The entireslate of Middleburg Financial Corp.'sboard of directors was elected to another term during the bank's recent annual shareholdermeeting, despite opposition from the bank's largest investor.

The investor,Teton Capital LLC CEO David Sokol, announced April 20 that he would for the re-election of all12 Middleburg directors to express his dissatisfaction with the lack of meaningfuldevelopments in exploring strategic alternatives. All 12 directors were electedfor one-year terms despite the withheld support because there were no alternativenominees, according to a Form 8-Kfiled May 6.

Sokol reported beneficial ownership of 2,103,008 common sharesof the company on April 20, which translated into a 29.59% stake based on the company's7,107,518 shares of outstanding common stock as of April 12.

Sokol'swithheld support meant that candidates Chairman Joseph Boling, President and CEOGary Shook, Gary LeClair, and Alexander Green III did not receive a majority ofsupport for their directorship. The rest of the slate faced significant withheldsupport. But under Middleburg's pluralitymethod of voting, the winning candidates only need to obtain more votes than a competingcandidate. In plurality voting, shareholders have the option of voting for a candidateor withholding the authority to vote their shares in favor of the candidate, accordingto the SEC. A substantial number of withheld votes do not prevent a candidate fromelection.

Despitethe election, Sokol still believes he made an impact with shareholders and pressedfor a greater explanation from management as to how they will increase shareholderreturn. He said his activism was limited to shareholder filings and that he didnot reach out to other shareholders.

"Ithink it's a pretty strong vote of 'no confidence,'" he said in an interview."Without talking to any other shareholders, I was surprised at how many otherswithheld. Hopefully that will wake the board up. If they have an alternative toselling the bank, I think shareholders deserve to know what that alternative isand what the plan to get there is."

In astatement, Middleburg said it was "pleased" shareholders voted to re-electthe directors and respected Sokol's position as a large shareholder.

"We… have offered him a seat on the board of directors on numerous occasions, as recentlyas March 30, 2016, and he has repeatedly declined," the company said. "Weremain committed to executing on our strategic initiatives to grow the business,deliver robust financial performance and enhance shareholder value."

Sokolmet with Shook, Boling and director John Lee IV on March 30 to ask that the boardestablish a special committee of independent directors to explore strategic alternatives,following up his private request with a formalletter to the board and shareholders on March 31. He said that the boardmeets 12 times a year, which he could not accommodate, but would be "happyto join" if meetings were restructured to occur four or five times a year.He added that he recommended reducing the size of the board and increasing its qualityof directorship.

Sokolremains dissatisfied with how the board has yet to explain how they plan to increaseshareholder value and how they have handled his requests so far. He said investorsshould consider options such as board replacement should the company continue tostymie his requests for a plan on improving profitability and share price, but hopedit would not come down to a proxy fight. He added that he is aware the bank is workingwith Sandler O'Neill but did not elaborate on the purpose of the engagement.

He believesMiddleburg would be an attractive sale target because of its service territory inNorthern Virginia. He also believes the bank, which had $1.35 billion in assetsat the end of the first quarter, needsto have between $3 billion and $6 billion in assets to be competitive. His April20 letter cited the company's compounded asset growth rate between Dec. 31, 2011,and Dec. 31, 2015, of 2.1%, and that its net interest margin had fallen to 3.27%.He was also unsatisfied with the company's return on average equity, which increasedfrom 4.58% to 6.25% between Dec. 31, 2011, and Dec. 31, 2015, which he said wasbelow its cost of capital.

"Anyonebuying the bank is obviously going to want to maintain that footprint, but theyonly represent about a 14% market share in their largest market, so it's alreadya competitive market," he said. "They should be making $12 million to $14 million of net income, andlast year they made $7.8 million. The reality is, in someone else's hands who cancut those costs and bring those efficiencies to bear, there'd be more value created."