Kingsway Announces Third Quarter 2015 Results

TORONTO, Oct. 23, 2015 /CNW/ - (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its operating results for the third quarter and nine months ended September 30, 2015.  All amounts are in U.S. dollars unless indicated otherwise.

Management Comments
Larry G. Swets, Jr., President and Chief Executive Officer, stated, "During the third quarter we continued to gradually lower our legacy holding company expenses and manage our operating businesses more effectively.  We were pleased to report higher net premiums earned from our non-standard automobile business, and continue to manage the business to report incremental gains over the long-term.  Our operating results for the period were a continuation of this strategy.  In addition, we reported increases in our net investment income that have helped to both grow our book value in 2015 and present an attractive yield to shareholders."

Mr. Swets continued, "We are also concentrating more effort to seeking opportunities in which to leverage our improved balance sheet and significant deferred tax asset using our expertise of creating value."

Operating Results
The Company reported net loss attributable to common shareholders of $0.9 million, or $0.05 per diluted share, in the third quarter of 2015, compared to a net loss attributable to common shareholders of $7.0 million, or $0.41 per diluted share, in the third quarter of 2014. 

For the nine months ended September 30, 2015, Kingsway reported net income attributable to common shareholders of $3.1 million, or $0.15 per diluted share, compared to a net loss attributable to common shareholders of $13.7 million, or $0.82 per diluted share, in the prior year period.

Following are highlights of Kingsway's third quarter 2015 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 $1.8 million for the third quarter of 2015 compared to $1.9 million for the third quarter of 2014.
    • Insurance Underwriting segment operating loss was $0.2 million for the third quarter of 2015 compared to $0.5 million for the third quarter of 2014.
    • Insurance Services segment operating loss was $0.2 million for the third quarter of 2015 compared to income of $0.4 million for the third quarter of 2014.
    • Net investment income of $0.8 million was reported in the third quarter of 2015 compared to $0.5 million in the third quarter of 2014.
    • Net realized gains of $0.1 million were reported in the third quarter of 2015 compared to $0.3 million in the third quarter of 2014.
    • Other operating income and expense was a net expense of $2.3 million in the third quarter of 2015 compared to $2.6 million in the third quarter of 2014.
  • Adjusted operating income was $0.1 million in the third quarter of 2015 compared to $0.7 million in the third quarter of 2014.
  • Book value increased to $2.31 per share at September 30, 2015 from $2.12 per share at December 31, 2014. The Company also carries a valuation allowance, in the amount of $14.47 per share at September 30, 2015, against the deferred tax asset, primarily related to its loss carryforwards.

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 September 30,



Nine months ended September 30,




2015




2014




2015




2014

Revenues:

















Net premiums earned


$

29,197



$

28,418



$

88,427



$

89,093


Service fee and commission income


6,184



6,949



17,430



19,040


Net investment income


791



542



2,632



1,296


Net realized gains


83



329



136



5,459


Other-than-temporary impairment loss






(10)




Other income


2,303



2,369



13,174



6,929

Total revenues


38,558



38,607



121,789



121,817

Operating expenses:













Loss and loss adjustment expenses


22,914



22,361



69,054



65,216


Commissions and premium taxes


5,653



5,738



17,199



17,823


Cost of services sold


1,408



1,544



3,129



3,337


General and administrative expenses


9,997



10,206



31,748



33,196


Amortization of intangible assets


307



397



937



1,220


Contingent consideration expense


110



267



364



801


Impairment of asset held for sale








1,180

Total operating expenses


40,389



40,513



122,431



122,773

Operating (loss) income


(1,831)



(1,906)



(642)



(956)

Other (revenues) expenses, net:













Interest expense


1,248



1,417



4,053



4,214


Foreign exchange losses (gains), net


58



230



1,210



271


(Gain) loss on change in fair value of debt


(2,458)



2,963



(1,491)



10,199


Loss on disposal of subsidiary








1,242


Loss on deconsolidation of subsidiary






4,420




Equity in net loss of investee


192



83



399



83

Total other (revenues) expenses, net


(960)



4,693



8,591



16,009

Loss from continuing operations before income tax expense (benefit)


(871)



(6,599)



(9,233)



(16,965)

Income tax expense (benefit)


23



28



79



(971)

Loss from continuing operations


(894)



(6,627)



(9,312)



(15,994)

Income from discontinued operations, net of taxes




532



1,426



3,419

Gain on disposal of discontinued operations, net of taxes






11,259



Net (loss) income


(894)



(6,095)



3,373



(12,575)


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


(86)



778



74



873


Less: dividends on preferred stock


83



83



246



218


Net (loss) income attributable to common shareholders


$

(891)



$

(6,956)



$

3,053



$

(13,666)

Loss per share - continuing operations:

















Basic:


$

(0.05)



$

(0.44)



$

(0.49)



$

(1.03)


Diluted:


$

(0.05)



$

(0.44)



$

(0.49)



$

(1.03)

Earnings per share - discontinued operations:

















Basic:


$



$

0.03



$

0.64



$

0.21


Diluted:


$



$

0.03



$

0.64



$

0.21

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

















Basic:


$

(0.05)



$

(0.41)



$

0.15



$

(0.82)


Diluted:


$

(0.05)



$

(0.41)



$

0.15



$

(0.82)

Weighted average shares outstanding (in '000s):

















Basic:



19,710




16,993




19,710




16,620


Diluted:



19,710




16,993




19,710




16,620

Consolidated Balance Sheets

(in thousands, except per share data)








September 30, 2015


December 31, 2014



(unaudited)




Assets







Investments:








Fixed maturities, at fair value (amortized cost of $59,366 and $56,000, respectively)


$

59,764


$

56,195


Equity investments, at fair value (cost of $24,666 and $16,579, respectively)


25,296


19,618


Limited liability investments


15,377


7,294


Other investments, at cost which approximates fair value


4,102


3,576


Short-term investments, at cost which approximates fair value


400


400

Total investments


104,939


87,083

Cash and cash equivalents


75,785


71,234

Investment in investee


1,712


2,115

Accrued investment income


856


141

Premiums receivable, net of allowance for doubtful accounts of $258 and $1,889, respectively


30,052


28,885

Service fee receivable, net of allowance for doubtful accounts of $269 and $247, respectively


1,388


964

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


5,815


5,145

Reinsurance recoverable


1,687


3,652

Prepaid reinsurance premiums


49


8

Deferred acquisition costs, net


12,541


12,197

Income taxes recoverable


56


74

Property and equipment, net of accumulated depreciation of $12,399 and $15,751, respectively


5,687


5,975

Goodwill


10,078


10,078

Intangible assets, net of accumulated amortization of $5,702 and $4,765, respectively


15,043


15,980

Other assets


3,180


3,638

Assets held for sale



54,553

Total Assets


$

268,868


$

301,722

Liabilities and Shareholders' Equity














Liabilities:







Unpaid loss and loss adjustment expenses:








Property and casualty


$

55,438


$

63,895


Vehicle service agreements



2,975



2,975

Total unpaid loss and loss adjustment expenses



58,413



66,870

Unearned premiums



37,752



36,432

Reinsurance payable



452



525

LROC preferred units, at fair value





13,618

Subordinated debt, at fair value



39,865



40,659

Deferred income tax liability



2,902



2,837

Deferred service fees



34,733



35,096

Accrued expenses and other liabilities



42,823



35,836

Liabilities held for sale



21,653

Total Liabilities


216,940


253,526






Class A preferred stock, no par value; unlimited number authorized; 262,876 and 262,876 issued
and outstanding at September 30, 2015 and December 31, 2014, respectively


6,386


6,330






Shareholders' Equity:





Common stock, no par value; unlimited number authorized; 19,709,706 and 19,709,706 issued
and outstanding at September 30, 2015 and December 31, 2014, respectively



Additional paid-in capital


341,443


340,844

Accumulated deficit


(306,655)


(312,050)

Accumulated other comprehensive income


9,090


8,670

Shareholders' equity attributable to common shareholders


43,878


37,464

Noncontrolling interests in consolidated subsidiaries


1,664


4,402

Total Shareholders' Equity


45,542


41,866

Total Liabilities and Shareholders' Equity


$

268,868


$

301,722

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, 2014 for a detailed description of this non-U.S. GAAP measure.

Adjusted Operating Income

Adjusted operating 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 income is comprised of segment operating (loss) income as well as net investment income, net realized gains, 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 income to net (loss) income for the three and nine months ended September 30, 2015 and 2014 is presented below:







(in thousands)


Three months ended September 30,



Nine months ended September 30,




2015




2014




2015




2014

Segment operating (loss) income


$

(401)



$

(86)



$

(847)



$

111

Net investment income


791



542



2,632



1,296

Net realized gains


83



329



136



5,459

Other-than-temporary impairment loss






(10)



Equity in net loss from investee


(192)



(83)



(399)



(83)

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


(133)



21



5,806



24

Adjusted operating income


148



723



7,318



6,807

Corporate operating expenses and other (1)


(1,754)



(2,048)



(7,058)



(6,982)

Amortization of intangible assets


(307)



(397)



(937)



(1,220)

Contingent consideration expense


(110)



(267)



(364)



(801)

Impairment of asset held for sale








(1,180)

Interest expense


(1,248)



(1,417)



(4,053)



(4,214)

Foreign exchange gains (losses), net


(58)



(230)



(1,210)



(271)

Gain (loss) on change in fair value of debt


2,458



(2,963)



1,491



(10,199)

Loss on disposal of subsidiary








(1,242)

Loss on deconsolidation of subsidiary






(4,420)



Income from disposed subsidiary








2,337

Loss from continuing operations before income tax (expense) benefit


(871)



(6,599)



(9,233)



(16,965)

Income tax (expense) benefit


(23)



(28)



(79)



971

Loss from continuing operations


(894)



(6,627)



(9,312)



(15,994)

Income from discontinued operations, net of taxes




532



1,426



3,419

Gain on disposal of discontinued operations, net of taxes






11,259



Net (loss) income


$

(894)



$

(6,095)



$

3,373



$

(12,575)

(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 2014 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 2014 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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