Attached files
file | filename |
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EX-32 - BNL FINANCIAL CORP | ex32.htm |
EX-31.1 - BNL FINANCIAL CORP | ex31-1.htm |
EX-31.2 - BNL FINANCIAL CORP | ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE
ACT OF 1934
For the Quarter Ended September 30,
2009
o 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. 000-16880
BNL
FINANCIAL CORPORATION
(Exact
name of Registrant as specified in its charter)
IOWA
|
42-1239454
|
(State
of incorporation)
|
(I.R.S.
Employer Identification No.)
|
7010
Hwy 71 W., Ste 100
|
|
Austin,
Texas
|
78735
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (512) 383-0220
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 Noo
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
the Exchange Act. (Check one):
Large
accelerated filer o Accelerated
filer o Non-accelerated
filer x Smaller
Reporting Company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
As of
September 30, 2009, the Registrant had 15,142,808 shares of Common Stock, no par
value, outstanding.
Table of
Contents
Page
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PART
I Financial Information
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Item
1.
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3
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Item
2.
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13
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Item
3.
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15
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Item
4.
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15
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Item
4T.
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15
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PART
II Other Information
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Item
1.
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16
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Item
1A.
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16
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Item
2.
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16
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Item
3.
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16
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Item
4.
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16
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Item
5.
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16
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Item
6.
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17
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18
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BNL FINANCIAL CORPORATION AND
SUBSIDIARIES
PART I - FINANCIAL
INFORMATION
Item 1. Financial
Statements
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To The
Board of Directors
BNL
Financial Corporation
We have
reviewed the accompanying Consolidated Balance Sheet of BNL Financial
Corporation and subsidiaries as of September 30, 2009 and the related
Consolidated Statements of Income and Comprehensive Income for the three-month
and nine-month periods ended September 30, 2009 and 2008 and the Consolidated
Statements of Cash Flows for the nine-month periods ended September 30, 2009 and
2008. These interim financial statements are the responsibility of
the Corporation’s management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, 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 the accompanying
interim consolidated financial statements referred to above for them to
be in conformity with U.S. generally accepted accounting
principles.
We have
previously audited, in accordance with auditing standards of the Public Company
Accounting Oversight Board, the Consolidated Balance Sheet of BNL Financial
Corporation and Subsidiaries as of December 31, 2008 and the related
Consolidated Statements of Income and Comprehensive Income, Changes in
Shareholders’ Equity and Cash Flows for the year then ended (not presented
herein); and in our report dated March 30, 2009, 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, 2008 is fairly stated, in all material respects, in relation
to the Consolidated Balance Sheet from which it has been derived.
/s/ Smith, Carney &
Co.
SMITH, CARNEY & CO.,
p.c.
Oklahoma
City, Oklahoma
November
13, 2009
BNL
FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
September
30
|
December
31,
|
|||||||
ASSETS
|
2009
(Unaudited)
|
2008
(Audited)
|
||||||
Cash
and cash equivalents
|
$ | 7,711,331 | $ | 4,989,381 | ||||
Investment
in fixed maturities, at fair value Available for Sale
(amortized
cost $42,000; $444,976, respectively)
|
139,600 | 543,925 | ||||||
Investment
in fixed maturities, at amortized cost, Held to Maturity
(fair
value $18,622,722; $19,393,473, respectively)
|
18,402,446 | 19,597,008 | ||||||
Other
long-term investments (fair value $918,272,
$951,436)
|
1,191,445 | 1,224,609 | ||||||
Investment
in equity securities (cost $699,829)
|
628,875 | 429,745 | ||||||
Total
Investments, Including Cash and Cash Equivalents
|
28,073,697 | 26,784,668 | ||||||
Accrued
investment income
|
180,185 | 181,522 | ||||||
Furniture
and equipment, net
|
887,243 | 1,048,673 | ||||||
Deferred
policy acquisition costs
|
269,438 | 283,561 | ||||||
Policy
loans
|
203,420 | 191,010 | ||||||
Receivable
from reinsurer
|
46,554 | 46,554 | ||||||
Premiums
due and unpaid
|
922,320 | 1,113,301 | ||||||
Income
tax assets
|
101,000 | 97,000 | ||||||
Intangible
assets
|
126,861 | 131,212 | ||||||
Other
assets
|
134,739 | 135,282 | ||||||
Total
Assets
|
$ | 30,945,457 | $ | 30,012,783 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Liabilities:
|
||||||||
Liabilities
for future policy benefits
|
$ | 2,274,599 | $ | 2,208,948 | ||||
Policy
claims payable
|
1,656,564 | 1,712,140 | ||||||
Annuity
deposits
|
2,568,635 | 2,523,185 | ||||||
Deferred
annuity profits
|
336,024 | 231,263 | ||||||
Premium
deposit funds
|
21,780 | 21,849 | ||||||
Supplementary
contracts without life contingencies
|
31,909 | 2,782 | ||||||
Advanced
and unallocated premium
|
861,144 | 1,036,123 | ||||||
Commissions
payable
|
592,538 | 595,488 | ||||||
Accrued
taxes and expenses
|
572,451 | 566,809 | ||||||
Bonds
payable
|
1,363,353 | 1,443,282 | ||||||
Other
liabilities
|
1,009,677 | 1,062,497 | ||||||
Total
Liabilities
|
11,288,674 | 11,404,366 | ||||||
Shareholders'
Equity:
|
||||||||
Common
stock, $.02 stated value, 45,000,000 shares authorized,
15,463,965 shares issued and outstanding
|
309,279 | 309,279 | ||||||
Additional
paid-in capital
|
5,729,715 | 5,748,465 | ||||||
Accumulated
other comprehensive income (loss)
|
5,027 | (160,934 | ) | |||||
Accumulated
surplus
|
14,015,491 | 13,032,655 | ||||||
Treasury
stock, at cost; 321,157; 256,838 shares respectively
|
(402,729 | ) | (321,048 | ) | ||||
Total
Shareholders' Equity
|
19,656,783 | 18,608,417 | ||||||
Total
Liabilities and Shareholders' Equity
|
$ | 30,945,457 | $ | 30,012,783 |
See
accompanying notes and Independent Accountants’ Report
BNL
FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three
Months Ended
September
30
|
Nine
Months Ended
September
30
|
|||||||||||||||
2009
(Unaudited)
|
2008
(Unaudited)
|
2009
(Unaudited)
|
2008
(Unaudited)
|
|||||||||||||
Income:
|
|
|||||||||||||||
Premium
income
|
$ | 10,266,460 | $ | 10,737,738 | $ | 31,207,306 | $ | 32,863,588 | ||||||||
Vision
insurance income
|
600,993 | 550,992 | 1,790,034 | 1,701,266 | ||||||||||||
Net
investment income
|
244,311 | 276,786 | 851,657 | 846,391 | ||||||||||||
Realized
gains on debt retirement
|
3,198 | - | 19,183 | 13,187 | ||||||||||||
Realized
gains (loss)
|
38,625 | (104,212 | ) | 41,319 | (298,103 | ) | ||||||||||
Total
Income
|
11,153,587 | 11,461,304 | 33,909,499 | 35,126,329 | ||||||||||||
Expenses:
|
||||||||||||||||
Liability
for future policy benefits expense
|
25,483 | 16,349 | 65,651 | 47,464 | ||||||||||||
Policy
benefits and other insurance costs
|
8,048,352 | 8,452,594 | 24,175,659 | 25,208,769 | ||||||||||||
Amortization
of deferred policy acquisition costs
|
8,990 | 8,634 | 14,124 | 14,469 | ||||||||||||
Operating
expenses
|
2,139,365 | 2,236,227 | 6,478,868 | 6,741,571 | ||||||||||||
Taxes,
other than income, fees and assessments
|
227,481 | 281,321 | 1,048,852 | 1,103,311 | ||||||||||||
Total
Expenses
|
10,449,671 | 10,995,125 | 31,783,154 | 33,115,583 | ||||||||||||
Income
from Operations before Income
Taxes
|
703,916 | 466,179 | 2,126,345 | 2,010,746 | ||||||||||||
Provision
for income taxes
|
140,980 | 97,800 | 385,985 | 421,624 | ||||||||||||
Net
Income
|
$ | 562,936 | $ | 368,379 | $ | 1,740,360 | $ | 1,589,122 | ||||||||
Net
income per common share (basic and diluted)
|
$ | 0.04 | $ | 0.02 | $ | 0.12 | $ | 0.10 | ||||||||
Weighted
average number of fully paid common
shares
|
15,165,012 | 15,216,861 | 15,126,010 | 15,212,412 | ||||||||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||||||
Unrealized
gains (losses) on securities:
|
||||||||||||||||
Unrealized
holding gain (loss) arising during
period (net of tax)
|
$ | 125,095 | $ | (202,989 | ) | $ | 200,256 | $ | (368,292 | ) | ||||||
Reclassification
adjustment for loss included
in net income
|
(32,058 | ) | 90,408 | (34,294 |
)
|
82,492 | ||||||||||
Other
Comprehensive Income (loss)
|
93,037 | (112,581 | ) | 165,962 | (285,800 | ) | ||||||||||
Comprehensive
Income
|
$ | 655,973 | $ | 255,798 | $ | 1,906,322 | $ | 1,303,322 |
See
accompanying notes and Independent Accountants’ Report
BNL
FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Nine
Months Ended
September
30,
|
||||||||
2009
(Unaudited)
|
2008
(Unaudited)
|
|||||||
Cash flows from operating
activities:
|
||||||||
Net
income
|
$ | 1,740,360 | $ | 1,589,122 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Realized
(gain) loss on investments
|
(41,319 | ) | 300,523 | |||||
Realized
loss on furniture and fixtures
|
- | 2,420 | ||||||
Realized
gain on debt retirement
|
(19,183 | ) | (13,187 | ) | ||||
Decrease
in deferred tax asset
|
(38,000 | ) | (15,602 | ) | ||||
Depreciation
|
225,808 | 239,988 | ||||||
Amortization
of deferred acquisition costs, and intangibles
|
18,485 | 18,830 | ||||||
Accretion
of bond discount
|
8,763 | (6,413 | ) | |||||
Change
in assets and liabilities:
|
||||||||
Decrease
in accrued investment income
|
1,337 | 23,416 | ||||||
Decrease
in premiums due and unpaid
|
190,981 | 390,215 | ||||||
Increase
in liability for future policy benefits
|
65,651 | 47,465 | ||||||
Decrease
in policy claims payable
|
(55,576 | ) | (336,992 | ) | ||||
Increase
in annuity deposits and deferred profits
|
150,212 | 28,420 | ||||||
Decrease
in premium deposit funds
|
(69 | ) | (2,806 | ) | ||||
Decrease
in advanced and unallocated premium
|
(174,980 | ) | (828,007 | ) | ||||
Increase
(decrease) in commissions payable
|
(2,950 | ) | 30,835 | |||||
Other,
decrease
|
(114,253 | ) | (8,715 | ) | ||||
Net
Cash Provided By Operating Activities
|
1,955,267 | 1,459,512 | ||||||
Cash
flows from investing activities:
|
||||||||
Proceeds
from sales of furniture and equipment
|
- | 17,000 | ||||||
Proceeds
from maturity or redemption - Held to Maturity
Investments
|
9,880,340 | 10,489,668 | ||||||
Proceeds
from sales and equity securities
|
- | 4,375 | ||||||
Purchase
of equity securities
|
- | (287,629 | ) | |||||
Purchase
of furniture and equipment
|
(64,379 | ) | (160,763 | ) | ||||
Purchase
of fixed maturity securities - Held to Maturity
Investments
|
(8,246,565 | ) | (5,524,844 | ) | ||||
Other
investments – Line of credit payments received
|
33,164 | 26,878 | ||||||
Net
Cash Provided By Investing Activities
|
1,602,560 | 4,564,685 | ||||||
Cash
flows from financing activities:
|
||||||||
Net
(payments) deposits on supplementary contracts
|
(2,195 | ) | 28,949 | |||||
Purchase
of treasury stock
|
(113,431 | ) | (9,605 | ) | ||||
Bonds
payable purchased
|
(13,224 | ) | (19,221 | ) | ||||
Dividends
to shareholders
|
(757,525 | ) | - | |||||
Exercised
stock options
|
50,498 | 9,600 | ||||||
Net
Cash Provided By (Used In) Financing Activities
|
(835,877 | ) | 9,723 | |||||
Net
Increase In Cash and Cash Equivalents
|
2,721,950 | 6,033,920 | ||||||
Cash
And Cash Equivalents, Beginning Of Period
|
4,989,381 | 4,937,983 | ||||||
Cash
And Cash Equivalents, End Of Period
|
$ | 7,711,331 | $ | 10,971,903 |
See
accompanying notes and Independent Accountant’s Report
BNL
FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis
of Presentation
The
accompanying Consolidated Financial Statements (unaudited) as of September 30,
2009 have 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 September
30, 2009, and the results of operations and cash flows for the period ended
September 30, 2009. All such adjustments are of a normal and
recurring nature.
The
statements have been prepared to conform to the requirements of Form 10-Q 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-K for the year ended December 31, 2008, previously filed with
the Commission, for financial statements for the year ended December 31, 2008,
prepared in accordance with GAAP. Net income per share of common stock is based
on the weighted average number of outstanding common shares.
In
September 2009, the FASB issued SFAS No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles — a replacement of FASB Statement No. 162.” This Standard
establishes the FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be applied by
entities in the preparation of financial statements in conformity with US GAAP.
This guidance is effective for financial statements issued for periods ending
after September 15, 2009. The adoption of this Standard did not have a material
impact on our financial statements. References to GAAP in these
footnotes are to the FASB Accounting Standards Codification (ASC.)
On
April 1, 2009 we adopted FSP FAS 157-4, (now ASC 820), “Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly”; FSP
Nos. FAS 115-2 and FAS 124-2, (now ASC 320), “Recognition and Presentation of
Other-Than-Temporary Impairments”; and FSP No. FAS 107-1 and APB 28-1, (now
ASC 825), “Interim Disclosures about Fair Value of Financial Instruments.” These
staff positions provided guidance on fair value measurements, impairments, and
disclosures. Adoption of these staff positions did not have a material impact on
our financial statements. See Note 4 for a discussion of fair value
measurements.
In
May 2009, the FASB issued SFAS No. 165, (now ASC 855), “Subsequent
Events,” which establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. We adopted this guidance during the
second quarter of 2009. The adoption of this Standard did not have a material
impact on our financial statements.
2. Change
in Accounting Estimate
The group
dental claims loss ratio was 63.1% during the first nine months of 2009 compared
to 62.8% for the same period in 2008. The claims liability at
December 31, 2008 was over estimated by approximately $139,000, which had the
effect of reducing claims expense in 2009 in accordance with the ASC 250-10
requirements regarding accounting for a change in estimate. The over
estimation of claims liability at December 31, 2008 resulted in an increase in
net income of approximately $115,000, net of tax, or $.01 per share for the nine
months ended September 30, 2009. Due to the monthly fluctuation
in claims incurred this accrual is difficult to estimate.
3. Investments
The
amortized cost and estimated market value of investments in fixed maturity
securities are as follows:
Portfolio
Designated “Held to Maturity”
September 30, 2009
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Estimated
Market Value
|
||||||||||||
US
Treasury securities and obligations of US
government corporations and agencies
|
$ | 6,892,752 | $ | 55,190 | $ | 15,183 | $ | 6,932,759 | ||||||||
Corporate
securities
|
4,084,662 | 169,429 | 168,121 | 4,085,970 | ||||||||||||
Mortgage-backed
securities GNMA
and FNMA CMO
|
7,425,032 | 188,844 | 9,883 | 7,603,993 | ||||||||||||
Totals
|
$ | 18,402,446 | $ | 413,463 | $ | 193,187 | $ | 18,622,722 | ||||||||
Portfolio
Designated “Available for Sale”
September 30, 2009
|
||||||||||||||||
Corporate
securities
|
$ | 42,000 | $ | 97,600 | - | 139,600 | ||||||||||
Totals
|
$ | 42,000 | $ | 97,600 | $ | - | $ | 139,600 |
The
amortized cost and estimated fair value of investments in fixed maturity
securities at September 30, 2009 by contractual maturity are shown
below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties and because most mortgage-backed securities
provide for periodic payments throughout their life.
Held to Maturity | Available for Sale | |||||||||||||||
September 30, 2009 | September 30, 2009 | |||||||||||||||
Amortized
Cost
|
Estimated
Market
Value
|
Amortized
Cost
|
Estimated
Market
Value
|
|||||||||||||
Due
in one year or less
|
$ | 328,312 | $ | 351,300 | $ | - | $ | - | ||||||||
Due
after one year through five years
|
3,923,086 | 4,011,920 | - | - | ||||||||||||
Due
after five years through ten years
|
3,039,719 | 2,956,583 | - | - | ||||||||||||
Due
after ten years
|
3,686,297 | 3,698,925 | 42,000 | 139,600 | ||||||||||||
10,977,414 | 11,018,728 | 42,000 | 139,600 | |||||||||||||
Mortgage-backed
securities
|
7,425,032 | 7,603,994 | - | - | ||||||||||||
$ | 18,402,446 | $ | 18,622,722 | $ | 42,000 | $ | 139,600 |
Proceeds
from sales and maturities of investments in fixed maturity securities, and
equity securities for the nine month period ended September 30, 2009 and 2008
were $9,880,340 and $10,489,668 respectively. Gross gains were
$83,599 and $14,308 and gross losses were $0 and $0 as of September 30, 2009 and
2008, respectively.
Investment
in equity securities at September 30, 2009 represents common stock investments
as follows:
2009
|
||||||||
Cost
|
Market
Value
|
|||||||
Banks,
trusts and insurance
companies
|
$ | 81,183 | $ | 36,710 | ||||
Industrial,
savings and
loans and other
|
618,646 | 592,165 | ||||||
$ | 699,829 | $ | 628,875 |
Other
long-term investments of $1,191,445 consist of, in part, a $1,152,825
convertible debenture loan investment (“Debenture”) to EPSI Benefits, Inc.
(“EBI”). The original loan, dated July 25, 2001, was $1,357,407 at
14% interest. Monthly principal payments were scheduled to begin on
September 15, 2008 with a maturity date of August 15, 2015. On July
14, 2008, the Company and EBI amended the Debenture whereby the monthly
principal payments will start on September 15, 2013 with the maturity date
extended to August 15, 2020.
Because
of the extension of the commencement of principal payments and maturity of the
Debenture, the Company analyzed discounted expected future cash flows in
accordance with applicable generally accepted accounting principles and
established an allowance for credit losses in the amount of $204,582 resulting
in a net book value of $1,152,825. Interest on the debentures is and
has been current
In the
third quarter of 2009 the Company recognized an other than temporary impairment
on its $100,000 Cit Group Inc. bond, for a realized loss of
$42,280. Cit Group Inc. filed for chapter 11 bankruptcy on November
1, 2009.
The
Company’s policy for recognizing interest income on the impaired investments is
to recognize interest under the stated loan terms. Interest on the
investments is and has been current.
The average book value on impaired investments during the period ended September 30, 2009 was $1,153,924. Interest income recognized in 2009 on the impaired investments was $145,018.
Activity
in the allowance for credit losses is as follows:
2009
|
||||
Beginning
Balance
|
$ | 204,582 | ||
Additions
charged to operations
|
42,280 | |||
Direct
write downs
|
- | |||
Recoveries
previously charged to operations
|
- | |||
Ending
Balance
|
$ | 246,862 |
There was
no other than temporary impairment recognized in 2009 other than the credit
losses recognized above and therefore no other than temporary impairment
included in accumulated other comprehensive income.
Other
long-term investments also include an operating line of credit agreement in the
amount of $38,620. On October 15, 2002 BNLAC and EPSI entered into a loan
agreement whereby BNLAC will provide EPSI with a $200,000 line of credit
maturing October 15, 2004. The line of credit was renewed and extended with
interest only payments to August 1, 2006. Thereafter EPSI pays principal and
interest over 60 equal monthly installments until paid in full. The line of
credit is at 6.75% and interest and principal payments are
current.
The
Company’s conservative investment philosophies minimize market risk and risk of
default by investing in high quality debt instruments with staggered maturity
dates. The Company does not hedge investment risk through the use of
derivative financial instruments. The market value of the Company’s
investments in debt instruments varies with changes in interest
rates. A significant increase in interest rates could cause decreases
in the market values of investments and have a negative effect on comprehensive
income and capital.
The
following table shows the gross unrealized losses and fair value of the
Company’s investments with unrealized losses that are not deemed to be other
than temporarily impaired, aggregated by investment category and length of time
that individual securities have been in a continuous unrealized loss position at
September 30, 2009.
Less
than 12 Months
|
12
Months or Greater
|
Total
|
||||||||||||||||||||||
Description
of Securities
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||||||||
Investment
in Fixed Maturities, Held
to Maturity
|
||||||||||||||||||||||||
US
Treasury securities and
obligations of US government
corporations and agencies
|
2,733,005 | 15,183 | - | - | 2,733,005 | 15,183 | ||||||||||||||||||
Corporate
securities
|
497,900 | 9,971 | 449,570 | 158,150 | 947,470 | 168,121 | ||||||||||||||||||
Mortgage-backed
securities
GNMA and FNMA CMO
|
1,587,827 | 9,883 | - | - | 1,587,827 | 9,883 | ||||||||||||||||||
Totals
|
4,818,732 | 35,037 | 449,570 | 158,150 | 5,268,302 | 193,187 | ||||||||||||||||||
Other
Long-Term Investments
|
929,403 | 273,173 | - | - | 929,403 | 273,173 | ||||||||||||||||||
Totals
|
929,403 | 273,173 | - | - | 929,403 | 273,173 | ||||||||||||||||||
Equity
Securities
|
178,965 | 49,525 | 199,120 | 112,642 | 378,085 | 162,167 | ||||||||||||||||||
Totals
|
178,965 | 49,525 | 199,120 | 112,642 | 378,085 | 162,167 |
U.S. Treasury and U.S. Government
Agency Obligations
The
unrealized losses on the Company's investments in U.S. Treasury and U. S.
Government Agency obligations were caused by unprecedented circumstances in the
economy and problems at government agencies which required a federal bailout.
The contractual terms of those investments do not permit the issuer to settle
the securities at a price less than the amortized cost of the
investment. Because the Company has the ability and intent to hold
those investments until a recovery of fair value, which may be maturity or until
they are called, the Company does not consider those investments to be other
than temporarily impaired at September 30, 2009.
Federal
Agency Mortgage-Backed Securities
The
unrealized losses on the Company's investment in federal agency mortgage-backed
securities were caused by unprecedented circumstances in the economy and
problems at government agencies which required a federal bailout. The
contractual cash flows of those investments are guaranteed by an agency of the
U.S. government. Accordingly, it is expected that the securities would not be
settled at a price less than the amortized cost of the Company's investment.
Because the decline in market value is attributable to factors other than credit
quality, and because the Company has the ability and intent to hold those
investments until a recovery of fair value, which may be maturity, the Company
does not consider those investments to be other-than-temporarily impaired at
September 30, 2009.
Corporate Bonds
The table
below discloses the unrealized losses on corporate bonds with significant
unrealized losses.
Corporate
Bonds
September 30, 2009
|
S&P
Rating
|
Amortized
Book Value
|
Gross
Unrealized Losses
|
Estimated
Market Value
|
||||||||||||
American
General Finance
|
BB+
|
$ | 200,000 | $ | 64,000 | $ | 136,000 | |||||||||
MBIA
|
BBB
|
200,000 | 85,600 | 114,400 | ||||||||||||
Prudential
|
A- | 150,000 | 8,550 | 141,450 | ||||||||||||
Bank
of America
|
A- | 200,000 | 9,000 | 191,000 | ||||||||||||
Totals
|
$ | 750,000 | $ | 167,150 | $ | 582,850 |
The
corporate bonds with unrealized losses in the table are primarily insurance and
financial corporations that have had their fair value reduced due to the
significant economic problems world wide. The Company currently does
not believe it is probable that it will be unable to collect all amounts due
according to the contractual terms of the investments. Therefore, it
is expected that the debentures would not be settled at a price less than the
amortized cost of the investment. Because the Company has the ability and intent
to hold these investments until a recovery of fair value, which may be maturity,
it does not consider the investments to be other than temporarily impaired at
September 30, 2009.
In the
third quarter of 2009 the Company wrote down its $100,000 Cit Group Inc. bond to
$57,720, for a realized loss of $42,280. Cit Group Inc filed for
chapter 11 bankruptcy on November 1, 2009.
Marketable
Equity Securities
The table
below discloses the unrealized gain and losses on the Company’s entire
marketable equity securities.
Equity
Securities
September 30, 2009
|
Cost
|
Gross
Unrealized Gains (Losses)
|
Estimated
Market Value
|
|||||||||
Garmin
LTD
|
$ | 220,322 | $ | (88,232 | ) | $ | 132,090 | |||||
Treaty
Oak Bank
|
50,813 | (20,313 | ) | 30,500 | ||||||||
Regions
Financial Corporation
|
30,370 | (24,160 | ) | 6,210 | ||||||||
FCstone
Group
|
27,282 | (17,642 | ) | 9,640 | ||||||||
British
Petroleum
|
88,270 | (8,425 | ) | 79,845 | ||||||||
Powershare
QQQ
|
116,605 | 31,270 | 147,875 | |||||||||
Intel
Corporation
|
39,200 | (60 | ) | 39,140 | ||||||||
Kimberly
Clark Corporation
|
62,125 | (3,145 | ) | 58,980 | ||||||||
Freeport
McMoRan Copper & Gold Inc.
|
42,972 | 59,943 | 102,915 | |||||||||
Conagra
Foods
|
21,870 | (190 | ) | 21,680 | ||||||||
Totals
|
$ | 699,829 | $ | (70,954 | ) | $ | 628,875 |
The
Company's marketable equity securities include a variety of
industries. Garmin LTD has the largest unrealized loss of
$88,232. Garmin manufactures communication and navigational products
and it is the leader in personal navigational devices. Garmin remains
profitable in 2009 and the decrease in the stock’s fair value was due to the
challenging economic environment in 2008 and 2009. The remaining fair
value and unrealized losses are distributed in seven companies. The severity of
the impairment (aggregate fair value is approximately 23% less than cost)
reflects the overall performance of the stock market in 2008. The
Company evaluated the near-term prospects of the issuers in relation to the
severity and duration of the impairment. Based on that evaluation and the
Company's ability and intent to hold those investments for a reasonable period
of time sufficient for a forecasted recovery of fair value, the Company does not
consider those investments to be other than temporarily impaired at September
30, 2009.
4. Fair Value of Financial Instruments
Effective
January 1, 2008, the Company adopted ASC 820, which, among other things,
requires enhanced disclosures about assets and liabilities carried at fair
value. ASC 820 establishes a hierarchal disclosure framework
associated with the level of observable pricing to be utilized in measuring
assets and liabilities at fair value. The three broad levels defined
by ASC 820 hierarchy are as follows:
Level 1 –
Fair value is based on unadjusted quoted prices in active markets that are
accessible to the Company for identical assets or liabilities. These
generally provide the most reliable evidence and are used to measure fair value
whenever available. The Company’s level 1 assets and liabilities
primarily include equity securities that are traded in an active exchange
market. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or
liabilities.
Level 2 –
Fair value is based on significant inputs, other than Level 1 inputs, that are
observable for the asset or liability, either directly or indirectly, for
substantially the full term of the asset or liability through corroboration with
observable market data. Level 2 inputs include quoted market prices
in active markets for similar assets and liabilities, quoted market prices in
markets that are not active for identical or similar assets or liabilities and
other observable inputs. The Company’s Level 2 assets and liabilities
include: fixed maturities (corporate public, most government securities, certain
asset-backed and mortgage-backed securities, etc.), certain equity securities,
short-term investments and cash equivalents (primarily money market
funds). Valuations are generally obtained from third party pricing
services for identical or comparable assets or liabilities.
Level 3 –
Fair value is based on significant unobservable inputs for the asset or
liability. These inputs reflect the Company’s assumptions about the
assumptions market participants would use in pricing the asset or
liability. The Company’s Level 3 assets and liabilities primarily
include certain private fixed maturities. Valuations are determined
using valuation methodologies such as discounted cash flow models, other similar
techniques and consultation with investment brokers.
The table
below presents the balances of assets and liabilities measured at fair value on
a recurring basis, as of September 30, 2009.
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Fixed
Maturities , held to maturity
|
$ | - | $ | 18,508,322 | $ | 114,400 | $ | 18,622,722 | ||||||||
Fixed
maturities, available for sale
|
- | 139,600 | - | 139,600 | ||||||||||||
Equity
securities, available for sale
|
628,875 | - | - | 628,875 | ||||||||||||
Other
long term investments
|
- | - | 918,272 | 918,272 | ||||||||||||
Cash
and cash equivalents
|
4,067,482 | 3,643,849 | - | 7,711,331 | ||||||||||||
Total
assets
|
$ | 4,696,357 | $ | 22,291,771 | $ | 1,032,672 | $ | 28,020,800 |
The
following table provides a summary of the changes in fair value of Level 3
assets and liabilities for the period January 1, 2009 to September 30, 2009, as
well as the portion of gains or losses included in income attributable to
unrealized gains or losses related to those assets and liabilities still held at
September 30, 2009.
Other
Long-term Investments
|
Fixed
Maturities
|
|||||||
Fair
value, beginning of period
|
$ | 951,436 | $ | - | ||||
Purchases,
sales, issuances and settlements
|
(33,164 | ) | - | |||||
Reclassify
from level 2 to level 3
|
- | 110,000 | ||||||
Unrealized
gain
|
- | 4,400 | ||||||
Total
|
$ | 918,272 | $ | 114,400 |
The
following table summarizes the fair value and carrying amount of all financial
asset and liabilities as of September 30, 2009.
2009
|
|||||||||
Carrying
|
Fair
|
||||||||
Assets
|
Amount
|
Value
|
|||||||
Cash
and Cash Equivalents
|
$ | 7,711,331 | $ | 7,711,331 |
(a)
|
||||
Investments-fixed
maturity, available for sale
|
139,600 | 139,600 |
(b)
|
||||||
Investments-fixed
maturity, held to maturity
|
18,402,446 | 18,622,722 |
(b)
|
||||||
Investments
–equity securities
|
628,875 | 628,875 |
(b)
|
||||||
Other
long term investments
|
1,191,445 | 918,272 |
(b)
|
||||||
Other
financial instruments-Assets
|
434,275 | 434,275 |
(a)
|
||||||
Total
financial instruments-Assets
|
28,507,972 | 28,455,075 | |||||||
Liabilities
|
|||||||||
Premium
deposit funds
|
$ | 21,780 | $ | 21,780 |
(a)
|
||||
Bonds
payable
|
1,363,353 | 1,363,353 |
(a)
|
||||||
Supplementary
contracts without life contingencies
|
31,909 | 31,909 |
(a)
|
||||||
Annuity
deposits
|
2,568,635 | 2,568,635 |
(a)
|
||||||
Total
financial instruments-Liabilities
|
$ | 3,985,677 | $ | 3,985,677 |
(a) The
indicated assets and liabilities are carried at book value, which approximates
fair value.
(b) Fair
value of investments is based on methods prescribed in ASC 820 as described
here-in.
5.
Dividends Paid
Dividends
of $.05 per share were declared on July 27, 2009. Dividends totaling
$757,525 were paid on August 26, 2009.
6. Subsequent
Events
In the
second quarter of 2009 management adopted ASC 855 and has evaluated subsequent
events through November 13, 2009, the date of issuance of the
10-Q. There are no subsequent events to report.
BNL FINANCIAL CORPORATION AND
SUBSIDIARIES
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
In this
section, we review the consolidated results of operations for the nine months
ended September 30, 2009 and 2008 and significant changes in the consolidated
financial condition of the Company. This discussion should be read in
conjunction with the accompanying consolidated financial statements, notes and
selected financial data.
Forward-Looking
Statements
All
statements, 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: (i)
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; (ii) world
conflict, including but not limited to the war in Iraq and Afghanistan, which
may affect consumers spending trends and priorities; (iii) customer response to
new products and marketing initiatives: (iv) mortality, morbidity and other
factors which may affect the profitability of our products; (v) changes in the
federal income tax laws and regulations which may affect the relative income tax
advantages of our products; (vi) 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; and (vii) the risk factors or
uncertainties listed from time to time in our filings with the Securities and
Exchange Commission.
Liquidity and Capital
Resources
At
September 30, 2009, we had liquid assets of $7,711,331 in cash, money market
savings accounts, money market funds, treasury bills and short-term certificates
of deposit. All of the non-cash liquid assets can readily be converted to
cash.
The major
components of operating cash flows are premium income and investment income
while policy benefits are the most significant cash outflow. During the first
nine months of 2009, BNLAC collected $31,936,647 of premiums and annuity
deposits (gross before reinsurance) and we had consolidated investment income of
$851,657. Other sources of cash flow in the first nine months of 2009 were
override commissions of $1,790,034 on vision products. The Company paid
$19,658,702 of policy benefits in the first nine months of 2009.
The
Company's investments are primarily in U.S. Government, Government Agency and
other investment grade bonds. We do not hedge our investment income through the
use of derivatives.
Other
long-term investments of $1,191,445 consist of, in part, a $1,152,825
convertible debenture loan investment (“Debenture”) to EPSI Benefits, Inc.
(“EBI”). The original loan, dated July 25, 2001, was $1,357,407 at
14% interest. Monthly principal payments were scheduled to begin on
September 15, 2008 with a maturity date of August 15, 2015. On July
14, 2008, the Company and EBI amended the Debenture whereby the monthly
principal payments will start on September 15, 2013 with the maturity date
extended to August 15, 2020.
Because
of the extension of the commencement of principal payments and maturity of the
Debenture, the Company analyzed discounted expected future cash flows in
accordance with applicable generally accepted accounting principles and
established an allowance for credit losses in the amount of $204,582 resulting
in a net book value of $1,152,825. Interest on the debentures is and
has been current
The note
is one of several agreements entered into by the Company's subsidiary which
expand the business relationship with EBI and its subsidiary, Employer Plan
Services, Inc. (EPSI), which provides substantially all of the A&H claims
processing and adjudication for the Company's insurance subsidiary, Brokers
National Life Assurance Company ("BNLAC").
Other
long-term investments also include an operating line of credit agreement in the
amount of $38,620. On October 15, 2002 BNLAC and EPSI entered into a loan
agreement whereby BNLAC will provide EPSI with a $200,000 line of credit
maturing October 15, 2004. The line of credit was renewed and extended with
interest only payments to August 1, 2006. Thereafter EPSI pays principal and
interest over 60 equal monthly installments until paid in full. The line of
credit is at 6.75% and interest and principal payments are current.
In prior
years the Company became a third party indemnitor by entering into a series of
bond indemnity and guarantee agreements totaling approximately $545,000 in
conjunction with a marketing agreement with, EPSI Benefits Inc. and Employer
Plan Services Inc. (EPSI). The purpose of these agreements is to assist EPSI to
become licensed in additional states. The Company received personal guarantees
from the owners of EPSI to effectively limit potential liability under the
guarantee agreement. With regard to the bond indemnities, the Company will be
obligated only if EPSI, EPSI’S parent and its shareholders, who are the primary
obligors, were all to become insolvent. Management considers the likelihood of
the Company realizing a liability under these agreements to be
remote.
We
believe liquid assets, along with investment income and premium income will be
sufficient to meet our long and short-term liquidity needs. We do not have any
current plans to borrow money for operations.
Our
insurance operations are conducted through BNLAC. At September 30, 2009, BNLAC
had statutory capital and surplus of $18,290,301. 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 $5,000,000. Management monitors the minimum
capital and surplus requirements to maintain compliance in each state in which
it is licensed.
Consolidated Results of
Operations
Premium
income for the third quarter of 2009 was $10,266,460 compared to $10,737,738 for
the same period in 2008. Premium income for the first nine months of 2009
was $31,207,306 compared to $32,863,588 for the same period in 2008. The
decrease for the quarter and first nine months of the year was primarily due to
a 4.4% decrease in group dental premium as a result of the impact of the
recession on voluntary employee benefits.
BNLAC
markets group vision insurance products that are underwritten by other insurance
companies, and BNLAC does not have any exposure to underwriting (claims)
losses. Vision insurance income for the third quarter of 2009 was
$600,993 compared to $550,992 in the third quarter of 2008. In the
first half of 2009 vision income was $1,790,034 compared to $1,701,266 for the
same period in 2008. Vision income increased 5% in 2009, compared to
an increase of 15% for the same period in 2008. Although vision
revenues are up the growth has decreased due to the impact of the recession on
voluntary employee benefits.
Net
investment income was $244,311 for the third quarter of 2009 compared to
$276,786 for the third quarter of 2008. Net investment income for the
first nine months of 2009 was $851,657 compared to $846,391 for the same period
in 2008. The decrease in the third quarter was due to an increase in
short term investments with yields that have been reduced significantly compared
to the third quarter of 2008. The increase for the first nine months
was a result of an average investment in more fixed securities in 2009 compared
to 2008.
Realized
gains on debt retirement were $3,198 for the third quarter of 2009 compared to a
$0 gain for the same period in 2008. For the first nine months of
2009 realized gains were $19,183 compared to $13,187 for the same period in
2008. The realized gains are primarily due to the purchase of a
portion of the Company’s outstanding debentures at less than face
value. The Company purchased more debentures in 2009 which resulted
in more realized gain in debt extinguishments.
Realized
gains were $38,625 for the third quarter and $41,319 for the first nine months
of 2009 compared to a loss of ($104,212) for the third quarter and ($298,103)
for the first nine months of 2008. The realized loss in 2008 was
primarily due to the $204,582 write down of the EBI debenture. The realized gain
in 2009 was due to gains from bonds called and from the sale of a U.S. Treasury
bond. Gains recognized exceeded the realized losses on other than
temporary impairments.
For the
third quarter of 2009, liability for future policy benefits expense was $25,483
compared to $16,349 for the same period in 2008. For the nine-month
period ended September 30, 2009, liability for future policy benefits expense
was $65,651 compared to $47,464 for the same period in 2008. The
increase in the liability for future policy benefits in 2009 was primarily due a
reduction in surrendered policies in 2009 compared to 2008.
Policy
benefits and other insurance costs were $8,048,352 in the third quarter of 2009
compared to $8,452,594 for the same period in 2008. In the first nine
months of 2009 policy benefits and other insurance costs were $24,175,659
compared to $25,208,769 for the same period in 2008. The decrease for
the quarter and first nine months of 2009 was primarily due to a decrease in
group dental premium income. Individual dental claims decreased
$101,000 and group dental claims were $783,000 less than the same period last
year. The claims ratio on group dental insurance, which represents
the ratio of claims expensed to premium earned, was 63.1% for the first nine
months of 2009 compared to 62.8% for the first nine months of
2008. The liability for unpaid claims is difficult to calculate
and group dental claims at December, 2008, were $139,000 less than estimated and
they were $316,000 less than estimated at December 31, 2007.
Amortization
of deferred policy acquisition costs was $8,990 and $8,634 for the third quarter
and $14,124 and $14,469 for the first nine months of 2009 and 2008,
respectively. Amortization of deferred policy acquisition costs vary
in relation to lapses or surrenders of existing policies.
For the
third quarter of 2009 operating expenses were $2,139,365 compared to $2,236,227
for the same period in 2008. Operating expenses were $6,478,868 in the
first nine months of 2009 compared to $6,741,571 for the same period in
2008. The decrease for 2009 is primarily due to a decrease in legal
fees and expenses directly related to a decrease in collected
premium.
Taxes,
other than on income, fees and assessments, were $227,481 for the third quarter
of 2009 compared to $281,321 for the third quarter of 2008. Taxes,
other than on income, fees and assessments, were $1,048,852 for the first nine
months of 2009 compared to $1,103,311 for the same period in
2008. The decrease for the third quarter is primarily due to a
decrease in premiums.
The
provision for income taxes in the third quarter of 2009 includes $149,980
current tax expense and $9,000 deferred tax credit compared to $105,801 current
tax expense and $8,200 deferred tax credit in the third quarter of
2008. The provision for income taxes in the first nine months of 2009
was $423,985 current tax expense and $38,000 deferred tax credit compared to
$437,126 current expense and $15,502 deferred tax credit for the same period in
2008. The current tax expense for 2009 is approximately the same as
the prior year due to income from operations being approximately the same amount
for both years. Deferred tax expense is based on the estimated change
in book versus tax assets and liabilities.
Income
from operations before income taxes for the third quarter of 2009 was $703,916
compared to $466,179 for the same period in 2008. For the first nine
months of 2009 income from operations before income taxes was $2,126,345
compared to $2,010,746 for the same period in 2008. The increase for
the third quarter and first nine months of 2008 was primarily due to the 2009
gross realized gains in 2009 versus realized losses in 2008 and decrease in
operating expenses and taxes other than on income, fees and
assessments.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Market
risk represents the potential loss resulting from adverse changes in the value
of financial instruments, either derivative or non-derivative, caused by
fluctuations in interest rates, foreign exchange rates, commodity prices, and
equity security prices. We handle market risks in accordance with our
established policies. We did not have financial instruments to manage and reduce
the impact of changes in interest rates at September 30, 2009 and December 31,
2008. We held various financial instruments at September 30, 2009 and 2008,
consisting of financial assets reported in our Consolidated Balance
Sheets.
Interest
Rate Risk - We are subject to interest rate risk through the investment in fixed
maturity securities, such as U.S. Government and Government Agency securities
and other investment grade bonds. The fair market value of long-term,
fixed-interest rate debt is subject to interest rate risk. Generally, the fair
value of fixed-interest rate debt will increase as interest rates fall and will
decrease as interest rates rise. The estimated fair value of our fixed maturity
securities at September 30, 2009 and December 31, 2008 was $18,762,322 and
$19,937,398, respectively.
Based on
testing at December 31, 2008, a one-percentage point increase in interest rates
would result in a decrease in the estimated fair value of fixed maturity
securities of $422,000. Initial fair values were determined using the
current rates at which we could enter into comparable financial instruments with
similar remaining maturities. The estimated earnings and cash flows impact for
the first nine months of 2009 resulting from a one percentage point increase in
interest rates would be immaterial, holding other variables
constant.
Foreign-Exchange
Rate Risk - We currently have no exposure to foreign exchange rate risk because
all of our financial instruments are denominated in U.S. dollars.
Commodity
Price Risk - We have no financial instruments subject to commodity price
risk.
Equity
Security Price Risk - Equity securities at September 30, 2009 totaled $628,875,
or 2.2% of total investments and cash on a consolidated basis.
The
preceding discussion of estimated fair value of our financial instruments and
the sensitivity analyses resulting from hypothetical changes in interest rates
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements reflect our current expectations
and involve uncertainties. These forward-looking market risk disclosures are
selective in nature and only address the potential impact from financial
instruments. They do not include other potential effects which could impact our
business as a result of changes in interest rates, foreign-exchange rates,
commodity prices, or equity security prices.
Item 4.
Internal Control and Procedures
Not
applicable
Item
4T. Controls and Procedures
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company's reports pursuant to
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and its Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurances of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
Within 90
days prior to the date of this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures, as
that term is defined in Rule 13a-14(c) under the Securities Exchange Act of
1934, as amended. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective in timely alerting the Company's Chief Executive
Officer and Chief Financial Officer to material information required to be
disclosed in the periodic reports filed with the SEC.
In
addition, the Company's Chief Executive Officer and Chief Financial Officer have
reviewed the Company's internal controls, and there have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect those controls subsequent to the date of the last
evaluation.
PART II -- OTHER
INFORMATION
Item 1. Legal
Proceedings
The
Company was not a part of any new legal proceedings during the third quarter of
2009.
Item
1A. Risk Factors
No
material changes from the Company’s response in its 2008 10-K to Item 1A, Part
I.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
The
following table reports the purchases by the Company of its Common Stock during
the first nine months of 2009.
Issuer
Purchases of Equity Securities
Period
|
(a)
Total
Number
of Shares
Purchased
|
(b)
Average
Price
Paid
Per
Share
|
(c)
Total
number of shares
purchased
as part of publicly announced plans or programs
|
(d)
Maximum
number of shares that may yet be purchased under the plans or
programs
|
|||||||
Month
#1, Jan 1 thru Jan 31, 2009
|
11,064 | $ | 1.25 |
None
|
None
|
||||||
Month
#1, Feb 1 thru Feb 28, 2009
|
5,880 | $ | 1.25 |
None
|
None
|
||||||
Month
#3, Mar 1 thru 31, 2009
|
15,284 | $ | 1.25 |
None
|
None
|
||||||
Month
#4, Apr 1 thru 30, 2009
|
11,700 | $ | 1.25 |
None
|
None
|
||||||
Month
#5 May 1 thru 31, 2009
|
14,625 | $ | 1.25 |
None
|
None
|
||||||
Month
#6 June 1 thru 30, 2009
|
28,162 | $ | 1.28 |
None
|
None
|
||||||
Month
#7 July 1 thru 31, 2009
|
- | - |
None
|
None
|
|||||||
Month
#6 Aug 1 thru 31, 2009
|
2,402 | $ | 1.25 |
None
|
None
|
||||||
Month
#6 Sept 1 thru 30, 2009
|
2,700 | $ | 1.25 |
None
|
None
|
||||||
Totals
|
91,817 |
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
There
were no items submitted to a vote of security holders for the period covered by
this report.
Item 5. Other
Information
None.
Item 6.
Exhibits and Reports on Form 10-Q
(a)
Exhibits Index
No.
|
Description
|
Page
or Method of Filing
|
||||
3.1
|
Articles
of Incorporation of BNL Financial Corporation, dated January 27, 1984 and
Amendment to Articles of Incorporation of BNL Financial Corporation, dated
November 13, 1987.
|
Incorporated
by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K
for the period ending December 31, 1993.
|
||||
3.2
|
By-laws
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 holders, including
indentures.
|
Incorporated
by reference to Exhibit 4 of the 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 Corporation, dated January 27, 1984 and
Amendment to Articles of Incorporation on BNL Financial Corporation, dated
November 13, 1987.
|
Incorporated
by reference to Exhibits 4.2 of the Company's Annual Report on Form 10-KSB
for the period ending December 31, 1998.
|
||||
10.1
|
Form
of Agreement between Commonwealth Industries Corporation, American
Investors Corporation and Wayne E. Ahart regarding rights to purchase
shares of the Company.
|
Incorporated
by reference to Exhibit I of the Company's Quarterly Report on 10-QSB for
the period ended September 30, 1994.
|
||||
10.2
|
Agreement
dated December 21, 1990 between Registrant and C. Donald Byrd granting
Registrant right of first refusal as to future transfers of Mr. Byrd's
shares of the Company's common stock.
|
Incorporated
by reference to Exhibit I of the Company's Quarterly Report on 10-QSB for
the period ended March 31, 1996.
|
||||
10.3
|
Convertible
Debenture Agreement dated July 25, 2001 between BNL Equity Corporation and
EPSI Benefits Inc.
|
Incorporated
by reference to Exhibit 10.9 of the Company's Annual Report on 10-K for
the period ended December 31, 2005.
|
||||
10.4
|
Claims
Service Agreement dated June 1, 1999 between Brokers National Life
Assurance Company and Employer Plan Services Inc.
|
Incorporated
by reference to Exhibit 10.5 of the Company's Annual Report on 10-K for
the period ended December 31, 2005.
|
||||
10.5
|
Office
lease agreement dated January 21, 2005, between Brokers National Life
Assurance Company and KIMCO for premises in Austin.
|
Incorporated
by reference to Exhibit 10.6 of the Company's Annual Report on 10-K for
the period ended December 31, 2005.
|
||||
10.6
|
Line
of Credit Agreement dated October 15, 2004 between Brokers National Life
Assurance Company and Employer Plan Services Inc.
|
Incorporated
by reference to Exhibit 10.7 of the Company's Annual Report on 10-K for
the period ended December 31, 2005.
|
||||
10.7
|
Marketing
Agreement dated July 25, 2001 between BNL Equity Corporation and Employer
Plan Services Inc. and EPSI Benefits Inc.
|
Incorporated
by reference to Exhibit 10.8 of the Company's Annual Report on 10-K for
the period ended December 31, 2005.
|
||||
10.8
|
Outsourcing
Agreement dated May 1, 2007 between Brokers National Life Assurance
Company and Virtual Item Processing Systems, Inc.
|
Incorporated
by reference as filed with the Company’s Annual Report on 10-K for the
period ended December 31, 2007
|
||||
10.9
|
Amended
Convertible Debenture Date July 14, 2008 between BNL Financial Corporation
and EPSI Benefits Inc.
|
Incorporated
by reference to Exhibit 1 of the Company’s periodic Report on Form 8-K
dated July 14, 2008.
|
||||
11
|
Statement
Re computation of per share earnings.
|
Reference
is made to the computation of per share earnings as shown page 5 herein
and the explanation in Note 1 to the Notes to Consolidated Financial
Statements (unaudited), page 5 herein.
|
||||
18
|
Letter
Re Change in accounting principles
|
None. Not
applicable.
|
||||
22
|
Published
report regarding matters submitted to vote of security
holders
|
The
Company’s definitive proxy statement dated May 2, 2009, as filed with the
SEC on Schedule 14A on April 28, 2009, is incorporated by reference
herein.
|
||||
23 | Consents of experts and counsel incorporated by reference into a previously filed Securities Act registration statement | Not applicable. | ||||
31.1 |
Filed
herewith – E1
|
|||||
31.2 | Filed herewith – E2 | |||||
32 | Certification of Chief Executive Officer and Chief Financial Officer Section 906 |
Filed
herewith – E3
|
(b) Material Contracts - Reports on
Form 8-K
No items
were reported on Form 8-K during the period covered by this
report.
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)
|
||
/s/
Wayne E.
Ahart
|
||
Date:
November 13, 2009
|
By:
Wayne E. Ahart, Chairman of the Board
|
|
(Chief
Executive Officer)
|
||
/s/
Barry N. Shamas
|
||
Date:
November 13, 2009
|
By:
Barry N. Shamas, Executive V.P.
|
|
(Chief
Financial Officer)
|