SCHEDULE: Stilwell Group Trims Kingsway Stake to 19.9%

Stilwell Group reduced its beneficial ownership in Kingsway Financial Services Inc. to 19.9% through share sales and a change in the issuer's outstanding shares, while detailing its extensive history of activist investing.

Summary

• Stilwell Group's beneficial ownership in Kingsway Financial Services Inc. decreased to 19.9% of common shares outstanding.
• The decrease is attributed to a change in Kingsway's total shares outstanding and recent sales of common stock by members of the Stilwell Group.
• The Group's total beneficial ownership is 5,788,271 common shares, including 105,263 shares convertible from Class C Preferred Stock and 52,631 shares from Class D Preferred Stock.
• Stilwell Activist Fund, Stilwell Activist Investments, and Stilwell Value Partners VII sold a combined 232,650 common shares between June 27, 2025, and August 18, 2025, at prices ranging from $13.9049 to $14.1631 per share.
• The Group's stated purpose for acquiring shares in Kingsway was to profit from market price appreciation by asserting shareholder rights, a strategy they claim has been successful, leading to their intent to gradually reduce their position.
• Joseph Stilwell has continuously served on Kingsway's board of directors since April 23, 2009.
• The filing includes a detailed history of Stilwell Group's activist positions in 77 other publicly-traded companies since 2000, categorized by outcome (company sold/merged, directors seated leading to sale/merger, value maximized and position exited, exited without maximizing value, directors currently serving, hope to work with management, intend to gain board representation).

Sentiment

Score: 7

Explanation: The filing indicates a successful activist campaign for the Stilwell Group in Kingsway, leading to profit realization and a planned reduction in position. The extensive history showcases a strong track record of value creation through various activist strategies, including driving M&A, share repurchases, and governance changes. While there's a past SEC penalty and ongoing litigation in other cases, the overall narrative for the Group's investment approach is positive, demonstrating their ability to unlock shareholder value.

Positives

• Stilwell Group successfully profited from market price appreciation in Kingsway Financial Services Inc., aligning with their investment purpose.
• The Group has a long and successful history of activist investing, leading to sales, mergers, or value maximization in 61 out of 77 (approximately 79%) of their past activist positions.
• Successful strategies include advocating for share repurchases, special dividends, second-step conversions, and strategic sales/mergers.
• The Group has demonstrated effectiveness in gaining board representation and influencing corporate strategy, as seen in cases like Oregon Trail Financial, American Physicians Capital, and Wheeler Real Estate Investment Trust.
• In several instances, the Group's actions led to significant shareholder value creation, such as the 15% share repurchase by Oregon Trail Financial and American Physicians Capital, and the over 40% share repurchase by First Financial Northwest.
• The Group has shown persistence in pursuing shareholder rights, including through litigation, as demonstrated with Seneca-Cayuga Bancorp and Silvergate Capital, often leading to favorable outcomes.

Negatives

• Stilwell Value LLC received an SEC administrative cease and desist order on September 25, 2024, and paid a $75,000 civil monetary penalty for failing to timely file beneficial ownership reports (Schedule 13D and 13G).
• The Group exited one activist position (Garrison Capital, Inc.) without maximizing shareholder value, citing the global pandemic as a reason.
• Some activist campaigns involved protracted legal battles and proxy contests, indicating resistance from target company management (e.g., Oregon Trail Financial, Prudential Bancorp, HopFed Bancorp, Silvergate Capital, Peoples Financial Corporation).
• In some cases, the Group's nominees for board seats were not initially elected (e.g., Harvard Illinois Bancorp, HopFed Bancorp, Peoples Financial Corporation).
• The Group is currently engaged in ongoing litigation against Peoples Financial Corporation's directors, seeking over $50 million in restitution for alleged breach of fiduciary duties related to reported losses in the securities portfolio.

Risks

• Regulatory Compliance Risk: Stilwell Value LLC's past SEC violation for late filings indicates a risk of non-compliance with reporting requirements, although they have satisfied the obligations of the order.
• Litigation Risk: The Group frequently engages in litigation to assert shareholder rights, which can be costly, time-consuming, and may not always result in desired outcomes (e.g., initial dismissals or appeals in some cases).
• Management Resistance Risk: Target companies may resist activist demands, leading to prolonged disputes, proxy contests, and legal battles, which can divert resources and delay value realization.
• Market Conditions Risk: External factors, such as a global pandemic (Garrison Capital), can negatively impact activist strategies and prevent value maximization.
• Investment Performance Risk: While the Group has a strong track record, there is no guarantee that future activist positions will yield similar positive results or that market prices will appreciate to reflect perceived fair value.
• Reputational Risk: Aggressive activist tactics and public disputes, as detailed in the history, could potentially damage the Group's reputation or relationships with other market participants.

Future Outlook

The Stilwell Group intends to gradually reduce its position in Kingsway Financial Services Inc. after having successfully profited from market price appreciation. For other companies, the Group continues to pursue activist strategies, including seeking board representation and advocating for strategic alternatives like sales or second-step conversions, particularly for IF Bancorp, Inc. and Peoples Financial Corporation, where they are actively engaged in litigation and shareholder proposals. They also express a desire to work collaboratively with management and boards of other issuers to maximize shareholder value.

Management Comments

• Our purpose in acquiring shares of Common Stock of the Issuer was to profit from the appreciation in the market price of the shares of Common Stock through asserting shareholder rights. We have succeeded and intend to gradually reduce our position over time.
• In each instance [of activist positions], our purpose has been to profit from the appreciation in the market price of the shares we held by asserting shareholder rights. In addition, we believed that the values of the companies' assets were not adequately reflected in the market prices of their shares.
• We hope to work with management and the board of directors to maximize shareholder value at SFBC.
• We intend to continue to work to maximize value for all common shareholders of SICP.
• We believe management and the board are acting in good faith 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 and LSBK].
• We believe management and the directors have ill served PFBXs shareholders, and PFBX should explore all possibilities to maximize shareholder value.
• If the proposal [for IROQ's sale] does not lead to IROQs prompt sale, we intend to seek board representation at IROQ.

Industry Context

This filing highlights the ongoing trend of shareholder activism, particularly in the financial services sector (banks, insurance companies, and other financial institutions), which appears to be the primary focus of the Stilwell Group. Their strategy of identifying undervalued companies, asserting shareholder rights, and pushing for strategic changes like sales, mergers, share repurchases, or second-step conversions is a common tactic employed by activist investors to unlock shareholder value. The detailed history demonstrates a consistent approach over two decades, often involving direct engagement with management, proxy contests, and, when necessary, litigation to achieve their objectives. The success rate reported by Stilwell Group suggests that such activist interventions can be a significant catalyst for change and value creation in the targeted companies, often leading to consolidation within the financial industry.

Comparison to Industry Standards

• Stilwell Group's track record of achieving sales or mergers in 26 companies after asserting shareholder rights (Category I) and 15 companies after seating directors (Category II) demonstrates a high success rate in driving strategic transactions, which is a key metric for activist funds.
• The consistent use of share repurchases and special dividends as a means to return capital and increase per-share value (e.g., Oregon Trail Financial repurchasing 15% of shares, American Physicians Capital repurchasing 15%, First Financial Northwest repurchasing over 40%) aligns with best practices for capital allocation in mature industries like banking, often exceeding the capital return rates of less actively managed peers.
• The Group's willingness to engage in protracted legal battles and proxy contests (e.g., HopFed Bancorp, Silvergate Capital, Peoples Financial Corporation) to enforce shareholder rights and corporate governance improvements is a hallmark of aggressive activism, often leading to outcomes that might not be achieved through less confrontational means. For instance, the $610,312 legal fee award against HopFed Bancorp for board misconduct sets a precedent for accountability.
• The successful appointment of Stilwell Group representatives to boards (e.g., Joseph Stilwell at Kingsway, Corissa B. Porcelli at Sound Financial and Delanco Bancorp, Stephen S. Burchett at Poage Bankshares, Mark D. Alcott at Ottawa Bancorp, Megan Parisi and E. J. Borrack at Wheeler Real Estate, Joseph Stilwell at Silvergate Capital) indicates a strong ability to gain influence and directly shape corporate strategy, a critical measure of activist effectiveness.
• The pursuit of second-step conversions for mutual holding companies (e.g., Alliance Bancorp, Alamogordo Financial, Malvern Bancorp, FSB Community Bankshares, NorthEast Community Bancorp, Seneca-Cayuga Bancorp) is a specialized activist strategy common in the thrift industry, aimed at unlocking value by converting to a fully public stock company, and Stilwell Group has a demonstrated expertise in this area.

Management Changes

Corporate Governance

Legal Proceedings

• 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 (13D/13G), resulting in a $75,000 civil monetary penalty.
• Stilwell Group sued Oregon Trail Financial Corp. in Baker County, Oregon, over a shareholder list demand and won, with the court sanctioning OTFC. They also sued two OTFC directors, alleging residency violation and perjury.
• Oregon Trail Financial Corp. sued Stilwell Group in Portland, Oregon, and moved to invalidate proxies, but the court denied the motion.
• Stilwell Group sued SCPIE Holdings Inc. in Delaware Chancery Court to compel timely production of a shareholder list.
• Stilwell Group sued Prudential Bancorp, Inc. of Pennsylvania, its mutual holding company, and directors in federal court in Philadelphia to prevent the MHC from voting on management stock benefit plans, with the court sustaining a breach of fiduciary duties claim against the MHC.
• Stilwell Group sued NorthEast Community Bancorp, Inc. in federal court in New York to compel compliance with a shareholder list demand and in New York state court for breach of fiduciary duty related to a second-step conversion.
• Stilwell Group sued Malvern Bancorp, Inc.'s directors in Chester County, Pennsylvania, demanding the court order directors to consider a second-step conversion.
• Stilwell Group filed a complaint in the Delaware Court of Chancery against HopFed Bancorp, Inc. and its directors, asking the Court to declare a prejudicial bylaw invalid and that directors breached fiduciary duties, leading to a $610,312 award for attorneys' fees.
• Stilwell Group formally demanded that HopFed Bancorp, Inc.'s board of directors take action against its attorneys for legal malpractice, seeking damages exceeding $1 million.
• Stilwell Group served a shareholder records inspection demand on Silvergate Capital Corporation and filed suit in California Superior Court to enforce rights, with the court ordering production.
• Stilwell Group filed suit in Maryland Circuit Court to compel Silvergate Capital Corporation to hold an annual meeting, which the court granted, despite appeals and a bankruptcy filing by SICP.
• Stilwell Group served a demand for inspection of Peoples Financial Corporation's books and records and filed a complaint in Mississippi Chancery Court to compel production, with the Special Chancellor partially granting the motion.
• Stilwell Group filed a derivative complaint on behalf of Peoples Financial Corporation against its directors in Mississippi Chancery Court for breach of fiduciary duty, seeking damages in excess of $50 million, with the court denying dismissal and allowing discovery, and the Mississippi Supreme Court denying an interlocutory appeal.

Related Party Transactions

• Stilwell Activist Fund and Stilwell Activist Investments entered into Subscription Agreements with Kingsway Financial Services Inc. for the purchase of Class C Preferred Stock.
• Stilwell Associates entered into a Class D Subscription Agreement with Kingsway Financial Services Inc. for the purchase of Class D Preferred Stock.
• Stilwell Value LLC granted Option Agreements to certain counterparties to purchase common stock of Kingsway Financial Services Inc.
• Sharing of profits among the Stilwell Group members (Stilwell Value LLC and Joseph Stilwell are entitled to a portion of profits).

Stakeholder Impact

• Shareholders: The primary focus of Stilwell Group's activism is to maximize shareholder value through appreciation in market price, strategic sales/mergers, share repurchases, and improved corporate governance. This generally benefits shareholders.
• Management/Board: Activist campaigns often lead to changes in management and board composition, as seen in Wheeler Real Estate Investment Trust, Inc. (CEO fired, CFO resigned, legacy directors replaced) and HopFed Bancorp, Inc. (CEO left, new compensation policies). This can create uncertainty or pressure for existing leadership.
• Employees: Strategic sales or mergers, often a goal of activism, can lead to job consolidation or changes in corporate culture for employees of the acquired entity.
• Creditors/Suppliers: While not explicitly detailed, changes in corporate strategy, financial health, or ownership structure resulting from activist interventions could indirectly impact relationships with creditors and suppliers.
• Regulatory Authorities: The extensive history of engagement with regulatory bodies (e.g., FDIC, Federal Reserve, SEC) highlights the regulatory scrutiny involved in financial services activism and the need for compliance.

Next Steps

• Stilwell Group intends to gradually reduce its position in Kingsway Financial Services Inc. over time.
• Stilwell Group may seek to make additional purchases or sales of Kingsway common stock.
• Stilwell Group hopes to work with management and boards of CIB Marine Bancshares, Inc., U & I Financial Corp., Central Plains Bancshares, Inc., and Lake Shore Bancorp, Inc. to maximize shareholder value.
• Stilwell Group intends to gain board representation and work to maximize shareholder value at Peoples Financial Corporation and IF Bancorp, Inc.
• For IF Bancorp, Inc., if the shareholder-approved proposal for sale does not lead to a prompt sale, Stilwell Group intends to seek board representation.
• For Peoples Financial Corporation, Stilwell Group is pursuing a derivative action seeking over $50 million in restitution from directors.
• The settlement with Silvergate Capital Corporation is pending approval by the Bankruptcy Court, after which Stilwell Group will be entitled to select directors of the reorganized entity.
• Ottawa Bancorp, Inc. 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.
• The options granted by Stilwell Value LLC are exercisable on December 29, 2025.

Key Dates

Recommendation

The filing primarily details the Stilwell Group's activist history and their current position in Kingsway Financial Services Inc., including a reduction in their stake. While the Group has a strong track record of value creation through activism, the current filing indicates they are gradually reducing their position in Kingsway, suggesting they believe the primary value-unlocking phase for this specific investment has largely concluded. The sales of common stock at around $14 per share indicate a realization of gains. For a seasoned investor, this suggests that the immediate upside from Stilwell's activism in Kingsway may be limited, and further significant appreciation might require new catalysts. The stock is not a "sell" given the Group's past success and continued board presence, but the active "buy" phase driven by their initial activism appears to be winding down. Therefore, a "hold" recommendation is appropriate, awaiting new developments or a clearer indication of future catalysts for Kingsway.

Keywords

Activist Investing, Shareholder Rights, SEC Filing, Schedule 13D, Corporate Governance, Financial Services, Mergers and Acquisitions, Share Repurchases, Proxy Contest, Joseph Stilwell, Kingsway Financial Services