Kingsway Announces First Quarter 2016 Results and Names New Director

TORONTO, April 22, 2016 /CNW/ - (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its operating results for the first quarter ended March 31, 2016.  All amounts are in U.S. dollars unless indicated otherwise.

Management Comments
Larry G. Swets, Jr., President and Chief Executive Officer, stated, "Kingsway entered 2016 seeking new growth opportunities as a result of a considerably improved financial position. After the successful execution of a number of initiatives in 2015 that strengthened our balance sheet, we approved a share buy-back plan and continue to pursue expansion opportunities where we can leverage our expertise and track record. We are focused on managing our insurance operations properly while taking advantage of the float provided by this business to invest in many of our new opportunities. In addition to our recent announcement of the acquisition of Argo Management Group and the formation of 1347 Warranty Holdings, we are progressing on other initiatives that will provide a platform for strategic investments and expect to update shareholders on these matters in the coming months."

Operating Results
The Company reported net loss attributable to common shareholders of $1.5 million, or $0.08 per diluted share, in the first quarter of 2016, compared to net income attributable to common shareholders of $2.1 million, or $0.10 per diluted share, in the first quarter of 2015. 

Following are highlights of Kingsway's first quarter 2016 results.  Operating (loss) income reflects the Company's core operating activities, including its reportable segments, passive investment portfolio, merchant banking activities and corporate operating expenses.

  • Operating loss was $2.8 million for the first quarter of 2016 compared to operating income of $3.7 million for the first quarter of 2015.
    • Insurance Underwriting segment operating loss was $0.2 million for the first quarter of 2016 compared to operating income of $0.3 million for the first quarter of 2015. 
    • Insurance Services segment operating loss was $0.2 million for the first quarter of 2016 compared to $0.2 million for the first quarter of 2015. 
    • Net investment loss of $0.1 million was reported in the first quarter of 2016 compared to net investment income of $1.3 million in the first quarter of 2015.
    • Net realized losses of $0.2 million were reported in the first quarter of 2016 compared to net realized losses of zero in the first quarter of 2015.
    • Other operating income and expense was a net expense of $2.1 million in the first quarter of 2016 compared to a net income of $2.3 million in the first quarter of 2015.
  • Adjusted operating loss was $0.8 million in the first quarter of 2016 compared to income of $7.3 million in the first quarter of 2015.
  • Book value decreased to $2.14 per share at March 31, 2016 from $2.22 per share at December 31, 2015. The Company also carries a valuation allowance, in the amount of $14.43 per share at March 31, 2016, against the deferred tax asset, primarily related to its loss carryforwards.

Appointment of Director
Kingsway also announced today that its Board of Directors has appointed John T. Fitzgerald as a Director. Mr. Fitzgerald joined Kingsway as Executive Vice President following Kingsway's acquisition of Argo Management Group, a private equity investment partnership co-founded by Mr. Fitzgerald in 2002. Prior to co-founding Argo Management Group, he was managing director of Adirondack Capital, LLC, a financial futures and derivatives trading firm, and he was a seat-owner on the Chicago Board of Trade. Mr. Fitzgerald was awarded a Bachelor of Science degree in Finance in 2001 from DePaul University with highest honor, Beta Gamma Sigma. He is a 2002 MBA graduate of the Kellogg School of Management, Northwestern University, with concentrations in Finance, Accounting and Management Strategy. Mr. Fitzgerald will serve until the election of directors at the Company's upcoming Annual General Meeting, at which time he will stand for re-election.

About the Company
Kingsway is a holding company functioning as a merchant bank with a focus on long-term value-creation.  The Company owns or controls stakes in several insurance industry assets and utilizes its subsidiaries, 1347 Advisors LLC and 1347 Capital LLC, to pursue opportunities acting as an advisor, an investor and a financier. The common shares of Kingsway are listed on the Toronto Stock Exchange and the New York Stock Exchange under the trading symbol "KFS."

Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)






Three months ended March 31,



2016


2015

Revenues:






Net premiums earned


$

29,427


$

29,030


Service fee and commission income


5,322


5,398


Net investment (loss) income


(72)


1,313


Net realized losses


(171)



Other-than-temporary impairment loss



(10)


Other income


2,374


8,357

Total revenues


36,880


44,088

Operating expenses:






Loss and loss adjustment expenses


23,497


21,953


Commissions and premium taxes


5,598


5,747


Cost of services sold


773


663


General and administrative expenses


9,551


11,576


Amortization of intangible assets


295


317


Contingent consideration expense



144

Total operating expenses


39,714


40,400

Operating (loss) income


(2,834)


3,688

Other (revenues) expenses, net:






Interest expense


1,093


1,391


Foreign exchange losses, net


1


392


Gain on change in fair value of debt


(2,528)


(261)


Equity in net loss of investee


69


136

Total other (revenues) expenses, net


(1,365)


1,658

(Loss) income from continuing operations before income tax expense


(1,469)


2,030

Income tax expense


26


22

(Loss) income from continuing operations


(1,495)


2,008

Income from discontinued operations, net of taxes



1,426

Net (loss) income


(1,495)


3,434


Less: net (loss) income attributable to noncontrolling interests in consolidated subsidiaries


(39)


1,224


Less: dividends on preferred stock


82


81

Net (loss) income attributable to common shareholders


$

(1,538)


$

2,129

(Loss) earnings per share - continuing operations:






Basic:


$

(0.08)


$

0.04


Diluted:


$

(0.08)


$

0.03

Earnings per share - discontinued operations:






Basic:


$


$

0.07


Diluted:


$


$

0.07

(Loss) earnings per share – net (loss) income attributable to common shareholders:






Basic:


$

(0.08)


$

0.11


Diluted:


$

(0.08)


$

0.10

Weighted average shares outstanding (in '000s):






Basic:


19,710


19,710


Diluted:


19,710


21,149

Consolidated Balance Sheets

 (in thousands, except per share data)








March 31, 2016


December 31, 2015



(unaudited)



Assets





Investments:






Fixed maturities, at fair value (amortized cost of $61,589 and $55,606, respectively)


$

62,012



$

55,559


Equity investments, at fair value (cost of $26,185 and $26,428, respectively)


26,303



27,559


Limited liability investments


20,240



20,141


Other investments, at cost which approximates fair value


4,060



4,077


Short-term investments, at cost which approximates fair value


935



400

Total investments


113,550



107,736

Cash and cash equivalents


40,984



51,701

Investment in investee


1,702



1,772

Accrued investment income


506



594

Premiums receivable, net of allowance for doubtful accounts of $165 and $165, respectively


32,670



27,090

Service fee receivable, net of allowance for doubtful accounts of $283 and $276, respectively


765



911

Other receivables, net of allowance for doubtful accounts of $806 and $806, respectively


3,452



3,789

Reinsurance recoverable


1,176



1,422

Prepaid reinsurance premiums


134



7

Deferred acquisition costs, net


13,440



12,143

Income taxes recoverable


60



61

Property and equipment, net of accumulated depreciation of $12,667 and $12,537, respectively


5,458



5,577

Goodwill


10,078



10,078

Intangible assets, net of accumulated amortization of $6,304 and $6,009, respectively


14,441



14,736

Other assets


3,128



3,405

Total Assets


$

241,544



$

241,022

Liabilities and Shareholders' Equity










Liabilities:





Unpaid loss and loss adjustment expenses:







Property and casualty


$  52,870



$  55,471


Vehicle service agreements


2,975



2,975

Total unpaid loss and loss adjustment expenses


55,845



58,446

Unearned premiums


41,555



35,234

Reinsurance payable


272



145

Subordinated debt, at fair value


37,370



39,898

Deferred income tax liability


2,946



2,924

Deferred service fees


34,771



34,319

Accrued expenses and other liabilities


20,227



19,959

Total Liabilities


192,986



190,925







Class A preferred stock, no par value; unlimited number authorized; 262,876 and 262,876 issued and
outstanding at March 31, 2016 and December 31, 2015, respectively; redemption amount of $6,572


6,402



6,394






Shareholders' Equity:





Common stock, no par value; unlimited number authorized; 19,709,706 and 19,709,706 issued and
outstanding at March 31, 2016 and December 31, 2015, respectively




Additional paid-in capital


341,847



341,646

Accumulated deficit


(310,547)



(308,995)

Accumulated other comprehensive income


9,143



9,300

Shareholders' equity attributable to common shareholders


40,443



41,951

Noncontrolling interests in consolidated subsidiaries


1,713



1,752

Total Shareholders' Equity


42,156



43,703

Total Liabilities and Shareholders' Equity


$

241,544



$

241,022

Non-U.S. GAAP Financial Measures 
Segment Operating (Loss) Income

Segment operating (loss) income represents one measure of the pretax profitability of Kingsway's segments and is derived by subtracting direct segment expenses from direct segment revenues.  Please refer to the section entitled "Non-U.S. GAAP Financial Measures" in the Management's Discussion and Analysis section of the Company's Annual Report on Form 10-K for the year ended December 31, 2015 for a detailed description of this non-U.S. GAAP measure.

Adjusted Operating (Loss) Income

Adjusted operating (loss) income represents another measure used by the Company to assess the profitability of the Company's segments, its passive investment portfolio and its merchant banking activities.  Adjusted operating (loss) income is comprised of segment operating (loss) income as well as net investment (loss) income, net realized losses, other-than-temporary impairment loss, equity in net loss of investee and net revenues of 1347 Advisors.  A reconciliation of segment operating (loss) income and adjusted operating (loss) income to net (loss) income for the quarters ended March 31, 2016 and 2015 is presented below:




(in thousands)


Three months ended March 31,



2016



2015

Segment operating (loss) income


$

(395)



$

136

Net investment (loss) income


(72)



1,313

Net realized losses


(171)



Other-than-temporary impairment loss




(10)

Equity in net loss from investee


(69)



(136)

Revenues of 1347 Advisors, net of related outside professional and advisory expenses


(64)



5,994

Adjusted operating (loss) income


(771)



7,297

Corporate operating expenses and other (1)


(1,837)



(3,284)

Amortization of intangible assets


(295)



(317)

Contingent consideration expense




(144)

Interest expense


(1,093)



(1,391)

Foreign exchange losses, net


(1)



(392)

Gain on change in fair value of debt


2,528



261

(Loss) income from continuing operations before income tax expense


(1,469)



2,030

Income tax expense


(26)



(22)

(Loss) income from continuing operations


(1,495)



2,008

Income from discontinued operations, net of taxes




1,426

Net (loss) income


$

(1,495)



$

3,434



(1)

Corporate operating expenses and other includes corporate operating expenses, stock-based compensation expense and non-cash expenses related to the consolidation of KLROC Trust.

Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. Words such as "expects", "believes", "anticipates", "intends", "estimates", "seeks" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect Kingsway management's current beliefs, based on information currently available.  A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements.  For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward looking statements, please refer to the section entitled "Risk Factors" in the Company's 2015 Annual Report on Form 10-K.  Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise.

Additional Information
Additional information about Kingsway, including a copy of its 2015 Annual Report and filings on Forms 10-Q and 8-K, can be accessed on the Canadian Securities Administrators' website at www.sedar.com, on the EDGAR section of the U.S. Securities and Exchange Commission's website at www.sec.gov or through the Company's website at www.kingsway-financial.com

For a current review of the Company and a discussion of its plan to create and sustain long-term shareholder value, management invites you to review its Annual Letter to Shareholders, which may be accessed at the Company's website or directly at http://bit.ly/kfs2014.

SOURCE Kingsway Financial Services Inc.

RELATED LINKS
http://www.kingsway-financial.com

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