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, 1996 [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 1996 were $8,206,463.

The estimated  aggregate market value of the voting stock held by non-affiliates
of the Registrant as of December 31, 1996, was  approximately  $3,968,183  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, 1996,  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"  formerly United Iowa
Corporation) is an insurance  holding  company  incorporated in Iowa in January,
1984. The Company's  principal  executive  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"
- formerly United Arkansas Corporation), Brokers National Life Assurance Company
("BNLAC" - formerly Iowa Life Assurance Company) and BNL Brokerage  Corporation.
Effective August 1, 1994,  United Arkansas  Corporation  ("UAC") was merged with
USSA Acquisition Inc., ("USSA") a wholly owned subsidiary of the Company and UAC
was the survivor of the merger. As a part of the merger,  all of the outstanding
shares of common stock of UAC were  converted into newly issued shares of common
stock of the  Company  at a rate of ten  shares  of UAC for nine  shares  of the
Company.  In  connection  with  the  merger,  the  Company   redomesticated  its
subsidiary  Iowa  Life  Assurance  Company,   ("ILAC")  an  Iowa-domiciled  life
insurance company, into Arkansas. Immediately following the redomestication, the
insurance  subsidiary of UAC, United Arkansas Life Assurance Company, was merged
into ILAC and the name of the surviving  company was changed to Brokers National
Life Assurance Company. At the same time, United Arkansas Corporation became BNL
Equity Corporation.  BNL Brokerage Corporation, was formed on November 30, 1995.
The  corporation  was formed in order to offer  another  company's  products  to
agents and brokers  appointed to BNLAC. The products do not compete with BNLAC's
policies and BNL Brokerage will receive commissions on the sales.

Industry Segments

The operations of the Company are conducted  through  BNLAC,  which in 1996 sold
life and accident and health insurance policies in 23 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. BNLAC currently  concentrates
its marketing on group dental  insurance sold  primarily on a payroll  deduction
basis.

The  Company  conducts  business in only one  industry  segment.  The  financial
information relating thereto is contained in Item 6 and the Exhibits attached to
this Report.

Sales and Marketing

The Company markets specialized products through professional independent agents
and  brokers.   BNLAC's  primary  marketing   emphasis  is  the  development  of
specialized or "niche" life and health insurance  products that can be sold on a
group or payroll deduction basis through  independent  insurance  agents.  BNLAC
currently offers an accidental death life insurance policy, a payroll deductible
10 year level tem policy,  a family  level term  insurance  policy and a line of
dental insurance policies.

Statistics by line of business are as follows (gross before reinsurance):
<TABLE>
<CAPTION>
                                                             1996              1995
                                                        ---------------    --------------
<S>                                                     <C>                <C>

I. Annual Premiums and Annuity Deposits In Force:
Ordinary Life Insurance                                      $387,000              $407,000
Individual Annuities(1)                                       298,000               337,000
Group Dental Insurance                                      7,804,000             5,264,000
Accidental Death Insurance                                     70,000                94,000
                                                       ---------------        --------------

          Total                                            $8,559,000            $6,102,000
                                                       ===============        ==============

<PAGE>


II. Collected Premiums and Annuity Deposits:
Ordinary Life Insurance                                      $393,000              $406,000
Individual Annuities(1)                                       322,000               371,000
Group Dental Insurance                                      6,926,000             4,159,000
Accidental Death Insurance                                     72,000                86,000
                                                      ----------------     -----------------

          Total                                            $7,713,000            $5,022,000
                                                      ================     =================

III. Amount of Insurance:
Ordinary Life Insurance                                   $34,000,000           $35,000,000
Accidental Death Insurance                                148,000,000           180,000,000
                                                      ----------------     -----------------

          Total                                          $182,000,000          $215,000,000
                                                      ================     =================
<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 and
     State                  Life Premiums                Annuity                Accidental Death                Total
-------------------       --------------------      --------------------      ---------------------      --------------------
<S>                       <C>                       <C>                       <C>                        <C>

Alabama                                  $  -                      $  -                 $  423,095                $  423,095

Arkansas                               14,060                         -                  1,727,544                 1,741,604

Colorado                                    -                         -                    267,114                   267,114

Delaware                                    -                         -                      8,391                     8,391

Florida                                   770                         -                    116,373                   117,143

Georgia                                     -                         -                    677,700                   677,700

Idaho                                       -                         -                     10,746                    10,746

Illinois                                  508                         -                    285,161                   285,669

Indiana                                11,038                         -                    216,427                   227,465

Iowa                                  344,890                   321,799                    926,044                 1,592,733

Kentucky                                    -                         -                      5,717                     5,717

Louisiana                                 947                         -                     62,473                    63,420

Michigan                                  956                         -                    807,595                   808,551

Minnesota                              14,526                         -                    261,510                   276,036

Mississippi                             1,074                         -                    661,484                   662,558

Missouri                                  165                         -                    278,175                   278,340

Nebraska                                   60                         -                     11,006                    11,066

Ohio                                        -                         -                     46,005                    46,005

Oklahoma                                3,589                         -                    171,888                   175,477

Pennsylvania                                -                         -                     22,274                    22,274

South Dakota                                -                         -                      9,373                     9,373

Miscellaneous                               -                         -                      2,476                     2,476
                          ====================      ====================      =====================      ====================

Total                                $392,583                  $321,799                 $6,998,571                $7,712,953
                          ====================      ====================      =====================      ====================
</TABLE>

<PAGE>


As of January 1, 1997,  BNLAC had appointed  1,193 general agents and brokers in
24 states to market its  policies  compared to 784 agents and brokers on January
1, 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  can  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 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+" (Superior) for 1995.

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.

<TABLE>
<CAPTION>

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

          Life Insurance
               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
               1992                          44,472,000          16,321,000            5,308,000          33,459,000


    Accidental Death Insurance
               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
               1992                         320,048,000         293,823,000                    0          26,225,000
</TABLE>
<PAGE>

B. Group Dental Insurance.


Prior to January 1, 1995,  group dental  insurance  was  reinsured  with UniLife
Insurance  Company  ("UniLife")  of  San  Antonio,   TX.  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.
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 administrating 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>
               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
               1992                             321,000             289,000               32,000               27,000
</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>
               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
               1992                             197,000             177,000               20,000                76.7
</TABLE>

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  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:

<TABLE>
<CAPTION>

                     Net             Net Return on
                  Investment         Mean Invested
   Year             Income               Assets
------------    ---------------    -------------------
<S>             <C>                <C>
   1996               $757,000            6.8%
   1995                734,000            6.6
   1994                674,000            6.5
   1993                599,000            6.1
   1992                637,000            6.9
</TABLE>
<PAGE>

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, 1996,  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, 1996, the Company and BNLAC had received  $687,217 of principal and interest
on the bonds  since  1991 when they went into  default.  The bonds  have a total
market value of $230;  which indicates the  rehabilitation  program has paid out
substantially all of the 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
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
<PAGE>

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 1995  BNLAC  was  assigned  an A. M.  Best's
financial performance rating of "B-" (adequate).

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
2 to  approximately  1,200  persons.  BNLAC also sells  life,  health and dental
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 high 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.
<PAGE>

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
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,  1996,  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 regular  triennial  statutory  examination  for the three year period ending
December 31, 1995 was conducted by the Arkansas Insurance Department. 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.  Subsequent to year end,
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 $77,998 be  reclassified  to 1995.  This amount  represents  an under
estimate of the incurred but not reported  dental claims for 1995.  The Arkansas
Insurance Department examination report is expected to be released in final form
in mid 1997.
<PAGE>

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,  1997,  BNLAC had four  executive  officers,  27  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.

Administrative Agreement - Dental Insurance

In August,  1991 in conjunction with its reinsurance treaty with UniLife,  BNLAC
entered into an administrative  agreement whereby UniLife agreed to perform,  at
no cost to BNLAC,  all  administrative  and claim  services  with respect to the
dental insurance  policies written by BNLAC. The agreement was amended effective
January 1, 1995,  whereby BNLAC increased the amount it retains on this business
from 10% to 50% and BNLAC  agreed to pay  UniLife  a claims  administrative  fee
equal to 4% of net collected premiums on the portion of the risk (50%) not ceded
to UniLife.  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
administrating and retaining 100% of the group dental business.

                               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
$567 per month ($6,804 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 $5,588  ($67,056 per year)
during 1995 and $6,053  ($72,636 per year) during 1996,  plus pro rata operating
expenses.  The  Company has its  administrative  and  marketing  offices at this
location.

During 1995 and 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. On July 19, 1996, the plaintiffs filed their first amended complaint
and on and after July 24, 1996, the defendants were first served and notified of
the complaint and first amended complaint.  The plaintiffs have alleged that the
defendants   violated  the  Arkansas  Securities  Act  in  several  respects  in
connection  with the public  offerings  of  securities  made by United  Arkansas
Corporation ("UAC") (now known as BNL Equity Corporation) during the period from
January 1989 until May, 1992. The plaintiffs have filed on behalf of themselves,
as well as all other similarly  situated persons who acquired UAC stock in these
offerings.  The crux of the plaintiffs'  allegations is that the defendants made
alleged  misrepresentations  and  omissions  concerning  the  business  plan and
insurance marketing strategy of UAC in connection with the public offerings.
<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 intends to vigorously defend
the  matter  and on  August  13,  1996,  filed an  answer  denying  all  alleged
violations. The Company is pursuing sanctions against appropriate parties.

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

The Company's  Annual  Meeting of  Shareholders  was held on May 21, 1996 in Des
Moines, Iowa. At the annual meeting,  the following  individuals were elected to
the Company's Board of Directors.


<TABLE>
<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                               Charles Thone

Eugene A. Cernan                              James A. Mullins
</TABLE>

12,858,770  shares had been voted in favor of Messrs.  Barclay,  Cernan,  Greig,
McCormick,  Mullins,  Schenkel,  Shamas,  Thone,  Alexander,  Keppy,  Ledbetter,
Miller,  Rigler  and  Schoelerman;  12,855,764  shares  had been  voted in favor
Messrs. Ahart and Byrd;  12,856,766 shares had been voted in favor of Mr. Tobey;
12,854,270  shares had been voted in favor of Mr. Landry;  12,854,768 shares had
been voted in favor of Mr. Fry; 12,857,570 shares had been voted in favor of Mr.
Sweet. 228,004 shares were withheld from all directors.

The shareholders  ratified the selection of Smith,  Carney & Co., p.c. (formerly
Amend, Smith & Co.,) as the Company's  independent  auditors for the year ending
December 31, 1996 with  12,955,604  shares voted in favor,  11,184  shares voted
against and 119,986 abstained.



<PAGE>






                                     PART II

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

Market for Stock

The stock of the Company was 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 1996. During the year there were a total of seven stock sales
with a price ranging from $.32 to $.35 a share. The final stock sold during 1996
was at $.32 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,  1996,  there  were  4,845  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.






<PAGE>



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

Liquidity and Capital Resources

At December 31, 1996,  the Company had liquid assets of $702,769 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 1996, BNLAC collected $7.7 million of premiums and annuity
deposits (gross before  reinsurance) and $864,000 of investment income.  Another
source of cash flow is from the sale of  investments  which,  in 1996,  produced
gains totaling $93,000.

The  Company's  investments  are  primarily in U.S.  Government  and  Government
Agencies  ($11,029,332)  and other  investment grade bonds ($856,577) 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, 1996 BNLAC had statutory capital and surplus
of approximately $5,035,886.  The Company and BNL Equity Corporation contributed
$500,000 to the gross paid in and contributed surplus of BNLAC in February 1997.

Results of Operations

Premium  income for 1996 was  $7,245,660  compared  to  $3,073,819  in 1995,  an
increase of  $4,171,841.  The increase was due to the  increased  sales of group
dental  insurance and an increase in dental premiums  retained by BNLAC from 50%
in 1995 to 100%  in 1996  (see  note  8).  Effective  November  1,  1995,  BNLAC
increased its retention of dental insurance premiums to 100%.

Net  investment  income was $863,940 in 1996 and $880,368 in 1995.  The decrease
was due to the receipt of  interest  of $43,174 in 1995,  compared to $30,204 in
1996,  on certain  taxable  municipal  bonds that had been in default since 1991
(see note 4).  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 $96,863 in 1996 compared to $308,490 in 1995. Realized gains
included  $30,204  and  $188,456  for  1996 and 1995  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 1996 and
1995  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 $55,407 in 1996 compared
to $47,670  for the same  period in 1995.  The  increase of $7,737 is due to the
increase in life GAAP reserves as the block of life insurance ages. The increase
in liability for future policy  benefits will  fluctuate  annually  based on the
persistency of the life insurance in force.

Policy  benefits and other  insurance  costs were $6,353,988 in 1996 compared to
$2,618,023 in 1995.  The increase in 1996 was due to claims and  commissions  on
the increased dental insurance premiums written and the termination of the group
dental  reinsurance  contract.  The  incurred  loss  ratio on the  group  dental
insurance was 73.6% in 1996 compared to 72.5% in 1995.

Amortization  of  deferred  policy  acquisition  costs was  $39,894  in 1996 and
$48,191 in 1995.  Amortization  of  deferred  policy  acquisition  costs  should
continue to decrease as the asset is reduced over the upcoming years.

Operating  expenses were $2,443,908 in 1996 and $1,767,550 in 1995. The increase
was primarily due to an increase in home office staff, office supplies, printing
expense and claims  administrative  expense - all of which are  attributable  to
taking  over the  administration  of the  dental  business.  Management  expects
overhead to decrease as a percentage of premium as premium income increases.

Taxes,  other than on income were  $253,238 for 1996 and $137,170 for 1995.  The
1996 increase was due to an increase in premium  taxes on the  increased  dental
insurance premiums collected.

The  consolidated  net loss for 1996 was $939,927  compared to $355,927 in 1995.
The increase in the loss was due to the increase in operating  expenses,  policy
benefits, and other insurance costs discussed above.


<PAGE>




               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





<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                  56                1984                   Chairman of the Board and Director

C. Donald Byrd                  55                1984                Vice Chairman of the Board and Director

Kenneth Tobey                   38                1994                               President

Barry N. Shamas                 49                1984                      Executive Vice President,
                                                                              Treasurer and Director

Cecil Alexander                 60                1994                                Director

Richard Barclay                 59                1994                                Director

Eugene A. Cernan                62                1994                                Director

Hayden Fry                      67                1984                                Director

John Greig                      61                1984                                Director

Roy B. Keppy                    73                1984                                Director

Tom Landry                      71                1984                                Director

Roy Ledbetter                   66                1994                                Director

John E. Miller                  67                1994                                Director

James A. Mullins                62                1984                                Director

C. James McCormick              71                1984                                Director

Robert R. Rigler                73                1989                                Director

Chris Schenkel                  72                1994                                Director

L. Stan Schoelerman             71                1984                                Director

Orville Sweet                   72                1984                                Director

Charles Thone                   72                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.
<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.

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.
<PAGE>

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,  Chairman of the  Governor's  Developmental
Disabilities  Planning  Council and Izard  County  Chapter of the  American  Red
Cross.

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

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

Chris Schenkel 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.
<PAGE>

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.

Charles  Thone  has  been a  Senior  Principal  of the law  firm of  Erickson  &
Sederstrom, P.C., Lincoln, Nebraska, since 1983. He was Governor of the State of
Nebraska  from  1979 to 1983  and a  Representative  in the US  Congress  (First
District of Nebraska) from 1971 to 1979. He was Managing Partner of the law firm
of Davis, Thone, Bailey, Polsky & Hansen,  Lincoln,  Nebraska from 1959 to 1971.
He has been an  Assistant  U.S.  Attorney in  Nebraska  and  Nebraska  Assistant
Attorney General and Nebraska Deputy Secretary of State. He has been a member of
the Board of Trustees of the University of Nebraska Foundation since 1979; and a
member of the Board of  Directors  of the Nebraska  State Bar  Foundation  since
1985. He was a Director of LAC and LAAC from 1983 to 1987. Mr.
Thone is active in many civic organizations.

                         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>

                           SUMMARY COMPENSATION TABLE
<CAPTION>

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

<S>                           <C>      <C>          <C>       <C>          <C>              <C>          <C>
 Wayne E. Ahart, CEO          1996     $125,000       $0        $9,375           $0             -            $0           $0

             "                1995     $125,000       $0        $8,744           $0             -            $0           $0

             "                1994     $125,000       $0        $8,013           $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 $379,370.  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.

Stock Option and Appreciation Rights

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. A maximum of 250,000  shares will be available  under
the plan and the option period may not exceed a term of 5 years. The duration of
the plan is ten years and it will be administrated by a four member committee of
Directors.  During 1996 and 1995 the Company  granted  101,725 and 26,400  stock
options respectively,  with an exercise price of $.50 per share. No options were
exercised  in 1996 or 1995.  Under the fair  value  method,  total  compensation
recognized for grant of stock options was $0. The fair value of options  granted
is estimated at $800 and $200 in 1996 and 1995  respectively.  These values were
computed  using  a  binomial  method  as  prescribed  in SFAS  123  and  certain
assumptions including 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 2.6
years.
<PAGE>

In November 1996,  the Board of Directors  authorized a stock bonus plan for the
benefit of certain officers of the corporation  subject to specific  guidelines.
No stock  bonus will be granted  until the Company  has  consolidated  after tax
profits. The plan has not been formally established.

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,  1996,  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, 1996:
<TABLE>
<CAPTION>
                                                                        Amount and Nature of
 Title of Class             Name and Address of Beneficial Owner        Beneficial Ownership        Percent of Class as of
                                                                                (1)                    December 31, 1996
------------------          --------------------------------------    -------------------------    --------------------------

<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>
<PAGE>




Security Ownership of Management

The following  table sets forth,  as of December 31, 1996,  certain  information
concerning  the  beneficial  ownership  of the  Company's  Common  Stock by each
director of the Company and by all directors and officers as a group:
<TABLE>
<CAPTION>
                                                                  Amount and Nature of
                                                                 Beneficial Ownership(1)        Percent of Class as of
Title of                      Name of Beneficial Owner                                            December 31, 1996
Class
----------------------    ----------------------------------    --------------------------    ---------------------------

<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%

          "               Charles Thone                                    50,000                            .22%

          "               All executive officers and
                          directors as a group (20 persons)
                                                                       10,651,947                          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>
<PAGE>




             Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Relationships

During the years ended December 31, 1995 and up to July 26, 1996, as part of the
Company's routine investment program,  the Company and BNLAC effected certain of
its purchases and sales of various US Treasury and corporate  securities through
the brokerage firm of Ahart & Bryan, Inc. ("A & B, Inc."), of North Little Rock,
Arkansas.  A & B, Inc. is registered with the National Association of Securities
Dealers,  Inc.  Mr.  Tom Ahart (a brother of the  Company's  Chairman,  Wayne E.
Ahart)  is  President  and  a  Director  of  A &  B,  Inc.  The  above-described
transactions were executed pursuant to a clearing  agreement between A & B, Inc.
and Rauscher,  Pierce, Refsnes, Inc., ("RPR") an unaffiliated brokerage firm and
a member of the New York Stock Exchange. Under the clearing agreement, RPR acted
as "clearing agent" for A & B, Inc. (the introducing  broker). In that capacity,
RPR  executed  purchases  and sales with a market value  totaling  approximately
$4,300,000 and $9,800,000 during 1996 and 1995 respectively,  as directed by the
Company through A & B, Inc. RPR received, held and disbursed all of the proceeds
and  securities  relating to these  transactions  until such  transactions  were
consummated (at which time such proceeds and/or securities were disbursed at the
direction of the Company and BNLAC).  A & B received  fees  totaling  $5,855 and
$7,197  for 1996 and  1995  respectively,  for  completing  these  transactions.
Management  believes  that  the  amounts  charged  by  A  &  B,  Inc.  in  these
transactions  were less than  those  which  would  have  been  charged  by other
brokerage  firms.  Effective  July 26,  1996,  A & B, Inc. was merged into First
Commercial  Investments,  Inc.  Throughout  the  remainder of 1996,  the Company
continued to use Mr. Ahart at First Commercial  Investments,  Inc. for sales and
purchases of approximately  $1,700,000,  from which Mr. Ahart received $4,207 of
commissions.  The Company anticipates continuing this arrangement.  Mr. Ahart is
not on the board nor is he a principal  owner of First  Commercial  Investments,
Inc.

Affiliates

BNL Brokerage Corporation,  was formed on November 30, 1995. The corporation was
formed  in order to offer  another  company's  products  to agents  and  brokers
appointed to BNLAC.  The  products do not compete with BNLAC's  policies and BNL
Brokerage will receive commissions on the sales.



<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)

<TABLE>
<CAPTION>
                                                                                                            Page Number Form
                                                                                                                 10-KSB
                                                                                                           --------------------

<S>                                                                                                         <C>
Report of Independent Accountants on Financial Statement Schedule                                                 E-13

</TABLE>

     3.  Exhibits
<TABLE>
<CAPTION>

    No.                               Description                                          Page or Method of Filing
------------    --------------------------------------------------------    --------------------------------------------------------

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

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

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

    4.2         Articles  of  Incorporation  of BNL  Financial              Incorporated  by reference to 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.

   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.
<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 premises      1994.
                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.









<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
1997.



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
                                                                                                       3/12/97
--------------------------------------------                                                   -------------------------
              Wayne E. Ahart                          Chairman of the Board, Director
                                                      (Principal Executive Officer)


            /S/ C. Donald Byrd
                                                                                                       3/14/97
--------------------------------------------                                                   -------------------------
              C. Donald Byrd                       Vice Chairman of the Board and Director


             /S/ Kenneth Tobey
                                                                                                        3/6/97
--------------------------------------------                                                   -------------------------
               Kenneth Tobey                               President and Director


            /S/ Barry N. Shamas
                                                                                                       3/12/97
--------------------------------------------                                                   -------------------------
              Barry N. Shamas                     Executive Vice President, Treasurer and
                                                      Director (Principal Financial and
                                                            Accounting Officer)





--------------------------------------------                                                   -------------------------
                Hayden Fry                                        Director

<PAGE>


              /S/ John Greig
                                                                                                       3/7/97
--------------------------------------------                                                   -------------------------
                John Greig                                        Director


               /S/ Roy Keppy
                                                                                                        3/7/97
--------------------------------------------                                                   -------------------------
                 Roy Keppy                                        Director


              /S/ Tom Landry
                                                                                                       3/4/97
--------------------------------------------                                                   -------------------------
                Tom Landry                                        Director


          /S/ C. James McCormick
                                                                                                        3/7/97
--------------------------------------------                                                   -------------------------
            C. James McCormick                                    Director


           /S/ James A. Mullins
                                                                                                        3/8/97
--------------------------------------------                                                   -------------------------
             James A. Mullins                                     Director


           /S/ Robert R. Rigler
                                                                                                       3/12/97
--------------------------------------------                                                   -------------------------
             Robert R. Rigler                                     Director




             /S/ Stanley Schoelerman
                                                                                                        3/20/97
--------------------------------------------                                                   -------------------------
            Stanley Schoelerman                                   Director


             /S/ Orville Sweet
                                                                                                        3/6/97
--------------------------------------------                                                   -------------------------
               Orville Sweet                                      Director


             /S/ Charles Thone
                                                                                                        3/7/97
--------------------------------------------                                                   -------------------------
               Charles Thone                                      Director


            /S/ Cecil Alexander
                                                                                                        3/5/97
--------------------------------------------                                                   -------------------------
              Cecil Alexander                                     Director

<PAGE>

            /S/ Richard Barclay
                                                                                                        3/8/97
--------------------------------------------                                                   -------------------------
              Richard Barclay                                     Director


           /S/ Eugene A. Cernan
                                                                                                        3/7/97
--------------------------------------------                                                   -------------------------
             Eugene A. Cernan                                     Director


             /S/ Roy Ledbetter
                                                                                                        3/5/97
--------------------------------------------                                                   -------------------------
               Roy Ledbetter                                      Director


            /S/ John E. Miller
                                                                                                        3/8/97
--------------------------------------------                                                   -------------------------
              John E. Miller                                      Director



--------------------------------------------                                                   -------------------------
              Chris Schenkel                                      Director

</TABLE>


<PAGE>









                          ANNUAL REPORT ON FORM 10-KSB



                             ITEM 14 (a) AND 14 (d)



                              FINANCIAL STATEMENTS



                      FOR THE YEAR ENDED DECEMBER 31, 1996



                   BNL FINANCIAL CORPORATION AND SUBSIDIARIES



                                DES MOINES, IOWA


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




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





                     Financial Statements Required by Item 8


<TABLE>
<CAPTION>



                                                                                                       Page Number of 1996
                                                                                                           Form 10-KSB
                                                                                                     -------------------------
<S>                                                                                                  <C>

Consolidated Balance Sheet, December 31, 1996 and 1995                                                         E-2

Consolidated Statement of Operations for the years ended December 31, 1996 and 1995                            E-3

Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1996                E-4
and 1995

Consolidated Statement of Cash Flows for the years ended December 31, 1996 and 1995                            E-5

Notes to Consolidated Financial Statements                                                                     E-6

Report of Independent Accountants on Financial Statements                                                      E-14

</TABLE>













================================================================================
                                      E-1


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


<PAGE>

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

BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995

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

                                                                   December 31,           December 31,
                                                                       1996                   1995
                                                                -------------------    -------------------
                    ASSETS
<S>                                                             <C>                    <C>

Cash and cash equivalents                                                 $702,769             $1,910,596
Investments available for sale, at fair value (amortized
  cost  $11,854,901; 10,959,766;  respectively )                        11,885,909             11,504,802
Investment in equity securities, common stock
   at market  (cost $108,123; $108,123; respectively)                       35,438                 41,870
                                                                -------------------    -------------------
               Total investments, including cash and
                     cash equivalents                                   12,624,116             13,457,268


Accrued investment income                                                  222,101                252,617
Furniture and equipment, net                                               266,234                303,262
Deferred policy acquisition costs                                          474,667                514,561
Receivable from reinsurer                                                   28,462                142,677
Other assets                                                               485,995                433,827
                                                                -------------------    -------------------

               Total assets                                            $14,101,575            $15,104,212
                                                                ===================    ===================

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Liabilities for future policy benefits                               $1,382,280             $1,325,514
   Policy claims payable                                                   816,500                552,235
   Annuity deposits                                                      3,495,571              3,435,834
   Deferred annuity profits                                                610,536                602,719
   Premium deposit funds                                                   177,909                195,542
   Supplementary contracts without life contingencies                       70,515                 84,213
   Other liabilities                                                       415,901                315,358
                                                                -------------------    -------------------

               Total liabilities                                         6,969,212              6,511,415
                                                                -------------------    -------------------

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                    (41,679)               478,783
   Accumulated deficit                                                  (7,536,322)            (6,596,350)
   Treasury stock, at cost, 138,795 shares                                 (64,105)               (64,105)
                                                                -------------------    -------------------

               Total shareholders' equity                                7,132,363              8,592,797
                                                                -------------------    -------------------

               Total liabilities and shareholders' equity              $14,101,575            $15,104,212
                                                                ===================    ===================
<FN>
-------------------------------------------------------------------------------
The  accompanying  notes  are an  integral  part  of the
consolidated financial statements.
</FN>

-------------------------------------------------------------------------------
                                       E-2
-------------------------------------------------------------------------------

</TABLE>

<PAGE>
-------------------------------------------------------------------------------

BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1996 and 1995

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

===============================================================================
<TABLE>


<CAPTION>

                                                                                Year Ended December 31,
                                                                       -----------------------------------------
                                                                              1996                   1995
                                                                       -------------------    ------------------
<S>                                                                    <C>                    <C>

Income:
   Premium income                                                              $7,245,660            $3,073,819
   Net investment income                                                          863,940               880,368
   Realized gains                                                                  96,863               308,490
                                                                       -------------------    ------------------

               Total income                                                     8,206,463             4,262,677
                                                                       -------------------    ------------------

Expenses:
   Increase in liability for future policy benefits                                55,407                47,670
   Policy benefits and other insurance costs                                    6,353,988             2,618,023
   Amortization of deferred policy acquisition costs                               39,894                48,191
   Operating expenses                                                           2,443,908             1,767,550
   Taxes, other than on income                                                    253,238               137,170
                                                                       -------------------    ------------------

                Total expenses                                                  9,146,435             4,618,604
                                                                       -------------------    ------------------

                Loss from operations before
                     income taxes                                                (939,972)             (355,927)

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

               Net loss                                                         $(939,972)            $(355,927)
                                                                       ===================    ==================

Net loss per common share                                                          $(0.04)               $(0.02)
                                                                       ===================    ==================

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.
--------------------------------------------------------------------------------
</FN>
</TABLE>
                                       E-3
<PAGE>

--------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1996, and 1995

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

<TABLE>
<CAPTION>

                                                                                                   Unrealized
                                                               Additional                         (Depreciation)
                                   Common Stock                 Paid-In          Accumulated     Appreciation of        Treasury
                           -------------------------------
                              Shares            Amount           Capital            Deficit          Securities          Stock
                           --------------    -------------    ---------------    ---------------    --------------    -------------
<S>                        <C>               <C>              <C>                <C>                <C>               <C>

Balance, January 1, 1995      23,311,944          466,239         14,308,272        (6,240,423)         (288,590)         (64,105)
Fractional shares
     repurchased                    -                 -                  (42)              -                -                -
Unrealized appreciation
     of securities                  -                 -                  -                 -             767,373             -

Net loss                            -                 -                  -            (355,927)             -                -

                           --------------    -------------    ---------------    ---------------    --------------    -------------
Balance, December 31, 1995    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)
                           ==============    =============    ===============    ===============    ==============    =============
























<FN>

--------------------------------------------------------------------------------
The  accompanying  notes  are an  integral  part  of the
consolidated financial statements.
--------------------------------------------------------------------------------
</FN>
                                       E-4
</TABLE>


<PAGE>



--------------------------------------------------------------------------------
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, and 1995

================================================================================
<TABLE>
<CAPTION>
                                                                                              Year Ended December 31,
                                                                                        ----------------------------------
                                                                                             1996               1995

                                                                                        ---------------    ---------------
<S>                                                                              <C>                       <C>
Cash flows from operating activities:
   Net loss                                                                                 $(939,972)         $(355,927)
     Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
      Realized gains on investments                                                           (93,094)          (306,851)
      Realized gains on sale of furniture and equipment                                        (3,769)            (1,639)
      Depreciation                                                                             90,821             65,294
      Amortization of deferred acquisition costs,
        organization costs and state licenses acquired                                         43,003             51,299
      Accretion of bond discount                                                               (4,734)            (7,460)
      Deferred policy acquisition costs                                                       (39,894)           (48,189)
      Change in assets and liabilities:
         Decrease in receivable from reinsurer                                                114,215            172,850
         Decrease (increase) in accrued investment income                                      30,516            (51,497)
         Increase in liability for future policy benefits                                      56,766             49,815
         Increase in policy claims payable                                                    264,265            256,035
         Increase in annuity deposits and deferred profits                                     67,554            127,680
         Decrease in premium deposit funds                                                    (17,633)           (25,343)
         Other, decrease (increase)                                                            86,350            (13,977)
                                                                                        ---------------    ---------------

           Net cash used in operating activities                                             (345,606)           (87,910)
                                                                                        ---------------    ---------------

Cash flows from investing activities:
   Proceeds from sales of investments                                                       1,484,269          1,599,954
   Proceeds from maturity or redemption of investments                                      1,463,351          1,666,657
   Sales of equity securities                                                                       0             22,562
   Proceeds from sale of furniture and equipment                                                9,000              7,340
   Purchase of furniture and equipment                                                        (60,216)          (221,009)
   Purchase of fixed maturity securities                                                   (3,744,927)        (3,195,155)
                                                                                        ---------------    ---------------

           Net cash used in investing activities                                             (848,523)          (119,651)
                                                                                        ---------------    ---------------
Cash flows from financing activities:
   Net payments on supplementary contracts                                                    (13,698)           (89,380)
                                                                                        ---------------    ---------------
            Net cash used in financing activities                                             (13,698)           (89,380)
                                                                                        ---------------    ---------------

Net decrease in cash and cash equivalents                                                  (1,207,827)          (296,941)
Cash and cash equivalents, beginning of period                                              1,910,596          2,207,537
                                                                                        ---------------    ---------------

Cash and cash equivalents, end of period                                                     $702,769         $1,910,596
                                                                                        ===============    ===============




<FN>

--------------------------------------------------------------------------------
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
                                       E-5
--------------------------------------------------------------------------------


<PAGE>


--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


1.  Summary of Significant Accounting Policies:

The  consolidated  financial  statements  include the accounts of BNL  Financial
Corporation and its wholly owned subsidiaries,  BNL Equity Corporation,  Brokers
National  Life  Assurance  Company  (BNLAC) 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 with current  marketing
emphasis  on dental  insurance.  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 1996 and 1995.

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 1996
and 1995.

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 $297,409 and $309,498 at December 31, 1996 and
1995,  respectively.  Depreciation expense was $90,821 and $65,294 for the years
ended December 31, 1996, and 1995, respectively.

Other assets include agents' balances reduced by allowance for doubtful accounts
of $142,191 and $155,665 at December 31, 1996 and 1995, respectively. Reductions
in the  allowance  account  were  a  credit  to bad  debt  expense  recorded  in
operations of $(13,474) and $(48,000) for the years ended December 31, 1996, and
1995, respectively.

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, 1996, and 1995.

                                       E-6


<PAGE>


1.  Summary of Significant Accounting Policies (continued):

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, 1995 have been  reclassified to
conform   with  the   presentation   of   December   31,   1996   amounts.   The
reclassifications  have no effect on net income for the year ended  December 31,
1995.

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,  1996 and 1995  shareholders'  equity  includes  approximately
$5,187,000 and $6,372,000 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 a  regulatory  requirement
associated with the  redomestication  in 1994,  BNLAC must maintain a minimum of
$2,300,000 in capital and surplus.  Capital and surplus and net loss of BNLAC as
reported on a statutory basis are as follows:
<TABLE>
<CAPTION>

                                                              December 31,
                                               ----------------------------------------
                                                       1996                  1995
                                                       ----                  ----

<S>                                                 <C>                   <C>
 Capital and surplus                               $5,035,886            $5,792,668
                                                    ==========            ==========

 Net loss                                           $(756,906)            $(436,054)
                                                    ==========            ==========
</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, 1996                           December 31, 1995
                                               -----------------------------------------  ------------------------------------------
                                                 Income/Loss        Capital and Surplus     Income/Loss        Capital and Surplus
                                               -----------------  ----------------------  -----------------  -----------------------
<S>                                            <C>                <C>                     <C>                <C>
Consolidated Reporting Under
Generally Accepted Accounting Principles              $(939,972)             $7,132,363          $(355,927)              $8,592,797
Less Parent Company and BNL Equity                      215,886               1,944,975             20,224                2,220,523
                                               -----------------  ----------------------  -----------------  ----------------------

Brokers National Life Assurance Company                (724,086)              5,187,388           (335,703)               6,372,274

Deferred Acquisition Costs                               39,894                (474,667)            48,188                 (514,561)
Reserve and Premium Adjustments                         (30,424)                222,505            (15,317)                   4,227
Interest Maintenance Reserve/AVR                        (38,920)               (387,489)           (77,919)                (342,604)
Unrealized appreciation (depreciation)
   of securities                                          -                     (22,387)               -                   (480,385)
Annuity Deposits and Related Adjustments                  8,707                 610,536            (73,389)                 828,571
Other                                                   (12,077)               (100,000)            18,086                  (74,854)
                                               -----------------  ----------------------  -----------------  ----------------------

BNLAC Statutory Basis                                 $(756,906)             $5,035,886          $(436,054)              $5,792,668
                                               =================  ======================  =================  ======================
</TABLE>

The regular  triennial  statutory  examination  for the three year period ending
December 31, 1995 was conducted by the Arkansas Insurance Department. 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):

Subsequent  to year end,  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 $77,998 be reclassified to 1995.
This amount represents an under estimate of the incurred but not reported dental
claims for 1995. The above tables do not include the proposed  adjustments.  The
Arkansas Insurance  Department  examination report is expected to be released in
final form in mid 1997.

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  carry  forwards  at  December  31,  1996  were
approximately  $7,050,000 for income tax reporting. The net operating loss carry
forwards expire in years 2000 - 2010. The Company and its subsidiaries will file
separate income tax returns for 1996.

A deferred tax asset of $2,870,000 resulted from net operating losses carryovers
and temporary  differences  primarily related to the life insurance  subsidiary.
The Company has  recognized a  corresponding  valuation  allowance of $2,870,000
against the  deferred tax asset.  This  represents a net increase of $270,000 in
the deferred tax asset for 1996 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           Estimated
                                                       Amortized Cost      Unrealized       Unrealized       Market Value
                                                                             Gains            Losses
                                                       ---------------    -------------    -------------    ---------------

<S>                                                    <C>                <C>              <C>              <C>
December 31, 1996

US Treasury securities and obligations of
  US government corporation and agencies                  $10,972,990         $176,748       $(120,406)        $11,029,332
Obligation 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
                                                       ===============    =============    =============    ===============

                                                                             Gross            Gross           Estimated
                                                       Amortized Cost      Unrealized      Unrealized        Market Value
                                                                             Gains            Losses
                                                       ---------------    -------------    -------------    ---------------
December 31, 1995

US Treasury securities and obligations of
   US government corporation and agencies                  $9,721,174         $538,886        $(16,067)        $10,243,993
Obligations of states and political subdivisions              597,342            3,448          -                  600,790
Corporate securities                                          362,597            7,701          (4,664)            365,634
Mortgage-backed securities
   GNMA                                                        30,769            5,796          -                   36,565
Public utility bonds                                          247,884            9,944              (8)            257,820
                                                       ---------------    -------------    -------------    ---------------

Totals                                                    $10,959,766         $565,775        $(20,739)        $11,504,802
                                                       ===============    =============    =============    ===============
</TABLE>

                                       E-8
<PAGE>

4. Investments (continued):

The amortized  cost and estimated  fair value of  investments  in fixed maturity
securities  at  December  31, 1996 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, 1996
                                                      ---------------------------------
                                                                           Estimated
                                                      Amortized Cost     Market Value
                                                      ---------------    --------------

<S>                                                      <C>                  <C>
Due in one year of less                                  $   346,892          $347,333
Due after one year through five years                      2,290,724         2,297,015
Due after five years through ten years                     4,071,718         4,036,833
Due after ten years                                        5,118,259         5,177,665
                                                      ---------------    --------------
                                                          11,827,593        11,858,846
Mortgage-backed securities                                    27,308            27,063
                                                      ---------------    --------------

                                                         $11,854,901       $11,885,909
                                                      ===============    ==============
</TABLE>

Proceeds from sales and maturities of  investments in fixed maturity  securities
for the years ended December 31, 1996 and 1995 were  $2,947,620 and  $3,266,611,
respectively. Gross gains of $97,757 and $307,416 and gross losses of $4,663 and
$565 were realized on those December 31, 1996, and 1995 sales, respectively.

Investment in equity  securities at December 31, 1996 and 1995 represents common
stock investments as follows:
<TABLE>
<CAPTION>

                                            1996                            1995
                                  -----------------------------    -----------------------------
                                                      Market                           Market
                                      Cost            Value            Cost            Value
                                  -------------    ------------    -------------    -------------

<S>                               <C>              <C>             <C>              <C>
Banks, trusts and
     insurance companies            $    2,423       $     438       $    2,423        $     625
Industrial, savings
     and loans and other               105,700          35,000          105,700           41,245
                                  -------------    ------------    -------------    -------------

                                      $108,123         $35,438         $108,123          $41,870
                                  =============    ============    =============    =============
</TABLE>


Net  investment  income for the years  ended  December  31,  1996 and 1995 is as
follows:
<TABLE>
<CAPTION>

                                                        December 31,
                                                ------------------------------
                                                    1996             1995
                                                -------------    -------------

<S>                                            <C>               <C>
Interest on debt securities and
     cash investments                               $878,573         $897,175
Dividends on equity securities                       -                    169
                                                -------------    -------------

                                                     878,573          897,344
Investment expenses                                  (14,633)         (16,976)
                                                -------------    -------------

Net investment income                               $863,940         $880,368
                                                =============    =============

</TABLE>
                                       E-9
<PAGE>

4. Investments (continued):

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

                                                        December 31,
                                                ------------------------------
                                                    1996             1995
                                                -------------    -------------

<S>                                              <C>             <C>
Debt securities                                      $93,094         $307,374
Equity securities                                    -                   (523)
                                                -------------    -------------

                                                     $93,094         $306,851
                                                =============    =============

</TABLE>

Included  in 1996 and 1995  realized  gains on debt  securities  is $30,205  and
$188,456,  respectively  of gains on taxable  municipal  bonds that were written
down in 1991 to 25% of par  value 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 in 1996,  1995 and 1994 the Company  received a portion of
the principal in excess of the book value and back interest on the bonds.

5.  Fair Value of Financial Instruments

<TABLE>
<CAPTION>
                                                                     1996                                     1995
                                                       ---------------------------------        ---------------------------------
                                                          Carrying           Fair                  Carrying           Fair
                                                           Amount            Value                  Amount            Value
Assets                                                 ---------------- ----------------        ---------------- ----------------

<S>                                                    <C>              <C>                     <C>              <C>
Cash and Cash Equivalents
    (Note 1)                                                 $ 702,769        $ 702,769    (a)      $ 1,910,596      $ 1,910,596 (a)
Investments-fixed maturity, available for sale
    (Note 4 & Note 1)                                       11,885,909       11,885,909    (b)       11,504,802       11,504,802 (b)
Investments-equity securities
    (Note 4 & Note 1)                                           35,438           35,438    (b)           41,870           41,870 (b)
Other financial instruments-Assets                             315,057          315,057    (a)          316,428          316,428 (a)
                                                       ---------------- ----------------        ---------------- ----------------

Total financial instruments-Assets                         $12,939,173      $12,939,173             $13,773,696      $13,773,696
                                                       ================ ================        ================ ================

Liabilities

Premium deposit funds                                         $177,909         $177,909    (a)         $195,542         $195,542 (a)
Supplementary contracts without life contingencies
     (Note 1)                                                   70,515           70,515    (a)           84,213           84,213 (a)
Annuity deposits
     (Note 1)                                                3,495,571        3,495,571    (a)        3,435,834        3,435,834 (a)
                                                       ---------------- ----------------        ---------------- ----------------

Total financial instruments-Liabilities                     $3,743,995       $3,743,995              $3,715,589       $3,715,589
                                                       ================ ================        ================ ================
<FN>

(a) The  indicated  assets and  liabilities  are  carried  at book  value  which
approximate fair value.
(b) Fair value of investments are 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  has been made in the  financial  statements.  In the  opinion  of
management, the existing litigation is not considered to be material in relation
to the Company's financial position.

The Company has entered into noncancelable operating leases for office space and
equipment. Future minimum payments under the leases are as follows:
<TABLE>
<S>                                                      <C>               <C>
                                                         1997              $99,072
                                                         1998              $92,268
                                                         1999              $55,944
                                                         2000                   $0
                                                   Thereafter                   $0
                                                             ----------------------
                                                        Total             $247,284
                                                             ======================
</TABLE>

Related lease cost  incurred for the years ended  December 31, 1996 and 1995 was
$110,486 and $101,480, respectively.

The Company's wholly owned insurance subsidiary may 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  $168,000
at December 31, 1996.

7. Liability for Unpaid Claims

Activity in the liability for unpaid claims is summarized as follows.
<TABLE>
<CAPTION>
                                                            1996                     1995
                                                      ------------------      -------------------
<S>                                                   <C>                     <C>
Balance at January 1                                           $552,235                 $296,200
 Less Reinsurance Recoverable                                   120,735                  260,730
                                                      ------------------      -------------------
Net Balance at January 1                                        431,500                   35,470
                                                      ------------------      -------------------

Incurred related to:
  Current year                                                5,016,402                1,902,000
  Prior years                                                    72,837                    1,688
                                                      ------------------      -------------------
Total Incurred                                                5,089,239                1,903,688
                                                      ------------------      -------------------

Paid related to:
  Current year                                                4,090,828                1,475,000
  Prior years                                                   618,572                   32,658
                                                      ------------------      -------------------
Total paid                                                    4,709,400                1,507,658
                                                      ------------------      -------------------

Net Balance at December 31                                      811,339                  431,500
  Plus reinsurance recoverable                                    5,161                  120,735
                                                      ==================      ===================
Balance at December 31                                         $816,500                 $552,235
                                                      ==================      ===================
</TABLE>

8.  Reinsurance:

Liability  for  future  policy  benefits  is  reported  before  the  effects  of
reinsurance.  Reinsurance  receivable  (including  amounts  related to insurance
liabilities)  is  reported  as  assets.   Estimated  reinsurance  receivable  is
recognized in a manner consistent with the liabilities related to the underlying
reinsurance  contracts.  Such amounts have been  presented  in  accordance  with
Statement  of  Financial   Standards  No.  113  "Accounting  and  Reporting  for
Reinsurance  of Short  Duration  and Long  Duration  Contracts."  The Company is
liable if the reinsuring  companies are unable to meet their  obligations  under
the reinsurance agreements.
                                      E-11
<PAGE>

8.  Reinsurance (continued):

In 1994 the Company wrote dental business of which 90% was ceded,  under a quota
share reinsurance agreement,  to UniLife Insurance Company (UniLife).  Effective
January 1, 1995,  the  agreement  was modified to a 50% quota share  reinsurance
agreement.  In March 1995,  BNLAC received notice from UniLife of termination of
the quota share reinsurance agreement. Effective November 1, 1995, BNLAC started
administrating and retaining 100% of the group dental business.  Dental premiums
collected  for the years ended  December  31,  1996 and 1995 were  approximately
$6,926,000 and $4,159,000  respectively,  of which approximately  $6,851,000 and
$2,504,000 were included in premium income.

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+"
(Superior) for 1995.
Following is a summary of reinsurance for December 31, 1996 and 1995:
<TABLE>
<CAPTION>
                                                                                                         Percentage
                                                       Ceded to         Assumed                          of Amount
                                        Gross           other          from other      Net Amounts       Assumed to
                                       Amount         Companies        Companies                            Net
                                    -------------    -------------    -------------    -------------    -------------
        December 31, 1996

<S>                                 <C>              <C>              <C>              <C>               <C>
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%
                                    =============    =============    =============    =============    =============


                                                                                                         Percentage
                                                       Ceded to         Assumed                          of Amount
                                        Gross           other          from other      Net Amounts       Assumed to
                                       Amount         Companies        Companies                            Net
                                    -------------    -------------    -------------    -------------    -------------
        December 31, 1995

Life Insurance in force
  (in thousands)                         $35,310          $11,486           $6,631          $30,455          21.7%
                                    =============    =============    =============    =============    =============

Premiums-life insurance                 $406,093          $40,915          $16,758         $381,936           4.3%
Premiums-accident and health           2,691,883             -                -           2,691,883            -
                                    -------------    -------------    -------------    -------------    -------------
                                      $3,097,976          $40,915          $16,758       $3,073,819           0.5%
                                    =============    =============    =============    =============    =============
</TABLE>

9. Related Party Transactions/Certain Relationships

During the year ended  December 31, 1995 and up to July 26, 1996, as part of the
Company's routine investment program,  certain purchases and sales of securities
were effected  through a broker firm owned by the brother of the Chairman of the
Board of the Company. The above-described transactions were executed pursuant to
a clearing agreement between an unaffiliated  brokerage firm and a member of the
New York Stock Exchange.  Total purchases and sales executed under the agreement
were approximately  $4,300,000 and $9,800,000 during 1996 and 1995 respectively.
Fees  paid to the  related  broker  were  $5,855  and  $7,197  for 1996 and 1995
respectively.  Effective  July 26,  1996,  the broker firm was merged into First
Commercial  Investments,  Inc.  Throughout  the  remainder of 1996,  the Company
purchased  and sold  approximately  $1700,000  worth of  securities  from  First
Commercial Investments Inc., from which the brother of the Chairman of the Board
received $4,207 commissions. The Company anticipates continuing this arrangement
in the future.

10.  Stock Option and Stock Bonus Plan

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. A maximum of 250,000  shares will be available  under
the plan and the option period may not exceed a term of 5 years. The duration of
the plan is ten years and it will be administrated by a four member committee of
Directors.  During 1996 and 1995 the Company  granted  101,725 and 26,400  stock
options respectively, with
                                      E-12
<PAGE>

10.  Stock Option and Stock Bonus Plan Continued

an exercise price of $.50 per share.  No options were exercised in 1996 or 1995.
Under the fair value method,  total  compensation  recognized for grant of stock
options was $0. The fair value of options  granted is estimated at $800 and $200
in 1996 and 1995  respectively.  These  values  were  computed  using a binomial
method as prescribed  in SFAS 123 and certain  assumptions  including  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 2.6 years.  See note 1.

In November 1996,  the Board of Directors  authorized a stock bonus plan for the
benefit of certain officers of the corporation  subject to specific  guidelines.
No stock bonus will be granted  unless the company  has  consolidated  after-tax
profits. The plan has not been formally established.

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

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.

On February 28,  1997,  BNL  Financial  Corporation  and BNL Equity  Corporation
contributed  $500,000 to the gross  paid-in and  contributed  surplus of Brokers
National Life Assurance 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, 1996 and 1995, 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, 1996 and 1995 and the
consolidated  results of their operations and their  consolidated cash flows for
the  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.




                                                       /S/ Smith Carney & Co.
                                                       ------------------------
Oklahoma City, Oklahoma                                SMITH, CARNEY & CO., p.c
February 13, 1997

















                                      E-14


<PAGE>