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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
[ ] 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
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BNL FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
IOWA 42-1239454
(State of incorporation) (I.R.S. Employer Identification No.)
301 Camp Craft Road, Suite 200
Austin, Texas 78746
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512) 327-3065
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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____
As of September 30, 1996, the Registrant had 23,311,944 shares of Common Stock,
no par value, outstanding.
Transitional Small Business Disclosure Format (check one) Yes___ No__X__
<PAGE>
<TABLE>
Item 1. Financial Statements
BNL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<CAPTION>
September 30
ASSETS 1996 December 31,
(Unaudited) 1995
----------- ------------
<S> <C> <C>
Investments:
Investments available for sale, at
fair value ....................... $12,013,804 $11,504,802
Equity securities, common stock ....... 40,625 41,870
Cash and cash investments ............. 501,714 1,910,596
----------- -----------
Total Investments 12,556,143 13,457,268
Accrued investment income ................ 252,746 252,617
Furniture and equipment .................. 276,713 303,262
Deferred policy acquisition costs ........ 483,863 514,561
Receivable from reinsurer ................ 21,942 142,677
Other assets ............................. 445,045 433,827
----------- ----------
TOTAL ASSETS $14,036,452 $15,104,212
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liability for future policy benefits . $1,892,546 $1,877,749
Premium deposit fund ................. 184,034 195,542
Annuity deposits ..................... 3,527,139 3,435,834
Deferred annuity profits ............. 610,536 602,719
Supplementary contracts without
life contingencies ............... 74,016 84,213
Other liabilities .................... 389,718 315,358
---------- ----------
Total liabilities 6,677,989 6,511,415
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock ......................... 466,239 466,239
Additional paid-in capital ........... 14,308,230 14,308,230
Unrealized appreciation (depreciation)
of securities ................... (64,531) 478,783
Treasury stock ....................... (64,105) (64,105)
Accumulated deficit .................. (7,287,370) (6,596,350)
---------- -----------
Total shareholders' equity 7,358,463 8,592,797
---------- ----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $14,036,452 $15,104,212
========== ==========
<FN>
(See Notes to Consolidated Financial Statements)
</FN>
</TABLE>
2
<PAGE>
<TABLE>
BNL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Premium income .................................. $ 1,834,379 $ 670,947 $ 5,224,694 $ 1,851,338
Investment income ............................... 213,941 211,576 647,450 650,751
Realized gains on investments ................... 22,586 11,577 39,045 162,522
----------- ----------- ---------- ----------
Total income ................................... 2,070,906 894,100 5,911,189 2,664,611
----------- ----------- ---------- ----------
EXPENSES:
Policy benefits and other insurance costs ....... 1,597,839 494,207 4,599,957 1,546,129
Increase in liability for future policy benefits 4,594 251 (3,468) 16,668
Amortization of deferred policy acquisition costs 8,346 29,174 30,698 56,989
Operating expenses .............................. 576,635 456,766 1,788,079 1,317,691
Taxes, other than on income ..................... 59,208 30,052 186,945 79,926
----------- ----------- ---------- ----------
Total expenses ................................. 2,246,622 1,010,450 6,602,211 3,017,403
----------- ----------- ---------- ----------
OPERATING INCOME (LOSS) ........................ (175,716) (116,350) (691,022) (352,792)
Provision for income taxes ......................... 0 0 0 0
----------- ----------- ---------- ----------
NET INCOME (LOSS) .............................. ($ 175,716) ($ 116,350) ($ 691,022) ($ 352,792)
=========== =========== ========== ==========
Net loss per share .............................. ($ 0.01) ($ 0.01) ($ 0.03) ($ 0.02)
=========== =========== ========== ==========
Weighted average number
of shares ...................................... 23,311,944 23,173,149 23,311,944 23,173,149
=========== =========== ========== ==========
<FN>
(See Notes to Consolidated Financial Statements)
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BNL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months
Ended Ended
09/30/96 09/30/95
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ ($ 691,022) ($ 352,792)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Realized (gain) loss on investments .................... (39,045) (162,522)
Depreciation ........................................... 67,457 44,771
Amortization of deferred acquisition
costs and state licenses acquired ................... 33,029 39,217
Accretion of bond discount ............................. (4,111) (5,864)
Change in assets and liabilities:
Increase in accrued investment income .................. (129) (28,580)
Decrease in premium deposit fund ....................... (11,508) (17,286)
Increase in annuity deposits and deferred profits ...... 99,122 114,502
Increase in liability for future policy
benefits ............................................ 14,797 66,968
Other net .............................................. 182,439 120,385
---------- ---------
Total adjustments .................................. 342,051 171,591
---------- ---------
Total cash provided by (used in)
operating activities ........................... (348,971) (181,201)
Cash flows from investing activities:
Sales of debt securities .............................. 1,635,498 2,570,871
Sales of equity securities ............................ 0 22,625
Sales of furniture and equipment ...................... 9,000 7,341
Purchase of equity securities ......................... 0 0
Purchase of furniture and equipment ................... (47,029) (141,595)
Purchase of fixed maturity securities ................. (2,647,183) (2,095,155)
--------- ---------
Net cash provided by (used in) investing activities (1,049,714) 364,087
--------- ---------
Cash flows from financing activities:
Payments on supplementary contracts ................... (13,500) (90,288)
Interest credited on supplementary contracts .......... 3,303 4,223
--------- ----------
Net cash provided by (used in) financing activities (10,197) (86,065)
--------- ----------
Net increase (decrease) in cash and cash equivalents .... (1,408,882) 96,821
Cash and cash equivalents, beginning of year ............ 1,910,596 2,207,537
--------- ---------
Cash and cash equivalents, end of period ................ $ 501,714 $ 2,304,358
========= =========
<FN>
(See notes to Consolidated Financial Statements)
</FN>
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The financial statements included herein reflect all adjustments which are, in
the opinion of management, necessary to present a fair statement of the interim
results on a basis consistent with the prior period. The statements have been
prepared to conform to the requirements of Form 10-QSB and do not necessarily
include all disclosures required by generally accepted accounting principles
(GAAP). The reader should refer to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995, previously filed with the Commission, for
financial statements for the year ended December 31, 1995, prepared in
accordance with GAAP. Net income (loss) per share of common stock is based on
the weighted average number of outstanding common shares.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Company's insurance operations are conducted through its wholly owned
subsidiary, Brokers National Life Assurance Company (BNLAC). At September 30,
1996, BNLAC had statutory capital and surplus exceeding $5.2 million, which is
sufficient to meet BNLAC's capital requirements in the states in which it is
licensed and which management believes is sufficient to support anticipated
future growth.
At September 30, 1996, the Company had liquid assets of $501,714 in cash, money
market savings accounts and short-term certificates of deposit, all of which can
readily be converted to cash. The Company's cash and cash investments have
decreased by $1,408,882 since December 31, 1995 primarily due to investing short
term cash investments in long term bonds.
The major components of operating cash flows are premium, annuity deposits and
investment income. In the first nine months of 1996, BNLAC collected $5,631,899
of premiums and annuity deposits (gross before reinsurance) and the Company had
consolidated investment income of $647,450.
The Company's investments are primarily in U.S. Government and Government
Agencies and other investment grade bonds which have been marked to market and
classified as available for sale. The unrealized appreciation (depreciation) of
securities decreased from $478,783 at December 31, 1995 to ($64,105) at
September 30, 1996. The decrease was due to a decrease in the market value of
the Company's bond portfolio, which are classified as available for sale. The
Company does not hedge its investment income through the use of derivatives.
Results of Operations
Premium income for the first nine months of 1996 was $5,224,694 compared to
$1,851,338 for the same period in 1995. The increase of $3,373,356 was due to an
increase in dental insurance premiums written and an increase in dental premiums
retained by BNLAC from 50% in 1995 to 100% in 1996. Effective November 1, 1995,
BNLAC began retaining 100% of the group dental business and administering the
dental business.
Net investment income was $647,450 for the period ended September 30, 1996
compared to $650,751 for the same period in 1995. In the first three quarters of
1995, the Company received approximately $19,000 of interest on GIC bonds
compared to $6,000 in 1996. Interest and principal payments payments will
continue on the GIC bonds through 1998, though the majority of the funds have
been distributed at this time.
Realized gains on investments were $39,045 in the first nine months of 1996
compared to $162,522 for the same period in 1995. In the first three quarters of
1995, the Company received approximately $70,000 return of principal on GIC
bonds that exceeded the book value of the bonds compared to $21,000 in 1996.
In the first nine months of 1996, policy benefits and other insurance costs were
$3,745,723 compared to $1,190,450 for the same period in 1995. The increase was
due to an increase in claims and commissions resulting from the increase in
dental business in force and the change in retention of dental business from 50%
to 100% in the fourth quarter of 1995. The percentage of dental claims paid to
dental premium income decreased from 74% in 1995 to 70% in 1996.
For the period ended September 30, 1996, the increase (decrease) in liability
for future policy benefits was ($3,468) compared to $16,668 in 1995. The
decrease in 1996 was due to a decrease in group dental unearned premium reserves
for the year.
Amortization of deferred policy acquisition costs were $30,698 and $56,989 for
the first three quarters of 1996 and 1995 respectively. Amortization of deferred
policy acquisition costs should continue to decrease as the asset is reduced
over the upcoming years.
Operating expenses increased from $1,317,691 in the first three quarters of 1995
to $1,788,079 in 1996. The increase in operating expenses in 1996 was primarily
due to an increase in home office staff, office supplies, printing expense and
claims administrative expense - all of which are attributable to taking over the
administration of the group dental business. As a result, BNLAC is processing
$7.3 million of annual dental premium income representing 19,260 insureds. BNLAC
expects that continued increases in new insurance premium can be administered by
the company at lower per unit costs.
Taxes, other than on income, fees and assessments were $186,945 for the first
nine months of 1996 compared to $79,926 for the same period in 1995. These costs
increased in direct proportion to the increase in premium income retained by the
company.
The net loss from operations for the first three quarters of 1996 was $691,021
compared to $352,792 for the same period in 1995. The increase is primarily due
to the increase in operating expenses, policy benefits and other insurance costs
discussed above.
6
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
On April 30, 1996, Myra Jo Pearson and Paul Pearson filed a class action
complaint in the Circuit Court of Pulaski County, Arkansas (3rd Division) naming
the Company, BNL Equity Corporation and several officers of the Company, as
defendants. On July 19, 1996, the plaintiffs filed their first amended complaint
and on and after July 24, 1996, the defendants were first served and notified of
the complaint and first amended complaint. The plaintiffs have alleged that the
defendants violated the Arkansas Securities Act in several respects in
connection with the public offerings of securities made by United Arkansas
Corporation ("UAC") (now known as BNL Equity Corporation) during the period from
January 1989 until May, 1992. The plaintiffs have filed on behalf of themselves,
as well as all other similarly situated persons who acquired UAC stock in these
offerings. The crux of the plaintiffs' allegations is that the defendants made
alleged misrepresentations and omissions concerning the business plan and
marketing strategy of UAC in connection with the public offerings.
The Company has retained the firm of Friday, Eldredge & Clark, Little Rock,
Arkansas, to handle the defense of the action on behalf of all defendants. The
company believes the action is frivolous and that substantial evidence exists
which directly refutes the allegations. The Company intends to vigorously defend
the matter and on August 13, 1996, filed an answer denying all substantive
alleged violations. The Company is analyzing the pursuit of sanctions against
appropriate parties.
Item 2. Changes in Securities.
None of the rights of the holders of any of the Company's securities were
materially modified during the period covered by this report. In addition, no
class of securities of the Company was issued or modified which materially
limited or qualified any class of its registered securities.
Item 3. Defaults Upon Senior Securities.
During the period covered by this report there was no material default in the
payment of any principal, interest, sinking or purchase fund installment, or any
other material default not cured within 30 days with respect to any indebtedness
of the Company exceeding 5 per cent of the total assets of the Company and its
consolidated subsidiary.
Item 4. Submission of Matters to a Vote of Security Holders.
No items were submitted for a vote of security holders during the covered
period.
Item 5. Other Information.
None
7
<PAGE>
<TABLE>
Item 6. Exhibits and Reports on Form 10-QSB
<CAPTION>
No. Description Page or Method of Filing
- --------- ---------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
3.1 Articles of Incorporation of BNL Financial Incorporated by reference to Exhibit 3.1 of the
Corporation (formerly United Iowa Corporation), Company's Annual Report on Form 10-K for the
dated January 27, 1984 and Amendment to Articles period ending December 31, 1993.
of Incorporation of BNL Financial Corporation,
dated November 13, 1987.
3.2 Bylaws of BNL Financial Corporation Incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement No. 33-70318
4.1 Instruments defining the rights of security Incorporated by reference to Exhibit 4 of the
holders, including indentures Company's Registration Statement No. 2-94538 and
Exhibits 3.5 and 4 of Post-Effective Amendment
No. 3 thereto.
4.2 Articles of Incorporation of BNL Financial Incorporated by reference to Exhibit 3.1 of the
Corporation (formerly United Iowa Corporation), Company's Annual Report on Form 10-K for the
dated January 27, 1984 and Amendment to Articles period ending December 31, 1993.
of Incorporation on BNL Financial Corporation,
dated November 13, 1987.
10.1 Office Lease dated January 1, 1985 between Incorporated by reference to Exhibit 10.4 of
Registrant and William L. Kopatick. Pre-Effective Amendment No. 1 of the Company's
Registration Statement No. 2-94538.
10.2 Form of Agreement between Commonwealth Industries Filed with 10-QSB for the period ended September
Corporation, American Investors Corporation and 30, 1994.
Wayne E. Ahart regarding rights to purchase shares
of the Company.
10.3 Agreement dated December 21, 1990 between Filed with 10-QSB for the period ended March 31,
Registrant and C. Donald Byrd granting Registrant 1996.
right of first refusal as to future transfers of
Mr. Byrd's shares of the Company's common stock.
10.4 Quota Share Reinsurance Agreement dated 8/10/91 Incorporated by reference to Exhibit 10.10 of the
between Registrant and UniLife Insurance Co. of Company's Annual Report on Form 10-K for the year
San Antonio, Texas. ended December 31, 1991.
10.5 Subscription Agreement dated March 2, 1994 Incorporated by reference to S-4 Registration
Statement No. 33-70318
10.6 Stock Escrow Agreement dated February 28, 1994 Incorporated by reference to S-4 Registration
Statement No. 33-70318
10.7 Merger Agreement between United Arkansas Incorporated by reference to S-4 Registration
Corporation and USSA Acquisition Inc. dated Statement No. 33-70318
February 11, 1994
10.8 Merger Agreement between Iowa Life Assurance Filed with 10-QSB for the period ended March 31,
Company and United Arkansas Life Assurance Company 1994
dated March 2, 1994
10.9 Office lease dated March 24, 1994, between Brokers Filed with 10-QSB for the period ended September
National Life Assurance Company (formerly Iowa 30, 1994
Life Assurance Company) and Enclave KOW, Ltd., for
premises in Austin, Texas.
10.10 Amendment Number Two to the Quota Share Filed with Form 8-K dated January 18, 1995
Reinsurance Agreement dated 8/10/91 between
Registrant and UniLife Insurance Co. of San
Antonio, Texas
11 Statement re computation of per share earnings Not applicable
12 Statements re computation of ratios Not applicable
22 BNL Brokerage Corporation, Brokers National Life
Assurance Company and BNL Equity Corporation, all
wholly owned by Registrant
</TABLE>
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for the period covered by this report
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BNL FINANCIAL CORPORATION
(Registrant)
Date: October 21, 1996 __________________________________
By: Wayne E. Ahart, Chairman of the Board
(Chief Executive Officer)
Date: October 21, 1996 __________________________________
By: Barry N. Shamas, Executive V.P.
(Chief Financial Officer)
8
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 12013804
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 40625
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 12556143
<CASH> 501714
<RECOVER-REINSURE> 21942
<DEFERRED-ACQUISITION> 483863
<TOTAL-ASSETS> 14036452
<POLICY-LOSSES> 1863534
<UNEARNED-PREMIUMS> 29012
<POLICY-OTHER> 4137675
<POLICY-HOLDER-FUNDS> 258050
<NOTES-PAYABLE> 0
0
0
<COMMON> 466239
<OTHER-SE> 6892224
<TOTAL-LIABILITY-AND-EQUITY> 14036452
5224694
<INVESTMENT-INCOME> 647450
<INVESTMENT-GAINS> 39045
<OTHER-INCOME> 0
<BENEFITS> 3745723
<UNDERWRITING-AMORTIZATION> 30698
<UNDERWRITING-OTHER> 850766
<INCOME-PRETAX> (691022)
<INCOME-TAX> 0
<INCOME-CONTINUING> (691022)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (691022)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
<RESERVE-OPEN> 427000
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 3010026
<PAYMENTS-PRIOR> 464700
<RESERVE-CLOSE> 566000
<CUMULATIVE-DEFICIENCY> (37700)
</TABLE>
