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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, 2000
[ ] 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.)
2100 W. William Cannon, Suite L
Austin, Texas 78745
(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, 2000, the Registrant had 23,311,944 shares of Common Stock, no
par value, outstanding.
Transitional Small Business Disclosure Format (check one) Yes___ No__X__
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Part I. Financial Information
Item 1. Financial Statements
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<S> <C> <C>
December 31,
ASSETS March 31, 2000 1999
(Unaudited) (Audited)
------------------------ ---------------------
Investments:
Investments available for sale, at fair value $10,691,044 $10,344,845
Equity securities, common stock 2,625 3,313
Cash and cash equivalents 1,786,500 1,419,618
------------------------ ---------------------
Total Investments 12,480,169 11,767,776
Accrued investment income 235,174 193,337
Furniture and equipment 425,283 438,147
Deferred policy acquisition costs 332,942 352,186
Receivable from reinsurer 40,051 40,051
Premiums due and unpaid 768,879 760,941
Other assets 377,723 396,962
------------------------ ---------------------
TOTAL ASSETS $14,660,220 $13,949,400
======================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liability for future policy benefits $1,450,729 $1,488,857
Policy claims payable 3,003,175 2,729,175
Premium deposit fund 109,201 118,703
Annuity deposits 2,909,581 2,982,839
Deferred annuity profits 496,417 500,000
Supplementary contracts without
life contingencies 99,035 105,120
Advanced and unallocated premium 759,353 714,482
Commissions payable 503,191 410,903
Other liabilities 457,587 594,187
------------------------ ---------------------
Total liabilities 9,788,269 9,644,266
------------------------ ---------------------
SHAREHOLDERS' EQUITY:
Common stock 466,239 466,239
Additional paid-in capital 14,308,230 14,308,230
Accumulated other comprehensive income (701,357) (897,523)
Treasury stock (64,105) (64,105)
Accumulated deficit (9,137,056) (9,507,707)
------------------------ ---------------------
Total shareholders' equity 4,871,951 4,305,134
------------------------ ---------------------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $14,660,220 $13,949,400
======================== =====================
(See Accompanying Notes and Accountants' Report)
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<TABLE>
<CAPTION>
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND
COMPREHENSIVE INCOME
Period Ended
March 31
----------------------------------------
2000 1999
(Unaudited) (Unaudited)
----------------- -------------------
<S> <C> <C>
REVENUES:
Premium income $8,701,580 $6,738,162
Investment income 202,056 175,053
Realized gains on investments 1,220 79
----------------- -------------------
Total income 8,904,857 6,913,294
----------------- -------------------
EXPENSES:
Policy benefits and other insurance costs 6,874,884 5,817,957
Increase in liability for future policy benefits (38,128) (16,834)
Amortization of deferred policy acquisition costs 19,244 8,977
Operating expenses 1,399,306 925,923
Taxes, other than on income 278,900 214,021
----------------- -------------------
Total expenses 8,534,206 6,950,044
----------------- -------------------
OPERATING INCOME (LOSS) 370,651 (36,750)
Provision for income taxes 0 0
----------------- -------------------
NET INCOME (LOSS) $370,651 ($36,750)
================= ===================
Net income (loss) per share $0.02 ($0.00)
================= ===================
Weighted average number of shares 23,311,944 23,311,944
================= ===================
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (loss) arising
during period $197,386 ($86,881)
Reclassification adjustment for
gains included in net income (1,220) (79)
----------------- -------------------
Other comprehensive income (loss) 196,166 (86,960)
----------------- -------------------
COMPREHENSIVE INCOME (LOSS) $566,817 ($123,710)
================= ===================
(See Accompanying Notes and Accountants' Reports)
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3
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<TABLE>
<CAPTION>
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Three Months
Ended Ended
03/31/2000 03/31/1999
Cash flows from operating activities: (Unaudited) (Unaudited)
--------------------- ---------------------
<S> <C> <C>
Net income (loss) $370,651 ($36,750)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Realized loss on investments (1,220) (733)
Realized gain on sale of furniture and equipment 0 654
Depreciation 29,708 34,772
Amortization of deferred acquisition
costs and state licenses acquired 20,021 9,754
Accretion of bond discount (89) (402)
Change in assets and liabilities:
(Increase) decrease in accrued investment income (41,837) 649
Increase in premiums due and unpaid (7,938) (186,003)
Increase (decrease) in premium deposit fund (9,502) 8,887
Decrease in annuity deposits and deferred profits (76,841) (36,873)
Decrease in liability for future policy benefits (38,128) (16,834)
Increase in policy claims payable 274,000 145,000
Increase in advanced and unallocated premium 44,871 339,001
Increase in commissions payable 92,288 121,221
Other net (118,054) (213,715)
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Total adjustments 167,280 205,378
--------------------- ---------------------
Total cash provided by operating activities 537,931 168,628
Cash flows from investing activities:
Sales of debt securities 151,881 1,500,556
Sales of furniture and equipment 0 4,000
Purchase of furniture and equipment (16,844) (141,174)
Purchase of fixed maturity securities (300,000) (2,500,000)
--------------------- ---------------------
Net cash provided by (used in) investing activities (164,963) (1,136,618)
--------------------- ---------------------
Cash flows from financing activities:
Net payments on supplementary contracts (6,086) (7,092)
--------------------- ---------------------
Net cash provided by (used in) financing activities (6,086) (7,092)
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents 366,882 (975,082)
Cash and cash equivalents, beginning of year 1,419,618 2,426,963
--------------------- ---------------------
Cash and cash equivalents, end of period $1,786,500 $1,451,881
===================== =====================
(See Accompanying Notes and Accountants' Report)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1.
The accompanying Consolidated Financial Statements (unaudited) as of March 31,
2000 and for the quarter ended March 31, 2000 have been reviewed by independent
certified public accountants. The accompanying Consolidated Financial Statements
(unaudited) for the quarter ended March 31, 1999 have not been reviewed by
independent certified public accountants. In the opinion of management, the
aforementioned financial statements contain all adjustments necessary to present
fairly the financial position as of March 31, 2000, and the results of
operations for the quarters ended March 31, 2000 and March 31, 1999, and the
cash flows for the quarters ended March 31, 2000 and March 31, 1999.
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, 1999, previously filed
with the Commission, for financial statements for the year ended December 31,
1999, prepared in accordance with GAAP. Net income (loss) per share of common
stock is based on the weighted average number of outstanding common shares.
Note 2.
The dental claims loss ratio was 68.0% during the first three months of 2000
compared to 74.5% for the same period in 1999. Part of the decline in the loss
ratio is due to an approximate $300,000 over estimation of the claims liability
at December 31, 1999. Due to the monthly fluctuation in claims received and the
lag time in receiving the claims, this accrual is difficult to estimate.
Note 3.
The Company, BNL Equity Corporation and several officers in the Company are
defendants in a pending class action lawsuit alleging violation of the Arkansas
Securities Act. Subsequent to year-end the Arkansas Supreme Court affirmed
certification of the class. The Company plans to appeal that ruling to the
United States Supreme Court. The Company expects to obtain a favorable judgment
in the case and believes the action is frivolous and that substantial evidence
exists which directly refutes the allegations. However, the ultimate outcome of
this litigation is unknown at the present time. Accordingly, no provisions for
any liability that might result have been made in the financial statements. The
Company has expended a substantial amount to date in legal expenses. Future
costs are not estimable at this time. In the opinion of management, the existing
litigation is without merit and the Company intends to seek sanctions against
appropriate parties to the extent permitted by law.
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INDEPENDENT ACCOUNTANTS' REPORT
To The Board of Directors
BNL Financial Corporation
We have reviewed the accompanying consolidated Balance Sheet of BNL Financial
Corporation and Subsidiaries as of March 31, 2000 and the related consolidated
Statements of Income and Comprehensive Income and Cash Flows for the three month
period ended March 31, 2000. These financial statements are the responsibility
of the Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated Balance Sheet of BNL Financial Corporation and
Subsidiaries as of December 31, 1999 and the related consolidated Statements of
Income and Comprehensive Income, Stockholders' Equity, and Cash Flows for the
year then ended (not presented herein); and in our report dated February 12,
2000, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated Balance Sheet as of December 31, 1999 is fairly stated, in all
material respects, in relation to the consolidated Balance Sheet from which it
has been derived.
Oklahoma City, Oklahoma
May 9, 2000
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward-Looking Statements
All statement, trend analyses and other information contained in this report and
elsewhere (such as in filings by us with the Securities and Exchange Commission,
press releases, presentations by us or our management or oral statements)
relative to markets for our products and trends in our operations or financial
results, as well as other statements including words such as "aniticipate,"
"believe," "plan," "estimate," "expect," "intend," and other similar
expressions, constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995. These forward looking statements are subject to
known and unknown risks, uncertainties and other factors which may cause actual
results to be materially different from those contemplated by the
forward-looking statements. Such factors include, among other things:
o general economic conditions and other factors, including prevailing
interest rate levels and stock and credit market performance which
may affect (among other things) our ability to sell our products, our
ability to access capital resources and the costs associated
therewith, the market value of our investments and the lapse rate and
profitability of policies
o customer response to new products and marketing initiatives
o mortality and other factors which may affect the profitability of our
products
o changes in the Federal income tax laws and regulation which may affect
the relative income tax advantages of our products
o regulatory changes or actions, including those relating to regulation
of financial services affecting (among other things) bank sales and
underwriting of insurance products and regulation of the sale,
underwriting and pricing of products
o the risk factors or uncertainties listed from time to time in our filings
with the Securities and Exchange Commission
Liquidity and Capital Resources
At March 31, 2000, the Company had liquid assets of $1,786,500 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 2000, BNLAC collected $8,849,062
of premiums and annuity deposits (gross before reinsurance) and the Company had
consolidated investment income of $202,056.
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 does not hedge its investment
income through the use of derivatives.
The Company's insurance operations are conducted through its wholly owned
subsidiary, Brokers National Life Assurance Company (BNLAC). At March 31, 2000,
BNLAC had statutory capital and surplus of $4,485,682. BNLAC is required to
maintain minimum levels of statutory capital and surplus, which differ from
state to state, as a condition to conducting business in those states in which
it is licensed. The State of Arkansas, which is the legal domicile of BNLAC,
requires a minimum of $2,300,000 in capital and surplus. The highest requirement
7
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in any state in which BNLAC is licensed is $3,000,000. Some states in which
BNLAC is licensed have increased these requirements to as much as $5,000,000,
but, in general, BNLAC may continue to operate under the lower minimum
requirements in effect when it first became licensed in the applicable state.
BNLAC voluntarily withdrew its license in the state of Washington due to an
increased minimum capital stock requirement in that state of $2,400,000.
Management monitors these developments to maintain compliance with the
requirements of each state.
Results of Operations
Premium income for the first three months of 2000 was $8,701,580 compared to
$6,738,162 for the same period in 1999. The increase of $1,963,418, or 29%, was
due to an increase in insurance premiums written.
Net investment income was $202,056 for the period ended March 31, 2000 compared
to $175,053 for the same period in 1999. The increase was primarily due to an
increase in the yield of the bond portfolio in the first quarter of 2000
compared to the same period in 1999.
Realized gains on investments were $1,220 in the first three months of 2000
compared to $79 for the same period in 1999.
In the first three months of 2000, policy benefits and other insurance costs
were $6,874,884 compared to $5,817,957 for the same period in 1999. The increase
was due to an increase in claims and commissions resulting from the increase in
insurance business in force. The dental claims loss ratio was 68.0% during the
first three months of 2000 compared to 74.5% for the same period in 1999. Part
of the decline in the loss ratio is due to an approximate $300,000 over
estimation of the claims payable at December 31, 1999. Due to the monthly
fluctuation in claims received and the lag time in receiving the claims, this
accrual is difficult to estimate.
For the period ended March 31, 2000, the increase in liability for future policy
benefits was ($38,128) compared to ($16,834) in 1999. The decrease in 1999 was
due to a decrease in life reserves from surrendered policies.
Amortization of deferred policy acquisition costs were $19,244 and $8,977 for
the first three months of 2000 and 1999 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 $1,399,306 in the first three months of 2000
compared to $925,923 for the same period in 1999. The increase in operating
expenses was primarily due to an increase in payroll and claims administrative
expense - which are all attributable to the increased volume of insurance in
force.
Taxes, other than on income, fees and assessments were $278,900 for the first
three months of 2000 compared to $214,021 for the same period in 1999. The
increase was primarily due to an increase in premium taxes on the increased
premiums collected.
The operating income from operations for the first three months of 2000 was
$370,651 compared to ($36,750) for the same period in 1999. Based on claim
experience during the first quarter of 2000, the estimate of claims liability at
December 31, 1999 appears to be overstated by approximately $300,000. The over
estimate for this liability has contributed a corresponding increase in income
during the first quarter. The remaining increase in income, was primarily due to
a increase in premium income and a continued decrease in the dental insurance
claims ratio.
8
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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 retained the firm of Friday, Eldredge & Clark, Little Rock,
Arkansas, to handle the defense of the action on behalf of all defendants. On
March 3, 1998, the plaintiffs filed a Second Amended Class Action Complaint in
which they dropped certain claims, including allegations of common law fraud,
fraudulent concealment, tolling of the statute of limitations, and the request
for punitive damages.
The first issue determined in the case concerned the procedural issue of whether
the lawsuit would be certified as a class action, with the class of plaintiffs
including all Arkansas purchasers who participated in the public offerings of
securities by UAC during the stated time frame. A hearing was held on the issue
of whether the class would be certified on June 8, 1998, and on August 27, 1998
the Court entered a ruling certifying the class. On February 10, 2000 the
Arkansas Supreme Court affirmed the class certification and held that the trial
court had subject matter jurisdiction of this case. The Arkansas Supreme Court
granted the Company's motion to stay the mandate while the Company appeals the
class certification to the United States Supreme Court.
The certification of the class does not have any impact on the substantive
issues to be litigated, including whether or not any material misrepresentations
or omissions were made in the offerings in question, whether the claims are
barred by the applicable statute of limitations, and other issues. If the effort
to overturn the action is successful, the Company's potential liability, if any,
would be limited to the named plaintiffs, Myra Jo Pearson, Paul Pearson and
James Stillwell. The Company continues to believe strongly that the case is
without merit.
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 security holders for a vote.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 10-QSB No exhibits or reports are being
filed with this 10-QSB.
(b) Reports on Form 8-K
9
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No reports were filed 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: May 12, 2000 /S/ Wayne E. Ahart
-----------------------------
By: Wayne E. Ahart, Chairman of the Board
(Chief Executive Officer)
Date: May 12, 2000 /S/ Barry N. Shamas
-----------------------------
By: Barry N. Shamas, Executive V.P.
(Chief Financial Officer)
10
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<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 10691044
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2625
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 10693669
<CASH> 1786500
<RECOVER-REINSURE> 40051
<DEFERRED-ACQUISITION> 332942
<TOTAL-ASSETS> 14660220
<POLICY-LOSSES> 4453904
<UNEARNED-PREMIUMS> 234034
<POLICY-OTHER> 3405998
<POLICY-HOLDER-FUNDS> 208236
<NOTES-PAYABLE> 0
0
0
<COMMON> 466239
<OTHER-SE> 4405712
<TOTAL-LIABILITY-AND-EQUITY> 14232294
8701580
<INVESTMENT-INCOME> 202056
<INVESTMENT-GAINS> 1220
<OTHER-INCOME> 0
<BENEFITS> 5789745
<UNDERWRITING-AMORTIZATION> 19244
<UNDERWRITING-OTHER> 1047011
<INCOME-PRETAX> 370651
<INCOME-TAX> 0
<INCOME-CONTINUING> 370651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 370651
<EPS-BASIC> .02
<EPS-DILUTED> .02
<RESERVE-OPEN> 2729175
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 3624715
<PAYMENTS-PRIOR> 1850578
<RESERVE-CLOSE> 3003175
<CUMULATIVE-DEFICIENCY> 374417
</TABLE>
