BNL FINANCIAL CORP - FORM 10-K

Attached files

file	filename
EX-32 - BNL FINANCIAL CORP	ex32.htm
EX-31.1 - BNL FINANCIAL CORP	ex31-1.htm
EX-31.2 - BNL FINANCIAL CORP	ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

	(Mark One)
	x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Fiscal Year Ended December 31, 2010
		or
	r	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________to___________

Commission File No. 0-16880

BNL FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

7010 Hwy 71 W., Suite 100
Austin, TX	78735
(Address of principal executive offices)	(Zip Code)

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

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, No Par Value

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of Securities Act. Yes r No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act . Yes r No x

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 r

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No r

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer r Accelerated filer r

Non-accelerated filer r Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes r No x

The estimated aggregate market value of the voting stock held by non-affiliates of the Registrant as of December 31, 2010 cannot be determined due to the limited trading in the Company’s stock throughout the year (see also Item 5 of Form 10-K regarding the limited trading market for the Company's shares).

As of December 31, 2010, the Registrant had outstanding 15,081,935 shares (excluding treasury shares) of Common Stock, no par value (which includes 10,989,652 shares owned by affiliates of the Registrant).

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the Proxy Statement for the Annual Meeting of Shareholders, scheduled for May 26, 2011 have been incorporated by reference into Part III of this Form 10-K

Table of Contents

Part I		Page

ITEM 1.	Business	3
ITEM 1A.	Risk Factors	9
ITEM 1B.	Unresolved Staff Comments	9
ITEM 2.	Properties	9
ITEM 3.	Legal Proceedings	9

Part II

ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities	11
ITEM 6.	Selected Financial Data	12
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk.	22
ITEM 8.	Financial Statements and Supplementary Data	23
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	23
ITEM 9A.	Controls and Procedures	23
ITEM 9B.	Other Information	24

Part III

ITEM 10.	Directors, Executive Officers and Corporate Governance of the Registrant	25
ITEM 11.	Executive Compensation	27
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management	28
ITEM 13.	Certain Relationships and Related Transactions and Directors Independence	29
ITEM 14.	Principal Accountant Fees and Services	29

Part IV

ITEM 15.	Exhibits, Financial Statement Schedules	30

SIGNATURES		32

Table of Contents

PART 1

ITEM 1. Business

General

BNL Financial Corporation (the "Company" or "Registrant" or “BNLF”) is an insurance holding company incorporated in Iowa in January 1984. The Company's administrative offices are located at 7010 Hwy. 71 West, Suite 100, Austin, Texas 78735; its telephone number is (512) 383-0220.

In March 2004, BNL Equity Corporation (“BNLE”), the immediate subsidiary of the Company was dissolved and its assets, including the stock of Brokers National Life Assurance Company (“BNLAC”), were distributed to BNLF. All outstanding shares of BNLAC are now owned directly by BNLF.

The Company has three wholly owned subsidiaries, Brokers National Life Assurance Company, BNL Brokerage Corporation and Consumers Protective Association (formerly National Dental Benefit Association, Inc.). Consumers Protective Association is an inactive association that was purchased for the purpose of marketing services, including insurance products to members.

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

Industry Segments

The operations of the Company are conducted through BNLAC, which in 2010 marketed life and accident and health insurance. In 1987 BNLAC began selling insurance in Iowa. In 1992, BNLAC redomesticated to Arkansas and expanded its sales to other states through the acquisition of Statesman Life Insurance Company. The Company has no foreign operations.

The Company is licensed to offer life and accident and health insurance on an individual and group basis in 48 states and the District of Columbia.

The Company conducts business in the “life, accident and health insurers” industry segment. Most of BNLAC’s premium revenues are from sales of group dental insurance sold primarily on a payroll deduction basis. BNLAC also markets group vision insurance products that are underwritten by other insurance companies and which BNLAC does not have any exposure to underwriting (claims) losses. Financial information relating thereto is contained in the Selected Financial Data below and the Financial Statements included as Exhibits to this Report.

Sales and Marketing

The Company markets its products through independent agents and brokers. BNLAC emphasizes the marketing of specialized or "niche" life and health insurance products including: individual and group term life insurance, hospital indemnity insurance, group and individual dental insurance, short term disability insurance, accidental death and dismemberment insurance and cancer insurance. Most of these products are designed to be sold on a group or payroll deduction basis.

BNLAC also markets group vision insurance products that are underwritten (issued) by other insurance companies. BNLAC "co-brands" these products with its name and logo and markets them through its sales force. BNLAC collects overwrite commissions and/or administrative fees on these products and does not have any exposure to underwriting (claims) losses.

Table of Contents

Statistics by line of business are as follows (gross before reinsurance):

	2010		2009
I. Annualized Premiums and Annuity Deposits In Force:
Ordinary Life Insurance	$	229,000	$	234,000
Individual Annuities(1)		53,000		60,000
Group Dental Insurance		36,859,000		38,372,000
Miscellaneous A&H Insurance		1,577,000		1,667,000

Total	$	38,718,000	$	40,333,000

II. Collected Premiums and Annuity Deposits:
Ordinary Life Insurance	$	226,000	$	242,000
Individual Annuities(1)		49,000		64,000
Group Dental Insurance		36,021,000		40,202,000
Miscellaneous A&H Insurance		1,577,000		1,714,000

Total	$	37,873,000	$	42,222,000
III. Face Value of Insurance:
Ordinary Life Insurance	$	29,162,000	$	30,657,000
Accidental Death Insurance		115,870,000		115,275,000

Total	$	145,032,000	$	145,932,000
(1) Classified as a deposit liability on the financial statements.

Premiums collected by state are reflected in the following table:

State	Life Premiums		Annuity		Accident and Health		Total
Louisiana	$	21,000	$	-	$	3,358,000	$	3,379,000
Georgia		20,000		-		3,171,000		3,191,000
Arkansas		24,000		-		2,814,000		2,838,000
Indiana		7,000		-		2,505,000		2,512,000
Missouri		11,000		-		2,368,000		2,379,000
Ohio		1,000		-		2,304,000		2,305,000
Oregon		1,000		-		1,926,000		1,927,000
Michigan		6,000		-		1,825,000		1,831,000
Minnesota		6,000		-		1,677,000		1,683,000
All Other States		129,000		49,000		17,737,000		17,915,000
Total	$	226,000	$	49,000	$	39,685,000	$	39,960,000

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

	Group Dental		Individual
	Gross		Dental Gross
	Premiums		Premiums
	Collected		Collected
2010	$	38,098,000	$	1,336,000
2009		40,202,000		1,451,000
2008		41,382,000		1,602,000
2007		41,926,000		1,785,000
2006		42,132,000		1,988,000

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

			Incurred
	Gross		Claims
Group Dental Insurance	Claims Paid		Ratio
2010	$	23,985,000		62.8	%
2009		25,124,000		62.3	%
2008		26,290,000		61.9	%
2007		26,340,000		61.8	%
2006		27,127,000		64.1	%

Agents' Commissions

On December 31, 2010, BNLAC had 3,829 general agents and brokers appointed in 46 states compared to 4,307 agents and brokers on December 31, 2009.

On all of its products BNLAC believes it pays competitive commissions to agents. There is considerable competition for insurance agents and BNLAC competes with larger, well-established life insurance companies for the services of agents. BNLAC believes it is able to attract competent agents by offering competitive compensation, efficient service to agents and customers and by developing products to fill special needs within the marketplace.

Reinsurance

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

The reinsurer receives a portion of the premium on the reinsured policies. BNLAC remains directly liable to policyholders to perform all policy obligations, and bears the contingent risk of the reinsurer’s insolvency. Before submitting an application for a policy to the reinsurer, BNLAC determines whether the applicant is insurable, but BNLAC rejects any application which is not accepted by the reinsurer.

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

In 2010, BNLAC’s accidental death benefit riders were reinsured 100% through a Bulk ADB reinsurance agreement with Optimum Re. Optimum Re was rated “A-“(Excellent) by AM Best Company for 2010.

In 2010, BNLAC’s individual life insurance products in excess of $35,000 were reinsured with Optimum Re under an automatic treaty up to $175,000 and under a facultative treaty for amounts over $175,000. Optimum Re was rated “A-“(Excellent) by AM Best Company for 2010.

BNLAC entered into a quota share reinsurance agreement with Hannover Life Reassurance Company of America for its group life, group accidental death and dismemberment and accidental death and dismemberment without group life plans effective January 1, 2008 whereby Hannover accepts 90% of the risk up to a maximum of $100,000 per life on AD&D and $75,000 on group life. Hannover was rated “A” (Excellent) by AM Best Company for 2010.

BNLAC entered into a quota share reinsurance agreement with Hannover Life Reassurance Company of America for its accidental death and dismemberment plan including common carrier effective January 1, 2007. The Company retains a 10% quota share up to a maximum of $25,000 for AD&D and Common Carrier combined. Hannover will accept, on an automatic basis, 90% to 100% quota share up to a maximum of $250,000 per life depending on the Company’s retention. Hannover was rated “A” (Excellent) by AM Best Company for 2010.

BNLAC’s Short Term Disability insurance is reinsured under a quota share reinsurance agreement with Union Security Insurance Company, Des Moines, Iowa, (formerly Fortis Benefits Insurance Company of Kansas City, Missouri). The reinsurer is liable for 75% of the risk on each policy. Union Security Insurance Company was rated “A-” (Excellent) by AM Best Company for 2010.

Table of Contents

Group and individual dental is not reinsured due to the economics of the dental business and the small annual maximum liability per policy.

The following chart shows life insurance and accidental death insurance in force net of reinsurance for each of the five past years ended December 31.

	Gross						Net
	Insurance		Reinsurance		Reinsurance		Insurance
	In Force		Ceded		Assumed		In Force
Life Insurance
2010	$	29,162,000	$	11,545,000	$	0	$	17,617,000
2009		30,657,000		10,933,000		0		19,724,000
2008		33,696,000		11,111,000		0		22,585,000
2007		43,879,000		14,074,000		0		29,805,000
2006		43,645,000		15,333,000		0		28,312,000


Accidental Death Insurance
2010	$	115,870,000	$	104,283,000	$	0	$	11,587,000
2009		115,275,000		103,748,000		0		11,527,000
2008		120,625,000		108,562,000		0		12,063,000
2007		120,655,000		108,590,000		0		12,065,000
2006		112,085,000		100,877,000		0		11,208,000

Investments

BNLAC invests its available funds in U.S. Treasury Bills, Canadian government bonds, U.S. government and agency bonds and corporate bonds and common stocks. The earnings from such investments represent a substantial part of BNLAC's income. For each of the five years ended December 31, BNLAC's statutory net investment income and ratio of net return on mean invested assets were as follows:

Year	BNLAC Statutory Net Investment Income		Net Return on Mean Invested Assets
2010	$	742,791		3.4	%
2009		923,830		3.8	%
2008		960,753		3.8	%
2007		1,123,716		4.8	%
2006		1,005,774		4.6	%

For information concerning realized and unrealized gains and losses on securities see Note 4 of the Notes to Consolidated Financial Statements on page F-11 and the table on page 17.

Special Factors Relating to Accounting and Regulatory Reporting of Insurance Companies

State insurance laws and regulations govern the accounting practices and the form of financial reports of insurance companies filed with state insurance regulatory agencies. Most states have adopted the uniform rules established by the National Association of Insurance Commissioners ("NAIC"). Reports prepared in accordance with statutory accounting practices reflect primarily the ability of an insurance company to meet its obligations to policyholders. Certain statutory accounting practices differ from generally accepted accounting principles as applied to the Company’s audited financial statements.

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

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

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

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

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

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

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

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

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

The ability of BNLAC to pay dividends to the Company is restricted under Arkansas insurance laws and must be approved by the insurance commissioner of the State of Arkansas, if it exceeds the lesser of 10% of surplus or net gain from operations for the year.

Insurance Regulations

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

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

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

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

The RBC requirements provide for four different levels of regulatory attention depending on the ratio of a company’s total adjusted capital (defined as the total of its statutory capital, surplus, asset valuation reserve and 50% of apportioned dividends) to its RBC. The “Company Action Level” is triggered if a company’s total adjusted capital is less than 100% but greater than or equal to 75% of its RBC, or if total adjusted capital is less than 125% of RBC and a negative trend has occurred. The trend test calculates the greater of any decreases in the margin (i.e., the amount in dollars by which a company’s total adjusted capital exceeds its RBC) between the current year and the prior year and between the current year and the average of the past three years, and assumes that the decrease could occur again in the coming year. If a similar decrease in the margin in the coming year would result in an RBC of less than 95%, then the Company Action Level would be triggered. At the Company Action Level, a company must submit a comprehensive plan to the regulatory authority which discusses proposed corrective actions to improve its capital position. The “Regulatory Action Level” is triggered if a company’s total adjusted capital is less than 75% but greater than or equal to 50% of its RBC. At the Regulatory Action Level the regulatory authority will perform a special examination of the company and issue an order specifying corrective actions that must be followed. The “Authorized Control Level” is triggered if a company’s total adjusted capital is less than 50% but greater than or equal to 35% of its RBC, and the regulatory authority may take any action it deems necessary, including placing the company under regulatory control. The “Mandatory Control Level” is triggered if a company’s total adjusted capital is less than 35% of its RBC, and the regulatory authority is mandated to place the company under its control. Calculations using the NAIC formula at December 31, 2010 indicated that the ratios of total adjusted capital to RBC for BNLAC would have been in excess of 1,354% and, therefore, significantly above the Company Action Level.

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

In December 2010, the Arkansas Insurance Department conducted its statutory examination for the period ended December 31, 2009. No adjustments were made to the financial statements of the Company as a result of the examination.

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

Competition

The life and health insurance business is highly competitive, and BNLAC competes in many instances with individual companies and groups of affiliated companies that have substantially greater financial resources, larger sales forces and more widespread agency and brokerage relationships than BNLAC. Certain of these companies operate on a mutual basis, which may give them an advantage over BNLAC since their profits accrue to the policyholders rather than the shareholders.

BNLAC focuses its marketing efforts on sales of its products to small and medium size groups of employees, association members and others. These groups range in size from two to approximately 2,290 persons. BNLAC also sells its products to individuals. BNLAC is a small insurance company which has no identifiable market share. BNLAC is not ranked according to its size or volume of sales.

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BNLAC competes for the services of agents and brokers in several ways. First, the Company’s dental insurance products are attractive to brokers and general agents because of their popularity in the employee benefit market. Second, BNLAC strives to provide a high level of service to agents by offering products that meet their clients’ needs and by providing individualized service in the administration of such products. Finally, BNLAC attempts to structure the levels of premiums, benefits and commissions on insurance products to compare favorably with competitors.

Personnel

At December 31, 2010 BNLAC had four executive officers and 59 full-time administrative personnel. BNLAC’s administrative staff supervises services for the agency force, policy underwriting, policy issuance and service, billing and collections, life claims, accounting and bookkeeping, preparation of reports to regulatory authorities and other matters. The Company has not experienced any work stoppages or strikes and considers its relations with its employees and agents to be excellent. The Company currently has no employees which are represented by a labor union. BNLAC uses a third party administrator, Employer Plan Services, Inc., to process dental claims.

ITEM 1A. Risk Factors

The Company is not aware of any risk factors which may relate to speculative or risky circumstances to the Company’s outstanding common stock.

To the extent which any matters presented in Item 1, Business, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, or Item 7A, Quantitive and Qualitative Disclosures About Market Risk may be applicable, they are incorporated herein by reference.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

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

During the first quarter of 2005 the Company entered into a lease for 20,337 square feet of office space in Austin, Texas, under an eight year, triple net lease. The base rent was $0 in the first year (June 1, 2005 to May 31, 2006), $157,612 in the second year and payments escalate to $264,384 in the final year of the lease. Leasehold improvements totaled approximately $872,000 ($203,000 funded by landlord) on the new lease space that was occupied in December 2005. Leasehold improvements are being amortized over the lease term. The $117,000 initial rent holiday and $203,000 of landlord-funded leasehold improvements will be amortized over the lease term and reduce lease expense. Deferred rent credits are included in other liabilities and were approximately $225,000 and $284,000 for 2010 and 2009, respectively.

BNLF leases approximately 1,400 square feet of office space in Sherwood, Arkansas at a rental of $19,800 per year and the lease will expire June 30, 2012. BNLAC incurs 100% of the rental expense.

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

ITEM 3. Legal Proceedings

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

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As part of the settlement agreement, the Company issued its Bonds in the principal amount of $1.50 in exchange for each share of common stock of BNL owned by the members of the Class. The balance of Bonds Payable was $1,300,708 and $1,323,388 at December 31, 2010 and 2009, respectively. The bonds are for a term of twelve years, effective December 15, 2002, with principal payable at maturity and bear interest at the rate of 6% per annum payable annually from the previous fiscal year’s earnings of BNL. The estimated annual impact to earnings per share is approximately $.005 per share. If any interest payment is not made, it will be added to the principal and paid at maturity. The Bonds are fully callable and redeemable at par at any time by BNL.

The Company has made cash offers to bond holders for the purchase of bonds. Bond purchases resulted in a reduction of Bonds Payable of $22,680, and $119,894 in 2010 and 2009; respectively. Gains from early extinguishments of the debt were $4,536, $27,176 and $44,370 in 2010, 2009 and 2008; respectively.

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PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity SecuritiesMarket for Stock

During 2010 the Company purchased 83,837 shares of its common stock at the request of shareholders at $1.12 to $1.37 per share.

The stock is not traded on any established trading market.

Purchases of Common Stock During 2010

The following table sets forth the shares of the Company’s outstanding Common Stock which the Company purchased during 2010:

Period	(a) Total number of shares purchased Note 1		(b) Average price paid per share		(c) Total number of shares purchased as part of publicly announced plans or programs	(d) Maximum number of shares that may yet be purchased under the plans or programs
Month #1, January 1 thru 31, 2010		13,706	$	1.25	None	None
Month #2, February 1 thru 28, 2010		-	$	-	None	None
Month #3, March 1 thru 31, 2010		12,582	$	1.37	None	None
Month #4, April 1 thru 30, 2010		1,860	$	1.37	None	None
Month #5, May 1 thru 31, 2010		-	$	-	None	None
Month #6, June 1 thru 30, 2010		22,381	$	1.25	None	None
Month #7, July 1 thru 31 2010		4,200	$	1.25	None	None
Month #8, August 1 thru 31, 2010		-	$	-	None	None
Month #9 September 1 thru 30, 2010		14,706	$	1.25	None	None
Month #10 October 1 thru 31, 2010		2,954	$	1.25	None	None
Month #11 November 1 thru 30, 2010		-	$	-	None	None
Month #12 December 1 thru 31, 2010		11,448	$	1.12	None	None
Total		83,837	$	1.26

Note 1 to the above table: During 2010 and 2009, the Company did not have any publicly announced plan or program to repurchase its outstanding Common Stock. From time to time, some shareholders of the Company request the Company purchase their stock and the Company does, from time to time, make such repurchases but only does so in its sole and absolute discretion and the Company is under no obligation to make any such repurchases in the future.

Holders

As of December 31, 2010 there were 1,891 record holders of the Company's common stock.

Dividends

In the first quarter of 2010, the board of directors voted to pay a $0.10 dividend per share to its shareholders, which required approximately $1,513,000 of funding. In the third quarter of 2010, the board of directors voted to pay a $0.25 dividend per share to its shareholders, which required approximately $3,773,000 of funding. The Company's ability to declare and pay dividends in the future will be dependent upon its earnings and the cash needs for expansion. In addition, payment of dividends by BNLAC is regulated under Arkansas insurance laws.

Equity Compensation Plan Information

In 1994, the Board of Directors and Shareholders approved the 1994 Brokers and Agents’ Nonqualified Stock Option Plan. This plan was established as an incentive to sales persons of BNLAC. Initially 250,000 shares were available under the plan. The Board of Directors authorized options for an additional 1.75 million shares. The option period may not exceed a term of five years and the duration of the plan was ten years, expiring December 14, 2004.

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Of the options granted through December 2004, there were no stock options outstanding at December 31, 2008. The number of options expiring or forfeited were 100,825 in 2008. There were 9,600 options exercised in 2008. All the remaining options expired in 2008.

In March 2002, the Board of Directors approved the 2002 Non-Director, Non-Executive Stock Option Plan, subject to any necessary authorizations from any regulatory authority. The plan is intended to assist the Company in attracting and retaining individuals of outstanding ability and to promote concurrence of their interests with those of the Shareholders of the Company. On November 15, 2010 the Company granted options for 36,000 shares of common stock. The fair value of options granted is estimated at $0 in 2010. The fair value of any options granted is estimated using a binomial method as prescribed in ASC 205 and certain assumptions include a risk free interest rate of 1.0%, expected life of 10.0 years, expected volatility of 6.8% and 7.2% expected dividends based on the past five years. The Company granted options for 116,000 shares prior to 2005. There were 46,550 options outstanding at December 31, 2010. The estimated weighted average remaining life of the options is 8.3 years and weighted average exercise price is $1.12. The options do not have a dilutive effect on earnings per share at this time, but may have such an effect in the future. See Note 1 of the financial statements.

The table below sets forth the Equity Compensation Plans as of December 31, 2010.

Plan Category	A Number of Securities to be issued upon exercise of outstanding options		B Weighted Average exercise price of outstanding options		C Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)

Not approved by security holders
Employee Plan		46,550	$	1.12		98,000

Transfer Agent and Registrar

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

ITEM 6. Selected Financial Data

The selected consolidated financial data presented below as of the end of and for each of the years in the five-year period ended December 31, 2010 is derived from the Company's consolidated financial statements. The consolidated financial statements as of December 31, 2010 and 2009, and for each of the years in the three-year period ended December 31, 2010 are included elsewhere in this Form 10-K.

		2010	*		2009		2008		2007		2006
Total Income	$	43,227,461		$	45,229,138	$	46,455,107	$	48,084,920	$	47,646,337
Net Income	$	2,234,716		$	2,817,845	$	2,366,472	$	3,449,368	$	2,564,243
Net Income Per Common Share	$	.15		$	.19	$	.16	$	.22	$	.16
Total Assets	$	27,927,169		$	31,368,041	$	30,012,783	$	30,301,075	$	27,009,634
Total Liabilities	$	10,313,323		$	10,636,929	$	11,404,366	$	13,004,202	$	12,497,130
Average Shares Outstanding		15,102,610			15,137,299		15,211,961		15,602,725		16,481,342

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

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this section, we review the consolidated financial condition of the Company at December 31, 2010, 2009 and 2008 and the consolidated results of operations for the periods ended December 31, 2010, 2009 and 2008. Please read this discussion in conjunction with the accompanying consolidated financial statements and notes.

Forward-Looking Statements

All statement, trend analyses and other information contained in this report and elsewhere (such as in filings by us with the Securities and Exchange Commission, press releases, presentations by us or our management or oral statements) relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, among other things: (i) general economic conditions and other factors, including prevailing interest rate levels and stock and credit market performance which may affect (among other things) our ability to sell our products, our ability to access capital resources and the costs associated therewith, the market value of our investments and the lapse rate and profitability of policies; (ii) world conflict, including but not limited to the war in Afghanistan which may affect consumers spending trends and priorities (iii) customer response to new products and marketing initiatives: (iv) mortality, morbidity and other factors which may affect the profitability of our products (v) changes in the federal income tax laws and regulations which may affect the relative income tax advantages of our products (vi) regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) bank sales and underwriting of insurance products and regulation of the sale, underwriting and pricing of products (vii) the risk factors or uncertainties listed from time to time in our filings with the Securities and Exchange Commission (viii) the Affordable Health Care for America Act passed in 2010.

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

Liabilities for unpaid policy claims are a sensitive accounting estimate unique to the insurance industry. Management uses an independent actuary to formulate this estimate. Differences in the estimates and actual results may result in revised claims expense which is recognized in the period in which the difference is determined. See Note 1, 7 and 11 to our financial statements for the effect on the year 2010.

Claim Liability Methodology

The Company, through its wholly owned subsidiary, BNLAC, has a single line of business which is life and accident and health insurance. The Company’s SIC code is 6311 which is a standard industrial classification used by the United States Securities and Exchange Commission (“SEC”). Using such SIC code, an interested person can research the internet website of the SEC, www.sec.gov, to find and review business and financial information of other companies which are in the same line of business.

The following is a summary description of the Company’s methodology for estimating its claim liabilities for its insurance policies. The Company and management believe that this discussion constitutes forward-looking statements and, therefore, this discussion is given full safe-harbor.

It should be understood that there is no assurance that anything which the Company and its management have done in the past regarding its claim liability methodology will be done in the future. The Company and its management are afforded full and complete authority and judgment in determining and implementing its claim liability methodology which includes any and all changes which may be made from time to time.

The Company’s significant insurance product types are presently dental (group and individual), life (group and individual), and annuities.

In the life and accident and health insurance industry, the liabilities for claims and the related expensing of those liabilities are evaluated and recorded using estimates of claim liabilities. The Company estimates its claim liabilities using the general methodology described herein.

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The liability for claims generally consists of the following: (1) due and unpaid claims, (2) claims in the course of settlement, and (3) claims incurred but unreported. The Company records the actual liability for all claims that are due but unpaid, Item (1). But, with regard to the last Items (2) and (3), the Company must make estimates. The estimates are based on actuarial principles. The Company’s independent consulting actuary works with Company financial personnel and management in determining the estimates and the independent consulting actuary annually gives the Company a certification as to the amounts of the liabilities.

The Company calculates and maintains claim liabilities for the estimated future payments on claims incurred before the statement date. These calculations are based on actuarial principles in accordance with industry standards and applicable GAAP requirements. Development of such liabilities is done with Company financial personnel and management working with the Company’s independent consulting actuary. These liabilities involve many considerations including but not limited to economic and social conditions, inflation, and healthcare costs. The claim liabilities developed include significant estimates and assumptions based on management’s review of historical experience in consultation with its independent actuary. The extent to which future payments match the claims liabilities is dependent on how well actual future experience matches the assumptions management makes regarding the future experience. The Company’s liabilities are estimates that require significant judgment and, therefore, are inherently uncertain.

It is common in the life and accident and health insurance industry for a consulting actuary to give either (A) a liability certification where the liabilities are expressed as a range of numbers for each relevant liability (the “Range Estimate”), or (B) a

liability certification where the liabilities are expressed as a single number for each relevant liability (the “Single Point Estimate”).

Where the Range Estimate method is used, the management of an insurance company makes its own choice to record an amount within the range. The Company does not use the Range Estimate for any of its insurance products. Instead, for all of its insurance products, the Company uses the Single Point Estimate.

For the Company’s group and individual dental insurance, the Company’s financial personnel develop and make a Single Point Estimate for the claim liabilities which results in the Company’s Single Point Estimate for the end of each fiscal quarter and year end. The Company’s independent consulting actuary develops and makes its separate Single Point Estimate for such liabilities. The Company’s financial personnel and independent consulting actuary compare their Single Point Estimates, reconcile any differences and agree on a Single Point Estimate for such liabilities. Annually, the Company’s independent consulting actuary gives a Single Point Estimate liability certification to the Company with the agreed amount and the Company uses such certified amount without change.

For the Company’s group and individual life and annuity insurance, the Company’s financial personnel make the Single Point Estimate for each such claim liability. Annually, the Company’s consulting actuary independently reviews the Single Point Estimates. If the independent consulting actuary agrees with the Single Point Estimates, he gives a certification to the Company.

The Company’s financial personnel have significant experience and knowledge in developing claim estimates for the Company’s insurance products. However, the Company’s financial personnel are not formally trained, certified or recognized as actuaries. The Company continually engages independent consulting actuaries. The Company makes extensive use of its independent consulting actuaries which includes the actuaries’ assistance in the development and creation of policy assumptions, the development and modification of reserve and claim liability methodologies and assumptions, estimations and calculations of reserves and claim liabilities, and the annual certification of the amount of the Company’s liabilities for its products.

While claim liabilities are estimated as an inherent part of the insurance industry, management of the Company believes that it follows standard industry practices in estimating claim liabilities.

The following discussions of claim liability methodology are separated by the Company’s product types as indicated by the section headings.

Dental Insurance – Group and Individual

For the Company’s group and individual dental insurance policies, the Company and its independent consulting actuary use a completion factor approach (sometimes referred to as the development method) which provides best estimates of the factors to determine claim liabilities.

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In implementing the completion factor approach, a review of payment history develops the completion factors. These completion factors relate what percentage of an ultimate claim is paid based upon its duration from date of service. Such completion factors are monitored over time and have been relatively stable. The completion factors are used to estimate the liabilities for the months in which the claims are incurred where they are deemed to be credible.

However, with respect to claims incurred in the most recent months, the completion factors may not be fully credible (the payment history is not complete). So, as is common in the industry, a review is made of developing claims per insured by month and loss ratios by month for the most recent months. The Company’s financial personnel and management and the Company’s independent consulting actuary make a Single Point Estimate based upon their determination of the loss ratios and claims per insured for the most recent months.

Of all the assumptions made by the Company’s financial personnel and management and the Company’s independent consulting actuary, the loss ratio and the claims per insured per month for the most recent months are the most sensitive ones for liability estimation. If the loss ratios and claims per insured per month increase, claim liabilities will likely increase by some amount. If the loss ratios and claims per insured per month decrease, claim liabilities will likely decrease by some amount.

Management reviews trends in loss ratios and claims per insured per month in determining its estimate for the most recent months. Generally, while fluctuations do occur, the Company’s loss ratio and claims per insured per month are stable. In estimating claim liabilities (the policy claims payable on the Company’s balance sheet), the Company consistently uses the assumptions of loss ratio and claims per insured per month which are based on actual, historical data. See, the discussion in the section herein entitled “Trends in Completion Factors, Loss Ratio, and Claims per Insured per Month”.

As to the consistency of the Company’s estimation of its claim liabilities (the policy claims payable on the Company’s balance sheet), you may reference Notes 7 and 11 to the Company’s Financial Statements. Notes 7 and 11 present data indicating the actual claims paid in a subsequent fiscal year for a prior fiscal year; actual claims incurred in a subsequent year for a prior fiscal year; and the claim liabilities for the prior fiscal year. Notes 7 and 11 are limited to the most recent fiscal year being reported, December 31, 2010, and the previous fiscal years of 2009 and 2008.

Life Insurance – Group and Individual – and Annuities

The Company reinsures a substantial portion of its life insurance and the associated risks and liabilities. See Item 1, Business, Reinsurance; and Note 8, Reinsurance, to the Company’s financial statements.

The Company determines its life insurance claim liabilities by recording three items: (1) actual claims due and unpaid; (2) the claims received during the 30 day period following year end (this is done by taking an inventory of claims received during the thirty day period); and (3) estimating a liability amount for claims which have been incurred but not yet reported by the end of the thirty day period.

The Company’s annuity policies are simple deferred annuities. The Company does not explicitly establish a claim liability for its annuities since the liability is already held in the annuity deposit liability.

Trends in Completion Factors, Loss Ratio and Claims Per Insured Per Month

Claim liabilities for the Group Dental line are the most significant part of the Company’s claim liability. As stated above, the Company uses the completion factor method for calculating the liability. Two main assumptions are made in this approach. First, for months the claims are incurred where the completion factor is credible, the Company uses that completion factor to calculate the liability associated with that month the claim occurred. Second, for the most recent months before the Company’s financial statement date where it is determined that the completion factors are not fully credible, the Company reviews loss ratios and claims per insured per month to determine the liability for those months.

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The discussion in this paragraph relates to the months where the completion factors are deemed to be fully credible which are typically the months prior to November and December. The completion factors have been relatively stable in the recent past. In the future, there could be changes in the trend of completion factors. The Company and its independent consulting actuary review the trends in the completion factors and when necessary make judgments as to the Single Point Estimate value for these items. Such estimates are based on observable trends and would also reflect any known major changes. Professional judgments are made based on the experience of the actuary and Company’s financial personnel and management. To observe the possible sensitivity of assuming 100% reliance on completion factors for claims incurred during the months for which completion factors are believed to be fully credible, if the associated claim liabilities for those months had increased by 5%, the year-end December 31, 2010, claim liabilities would have been increased by approximately $11,000.

The discussion in this paragraph relates to the months where the completion factors are deemed to be not fully credible which are typically the months of November and December. The choice of the loss ratio assumption or claims per insured per month assumption for the most recent month of the claim was incurred may also have an impact on the liability estimate. These assumptions are monitored for trends. The Company and its consulting actuary monitor the loss ratio and claims per insured month and override the completion factor approach for the most recent months before the Company’s financial statement date where the completion factors are not fully credible, i.e. November and December. To observe the possible sensitivity of assuming 100% reliance on loss ratio or claims per insured per month factors for claims incurred during the months for which completion are believed to be not fully credible (typically November and December of a fiscal year), if the loss ratio or claims per insured per month had increased by 3% for those months (a multiple of 1.03), the associated claim liabilities for those months and the year end December 31, 2010, claim liability would have been increased by approximately $114,000.

The Company believes that its recorded claim liabilities are reasonable and adequate to satisfy its ultimate claims liability. The Company’s recorded claim liabilities are, in accordance with industry practice, estimates of such liabilities.

The reader must recognize that the completion factors, loss ratios and claims per insured per month may, and probably will, be affected by events and conditions which are or will be unknown to the Company’s financial personnel or management or the Company’s consulting actuary. The reader must also recognize that any trending of the completion factors, loss ratios or claims per insured per month may not be indicative of changes in the Company’s financial condition.

While a presentation such as described above provides some mathematical and hypothetical numerical calculations, such calculations may or may not have any relevance to the Company’s future financial condition, earnings or cash flow.

Deferred Tax Asset

The valuation allowance against deferred taxes is a sensitive accounting estimate. The Company follows Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes,” which prescribes the liability method of accounting for deferred income taxes. Under the liability method, companies establish a deferred tax liability or asset for the future tax effects of temporary differences between book and tax basis of assets and liabilities.

At December 31, 2010 and 2009, respectively, the Company had gross deferred tax assets of $983,702 and $1,037,858 with corresponding valuation allowances of $714,058 and $683,058, and gross deferred tax liabilities of $229,370 and $248,800, resulting from net operating loss carryovers and temporary differences primarily related to the life insurance subsidiary. The valuation allowance is primarily due to statutory limitations on the use of net operating losses and uncertainty as to usage of AMT credit carryover. The resulting net deferred tax asset at December 31, 2010 is $40,274 compared to a deferred tax asset of $106,000 at December 31, 2009. Realization of the deferred tax asset is dependent on generating sufficient taxable income prior to expiration of the loss carry forward. Although realization is not assured, management believes it is more likely than not that all of the net deferred tax asset will be realized. However, the amount of the deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

The provision for income tax is as follows:

	2010		2009			2008

Current tax provisions	$	480,080	$	647,381		$	663,441
Deferred tax provision		67,000		(50,000	)		(68,602	)

Total income tax provision	$	547,080	$	597,381		$	594,839

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The reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes for the years ended December 31, 2010, 2009 and 2008 is as follows:

	2010			2009			2008

Book income before tax	$	2,781,796		$	3,415,226		$	2,961,311

Income tax computed at statutory rate (34%)	$	945,810		$	1,161,177		$	1,006,845
Valuation allowance for AMT credit		99,000			10,770			(17,000	)
Revision of valuation allowance		(31,000	)		18,356			94,052
Rate differential		(466,730	)		(592,922	)		(489,058	)

Total income tax provision (benefit)	$	547,080		$	597,381		$	594,839

The Company has net operating loss carry forwards for income tax purposes at December 31, 2010 as follows:

Expiring	NOL

2011	$	66,000
2012		193,000
2018		105,000
2019		32,000
2020		59,000
2028		31,000
	$	486,000

Financial Condition

	2010		2009		2008
Income from Operations before Income Taxes	$	2,781,796	$	3,415,226	$	2,961,311
Book Value Per Share	$	1.17	$	1.37	$	1.22
Stockholders' Equity	$	17,613,846	$	20,731,111	$	18,608,417
Statutory Capital and Surplus of Insurance Subsidiary	$	16,157,260	$	19,129,993	$	16,964,513
A.M. Best Financial Rating		B+		B+		B+

The statutory capital and surplus of the insurance subsidiary decreased in 2010 primarily due to $5,400,000 of dividends paid to the Company. In 2009 the statutory capital and surplus increased primarily due to income from operations.

Liquidity and Capital Resources

At December 31, 2010 the Company had liquid assets of $8,632,371 in cash, treasury bills, money market savings accounts, and money market funds. Money market funds may be subject to withdrawal restrictions. No such restrictions were in place at December 31, 2010. All of the non-cash liquid assets can readily be converted into cash.

The major components of operating cash flows are premiums and investment income while policy benefits are the most significant cash outflow. In 2010, BNLAC collected approximately $39.9 million of premiums and annuity deposits (gross before reinsurance) and $951,019 of net investment income. Another source of cash flow in 2010 was overwrite commissions of $2,409,860 on vision products. During the year the Company incurred $30,704,368 in policy benefits and other insurance costs.

The Company had a net increase in cash and cash equivalents of $542,268 in 2010 compared to an increase of $3,100,722 in 2009. The increase in 2010 was primarily from cash flow from operations, the sale and maturity of investments and a decrease in the amount of fixed maturity securities purchased.

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In 2010 the Company sold its bond investment that was Available for Sale.

All of the Company’s $14.7 million bond portfolio is classified as Held to Maturity and is carried on the Balance Sheet at amortized cost. This classification reflects management's ability and intent to hold the bonds until maturity. No adjustments to surplus are made as bond values change unless declines in market value are deemed to be other than temporary.

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

Portfolio Designated “Held to Maturity” December 31, 2010	Amortized Book Value		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
US Treasury securities and obligations of US government corporations and agencies	$	4,650,534	$	50,212	$	28,175	$	4,672,571
Canadian government securities		478,623		-		3,095		475,528
Corporate securities		2,820,080		145,051		93,121		2,872,010
Mortgage-backed securities GNMA & FNMA CMO		6,757,202		308,004		28,204		7,037,002

Totals	$	14,706,439	$	503,267	$	152,595	$	15,057,111

The Company’s investments are primarily in U.S. Government and Government Agencies ($11,407,735 amortized book value), Canadian Government ($478,623 amortized book value) other investment grade bonds ($2,208,185 amortized book value) and less than investment grade ($611,896 amortized book value).

The table below details the unrealized gains and losses on the bonds that are less than investment grade.

Less Than Investment Grade Bonds December 31, 2010	S&P Rating	Amortized Book Value		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
CIT Group, Inc.	Not rated	$	71,948	$	583	$	-	$	72,531
Provident Companies Inc.	BBB-		139,948		22,097		-		162,045
MBIA Global	BB+		200,000		-		47,480		152,520
American General Finance	BB+		200,000		-		29,440		170,560

Totals		$	611,896	$	22,680	$	76,920	$	557,656

The Company does not hedge its investment income through the use of derivatives.

The Company has a convertible debenture loan investment (“Debenture”) to EPSI Benefits, Inc. (“EBI”), originally dated July 25, 2001 (Exhibit 10.3). The loan bears interest at a rate of 14% and the maturity of the Debenture was August 15, 2015. Monthly principal payments were scheduled to begin on September 15, 2008, and the total principal amount is $1,357,407.

On July 14, 2008, the Company and EBI, amended the Debenture whereby the monthly principal payments will start on September 15, 2013 with the maturity date extended to August 15, 2020. For various business reasons management of both companies deemed the amendment to be advantageous. Under the agreement, BNL has the right to convert the Debenture into a 51% ownership in EBI. Such conversion right will continue during the extended maturity of the Debenture. Because of the extension of the commencement of principal payments and maturity of the Debenture, the Company analyzed discounted expected future cash flows in accordance with applicable generally accepted accounting principles and in 2008 established an allowance for credit losses in the amount of $204,582 at the time the agreement was amended, resulting in a net book value of $1,152,825.

In 2010, one of the two original EBI shareholders agreed to sell her ownership in EBI to the other shareholder and pursue employment elsewhere. Due to this change in ownership, the Company reanalyzed discounted expected future cash flows and increased its allowance for credit losses in the amount of $98,407, resulting in a book value of $1,054,418 at December 31, 2010. Interest on the debentures is and has been current.

Other long-term investments also include an operating line of credit agreement in the amount of $0 and $27,215 in 2010 and 2009 respectively. The agreement provided EPSI with a $200,000 line of credit maturing August, 2010. The line of credit was at 8.00% with interest and principal paid monthly to BNLAC.

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On November 5, 2001 the Company’s Board of Directors approved a settlement of the class action lawsuit (see "Legal Proceedings"). One term of the settlement was the issuance of Company bonds in the principal amount of $1.50 in exchange for each share of the Company’s common stock owned by the members of the class. The Arkansas Insurance Commissioner has reviewed and approved the settlement. The bonds have a 12-year term and bear interest at the rate of 6% per annum, effective December 15, 2002 payable annually from the previous fiscal year’s earnings. The total principal amount of bonds payable at December 31, 2010 is $1,300,708 compared to $1,323,388 at December 31, 2009. Bond interest expense was $77,633, and $82,317 in 2010 and 2009; respectively. BNLAC will pay dividends to BNL Financial Corporation for the payment of interest to the bondholders if permissible under Arkansas insurance laws. The maximum amount of dividends which can be paid by Arkansas domiciled insurance companies to shareholders without prior approval of the insurance commissioner is subject to restrictions relating to statutory surplus. The Company does not expect the dividend restrictions to impact its ability to meet its cash needs. The Company has no plan to start a sinking fund for payment of the principal at maturity.

In 2010, BNLAC paid dividends totaling $5,400,000 to BNLF for the payment of dividends to the Company’s shareholders and for other general operating funds compared to $800,000 dividends paid in 2009 for the payment of dividends to the Company’s shareholders and for other general operating funds.

The following table reflects all long-term contractual obligations of the Company as of December 31, 2010.

Long-Term Contractual Obligations *	Total		< 1 Year		1-3 Years		3-5 Years		> 5 Years
Bonds and Related Future Interest Payable**	$	1,657,000	$	78,000	$	156,000	$	1,423,000	$	-
Operating Lease Obligations	$	938,000	$	377,000	$	561,000	$	-	$	-
Liability for Future Policy Benefits (Note A.)	$	8,067,452	$	1,106,508	$	1,740,298	$	1,217,545	$	4,003,101
Policy Claims Payable (Note B.)	$	1,353,770	$	1,353,770	$	-	$	-	$	-
Liability for Annuity Deposits (Note C.)	$	4,428,215	$	83,208	$	134,858	$	179,094	$	4,031,055
Supplementary Contracts (Note D.)	$	30,099	$	1,495	$	2,948	$	2,882	$	22,774

* The notes to this long-term contractual obligations table are part of the table and are important.

** Interest payments are made only if the Company is profitable.

Notes to Long-Term Contractual Obligations Table:

Special Note Relating to Notes A, B, C and D and the information and presentation for liabilities for future policy benefits, policy claims payable, annuity deposits and supplementary contracts.

The data, information and presentation in this Long-term Contractual Obligations Table relating to the Company’s Liabilities for Future Policy Benefits, Policy Claims Payable, Annuity Deposits and Supplementary Contracts are all, separately and collectively, forward looking statements and are given full safe harbor protection.

NOTE A, Liabilities for Future Policy Benefits.

In calculating the payments above, BNLAC used models of the business created for statutory asset adequacy analysis. The modeled life block was assumed to surrender for its reserve at the end of 20 years. Health blocks tested were projected using approximate means beyond 20 years. Payments on blocks not initially modeled were projected on an approximate basis. The total estimated future payments to be made relating to the Liability for Future Policy Benefits is stated as $8,067,452 which does not match the balance sheet liability total of $2,057,715 and the difference is $6,009,737. This is primarily due to the fact that the estimated future payments presented in the long term contractual obligations table for Future Policy Benefits includes consideration for future premiums, investment income and maintenance expenses and such assumptions, and perhaps other assumptions, may differ from the assumptions initially used to establish the balance sheet liability. The estimated future payments presented in the long term contractual obligations table are based on current assumptions while the balance sheet liability is based on assumptions locked in at the date the policy was approved for issue. Assumptions for estimating future payments are made regarding such items as interest earnings, mortality, morbidity, and persistency. It is likely that the actual experience will deviate from these assumptions – sometimes materially. A number of factors can have an effect such as economic conditions, changes in policyholder actions regarding premium payments and withdrawals, mortality and morbidity improvement or deterioration, and inflation. Random fluctuation in experience could also have an effect. The determination of the amount of the future payments is based upon estimates and the timing and amount of future payments is not always reasonably fixed and determinable. Because of the above considerations, the amounts and timing of future payments will likely vary from that presented in the above table.

Future payments related to short duration contracts such as group dental are not included in the above table in the line item Liabilities for Future Policy Benefits.

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NOTE B, Policy Claims Payable.

The total estimated future payments to be made relating to Policy Claims Payable do match the balance sheet liability total. The estimated future payments are estimates of future occurrences based on many significant assumptions and are forward looking statements which are to be given the full protection of safe harbor. In developing the Policy Claims Payable, assumptions are made regarding such items as loss ratios, claims per insured or certificate holder per month, completion factors, morbidity trends, speed at which incurred claims are submitted, and speed at which they are processed. It is likely that the actual experience will deviate from these assumptions – sometimes materially. Random fluctuation is likely. The determination of the liability amounts is based upon estimates and the timing of payments is not always reasonably fixed and determinable. Because of the above considerations, the amounts and timing of payments will likely vary from that presented in the above table.

NOTE C, Annuity Deposits.

In calculating the payments above, BNLAC used models of the business created for statutory asset adequacy analysis. The modeled annuity block was assumed to surrender for its reserve at the end of 20 years. The total estimated future payments to be made relating to the Annuity Deposits liability is stated as $4,428,215 which does not match the balance sheet liability total of $2,384,264 and the difference is $2,043,951. The balance sheet Annuity Deposit liability represents such items as deposits, premiums, investment income, expenses, and withdrawals which have already occurred while the total estimated future payments presented in this long term contractual obligations table are estimated using assumptions for future occurrences of such factors and other factors. The estimated future payments are based on many significant assumptions regarding future occurrences such as future premium payments, interest earnings, mortality, and persistency. It is likely that the actual experience will deviate from these assumptions – sometimes materially. A number of factors can have an effect such as economic conditions, changes in policyholder actions regarding annuity deposits and withdrawals, mortality improvement or deterioration, and inflation. Random fluctuation in experience could also have an effect. The determination of the Annuity Deposit estimated future payments is based upon estimates and the timing and amount of estimated future payments is not always reasonably fixed and determinable. Because of the above considerations, the amounts and timing of estimated future payments will likely vary from that presented in the above table.

NOTE D, Supplementary Contracts.

The total estimated future payments to be made relating to the Supplementary Contracts without life contingencies liability is stated as $30,099 which does not match the balance sheet liability total of $41,932 and the difference is $(11,833). This is primarily due to the fact that the estimated future payments in this long term contractual obligations table for Supplementary Contracts includes consideration of future investment income, withdrawals (if permitted) and maintenance expenses and such assumptions, and perhaps other assumptions, may differ from the assumptions initially used to establish the balance sheet liability. The estimated future payments presented in the long term contractual obligations table are based on current assumptions while the balance sheet liability is based on assumptions locked in at the date the policy was approved for issue. The estimated future payments are based on many significant assumptions regarding future occurrences such as interest earnings, mortality, and persistency. It is likely that the actual experience will deviate from these assumptions – sometimes materially. A number of factors can have an effect such as economic conditions, changes in policyholder actions regarding withdrawals (if allowed), and mortality improvement or deterioration. Random fluctuation in experience could also have an effect. The Supplementary Contracts estimated future payments are based upon estimates and the timing and amount of future payments is not always reasonably fixed and determinable. Because of the above considerations, the amounts and timing of estimated future payments will likely vary from that presented in the above table.

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

BNLAC reports to state regulatory authorities on a statutory accounting basis that differs from the basis used herein. Due to an Arkansas regulatory requirement associated with the redomestication in 1994, BNLAC must maintain a minimum of $2,300,000 in capital and surplus. Additionally, each state in which BNLAC is licensed has statutory minimum capital requirements required for maintaining its license to sell. Minimum capital and surplus requirements vary from $300,000 to as much as $5,000,000 in the states in which BNLAC is licensed.

Results of Operations

Premium income was $39,868,611 in 2010, $41,609,604 in 2009 and $43,456,024 in 2008. The decreases in 2010 and 2009 were due to a decrease in new sales of dental insurance primarily as a result of the impact of the recession on voluntary employee benefits.

Net investment income was $951,019 in 2010, $1,122,698 in 2009 and $1,170,901 in 2008, a decrease of 4% in 2009, and a decrease of 15% in 2010. The decrease in 2010 was primarily due to the reduction in fixed maturities and the increase in short term investments with lower yields. The decrease in 2009 was due to an increase in short term investments with lower yields.

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The Company receives marketing fees from EBI in accordance with a marketing agreement entered into in 2001. The Company received marketing fees of $0 in 2010, $25,000 in 2009 and $0 in 2008. By mutual agreement, EPSI ceased paying the Company marketing fees in 2008 and 2010 due to reductions in working capital.

BNLAC markets group vision insurance products that are underwritten by other insurance companies, on which BNLAC does not have any exposure to underwriting (claims) losses. The Company had vision insurance income of $2,409,860, $2,386,148 and $2,263,529 in 2010, 2009 and 2008, respectively. The vision income increased by 1% and 5% in 2010 and 2009, respectively, primarily due to the addition of group voluntary vision plans.

The Company had a realized gain on debt extinguishments of $4,536 in 2010, $27,176 in 2009 and $44,370 in 2008 due to the purchase of debentures payable at less than par value. The Company purchased fewer debentures in 2010 and 2009 than it did in 2008, which resulted in less realized gain in debt extinguishments.

Realized gains (losses) on sale or maturities of investments were $139,605 in 2010, $100,792 in 2009 and $16,729 in 2008. The realized gains in 2010 were primarily due to the $154,000 gain on the sale of Ford Motor Company bonds that were written down by $145,864 in 2008. In 2009 the Company had a $20,000 gain on the maturity of General Motors Acceptance Corporation bonds and $79,905 gain on the sale of U.S. Treasury bonds. The gain in 2008 was primarily due to gains on government agency bonds that were called.

Realized losses on other than temporary impairments were ($146,170) in 2010, $(42,280) in 2009 and ($496,446) in 2008. The impairments in 2010 were due to the write down of Treaty Oak Bank common stock in the amount of $47,763 and the write down of a loan to EPSI Benefits Inc. in the amount of $98,407. The Company has a $1,357,407 convertible debenture loan investment (“Debenture”) at 14% to EPSI Benefits, Inc. (“EBI”) that is scheduled to mature August 15, 2020. Monthly principal payments were scheduled to begin on September 15, 2008, however on July 14, 2008, the Company and EBI, amended the Debenture whereby the monthly principal payments will start on September 15, 2013. Due to the extension of the commencement of principal payments and maturity of the Debenture noted above, the Company was required to establish an allowance for credit losses in the amount of $204,582 in 2008. In 2010 one of the two original EBI shareholders agreed to sell her ownership in EBI to the other shareholder and pursue employment elsewhere. Due to this change in ownership, the Company increased its allowance for credit losses in the amount of $98,407. In 2009 the Company wrote down CIT Group Inc. bonds by $42,280. In 2008 the Company wrote down Washington Mutual bonds from $126,000 to $0 to reflect their status as worthless. In 2008 management determined Ford Motor Company and General Motors Acceptance Corporation bonds were other than temporarily impaired and wrote down Ford Motor Company from $187,864 to $42,000 and General Motors Corporation from $100,000 to $80,000. The aggregate realized loss on the bonds in 2008 was $291,864

Decreases in liability for future policy benefits were ($90,098), ($66,596) and ($39,268) in 2010, 2009 and 2008, respectively. The decrease for all three years was primarily due to the decrease in the amount of life insurance in force.

Policy benefits and other insurance costs decreased from $32,978,610 in 2008, to $31,805,555 in 2009 and to $30,704,368 in 2010. The decrease in 2010 was primarily due to an approximately $802,000 decrease in claims expense, which was off set by $73,000 of which resulted from an overestimation of claims payable at December 31, 2009. The decrease in 2009 was primarily due to an approximately $882,000 decrease in claims expense, $146,000 of which resulted from an overestimation of claims payable at December 31, 2008. The claims ratio on group dental insurance, which represents the ratio of claims incurred to premium earned, was 62.8% in 2010, 62.2% in 2009 and 61.9% in 2008.

Amortization of deferred policy acquisition costs was $30,214 in 2010, $30,308 in 2009 and $40,564 in 2008. Amortization of deferred policy acquisition costs are primarily costs associated with a seasoned block of business written between 1988 and 1990. Amortization expense per year may vary in relation to lapses or surrenders of the existing block of business.

Operating expenses were $8,457,312 in 2010, $8,716,583 in 2009 and $9,055,261 in 2008. In 2010 operating expenses continued to decrease due to a reduction in payroll expense and claims administration expense which is directly related to the decrease in business in force. The decrease of approximately $338,678 in 2009 was primarily due to a decrease in executive incentive bonuses, claims administrative expense and printing and stationary expense. The decrease in the expense lines was primarily due to the decrease in the number of policies in force.

Taxes other than on income were $1,343,869 in 2010, $1,328,062 in 2009 and $1,458,629 for 2008. The increase in 2010 was primarily due to an underestimation of the premium tax accrual at December 31, 2009. The decrease for 2009 is primarily due to a decrease in premium taxes on fewer premiums collected.

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In 2010, the consolidated income from operations before taxes was $2,781,796 compared to $3,415,226 in 2009 and $2,961,311 in 2008. The 2010 decrease was due to the lower premium and investment income and the increased loss ratio. The increase in 2009 was primarily due to the increase in realized gains and decrease in operating expenses.

Earnings per share were $0.15, $0.19, and $0.16 in 2010, 2009 and 2008, respectively. The effect of the treasury shares acquired in 2010, 2009 and 2008 (see Market for Stock) had no affect on earnings per share.

The provision for income taxes was $547,080 in 2010, $597,381 in 2009 and $594,839 in 2008. For the periods ended December 31, 2010, 2009 and 2008, the Company had $480,080, $647,381 and $663,441 of current tax expense and $67,000 of deferred tax expense in 2010 and $50,000 and $68,602 of deferred tax credit in 2010 and 2009. Fluctuations in tax expense are primarily due to changes in taxable income, limitations on net operating losses utilized and adjustments in estimates for income taxes in prior years.

For the year ended December 31, 2010, other comprehensive income (losses) was $9,539 compared to $196,976 in 2009 and $(283,566) for the same period in 2008. In 2010 comprehensive income was due to an increase in the market value of equity securities. Comprehensive income for 2009 was primarily due to an increase in the market value of available for sale fixed maturities and equity securities. The comprehensive loss in 2008 was due to the decrease in the market value of equity securities.

Future Marketing Plans

In 2011 we continue to focus on recruiting new brokers, marketing in states where we have little or no premium income and expanding our product portfolios.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.

Market risk represents the potential loss resulting from adverse changes in the value of financial instruments, either derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates, commodity prices, and equity security prices. We handle market risks in accordance with our established policies. The Company’s conservative investment philosophies minimize market risk and risk of default by investing in high quality debt instruments, with staggered maturity dates. We did not have financial instruments to manage and reduce the impact of changes in interest rates at December 31, 2010 and December 31, 2009. We held various financial instruments at December 31, 2010 and 2009, consisting of financial assets reported in our Consolidated Balance Sheets (refer to Note 4). See page 17 for information on less than investment grade bonds held by the Company.

Interest Rate Risk – We are subject to interest rate risk through the investment in fixed maturity securities, such as U.S. Government and Government Agency securities and other investment grade bonds. The fair market value of long-term, fixed-interest rate debt is subject to interest rate risk. Generally, the fair value of fixed-interest rate debt will increase as interest rates fall and will decrease as interest rates rise. The estimated fair value of our fixed maturity securities at December 31, 2010 and December 31, 2009 was $15,057,111 and $18,570,332 respectively.

A one percentage point increase in prevailing interest rates would result in a decrease in the estimated fair value of fixed maturity securities held at December 31, 2010 of approximately $306,000. Initial fair values were determined using the current rates at which we could enter into comparable financial instruments with similar remaining maturities. The estimated earnings and cash flows impact for the twelve months of 2010, resulting from a one percentage point increase in interest rates, would be immaterial, holding other variables constant.

Foreign-Exchange Rate Risk - We currently have exposure to foreign exchange rate risk in our $475,000 investment in Canadian Government bonds denominated in Canadian dollars. We do not currently engage in any operations outside of the United States.

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

Equity Security Price Risk - Fair value of equity securities at December 31, 2010 totaled $909,124, or only 3.6% of total investments and cash on a consolidated basis. We do not hedge our equity price risk. As of December 31, 2010 a 20% adverse change in equity prices would result in an approximate $191,980 decrease in the fair value of our equity securities.

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

ITEM 8. Financial Statements and Supplementary Data

The information in response to this Item 8 is set forth on pages F-1 through F-25 attached to this Report which pages are hereby incorporated by reference.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

ITEM 9A. Controls and Procedures

Management's Annual Report on Internal Control over Financial Reporting

Our management, including our Principal Executive Officer and our Principal Financial Officer, is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. This included policies and procedures that (a) pertain to the maintenance of records in reasonable detail which accurately and fairly reflect the transactions and dispositions of our assets; (b) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and our receipts and expenditures are being made in accordance with authorizations of our management or directors, as applicable; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets which could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making its assessment, management has used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Management concluded that based on its assessment, our internal control over financial reporting was effective as of December 31, 2010. This annual report does not include an attestation report of our independent registered public firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

We have carried out an evaluation under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, these officers have concluded that, as of December 31, 2010, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities and Exchange Act of 1934 in recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms.

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In addition, during our last fiscal quarter for 2010, no change occurred in our internal control over financial reporting which was identified by management’s evaluation that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

This Management Report on Internal Control over Financial Reporting is deemed to be “furnished” and not “filed” under Section 18 of the Exchange Act or otherwise subject to the liabilities of that section and it is not incorporated by reference into any filing under the Securities Act or the Exchange Act.

ITEM 9B. Other Information

All information required to be disclosed in a report on Form 8K during the fourth quarter was reported on Form 8K.

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PART III

ITEM 10. Directors, Executive Officers and Corporate Governance of the Registrant

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

Name	Age		First Became Director or Executive Officer		Position
Wayne E. Ahart		70		1984	Chairman of the Board and Director
C. Donald Byrd		69		1984	Vice Chairman of the Board and Director
Kenneth Tobey		52		1994	President and Director
Barry N. Shamas		63		1984	Executive Vice President, Treasurer, Chief Operating Officer, Chief Financial Officer and Director
Cecil Alexander		74		1994	Director
Richard Barclay		73		1994	Director
Eugene A. Cernan		76		1994	Director
Hayden Fry		81		1984	Director
John Greig		75		1984	Director
Roy Ledbetter		80		1994	Director
John E. Miller		81		1994	Director
C. James McCormick		85		1984	Director
Robert R. Rigler		87		1989	Director
L. Stan Schoelerman		85		1984	Director

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

Identification of Certain Significant Employees

Not applicable.

Family Relationships

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

Business Experience

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

Wayne E. Ahart has served as Chairman of the Board of BNL since 1984 and BNLAC since 1986. He served as Chairman of the Board of BNLE from 1988 to 2004 and as Chairman of the Board of United Arkansas Life from 1990 to 1994. Prior to that time, Mr. Ahart served as Board Chairman of: Investors Trust, Inc. ("ITI") and its subsidiary, Investors Trust Assurance Company ("ITAC"), both of Indianapolis, Indiana (1973-1987); Liberty American Corporation ("LAC")(President since 1981) and its subsidiary Liberty American Assurance Company ("LAAC"), both of Lincoln, Nebraska (1975-1987); and (President) American Investors Corporation ("AIC") and its subsidiary, Future Security Life Insurance Company ("FSL"), both of Austin, Texas (1980-1987). Mr. Ahart has been owner and Chairman of the Board of Lone Star Pizza Garden Inc. from 1986 to the present.

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

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.

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Barry N. Shamas has served as Executive Vice President, Secretary and Treasurer of BNLE since 1988 and United Arkansas Life from 1990 to 1994. Since 1984 and 1986, respectively, he has served as Executive Vice President and Director of BNL and BNLAC, which positions he presently holds. He was named Chief Financial Officer and Chief Operating Officer of BNL and BNLAC in 2006. 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. Mr. Shamas has been a Director of the Arkansas Life and Health Insurance Guaranty Association since July 2007.

Cecil L. Alexander retired Vice President of Public Affairs for Arkansas Power & Light Company, where he was employed from 1980 until 2000. 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. From 1971 – 1980 Mr. Alexander was 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 First Arkansas Bank and Trust of Jacksonville, Arkansas. He is presently Chairman of the Arkansas Racing Commission where he has served for 18 years.

Richard L. Barclay, a Certified Public Accountant, retired as Director of Arkansas Department of Finance and Administration and as the state's Chief Fiscal Officer. He has returned to private practice with Beall, Barclay & Co., Certified Public Accountants in Rogers, Arkansas. He was an advisory Director of Regions Bank of Rogers from 1998 to December 2006. He joined United Bank, January 2007. He served as President and Board member of the Arkansas Society of Certified Public Accountants and is a member of the American Institute of Certified Public Accountants. He was a member of the Arkansas House of Representatives from 1977 until 1992.

Eugene A. Cernan has been President and Chairman of the Board of The Cernan Corporation since 1981. Captain Cernan retired from the U. S. Navy in 1976 after serving 20 years as a naval aviator, 13 of which were dedicated to direct involvement with the U. S. Space Program as a NASA Astronaut. Captain Cernan was the pilot on the Gemini 9 mission and the second American to walk in space; lunar module pilot of Apollo 10; and Spacecraft Commander of Apollo 17, which resulted in the distinction of being the last man to have left his footprints on the surface of the moon. In 1973, he served as a Senior United States Negotiator in discussions with USSR on the Apollo-Soyuz Mission. Mr. Cernan served as Executive Consultant of Aerospace and Government of Digital Equipment Corporation from 1986 to 1992, and he was a Director and Vice President-International of Coral Petroleum, Inc., Houston, Texas from 1976 to 1981. Captain Cernan is presently a Director of National Air and Space Museum and Smithsonian Educational Foundation. Captain Cernan is also a member of the Board of Trustees of the U. S. Naval Aviation Museum, NFL Alumni and Major League Baseball Players Alumni Association. In addition, Captain Cernan has served as a consultant commentator to ABC News.

Hayden Fry was Head Football Coach at the University of Iowa from 1979 to 1998, now retired. He was Head Football Coach at North Texas State University from 1973 to 1978 and at Southern Methodist University from 1962 to 1972. He was named Football Coach of the Year in the Big Ten (1981, 1990, 1991), the Missouri Valley Conference (1973), and the Southwest Conference (1962, 1966 and 1968). He was on the Board of Advisors of Wilson Sporting Goods; the Board of Trustees of Pop Warner Football; and the American Football Coaches Association and was the 1993 President of the AFCA. He was President of Hawkeye Marketing Group from 1979 - 1984. He is a member of the Board of Directors of Berthel Fisher Co and was a member of the Board of Directors of the PPI Group. He was elected into the College Football Hall of Fame in 2003.

John Greig has been President of Greig and Co. from 1967 - 2007. He is a Director and Chairman of the Board of Northstar Bank, 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 from 1993 to 1999.

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

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

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John E. Miller was a member of the State of Arkansas House of Representatives from 1959 to 2000. He has been self-employed in the insurance, abstract, real estate, heavy construction and farming business for more than 20 years. He has served on the Board of Directors of Calico Rock Medical Center, Easy K Foundation, National Conference of Christians and Jews, State Advocacy Services, Lions World Services for the Blind, State Board of Easter Seals, Williams Baptist College Board of Trustees and Izard County Chapter of the American Red Cross.

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.

L. Stanley Schoelerman was President and a Partner of Petersen Sheep & Cattle Co., Spencer, Iowa from 1964 to 2001. He was a Director of Home Federal Savings & Loan, Spencer, Iowa, from 1969 to 1988; and Honeybee Manufacturing, Everly, Iowa, from 1974 to 1986. He was President of Topsoil-Schoenewe, Everly, Iowa, from 1974 to 1986. Mr. Schoelerman was Commissioner of the Iowa Department of Transportation from 1974 to 1978 and was a member of the National Motor Carrier Advisory Board of the Federal Highway Administration from 1981 to 1985.

Audit Committee

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

Compensation Committee

The Company’s compensation committee consists of three members of the board of directors, C. James McCormick, Roy Ledbetter and Hayden Fry. C. James McCormick is Chairman of the committee. See description of board members for additional information.

Code of Ethics

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

Ms. Pam Randolph

BNL Financial Corporation

7530 Hwy. 107

Sherwood, Arkansas 72120

Additional information required by this item is incorporated by reference from the Company’s 2010 Proxy Statement for its annual meeting of shareholders scheduled for May 26, 2011 and the sections therein entitled “Beneficial Ownership of Common Stock,” “Corporate Governance,” “Audit Committee Charter and Report,” “Compensation Committee Charter,” “Purposes and Processes,” “Compensation of Executive Officers,” and “Compensation of Directors.”

ITEM 11. Executive Compensation

The information required by this item is incorporated by reference from the Company’s 2010 Proxy Statement for its annual meeting of shareholders scheduled for May 26, 2011 and the sections therein entitled “Beneficial Ownership of Common Stock,” “Corporate Governance,” “Audit Committee Charter and Report,” “Compensation Committee Charter,” “Purposes and Processes and Report,” “Compensation of Executive Officers,” and “Compensation of Directors.”

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ITEM 12. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

The following table reflects the persons known to the Company to be the beneficial owners of 5% or more of the Company's voting securities as of December 31, 2010.

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership(1)	Percent of Class as of December 31, 2010

Common Stock	Wayne E. Ahart	4,712,216(2)	31.24%
	8017 Cobblestone
	Austin, TX 78735

Common Stock	Barry N. Shamas	2,801,816(3)	18.58%
	1095 Hidden Hills Dr
	Dripping Springs, TX 78620

Common Stock	C. Don Byrd	1,852,719 (4)	12.28%
	1725 S. 50th Unit 144
	W. Des Moines, IA 50265

Common Stock	Kenneth Tobey	1,161,762	7.70%
	23 Tennyson
	N. Little Rock, AR 72116

(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) This includes 133,290 shares owned directly by Wayne Ahart and Wayne Ahart’s indirect ownership of 1,200,000 shares which are owned by National Iowa Corporation and 686,037 shares which are owned by Arkansas National Corporation. Wayne Ahart controls both National Iowa Corporation and Arkansas National Corporation and votes the shares of the Company’s common stock owned by both corporations. LeRene Ahart, as a shareholder in National Iowa Corporation and Arkansas National Corporation, has an indirect pecuniary interest in 1,200,000 shares of the Company’s common stock owned by National Iowa Corporation and 649,363 shares of the Company’s common stock owned by Arkansas National Corporation. Wayne Ahart has voting control of all 2,400,000 shares of the Company’s common stock owned by National Iowa Corporation and all 2,178,926 shares of the Company’s common stock owned by Arkansas National Corporation plus the 133,290 shares which are owned directly by Wayne Ahart. Consequently, Wayne Ahart has voting control of 4,712,216 (31.16%) shares of the Company’s common stock.

(3) 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.

(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.

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Security Ownership of Management

The following table sets forth, as of December 31, 2010, 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:

Title of Class	Name of Beneficial Owner	Amount and Nature of Beneficial Ownership1	Percent of Class as of December 31, 2009
Common	Wayne E. Ahart	4,712,2162	31.24%
Common	Cecil L. Alexander	37,088	0.25%
Common	Richard L Barclay	48,788	0.32%
Common	Ken Barr	7,300	0.05%
Common	Tammy Barr	20,300	0.14%
Common	C. Donald Byrd	1,852,7193	12.28%
Common	Eugene A. Cernan	37,088	0.25%
Common	Jeffrey A. Drees	38,843	0.26%
Common	Hayden Fry	69,272	0.47%
Common	John Greig	50,353	0.33%
Common	Roy E. Ledbetter	37,088	0.25%
Common	C. James McCormick	13,708	0.09%
Common	John E. Miller	47,111	0.31%
Common	Jerry Ouzts	20,000	0.13%
Common	Pamela C. Randolph	10,905	0.07%
Common	Robert R Rigler	3,295	0.02%
Common	Barry N. Shamas	2,801,8164	18.58%
Common	Stanley Schoelerman	20,000	0.13%
Common	Kenneth Tobey	1,161,762	7.70%
Common	All Officers and Directors as a group (19 persons)	10,989,652	72.87%

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

(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.

ITEM 13. Certain Relationships and Related Transactions and Directors Independence

None

ITEM 14. Principal Accountant Fees and Services

The information required under this item is incorporated by reference from the Company’s 2010 Proxy Statement for its annual meeting of shareholders scheduled for May 26, 2011.

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PART IV

ITEM 15. Exhibits, Financial Statement Schedules

(a) 1. Financial Statements

The information required by this section is set forth on pages F-1 to F-22 of this Report which is incorporated herein by reference.

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

Schedule II - Condensed Financial Information of Registrant F-23 to F-25.

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

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

3. Exhibits

No.	Description	Page or Method of Filing
3.1	Articles of Incorporation of BNL Financial Corporation, dated January 27, 1984 and Amendment to Articles of Incorporation of BNL Financial Corporation, dated November 13, 1987.	Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the period ending December 31, 1993.
3.2	By-laws of BNL Financial Corporation.	Incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement No. 33-70318.
4.1	Instruments defining the rights of security holders, including indentures.	Incorporated by reference to Exhibit 4 of the Company's Registration Statement No. 2-94538 and Exhibits 3.5 and 4 of Post-Effective Amendment No. 3 thereto.
4.2	Articles of Incorporation of BNL Financial Corporation, dated January 27, 1984 and Amendment to Articles of Incorporation on BNL Financial Corporation, dated November 13, 1987.	Incorporated by reference to Exhibits 4.2 of the Company's Annual Report on Form 10-KSB for the period ending December 31, 1998.
10.1	Form of Agreement between Commonwealth Industries Corporation, American Investors Corporation and Wayne E. Ahart regarding rights to purchase shares of the Company.	Incorporated by reference to Exhibit I of the Company's Quarterly Report on 10-QSB for the period ended September 30, 1994.
10.2	Agreement dated December 21, 1990 between Registrant 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.	Incorporated by reference to Exhibit I of the Company's Quarterly Report on 10-QSB for the period ended March 31, 1996.

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10.3	Convertible Debenture Agreement dated July 25, 2001 between BNL Equity Corporation and EPSI Benefits Inc.	Incorporated by reference to Exhibit 10.9 of the Company's Annual Report on 10-K for the period ended December 31, 2005.
10.4	Claims Service Agreement dated June 1, 1999 between Brokers National Life Assurance Company and Employer Plan Services Inc.	Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on 10-K for the period ended December 31, 2005.
10.5	Office lease agreement dated January 21, 2006, between Brokers National Life Assurance Company and KIMCO for premises in Austin.	Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on 10-K for the period ended December 31, 2005.
10.6	Line of Credit Agreement dated October 15, 2004 between Brokers National Life Assurance Company and Employer Plan Services Inc.	Incorporated by reference to Exhibit 10.7 of the Company's Annual Report on 10-K for the period ended December 31, 2005.
10.7	Marketing Agreement dated July 25, 2001 between BNL Equity Corporation and Employer Plan Services Inc. and EPSI Benefits Inc.	Incorporated by reference to Exhibit 10.8 of the Company's Annual Report on 10-K for the period ended December 31, 2005.
10.8	Outsourcing Agreement dated May 1, 2007 between Brokers National Life Assurance Company and Virtual Item Processing Systems, Inc.	Incorporated by reference to Exhibit 10.9 of the Company's Annual Report on 10-K for the period ended December 31, 2006.
10.9	Amended Convertible Debenture Date July 14, 2008 between BNL Financial Corporation and EPSI Benefits Inc.	Incorporated by reference to Exhibit 1 of the Company’s periodic Report on Form 8-K dated July 14, 2008.
11	Statement Re computation of per share earnings.	Reference is made to the explanation of the computation of per share earnings as shown in Note 1 to the Notes to Consolidated Financial Statements filed herewith under Item 14(a)(1) above which clearly describes the same.
12	Statements re computation of ratios.	Not applicable.
16	Letter Re Change in Certifying Accountant.	Incorporated by reference to Exhibit I of the Company's periodic Report on Form 8-K dated September 14, 1995.
21	Subsidiaries of Registrant.	Filed herewith.
31.1	Certification of Chief Executive Officer Section 302	Filed herewith – E1
31.2	Certification of Chief Financial Officer Section 302	Filed herewith – E2
32	Certification of Chief Executive Officer and Chief Financial Officer Section 906	Attached hereto – E3

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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 31st day of March 2011.

	BNL FINANCIAL CORPORATION

	By:	/s/ Wayne E. Ahart
		Wayne E. Ahart
		Chairman of the Board

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


SIGNATURE	TITLE	DATE
/s/ Wayne E. Ahart		03/29/2011
Wayne E. Ahart	Chairman of the Board, Director (Principal Executive Officer)
/s/ C. Donald Byrd		03/29/2011
C. Donald Byrd	Vice Chairman of the Board and Director
/s/ Kenneth Tobey		03/29/2011
Kenneth Tobey	President and Director
/s/ Barry N. Shamas		03/29/2011
Barry N. Shamas	Executive Vice President, Treasurer, Chief Operating Officer, Chief Financial Officer and Director (Principal Financial and Accounting Officer)
/s/ Hayden Fry		03/29/2011
Hayden Fry	Director
/s/ John Greig		03/29/2011
John Greig	Director
/s/ C. James McCormick		03/29/2011
C. James McCormick	Director

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/s/ Robert R. Rigler		03/29/2011
Robert R. Rigler	Director
/s/ Stanley Schoelerman		03/29/2011
Stanley Schoelerman	Director
/s/ Cecil Alexander		03/29/2011
Cecil Alexander	Director
/s/ Richard Barclay		03/29/2011
Richard Barclay	Director
/s/ Eugene A. Cernan		03/29/2011
Eugene A. Cernan	Director
/s/ Roy Ledbetter		03/29/2011
Roy Ledbetter	Director
/s/ John E. Miller		03/29/2011
John E. Miller	Director

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ANNUAL REPORT ON FORM 10-K

ITEM 15 (a) AND 15 (d)

FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2010

BNL FINANCIAL CORPORATION AND SUBSIDIARIES

DES MOINES, IOWA

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		Page Number of 2010 Form 10-K
Item 15(a) Financial Statements

Report of Independent Accountants on Financial Statements		F-2

Consolidated Balance Sheet, December 31, 2010 and 2009		F-3

Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2010, 2009 and 2008		F-4

Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 2010, 2009 and 2008		F-5

Consolidated Statement of Cash Flows for the years ended December 31, 2010, 2009 and 2008		F-6

Notes to Consolidated Financial Statements		F-7

Item 15(d) - Schedule II, Condensed Financial Information of Registrant		F-23

F-1

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BNL Financial Corporation and Subsidiaries

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

BNL Financial Corporation and Subsidiaries

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

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States.) Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2010 and 2009, and the consolidated results of its operations and its consolidated cash flows for each of the years in the three year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information required to be set forth therein.

Oklahoma City, Oklahoma SMITH, CARNEY & CO., p.c.

March 31, 2011 /s/ Smith, Carney & Co., p.c.

F-2

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BNL Financial Corporation and Subsidiaries

Consolidated Balance Sheets

December 31, 2010 and 2009

	December 31,
ASSETS	2010			2009
Cash and cash equivalents	$	8,632,371		$	8,090,103
Investments in fixed maturities at fair value, Available for Sale (amortized cost $0; $42,000, respectively)		-			146,720
Investments in fixed maturities at amortized cost, Held to Maturity (fair value $15,057,111; $18,423,612, respectively)		14,706,439			18,358,628
Other long-term investments - (Note 4)		1,054,418			1,180,041
Investment in equity securities, at fair value (cost $834,268, $711,915, respectively)		909,124			674,671
Total Investments, Including Cash and Cash Equivalents		25,302,352			28,450,163

Accrued investment income		90,093			128,469
Leasehold improvements, furniture and equipment, net		784,529			835,367
Deferred policy acquisition costs		223,041			253,254
Policy loans		160,120			162,395
Receivable from reinsurer		52,015			47,475
Premiums due and unpaid		936,941			967,508
Deferred income tax assets		40,274			106,000
Intangible assets		119,593			125,408
Other assets		218,211			292,002

Total Assets	$	27,927,169		$	31,368,041

LIABILITIES
Liabilities for future policy benefits	$	2,057,715		$	2,143,273
Policy claims payable		1,353,770			1,348,590
Annuity deposits		2,384,264			2,505,778
Deferred annuity profits		175,074			201,492
Premium deposit funds		20,088			20,547
Supplementary contracts without life contingencies		41,932			36,791
Advanced and unallocated premium		1,154,715			968,159
Commissions payable		536,781			615,455
Accrued taxes and expenses		298,462			406,932
Bonds payable		1,300,708			1,323,388
Other liabilities		989,814			1,066,525
Total Liabilities		10,313,323			10,636,930


SHAREHOLDERS’ EQUITY
Common stock, $.02 stated value, 45,000,000 shares authorized, 15,463,965 shares issued and outstanding		309,279			309,279
Additional paid-in capital		5,704,089			5,725,590
Accumulated other comprehensive income		45,581			36,042
Accumulated surplus		12,041,213			15,092,975
Treasury stock, at cost, 382,030; 343,194; shares, respectively		(486,316	)		(432,775	)
Total Shareholders' Equity		17,613,846			20,731,111

Total Liabilities and Shareholders' Equity	$	27,927,169		$	31,368,041

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

F-3

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BNL Financial Corporation and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

For the years ended December 31, 2010, 2009 and 2008

	Year Ended December 31,
	2010			2009			2008
Income
Premium income	$	39,868,611		$	41,609,604		$	43,456,024
Net investment income		951,019			1,122,698			1,170,901
Marketing fees		-			25,000			-
Vision insurance income		2,409,860			2,386,148			2,263,529
Realized gain on debt retirements		4,536			27,176			44,370
Realized gains on sales or maturities		139,605			100,792			16,729
Realized losses on other than temporary Impairments		(146,170	)		(42,280	)		(496,446	)

Total Income		43,227,461			45,229,138			46,455,107

Expenses
Decrease in liability for future policy benefits		(90,098	)		(66,596	)		(39,268	)
Policy benefits and other insurance costs		30,704,368			31,805,555			32,978,610
Amortization of deferred policy acquisition costs		30,214			30,308			40,564
Operating expenses		8,457,312			8,716,583			9,055,261
Taxes, other than on income		1,343,869			1,328,062			1,458,629

Total Expenses		40,445,665			41,813,912			43,493,796

Income from Operations before Income Taxes		2,781,796			3,415,226			2,961,311

Provision for income taxes		547,080			597,381			594,839

Net Income	$	2,234,716		$	2,817,845		$	2,366,472

Net income per common share (basic and diluted)	$	0.15		$	0.19		$	0.16

Weighted average number of fully paid common shares		15,102,610			15,137,299			15,211,961

Net Income (as above)	$	2,234,716		$	2,817,845		$	2,366,472

Other comprehensive income (loss), net of tax:
Unrealized gains on securities:
Unrealized holding gain (loss) arising during period (net of $12,726, $10,463 and ($47,777) of deferred taxes in 2010, 2009 and 2008; respectively)		66,118			248,060			(516,795	)
Reclassification adjustment for (gain) loss included in net income		(56,579	)		(51,084	)		233,229

Other Comprehensive Income (Loss)		9,539			196,976			(283,566	)

Comprehensive Income	$	2,244,255		$	3,014,821		$	2,082,906

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

F-4

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BNL Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended December 31, 2010, 2009 and 2008

	Common Stock				Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Treasury
	Shares		Amount		Capital			Surplus			Income			Stock
Balance, December 31, 2007		15,463,965	$	309,279	$	5,751,240		$	11,426,539		$	122,630		$	(312,816	)

Accumulated other comprehensive income		-		-		-			-			(283,566	)		-
Purchase of treasury stock		-		-		-			-			-			(20,858	)
Stock options exercised		-		-		(2,775	)		-			-			12,626
Dividends		-		-		-			(760,356	)		-			-
Net income		-		-		-			2,366,472			-			-
Balance, December 31, 2008		15,463,965	$	309,279	$	5,748,465		$	13,032,655		$	(160,934	)	$	(321,048	)

Accumulated other comprehensive income		-		-		-			-			196,976
Purchase of treasury stock		-		-		-			-			-			(155,352	)
Stock options exercised		-		-		(22,875	)		-			-			43,625
Dividends		-		-		-			(757,525	)		-			-
Net income		-		-		-			2,817,845			-			-
Balance, December 31, 2009		15,463,965	$	309,279	$	5,725,590		$	15,092,975		$	36,042		$	(432,775	)

Accumulated other comprehensive income		-		-		-			-			9,539			-
Purchase of treasury stock		-		-		-			-			-			(105,046	)
Stock options exercised		-		-		(21,500	)		-			-			51,500
Dividends		-		-		-			(5,286,478	)		-			-
Net income		-		-		-			2,234,716			-			-
Balance, December 31, 2010		15,463,965	$	309,279	$	5,704,090		$	12,041,213		$	45,581		$	(486,316	)

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

F-5

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BNL Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2010, 2009 and 2008

	Year Ended December 31,
	2010			2009			2008
Cash Flows from Operating Activities
Net income	$	2,234,716		$	2,817,845		$	2,366,472
Adjustments to reconcile net income to net cash provided by operating activities:
Realized (gain) loss on investments		(139,605	)		(61,548	)		482,137
Realized (gain) loss on sale of furniture and equipment		(1,948	)		3,036			(2,420	)
Realized gain on debt extinguishments		(4,536	)		(27,176	)		(44,370	)
Depreciation		292,072			304,625			284,324
Decrease (increase) in deferred tax asset		67,000			(50,000	)		(68,602	)
Increase in and amortization of deferred acquisition costs, and bond issuance cost		36,029			36,123			46,379
Accretion of bond premium (discount)		18,640			17,529			(11,652	)
Change in assets and liabilities:
Decrease in accrued investment income		38,375			53,053			38,939
(Increase) decrease in receivable from reinsurer		(4,540	)		(921	)		6,829
Decrease in premiums due and unpaid		30,566			145,793			348,166
Decrease in liability for future policy benefits		(85,558	)		(65,675	)		(46,097	)
Increase (decrease) in policy claims payable		5,180			(363,550	)		(594,149	)
Increase (decrease) in annuity deposits and deferred profits		(147,932	)		(47,177	)		37,743
Decrease in premium deposit funds		(459	)		(1,301	)		(3,469	)
Increase (decrease) in advanced and unallocated premium		186,556			(67,964	)		(1,183,306	)
Increase (decrease) in commissions payable		(78,674	)		19,967			81,474
Other, (decrease) increase		(111,969	)		(319,430	)		266,181
Net Cash Provided by Operating Activities		2,333,912			2,393,229			2,004,579

Cash Flows from Investing Activities
Proceeds from sales of investments		81,686			-			4,375
Proceeds from maturity or redemption – Available For Sale		196,000			482,964			-
Proceeds from maturity or redemption - Held to Maturity Investments		10,787,326			13,340,133			12,002,977
Proceeds from sale of furniture and equipment		20,498			2,959			17,000
Purchase of equity securities		(270,473	)		(12,086	)		(330,601	)
Purchase of furniture, equipment and leasehold improvements		(259,784	)		(97,316	)		(200,122	)
Purchase of fixed maturity securities, Held to Maturity		(6,989,863	)		(12,071,571	)		(12,631,782	)
Other Investments - Line of credit - receipt		27,215			44,568			40,863
Net Cash Provided by (Used in) Investing Activities		3,592,605			1,689,651			(1,097,290	)

Cash Flows from Financing Activities
Purchase of treasury stock		(105,041	)		(155,352	)		(16,686	)
Dividends to shareholders		(5,286,478	)		(757,525	)		(760,358	)
Net change in supplementary contracts		5,141			2,686			28,200
Stock options exercised		30,000			20,750			12,875
Debt extinguishments		(27,871	)		(92,717	)		(119,922	)
Net Cash Used in Financing Activities		(5,384,249	)		(982,158	)		(855,891	)
Net Increase in Cash and Cash Equivalents		542,268			3,100,722			51,398
Cash and Cash Equivalents, Beginning of Period		8,090,103			4,989,381			4,937,983

Cash and Cash Equivalents, End of Period	$	8,632,371		$	8,090,103		$	4,989,381

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

F-6

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1. Summary of Significant Accounting Policies

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

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

The Company’s principal activity is the sale of individual and group life and accident and health insurance within the United States. The most significant income component is sales of dental insurance for which the maximum annual risk per policy is $2,000. See Note 10. The Company is licensed to sell in 48 states and the District of Columbia as of December 31, 2010. See Note 2. Substantially all of the Company's life insurance in force is nonparticipating business.

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

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

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

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry-forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. See Note 3.

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

For annuity contracts without mortality risk, net premium deposits and benefit payments are recorded as increases or decreases in a liability account rather than as revenue and expense. Expenses incurred and fees charged upon issuance are deferred and recognized in relationship to the amount of funds held. This deferred annuity profit is being amortized based on lapse and mortality assumptions (maximum of 30 years) which are revised periodically to reflect actual experience. Increases in the liability account for interest credited to contracts are charged to expense. The interest rate assumptions were 4.0% during 2010 and 2009.

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

The Company has divided its fixed maturity investments into two classes, “available for sale” and “held to maturity” in accordance with management’s intent in regard to these investments. Investments available for sale may be sold prior to maturity due to changes that might occur in market interest rates, changes in the security’s prepayment risk, the Company’s liquidity needs, and similar factors, including the Company’s asset/liability management strategy. Investments available for sale are carried at fair value. Unrealized gains and losses resulting from changes in the valuation of fixed maturity securities classified as available for sale are recorded as a component of comprehensive income.

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1. Summary of Significant Accounting Policies (continued)

The “held to maturity” classification reflects management's intent and ability to hold this block of securities to their maturity. Investments designated by management as part of the held to maturity portfolio are presented on the financial statements at amortized book value and, therefore, unlike the available for sale portfolio, no adjustments to surplus are made as bond values change unless declines in market value are deemed to be other than temporary.

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

Pertaining to cash flow, cash equivalents are carried at amortized cost, which approximates fair value. Cash equivalents represent other short-term securities. For purposes of the Statement of Cash Flows, the Company considers all highly liquid short-term investments to be cash equivalents. Cash equivalents include money market funds that may be subject to withdrawal restrictions. No such restrictions were in place at December 31, 2010. The Company made cash debenture interest payments of $77,634, $82,317 and $97,424 in 2010, 2009 and 2008; respectively. The Company made cash payments for income taxes of $532,000, $630,000 and $550,000 in 2010, 2009 and 2008, respectively.

Leasehold improvements and 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. Leasehold improvements are amortized over the lease term. Accumulated depreciation and amortization totaled $1,553,774 and $1,353,056 at December 31, 2010 and 2009, respectively. Depreciation and amortization expense was $292,072, $304,624, and $284,324, for the years ended December 31, 2010, 2009 and 2008, respectively.

Other assets include agents’ balances of $55,173 and $66,240 at December 31, 2010 and 2009, respectively, after reduction for allowance of doubtful accounts. The allowance account had a credit recorded of $2,067, $2,386 and $5,615 in 2010, 2009 and 2008, respectively.

Intangible assets include the cost of 26 state licenses acquired in 1991 as part of the Statesmen Life Insurance Company acquisition and certain loan acquisition costs. These assets must be periodically tested for impairment of their market value and written off immediately to the extent the value is found to be impaired. The Company tested its intangible assets for impairment by evaluating the future benefit of the underlying investments or rights acquired in association with these assets. No impairment expense was recognized in 2010, 2009 or 2008. Amortization expense of approximately $5,815 was recorded for each of the years ended December 31, 2010, 2009 and 2008, respectively.

The Company accounts for the 1994 Brokers and Agents Stock Option Plan and the 2002 Nondirector, Nonexecutive Stock Option Plan using the fair value method as required by ASC 718. Under this method the fair value of the options granted is recorded as expense at the date of grant for fully vested instruments. See Note 9.

In February 2007 the FASB issued SFAS No. 159 (now ASC 820) “The Fair Value Option for Financial Assets and Financial Liabilities.” ASC 820 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. ASC 820 is effective for fiscal years beginning after November 15, 2007. Management adopted but did not elect to apply ASC 820 treatment to its financial assets and financial liabilities. The adoption of ASC 820 did not have a material impact on the consolidated financial position, results from operations or cash flows of the Company.

In June 2007, the FASB issued Interpretation (“FIN”) No. 48, (now ASC 740) “Accounting for Uncertainty in Income Taxes,” an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” which clarifies accounting for and disclosure of uncertainty in tax positions. ASC 740 prescribes a recognition threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation is effective for fiscal years beginning after December 15, 2007. Management has evaluated the impact of adopting ASC 740 on the consolidated financial statements, and the adoption of ASC 740 did not have a material effect on the consolidated financial position, cash flows and results of operations.

In September 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162.” This Standard establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by entities in the preparation of financial statements in conformity with US GAAP. This guidance is effective for financial statements issued for periods ending after September 15, 2009. The adoption of this Standard did not have a material impact on our financial statements. References to GAAP in these footnotes are to the FASB Accounting Standards Codification (ASC).

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1. Summary of Significant Accounting Policies (continued)

On April 1, 2009 management adopted FSP FAS 157-4, (now ASC 820), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”; FSP Nos. FAS 115-2 and FAS 124-2, (now ASC 320), “Recognition and Presentation of Other-Than-Temporary Impairments”; and FSP No. FAS 107-1 and APB 28-1, (now ASC 825), “Interim Disclosures about Fair Value of Financial Instruments.” These staff positions provided guidance on fair value measurements, impairments, and disclosures. Adoption of these staff positions did not have a material impact on the financial statements. See Note 4 for a discussion of fair value measurements.

In May 2009, the FASB issued SFAS No. 165, (now ASC 855), “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Management adopted this guidance during the second quarter of 2009. The adoption of this Standard did not have a material impact on the financial statements.

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

2. Shareholders' Equity

In 2010 the Company purchased 83,837 shares of its common stock for $105,041and in 2009 the Company purchased 123,855 shares of its common stock for $155,352 from its shareholders.

At December 31, 2010 and 2009, shareholders' equity includes approximately $17,538,044 and $20,580,513, respectively, of BNLAC net assets. The ability of BNLAC to pay dividends to the Company is restricted under Arkansas insurance laws and must be approved by the insurance commissioner if it exceeds the lesser of 10% of surplus or net gain from operations for the year. In 2010 BNLAC paid the Company $1,600,000 of ordinary dividends and $3,800,000 of extraordinary dividends which were primarily used to pay dividends to the Company’s shareholders. BNLAC paid the Company $800,000 of ordinary dividends in 2009. In 2008 BNLAC paid the Company $1,300,000 in ordinary dividends which were used to purchase the Company’s common stock and for operating expenses. BNLAC paid dividends of $5,400,000, $800,000 and $1,300,000 to the Company in 2010, 2009 and 2008, respectively.

The states periodically increase minimum capital requirements, often allowing companies with existing Certificates of Authority to continue doing business in the state under the previous existing requirements (grandfathering). States in which BNLAC is licensed to do business have increased minimum requirements to as much as $5,000,000. Management actively monitors these developments to maintain compliance with the requirements of each state.

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

	December 31,
	2010		2009		2008

Capital and Surplus	$	16,157,260	$	19,129,993	$	16,964,513

Net Income	$	2,291,573	$	2,733,185	$	2,630,151

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

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2. Shareholders' Equity (continued)

	December 31, 2010						December 31, 2009						December 31, 2008
	Income			Capital and Surplus			Income			Capital and Surplus			Income			Capital and Surplus
Consolidated reporting under
generally accepted accounting principles	$	2,234,716		$	17,613,846		$	2,817,845		$	20,731,111		$	2,366,472		$	18,608,417
Attributable to Parent Company		(113,277	)		75,802			(44,533	)		150,598			(267,204	)		284,758

Brokers National Life Assurance Company		2,347,993			17,538,044			2,862,378			20,580,513			2,633,676			18,323,659

Deferred acquisition costs		30,216			(223,041	)		30,308			(253,254	)		40,564			(283,561	)
Reserve and premium adjustments		(34,824	)		184,169			(15,698	)		209,877			11,899			206,302
Interest maintenance reserve/AVR		(96,535	)		(762,688	)		(36,511	)		(608,509	)		22,322			(426,376	)
Unrealized appreciation of securities		-			74,856			-			(46,334	)		-			(270,084	)
Annuity deposits and related adjustments		600			175,075			(66,258	)		201,492			21,896			231,263
Income tax credit		(58,000	)		(75,726	)		(53,000	)		30,000			(59,000	)		10,000
Other		102,123			(753,429	)		11,966			(983,792	)		(41,206	)		(826,690	)

BNLAC Statutory Basis	$	2,291,573		$	16,157,260		$	2,733,185		$	19,129,993		$	2,630,151		$	16,964,513

3. Income Taxes

The Company follows Statement of Financial Accounting Standards (SFAS) No. 109 (now ASC 740), “Accounting for Income Taxes,” which prescribes the liability method of accounting for deferred income taxes. Under the liability method, companies establish a deferred tax liability or asset for the future tax effects of temporary differences between book and tax basis of assets and liabilities. Changes in future tax rates will result in immediate adjustments to deferred taxes. The Company and its Subsidiaries file consolidated income tax returns.

At December 31, 2010 and 2009, respectively, the Company had gross deferred tax assets of $983,702 and $1,037,858 with corresponding valuation allowances of $714,058 and $683,058, and gross deferred tax liabilities of $229,370 and $248,800, resulting from net operating loss carryovers and temporary differences primarily related to the life insurance subsidiary. The valuation allowance is primarily due to statutory limitations on the use of net operating losses and uncertainty as to usage of AMT credit carryover. The resulting net deferred tax asset at December 31, 2010 is $40,274 compared to a deferred tax asset of $106,000 at December 31, 2009. Realization of the deferred tax asset is dependent on generating sufficient taxable income eligible to be offset by the net operating losses prior to expiration of the loss carry forward. Although realization is not assured, management believes it is more likely than not that all of the net deferred tax asset will be realized. However, the amount of the deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

The provision for income tax is as follows:

	2010		2009			2008

Current tax provisions	$	480,080	$	647,381		$	663,441
Deferred tax provision		67,000		(50,000	)		(68,602	)

Total income tax provision	$	547,080	$	597,381		$	594,839

The reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes for the years ended December 31, 2010, 2009 and 2008 is as follows:

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3. Income Taxes (continued)

	2010			2009			2008

Book income before tax	$	2,781,796		$	3,415,226		$	2,961,311

Income tax computed at statutory rate (34%)	$	945,810		$	1,161,177		$	1,006,845
Valuation allowance for AMT credit		99,000			10,770			(17,000	)
Revision of valuation allowance		(31,000	)		18,356			94,052
Rate differential		(466,730	)		(592,922	)		(489,058	)

Total income tax provision	$	547,080		$	597,381		$	594,839

The Company has net operating loss carry forwards for income tax purposes at December 31, 2010 as follows:

Expiring	NOL

2011	$	66,000
2012		193,000
2018		105,000
2019		32,000
2020		59,000
2028		31,000
	$	486,000

In accordance with accounting rules that prescribe when to recognize and how to measure the financial statement effects, if any, of income tax positions taken or expected to be taken on its income tax returns, management has evaluated the likelihood that, upon examination by relevant taxing jurisdictions, income tax positions would be sustained.

Based on that evaluation, if it were more than 50% probable that a material amount of income tax would be imposed at the entity level upon examination by the relevant taxing authorities, a liability would be recognized in the accompanying balance sheet along with any interest and penalties that would result from the assessment. Should any such penalties and interest be incurred, the Company’s policy would be to recognize them as operating expenses.

Based on the results of management’s evaluation, no liability was recognized in 2010 or 2009 on the Company’s financial statements. Further, no interest or penalties have been accrued or charged to expense as of December 31, 2010 or 2009.

The Company’s income tax returns are subject to examination by taxing authorities for a period of three years from the date they are filed. As of December 31, 2010, years 2007-2009 are subject to examination.

4. Investments

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

Portfolio Designated “Held to Maturity” (Note 1) December 31, 2010	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
US Treasury securities and obligations of US government corporations and agencies	$	4,650,534	$	50,212	$	28,175	$	4,672,571
Canadian government securities		478,623		-		3,095		475,528
Corporate securities		2,820,080		145,051		93,121		2,872,010
Mortgage-backed securities GNMA & FNMA CMO		6,757,202		308,004		28,204		7,037,002

Totals	$	14,706,439	$	503,267	$	152,595	$	15,057,111

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4. Investments (continued)

Portfolio Designated “Held to Maturity” (Note 1) December 31, 2009	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
US Treasury securities and obligations of US government corporations and agencies	$	6,735,952	$	40,338	$	75,870	$	6,700,420
Corporate securities		3,741,414		156,296		175,440		3,722,270
Mortgage-backed securities GNMA and FNMA CMO		7,881,262		167,694		48,034		8,000,922

Totals	$	18,358,628	$	364,328	$	299,344	$	18,423,612

Portfolio Designated “Available for Sale” (Note 1) December 31, 2009
US Treasury securities and obligations of US government corporations and agencies	$	42,000	$	104,720	$	-	$	146,720

Totals	$	42,000	$	104,720	$	-	$	146,720

The amortized cost and estimated fair value of investments in fixed maturity securities at December 31, 2010 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.

	Held to Maturity
	December 31, 2010
	Amortized Cost		Estimated Market Value

Due in one year or less	$	1,339,914	$	1,360,319
Due after one year through five years		2,670,688		2,711,424
Due after five years through ten years		2,283,723		2,290,000
Due after ten years		1,403,598		1,381,341
		7,697,923		7,743,084

Mortgage-backed securities		7,008,516		7,314,027

	$	14,706,439	$	15,057,111

Proceeds from sales and maturities of investments in fixed maturity securities and equity securities for the years ended December 31, 2010, 2009 and 2008 were $10,983,326, $13,823,097, and $12,002,977 respectively. Gross gains were $156,329, $103,828 and $10,863 and gross losses were $0, $0 and $0 as of December 31, 2010, 2009 and 2008, respectively.

Included on the balance sheet in Accumulated Other Comprehensive Income are gross unrealized gains of $223,441, $238,141 and $101,449 and gross unrealized losses of $148,585, $170,665 and $432,245 as of December 31, 2010, 2009 and 2008, respectively. No other than temporary impairments of “Held to Maturity” investments are recognized in accumulated other comprehensive income.

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4. Investments (continued)

Investment in equity securities at December 31, 2010 and 2009 represents common and preferred stock investments as follows:

	2010				2009
	Cost		Market Value		Cost		Market Value

Banks, trusts and insurance companies	$	81,183	$	10,050	$	93,269	$	41,901
Industrial, savings and loans and other		753,085		899,074		618,646		632,770

	$	834,268	$	909,124	$	711,915	$	674,671

Net investment income for the years ended December 31, 2010, 2009 and 2008 is as follows:

	2010			2009			2008

Interest on debt securities and cash investments	$	950,142		$	1,127,883		$	1,174,759
Dividends on equity securities		16,986			12,309			11,989

		967,128			1,140,192			1,186,748
Investment expenses		(16,109	)		(17,494	)		(15,847	)

Net Investment Income	$	951,019		$	1,122,698		$	1,170,901

Net realized gains and losses are summarized below:

	2010			2009			2008

Debt securities	$	57,921		$	70,402		$	(482,137	)
Equity securities		(66,434	)		(8,854	)		-
Fixed assets		1,948			(3,036	)		2,420

	$	(6,565	)	$	58,512		$	(479,717	)

Other long-term investments of $1,054,418 and $1,180,041 in 2010 and 2009 respectively, consists of, in part, a convertible debenture loan investment (“Debenture”) to EPSI Benefits, Inc. (“EBI”), originally dated July 25, 2001. The loan bears interest at a rate of 14% and the maturity of the Debenture was August 15, 2015. Monthly principal payments were scheduled to begin on September 15, 2008, and the total principal amount is $1,357,407.

Because of the extension of the commencement of principal payments and maturity of the Debenture, the Company analyzed discounted expected future cash flows in accordance with applicable generally accepted accounting principles and established an allowance for credit losses in the amount of $204,582 as of December 31, 2008, resulting in a net book value of $1,152,825. In the fourth quarter of 2010, one of the two original EBI shareholders agreed to sell her ownership in EBI to the other shareholder and pursue employment elsewhere. Due to this change in ownership, the Company increased its allowance for credit losses in the amount of $98,407 resulting in a net book value of $1,054,418.

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4. Investments (continued)

In the third quarter of 2010 the Company recognized an other than temporary impairment on the 6,100 shares of common stock of Treaty Oak Bank for a realized loss of $47,763. The stock was purchased for $50,813 or $8.33 a share. The bank’s stock price decreased to $0.50 at September 30, 2010 due to problem commercial loans.

In the third quarter of 2009, the Company recognized an other than temporary impairment on its $100,000 CIT Group Inc. bond, for a realized loss of $42,280. CIT Group, Inc. filed for chapter 11 bankruptcy on November 1, 2009. CIT Group, Inc. redeemed this bond for other bonds and equity securities prior to December 31, 2009.

The Company’s policy for recognizing interest income on the impaired debenture is to recognize interest under the stated loan terms. Interest on the debentures is and has been current.

The average recorded investment on impaired debenture during the period ended December 31, 2010 was $1,152,825. Interest income recognized in 2010 on the impaired debenture was $190,037.

Activity in the allowance for credit losses is as follows:

	2010
Beginning Balance	$	246,862
Additions charged to operations		146,170
Direct write downs		(90,043	)
Recoveries previously charged to operations		-

Ending Balance	$	302,989

There was no other-than-temporary impairment recognized in 2010 other than the credit losses recognized above and therefore no other than temporary impairment included in accumulated other comprehensive income.

Other long-term investments also include an operating line of credit agreement in the amount of $0 and $27,215 in 2010 and 2009, respectively. The agreement provided EPSI with a $200,000 line of credit maturing August, 2011. The line of credit was at 6.75% and was paid in full in the third quarter of 2010.

Regulatory authorities require certain Company investments to be deposited or pledged for the benefits of policyholders as a condition of doing business in certain states. The book values of these investment deposits are approximately $4,752,668 and $4,601,528 as of December 31, 2010 and 2009, respectively.

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

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2010.

	Less than 12 Months				12 Months or Greater				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Investment in Fixed Maturities, Held to Maturity

US Treasury securities and obligations of US government corporations and agencies	$	2,371,683	$	28,175	$	-	$	-	$	2,371,683	$	28,175
Canadian government securities		475,528		3,095		-		-		475,528		3,095
Corporate securities		94,984		8,614		665,493		84,507		760,477		93,121
Mortgage-backed securities GNMA and FNMA CMO		443,351		24,338		300,295		3,866		743,646		28,204
Totals	$	3,385,546	$	64,222	$	965,788	$	88,373	$	4,351,334	$	152,595

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4. Investments (continued)

	Less than 12 Months				12 Months or Greater				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Other Long-Term Investments	$	-	$	-	$	876,423	$	177,995	$	876,423	$	177,995
Totals	$	-	$	-	$	876,423	$	177,995	$	876,423	$	177,995

Equity Securities	$	-	$	-	$	129,389	$	148,585	$	129,389	$	148,585
Totals	$	-	$	-	$	129,389	$	148,585	$	129,389	$	148,585

U.S. Treasury and U.S. Government Agency Obligations

The Company does not have any U. S. Treasury and U.S. Government Agency Obligations with unrealized losses of 12 months or greater and no significant amount of unrealized losses less than 12 months. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity or until they are called, the Company does not consider those investments to be other than temporarily impaired at December 31, 2010.

Federal Agency Mortgage-Backed Securities

The unrealized losses on the Company's investment in federal agency mortgage-backed securities are not material at December 31, 2010. The contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to factors other than credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2010.

Corporate Bonds

The table below discloses the unrealized losses on corporate bonds with significant unrealized losses.

Corporate Bonds December 31, 2010	S&P Rating		Amortized Book Value		Gross Unrealized Losses		Estimated Market Value
MBIA		B	$	200,000	$	47,480	$	152,520
American General Finance		B		200,000		29,440		170,560

Totals			$	400,000	$	76,920	$	323,080

The corporate bonds with unrealized losses in the table are primarily insurance corporations that have had their fair value increase significantly in 2010. The Company currently does not believe it is probable that it will be unable to collect all amounts due according to the contractual terms of the investments. Therefore, it is expected that the debentures would not be settled at a price less than the amortized cost of the investment. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, it does not consider the investments to be other than temporarily impaired at December 31, 2010.

Marketable Equity Securities.

The table below discloses the Company’s unrealized losses on marketable equity securities.

Equity Securities December 31, 2010	Cost		Gross Unrealized Losses		Estimated Market Value
Garmin LTD	$	220,322	$	111,857	$	108,465
Regions Financial Corporation		30,370		23,370		7,000
International Assets Holding Company		27,282		13,358		13,924

Totals	$	277,974	$	148,585	$	129,389

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4. Investments (continued)

The Company's marketable equity securities include a variety of industries. Garmin LTD has the largest unrealized loss of $111,857, which is approximately a 51% decrease in value. Garmin manufactures communication and navigational products, and they are the leader in personal navigational devices. Garmin remains profitable in 2010. Regions Financial Corporation has suffered from the recession and the reduced demand for loans. The Company evaluated the near-term prospects of the issuers in relation to the severity and duration of the impairment. Based on that evaluation and the Company's ability and intent to hold those investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider those investments to be other than temporarily impaired at December 31, 2010.

5. Fair Value of Financial Instruments

Effective January 1, 2009, the Company adopted ASC 820, which, among other things, requires enhanced disclosures about assets and liabilities carried at fair value. ASC 820 establishes a hierarchal disclosure framework associated with the level of observable pricing to be utilized in measuring assets and liabilities at fair value. The three broad levels defined by ASC 820 hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available. The Company’s level 1 assets and liabilities primarily include equity securities that are traded in an active exchange market, fixed maturities (corporate public, most government securities, certain asset-backed and mortgage-backed securities, etc.), certain equity securities, short-term investments and cash equivalents (primarily money market funds). Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities and other observable inputs. The Company has no Level 2 assets and liabilities. If level 2 assets and liabilities are acquired valuations are generally obtained from third party pricing services for identical or comparable assets or liabilities.

Level 3 – Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability. The Company’s Level 3 assets and liabilities primarily include certain private fixed maturities. Valuations are determined using valuation methodologies such as discounted cash flow models and other similar techniques.

The table below presents the balances of assets measured at fair value on a recurring basis, as of December 31, 2010.

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Trading Securities
Equity Securities – Banks	$	10,050	$	-	$	-	$	10,050
Equity Securities – Industrial and Other		899,074		-		-		899,074
Total Trading Securities	$	909,124	$	-	$	-	$	909,124

Fixed Maturities , Held to Maturity
US Treasury Securities and Obligations of US Government Corporations and Agencies	$	4,672,571	$	-	$	-	$	4,672,571
Canadian Government Securities		475,528		-		-		475,528
Corporate Securities		2,719,490		-		152,520		2,872,010
Mortgage-Backed Securities GNMA and FNMA CMO		7,037,002		-		-		7,037,002
Total Fixed Maturities, Held to Maturity	$	14,904,591	$	-	$	152,520	$	15,057,111

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4. Fair Value of Financial Instruments (continued)

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Other Long Term Investments	$	-	$	-	$	876,423	$	876,423
Cash		2,879,907		-		-		2,879,907
Cash Equivalents		5,752,464		-		-		5,752,464
Total Other Investments	$	8,632,371	$	-	$	876,423	$	9,508,794

Total Assets	$	24,446,086	$	-	$	1,028,943	$	25,475,029

In 2010 the Company transferred its fixed maturities and cash equivalents from Level 2 to Level 1 based on guidance from its investment banker that provided the fair values. The fixed maturities and cash equivalents under Level 1 are all traded under active markets or can be redeemed immediately for their fair value.

The following tables provide a summary of the changes in fair value of Level 3 assets and liabilities for the period January 1, 2010 to December 31, 2010, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2010.

	Other Long-term Investments			Fixed Maturity		Total
Fair value, beginning of period	$	769,663		$	90,000	$	859,663
Included in earnings:
Other than temporary decline in fair value		(98,407	)				(98,407	)
Purchases, sales, issuances and settlements		(27,215	)		-		(27,215	)
Temporary increase in fair value		232,382			62,520		294,902

Fair value, end of period	$	876,423		$	152,520	$	1,028,943

Unrealized gains for the period relating to those Level 3 assets that were held by the Company at the end of the period were $196,495.

The fair value of financial instruments as of December 31, 2010 and 2009 are as follows:

	2010					2009
	Carrying		Fair			Carrying		Fair
Assets	Amount		Value			Amount		Value
Cash and Cash Equivalents (Note 1)	$	8,632,371	$	8,632,371	(a)	$	8,090,103	$	8,090,103	(a)
Investments-fixed maturity, available for sale (Note 4 & Note 1)		-		-	(b)		146,720		146,720	(b)
Investments-fixed maturity, held to maturity (Note 4 & Note 1)		14,706,439		15,057,111	(b)		18,358,628		18,423,612	(b)
Investments –equity securities (Note 4 & Note 1)		909,124		909,124	(b)		674,671		674,671	(b)
Other long term investments (Note 4)		1,054,418		876,423	(b)		1,180,041		769,663	(b)
Other financial instruments-Assets		305,386		305,386	(a)		357,284		357,284	(a)

Total financial instruments-Assets	$	25,607,738	$	25,780,415		$	28,807,447	$	28,462,053

Liabilities
Premium deposit funds	$	20,088	$	20,088	(a)	$	20,547	$	20,547	(a)
Bonds payable		1,300,708		1,300,708	(a)		1,323,388		1,323,388	(a)
Supplementary contracts without life contingencies
(Note 1)		41,932		41,932	(a)		36,791		36,791	(a)
Annuity deposits (Note 1)		2,384,264		2,384,264	(a)		2,505,778		2,505,778	(a)

Total financial instruments-Liabilities	$	3,746,992	$	3,746,992		$	3,886,504	$	3,886,504

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

(b) Fair value of investments is based on methods prescribed in ASC 820 as described here-in.

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6. Commitments and Contingencies

The balance of Bonds Payable was $1,300,708 and $1,323,388 at December 31, 2010 and 2009 respectively. The bonds were issued in conjunction with a settlement with certain shareholders in 2001. The Bonds are for a term of twelve years, effective December 15, 2002, with principal payable at maturity and bear interest at the rate of 6% per annum payable annually from the previous fiscal year’s earnings of BNL. If any interest payment is not made, it will be added to the principal and paid at maturity. The Bonds are fully callable and redeemable at par at any time by BNL.

In 2010, 2009 and 2008, the Company made cash offers to bond holders for the purchase of bonds. Bond purchases resulted in a reduction of Bonds Payable of $22,680, $119,894 and $164,294 in 2010, 2009 and 2008; respectively. Gains from early extinguishments of the debt were $4,536, $27,176 and $44,370 in 2010, 2009 and 2008; respectively.

In 2003 and 2004, the Company became a third party indemnitor by entering into a series of bond indemnity and guarantee agreements with various terms totaling approximately $545,000 in conjunction with a marketing agreement with third parties, EPSI Benefits Inc. (EBI) and Employer Plan Services Inc. (EPSI). The purpose of these agreements is to assist EPSI in becoming licensed in additional states. The Company received personal guarantees from the owners of EPSI to effectively limit potential liability under the guarantee agreements. With regard to the bond indemnity, the Company will be obligated only if EPSI, EPSI’s parent and its shareholder, who are the primary obligors, were all to become insolvent. Management considers the likelihood of the Company realizing a liability under these agreements to be remote.

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


2011	$	377,000
2012		374,000
2013		187,000
2014		-
2015		-

Total	$	938,000

During the first quarter of 2005 the Company entered into a lease for 20,337 square feet of office space in Austin, Texas, under an eight year, triple net lease. The base rent was $0 in the first year (June 1, 2005 to May 31, 2006), $157,612 in the second year and payments escalate to $264,384 in the final year of the lease. Leasehold improvements totaled approximately $872,000 ($203,000 funded by landlord) on the new lease space that was occupied in December 2005. Leasehold improvements are being amortized over the lease term. The $117,000 initial rent holiday and $203,000 of landlord-funded leasehold improvements are being amortized over the lease term and reduce lease expense. Deferred rent credits are included in other liabilities and were approximately $225,000 for 2010 and $284,000 in 2009.

Related lease cost incurred for the years ended December 31, 2010, 2009 and 2008 was $352,000, $337,000, and $358,000. respectively.

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

Periodically in the ordinary course of business the Company exceeds federally insured limits in its operating accounts. Cash deposits in excess of federally insured limits are approximately $968,000 at December 31, 2010.

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

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7. Liability for Unpaid Claims

Activity in the liability for accident and health unpaid claims net of reinsurance is summarized as follows.

	2010			2009			2008
Balance at January 1	$	1,350,486		$	1,714,565		$	2,306,594
Less reinsurance recoverable		1,896			2,425			306
Net Balance at January 1		1,348,590			1,712,140			2,306,288

Incurred related to:
Current year		25,021,674			25,966,203			27,310,819
Prior years		(94,863	)		(223,847	)		(510,993	)
Total Incurred		24,926,811			25,742,356			26,799,826

Paid related to:
Current year		23,656,779			24,686,289			25,596,254
Prior years		1,253,727			1,417,721			1,795,295
Total Paid		24,910,506			26,104,010			27,391,549

Net Balance at December 31		1,353,770			1,348,590			1,712,140
Plus reinsurance recoverable		11,125			1,896			2,425
Balance at December 31	$	1,364,895		$	1,350,486		$	1,714,565

The activity summary in the liability for unpaid accident and health claims net of reinsurance shows that incurred claims liabilities were overstated by $94,863, $223,847 and $510,993 for the years ended December 31, 2009, 2008 and 2007, respectively. Such liability adjustments, which affected current operations during 2010, 2009 and 2008 respectively, resulted in part from developed claims for prior years being different than were anticipated when the liabilities for incurred but unpaid accident and health claims were originally estimated. These trends have been considered in establishing the current year liability for unpaid accident and health claims. Included in the unpaid accident and health claims are an estimate of claim adjustment expenses of $60,340, $78,335 and $118,763 in 2010, 2009 and 2008, respectively. Netting out claim adjustment expenses would make accident and health liabilities overstated in 2010, 2009 and 2008 by $34,523, $145,512 and $392,230; respectively.

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 an asset. 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 ASC 944. The Company is liable if the reinsuring companies are unable to meet their obligations under the reinsurance agreements.

In 2010 and 2009, BNLAC’s accidental death benefit riders were reinsured 100% through a Bulk ADB reinsurance agreement with Optimum Re. Optimum Re was rated “A-“(Excellent) by AM Best Company for 2010.

In 2010 and 2009, BNLAC’s individual life insurance products in excess of $35,000 were reinsured with Optimum Re under an automatic treaty up to $175,000 and under a facultative treaty for amounts over $175,000. Optimum Re was rated “A-“ (Excellent) by AM Best Company for 2010.

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8. Reinsurance (continued)

Group and individual dental is not reinsured due to the economics of the dental insurance business and the small annual maximum liability per policy.

Following is a summary of reinsurance for December 31, 2010, 2009 and 2008:

December 31, 2010	Gross Amount		Ceded To Other Companies		Assumed From Other Companies		Net Amounts		Percentage Of Amount Assumed To Net
Life insurance in force (in thousands)	$	29,162	$	11,545	$	-	$	17,617		0.0	%

Premiums-life & annuity insurance	$	275,064	$	57,659	$	-	$	217,405		0.0	%
Premiums-accident and health		39,685,443		92,483		-		39,592,960		0.0	%
Total insurance premiums	$	39,960,507	$	150,142	$	-	$	39,810,365		0.0	%

December 31, 2009
Life insurance in force (in thousands)	$	30,657	$	10,933	$	-	$	19,724		0.0	%

Premiums-life & annuity insurance	$	305,978	$	78,329	$	-	$	227,649		0.0	%
Premiums-accident and health		41,916,448		93,423		-		41,823,025		0.0	%
Total insurance premiums	$	42,222,426	$	171,752	$	-	$	42,050,674		0.0	%

December 31, 2008
Life insurance in force (in thousands)	$	33,696	$	11,111	$	-	$	22,585		0.0	%

Premiums-life & annuity insurance	$	330,934	$	56,256	$	-	$	274,678		0.0	%
Premiums-accident and health		43,693,176		94,706		-		43,598,470		0.0	%
Total insurance premiums	$	44,024,110	$	150,962	$	-	$	43,873,148		0.0	%

9. Benefit Plans for Certain Brokers/Agents and Employees

Of the options granted through December 2004, there were no stock options outstanding at December 31, 2008. The number of options expiring or forfeited were 100,825 in 2008, respectively. There were 9,600 options exercised in 2008. The remaining options expired in 2008. The options do not have a dilutive effect on earnings per share.

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9. Benefit Plans for Certain Brokers/Agents and Employees (continued)

In 2001, the Board of Directors approved the 2001 Incentive Bonus Plan for the benefit of certain Officers of the Company. The plan provides for monthly payment of cash bonuses based on 12% of consolidated pre-tax operating income. Bonus expense was $333,817, $409,828 and $355,359 under this plan for 2010, 2009 and 2008, respectively.

The Company has an Employee Pension Plan that is a qualified retirement plan under the Internal Revenue Code. All employees who have attained age 21 and have completed one year of service are eligible to contribute. Employer contributions are discretionary. The Company contributed $67,694, $66,566 and $65,896 in 2010, 2009 and 2008, respectively.

10. Concentrations

The majority of the Company’s premium income and gross income continues to be generated by the dental insurance products. This concentration makes the Company increasingly dependent upon the success of this block of business and any economic factors and risks unique to dental insurance. See Note 1. The Company has no distinctly reportable business segments.

11. Change in Accounting Estimate

Based on claims experience in 2010 and 2009, the estimate of claims liability at December 31, 2009 was overstated by approximately $146,000 and $392,000 at December 2008 as described in Note 7. The change in estimate of this liability has contributed a corresponding decrease in claims expense in 2010 and 2009.

12. Subsequent Events

There have been no other events subsequent to December 31, 2010 that will have a material impact on the financial condition of the Company.

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13. Unaudited Quarterly Results of Operations

The summary unaudited quarterly results of operations were as follows:

	Quarter Ended
2010	March 31			June 30			September 30			December 31

Premium Income	$	10,133,970		$	10,012,029		$	10,012,944		$	9,709,668
Net Investment Income		258,253			244,969			222,280			225,517
Vision Insurance Income		582,883			598,126			618,271			610,580
Realized Gains (Losses)		(324	)		(11,692	)		(47,763	)		57,750
Expenses		(10,286,638	)		(10,584,845	)		(10,211,749	)		(9,909,513	)

Net Income	$	688,144		$	258,587		$	593,983		$	694,002

Earnings Per Share (Basic and Diluted)	$	0.05		$	0.02		$	0.04		$	0.05

Comprehensive Income	$	707,374		$	147,990		$	725,681		$	663,210

	Quarter Ended
2009	March 31			June 30			September 30			December 31

Premium Income	$	10,545,125		$	10,395,720		$	10,266,460		$	10,402,299
Net Investment Income		296,732			310,613			244,311			271,042
Vision Insurance Income		601,519			587,522			600,993			596,114
Marketing Fees		-			-			-			25,000
Realized Gains		12,165			6,514			41,823			25,186
Expenses		(10,689,848	)		(10,888,639	)		(10,590,651	)		(10,242,155	)

Net Income	$	765,693		$	411,730		$	562,936		$	1,077,486

Earnings Per Share (Basic and Diluted)	$	0.05		$	0.03		$	0.04		$	0.07

Comprehensive Income	$	783,425		$	466,922		$	655,973		$	1,108,501

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Item 15(d) - Schedule II, Condensed Financial Information of Registrant

BNL Financial Corporation (Parent Company)

Balance Sheets


	2010		2009
Assets
Cash and cash equivalents	$	238,050	$	242,259
Investments, at fair value		-		-
Total Investments, Including Cash and Cash Equivalents		238,050		242,259

Accrued investment income		7,809		7,809
Loan to EBI		1,054,418		1,152,825
Investment in Unconsolidated Subsidiaries at equity (eliminated in consolidated statements)		17,538,045		20,580,514
Income tax asset		19,000		28,000
Other assets		134,590		117,514

Total Assets	$	18,991,912	$	22,128,921

Liabilities
Bonds payable	$	1,300,708		$	1,323,388
Other liabilities		77,358			74,423
Total Liabilities		1,378,066			1,397,811

Shareholders' Equity

Common stock, $.02 stated value, 45,000,000 shares authorized; 15,463,965 shares issued and outstanding		309,279			309,279
Additional paid-in capital		5,704,090			5,725,590
Retained earnings		12,041,212			15,092,975
Treasury stock, at cost, 382,030; 343,194 shares, respectively		(486,316	)		(432,775	)
Unrealized appreciation of securities		45,581			36,041
Total Shareholders' Equity		17,613,846			20,731,110

Total Liabilities and Shareholders’ Equity	$	18,991,912		$	22,128,921

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Item 15(d) - Schedule II, Condensed Financial Information of Registrant

BNL Financial Corporation (Parent Company)

Statement of Operations

	2010			2009			2008
Income
Net investment income	$	203,853		$	193,621		$	206,082
Marketing fees		-			25,000			-
Realized gain on debt extinguishment		4,536			27,176			44,370
Realized gains (losses)		(98,407	)		-			(201,135	)
Total Income		109,982			245,797			49,317

Expenses
General and administrative		136,625			205,013			232,064
Interest expense		77,634			82,317			93,959
Total Expenses		214,259			287,330			326,023

Income from operations before income taxes		(104,277	)		(41,534	)		(276,706	)
Provision for income taxes		9,000			3,000			(9,502	)

Net income before equity in undistributed income of subsidiaries		(113,277	)		(44,534	)		(267,204	)
Equity in undistributed income of subsidiaries		2,347,993			2,862,379			2,633,676

Net Income	$	2,234,716		$	2,817,845		$	2,366,472

Net Income Per Common Share (Basic and Diluted)	$	.15		$	.19		$	.16

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Item 15(d) - Schedule II, Condensed Financial Information of Registrant

BNL Financial Corporation (Parent Company)

Statements of Cash Flows


	2010			2009			2008
Cash Flows from Operating Activities
Net income	$	2,234,715		$	2,817,845		$	2,366,472
Adjustments to compute cash provided by operating activities		(2,249,534	)		(2,934,999	)		(2,495,882	)
Net Cash Used by Operating Activities		(14,819	)		(117,154	)		(129,410	)

Cash Flows from Investing Activities
Proceeds from sales of investments		-			200,000			-
Dividend from subsidiary		5,400,000			800,000			1,300,000
Net Cash Provided by Investing Activities		5,400,000			1,000,000			1,300,000

Cash Flows from Financing Activities
Purchase of treasury stock		(105,041	)		(155,352	)		(20,858	)
Dividends		(5,286,478	)		(757,525	)		(760,356	)
Stock options exercised		30,000			66,499			15,401
Payments on long term debt		-			-			(50,687	)
Debt extinguishments		(27,871	)		(92,717	)		(119,924	)
Net Cash Used by Financing Activities	$	(5,389,390	)	$	(939,095	)	$	(936,424	)
Net Increase (Decrease) in Cash and Cash Equivalents		(4,209	)		(56,249	)		234,166

Cash and Cash Equivalents, Beginning of Period		242,259			298,508			64,342

Cash and Cash Equivalents, End of Period	$	238,050		$	242,259		$	298,508

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Attached files

BNL FINANCIAL CORP Reports

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