After Shareholder Battle, Middleburg Bank Leaders Look Ahead

It has been a tumultuous few weeks for Middleburg Bank, but the leadership of the 93-year-old institution sees only a bright future ahead.

The community bank gained national attention in finance circles as its largest shareholder, David Sokol, went public with his criticism that the bank was underperforming and pressed the Board of Directors to pursue a sale to better leverage the company’s value. Heading into the bank’s annual meeting May 4, Sokol, the former chairman, president, and CEO of NetJets and former chairman of MidAmerican Energy Holdings, urged shareholders to withhold support for the bank’s slate for its 12-member board of directors. Some did, but the slate was elected, nevertheless.

Now, bank President and CEO Gary R. Shook is looking to a brighter future.

The result of the public feud may even be a stronger bank.

“Independence has to be earned every single day,” Shook said of the focus shared among the bank’s staff. “This isn’t just a live your life and everything will be OK. This is: Everybody in the company needs to be doing everything in their power to help the company earn its independence.”

“Our real focus is moving forward and it comes down to loan growth,” he said.

He cites the bank’s weakness—if it is one—of being too liquid or too conservative in its use of deposits. The bank experienced a spike in deposits after the recession, but didn’t fully turn around and put that money to work, or at risk, with loans, he said.

The bank has more than $1 billion in deposits and continues to top the market share rankings in Loudoun County.

“The size of balance sheet does not dictate success, because you can make a balance sheet very profitable—and we are very profitable. We can be more profitable. There is no argument there,” Shook said. “Our’s (balance sheet) is more liquid than our peers’, so it has less return than our peers’, but it is much more secure than our peers’. So you get your trade-offs.”

The bank’s loan to deposit ratio was 77.4 percent, last year an increase from 74.2 percent two years earlier. Banks identified in Middleburg’s peer group run closer to the 100 percent mark. Shook said Middleburg Bank will build its performance through its loan outreach.

Sokol, who began purchasing Middleburg Financial Corp. stock in 2008 and acquired as much as a 30 percent stake in the company, in two letters in advance of the shareholders meeting said the bank leadership’s growth strategy would fall short.

“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.”

Other bankers in the market share some of Sokol’s criticisms, suggesting that Shook and the bank board fail to grasp the urgency of the bank’s growth needs.

However, Shook said the commitment to continuing as a local independent community bank remains strong, as does the effort to climb back into the top tier of bank performance.

“Improving performance is the salve for everything,” he said.

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