DEFA14A: Old Point Financial Supplements Merger Proxy Amid Shareholder Lawsuits

Old Point Financial Corporation has filed supplemental disclosures to its merger proxy statement in response to shareholder lawsuits alleging deficiencies, aiming to avoid delays and minimize litigation risks for its proposed merger with TowneBank.

Summary

• Old Point Financial Corporation (Old Point) and its wholly owned subsidiary, The Old Point National Bank of Phoebus, are set to merge with TowneBank, following an Agreement and Plan of Merger entered into on April 2, 2025.
• Old Point filed a definitive proxy statement/offering circular with the SEC on May 27, 2025, and distributed it to shareholders around May 29, 2025, seeking approval for the transaction.
• Two lawsuits, Michael Clark v. Old Point Financial Corporation et al. and Ken Conner v. Old Point Financial Corporation et al., were filed on June 12, 2025, in the Supreme Court of the State of New York, County of New York, along with demand letters from purported shareholders.
• The lawsuits and demand letters allege disclosure deficiencies and/or incomplete information regarding the Merger, citing violations of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, and/or state common law claims of negligence and negligent misrepresentation.
• Old Point and TowneBank deny the claims' merit and the necessity of supplemental disclosures but are providing them to mitigate the risk of merger delays and minimize litigation costs and uncertainties.
• Supplemental disclosures include an added risk factor detailing the potential impact of the litigation on the merger's completion, costs, and operations.
• Amendments to the 'Background of the Merger' section clarify that confidentiality agreements with thirteen financial institutions, including TowneBank, did not contain standstill or don't ask, don't waive provisions.
• The 'Opinion of Old Point's Financial Advisor' section was supplemented with detailed valuation multiples from selected companies and transactions analyses for both TowneBank and Old Point.
• The merger is projected to be accretive to TowneBank's estimated 2026 and 2027 EPS by 8.3% and 10.1%, respectively, but is expected to be dilutive by 6.0% to TowneBank's estimated tangible book value per share at closing, assumed as of December 31, 2025.
• KBW's fee for its opinion is approximately $3.0 million, with $500,000 already paid and the remainder contingent upon the merger's closing.
• Unaudited prospective financial information for Old Point includes projected Net Income of $10.8 million for 2025, growing to $15.8 million by 2030, and EPS of $2.12 for 2025, increasing to $2.45 for 2026.
• Old Point's Risk-Weighted Assets are projected to grow from $1.2 billion in 2025 to $1.6 billion by 2030.

Sentiment

Score: 4

Explanation: The document addresses ongoing shareholder litigation related to a merger, which introduces uncertainty and potential costs. While the company is taking proactive steps to mitigate these risks and the merger itself has projected EPS accretion, the tangible book value dilution and the inherent risks of litigation weigh on the sentiment. The situation is being managed, but it's not without significant challenges.

Positives

• The merger is projected to be accretive to TowneBank's estimated 2026 and 2027 EPS by 8.3% and 10.1%, respectively.
• Old Point and TowneBank are proactively providing supplemental disclosures to address shareholder litigation, aiming to avoid delays and minimize associated risks and costs for the merger.

Negatives

• Shareholder lawsuits and demand letters have been filed against Old Point and its board of directors, alleging disclosure deficiencies and incomplete information regarding the merger.
• There is a risk of additional litigation related to the merger, which could seek damages or an injunction to prevent or delay the merger.
• The merger is projected to be dilutive by 6.0% to TowneBank's estimated tangible book value per share at closing, assumed as of December 31, 2025.
• Potential for significant costs associated with the defense or settlement of shareholder lawsuits.

Risks

• Complaints related to the merger have been filed against Old Point and its board of directors, and demand letters received, with potential for additional litigation.
• Litigation could prevent or delay the completion of the merger.
• Litigation could result in the payment of damages.
• Litigation could negatively impact the business and operations of Old Point and TowneBank.
• An injunction prohibiting the merger could delay or prevent its consummation and result in significant costs.
• Costs associated with the indemnification of directors and officers.
• Defense or settlement of shareholder lawsuits could have an adverse effect on the financial condition and results of operations of Old Point and TowneBank.
• The business of Old Point or Old Point Bank may not be successfully integrated into TowneBank, or integration may take longer, be more difficult, time-consuming or costly.
• Expected growth opportunities or cost savings from the transaction may not be fully realized or may take longer to realize.
• Deposit attrition, operating costs, customer losses and business disruption following the transaction may be greater than expected.
• The possibility that the transaction does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all.
• The outcome of any legal proceedings that may be instituted against TowneBank or Old Point.
• Occurrence of any event, change, or other circumstance that could give rise to the right of one or both parties to terminate the merger agreement.
• Reputational risk and potential adverse reactions of customers, employees or other business partners.
• Dilution caused by TowneBank's issuance of additional shares.
• Diversion of management's attention and time from ongoing business operations.
• Economic, legislative or regulatory changes, including accounting standards.
• Competitive pressures in the banking industry.
• Changes in the interest rate environment.
• Unforeseen outflow of cash or deposits or inability to access capital markets.
• Changes in the creditworthiness of customers and impairment of loan collectability.
• Insufficiency of allowance for credit losses.
• Adverse developments in the financial industry generally.
• General economic conditions, nationally or regionally.
• Unusual and infrequently occurring events, such as weather-related or natural disasters, acts of war or terrorism, or public health events.
• Cybersecurity threats or attacks.
• The implementation of new technologies, and the ability to develop and maintain reliable electronic systems.
• Changes in business conditions.
• Changes in the securities market.
• Changes in the local economies with regard to TowneBank's and Old Point's respective market areas.

Future Outlook

The proposed merger is expected to be accretive to TowneBank's estimated EPS by 8.3% in 2026 and 10.1% in 2027, despite an anticipated 6.0% dilution to tangible book value per share at closing. Old Point's unaudited prospective financial information projects continued growth in net income and risk-weighted assets through 2030.

Management Comments

• Old Point and TowneBank believe that the claims asserted in the Matters are without merit and supplemental disclosures are not required or necessary under applicable laws.
• Old Point and TowneBank are supplementing the proxy statement/offering circular to avoid the risk that the Matters delay or otherwise adversely affect the Merger, and to minimize the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing.
• Old Point and the other named defendants deny that they have violated any laws.
• Old Point and the other named defendants specifically deny all allegations in the Matters and that any additional disclosure was or is required.

Industry Context

This filing is characteristic of a U.S. banking sector merger, where shareholder approval is a critical step and often accompanied by litigation challenging the adequacy of disclosures. The detailed financial analyses, including valuation multiples and accretion/dilution projections, are standard practices in M&A transactions within the financial services industry, reflecting the rigorous due diligence and regulatory scrutiny involved.

Comparison to Industry Standards

• TowneBank's selected companies analysis showed stock price-to-tangible book value per share multiples ranging from 52% to 276%, stock price-to-LTM core EPS multiples from 10.7x to 19.4x, 2025 estimated EPS multiples from 8.8x to 17.8x, and 2026 estimated EPS multiples from 7.1x to 13.2x.
• Old Point's selected companies analysis showed stock price-to-tangible book value per share multiples ranging from 70% to 186%, and LTM core EPS multiples from 5.7x to 28.2x (excluding outliers). For 2025 and 2026 estimated EPS, multiples ranged from 6.9x to 15.2x and 5.5x to 14.2x, respectively.
• Selected transactions analysis showed transaction price-to-tangible book value multiples from 74% to 192%, price per common share to Core LTM EPS multiples from 7.7x to 32.1x, and core deposit premiums from (4.1%) to 13.4%.
• Pay-to-trade ratios in selected transactions with public acquirors and stock consideration ranged from 0.64x to 1.00x.
• One-day market premiums in selected transactions with publicly traded acquired companies ranged from (1.3%) to 81.7%.

Legal Proceedings

• Two complaints filed in the Supreme Court of the State of New York, County of New York: Michael Clark v. Old Point Financial Corporation et al. (No. 653474/2025) and Ken Conner v. Old Point Financial Corporation et al. (No. 653578/2025), both filed on June 12, 2025.
• Demand letters received from counsel representing purported shareholders of Old Point.
• Allegations include disclosure deficiencies and/or incomplete information regarding the Merger in violation of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, as amended, and/or negligence and negligent misrepresentation and concealment under state common law.
• Old Point and TowneBank believe the claims are without merit and deny any wrongdoing or legal necessity for the disclosures, but are supplementing the proxy statement/offering circular to avoid delays and minimize costs.

Stakeholder Impact

• Shareholders of Old Point: Will vote on the merger; potential for dilution if they become TowneBank shareholders; affected by litigation outcomes.
• Shareholders of TowneBank: Potential for EPS accretion from the merger; dilution to tangible book value; affected by litigation outcomes.
• Employees: Potential for business disruption and adverse effects on relationships following the transaction.
• Customers: Potential for business disruption and adverse effects on relationships following the transaction.
• Directors and Officers: Potential for indemnification costs related to litigation.

Next Steps

• Shareholders of Old Point will vote on the proposed merger and related matters.
• The merger will proceed subject to receiving required regulatory, shareholder, and other approvals and satisfying closing conditions.
• Old Point and TowneBank will continue to defend against the shareholder lawsuits and demand letters.

Key Dates

Recommendation

Keywords

Merger, Acquisition, SEC Filing, Proxy Statement, Shareholder Lawsuit, Litigation, Disclosure Deficiencies, Financial Services, Banking, Old Point Financial Corporation, TowneBank, DEFA14A, Form 8-K, Financial Analysis, Risk Management, Corporate Governance