Middleburg Bank’s largest shareholder is pushing for changes that could involve the sale of Loudoun’s oldest community financial institution.
David Sokol, who began purchasing Middleburg Financial Corp. stock in 2008 and acquired as much as a 30 percent stake in the company, has warned the board of directors in two letters this month that he is unsatisfied with the bank’s performance. In his first letter on March 31, the former chairman, president, and CEO of NetJets and former chairman of MidAmerican Energy Holdings urged the board to pursue strategic alternatives, including acquisition or a merger, to improve its position. Sokol’s second letter, on April 20, made more public his frustration with the company’s leadership.
“I am convinced that maintaining the status quo or even seeking to grow through acquisitions under MBRG’s current leadership would not be in the best financial interests of its shareholders. In fact, I believe that there is no prospect that MBRG’s own growth initiatives can offset the negative market conditions impacting it and other community banks, including increased competition for customers, costly regulatory compliance and general economic uncertainties,” Sokol wrote. “I also believe that a failure to seriously explore strategic alternatives given the current favorable [mergers and acquisitions] market is inconsistent with the Board’s fiduciary duties to all shareholders.”
During the fourth quarter of 2015, the bank reported net income of $781,000 and 11 cents per share—down from $1.63 million and 23 cents per share for the fourth quarter of 2014.
While Sokol’s March 31 letter may not have generated action among board members, it did spark a jump in stock prices—from $20 per share to $27 per share—its highest value since 2007. Sokol owns about 2 million shares.
In his April 20 letter, Sokol said he has retained consultants to assess the value of his investment and stated that he may
withhold his support for the re-election of the board of directors’ slate during the annual shareholders meeting May 4.
The bank board issued a statement following the April 20 letter: “Our Board of Directors and management team value the views of all shareholders and welcome input towards the goal of enhancing shareholder value. We have appreciated our long-standing relationship with Mr. Sokol and look forward to maintaining our constructive dialogue. We remain committed to executing on our strategic initiatives to grow the business, deliver robust financial performance and enhance shareholder value.”
Middleburg Bank was established in 1924. The bank holding company, initially called Independent Community Bankshares was created in 1994, when the company began an expansion of new branch offices as well as investment, trust and mortgage services. Today, Middleburg Financial Corp. conducts its primary operations through two wholly owned subsidiaries, Middleburg Bank and Middleburg Investment Group Inc.