Attached files
file | filename |
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EX-32 - BNL FINANCIAL CORP | ex32.htm |
EX-31.2 - BNL FINANCIAL CORP | ex31-2.htm |
EX-31.1 - BNL FINANCIAL CORP | ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark One) | ||
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Fiscal Year Ended December 31, 2009 | ||
or | ||
r | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
transition period from ___________to___________
Commission
File No. 0-16880
BNL
FINANCIAL CORPORATION
(Exact
name of registrant as specified in its charter)
IOWA
|
42-1239454
|
(State
of incorporation)
|
(IRS
Employer Identification No.)
|
7010
Hwy 71 W., Suite 100
|
|
Austin,
TX
|
78735
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (512)
383-0220
|
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, No Par Value
(Title of
Class)
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of Securities Act. Yes r No x
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act . Yes r No x
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 r
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes x No r
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller
reporting. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (check one):
Large
accelerated filer r
Accelerated filer r
Non-accelerated
filer x
Smaller reporting company r
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes r No x
The estimated aggregate
market value of the voting stock held by non-affiliates of the Registrant as of
December 31, 2009 cannot be determined due to the limited trading in the
Company’s stock throughout the year (see also Item 5 of Form 10-K regarding the
limited trading market for the Company's shares).
As of
December 31, 2009, the Registrant had outstanding 15,120,772 shares (excluding
treasury shares) of Common Stock, no par value (which includes 10,925,201 shares
owned by affiliates of the Registrant).
DOCUMENTS
INCORPORATED BY REFERENCE
Selected
portions of the Proxy Statement for the Annual Meeting of Shareholders,
scheduled for May 27, 2010 have been incorporated by reference into Part
III of this Form 10-K
Part I |
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ITEM
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ITEM
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ITEM
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Part II |
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ITEM
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Part III |
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ITEM
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Part IV | ||
ITEM
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31
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PART 1
General
BNL
Financial Corporation (the "Company" or "Registrant" or “BNLF”) is an insurance
holding company incorporated in Iowa in January 1984. The Company's
administrative offices are located at 7010 Hwy. 71 West, Suite 100, Austin,
Texas 78735; its telephone number is (512) 383-0220.
In March
2004, BNL Equity Corporation (“BNLE”), the immediate subsidiary of the Company
was dissolved and its assets, including the stock of Brokers National Life
Assurance Company (“BNLAC”), were distributed to BNLF. All
outstanding shares of BNLAC are now owned directly by BNLF.
The
Company has three wholly owned subsidiaries, Brokers National Life Assurance
Company, BNL Brokerage Corporation and Consumers Protective Association
(formerly National Dental Benefit Association, Inc.). Consumers
Protective Association is an inactive association that was purchased for the
purpose of marketing services, including insurance products to
members.
BNL
Financial Corporation
|
___________
|
Consumer's
Protective Association
(Inactive Association) |
|
|
|
|||
Brokers
National Life Assurance Company
|
|||
|
|
|||
BNL
Brokerage Corporation
|
Industry
Segments
The
operations of the Company are conducted through BNLAC, which in 2009 marketed
life and accident and health insurance. In 1987 BNLAC began selling
insurance in Iowa. In 1992, BNLAC redomesticated to Arkansas and
expanded its sales to other states through the acquisition of Statesman Life
Insurance Company. The Company has no foreign
operations.
The
Company is able to offer life and accident and health insurance on an individual
and group basis in 48 states and the District of Columbia.
The
Company conducts business in the “life, accident and health insurers” industry
segment. Most of BNLAC’s premium revenues are from sales of group
dental insurance sold primarily on a payroll deduction basis. BNLAC also markets
group vision insurance products that are underwritten by other insurance
companies and which BNLAC does not have any exposure to underwriting (claims)
losses. Financial information relating thereto is contained in the
Selected Financial Data below and the Financial Statements included as Exhibits
to this Report.
Sales and
Marketing
The
Company markets its products through independent agents and
brokers. BNLAC emphasizes the marketing of specialized or "niche"
life and health insurance products including: individual and group term life
insurance, hospital indemnity insurance, group and individual dental insurance,
short term disability insurance, accidental death and dismemberment insurance
and cancer insurance. Most of these products are designed to be sold
on a group or payroll deduction basis.
BNLAC
also markets group vision insurance products that are underwritten (issued) by
other insurance companies. BNLAC "co-brands" these products with its
name and logo and markets them through its sales force. BNLAC collects overwrite
commissions and/or administrative fees on these products and does not have any
exposure to underwriting (claims) losses.
Statistics
by line of business are as follows (gross before reinsurance):
2009
|
2008
|
|||||||
I. Annualized Premiums and
Annuity Deposits In Force:
|
||||||||
Ordinary
Life Insurance
|
$ | 234,000 | $ | 260,000 | ||||
Individual
Annuities(1)
|
60,000 | 69,000 | ||||||
Group
Dental Insurance
|
38,372,000 | 40,845,000 | ||||||
Miscellaneous
A&H insurance
|
1,667,000 | 2,139,000 | ||||||
Total
|
$ | 40,333,000 | $ | 43,313,000 |
II. Collected Premiums and
Annuity Deposits:
|
||||||||
Ordinary
Life Insurance
|
$ | 242,000 | $ | 266,000 | ||||
Individual
Annuities(1)
|
64,000 | 65,000 | ||||||
Group
Dental Insurance
|
40,202,000 | 41,382,000 | ||||||
Miscellaneous
A&H insurance
|
1,714,000 | 2,311,000 | ||||||
Total
|
$ | 42,222,000 | $ | 44,024,000 | ||||
III. Face Value of
Insurance:
|
||||||||
Ordinary
Life Insurance
|
$ | 30,657,000 | $ | 33,696,000 | ||||
Accidental
Death Insurance
|
115,275,000 | 120,625,000 | ||||||
Total
|
$ | 145,932,000 | $ | 154,321,000 | ||||
(1)
Classified as a deposit liability on the financial
statements.
|
Premiums
collected by state are reflected in the following table:
State
|
Life
Premiums
|
Annuity
|
Accident
and
Health
|
Total
|
||||||||||||
Georgia
|
$ | 18,000 | $ | - | $ | 3,614,000 | $ | 3,632,000 | ||||||||
Louisiana
|
19,000 | - | 3,163,000 | 3,182,000 | ||||||||||||
Arkansas
|
27,000 | - | 2,794,000 | 2,821,000 | ||||||||||||
Indiana
|
7,000 | - | 2,438,000 | 2,445,000 | ||||||||||||
Ohio
|
1,000 | - | 2,425,000 | 2,426,000 | ||||||||||||
Missouri
|
12,000 | - | 2,370,000 | 2,382,000 | ||||||||||||
Oregon
|
1,000 | - | 2,304,000 | 2,305,000 | ||||||||||||
Michigan
|
7,000 | - | 2,230,000 | 2,237,000 | ||||||||||||
Minnesota
|
6,000 | - | 1,893,000 | 1,899,000 | ||||||||||||
All
Other States
|
144,000 | 64,000 | 18,685,000 | 18,893,000 | ||||||||||||
Total
|
$ | 242,000 | $ | 64,000 | $ | 41,916,000 | $ | 42,222,000 |
The
following chart shows group and individual dental insurance premiums collected
for each of the past five years ended December 31.
Group
Dental
|
Individual
|
|||||||
Gross
|
Dental
Gross
|
|||||||
Premiums
|
Premiums
|
|||||||
Collected
|
Collected
|
|||||||
2009
|
$ | 40,202,000 | $ | 1,451,000 | ||||
2008
|
41,382,000 | 1,602,000 | ||||||
2007
|
41,926,000 | 1,785,000 | ||||||
2006
|
42,132,000 | 1,988,000 | ||||||
2005
|
41,629,000 | 2,033,000 |
The
following chart shows group dental insurance claims paid and incurred claims
ratios for each of the five years ended December 31. The incurred
claims loss ratio represents the ratio of incurred claims to premiums
earned.
Incurred
|
||||||||
Gross
|
Claims
|
|||||||
Group Dental
Insurance
|
Claims
Paid
|
Ratio
|
||||||
2009
|
$ | 25,124,000 | 62.3 | % | ||||
2008
|
26,290,000 | 61.9 | % | |||||
2007
|
26,340,000 | 61.8 | % | |||||
2006
|
27,127,000 | 64.1 | % | |||||
2005
|
26,046,000 | 63.1 | % |
Agents'
Commissions
On
December 31, 2009, BNLAC had 4,307 general agents and brokers appointed in 45
states compared to 4,681 agents and brokers on December 31, 2008.
On all of
its products BNLAC believes it pays competitive commissions to agents. There is
considerable competition for insurance agents and BNLAC competes with larger,
well-established life insurance companies for the services of agents. BNLAC
believes it is able to attract competent agents by offering competitive
compensation, efficient service to agents and customers and by developing
products to fill special needs within the marketplace.
Reinsurance
BNLAC
reinsures with other insurance companies portions of the risks it underwrites on
sales of life and accident and health insurance. Reinsurance enables
BNLAC, as the “ceding company,” to reduce the amount of its risk on any
particular policy and to write policies in amounts larger than it could without
such agreements.
The
reinsurer receives a portion of the premium on the reinsured
policies. BNLAC remains directly liable to policyholders to perform
all policy obligations, and bears the contingent risk of the reinsurer’s
insolvency. Before submitting an application for a policy to the reinsurer,
BNLAC determines whether the applicant is insurable, but BNLAC rejects any
application which is not accepted by the reinsurer.
BNLAC
reinsures its life insurance under agreements which are classified as either
"automatic" or "facultative." Under an "automatic" treaty, the reinsurer agrees
that it will assume liability automatically for the excess over the ceding
company’s retention limits on any application acceptable to the ceding company.
Under a "facultative" treaty, the reinsurer retains the right to accept or
reject any reinsurance submitted after reviewing each application.
In 2009,
BNLAC’s accidental death benefit riders were reinsured 100% through a Bulk ADB
reinsurance agreement with Optimum Re. Optimum Re was rated
“A-“(Excellent) by AM Best Company for 2009.
In 2009,
BNLAC’s individual life insurance products in excess of $35,000 were reinsured
with Optimum Re under an automatic treaty up to $175,000 and under a facultative
treaty for amounts over $175,000. Optimum Re was rated
“A-“(Excellent) by AM Best Company for 2009.
BNLAC
entered into a quota share reinsurance agreement with Hannover Life Reassurance
Company of America for its group life, group accidental death and dismemberment
and accidental death and dismemberment without group life plans effective
January 1, 2008 whereby Hannover accepts 90% of the risk up to a maximum of
$100,000 per life on AD&D and $75,000 on group life. Hannover was
rated “A” (Excellent) by AM Best Company for 2009.
BNLAC
entered into a quota share reinsurance agreement with Hannover Life Reassurance
Company of America for its accidental death and dismemberment plan including
common carrier effective January 1, 2007. The Company retains a 10% quota share
up to a maximum of $25,000 for AD&D and Common Carrier
combined. Hannover will accept, on an automatic basis, 90% to 100%
quota share up to a maximum of $250,000 per life depending on the Company’s
retention. Hannover was rated “A (Excellent) by AM Best Company for
2009.
BNLAC’s
Short Term Disability insurance is reinsured under a quota share reinsurance
agreement with Union Security Insurance Company, Des Moines, Iowa, (formerly
Fortis Benefits Insurance Company of Kansas City, Missouri). The
reinsurer is liable for 75% of the risk on each policy. Union
Security Insurance Company was rated “A-” (Excellent) by AM Best Company for
2009.
Group and
individual dental is not reinsured due to the economics of the dental business
and the small annual maximum liability per policy.
The
following chart shows life insurance and accidental death insurance in force net
of reinsurance for each of the five past years ended December 31.
Gross
|
Net
|
|||||||||||||||
Insurance
|
Reinsurance
|
Reinsurance
|
Insurance
|
|||||||||||||
In
Force
|
Ceded
|
Assumed
|
In
Force
|
|||||||||||||
Life
Insurance
|
||||||||||||||||
2009
|
$ | 30,657,000 | $ | 10,933,000 | $ | 0 | $ | 19,724,000 | ||||||||
2008
|
33,696,000 | 11,111,000 | 0 | 22,585,000 | ||||||||||||
2007
|
43,879,000 | 14,074,000 | 0 | 29,805,000 | ||||||||||||
2006
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43,645,000 | 15,333,000 | 0 | 28,312,000 | ||||||||||||
2005
|
39,992,000 | 14,531,000 | 0 | 25,461,000 | ||||||||||||
Accidental Death
Insurance
|
||||||||||||||||
2009
|
$ | 115,275,000 | $ | 103,748,000 | $ | 0 | $ | 11,527,000 | ||||||||
2008
|
120,625,000 | 108,562,000 | 0 | 12,063,000 | ||||||||||||
2007
|
120,655,000 | 108,590,000 | 0 | 12,065,000 | ||||||||||||
2006
|
112,085,000 | 100,877,000 | 0 | 11,208,000 | ||||||||||||
2005
|
79,643,000 | 71,834,000 | 0 | 7,809,000 | ||||||||||||
Investments
BNLAC
invests its available funds in certificates of deposit, U.S. Treasury Bills,
short term government agency notes, U.S. government and agency bonds and
corporate bonds and common stocks. The earnings from such investments
represent a substantial part of BNLAC's income. For each of the five years ended
December 31, BNLAC's statutory net investment income and ratio of net return on
mean invested assets were as follows:
Year
|
BNLAC
Statutory Net Investment Income
|
Net
Return on Mean Invested Assets
|
||||||
2009
|
$ | 923,830 | 3.8 | % | ||||
2008
|
960,753 | 3.8 | % | |||||
2007
|
1,123,716 | 4.8 | % | |||||
2006
|
1,005,774 | 4.6 | % | |||||
2005
|
853,563 | 4.0 | % |
For
information concerning realized and unrealized gains and losses on securities
see Note 4 of the Notes to Consolidated Financial Statements on page F-11 and
the table on page 17.
Special Factors Relating to
Accounting and Regulatory Reporting of Insurance Companies
State
insurance laws and regulations govern the accounting practices and the form of
financial reports of insurance companies filed with state insurance regulatory
agencies. Most states have adopted the uniform rules established by
the National Association of Insurance Commissioners ("NAIC"). Reports
prepared in accordance with statutory accounting practices reflect primarily the
ability of an insurance company to meet its obligations to
policyholders. Certain statutory accounting practices differ from
generally accepted accounting principles as applied to the Company’s audited
financial statements.
Life
insurance company revenues are generated primarily from premiums and investment
income. Commissions and other sales cost may exceed the amount of
first year life premiums but are generally less in later policy
years. Life insurance lapses and surrenders tend to occur more
frequently in the earlier years after a policy is sold. Statutory
accounting rules for life insurance companies require all life insurance policy
acquisition costs be expensed immediately and not spread over the expected
duration of the policies. Health insurance premiums are recorded the
same for both Statutory and GAAP.
Statutory
accounting practices also require that a relatively large portion of life
premiums be held as reserves for the protection of policyholders. The
amount of such reserves is based upon actuarial calculations and the annual
increase in reserves is treated as an expense. Such calculations are
based upon conservative assumptions concerning mortality costs and
earnings. Life premiums are earnings only to the extent that they
exceed reserve requirements and commissions. BNLAC calculates
reserves using the Commissioner's Reserve Valuation Method. This
method provides a lower reserve in the early years of a policy to partially
offset the higher first-year costs of the policy. Although such
reserves are treated as liabilities and are not available for use in operations,
a company is free to invest such reserves in accordance with applicable state
laws. Interest earned on invested reserves is operating income to the
life insurance company to the extent that it exceeds the interest required to be
added to the reserves.
The
Company’s consolidated financial statements are required to be prepared in
conformity with generally accepted accounting principles. The objective of these
financial statements is to provide reliable financial information about economic
resources and obligations of a business enterprise and changes in net resources
resulting from its business activities, measured as a going concern. To the
extent that the accounting practices prescribed or permitted by state regulatory
authorities differ from generally accepted accounting principles, appropriate
adjustments will be made to bring such financial statements into accordance with
generally accepted accounting principles, including (but not limited to) the
following:
a) Premiums are reported as earned over the premium paying period. Benefits and expenses are associated with earned premiums so as to result in the matching of expenses with the related premiums over the life of the contracts. This is accomplished through the provision for liabilities for future policy benefits and the deferral and amortization of acquisition costs; | |
b) Certain assets designated as "non-admitted assets" for statutory purposes are reinstated to the accounts; | |
c) The asset valuation reserve is reclassified as retained earnings rather than as a liability. The interest maintenance reserve is reclassified from a liability to investment income; | |
d) Premium payments received on annuities are not reported as revenue but are recorded as increases to a deposit liability account. The profits are then deferred over the life of the policy instead of being realized when the payments are received; | |
e) Realized gains and losses from the sale of investments are reclassified to a separate component of summary of operations. Taxes thereon are included in the tax provision; and | |
f) Investments in fixed maturity securities that are available for sale are carried at fair value with the unrealized appreciation (depreciation) recorded to shareholders’ equity. |
The
ability of BNLAC to pay dividends to the Company is restricted under Arkansas
insurance laws and must be approved by the insurance commissioner of the State
of Arkansas, if it exceeds the lesser of 10% of surplus or net gain from
operations for the year.
Insurance
Regulations
BNLAC is
subject to regulation and supervision by the states in which it is admitted to
transact business. Each state has an insurance department which has
broad administrative and supervisory powers to grant and revoke licenses to
transact business, regulate trade practices, establish guaranty associations,
license agents, approve policy forms, regulate premium rates for some lines of
business, establish reserve requirements, regulate competitive matters,
prescribe the form and content of required financial statements and reports,
determine the reasonableness and adequacy of statutory capital and surplus, and
regulate the type and amount of investments permitted.
Most
states have also enacted legislation which regulates insurance holding company
activities, including acquisitions, extraordinary dividends, the terms of
surplus notes, the terms of affiliate transactions and other related
matters. The Company and BNLAC are registered as a holding company
group pursuant to such legislation in Arkansas and BNLAC routinely reports to
other jurisdictions as well.
The NAIC,
through the member regulatory staffs, attempts to coordinate the state
regulatory process and continually re-examines existing laws and regulations and
their application to insurance companies. Recently, this
re-examination has focused on insurance interpretations of existing law, the
development of new laws and the implementation of non-statutory
guidelines. The NAIC has formed committees and appointed advisory
groups to study and formulate regulatory proposals on such diverse issues as the
use of surplus debentures, accounting for reinsurance transactions and the
adoption of risk-based capital (“RBC”) rules. In addition, in
connection with its accreditation of states to conduct periodic company
examinations, the NAIC has encouraged states to adopt model NAIC laws on
specific topics, such as holding company regulations and the definition of
extraordinary dividends. It is not possible to predict the future
impact of changing state and federal regulation on the operations of
BNLAC.
The NAIC
has adopted model RBC requirements to evaluate the adequacy of statutory capital
and surplus in relation to investment and insurance risks associated with: (i)
asset quality; (ii) mortality and morbidity; (iii) asset and liability matching;
and (iv) other business factors. The RBC formula is designed to be
used by the states as an early warning tool to identify possible weakly
capitalized companies for the purpose of initiating regulatory
action. In addition, the formula defines a new minimum capital
standard which will supplement the prevailing system of low fixed minimum
capital and surplus requirements on a state-by-state basis.
The RBC
requirements provide for four different levels of regulatory attention depending
on the ratio of a company’s total adjusted capital (defined as the total of its
statutory capital, surplus, asset valuation reserve and 50% of apportioned
dividends) to its RBC. The “Company Action Level” is triggered if a
company’s total adjusted capital is less than 100% but greater than or equal to
75% of its RBC, or if total adjusted capital is less than 125% of RBC and a
negative trend has occurred. The trend test calculates the greater of
any decreases in the margin (i.e., the amount in dollars by which a company’s
total adjusted capital exceeds its RBC) between the current year and the prior
year and between the current year and the average of the past three years, and
assumes that the decrease could occur again in the coming year. If a
similar decrease in the margin in the coming year would result in an RBC of less
than 95%, then the Company Action Level would be triggered. At the
Company Action Level, a company must submit a comprehensive plan to the
regulatory authority which discusses proposed corrective actions to improve its
capital position. The “Regulatory Action Level” is triggered if a
company’s total adjusted capital is less than 75% but greater than or equal to
50% of its RBC. At the Regulatory Action Level the regulatory
authority will perform a special examination of the company and issue an order
specifying corrective actions that must be followed. The “Authorized
Control Level” is triggered if a company’s total adjusted capital is less than
50% but greater than or equal to 35% of its RBC, and the regulatory authority
may take any action it deems necessary, including placing the company under
regulatory control. The “Mandatory Control Level” is triggered if a
company’s total adjusted capital is less than 35% of its RBC, and the regulatory
authority is mandated to place the company under its
control. Calculations using the NAIC formula at December 31, 2009
indicated that the ratios of total adjusted capital to RBC for BNLAC would have
been in excess of 1,242% and, therefore, significantly above the Company Action
Level.
As part
of their routine regulatory process, approximately once every five years,
insurance departments conduct detailed examinations of the books, records and
accounts of insurance companies domiciled in their states. Such
examinations are generally conducted in cooperation with the departments of
other states under guidelines promulgated by the NAIC.
In
September 2005, the Arkansas Insurance Department conducted its statutory
examination for the period ended December 31, 2004. No adjustments
were made to the financial statements of the Company as a result of the
examination.
BNLAC's
management is not aware of any failure to comply with any significant insurance
regulatory requirement to which BNLAC is subject at this time.
Competition
The life
and health insurance business is highly competitive, and BNLAC competes in many
instances with individual companies and groups of affiliated companies that have
substantially greater financial resources, larger sales forces and more
widespread agency and brokerage relationships than BNLAC. Certain of
these companies operate on a mutual basis, which may give them an advantage over
BNLAC since their profits accrue to the policyholders rather than the
shareholders.
BNLAC
focuses its marketing efforts on sales of its products to small and medium size
groups of employees, association members and others. These groups
range in size from three to approximately 876 persons. BNLAC
also sells its products to individuals. BNLAC is a small insurance
company which has no identifiable market share. BNLAC is not ranked
according to its size or volume of sales.
BNLAC
competes for the services of agents and brokers in several
ways. First, the Company’s dental insurance products are attractive
to brokers and general agents because of their popularity in the employee
benefit market. Second, BNLAC strives to provide a high level of
service to agents by offering products that meet their clients’ needs and by
providing individualized service in the administration of such products.
Finally, BNLAC attempts to structure the levels of premiums, benefits and
commissions on insurance products to compare favorably with
competitors.
Personnel
At
December 31, 2009 BNLAC had four executive officers and 65 full-time
administrative personnel. BNLAC’s administrative staff supervises
services for the agency force, policy underwriting, policy issuance and service,
billing and collections, life claims, accounting and bookkeeping, preparation of
reports to regulatory authorities and other matters. The Company has
not experienced any work stoppages or strikes and considers its relations with
its employees and agents to be excellent. The Company currently has
no employees which are represented by a labor union. BNLAC uses a
third party administrator to process dental claims.
The
Company is not aware of any risk factors which may relate to speculative or
risky circumstances to the Company’s outstanding common stock.
To the
extent which any matters presented in Item 1, Business, Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, or
Item 7A, Quantitive and Qualitative Disclosures About Market Risk may be
applicable, they are incorporated herein by reference.
None.
Neither
the Company, nor any of its subsidiaries own any real estate.
During
the first quarter of 2005 the Company entered into a lease for 20,337 square
feet of office space in Austin, Texas, under an eight year, triple net lease.
The base rent was $0 in the first year (June 1, 2005 to May 31, 2006), $157,612
in the second year and payments escalate to $264,384 in the final year of the
lease. Leasehold improvements totaled approximately $872,000
($203,000 funded by landlord) on the new lease space that was occupied in
December 2005. Leasehold improvements are being amortized over the
lease term. The $117,000 initial rent holiday and $203,000 of
landlord-funded leasehold improvements will be amortized over the lease term and
reduce lease expense. Deferred rent credits are included in other
liabilities and were approximately $284,000 and $320,000 for 2009 and 2008,
respectively.
BNLF
leases approximately 1,400 square feet of office space in Sherwood, Arkansas at
a rental of $19,500 per year and the lease will expire June 30,
2012. BNLAC incurs 100% of the rental expense.
The
Company and its subsidiaries own the majority of the furniture and equipment
used in the operation of its business.
In 2001,
the Board of Directors of the Company and BNL Equity Corporation approved a
settlement in the class action case brought by certain
shareholders. The settlement, which was approved by the Pulaski
County Circuit Court and the Arkansas Insurance Commissioner, was subject to
various conditions, including the approvals by any other applicable regulatory
authorities and conditioned upon compliance with federal and state securities
laws. As of December 31, 2002, all requisite approvals were received
and redemption of the stock began in 2003.
As part
of the settlement agreement, the Company issued its Bonds in the principal
amount of $1.50 in exchange for each share of common stock of BNL owned by the
members of the Class. The balance of Bonds Payable was $1,323,388 and
$1,443,282 at December 31, 2009 and 2008, respectively. The bonds are
for a term of twelve years, effective December 15, 2002, with principal payable
at maturity and bear interest at the rate of 6% per annum payable annually from
the previous fiscal year’s earnings of BNL. The estimated annual impact to
earnings per share is approximately $.006 per share. If any interest
payment is not made, it will be added to the principal and paid at
maturity. The Bonds are fully callable and redeemable at par at any
time by BNL.
The
Company has made cash offers to bond holders for the purchase of
bonds. Bond purchases resulted in a reduction of Bonds Payable of
$119,894, and $164,295 in 2009 and 2008; respectively. Gains from
early extinguishments of the debt were $27,176, $44,370 and $10,803 in 2009,
2008 and 2007; respectively.
ITEM 4. Submission
of Matters to a Vote of Security Holders
No
matters were submitted for a vote during the fourth quarter of
2009.
PART
II
ITEM 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of
Equity Securities
Market for
Stock
During
2009 the Company purchased 123,855 shares of its common stock at the request of
shareholders at $1.25 to $1.28 per share.
The stock
is not traded on any established trading market.
Purchases of Common Stock
During 2009
The
following table sets forth the shares of the Company’s outstanding Common Stock
which the Company purchased during 2009:
Period
|
(a)
Total
number of shares purchased
Note
1
|
(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, January 1 thru 31, 2009
|
11,064 | $ | 1.25 |
None
|
None
|
|||||
Month
#2, February 1 thru 28, 2009
|
5,880 | $ | 1.25 |
None
|
None
|
|||||
Month
#3, Mar 1 thru 31, 2009
|
15,284 | $ | 1.25 |
None
|
None
|
|||||
Month
#4, April 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
#8, Aug 1 thru 31, 2009
|
2,402 | $ | 1.25 |
None
|
None
|
|||||
Month
#9 September 1 thru 30, 2009
|
2,700 | $ | 1.25 |
None
|
None
|
|||||
Month
#10 October 1 thru 31, 2009
|
2,400 | $ | 1.25 |
None
|
None
|
|||||
Month
#11 November 1 thru 30, 2009
|
14,004 | $ | 1.25 |
None
|
None
|
|||||
Month
#12 December 1 thru 31, 2009
|
15,634 | $ | 1.25 |
None
|
None
|
|||||
Total
|
123,855 | $ | 1.26 |
|
Note 1 to the above
table: During 2009 and 2008, the Company did not have any publicly
announced plan or program to repurchase its outstanding Common
Stock. From time to time, some shareholders of the Company request
the Company purchase their stock and the Company does, from time to time, make
such repurchases but only does so in its sole and absolute discretion and the
Company is under no obligation to make any such repurchases in the
future.
Holders
As of
December 31, 2009 there
were 1,924 record holders of the Company's common stock.
Dividends
In the
third quarter of 2009, the board of directors voted to pay a $.05 dividend per
share to its shareholders, which required approximately $760,000 of
funding. The Company's ability to declare and pay dividends in the
future will be dependent upon its earnings and the cash needs for
expansion. In addition, payment of dividends by BNLAC is regulated
under Arkansas insurance laws.
Equity Compensation Plan
Information
In 1994,
the Board of Directors and Shareholders approved the 1994 Brokers and Agents’
Nonqualified Stock Option Plan. This plan was established as an
incentive to sales persons of BNLAC. Initially 250,000 shares were
available under the plan. The Board of Directors authorized options
for an additional 1.75 million shares. The option period may not
exceed a term of five years and the duration of the plan was ten years, expiring
December 14, 2004.
Of the
options granted through December 2004, there were no stock options outstanding
at December 31, 2008. The number of options expiring or forfeited
were 100,825 in 2008. There were 9,600 options exercised in 2008. All
the remaining options expired in 2008.
In March
2002, the Board of Directors approved the 2002 Non-Director, Non-Executive
Stock Option Plan, subject to any necessary authorizations from any
regulatory authority. The plan is intended to assist the Company in
attracting and retaining individuals of outstanding ability and to promote
concurrence of their interests with those of the Shareholders of the
Company. The Company granted options for 116,000 shares prior to
2005. No options were granted subsequent to 2004. The fair
value of any options granted is estimated using a binomial method as prescribed
in SFAS No. 123(R). There were 55,550 options outstanding at December
31, 2009. The estimated weighted average remaining life of the
options is 3.6 years and weighted average exercise price is $.69. The
options do not have a dilutive effect on earnings per share at this time, but
may have such an effect in the future. See Note 1 of the financial
statements.
The table
below sets forth the Equity Compensation Plans as of December 31,
2009.
A | B | C | ||||||||||
Plan
Category
|
Number
of Securities to be issued upon exercise of outstanding
options
|
Weighted
Average exercise price of outstanding options
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a)
|
|||||||||
Not
approved by security holders
|
||||||||||||
Employee
Plan
|
55,550 | $ | .69 | 134,000 |
Transfer Agent and
Registrar
BNL
Financial Corporation is the Registrar and Transfer Agent for the Company's
common stock.
The
selected consolidated financial data presented below as of the end of and for
each of the years in the five-year period ended December 31, 2009 is derived
from the Company's consolidated financial statements. The
consolidated financial statements as of December 31, 2009 and 2008, and for each
of the years in the three-year period ended December 31, 2009 are included
elsewhere in this Form 10-K.
2009 | * | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Total
Income
|
$ | 45,229,138 | $ | 46,455,107 | $ | 48,084,920 | $ | 47,646,337 | $ | 46,614,276 | ||||||||||
Net
Income
|
$ | 2,817,845 | $ | 2,366,472 | $ | 3,449,368 | $ | 2,564,243 | $ | 2,303,089 | ||||||||||
Net
Income Per Common
Share
|
$ | .19 | $ | .16 | $ | .22 | $ | .16 | $ | .13 | ||||||||||
Total
Assets
|
$ | 31,368,041 | $ | 30,012,783 | $ | 30,301,075 | $ | 27,009,634 | $ | 26,621,477 | ||||||||||
Total
Liabilities
|
$ | 10,636,929 | $ | 11,404,366 | $ | 13,004,202 | $ | 12,497,130 | $ | 13,498,115 | ||||||||||
Average
Shares Outstanding
|
15,137,299 | 15,211,961 | 15,602,725 | 16,481,342 | 17,495,881 |
|
*This
information should be read in conjunction with the disclosure concerning
the Management's Discussion and Analysis of Financial Condition and the
audited Financial Statements and Notes thereto set forth elsewhere in this
Form 10-K.
|
In this
section, we review the consolidated financial condition of the Company at
December 31, 2009, 2008 and 2007 and the consolidated results of operations for
the periods ended December 31, 2009, 2008 and 2007. Please read this
discussion in conjunction with the accompanying consolidated financial
statements and notes.
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:
(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, 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 (vii) the risk factors or uncertainties listed from time to
time in our filings with the Securities and Exchange Commission.
Management
believes the Company's current critical accounting policies are comprised of the
following:
Liabilities
for unpaid policy claims are a sensitive accounting estimate unique to the
insurance industry. Management uses an independent actuary to
formulate this estimate. Differences in the estimates and actual
results may result in revised claims expense which is recognized in the period
in which the difference is determined. See Note 1, 7 and 11 to our
financial statements for the effect on the year 2009.
Claim Liability
Methodology
The
Company, through its wholly owned subsidiary, BNLAC, has a single line of
business which is life and accident and health insurance. The
Company’s SIC code is 6311 which is a standard industrial classification used by
the United States Securities and Exchange Commission (“SEC”). Using
such SIC code, an interested person can research the internet website of the
SEC, www.sec.gov, to find
and review business and financial information of other companies which are in
the same line of business.
The
following is a summary description of the Company’s methodology for estimating
its claim liabilities for its insurance policies. The Company and
management believe that this discussion constitutes forward-looking statements
and, therefore, this discussion is given full safe-harbor.
It should
be understood that there is no assurance that anything which the Company and its
management have done in the past regarding its claim liability methodology will
be done in the future. The Company and its management are afforded
full and complete authority and judgment in determining and implementing its
claim liability methodology which includes any and all changes which may be made
from time to time.
The
Company’s significant insurance product types are presently dental (group and
individual), life (group and individual), and annuities.
In the
life and accident and health insurance industry, the liabilities for claims and
the related expensing of those liabilities are evaluated and recorded using
estimates of claim liabilities. The Company estimates its claim
liabilities using the general methodology described herein.
The
liability for claims generally consists of the following: (1) due and
unpaid claims, (2) claims in the course of settlement, and (3) claims incurred
but unreported. The Company records the actual liability for all
claims that are due but unpaid, Item (1). But, with regard to the
last Items (2) and (3), the Company must make estimates. The
estimates are based on actuarial principles. The Company’s independent
consulting actuary works with Company financial personnel and management in
determining the estimates and the independent consulting actuary annually gives
the Company a certification as to the amounts of the liabilities.
The
Company calculates and maintains claim liabilities for the estimated future
payments on claims incurred before the statement date. These
calculations are based on actuarial principles in accordance with industry
standards and applicable GAAP requirements. Development of such
liabilities is done with Company financial personnel and management working with
the Company’s independent consulting actuary. These liabilities
involve many considerations including but not limited to economic and social
conditions, inflation, and healthcare costs. The claim liabilities
developed include significant estimates and assumptions based on management’s
review of historical experience in consultation with its independent
actuary. The extent to which future payments match the claims
liabilities is dependent on how well actual future experience matches the
assumptions management makes regarding the future experience. The
Company’s liabilities are estimates that require significant judgment and,
therefore, are inherently uncertain.
It is
common in the life and accident and health insurance industry for a consulting
actuary to give either (A) a liability certification where the liabilities are
expressed as a range of numbers for each relevant liability (the “Range
Estimate”), or (B) a liability
certification where the liabilities are expressed as a single number for each
relevant liability (the “Single Point Estimate”).
Where the
Range Estimate method is used, the management of an insurance company makes its
own choice to record an amount within the range. The Company does not
use the Range Estimate for any of its insurance products. Instead,
for all of its insurance products, the Company uses the Single Point
Estimate.
For the
Company’s group and individual dental insurance, the Company’s financial
personnel develop and make a Single Point Estimate for the claim liabilities
which results in the Company’s Single Point Estimate for the end of each fiscal
quarter and year end. The Company’s independent consulting actuary
develops and makes its separate Single Point Estimate for such
liabilities. The Company’s financial personnel and independent
consulting actuary compare their Single Point Estimates, reconcile any
differences and agree on a Single Point Estimate for such
liabilities. Annually, the Company’s independent consulting actuary
gives a Single Point Estimate liability certification to the Company with the
agreed amount and the Company uses such certified amount without
change.
For the
Company’s group and individual life and annuity insurance, the Company’s
financial personnel make the Single Point Estimate for each such claim
liability. Annually, the Company’s consulting actuary independently
reviews the Single Point Estimates. If the independent consulting
actuary agrees with the Single Point Estimates, he gives a certification to the
Company.
The
Company’s financial personnel have significant experience and knowledge in
developing claim estimates for the Company’s insurance
products. However, the Company’s financial personnel are not formally
trained, certified or recognized as actuaries. The Company
continually engages independent consulting actuaries. The Company
makes extensive use of its independent consulting actuaries which includes the
actuaries’ assistance in the development and creation of policy assumptions, the
development and modification of reserve and claim liability methodologies and
assumptions, estimations and calculations of reserves and claim liabilities, and
the annual certification of the amount of the Company’s liabilities for its
products.
While
claim liabilities are estimated as an inherent part of the insurance industry,
management of the Company believes that it follows standard industry practices
in estimating claim liabilities.
The
following discussions of claim liability methodology are separated by the
Company’s product types as indicated by the section headings.
Dental Insurance – Group and
Individual
For the
Company’s group and individual dental insurance policies, the Company and its
independent consulting actuary use a completion factor approach (sometimes
referred to as the development method) which provides best estimates of the
factors to determine claim liabilities.
In
implementing the completion factor approach, a review of payment history
develops the completion factors. These completion factors relate what
percentage of an ultimate claim is paid based upon its duration from date of
service. Such completion factors are monitored over time and have
been relatively stable. The completion factors are used to
estimate the liabilities for the months in which the claims are incurred where
they are deemed to be credible.
However,
with respect to claims incurred in the most recent months, the completion
factors may not be fully credible (the payment history is not
complete). So, as is common in the industry, a review is made of
developing claims per insured by month and loss ratios by month for the most
recent months. The Company’s financial personnel and management and
the Company’s independent consulting actuary make a Single Point Estimate based
upon their determination of the loss ratios and claims per insured for the most
recent months.
Of all
the assumptions made by the Company’s financial personnel and management and the
Company’s independent consulting actuary, the loss ratio and the claims per
insured per month for the most recent months are the most sensitive ones for
liability estimation. If the loss ratios and claims per insured per
month increase, claim liabilities will likely increase by some
amount. If the loss ratios and claims per insured per month decrease,
claim liabilities will likely decrease by some amount.
Management
reviews trends in loss ratios and claims per insured per month in determining
its estimate for the most recent months. Generally, while
fluctuations do occur, the Company’s loss ratio and claims per insured per month
are stable. In estimating claim liabilities (the policy claims
payable on the Company’s balance sheet), the Company consistently uses the
assumptions of loss ratio and claims per insured per month which are based on
actual, historical data. See, the discussion in the section herein
entitled “Trends in Completion Factors, Loss Ratio, and Claims per Insured per
Month”.
As to the
consistency of the Company’s estimation of its claim liabilities (the policy
claims payable on the Company’s balance sheet), you may reference Notes 7 and 11
to the Company’s Financial Statements. Notes 7 and 11 present data
indicating the actual claims paid in a subsequent fiscal year for a prior fiscal
year; actual claims incurred in a subsequent year for a prior fiscal year; and
the claim liabilities for the prior fiscal year. Notes 7 and 11 are
limited to the most recent fiscal year being reported, December 31, 2009, and
the previous fiscal years of 2008 and 2007.
Life Insurance –
Group and Individual – and Annuities
The
Company reinsures a substantial portion of its life insurance and the associated
risks and liabilities. See Item 1, Business, Reinsurance; and Note 8,
Reinsurance, to the Company’s financial statements.
The
Company determines its life insurance claim liabilities by recording three
items: (1) actual claims due and unpaid; (2) the claims received
during the 30 day period following year end (this is done by taking an inventory
of claims received during the thirty day period); and (3) estimating a liability
amount for claims which have been incurred but not yet reported by the end of
the thirty day period.
The
Company’s annuity policies are simple deferred annuities. The Company
does not explicitly establish a claim liability for its annuities since the
liability is already held in the annuity deposit liability.
Trends in Completion
Factors, Loss Ratio and Claims Per Insured Per Month
Claim
liabilities for the Group Dental line are the most significant part of the
Company’s claim liability. As stated above, the Company uses the
completion factor method for calculating the liability. Two main
assumptions are made in this approach. First, for months the claims
are incurred where the completion factor is credible, the Company uses that
completion factor to calculate the liability associated with that month the
claim occurred. Second, for the most recent months before the
Company’s financial statement date where it is determined that the completion
factors are not fully credible, the Company reviews loss ratios and claims per
insured per month to determine the liability for those months.
The
discussion in this paragraph relates to the months where the completion factors
are deemed to be fully credible which are typically the months prior to November
and December. The completion factors have been relatively
stable in the recent past. In the future, there could be changes in
the trend of completion factors. The Company and its independent
consulting actuary review the trends in the completion factors and when
necessary make judgments as to the Single Point Estimate value for these
items. Such estimates are based on observable trends and would also
reflect any known major changes. Professional judgments are made
based on the experience of the actuary and Company’s financial personnel and
management. To observe the possible sensitivity of assuming 100%
reliance on completion factors for claims incurred during the months for which
completion factors are believed to be fully credible, if the associated claim
liabilities for those months had increased by 5%, the year-end December 31,
2009, claim liabilities would have been increased by approximately
$14,000.
The
discussion in this paragraph relates to the months where the completion factors
are deemed to be not fully credible which are typically the months of November
and December. The choice of the loss ratio assumption or claims per
insured per month assumption for the most recent month of the claim was incurred
may also have an impact on the liability estimate. These assumptions are
monitored for trends. The Company and its consulting actuary monitor
the loss ratio and claims per insured month and override the completion factor
approach for the most recent months before the Company’s financial statement
date where the completion factors are not fully credible, i.e. November and
December. To observe the possible sensitivity of assuming 100%
reliance on loss ratio or claims per insured per month factors for claims
incurred during the months for which completion are believed to be not fully
credible (typically November and December of a fiscal year), if the loss ratio
or claims per insured per month had increased by 3% for those months (a multiple
of 1.03), the associated claim liabilities for those months and the year end
December 31, 2009, claim liability would have been increased by approximately
$118,000.
The
Company believes that its recorded claim liabilities are reasonable and adequate
to satisfy its ultimate claims liability. The Company’s recorded
claim liabilities are, in accordance with industry practice, estimates of such
liabilities.
The
reader must recognize that the completion factors, loss ratios and claims per
insured per month may, and probably will, be affected by events and conditions
which are or will be unknown to the Company’s financial personnel or management
or the Company’s consulting actuary. The reader must also recognize
that any trending of the completion factors, loss ratios or claims per insured
per month may not be indicative of changes in the Company’s financial
condition.
While a
presentation such as described above provides some mathematical and hypothetical
numerical calculations, such calculations may or may not have any relevance to
the Company’s future financial condition, earnings or cash flow.
Deferred Tax
Asset
The
valuation allowance against deferred taxes is a sensitive accounting
estimate. The Company follows Statement of Financial Accounting
Standards (SFAS) No. 109, “Accounting for Income Taxes,” which prescribes the
liability method of accounting for deferred income taxes. Under the
liability method, companies establish a deferred tax liability or asset for the
future tax effects of temporary differences between book and tax basis of assets
and liabilities.
At
December 31, 2009 and 2008, respectively, the Company had gross deferred tax
assets of $1,037,858 and $1,067,931 with corresponding valuation allowances of
$683,058 and $701,414, and gross deferred tax liabilities of $248,800 and
$269,517, resulting from net operating loss carryovers and temporary
differences primarily related to the life insurance subsidiary. The valuation
allowance is primarily due to statutory limitations on the use of net operating
losses and uncertainty as to usage of AMT credit carryover. The
resulting net deferred tax asset at December 31, 2009 is $106,000 compared to a
deferred tax asset of $97,000 at December 31, 2008. Realization of
the deferred tax asset is dependent on generating sufficient taxable income
prior to expiration of the loss carry forward. Although realization is not
assured, management believes it is more likely than not that all of the net
deferred tax asset will be realized. However, the amount of the deferred tax
asset considered realizable could be reduced in the near term if estimates of
future taxable income during the carry forward period are reduced.
The
provision for income tax is as follows:
2009
|
2008
|
2007
|
||||||||||
Current
tax provisions
|
$ | 647,381 | $ | 663,441 | $ | 773,032 | ||||||
Deferred
tax provision
|
(50,000 | ) | (68,602 | ) | 40,602 | |||||||
Total
income tax provision
|
$ | 597,381 | $ | 594,839 | $ | 813,634 |
The
reconciliation of income taxes computed at the federal statutory income tax rate
to total income taxes for the years ended December 31, 2009, 2008 and 2007 is as
follows:
2009
|
2008
|
2007
|
||||||||||
Book
income before tax
|
$ | 3,415,226 | $ | 2,961,311 | $ | 4,263,002 | ||||||
Income
tax computed at statutory rate (34%)
|
$ | 1,161,177 | $ | 1,006,845 | $ | 1,449,421 | ||||||
Valuation
allowance for AMT credit
|
10,770 | (17,000 | ) | (85,000 | ) | |||||||
Revision
of valuation allowance
|
18,356 | 94,052 | 173,923 | |||||||||
Rate
differential
|
(592,922 | ) | (489,058 | ) | (724,710 | ) | ||||||
Total
income tax provision (benefit)
|
$ | 597,381 | $ | 594,839 | $ | 813,634 |
The
Company has net operating loss carry forwards for income tax purposes at
December 31, 2009 as follows:
Expiring
|
NOL
|
|||
2010
|
$ | 186,000 | ||
2011
|
66,000 | |||
2012
|
193,000 | |||
2018
|
105,000 | |||
2019
|
70,000 | |||
2020
|
65,000 | |||
2028
|
31,000 | |||
$ | 716,000 |
Financial
Condition
2009
|
2008
|
2007
|
||||||||||
Income
from Operations before Income Taxes
|
$ | 3,415,226 | $ | 2,961,311 | $ | 4,263,002 | ||||||
Book
Value Per Share
|
$ | 1.37 | $ | 1.22 | $ | 1.14 | ||||||
Stockholders'
Equity
|
$ | 20,731,111 | $ | 18,608,417 | $ | 17,296,872 | ||||||
Statutory
Capital and Surplus of Insurance Subsidiary
|
$ | 19,129,993 | $ | 16,964,513 | $ | 15,834,457 | ||||||
A.M.
Best Financial Rating
|
B | + | B | + | B | + | ||||||
The
statutory capital and surplus of the insurance subsidiary increased in 2009 and
2008 primarily due to income from operations.
Liquidity and Capital
Resources
At
December 31, 2009 the Company had liquid assets of $8,090,103 in cash, treasury
bills, money market savings accounts, and money market funds. Money
market funds maybe subject to withdrawal restrictions. No such
restrictions were in place at December 31, 2009. All of the non-cash
liquid assets can readily be converted into cash.
The major
components of operating cash flows are premiums and investment income while
policy benefits are the most significant cash outflow. In 2009, BNLAC
collected approximately $42.0 million of premiums and annuity deposits (gross
before reinsurance) and $1,122,698 of net investment income. Another source of
cash flow in 2009 was overwrite commissions of $2,386,148 on vision products.
During the year the Company incurred $31,805,555 in policy benefits and other
insurance costs.
The
Company had a net increase in cash and cash equivalents of $3,100,722 in 2009
compared to an increase of $51,398 in 2008. The increase in 2009 was
primarily from cash flow from operations, the sale and maturity of investments
and a decrease in the amount of fixed maturity securities
purchased.
Approximately
$146,720 of the bond portfolio is classified as Available for Sale and carried
on the Balance Sheet at market value with the unrealized gain or loss recorded
in the surplus section of the Balance Sheet. The bonds are auto industry
bonds. The Company may sell these bonds before they
mature.
Approximately
$18.4 million of the bond portfolio is classified as Held to Maturity and is
carried on the Balance Sheet at amortized cost. This classification
reflects management's ability and intent to hold the bonds until
maturity. No adjustments to surplus are made as bond values change
unless declines in market value are deemed to be other than
temporary.
The table
below details the unrealized gains and losses on the "Held to Maturity"
bonds.
Portfolio
Designated “Held to Maturity”
December 31,
2009
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Estimated
Market Value
|
||||||||||||
US
Treasury securities and obligations of US
government corporations and agencies
|
$ | 6,735,952 | $ | 40,338 | $ | 75,870 | $ | 6,700,420 | ||||||||
Corporate
securities
|
3,741,414 | 156,296 | 175,440 | 3,722,270 | ||||||||||||
Mortgage-backed
securities GNMA
& FNMA CMO
|
7,881,262 | 167,694 | 48,034 | 8,000,922 | ||||||||||||
Totals
|
$ | 18,358,628 | $ | 364,328 | $ | 299,344 | $ | 18,423,612 |
The
Company’s investments are primarily in U.S. Government and Government Agencies
($14,617,214 amortized book value), other investment grade bonds ($3,161,936
amortized book value) and less than investment grade ($579,478 amortized book
value).
The table
below details the unrealized gains and losses on the bonds that are less than
investment grade.
Less
Than Investment Grade Bonds
December 31,
2009
|
S&P
Rating
|
Amortized
Book Value
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Estimated
Market Value
|
|||||||||||||
Ford
Motor Company
|
CCC
|
$ | 42,000 | $ | 104,720 | $ | - | $ | 146,720 | |||||||||
CIT
Group, Inc.
|
Not
rated
|
45,634 | 17,654 | - | 63,288 | |||||||||||||
Provident
Companies Inc.
|
BBB-
|
137,478 | 6,552 | - | 144,030 | |||||||||||||
MBIA
Global
|
BB+
|
200,000 | - | 110,000 | 90,000 | |||||||||||||
American
General Finance
|
BB+
|
200,000 | - | 61,400 | 138,600 | |||||||||||||
Totals
|
$ | 625,112 | $ | 128,926 | $ | 171,400 | $ | 582,638 |
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. On December 8, 2009 the Company received $71,952 par value
Cit Group Inc. bonds and 619 shares of Cit Group Inc. stock with a book value of
$17,091, all in exchange for the $100,000 CIT Group Inc. bond.
The
Company does not hedge its investment income through theuse of
derivatives.
The
Company has a convertible debenture loan investment (“Debenture”) to EPSI
Benefits, Inc. (“EBI”), originally dated July 25, 2001 (Exhibit
10.3). The loan bears interest at a rate of 14% and the maturity of
the Debenture was August 15, 2015. Monthly principal payments were scheduled to
begin on September 15, 2008, and the total principal amount is
$1,357,407.
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. For various business reasons management
of both companies deemed the amendment to be advantageous. Under the agreement,
BNL has the right to convert the Debenture into a 51% ownership in
EBI. Such conversion right will continue during the extended maturity
of the Debenture.
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 at the time
the agreement was amended, resulting in a net book value of
$1,152,825. Interest on the debentures is and has been
current.
Other
long-term investments also include an operating line of credit agreement in the
amount of $27,215 and $71,784 in 2009 and 2008 respectively. The
agreement provided EPSI with a $200,000 line of credit maturing August,
2011. The line of credit is at 8.00% with interest and principal
payable monthly to BNLAC and is current.
On
November 5, 2001 the Company’s Board of Directors approved a settlement of the
class action lawsuit (see "Legal Proceedings"). One term of the
settlement was the issuance of Company bonds in the principal amount of $1.50 in
exchange for each share of the Company’s common stock owned by the members of
the class. The Arkansas Insurance Commissioner has reviewed and
approved the settlement. The bonds have a 12-year term and bear interest at the
rate of 6% per annum, effective December 15, 2002 payable annually from the
previous fiscal year’s earnings. The total principal amount of bonds
payable at December 31, 2009 is $1,323,388 compared to $1,443,282 at December
31, 2008. Bond interest expense was $82,317, and $93,536 in 2009 and
2008; respectively. BNLAC will pay dividends to BNL Financial
Corporation for the payment of interest to the bondholders if permissible under
Arkansas insurance laws. The maximum amount of dividends which can be paid by
Arkansas domiciled insurance companies to shareholders without prior approval of
the insurance commissioner is subject to restrictions relating to statutory
surplus. The Company does not expect the dividend
restrictions to impact its ability to meet its cash needs. The
Company has no plan to start a sinking fund for payment of the principal at
maturity.
In 2009,
BNLAC paid dividends totaling $800,000 to BNLF for the payment of dividends to
the Company’s shareholders and for other general operating funds compared to
$1,300,000 dividends paid in 2008 for the payment of dividends to the Company’s
shareholders and for other general operating funds.
The
following table reflects all long-term contractual obligations of the Company as
of December 31, 2009.
Long-Term Contractual Obligations
*
|
Total
|
< 1 Year
|
1-3 Years
|
3-5 Years
|
> 5 Years
|
|||||||||||||||
Bonds
and Related Future Interest Payable**
|
$ | 1,767,000 | $ | 79,000 | $ | 158,000 | $ | 1,530,000 | $ | - | ||||||||||
Operating
Lease Obligations
|
$ | 1,343,000 | $ | 370,000 | $ | 747,000 | $ | 226,000 | $ | - | ||||||||||
Liability
for Future Policy Benefits (Note
A.)
|
$ | 8,367,699 | $ | 1,138,844 | $ | 1,800,071 | $ | 1,257,198 | $ | 4,171,586 | ||||||||||
Policy
Claims Payable (Note B.)
|
$ | 1,348,590 | $ | 1,348,590 | $ | - | $ | - | $ | - | ||||||||||
Liability
for Annuity Deposits (Note C.)
|
$ | 4,816,978 | $ | 11,291 | $ | 201,999 | $ | 237,963 | $ | 4,275,729 | ||||||||||
Supplementary
Contracts (Note D.)
|
$ | 31,347 | $ | 1,495 | $ | 2,952 | $ | 2,892 | $ | 24,008 |
* The
notes to this long-term contractual obligations table are part of the table and
are important.
** Interest
payments are made only if the Company is profitable.
Notes to Long-Term
Contractual Obligations Table:
Special
Note Relating to Notes A, B, C and D and the information and
presentation for liabilities for future policy benefits, policy claims payable,
annuity deposits and supplementary contracts.
The data,
information and presentation in this Long-term Contractual Obligations Table
relating to the Company’s Liabilities for Future Policy Benefits, Policy Claims
Payable, Annuity Deposits and Supplementary Contracts are all, separately and
collectively, forward looking statements and are given full safe harbor
protection.
NOTE
A, Liabilities for Future Policy Benefits.
In
calculating the payments above, BNLAC used models of the business created for
statutory asset adequacy analysis. The modeled life block was assumed
to surrender for its reserve at the end of 20 years. Health blocks
tested were projected using approximate means beyond 20
years. Payments on blocks not initially modeled were projected on an
approximate basis. The total estimated future payments to be made relating
to the Liability for Future Policy Benefits is stated as $8,367,699 which does
not match the balance sheet liability total of $2,143,273 and the difference is
$6,224,426. This is primarily due to the fact that the estimated
future payments presented in the long term contractual obligations table for
Future Policy Benefits includes consideration for future premiums, investment
income and maintenance expenses and such assumptions, and perhaps other
assumptions, may differ from the assumptions initially used to establish the
balance sheet liability. The estimated future payments presented in
the long term contractual obligations table are based on current assumptions
while the balance sheet liability is based on assumptions locked in at the date
the policy was approved for issue. Assumptions for estimating future payments
are made regarding such items as interest earnings, mortality, morbidity, and
persistency. It is likely that the actual experience will deviate from these
assumptions – sometimes materially. A number of factors can have an effect such
as economic conditions, changes in policyholder actions regarding premium
payments and withdrawals, mortality and morbidity improvement or deterioration,
and inflation. Random fluctuation in experience could also have an
effect. The determination of the amount of the future payments
is based upon estimates and the timing and amount of future payments is not
always reasonably fixed and determinable. Because of the above considerations,
the amounts and timing of future payments will likely vary from that presented
in the above table.
Future
payments related to short duration contracts such as group dental are not
included in the above table in the line item Liabilities for Future Policy
Benefits.
NOTE
B, Policy Claims Payable.
The total
estimated future payments to be made relating to Policy Claims Payable do match
the balance sheet liability total. The estimated future payments are
estimates of future occurrences based on many significant assumptions and are
forward looking statements which are to be given the full protection of safe
harbor. In developing the Policy Claims Payable, assumptions are made
regarding such items as loss ratios, claims per insured or certificate holder
per month, completion factors, morbidity trends, speed at which incurred claims
are submitted, and speed at which they are processed. It is likely that the
actual experience will deviate from these assumptions – sometimes materially.
Random fluctuation is likely. The determination of the liability
amounts is based upon estimates and the timing of payments is not always
reasonably fixed and determinable. Because of the above considerations, the
amounts and timing of payments will likely vary from that presented in the above
table.
NOTE
C, Annuity Deposits.
In
calculating the payments above, BNLAC used models of the business created for
statutory asset adequacy analysis. The modeled annuity block was
assumed to surrender for its reserve at the end of 20 years. The
total estimated future payments to be made relating to the Annuity Deposits
liability is stated as $4,816,978 which does not match the balance sheet
liability total of $2,505,778 and the difference is
$2,311,200. The balance sheet Annuity Deposit liability
represents such items as deposits, premiums, investment income, expenses, and
withdrawals which have already occurred while the total estimated future
payments presented in this long term contractual obligations table are estimated
using assumptions for future occurrences of such factors and other
factors. The estimated future payments are based on many significant
assumptions regarding future occurrences such as future premium payments,
interest earnings, mortality, and persistency. It is likely that the actual
experience will deviate from these assumptions – sometimes materially. A number
of factors can have an effect such as economic conditions, changes in
policyholder actions regarding annuity deposits and withdrawals, mortality
improvement or deterioration, and inflation. Random fluctuation in
experience could also have an effect. The determination of the Annuity Deposit
estimated future payments is based upon estimates and the timing and amount of
estimated future payments is not always reasonably fixed and determinable.
Because of the above considerations, the amounts and timing of estimated future
payments will likely vary from that presented in the above table.
NOTE
D, Supplementary Contracts.
The total
estimated future payments to be made relating to the Supplementary Contracts
without life contingencies liability is stated as $31,347 which does not match
the balance sheet liability total of $36,791 and the difference is $(5,444).
This is primarily due to the fact that the estimated future payments in this
long term contractual obligations table for Supplementary Contracts includes
consideration of future investment income, withdrawals (if permitted) and
maintenance expenses and such assumptions, and perhaps other assumptions, may
differ from the assumptions initially used to establish the balance sheet
liability. The estimated future payments presented in the long term
contractual obligations table are based on current assumptions while the balance
sheet liability is based on assumptions locked in at the date the policy was
approved for issue. The estimated future payments are based on many significant
assumptions regarding future occurrences such as interest earnings, mortality,
and persistency. It is likely that the actual experience will deviate from these
assumptions – sometimes materially. A number of factors can have an effect such
as economic conditions, changes in policyholder actions regarding withdrawals
(if allowed), and mortality improvement or deterioration. Random
fluctuation in experience could also have an effect. The Supplementary Contracts
estimated future payments are based upon estimates and the timing and amount of
future payments is not always reasonably fixed and determinable. Because of the
above considerations, the amounts and timing of estimated future payments will
likely vary from that presented in the above table.
We
believe liquid assets, along with investment income, premium income and
marketing fees will be sufficient to meet our long and short-term liquidity
needs. We do not have any current plans to borrow money for
operations.
BNLAC
reports to state regulatory authorities on a statutory accounting basis that
differs from the basis used herein. Due to an Arkansas regulatory
requirement associated with the redomestication in 1994, BNLAC must maintain a
minimum of $2,300,000 in capital and surplus. Additionally, each
state in which BNLAC is licensed has statutory minimum capital requirements
required for maintaining its license to sell. Minimum capital and
surplus requirements vary from $300,000 to as much as $5,000,000 in the states
in which BNLAC is licensed.
Results of
Operations
Premium
income was $41,609,604 in 2009, $43,456,024 in 2008 and $44,564,173 in
2007. The decrease in 2009 and 2008 was due to a decrease in group
and individual insurance premiums. New sales of dental insurance were
down in 2009 and 2008 primarily as a result of the impact of the recession on
voluntary employee benefits. This is reflected in the $790,000
decrease in first year group dental premium in 2009 and a decrease of $650,000
in 2008.
Net
investment income was $1,122,698 in 2009, $1,170,901 in 2008 and $1,320,614 in
2007, a decrease of 11% in 2008, and a decrease of 4% in 2009. The
decrease in 2009 was due to an increase in short term investments with lower
yields. The decrease in 2008 was primarily due to the sharp decline
in interest rates throughout 2008 and an increase in short term investments with
lower yields. The decrease in interest rates and the challenged financial
markets has made it difficult to purchase investment grade bonds with yields
equivalent to bonds purchased over the last few years.
The
Company receives marketing fees from EBI in accordance with a marketing
agreement entered into in 2001. The Company received marketing fees
of $25,000 in 2009, $0 in 2008 and $198,843 in 2007. Receipt of
marketing fees resumed in 2009. By mutual agreement, EPSI ceased paying the
Company marketing fees in 2008 due to the termination of one of its largest
customers.
BNLAC
markets group vision insurance products that are underwritten by other insurance
companies, on which BNLAC does not have any exposure to underwriting (claims)
losses. The Company had vision insurance income of $2,386,148,
$2,263,529 and $1,979,359 in 2009, 2008 and 2007, respectively. The
vision income increased by 5% and 14% in 2009 and 2008, respectively, primarily
due to the addition of group voluntary vision plans that require lower
participation rates.
The
Company had a realized gain on debt extinguishments of $27,176 in 2009, $44,370
in 2008 and $10,803 in 2007 due to the purchase of debentures payable at less
than par value. The Company purchased fewer debentures in 2009 and
2007 than it did in 2008, which resulted in less realized gain in debt
extinguishments.
Realized
capital gains and (losses) on investments were $58,512 in 2009, ($479,717) in
2008 and $11,128 in 2007. In 2009 the Company wrote down CIT Group
Inc. bonds by $42,280 which was offset by a $20,000 gain on the maturity of
General Motors Acceptance Corporation bonds and $79,905 gain on the sale of U.S.
Treasury bonds. In 2008 the Company wrote down Washington Mutual
bonds from $126,000 to $0 to reflect their status as worthless. In
2008 management determined Ford Motor Company and General Motors Acceptance
Corporation bonds were other than temporarily impaired and wrote down Ford Motor
Company from $187,864 to $42,000 and General Motors Corporation from $100,000 to
$80,000. The aggregate realized loss on the bonds in 2008 was
$291,864.
The
Company has a $1,357,407 convertible debenture loan investment (“Debenture”) at
14% to EPSI Benefits, Inc. (“EBI”) that was scheduled to mature August 15, 2015.
Monthly principal payments were scheduled to begin on September 15, 2008,
however 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
was required to establish an allowance for credit losses in the amount of
$204,582, which is part of the realized loss in 2008.
Decreases
in liability for future policy benefits were ($66,596), ($39,268) and ($213,867)
in 2009, 2008 and 2007, respectively. The decrease for all three
years was primarily due to the amount of insurance in force.
Policy
benefits and other insurance costs decreased from $33,496,995 in 2007, to
$32,978,610 in 2008 and to $31,805,555 in 2009. The decrease in 2009
was primarily due to an approximately $882,000 decrease in claims expense,
$146,000 of which resulted from an overestimation of claims payable at December
31, 2008 and the decrease of policies in force. The decrease in 2008
was primarily due to an approximately $454,000 decrease in claims expense,
$390,000 of which resulted from an overestimation of claims payable at December
31, 2007. The claims ratio on group dental insurance, which
represents the ratio of claims incurred to premium earned, was 62.2% in 2009,
61.9% in 2008 and 61.8% in 2007.
Amortization
of deferred policy acquisition costs was $30,308 in 2009, $40,564 in 2008 and
$16,060 in 2007. Amortization of deferred policy acquisition costs are
primarily costs associated with a seasoned block of business written between
1988 and 1990. Amortization expense per year may vary in relation to
lapses or surrenders of the existing block of business.
Operating
expenses were $8,716,583 in 2009, $9,055,261 in 2008 and $9,012,950 in 2007. The
decrease of approximately $338,678 in 2009 was primarily due to a decrease in
executive incentive bonuses, claims administrative expense and printing and
stationary expense. The decrease in the expense lines was primarily
due to the decrease in the number of policies in force. The 4.7%
increase for 2008 is primarily due to increased labor and other
costs.
Taxes
other than on income were $1,328,062 in 2009, $1,458,629 in 2008 and $1,509,780
for 2007. The decrease for 2009 and 2008 is primarily due to a decrease in
premium taxes on fewer premiums collected.
In 2009,
the consolidated income from operations before taxes was $3,415,226 compared to
$2,961,311 in 2008 and $4,263,002 in 2007. The increase in 2009 was
primarily due to the increase in realized gains and decrease in operating
expenses. The decrease in 2008 was primarily due to the decrease in
premium income and investment income and the increase in realized losses on
fixed maturities.
Earnings
per share were $.19, $.16, and $.22 in 2009, 2008 and 2007,
respectively. The effect of the treasury shares acquired in 2009,
2008 and 2007 (see Market for Stock) increased earnings per share by $.00, $.00
and $.01, respectively.
The
provision for income taxes was $597,381 in 2009, $594,839 in 2008 and $813,634
in 2007. For the periods ended December 31, 2009, 2008 and
2007, the Company had $647,381, $663,441 and $773,033 of current tax expense and
$50,000 and $68,602 of deferred tax credit in 2009 and 2008 and $40,601 of
deferred tax expense for 2007. Fluctuations in tax expense are
primarily due to changes in taxable income, limitations on net operating losses
utilized and adjustments in estimates for income taxes in prior
years.
For the
year ended December 31, 2009, other comprehensive income (losses) was $196,976
compared to ($283,566) in 2008 and $54,274 or the same period in
2007. Comprehensive income for 2009 was primarily due to an increase
in the market value of available for sale fixed maturities and equity
securities. The comprehensive loss in 2008 was due to the decrease in
the market value of equity securities. Comprehensive income for 2007
was primarily due to an increase in the market value of equity
securities.
Future Marketing
Plans
In 2010
we continue to focus on recruiting new brokers, marketing in states where we
have little or no premium income and expanding our product
portfolios.
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. The Company’s conservative investment
philosophies minimize market risk and risk of default by investing in high
quality debt instruments, with staggered maturity dates. We did not
have financial instruments to manage and reduce the impact of changes in
interest rates at December 31, 2009 and December 31, 2008. We held various
financial instruments at December 31, 2009 and 2008, consisting of financial
assets reported in our Consolidated Balance Sheets (refer to Note
4). See page 17 for information on less than investment grade bonds
held by the Company.
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 December 31, 2009 and December 31, 2008 was
$18,570,332 and $19,937,398 respectively.
A one
percentage point increase in prevailing interest rates would result in a
decrease in the estimated fair value of fixed maturity securities held at
December 31, 2009 of approximately $562,000. 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 twelve 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 and because we
do not currently engage in any operations outside of the United
States.
Commodity
Price Risk – We have no financial instruments subject to commodity price
risk.
Equity
Security Price Risk - Fair value of equity securities at December 31, 2009
totaled $674,671, or only 2.3% of total investments and cash on a consolidated
basis. We do not hedge our equity price risk. As of
December 31, 2009 a 20% adverse change in equity prices would result in an
approximate $159,000 decrease in the fair value of our equity
securities.
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 8. Financial
Statements and Supplementary Data
The
information in response to this Item 8 is set forth on pages F-1 through F-25
attached to this Report which pages are hereby incorporated by
reference.
None
Evaluation of Disclosure
Controls and Procedures
We have
carried out an evaluation under the supervision and with the participation of
our management, including our Principal Executive Officer and our Principal
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls
and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control
objectives. Based upon our evaluation, these officers have concluded
that, as of December 31, 2009, the disclosure controls and procedures were
effective to provide reasonable assurance that information required to be
disclosed in the reports we file and submit under the Securities and Exchange
Act of 1934 in recorded, processed, summarized and reported within the time
period specified in the SEC’s rules and forms.
Management's Annual Report
on Internal Control over Financial Reporting
Our
management, including our Principal Executive Officer and our Principal
Financial Officer, is responsible for establishing and maintaining an adequate
system of internal control over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with
generally accepted accounting principles. This included policies and procedures
that (a) pertain to the maintenance of records in reasonable detail which
accurately and fairly reflect the transactions and dispositions of our assets;
(b) provide reasonable assurance that our transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally
accepted accounting principles and our receipts and expenditures are being made
in accordance with authorizations of our management or directors, as applicable;
and (c) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets which could have a
material effect on our financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Management has assessed the effectiveness of our internal control
over financial reporting as of December 31, 2009. In making its
assessment, management has used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated
Framework. Management concluded that based on its assessment, our
internal control over financial reporting was effective as of December 31,
2009. This annual report does not include an attestation report of our
independent registered public firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
In
addition, during our last fiscal quarter for 2009, no change occurred in our
internal control over financial reporting which was identified by management’s
evaluation that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
This
Management Report on Internal Control over Financial Reporting is deemed to be
“furnished” and not “filed” under Section 18 of the Exchange Act or otherwise
subject to the liabilities of that section and it is not incorporated by
reference into any filing under the Securities Act or the Exchange
Act.
The
Company did not file reports on Form 8-K for the fourth quarter of the year
covered by this report.
PART III
The
directors and executive officers of the Company are as follows:
Name
|
Age
|
First
Became Director or Executive Officer
|
Position
|
||||||
Wayne
E. Ahart
|
69 | 1984 |
Chairman
of the Board and Director
|
||||||
C.
Donald Byrd
|
68 | 1984 |
Vice
Chairman of the Board and Director
|
||||||
Kenneth
Tobey
|
51 | 1994 |
President
and Director
|
||||||
Barry
N. Shamas
|
62 | 1984 |
Executive
Vice President, Treasurer, Chief Operating Officer, Chief Financial
Officer and Director
|
||||||
Cecil
Alexander
|
73 | 1994 |
Director
|
||||||
Richard
Barclay
|
72 | 1994 |
Director
|
||||||
Eugene
A. Cernan
|
75 | 1994 |
Director
|
||||||
Hayden
Fry
|
80 | 1984 |
Director
|
||||||
John
Greig
|
74 | 1984 |
Director
|
||||||
Roy
Ledbetter
|
79 | 1994 |
Director
|
||||||
John
E. Miller
|
80 | 1994 |
Director
|
||||||
C.
James McCormick
|
84 | 1984 |
Director
|
||||||
Robert
R. Rigler
|
86 | 1989 |
Director
|
||||||
L.
Stan Schoelerman
|
84 | 1984 |
Director
|
The term
of office of each director expires at the annual meeting of shareholders upon
the election and qualification of such director's successor. The
Company's executive officers serve at the pleasure of the Board of
Directors. The above officers and directors serve in the same
capacity with BNLAC.
Identification
of Certain Significant Employees
Not
applicable.
Family
Relationships
No family
relationship exists between any director and executive officer of the
Company.
Business
Experience
The
following is a brief description of the business experience during the past five
years of the directors and executive officers of the Company.
Wayne E. Ahart has served as
Chairman of the Board of BNL since 1984 and BNLAC since 1986. He
served as Chairman of the Board of BNLE from 1988 to 2004 and as Chairman of the
Board of United Arkansas Life from 1990 to 1994. Prior to that time,
Mr. Ahart served as Board Chairman of: Investors Trust, Inc. ("ITI")
and its subsidiary, Investors Trust Assurance Company ("ITAC"), both of
Indianapolis, Indiana (1973-1987); Liberty American Corporation
("LAC")(President since 1981) and its subsidiary Liberty American Assurance
Company ("LAAC"), both of Lincoln, Nebraska (1975-1987); and (President)
American Investors Corporation ("AIC") and its subsidiary, Future Security Life
Insurance Company ("FSL"), both of Austin, Texas (1980-1987). Mr.
Ahart has been owner and Chairman of the Board of Lone Star Pizza Garden Inc.
from 1986 to the present.
C. Don Byrd has been Vice
Chairman of the Board of BNL, BNLE and BNLAC since August 1,
1994. Mr. Byrd was President and a Director of BNL and BNLAC since
1984 and 1986, respectively. Mr. Byrd was Agency Director of FSL from
1983 to 1984 and Regional Director of AIC 1981 to 1983. He was an
agent and Regional Director of ITI and ITAC from 1974 to 1981.
Kenneth Tobey has been
President and Director of BNLAC and BNL since August 1, 1994. Mr.
Tobey has served as President of BNLE since 1988 and served as President of
United Arkansas Life from 1990 to 1994. He served as Assistant to the
President and Training Director of BNLAC from 1986 to 1988. From 1981
to 1986, Mr. Tobey served in various capacities for AIC and FSL, including
Agent, Regional Manager, Executive Sales Director and Assistant to the
President.
Barry N. Shamas has served as
Executive Vice President, Secretary and Treasurer of BNLE since 1988 and United
Arkansas Life from 1990 to 1994. Since 1984 and 1986, respectively,
he has served as Executive Vice President and Director of BNL and BNLAC, which
positions he presently holds. He was named Chief Financial Officer and Chief
Operating Officer of BNL and BNLAC in 2006. He served in various
capacities for ITI and ITAC, including Executive Vice President, Senior Vice
President, Treasurer and Financial Vice President beginning in 1976 through
1987. Mr. Shamas served as Executive Vice President,
Secretary/Treasurer and as Director of AIC and FSL from 1980 and 1983,
respectively, until 1987. From 1978 through 1987, Mr. Shamas served
as a Director and a member of the Executive Committee of LAC and
LAAC. Mr. Shamas has been a Director of the Arkansas Life
and Health Insurance Guaranty Association since July 2007.
Cecil L. Alexander retired
Vice President of Public Affairs for Arkansas Power & Light Company, where
he has been employed since 1980. Prior to joining the AP&L
Executive Staff, Mr. Alexander served for 16 years in the Arkansas General
Assembly, and during 1975-76, was Speaker of the House of
Representatives. From 1971 – 1980 Mr. Alexander
was involved in the real estate business as a partner in Heber
Springs Realty. He is a past president of the Cleburne County Board
of Realtors and has served on the governmental affairs committee of the Arkansas
Association of Realtors. Alexander is currently on the Advisory Board
of Directors of V.E. Bank of Heber Springs, the Board of Directors of the
Arkansas Tourism Development Foundation, and the Board of Directors of the
Baptist Foundation.
Richard L. Barclay, a
Certified Public Accountant, retired as Director of Arkansas Department of
Finance and Administration and as the state's Chief Fiscal
Officer. He has returned to private practice with Beall, Barclay
& Co., Certified Public Accountants in Rogers, Arkansas. He was
an advisory Director of Regions Bank of Rogers from 1998 to December
2006. He joined United Bank, January 2007. He served
as President and Board member of the Arkansas Society of Certified
Public Accountants and is a member of the American Institute of Certified Public
Accountants. He was a member of the Arkansas House of Representatives
from 1977 until 1992.
Eugene A. Cernan has been
President and Chairman of the Board of The Cernan Corporation since
1981. Captain Cernan retired from the U. S. Navy in 1976 after
serving 20 years as a naval aviator, 13 of which were dedicated to direct
involvement with the U. S. Space Program as a NASA Astronaut. Captain
Cernan was the pilot on the Gemini 9 mission and the second American to walk in
space; lunar module pilot of Apollo 10; and Spacecraft Commander of Apollo 17,
which resulted in the distinction of being the last man to have left his
footprints on the surface of the moon. In 1973, he served as a Senior
United States Negotiator in discussions with USSR on the Apollo-Soyuz
Mission. Mr. Cernan served as Executive Consultant of Aerospace and
Government of Digital Equipment Corporation from 1986 to 1992, and he was a
Director and Vice President-International of Coral Petroleum, Inc., Houston,
Texas from 1976 to 1981. Captain Cernan is presently a Director of
National Air and Space Museum and Smithsonian Educational Foundation. Captain
Cernan is also a member of the Board of Trustees of the U. S. Naval Aviation
Museum, NFL Alumni and Major League Baseball Players Alumni
Association. In addition, Captain Cernan has served as a consultant
commentator to ABC News.
Hayden Fry was Head Football
Coach at the University of Iowa from 1979 to 1998, now retired. He
was Head Football Coach at North Texas State University from 1973 to 1978 and at
Southern Methodist University from 1962 to 1972. He was named
Football Coach of the Year in the Big Ten (1981, 1990, 1991), the Missouri
Valley Conference (1973), and the Southwest Conference (1962, 1966 and
1968). He was on the Board of Advisors of Wilson Sporting Goods; the
Board of Trustees of Pop Warner Football; and the American Football Coaches
Association and was the 1993 President of the AFCA. He was President
of Hawkeye Marketing Group from 1979 - 1984. He is a member of the
Board of Directors of Berthel Fisher Co and was a member of the Board of
Directors of the PPI Group. He was elected into the College Football
Hall of Fame in 2003.
John Greig has been President
of Greig and Co. from 1967 - 2007. He is a Director of Northstar
Bank, NW., Estherville, Iowa. He has been President of the Iowa
Cattlemen's Association (1975-1976) and a member of the Executive Committee of
the National Cattlemen's Association (1975-1976). He was a member of
the Iowa Board of Regents from 1985 to 1991. He was elected as an
Iowa State Representative from 1993 to 1999.
Roy E. Ledbetter is retired as
President and Chief Executive Officer of Highland Industrial Park, a division of
Highland Resources, Inc. in East Camden, Arkansas. He holds a
Bachelor of Science Degree in Education from Southern Arkansas University at
Magnolia, a Masters Degree in Education from Henderson State University at
Arkadelphia and an AMP from Harvard Business School at Boston. In
1966, Mr. Ledbetter joined Highland Resources, Inc. and coordinated organization
of Southern Arkansas University Technical Branch; was promoted to Division
Manager (1972), Vice President and Division Manager (1975), Senior Vice
President (1980), and President in 1984. He is past President of the
Camden Chamber of Commerce; was 1977 Camden Jaycee's Man of the Year; was
awarded first annual Camden Area Chamber of Commerce Community Service Award in
1983; served on Education Standards Committee of the State of
Arkansas.
C. James McCormick is former
Chairman of the Board of McCormick, Inc., Best Way Express, Inc., and President
of JAMAC Corporation, all of Vincennes, Indiana. He is the owner of
CJ Leasing, LLC. Mr. McCormick is former Chairman of the Board of
Directors and CEO of First Bancorp, Vincennes, Indiana; former Chairman of the
Vincennes University board of trustees and a Life Director of the Indiana
Chamber of Commerce; and a former member of the Young President's
Organization. He is a former Chairman of the Board of the American
Trucking Associations. Mr. McCormick is a Past Chairman of the
National Board of Trustees of The Fellowship of Christian Athletes.
John E. Miller was a member of
the State of Arkansas House of Representatives from 1959 to 2000. He
has been self-employed in the insurance, abstract, real estate, heavy
construction and farming business for more than 20 years. He has
served on the Board of Directors of Calico Rock Medical Center, Easy K
Foundation, National Conference of Christians and Jews, State Advocacy Services,
Lions World Services for the Blind, State Board of Easter Seals, Williams
Baptist College Board of Trustees and Izard County Chapter of the American Red
Cross.
Robert R. Rigler has been
Chairman of the Board of Security State Bank, New Hampton, Iowa since 1989; he
served as its President and CEO from 1968 to 1989. Mr. Rigler was
Iowa Superintendent of Banking from 1989 to 1991. He was a member of
the Iowa Transportation Commission from 1971 to 1986 and served as its Chairman
from 1973 to 1986. He was a member of the Iowa State Senate from 1955
to 1971 and served as a Majority and Minority Floor Leader.
L. Stanley Schoelerman was
President and a Partner of Petersen Sheep & Cattle Co., Spencer, Iowa from
1964 to 2001. He was a
Director
of Home Federal Savings & Loan, Spencer, Iowa, from 1969 to 1988; and
Honeybee Manufacturing, Everly, Iowa, from 1974 to 1986. He was
President of Topsoil-Schoenewe, Everly, Iowa, from 1974 to 1986. Mr.
Schoelerman was Commissioner of the Iowa Department of Transportation from 1974
to 1978 and was a member of the National Motor Carrier Advisory Board of the
Federal Highway Administration from 1981 to 1985.
Audit
Committee
The
Company’s audit committee consists of three members of the board of directors,
Richard Barclay, Robert Rigler and John Greig. Mr. Barclay, a
Certified Public Accountant, is the committee’s financial expert and is
independent of management. See description of board members for
additional information.
Compensation
Committee
The
Company’s compensation committee consists of three members of the board of
directors, C. James McCormick, Roy Ledbetter and Hayden Fry. C. James
McCormick is Chairman of the committee. See description of board
members for additional information.
Code of
Ethics
The
Company has a code of ethics that applies to all employees of the
Company. To receive a copy of the Company’s code of ethics without
charge, contact:
Ms. Pam
Randolph
BNL
Financial Corporation
7530 Hwy.
107
Sherwood,
Arkansas 72120
Additional
information required by this item is incorporated by reference from the
Company’s 2010 Proxy Statement for its annual meeting of shareholders scheduled
for May 27, 2010 and the sections therein entitled “Beneficial Ownership of
Common Stock,” “Corporate Governance,” “Audit Committee Charter and Report,”
“Compensation Committee Charter,” “Purposes and Processes and Report,”
“Compensation of Executive Officers,” and “Compensation of
Directors.”
The
information required by this item is incorporated by reference from the
Company’s 2010 Proxy Statement for its annual meeting of shareholders scheduled
for May 27, 2010 and the sections therein entitled “Beneficial Ownership of
Common Stock,” “Corporate Governance,” “Audit Committee Charter and Report,”
“Compensation Committee Charter,” “Purposes and Processes and Report,”
“Compensation of Executive Officers,” and “Compensation of
Directors.”
Security Ownership of
Certain Beneficial Owners
The
following table reflects the persons known to the Company to be the beneficial
owners of 5% or more of the Company's voting securities as of December 31,
2009
Title
of Class
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership(1)
|
Percent
of Class as of
December
31, 2008
|
|||||||
Common
Stock
|
Wayne
E. Ahart
|
4,712,216 | (2) | 31.16 | % | |||||
8017
Cobblestone
|
||||||||||
Austin,
TX 78735
|
||||||||||
Common
Stock
|
Barry
N. Shamas
|
2,801,816 | (3) | 18.53 | % | |||||
1095
Hidden Hills Dr
|
||||||||||
Dripping
Springs, TX 78620
|
||||||||||
Common
Stock
|
C.
Don Byrd
|
1,852,719 | (4) | 12.25 | % | |||||
1725
S. 50th Unit 144
|
||||||||||
W.
Des Moines, IA 50265
|
||||||||||
Common
Stock
|
Kenneth
Tobey
|
1,161,762 | 7.68 | % | ||||||
23
Tennyson
|
||||||||||
N.
Little Rock, AR 72116
|
(1) To the Company's knowledge, all shares are beneficially owned by, and the sole voting and investment power is held by the persons named, except as otherwise indicated. | |
(2) This includes 133,290 shares owned directly by Wayne Ahart and Wayne Ahart’s indirect ownership of 1,200,000 shares which are owned by National Iowa Corporation and 686,037 shares which are owned by Arkansas National Corporation. Wayne Ahart controls both National Iowa Corporation and Arkansas National Corporation and votes the shares of the Company’s common stock owned by both corporations. LeRene Ahart, as a shareholder in National Iowa Corporation and Arkansas National Corporation, has an indirect pecuniary interest in 1,200,000 shares of the Company’s common stock owned by National Iowa Corporation and 649,363 shares of the Company’s common stock owned by Arkansas National Corporation. Wayne Ahart has voting control of all 2,400,000 shares of the Company’s common stock owned by National Iowa Corporation and all 2,178,926 shares of the Company’s common stock owned by Arkansas National Corporation plus the 133,290 shares which are owned directly by Wayne Ahart. Consequently, Wayne Ahart has voting control of 4,712,216 (31.16%) shares of the Company’s common stock. | |
(3) Includes 1,400,000 shares held in the name of Life Industries of Iowa, Inc., and 1,335,171 shares held in the name of Arkansas Industries Corporation, both of which are controlled by Mr. Shamas. | |
(4) All of Mr. Byrd's shares are subject to a right of first refusal of the Company to acquire said shares on the same terms and conditions as any proposed sale or other transfer by Mr. Byrd. |
Security Ownership of
Management
The
following table sets forth, as of December 31, 2009, certain information
concerning the beneficial ownership of the Company's Common Stock by each
director of the Company and by all directors and officers as a
group:
Title of Class | Name of Beneficial Owner |
Amount
and Nature of Beneficial Ownership1
|
Percent
of Class as of December 31, 2008
|
|||||||
Common
|
Wayne
E. Ahart
|
4,712,216 | 2 | 31.16 | % | |||||
Common
|
Richard
L Barclay
|
48,788 | 0.32 | % | ||||||
Common
|
Ken
Barr
|
7,000 | 0.05 | % | ||||||
Common
|
Tammy
Barr
|
10,600 | 0.07 | % | ||||||
Common
|
C.
Donald Byrd
|
1,852,719 | 3 | 12.25 | % | |||||
Common
|
Eugene
A. Cernan
|
37,088 | 0.25 | % | ||||||
Common
|
Jeffrey
A. Drees
|
18,843 | 0.12 | % | ||||||
Common
|
Hayden
Fry
|
69,272 | 0.46 | % | ||||||
Common
|
John
Greig
|
50,102 | 0.33 | % | ||||||
Common
|
Roy
E. Ledbetter
|
37,088 | 0.24 | % | ||||||
Common
|
C.
James McCormick
|
13,708 | 0.09 | % | ||||||
Common
|
John
E. Miller
|
47,111 | 0.31 | % | ||||||
Common
|
Jerry
Ouzts
|
5,800 | 0.04 | % | ||||||
Common
|
Pamela
C. Randolph
|
10,905 | 0.07 | % | ||||||
Common
|
Robert
R Rigler
|
3,295 | 0.02 | % | ||||||
Common
|
Barry
N. Shamas
|
2,801,816 | 4 | 18.53 | % | |||||
Common
|
Stanley
Schoelerman
|
20,000 | 0.13 | % | ||||||
Common
|
Kenneth
Tobey
|
1,161,762 | 7.68 | % | ||||||
Common
|
All
Officers and Directors as a group (18 persons)
|
10,908,113 | 72.14 | % |
|
(1)
To the Company's knowledge all shares are beneficially owned by the
persons named, except as otherwise indicated, and they hold the sole
voting and investment power.
|
|
(2)
This includes 133,290 shares owned directly by Wayne Ahart and Wayne
Ahart’s indirect ownership of 1,200,000 shares which are
owned by National Iowa Corporation and 686,037 shares which are owned by
Arkansas National Corporation. Wayne Ahart controls both
National Iowa Corporation and Arkansas National Corporation and votes the
shares of the Company’s common stock owned by both
corporations. LeRene Ahart, as a shareholder in National
Iowa Corporation and Arkansas National Corporation, has an indirect
pecuniary interest in 1,200,000 shares of the Company’s common stock owned
by National Iowa Corporation and 649,363 shares of the Company’s common
stock owned by Arkansas National Corporation. Wayne Ahart has
voting control of all 2,400,000 shares of the Company’s common stock owned
by National Iowa Corporation and all 2,178,926 shares of the Company’s
common stock owned by Arkansas National Corporation plus the 133,290
shares which are owned directly by Wayne Ahart. Consequently,
Wayne Ahart has voting control of 4,712,216 (30.99%) shares of the
Company’s common stock.
|
|
(3)
All of Mr. Byrd's shares are subject to a right of first refusal of the
Company to acquire said shares on the same terms and conditions as any
proposed sale or other transfer by Mr.
Byrd.
|
|
(4)
Includes 1,400,000 shares held in the name of Life Industries of Iowa,
Inc., and 1,335,171 shares held in the name of Arkansas Industries
Corporation, both of which are controlled by Mr.
Shamas.
|
|
None
|
|
The
information required under this item is incorporated by reference from the
Company’s 2010 Proxy Statement for its annual meeting of shareholders
scheduled for May 27, 2010.
|
PART IV
(a)
1. Financial Statements
The
information required by this section is set forth on pages F-1 to F-22 of this
Report which is incorporated herein by reference.
2. The following
financial statement schedule required to be filed by Paragraph (d) of Item 15 of
Form 10-K is submitted as a separate section of this report.
Schedule
II - Condensed Financial Information of Registrant F-23 to
F-25.
Schedules
I and IV have been omitted as all required data are included in the Notes to
Consolidated Financial Statements.
All other
schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
3. Exhibits
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, 2006, 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 to Exhibit 10.9 of the Company's Annual Report on 10-K for
the period ended December 31, 2006.
|
||
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 explanation of the computation of per share earnings as
shown in Note 1 to the Notes to Consolidated Financial Statements filed
herewith under Item 14(a)(1) above which clearly describes the
same.
|
||
12
|
Statements
re computation of ratios.
|
Not
applicable.
|
||
16
|
Letter
Re Change in Certifying Accountant.
|
Incorporated
by reference to Exhibit I of the Company's periodic Report on Form 8-K
dated September 14, 1995.
|
||
21
|
Subsidiaries
of Registrant.
|
Filed
herewith.
|
||
31.1
|
|
Filed
herewith – E1
|
||
31.2
|
|
Filed
herewith – E2
|
||
32
|
Attached
hereto – E3
|
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, on the 30th day of March
2009.
BNL
FINANCIAL CORPORATION
/S/ Wayne E. Ahart
By: Wayne E. Ahart, Chairman of the
Board
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
SIGNATURE
|
TITLE
|
DATE
|
||
/s/
Wayne E.
Ahart
|
03/25/2010
|
|||
Wayne
E. Ahart
|
Chairman
of the Board, Director (Principal Executive Officer)
|
|||
/s/
C. Donald
Byrd
|
03/25/2010
|
|||
C.
Donald Byrd
|
Vice
Chairman of the Board and Director
|
|||
/s/
Kenneth
Tobey
|
03/25/2010
|
|||
Kenneth
Tobey
|
President
and Director
|
|||
/s/
Barry N. Shamas
|
03/25/2010
|
|||
Barry
N. Shamas
|
Executive
Vice President, Treasurer, Chief Operating Officer, Chief Financial
Officer and Director (Principal Financial and Accounting
Officer)
|
|||
/s/
Hayden
Fry
|
03/25/2010
|
|||
Hayden
Fry
|
Director
|
|||
/s/
John
Greig
|
03/25/2010
|
|||
John
Greig
|
Director
|
|||
/s/
C. James
McCormick
|
03/25/2010
|
|||
C.
James McCormick
|
Director
|
|||
/s/
Robert R.
Rigler
|
03/25/2010
|
|||
Robert
R. Rigler
|
Director
|
|||
/s/
Stanley Schoelerman
|
03/25/2010
|
|||
Stanley
Schoelerman
|
Director
|
|||
/s/
Cecil
Alexander
|
03/25/2010
|
|||
Cecil
Alexander
|
Director
|
|||
/s/
Richard
Barclay
|
03/25/2010
|
|||
Richard
Barclay
|
Director
|
|||
/s/
Eugene A. Cernan
|
03/25/2010
|
|||
Eugene
A. Cernan
|
Director
|
|||
/s/
Roy
Ledbetter
|
03/25/2010
|
|||
Roy
Ledbetter
|
Director
|
|||
/s/
John E.
Miller
|
03/25/2010
|
|||
John
E. Miller
|
Director
|
ANNUAL
REPORT ON FORM 10-K
ITEM
15 (a) AND 15 (d)
FINANCIAL
STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2009
BNL
FINANCIAL CORPORATION AND SUBSIDIARIES
DES
MOINES, IOWA
Table of
Contents
Item 15(a) Financial Statements |
Page
Number of 2009
Form
10-K
|
|
|
||
F-2
|
||
F-3
|
||
F-4
|
||
F-5
|
||
F-6
|
||
F-7
|
||
F-23
|
BNL
Financial Corporation and Subsidiaries
To the
Board of Directors and Shareholders
BNL
Financial Corporation and Subsidiaries
We have
audited the consolidated financial statements of BNL Financial Corporation and
Subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States.) Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BNL Financial
Corporation and Subsidiaries as of December 31, 2009 and 2008, and the
consolidated results of its operations and its consolidated cash flows for each
of the years ended December 31, 2009, 2008 and 2007 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information required to be set forth therein.
Oklahoma
City,
Oklahoma SMITH, CARNEY & CO., p.c.
March 30,
2010
/s/ Smith, Carney & Co.,
p.c.
BNL
Financial Corporation and Subsidiaries
December
31, 2009 and 2008
December 31, | ||||||||
ASSETS
|
2009
|
2008
|
||||||
Cash
and cash equivalents
|
$ | 8,090,103 | $ | 4,989,381 | ||||
Investments
in fixed maturities at fair value, Available for
Sale (amortized cost $42,000; $446,976,
respectively)
|
146,720 | 543,925 | ||||||
Investments
in fixed maturities at amortized cost, Held to Maturity (fair
value $18,423,612; $19,393,473, respectively)
|
18,358,628 | 19,597,008 | ||||||
Other
long-term investments - (Note 4)
|
1,180,041 | 1,224,609 | ||||||
Investment
in equity securities, at fair value (cost
$711,915, $699,829, respectively)
|
674,671 | 429,745 | ||||||
Total
Investments, Including Cash and Cash Equivalents
|
28,450,163 | 26,784,668 | ||||||
Accrued
investment income
|
128,469 | 181,522 | ||||||
Leasehold
improvements, furniture and equipment, net
|
835,367 | 1,048,673 | ||||||
Deferred
policy acquisition costs
|
253,254 | 283,561 | ||||||
Policy
loans
|
162,395 | 191,010 | ||||||
Receivable
from reinsurer
|
47,475 | 46,554 | ||||||
Premiums
due and unpaid
|
967,508 | 1,113,301 | ||||||
Deferred
income tax assets
|
106,000 | 97,000 | ||||||
Intangible
assets
|
125,408 | 131,212 | ||||||
Other
assets
|
292,002 | 135,282 | ||||||
Total
Assets
|
$ | 31,368,041 | $ | 30,012,783 | ||||
LIABILITIES
|
||||||||
Liabilities
for future policy benefits
|
$ | 2,143,273 | $ | 2,208,948 | ||||
Policy
claims payable
|
1,348,590 | 1,712,140 | ||||||
Annuity
deposits
|
2,505,778 | 2,523,185 | ||||||
Deferred
annuity profits
|
201,492 | 231,263 | ||||||
Premium
deposit funds
|
20,547 | 21,849 | ||||||
Supplementary
contracts without life contingencies
|
36,791 | 2,782 | ||||||
Advanced
and unallocated premium
|
968,159 | 1,036,123 | ||||||
Commissions
payable
|
615,455 | 595,488 | ||||||
Accrued
taxes and expenses
|
406,932 | 566,809 | ||||||
Bonds
payable
|
1,323,388 | 1,443,282 | ||||||
Other
liabilities
|
1,066,525 | 1,062,497 | ||||||
Total
Liabilities
|
10,636,930 | 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
|
5,725,590 | 5,748,465 | ||||||
Accumulated
other comprehensive income (loss)
|
36,042 | (160,934 | ) | |||||
Accumulated
surplus
|
15,092,975 | 13,032,655 | ||||||
Treasury
stock, at cost, 343,194; 256,838; shares, respectively
|
(432,775 | ) | (321,048 | ) | ||||
Total
Shareholders' Equity
|
20,731,111 | 18,608,417 | ||||||
Total
Liabilities and Shareholders' Equity
|
$ | 31,368,041 | $ | 30,012,783 |
The
accompanying notes are an integral part of the consolidated financial
statements.
BNL
Financial Corporation and Subsidiaries
For
the years ended December 31, 2009, 2008 and 2007
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Income
|
||||||||||||
Premium
income
|
$ | 41,609,604 | $ | 43,456,024 | $ | 44,564,173 | ||||||
Net
investment income
|
1,122,698 | 1,170,901 | 1,320,614 | |||||||||
Marketing
fees
|
25,000 | - | 198,843 | |||||||||
Vision
insurance income
|
2,386,148 | 2,263,529 | 1,979,359 | |||||||||
Realized
gain on debt retirements
|
27,176 | 44,370 | 10,803 | |||||||||
Realized
gains (losses) on sales or maturities
|
100,792 | 16,729 | 11,128 | |||||||||
Realized
gains (losses) on other than temporary impairments
|
(42,280 | ) | (496,446 | ) | - | |||||||
Total Income
|
45,229,138 | 46,455,107 | 48,084,920 | |||||||||
Expenses
|
||||||||||||
Decrease
in liability for future policy benefits
|
(66,596 | ) | (39,268 | ) | (213,867 | ) | ||||||
Policy
benefits and other insurance costs
|
31,805,555 | 32,978,610 | 33,496,995 | |||||||||
Amortization
of deferred policy acquisition costs
|
30,308 | 40,564 | 16,060 | |||||||||
Operating
expenses
|
8,716,583 | 9,055,261 | 9,012,950 | |||||||||
Taxes,
other than on income
|
1,328,062 | 1,458,629 | 1,509,780 | |||||||||
Total
Expenses
|
41,813,912 | 43,493,796 | 43,821,918 | |||||||||
Income
from Operations before Income
Taxes
|
3,415,226 | 2,961,311 | 4,263,002 | |||||||||
Provision
for income taxes
|
597,381 | 594,839 | 813,634 | |||||||||
Net
Income
|
$ | 2,817,845 | $ | 2,366,472 | $ | 3,449,368 | ||||||
Net
income per common share (basic and diluted)
|
$ | 0.19 | $ | 0.16 | $ | 0.22 | ||||||
Weighted
average number of fully paid
common shares
|
15,137,299 | 15,211,961 | 15,602,725 | |||||||||
Net
Income (as above)
|
$ | 2,817,845 | $ | 2,366,472 | $ | 3,449,368 | ||||||
Other
comprehensive income (loss), net of tax:
|
||||||||||||
Unrealized
gains on securities:
|
||||||||||||
Unrealized
holding gain (loss) arising during period (net of $10,463, ($47,777) and
$10,175 of deferred taxes in 2009, 2008 and 2007;
respectively)
|
248,060 | (516,795 | ) | 65,626 | ||||||||
Reclassification
adjustment for (gain) loss included in net income
|
(51,084 | ) | 233,229 | (11,352 | ) | |||||||
Other
Comprehensive Income (Loss)
|
196,976 | (283,566 | ) | 54,274 | ||||||||
Comprehensive
Income
|
$ | 3,014,821 | $ | 2,082,906 | $ | 3,503,642 |
The
accompanying notes are an integral part of the consolidated financial
statements.
BNL
Financial Corporation and Subsidiaries
For
the years ended December 31, 2009, 2008 and 2007
Accumulated
|
||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||
Common
Stock
|
Paid-In
|
Accumulated
|
Comprehensive
|
Treasury
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Surplus
|
Income
|
Stock
|
|||||||||||||||||||
Balance,
December 31, 2006
|
17,213,170 | $ | 344,264 | $ | 7,582,733 | $ | 7,977,171 | $ | 68,356 | $ | (1,460,020 | ) | ||||||||||||
Accumulated
other comprehensive income
|
- | - | - | - | 54,274 | - | ||||||||||||||||||
Sale
of treasury stock
|
- | - | 48,325 | - | - | 102,995 | ||||||||||||||||||
Purchase
of treasury stock
|
- | - | - | - | - | (789,184 | ) | |||||||||||||||||
Stock
options exercised
|
- | - | 5,736 | - | - | 20,494 | ||||||||||||||||||
Retirement
of treasury stock
|
(1,749,205 | ) | (34,985 | ) | (1,885,554 | ) | - | - | 1,812,899 | |||||||||||||||
Net
income
|
- | - | - | 3,449,368 | - | - | ||||||||||||||||||
Balance,
December 31, 2007
|
15,463,965 | $ | 309,279 | $ | 5,751,240 | $ | 11,426,539 | $ | 122,630 | $ | (312,816 | ) | ||||||||||||
Accumulated
other comprehensive income
|
- | - | - | - | (283,566 | ) | - | |||||||||||||||||
Purchase
of treasury stock
|
- | - | - | - | - | (20,858 | ) | |||||||||||||||||
Stock
options exercised
|
- | - | (2,775 | ) | - | - | 12,626 | |||||||||||||||||
Dividends
|
- | - | - | (760,356 | ) | - | - | |||||||||||||||||
Net
income
|
- | - | - | 2,366,472 | - | - | ||||||||||||||||||
Balance,
December 31, 2008
|
15,463,965 | $ | 309,279 | $ | 5,748,465 | $ | 13,032,655 | $ | (160,934 | ) | $ | (321,048 | ) | |||||||||||
Accumulated
other comprehensive income
|
- | - | - | - | 196,976 | - | ||||||||||||||||||
Purchase
of treasury stock
|
- | - | - | - | - | (155,352 | ) | |||||||||||||||||
Stock
options exercised
|
- | - | (22,875 | ) | - | - | 43,625 | |||||||||||||||||
Dividends
|
- | - | - | (757,525 | ) | - | - | |||||||||||||||||
Net
income
|
- | - | - | 2,817,845 | - | - | ||||||||||||||||||
Balance,
December 31, 2009
|
15,463,965 | $ | 309,279 | $ | 5,725,590 | $ | 15,092,975 | $ | 36,042 | $ | (432,775 | ) |
The
accompanying notes are an integral part of the consolidated financial
statements.
BNL
Financial Corporation and Subsidiaries
For
the years ended December 31, 2009, 2008 and 2007
Year Ended December 31, | ||||||||||||
2009
|
2008
|
2007
|
||||||||||
Cash
Flows from Operating Activities
|
||||||||||||
Net
income
|
$ | 2,817,845 | $ | 2,366,472 | $ | 3,449,368 | ||||||
Adjustments
to reconcile net income to net cash provided
by operating activities:
|
||||||||||||
Realized
(gain) loss on investments
|
(61,548 | ) | 482,137 | (13,677 | ) | |||||||
Realized
(gain) loss on sale of furniture and equipment
|
3,036 | (2,420 | ) | 2,549 | ||||||||
Realized
gain on debt extinguishments
|
(27,176 | ) | (44,370 | ) | (10,803 | ) | ||||||
Depreciation
|
304,625 | 284,324 | 381,064 | |||||||||
Decrease
(increase) in deferred tax asset
|
(50,000 | ) | (68,602 | ) | 40,602 | |||||||
Increase
in and amortization of deferred acquisition costs, and bond issuance
cost
|
36,123 | 46,379 | 21,875 | |||||||||
Accretion
of bond premium (discount)
|
17,529 | (11,652 | ) | (11,528 | ) | |||||||
Change
in assets and liabilities:
|
||||||||||||
Decrease
in accrued investment income
|
53,053 | 38,939 | 2,833 | |||||||||
(Increase)
decrease in receivable from reinsurer
|
(921 | ) | 6,829 | (563 | ) | |||||||
(Increase)
decrease in premiums due and unpaid
|
145,793 | 348,166 | (375,364 | ) | ||||||||
Decrease
in liability for future policy benefits
|
(65,675 | ) | (46,097 | ) | (217,804 | ) | ||||||
Decrease
in policy claims payable
|
(363,550 | ) | (594,149 | ) | (201,837 | ) | ||||||
Increase
(decrease) in annuity deposits and deferred profits
|
(47,177 | ) | 37,743 | (107,909 | ) | |||||||
Decrease
in premium deposit funds
|
(1,301 | ) | (3,469 | ) | (3,140 | ) | ||||||
Increase
(decrease) in advanced and unallocated premium
|
(67,964 | ) | (1,183,306 | ) | 1,344,340 | |||||||
Increase
(decrease) in commissions payable
|
19,967 | 81,474 | (41,145 | ) | ||||||||
Other,
(decrease) increase
|
(319,430 | ) | 266,181 | (279,162 | ) | |||||||
Net
Cash Provided by Operating Activities
|
2,393,229 | 2,004,579 | 3,979,699 | |||||||||
Cash
Flows from Investing Activities
|
||||||||||||
Proceeds
from sales of investments
|
- | 4,375 | 129,753 | |||||||||
Proceeds
from maturity or redemption – Available For Sale
|
482,964 | - | - | |||||||||
Proceeds
from maturity or redemption - Held to Maturity Investments
|
13,340,133 | 12,002,977 | 5,623,542 | |||||||||
Proceeds
from sale of furniture and equipment
|
2,959 | 17,000 | 43,809 | |||||||||
Purchase
of equity securities
|
(12,086 | ) | (330,601 | ) | (47,105 | ) | ||||||
Purchase
of furniture, equipment and leasehold improvements
|
(97,316 | ) | (200,122 | ) | (252,506 | ) | ||||||
Purchase
of fixed maturity securities, Held to Maturity
|
(12,071,571 | ) | (12,631,782 | ) | (5,605,447 | ) | ||||||
Other
Investments - Line of credit - receipt (advanced)
|
44,568 | 40,863 | 37,755 | |||||||||
Net
Cash Provided by (Used in) Investing Activities
|
1,689,651 | (1,097,290 | ) | (70,199 | ) | |||||||
Cash
Flows from Financing Activities
|
||||||||||||
Sale
of treasury stock
|
- | - | 164,226 | |||||||||
Purchase
of treasury stock
|
(155,352 | ) | (16,686 | ) | (780,352 | ) | ||||||
Dividends
to shareholders
|
(757,525 | ) | (760,358 | ) | - | |||||||
Net
change in supplementary contracts
|
2,686 | 28,200 | (11,336 | ) | ||||||||
Stock
options exercised
|
20,750 | 12,875 | 4,492 | |||||||||
Debt
extinguishments
|
(92,717 | ) | (119,922 | ) | (21,605 | ) | ||||||
Net
Cash Used in Financing Activities
|
(982,158 | ) | (855,891 | ) | (644,575 | ) | ||||||
Net Increase in Cash and Cash Equivalents
|
3,100,722 | 51,398 | 3,264,925 | |||||||||
Cash and Cash Equivalents, Beginning of Period
|
4,989,381 | 4,937,983 | 1,673,058 | |||||||||
Cash
and Cash Equivalents, End of Period
|
$ | 8,090,103 | $ | 4,989,381 | $ | 4,937,983 |
The
accompanying notes are an integral part of the consolidated financial
statements.
The
consolidated financial statements include the accounts of BNL Financial
Corporation (“BNLF”) and its wholly owned subsidiaries, Brokers National Life
Assurance Company (BNLAC), BNL Brokerage Corporation and Consumers Protective
Association, Inc. All significant intercompany balances have been
eliminated.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
The
Company’s principal activity is the sale of individual and group life and
accident and health insurance within the United
States. The most significant income component is sales of
dental insurance for which the maximum annual risk per policy is
$2,000. See Note 10. The Company is licensed to sell in 48
states and the District of Columbia as of December 31, 2009. See Note
2. Substantially all of the Company's life insurance in force is
nonparticipating business.
Premiums from group accident
and health insurance are reported as earned when due since these policies are
short duration contracts.
Individual dental and
individual life insurance policies are long duration
contracts. Benefits and expenses are associated with earned
premiums so as to result in recognition over the life of the
policy. Such recognition is accomplished by means of the provision
for future policy benefits and amortization of deferred policy acquisition
costs.
Costs of
acquiring new business and certain expenses of policy issuance and underwriting
have been deferred; these deferred policy acquisition costs are being amortized
over the premium-paying period of the policies (maximum of 30 years) in
proportion to the ratio of annual premium revenue to total premium revenue
anticipated.
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets, including tax loss and credit carry-forwards, and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date. Deferred income tax expense represents the change during the
period in the deferred tax assets and liabilities. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. See Note 3.
Liability
for future policy benefits for traditional and limited-payment contracts has
been determined primarily by the net level premium method using the 1975 through
1980 Select and Ultimate Mortality Table, interest assumptions starting at 7%
graded to 5% at the end of the sixteenth year and estimated future withdrawals
based upon Linton Tables B or C.
For
annuity contracts without mortality risk, net premium deposits and benefit
payments are recorded as increases or decreases in a liability account rather
than as revenue and expense. Expenses incurred and fees charged upon
issuance are deferred and recognized in relationship to the amount of funds
held. This deferred annuity profit is being amortized based on lapse
and mortality assumptions (maximum of 30 years) which are revised periodically
to reflect actual experience. Increases in the liability account for
interest credited to contracts are charged to expense. The interest
rate assumptions ranged from 4.0% to 5.0% during 2009 and 2008.
The
liability for policy claims payable is composed of claims reported but not paid
and claims incurred but not reported. The Company has developed a
procedure for calculating incurred but not reported dental claims based on prior
years’ claims using dates incurred, reported to the insurance company and
subsequently paid. Differences in estimates may result in revised
claims expense which is recognized in the period in which the difference is
determined.
The
Company has divided its fixed maturity investments into two classes, “available
for sale” and “held to maturity” in accordance with management’s intent in
regard to these investments. Investments available for sale may be sold prior to
maturity due to changes that might occur in market interest rates, changes in
the security’s prepayment risk, the Company’s liquidity needs, and similar
factors, including the Company’s asset/liability management
strategy. Investments available for sale are carried at fair value.
Unrealized gains and losses resulting from changes in the valuation of fixed
maturity securities classified as available for sale are recorded as a component
of comprehensive income.
1. Summary of Significant
Accounting Policies (continued)
The “held
to maturity” classification reflects management's intent and ability to hold
this block of securities to their maturity. Investments designated by
management as part of the held to maturity portfolio are presented on the
financial statements at amortized book value and, therefore, unlike the
available for sale portfolio, no adjustments to surplus are made as bond values
change unless declines in market value are deemed to be other than
temporary.
Realized
gains or losses on sale of all investments are determined on a specific
identification basis. Investments in equity securities are carried at
fair value.
Cash
equivalents are carried at amortized cost, which approximates fair
value. Cash equivalents represent other short-term
securities. For purposes of the Statement of Cash Flows, the Company
considers all highly liquid short-term investments to be cash equivalents. Cash
equivalents include money market funds that may be subject to withdrawal
restrictions. No such restrictions were in place at December 31,
2009. The Company made debenture interest payments of $82,317, $97,424 and
$78,331 in 2009, 2008 and 2007; respectively. The Company made cash
payments for income taxes of $630,000, $550,000 and $670,000 in 2009, 2008 and
2007, respectively.
Leasehold
improvements and furniture and equipment are recorded at
cost. Maintenance and repairs are charged to expense as
incurred. Provision for depreciation is made on the basis of
estimated useful lives of 3 to 10 years utilizing the straight-line
method. Leasehold improvements are amortized over the lease
term. Accumulated depreciation and amortization totaled $1,353,056
and $1,163,242 at December 31, 2009 and 2008,
respectively. Depreciation and amortization expense was $304,624,
$284,324, and $381,064, for the years ended December 31, 2009, 2008 and 2007,
respectively.
Other
assets include agents’ balances of $66,240 and $59,005 at December 31, 2009 and
2008, respectively, after reduction for allowance of doubtful
accounts. The allowance account had a credit recorded of $2,386,
$5,615 and $4,400 in 2009, 2008 and 2007, respectively.
Intangible
assets include the cost of 26 state licenses acquired in 1991 as part of the
Statesmen Life Insurance Company acquisition and certain loan acquisition costs.
These assets must be periodically tested for impairment of their market value
and written off immediately to the extent the value is found to be
impaired. The Company tested its intangible assets for impairment by
evaluating the future benefit of the underlying investments or rights acquired
in association with these assets. No impairment expense was
recognized in 2009, 2008 or 2007. Amortization expense of
approximately $5,815 was recorded for each of the years ended December 31, 2009,
2008 and 2007, respectively.
The
Company accounts for the 1994 Brokers and Agents Stock Option Plan and the 2002
Nondirector, Nonexecutive Stock Option Plan using the fair value method as
required by SFAS No. 123(R). Under this method the fair value of the
options granted is recorded as expense at the date of grant for fully vested
instruments. See Note 9.
In
February 2007 the FASB issued SFAS No. 159 (now ASC 820) “The Fair Value Option for Financial
Assets and Financial Liabilities.” ASC 820 permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. ASC 820 is effective for fiscal years
beginning after November 15, 2007. Management adopted but did not
elect to apply ASC 820 treatment to its financial assets and financial
liabilities. The adoption of ASC 820 did not have a material impact
on the consolidated financial position, results from operations or cash flows of
the Company.
In June
2007, the FASB issued Interpretation (“FIN”) No. 48, (now ASC 740) “Accounting
for Uncertainty in Income Taxes,” an interpretation of FASB Statement No. 109,
“Accounting for Income Taxes,” which clarifies accounting for and disclosure of
uncertainty in tax positions. ASC 740 prescribes a recognition threshold and
measurement attribute for the financial recognition and measurement of a tax
position taken or expected to be taken in a tax return. The interpretation is
effective for fiscal years beginning after December 15, 2007. Management has
evaluated the impact of adopting ASC 740 on the consolidated financial
statements, and the adoption of ASC 740 did not have a material effect on the
consolidated financial position, cash flows and results of
operations.
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).
1. Summary of Significant
Accounting Policies (continued)
On
April 1, 2009 management 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
the 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. Management adopted this guidance
during the second quarter of 2009. The adoption of this Standard did not have a
material impact on the financial statements.
Net gain
per share is based on net gain divided by the weighted average number of
shares.
2. Shareholders'
Equity
In 2009
the Company purchased 123,855 shares of its common stock for $155,352 and in
2008 the Company purchased 16,686 shares of its common stock for $20,858 from
its shareholders. During 2007, the Company made cash offers to
shareholders for the purchase of stock. This offering resulted in
stock purchases amounting to $789,214 for 611,214 shares. In order to
purchase company common stock, the Company was required to file a Schedule TO in
2007 with the Securities and Exchange Commission. Included in the
cost of the Treasury Stock purchased in 2007 is $35,000, which represents a
portion of the cost to complete the TO filings. The Company retired
1,749,205 treasury shares during the fourth quarter of 2007.
At
December 31, 2009 and 2008, shareholders' equity includes approximately
$20,580,513 and $18,323,659, respectively, of BNLAC net assets. The
ability of BNLAC to pay dividends to the Company is restricted under Arkansas
insurance laws and must be approved by the insurance commissioner if it exceeds
the lesser of 10% of surplus or net gain from operations for the
year. In 2009 BNLAC paid the Company $800,000 of ordinary dividends
which were used to pay dividends to the Company’s shareholders. BNLAC
paid the Company $1,300,000 of ordinary dividends in 2008, of which
approximately $760,000 was used to pay dividends to the Company’s shareholders
and the balance for operating expenses. In 2007 BNLAC paid the
Company $1,000,000 in ordinary dividends which were used to purchase the
Company’s common stock and for operating expenses. BNLAC paid
dividends of $800,000, $1,300,000 and $1,000,000 to the Company in 2009, 2008
and 2007, respectively.
BNLAC
reports to state regulatory authorities on a statutory accounting basis that
differs from the basis used herein. Due to an Arkansas regulatory
requirement associated with the redomestication in 1994, BNLAC must maintain a
minimum of $2,300,000 in capital and surplus. Additionally, each
state in which BNLAC is licensed has statutory minimum capital requirements
required for maintaining its license to sell. Minimum capital and
surplus requirements vary from $300,000 to as much as $5,000,000 in the states
in which BNLAC is licensed.
The
states periodically increase minimum capital requirements, often allowing
companies with existing Certificates of Authority to continue doing business in
the state under the previous existing requirements
(grandfathering). States in which BNLAC is licensed to do business
have increased minimum requirements to as much as
$5,000,000. Management actively monitors these developments to
maintain compliance with the requirements of each state.
Capital
and surplus and net income of BNLAC as reported on a statutory basis are as
follows:
December 31, | ||||||||||||
2009
|
2008
|
2007
|
||||||||||
Capital
and Surplus
|
$ | 19,129,993 | $ | 16,964,513 | $ | 15,834,458 | ||||||
Net
Income
|
$ | 2,733,185 | $ | 2,630,151 | $ | 3,350,129 |
The
following is a reconciliation of consolidated net income and shareholders’
equity per the financial statements included herein to BNLAC unconsolidated net
income and capital and surplus on a statutory basis:
2. Shareholders' Equity
(continued)
December
31, 2009
|
December
31, 2008
|
December
31, 2007
|
||||||||||||||||||||||
Income
|
Capital
and
Surplus
|
Income
|
Capital
and
Surplus
|
Income
|
Capital
and
Surplus
|
|||||||||||||||||||
Consolidated
reporting under
|
||||||||||||||||||||||||
generally
accepted accounting principles
|
$ | 2,817,845 | $ | 20,731,111 | $ | 2,366,472 | $ | 18,608,417 | $ | 3,449,368 | $ | 17,296,873 | ||||||||||||
Attributable
to Parent Company
|
(44,533 | ) | 150,598 | (267,204 | ) | 284,758 | 14,075 | 21,701 | ||||||||||||||||
Brokers
National Life Assurance Company
|
2,862,378 | 20,580,513 | 2,633,676 | 18,323,659 | 3,435,293 | 17,275,172 | ||||||||||||||||||
Deferred
acquisition costs
|
30,308 | (253,254 | ) | 40,564 | (283,561 | ) | 16,062 | (324,125 | ) | |||||||||||||||
Reserve
and premium adjustments
|
(15,698 | ) | 209,877 | 11,899 | 206,302 | (113,047 | ) | 201,923 | ||||||||||||||||
Interest
maintenance reserve/AVR
|
(36,511 | ) | (608,509 | ) | 22,322 | (426,376 | ) | 26,619 | (612,140 | ) | ||||||||||||||
Unrealized
appreciation of securities
|
- | (46,334 | ) | - | (270,084 | ) | - | 161,767 | ||||||||||||||||
Annuity
deposits and related adjustments
|
(66,258 | ) | 201,492 | 21,896 | 231,263 | (35,230 | ) | 253,159 | ||||||||||||||||
Income
tax credit
|
(53,000 | ) | 30,000 | (59,000 | ) | 10,000 | 25,000 | 106,000 | ||||||||||||||||
Other
|
11,966 | (983,792 | ) | (41,206 | ) | (826,690 | ) | (4,568 | ) | (1,227,299 | ) | |||||||||||||
BNLAC
Statutory Basis
|
$ | 2,733,185 | $ | 19,129,993 | $ | 2,630,151 | $ | 16,964,513 | $ | 3,350,129 | $ | 15,834,457 |
3. Income
Taxes
The
Company follows Statement of Financial Accounting Standards (SFAS) No. 109 (now
ASC 740), “Accounting for Income Taxes,” which prescribes the liability method
of accounting for deferred income taxes. Under the liability method,
companies establish a deferred tax liability or asset for the future tax effects
of temporary differences between book and tax basis of assets and
liabilities. Changes in future tax rates will result in immediate
adjustments to deferred taxes. The Company and its Subsidiaries
file consolidated income tax returns.
At
December 31, 2009 and 2008, respectively, the Company had gross deferred tax
assets of $1,037,858 and $1,067,931 with corresponding valuation allowances of
$683,058 and $701,414, and gross deferred tax liabilities of $248,800 and
$269,517, resulting from net operating loss carryovers and temporary
differences primarily related to the life insurance subsidiary. The valuation
allowance is primarily due to statutory limitations on the use of net operating
losses and uncertainty as to usage of AMT credit carryover. The
resulting net deferred tax asset at December 31, 2009 is $106,000 compared to a
deferred tax asset of $97,000 at December 31, 2008. Realization of
the deferred tax asset is dependent on generating sufficient taxable income
prior to expiration of the loss carry forward. Although realization is not
assured, management believes it is more likely than not that all of the net
deferred tax asset will be realized. However, the amount of the deferred tax
asset considered realizable could be reduced in the near term if estimates of
future taxable income during the carry forward period are reduced.
The
provision for income tax is as follows:
2009
|
2008
|
2007
|
||||||||||
Current
tax provisions
|
$ | 647,381 | $ | 663,441 | $ | 773,033 | ||||||
Deferred
tax provision
|
(50,000 | ) | (68,602 | ) | 40,602 | |||||||
Total
income tax provision
|
$ | 597,381 | $ | 594,839 | $ | 813,634 |
The
reconciliation of income taxes computed at the federal statutory income tax rate
to total income taxes for the years ended December 31, 2009, 2008 and 2007 is as
follows:
3. Income Taxes
(continued)
2009
|
2008
|
2007
|
||||||||||
Book
income before tax
|
$ | 3,415,226 | $ | 2,961,311 | $ | 4,263,002 | ||||||
Income
tax computed at statutory rate (34%)
|
$ | 1,161,177 | $ | 1,006,845 | $ | 1,449,421 | ||||||
Valuation
allowance for AMT credit
|
10,770 | (17,000 | ) | (85,000 | ) | |||||||
Revision
of valuation allowance
|
18,356 | 94,052 | 173,923 | |||||||||
Rate
differential
|
(592,922 | ) | (489,058 | ) | (724,710 | ) | ||||||
Total
income tax provision
|
$ | 597,381 | $ | 594,839 | $ | 813,634 |
The
Company has net operating loss carry forwards for income tax purposes at
December 31, 2009 as follows:
Expiring
|
NOL
|
|||
2010
|
$ | 186,000 | ||
2011
|
66,000 | |||
2012
|
193,000 | |||
2018
|
105,000 | |||
2019
|
70,000 | |||
2020
|
65,000 | |||
2028
|
31,000 | |||
$ | 716,000 |
4. Investments
The
amortized cost and estimated market value of investments in fixed maturity
securities are as follows:
Portfolio
Designated “Held to Maturity”
December
31, 2009
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Estimated
Market Value
|
||||||||||||
US
Treasury securities and obligations of US
government corporations and agencies
|
$ | 6,735,952 | $ | 40,338 | $ | 75,870 | $ | 6,700,420 | ||||||||
Corporate
securities
|
3,741,414 | 156,296 | 175,440 | 3,722,270 | ||||||||||||
Mortgage-backed
securities GNMA
& FNMA CMO
|
7,881,262 | 167,694 | 48,034 | 8,000,922 | ||||||||||||
Totals
|
$ | 18,358,628 | $ | 364,328 | $ | 299,344 | $ | 18,423,612 | ||||||||
Portfolio
Designated “Available for Sale”
(Note
1)
December 31,
2009
|
||||||||||||||||
Corporate
securities
|
$ | 42,000 | $ | 104,720 | $ | - | $ | 146,720 | ||||||||
Totals
|
$ | 42,000 | $ | 104,720 | $ | - | $ | 146,720 | ||||||||
4. Investments
(continued)
Portfolio
Designated “Held to Maturity”
(Note
1)
December 31,
2008
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Estimated
Market Value
|
||||||||||||
US
Treasury securities and obligations of US
government corporations and agencies
|
$ | 11,236,009 | $ | 73,390 | $ | 46,229 | $ | 11,263,170 | ||||||||
Corporate
securities
|
4,120,927 | 44,631 | 388,256 | 3,777,302 | ||||||||||||
Mortgage-backed
securities GNMA
and FNMA CMO
|
4,240,072 | 114,955 | 2,026 | 4,353,001 | ||||||||||||
Totals
|
$ | 19,597,008 | $ | 232,976 | $ | 436,511 | $ | 19,393,473 | ||||||||
Portfolio
Designated “Available for Sale”
(Note
1)
December 31,
2008
|
||||||||||||||||
US
Treasury securities and obligations of US
government corporations and agencies
|
$ | 402,976 | $ | 101,449 | $ | 2,500 | $ | 501,925 | ||||||||
Corporate
securities
|
42,000 | - | - | 42,000 | ||||||||||||
Totals
|
$ | 444,976 | $ | 101,449 | $ | 2,500 | $ | 543,925 |
The
amortized cost and estimated fair value of investments in fixed maturity
securities at December 31, 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 | |||||||||||||||
December 31, 2009 | December 31, 2009 | |||||||||||||||
Amortized
Cost
|
Estimated
Market
Value
|
Amortized
Cost
|
Estimated
Market
Value
|
|||||||||||||
Due
in one year or less
|
$ | 1,054,353 | $ | 1,071,855 | $ | - | $ | - | ||||||||
Due
after one year through five years
|
4,564,407 | 4,567,839 | - | - | ||||||||||||
Due
after five years through ten years
|
1,719,010 | 1,677,579 | - | - | ||||||||||||
Due
after ten years
|
3,139,596 | 3,105,417 | 42,000 | 146,720 | ||||||||||||
10,477,366 | 10,422,690 | 42,000 | 146,720 | |||||||||||||
Mortgage-backed
securities
|
7,881,262 | 8,000,922 | - | - | ||||||||||||
$ | 18,358,628 | $ | 18,423,612 | $ | 42,000 | $ | 146,720 |
Proceeds
from sales and maturities of investments in fixed maturity securities and equity
securities for the years ended December 31, 2009, 2008 and 2007 were
$13,823,097, $12,002,977, and $5,774,799 respectively. Gross gains
were $103,828, $10,863 and $13,677 and gross losses were $0, $0 and $0 as of
December 31, 2009, 2008 and 2007, respectively.
Included
on the balance sheet in Accumulated Other Comprehensive Income are gross
unrealized gains of $238,141, $101,449 and $240,686 and gross unrealized losses
of $170,665, $432,245 and $70,437 as on December 31, 2009, 2008 and 2007,
respectively. No other than temporary impairments of “Held to
Maturity” investments are recognized in accumulated other comprehensive
income.
4. Investments
(continued)
Investment
in equity securities at December 31, 2009 and 2008 represents common and
preferred stock investments as follows:
2009
|
2008
|
|||||||||||||||
Cost
|
Market
Value
|
Cost
|
Market
Value
|
|||||||||||||
Banks,
trusts and insurance
companies
|
$ | 93,269 | $ | 41,901 | $ | 81,183 | $ | 35,410 | ||||||||
Industrial,
savings and
loans and other
|
618,646 | 632,770 | 618,646 | 394,335 | ||||||||||||
$ | 711,915 | $ | 674,671 | $ | 699,829 | $ | 429,745 |
Net
investment income for the years ended December 31, 2009, 2008 and 2007 is as
follows:
2009
|
2008
|
2007
|
||||||||||
Interest
on debt securities and cash
investments
|
$ | 1,127,883 | $ | 1,174,759 | $ | 1,325,720 | ||||||
Dividends
on equity securities
|
12,309 | 11,989 | 6,215 | |||||||||
1,140,192 | 1,186,748 | 1,331,935 | ||||||||||
Investment
expenses
|
(17,494 | ) | (15,847 | ) | (11,321 | ) | ||||||
Net
Investment Income
|
$ | 1,122,698 | $ | 1,170,901 | $ | 1,320,614 |
Net
realized gains and losses are summarized below:
2009
|
2008
|
2007
|
||||||||||
Debt
securities
|
$ | 70,402 | $ | (482,137 | ) | $ | - | |||||
Equity
securities
|
(8,854 | ) | - | 13,677 | ||||||||
Fixed
assets
|
(3,036 | ) | 2,420 | (2,549 | ) | |||||||
$ | 58,512 | $ | (479,717 | ) | $ | 11,128 |
Other
long-term investments of $1,180,041 and $1,224,609 in 2009 and 2008
respectively, consists of, in part, a convertible debenture loan investment
(“Debenture”) to EPSI Benefits, Inc. (“EBI”), originally dated July 25,
2001. The loan bears interest at a rate of 14% and the maturity of
the Debenture was August 15, 2015. Monthly principal payments were scheduled to
begin on September 15, 2008, and the total principal amount is
$1,357,407.
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. For various business reasons management
of both companies deemed the amendment as advantageous. Under the agreement, BNL
has the right to convert the Debenture into a 51% ownership in
EBI. Such conversion right will continue during the extended maturity
of the Debenture.
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 as of
December 31, 2008, resulting in a net book value of $1,152,825.
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. CIT Group, Inc. redeemed this bond for other bonds and
equity securities prior to December 31, 2009.
4. Investments
(continued)
The
Company’s policy for recognizing interest income on the impaired debenture is to
recognize interest under the stated loan terms. Interest on the
debentures is and has been current.
The
average recorded investment on impaired debenture during the period ended
December 31, 2009 was $1,152,825. Interest income recognized in 2009
on the impaired debenture was $190,037.
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 $27,215 and $71,784 in 2009 and 2008, respectively. The
agreement provided EPSI with a $200,000 line of credit maturing August,
2011. The line of credit is at 8.00% with interest and principal
payable monthly to BNLAC.
Regulatory
authorities require certain Company investments to be deposited or pledged for
the benefits of policyholders as a condition of doing business in certain
states. The carrying values of these investment deposits are
approximately $4,601,528 and $4,738,000 as of December 31, 2009 and 2008,
respectively.
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
December 31, 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
|
$ | 4,617,551 | $ | 72,895 | $ | 497,025 | $ | 2,975 | $ | 5,114,576 | $ | 75,870 | ||||||||||||
Corporate
securities
|
- | - | 424,560 | 175,440 | 424,560 | 175,440 | ||||||||||||||||||
Mortgage-backed
securities GNMA
and FNMA CMO
|
3,112,077 | 48,009 | 14,022 | 25 | 3,126,099 | 48,034 | ||||||||||||||||||
Totals
|
$ | 7,729,628 | $ | 120,904 | $ | 935,607 | $ | 178,440 | $ | 8,665,235 | $ | 299,344 |
4. Investments
(continued)
Less
than 12 Months
|
12
Months or Greater
|
Total
|
||||||||||||||||||||||
Description
of Securities
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||||||||
Other
Long-Term Investments
|
$ | - | $ | - | $ | 742,448 | $ | 410,377 | $ | 742,448 | $ | 410,377 | ||||||||||||
Totals
|
$ | - | $ | - | $ | 742,448 | $ | 410,377 | $ | 742,448 | $ | 410,377 | ||||||||||||
Equity
Securities
|
$ | - | $ | - | $ | 219,110 | $ | 170,665 | $ | 219,110 | $ | 170,665 | ||||||||||||
Totals
|
$ | - | $ | - | $ | 219,110 | $ | 170,665 | $ | 219,110 | $ | 170,665 |
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 December 31, 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
December 31, 2009.
Corporate Bonds
The table
below discloses the unrealized losses on corporate bonds with significant
unrealized losses.
Corporate
Bonds
December 31,
2009
|
S&P
Rating
|
Amortized
Book Value
|
Gross
Unrealized Losses
|
Estimated
Market Value
|
||||||||||
MBIA
|
BB+
|
$ | 200,000 | $ | 110,000 | $ | 90,000 | |||||||
American
General Finance
|
BB+
|
200,000 | 61,400 | 138,600 | ||||||||||
Totals
|
$ | 400,000 | $ | 171,400 | $ | 228,600 |
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
December 31, 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. The $57,720 was the
market value of the bonds at September 30, 2009 as determined by BOSC, the
Company’s investment banker. Cit Group, Inc. filed for chapter 11
bankruptcy on November 1, 2009.
4. Investments
(continued)
Marketable Equity
Securities.
The table
below discloses the Company’s unrealized losses on marketable equity
securities.
Equity
Securities
December 31,
2009
|
Cost
|
Gross
Unrealized Losses
|
Estimated
Market Value
|
|||||||||
Garmin
LTD
|
$ | 220,322 | $ | 112,872 | $ | 107,450 | ||||||
Treaty
Oak Bank
|
50,813 | 31,293 | 19,520 | |||||||||
Regions
Financial Corporation
|
30,370 | 25,080 | 5,290 | |||||||||
British
Petroleum
|
88,270 | 1,420 | 86,850 | |||||||||
Totals
|
$ | 389,775 | $ | 170,665 | $ | 219,110 |
The
Company's marketable equity securities include a variety of
industries. Garmin LTD has the largest unrealized loss of $112,872,
which is approximately a 51% decrease in value. Garmin manufactures
communication and navigational products, and they are 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. Treaty Oak Bank is a small local bank
that has not been in business long. The banks stock price decreased
due to problem commercial loans. Regions Financial Corporation has
suffered from the recession and the reduced demand for loans. 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 December 31,
2009.
5. 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 and other
similar techniques.
5. Fair Value of Financial
Instruments (continued)
The table
below presents the balances of assets measured at fair value on a recurring
basis, as of December 31, 2009.
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Fixed
Maturities , held to maturity
|
$ | - | $ | 18,333,612 | $ | 90,000 | $ | 18,423,612 | ||||||||
Fixed
maturities, available for sale
|
- | 146,720 | - | 146,720 | ||||||||||||
Equity
securities, available for sale
|
674,671 | - | - | 674,671 | ||||||||||||
Other
long term investments
|
- | - | 769,663 | 769,663 | ||||||||||||
Cash
and cash equivalents
|
4,398,895 | 3,691,208 | - | 8,090,103 | ||||||||||||
Total
assets
|
$ | 5,073,566 | $ | 22,171,540 | $ | 859,663 | $ | 28,104,769 |
The
following tables provide a summary of the changes in fair value of Level 3
assets and liabilities for the period January 1, 2009 to December 31, 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
December 31, 2008.
Other
Long-term Investments
|
Fixed
Maturity
|
Total
|
||||||||||
Fair
value, beginning of period
|
$ | 951,436 | $ | - | $ | 951,436 | ||||||
Other than temporary decline in fair value:
|
||||||||||||
Included
in Net Income
|
- | - | - | |||||||||
Included
in other comprehensive income
|
- | - | - | |||||||||
Purchases,
sales, issuances and settlements
|
(44,569 | ) | - | (44,569 | ) | |||||||
Investment
reclassified to Level 3
|
- | 110,000 | 110,000 | |||||||||
Temporary
decline in fair value
|
(137,204 | ) | (20,000 | ) | (157,204 | ) | ||||||
Fair
value, end of period
|
$ | 769,663 | $ | 90,000 | $ | 859,663 |
Unrealized
losses for the period relating to those Level 3 assets that were held by the
Company at the end of the period were $430,377.
2009
|
2008 | |||||||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||||||
Assets
|
Amount
|
Value
|
Amount
|
Value
|
||||||||||||||||
Cash
and Cash Equivalents
|
||||||||||||||||||||
(Note
1)
|
$ | 8,090,103 | $ | 8,090,103 |
(a)
|
$ | 4,989,381 | $ | 4,989,381 |
(a)
|
||||||||||
Investments-fixed
maturity, available for sale
(Note
4 & Note 1)
|
146,720 | 146,720 |
(b)
|
543,925 | 543,925 |
(b)
|
||||||||||||||
Investments-fixed
maturity, held to maturity
(Note
4 & Note 1)
|
18,358,628 | 18,423,612 |
(b)
|
19,597,008 | 19,393,473 |
(b)
|
||||||||||||||
Investments
–equity securities
|
||||||||||||||||||||
(Note
4 & Note 1)
|
674,671 | 674,671 |
(b)
|
429,745 | 429,745 |
(b)
|
||||||||||||||
Other
long term investments (Note 4)
|
1,180,041 | 769,663 |
(b)
|
1,224,609 | 951,436 |
(b)
|
||||||||||||||
Other
financial instruments-Assets
|
357,284 | 357,284 |
(a)
|
431,537 | 431,537 |
(a)
|
||||||||||||||
Total
financial instruments-Assets
|
$ | 28,807,447 | $ | 28,462,053 | $ | 27,216,205 | $ | 26,739,497 | ||||||||||||
Liabilities
|
||||||||||||||||||||
Premium
deposit funds
|
$ | 20,547 | $ | 20,547 |
(a)
|
$ | 21,849 | $ | 21,849 |
(a)
|
||||||||||
Bonds
payable
|
1,323,388 | 1,323,388 |
(a)
|
1,443,282 | 1,443,282 |
(a)
|
||||||||||||||
Supplementary
contracts without life contingencies
|
||||||||||||||||||||
(Note
1)
|
36,791 | 36,791 |
(a)
|
2,782 | 2,782 |
(a)
|
||||||||||||||
Annuity
deposits
|
||||||||||||||||||||
(Note
1)
|
2,505,778 | 2,505,778 |
(a)
|
2,523,185 | 2,523,185 |
(a)
|
||||||||||||||
Total
financial instruments-Liabilities
|
$ | 3,886,504 | $ | 3,886,504 | $ | 3,991,098 | $ | 3,991,098 |
(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.
6. Commitments and
Contingencies
The
balance of Bonds Payable was $1,323,388 and $1,443,282 at December 31, 2009 and
2008 respectively. The bonds were issued in conjunction with a
settlement with certain shareholders in 2001. The Bonds are for a
term of twelve years, effective December 15, 2002, with principal payable at
maturity and bear interest at the rate of 6% per annum payable annually from the
previous fiscal year’s earnings of BNL. If any interest payment is
not made, it will be added to the principal and paid at maturity. The
Bonds are fully callable and redeemable at par at any time by BNL.
In 2009,
2008 and 2007, the Company made cash offers to bond holders for the purchase of
bonds. Bond purchases resulted in a reduction of Bonds Payable of
$119,894, $164,294 and $32,408 in 2009, 2008 and 2007;
respectively. Gains from early extinguishments of the debt were
$27,176, $44,370 and $10,803 in 2009, 2008 and 2007; respectively.
In 2003
and 2004, the Company became a third party indemnitor by entering into a series
of bond indemnity and guarantee agreements with various terms totaling
approximately $545,000 in conjunction with a marketing agreement with third
parties, EPSI Benefits Inc. (EBI) and Employer Plan Services Inc.
(EPSI). The purpose of these agreements is to assist EPSI in becoming
licensed in additional states. The Company received personal guarantees from the
owners of EPSI to effectively limit potential liability under the guarantee
agreements. With regard to the bond indemnity, 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.
The
Company has entered into noncancelable operating leases for office space and
equipment. Future minimum payments under the leases are as
follows:
2010
|
$ | 370,000 | ||
2011
|
368,000 | |||
2012
|
379,000 | |||
2013
|
226,000 | |||
2014
|
- | |||
Total
|
$ | 1,343,000 | ||
During
the first quarter of 2005 the Company entered into a lease for 20,337 square
feet of office space in Austin, Texas, under an eight year, triple net lease.
The base rent was $0 in the first year (June 1, 2005 to May 31, 2006), $157,612
in the second year and payments escalate to $264,384 in the final year of the
lease. Leasehold improvements totaled approximately $872,000
($203,000 funded by landlord) on the new lease space that was occupied in
December 2005. Leasehold improvements are being amortized over the
lease term. The $117,000 initial rent holiday and $203,000 of
landlord-funded leasehold improvements are being amortized over the lease term
and reduce lease expense. Deferred rent credits are included in other
liabilities and were approximately $284,000 for 2009 and $317,000 in
2008.
Related
lease cost incurred for the years ended December 31, 2009, 2008 and 2007 was
$337,000, $358,000, and $389,000. respectively.
The
Company's wholly owned insurance subsidiary may be subject to losses related to
guaranty fund assessments. Such assessments result from liquidation
of troubled insurers by state regulators. The assessment to BNLAC, if
any, is not reasonably estimable, nor expected to have a material effect on the
financial statements.
Periodically
in the ordinary course of business the Company exceeds federally insured limits
in its operating accounts. Cash deposits in excess of federally
insured limits are approximately $794,000 at December 31, 2009.
See Note
2 for information regarding minimum capital requirements to maintain a license
to sell in various states.
7. Liability for Unpaid
Claims
Activity
in the liability for accident and health unpaid claims net of reinsurance is
summarized as follows.
2009
|
2008
|
2007
|
||||||||||
Balance
at January 1
|
$ | 1,714,565 | $ | 2,306,594 | $ | 2,517,366 | ||||||
Less
reinsurance recoverable
|
2,425 | 306 | 9,241 | |||||||||
Net
Balance at January 1
|
1,712,140 | 2,306,288 | 2,508,125 | |||||||||
Incurred related to:
|
||||||||||||
Current
year
|
25,966,203 | 27,310,819 | 27,850,499 | |||||||||
Prior
years
|
(223,847 | ) | (510,993 | ) | (571,329 | ) | ||||||
Total
Incurred
|
25,742,356 | 26,799,826 | 27,279,170 | |||||||||
Paid related to:
|
||||||||||||
Current
year
|
24,686,289 | 25,596,254 | 25,553,705 | |||||||||
Prior
years
|
1,417,721 | 1,795,295 | 1,926,996 | |||||||||
Total
Paid
|
26,104,010 | 27,391,549 | 27,480,701 | |||||||||
Net
Balance at December 31
|
1,348,590 | 1,712,140 | 2,306,288 | |||||||||
Plus
reinsurance recoverable
|
1,896 | 2,425 | 306 | |||||||||
Balance
at December 31
|
$ | 1,350,486 | $ | 1,714,565 | $ | 2,306,594 |
The
activity summary in the liability for unpaid accident and health claims net of
reinsurance shows that claims liabilities were overstated by $223,847, $510,993
and $571,329 for the years ended December 31, 2008, 2007 and 2006,
respectively. Such liability adjustments, which affected current
operations during 2009, 2008 and 2007 respectively, resulted in part from
developed claims for prior years being different than were anticipated when the
liabilities for unpaid accident and health claims were originally
estimated. These trends have been considered in establishing the
current year liability for unpaid accident and health
claims. Included in the unpaid accident and health claims are an
estimate of claim adjustment expenses of $78,335, $118,763 and $121,491 in 2008,
2007 and 2006, respectively. Netting out claim adjustment expenses
would make accident and health liabilities overstated in 2009, 2008 and 2007 by
$145,512, $392,230 and $449,838; respectively.
8. Reinsurance
Liability
for future policy benefits is reported before the effects of
reinsurance. Reinsurance receivable (including amounts related to
insurance liabilities) is reported as an asset. Estimated reinsurance
receivable is recognized in a manner consistent with the liabilities related to
the underlying reinsurance contracts. Such amounts have been
presented in accordance with Statement of Financial Standards No. 113,
“Accounting and Reporting for Reinsurance of Short Duration and Long Duration
Contracts.” The Company is liable if the reinsuring companies are
unable to meet their obligations under the reinsurance agreements.
In 2009
and 2008, BNLAC’s accidental death benefit riders were reinsured 100% through a
Bulk ADB reinsurance agreement with Optimum Re. Optimum Re was rated
“A-“(Excellent) by AM Best Company for 2009.
In 2009
and 2008, BNLAC’s individual life insurance products in excess of $35,000 were
reinsured with Optimum Re under an automatic treaty up to $175,000 and under a
facultative treaty for amounts over $175,000. Optimum Re was rated
“A-“ (Excellent) by AM Best Company for 2009.
BNLAC
entered into a quota share reinsurance agreement with Hannover Life Reassurance
Company of America for its group life, group accidental death and dismemberment
and accidental death and dismemberment without group life plans effective
January 1, 2008 whereby Hannover accepts 90% of the risk up to a maximum of
$100,000 per life on AD&D and $75,000 on group
life. Hannover was rated “A” (Excellent) by AM Best Company for
2009.
8. Reinsurance (continued)
BNLAC
entered into a quota share reinsurance agreement with Hannover Life Reassurance
Company of America for its accidental death and dismemberment plan including
common carrier effective January 1, 2007. The Company retains a 10% quota share
up to a maximum of $25,000 for AD&D and Common Carrier
combined. Hannover will accept, on an automatic basis, 90% to 100%
quota share up to a maximum of $250,000 per life depending on the Company’s
retention. Hannover was rated “A” (Excellent) by AM Best
.
BNLAC’s
Short Term Disability insurance is reinsured under a quota share reinsurance
agreement with Union Security Insurance Company, Des Moines, Iowa, (formerly
Fortis Benefits Insurance Company of Kansas City, Missouri). The
reinsurer is liable for 75% of the risk on each policy. Union
Security Insurance Company was rated “A-“ (Excellent) by AM Best Company for
2009.
Group and
individual dental is not reinsured due to the economics of the dental insurance
business and the small annual maximum liability per policy.
Following
is a summary of reinsurance for December 31, 2009, 2008 and 2007:
December 31, 2009
|
Gross
Amount
|
Ceded
To Other Companies
|
Assumed
From Other Companies
|
Net
Amounts
|
Percentage
Of Amount Assumed To Net
|
|||||||||||||||
Life
insurance in force (in thousands)
|
$ | 30,657 | $ | 10,933 | $ | - | $ | 19,724 | 0.0 | % | ||||||||||
Premiums-life
& annuity insurance
|
$ | 305,978 | $ | 78,329 | $ | - | $ | 227,649 | 0.0 | % | ||||||||||
Premiums-accident
and health
|
41,916,448 | 93,423 | - | 41,823,025 | 0.0 | % | ||||||||||||||
Total
insurance premiums
|
$ | 42,222,426 | $ | 171,752 | $ | - | $ | 42,050,674 | 0.0 | % | ||||||||||
December 31,
2008
|
||||||||||||||||||||
Life
insurance in force (in thousands)
|
$ | 33,696 | $ | 11,111 | $ | - | $ | 22,585 | 0.0 | % | ||||||||||
Premiums-life
& annuity insurance
|
$ | 330,934 | $ | 56,256 | $ | - | $ | 274,678 | 0.0 | % | ||||||||||
Premiums-accident
and health
|
43,693,176 | 94,706 | - | 43,598,470 | 0.0 | % | ||||||||||||||
Total
insurance premiums
|
$ | 44,024,110 | $ | 150,962 | $ | - | $ | 43,873,148 | 0.0 | % | ||||||||||
December 31,
2007
|
||||||||||||||||||||
Life
insurance in force (in thousands)
|
$ | 43,879 | $ | 14,074 | $ | - | $ | 29,805 | 0.0 | % | ||||||||||
Premiums-life
& annuity insurance
|
$ | 348,714 | $ | 62,805 | $ | - | $ | 285,909 | 0.0 | % | ||||||||||
Premiums-accident
and health
|
44,383,582 | 87,334 | - | 44,296,248 | 0.0 | % | ||||||||||||||
Total
insurance premiums
|
$ | 44,732,296 | $ | 150,139 | $ | - | $ | 44,582,157 | 0.0 | % |
9.
Benefit Plans for
Certain Brokers/Agents and Employees
In 1994,
the Board of Directors and Shareholders approved the 1994 Brokers and Agents’
Nonqualified Stock Option Plan. This plan was established as an
incentive to sales persons of BNLAC. Initially 250,000 shares were
available under the plan. The Board of Directors authorized options
for an additional 1.75 million shares. The option period may not
exceed a term of five years and the duration of the plan was ten years, expiring
December 14, 2004.
Of the
options granted through December 2004, there were no stock options outstanding
at December 31, 2008. The number of options expiring or forfeited
were 100,825 and 122,675 in 2008 and 2007, respectively. There were
9,600 options exercised in 2008 and 12,475 options exercised in 2007. The
remaining options expired in 2008. The options do not have a dilutive
effect on earnings per share.
9.
Benefit Plans for
Certain Brokers/Agents and Employees (continued)
In March
2002, the Board of Directors approved the 2002 Non-Director, Non-Executive
Stock Option Plan, subject to any necessary authorizations from any
regulatory authority. The plan is intended to assist the Company in
attracting and retaining individuals of outstanding ability and to promote
concurrence of their interests with those of the Shareholders of the
Company. The Company granted options for 116,000 shares prior to
2005. No options were granted in 2009, 2008 and 2007. The
fair value of any options granted is estimated using a binomial method as
prescribed in ASC 205. There were 55,550 options outstanding at
December 31, 2009. The estimated weighted average remaining life of
the options is 3.6 years and weighted average exercise price is
$.69. The options do not have a dilutive effect on earnings per share
at this time, but may have such an effect in the future. See Note 1
of the financial statements.
In 2001,
the Board of Directors approved the 2001 Incentive Bonus Plan for
the benefit of certain Officers of the Company. The plan provides for monthly
payment of cash bonuses based on 12% of consolidated pre-tax operating income.
Bonus expense was $409,828, $355,359 and $511,562 under this plan for 2009, 2008
and 2007, respectively.
The
Company has an Employee Pension Plan that is a qualified retirement plan under
the Internal Revenue Code. All employees who have attained age 21 and
have completed one year of service are eligible to
contribute. Employer contributions are discretionary. The
Company contributed $66,566, $65,896 and $64,795 in 2009, 2008 and 2007,
respectively.
10. Concentrations
The
majority of the Company’s premium income and gross income continues to be
generated by the dental insurance products. This concentration makes
the Company increasingly dependent upon the success of this block of business
and any economic factors and risks unique to dental
insurance. See Note 1. The Company has no distinctly
reportable business segments.
11. Change in Accounting
Estimate
Based on
claims experience in 2009 and 2008, the estimate of claims liability at December
31, 2008 was overstated by approximately $146,000 and $390,000 at December 2007
as described in Note 7. The change in estimate of this liability has
contributed a corresponding decrease in claims expense in 2009 and
2008.
12.
Subsequent
Events
In the
second quarter of 2009 management adopted ASC 855 and has evaluated subsequent
events through March 30, 2010, the date of issuance of the 10-K. In
the first quarter of 2010, the board of directors voted to pay a $.10 dividend
per share to its shareholders of record as of January 29, 2010,
which required approximately $1,513,000 of funding.
On March
23, 2010, the President signed into law the Patient Protection and Affordable
Care Act and on March 30, 2010, the President signed into law the Health Care
and Education Reconciliation Act of 2010. Management anticipates that these laws
and the regulations to be promulgated thereunder will have an impact, possibly
adverse, on the Company and its financial condition. Management is
and will continually be evaluating any such impact.
13.
Unaudited Quarterly
Results of Operations
The
summary unaudited quarterly results of operations were as follows:
Quarter
Ended
|
||||||||||||||||
2009
|
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||||
Premium
Income
|
$ | 10,545,125 | $ | 10,395,720 | $ | 10,266,460 | $ | 10,402,299 | ||||||||
Net
Investment Income
|
296,732 | 310,613 | 244,311 | 271,042 | ||||||||||||
Vision
Insurance Income
|
601,519 | 587,522 | 600,993 | 596,114 | ||||||||||||
Marketing
fees
|
- | - | - | 25,000 | ||||||||||||
Realized
Gains (Losses)
|
12,165 | 6,514 | 41,823 | 25,186 | ||||||||||||
Expenses
|
(10,689,848 | ) | (10,888,639 | ) | (10,590,651 | ) | (10,242,155 | ) | ||||||||
Net
Income
|
$ | 765,693 | $ | 411,730 | $ | 562,936 | $ | 1,077,486 | ||||||||
Earnings
Per Share (Basic and Diluted)
|
$ | 0.05 | $ | 0.03 | $ | 0.04 | $ | 0.07 | ||||||||
Comprehensive
Income
|
$ | 783,425 | $ | 466,922 | $ | 655,973 | $ | 1,108,501 |
Quarter
Ended
|
||||||||||||||||
2008
|
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||||
Premium
Income
|
$ | 11,142,672 | $ | 10,983,178 | $ | 10,737,738 | $ | 10,592,435 | ||||||||
Net
Investment Income
|
311,778 | 257,827 | 276,786 | 324,510 | ||||||||||||
Vision
Insurance Income
|
627,551 | 522,722 | 550,992 | 562,264 | ||||||||||||
Realized
Gains (Losses)
|
18,650 | (199,354 | ) | (104,212 | ) | (150,430 | ) | |||||||||
Expenses
|
(11,349,162 | ) | (11,095,119 | ) | (11,092,925 | ) | (10,551,428 | ) | ||||||||
Net
Income
|
$ | 751,489 | $ | 469,254 | $ | 368,379 | $ | 777,351 | ||||||||
Earnings
Per Share (Basic and Diluted)
|
$ | 0.05 | $ | 0.03 | $ | 0.02 | $ | 0.06 | ||||||||
Comprehensive
Income
|
$ | 618,237 | $ | 429,286 | $ | 255,798 | $ | 779,585 |
BNL
Financial Corporation (Parent Company)
Balance
Sheets
2009
|
2008
|
|||||||
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 242,259 | $ | 298,508 | ||||
Investments,
at fair value
|
- | 197,500 | ||||||
Total Investments, Including Cash and Cash Equivalents
|
242,259 | 496,008 | ||||||
Accrued
investment income
|
7,809 | 10,630 | ||||||
Loan
to EBI
|
1,152,825 | 1,152,825 | ||||||
Investment
in Unconsolidated Subsidiaries at equity (eliminated in consolidated
statements)
|
20,580,514 | 18,323,660 | ||||||
Income
tax asset
|
28,000 | 31,000 | ||||||
Other
assets
|
117,514 | 142,608 | ||||||
Total
Assets
|
$ | 22,128,921 | $ | 20,156,731 |
Liabilities
|
||||||||
Bonds
payable
|
$ | 1,323,388 | $ | 1,443,282 | ||||
Other
liabilities
|
74,423 | 105,032 | ||||||
Total
Liabilities
|
1,397,811 | 1,548,314 | ||||||
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
|
5,725,590 | 5,748,465 | ||||||
Retained
earnings
|
15,092,975 | 13,032,655 | ||||||
Treasury
stock, at cost, 343,194; 256,839 shares, respectively
|
(432,775 | ) | (321,048 | ) | ||||
Unrealized
appreciation of securities
|
36,041 | (160,934 | ) | |||||
Total
Shareholders' Equity
|
20,731,110 | 18,608,417 | ||||||
Total
Liabilities and Shareholders’ Equity
|
$ | 22,128,921 | $ | 20,156,731 |
Item
15(d) - Schedule II, Condensed Financial Information of Registrant
BNL
Financial Corporation (Parent Company)
Statement
of Operations
2009
|
2008
|
2007
|
||||||||||
Income
|
||||||||||||
Net
investment income
|
$ | 193,621 | $ | 206,082 | $ | 204,656 | ||||||
Marketing
fees
|
25,000 | - | 198,843 | |||||||||
Realized
gain on debt extinguishment
|
27,176 | 44,370 | 10,803 | |||||||||
Realized
gains (losses)
|
- | (201,135 | ) | - | ||||||||
Total
Income
|
245,797 | 49,317 | 414,302 | |||||||||
Expenses
|
||||||||||||
General
and administrative
|
205,013 | 232,064 | 259,888 | |||||||||
Interest
expense
|
82,317 | 93,959 | 124,738 | |||||||||
Total
Expenses
|
287,330 | 326,023 | 384,626 | |||||||||
Income
from operations before income taxes
|
(41,534 | ) | (276,706 | ) | 29,676 | |||||||
Provision
for income taxes
|
3,000 | (9,502 | ) | 15,601 | ||||||||
Net
income before equity in undistributed income
of subsidiaries
|
(44,534 | ) | (267,204 | ) | 14,075 | |||||||
Equity
in undistributed income of subsidiaries
|
2,862,379 | 2,633,676 | 3,435,293 | |||||||||
Net
Income
|
$ | 2,817,845 | $ | 2,366,472 | $ | 3,449,368 | ||||||
Net
Income Per Common Share (Basic and Diluted)
|
$ | .19 | $ | .16 | $ | .22 |
Item
15(d) - Schedule II, Condensed Financial Information of Registrant
BNL
Financial Corporation (Parent Company)
Statements
of Cash Flows
2009
|
2008
|
2007
|
||||||||||
Cash
Flows from Operating Activities
|
||||||||||||
Net
income
|
$ | 2,817,845 | $ | 2,366,472 | $ | 3,449,368 | ||||||
Adjustments
to compute cash provided by operating
activities
|
(2,934,999 | ) | (2,495,882 | ) | (3,491,331 | ) | ||||||
Net
Cash Provided (Used) by Operating Activities
|
(117,154 | ) | (129,410 | ) | (41,963 | ) | ||||||
Cash
Flows from Investing Activities
|
||||||||||||
Proceeds
from sales of investments
|
200,000 | - | - | |||||||||
Dividend
from subsidiary
|
800,000 | 1,300,000 | 1,000,000 | |||||||||
Net Cash Provided by Investing Activities
|
1,000,000 | 1,300,000 | 1,000,000 | |||||||||
Cash
Flows from Financing Activities
|
||||||||||||
Purchase
of treasury stock
|
(155,352 | ) | (20,858 | ) | (789,184 | ) | ||||||
Sale
of treasury stock
|
- | - | 102,995 | |||||||||
Dividends
|
(757,525 | ) | (760,356 | ) | - | |||||||
Stock
options exercised
|
66,499 | 15,401 | 20,494 | |||||||||
Payments
on long term debt
|
- | (50,687 | ) | (270,094 | ) | |||||||
Debt
extinguishments
|
(92,717 | ) | (119,924 | ) | (32,408 | ) | ||||||
Net
Cash Provided (Used) by Financing Activities
|
$ | (939,095 | ) | $ | (936,424 | ) | $ | (968,197 | ) | |||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(56,249 | ) | 234,166 | (10,160 | ) | |||||||
Cash
and Cash Equivalents, Beginning of Period
|
298,508 | 64,342 | 74,502 | |||||||||
Cash
and Cash Equivalents, End of Period
|
$ | 242,259 | $ | 298,508 | $ | 64,342 |