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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, 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____
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As of June 30, 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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<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<S> <C> <C>
December 31,
ASSETS June 30, 2000 1999
(Unaudited) (Audited)
------------------------ ---------------------
Investments:
Investments available for sale, at fair value $11,405,157 $10,344,845
Equity securities, common stock 1,193 3,313
Cash and cash equivalents 1,142,966 1,419,618
------------------------ ---------------------
Total Investments 12,549,316 11,767,776
Accrued investment income 215,983 193,337
Furniture and equipment 410,223 438,147
Deferred policy acquisition costs 328,677 352,186
Receivable from reinsurer 40,051 40,051
Premiums due and unpaid 686,307 760,941
Other assets 370,587 396,962
------------------------ ---------------------
TOTAL ASSETS $14,601,144 $13,949,400
======================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liability for future policy benefits $1,392,405 $1,488,857
Policy claims payable 2,303,175 2,729,175
Premium deposit fund 110,018 118,703
Annuity deposits 2,836,123 2,982,839
Deferred annuity profits 496,417 500,000
Supplementary contracts without
life contingencies 92,876 105,120
Advanced and unallocated premium 802,074 714,482
Commissions payable 504,104 410,903
Other liabilities 433,556 594,187
------------------------ ---------------------
Total liabilities 8,970,748 9,644,266
------------------------ ---------------------
SHAREHOLDERS' EQUITY:
Common stock, $.02 stated value, 45,000,000 shares
Authorized; 23,311,944 shares issued and outstanding 466,239 466,239
Additional paid-in capital 14,308,230 14,308,230
Accumulated other comprehensive income (loss) (737,622) (897,523)
Treasury stock, at cost, 138,795 shares (64,105) (64,105)
Accumulated deficit (8,342,346) (9,507,707)
------------------------ ---------------------
Total shareholders' equity 5,630,396 4,305,134
------------------------ ---------------------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $14,601,144 $13,949,400
======================== =====================
(See Accompanying Notes and Accountants' Report)
</TABLE>
2
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<TABLE>
<CAPTION>
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND
COMPREHENSIVE INCOME
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -----------------------------
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Premium income .................................. $8,770,015 $7,378,050 $ 17,471,595 $ 14,116,212
Investment income ............................... 202,685 204,753 404,741 379,806
Realized gains on investments ................... 800 5,404 2,020 5,483
------------- ------------ ----------- -----------
Total income ................................... 8,973,500 7,588,207 17,878,356 14,501,501
------------- ------------ ----------- -----------
EXPENSES:
Policy benefits and other insurance costs ....... 6,579,710 6,173,121 13,454,594 11,991,078
Increase in liability for future policy benefits. (58,324) (5,433) (96,452) (22,267)
Amortization of deferred policy acquisition costs 4,265 6,340 23,509 15,317
Operating expenses .............................. 1,383,121 1,107,238 2,782,427 2,033,160
Taxes, other than on income ..................... 270,018 229,748 548,917 443,769
------------- ------------ ----------- -----------
Total expenses ................................. 8,178,790 7,511,014 16,712,995 14,461,057
------------- ------------ ----------- -----------
OPERATING INCOME ............................... $794,710 $ 77,193 $1,165,361 $ 40,444
Provision for income taxes ......................... 0 0 0 0
------------- ------------ ----------- -----------
NET INCOME ..................................... $794,710 $ 77,193 $1,165,361 $ 40,444
============= ============ =========== ===========
Net income per share ........................... $0.03 $0.00 $0.05 $0.00
============= ============ =========== ===========
Weighted average number
of shares ...................................... 23,311,944 23,311,944 23,311,944 23,311,944
============= ============ =========== ===========
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (loss) arising during
period..................................... ($ 35,464) ($569,290) $161,922 ($662,282
Reclassification adjustment for gains
included in net income..................... (801) (5,404) (2,021) (5,483)
------------- ------------ ----------- -----------
Other comprehensive income (loss)................... (36,265) (574,694) 159,901 (667,765)
------------- ------------ ----------- -----------
COMPREHENSIVE INCOME (LOSS).................... $758,445 ($497,501) $1,325,262 ($627,321)
============= ============ =========== ===========
<FN>
(See Accompanying Notes and Accountants' Reports)
</FN>
</TABLE>
3
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<TABLE>
<CAPTION>
BNL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Six Months
Ended Ended
06/30/2000 06/30/1999
Cash flows from operating activities: (Unaudited) (Unaudited)
--------------------- ---------------------
<S> <C> <C>
Net income (loss) $1,165,361 $40,444
Adjustments to reconcile net income to net cash --------------------- ---------------------
provided by operating activities:
Realized loss on investments (1,220) (6,137)
Realized (gain) loss on sale of furniture and equipment (800) 654
Depreciation 60,937 70,527
Amortization of deferred acquisition
costs and state licenses acquired 25,063 16,871
Accretion of bond discount 887 (180)
Change in assets and liabilities:
(Increase)in accrued investment income (22,646) (16,674)
Increase in premiums due and unpaid 74,634 26,949
Increase (decrease) in premium deposit fund (8,685) 9,025
Decrease in annuity deposits and deferred profits (150,299) (125,535)
Decrease in liability for future policy benefits (96,452) (22,267)
Decrease in policy claims payable (426,000) (70,000)
Increase in advanced and unallocated premium 87,592 345,458
Increase in commissions payable 93,201 105,032
Other net (135,823) (87,408)
--------------------- ---------------------
Total adjustments (499,611) 246,315
--------------------- ---------------------
Total cash provided by operating activities 665,750 286,759
--------------------- --------------------
Cash flows from investing activities:
Sales of debt securities 152,058 2,207,179
Sales of furniture and equipment 800 4,000
Purchase of furniture and equipment (33,015) (196,083)
Purchase of fixed maturity securities (1,050,000) (4,250,000)
--------------------- ---------------------
Net cash provided by (used in) investing activities (930,157) (2,234,904)
--------------------- ---------------------
Cash flows from financing activities:
Net payments on supplementary contracts (12,245) (12,920)
--------------------- ---------------------
Net cash (used in) financing activities (12,245) (12,920)
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents (276,652) (1,961,065)
Cash and cash equivalents, beginning of year 1,419,618 2,426,963
--------------------- ---------------------
Cash and cash equivalents, end of period $1,142,966 $ 465,898
===================== =====================
(See Accompanying Notes and Accountants' Report)
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1.
The accompanying Consolidated Financial Statements (unaudited) as of June 30,
2000 and for the quarter ended June 30, 2000 have been reviewed by independent
certified public accountants. The accompanying Consolidated Financial Statements
(unaudited) for the period ended June 30, 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 June 30, 2000, and the results of operations
for the periods ended June 30, 2000 and June 30, 1999, and the cash flows for
the periods ended June 30, 2000 and June 30, 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 per share of common
stock is based on the weighted average number of outstanding common shares.
Note 2.
The dental claims loss ratio was 65.8% during the first six months of 2000
compared to 72.2% for the same period in 1999. Part of the decline in the loss
ratio is due to an approximate $580,000 over estimation of the claims liability
at December 31, 1999, which had the effect of reducing claims expense in 2000.
Additionally, second quarter results may be effected by a possible overstatement
of the claims liability at March 31, 2000. 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 is appealing 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 June 30, 2000 and the related Consolidated
Statements of Income and Comprehensive Income and Cash Flows for the three-month
and six-month period ended June 30, 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 SMITH, CARNEY & CO., p.c.
August 9, 2000
-6-
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
At June 30, 2000, the Company had liquid assets of $1,142,966 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 six months of 2000, BNLAC collected $17,784,992
of premiums and annuity deposits (gross before reinsurance) and the Company had
consolidated investment income of $404,741.
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 June 30, 2000,
BNLAC had statutory capital and surplus of $4,838,733. 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
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.
Management monitors these developments to maintain compliance with the
requirements of each state.
Results of Operations
Premium income for the first six months of 2000 was $17,471,595 compared to
$14,116,212 for the same period in 1999. The increase of $3,355,383, or 24%, was
due to an increase in insurance premiums written and group dental rate
increases.
Net investment income was $404,741 for the period ended June 30, 2000 compared
to $379,806 for the same period in 1999. The increase was primarily due to an
increase in the size and yield of the bond portfolio in the first half of 2000
compared to the same period in 1999.
Realized gains on investments were $2,020 in the first three months of 2000
compared to $5,483 for the same period in 1999.
In the first six months of 2000, policy benefits and other insurance costs were
$13,454,594 compared to $11,991,078 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 65.8% during the
first six months of 2000 compared to 72.2% for the same period in 1999. Part of
the decline in the loss ratio is due to an approximate $580,000 over estimation
of the claims payable at December 31, 1999, which had the effect of reducing
claims expense in 2000. 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 June 30, 2000, the decrease in liability for future policy
benefits was ($96,452) compared to ($22,267) in 1999. The larger decrease in
2000 was due to a decrease in life reserves from surrendered policies.
-7-
<PAGE>
Amortization of deferred policy acquisition costs was $23,509 and $15,317 for
the first six 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 $2,782,427 in the first six months of 2000
compared to $2,033,160 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 $548,917 for the first
six months of 2000 compared to $443,769 for the same period in 1999. The
increase was primarily due to an increase in premium taxes on the increased
premiums collected.
The income from operations for the first six months of 2000 was $1,165,361
compared to $40,444 for the same period in 1999. Based on claim experience
during the first half of 2000, the estimate of claims liability at December 31,
1999 appears to be overstated by approximately $580,000. The over estimate for
this liability has contributed a corresponding increase in income during the
first half. The remaining increase in income was primarily due to an increase in
premium income and a lower dental insurance claims ratio.
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 "anticipate,"
"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 regulations 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
-8-
<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 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. The Company has appealed 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.
The Company's Annual Meeting of Shareholders was held on May 16, 2000 in Little
Rock, Arkansas. At the annual meeting, the following individuals were elected to
the Company's Board of Directors. The number of shares voted for each director
is set forth next to his name.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Wayne E. Ahart (12,281,300) Eugene A. Cernan (12,275,498) James A. Mullins (12,282,500)
C. Donald Byrd (12,282,500) Hayden Fry (12,272,916) C. James McCormick (12,275,498)
Kenneth Tobey (12,282,500) John Greig (12,282,500) Robert R. Rigler (12,273,998)
Barry N. Shamas (12,282,500) Roy Keppy (12,273,998) Chris Schenkel (12,275,498)
Cecil Alexander (12,275,498) Roy Ledbetter (12,282,500) L.Stanley Schoelerman (12,282,500)
Richard Barclay (12,275,498) John E. Miller (12,282,500) Orville Sweet (12,282,500)
</TABLE>
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A total of 45,777 shares were voted against all directors. The shareholders
ratified the selection of Smith, Carney & Co., as the Corporation's independent
auditors for the fiscal year 2000. 12,266,582 shares were voted in favor; 14,802
were voted against; and 46,893 shares abstained.
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
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: August 10, 2000 /S/ Wayne E. Ahart
_____________________________________
By: Wayne E. Ahart, Chairman of the Board
(Chief Executive Officer)
Date: August 10, 2000 /S/ Barry N. Shamas
_____________________________________
By: Barry N. Shamas, Executive V.P.
(Chief Financial Officer)
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