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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, 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
- --------------------------------------------------------------------------------
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 June 30, 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>
June 30, 1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
ASSETS
Investments:
Investments available for sale, at
fair value ....................... $11,939,318 $11,765,947
Equity securities, common stock ....... 7,438 20,438
Cash and cash investments ............. 258,754 714,539
----------- -----------
Total Investments 12,205,509 12,500,924
Accrued investment income ................ 234,246 225,042
Furniture and equipment .................. 244,644 261,312
Deferred policy acquisition costs ........ 419,093 433,695
Receivable from reinsurer ................ 26,677 26,677
Premiums due and unpaid................... 479,203 355,793
Other assets ............................. 359,771 344,410
----------- ----------
TOTAL ASSETS $13,969,144 $14,147,853
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liability for future policy benefits . $1,392,938 $1,352,555
Policy claims payable................. 1,628,000 1,368,630
Premium deposit fund ................. 120,174 127,697
Annuity deposits ..................... 3,274,241 3,336,323
Deferred annuity profits ............. 617,872 615,737
Supplementary contracts without
life contingencies ............... 48,482 56,031
Advanced and unallocated premium...... 338,361 328,814
Commissions payable................... 263,531 184,677
Other liabilities .................... 346,366 364,429
---------- ----------
Total liabilities 8,029,965 7,734,893
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock ......................... 466,239 466,239
Additional paid-in capital ........... 14,308,230 14,308,230
Accumulated other comprehensive
income........................... 126,553 170,530
Treasury stock ....................... (64,105) (64,105)
Accumulated deficit .................. (8,897,739) (8,467,934)
---------- -----------
Total shareholders' equity 5,939,178 6,412,960
---------- ----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $13,969,143 $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 Six Months Ended
June 30 June 30,
--------------------------- -----------------------------
1998 1997 1998 1997
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Premium income .................................. $5,042,166 $2,555,179 $ 9,392,413 $ 4,823,349
Investment income ............................... 198,094 229,940 416,998 439,507
Realized gains on investments ................... 2,343 23,147 54,518 41,911
------------- ------------ ----------- -----------
Total income ................................... 5,242,603 2,808,266 9,863,929 5,304,767
------------- ------------ ----------- -----------
EXPENSES:
Policy benefits and other insurance costs ....... 4,486,719 2,268,801 8,224,627 4,148,721
Increase in liability for future policy benefits. (1,610) (15,048) 40,383 4,141
Amortization of deferred policy acquisition costs 8,116 15,373 14,602 24,841
Operating expenses .............................. 848,706 695,132 1,692,033 1.359,231
Taxes, other than on income ..................... 169,055 90,860 322,089 199,640
------------- ------------ ----------- -----------
Total expenses ................................. 5,510,986 3,055,118 10,293,734 5,736,574
------------- ------------ ----------- -----------
OPERATING LOSS ................................. ($268,383) ($246,852) (429,805) (431,807)
Provision for income taxes ......................... 0 0 0 0
------------- ------------ ----------- -----------
NET LOSS ....................................... ($268,383) ($246,852) ($161,423) ($184,955)
============= ============ =========== ===========
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during
period..................................... $35,374 183,308 $10,541 $44,068
Reclassification adjustment for gains
included in net income..................... (2,343) (23,147) (54,518) (41,911)
------------- ------------ ----------- -----------
Other comprehensive income (loss)................... 33,031 160,161 (43,977) 2,157
------------- ------------ ----------- -----------
COMPREHENSIVE LOSS ............................ ($235,352) ($86,691) ($473,782) ($429,650)
============= ============ =========== ===========
Net loss per share .............................. ($0.01) ($0.01) ($0.01) ($0.01)
============= ============ =========== ===========
Weighted average number
of shares ...................................... 23,311,944 23,311,944 23,311,944 23,311,944
============= ============ =========== ===========
<FN>
(See Notes to Consolidated Financial Statements)
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BNL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months
Ended Ended
06/30/98 06/30/97
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................($ 429,805) ($ 431,807)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Realized (gain) loss on investments ....................... (54,518) (45,990)
Realized (gain) loss on sale of furniture and equipment.... 0 4,079
Depreciation .............................................. 50,432 46,923
Amortization of deferred acquisition
costs and state licenses acquired ...................... 16,156 24,841
Accretion of bond discount ................................ (1,830) (1,782)
Change in assets and liabilities:
(Increase) decrease in accrued investment income .......... (9,204) (13,622)
Increase in receivable from reinsurer...................... (123,410) 5,161
Decrease in premium deposit fund .......................... (7,523) (38,543)
Decrease in annuity deposits and deferred profits.......... (59,947) (68,566)
Increase in liability for future policy
benefits ............................................... 40,383 10,641
Increase in policy claims payable.......................... 259,370 68,500
Increase in advanced and unallocated premium............... 9,546 (96,148)
Increase in commissions payable............................ 78,854 127,684
Other net ................................................. (34,005) 93,398
---------- ---------
Total Adjustments ..................................... 164,304 116,576
---------- ---------
Total cash provided by (used in)
operating activities .............................. (265,501) (315,231)
---------- ---------
Cash flows from investing activities:
Sales of debt securities ................................. 4,705,813 1,496,496
Sales of equity securities ............................... 0 0
Sales of furniture and equipment ......................... 0 201
Purchase of equity securities ............................ 0 0
Purchase of furniture and equipment ...................... (34,736) (41,963)
Purchase of fixed maturity securities .................... (4,853,811) (1,497,209)
--------- ---------
Net cash provided by (used in) investing activities (182,734) (42,475)
--------- ---------
Cash flows from financing activities:
Payments on supplementary contracts ...................... (7,550) (7,148)
--------- ----------
Net cash provided by (used in) financing activities (7,550) (7,148)
--------- ----------
Net increase (decrease) in cash and cash equivalents ....... (455,785) (364,854)
Cash and cash equivalents, beginning of year ............ 714,539 702,769
--------- ---------
Cash and cash equivalents, end of period ................ $ 258,754 $ 337,915
========= =========
<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, 1997, previously filed with the Commission, for
financial statements for the year ended December 31, 1997, prepared in
accordance with GAAP. Net income (loss) per share of common stock is based on
the weighted average number of outstanding common shares.
The Company adopted SFAS # 130 "Reporting Comprehensive Income" during the
second quarter of 1998. SFAS #130 requires the Company to report the year to
date change in unrealized gains or losses on its investments as comprehensive
income on the Statement of Income. Unrealized gains or losses reported in the
equity section of the balance sheet have been renamed accumulated other
comprehensive income.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources At June 30, 1998, the Company had liquid assets
of $258,954 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 half of 1998, BNLAC collected $9,522,400 of
premiums and annuity deposits (gross before reinsurance) and the Company had
consolidated investment income of $416,998.
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 June 30, 1998,
BNLAC had statutory capital and surplus exceeding $4,851,789. 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 half of 1998 was $9,392,413 compared to $4,823,349
for the same period in 1997. The increase of $4,569,064, or 95%, was due to an
increase in insurance premiums written during 1997 and the first half of 1998.
Net investment income was $416,998 for the period ended June 30, 1998 compared
to $439,507 for the same period in 1997. The decrease was due to interest
received on GIC bonds in 1997 but not in 1998.
Realized gains on investments were $54,518 in the first six months of 1998
compared to $41,911 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 half of 1998, policy benefits and other insurance costs were
$8,224,627 compared to $4,148,721 for the same period in 1997. The increase was
due to an increase in claims and commissions resulting from the increase in
insurance in force.
For the period ended June 30, 1998, the increase in liability for future policy
benefits was $40,383 compared to $4,141 in 1997. The increase in 1998 was due to
an increase in unearned premium reserves.
Amortization of deferred policy acquisition costs were $14,4602 and $24,841 for
the first half 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 $1,692,033 in the first half of 1998 compared to
$1,359,231 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
insurance in force. An increase in legal expense of approximately $28,000
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 $322,090 for the first
half of 1998 compared to $199,640 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 half of 1998 was $429,805 compared to
$431,807 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. These positive
results were off set by the claims ratio on group dental business running
approximately 1.5% higher than the same period in 1997. Management anticipates
the rate increases on new business, product modifications and stricter
underwriting guidelines that took affect on June 1, 1998 will begin having an
impact on reducing the claims ratio in the second half of 1998.
The Company adopted SFAS # 130 "Reporting Comprehensive Income" during the
second quarter of 1998. SFAS #130 requires the Company to report the year to
date change in unrealized gains or losses on its investments as comprehensive
income on the Statement of Income. Unrealized gains or losses reported in the
equity section of the balance sheet have been renamed accumulated other
comprehensive income. During the first half of 1998 other comprehensive income
was ($43,977) compared to $2,157 for the same period in 1997. The decrease in
1998 was due to a reduction in the market value of an equity security and a
reduction in the market value of the bond portfolio since December 31, 1997.
<PAGE>
PART II -- OTHER INF0RMATION
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.
The Company's Annual Meeting of Shareholders was held on May 20, 1998 in Little
Rock, Arkansas. 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 Kenneth Tobey Cecil Alexander C. Donald Byrd Hayden Fry Roy Keppy
Roy Ledbetter John E. Miller Robert R. Rigler L. Stanley Schoelerman Orville E.
Sweet 13,961,651 shares were voted in favor of Messrs. Miller, Mullins and
Greig; 13,960,451 voted in favor of Mr. Tobey; 13,960,451 shares voted in favor
of Mr.Sweet; 13,959,449 shares voted in favor of Mr Byrd; 13,958,651 shares
voted in favor of Mr. Schoelerman; 13,955,909 shares voted in favor of Mr.
Shamas; 13,954,247 shares voted in favor of Mr. Ahart; 13,953,365 shares voted
in favor of Mr. Rigler; 13,952,825 shares voted in favor of Messrs. McCormick,
Barclay and Alexander; 13,952,627 shares voted in favor of Mr. Ledbetter;
13,951,865 shares voted in favor of Mr. Schenkel; and 13,951,823 shares voted in
favor of Mr. Keppy; 13,951,325 shares voted in favor of Messrs. Cernan and
Landry; 13,949321 shares voted in favor of Mr. Fry. 111,594 shares were withheld
from all directors.
The shareholders ratified the selection of Smith, Carney & Co., as the
Corporation's independent auditors for the fiscal year 1998. 13,913,496 shares
were voted in favor; 54,261 were voted against; and 105,488 shares abstained.
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: August 14, 1998 /s/ Wayne E. Ahart
--------------------------------
By: Wayne E. Ahart, Chairman of the Board
(Chief Executive Officer)
Date: August 14, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 11939318
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 7438
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 11946756
<CASH> 258754
<RECOVER-REINSURE> 26677
<DEFERRED-ACQUISITION> 419093
<TOTAL-ASSETS> 13969144
<POLICY-LOSSES> 3343845
<UNEARNED-PREMIUMS> 200247
<POLICY-OTHER> 3892113
<POLICY-HOLDER-FUNDS> 120174
<NOTES-PAYABLE> 0
0
0
<COMMON> 466239
<OTHER-SE> 5472939
<TOTAL-LIABILITY-AND-EQUITY> 13969178
9392413
<INVESTMENT-INCOME> 416998
<INVESTMENT-GAINS> 54518
<OTHER-INCOME> 0
<BENEFITS> 7005045
<UNDERWRITING-AMORTIZATION> 14602
<UNDERWRITING-OTHER> 1183431
<INCOME-PRETAX> (473782)
<INCOME-TAX> 0
<INCOME-CONTINUING> (473782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (473782)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
<RESERVE-OPEN> 1340630
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 5713511
<PAYMENTS-PRIOR> 1251161
<RESERVE-CLOSE> 1628000
<CUMULATIVE-DEFICIENCY> 89469
</TABLE>
