SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                              EXCHANGE ACT OF 1934

           For the Fiscal Year Ended December 31, 1997 [Fee Required]
                                       or
          ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

  For the transition period from _____________to_____________ [No Fee Required]

Commission File No. 0-16880

--------------------------------------------------------------------------------
                            BNL FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

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

      301 Camp Craft Road, Suite 200
              Austin, TX                                            78746
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code: (512) 327-3065

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

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

                           Common Stock, No Par Value
                                (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No __

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

BNL Financial Corporation revenues for fiscal year 1997 were $12,468,221.

The estimated  aggregate market value of the voting stock held by non-affiliates
of the Registrant as of December 31, 1997, was  approximately  $3,678,533  based
upon the  market  value of such  stock  sold as of such date (see also Item 5 of
Form 10-KSB regarding the limited trading market for the Company's shares).

As of December  31, 1997,  the  Registrant  had  outstanding  23,173,149  shares
(excluding  treasury  shares)  of Common  Stock,  no par value  (which  includes
10,911,373 shares owned by affiliates of the Registrant).

                       DOCUMENTS INCORPORATED BY REFERENCE

      Location in Form 10-KSB                  Incorporated Document

Transitional Small Business Disclosure Format Yes ___  No _X__

Total # of pages including cover page ___

<PAGE>




                                     PART 1


                                ITEM 1. BUSINESS

General

BNL  Financial  Corporation  (the  "Company"  or  "Registrant")  is an insurance
holding  company   incorporated   in  Iowa  in  January,   1984.  The  Company's
administrative  offices are located at 301 Camp Craft Road,  Suite 200,  Austin,
Texas 78746; its telephone number is (512) 327-3065

The  Company  has  three  wholly-owned  subsidiaries,   BNL  Equity  Corporation
("BNLE"),  Brokers National Life Assurance  Company  ("BNLAC") and BNL Brokerage
Corporation.  BNL Brokerage  Corporation was formed on November 30, 1995 for the
purpose of making  available  insurance  products from other companies to agents
and brokers  appointed  to BNLAC.  Such  products do not  compete  with  BNLAC's
policies and BNL Brokerage receives commissions on such sales.


                ----------------------------------------------------
                |                                                  |
                |             BNL Financial Corporation            |
                |                                                  |
                ----------------------------------------------------
                                         |
                ----------------------------------------------------
                |                                                  |
                |             BNL Equity Corporation               |
                |                                                  |
                ----------------------------------------------------
                                         |
                ----------------------------------------------------
                |                                                  |
                |     Brokers National Life Assurance Company      |
                |                                                  |
                ----------------------------------------------------
                                         |
                ----------------------------------------------------
                |                                                  |
                |             BNL Brokerage Corporation            |
                |                                                  |
                ----------------------------------------------------

 Industry Segments

The operations of the Company are conducted  through  BNLAC,  which in 1997 sold
life and accident and health insurance policies in 25 states. BNLAC began direct
marketing of its  insurance  products in Iowa in October,  1987.  Prior to 1992,
BNLAC 's insurance  products were sold only in Iowa.  The Company has no foreign
operations.

BNLAC has  Certificates of Authority in 27 states to offer life and accident and
health insurance on an individual and group basis. Currently the product that is
producing the most premium is group dental insurance sold primarily on a payroll
deduction basis.

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

Sales and Marketing

The Company markets its products through independent agents and brokers. BNLAC's
current marketing emphasis is the development of specialized or "niche" life and
health insurance  products that can be sold as an add-on or companion product to
BNLAC's line of dental insurance products.  BNLAC currently offers an accidental
death life insurance policy, a payroll  deductible  10-year level term policy, a
family level term insurance policy with its line of dental  insurance  policies.
These  products  are all  designed  to be sold as  group  or  payroll  deduction
policies.

                                      I-1
<PAGE>

<TABLE>
<CAPTION>

Statistics by line of business are as follows (gross before reinsurance):
                                                              1997              1996
                                                        -----------------   --------------
I. Annual Premiums and Annuity Deposits In Force:
<S>                                                     <C>                 <C>

Ordinary Life Insurance                                         $371,000         $387,000
Individual Annuities(1)                                          249,000          298,000
Group Dental Insurance                                        14,912,000        7,804,000
Accidental Death Insurance                                        59,000           70,000
                                                        -----------------   --------------

          Total                                              $15,591,000       $8,559,000
                                                        =================   ==============


II. Collected Premiums and Annuity Deposits:
Ordinary Life Insurance                                      $362,000              $393,000
Individual Annuities(1)                                       276,000               322,000
Group Dental Insurance                                     10,877,000             6,926,000
Accidental Death Insurance                                     58,000                72,000
                                                      ----------------     -----------------

          Total                                           $11,573,000            $7,713,000
                                                      ================     =================

III. Amount of Insurance:
Ordinary Life Insurance                                   $37,000,000           $34,000,000
Accidental Death Insurance                                119,000,000           148,000,000
                                                      ----------------     -----------------

          Total                                          $156,000,000          $182,000,000
                                                      ================     =================
<FN>
(1) Classified as a deposit liability on the financial statements.
</FN>
</TABLE>

Premiums collected by state are reflected in the following table:
<TABLE>
<CAPTION>
                                                                                Group Dental &
      State                  Life Premiums                Annuity              Accidental Death                 Total
-------------------       --------------------      --------------------     ----------------------      --------------------
<S>                      <C>                        <C>                      <C>                         <C>
Alabama                              $  3,212                      $  -                 $  554,308                $  557,520

Arkansas                               26,218                         -                  1,678,121                 1,704,339

Colorado                                   83                         -                    489,958                   490,041

Delaware                                  349                         -                     59,875                    60,224

Florida                                 2,791                         -                    146,307                   149,098

Georgia                                 1,513                         -                    938,890                   940,403

Idaho                                       -                         -                     98,504                    98,504

Illinois                                  772                         -                    431,299                   432,071

Indiana                                11,922                         -                    830,576                   842,498

Iowa                                  282,008                   275,872                  1,188,252                 1,746,132

Kentucky                                    -                         -                     33,241                    33,241

Louisiana                               3,032                         -                    321,426                   324,458

Michigan                                1,883                         -                  1,197,002                 1,198,885

Minnesota                              14,214                         -                    621,110                   635,324

Mississippi                             3,387                         -                  1,067,293                 1,070,680

Missouri                                1,006                         -                    398,005                   399,011

Montana                                     -                         -                      8,791                     8,791

                                      I-2
<PAGE>

Nebraska                                   60                         -                     32,034                    32,094

Ohio                                    1,928                         -                    211,219                   213,147

Oklahoma                                1,834                         -                    166,072                   167,906

Oregon                                      -                         -                      2,859                     2,859

Pennsylvania                            4,160                         -                    209,077                   213,237

South Dakota                                -                         -                      9,147                     9,147

Tennessee                                   -                         -                     23,352                    23,352

Utah                                    1,721                         -                    218,203                   219,924
                          ====================      ====================     ======================      ====================

Total                                $362,093                  $275,872                $10,934,921               $11,572,886
                          ====================      ====================     ======================      ====================
</TABLE>

As of December 31, 1997, BNLAC had appointed 1,964 general agents and brokers in
26 states to market  its  policies  compared  to 1,193  agents  and  brokers  on
December 31, 1996.

On all of its products  except the dental  policies,  BNLAC follows the industry
practice of paying a large portion of the first year's premiums and a relatively
small portion of subsequent  premiums as commissions  to agents.  For the dental
policies,  commissions  are level in all years which is typical for this type of
business.  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.

Reinsurance

As is customary among insurance companies,  BNLAC reinsures with other insurance
companies  portions  of the life and  accident  and  health  insurance  risks it
underwrites.  The  primary  purpose of  reinsurance  agreements  is to enable an
insurance company to reduce the amount of its risk on any particular policy and,
by reinsuring  the amount  exceeding  the maximum  amount which it is willing to
retain,  to  write  policies  in  amounts  larger  than it  could  without  such
agreements.

An effect of reinsurance is to transfer a portion of the profit,  if any, on the
insurance  ceded to the  reinsurer.  Even  though a  portion  of the risk may be
reinsured,  BNLAC will remain liable to perform all  obligations  imposed by the
policies  issued by it and is liable if its  reinsurer  should be unable to meet
its  obligation  under the  reinsurance  agreements.  BNLAC will  determine  the
insurability  of the  applicant  prior  to  submitting  the  application  to the
reinsurer.   However,   if  reinsurers   reject  any  such   application  as  an
unsatisfactory risk, BNLAC will also reject the application.

The two principal types of life insurance  reinsurance  treaties commonly in use
in the industry and by BNLAC are "automatic" and "facultative" agreements. 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
a survey of each individual application.

A. Life and Accident Insurance.

BNLAC reinsures the "Family  Shield"  accidental  death life insurance  policies
with Business Mens Assurance Company (BMA), Kansas City, Mo., under an automatic
treaty where BMA assumes  liability  for all risks over  $25,000.  The rating by
A.M. Best Company of Business Mens  Assurance  Company was "A"  (Excellent)  for
1996.

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

The following chart shows life insurance in force net of reinsurance for each of
the five years ended December 31.
                                      I-3
<PAGE>

<TABLE>
<CAPTION>
                                            Gross                                                          Net
                                          Insurance           Reinsurance         Reinsurance           Insurance
                                           In Force              Ceded              Assumed             In Force
                                       -----------------    ----------------    -----------------    ----------------
          <S>                          <C>                  <C>                 <C>                  <C>

          Life Insurance
               1997                         $36,828,000         $11,971,000           $8,226,000         $33,083,000
               1996                          33,796,000          11,091,000            7,252,000          29,957,000
               1995                          35,310,000          11,486,000            6,631,000          30,455,000
               1994                          36,280,000          11,188,000            5,624,000          30,716,000
               1993                          38,485,000          14,142,000            5,524,000          29,867,000


    Accidental Death Insurance
               1997                        $119,000,000        $112,250,000                   $0          $6,750,000
               1996                         148,000,000         139,725,000                    0           8,275,000
               1995                         180,000,000         164,426,000                    0          15,574,000
               1994                         208,000,000         190,350,000                    0          17,650,000
               1993                         239,345,000         219,583,000                    0          19,762,000
</TABLE>

B. Group Dental Insurance.


Prior to January 1, 1995,  group dental  insurance  was  reinsured  with UniLife
Insurance  Company  ("UniLife")  of San  Antonio,  Texas  under  a  quota  share
reinsurance  agreement  whereby UniLife assumed 90% of the risk on each of these
policies. BNLAC received a fee for the portion of risks reinsured by UniLife and
UniLife performed all the administrative  functions related to these policies at
no cost to BNLAC.  Effective  January 1, 1995, BNLAC reinsured 50% of the dental
business  to UniLife  and no longer  received a fee for the portion of the risks
reinsured by UniLife. In addition,  BNLAC paid UniLife claim administration fees
equal to 4% of net collected premiums on the portion of the risk retained.

In March  1995,  BNLAC  was  notified  that  UniLife  was  discontinuing  active
marketing and  underwriting  of insured  dental  policies and  consequently  was
terminating the quota share reinsurance  agreement and administrative  agreement
with  BNLAC,  effective  January  1,  1996 and  March  31,  1996,  respectively.
Effective June 1, 1995, BNLAC amended its reinsurance  agreement so that all new
dental business  written was 100% insured by BNLAC.  On November 1, 1995,  BNLAC
terminated its reinsurance  agreements with UniLife and began  administering and
retaining 100% of the group dental business.

The  following  chart shows group dental  insurance  premiums  collected  net of
reinsurance for each of the five years ended December 31.
<TABLE>
<CAPTION>


                                            Gross                                     Net
                                           Premiums            Premiums             Premiums              Ceding
      Group Dental Insurance              Collected              Ceded             Collected               Fees
                                       -----------------    ----------------    ----------------- -- -----------------
               <S>                     <C>                  <C>                 <C>                  <C>

               1997                         $10,877,000                  $0          $10,877,000                   $0
               1996                           6,926,000                   0            6,926,000                    0
               1995                           4,159,000           1,655,000            2,504,000                    0
               1994                           2,640,000           2,376,000              264,000              180,000
               1993                           1,241,000           1,117,000              124,000              109,000
</TABLE>

The following chart shows group dental  insurance claims paid net of reinsurance
and  incurred  loss  ratios for each of the five years  ended  December  31. The
incurred loss ratio represents the ratio of incurred claims to premiums earned.
<TABLE>
<CAPTION>
                                            Gross                Ceded                Net                Incurred
      Group Dental Insurance              Claims Paid           Claims            Claims Paid             Loss %
       ---------------------           -----------------    ----------------    -----------------    -----------------
               <S>                     <C>                  <C>                 <C>                  <C>
               1997                          $7,842,000                  $0           $7,842,000                75.7%
               1996                           4,653,000                   0            4,653,000                73.6
               1995                           2,719,000           1,211,000            1,508,000                72.5
               1994                           1,822,000           1,639,000              183,000                74.8
               1993                             858,000             772,000               86,000                73.2

</TABLE>
                                      I-4
<PAGE>
Investments

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


                     Net             Net Return on
                  Investment         Mean Invested
   Year             Income               Assets
------------    ---------------    -------------------
   1997               $790,000            7.1%
   1996                757,000            6.8
   1995                734,000            6.6
   1994                674,000            6.5
   1993                599,000            6.1

Reference is made to Note 4 of the Notes to Consolidated  Financial  Statements,
page E-8,  regarding  realized and unrealized gains and losses on investments in
securities and the change in difference  between cost  (amortized cost for fixed
maturities) and market value.

As of December 31, 1997,  BNLAC and the Company  owned taxable  municipal  bonds
(the "bonds")  representing  investment in three issuers by whom the proceeds of
the securities were invested in guaranteed  investment  contracts with Executive
Life  Insurance  Company  ("Executive  Life").  Executive  Life was placed under
rehabilitation  by the California  regulators in 1991. At that time all interest
payments on the bonds were discontinued.

On March 31, 1991 the  Company  elected to reduce the book value of the bonds to
25% of their  $700,000  face value  (approximate  market value at that time) and
recorded a loss of $522,282 as a result.

In 1993, a  rehabilitation  plan was approved for Executive Life. As of December
31, 1997, the Company and BNLAC had received  $746,798 of principal and interest
on the bonds  since  1991 when they went into  default.  The bonds  have a total
market  value of $0; which  indicates  the  rehabilitation  program has paid out
substantially the entire principal available now and in the future on the bonds.

Special  Factors  Relating to Accounting and  Regulatory  Reporting of Insurance
Companies

State insurance laws and regulations  generally govern the accounting  practices
and  prescribe  the  procedures  and form for  financial  reports  of  insurance
companies filed with state  insurance  regulatory  agencies.  Although there are
some  differences  among the various  states,  there is a substantial  degree of
uniformity  by reason of the  policies  adopted by the National  Association  of
Insurance  Commissioners.  Reports prepared in accordance with the prescribed or
permitted  accounting practices are primarily intended to reflect the ability of
an  insurance  company  to meet  its  obligations  to  policyholders  and do not
necessarily  reflect  going-concern  value.  Balance sheets  prepared under this
approach are designed  primarily to reflect the financial  position of insurance
companies  from  the  standpoint  of  solvency.  Certain  of the  prescribed  or
permitted  accounting  practices for statutory  purposes differ in some respects
from  generally  accepted  accounting  principles  followed  by  other  business
enterprises in determining financial position and results of operations.

Life  insurance  company  gross  income is generated  from two primary  sources,
premiums and  investment  income.  The cost of placing new policies in force may
exceed  the  premiums  received  from  those  policies  for the first  year.  In
subsequent  policy  years,  some of these costs,  such as  commissions,  medical
examinations and investigative  expenses,  may be reduced  substantially.  Also,
policy  lapses and  surrenders  are  generally  greater in the first  years that
policies are in force.  Although the costs of acquiring new  insurance  business
are  large  and  generally  not  duplicated  thereafter,   statutory  accounting
procedures for insurance  companies and state laws and  regulations  designed to
protect  policyholders  provide that the entire amount of acquisition costs must
be expensed currently instead of being spread over the life of the policies.  As
a result  of this and other  factors,  new  insurance  companies  normally  show
little, if any, profit on a statutory basis in their early years of operations.

The interests of policyholders  and of the public in the financial  integrity of
the  life  insurance  industry  make it  important  that  the  solvency  of life
insurance companies be demonstrated to regulatory authorities.  Consideration of
these  interests and the  uncertainties  inherent in the future have resulted in
the  accounting  practices  prescribed  or  permitted  by  insurance  regulatory
                                      I-5
<PAGE>

authorities.  Solvency must be  continuously  demonstrated  for a life insurance
company to be permitted to offer its services to the public.

A large portion of the first year and renewal premiums are required to be placed
in reserve for the protection of  policyholders.  The amount of such reserves is
based  upon  actuarial  calculations  and its annual  increase  is treated as an
expense for insurance  accounting  purposes.  Premiums create income only to the
extent  that  they  exceed  reserve  requirements  and  commissions.  Regulatory
authorities  require that actuarial  calculations  of reserves use  conservative
assumptions  as to  mortality  and future  interest  earnings  on the  reserves.
Accordingly,  the  amounts  of  premiums  available  to  create  income  will be
decreased.  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 the general use of
an insurance  company,  a company is free to invest such  reserves in accordance
with  applicable  state  laws.  Interest  earned on  invested  reserves  becomes
operating income to the life insurance company to the extent that it exceeds the
interest required to be added to the reserves.

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

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

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

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

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

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

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

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

There is no assurance that BNLAC will be profitable when reporting in conformity
with generally accepted  accounting  principles,  and in any event, no dividends
may be paid to the Company by BNLAC unless such  dividends  would be permissible
under the statutory accounting requirements.

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
on policies due to the fact that the profits thereon accrue to the policyholders
rather  than the  shareholders.  In 1996  BNLAC  was  assigned  an A. M.  Best's
financial performance rating of "B-" (fair).

BNLAC  focuses  its  marketing  efforts  on  sales of life,  health  and  dental
insurance  products to small and medium size groups of insureds such as employee
groups and members of associations. Group sizes sold by BNLAC range in size from
                                      I-6
<PAGE>

three to approximately 1,200 persons. BNLAC also sells life and health insurance
products to individuals. BNLAC is a relatively 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 line of dental insurance products offered by BNLAC are attractive to brokers
and general  agents  because  such  products can be sold as an "add-on" to group
insurance products.  Second, BNLAC strives to provide a high level of service to
agents  by  offering  insurance  products  that  meet  their  clients  needs and
individualized  service in the administration of such products.  Finally,  BNLAC
attempts to structure the levels of premiums, benefits and commissions on dental
insurance products to compare favorably with competitors.

Insurance Regulations

BNLAC is  subject to  regulation  and  supervision  by the states in which it is
admitted  to  transact  business.  The  laws of  these  jurisdictions  generally
establish  supervisory agencies with broad administrative and supervisory powers
relative to granting  and  revoking  licenses to transact  business,  regulating
trade practices, establishing guaranty associations, licensing agents, approving
policy forms, regulating premium rates for some lines of business,  establishing
reserve requirements,  regulating competitive matters,  prescribing the form and
content  of  required   financial   statements  and  reports,   determining  the
reasonableness  and adequacy of statutory capital and surplus and regulating the
type and amount of investments permitted.

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

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

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

The NAIC has adopted  model RBC  requirements,  effective  December 31, 1993, 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 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
                                      I-7
<PAGE>

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,  1997,  indicated  that the
ratios of total adjusted capital to RBC for BNLAC would have been  significantly
above the Company Action Level.

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

The Arkansas  Insurance  Department  in February,  1997  conducted the triennial
statutory examination for the three year period ending December 31, 1995. During
the course of the examination, the Department notified the Company that Arkansas
law required that all bonds and other investments held by custodial agreement be
registered  with the  Depository  Trust  Corporation  (DTC)  through  a  custody
agreement  with an  Arkansas  bank.  As a result of the 1994 merger of Iowa Life
Assurance  Company  and  United  Arkansas  Life  Assurance  Company,  BNLAC  had
$4,130,392 of securities  registered with DTC through a custodial agreement with
a fully  insured  investment  banking  firm.  This resulted in a proposal by the
Arkansas Insurance Department to nonadmit these assets.

As noted in the final  examination  order of the Insurance  Commissioner  of the
State of Arkansas dated June 5, 1997,  BNLAC  satisfied the  Department  rule by
moving the custodial agreement to First Commercial Bank, Little Rock,  Arkansas.
The department  also proposed that a 1996 expense of $99,000 be  reclassified to
1995. This amount  represents an under estimate of the incurred but not reported
dental claims for 1995.

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

Personnel

As of  February  28,  1998,  BNLAC had four  executive  officers,  32  full-time
administrative personnel and 1 part-time employee.  BNLAC's administrative staff
supervises services for the agency force, policy  underwriting,  policy issuance
and service, billing and collections,  life claims,  accounting and bookkeeping,
preparation of reports to regulatory  authorities and other matters. The Company
has not  experienced  any work  stoppages or strikes and considers its relations
with its employees and agents to be excellent.  None of the Company's  employees
is presently  represented by a union. BNLAC uses a third party  administrator to
process dental claims.

                               ITEM 2. PROPERTIES

Neither the Company, BNLE or BNLAC own any real estate.

BNLAC  leases 288 square feet of office  space in Des Moines,  IA at a rental of
$584 per month ($7,008 per year).  The rent includes the services of a secretary
that is shared with other tenants of the building.

On June 1, 1994,  BNLAC  entered  into a 5 year lease for 5,588  square  feet of
office  space in Austin,  Texas at a monthly  rent of $6,053  ($72,636 per year)
during  1996 and 1997,  plus pro rata  operating  expenses.  The Company has its
administrative offices at this location.

During the first half of 1996 BNLE leased  office  space in North  Little  Rock,
Arkansas at a monthly rate of $1,800  ($21,600 per year).  At June 1, 1996, BNLE
entered into a three year lease at a monthly  rate of $1,200  ($14,400 per year)
and moved its office to Sherwood, Arkansas. BNLAC shares 50% of the rental cost.

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

                            ITEM 3. LEGAL PROCEEDINGS

On April  30,  1996,  Myra Jo  Pearson  and Paul  Pearson  filed a class  action
complaint in the Circuit Court of Pulaski County, Arkansas (3rd Division) naming
the Company,  BNL Equity  Corporation  and several  officers of the Company,  as
defendants.  The  plaintiffs  have  alleged  that the  defendants  violated  the
Arkansas  Securities  Act in  several  respects  in  connection  with the public
offerings of securities made by United Arkansas  Corporation  ("UAC") (now known
as BNL Equity Corporation) during the period from January 1989, until May, 1992
                                      I-8
<PAGE>

The Company has  retained  the firm of Friday,  Eldredge & Clark,  Little  Rock,
Arkansas,  to handle the defense of the action on behalf of all defendants.  The
company  believes the action is frivolous and that  substantial  evidence exists
which directly refutes the allegations.  The Company is vigorously defending the
matter and is in the process of seeking sanctions against appropriate parties.

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

The Company's  Annual  Meeting of  Shareholders  was held on May 20, 1997 in Des
Moines, Iowa. At the annual meeting,  the following  individuals were elected to
the Company's Board of Directors.

<TABLE>
<CAPTION>
<S>                                           <C>                                          <C>
Wayne E. Ahart                                Hayden Fry                                   C. James McCormick

C. Donald Byrd                                John Greig                                   Robert R. Rigler

Kenneth Tobey                                 Roy Keppy                                    Chris Schenkel

Barry N. Shamas                               Thomas Landry                                L. Stanley Schoelerman

Cecil Alexander                               Roy Ledbetter                                Orville Sweet

Richard Barclay                               John E. Miller

Eugene A. Cernan                              James A. Mullins

</TABLE>

12,457,328 shares voted in favor of Messrs. Barclay, and Greig; 12,454,328 voted
in favor of Mr. Miller;  12,453,326  shares voted in favor of Messrs.  Tobey and
Shamas;  12,453,128  shares  were  voted  in  favor of  Schoelerman  and  Sweet;
12,452,126  shares voted in favor of Messrs.  Ahart and Byrd;  12,451,226 shares
voted in favor of Alexander,  Cernan, Ledbetter;  12,449,726 shares in favor Mr.
Rigler; 12,448,226 shares voted in favor of Mr. Mullins; 12,448,142 shares voted
in favor of Mr.  McCormick;  12,447,026  shares voted in favor of Mr.  Schenkel;
12,446,642 shares voted in favor of Mr. Landry; 12,445,142 shares voted in favor
of Mr. Keppy;  12,440,060  shares voted in favor of Mr. Fry.  94,516 shares were
withheld from all directors.

The  shareholders  ratified the  selection of Smith,  Carney & Co.,  p.c. as the
Company's  independent  auditors  for the year  ending  December  31,  1997 with
12,147,860  shares  voted in favor,  47,430  shares  voted  against  and  96,052
abstained.

                                      I-9

<PAGE>


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

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

Market for Stock

The stock of the Company is traded by Starmont Capital Ltd. Des Moines,  Iowa on
a workout  basis.  There has been a limited  trading  market  for the  Company's
securities  during 1997.  During the year there were a total of four stock sales
all at a price of $.30 a share.

From  1989  until  1992,  BNL  Equity  Corporation   (formerly  United  Arkansas
Corporation)  offered  Arkansas  residents  1,000,000 shares of common stock and
500,000  shares  of  preferred  stock  in  units of two  common  shares  and one
preferred  share at $10 per unit.  As a condition  of the public  offering,  the
13,500,000  shares  issued to organizers in February 1989 were placed in escrow.
On May 1, 1992 the  organizers'  shares were reduced to 5,563,212 in  accordance
with an agreement whereby the organizers could not collectively own more than 60
percent of the number of shares of common stock outstanding.

An escrow agreement with an effective date of February 28, 1994,  prohibits sale
or transfer of the organizers' shares until any one of the following  conditions
is satisfied:

a.   The  Company  has net  earnings  per share per year,  after tax and  before
     extraordinary  items,  of $1.86 for any three  years  following  the public
     offering.

b.   A tender  offer or an offer to merge or  otherwise  acquire  the  Company's
     common  stock at a per  share  price of at least  $3.34 per share of common
     stock and having a market value at the effective  date of the tender offer,
     merger, or other acquisition of at least $3.71 per share of common stock.

c.   At any time after  February 28, 1995, the public market price exceeds $3.25
     for a term of 90 trading days and for 30 consecutive  trading days prior to
     a request for termination of the escrow.

d.   If insurance business in force reaches the following levels:

       $100,000,000 - 50% of escrowed shares will be released.

       $125,000,000 - 25% of escrowed shares will be released.

       $150,000,000 - remaining 25% of escrowed shares will be released.

e.   All escrowed  shares will be released August 1, 1999, if they have not been
     released prior to that time.

Holders

As of  December  31,  1997,  there  were  4,778  shareholders  of  record of the
Company's common stock.

Dividends

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

Transfer Agent and Registrar

First Commercial  Trust,  Little Rock,  Arkansas,  is the Registrar and Transfer
Agent for the Company's common stock.

                                      II-1
<PAGE>


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

Liquidity and Capital Resources

At December 31, 1997,  the Company had liquid assets of $714,539 in cash,  money
market savings accounts,  and short-term  certificates of deposit;  all of which
can readily be converted to cash.

The major components of operating cash flows are premiums,  annuity deposits and
investment  income.  In 1997,  BNLAC  collected  $11.6  million of premiums  and
annuity deposits (gross before  reinsurance) and $859,749 of investment  income.
Another  source of cash  flow is from the sale of  investments  which,  in 1997,
produced gains totaling $75,754.

The  Company's  investments  are  primarily in U.S.  Government  and  Government
Agencies  ($11,057,471)  and other  investment grade bonds ($708,476) which have
been marked to market and classified as available for sale. The Company does not
hedge its investment income through the use of derivatives.

Management  believes that liquid assets along with investment and premium income
exceed the necessary long and short-term liquidity  requirements and the Company
will not require an external source of funds for its liquidity requirements.

The  Company's  insurance  operations  are  conducted  through its wholly  owned
subsidiary,  BNLAC. At December 31, 1997 BNLAC had statutory capital and surplus
of $5,136,292.  The Company and BNL Equity Corporation  contributed $500,000 and
$250,000 to the gross paid in and contributed  surplus of BNLAC in February 1997
and November 1997, respectively. BNLAC is required to maintain minimum levels of
statutory  capital  and  surplus as a condition  to  conducting  business in the
states  in which  it is  licensed.  Each of these  states  had  different  rules
regarding the minimum level of capital and surplus  required in that state.  The
State of Arkansas,  which is the legal domicile of BNLAC,  requires a minimum of
$2,300,000  in capital and  surplus.  Management  believes  it will  continue to
satisfy the requirements of all states.

Results of Operations

Premium  income for 1997 was  $11,532,718  compared to  $7,245,660  in 1996,  an
increase of $4,287,058.  The increase in premium income is due to an increase in
group dental insurance premiums written during 1997.

Net  investment  income was $859,749 in 1997 and $863,940 in 1996.  The decrease
was due to the receipt of  interest  of $30,204 in 1996,  compared to $14,253 in
1997,  on certain  taxable  municipal  bonds that had been in default since 1991
(see note 4). The bonds have a total  market value of $0;  which  indicates  the
rehabilitation program has paid out substantially the entire principal available
now and in the future on the bonds.

Interest and  principal  payments  will  continue on the GIC bonds through 1998,
though the majority of the funds have been distributed at this time.

Realized gains were $75,754 in 1997 compared to $96,863 in 1996.  Realized gains
included $42,328 and $30,204 for 1997 and 1996 respectively, of partial payments
of principal on certain taxable municipal bonds that had been marked down to 25%
of par value in 1991.  The balance of the  realized  gains in 1997 and 1996 were
due to gains on bonds  sold in the  normal  course of the  Company's  investment
activity.

Increases  in  liability  for future  policy  benefits  were  $(39,601)  in 1997
compared to $55,407 for the same period in 1996.  The decrease of $95,008 is due
to an increase in the number of  surrendered  policies in 1997 compared to 1996.
The increase in liability for future policy  benefits  will  fluctuate  annually
based on the persistency of the life insurance in force and the sale of new life
insurance policies.

Policy benefits and other  insurance costs were  $10,221,754 in 1997 compared to
$6,353,988 in 1996.  The increase in 1997 was due to claims and  commissions  on
the increased dental insurance premiums written.  In addition,  group dental and
health  benefits  increased  due to an increase in the incurred  loss ratio from
73.6% in 1996 to 75.7% in 1997.

Amortization  of  deferred  policy  acquisition  costs was  $40,972  in 1997 and
$39,894 in 1996. Amortization of deferred policy acquisition costs should remain
fairly  constant as the asset is reduced over the upcoming  years but could vary
in relation to new life insurance sales.
                                      II-2
<PAGE>

Operating  expenses were $2,780,237 in 1997 and $2,443,908 in 1996. The increase
was  primarily  due  to an  increase  in  claims  administrative  expense,  data
processing  expense,  salaries and office supplies expense.  The increase in all
four  expense  items is  attributable  to the increase in volume of group dental
business  processed  in 1997.  An  increase in legal  expenses of  approximately
$30,000 was another primary factor in the increase in operating expenses.

Taxes,  other than on income were  $396,471 for 1997 and $253,238 for 1996.  The
1997 increase was due to an increase in premium  taxes on the  increased  dental
insurance premiums collected.

The  consolidated  net loss for 1997 was $931,612  compared to $939,972 in 1996.
The  Company's  net loss for 1997  decreased  even though the  company  absorbed
significant  costs  associated  with the  increase in first year  business  that
resulted in the 50% increase in collected premiums. To facilitate improvement in
1998 net income  results,  BNLAC is focusing on reducing its dental  claims loss
ratio. In early 1998, BNLAC filed for increases in new business premium rates on
three of its four  group  dental  plans,  modified  benefits  on two of its four
dental plans, increased renewal rates on groups with high loss ratios, increased
rates in certain  geographic areas.  Further,  BNLAC began negotiations to enter
into preferred provider arrangements to reduce claims. If BNLAC's strategic plan
to reduce the loss ratio is successful, the Company's net loss should decline in
1998.



               ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None




                                      II-3
<PAGE>



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


                                    PART III

           ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of the Company are as follows:

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

Wayne E. Ahart                  57                1984                   Chairman of the Board and Director

C. Donald Byrd                  56                1984                Vice Chairman of the Board and Director

Kenneth Tobey                   39                1994                               President

Barry N. Shamas                 50                1984                      Executive Vice President,
                                                                              Treasurer and Director

Cecil Alexander                 61                1994                                Director

Richard Barclay                 60                1994                                Director

Eugene A. Cernan                63                1994                                Director

Hayden Fry                      68                1984                                Director

John Greig                      62                1984                                Director

Roy B. Keppy                    74                1984                                Director

Tom Landry                      72                1984                                Director

Roy Ledbetter                   67                1994                                Director

John E. Miller                  68                1994                                Director

James A. Mullins                63                1984                                Director

C. James McCormick              72                1984                                Director

Robert R. Rigler                74                1989                                Director

Chris Schenkel                  73                1994                                Director

L. Stan Schoelerman             72                1984                                Director

Orville Sweet                   73                1984                                Director
---------------------------  --------   ---------------------
</TABLE>

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

Identification of Certain Significant Employees

         Not applicable.

Family Relationships

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

                                     III-1
<PAGE>
Business Experience

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

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

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

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

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

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

Richard L. Barclay,  a Certified Public  Accountant,  has been engaged in public
accounting  since  1961.  He is a Partner in the firm of Barclay,  Yarborough  &
Evans,  Certified Public Accountants in Rogers,  Arkansas. He is a member of the
Arkansas Society of Certified Public  Accountants and of the American  Institute
of  Certified  Public  Accountants.  He was a member  of the  Arkansas  House of
Representatives  from 1977 until  1991.  He  presently  serves as a Director  of
Federal  Savings Bank,  Rogers,  Arkansas;  and Vice  President,  Arkansas State
Chamber of Commerce.

Eugene A.  Cernan has been  President  and  Chairman  of the Board of The Cernan
Corporation,  since 1981. In addition,  he recently became Chairman of the Board
of Johnson Engineering  Corporation which provides the National  Aeronautics and
Space Administration (NASA) with Flight Crew Systems Development. Captain Cernan
retired from the U. S. Navy in 1976 after  serving 20 years as a naval  aviator,
13 of which were dedicated to direct involvement with the U. S. Space Program as
a NASA  astronaut.  Captain Cernan was the pilot on the Gemini 9 mission and the
second  American  to walk in  space;  lunar  module  pilot  of  Apollo  10;  and
Spacecraft  Commander of Apollo 17, which  resulted in the  distinction of being
the last man to have left his footprints on the surface of the moon. In 1973, he
served as a Senior United  States  Negotiator  in  discussions  with USSR on the
Apollo-Soyuz  Mission. Mr. Cernan served as Executive  Consultant- Aerospace and
Government  of Digital  Equipment  Corporation  from 1986 to 1992,  and he was a
Director and Vice  President-International  of Coral Petroleum,  Inc.,  Houston,
Texas from 1976 to 1981.  Captain  Cernan is  presently  a  Director  of Up With
People, an international  educational foundation for young men and women; United
States  Space  Foundation;   the  Young  Astronaut  Council;   Alaska  Aerospace
Development  Corporation,  International  MicroSpace;  and  Johnson  Engineering
Corporation.  Captain Cernan is also on the President's  Engineering  Committee,
Purdue  University  and is a member of the Board of  Trustees of the U. S. Naval
Aviation  Museum,  NFL Alumni  and Major  League  Baseball  Players  Alumni.  In
addition,  Captain Cernan has served as a consultant commentator to ABC News. He
served on the Board of AIC and FSL from 1980 and 1983, respectively, to 1987.
                                     III-2
<PAGE>
Hayden Fry has been Head Football Coach at the University of Iowa since 1979. He
was Head Football Coach at North Texas State University from 1973 to 1978 and at
Southern Methodist  University from 1962 to 1972. He was named Football Coach of
the Year in the Big Ten (1981,  1990,  1991),  the  Missouri  Valley  Conference
(1973),  and the Southwest  Conference (1962, 1966 and 1968). He is on the Board
of Advisors of Wilson  Sporting  Goods (1962 to date);  the Board of Trustees of
Pop  Warner  Football  (1962  to  date);  and  the  American   Football  Coaches
Association  (1983  to date)  and is the 1993  President.  He was  President  of
Hawkeye  Marketing  Group  from  1979 - 1984.  He is a  member  of the  Board of
Directors of the PPI Group.

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

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

Thomas W.  Landry was Head Coach of the Dallas  Cowboys,  1960 to 1989.  He is a
member  of the  National  Board  of  Trustees  of the  Fellowship  of  Christian
Athletes.  He serves as a Director of Dallas Theological Seminary. He was on the
Board of Directors of Continental Life Insurance  Company for four years. He has
served as Texas State Chairman of the American Cancer Society.  Mr. Landry is an
Advisory  Member of the Board of  Directors  of  Southwest  Baptist  Theological
Seminary,  Chairman of the Dallas International Sports Commission,  and a member
of the Board of Advisors of Alexander Proudfoot Company.

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

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

John  E.  Miller  has  been  a  member  of  the  State  of  Arkansas   House  of
Representatives  since  1959.  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, Council
of State Governments,  Southern Legislative Conference, 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.
                                     III-3
<PAGE>
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 has been a full-time  television  sportscaster of ABC Sports, New
York,  New York,  from 1965 to  present.  He also  served  as  Spokesperson  for
Owens-Illinois,  Toledo, Ohio, from 1976 to present, for whom he speaks as voice
on commercials, personal appearances, conventions and shows. Mr. Schenkel served
as Chairman of the Board of Directors  of Counting  House Bank,  North  Webster,
Indiana from  1974-1982.  He also served as a director of ITI and ITAC from 1978
to 1986 and on the Board of Haskell Indian Junior College, Lawrence, Kansas.

L. Stanley  Schoelerman  has been  President  and a partner of Petersen  Sheep &
Cattle Co., Spencer,  Iowa since 1964. 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.

                         ITEM 10. EXECUTIVE COMPENSATION

Executive Compensation

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

                           SUMMARY COMPENSATION TABLE

                                                                                                   Long Term Compensation
                                           Annual Compensation                Awards        Payouts
            (A)                (B)        (C)         (D)         (E)           (F)            (G)          (H)           (I)
                                                                 Other
                                                                Annual         Restricted                                All Other
     Name and Principal                                         Compen-          Stock       Options/      LTIP          Compen-
          Position            Year      Salary      Bonus $     sation $        Award(s) $   SARS(#)     Payouts $       sation $
 --------------------------- -------- ------------ ---------- ------------ --------------- ------------ ------------- ------------
<S>                          <C>      <C>          <C>        <C>          <C>             <C>          <C>           <C>

 Wayne E. Ahart, CEO          1997     $125,000       $0        $8,927           $0             -            $0           $0

             "                1996     $125,000       $0        $9,375           $0             -            $0           $0

             "                1995     $125,000       $0        $8,744           $0             -            $0           $0
</TABLE>

The total  number of  executive  officers  of the  Company is four and the total
remuneration paid to all executive officers as a group is $376,218.  The Company
does not have employment agreements with any of its officers.

Compensation of Directors

Each director  receives a fee of $100 plus  reasonable  travel expenses for each
meeting of the Board of  Directors  attended.  No  director  receives  any other
remuneration in the capacity of director.

Benefit Plans

In 1994, the Board of Directors and  stockholders  approved the 1994 Brokers and
Agents'  Nonqualified  Stock Option Plan. This plan was established as incentive
to sales persons of BNLAC.  Initially  250,000 shares were  available  under the
plan.  On November  17, 1997 the Board of  Directors  authorized  an  additional
500,000  shares.  The  option  period  may not  exceed a term of 5 years and the
duration  of the plan is ten years.  The plan is  administered  by a four member
committee of  Directors.  During 1997 and 1996 the Company  granted  208,050 and
101,725 stock options respectively, with an exercise price of $.50 per share. No
options  were  exercised  in 1997 or 1996.  Under the fair value  method,  total
compensation  recognized  for grant of stock  options  was $0. The fair value of
options  granted is estimated at $1,500 and $800 in 1997 and 1996  respectively.
                                     III-4
<PAGE>
These values were computed using a binomial method as prescribed in SFAS 123 and
certain  assumptions include risk free interest rate of 6.5%, expected life of 3
years,  expected  volatility  of 11% and no expected  dividends due to statutory
limitations. The estimated weighted average remaining life of the options is 2.5
years.

In May 1997, the Board of Directors  approved a stock bonus plan for the benefit
of certain officers of the  corporation.  The plan provides for a bonus based on
consolidated  after-tax profits subject to specified  limits.  The bonus amount,
net of taxes,  will be used to purchase stock in the Company on the open market.
No stock  bonus will be granted  until the Company  has  consolidated  after-tax
profits.

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

Indebtedness of Management

No officer, director or nominee for director of the Company or associate of such
person was  indebted to the  Company at any time during the year ended  December
31,  1997,  other than for  ordinary  travel and expense  advances and for other
transactions in the ordinary course of business, if any.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

The  following  table  reflects  the  persons  known  to the  Company  to be the
beneficial  owners  of more than 5% of the  Company's  voting  securities  as of
December 31, 1997:
<TABLE>
<CAPTION>
                                                                        Amount and Nature of
                                                                        Beneficial Ownership        Percent of Class as of
 Title of Class             Name and Address of Beneficial Owner                (1)                    December 31, 1997
------------------          --------------------------------------    -------------------------    --------------------------
<S>                        <C>                                        <C>                          <C>
Common Stock                Wayne E. Ahart                                  4,845,505(2)(3)                 20.91%
                            #14 Club Estates Parkway
                            Austin, Texas 78738

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

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

Common Stock                C. Donald Byrd                                  1,452,719(4)                     6.27%
                            631 47th Street
                            W. Des Moines, IA 37076
<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>
                                     III-5
<PAGE>
Security Ownership of Management

The following  table sets forth,  as of December 31, 1997,  certain  information
concerning  the  beneficial  ownership  of the  Company's  Common  Stock by each
director of the Company and by all directors and officers as a group:
<TABLE>
<CAPTION>

                                                                 Amount and Nature of          Percent of Class as of
Title of Class             Name of Beneficial Owner              Beneficial Ownership(1)          December 31, 1997
----------------------    ----------------------------------    --------------------------    ---------------------------
<S>                       <C>                                   <C>                           <C>
    Common Stock          Wayne E. Ahart                              4,845,505(2)                       20.91%

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

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

          "               Kenneth Tobey                                  761,762                          3.29%

          "               Cecil Alexander                                  37,088                          .16%

          "               Richard Barclay                                  37,088                          .16%

          "               Eugene A. Cernan                                 37,088                          .16%

          "               Hayden Fry                                       69,047                          .30%

          "               John Greig                                       50,102                          .22%

          "               Roy Keppy                                        51,001                          .22%

          "               Tom Landry                                       87,088                          .38%

          "               Roy Ledbetter                                    37,088                          .16%

          "               John E. Miller                                   37,088                          .16%

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

          "               James A. Mullins                                 50,000                          .22%

          "               Robert R. Rigler                                   3,295                         .01%

          "               Chris Schenkel                                   37,088                          .16%

          "               L. Stanley                                       50,000                          .22%
                          Schoelerman

          "               Orville Sweet                                    50,000                          .22%

          "               All executive officers and
                          directors as a group (20 persons)
                                                                       10,601,947                         46.00%
----------------------    ----------------------------------
<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)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>
                                     III-6
<PAGE>
            Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Relationships

Historically,  the Company  utilized  the firm of Ahart & Bryan,  Inc.  ("A & B,
Inc."),  of North Little Rock,  Arkansas,  to facilitate  purchases and sales of
corporate  securities as a part of its routine investment  program.  Because Mr.
Tom Ahart, President and a Director of A & B, Inc. is a brother of the Company's
Chairman, Wayne E. Ahart,  transactions between A & B, Inc. and the Company have
been disclosed in prior financial statements.

Effective  July  26,  1996,  A &  B,  Inc.  was  merged  into  First  Commercial
Investments,  Inc.  which is now the brokerage  firm utilized by the Company for
its  investment  transactions.   Tom  Ahart  is  employed  by  First  Commercial
Investments,  Inc.  as a Vice  President,  but he is neither a board  member nor
principal  owner of First  Commercial  Investments,  Inc.  For the  period  from
January 1, 1996 to July 26, 1996 (during which period A & B Inc. was  considered
a related party by virtue of Tom Ahart's position of ownership and control), the
amount of purchases and sales executed  through A & B, Inc. (as the  introducing
broker) had a market value of approximately $4,300,000, and A & B, Inc. received
fees totaling $5,855 for such period.

Affiliates

BNL Brokerage Corporation,  was formed on November 30, 1995. The corporation was
formed in order to make  available  insurance  products from other  companies to
agents and brokers appointed to BNLAC. Such products do not compete with BNLAC's
policies and BNL Brokerage will receive commissions on such sales.

                                     III-7
<PAGE>



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


                                     PART IV



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

(a)  1.  Financial Statements

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



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

                                                                Page Number Form
                                                                    10-KSB
                                                            --------------------
Report of Independent Accountants on Financial Statement Schedule      E-14

<TABLE>
<CAPTION>

     3.  Exhibits

    No.                               Description                                          Page or Method of Filing
------------    --------------------------------------------------------    --------------------------------------------------------
<S>             <C>                                                         <C>

    3.1         Articles  of  Incorporation  of BNL  Financial               Incorporated  by reference to Exhibits 3.1 of the
                Corporation,  dated January 27, 1984 and  Amendment to       Company's Annual Report on Form 10-K for the period
                Articles of  Incorporation  of BNL Financial                 ending December 31, 1993.
                Corporation, dated November 13, 1987.

    3.2         Bylaws of BNL Financial Corporation                         Incorporated by reference to Exhibit 3.2 of the
                                                                            Company's Registration Statement No. 33-70318

    4.1         Instruments defining the rights of security holders,        Incorporated   by  reference  to  Exhibit  4  of  the
                including indentures                                        Company's Registration Statement No. 2-94538 and
                                                                            Exhibits 3.5 and 4 of Post-Effective Amendment No. 3
                                                                            thereto.

    4.2         Articles  of  Incorporation  of BNL  Financial              Incorporated  by reference to 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  on BNL Financial                ending December 31, 1993.
                Corporation, dated November 13, 1987.

    4.3         Stock Bonus Plan approved May 1997, for the benefit of      Attached as Exhibit 4.3
                Don Byrd and Kenny Tobey

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


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

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

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

   10.5         Merger Agreement between United Arkansas Corporation        Incorporated by reference to S-4 Registration
                and USSA Acquisition Inc. dated February 11, 1994.          Statement No. 33-70318.

                                      IV-1

<PAGE>

   10.6         Merger Agreement  between Iowa Life Assurance Company       Filed with 10-QSB for the period ended March 31,
                1994. and United  Arkansas Life Assurance dated
                March 2, 1994.

   10.7         Office lease dated March 24, 1994,  between Iowa Life       Filed with 10-QSB for the period ended September 30,
                Assurance  Company and Enclave KOW, Ltd., for               1994
                premises in Austin, Texas.

   10.8         Amendment Number Two to the Quota Share Reinsurance         Filed with Form 8-K dated January 18, 1995.
                Agreement dated 8/10/91 between Registrant and UniLife
                Insurance Co. of San Antonio, Texas

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

    12          Statements re computation of ratios.                        Not applicable.

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

    22          Subsidiaries of Registrant                                  Filed herewith.

</TABLE>


(b) Reports on Form 8-K

The Company filed no reports on Form 8-K for the period covered by this report.





                                      IV-2

<PAGE>





                                                      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 4th day of March
1998.

                                             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                                                                         3/12/98
--------------------------------------------                                                   -------------------------
              Wayne E. Ahart                       Chairman of the Board, Director
                                                    (Principal Executive Officer)


            /S/ C. Donald Byrd                                                                         3/14/98
--------------------------------------------                                                   -------------------------
              C. Donald Byrd                     Vice Chairman of the Board and Director


             /S/ Kenneth Tobey                                                                          3/6/98
--------------------------------------------                                                   -------------------------
               Kenneth Tobey                              President and Director



             /S/ Barry N. Shamas                                                                       3/12/98
--------------------------------------------                                                   -------------------------
              Barry N. Shamas                    Executive Vice President, Treasurer and
                                                 Director (Principal Financial and
                                                 Accounting Officer)



             /S/ Hayden Fry                                                                           03/15/98
--------------------------------------------                                                   -------------------------
                Hayden Fry                                       Director



                                      IV-3
<PAGE>


--------------------------------------------                                                   -------------------------
                John Greig                                       Director



             /S/ Roy Keppy                                                                              3/7/98
--------------------------------------------                                                   -------------------------
                 Roy Keppy                                       Director



             /S/ Tom Landry                                                                             3/4/98
--------------------------------------------                                                   -------------------------
                Tom Landry                                       Director



             /S/ C. James McCormick                                                                     3/7/98
--------------------------------------------                                                   -------------------------
            C. James McCormick                                   Director



            /S/ James A. Mullins                                                                        3/8/98
--------------------------------------------                                                   -------------------------
             James A. Mullins                                    Director



            /S/ Robert R. Rigler                                                                       3/12/98
------------------------------------------                                                   -------------------------
             Robert R. Rigler                                    Director



           /S/ Stanley Schoelerman                                                                     3/20/98
--------------------------------------------                                                   -------------------------
            Stanley Schoelerman                                  Director



            /S/ Orville Sweet                                                                           3/6/98
-------------------------------------------                                                   -------------------------
               Orville Sweet                                     Director



            /S/ Cecil Alexander                                                                         3/5/98
--------------------------------------------                                                   -------------------------
              Cecil Alexander                                    Director



            /S/ Richard Barclay                                                                         3/8/98
--------------------------------------------                                                   -------------------------
              Richard Barclay                                    Director


                                      IV-4
<PAGE>

           /S/ Eugene A. Cernan                                                                         3/7/98
--------------------------------------------                                                   -------------------------
             Eugene A. Cernan                                    Director



           /S/ Roy Ledbetter                                                                            3/5/98
--------------------------------------------                                                   -------------------------
               Roy Ledbetter                                     Director



           /S/ John E. Miller                                                                           3/8/98
--------------------------------------------                                                   -------------------------
              John E. Miller                                     Director



           /S/ Chris Schenkel                                                                           3/8/98
--------------------------------------------                                                   -------------------------
              Chris Schenkel                                     Director


</TABLE>
                                      IV-5
<PAGE>


BNL Financial Corporation - 1996 Form 10-K
================================================================================
================================================================================


                          ANNUAL REPORT ON FORM 10-KSB



                             ITEM 14 (a) AND 14 (d)



                              FINANCIAL STATEMENTS



                      FOR THE YEAR ENDED DECEMBER 31, 1997



                   BNL FINANCIAL CORPORATION AND SUBSIDIARIES



                                DES MOINES, IOWA


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

                     Financial Statements Required by Item 8


<TABLE>
<CAPTION>

                                                                                                       Page Number of 1997
                                                                                                           Form 10-KSB
                                                                                                     -------------------------
<S>                                                                                                 <C>

Consolidated Balance Sheet, December 31, 1997 and 1996                                                         E-2

Consolidated Statement of Operations for the years ended December 31, 1997 and 1996                            E-3

Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1997                E-4
and 1996

Consolidated Statement of Cash Flows for the years ended December 31, 1997 and 1996                            E-5

Notes to Consolidated Financial Statements                                                                     E-6

Report of Independent Accountants on Financial Statements                                                      E-14



</TABLE>
                                      E-1
<PAGE>




<TABLE>
=========================================================================================================
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
---------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                   December 31,           December 31,
ASSETS                                                                 1997                   1996
                                                                -------------------    -------------------
<S>                                                             <C>                    <C>

Cash and cash equivalents                                                 $714,539               $702,769
Investments available for sale, at fair value (amortized
  cost  $11,507,730; 11,854,901;  respectively )                        11,765,947             11,885,909
Investment in equity securities, common stock
   at market  (cost $108,123; $108,123; respectively)                       20,438                 35,438
                                                                -------------------    -------------------
               Total investments, including cash and
                     Cash equivalents                                   12,500,924             12,624,116

Accrued investment income                                                  225,042                222,101
Furniture and equipment, net                                               261,312                266,234
Deferred policy acquisition costs                                          433,695                474,667
Receivable from reinsurer                                                   26,677                 28,462
Premiums due and unpaid                                                    355,793                139,041
Other assets                                                               344,410                346,954
                                                                -------------------    -------------------

               Total assets                                            $14,147,853            $14,101,575
                                                                ===================    ===================

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Liabilities for future policy benefits                               $1,352,555             $1,382,280
   Policy claims payable                                                 1,368,630                816,500
   Annuity deposits                                                      3,336,323              3,495,571
   Deferred annuity profits                                                615,737                610,536
   Premium deposit funds                                                   127,697                177,909
   Supplementary contracts without life contingencies                       56,031                 70,515
   Advanced and unallocated premium                                        328,814                102,923
   Commissions payable                                                     184,677                124,184
   Other liabilities                                                       364,429                188,794
                                                                -------------------    -------------------

               Total liabilities                                         7,734,893              6,969,212
                                                                -------------------    -------------------

Commitments and contingencies (Note 6)
Shareholders' equity:
   Common stock, $.02 stated value, 45,000,000 shares
      authorized, 23,311,944 shares issued and outstanding                 466,239                466,239
   Additional paid-in capital                                           14,308,230             14,308,230
   Unrealized appreciation (depreciation) of securities                    170,530                (41,679)
   Accumulated deficit                                                  (8,467,934)            (7,536,322)
   Treasury stock, at cost, 138,795 shares                                 (64,105)               (64,105)
                                                                -------------------    -------------------

               Total shareholders' equity                                6,412,960              7,132,363
                                                                -------------------    -------------------

               Total liabilities and shareholders' equity              $14,147,853            $14,101,575
                                                                ===================    ===================
<FN>
----------------------------------------------------------------------------------------------------------
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

</FN>
                                       E-2
</TABLE>
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 and 1996
----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                Year Ended December 31,
                                                                       -----------------------------------------
                                                                              1997                   1996
                                                                       -------------------    ------------------
<S>                                                                    <C>                    <C>
Income:
   Premium income                                                             $11,532,718            $7,245,660
   Net investment income                                                          859,749               863,940
   Realized gains                                                                  75,754                96,863
                                                                       -------------------    ------------------

               Total income                                                    12,468,221             8,206,463
                                                                       -------------------    ------------------

Expenses:
   Increase (decrease) in liability for future policy benefits                    (39,601)               55,407
   Policy benefits and other insurance costs                                   10,221,754             6,353,988
   Amortization of deferred policy acquisition costs                               40,972                39,894
   Operating expenses                                                           2,780,237             2,443,908
   Taxes, other than on income                                                    396,471               253,238
                                                                       -------------------    ------------------

                Total expenses                                                 13,399,833             9,146,435
                                                                       -------------------    ------------------

                Loss from operations before
                     income taxes                                                (931,612)             (939,972)

   Provision for income taxes                                                        -                     -
                                                                       -------------------    ------------------

               Net loss                                                         $(931,612)            $(939,972)
                                                                       ===================    ==================

Net loss per common share (basic and diluted)                                     $(0.04)               $(0.04)
                                                                       ===================    ==================

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




<FN>


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

                                       E-3
</FN>
</TABLE>
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1997 and 1996
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                       Unrealized
                                     Common Stock                 Additional                         (Depreciation)
                             ------------------------------        Paid-In          Accumulated     Appreciation of        Treasury
                                Shares            Amount           Capital            Deficit          Securities          Stock
                             --------------    -------------    ---------------    ---------------    --------------   -------------
<S>                          <C>               <C>              <C>                <C>                <C>              <C>
Balance, January 1, 1996        23,311,944         $466,239        $14,308,230       $(6,596,350)          $478,783        $(64,105)
Unrealized depreciation
     of securities                   -                 -                    -                 -            (520,462)            -
Net loss                             -                 -                    -           (939,972)                -              -

                             --------------    -------------    ---------------    ---------------    --------------   -------------
Balance, December 31, 1996      23,311,944          466,239         14,308,230        (7,536,322)           (41,679)        (64,105)
Unrealized appreciation
     of securities                   -                 -                    -                 -             212,209              -
Net loss                             -                 -                    -           (931,612)                -              -
                             ==============    =============    ===============    ===============    ==============   =============

Balance, December 31, 1997      23,311,944         $466,239        $14,308,230       $(8,467,934)          $170,530        $(64,105)
                             ==============    =============    ===============    ===============    ==============   =============



<FN>

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

                                      E-4
</FN>
</TABLE>
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 1997, and 1996
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                Year Ended December 31,
                                                                                         -----------------------------------
                                                                                               1997               1996
                                                                                          ---------------    ---------------
<S>                                                                                       <C>                <C>
Cash flows from operating activities:
     Net loss                                                                                 $(931,612)         $(939,972)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
         Realized gains on investments                                                          (79,833)           (93,094)
         Realized (gains) losses on sale of furniture and equipment                               4,079             (3,769)
         Depreciation                                                                            95,159             90,821
         Amortization of deferred acquisition costs,
           organization costs and state licenses acquired                                        44,082             43,003
         Accretion of bond discount                                                              (4,145)            (4,734)
         Deferred policy acquisition costs                                                      (40,972)           (39,894)
         Change in assets and liabilities:
               Decrease in receivable from reinsurer                                              1,785            114,215
               Decrease (increase) in accrued investment income                                  (2,941)            30,516
               Increase (decrease) in liability for future policy benefits                      (29,725)            56,766
               Increase in policy claims payable                                                552,130            264,265
               Increase (decrease) in annuity deposits and deferred profits                    (154,047)            67,554
               Decrease in premium deposit funds                                                (50,212)           (17,633)
               Other, decrease                                                                  286,860             86,350
                                                                                          ---------------    ---------------

                    Net cash used in operating activities                                      (309,392)          (345,606)
                                                                                          ---------------    ---------------

Cash flows from investing activities:
     Proceeds from sales of investments                                                       1,322,816          1,484,269
     Proceeds from maturity or redemption of investments                                      3,274,836          1,463,351
     Proceeds from sale of furniture and equipment                                                  201              9,000
     Purchase of furniture and equipment                                                        (95,706)           (60,216)
     Purchase of fixed maturity securities                                                   (4,166,500)        (3,744,927)
                                                                                          ---------------    ---------------

                     Net cash provided by (used in) investing activities                        335,647           (848,523)
                                                                                          ---------------    ---------------

Cash flows from financing activities:
     Net payments on supplementary contracts                                                    (14,485)           (13,698)
                                                                                          ---------------    ---------------

                      Net cash used in financing activities                                     (14,485)           (13,698)
                                                                                          ---------------    ---------------

Net increase (decrease) in cash and cash equivalents                                             11,770         (1,207,827)

Cash and cash equivalents, beginning of period                                                  702,769          1,910,596
                                                                                          ---------------    ---------------

Cash and cash equivalents, end of period                                                       $714,539           $702,769
                                                                                          ===============    ===============
<FN>
----------------------------------------------------------------------------------------------------------------------------
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>
                                       E-5


</TABLE>
<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) and BNL Brokerage  Corporation.  All
significant intercompany balances have been eliminated.

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

The Company's  principal  activity is the sale of individual  and group life and
accident and health  insurance  within the United States.  The Company's plan to
utilize dental  insurance to attract agents who will market other BNLAC products
along with  dental is  working.  Therefore, the  significant  premium  growth is
primarily due to an increase in sales of dental  insurance for which the maximum
annual risk per policy is $2,000.  The Company is licensed to sell in 27 states.
Substantially  all of the Company's life insurance in force is  nonparticipating
business.

Premiums are reported as earned when due.

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.

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.
Increases  in the  liability  account for  interest  credited to  contracts  are
charged to expense.  The interest  rate  assumptions  ranged from 6.75% to 5.25%
during 1997 and 1996.

The Company classifies its fixed maturity  investments as investments  available
for sale.  Such  securities  may be sold prior to maturity  due to changes  that
might occur in market interest rates, changes in the security's prepayment risk,
the Company's  liquidity  needs,  and similar  factors,  including the Company's
asset/liability management strategy.  Investments available for sale are carried
at fair  value.  Unrealized  gains and  losses  resulting  from  changes  in the
valuation of fixed maturity  securities are recorded  directly to  shareholders'
equity.  Realized  gains or losses on sale of  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 US Treasury Bills and 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 flows
disclosures,  there have been no federal  income taxes or interest paid for 1997
or 1996.

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 $377,098 and $297,409 at December 31, 1997 and
1996,  respectively.  Depreciation expense was $95,159 and $90,821 for the years
ended December 31, 1997 and 1996, respectively.

Other assets include agents' balances reduced by allowance for doubtful accounts
of $130,513 and $142,191 at December 31, 1997 and 1996, respectively. Reductions
in the  allowance  account  were  a  credit  to bad  debt  expense  recorded  in
operations of $(11,678) and $(13,474) for the years ended December 31, 1997 and
1996, respectively.
                                       E-6
<PAGE>
1.  Summary of Significant Accounting Policies (continued):

Other assets also include the cost of 26 state licenses acquired in 1991 as part
of the Statesmen Life Insurance Company acquisition. Such licenses are amortized
over  the  related   estimated   life  of  the  license  (40  years)  using  the
straight-line method. Amortization expense of approximately $3,109  was recorded
for each of the years ended December 31, 1997 and 1996.

The Company accounts for the 1994 brokers and agents stock option plan using the
fair value method as required by SFAS # 123. Under this method the fair value of
the options granted is recorded as expense at the date of grant. See Note 10.

Certain  amounts for the year ended December 31, 1996 have been  reclassified to
conform   with  the   presentation   of   December   31,   1997   amounts.   The
reclassifications  have no effect on net income for the year ended  December 31,
1996.

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

2.  Shareholders' Equity:

At  December  31,  1997 and 1996, shareholders'  equity  includes  approximately
$5,481,000 and $5,187,000 respectively,  of BNLAC net assets,  substantially all
of which are restricted  from  distribution  to the parent  company  without the
prior approval of the Arkansas Insurance Department.

BNLAC reports to state  regulatory  authorities on a statutory  accounting basis
that  differs  from  the  basis  used  herein.  Due  to an  Arkansas  regulatory
requirement  associated with the  redomestication in 1994, BNLAC must maintain a
minimum of $2,300,000 in capital and surplus. Additionally,  each state in which
BNLAC is licensed  has  statutory  minimum  capital  requirements  required  for
maintaining  its  license to sell.  Capital and surplus and net loss of BNLAC as
reported on a statutory basis are as follows:
<TABLE>
<CAPTION>
                                                              December 31,
                                              -----------------------------------------
                                                       1997                  1996
<S>                                                 <C>                   <C>
 Capital and surplus                                $5,136,292            $5,035,886

 Net loss                                            $(645,603)            $(756,906)
</TABLE>
The following is a  reconciliation  of consolidated  net loss and  shareholders'
equity per the financial  statements included herein to BNLAC unconsolidated net
loss and capital and surplus on a statutory basis:
<TABLE>
<CAPTION>
                                                          December 31, 1997                           December 31, 1996
                                               -----------------------------------------  ------------------------------------------
                                                 Income/Loss        Capital and Surplus     Income/Loss        Capital and Surplus
                                               -----------------  ----------------------  -----------------  ----------------------
<S>                                            <C>                <C>                     <C>                <C>
Consolidated Reporting Under
  Generally Accepted Accounting Principles            $(931,612)             $6,412,960          $(939,972)             $7,132,363
Less Parent Company and BNL Equity                      246,986                 931,904            215,886               1,944,975
                                               -----------------  ----------------------  -----------------  ----------------------

Brokers National Life Assurance Company                (684,626)              5,481,056           (724,086)              5,187,388

Deferred Acquisition Costs                               40,972                (433,695)            39,894                (474,667)
Reserve and Premium Adjustments                          (8,305)                192,191            (30,424)                222,505
Interest Maintenance Reserve/AVR                         16,691                (344,286)           (38,920)               (387,489)
Unrealized appreciation of securities                       -                  (258,502)                -                  (22,387)
Annuity Deposits and Related Adjustments                (27,600)                615,736              8,707                 610,536
Other                                                    17,265                (116,208)           (12,077)               (100,000)
                                               -----------------  ----------------------  -----------------  ----------------------

   BNLAC Statutory Basis                              $(645,603)             $5,136,292          $(756,906)             $5,035,886
                                               =================  ======================  =================  ======================
</TABLE>
The Arkansas  Insurance  Department  in February,  1997  conducted the triennial
statutory examination for the three year period ending December 31, 1995. During
the course of the examination, the Department notified the Company that Arkansas
law required that all bonds and other investments held by custodial agreement be
registered  with the  Depository  Trust  Corporation  (DTC)  through  a  custody
agreement  with an  Arkansas  bank.  As a result of the 1994 merger of Iowa Life
Assurance  Company  and  United  Arkansas  Life  Assurance  Company,  BNLAC  had
$4,130,392 of securities  registered with DTC through a custodial agreement with
a fully  insured  investment  banking  firm.  This resulted in a proposal by the
Arkansas Insurance Department to nonadmit these assets.
                                       E-7
<PAGE>
2.  Shareholders' Equity (continued):

As noted in the final  examination  order of the Insurance  Commissioner  of the
State of Arkansas dated June 5, 1997,  BNLAC  satisfied the  Department  rule by
moving the custodial agreement to First Commercial Bank, Little Rock,  Arkansas.
The Department  also proposed that a 1996 expense of $99,000 be  reclassified to
1995. This amount  represents an underestimate  of the incurred but not reported
dental  claims  for  1995.   The  above  tables  do  not  include  the  proposed
adjustments.

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 total net operating loss carryovers at December 31, 1997 were  approximately
$8,100,000 for income tax reporting. The net operating loss carryovers expire in
years 2000 - 2010. The Company and its  Subsidiaries  will file separate  income
tax returns for 1997.

A deferred tax asset of $3,140,000  resulted from net operating loss  carryovers
and temporary  differences  primarily related to the life insurance  subsidiary.
The Company has  recognized a  corresponding  valuation  allowance of $3,140,000
against the  deferred tax asset.  This  represents a net increase of $270,000 in
the deferred tax asset for 1997 and corresponding  valuation  allowance over the
previous  year.  The Company  recognized  no current or deferred  tax expense or
benefit.

4.  Investments:

The amortized  cost and estimated  market value of investments in fixed maturity
securities are as follows:
<TABLE>
<CAPTION>
                                                                             Gross            Gross
December 31, 1997                                                          Unrealized       Unrealized         Estimated
                                                       Amortized Cost        Gains            Losses         Market Value
                                                       ---------------    -------------    -------------    ---------------
<S>                                                    <C>                <C>              <C>              <C>
US Treasury securities and obligations of
  US government corporations and agencies                 $10,779,985         $292,058       $( 33,380)        $11,038,663
Obligations of states and political subdivisions              297,588              162          (4,500)            293,250
Corporate securities                                          310,607            3,282          (2,813)            311,076
Mortgage-backed  securities
     GNMA                                                      20,205              -            (1,397)             18,808
Public utility bonds                                           99,345            4,805             -               104,150
                                                       ---------------    -------------    -------------    ---------------

Totals                                                    $11,507,730         $300,307        $(42,090)        $11,765,947
                                                       ===============    =============    =============    ===============

                                                                             Gross            Gross
December 31, 1996                                                          Unrealized       Unrealized         Estimated
                                                        Amortized Cost       Gains            Losses          Market Value
                                                       ---------------    -------------    -------------    ---------------

US Treasury securities and obligations of
   US government corporations and agencies                $10,972,990         $176,748       $(120,406)        $11,029,332
Obligations of states and political subdivisions              297,461              230         (18,551)            279,140
Corporate securities                                          310,577            1,203         (10,839)            300,941
Mortgage-backed  securities
     GNMA                                                      27,308              -              (245)             27,063
Public utility bonds                                          246,565            3,727            (859)            249,433
                                                       ---------------    -------------    -------------    ---------------

Totals                                                    $11,854,901         $181,908       $(150,900)        $11,885,909
                                                       ===============    =============    =============    ===============
</TABLE>

                                       E-8
<PAGE>
4. Investments (continued):

The amortized  cost and estimated  fair value of  investments  in fixed maturity
securities  at  December  31,  1997 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>
                                                              December 31, 1997
                                                      ---------------------------------
                                                                           Estimated
                                                      Amortized Cost     Market Value
                                                      ---------------    --------------
<S>                                                   <C>                <C>
Due in one year or less                                  $   500,000       $   495,000
Due after one year through five years                      1,769,437         1,802,596
Due after five years through ten years                     3,595,468         3,581,509
Due after ten years                                        5,622,620         5,868,034
                                                      ---------------    --------------
                                                          11,487,525        11,747,139
Mortgage-backed securities                                    20,205            18,808
                                                      ---------------    --------------

                                                         $11,507,730       $11,765,947
                                                      ===============    ==============
</TABLE>
Proceeds from sales and maturities of  investments in fixed maturity  securities
for the years ended December 31, 1997 and 1996 were  $4,597,652 and  $2,947,620,
respectively.  Gross gains of $80,143  and $97,757 and gross  losses of $310 and
$4,663 were realized on those December 31, 1997 and 1996 sales, respectively.

Investment in equity  securities at December 31, 1997 and 1996 represents common
stock investments as follows:
<TABLE>
<CAPTION>
                                            1997                            1996
                                                     Market                             Market
                                      Cost            Value            Cost             Value
                                  -------------    ------------    -------------    -------------
<S>                               <C>              <C>             <C>              <C>
Banks, trusts and
     insurance companies            $    2,423       $     438       $    2,423        $     438
Industrial, savings
     and loans and other               105,700          20,000          105,700           35,000
                                  -------------    ------------    -------------    -------------

                                      $108,123         $20,438         $108,123          $35,438
                                  =============    ============    =============    =============
</TABLE>
Net  investment  income for the years  ended  December  31,  1997 and 1996 is as
follows:

                                                         December 31,
                                                ------------------------------
                                                    1997             1996
                                                -------------    -------------

Interest on debt securities and
     cash investments                               $878,594         $878,573
Dividends on equity securities                         -                -
                                                -------------    -------------

                                                     878,594          878,573
Investment expenses                                  (18,845)         (14,633)
                                                -------------    -------------

Net investment income                               $859,749         $863,940
                                                =============    =============

                                       E-9
<PAGE>
4. Investments (continued):

Net realized gains and losses are summarized below:

                                                          December 31,
                                                ------------------------------
                                                    1997             1996
                                                -------------    -------------

Debt securities                                      $79,833          $93,094
Equity securities                                       -                -
                                                -------------    -------------

                                                     $79,833          $93,094
                                                =============    =============


Included  in 1997 and 1996  realized  gains on debt  securities  is $42,328  and
$30,205, respectively of gains on taxable municipal bonds that were written down
in 1991 to 25% of par value  ($700,000)  for a total  realized loss of $522,282.
The taxable  municipal  bonds were of three issuers  whereby the proceeds of the
securities were invested in guaranteed  investment contracts (GICs) of Executive
Life  Insurance  Company  (Executive  Life).  Executive  Life was  placed  under
rehabilitation  by the California  regulators in 1991. In 1993, a rehabilitation
plan was approved and each year thereafter the Company has received a portion of
the principal in excess of the book value and back interest on the bonds.  As of
December  31,  1997  the  Company  has  received  a total of  $746,798  from the
rehabilitation plan.

5.  Fair Value of Financial Instruments
<TABLE>
<CAPTION>
                                                                    1997                                     1996
                                                       ---------------- ----------------        ---------------- ----------------
                                                          Carrying           Fair                  Carrying           Fair
Assets                                                     Amount            Value                  Amount            Value
                                                       ---------------- ----------------        ---------------- ----------------
<S>                                                    <C>              <C>                     <C>              <C>
Cash and Cash Equivalents
       (Note 1)                                              $ 714,539        $ 714,539    (a)        $ 702,769        $ 702,769 (a)
Investments-fixed maturity, available for sale
       (Note 4 & Note 1)                                    11,765,947       11,765,947    (b)       11,885,909       11,885,909 (b)
Investments -equity securities
       (Note 4 & Note 1)                                        20,438           20,438    (b)           35,438           35,438 (b)
Other financial instruments-Assets                             313,363          313,363    (a)          315,057          315,057 (a)
                                                       ---------------- ----------------        ---------------- ----------------

Total financial instruments-Assets                         $12,814,287      $12,814,287             $12,939,173      $12,939,173
                                                       ================ ================        ================ ================

Liabilities

Premium deposit funds                                         $127,697         $127,697    (a)         $177,909         $177,909 (a)
Supplementary contracts without life contingencies
       (Note 1)                                                 56,031           56,031    (a)           70,515           70,515 (a)
Annuity deposits
       (Note 1)                                              3,336,323        3,336,323    (a)        3,495,571        3,495,571 (a)
                                                       ---------------- ----------------        ---------------- ----------------

Total financial instruments-Liabilities                     $3,520,051       $3,520,051              $3,743,995       $3,743,995
                                                       ================ ================        ================ ================
<FN>
(a)  The  indicated  assets and  liabilities  are carried at book  value,  which
     approximate fair value.
(b)  Fair value of investments is based on quoted market price or dealer quotes,
     when  available.  If quotes  are not  available,  fair  values are based on
     quoted prices of comparable instruments.
</FN>
</TABLE>
                                      E-10
<PAGE>
6.  Commitments and Contingencies:

The  Company,  BNL Equity  Corporation  and several  officers in the Company are
defendants in a pending lawsuit  alleging  violation of the Arkansas  Securities
Act. The Company expects to obtain a favorable judgment in the case and believes
the action is frivolous  and that  substantial  evidence  exists which  directly
refutes the  allegations.  However,  the ultimate  outcome of this litigation is
unknown at the present time.  Accordingly,  no provisions for any liability that
might  result  have been made in the  financial  statements.  In the  opinion of
management,  the existing  litigation is without merit and the Company is in the
process of seeking sanctions against appropriate parties.

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

                                             1998                       $120,664
                                             1999                        $68,819
                                             2000                        $20,843
                                             2001                         $6,336
                                             Thereafter                   $2,358
                                                          ----------------------
                                             Total                      $219,020
                                                          ======================

Related lease cost  incurred for the years ended  December 31, 1997 and 1996 was
$113,455 and $110,486, respectively.

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

Cash deposits in excess of federally insured limits are approximately $33,000 at
December 31, 1997.

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

7. Liability for Unpaid Claims

Activity in the liability for unpaid claims is summarized as follows.
<TABLE>
<CAPTION>
                                                            1997                     1996
                                                      ------------------      -------------------
<S>                                                   <C>                     <C>
Balance at January 1                                           $816,500                 $552,235
  Less Reinsurance Recoverable                                    5,161                  120,735
                                                      ------------------      -------------------
Net Balance at January 1                                        811,339                  431,500
                                                      ------------------      -------------------

Incurred related to:
   Current year                                               8,387,011                5,016,402
   Prior years                                                   11,846                   72,837
                                                      ------------------      -------------------
Total Incurred                                                8,398,857                5,089,239
                                                      ------------------      -------------------

Paid related to:
   Current year                                               7,017,720                4,090,828
   Prior years                                                  823,846                  618,572
                                                      ------------------      -------------------
Total Paid                                                    7,841,566                4,709,400
                                                      ------------------      -------------------

Net Balance at December 31                                    1,368,630                  811,339
   Plus reinsurance recoverable                                   -                        5,161
                                                      ==================      ===================
Balance at December 31                                       $1,368,630                 $816,500
                                                      ==================      ===================
</TABLE>
                                      E-11
<PAGE>
8.  Reinsurance:

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

The  Company  retains a maximum  of $35,000  on any one risk and  reinsures  the
remainder with Business Mens Assurance Company.  The rating by A.M. Best Company
of Business  Mens  Assurance  Company,  the  primary  life  reinsurer,  was "A"
(Excellent) for 1996.
Following is a summary of reinsurance for December 31, 1997 and 1996:
<TABLE>
<CAPTION>
                                                                                                            Percentage
                                                         Ceded to         Assumed                            of Amount
                                         Gross            other          from other                          Assumed to
                                        Amount          Companies        Companies          Net Amounts          Net
                                    ---------------    -------------    -------------    ---------------    -------------
December 31, 1997
<S>                                 <C>                <C>              <C>              <C>                <C>
Life Insurance in force
    (in thousands)                         $36,828          $11,971           $8,226            $33,083        24.9%
                                    ===============    =============    =============    ===============    =============

Premiums-life insurance                   $383,798          $57,362          $22,938           $349,374         6.6%
Premiums-accident and health            11,087,724           28,748             -            11,058,976          -
                                    ---------------    -------------    -------------    ---------------    -------------
Total insurance premiums               $11,471,522          $86,110          $22,938        $11,408,350         0.2%
                                    ===============    =============    =============    ===============    =============

December 31, 1996

Life Insurance in force
    (in thousands)                         $33,796           $11,091          $7,252            $29,957        24.2%
                                      =============     =============   =============      =============    =============

Premiums-life insurance                   $389,543           $43,475         $20,961           $367,029         5.7%
Premiums-accident and health             6,878,631               -               -            6,878,631          -
                                      -------------     -------------   -------------      -------------    -------------
Total insurance premiums                $7,268,174           $43,475         $20,961         $7,245,660         0.3%
                                      =============     =============   =============      =============    =============
</TABLE>

9.  Related Party Transactions\Certain Relationships

Historically,  the Company  utilized  the firm of Ahart & Bryan,  Inc.  ("A & B,
Inc."),  of North Little Rock,  Arkansas,  to facilitate  purchases and sales of
corporate  securities as a part of its routine investment  program.  Because Mr.
Tom Ahart, President and a Director of A & B, Inc. is a brother of the Company's
Chairman, Wayne E. Ahart,  transactions between A & B, Inc. and the Company have
been  disclosed in prior financial statements.

Effective  July  26,  1996,  A &  B,  Inc.  was  merged  into  First  Commercial
Investments,  Inc.  which is now the brokerage  firm utilized by the Company for
its  investment  transactions.   Tom  Ahart  is  employed  by  First  Commercial
Investments,  Inc.  as a Vice  President,  but he is neither a board  member nor
principal  owner of First  Commercial  Investments,  Inc.  For the  period  from
January 1, 1996 to July 26, 1996 (during which period A & B Inc. was  considered
a related party by virtue of Tom Ahart's position of ownership and control), the
amount of purchases and sales executed  through A & B, Inc. (as the  introducing
broker) had a market value of approximately $4,300,000, and A & B, Inc. received
fees totaling $5,855 for such period.

                                      E-12
<PAGE>
10.  Benefit Plans for Certain Brokers/Agents and Employees

In 1994, the Board of Directors and  stockholders  approved the 1994 Brokers and
Agents'  Nonqualified  Stock Option Plan. This plan was established as incentive
to sales persons of BNLAC.  Initially  250,000 shares were  available  under the
plan.  On November  17, 1997 the Board of  Directors  authorized  an  additional
500,000  shares.  The  option  period  may not  exceed a term of 5 years and the
duration  of the  plan  is ten  years.  A  four-member  committee  of  Directors
administers  the plan.  During  1997 and 1996 the  Company  granted  208,050 and
101,725 stock options  respectively,  with an exercise  price of $.50 per share.
There were 309,775  stock options  outstanding  at December 31, 1997. No options
have been exercised  since  inception of the plan.  Under the fair value method,
total compensation  recognized for grant of stock options was $0. The fair value
of  options  granted  is  estimated  at  $1,500  and  $800  in  1997  and  1996,
respectively.  These values were computed using a binomial  method as prescribed
in SFAS 123 and certain  assumptions  include risk free  interest  rate of 6.5%,
expected life of 3 years,  expected  volatility of 11% and no expected dividends
due to statutory  limitations.  The estimated weighted average remaining life of
the options is 2.5 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 May 1997, the Board of Directors  approved a stock bonus plan for the benefit
of certain officers of the  corporation.  The plan provides for a bonus based on
consolidated  after-tax profits subject to specified  limits.  The bonus amount,
net of taxes,  will be used to purchase stock in the Company on the open market.
No stock bonus will be granted  unless the Company  has  consolidated  after-tax
profits.

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

11.  The Offering

As a condition of the public  offering,  an escrow  agreement  with an effective
date of February 28, 1994,  prohibits sale or transfer of the organizers' shares
until any one of the following conditions is satisfied:

a.   The  Company  has net  earnings  per share per year,  after tax and  before
     extraordinary  items,  of $1.86 for any three  years  following  the public
     offering.

b.   A tender  offer or an offer to merge or  otherwise  acquire  the  Company's
     common  stock at a per  share  price of at least  $3.34 per share of common
     stock and having a market value at the effective  date of the tender offer,
     merger, or other acquisition of at least $3.71 per share of common stock.

c.   At any time after  February 28, 1995, the public market price exceeds $3.25
     for a term of 90 trading days and for 30 consecutive  trading days prior to
     a request for termination of the escrow.

d.   If insurance business in force reaches the following levels: $100,000,000
     - 50% of escrowed shares will be released. $125,000,000 - 25% of escrowed
     shares will be released.  $150,000,000 - remaining 25% of escrowed shares
     will be released.

e.   All escrowed  shares will be released August 1, 1999, if they have not been
     released prior to that time.


12.  Subsequent Events

No events have  occurred  subsequent  to the close of the books on December  31,
1997, which have a material effect on the financial condition of the Company.

                                      E-13
<PAGE>
--------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS

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


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

We have audited the  accompanying  Consolidated  Balance Sheets of BNL Financial
Corporation  and  Subsidiaries  as of December 31, 1997 and 1996 and the related
Consolidated Statements of Operations,  Changes in Shareholders' Equity and Cash
Flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of BNL
Financial Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated  results of their operations and their  consolidated cash flows for
the  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.






Oklahoma City, Oklahoma                             \s\ SMITH, CARNEY & CO., p.c
February 11, 1998




                                      E-14
<PAGE>

Exhibit 4.3

                              STOCK BONUS AGREEMENT

This Stock Bonus Agreement (the "Agreement") is made effective as of the 1st day
of January,  1997,  between BNL Financial  Corporation  (the  "Company")  and C.
Donald Byrd ("Employee").

Whereas, The Employee serves as an executive officer of the Company; and

Whereas,  the Company desires to encourage the Employee to remain as an employee
of the Company and for the Employee to have a growing  personal  interest in the
continued success and progress of the Company; and


Whereas,  the Company desires to offer certain  compensation to the Employee for
the performance of his duties through the purchase of stock as herein  provided;
and

Whereas,  the Company and  Employee  desire to enter into an  agreement  setting
forth  the  rights  and  obligations  of  the  respective   parties  under  said
compensation agreement;

Now,  therefore,  in consideration of the foregoing and the covenants  contained
herein, the Company and Employee agree as follows:

1.  Establishment  of Committee.  A committee (the  "Committee") of the board of
directors of the Company  shall be  established  to implement  the terms of this
Agreement.  If the board  shall not  establish  a  separate  committee  for that
purpose, the Compensation Committee of the board shall act as the Committee.

2.  Allocation of Profits.  Subject to the terms and conditions set forth in the
Agreement,  the  Company  agrees that it will  allocate  and set aside an amount
equal to two and  one-half  percent (2 1/2%) of the after  taxes net  profits in
excess of two hundred fifty  thousand  dollars  ($250,000),  of the Company each
year (the "Allocated Amount").  For purposes of the Agreement,  "after taxes net
profits" shall be calculated in accordance  with generally  accepted  accounting
principles,  with  the  amount  to be  determined  from the  year-end  financial
statements of the Company.

3. Use of Allocated Amount. The Allocated Amount shall be used by the Company in
the following manner:

         (i)  the  Company  shall  withhold  any  amounts  necessary  to pay all
required  taxes and  similar  charges  required to be withheld on account of the
payment of compensation to the Employee; and
         (ii) after  deduction for the withholding of taxes and other charges as
provided in the  aforesaid  subsection,  the funds  remaining  of the  Allocated
Amount  shall be used to  purchase  shares of the  Company's  common  stock (the
"Shares") for and on behalf of the Employee.

4. Timing of the Allocation. When the annual financial statements of the Company
have been received by the Company, a copy thereof shall be promptly given to the
Committee,  together with a statement from the chief financial officer, or other
person   designated  by  the  Committee  to  make  such   calculation,   of  the
determination of the Allocated Amount  hereunder.  Upon receipt of the financial
information and the calculation as herein  provided,  the Committee shall direct
the appropriate  officers or employees of the Company to set aside the Allocated
Amount for purposes of making the purchases  herein  contemplated and shall make
such arrangements as it deems appropriate to complete such purchases.  It is the
intention of the parties hereto that all such purchases shall take place as soon
as reasonably practicable after the setting aside of the Allocated Amount.

5.  Purchase of Shares.  If possible,  the Shares shall be purchased on the open
market at the then  current  market  price.  In the event  that an  insufficient
number of shares shall be available  for purchase on the open market so as to be
able to fully  utilize the  Allocated  Amount for the  purchase  of Shares,  the
Allocated  Amount may be used to purchase shares  directly from the Company.  If
the Shares are purchased from the Company, the price shall be established at the
then-current  market  price  or,  if no such  market  exists,  at a price  to be
established  by the board of directors of the Company.  The  Committee  shall be
responsible for determining the timing and source of the purchases and shall use
reasonable  efforts  to  comply  with the  intent  of this  agreement  as herein
expressed.

6. Issuance of Shares. The Shares shall be purchased in the name of the Employee
and shall be issued in his name or, upon the request of the Employee,  be issued
in joint  tenancy with the Employee and any person  designated  by the Employee.
Neither the Company nor the Committee  shall acquire any interest in or title to
any of the Shares.

7. Interpretation and Implementation of the Agreement.  The Committee shall have
the full  authority to interpret and implement this  Agreement.  The Company and
the Employee agree that any determination, if reasonable and made in good faith,
of the Committee shall be binding upon the parties.

8. Limitation on Annual Amount.  The Allocated Amount for any one year shall not
exceed fifty thousand dollars ($50,000).

9.  Limitation on shares to be  Purchased.  This  Agreement  shall cease and the
Employee shall not be entitled to receive any additional  Shares  hereunder when
the total  number of Shares  purchased  for the  Employee  shall be four hundred
thousand (400,000).

10.  Termination of the Agreement by the Company.  The Company may terminate the
Agreement at any time; provided, however, that the Employee shall be entitled to
receive  any and all  Shares  to which he is  entitled  prior to the date of the
termination.  If the  Agreement  is  terminated  after the end of the  Company's
fiscal year but before the purchase of any Shares under the Agreement on account
of the results of the Company for the prior year, the Employee shall be entitled
to receive the entire  amount which would be due for the prior  fiscal year.  If
the Agreement is terminated  prior to the end of the Company's  fiscal year, the
Committee  shall make such  adjustments to the Allocated  Amount due, if any, to
the  Employee  for that  fiscal  year as it deems  appropriate.  In making  such
determination the Committee shall act in a reasonable manner and shall take into
account such factors as the length of time during the year the  Agreement was in
effect and the  Employee's  contribution  during the year to the  success of the
Company.

11.  Automatic  Termination  upon  Termination of Employee.  The  termination of
Employee's  employment  with  the  Company  shall  act as a  termination  of the
Agreement at the date of Employee's termination, subject to the following:

         (a) If Employee  voluntarily  terminates after the end of the Company's
fiscal year but before the Employee has received the Allocated amount,  Employee
shall be  entitled  to receive  the entire  Allocated  Amount for that  previous
fiscal year.
         (b) If Employee voluntarily  terminates his employment with the Company
before the end of the fiscal year, Employee shall not be entitled to receive any
of the Allocated  Amount for that fiscal year unless the Committee shall, in its
sole discretion,  determine that such payment,  or a portion  thereof,  would be
appropriate.
         (c) If  Employee's  employment  with the Company is  terminated  by the
Company for any reason other than for cause, as hereinafter defined,  during the
fiscal  year,  the  Employee  shall be entitled to receive  that  portion of the
Allocated  Amount which the amount of time during which he was employed bears to
the entire fiscal year.
         (d) If  Employee's  employment  with the Company is  terminated  by the
Company  for  cause,  Employee  shall not be  entitled  to  receive  any  amount
hereunder for that fiscal year.

For  purposes  of this  section,  "for  cause"  shall  mean  dishonesty,  theft,
conviction  of a  serious  misdemeanor  or  felony,  drunkenness  or  drug  use,
unethical  business  conduct,  breach  of trust  or a  material  breach  of this
Agreement.  "For Cause"  shall also  include the failure of the Employee for any
reason,  within ten (10) days after  receipt of Employee of written  notice from
the Company, to correct, cease, or otherwise alter any insubordination,  failure
to comply  with  instructions  or other  action or  omission  to act that in the
opinion of the Company does or may materially and adversely  affect its business
or operation.

12.  Possible  Restriction  on Shares.  Employee  recognizes and agrees that the
Shares may be "restricted  securities" as that term is defined under the federal
securities  laws if the Shares have been purchased  directly from the Company or
in a manner  that would  require  the Shares to be  restricted  securities.  The
Company  agrees that it will use  reasonable  efforts to purchase  the Shares in
such a fashion  that they will not be  considered  "restricted  securities"  but
makes no guaranty or other assurance that the Shares will be so acquired.

13. Assignability.  The Employee may not assign his rights hereunder;  provided,
however, that, in the event of the disability of the Employee, his interests may
be exercised by this representative,  guardian or similar agent and that, in the
event of the  death of the  Employee,  his  estate  and heirs  may  acquire  and
exercise  any and all of his  rights  hereunder  which  exist at the date of his
death.

14. Entire  Agreement.  This Agreement  constitutes the entire  agreement of the
parties with respect to the matters contained herein.

15.  Right  to  Employment.  Nothing  contained  herein  shall be  construed  as
providing Employee with any rights to continued employment with the Company.

The parties agree that this agreement shall become effective as of the day first
written above.


By: /S/ Donald Byrd
    ---------------
    C. Donald Byrd
    "Employee"



BNL Financial Corporation
"Company"


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




                              STOCK BONUS AGREEMENT

This Stock Bonus Agreement (the "Agreement") is made effective as of the 1st day
of January,  1997, between BNL Financial Corporation (the "Company") and Kenneth
D. Tobey ("Employee").

Whereas, The Employee serves as an executive officer of the Company; and

Whereas,  the Company desires to encourage the Employee to remain as an employee
of the Company and for the Employee to have a growing  personal  interest in the
continued success and progress of the Company; and


Whereas,  the Company desires to offer certain  compensation to the Employee for
the performance of his duties through the purchase of stock as herein  provided;
and

Whereas,  the Company and  Employee  desire to enter into an  agreement  setting
forth  the  rights  and  obligations  of  the  respective   parties  under  said
compensation agreement;

Now,  therefore,  in consideration of the foregoing and the covenants  contained
herein, the Company and Employee agree as follows:

1.  Establishment  of Committee.  A committee (the  "Committee") of the board of
directors of the Company  shall be  established  to implement  the terms of this
Agreement.  If the board  shall not  establish  a  separate  committee  for that
purpose, the Compensation Committee of the board shall act as the Committee.

2.  Allocation of Profits.  Subject to the terms and conditions set forth in the
Agreement,  the  Company  agrees that it will  allocate  and set aside an amount
equal to two and  one-half  percent (2 1/2%) of the after  taxes net  profits in
excess of two hundred fifty  thousand  dollars  ($250,000),  of the Company each
year (the "Allocated Amount").  For purposes of the Agreement,  "after taxes net
profits" shall be calculated in accordance  with generally  accepted  accounting
principles,  with  the  amount  to be  determined  from the  year-end  financial
statements of the Company.

3. Use of Allocated Amount. The Allocated Amount shall be used by the Company in
the following manner:

         (i)  the  Company  shall  withhold  any  amounts  necessary  to pay all
required  taxes and  similar  charges  required to be withheld on account of the
payment of compensation to the Employee; and
         (ii) after  deduction for the withholding of taxes and other charges as
provided in the  aforesaid  subsection,  the funds  remaining  of the  Allocated
Amount  shall be used to  purchase  shares of the  Company's  common  stock (the
"Shares") for and on behalf of the Employee.

4. Timing of the Allocation. When the annual financial statements of the Company
have been received by the Company, a copy thereof shall be promptly given to the
Committee,  together with a statement from the chief financial officer, or other
person   designated  by  the  Committee  to  make  such   calculation,   of  the
determination of the Allocated Amount  hereunder.  Upon receipt of the financial
information and the calculation as herein  provided,  the Committee shall direct
the appropriate  officers or employees of the Company to set aside the Allocated
Amount for purposes of making the purchases  herein  contemplated and shall make
such arrangements as it deems appropriate to complete such purchases.  It is the
intention of the parties hereto that all such purchases shall take place as soon
as reasonably practicable after the setting aside of the Allocated Amount.

5.  Purchase of Shares.  If possible,  the Shares shall be purchased on the open
market at the then  current  market  price.  In the event  that an  insufficient
number of shares shall be available  for purchase on the open market so as to be
able to fully  utilize the  Allocated  Amount for the  purchase  of Shares,  the
Allocated  Amount may be used to purchase shares  directly from the Company.  If
the Shares are purchased from the Company, the price shall be established at the
then-current  market  price  or,  if no such  market  exists,  at a price  to be
established  by the board of directors of the Company.  The  Committee  shall be
responsible for determining the timing and source of the purchases and shall use
reasonable  efforts  to  comply  with the  intent  of this  agreement  as herein
expressed.

6. Issuance of Shares. The Shares shall be purchased in the name of the Employee
and shall be issued in his name or, upon the request of the Employee,  be issued
in joint  tenancy with the Employee and any person  designated  by the Employee.
Neither the Company nor the Committee  shall acquire any interest in or title to
any of the Shares.

7. Interpretation and Implementation of the Agreement.  The Committee shall have
the full  authority to interpret and implement this  Agreement.  The Company and
the Employee agree that any determination, if reasonable and made in good faith,
of the Committee shall be binding upon the parties.

8. Limitation on Annual Amount.  The Allocated Amount for any one year shall not
exceed fifty thousand dollars ($50,000).

9.  Limitation on shares to be  Purchased.  This  Agreement  shall cease and the
Employee shall not be entitled to receive any additional  Shares  hereunder when
the total  number of Shares  purchased  for the  Employee  shall be four hundred
thousand (400,000).

10.  Termination of the Agreement by the Company.  The Company may terminate the
Agreement at any time; provided, however, that the Employee shall be entitled to
receive  any and all  Shares  to which he is  entitled  prior to the date of the
termination.  If the  Agreement  is  terminated  after the end of the  Company's
fiscal year but before the purchase of any Shares under the Agreement on account
of the results of the Company for the prior year, the Employee shall be entitled
to receive the entire  amount which would be due for the prior  fiscal year.  If
the Agreement is terminated  prior to the end of the Company's  fiscal year, the
Committee  shall make such  adjustments to the Allocated  Amount due, if any, to
the  Employee  for that  fiscal  year as it deems  appropriate.  In making  such
determination the Committee shall act in a reasonable manner and shall take into
account such factors as the length of time during the year the  Agreement was in
effect and the  Employee's  contribution  during the year to the  success of the
Company.

11.  Automatic  Termination  upon  Termination of Employee.  The  termination of
Employee's  employment  with  the  Company  shall  act as a  termination  of the
Agreement at the date of Employee's termination, subject to the following:

         (a) If Employee  voluntarily  terminates after the end of the Company's
fiscal year but before the Employee has received the Allocated amount,  Employee
shall be  entitled  to receive  the entire  Allocated  Amount for that  previous
fiscal year.
         (b) If Employee voluntarily  terminates his employment with the Company
before the end of the fiscal year, Employee shall not be entitled to receive any
of the Allocated  Amount for that fiscal year unless the Committee shall, in its
sole discretion,  determine that such payment,  or a portion  thereof,  would be
appropriate.
         (c) If  Employee's  employment  with the Company is  terminated  by the
Company for any reason other than for cause, as hereinafter defined,  during the
fiscal  year,  the  Employee  shall be entitled to receive  that  portion of the
Allocated  Amount which the amount of time during which he was employed bears to
the entire fiscal year.
         (d) If  Employee's  employment  with the Company is  terminated  by the
Company  for  cause,  Employee  shall not be  entitled  to  receive  any  amount
hereunder for that fiscal year.

For  purposes  of this  section,  "for  cause"  shall  mean  dishonesty,  theft,
conviction  of a  serious  misdemeanor  or  felony,  drunkenness  or  drug  use,
unethical  business  conduct,  breach  of trust  or a  material  breach  of this
Agreement.  "For Cause"  shall also  include the failure of the Employee for any
reason,  within ten (10) days after  receipt of Employee of written  notice from
the Company, to correct, cease, or otherwise alter any insubordination,  failure
to comply  with  instructions  or other  action or  omission  to act that in the
opinion of the Company does or may materially and adversely  affect its business
or operation.

12.  Possible  Restriction  on Shares.  Employee  recognizes and agrees that the
Shares may be "restricted  securities" as that term is defined under the federal
securities  laws if the Shares have been purchased  directly from the Company or
in a manner  that would  require  the Shares to be  restricted  securities.  The
Company  agrees that it will use  reasonable  efforts to purchase  the Shares in
such a fashion  that they will not be  considered  "restricted  securities"  but
makes no guaranty or other assurance that the Shares will be so acquired.

13. Assignability.  The Employee may not assign his rights hereunder;  provided,
however, that, in the event of the disability of the Employee, his interests may
be exercised by this representative,  guardian or similar agent and that, in the
event of the  death of the  Employee,  his  estate  and heirs  may  acquire  and
exercise  any and all of his  rights  hereunder  which  exist at the date of his
death.

14. Entire  Agreement.  This Agreement  constitutes the entire  agreement of the
parties with respect to the matters contained herein.

15.  Right  to  Employment.  Nothing  contained  herein  shall be  construed  as
providing Employee with any rights to continued employment with the Company.

The parties agree that this agreement shall become effective as of the day first
written above.


/S/ Kenneth D. Tobey
--------------------
Kenneth D. Tobey
"Employee"



BNL Financial Corporation
"Company"


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