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.