORM 10-K

                             ITEM 15 (a) AND 15 (d)

                              FINANCIAL STATEMENTS

                      FOR THE YEAR ENDED DECEMBER 31, 2003

                   BNL FINANCIAL CORPORATION AND SUBSIDIARIES

                                DES MOINES, IOWA

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



Table of Contents
<TABLE>
<CAPTION>

                                                                                                        Page Number of 2003
                                                                                                             Form 10-K

                                                                                                      -------------------------
<S>                                                                                                   <C>
Item 15(a) Financial Statements

Report of Independent Accountants on Financial Statements                                                       F-2

Consolidated Balance Sheet, December 31, 2003 and 2002                                                          F-3

Consolidated Statement of Operations and Comprehensive Income for the years ended December 31,
2003, 2002 and 2001                                                                                             F-4

Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 2003,
2002 and 2001                                                                                                   F-5

Consolidated Statement of Cash Flows for the years ended December 31, 2003, 2002 and 2001
                                                                                                                F-6

Notes to Consolidated Financial Statements                                                                      F-7

Item 15(d) - Schedule III, Condensed Financial Information of Registrant                                        F-20
</TABLE>



                                      F-1
<PAGE>



--------------------------------------------------------------------------------
BNL Financial Corporation and Subsidiaries
Report of Independent Registered Public Accountanting Firm
--------------------------------------------------------------------------------


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

We have audited the consolidated financial statements of BNL Financial
Corporation and Subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 2003 and 2002, and the
consolidated results of their operations and their consolidated cash flows for
the years ended December 31, 2003, 2002 and 2001 in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.


                                                      /S/ Smith, Carney &Co.
                                                      ------------------------
Oklahoma City, Oklahoma                               SMITH, CARNEY & CO., p.c.
February 9, 2004

                                      F-2

<PAGE>


<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
BNL Financial Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2003 and 2002
-----------------------------------------------------------------------------------------------------------------------------------

                                                                                                      December 31,
                                                                                        ------------------------------------------
ASSETS                                                                                        2003                     2002
                                                                                        -----------------         ----------------
<S>                                                                                     <C>                       <C>
   Cash and cash equivalents                                                                  $3,398,661               $5,660,879
   Investments in fixed maturities at fair value, Available for Sale  (amortized
     cost $1,245,558; $2,348,098; respectively)                                                1,457,988                2,524,142
   Investments in fixed maturities at amortized cost, Held to Maturity  (fair
     value $15,173,490; $9,877,365; respectively)                                             15,120,096                9,771,071
   Other long-term investments - (Note 4)                                                      1,527,407                1,497,407
   Investment in equity securities, at fair value
       (cost $339,509, $175,626, respectively)                                                   373,214                  120,265
                                                                                        -----------------          ---------------
               Total Investments, Including Cash and  Cash Equivalents                        21,877,366               19,573,764

   Accrued investment income                                                                     183,713                  186,518
   Furniture and equipment, net                                                                  486,000                  462,843
   Deferred policy acquisition costs                                                             220,937                  251,340
   Policy loans                                                                                  144,122                  128,651
   Receivable from reinsurer                                                                      31,065                   32,236
   Premiums due and unpaid                                                                     1,059,950                  921,008
   Income tax assets                                                                             195,136                  322,000
   Intangible assets                                                                             162,237                  168,052
   Other assets                                                                                  194,728                   86,930
                                                                                        -----------------          ---------------

               Total Assets                                                                  $24,555,254              $22,133,342
                                                                                        =================          ===============

LIABILITIES
   Liabilities for future policy benefits                                                     $1,577,978               $1,544,772
   Policy claims payable                                                                       2,578,992                2,357,549
   Annuity deposits                                                                            2,777,665                2,847,549
   Deferred annuity profits                                                                      425,980                  478,058
   Premium deposit funds                                                                          40,260                   43,825
   Supplementary contracts without life contingencies                                             69,596                   89,707
   Advanced and unallocated premium                                                            1,127,148                  739,856
   Commissions payable                                                                           433,257                  445,468
   Accrued taxes and expenses                                                                    777,128                  621,413
   Bonds payable                                                                               3,025,499                        -
   Other liabilities                                                                             370,569                  384,974
                                                                                        -----------------          ---------------

               Total Liabilities                                                              13,204,072                9,553,171
                                                                                        -----------------          ---------------

COMMITMENTS AND CONTINGENCIES (NOTE 6)
   Contingent long-term liabilities                                                              660,447                4,269,404
                                                                                        -----------------          ---------------

                Total Commitments and Contingencies                                              660,447                4,269,404
                                                                                        -----------------          ---------------


SHAREHOLDERS' EQUITY
   Common stock, $.02 stated value, 45,000,000 shares authorized;
      20,980,760; 23,419,647 shares issued and outstanding, respectively                         419,616                  468,393
   Additional paid-in capital                                                                 10,787,911               14,366,816
   Accumulated other comprehensive income                                                        177,768                  121,715
   Accumulated surplus (deficit)                                                                 457,336              (2,279,019)
   Contingent treasury stock 440,298; 2,846,269 shares, respectively (Note 6)                  (660,447)              (4,269,404)
   Treasury stock, at cost, 1,098,493; 301,205 shares, respectively                            (491,449)                 (97,734)
                                                                                        -----------------          ---------------

               Total Shareholders' Equity                                                     10,690,735                8,310,767
                                                                                        -----------------          ---------------

               Total Liabilities and Shareholders' Equity                                    $24,555,254              $22,133,342
                                                                                        =================          ===============
The accompanying notes are an integral part of the consolidated financial
statements.
                                      F-3
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
BNL Financial Corporation and Subsidiaries Consolidated Statements of Operations
and Comprehensive Income For the years ended December 31, 2003, 2002, and 2001
-----------------------------------------------------------------------------------------------------------------------------------


                                                                                       Year Ended December 31,
                                                                   -----------------------------------------------------------------
                                                                         2003                     2002                   2001
                                                                   ------------------       -----------------       ----------------
<S>                                                                <C>                      <C>                     <C>
Income
   Premium income                                                        $40,809,336             $41,237,420            $38,463,464
   Net investment income                                                     970,382               1,148,225              1,029,457
   Marketing fees (Note 4)                                                   146,107                 143,619                 60,589
   Realized gain on debt retirements                                         424,726                       -                      -
   Realized gains (losses)                                                   154,628               (161,430)                 16,231
                                                                   ------------------       -----------------       ----------------

               Total Income                                               42,505,179              42,367,834             39,569,741
                                                                   ------------------       -----------------       ----------------

Expenses
   Increase in liability for future policy benefits                           34,377                  93,518                 56,063
   Policy benefits and other insurance costs                              30,108,152              30,789,481             29,570,207
   Amortization of deferred policy acquisition costs                          30,403                  26,918                 29,844
   Litigation settlement expense (Note 6)                                          -                       -                575,000
   Operating expenses                                                      7,664,081               7,249,662              6,525,350
   Taxes, other than on income                                             1,326,826               1,331,528              1,233,806
                                                                   ------------------       -----------------       ----------------

                Total Expenses                                            39,163,839              39,491,107             37,990,270
                                                                   ------------------       -----------------       ----------------

                Income from Operations before
                     Income Taxes                                          3,341,340               2,876,727              1,579,471

   Provision for income taxes                                                604,985                 376,000                295,993
                                                                   ------------------       -----------------       ----------------

               Net Income                                                $ 2,736,355             $ 2,500,727            $ 1,283,478
                                                                   ==================       =================       ================

Net income per common share (basic and diluted)                                $0.14                   $0.12                  $0.06
                                                                   ==================       =================       ================

Weighted average number of fully
    paid common shares                                                    20,082,075              20,469,480             22,802,610
                                                                   ==================       =================       ================

               Net Income (as above)                                     $ 2,736,355             $ 2,500,727            $ 1,283,478
                                                                   ------------------       -----------------       ----------------


Other comprehensive income, net of tax:
     Unrealized gains on securities:
          Unrealized holding gain arising during period
           (net of $42,000 of deferred taxes in 2003)                        210,680                   9,741                106,990
       Reclassification adjustment for gain (loss)
           included in net income                                          (154,627)                 161,429               (16,230)
                                                                   ------------------       -----------------       ----------------

                Other Comprehensive Income                                    56,053                 171,170                 90,760
                                                                   ------------------       -----------------       ----------------

                Comprehensive Income                                      $2,792,408              $2,671,897             $1,374,238
                                                                   ==================       =================       ================






The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
                                      F-4
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
BNL Financial Corporation and Subsidiaries Consolidated Statements of Changes in
Shareholders' Equity For the years ended December 31, 2003, 2002 and 2001
------------------------------------------------------------------------------------------------------------------------------------



                                                                                                   Accumulated
                                   Common Stock                                 Additional           Other           Accumulated
                           ----------------------------        Paid-In          (Deficit)        Comprehensive        Treasury
                               Shares         Amount            Capital          Surplus             Income            Stock
                           -------------  -------------   --------------    -----------------    --------------    ---------------
<S>                        <C>            <C>             <C>               <C>                  <C>               <C>
Balance, December 31, 2000    23,311,944       $466,239      $14,308,230         $(6,063,224)        $(140,215)          $(64,105)
                           =============  =============   ==============    =================    ==============    ===============
Accumulated other
     comprehensive income              -             -                 -                    -            90,760                  -

Contingent treasury stock
      (See Note 6)                     -             -                 -                    -                 -        (4,269,404)

Sale of treasury stock                 -             -             4,770                    -                 -             57,780

Net income                             -             -                 -            1,283,478                 -                  -
                           -------------  -------------    --------------    -----------------    --------------    ---------------

Balance, December 31, 2001    23,311,944       $466,239       $14,313,000         $(4,779,746)         $(49,455)       $(4,275,729)
                            ============  =============    ==============    =================    ==============    ===============

Accumulated other
     comprehensive income              -             -                  -                    -           171,170                 -

Sale of treasury  stock                -             -                523                    -                 -             6,325

Purchase treasury stock                -             -                  -                    -                 -          (97,734)

Stock options exercised           55,550         1,111             26,664                    -                 -                 -

Sale of common stock              52,153         1,043             25,033                    -                 -                 -

Stock options granted                  -             -              1,596                    -                 -                 -

Net income                             -             -                  -            2,500,727                 -                 -
                           -------------  ------------     --------------    -----------------     --------------   ---------------

Balance, December 31, 2002    23,419,647      $468,393        $14,366,816         $(2,279,019)          $121,715      $(4,367,138)
                           =============  ============     ==============    =================     ==============   ===============

Accumulated other comprehensive
    income                            -             -                  -                     -            56,053                 -

Sale of treasury stock                -             -              5,317                     -                 -            83,309

Purchase of treasury stock            -             -                  -                     -                 -          (505,355)

Stock options exercised          38,125           763             18,662                     -                 -                 -

Purchase of common stock        (52,153)       (1,043)          (25,033)                     -                 -                 -

Stock options granted                 -             -             10,940                     -                 -                 -

Retirement of treasury stock (2,424,859)      (48,497)       (3,588,791)                     -                 -         3,637,288

Net income                            -             -                  -             2,736,355                 -                 -

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

Balance, December 31, 2003   20,980,760      $419,616        $10,787,911              $457,336          $177,768      $(1,151,896)
                          =============  ============     ==============      ================    ==============   ===============
                         The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
                                      F-5
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
BNL Financial Corporation and Subsidiaries Consolidated Statements of Cash Flows
For the years ended December 31, 2003, 2002 and 2001
------------------------------------------------------------------------------------------------------------------------------------

                                                                                           Year Ended December 31,
                                                                             ------------------------------------------------------
                                                                                  2003               2002                2001
                                                                             ---------------    ----------------    ---------------
<S>                                                                          <C>                <C>                 <C>
Cash Flows from Operating Activities
     Net income                                                                   $2,736,355          $2,500,727         $1,283,478
     Adjustments to reconcile net income to net cash
        provided by operating activities:
            Realized (gain) loss on investments                                    (152,951)             161,429           (13,968)
            Realized (gain) loss on sale of furniture and equipment                  (1,677)                   -            (2,263)
            Realized gain on debt extinguishments                                  (424,726)                   -                  -
            Depreciation                                                             195,425             224,660            141,553
            Decrease in deferred tax asset                                            84,000             202,000            243,000
            Amortization of deferred acquisition costs, and bond issuance cost        36,218              32,733             36,923
            Accretion of bond discount                                                24,473               3,541              1,135
            Common stock and stock options granted                                    31,440               1,596                  -
        Change in assets and liabilities:
             Decrease in accrued investment income                                     2,805              37,582             24,197
             (Increase) decrease in receivable from reinsurer                          1,171               2,754            (5,360)
             (Increase) decrease in premiums due and unpaid                        (138,942)           (134,663)            160,430
             Increase in liability for future policy benefits                         33,208              90,765             61,423
             Increase (decrease) in policy claims payable                            221,443            (89,386)                585
             Increase (decrease) in annuity deposits and deferred profits          (121,962)            (37,195)             87,959
             Decrease in premium deposit funds                                       (3,565)            (18,162)           (39,504)
             Increase (decrease) in advanced and unallocated premium                 387,292            (58,934)            142,175
             Increase (decrease) in commissions payable                             (12,211)           (178,016)            182,844
             Increase (decrease) in contingent settlement expense liability                -           (575,000)            575,000
             Other, increase                                                           7,014             215,423             79,962
                                                                              ---------------    ----------------    ---------------
                    Net Cash Provided by Operating Activities                      2,904,810           2,381,854          2,959,569
                                                                              ---------------    ----------------    ---------------

Cash Flows from Investing Activities
     Proceeds from sales of investments                                            1,102,540             484,376            293,440
     Proceeds from maturity or redemption - Available for Sale Investments                 -           4,503,229         10,414,084
     Proceeds from maturity or redemption - Held to Maturity Investments           6,503,497           3,336,000                  -
     Proceeds from sale of furniture and equipment                                    10,976                   -              7,171
     Purchase of equity securities                                                 (163,885)           (224,325)          (131,579)
     Purchase of furniture and equipment                                           (227,882)           (263,938)          (195,194)
     Purchase of fixed maturity securities, Available for Sale                             -         (4,526,454)       (12,580,768)
     Purchase of fixed maturity securities, Held to Maturity                    (11,756,299)         (1,603,133)                  -
     Other Investments - Line of credit advanced                                    (30,000)           (140,000)                  -
                                                                              ---------------    ----------------    ---------------
                     Net Cash Provided (Used) in Investing Activities            (4,561,053)           1,565,755        (2,192,846)
                                                                              ---------------    ----------------    ---------------

Cash Flows from Financing Activities
     Sale of treasury stock                                                           58,797               6,848             62,550
     Purchase of treasury stock                                                    (477,023)            (97,734)                  -
     Net change in supplementary contracts                                          (20,111)              23,559           (35,343)
     Sale of common stock                                                                  -              26,076                  -
     Stock options exercised                                                          19,425              27,775                  -
     Debt extinguishments                                                          (187,063)                   -                  -
                                                                              ---------------    ----------------    ---------------
                      Net Cash Provided (Used) in Financing Activities             (605,975)            (13,476)             27,207
                                                                              ---------------    ----------------    ---------------

                      Net Increase (Decrease) in Cash and Cash Equivalents       (2,262,218)           3,934,133            793,930
                      Cash and Cash Equivalents, Beginning of Period               5,660,879           1,726,746            932,816
                                                                              ---------------    ----------------    ---------------

                      Cash and Cash Equivalents, End of Period                    $3,398,661          $5,660,879         $1,726,746
                                                                              ===============    ================    ===============
                         The accompanying notes are an integral part of the consolidated financial statements.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                      F-6

<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 most significant
income component is sales of dental insurance for which the maximum annual risk
per policy is $1,500. See Note 10. The Company is licensed to sell in 35 states
as of December 31, 2003. 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 asset 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 in the year 2000 to reflect
actual experience. Increases in the liability account for interest credited to
contracts are charged to expense. The interest rate assumptions ranged from 6.0%
to 4.0% during 2003 and 2002.

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.

Before September 30, 2002 the Company classified all of 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
classified as available for sale are recorded as a component of comprehensive
income.

                                      F-7
<PAGE>


Effective September 30, 2002, the Company elected to bifurcate its portfolio and
change its accounting treatment for approximately $11.6 million of debt
securities in its investment portfolio in accordance with SFAS No. 115. These
securities, formerly accounted for as available for sale and reflected in the
financial statements at market value, will be accounted for as held to maturity.
This classification change reflects management's intent and ability to hold this
block of securities, and other securities purchased subsequently and so
designated, to their maturity. This reclassification requires the Company to
report the bond's value on September 30, 2002 at fair market value at the date
of reclassification. New purchases designated by management as part of the held
to maturity portfolio will be presented on the financial statements at amortized
book value and, therefore, unlike the available for sale portfolio, no
adjustments to surplus will be made as bond values change. The election to
change the method of accounting had no material effect on the financial
statements of the Company in 2002 but could have a material effect in the future
since surplus will not be adjusted as described above.

Realized gains or losses on sale of all investments are determined on a specific
identification basis. Investments in equity securities are carried at fair
value.

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
was no material interest paid in 2002 or 2001. The Company made interest
payments of $71,681 in 2003. The Company made cash payments for income taxes of
$582,833, $173,472 and $68,993 in 2003, 2002 and 2001, respectively.

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 $487,709, and $544,294 at December 31, 2003 and
2002, respectively. Depreciation expense was $195,425, $224,660, and $141,553
for the years ended December 31, 2003, 2002 and 2001, respectively.

Other assets include agents' balances of $61,028 and $28,420 at December 31,
2003 and 2002, respectively, after reduction for allowance of doubtful accounts.
The allowance account had a credit recorded of $1,000 in 2003, an expense of
$5,562 in 2002 and an $8,900 credit recorded during the same period in 2001.

The Company adopted Statement #142 of the Financial Accounting Standards Board
in the first quarter of 2002, as required. The adoption had no material effect
on the financial statements of the Company. The new accounting rule changes the
methods of accounting for intangible assets, which generally were amortized over
40 years under previous rules. The new standard requires that intangible assets
be separately presented on the face of the Balance Sheet and be periodically
tested for impairment of their market value and written off immediately to the
extent the value is found to be impaired. As indicated on the face of the
Balance Sheet, the Company has intangible assets of $162,237 at December 31,
2003. These assets include the cost of 26 state licenses acquired in 1991 as
part of the Statesmen Life Insurance Company acquisition and certain loan
acquisition costs. Amortization expense of approximately $5,800, $5,800 and
$7,100 was recorded for each of the years ended December 31, 2003, 2002 and
2001, respectively. The Company tested its intangible assets for impairment by
evaluating the future benefit of the underlying investments or rights acquired
in association with these assets.

The Company accounts for the 1994 Brokers and Agents Stock Option Plan and the
2002 Nondirector, Nonexecutive Stock Option Plan using the fair value method as
required by SFAS No. 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 shares. The weighted average number of shares was reduced for the contingent
treasury shares described in Note 6.

2.  Shareholders' Equity

During 2003, the Company made cash offers to shareholders for the purchase of
stock. Stock purchases amounted to $477,023 for 974,541 shares included in
Treasury Stock at December 31, 2003.

                                      F-8
<PAGE>


At December 31, 2003 and 2002, shareholders' equity includes approximately
$13,477,574 and $11,788,781, respectively, of BNLAC net assets. The ability of
BNLAC to pay dividends to the Company is restricted under Arkansas insurance
laws and must be approved by the insurance commissioner if it exceeds the lesser
of 10% of surplus or net gain from operations for the year. In March of 2003,
the Arkansas Insurance Department approved the payment of up to a maximum of
$1,138,400 of dividend payments by BNLAC to the Company in order to facilitate
the purchase of bonds from debenture holders. BNLAC paid $857,734 of dividends
to its parent company in 2003.

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 $5,000,000 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.

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

                                        December 31,
                 --------------------------------------------------------------
                           2003                 2002                   2001
                      ------------          ------------           ------------

Capital and Surplus    $12,348,394           $10,716,560             $7,858,222
                       ===========           ===========             ==========

Net Income             $ 2,383,349           $ 2,599,946             $1,443,426
                       ===========           ===========             ==========


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

                                              December 31, 2003               December 31, 2002              December 31, 2001
                                         ----------------------------  ------------------------------  ----------------------------
                                                         Capital and                     Capital and                   Capital and
                                            Income         Surplus         Income          Surplus         Income        Surplus
                                        --------------  -------------  -------------   --------------  -------------  -------------
<S>                                     <C>             <C>            <C>             <C>             <C>            <C>
Consolidated reporting under
  generally accepted accounting principles  $2,736,355    $10,690,735     $2,500,727      $ 8,310,767     $1,283,478     $5,674,308
Attributable to Parent Company and BNL
  Equity                                       249,925    (2,786,839)         81,348      (3,478,014)         57,013    (3,525,377)
                                        --------------  -------------  -------------   --------------  -------------  -------------

Brokers National Life Assurance Company      2,486,430     13,477,574      2,419,379       11,788,781      1,226,465      9,199,685

Deferred acquisition costs                      30,403      (220,936)         26,908        (251,339)         30,399      (278,260)
Reserve and premium adjustments               (14,650)         40,502         23,800           48,318         30,884         44,636
Interest maintenance reserve/AVR             (103,250)      (519,676)          7,769        (322,711)         17,113      (330,480)
Unrealized appreciation of securities              -        (209,113)             -          (53,321)             -          64,254
Annuity deposits and related adjustments      (92,311)        518,659       (18,280)          577,258         14,808        580,495
Income tax credit                               31,000       (22,136)        129,000         (96,000)        260,000       (38,000)
Other                                           45,728      (716,480)         11,369        (974,426)      (136,243)    (1,384,108)
                                        --------------  -------------  -------------   --------------  -------------  -------------

   BNLAC Statutory Basis                    $2,383,350    $12,348,394     $2,599,945      $10,716,560     $1,443,426     $7,858,222
                                        ==============  =============  =============   ==============  =============  =============


</TABLE>

                                      F-9
<PAGE>

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. The Company and its Subsidiaries file consolidated income tax returns.

At December 31, 2003 and 2002, respectively, the Company had gross deferred tax
assets of $1,004,000 and $1,080,000 with corresponding valuation allowances of
$808,865 and $758,000 resulting from net operating loss carryovers, and
temporary differences primarily related to the life insurance subsidiary. The
resulting net deferred tax asset is $195,136 and $322,000 at December 31, 2003
and 2002, respectively. Realization of the deferred tax asset 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.


The provision (benefit) for income tax is as follows:

                              2003                2002              2001
                        ----------------    ---------------   ----------------
Current tax provisions       $ 519,949          $ 174,000           $ 52,993
Deferred tax provision          85,036            202,000            243,000
                        ----------------    ---------------   ----------------

Total income tax provision    $604,985           $376,000           $295,993
                        ================    ================  ================

The reconciliation of income taxes computed at the federal statutory income tax
rate to total income taxes for the years ended December 31, 2003, 2002 and 2001
is as follows:

<TABLE>
<CAPTION>
                                                                    2003                 2002                    2001
                                                          -------------------     --------------------    --------------------
<S>                                                       <C>                     <C>                     <C>

Book income before tax                                            $3,341,340               $2,876,727              $1,579,471
                                                          ===================     ====================    ====================


Income tax computed at statutory rate (34%)                      $ 1,136,056                $ 978,088               $ 537,020
Valuation allowance for AMT credit                                   138,507                   56,000                  52,993
Revision of valuation allowance                                    (101,550)                (169,045)                (25,510)
Rate differential                                                  (568,028)                (489,043)               (268,510)
                                                          -------------------     --------------------    --------------------


Total income tax provision (benefit)                               $ 604,985                $ 376,000               $ 295,993
                                                          ===================     ====================    ====================

</TABLE>

                                      F-10
<PAGE>


The Company has net operating loss carry forwards for income tax purposes at
December 31, 2003 as follows:

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

                                        2005           $  38,024
                                        2006             545,898
                                        2007             286,096
                                        2008             202,779
                                        2009             162,019
                                        2010             185,160
                                        2011              65,880
                                        2012             310,402
                                        2018             347,054
                                        2019             130,716
                                        2020              65,199
                                        2023             121,507
                                                 ----------------

                                                      $2,460,734
                                                 ================

4.  Investments

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

Portfolio Designated "Held to Maturity"
(Note 1)                                                                       Gross            Gross
                                                                            Unrealized        Unrealized       Estimated
December 31, 2003                                       Amortized Cost         Gains            Losses        Market Value
-----------------                                      ---------------    --------------    -------------    --------------
<S>                                                    <C>                <C>               <C>              <C>

US Treasury securities and obligations of
   US government corporations and agencies                 $11,541,392          $ 63,196          $70,725       $11,533,863
Obligations of states and political subdivisions               298,566             8,434                -           307,000
Corporate securities                                         1,958,402            62,704            2,531         2,018,575
Mortgage-backed securities
   GNMA                                                      1,321,736               509            8,193         1,314,052
                                                        ---------------    --------------    -------------    --------------

Totals                                                     $15,120,096          $134,843          $81,449       $15,173,490
                                                        ===============    ==============    =============    ==============


Portfolio Designated "Available for Sale"
(Note 1)                                                                        Gross            Gross
                                                                             Unrealized        Unrealized       Estimated
December 31, 2003                                        Amortized Cost         Gains            Losses        Market Value
-----------------                                       ---------------    --------------    -------------    --------------
US Treasury securities and obligations of
   US government corporations and agencies                   $ 499,767          $105,121          $ 4,000          $600,888
Corporate securities                                           440,679           112,700              479           552,900
Public utility bonds                                           305,112                -               912           304,200
                                                        ---------------    --------------    -------------    --------------

Totals                                                      $1,245,558          $217,821          $ 5,391        $1,457,988
                                                        ===============    ==============    =============    ==============

</TABLE>

                                      F-11
<PAGE>

<TABLE>
<CAPTION>

Portfolio Designated "Held to Maturity"
(Note 1)                                                                       Gross            Gross
                                                                            Unrealized        Unrealized       Estimated
December 31, 2002                                       Amortized Cost        Gains            Losses         Market Value
-----------------                                      ---------------    --------------    -------------    --------------
<S>                                                    <C>                <C>               <C>              <C>

US Treasury securities and obligations of
   US government corporations and agencies                  $5,766,990          $110,624          $ 4,464        $5,873,150
Obligations of states and political subdivisions               317,857             1,355              562           318,650
Corporate securities                                         1,705,908            44,378            8,886         1,741,400
Mortgage-backed securities
   GNMA                                                      1,980,316             3,409           39,560         1,944,165
                                                        ---------------    --------------    -------------    --------------

Totals                                                      $9,771,071          $159,766          $53,472        $9,877,365
                                                        ===============    ==============    =============    ==============



Portfolio Designated "Available for Sale"
(Note 1)                                                                       Gross            Gross
                                                                            Unrealized        Unrealized       Estimated
December 31, 2002                                       Amortized Cost         Gains            Losses        Market Value
-----------------                                      ---------------    --------------    -------------    --------------
US Treasury securities and obligations of
   US government corporations and agencies                   $ 896,510          $256,371            $  18        $1,152,863
Obligations of states and political subdivisions                     -                 -                -                 -
Corporate securities                                         1,045,506             2,460           82,036           965,930
Public utility bonds                                           406,082             4,499            5,232           405,349
                                                        ---------------    --------------    -------------    --------------

Totals                                                      $2,348,098          $263,330          $87,286        $2,524,142
                                                        ===============    ==============    =============    ==============
</TABLE>

The amortized cost and estimated fair value of investments in fixed maturity
securities at December 31, 2003 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.

<TABLE>
<CAPTION>

                                                     Held to Maturity                              Available for Sale
                                          -------------------------------------         ---------------------------------------
                                                     December 31, 2003                              December 31, 2003
                                          -------------------------------------         ---------------------------------------

                                                                  Estimated                                       Estimated
                                           Amortized Cost        Market Value            Amortized Cost          Market Value
                                           ---------------     ----------------         ----------------      ------------------
<S>                                        <C>                 <C>                      <C>                   <C>
Due in one year or less                         $ 150,475           $  150,375                  $     -                 $     -
Due after one year through five years           3,000,000            2,959,375                        -                       -
Due after five years through ten years          4,801,692            4,845,775                  100,000                 100,000
Due after ten years                             5,846,193            5,903,913                1,145,558               1,357,988
                                           ---------------     ----------------         ----------------      ------------------

                                               13,798,360           13,859,438                1,245,558               1,457,988

Mortgage-backed securities                      1,321,736            1,314,052                        -                       -
                                           ---------------     ----------------         ----------------      ------------------

                                              $15,120,096          $15,173,490               $1,245,558              $1,457,988
                                           ===============     ================         ================      ==================
</TABLE>

Proceeds from sales and maturities of investments in fixed maturity securities
and equity securities for the years ended December 31, 2003, 2002 and 2001 were
$7,606,037, $8,323,605 and $10,707,524, respectively. Gross gains were $155,003,
$17,725 and $14,472 and gross losses were $2,052, $70 and $504 as of December
31, 2003, 2002 and 2001, respectively. Losses recognized in 2002 due to
permanent impairment of value in fixed maturity and equity securities were
$179,084.

                                      F-12
<PAGE>

Investment in equity securities at December 31, 2003 and 2002 represents common
stock investments as follows:
<TABLE>
<CAPTION>

                                          2003                               2002
                             -------------------------------    -------------------------------
                                                  Market                             Market
                                 Cost             Value             Cost              Value
                             -------------     -------------    -------------     -------------
<S>                          <C>               <C>              <C>               <C>
Banks, trusts and
     insurance companies          $ 2,423            $  580          $ 2,423            $  685
Industrial, savings
     and loans and other          337,086           372,634          173,203           119,580
                             -------------     -------------    -------------     -------------

                                 $339,509          $373,214         $175,626          $120,265
                             =============     =============    =============     =============
</TABLE>
Net investment income for the years ended December 31, 2003, 2002 and 2001 is as
follows:
<TABLE>
<CAPTION>
                                                     2003                    2002                    2001
                                              -------------------    ---------------------    -------------------
<S>                                          <C>                     <C>                      <C>
Interest on debt securities and
     cash investments                                   $985,613               $1,180,356             $1,061,759
Dividends on equity securities                               954                       20                    -
                                              -------------------    ---------------------    -------------------

                                                         986,567                1,180,376              1,061,759
Investment expenses                                     (16,185)                 (32,151)               (32,302)
                                              -------------------    ---------------------    -------------------

Net Investment Income                                   $970,382               $1,148,225             $1,029,457
                                              ===================    =====================    ===================
</TABLE>



Net realized gains and losses are summarized below:
<TABLE>
<CAPTION>

                                             2003                    2002                     2001
                                    -------------------    ---------------------    ---------------------
<S>                                 <C>                    <C>                      <C>
Debt securities                              $ 152,951              $ (100,746)                  $ 3,558
Equity securities                                    -                 (60,683)                   10,410
Fixed assets                                     1,677                        -                    2,263
                                     -------------------    ---------------------    ---------------------

                                             $ 154,628              $ (161,429)                  $16,231
                                    ===================    =====================    =====================
</TABLE>

Other long-term investments of $1,527,407 consists of, in part, a convertible
debenture loan in the amount of $1,357,407 from one of the Company's
subsidiaries, BNL Equity Corporation (BNLE), to EPSI Benefits, Inc. (EBI), a
Texas Corporation. The loan bears interest at an annual rate of 14%, payable
monthly, with principal payments commencing September 15, 2008 and a maturity
date of August 15, 2015. To protect its interest, BNLE may convert the debenture
into 51% of the outstanding common stock of EBI, subject to regulatory approval.
The note is one of several agreements entered into by the Company's subsidiaries
which expand the business relationship with EBI and its subsidiary, Employer
Plan Services, Inc. (EPSI), which provides substantially all of the A&H claims
processing and adjudication for the Company's insurance subsidiary, BNLAC. BNLE
receives a marketing fee from EBI under a related marketing agreement.

Other long-term investments also include an operating line of credit agreement
in the amount of $170,000. On October 15, 2002 BNLAC and EPSI entered into a
loan agreement whereby BNLAC will provide EPSI with a $200,000 line of credit
maturing October 15, 2004. The line of credit is at prime, 4.5%, with interest
payable monthly to BNLAC.

                                      F-13
<PAGE>


Regulatory authorities require certain Company investments to be deposited or
pledged for the benefits of our policyholders as a condition of doing business
in certain states. The carrying values of these investment deposits are
approximately $4,000,000 as of December 31, 2003 and 2002.

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.

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

                                                                 2003                                     2002
                                                   ---------------- ----------------        ---------------- ----------------
                                                      Carrying           Fair                  Carrying           Fair
                                                       Amount            Value                  Amount            Value
                                                   ---------------- ----------------        ---------------- ----------------
<S>                                                <C>              <C>                     <C>              <C>
Cash and Cash Equivalents
       (Note 1)                                        $ 3,398,661      $ 3,398,661    (a)      $ 5,660,879      $ 5,660,879    (a)
Investments-fixed maturity, available for sale
       (Note 4 & Note 1)                                 1,457,988        1,457,988    (b)        2,524,142        2,524,142    (b)
Investments-fixed maturity, held to maturity
       (Note 4 & Note 1)                                15,120,096       15,173,490    (b)        9,771,071        9,877,365    (b)
Investments -equity securities
       (Note 4 & Note 1)                                   373,214          373,214    (b)          120,265          120,265    (b)
Notes receivable (Note 4)                                1,527,407        1,527,407    (a)        1,497,407        1,497,407    (a)
Other financial instruments-Assets                         398,452          398,452    (a)          375,825          375,825    (a)
                                                    ---------------- ----------------        ---------------- ----------------

Total financial instruments-Assets                     $22,275,818      $22,329,212             $19,949,589      $20,055,883
                                                    ================ ================        ================ ================


                                                                  2003                                     2002
                                                   ----------------------------------       ---------------------------------
                                                        Carrying           Fair                  Carrying           Fair
                                                         Amount            Value                  Amount            Value
                                                    ---------------- ----------------        ---------------- ----------------
Liabilities
Premium deposit funds                                    $  40,260        $  40,260    (a)        $  43,825        $  43,825    (a)
Bonds payable                                            3,025,499        3,025,499    (a)                -                -
Supplementary contracts without life contingencies
       (Note 1)                                             69,596           69,596    (a)           89,707           89,707    (a)
Annuity deposits
       (Note 1)                                          2,777,665        2,777,665    (a)        2,847,549        2,847,549    (a)
                                                   ---------------- ----------------        ---------------- ----------------

Total financial instruments-Liabilities                  $5,913,020      $ 5,913,020              $2,981,081       $2,981,081
                                                   ================ ================        ================ ================
</TABLE>


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

F-14
<PAGE>


6.  Commitments and Contingencies and Supplemental Cash Flow Information

In 2001, the Board of Directors of the Company and BNL Equity Corporation
approved a settlement in the class action case brought by certain shareholders.
The settlement, which was approved by the Pulaski County Circuit Court and the
Arkansas Insurance Commissioner, was subject to various conditions, including
the approvals by any other applicable regulatory authorities and conditioned
upon compliance with federal and state securities laws. As of December 31, 2002,
all requisite approvals were received and redemption of the stock began in 2003.

As part of the settlement agreement, the Company issued its Bonds in the
principal amount of $1.50 in exchange for each share of common stock of BNL
owned by the members of the Class. The Bonds are for a term of twelve years,
effective December 15, 2002, with principal payable at maturity and bear
interest at the rate of 6% per annum payable annually from the previous fiscal
year's earnings of BNL and will impact earnings per share to the extent of
approximately $.013 per share. If any interest payment is not made, it will be
added to the principal and paid at maturity. The Bonds are fully callable and
redeemable at par at any time by BNL.

During 2003, the Company reclassified Contingent Long Term Liabilities and
Contingent Treasury Stock in the amount of $3,637,288 to Bonds Payable and
Treasury Stock, respectively, in accordance with the character of the litigation
settlement of 2001 and the performance of all duties there under. The $3,637,288
of Treasury Stock was retired and returned to authorized but not issued status.
The remaining Contingent Long Term Liabilities and Contingent Treasury Stock in
the amount of $660,447 represents shares that may or may not have rights to
exchange under the settlement and, as such, are contingent on determination of
their status.

In 2003, the Company made cash offers to bond holders for the purchase of bonds.
Through December 31, 2003, bond purchases resulted in a reduction of Bonds
Payable of $611,789 and gains from early extinguishments of debt of $424,727
reflected in Realized Gains in the financial statements.

The settlement is reflected in the December 31, 2003 financials as bonds payable
of $3,025,499, contingent long-term liabilities of $660,447 and contingent
treasury stock of same amount and had no effect on the Statement of Cash Flows
other than the purchase of bonds mentioned above and interest payments. In 2002
the class action settlement was reflected on the Balance Sheet as contingent
long-term liabilities of $4,269,404 and contingent treasury stock of a like
amount and had no effect on the Statement of Cash Flows. The settlement included
a provision for paying Class Counsel collectively the single sum of $575,000 for
all legal fees, costs and expenses which was paid in December, 2002.

In 2003, the Company became a third party indemnitor by entering into a series
of bond indemnity and guarantee agreements totaling approximately $445,000 in
conjunction with a marketing agreement with a third party, Employer Plan
Services Inc. (EPSI). The Company received personal guarantees from the owners
of EPSI to effectively limit potential liability under the guarantee agreement.
With regard to the bond indemnity, the Company will be obligated only if EPSI,
EPSI's parent and its shareholders, who are the primary obligors, were all to
become insolvent. Management considers the likelihood of the Company realizing a
liability under these agreements to be remote.

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


                                         2004                        $ 248,000
                                         2005                          164,000
                                         2006                           16,000
                                         2007                            2,000
                                                                 --------------

                                         Total                       $ 430,000
                                                                 ==============

Related lease cost incurred for the years ended December 31, 2003, 2002 and 2001
was $268,892, $226,769 and $225,470, respectively.

                                      F-15
<PAGE>


The Company's wholly owned insurance subsidiary may 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.

Periodically in the ordinary course of business the Company exceeds federally
insured limits in its operating accounts. Cash deposits in excess of federally
insured limits are approximately $2,800,000 at December 31, 2003.

See Note 2 for information regarding minimum capital requirements to maintain a
license to sell in various states.

7.  Liability for Unpaid Claims

Activity in the liability for unpaid claims is summarized as follows.


                                         --------------          --------------
                                             2003                     2002
                                        --------------           --------------
Balance at January 1                       $ 2,357,549              $ 2,446,935
   less reinsurance recoverable                      -                        -
                                        --------------           --------------
Net Balance at January 1                     2,357,549                2,446,935
                                        --------------           --------------
Incurred related to:
   Current year                             25,356,105               26,064,729
   Prior years                               (300,762)                 (97,979)
                                        --------------           --------------
Total Incurred                              25,055,343               25,966,750
                                        --------------           --------------

Paid related to:
   Current year                             22,777,113               23,707,180
   Prior years                               2,056,787                2,348,956
                                        --------------           --------------
Total Paid                                  24,833,900               26,056,136
                                        --------------           --------------

Net Balance at December 31                   2,578,992                2,357,549
   Plus reinsurance recoverable                 10,000                        -
                                        --------------           --------------
Balance at December 31                     $ 2,588,992              $ 2,357,549
                                        ==============           ==============

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.

Prior to October 31, 2002, the Company reinsured 100% of its Accidental Death
and Dismemberment insurance under a quota share reinsurance contract with TIG.
TIG is rated "B++" Superior. Effective November 1, 2002, the Company entered
into a quota share reinsurance agreement with Hannover Life Reassurance Company
of America. Hannover Life Reassurance Company of America accepts 90% of the
risk. Hannover Life Reassurance Company of America was rated "A" (Excellent) by
AM Best Company in 2002.

BNLAC's Accidental Death Benefit riders are reinsured 100% through a Bulk ADB
reinsurance agreement with Generali USA Life Reassurance Company ("Generali"},
formerly Business Men's Assurance Company. Generali was rated "A" (Excellent) by
AM Best Company for 2002.

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


BNLAC's Group Life insurance is reinsured under a Quota Share reinsurance
agreement with Hannover Life Reassurance Company of America. The reinsurer is
liable for 90% of the risk on the life of each insured up to the policy maximum
of $65,000 on the group life insurance. Hannover Life Reassurance Company of
America was rated "A" (Excellent) by AM Best Company for 2002.

                                      F-16

<PAGE>

BNLAC's Short Term Disability insurance is reinsured under a Quota Share
reinsurance agreement with Fortis Benefits Insurance Company of Kansas City,
Missouri. The reinsurer is liable for 75% of the risk on each policy. Fortis
Benefits Insurance Company was rated "A" by AM Best Company for 2002.

Following is a summary of reinsurance for December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>

                                                                                                                      Percentage
                                                                Ceded To        Assumed From                           Of Amount
                                                                  Other             Other                              Assumed To
December 31, 2003                             Gross Amount       Companies       Companies         Net Amounts           Net
-----------------                          ---------------    -------------    --------------     --------------     -------------
<S>                                        <C>                <C>              <C>                <C>                <C>
Life insurance in force  (in thousands)         $  37,832         $ 12,782          $ -               $  25,050          0.0%
                                           ===============    =============    ==============     ==============     =============

Premiums-life insurance                         $ 327,062         $ 34,889          $ -               $ 292,173          0.0%
Premiums-accident and health                   40,108,502           31,535            -              40,076,967          0.0%
                                           ---------------    -------------    --------------     --------------     -------------

Total insurance premiums                      $40,435,564         $ 66,424          $ -             $40,369,140          0.0%
                                           ===============    =============    ==============     ==============     =============


December 31, 2002
Life insurance in force  (in thousands)         $  37,046         $ 11,443          $ -               $  25,603          0.0%
                                           ===============    =============    ==============     ==============     =============

Premiums-life insurance                         $ 392,709         $ 42,269          $ -               $ 350,440          0.0%
Premiums-accident and health                   40,547,310           18,669            -              40,528,641          0.0%
                                           ---------------    -------------    --------------     --------------     -------------
Total insurance premiums                      $40,940,019         $ 60,938          $ -             $40,879,081          0.0%
                                           ===============    =============    ==============     ==============     =============

December 31, 2001
Life insurance in force  (in thousands)         $  34,515          $ 9,098          $ -               $  25,417          0.0%
                                           ===============    =============    ==============     ==============     =============

Premiums-life insurance                         $ 409,631         $ 41,574          $ -               $ 368,057          0.0%
Premiums-accident and health                   38,014,998           12,881            -              38,002,117          0.0%
                                           ---------------    -------------    --------------     --------------     -------------
Total insurance premiums                      $38,424,629         $ 54,455          $ -             $38,370,174          0.0%
                                           ===============    =============    ==============     ==============     =============
</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 1.75 million shares have been
authorized by the Board of Directors. 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 2003, 2002 and 2001, the Company granted
131,925, 154,855 and 119,525 stock options, respectively, with an exercise price
of $1.00 per share for those granted in 2003, $.75 per share for those granted
in 2002 and $.50 per share for those granted in 2001. There were 624,230 stock
options outstanding at December 31, 2003. The number of options expiring or
forfeited were 437,500 and 185,575 in 2003 and 2002, respectively. There were
38,525 options exercised in 2003 and 55,550 options exercised in 2002. Under the
fair value method, total compensation recognized for grant of stock options was
$0. The fair value of options granted is estimated at $0, $1,596 and $800 in
2003, 2002 and 2001. These values were computed using a binomial method as
prescribed in SFAS No. 123 and certain assumptions include a risk free interest
rate of 4.5%, expected life of 3.0 years, expected volatility of 14.6% and no
expected dividends due to statutory limitations. The estimated weighted average
remaining life of the options is 1.3 years and the weighted average exercise
price is $.67. 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.

In 2001, the Board of Directors approved the 2001 Incentive Bonus Plan for the
benefit of certain Officers of the Company. The plan provides for semi-annual
payment of cash bonuses based on 10% of consolidated pre-tax operating income.
The life company subsidiary bears its prorata share of the bonus expense based
on its pre-tax statutory profits. Bonus expense was $334,134, $287,673 and
$144,662 under this plan for 2003, 2002 and 2001, respectively.

                                      F-17
<PAGE>

In March 2002, the Board of Directors approved the 2002 Non-Director,
Non-Executive Stock Option Plan, subject to any necessary authorizations from
any regulatory authority. The plan is intended to assist the Company in
attracting and retaining individuals of outstanding ability and to promote
concurrence of their interests with those of the Shareholders of the Company.
During 2002, the Company granted 55,900 options with an exercise price of $.50.
No options were granted in 2003. The fair value of options granted is estimated
at $10,940 in 2002. This value was computed using a binomial method as
prescribed in SFAS No. 123 and certain assumptions include a risk free interest
rate of 4.5%, expected life of 10.0 years, expected volatility of 14.6% and no
expected dividends due to statutory limitations. The estimated weighted average
remaining life of the options is 9.88 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. Stock bonuses in the amount of $100,000,
$100,000 and $51,674 were granted in 2003, 2002 and 2001, respectively.

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. The Company contributed $46,138, $32,565 and $0 in 2003, 2002
and 2001, respectively.

10.  Concentrations

The majority of the Company's premium income 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. The Company
has no distinctly reportable business segments.

11.  Change in Accounting Estimate

In 2002, management evaluated the balances of certain potential liabilities that
were originally recorded on a contingent basis. It was determined that the
remaining amounts, approximately $195,000 of liability, were owed to sales
agents who never contracted to sell for the company and the possibility is
remote any claim will be made for the back commissions. Accordingly, the
liability was reduced by this amount and 2002 commission expense reduced by a
like amount.

Based on claims experience in 2003 and 2002, the estimate of claims liability at
December 31, 2002 and 2001 was overstated by approximately $300,000 and $98,000
respectively. The over estimate of this liability has contributed a
corresponding decrease in claims expense in 2003 and 2002.

12. Subsequent Events

There have been no other events subsequent to December 31, 2003 that will have a
material impact on the financial condition of the Company.


                                      F-18

<PAGE>



13. Unaudited Quarterly Results of Operations

The summary unaudited quarterly results of operations were as follows:
<TABLE>
<CAPTION>

                                                                                     Quarter Ended
                                                    ----------------------------------------------------------------------------
                                                        March 31             June 30           September 30       December 31
                                                    ------------------  -------------------  -----------------  ----------------
<S>                                                 <C>                 <C>                  <C>                <C>
2003
Premium Income                                            $10,351,344         $ 10,079,609       $ 10,204,943      $ 10,173,440
Net Investment Income                                         242,874              247,274            231,602           248,632
Marketing Fees                                                 32,333               33,915             37,353            42,506
Realized Gains (Losses)                                       (1,295)              101,754            144,455           334,440
Expenses                                                 (10,036,367)          (9,921,990)        (9,745,758)      (10,064,709)
                                                    ------------------  -------------------  -----------------  ----------------

Net Income                                                 $  588,889            $ 540,562          $ 872,595         $ 734,309
                                                    ==================  ===================  =================  ================

Earnings Per Share (Basic and Diluted)                      $    0.03             $   0.02           $   0.04          $   0.04
                                                    ==================  ===================  =================  ================


Comprehensive Income (Loss)                                $  653,980            $ 706,574          $ 792,171         $ 639,683
                                                    ==================  ===================  =================  ================


2002
Premium Income                                            $10,099,707         $ 10,180,891       $ 10,443,117      $ 10,513,705
Net Investment Income                                         292,021              306,582            299,162           250,460
Marketing Fees                                                 36,639               37,517             37,389            32,075
Realized Gains (Losses)                                       (2,329)             (41,988)           (95,961)          (21,151)
Expenses                                                  (9,895,345)         (10,008,187)       (10,123,025)       (9,840,550)
                                                    ------------------  -------------------  -----------------  ----------------


Net Income                                                  $ 530,693            $ 474,815          $ 560,682         $  34,539
                                                    ==================  ===================  =================  ================


Earnings Per Share (Basic and Diluted)                       $   0.03             $   0.02           $   0.03          $   0.04
                                                    ==================  ===================  =================  ================


Comprehensive Income (Loss)                                $  482,128            $ 479,782          $ 555,726        $1,154,262
                                                    ==================  ===================  =================  ================




</TABLE>

                                      F-19

<PAGE>


<TABLE>

===================================================================================================================================
<CAPTION>


    Item 15(d) - Schedule III, Condensed Financial Information of Registrant
                   BNL Financial Corporation (Parent Company)
                  Condensed Financial Information of Registrant
                                 Balance Sheets

                                                                  2003                 2002
                                                            ------------------  -------------------
<S>                                                         <C>                 <C>

Assets
Cash and cash equivalents                                           $  63,896            $  26,240
Investments, at fair value                                             98,000               99,500
Investment in equity securities, at fair value                            575                  680
                                                            ------------------  -------------------

            Total Investments, Including Cash and Cash
                 Equivalents                                          162,471              126,420

Accrued investment income                                               1,482                1,449
Furniture and equipment, net                                                -                    -
 Investment in Unconsolidated Subsidiaries and
     Affiliates, at equity (eliminated in consolidated
     statements)                                                   14,269,615           12,307,479
Income tax asset                                                      110,000              163,000
Other assets                                                          109,040               98,112
                                                            ------------------  -------------------

                  Total Assets                                   $ 14,652,608         $ 12,696,460
                                                            ==================  ===================

Liabilities
Contingent long-term liabilities                                    $ 660,447           $4,269,404
Bonds payable                                                       3,025,499                    -
Other liabilities                                                     122,234               18,555
                                                            ------------------  ------------------
                Total Liabilities                                   3,808,180            4,287,959
                                                            ------------------  -------------------

Shareholders' Equity
    Common stock, $.02 stated value, 45,000,000 shares
       authorized; 20,980,760, 23,311,944 shares issued
       and outstanding , respectively                                 419,616              468,393
    Additional paid-in capital                                     10,787,911           14,366,816
    Retained earnings                                                 457,336          (2,279,019)
    Contingent treasury stock 440,298; 2,846,269
     shares, respectively                                           (660,447)          (4,269,404)
    Treasury stock, at cost, 667,351; 0 shares,
         respectively                                               (337,756)                    -
    Unrealized appreciation of securities                             177,768              121,715
                                                            ------------------  -------------------
                         Total Shareholders' Equity                10,844,428            8,408,501
                                                            ------------------  -------------------

                         Total Liabilities and
                           Shareholders' Equity                   $14,652,608          $12,696,460
                                                            ==================  ===================
</TABLE>

                                      F-20
<PAGE>




<TABLE>
<CAPTION>



      Item 15(d) - Schedule III, Condensed Financial Information of Registrant
                   BNL Financial Corporation (Parent Company)
                  Condensed Financial Information of Registrant
                             Statement of Operations


                                                                      2003                2002                 2001
                                                            ------------------  -------------------  -----------------
<S>                                                         <C>                 <C>                  <C>
Income
    Net investment income                                            $  5,146             $  6,229           $  6,768
    Realized gain on debt extinguishment                              424,726                    -                  -
    Realized gains                                                        477                    -              2,608
                                                            ------------------  -------------------  -----------------
                Total Income                                          430,349                6,229              9,376
                                                            ------------------  -------------------  -----------------

Expenses
    General and administrative                                        115,019               65,148             68,907
     Interest on bonds payable                                        189,985               11,930                  -
                                                            ------------------  -------------------  -----------------

                 Total Expenses                                       305,004               77,078             68,907
                                                            ------------------  -------------------  -----------------

     Income (loss) from operations before income taxes                125,345             (70,849)           (59,531)
     Provision for income taxes (benefit)                              53,000               73,000           (17,000)
                                                            ------------------  -------------------  -----------------

     Net income (loss) before equity in undistributed
          income of subsidiaries                                       72,345            (143,849)           (42,531)
      Equity in undistributed income of subsidiaries                2,664,010            2,644,576          1,326,009
                                                            ------------------  -------------------  -----------------

                   Net Income                                      $2,736,355           $2,500,727         $1,283,478
                                                            ==================  ===================  =================

 Net Income Per Common Share (Basic and Diluted)                     $    .14             $    .12           $    .06
                                                            ==================  ===================  =================


</TABLE>
                                      F-21
<PAGE>



<TABLE>
<CAPTION>



                   BNL Financial Corporation (Parent Company)
                  Condensed Financial Information of Registrant
                            Statements of Cash Flows

                                                                   2003                2002                2001
                                                            ------------------  -------------------  -----------------
<S>                                                         <C>                 <C>                  <C>
Cash Flows from Operating Activities
      Net income                                                   $2,736,355           $2,500,727         $1,283,478
         Adjustments to compute cash provided by
            operating activities:                                 (2,932,546)          (2,502,028)        (1,326,469)
                                                            ------------------  -------------------  -----------------
               Net Cash Provided (Used) by Operating
                  Activities                                        (196,191)              (1,301)           (42,991)
                                                            ------------------  -------------------  -----------------

Cash Flows from Investing Activities
      Proceeds from maturity or redemption of
          investments                                                 100,000                    -                  -
      Purchase of fixed maturity security                           (100,000)                    -                  -
      Dividend from subsidiary                                        760,000                    -                  -
      Proceeds from sale of furniture and equipment                         -                    -              2,608
                                                            ------------------  -------------------  -----------------
               Net Cash Provided by Investing Activities              760,000                    -              2,608
                                                            ------------------  -------------------  -----------------

Cash Flows from Financing Activities
      Purchase of treasury stock                                    (421,065)                    -                  -
      Sale of treasury stock                                           62,550                6,848             57,780
      Stock options exercised                                          19,425                    -                  -
      Debt extinguishments                                          (187,063)                    -                  -
                                                            ------------------  -------------------  -----------------

               Net Cash Provided by Financing Activities            (526,153)                6,848             57,780
                                                            ------------------  -------------------  -----------------
               Net Increase (Decrease) in Cash and Cash
                   Equivalents                                         37,656                5,547             17,397

               Cash and Cash Equivalents, Beginning of
                  Period                                               26,240               20,693              3,296
                                                            ------------------  -------------------  -----------------

               Cash and Cash Equivalents, End of Period             $  63,896            $  26,240          $  20,693
                                                            ==================  ===================  =================

</TABLE>
                                      F-22
<PAGE>
EXHIBIT 31.2


                    Certification of Chief Executive Officer
                                   Section 302

I, Wayne E. Ahart, certify that:

     1. I have reviewed this Annual report on Form 10-K of BNL Financial
Corporation;

    2. Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

    3. Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

    4. The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

                 a) designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

                b) evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

               c) presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

    5. The registrant's other certifying officers and I have disclosed, based on
       our most recent evaluation, to the registrant's auditors and the audit
       committee of registrant's board of directors (or persons performing the
       equivalent function):

               a) all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

                b) any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

     6. The registrant's other certifying officers and I have indicated in this
       annual report whether or not there were significant changes in internal
       controls or in other factors that could significantly affect internal
       controls subsequent to the date of our most recent evaluation, including
       any corrective actions with regard to significant deficiencies and
       material weaknesses.



      Date: March 30, 2004

      /s/ Wayne E. Ahart
     -----------------------
      Wayne E. Ahart
      Chairman of the Board

                                       E-1
<PAGE>

EXHIBIT 31.2

                    Certification of Chief Financial Officer
                                   Section 302

I, Barry N. Shamas, certify that:

     1. I have reviewed this Annual report on Form 10-K of BNL Financial
Corporation;

    2. Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

    3. Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

    4. The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

               a) designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

               b) evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

               c) presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

    5. The registrant's other certifying officers and I have disclosed, based on
       our most recent evaluation, to the registrant's auditors and the audit
       committee of registrant's board of directors (or persons performing the
       equivalent function):

               a) all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

               b) any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

     6. The registrant's other certifying officers and I have indicated in this
       annual report whether or not there were significant changes in internal
       controls or in other factors that could significantly affect internal
       controls subsequent to the date of our most recent evaluation, including
       any corrective actions with regard to significant deficiencies and
       material weaknesses.



      Date: March 30, 2004

       /s/ Barry N. Shamas
      -----------------------
      Barry N. Shamas
      Executive V. P.

                                       E-2

<PAGE>

Exhibit 32.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                          OF BNL FINANCIAL CORPORATION
                         PURSUANT TO 18 U.S.C. ss. 1350

In connection with the accompanying report on Form 10K for the period ending
December 31, 2003 and filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Wayne E. Ahart, Chief Executive Officer of BNL
Financial Corporation, hereby certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      1. The Report fully complies with the requirements of Section 13 (a) or 15
         (d) of the Securities Exchange Act of 1934; and

      2. The information contained in this Report fairly presents, in all
         material respects the financial condition and results of operations of
         the Company.


/s/ Wayne E. Ahart
-----------------------

Wayne E. Ahart
Chief Executive Officer
March 30, 2004

Exhibit 32.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                          OF BNL FINANCIAL CORPORATION
                         PURSUANT TO 18 U.S.C. ss. 1350

In connection with the accompanying report on Form 10Kfor the period ending
December 31, 2003 and filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Barry N. Shamas, Chief Financial Officer of BNL
Financial Corporation, hereby certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      1. The Report fully complies with the requirements of Section 13 (a) or 15
         (d) of the Securities Exchange Act of 1934; and

      2. The information contained in this Report fairly presents, in all
         material respects the financial condition and results of operations of
         the Company.

/s/ Barry N. Shamas
-----------------------

Barry N. Shamas
Chief Financial Officer
March 30, 2004


                                      E-3