KINGSWAY FINANCIAL SERVICES INC. TORONTO, Oct. 23, 2015 /PRNewswire/ - (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 (86) 778 74 873
consolidated subsidiaries
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 6,386 6,330
and outstanding at
September 30, 2015 and
December 31, 2014,
respectively
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 (133) 21 5,806 24
advisory expenses
-----------------
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.
