SCHEDULE 13D/A: Stilwell Group Grants Options on Kingsway Financial Shares, Reiterates Activist Stance and Value Concerns

Stilwell Value LLC, part of the activist Stilwell Group, has granted options to purchase 1.75 million shares of Kingsway Financial Services Inc. common stock, while the Group continues to hold a 21.6% stake and believes the company's value is not adequately reflected in its market price.

Summary

• The Stilwell Group, comprising Stilwell Activist Fund, Stilwell Activist Investments, Stilwell Associates, Stilwell Value Partners VII, Stilwell Value LLC, and Joseph Stilwell, collectively beneficially owns 5,968,290 shares of Kingsway Financial Services Inc. common stock, representing approximately 21.6% of the outstanding shares.
• This beneficial ownership includes 105,263 shares of Common Stock immediately convertible from the Issuer's Class C Preferred Stock.
• On March 31, 2025, Stilwell Value LLC entered into three Option Agreements, granting counterparties options to purchase a total of 1,750,000 shares of Kingsway's Common Stock at an exercise price of $8.25 per share.
• The options commence on March 31, 2025, and terminate on December 29, 2025, with exercise solely for all shares underlying each option.
• The Stilwell Group's stated purpose in acquiring Kingsway 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, a member of the Group, has continuously served on Kingsway's board of directors since April 23, 2009.
• The filing details the Stilwell Group's activist history since 2000, involving 76 other publicly-traded companies, with common outcomes including company sales/mergers, seating directors, and driving shareholder-friendly capital allocation strategies like share repurchases and second-step conversions.
• Stilwell Value LLC consented to an SEC administrative cease and desist order on September 25, 2024, for failing to timely file certain beneficial ownership reports, resulting in a $75,000 civil monetary penalty.

Sentiment

Score: 6

Explanation: The document is a factual report of an activist investor's position and history. While it highlights past successes in driving value and implies a belief in Kingsway's potential, it also reveals a past SEC compliance issue and explicitly states that Kingsway's value is not adequately reflected, suggesting a need for improvement. The granting of options is a strategic move by the investor, not inherently positive or negative for the company's immediate performance.

Positives

• The Stilwell Group has a long and documented history of successful activist campaigns, often leading to significant shareholder value creation through company sales, mergers, or improved capital allocation strategies.
• Joseph Stilwell's continuous tenure on Kingsway's board since 2009 suggests a deep, long-term engagement and commitment to the company.
• The Group's explicit goal of maximizing shareholder value aligns with the interests of common shareholders.
• The granting of options could signal a strategic move to unlock value or facilitate a future transaction, potentially benefiting shareholders if the stock price appreciates above the exercise price.

Negatives

• The Stilwell Group explicitly states their belief that Kingsway Financial Services Inc.'s value is 'not adequately reflected in the current market price,' indicating a perceived undervaluation or underperformance.
• Stilwell Value LLC was subject to an SEC cease and desist order and a $75,000 civil monetary penalty for failing to timely file beneficial ownership reports, highlighting past regulatory compliance issues within the Group.

Risks

• Regulatory Compliance Risk: Stilwell Value LLC's past SEC violation for untimely filings indicates a potential for future regulatory scrutiny or non-compliance issues.
• Activist Campaign Risk: While the Stilwell Group has a strong track record, activist campaigns do not always succeed in maximizing shareholder value, as evidenced by their exit from Garrison Capital, Inc. without achieving their objective.
• Market Price Risk: The Group's ability to profit from their investment in Kingsway is directly tied to the appreciation of the company's market price, which is subject to broader market conditions and company-specific performance.
• Option Exercise Risk: The options granted by Stilwell Value LLC may not be exercised if Kingsway's share price does not rise above the $8.25 exercise price by the December 29, 2025, expiration date.
• Litigation Risk: The Stilwell Group has a history of initiating legal proceedings against companies to assert shareholder rights or compel corporate actions, which could lead to future litigation for Kingsway if their objectives are not met.
• Management/Board Conflict Risk: The Group's activist approach often involves challenging existing management and board decisions, potentially leading to internal conflicts or proxy contests within Kingsway.

Future Outlook

The Stilwell Group intends to continue its activist approach to maximize shareholder value across its portfolio. For Kingsway Financial Services Inc., the granting of options suggests a potential future transaction involving a significant block of shares by December 2025. The Group explicitly states its belief that Kingsway's value is not adequately reflected in its current market price, implying a continued push for appreciation or strategic alternatives. For other companies, the Group plans to seek board representation if shareholder proposals for sale are not acted upon (IROQ), pursue legal action and board representation to maximize value (PFBX), and work with management and boards to maximize value (SFBC, PVBC, CIBH, UNIF, CPBI, SICP).

Management Comments

• "We do not believe the value of the Issuer is adequately reflected in the current market price of the Issuer's Common Stock."
• "We hope to work with management and the board of directors to maximize shareholder value at SFBC."
• "We hope to work with management and the board of directors to maximize shareholder value at PVBC."
• "We hope to work with management and the board to maximize shareholder value at CIBH."
• "We are evaluating how best to proceed to maximize shareholder value [at UNIF]."
• "We hope to work with management and the board to maximize shareholder value [at CPBI]."
• "We believe management and the directors have ill served PFBXs shareholders, and PFBX should explore all possibilities to maximize shareholder value."
• "We intend to work to maximize value for all common shareholders at SICP."

Industry Context

The document highlights the Stilwell Group's extensive history as an activist investor primarily focused on the financial services sector, including banks, bancorps, and insurance companies. Their strategies, such as advocating for mergers, acquisitions, share repurchases, special dividends, and second-step conversions, are common tactics employed by activist investors seeking to unlock value in undervalued or underperforming financial institutions, particularly those with mutual holding company structures. The Group's engagement with a business development company and a real estate investment trust indicates some diversification, but their core expertise and historical success lie within the banking and insurance industries.

Comparison to Industry Standards

• The Stilwell Group's activist history demonstrates a consistent strategy across 76 publicly-traded companies since 2000, primarily in the financial sector, aiming to profit from share price appreciation by asserting shareholder rights.
• Outcomes of their activist positions include: 27 issuers were sold or merged after the Group asserted shareholder rights; 16 issuers were sold or merged after the Group seated directors on their boards.
• In 20 instances, issuers took steps to maximize shareholder value (e.g., significant share repurchases, special dividends, second-step conversions) after the Group asserted rights, leading to the Group exiting its activist position.
• Specific examples of value-maximizing actions include: Oregon Trail Financial Corp. (OTFC) repurchased ~15% of shares after Stilwell seated a director; American Physicians Capital, Inc. (ACAP) repurchased 15% of outstanding shares in fiscal year 2002, which was highly accretive to per share book value.
• In one instance (Garrison Capital, Inc.), the Group exited its activist position without maximizing shareholder value, citing the global pandemic's impact on business development companies.
• Current engagements include seating directors who currently serve on boards (Sound Financial, Inc., Wheeler Real Estate Investment Trust, Inc., Ottawa Bancorp, Inc., Provident Bancorp, Inc., Silvergate Capital Corporation), hoping to work with management (CIB Marine Bancshares, Inc., U & I Financial Corp., Central Plains Bancshares, Inc.), and intending to gain board representation and maximize value (Peoples Financial Corporation, IF Bancorp, Inc.).
• Agreements with target companies sometimes include specific performance targets, such as Ottawa Bancorp, Inc.'s commitment to repurchase at least 5% of its shares annually for fiscal years 2024 and 2025, or engage an investment banker to evaluate alternatives, and HopFed Bancorp, Inc.'s revised compensation policies requiring average annual performance relative to its peer group for executive compensation.

Management Changes

Corporate Governance

Legal Proceedings

• Stilwell Value LLC consented to an SEC administrative cease and desist order on September 25, 2024, for violations of Section 13(d)(1) and 13(d)(2) of the Securities Exchange Act of 1934 and related rules for failing to timely file beneficial ownership reports, resulting in a $75,000 civil monetary penalty.
• The Stilwell Group has a history of initiating legal actions against companies to assert shareholder rights, including lawsuits over shareholder lists (e.g., Oregon Trail Financial Corp., SCPIE Holdings Inc., NorthEast Community Bancorp, Inc.), challenges to bylaws (e.g., HopFed Bancorp, Inc.), and derivative actions for breach of fiduciary duties (e.g., Prudential Bancorp, Inc. of Pennsylvania, Malvern Bancorp, Inc., NorthEast Community Bancorp, Inc., Peoples Financial Corporation).
• For Peoples Financial Corporation (PFBX), Stilwell Group filed a complaint on July 22, 2022, to compel the production of books and records, which was partially granted on July 18, 2023. On September 29, 2023, they filed a derivative complaint against PFBX's directors for breach of fiduciary duty, seeking over $50 million in restitution. The court denied the directors' motion to dismiss on October 17, 2024, and allowed discovery on December 20, 2024. The directors' interlocutory appeal was denied on April 1, 2025.
• For Silvergate Capital Corporation (SICP), Stilwell Group filed a lawsuit in California Superior Court on December 18, 2023, to enforce shareholder records inspection rights, with the court ordering production on August 9, 2024. They also filed suit in Maryland Circuit Court on February 16, 2024, to compel an annual meeting, which the court ordered by September 27, 2024, despite SICP's appeals and Chapter 11 bankruptcy filing.

Related Party Transactions

• Stilwell Value LLC, as the general partner of Stilwell Activist Fund, Stilwell Activist Investments, Stilwell Associates, and Stilwell Value Partners VII, and Joseph Stilwell, as the managing member and owner of Stilwell Value LLC, are entitled to an allocation of a portion of profits from the Group's investments.
• In the case of HopFed Bancorp, Inc. (HFBC), the Stilwell Group highlighted "extensive real estate holdings of HFBCs CEO, John Peck, as well as numerous other conflicts of interest of both Mr. Peck and HFBCs counsel, George M. (Greg) Carter," leading to a Special Litigation Committee investigation and a demand for legal malpractice action against the attorneys.

Stakeholder Impact

• Shareholders: The Stilwell Group's actions are primarily aimed at increasing shareholder value through strategies like share price appreciation, mergers, acquisitions, share repurchases, and special dividends. The granting of options could lead to a significant change in ownership structure and potentially influence future share price.
• Management and Board: The Group's activist approach often leads to increased scrutiny of management and board decisions, potential changes in leadership and board composition, and demands for specific strategic actions.
• Employees: While not directly addressed, company sales or mergers, often advocated by the Stilwell Group, can lead to organizational restructuring and potential impacts on employee roles and job security.
• Creditors and Customers: Changes in corporate strategy or ownership resulting from activist campaigns could indirectly affect the company's financial stability and operational focus, which may have downstream effects on creditors and customers.

Next Steps

• The options granted by Stilwell Value LLC for Kingsway shares may be exercised by December 29, 2025.
• The Stilwell Group intends to seek board representation at IF Bancorp, Inc. (IROQ) if the shareholder proposal for sale does not lead to a prompt sale.
• The Stilwell Group intends to gain board representation and work to maximize shareholder value at Peoples Financial Corporation (PFBX), including pursuing a derivative action seeking over $50 million in restitution from directors.
• The Stilwell Group intends to work to maximize value for all common shareholders at Silvergate Capital Corporation (SICP).
• Ottawa Bancorp, Inc. (OTTW) agreed to make a good faith effort to repurchase at least 5% of its shares annually for fiscal years 2024 and 2025, or engage an investment banker to evaluate alternatives to maximize shareholder value.
• The Stilwell Group hopes to work with management and the boards of Sound Financial Bancorp, Inc. (SFBC), Provident Bancorp, Inc. (PVBC), CIB Marine Bancshares, Inc. (CIBH), U & I Financial Corp. (UNIF), and Central Plains Bancshares, Inc. (CPBI) to maximize shareholder value.

Key Dates

Keywords

Activist investor, Schedule 13D, Beneficial ownership, Shareholder rights, Corporate governance, Mergers and acquisitions, Share repurchases, Second-step conversion, Proxy contest, Financial services, Kingsway Financial Services Inc., Stilwell Group, Options agreement, SEC filing