Kingsway announces fourth quarter and year-end 2014 results

TORONTO, March 13, 2015 /CNW/ - (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its operating results for the fourth quarter and year ended December 31, 2014. All amounts are in U.S. dollars unless indicated otherwise.

Management Comments

Larry G. Swets, Jr., the Company's President and Chief Executive Officer, stated, "For the fourth quarter, we continued to report positive adjusted operating income. This result indicates momentum in our progress towards building long-term value.

Mr. Swets continued, "During 2014, we have repaid our senior debt, raised capital, completed the IPO of our former subsidiary and completed the redemption of our Series A Warrants."

Operating Results

The Company reported net income of $1.4 million in the fourth quarter of 2014 compared to net loss of $10.7 million in the fourth quarter of 2013.

Following are highlights of Kingsway's fourth quarter of 2014:

  • Insurance Underwriting segment operating income was $1.2 million for the fourth quarter of 2014 compared to operating loss of $3.4 million for the fourth quarter of 2013. 

  • Insurance Services segment operating income was $0.5 million for the fourth quarter of 2014 compared to operating income of $0.0 million for the fourth quarter of 2013. 

  • Net investment income of $0.3 million was reported in the fourth quarter of 2014, compared to $0.4 million in the fourth quarter of 2013.

  • Net realized losses of $0.4 million were reported in the fourth quarter of 2014 compared to net realized gains of $4.6 million in the fourth quarter of 2013. 

  • Net loss not allocated to any segment was $0.3 million in the fourth quarter of 2014 compared to $12.3 million in the fourth quarter of 2013. The fourth quarter 2014 result includes loss on change in fair value of debt of $0.8 million compared to $6.2 million in the fourth quarter of 2013.

  • Adjusted operating income was $1.5 million in the fourth quarter of 2014 compared with $1.6 million in the fourth quarter of 2013.

  • Book value has decreased to $2.12 per share at December 31, 2014 from $2.25 per share at December 31, 2013. The Company also carries a valuation allowance, in the amount of $14.68 per share at December 31, 2014, against the deferred tax asset, primarily related to its loss carryforwards.

Following is a summary of significant events which occurred during 2014:

  • The Company closed on its private placement, resulting in net proceeds to the Company of $6.3 million.

  • The Company repaid the $14.4 million outstanding on its senior unsecured debentures due February 1, 2014.

  • The Company's wholly owned subsidiary, 1347 Property Insurance Holdings, Inc., completed an initial public offering of its common stock. 

  • The Company sponsored the initial public offering of 1347 Capital Corp., a special purpose acquisition company formed to enter into a business combination with another business.

  • The Company completed the redemption of its Series A Warrants, resulting in cash proceeds of $14.8 million

For a detailed discussion of Kingsway's earnings for the year ended December 31, 2014, as well as other important information, please refer to the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 13, 2015. 

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)








Three months ended December 31,



Years ended December 31,



2014



2013



2014



2013

Revenues:













Net premiums earned


$

28,500



$

27,202



$

117,593



$

109,608


Service fee and commission income


12,096



12,211



54,848



49,543


Net investment income


320



381



1,616



2,186


Net realized (losses) gains


(418)



4,561



5,041



3,505


Other-than-temporary impairment loss








(1,800)


Other income


2,240



2,121



8,920



9,236

Total revenues


42,738



46,476



188,018



172,278

Expenses:













Loss and loss adjustment expenses


21,011



19,764



86,227



87,553


Commissions and premium taxes


5,415



4,568



23,238



23,134


Cost of services sold


543



746



3,880



1,843


General and administrative expenses


14,574



21,190



67,233



79,812


Restructuring expense


16



711



(13)



1,861


Interest expense


1,431



1,695



5,645



7,263


Amortization of intangible assets


400



612



1,620



2,186


Contingent consideration (benefit) expense


(3,024)



320



(2,223)



785


Impairment of asset held for sale




944



1,180



2,390

Total expenses


40,366



50,550



186,787



206,827

Income (loss) from continuing operations before loss on
change in fair value of debt, loss on disposal of subsidiary,
loss on disposal of asset held for sale, loss on buy-back of
debt, equity in net (loss) income of investee and income tax
expense (benefit)


2,372



(4,074)



1,231



(34,549)

Loss on change in fair value of debt


(754)



2(6,248)



(10,953)



(9,060)

Loss on disposal of subsidiary


(2)





(1,244)



Loss on disposal of asset held for sale


(125)





(125)



Loss on buy-back of debt








(24)

Equity in net (loss) income of investee


(107)





(190)



255

Income (loss) from continuing operations before income tax
expense (benefit)


1,384



(10,322)



(11,281)



(43,378)

Income tax expense (benefit)


33



331



(57)



(67)

Income (loss) from continuing operations


1,351



(10,653)



(11,224)



(43,311)

Gain on liquidation of subsidiaries, net of taxes








7,227

Net income (loss)


1,351



(10,653)



(11,224)



(36,084)


Less: net income attributable to noncontrolling interests in
consolidated subsidiaries


723



370



1,596



777


Net income (loss) attributable to Kingsway


628



(11,023)



(12,820)



(36,861)


Less: dividends on preferred stock


82





300




Net income (loss) attributable to common shareholders


$

546



$

(11,023)



$

(13,120)



$

(36,861)

Earnings (loss) per share - continuing operations:













Basic:


$

0.03



$

(0.67)



$

(0.75)



$

(3.12)


Diluted:


$

0.03



$

(0.67)



$

(0.75)



$

(3.12)

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













Basic


$

0.03



$

(0.67)



$

(0.75)



$

(2.61)


Diluted:


$

0.03



$

(0.67)



$

(0.75)



$

(2.61)

Weighted average shares outstanding (in '000s):













Basic:


19,710



16,430



17,398



14,111


Diluted:


19,710



16,430



17,398



14,111














Consolidated Balance Sheets
(in thousands, except per share data)


December 31, 2014


December 31, 2013







Assets






Investments:







Fixed maturities, at fair value (amortized cost of $56,000 and $53,455, respectively)


$

56,195



$

54,151


Equity investments, at fair value (cost of $16,579 and $3,554, respectively)


19,618



7,137


Limited liability investments


7,294



4,406


Other investments, at cost which approximates fair value


3,576



3,000


Short-term investments, at cost which approximates fair value


400



501

Total investments


87,083



69,195

Cash and cash equivalents


74,026



98,589

Investment in investee


2,115



Accrued investment income


141



614

Premiums receivable, net of allowance for doubtful accounts of $1,889 and $2,123, respectively


28,885



32,035

Service fee receivable, net of allowance for doubtful accounts of $247 and $0, respectively


19,970



19,012

Other receivables, net of allowance for doubtful accounts of $806 and $1,062, respectively


5,402



4,097

Reinsurance recoverable


3,652



10,335

Prepaid reinsurance premiums


8



6,816

Deferred acquisition costs, net


12,197



12,392

Income taxes recoverable


223



Property and equipment, net of accumulated depreciation of $17,290 and $15,848, respectively


6,169



1,662

Goodwill


10,588



10,588

Intangible assets, net of accumulated amortization of $20,203 and $18,583, respectively


47,298



48,918

Other assets


3,965



4,039

Asset held for sale




6,347

Total Assets


$

301,722



$

324,639

Liabilities and Shareholders' Equity












Liabilities:






Unpaid loss and loss adjustment expenses:







Property and casualty


$

63,895



$

84,534


Vehicle service agreements



2,975




3,128

Total unpaid loss and loss adjustment expenses



66,870




87,662

Unearned premiums



36,432




48,577

Reinsurance payable



525




1,033

LROC preferred units, at fair value



13,618




14,854

Senior unsecured debentures, at fair value






14,356

Subordinated debt, at fair value



40,659




28,471

Deferred income tax liability



5,386




4,173

Deferred service fees



49,454




48,788

Income taxes payable






2,984

Accrued expenses and other liabilities



40,582




36,821

Total Liabilities



253,526




287,719

Class A preferred stock, no par value; unlimited number authorized; 262,876 and zero issued and
outstanding at December 31, 2014 and December 31, 2013, respectively



6,330




Shareholders' Equity:






Common stock, no par value; unlimited number authorized; 19,709,706 and 16,429,761 issued and
outstanding at December 31, 2014 and December 31, 2013, respectively




Additional paid-in capital


340,844



324,803

Accumulated deficit


(312,050)



(298,930)

Accumulated other comprehensive income


8,670



9,601

Shareholders' equity attributable to common shareholders


37,464



35,474

Noncontrolling interests in consolidated subsidiaries


4,402



1,446

Total Shareholders' Equity


41,866



36,920

Total Liabilities and Shareholders' Equity


$

301,722



$

324,639

Non-U.S. GAAP Financial Measures

Segment Operating Income (Loss)

Segment operating income (loss) 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 (Loss)

Adjusted operating income (loss) 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 (loss) is comprised of segment operating income (loss) as well as net investment income, net realized (losses) gains, other-than-temporary impairment loss, equity in net (loss) income of investee and net revenues of 1347 Advisors. A reconciliation of segment operating income (loss) and adjusted operating income (loss) to net income (loss) for the quarter and years ended December 31, 2014 and 2013 is presented below:






(in thousands)

Three months ended December 31,



Years ended December 31,



2014



2013



2014



2013

Segment operating income (loss)


$

1,687



$

(3,311)



$

6,099



$

(13,490)

Net investment income


320



381



1,616



2,186

Net realized (losses) gains


(418)



4,561



5,041



3,505

Other-than-temporary impairment loss








(1,800)

Equity in net (loss) income from investee


(107)





(190)



255

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


54





79



Adjusted operating income (loss)


1,536



1,631



12,645



(9,344)

Corporate operating expenses and other (1)


(464)



(3,164)



(7,719)



(11,140)

Interest expense


(1,431)



(1,695)



(5,645)



(7,263)

Amortization of intangible assets


(400)



(612)



(1,620)



(2,186)

Contingent consideration benefit (expense)


3,024



(320)



2,223



(785)

Impairment of asset held for sale




(944)



(1,180)



(2,390)

Loss on change in fair value of debt


(754)



(6,248)



(10,953)



(9,060)

Loss on disposal of subsidiary


(2)





(1,244)



Loss on disposal of asset held for sale


(125)





(125)



Income (loss) from disposed subsidiary




1,030



2,337



(1,186)

Loss on buy-back of debt








(24)

Income (loss) from continuing operations before
income tax (expense) benefit


1,384



(10,322)



(11,281)



(43,378)

Income tax (expense) benefit


(33)



(331)



57



67

Income (loss) from continuing operations


1,351



(10,653)



(11,224)



(43,311)

Gain on liquidation of subsidiaries, net of taxes








7,227

Net income (loss)


$

1,351



$

(10,653)



$

(11,224)



$

(36,084)

(1)

Corporate operating expenses and other includes corporate operating expenses, foreign exchange gains (losses), stock-based compensation
expense and non-cash expenses related to the consolidation of Kingsway Linked Return of Capital 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, 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.

SOURCE Kingsway Financial Services Inc.

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

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