===============================================================================
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, 1997
[ ] 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) (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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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, 1997, 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>
Item 1. Financial Statements
BNL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30
ASSETS 1997 December 31,
(Unaudited) 1996
----------- ------------
<S> <C> <C>
Investments:
Investments available for sale, at
fair value ....................... $11,707,701 $11,885,909
Equity securities, common stock ....... 20,438 35,438
Cash and cash investments ............. 828,595 702,769
----------- -----------
Total Investments 12,556,734 12,624,116
Accrued investment income ................ 183,936 222,101
Furniture and equipment .................. 257,508 266,234
Deferred policy acquisition costs ........ 441,737 474,667
Receivable from reinsurer ................ 23,301 28,462
Other assets ............................. 589,500 485,995
----------- ----------
TOTAL ASSETS $14,052,716 $14,101,575
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liability for future policy benefits . $1,400,246 $1,382,280
Policy claims payable................. 1,145,000 816,500
Premium deposit fund ................. 136,251 177,909
Annuity deposits ..................... 3,425,613 3,495,571
Deferred annuity profits ............. 615,737 610,536
Supplementary contracts without
life contingencies ............... 59,729 70,515
Other liabilities .................... 680,301 415,901
---------- ----------
Total liabilities 7,462,876 6,969,212
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock ......................... 466,239 466,239
Additional paid-in capital ........... 14,308,230 14,308,230
Unrealized appreciation (depreciation)
of securities ................... 10,701 (41,679)
Treasury stock ....................... (64,105) (64,105)
Accumulated deficit .................. (8,131,226) (7,536,322)
---------- -----------
Total shareholders' equity 6,589,839 7,132,363
---------- ----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $14,052,715 $14,101,575
========== ==========
<FN>
(See Notes to Consolidated Financial Statements)
</FN>
</TABLE>
2
<PAGE>
BNL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Premium income .................................. $ 3,042,004 $ 1,834,379 $ 7,864,273 $ 5,224,694
Investment income ............................... 213,311 213,941 652,818 647,450
Realized gains on investments ................... 33,842 22,586 75,753 39,045
----------- ----------- ---------- ----------
Total income ................................... 3,289,157 2,070,906 8,592,844 5,911,189
----------- ----------- ---------- ----------
EXPENSES:
Policy benefits and other insurance costs ....... 2,679,266 1,597,839 6,826,907 4,599,957
Increase in liability for future policy benefits 7,325 4,594 11,466 (3,468)
Amortization of deferred policy acquisition costs 8,089 8,346 32,930 30,698
Operating expenses .............................. 663,104 576,635 2,022,335 1,788,079
Taxes, other than on income ..................... 94,470 59,207 294,110 186,944
----------- ----------- ---------- ----------
Total expenses ................................. 3,452,254 2,246,621 9,187,748 6,602,210
----------- ----------- ---------- ----------
OPERATING INCOME (LOSS) ........................ (163,097) (175,715) (594,904) (691,021)
Provision for income taxes ......................... 0 0 0 0
----------- ----------- ---------- ----------
NET INCOME (LOSS) .............................. ($ 163,097) ($ 175,715) ($ 594,904) ($ 691,021)
=========== =========== ========== ==========
Net loss per share .............................. ($ 0.01) ($ 0.01) ($ 0.03) ($ 0.03)
=========== =========== ========== ==========
Weighted average number
of shares ...................................... 23,311,944 23,311,944 23,311,944 23,311,944
=========== =========== ========== ==========
<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
09/30/97 09/30/96
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................($ 594,904) ($ 691,021)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Realized (gain) loss on investments ....................... (79,833) (35,275)
Realized (gain) loss on sale of furniture and equipment.... 4,079 (3,770)
Depreciation .............................................. 70,130 67,457
Amortization of deferred acquisition
costs and state licenses acquired ...................... 32,930 33,029
Accretion of bond discount ................................ (2,711) (4,111)
Change in assets and liabilities:
Increase in accrued investment income ..................... 38,165 (129)
Decrease (increase) in receivable from reinsurer........... 5,161 0
Decrease in premium deposit fund .......................... (41,658) (11,508)
Increase (decrease)in annuity deposits and deferred profits (64,757) 99,122
Increase in liability for future policy
benefits ............................................... 17,966 14,797
Increase in policy claims payable.......................... 328,500 164,000
Other net ................................................. 164,023 18,439
---------- ---------
Total adjustments ..................................... 471,995 342,051
---------- ---------
Total cash provided by (used in)
operating activities .............................. (122,909) (348,970)
Cash flows from investing activities:
Sales of debt securities ................................. 2,744,592 1,635,498
Sales of equity securities ............................... 0 0
Sales of furniture and equipment ......................... 201 9,000
Purchase of equity securities ............................ 0 0
Purchase of furniture and equipment ...................... (68,812) (47,029)
Purchase of fixed maturity securities .................... (2,416,459) (2,647,183)
--------- ---------
Net cash provided by (used in) investing activities 259,522 (1,049,714)
--------- ---------
Cash flows from financing activities:
Payments on supplementary contracts ...................... (10,787) (10,198)
--------- ----------
Net cash provided by (used in) financing activities (10,787) (10,198)
--------- ----------
Net increase (decrease) in cash and cash equivalents ....... 125,826 (1,408,882)
Cash and cash equivalents, beginning of year ............ 702,769 1,910,596
--------- ---------
Cash and cash equivalents, end of period ................ $ 829,595 $ 501,714
========= =========
<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
At September 30, 1997, the Company had liquid assets of $828,595 in cash, money
market savings accounts and short-term certificates of deposit, all of which can
readily be converted to cash
The major components of operating cash flows are premium, annuity deposits and
investment income. In the first nine months of 1997, BNLAC collected $8,041,636
of premiums and annuity deposits (gross before reinsurance) and the Company had
consolidated investment income of $652,818.
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 Company's insurance operations are conducted through its wholly owned
subsidiary, Brokers National Life Assurance Company (BNLAC). At September 30,
1997, BNLAC had statutory capital and surplus exceeding $5.108 million. In
February 1997, the Company and BNL Equity Corporation contributed $500,000 to
the gross paid in and contributed surplus of BNLAC.
Results of Operations
Premium income for the first nine months of 1997 was $7,864,273 compared to
$5,224,694 for the same period in 1996. The increase of $2,639,579, or 51%, was
due to increase in sales of group dental insurance.
Net investment income was $652,818 for the period ended September 30, 1997
compared to $647,450 for the same period in 1996. The increase was due to
interest received on GIC bonds.
Realized gains on investments were $75,754 in the first nine months of 1997
compared to $39,045 for the same period in 1996. The increase in realized gains
was due to bonds sold in the normal course of the Company's investment activity.
In the first nine months of 1997, policy benefits and other insurance costs were
$6,826,907 compared to $4,599,957 for the same period in 1996. The increase was
due to an increase in claims and commissions resulting from the increase in
dental business in force.
For the period ended September 30, 1997, the increase (decrease) in liability
for future policy benefits was $11,466 compared to $(3,468) in 1996. The
increase in 1997 was due to an increase in group dental unearned premium
reserves for the year and an increase in GAAP life reserves.
Amortization of deferred policy acquisition costs were $32,930 and $30,698 for
the first nine months of 1997 and 1996 respectively. Amortization of deferred
policy acquisition costs should remain relatively constant as the asset is
reduced over the upcoming years.
Operating expenses increased from $2,022,335 in the first nine months of 1996 to
$1,788,079 in 1997. The increase in operating expenses was primarily due to an
increase in data processing expense, printing expense and claims administrative
expense - which are all attributable to the increase volume of dental insurance
in force.
Taxes, other than on income, fees and assessments were $294,111 for the first
nine months of 1997 compared to $186,944 for the same period in 1996. The
increase was due to an increase in premium taxes on the increased premiums
collected and an increase in state filing fees for advertising and policy form
approval.
The net loss from operations for the first nine months of 1997 was $594,904
compared to $691,021 for the same period in 1996. The decrease is primarily due
to a reduction in other insurance costs and operating expenses as a percentage
of premium income in 1997 versus 1996. Management anticipates this trend will
continue as increased dental business is put in force.
<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
insurance marketing strategy of UAC in connection with the public offerings.
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 and its consolidated subsidiary.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the period
covered by this report.
Item 5. Other Information.
None
7
<PAGE>
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 10-QSB
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 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.
10.2 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.
10.3 Subscription Agreement dated March 2, 1994 Incorporated by reference to S-4 Registration
Statement No. 33-70318
10.4 Stock Escrow Agreement dated February 28, 1994 Incorporated by reference to S-4 Registration
Statement No. 33-70318
10.5 Merger Agreement between United Arkansas Incorporated by reference to S-4 Registration
Corporation and USSA Acquisition Inc. dated Statement No. 33-70318
February 11, 1994
10.6 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
10.7 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.
10.8 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
10.9 Stock Bonus Agreement between BNL Financial Filed with 10-QSB for the period ended June
Corporation and C. Donald Bryd and Kenneth Tobey 30, 1997
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: November 11, 1997 /s/ Wayne E. Ahart
--------------------------------
By: Wayne E. Ahart, Chairman of the Board
(Chief Executive Officer)
Date: November 11, 1997 /s/ Barry N. Shamas
---------------------------------
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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 11707701
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 20438
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 11728139
<CASH> 828595
<RECOVER-REINSURE> 23301
<DEFERRED-ACQUISITION> 441737
<TOTAL-ASSETS> 14052716
<POLICY-LOSSES> 2492135
<UNEARNED-PREMIUMS> 53111
<POLICY-OTHER> 4041350
<POLICY-HOLDER-FUNDS> 195980
<NOTES-PAYABLE> 0
0
0
<COMMON> 466239
<OTHER-SE> 6177004
<TOTAL-LIABILITY-AND-EQUITY> 14052716
7864273
<INVESTMENT-INCOME> 652818
<INVESTMENT-GAINS> 75754
<OTHER-INCOME> 0
<BENEFITS> 5714673
<UNDERWRITING-AMORTIZATION> 32930
<UNDERWRITING-OTHER> 1123700
<INCOME-PRETAX> (594904)
<INCOME-TAX> 0
<INCOME-CONTINUING> (594904)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (594904)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
<RESERVE-OPEN> 816500
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 4424572
<PAYMENTS-PRIOR> 828428
<RESERVE-CLOSE> 1145000
<CUMULATIVE-DEFICIENCY> (11928)
</TABLE>
