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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 June 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 March 31, 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>
June 30
ASSETS 1996 December 31,
(Unaudited) 1995
----------- ------------
<S> <C> <C>
Investments:
Investments available for sale, at
fair value ....................... $11,880,750 $11,504,802
Equity securities, common stock ....... 60,625 41,870
Cash and cash investments ............. 348,443 1,910,596
----------- -----------
Total Investments 12,289,818 13,457,268
Accrued investment income ................ 292,312 252,617
Furniture and equipment .................. 296,184 303,262
Deferred policy acquisition costs ........ 492,209 514,561
Receivable from reinsurer ................ 21,942 142,677
Other assets ............................. 547,784 433,827
----------- ----------
TOTAL ASSETS $13,940,249 $15,104,212
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liability for future policy benefits . $1,835,952 $1,877,749
Premium deposit fund ................. 186,059 195,542
Annuity deposits ..................... 3,514,337 3,435,834
Deferred annuity profits ............. 610,536 602,719
Supplementary contracts without
life contingencies ............... 77,458 84,213
Other liabilities .................... 244,521 315,358
---------- ----------
Total liabilities 6,468,863 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 ................... (127,323) 478,783
Treasury stock ....................... (64,105) (64,105)
Accumulated deficit .................. (7,111,655) (6,596,350)
---------- -----------
Total shareholders' equity 7,471,386 8,181,393
---------- ----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $13,940,249 $14,225,834
========== ==========
<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 Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Premium income .................................. $ 1,774,936 $ 601,216 $ 3,390,315 $ 1,180,391
Investment income ............................... 218,219 229,592 433,509 439,175
Realized gains on investments ................... 12,546 146,692 16,459 150,945
----------- ----------- ---------- ----------
Total income ................................... 2,005,701 977,500 3,840,283 1,770,511
----------- ----------- ---------- ----------
EXPENSES:
Policy benefits and other insurance costs ....... 1,547,136 514,116 3,002,118 1,051,922
Increase in liability for future policy benefits 8,232 15,614 (8,062) 16,417
Amortization of deferred policy acquisition costs 14,976 15,314 22,352 27,815
Operating expenses .............................. 628,825 416,056 1,211,444 860,925
Taxes, other than on income ..................... 66,244 6,513 127,737 49,874
----------- ----------- ---------- ----------
Total expenses ................................. 2,265,413 967,613 4,355,589 2,006,953
----------- ----------- ---------- ----------
OPERATING INCOME (LOSS) ........................ (259,712) 9,887 (515,306) (236,442)
Provision for income taxes ......................... 0 0 0 0
----------- ----------- ---------- ----------
NET INCOME (LOSS) .............................. ($ 259,712) $ 9,887 ($ 515,306) ($ 236,442)
=========== =========== ========== ==========
Net loss per share .............................. ($ 0.01) $ 0.00 ($ 0.02) ($ 0.01)
=========== =========== ========== ==========
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>
Six Months
Ended Ended
06/30/96 06/30/95
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ ($ 515,306) ($ 236,442)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Realized (gain) loss on investments .................... (16,459) (150,945)
Depreciation ........................................... 46,669 28,243
Amortization of deferred acquisition
costs and state licenses acquired ................... 23,906 29,369
Accretion of bond discount ............................. (2,835) (3,907)
Change in assets and liabilities:
Increase in accrued investment income .................. (39,695) (13,737)
Decrease in premium deposit fund ....................... (9,483) (12,632)
Increase in annuity deposits and deferred profits ...... 86,320 57,949
Increase (decrease)in liability for future policy
benefits ............................................ (41,797) 46,717
Other net .............................................. (64,972) 109,222
---------- ---------
Total adjustments .................................. (18,346) 90,279
---------- ---------
Total cash provided by (used in)
operating activities ........................... (533,652) (146,163)
Cash flows from investing activities:
Sales of debt securities .............................. 1,561,854 1,498,114
Sales of equity securities ............................ 0 0
Sales of furniture and equipment ...................... 9,000 7,341
Purchase of equity securities ......................... 0 0
Purchase of furniture and equipment ................... (45,417) (58,885)
Purchase of fixed maturity securities ................. (2,547,183) (797,527)
--------- ---------
Net cash provided by (used in) investing activities (1,021,746) 649,043
--------- ---------
Cash flows from financing activities:
Payments on supplementary contracts ................... (9,000) (15,000)
Interest credited on supplementary contracts .......... 2,245 4,642
--------- ----------
Net cash provided by (used in) financing activities (6,755) (10,358)
--------- ----------
Net increase (decrease) in cash and cash equivalents .... (1,562,153) 492,522
Cash and cash equivalents, beginning of year ............ 1,910,596 2,207,537
--------- ---------
Cash and cash equivalents, end of period ................ $ 348,443 $ 2,700,059
========= =========
<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 June 30, 1996,
BNLAC had statutory capital and surplus exceeding $5.3 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 June 30, 1996, the Company had liquid assets of $348,443 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 $1,562,153 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 half of 1996, BNLAC collected $3,634,916 of
premiums and annuity deposits (gross before reinsurance) and the Company had
consolidated investment income of $433,509.
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 ($132,223) at June
30, 1996. The decrease in the market value of the Company's bond portfolio is
due to an increase in interest rates since the beginning of the year. The
Company does not hedge its investment income through the use of derivatives.
Results of Operations
Premium income for the first half of 1996 was $3,390,315 compared to $1,180,391
for the same period in 1995. The increase of $2,209,924 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 $433,509 for the period ended June 30, 1996 compared
to $439,175 for the same period in 1995. In the second quarter of 1995, the
Company received approximately $19,000 of interest on GIC bonds compared to
$4,000 in 1996. Interest and principal payments will continue on the GIC bonds
through 1998, though the majority of the funds have been distributed at this
time.
Realized gains on investments were $16,459 in the first half of 1996 compared to
$150,945 for the same period in 1995. In the second quarter of 1995, the Company
received approximately $70,000 return of principal on GIC bonds that exceeded
the book value of the bonds compared to $9,000 in 1996.
In the first six months of 1996, policy benefits and other insurance costs were
$3,002,118 compared to $1,051,922 for the same period in 1995. The increase was
due to a death claim of approximately $28,000, 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. In 1996, the company's percentage of dental claims paid to dental premium
income decreased from 80% in 1995 to 72% in 1996.
For the period ended June 30, 1996, the increase (decrease) in liability for
future policy benefits was ($8,062) compared to $16,417 in 1995. The decrease in
1996 was due to a decrease in group dental unearned premium reserves for the
year.
6
<PAGE>
Amortization of deferred policy acquisition costs were $22,352 and $27,815 for
the first half 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 $860,925 in the first half of 1995 to
$1,211,444 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 and 100% of the insurance risk of the group dental business. As a
result, BNLAC is processing $6.9 million of annual dental premium income
representing 18,097 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 $127,737 for the first
six months of 1996 compared to $49,874 for the same period in 1995. These costs
increased in direct proportion to the increase in premium income retained by the
company and the increase in payroll expense.
The net loss from operations for the first half of 1996 was $531,765 compared to
$387,387 for the same period in 1995. The increase is primarily due to the
increase in operating expenses, death benefits and other insurance costs
discussed above. The net loss for the first six months of 1996 was $515,306
compared to $236,442 for the same period in 1995.
7
<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
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.
The Company's Annual Meeting of Shareholders was held on May 21, 1996 in Des
Moines, Iowa. At the annual meeting, the following individuals were elected to
the Company's Board of Directors.
Wayne E. Ahart Richard Barclay Eugene A. Cernan
John Greig Tom Landry C. James McCormick
James A. Mullins Chris Schenkel Barry Shamas
Charles Thone Cecil Alexander C. Donald Byrd
Hayden Fry Roy Keppy Roy Ledbetter
John E. Miller Robert R. Rigler L. Stanley Schoelerman
Orville Sweet Kenneth Tobey
12,858,770 shares were voted in favor of Messrs. Barclay, Cernan, Greig,
McCormick, Mullins, Schenkel, Shamas, Thone, Alexander, Keppy, Ledbetter,
Miller, Rigler, and Schoelerman; 12,855,764 shares were voted in favor of
Messrs. Ahart and Byrd; 12,856,766 shares were voted in favor of Mr. Tobey;
12,854,270 shares were voted in favor of Mr.Landry; 12,854,768 shares were voted
in favor of Mr. Fry; and 12,857,570 shares were voted in favor of Mr. Sweet.
228,004 shares were withheld from all directors.
The shareholders ratified the selection of Amend, Smith & Co., as the
Corporation's independent auditors for the fiscal year 1996. 12,955,604 shares
were voted in favor; 11,184 shares were voted against; and 119,986 shares
abstained.
-8-
<PAGE>
Item 6. Exhibits and Reports on Form 10-QSB
<TABLE>
<CAPTION>
No. Description Page or Method of Filing
- --------- ---------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
3.1 Articles of Incorporation of BNL Financial Incorporated by reference to Exhibit 3.1 of the Corporation
(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, 1996.
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.
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
-9-
<PAGE>
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: August 13, 1996 /s/ Wayne E. Ahart
---------------------------------
By: Wayne E. Ahart, Chairman of the Board
(Chief Executive Officer)
Date: August 13, 1996 /s/ Barry N. Shamas
----------------------------------
By: Barry N. Shamas, Executive V.P.
(Chief Financial Officer)
-10-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-01-1996
<DEBT-HELD-FOR-SALE> 11880750
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 60625
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 11941375
<CASH> 348443
<RECOVER-REINSURE> 21942
<DEFERRED-ACQUISITION> 492209
<TOTAL-ASSETS> 13940249
<POLICY-LOSSES> 1801314
<UNEARNED-PREMIUMS> 34638
<POLICY-OTHER> 4124873
<POLICY-HOLDER-FUNDS> 263517
<NOTES-PAYABLE> 0
0
0
<COMMON> 466239
<OTHER-SE> 7005147
<TOTAL-LIABILITY-AND-EQUITY> 12509272
3390315
<INVESTMENT-INCOME> 433509
<INVESTMENT-GAINS> 16459
<OTHER-INCOME> 0
<BENEFITS> 2453932
<UNDERWRITING-AMORTIZATION> 14976
<UNDERWRITING-OTHER> 540124
<INCOME-PRETAX> (515306)
<INCOME-TAX> 0
<INCOME-CONTINUING> (515306)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (515306)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<RESERVE-OPEN> 427000
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 1822191
<PAYMENTS-PRIOR> 450121
<RESERVE-CLOSE> 514000
<CUMULATIVE-DEFICIENCY> (23121)
</TABLE>
