SCHEDULE 13D/A: Activist Investor Stilwell Group Reduces Stake in Kingsway Financial Services While Maintaining Significant Influence

The Stilwell Group, a prominent activist investor, has reduced its stake in Kingsway Financial Services Inc. by selling 1 million common shares, though it retains a substantial 21.6% beneficial ownership and continues to assert shareholder rights.

Summary

• The Stilwell Group, comprising Stilwell Activist Fund, Stilwell Activist Investments, Stilwell Associates, Stilwell Value Partners VII, Stilwell Value LLC, and Joseph Stilwell, reported a reduction in their beneficial ownership of Kingsway Financial Services Inc.
• As of March 26, 2025, the Group beneficially owns an aggregate of 5,968,290 common shares, which includes 105,263 shares convertible from Class C Preferred Stock.
• This ownership represents approximately 21.6% of Kingsway's outstanding common shares, based on 27,537,151 shares outstanding as of March 17, 2025.
• The Group sold a total of 1,000,000 common shares on March 26, 2025, at a price of $8.00 per share, totaling $8,000,000.
• The Group's stated purpose for acquiring shares is to profit from market price appreciation by asserting shareholder rights, as they believe the Issuer's value is not adequately reflected in its current market price.
• Joseph Stilwell has continuously served as a director on Kingsway's board since April 23, 2009.

Sentiment

Score: 6

Explanation: The document reports a partial sale of shares by an activist investor, which could be seen as taking profits or rebalancing. However, the investor retains a significant stake and explicitly states they believe the company's value is not adequately reflected, implying continued upside potential. The historical context of successful activism adds a positive dimension, but the past SEC compliance issue for one of the group's entities is a minor negative. Overall, the sentiment is moderately positive due to the continued activist engagement and belief in undervaluation, despite the share sale.

Positives

• The Stilwell Group continues to hold a significant 21.6% stake, indicating continued belief in the potential for value appreciation.
• The Group's long history of activist positions (76 companies since 2000) demonstrates a consistent strategy aimed at maximizing shareholder value, often leading to company sales, mergers, or significant share repurchases.
• Joseph Stilwell's continuous presence on the board since 2009 suggests a long-term engagement and influence within the company.

Negatives

• The sale of 1,000,000 shares by the activist group could be perceived negatively, potentially signaling a partial exit or a belief that the stock has reached a short-term peak for some of their holdings.
• The Group explicitly states they "do not believe the value of the Issuer is adequately reflected in the current market price," which implies an undervaluation or dissatisfaction with current market perception.

Risks

• Regulatory Compliance Risk: Stilwell Value LLC, a key entity within the Group, was subject to an SEC cease and desist order on September 25, 2024, for failing to timely file beneficial ownership reports (Schedule 13D and 13G). This resulted in a $75,000 civil monetary penalty. While obligations have been satisfied, it highlights past compliance issues within the Group's operations.
• Activist Strategy Risk: The Group's strategy relies on asserting shareholder rights to drive appreciation, which may involve contentious proxy contests, litigation, or demands for strategic changes like sales or mergers. These actions can be disruptive and may not always succeed in maximizing value as intended.
• Market Price Reflection Risk: The Group's belief that Kingsway's value is not adequately reflected in its market price indicates a potential disconnect between intrinsic value and market valuation, which may persist or widen.

Future Outlook

The Stilwell Group's stated purpose is to profit from the appreciation in the market price of Kingsway's shares by asserting shareholder rights, as they believe the current market price does not adequately reflect the Issuer's value. They may seek to make additional purchases or sales of common shares. The Group hopes to work with management and the board to maximize shareholder value.

Management Comments

• "Our purpose in acquiring shares of Common Stock of the Issuer is to profit from the appreciation in the market price of the shares of Common Stock through asserting shareholder rights."
• "We do not believe the value of the Issuer is adequately reflected in the current market price of the Issuer's Common Stock."
• "Members of the Group may seek to make additional purchases or sales of shares of Common Stock."

Industry Context

The Stilwell Group primarily focuses on financial institutions, particularly banks and insurance companies, as evidenced by their extensive activist history detailed in Schedule A. Their strategy often involves advocating for strategic alternatives such as sales, mergers, share repurchases, or second-step conversions, aiming to unlock perceived undervalued assets. This filing for Kingsway Financial Services Inc., an insurance and financial services company, aligns with their historical focus on the financial sector.

Comparison to Industry Standards

• The document does not provide specific comparable companies or projects for Kingsway Financial Services Inc.
• However, the Stilwell Group's activist history demonstrates a consistent approach across numerous financial institutions, often leading to outcomes such as company sales or mergers (e.g., Security of Pennsylvania Financial Corp., Cameron Financial Corporation, Community Financial Corp., Montgomery Financial Corporation, Jefferson Bancshares, Inc., FedFirst Financial Corporation, SP Bancorp, Inc., TF Financial Corporation, Fairmount Bancorp, Inc., Harvard Illinois Bancorp, Inc., Eureka Financial Corp., United-American Savings Bank, Polonia Bancorp, Inc., Georgetown Bancorp, Inc., Wolverine Bancorp, Inc., First Federal of Northern Michigan Bancorp, Inc., Jacksonville Bancorp, Inc., Anchor Bancorp, Hamilton Bancorp, Inc., Ben Franklin Financial, Inc., Alcentra Capital Corp, First Advantage Bancorp, Central Federal Bancshares, Inc., Carroll Bancorp, Inc., Brunswick Bancorp, ICC Holdings, Inc., Seneca-Cayuga Bancorp, Inc./Generations Bancorp NY, Inc.).
• The Group has also frequently driven significant share repurchases (e.g., OTFC, HCBB, ACAP, FPIC, ROMA, FSFG, PBIP, HFBL, STND, ALLB, ASBB, UCBA, WEIN, WMPN, FFNW, PBSK, MBCQ, GTWN, WBKC, JXSB, IROQ, PROV, CNNB) and second-step conversions from mutual holding company structures (e.g., ALLB, ALMG, MLVF, FSBC, NECB, SCAY/GBNY, SNFL/SFBC).
• Their engagement often involves gaining board representation and influence leading to strategic changes (e.g., OTFC, HCBB, SKP, ACAP, COBK, NVSL, FRTR, SSNF, DLNO, PBSK, HFBC, MBCQ, SNFL/SFBC, WHLR, OTTW, PVBC, SICP) and, when necessary, litigation to assert shareholder rights or compel actions (e.g., OTFC, SKP, PBIP, FFNW, MLVF, HFBC, SCAY, SICP, PFBX, NECB).
• The Group's track record suggests a consistent strategy of driving shareholder value through active engagement, often by pushing for capital allocation improvements or strategic transactions within the financial sector.

Management Changes

Corporate Governance

Legal Proceedings

• Stilwell Value LLC SEC Cease and Desist Order: On September 25, 2024, Stilwell Value LLC consented to an SEC administrative cease and desist order for failing to timely file certain beneficial ownership reports (Schedule 13D and 13G), resulting in a $75,000 civil monetary penalty. Obligations have been satisfied.
• Peoples Financial Corporation (PFBX) Litigation: The Stilwell Group is currently engaged in legal proceedings against PFBX, including a complaint filed on July 22, 2022, to compel the production of books and records related to reported losses, and a derivative complaint filed on September 29, 2023, against PFBX's directors for breach of fiduciary duty, seeking damages in excess of $50 million. The derivative complaint is proceeding with discovery, and an interlocutory appeal by directors was opposed on January 24, 2025.
• Silvergate Capital Corporation (SICP) Litigation: The Stilwell Group is currently engaged in legal proceedings against SICP, including a successful shareholder records inspection demand (ordered August 9, 2024) and a successful suit to compel an annual meeting (ordered May 23, 2024), despite SICP's Chapter 11 bankruptcy filing and attempts to enjoin the meeting. Joseph Stilwell was elected to the board on September 27, 2024.

Related Party Transactions

• The Stilwell Group, through Stilwell Activist Fund and Stilwell Activist Investments, purchased Class C Preferred Stock from Kingsway Financial Services Inc. on February 12, 2025, as detailed in Subscription Agreements. This constitutes a transaction between the Issuer and entities controlled by the reporting person (Joseph Stilwell).

Stakeholder Impact

• Shareholders: The Group's activist stance aims to increase shareholder value through appreciation in market price, potentially via strategic changes like sales, mergers, or share repurchases. The recent sale of shares by the Group could impact market perception and liquidity.
• Management/Board: The Group's continued significant ownership and board representation (Joseph Stilwell) indicate ongoing influence on strategic decisions and corporate governance. Their stated belief that the company's value is not adequately reflected suggests potential pressure for management to take actions to improve valuation.

Next Steps

• The Stilwell Group may seek to make additional purchases or sales of Kingsway Financial Services Inc. common shares.
• The Group intends to continue asserting shareholder rights to profit from the appreciation in Kingsway's market price.
• The Class C Preferred Stock purchased by the Group is convertible into common shares and will be redeemed by the Issuer on February 12, 2032.

Key Dates

Recommendation

Keywords

Kingsway Financial Services Inc., Stilwell Group, Activist Investor, Schedule 13D/A, Shareholder Rights, Beneficial Ownership, Common Shares, Class C Preferred Stock, SEC Filing, Corporate Governance, Investment Management, Financial Services, Share Sale, Value Investing