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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 March 31, 1998
[ ] 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, 1998, 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>
March 31
ASSETS 1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
Investments:
Investments available for sale, at
fair value ....................... $11,310,663 $11,765,947
Equity securities, common stock ....... 5,438 20,438
Cash and cash investments ............. 1,630,495 714,539
----------- -----------
Total Investments 12,946,596 12,500,924
Accrued investment income ................ 196,735 225,042
Furniture and equipment .................. 250,041 261,312
Deferred policy acquisition costs ........ 427,209 433,695
Receivable from reinsurer ................ 26,677 26,677
Premiums due and unpaid................... 406,787 355,793
Other assets ............................. 343,803 344,410
----------- ----------
TOTAL ASSETS $14,597,848 $14,147,853
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liability for future policy benefits . $1,394,548 $1,352,555
Policy claims payable................. 2,023,000 1,368,630
Premium deposit fund ................. 122,238 127,697
Annuity deposits ..................... 3,325,983 3,336,323
Deferred annuity profits ............. 617,872 615,737
Supplementary contracts without
life contingencies ............... 52,275 56,031
Advanced and unallocated premium...... 356,813 328,814
Commissions payable................... 202,401 184,677
Other liabilities .................... 328,189 364,429
---------- ----------
Total liabilities 8,423,319 7,734,893
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock ......................... 466,239 466,239
Additional paid-in capital ........... 14,308,230 14,308,230
Unrealized appreciation (depreciation)
of securities ................... 93,522 170,530
Treasury stock ....................... (64,105) (64,105)
Accumulated deficit .................. (8,629,357) (8,467,934)
---------- -----------
Total shareholders' equity 6,174,529 6,412,960
---------- ----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $14,597,848 $14,147,853
========== ==========
<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
March 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Premium income .................................. $ 4,350,247 $ 2,267,090
Investment income ............................... 218,904 209,567
Realized gains on investments ................... 52,174 18,764
----------- -----------
Total income ................................... 4,621,325 2,495,421
----------- -----------
EXPENSES:
Policy benefits and other insurance costs ....... 3,737,908 1,878,840
Increase in liability for future policy benefits 41,993 19,189
Amortization of deferred policy acquisition costs 6,486 9,468
Operating expenses .............................. 843,327 664,099
Taxes, other than on income ..................... 153,034 108,780
----------- -----------
Total expenses ................................. 4,782,748 2,680,376
----------- -----------
OPERATING INCOME (LOSS) ........................ (161,423) (184,955)
Provision for income taxes ......................... 0 0
----------- -----------
NET INCOME (LOSS) .............................. ($ 161,423) ($ 184,955)
=========== ===========
Net loss per share .............................. ($ 0.01) ($ 0.01)
=========== ===========
Weighted average number
of shares ...................................... 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>
Three Months
Ended Ended
03/31/98 03/31/97
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................($ 161,423) ($ 184,955)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Realized (gain) loss on investments ....................... (52,175) (22,843)
Realized (gain) loss on sale of furniture and equipment.... 0 4,079
Depreciation .............................................. 24,148 22,921
Amortization of deferred acquisition
costs and state licenses acquired ...................... 7,263 9,468
Accretion of bond discount ................................ (895) (1,038)
Change in assets and liabilities:
(Increase) decrease in accrued investment income .......... 28,307 (8,939)
Increase in receivable from reinsurer...................... (50,994) (17,704)
Decrease in premium deposit fund .......................... (5,459) (37,757)
Decrease in annuity deposits and deferred profits.......... (8,205) (33,416)
Increase in liability for future policy
benefits ............................................... 41,993 25,689
Increase in policy claims payable.......................... 654,370 133,500
Increase in advanced and unallocated premium............... 27,999 60,808
Increase in commissions payable............................ 17,724 20,039
Other net ................................................. (35,923) (319,893)
---------- ---------
Total Adjustments ..................................... 648,153 (165,086)
---------- ---------
Total cash provided by (used in)
operating activities .............................. 486,730 (350,041)
Cash flows from investing activities:
Sales of debt securities ................................. 3,350,156 726,760
Sales of equity securities ............................... 0 0
Sales of furniture and equipment ......................... 0 201
Purchase of equity securities ............................ 0 0
Purchase of furniture and equipment ...................... (13,363) (30,269)
Purchase of fixed maturity securities .................... (2,903,811) (799,250)
--------- ---------
Net cash provided by (used in) investing activities 432,982 (102,558)
--------- ---------
Cash flows from financing activities:
Payments on supplementary contracts ...................... (3,757) (3,560)
--------- ----------
Net cash provided by (used in) financing activities (3,757) (3,560)
--------- ----------
Net increase (decrease) in cash and cash equivalents ....... 915,955 (456,159)
Cash and cash equivalents, beginning of year ............ 714,539 702,769
--------- ---------
Cash and cash equivalents, end of period ................ $ 1,630,494 $ 246,610
========= =========
<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, 1998, previously filed with the Commission, for
financial statements for the year ended December 31, 1998, 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 March 31, 1998, the Company had liquid assets of $1,630,495 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 three months of 1998, BNLAC collected $4,422,400
of premiums and annuity deposits (gross before reinsurance) and the Company had
consolidated investment income of $218,904.
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 March 31, 1998,
BNLAC had statutory capital and surplus exceeding $5.076 million. BNLAC is
required to maintain minimum levels of statutory capital and surplus as a
condition to conducting business in the states in which it is licensed. Each of
these states had different rules regarding the minimum level of capital and
surplus required in that state. The state of Arkansas, which is the legal
domicile of BNLAC, requires a minimum of $2,300,000 in capital and surplus.
Results of Operations
Premium income for the first three months of 1998 was $4,350,247 compared to
$2,267,090 for the same period in 1997. The increase of $2,083,157, or 92%, was
due to an increase in group dental insurance premiums written during 1997 and
the first quarter of 1998.
Net investment income was $218,904 for the period ended March 31, 1998 compared
to $209,567 for the same period in 1997. The increase was due to an increase in
invested assets in 1998.
Realized gains on investments were $52,175 in the first three months of 1998
compared to $18,764 for the same period in 1997. The increase in realized gains
was due to bonds sold in the normal course of the Company's investment activity.
In the first three months of 1998, policy benefits and other insurance costs
were $3,737,908 compared to $1,878,840 for the same period in 1997. The increase
was due to an increase in claims and commissions resulting from the increase in
dental business in force.
For the period ended March 31, 1998, the increase in liability for future policy
benefits was $41,933 compared to $19,189 in 1997. The increase in 1998 was due
to an increase in group dental unearned premium reserves.
Amortization of deferred policy acquisition costs were $6,486 and $9,468 for the
first quarter of 1998 and 1997 respectively. Amortization of deferred policy
acquisition costs may vary in the future in relation to new life insurance sales
and lapses or surrenders of existing policies.
Operating expenses increased to $843,327 in the first quarter of 1998 compared
to $664,099 for the same period in 1997. The increase in operating expenses was
primarily due to an increase in data processing expense, payroll and claims
administrative expense - which are all attributable to the increase volume of
dental insurance in force. An increase in legal expense of approximately $54,000
relating to legal proceedings described in Part II, Item 1, was another primary
factor in the increase in operating expense.
Taxes, other than on income, fees and assessments were $153,034 for the first
quarter of 1998 compared to $108,780 for the same period in 1997. The increase
was primarily due to an increase in premium taxes on the increased premiums
collected.
The net loss from operations for the first quarter of 1998 was $161,423 compared
to $184,955 for the same period in 1997. The decrease is primarily due to an
increase in realized gains and a reduction in general and administrative
expenses as a percentage of premium income in 1998 versus 1997. Management
anticipates that with a continuing increase of premium income, this trend will
continue.
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. 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 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 is vigorously defending the
matter and is in the process of seeking 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.
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: April 28, 1998 /s/ Wayne E. Ahart
--------------------------------
By: Wayne E. Ahart, Chairman of the Board
(Chief Executive Officer)
Date: April 28, 1998 /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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 11310663
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 5438
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 11316101
<CASH> 1630495
<RECOVER-REINSURE> 26677
<DEFERRED-ACQUISITION> 427209
<TOTAL-ASSETS> 14597848
<POLICY-LOSSES> 3343845
<UNEARNED-PREMIUMS> 73703
<POLICY-OTHER> 3943855
<POLICY-HOLDER-FUNDS> 174513
<NOTES-PAYABLE> 0
0
0
<COMMON> 466239
<OTHER-SE> 5708290
<TOTAL-LIABILITY-AND-EQUITY> 14597848
4350247
<INVESTMENT-INCOME> 218904
<INVESTMENT-GAINS> 52175
<OTHER-INCOME> 0
<BENEFITS> 3201120
<UNDERWRITING-AMORTIZATION> 6486
<UNDERWRITING-OTHER> 578781
<INCOME-PRETAX> (161423)
<INCOME-TAX> 0
<INCOME-CONTINUING> (161423)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (161423)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
<RESERVE-OPEN> 1340630
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 1373949
<PAYMENTS-PRIOR> 1052528
<RESERVE-CLOSE> 2025000
<CUMULATIVE-DEFICIENCY> 288102
</TABLE>
