10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2014

or

[   ] Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the transition period from ____________ to _____________

Commission File Number:  0-24159

MIDDLEBURG FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Virginia (State or other jurisdiction of incorporation or organization)	54-1696103 (I.R.S. Employer Identification No.)
111 West Washington Street Middleburg, Virginia (Address of principal executive offices)	20117 (Zip Code)

(703) 777-6327

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  þ No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer þ
Non-accelerated filer  o (Do not check if a smaller reporting company)	Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o No  þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.   7,076,145 shares of Common Stock as of May 9, 2014.

MIDDLEBURG FINANCIAL CORPORATION

INDEX

Part I.    Financial Information			Page No.
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets	3
		Consolidated Statements of Income	4
		Consolidated Statements of Comprehensive Income	5
		Consolidated Statements of Changes in Shareholders’ Equity	6
		Consolidated Statements of Cash Flows	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial
		Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
	Item 4.	Controls and Procedures	39
Part II.     Other Information
			39
	Item 1.	Legal Proceedings
	Item 1A.	Risk Factors	39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
	Item 3.	Defaults upon Senior Securities	39
	Item 4.	Mine Safety Disclosures	39
	Item 5.	Other Information	39
	Item 6.	Exhibits	40
Signatures			40

2

ITEM 1. FINANCIAL STATEMENTS

PART I

MIDDLEBURG FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for share and per share data)
	(Unaudited)
	March 31,		December 31,
	2014		2013
ASSETS
Cash and due from banks	$	6,238	$	6,648
Interest bearing deposits with other institutions	46,824		60,695
Total cash and cash equivalents	53,062		67,343
Securities available for sale	325,520		328,423
Loans held for sale, net	31,771		33,175
Restricted securities, at cost	6,404		6,780
Loans, net of allowance for loan losses of $13,228 and $13,320, respectively	718,236		715,160
Premises and equipment, net	19,688		20,017
Goodwill and identified intangibles	5,303		5,346
Other real estate owned, net of valuation allowance of $514 and $398, respectively	4,491		3,424
Bank owned life insurance	22,117		21,955
Accrued interest receivable and other assets	21,820		26,130
TOTAL ASSETS	$	1,208,412	$	1,227,753
LIABILITIES
Deposits:
Non-interest bearing demand deposits	$	188,651	$	185,577
Savings and interest bearing demand deposits	517,380		528,879
Time deposits	255,220		267,940
Total deposits	961,251		982,396
Securities sold under agreements to repurchase	32,617		34,539
Federal Home Loan Bank borrowings	80,000		80,000
Subordinated notes	5,155		5,155
Accrued interest payable and other liabilities	11,237		10,590
TOTAL LIABILITIES	1,090,260		1,112,680
SHAREHOLDERS' EQUITY
Common stock ($2.50 par value; 20,000,000 shares authorized; 7,076,145 and 7,080,591 issued and outstanding, respectively)	17,415		17,403
Capital surplus	44,426		44,251
Retained earnings	52,171		50,689
Accumulated other comprehensive income	1,828		232
Total Middleburg Financial Corporation shareholders' equity	115,840		112,575
Non-controlling interest in consolidated subsidiary	2,312		2,498
TOTAL SHAREHOLDERS' EQUITY	118,152		115,073
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,208,412	$	1,227,753

See accompanying notes to the consolidated financial statements.

3

MIDDLEBURG FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except for per share data)
	Unaudited
	For the Three Months Ended
	March 31,
	2014		2013
INTEREST INCOME
Interest and fees on loans	$	8,806	$	8,965
Interest and dividends on securities available for sale
Taxable	1,617		1,531
Tax-exempt	584		630
Dividends	73		56
Interest on deposits in banks and federal funds sold	26		30
Total interest and dividend income	11,106		11,212
INTEREST EXPENSE
Interest on deposits	1,002		1,373
Interest on securities sold under agreements to repurchase	80		80
Interest on short-term borrowings	—		29
Interest on FHLB borrowings and other debt	313		295
Total interest expense	1,395		1,777
NET INTEREST INCOME	9,711		9,435
Provision for (recovery of) loan losses	888		(188		)
NET INTEREST INCOME AFTER PROVISION FOR (RECOVERY OF) LOAN LOSSES	8,823		9,623
NON-INTEREST INCOME
Service charges on deposit accounts	557		534
Trust services income	1,048		960
Gains on loans held for sale	2,942		3,893
Gains on securities available for sale, net	63		47
Commissions on investment sales	140		94
Fees on mortgages held for sale	28		17
Bank owned life insurance	162		120
Other operating income	941		263
Total non-interest income	5,881		5,928
NON-INTEREST EXPENSE
Salaries and employee benefits	7,033		7,799
Occupancy and equipment	1,900		1,805
Advertising	163		268
Computer operations	458		461
Other real estate owned	167		820
Other taxes	197		192
Federal deposit insurance	238		265
Other operating expenses	1,979		2,318
Total non-interest expense	12,135		13,928
Income before income taxes	2,569		1,623
Income tax expense	749		363
NET INCOME	1,820		1,260
Net loss attributable to non-controlling interest	157		67
Net income attributable to Middleburg Financial Corporation	$	1,977	$	1,327
Earnings per share:
Basic	$	0.28	$	0.19
Diluted	$	0.28	$	0.19

See accompanying notes to the consolidated financial statements. 

4

MIDDLEBURG FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
	(Unaudited)
	For the Three Months Ended March 31,
	2014			2013
Net income	$	1,820		$	1,260
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the period, net of tax of $848 and $111, respectively	1,647			(215		)
Reclassification adjustment for gains included in net income, net of tax of $21 and $16, respectively	(42		)	(31		)
Unrealized gain (loss) on interest rate swaps, net of tax of $4 and $20, respectively	(9		)	39
Total other comprehensive income (loss)	1,596			(207		)
Total comprehensive income	3,416			1,053
Comprehensive (income) loss attributable to non-controlling interest	(9		)	67
Comprehensive income attributable to Middleburg Financial Corporation	$	3,407		$	1,120

See accompanying notes to the consolidated financial statements.

5

MIDDLEBURG FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except for share and per share data)
(Unaudited)
	Common Stock			Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income			Non-Controlling Interest			Total
Balance December 31, 2012	$	17,357		$	43,869		$	46,235		$	6,467		$	3,194		$	117,122
Net income	—			—			1,327			—			(67		)	1,260
Other comprehensive loss, net of tax	—			—			—			(207		)	—			(207		)
Cash dividends ($0.05 per share)	—			—			(353		)	—			—			(353		)
Distributions to non-controlling interest	—			—			—			—			(207		)	(207		)
Restricted stock vesting (5,255 shares)	11			(11		)	—			—			—			—
Repurchase of restricted stock (967 shares)	(3		)	(16		)	—			—			—			(19		)
Share-based compensation	—			104			—			—			—			104
Balance March 31, 2013	$	17,365		$	43,946		$	47,209		$	6,260		$	2,920		$	117,700
Balance December 31, 2013	$	17,403		$	44,251		$	50,689		$	232		$	2,498		$	115,073
Net income	—			—			1,977			—			(157		)	1,820
Other comprehensive income, net of tax	—			—			—			1,596			—			1,596
Cash dividends ($0.07 per share)	—			—			(495		)	—			—			(495		)
Distributions to non-controlling interest	—			—			—			—			(29		)	(29		)
Exercise of stock options (4,921 shares)	12			79			—			—			—			91
Share-based compensation	—			96			—			—			—			96
Balance March 31, 2014	$	17,415		$	44,426		$	52,171		$	1,828		$	2,312		$	118,152

See accompanying notes to the consolidated financial statements.

6

MIDDLEBURG FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	(Unaudited)
	For the Three Months Ended
	March 31,
(Dollars in thousands)	2014			2013
Cash Flows From Operating Activities
Net income	$	1,820		$	1,260
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	526			486
Provision for (recovery of) loan losses	888			(188		)
Gain on securities available for sale. net	(63		)	(47		)
Loss on disposal of assets, net	1			1
Premium amortization on securities, net	714			874
Origination of loans held for sale	(109,361		)	(191,131		)
Proceeds from sales of loans held for sale	113,707			228,417
Gain on mortgages held for sale, net	(2,942		)	(3,893		)
Share-based compensation	96			104
Loss on sale of other real estate owned, net	—			628
Valuation adjustment on other real estate owned	116			—
Decrease in prepaid FDIC insurance	—			247
Changes in assets and liabilities:
Decrease in other assets	3,311			1,444
Increase (decrease) in other liabilities	647			(1,419		)
Net cash provided by operating activities	$	9,460		$	36,783
Cash Flows from Investing Activities
Proceeds from maturity, calls and sales of securities available for sale	43,618			28,245
Purchase of securities available for sale	(38,934		)	(41,638		)
(Purchase) redemption of restricted stock	376			(15		)
Purchases of bank premises and equipment, net	(154		)	(248		)
Increase in loans, net	(5,147		)	(7,575		)
Proceeds from sale of other real estate owned	—			3,248
Net cash used in investing activities	$	(241	)	$	(17,983	)
Cash Flows from Financing Activities
Decrease in demand, interest-bearing demand and savings deposits	$	(8,425	)	$	(11,184	)
Decrease in certificates of deposit	(12,720		)	(4,640		)
Decrease in securities sold under agreements to repurchase	(1,922		)	(2,095		)
Decrease in short-term borrowings	—			(11,355		)
Increase in FHLB borrowings	—			7,088
Distributions to non-controlling interest	(29		)	(207		)
Payment of dividends on common stock	(495		)	(353		)
Proceeds from issuance of common stock, net	91			—
Repurchase of stock	—			(19		)
Net cash used in financing activities	$	(23,500	)	$	(22,765	)
Decrease in cash and and cash equivalents	(14,281		)	(3,965		)
Cash and cash equivalents at beginning of the period	67,343			54,415
Cash and cash equivalents at end of the period	$	53,062		$	50,450
Supplemental Disclosures of Cash Flow Information
Interest paid	$	1,445		$	1,868
Income taxes	$	425		$	—
Supplemental Disclosure of Non-Cash Transactions
Unrealized gain (loss) on securities available for sale	$	2,432		$	(373	)
Change in market value of interest rate swap	$	(13	)	$	59
Transfer of loans to other real estate owned	$	1,183		$	1,851

See accompanying notes to the consolidated financial statements.

7

MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1.        General

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at March 31, 2014 and December 31, 2013, the results of operations, comprehensive income, changes in shareholders’ equity and cash flows for the three months ended March 31, 2014 and 2013, in accordance with accounting principles generally accepted in the United States of America.  The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”) of Middleburg Financial Corporation (the “Company”).  The results of operations for the three month period ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year.

In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date these financial statements were issued.  On March 26, 2014, the Company announced an agreement to sell its membership interests in Southern Trust Mortgage to a consortium of banks and the President of Southern Trust Mortgage. Management believes that there will be no material financial impact upon the closing of this transaction. The sale is expected to close in the second quarter of 2014.

Certain amounts in the 2013 consolidated financial statements have been reclassified to conform to the 2014 presentation. The amounts of these items are not considered to be material variations from the original classifications and presentations.

Note 2.        Share-Based Compensation Plan

The Company sponsors one share-based compensation plan, the 2006 Equity Compensation Plan, which provides for the granting of stock options, stock appreciation rights, stock awards, performance share awards, incentive awards, and stock units.  The 2006 Equity Compensation Plan was approved by the Company’s shareholders at the Annual Meeting held on April 26, 2006, and has succeeded the Company’s 1997 Stock Incentive Plan.  Under the plan, the Company may grant share-based compensation to its directors, officers, employees, and other persons the Company determines have contributed to the profits or growth of the Company.  During 2013, the Company's Board of Directors and shareholders approved an amendment to this Plan to increase the number of shares reserved for issuance from 255,000 shares to 430,000 shares, an increase of 175,000 shares.

For the three months ended March 31, 2014, the Company recorded $96,000 in share-based compensation expense related to restricted stock and option grants.  

The following table summarizes restricted stock service awards awarded under the 2006 Equity Compensation Plan:

	March 31, 2014
(Dollars in thousands)	Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value
Non-vested at December 31, 2013	119,250		$	16.39
Granted	133		18.31
Vested	—		—
Forfeited	(9,500	)	15.91
Non-vested at March 31, 2014	109,883		$	16.14	$	1,935

The weighted-average remaining contractual term for non-vested service award grants at March 31, 2014, was 3.73 years.  As of March 31, 2014, there was $1.3 million of total unrecognized compensation expense related to the non-vested service award grants under the 2006 Equity Compensation Plan.

The aggregate intrinsic value represents the amount by which the current market value of the underlying stock exceeds the exercise price. This amount changes based on changes in the market value of the Company’s common stock.

The following table summarizes options outstanding under the 2006 Equity Compensation Plan and remaining outstanding unexercised options under the 1997 Stock Incentive Plan.  

8

	March 31, 2014
	Shares		Weighted-Average Exercise Price		Intrinsic Value
Outstanding at December 31, 2013	58,513		$	15.30
Granted	—		—
Exercised	(4,921	)	14.00
Forfeited	(3,000	)	39.40
Outstanding at March 31, 2014	50,592		$	14.00	$	—
Options exercisable at March 31, 2014	50,592		$	14.00	$	—

The total intrinsic value of options exercised was $22,000 at March 31, 2014.

As of March 31, 2014, options outstanding and exercisable are summarized as follows:

Range of Exercise Prices		Options Outstanding	Weighted-Average Remaining Contractual Life (years)	Options Exercisable
$	14.00	45,592	4.96	45,592
$	14.00	5,000	5.59	5,000
$	14.00	50,592	5.02	50,592

Note 3.        Securities

Amortized costs and fair values of securities available for sale are summarized as follows:

	March 31, 2014
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	22,378	$	179	$	(282	)	$	22,275
Obligations of states and political subdivisions	65,389		1,507		(1,580		)	65,316
Mortgage-backed securities:
Agency	169,425		3,970		(1,251		)	172,144
Non-agency	23,012		151		(126		)	23,037
Other asset backed securities	27,007		540		(82		)	27,465
Corporate preferred stock	68		10		—			78
Corporate securities	15,414		50		(259		)	15,205
Total	$	322,693	$	6,407	$	(3,580	)	$	325,520

	December 31, 2013
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	21,367	$	304	$	(332	)	$	21,339
Obligations of states and political subdivisions	68,904		1,083		(2,749		)	67,238
Mortgage-backed securities:
Agency	166,095		3,539		(1,624		)	168,010
Non-agency	22,029		116		(211		)	21,934
Other asset backed securities	33,883		710		(175		)	34,418
Corporate preferred stock	69		5		—			74
Corporate securities	15,680		58		(328		)	15,410
Total	$	328,027	$	5,815	$	(5,419	)	$	328,423

The amortized cost and fair value of securities available for sale as of March 31, 2014, by contractual maturity are shown below.  Maturities may differ from contractual maturities in corporate and mortgage-backed securities because the securities and

9

mortgages underlying the securities may be called or repaid without any penalties.  Therefore, these securities are not included in the maturity categories in the following maturity summary.

	March 31, 2014
(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	5,400	$	5,498
Due after one year through five years	29,278		30,030
Due after five years through ten years	41,011		40,709
Due after ten years	27,492		26,559
Mortgage-backed securities	192,437		195,181
Other asset backed securities	27,007		27,465
Corporate preferred stock	68		78
Total	$	322,693	$	325,520

Proceeds from sales of securities during the three months ended March 31, 2014, were $26.0 million.  Gross gains of $323,000 and gross losses of $260,000 were realized on those sales, respectively.  The tax expense applicable to these net realized gains amounted to $21,000.

The carrying value of securities pledged to qualify for fiduciary powers, to secure public monies and for other purposes as required by law amounted to $112.8 million at March 31, 2014.

Investments in an unrealized loss position that are temporarily impaired are as follows:

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
March 31, 2014	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	9,793	$	(217	)	$	1,396	$	(65	)	$	11,189	$	(282	)
Obligations of states and political subdivisions	11,822		(766		)	5,434		(814		)	17,256		(1,580		)
Mortgage-backed securities:
Agency	38,442		(814		)	12,590		(437		)	51,032		(1,251		)
Non-agency	8,775		(89		)	1,371		(37		)	10,146		(126		)
Other asset backed securities	4,956		(56		)	1,082		(26		)	6,038		(82		)
Corporate preferred stock	—		—			—		—			—		—
Corporate securities	7,005		(249		)	490		(10		)	7,495		(259		)
Total	$	80,793	$	(2,191	)	$	22,363	$	(1,389	)	$	103,156	$	(3,580	)

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
December 31, 2013	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	10,218	$	(273	)	$	1,416	$	(59	)	$	11,634	$	(332	)
Obligations of states and political subdivisions	24,568		(2,539		)	1,798		(210		)	26,366		(2,749		)
Mortgage-backed securities:
Agency	50,048		(1,264		)	8,228		(360		)	58,276		(1,624		)
Non-agency	14,505		(152		)	1,351		(59		)	15,856		(211		)
Other asset backed securities	1,585		(39		)	2,187		(136		)	3,772		(175		)
Corporate preferred stock	—		—			—		—			—		—
Corporate securities	6,247		(274		)	4,446		(54		)	10,693		(328		)
Total	$	107,171	$	(4,541	)	$	19,426	$	(878	)	$	126,597	$	(5,419	)

A total of 110 securities have been identified by the Company as temporarily impaired at March 31, 2014.  Of the 110 securities, 109 are investment grade and one is speculative grade.  Mortgage-backed securities and municipal securities make up the majority of temporarily impaired securities at March 31, 2014.  Market prices change daily and are affected by conditions beyond the

10

control of the Company.  Although the Company has the ability to hold these securities until the temporary loss is recovered, decisions by management may necessitate a sale before the loss is fully recovered.  No such sales were anticipated or required as of March 31, 2014.  Investment decisions reflect the strategic asset/liability objectives of the Company.  The investment portfolio is analyzed frequently by the Company and managed to provide an overall positive impact to the Company’s consolidated income statement and balance sheet.

Trust preferred securities

As of March 31, 2014 and December 31, 2013 the Company held no trust preferred securities in its investment portfolio.

Other-than-temporary impairment losses

At March 31, 2014, the Company evaluated the investment portfolio for possible other-than-temporary impairment losses and concluded that no adverse change in cash flows occurred and did not consider any portfolio securities to be other-than-temporarily impaired.  Based on this analysis and because the Company does not intend to sell securities prior to maturity and it is more likely than not the Company will not be required to sell any securities before recovery of amortized cost basis, which may be at maturity. For debt securities related to corporate securities, the Company determined that there was no other adverse change in the cash flows as viewed by a market participant; therefore, the Company does not consider the investments in these assets to be other-than-temporarily impaired at March 31, 2014.  However, there is a risk that the Company’s continuing reviews could result in recognition of other-than-temporary impairment charges in the future. For the three months ended March 31, 2014 and the year ended December 31, 2013, no credit related impairment losses were recognized by the Company.

The Company’s investment in FHLB stock totaled $4.7 million at March 31, 2014.  FHLB stock is generally viewed as a long-term investment and as a restricted security which is carried at cost because there is no market for the stock other than the FHLB or member institutions.  Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.  The Company does not consider this investment to be other-than-temporarily impaired at March 31, 2014, and no impairment has been recognized.  FHLB stock is shown in restricted securities on the consolidated balance sheets and is not part of the available for sale portfolio.

Note 4.        Loans, Net

The Company segregates its loan portfolio into three primary loan segments:  Real Estate Loans, Commercial Loans, and Consumer Loans.  Real estate loans are further segregated into the following classes: construction loans, loans secured by farmland, loans secured by 1-4 family residential real estate, and other real estate loans.  Other real estate loans include commercial real estate loans.  The consolidated loan portfolio was composed of the following:

	March 31, 2014				December 31, 2013
(Dollars in thousands)	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
Real estate loans:
Construction	$	34,977	4.8	%	$	36,025	5.0	%
Secured by farmland	17,738		2.4		16,578		2.3
Secured by 1-4 family residential	274,566		37.5		273,384		37.5
Other real estate loans	265,993		36.4		260,333		35.7
Commercial loans	125,395		17.1		129,554		17.8
Consumer loans	12,795		1.8		12,606		1.7
Total Gross Loans (1)	$	731,464	100.00	%	$	728,480	100.00	%
Less allowance for loan losses	13,228				13,320
Net loans	$	718,236			$	715,160

⁽¹⁾  Gross loan balances at March 31, 2014 and December 31, 2013 are net of deferred loan costs of $2.2 million and $2.4 million, respectively.

Loans presented in the table above exclude loans held for sale.  The Company had $31.8 million and $33.2 million in mortgages held for sale at March 31, 2014 and December 31, 2013, respectively.

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The following tables present a contractual aging of the recorded investment in past due loans by class of loans:

	March 31, 2014
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	170	$	93	$	1,821	$	2,084	$	32,893	$	34,977
Secured by farmland	—		—		—		—		17,738		17,738
Secured by 1-4 family residential	2,675		1,241		4,213		8,129		266,437		274,566
Other real estate loans	1,096		287		1,043		2,426		263,567		265,993
Commercial loans	95		49		1,490		1,634		123,761		125,395
Consumer loans	7		—		41		48		12,747		12,795
Total	$	4,043	$	1,670	$	8,608	$	14,321	$	717,143	$	731,464

	December 31, 2013
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	76	$	1,649	$	554	$	2,279	$	33,746	$	36,025
Secured by farmland	—		—		—		—		16,578		16,578
Secured by 1-4 family residential	590		3,751		1,022		5,363		268,021		273,384
Other real estate loans	116		—		4,197		4,313		256,020		260,333
Commercial loans	162		1,513		27		1,702		127,852		129,554
Consumer loans	31		9		38		78		12,528		12,606
Total	$	975	$	6,922	$	5,838	$	13,735	$	714,745	$	728,480

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans:

	March 31, 2014				December 31, 2013
(Dollars in thousands)	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
Real estate loans:
Construction	$	2,234	$	268	$	2,368	$	268
Secured by 1-4 family residential	7,771		227		9,458		539
Other real estate loans	3,069		—		6,045		—
Commercial loans	1,765		4		1,844		—
Consumer loans	37		4		37		1
Total	$	14,876	$	503	$	19,752	$	808

If interest on nonaccrual loans had been accrued, such income would have approximated $206,500, and $1.1 million for the three months ended March 31, 2014 and the year ended December 31, 2013, respectively.

The Company utilizes an internal asset classification system as a means of measuring and monitoring credit risk in the loan portfolio.  Under the Company’s classification system, problem and potential problem loans are classified as “Special Mention”, “Substandard”, and “Doubtful”.

Special Mention:  Loans with potential weaknesses that deserve management’s close attention.  If  left uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects for the credit.

Substandard:  Loans with well-defined weakness that jeopardize the liquidation of the debt.  Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.

Doubtful:  Loans with a very high possibility of loss.  However, because of important and reasonably specific pending factors, classification as a loss is deferred until a more exact status may be determined.

Loss: Loans are deemed uncollectible and are charged off immediately.

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The following tables present the recorded investment in loans by class of loan that have been classified according to the internal classification system:

March 31, 2014
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	24,936	$	9,228	$	256,869	$	247,534	$	122,258	$	12,723	$	673,548
Special Mention	2,222		7,903		1,852		9,410		698		15		22,100
Substandard	7,302		607		14,832		9,025		2,350		20		34,136
Doubtful	517		—		1,013		24		89		37		1,680
Loss	—		—		—		—		—		—		—
Ending Balance	$	34,977	$	17,738	$	274,566	$	265,993	$	125,395	$	12,795	$	731,464

December 31, 2013
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	31,143	$	8,067	$	253,654	$	238,811	$	126,246	$	12,510	$	670,431
Special Mention	2,245		7,903		1,732		9,475		775		15		22,145
Substandard	2,090		608		16,158		12,047		2,419		44		33,366
Doubtful	547		—		1,840		—		114		37		2,538
Loss	—		—		—		—		—		—		—
Ending Balance	$	36,025	$	16,578	$	273,384	$	260,333	$	129,554	$	12,606	$	728,480

The following tables present loans individually evaluated for impairment by class of loan:

	March 31, 2014
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,915	$	2,466	$	—	$	1,785	$	2
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,323		3,741		—		3,355		4
Other real estate loans	4,862		4,862		—		4,881		26
Commercial loans	2,084		2,084		—		2,100		4
Consumer loans	—		—		—		—		—
Total with no related allowance	$	12,184	$	13,153	$	—	$	12,121	$	36
With an allowance recorded:
Real estate loans:
Construction	$	5,904	$	5,904	$	1,300	$	5,927	$	66
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	5,467		5,519		2,401		5,478		11
Other real estate loans	1,294		1,294		305		1,299		17
Commercial loans	289		310		215		296		2
Consumer loans	37		37		37		37		—
Total with a related allowance	$	12,991	$	13,064	$	4,258	$	13,037	$	96
Total	$	25,175	$	26,217	$	4,258	$	25,158	$	132

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	December 31, 2013
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,924	$	2,475	$	—	$	1,975	$	13
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,930		4,452		—		4,415		6
Other real estate loans	4,458		4,458		—		4,552		104
Commercial loans	2,115		2,115		—		2,267		—
Consumer loans	—		—		—		—		—
Total with no related allowance	$	12,427	$	13,500	$	—	$	13,209	$	123
With an allowance recorded:
Real estate loans:
Construction	$	712	$	712	$	486	$	878	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	6,481		6,428		3,045		6,632		47
Other real estate loans	4,684		4,684		812		4,840		71
Commercial loans	355		377		275		399		10
Consumer loans	37		37		37		39		—
Total with a related allowance	$	12,269	$	12,238	$	4,655	$	12,788	$	128
Total	$	24,696	$	25,738	$	4,655	$	25,997	$	251

The “Recorded Investment” amounts in the table above represent the outstanding principal balance on each loan represented in the table.  The “Unpaid Principal Balance” represents the outstanding principal balance on each loan represented in the table plus any amounts that have been charged-off on each loan.

Included in certain loan categories of impaired loans are troubled debt restructurings (“TDRs”). The total balance of TDRs at March 31, 2014 was $11.3 million of which $6.5 million were included in the Company’s nonaccrual loan totals at that date and $4.8 million represented loans performing as agreed according to the restructured terms. This compares with $15.6 million in total restructured loans at December 31, 2013.  The amount of the valuation allowance related to TDRs was $1.5 million and $2.8 million as of March 31, 2014 and December 31, 2013, respectively. During the quarter ended March 31, 2014, $5.0 million in loans that were classified as TDRs as of December 31, 2013 were charged-off.

Loan modifications that were classified as TDRs during the three months ended March 31, 2014 and 2013 were as follows:

	Loans Modified as TDRs
	For the Three Months Ended March 31,
(Dollars in thousands)	2014					2013
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	—	$	—	$	—	—	$	—	$	—
Secured by farmland	—	—		—		—	—		—
Secured by 1-4 family residential	3	781		733		1	48		48
Other real estate loans	1	200		173		2	168		148
Total real estate loans	4	$	981	$	906	3	$	216	$	196
Commercial loans	—	—		—		—	—		—
Consumer loans	—	—		—		—	—		—
Total	4	$	981	$	906	3	$	216	$	196

Of the four TDRs identified during the three months ended March 31, 2014, two loans had previously been measured under the general allowance methodology of the allowance for loan losses. Upon identifying these loans as TDRs, the Company evaluated them for impairment. The accounting amendments require prospective application of the impairment measurement guidance for

14

those loans newly identified as impaired. As of March 31, 2014, the recorded investment in the loans restructured during the quarter for which the allowance was previously measured under the general allowance methodology was $507,000. There was no allowance for loan losses associated with those loans on the basis of a current evaluation of loss.

TDR payment defaults during three months ended March 31, 2014 and 2013 were as follows:

	For the Three Months Ended March 31,
(Dollars in thousands)	2014			2013
Class of Loan	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Real estate loans:
Construction	—	$	—	1	$	106
Secured by farmland	—	—		—	—
Secured by 1-4 family residential	3	297		2	856
Other real estate loans	—	—		—	—
Total real estate loans	3	$	297	3	$	962
Commercial loans	—	—		1	55
Consumer loans	—	—		—	—
Total	3	$	297	4	$	1,017

For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

Note 5.        Allowance for Loan Losses

The following table presents, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).

	March 31, 2014
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2013	$	847		$	166	$	6,734		$	3,506		$	1,890		$	177		$	13,320
Charge-offs	(90		)	—		(588		)	(684		)	(13		)	(14		)	(1,389		)
Recoveries	151			—		108			104			4			42			409
Provision	744			13		(175		)	423			(90		)	(27		)	888
Balance at March 31, 2014	$	1,652		$	179	$	6,079		$	3,349		$	1,791		$	178		$	13,228
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,300		$	—	$	2,401		$	305		$	215		$	37		$	4,258
Collectively evaluated for impairment	352			179		3,678			3,044			1,576			141			8,970
Total ending allowance balance	$	1,652		$	179	$	6,079		$	3,349		$	1,791		$	178		$	13,228
Loans:
Individually evaluated for impairment	$	7,819		$	—	$	8,790		$	6,156		$	2,373		$	37		$	25,175
Collectively evaluated for impairment	27,158			17,738		265,776			259,837			123,022			12,758			706,289
Total ending loans balance	$	34,977		$	17,738	$	274,566		$	265,993		$	125,395		$	12,795		$	731,464

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	December 31, 2013
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2012	$	1,258		$	135	$	6,276		$	4,348		$	2,098		$	196		$	14,311
Charge-offs	(394		)	—		(785		)	(97		)	(75		)	(30		)	(1,381		)
Recoveries	68			—		140			37			9			27			281
Provision	(85		)	31		1,103			(782		)	(142		)	(16		)	109
Balance at December 31, 2013	$	847		$	166	$	6,734		$	3,506		$	1,890		$	177		$	13,320
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	486		$	—	$	3,045		$	812		$	275		$	37		$	4,655
Collectively evaluated for impairment	361			166		3,689			2,694			1,615			140			8,665
Total ending allowance balance	$	847		$	166	$	6,734		$	3,506		$	1,890		$	177		$	13,320
Loans:
Individually evaluated for impairment	$	2,636		$	—	$	10,411		$	9,142		$	2,470		$	37		$	24,696
Collectively evaluated for impairment	33,389			16,578		262,973			251,191			127,084			12,569			703,784
Total ending loans balance	$	36,025		$	16,578	$	273,384		$	260,333		$	129,554		$	12,606		$	728,480

Note 6.        Earnings Per Share

The following shows the weighted-average number of shares used in computing earnings per share and the effect on weighted-average number of shares of diluted potential common stock. Potential dilutive common stock had no effect on income available to common stockholders.

	March 31, 2014			March 31, 2013
	Shares	Per Share Amount		Shares	Per Share Amount
Earnings per share, basic	7,078,470	$	0.28	7,051,009	$	0.19
Effect of dilutive securities:
Stock options, grants and warrant	25,315			31,345
Earnings per share, diluted	7,103,785	$	0.28	7,082,354	$	0.19

There were no stock options and warrant considered anti-dilutive as of March 31, 2014. Stock options and restricted grants representing approximately 32,500 shares as of March 31, 2013 were not included in the calculation of earnings per share because they would have been anti-dilutive. 

Note 7.        Segment Reporting

The Company operates in a decentralized fashion in three principal business activities: retail banking services; wealth management services; and mortgage banking services.  

• Revenue from retail banking activity consists primarily of interest earned on loans and investment securities and service charges on deposit accounts.

• Revenue from the wealth management activities is comprised of fees based upon the market value of the accounts under administration as well as commissions on investment transactions. The wealth management services are conducted by Middleburg Investment Group.

16

• Revenue from the mortgage banking activities is comprised of interest earned on loans and fees received as a result of the mortgage origination process. The Company recognizes gains on the sale of loans as part of other income. The mortgage banking services are conducted by Southern Trust Mortgage, LLC.

Middleburg Bank and the Company have assets in custody with Middleburg Trust Company and accordingly pay Middleburg Trust Company a monthly fee. Middleburg Bank also pays interest to Middleburg Trust Company on deposit accounts with Middleburg Bank. Middleburg Bank provides a warehouse line and office space, data processing and accounting services to Southern Trust Mortgage for which it receives income. Transactions related to these relationships are eliminated to reach consolidated totals.

Information about reportable segments and reconciliation to the consolidated financial statements follows:

	March 31, 2014
(Dollars in thousands)	Commercial & Retail Banking		Wealth Management		Mortgage Banking			Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	11,013	$	4	$	287		$	(198	)	$	11,106
Trust services income	—		1,086		—			(38		)	1,048
Other income	1,746		—		3,113			(26		)	4,833
Total operating income	12,759		1,090		3,400			(262		)	16,987
Expenses:
Interest expense	1,395		—		198			(198		)	1,395
Salaries and employee benefits	3,951		569		2,513			—			7,033
Provision for (recovery of) loan losses	926		—		(38		)	—			888
Other expense	3,757		263		1,146			(64		)	5,102
Total operating expenses	10,029		832		3,819			(262		)	14,418
Income (loss) before income taxes and non-controlling interest	2,730		258		(419		)	—			2,569
Income tax expense	644		105		—			—			749
Net income (loss)	2,086		153		(419		)	—			1,820
Non-controlling interest in consolidated subsidiary	—		—		157			—			157
Net income (loss) attributable to Middleburg Financial Corporation	$	2,086	$	153	$	(262	)	$	—		$	1,977
Total assets	$	1,204,499	$	6,458	$	40,284		$	(42,829	)	$	1,208,412
Capital expenditures	$	143	$	8	$	3		$	—		$	154
Goodwill and other intangibles	$	—	$	3,936	$	1,367		$	—		$	5,303

17

	March 31, 2013
(Dollars in thousands)	Commercial & Retail Banking			Wealth Management		Mortgage Banking			Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	11,089		$	3	$	469		$	(349	)	$	11,212
Trust services income	—			1,001		—			(41		)	960
Other income	1,012			—		4,112			(156		)	4,968
Total operating income	12,101			1,004		4,581			(546		)	17,140
Expenses:
Interest expense	1,748			—		378			(349		)	1,777
Salaries and employee benefits	4,275			527		2,997			—			7,799
Provision for (recovery of) loan losses	(189		)	—		1			—			(188		)
Other expense	4,635			309		1,382			(197		)	6,129
Total operating expenses	10,469			836		4,758			(546		)	15,517
Income (loss) before income taxes and non-controlling interest	1,632			168		(177		)	—			1,623
Income tax expense	291			72		—			—			363
Net income (loss)	1,341			96		(177		)	—			1,260
Non-controlling interest in consolidated subsidiary	—			—		67			—			67
Net income (loss) attributable to Middleburg Financial Corporation	$	1,341		$	96	$	(110	)	$	—		$	1,327
Total assets	$	1,208,288		$	6,232	$	59,623		$	(60,387	)	$	1,213,756
Capital expenditures	$	248		$	—	$	—		$	—		$	248
Goodwill and other intangibles	$	—		$	4,108	$	1,867		$	—		$	5,975

Note 8.        Capital Purchase Program

On January 30, 2009, as part of the Capital Purchase Program established by the U.S. Department of the Treasury (the “Treasury”) under the Emergency Economic Stabilization Act of 2008, the Company entered into a Letter Agreement and Securities Purchase Agreement—Standard Terms (collectively, the “Purchase Agreement”) with the Treasury, pursuant to which the Company sold (i) 22,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $2.50 per share, having a liquidation preference of $1,000 per share (the “Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 208,202 shares of the Company’s common stock, par value $2.50 per share, at an initial exercise price of $15.85 per share. As a result of the completion of a public stock offering in 2009, the number of shares of common stock underlying the Warrant was reduced by one-half to 104,101 and the Company redeemed all 22,000 shares of Preferred Stock pursuant to the Purchase Agreement. During 2011, the Warrant was sold by the U.S. Treasury at public auction and has not been exercised as of March 31, 2014.

Note 9.        Fair Value Measurements

The Company follows ASC 820, "Fair Value Measurements" to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  ASC 820 clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.  The three levels of the fair value hierarchy under ASC 820 based on these two types of inputs are as follows:

Level I. Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II. Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date.  The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III. Assets and liabilities that have little to no pricing observability as of the reported date.  These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

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Measured on a recurring basis

The following describes the valuation techniques and inputs used by the Company in determining the fair value of certain assets recorded at fair value on a recurring basis in the financial statements.

Securities Available for Sale

The Company primarily values its investment portfolio using Level II fair value measurements, but may also use Level I or Level III measurements if required by the composition of the portfolio. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level II). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified as Level III of the valuation hierarchy.

Loans Held for Sale

Loans held for sale are carried at market value. These loans currently consist of 1-4 family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data (Level II). Gains and losses on the sale of loans are recorded within income from mortgage banking activities on the consolidated statements of income.

Mortgage Interest Rate Locks

The Company recognizes mortgage interest rate locks at fair value. Fair value is based on either (i) the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis or (ii) the observable price for individual loans traded in the secondary market for loans that will be delivered on a mandatory basis. All of the Company's mortgage interest rate locks are classified as Level II.

Mortgage Banking Hedge Instruments

Mortgage banking hedge instruments are used to mitigate interest rate risk for residential mortgage loans held for sale and interest rate locks. These instruments are considered derivatives and are recorded at fair value, based on (i) committed sales prices from investors for commitments to sell mortgage loans or (ii) observable market data inputs for commitments to sell mortgage backed securities. The Company's mortgage banking hedge instruments are classified as Level II.

Interest Rate Swaps

Interest rate swaps are recorded at fair value based on third party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data (Level II).

Mortgage Servicing Rights

The Company obtains the fair value of mortgage servicing rights from an independent valuation service. The model used by the independent service to value mortgage servicing rights incorporates inputs and assumptions such as loan characteristics, contractually specified servicing fees, prepayment speeds, delinquency rates, late charges, escrow income, other ancillary revenue, costs to service and other economic factors. Fair value estimates from the model are adjusted for recent market activity, actual experience and, when available, other observable market data (Level II).

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013.

19

(Dollars in thousands)	March 31, 2014
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	22,275	$	—	$	22,275	$	—
Obligations of states and political subdivisions	65,316		—		65,316		—
Mortgage-backed securities:
Agency	172,144		—		172,144		—
Non-agency	23,037		—		23,037		—
Other asset backed securities	27,465		—		27,465		—
Corporate preferred stock	78		—		78		—
Corporate securities	15,205		—		14,715		490
Mortgage loans held for sale	31,771		—		31,771		—
Mortgage interest rate locks	211		—		211		—
Interest rate swaps	235		—		235		—
Mortgage servicing rights	251		—		251		—
Mortgage banking hedge instruments	6		—		6		—
Liabilities:
Interest rate swaps	292		—		292		—

(Dollars in thousands)	December 31, 2013
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	21,339	$	—	$	21,339	$	—
Obligations of states and political subdivisions	67,238		—		67,238		—
Mortgage-backed securities:
Agency	168,010		—		168,010		—
Non-agency	21,934		—		21,934		—
Other asset backed securities	34,418		—		34,418		—
Corporate preferred stock	74		—		74		—
Corporate securities	15,410		—		14,922		488
Mortgage loans held for sale	33,175		—		33,175		—
Mortgage interest rate locks	16		—		16		—
Interest rate swaps	333		—		333		—
Mortgage servicing rights	203		—		203		—
Mortgage banking hedge instruments	202		—		202		—
Liabilities:
Interest rate swaps	303		—		303		—

The following table presents changes in Level III assets measured at fair value on a recurring basis during the three months ended March 31, 2014:

(Dollars in thousands)	March 31, 2014
Description	Balance December 31, 2013		Included in Earnings		Included in Other Comprehensive Income		Transfers In/Out of Level II and III		Balance March 31, 2014
Available for sale securities - corporate securities	$	488	$	—	$	2	$	—	$	490

The following table presents quantitative information as of March 31, 2014 and December 31, 2013 related to Level III fair value measurements for financial assets measured at fair value on a recurring basis:

	Fair Value (Dollars in thousands)		Valuation Technique	Unobservable Inputs
March 31, 2014
Corporate securities	$	490	Third party trading desk	Prices heavily influenced by unobservable market inputs.

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	Fair Value (Dollars in thousands)		Valuation Technique	Unobservable Inputs
December 31, 2013
Corporate securities	$	488	Third party trading desk	Prices heavily influenced by unobservable market inputs.

Measured on nonrecurring basis

The Company may be required, from time to time, to measure and recognize certain other assets at fair value on a nonrecurring basis in accordance with GAAP. The following describes the valuation techniques and inputs used by the Company in determining the fair value of certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected.  The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral.  Fair value is measured based on the value of the collateral securing the loans.  Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable.  The vast majority of the collateral is real estate.  The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level II).  However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level III.  The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business's financial statements if not considered significant using observable market data.  Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level III).  Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the consolidated statements of income.

When collateral-dependent loans are performing in accordance with the original terms of their contract, the Company continues to use the appraisal that was performed at origination as the basis for the collateral value. When collateral-dependent loans are considered nonperforming, they are reviewed to determine the next appropriate course of action, either foreclosure or modification with forbearance agreement. The loans would then be reappraised prior to foreclosure or before a forbearance agreement is executed. This process does not vary by loan type.

The Company's procedure to monitor the value of collateral for collateral-dependent impaired loans between the receipt of the original appraisal and an updated appraisal is to review annual tax assessment records. At this time, adjustments are made, if necessary. Information considered in the determination not to order an updated appraisal includes the availability and reliability of tax assessment records and significant changes in capitalization rates for income properties. Other facts and circumstances on a case-by-case basis may be considered relative to a decision not to order an updated appraisal. If, in the judgment of management, a reliable collateral value cannot be obtained by an alternative method, an updated appraisal would be obtained.

Circumstances that may warrant a reappraisal for nonperforming loans might include foreclosure proceedings or a material adverse change in the borrower's condition or that of the collateral underlying the loan. In some cases, management may decide that an updated appraisal for a nonperforming loan is not necessary, In such cases, an estimate of the fair value of the collateral would be made by management by reference to current tax assessments, the latest appraised value, and knowledge of collateral value fluctuations in a loan's market area. If, in management's judgment, a reliable collateral value cannot be obtained by an alternative method, an updated appraisal would be obtained.

For the purpose of evaluating the allowance for loan losses, new appraisals are discounted 10% for estimated selling costs when determining the amount of specific reserves. Thereafter, for collateral-dependent impaired loans, we consider each loan on a case-by-case basis to determine whether or not the recorded values are appropriate given current market conditions. When necessary, new appraisals are obtained. If an appraisal is less than 12 months old, the only adjustment made is the 10% discount for selling costs. If an appraisal is older than 12 months, management will use judgment based on knowledge of current market values and specific facts surrounding any particular property to determine if an additional valuation adjustment may be necessary.

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Other Real Estate Owned

The value of other real estate owned (“OREO”) is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data (Level II).  For other real estate owned properties that may be in construction, the Company’s policy is to obtain “as-is” appraisals on an annual basis as opposed to “as-completed” appraisals.  This approach provides current values without regard to completion of any construction or renovation that may be in process.  Accordingly, the Company considers the valuations to be Level II valuations even though some properties may be in process of renovation or construction. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability or other factors, then the fair value is considered Level III. Any initial fair value adjustment is charged against the Allowance for Loan Losses. Any subsequent fair value adjustments are recorded in the period incurred and included in other non-interest expense on the consolidated statements of income.

For the purpose of OREO valuations, appraisals are discounted 10% for selling and holding costs and it is the policy of the Company to obtain annual appraisals for properties held in OREO. Any fair value adjustments are recorded in the period incurred as loss on other real estate owned on the consolidated statements of income.

The following table summarizes the Company’s non-financial assets that were measured at fair value on a nonrecurring basis during the period.

(Dollars in thousands)	March 31, 2014
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	8,733	$	—	$	7,038	$	1,695
Other real estate owned	$	4,491	$	—	$	4,491	$	—
(Dollars in thousands)	December 31, 2013
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	7,614	$	—	$	5,756	$	1,858
Other real estate owned	$	3,424	$	—	$	3,424	$	—

The following table presents quantitative information as of March 31, 2014 and December 31, 2013 about Level III fair value measurements for financial assets measured at fair value on a non-recurring basis:

March 31, 2014	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired Loans	$	1,695	Discounted appraised value	Discount for selling costs and age of appraisals.	0% - 100% (2%)

December 31, 2013	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired Loans	$	1,858	Discounted appraised value	Discount for selling costs and age of appraisals.	0% - 100% (4%)

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation.  Fair value is best determined based upon quoted market prices.  However, in many instances, there are no quoted market prices for the Company’s various financial instruments.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.  U.S. generally accepted accounting principles excludes certain financial instruments and all non-financial instruments from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments (not previously described) for which it is practicable to estimate that value:

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Cash and Cash Equivalents

For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

Loans, Net

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.  For fixed rate loans, the fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality.  Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value. Fair value for impaired loans is described above.

Bank Owned Life Insurance

The carrying amount of bank owned life insurance is a reasonable estimate of fair value.

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate fair values.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date.  For all other deposits, the fair value is determined using the discounted cash flow method.  The discount rate is equal to the rate currently offered on similar products.

Securities Sold Under Agreements to Repurchase and Short-Term  Debt

The carrying amounts approximate fair values.

FHLB Borrowings and Subordinated Debt

For variable rate long-term debt, fair values are based on carrying values.  For fixed rate debt, fair values are estimated based on observable market prices and discounted cash flow analysis using interest rates for borrowings of similar remaining maturities and characteristics.  The fair values of the Company's Subordinated Debentures are estimated using discounted cash flow analysis based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.  At March 31, 2014 and December 31, 2013, the fair values of loan commitments and standby letters of credit were deemed immaterial; therefore, they have not been included in the tables below.

Fair Value of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company's financial instruments are as follows:

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(Dollars in thousands)	March 31, 2014
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	53,063	$	53,063	$	53,063	$	—	—
Securities available for sale	325,520		325,520		—		325,030		490
Loans held for sale	31,771		31,771		—		31,771		—
Loans, net	718,236		729,441		—		7,038		722,403
Bank owned life insurance	22,117		22,117		—		22,117		—
Accrued interest receivable	3,916		3,916		—		3,916		—
Mortgage interest rate locks	211		211		—		211		—
Interest rate swaps	235		235		—		235		—
Mortgage banking hedge instruments	6		6		—		6		—
Mortgage servicing rights	251		251		—		251		—
Financial liabilities:
Deposits	$	961,251	$	963,068	$	—	$	963,068	—
Securities sold under agreements to repurchase	32,617		32,617		—		32,617		—
FHLB borrowings	80,000		80,356		—		80,356		—
Subordinated notes	5,155		5,178		—		5,178		—
Accrued interest payable	451		451		—		451		—
Interest rate swaps	292		292		—		292		—

(Dollars in thousands)	December 31, 2013
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	67,343	$	67,343	$	67,343	$	—	$	—
Securities available for sale	328,423		328,423		—		327,935		488
Loans held for sale	33,175		33,175		—		33,175		—
Net loans	715,160		726,239		—		5,756		720,483
Bank-owned life insurance	21,955		21,955		—		21,955		—
Accrued interest receivable	3,992		3,992		—		3,992		—
Mortgage interest rate locks	16		16		—		16		—
Interest rate swap	333		333		—		333		—
Mortgage banking hedge instruments	202		202		—		202		—
Mortgage servicing rights	203		203		—		203		—
Financial liabilities:
Deposits	$	982,396	$	984,420	$	—	$	984,420	$	—
Securities sold under agreements to repurchase	34,539		34,539		—		34,539		—
FHLB borrowings and other debt	80,000		80,666		—		80,666		—
Subordinated notes	5,155		5,198		—		5,198		—
Accrued interest payable	501		501		—		501		—
Interest rate swap	303		303		—		303		—

The Company assumes interest rate risk as a result of its normal operations.  As a result, the fair values of the Company's financial instruments will change when interest rate levels change, which may be either favorable or unfavorable to the Company.  Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk.  However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment.  Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment.  Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company's overall interest rate risk.

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Note 10.        Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-01, “Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this ASU should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company is currently assessing the impact that ASU 2014-01 will have on its consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU clarify that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company is currently assessing the impact that ASU 2014-04 will have on its consolidated financial statements.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amendments in this ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results and include disposals of a major geographic area, a major line of business, or a major equity method investment. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Additionally, the new guidance requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-08 to have a material impact on its consolidated financial statements.

Note 11.        Accumulated Other Comprehensive Income

The following table presents information on changes in accumulated other comprehensive income for the periods indicated:

(Dollars in thousands)	Unrealized Gains on Securities			Cash Flow Hedges			Accumulated Other Comprehensive Income
Balance December 31, 2012	$	6,771		$	(304	)	$	6,467
Unrealized holding losses (net of tax, $111)	(215		)	—			(215		)
Reclassification adjustment (net of tax, $16)	(31		)	—			(31		)
Unrealized gain on interest rate swaps (net of tax, $20 )	—			39			39
Balance March 31, 2013	$	6,525		$	(265	)	$	6,260
Balance December 31, 2013	$	261		$	(29	)	$	232
Unrealized holding gains (net of tax of $848)	1,647			—			1,647
Reclassification adjustment (net of tax, $21)	(42		)	—			(42		)
Unrealized loss on interest rate swap (net of tax, $4)	—			(9		)	(9		)
Balance March 31, 2014	$	1,866		$	(38	)	$	1,828

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The following table presents information related to reclassifications from accumulated other comprehensive income:

Details about Accumulated Other Comprehensive Income	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Consolidated Statements of Income
(Dollars in thousands)	March 31, 2014			March 31, 2013
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(63	)	$	(47	)	Gain on securities available for sale
Related income tax expense	21			16			Income tax expense
Net effect on accumulated other comprehensive income	(42		)	(31		)	Net of tax
Total reclassifications	$	(42	)	$	(31	)	Net of tax

⁽¹⁾    For more information related to unrealized gains on securities available for sale, see Note 3, "Securities".

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITON AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition at March 31, 2014 and results of operations of the Company for the three months ended March 31, 2014 should be read in conjunction with the Company’s Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in this report and in the 2013 Form 10-K. It should also be read in conjunction with the “Caution About Forward Looking Statements” section at the end of this discussion.

Overview

The Company is headquartered in Middleburg, Virginia and conducts its primary operations through two wholly owned subsidiaries, Middleburg Bank and Middleburg Investment Group, Inc. and a majority owned subsidiary, Southern Trust Mortgage, LLC.  Middleburg Bank is a community bank serving the Virginia counties of Prince William, Loudoun, Fairfax, Fauquier, the Town of Williamsburg and the City of Richmond with twelve financial service centers and one limited service facility.  Middleburg Investment Group is a non-bank holding company with one wholly owned subsidiary, Middleburg Trust Company.  Middleburg Trust Company is a trust company headquartered in Richmond, Virginia, and maintains offices in Williamsburg, Virginia and in several of Middleburg Bank’s facilities.    Southern Trust Mortgage is a regional mortgage company headquartered in Virginia Beach, Virginia and maintains offices in Virginia, Maryland, Georgia, North Carolina and South Carolina. On March 26, 2014, the Company announced an agreement to sell its membership interests in Southern Trust Mortgage to a consortium of banks and the President of Southern Trust Mortgage. The sale is expected to close in the second quarter of 2014.

The Company generates a significant amount of its income from the net interest income earned by Middleburg Bank.  Net interest income is the difference between interest income and interest expense.  Interest income depends on the amount of interest-earning assets outstanding during the period and the interest rates earned thereon.  Middleburg Bank’s cost of money is a function of the average amount of deposits and borrowed money outstanding during the period and the interest rates paid thereon.  The quality of the assets further influences the amount of interest income lost on non-accrual loans and the amount of additions to the allowance for loan losses or potential other-than-temporary impairment of securities.  Middleburg Investment Group’s subsidiary, Middleburg Trust Company, generates fee income by providing investment management and trust services to its clients.  Investment management and trust fees are generally based upon the value of assets under management, and, therefore can be significantly affected by fluctuations in the values of securities caused by changes in the capital markets.  Southern Trust Mortgage generates fees from the origination and sale of mortgages loans.  Southern Trust Mortgage also maintains a real estate construction portfolio and receives interest and fee income from these loans, which, net of interest expense, is included in net interest income.

Net income attributable to Middleburg Financial Corporation for the quarter ended March 31, 2014 increased 48.98% to $1.98 million from $1.33 million over the same period in 2013. Earnings per diluted share for the quarter ended March 31, 2014 were $0.28 per share compared to $0.19 per share for the same period in 2013.

Annualized return on total average assets for the quarter ended March 31, 2014 was 0.66%, compared to 0.44% for the same period in 2013. Annualized return on total average equity of Middleburg Financial Corporation for the quarter ended March 31, 2014 was 6.99%, compared to 4.71% for the same period in 2013.

The net interest margin, a non-GAAP measure more fully described in the “Results of Operations” section below, increased from 3.43% for the quarter ended December 31, 2013 to 3.54% for the quarter ended March 31, 2014.  

The provision for loan losses increased by $1.08 million for the quarter ended March 31, 2014 to $888,000 compared to a negative provision of $188,000 for the same period in 2013. Non-interest income was lower by 0.79% compared to the quarter ended March 31, 2013 as our mortgage revenue declined due to lower origination volumes, stemming from higher mortgage rates and severe weather during the first quarter which slowed borrower activity and impacted loan closings. The drop in mortgage revenue was partially offset by higher fees from our wealth management subsidiary and an increase in other operating income of $678,000 due primarily to the recovery of expenses related to one loan workout charged-off in a prior period. Non-interest expense declined as actions taken by the Company during 2013 to cut costs took effect during the first quarter of 2014. Non-interest expense fell by 12.87% compared to the quarter ended March 31, 2013. The Company remains well capitalized as evidenced by all regulatory capital ratios exceeding the regulatory minimums.

At March 31, 2014, total assets were $1.21 billion, a decrease of 1.58% since December 31, 2013.  Loans held-for-investment increased by $3.00 million to $731.46 million as of quarter end, an increase of 0.41% since December 31, 2013. Total deposits were $961.25 million as of quarter end, a decrease of 2.15% since December 31, 2013. Lower cost deposits, including demand checking, interest checking and savings decreased $8.43 million or 1.18% from December 31, 2013 to $706.03 million at March 31,

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2014.  Higher cost time deposits decreased 4.75% or $12.72 million from December 31, 2013 to $255.22 million at March 31, 2014.  

Critical Accounting Policies

General

The financial condition and results of operations presented in the Consolidated Financial Statements, the accompanying Notes to the Consolidated Financial Statements and this section are, to some degree, dependent upon the accounting policies of the Company.  The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change.

Presented below is discussion of those accounting policies that management believes are the most important (“Critical Accounting Policies”) to the portrayal and understanding of Middleburg Financial Corporation’s financial condition and results of operations.  The Critical Accounting Policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain.  In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.

Allowance for Loan Losses

Middleburg Bank monitors and maintains an allowance for loan losses to absorb an estimate of probable losses inherent in the loan portfolio.  Middleburg Bank maintains policies and procedures that address the systems of controls over the following areas of maintenance of the allowance:  the systematic methodology used to determine the appropriate level of the allowance to provide assurance they are maintained in accordance with accounting principles generally accepted in the United States of America; the accounting policies for loan charge-offs and recoveries; the assessment and measurement of impairment in the loan portfolio; and the loan grading system.

Middleburg Bank evaluates various loans individually for impairment as required by applicable accounting standards.  Loans evaluated individually for impairment include non-performing loans, such as loans on non-accrual, loans past due by 90 days or more, troubled debt restructured loans and other loans selected by management.  The evaluations are based upon discounted expected cash flows or collateral valuations.  If the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment.  If a loan evaluated individually is not impaired, then the loan is assessed for impairment with a group of loans that have similar characteristics.

For loans without individual measures of impairment, Middleburg Bank makes estimates of losses for groups of loans as required by applicable accounting standards.  Loans are grouped by similar characteristics, including the type of loan, the assigned loan grade and the general collateral type.  A loss rate reflecting the expected loss inherent in a group of loans is derived based upon estimates of default rates for a given loan grade, the predominant collateral type for the group and the terms of the loan.  The resulting estimate of losses for groups of loans are adjusted for relevant environmental factors and other conditions of the portfolio of loans, including:  borrower and industry concentrations; levels and trends in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience, ability and depth of lending management; and national and local economic conditions.

The amount of estimated impairment for individually evaluated loans and groups of loans is added together for a total estimate of loans losses.  This estimate of losses is compared to the allowance for loan losses of Middleburg Bank as of the evaluation date and, if the estimate of losses is greater than the allowance, an additional provision to the allowance would be made.  If the estimate of losses is less than the allowance, the degree to which the allowance exceeds the estimate is evaluated to determine whether the allowance falls outside a range of estimates.  If the estimate of losses is below the range of reasonable estimates, the allowance would be reduced by way of a credit to the provision for loan losses.  Middleburg Bank recognizes the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is too high or low based on a reasonable range.  If different assumptions or conditions were to prevail and it is determined that the allowance is not adequate to absorb the new estimate of probable losses, an additional provision for loan losses would be made, which amount may be material to the consolidated financial statements.

Goodwill and Intangibles

With the adoption of Accounting Standards Update 2011-08, "Intangible-Goodwill and Other-Testing Goodwill for Impairment", the Company is no longer required to perform a test for impairment unless, based on an assessment of qualitative factors related

28

to goodwill, we determine that it is more likely than not that the fair value of each applicable reporting unit is less than its carrying amount. If the likelihood of impairment is more than 50%, the Company must perform a test for impairment and may be required to record impairment charges. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit is greater than zero and its fair value exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; thus, the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill shall be its new accounting basis. Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is recognized.

Management estimates fair value utilizing multiple methodologies which include discounted cash flows, comparable companies, third-party sale and assets under management analysis. Determining the fair value of the Company’s reporting units requires management to make judgments and assumptions related to various items, including estimates of future operating results, allocations of indirect expenses, and discount rates.  Management believes its estimates and assumptions are reasonable; however, the fair value of each reporting unit could be different in the future if actual results or market conditions differ from the estimates and assumptions used.

The Company’s forecasted cash flows for its reporting units assume a stable economic environment and consistent long-term growth in loan originations and assets under management over the projected periods.  Additionally, expenses are assumed to be consistently correlated with projected asset and revenue growth over the time periods projected.  Although we believe the key assumptions underlying the financial forecasts to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond the control of the Company.  Accordingly, there can be no assurance that the forecasted results will be realized and variations from the forecast may be material.  If weak economic conditions continue or worsen for a prolonged period of time, or if the reporting unit loses key personnel, the fair value of the reporting unit may be adversely affected which may result in impairment of goodwill or other intangible assets in the future.  Any changes in the key management estimates or judgments could result in an impairment charge, and such a charge could have an adverse effect on the Company’s financial condition and results of operations.

Middleburg Investment Group has intangible assets in the form of certain customer relationships that were acquired in 2002. We amortize those intangible assets on a straight line basis over their estimated useful life.

Other-Than-Temporary Impairment (OTTI) for Securities

Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either (i) we intend to sell the security or (ii) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis. If, however, we do not intend to sell the security and it is not more-likely-than-not that we will be required to sell the security before recovery, we must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no other-than-temporary impairment. If there is a credit loss, other-than-temporary impairment exists, and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income. For equity securities, impairment is considered to be other-than-temporary based on our ability and intent to hold the investment until a recovery of fair value. Other-than-temporary impairment of an equity security results in a write-down that must be included in net income. We regularly review each investment security for other-than-temporary impairment based on criteria that includes the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, our best estimate of the present value of cash flows expected to be collected from debt securities, our intention with regard to holding the security to maturity and the likelihood that we would be required to sell the security before recovery.

Results of Operations

The Company had net income for the first quarter of 2014 of $1.98 million, an increase of $650,000 or 48.98% from the first quarter of 2013. For the first quarter of 2014, earnings per diluted share was $0.28 compared to earnings per diluted share of $0.19 for the first quarter of 2013.

29

The following tables reflect an analysis of the Company’s net interest income using the daily average balances of the Company’s assets and liabilities for the periods indicated. Non-accrual loans are included in the loan balances.

	Three Months Ended March 31,
	2014							2013
(Dollars in thousands)	Average Balance			Income/ Expense		Yield/ Rate (2)		Average Balance			Income/ Expense		Yield/ Rate (2)
Assets:
Securities:
Taxable	$	276,914		$	1,690	2.48	%	$	265,972		$	1,587	2.42	%
Tax-exempt (1)	60,936			885		5.88	%	67,252			956		5.77	%
Total securities	$	337,850		$	2,575	3.09	%	$	333,224		$	2,543	3.09	%
Loans:
Taxable	$	759,073		$	8,800	4.70	%	$	756,317		$	8,958	4.80	%
Tax-exempt (1)	652			9		5.60	%	687			9		5.31	%
Total loans (3)	$	759,725		$	8,809	4.70	%	$	757,004		$	8,967	4.80	%
Interest-bearing deposits with other institutions	48,803			26		0.22	%	57,904			30		0.21	%
Total earning assets	$	1,146,378		$	11,410	4.04	%	$	1,148,132		$	11,540	4.08	%
Less: allowances for loan losses	(13,622		)					(14,213		)
Total non-earning assets	79,191							84,974
Total assets	$	1,211,947						$	1,218,893
Liabilities:
Interest-bearing deposits:
Checking	$	332,546		$	162	0.20	%	$	333,028		$	234	0.28	%
Regular savings	113,034			52		0.19	%	108,755			61		0.23	%
Money market savings	76,437			36		0.19	%	78,085			47		0.24	%
Time deposits:
$100,000 and over	130,407			324		1.01	%	147,457			507		1.39	%
Under $100,000	130,762			428		1.33	%	143,379			524		1.48	%
Total interest-bearing deposits	$	783,186		$	1,002	0.52	%	$	810,704		$	1,373	0.69	%
Short-term borrowings	—			—		—		2,658			29		4.42	%
Securities sold under agreements to repurchase	35,752			80		0.90	%	34,103			80		0.95	%
FHLB borrowings and subordinated debt	85,155			313		1.49	%	81,416			295		1.47	%
Total interest-bearing liabilities	$	904,093		$	1,395	0.63	%	$	928,881		$	1,777	0.78	%
Non-interest bearing liabilities
Demand deposits	180,574							164,613
Other liabilities	10,221							7,632
Total liabilities	$	1,094,888						$	1,101,126
Non-controlling interest in consolidated Subsidiary	2,284							3,471
Shareholders’ equity	114,775							114,296
Total liabilities and Shareholders’ equity	$	1,211,947						$	1,218,893
Net interest income (1)				$	10,015						$	9,763
Interest rate spread						3.41	%						3.30	%
Interest expense as a percent of average earning assets						0.49	%						0.63	%
Net interest margin						3.54	%						3.45	%

⁽¹⁾  Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.

⁽²⁾  All yields and rates have been annualized on a 365 day year.

⁽³⁾  Total average loans include loans on non-accrual status.

Net Interest Income

Net interest income represents the principal source of earnings of the Company.  Net interest income is the amount by which interest generated from earning assets exceeds the expense of funding those assets.  Changes in volume and mix of interest earning assets and interest bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income.

30

Net interest income was $9.71 million for the quarter ended March 31, 2014.  This is an increase of 2.93% over net interest income reported for the same period for 2013.  The increase in revenue in the first quarter was driven by an expanding net interest margin. The net interest margin for the quarter ended March 31, 2014 was 3.54% compared to 3.43% for the quarter ended December 31, 2013 and 3.45% for the quarter ended March 31, 2013. Margin expansion during the quarter was principally due to the following:

• Loan growth of $3.00 million accompanied by sales of lower yielding securities.

• Yields on earning assets increased by 10 basis points to 4.04% compared to the previous quarter of 3.94% as loan yields increased and reduced premium amortization led to higher yields on securities.

• Cost of funds declined by 3 basis points compared to the previous quarter of 0.55% as we paid off maturing wholesale borrowings, reduced interest costs for NOW, money market and savings accounts and added non-interest bearing demand deposits.

Interest income from the warehouse line that Southern Trust Mortgage has with the Middleburg Bank is currently eliminated in consolidation. Middleburg Bank will continue the warehouse facility for a limited period following the sale of Southern Trust Mortgage. The interest income from the warehouse line will not be eliminated in these circumstances and therefore, the sale of Southern Trust Mortgage will result in additional interest income from the warehouse line.

The net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets.  Because a portion of interest income earned by the Company is nontaxable, the tax equivalent net interest income is considered in the calculation of this ratio.  The tax rate utilized in calculating the tax benefit for each of the reported periods is 34%.  The reconciliation of tax equivalent net interest income, which is not a measurement under accounting principles generally accepted in the United States, to net interest income is reflected in the table below.

	For the Three Months Ended March 31,
(Dollars in thousands)	2014		2013
GAAP measures:
Interest Income - Loans	$	8,806	$	8,965
Interest Income - Investments & Other	2,300		2,247
Interest Expense - Deposits	1,002		1,373
Interest Expense - Other Borrowings	393		404
Total Net Interest Income	$	9,711	$	9,435
Non-GAAP measures:
Tax Benefit Realized on:
Non-taxable interest income - municipal securities	$	301	$	328
Non-taxable interest income - loans	3		—
Total Tax Benefit Realized on Non-Taxable Interest Income	$	304	$	328
Total Tax Equivalent Net Interest Income	$	10,015	$	9,763

Based on our conservative internal interest rate risk models and the assumption of a sustained low rate environment, the Company expects net interest income to trend downward slightly throughout the next 12 months as loan related assets reprice and the decline in funding costs slows. It is anticipated that targeted growth in earning assets and liability repricing opportunities will help mitigate the impact to the Company’s net interest margin.  The Asset/Liability Management Committee continues to focus on various strategies to maintain the net interest margin.

Non-interest Income

Non-interest income has been and will continue to be an important factor for increasing profitability.  Management recognizes this and continues to review and consider areas where non-interest income can be increased.  Non-interest income includes fees generated by the commercial and retail banking segment, the wealth management segment and the mortgage banking segment of the Company.  Non-interest income was $5.88 million for the quarter ended March 31, 2014 compared to $5.93 million for the same period in 2013.  A more detailed discussion of non-interest income follows:

• Gains on mortgage loan sales decreased by 24.43% compared to the quarter ended March 31, 2013. We originated $109.36 million in mortgage loans during the quarter ended March 31, 2014 compared to $138.49 million during the previous quarter, and $191.10 million during the quarter ended March 31, 2013, a decrease of 21.03% compared to the previous quarter and a decrease of 42.77% compared to the quarter ended March 31, 2013. After the sale of Southern Trust Mortgage is completed, the Company will not earn revenue from mortgage loan sales. However, the Company will also not incur operating expenses related to Southern Trust Mortgage. In the first quarter of 2014, the operating expenses incurred by Southern Trust Mortgage were greater than the revenue from mortgage sales.

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• Total revenue generated by our wealth management group, Middleburg Investment Group (“MIG”) was $1.19 million for the quarter ended March 31, 2014, an increase of 12.71% from the quarter ended March 31, 2013. Fee income is based primarily upon the market value of the accounts under administration which were $1.56 billion at March 31, 2014 compared to $1.55 billion at March 31, 2013.

• Other operating income was $941,000 for the quarter ended March 31, 2014, compared to $263,000 for the quarter ended March 31, 2013. Most of the other operating income during the first quarter of 2014 was related to the recovery of expenses related to loan workouts during the quarter.

The following table depicts the changes in non-interest income:

(Dollars in thousands)	For the Three Months Ended March 31,
	2014		2013
Service charges on deposit accounts	$	557	$	534
Trust services income	1,048		960
Gains on loans held for sale	2,942		3,893
Gains on securities available for sale, net	63		47
Commissions on investment sales	140		94
Fees on mortgages held for sale	28		17
Bank owned life insurance	162		120
Other operating income	941		263
Total non-interest income	$	5,881	$	5,928

The revenues, expenses, assets and liabilities of Southern Trust Mortgage are reflected in the Company’s consolidated financial statements, with the proportionate share of Southern Trust Mortgage’s income not owned by the Company reported as “Net loss attributable to non-controlling interest”.  Accordingly, gains on loans held for sale and fees on mortgages held for sale generated by Southern Trust Mortgage, are being reported as part of the consolidated non-interest income.  In light of the declining profitability of its majority-owned mortgage subsidiary resulting from reduced loan volumes and increased compliance costs from the implementation of rules related to the Dodd-Frank Wall Street Reform Act, on March 26, 2014, the Company announced an agreement to sell its membership interests in Southern Trust Mortgage to a consortium of banks and the President of Southern Trust Mortgage. The Company does not expect to record a gain or loss upon the sale of its interests. The sale is expected to close in the second quarter of 2014.

Non-interest Expense

Non-interest expense declined as actions taken by the Company during 2013 to cut costs took effect during the first quarter of 2014. Non-interest expense fell by 12.87% compared to the quarter ended March 31, 2013. Principal categories of non-interest expense that improved as a result of management's cost cutting initiatives were the following:

• Since March 31, 2013, management has reduced staffing levels at the bank and the mortgage company by 55 full-time equivalent employees. These changes were across the board and several senior management positions were eliminated as part of the reduction in force. Salaries and employee benefit expenses decreased by 9.82% compared to the quarter ended March 31, 2013. The ratio of salaries and benefits expense to total revenue was 45.11% compared to 50.76% for the quarter ended March 31, 2013.

• We streamlined campaign and product promotions which reduced advertising expenses significantly. Advertising expenses for the quarter declined by 39.18% compared to the quarter ended March 31, 2013.

• Costs related to other real estate owned (OREO) declined during the quarter as our OREO balances fell and ongoing expenses to maintain the properties fell. Expenses related to OREO decreased by 79.63% compared to the quarter ended March 31, 2013. For the first quarter of 2014, there was one property transferred to OREO for $1.18 million compared to five properties transferred in the first quarter of 2013 for $1.85 million.

• Other operating expenses have declined 14.62% compared to the quarter ended March 31, 2013 primarily due to lower mortgage banking related expenses.

As operating expenses declined and revenue increased, the Company's efficiency ratio improved to 75.19% for the quarter ended March 31, 2014 compared to 88.32% for the previous quarter and 80.96% for the quarter ended March 31, 2013.

The following table depicts the changes in non-interest expense:

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(Dollars in thousands)	For the Three Months Ended March 31,
	2014		2013
Salaries and employee benefits	$	7,033	$	7,799
Occupancy and equipment	1,900		1,805
Advertising	163		268
Computer operations	458		461
Other real estate owned	167		820
Other taxes	197		192
Federal deposit insurance	238		265
Other operating expenses	1,979		2,318
Total non-interest expense	$	12,135	$	13,928

Financial Condition

Assets, Liabilities and Shareholders’ Equity

Total consolidated assets at March 31, 2014 were $1.21 billion, a decrease of 1.58% compared to December 31, 2013. Changes in major asset categories were as follows:

• Cash balances and deposits at other banks decreased by $14.28 million compared to December 31, 2013.

• Securities available for sale decreased by $2.91 million compared to December 31, 2013.

• Loans held for investment increased by $2.98 million during the first quarter compared December 31, 2013.

• Balances of mortgages held for sale decreased by $1.40 million compared to December 31, 2013.

• Other real estate owned (OREO) increased $1.07 million during the first quarter.

Total consolidated liabilities at March 31, 2014 were $1.09 billion, a decrease of 2.01% compared to December 31, 2013. The most significant change in liabilities was the change in total deposits. Total deposits decreased by $21.15 million from December 31, 2013 to $961.25 million as of quarter end March 31, 2014, primarily due to seasonal activity and maturing wholesale deposits that we elected not to renew.

Shareholders’ equity attributable to Middleburg Financial Corporation shareholders at March 31, 2014 was $115.84 million, compared to $112.58 million at December 31, 2013. Retained earnings at March 31, 2014 were $52.17 million compared to $50.69 million at December 31, 2013. The book value of the Company’s common stock at March 31, 2014 was $16.37 per share versus $15.90 per share at December 31, 2013.

Loans

The Company’s loan portfolio totaled 63.81% of average earning assets with a tax equivalent yield of 4.70% at March 31, 2014. Loans held for sale were $31.77 million at March 31, 2014, compared to $33.18 million at December 31, 2013, a decrease of $1.40 million during the period.

The following table summarized total loans by category:

	March 31,		Years Ended December 31,
(Dollars in thousands)	2014		2013		2012		2011		2010
Real estate loans:
Construction	$	34,977	$	36,025	$	50,218	42,208		68,110
Secured by farmland	17,738		16,578		11,876		10,047		11,532
Secured by 1-4 family residential	274,566		273,384		260,620		236,760		242,620
Other real estate loans	265,993		260,333		254,930		275,428		268,262
Commercial loans	125,395		129,554		118,573		94,427		56,385
Consumer loans	12,795		12,606		13,260		12,523		12,403
Total gross loans	731,464		728,480		709,477		671,393		659,312
Less allowance for loan losses	13,228		13,320		14,311		14,623		14,967
Net loans	$	718,236	$	715,160	$	695,166	$	656,770	$	644,345

Changes in the loan portfolio at March 31, 2014 compared to December 31, 2013 were:

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• Real estate construction loans consist primarily of pre-sold 1-4 family residential loans along with a marginal amount of commercial construction loans.  These loans represented 4.8% of total loans, a decrease of approximately $1.05 million from $36.03 million.  

• Loans secured by farmland increased $1.16 million from $16.58 million.

• Loans secured by 1-4 family residential real estate represented 37.5% of total loans, an increase of $1.18 million.  

• Other real estate loans are typically non-farm, non-residential real estate loans which are, in most cases, owner-occupied commercial buildings.  Other real estate loans represented 36.4% of total loans, an increase of $5.66 million.

• Commercial loans, which consist of secured and unsecured loans to small businesses, decreased 3.21%.

• Consumer loans remained relatively unchanged for the year.

Asset Quality

Nonperforming asset balances fell as nonaccrual loans and delinquencies greater than 90 days and still accruing declined.

• Total nonperforming assets were $24.71 million or 2.04% of total assets at March 31, 2014 compared to $28.66 million or 2.33% to total assets at December 31, 2013 and $33.59 million or 2.77% of total assets at March 31, 2013.

• Loans that were delinquent for more than 90 days and still accruing declined to $503,000 as of March 31, 2014 from $808,000 as of December 31, 2013 and $812,000 as of March 31, 2013.

• Nonaccrual loans declined to $14.88 million as of March 31, 2014 from $19.75 million as of December 31, 2013 and $20.02 million as of March 31, 2013, representing a decrease of 24.69% and 25.69%, respectively.

• Troubled debt restructurings that were performing as agreed were $4.84 million at March 31, 2014 compared to $4.67 million at December 31, 2013 and $4.85 million at March 31, 2013, representing an increase of 3.51% and a decrease of .33%, respectively.

The table below summarizes nonperforming assets for the periods indicated.

	March 31,			December 31,
(Dollars in thousands)	2014			2013			2012			2011			2010
Nonaccrual loans	$	14,876		$	19,752		$	21,664		$	25,346		$	29,386
Restructured loans (1)	4,838			4,674			5,132			3,853			1,254
Accruing loans greater than 90 days past due	503			808			1,044			1,233			909
Total nonperforming loans	$	20,217		$	25,234		$	27,840		$	30,432		$	31,549
Other real estate owned	4,491			3,424			9,929			8,535			8,394
Total nonperforming assets	$	24,708		$	28,658		$	37,769		$	38,967		$	39,943
Allowance for loan losses	$	13,228		$	13,320		$	14,311		$	14,623		$	14,967
Nonperforming loans to total loans	2.76		%	3.46		%	3.92		%	4.53		%	4.79		%
Allowance for loan losses to nonperforming loans	65.43		%	52.79		%	51.40		%	48.05		%	47.44		%
Nonperforming assets to total assets	2.04		%	2.33		%	3.05		%	3.27		%	3.62		%

⁽¹⁾ Amount reflects restructured loans that are not included in nonaccrual loans.

Included in nonperforming loans are troubled debt restructurings (“TDRs”). The total balance of TDRs at March 31, 2014 was $11.27 million of which $6.50 million were included in the Company’s nonaccrual loan totals at that date and $4.84 million represented loans performing as agreed to the restructured terms. This compares with $15.60 million in total TDRs at December 31, 2013.  The amount of the valuation allowance related to TDRs was $1.48 million and $2.80 million as of March 31, 2014 and December 31, 2013, respectively. During the quarter ended March 31, 2014, $5.0 million in loans that were classified as TDRs as of December 31, 2013 were charged-off.

During the quarter ended March 31, 2014, the Company modified four loans considered to be TDRs, which totaled $906,000, compared to three modifications, which totaled $196,000 for the same period in 2013.

The Company requires six timely consecutive monthly payments be made and that future payments are reasonably assured, before a restructured loan that has been placed on nonaccrual can be returned to accrual status. The Company does not utilize formal modification programs or packages when loans are considered for restructuring.  Any loan restructuring is based on the borrower’s circumstances and may include modifications to more than one of the terms and conditions of the loan.

The Company has not performed any commercial real estate or other type of loan workout whereby the existing loan would have been structured into multiple new loans.

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Allowance For Loan Losses

For a discussion of the Company’s accounting policies with respect to the allowance for loan losses, see “Critical Accounting Policies – Allowance for Loan Losses”.

Net loan charge-offs during the first quarter of $980,000 exceeded the provision for loan losses of $888,000 which resulted in a slightly lower allowance for loan losses (ALLL) at the end of the quarter. Substantially all of the losses for loans charged-off during the quarter had been reserved as of December 31, 2013. The ALLL was $13.23 million representing 1.81% of total loans at March 31, 2014 compared to $13.32 million or 1.83% of total loans at the end of the previous quarter and $13.51 million or 1.89% of total loans at March 31, 2013.

The following table depicts the transactions, in summary form, related to the allowance for loan losses:

	For the Three Months Ended March 31,
(Dollars in thousands)	2014			2013
Balance, beginning of year	$	13,320		$	14,311
Provision for loan losses	888			(188		)
Charge-offs:
Real estate loans:
Construction	$	90		$	87
Secured by 1-4 family residential	588			489
Other real estate loans	684			97
Commercial loans	13			38
Consumer loans	14			8
Total charge-offs	$	1,389		$	719
Recoveries:
Real estate loans:
Construction	$	151		$	37
Secured by 1-4 family residential	108			50
Other real estate loans	104			9
Commercial loans	4			5
Consumer loans	42			3
Total recoveries	$	409		$	104
Net charge-offs	$	980		$	615
Balance, end of year	$	13,228		$	13,508
Allowance for loan losses to total loans	1.81		%	1.89		%
Net charge-offs to average loans	0.13		%	0.08		%

The allocation of the allowance (dollars in thousands) at March 31, 2014 and December 31, 2013 were:

	March 31, 2014		December 31, 2013
Real Estate Construction	$	1,652	$	847
Real Estate Secured by Farmland	179		166
1-4 Family Residential	6,079		6,734
Other Real Estate Loans	3,349		3,506
Commercial	1,791		1,890
Consumer	178		177
	$	13,228	$	13,320

The Company has allocated the allowance according to the amount deemed reasonably necessary to provide for the possibility of losses being incurred within each loan category.  The allocation of the allowance should not be interpreted as an indication that loan losses in future years will occur in the same proportions that they may have in prior periods or that the allocation indicates future loan loss trends.  Additionally, the proportion allocated to each loan category is not the total amount that may be available for future losses that could occur within such categories since the total allowance is available to absorb losses on the total portfolio.

Securities

35

The carrying value of the securities portfolio was $325.52 million at March 31, 2014, a decrease of $2.90 million or 0.88% from the carrying value of $328.43 million at December 31, 2013.  The unrealized gross gains and losses on the AFS securities were $6.41 million and $3.58 million at March 31, 2014, respectively.

The securities portfolio represented approximately 28.40% and 28.60% of the average earning assets of the Company at March 31, 2014 and December 31, 2013, respectively.   

Goodwill and Other Identified Intangibles

Goodwill and other identified intangibles decreased by $43,000 to $5.30 million at March 31, 2014 as the result of amortization of identified intangibles related to the acquisition of Middleburg Investment Advisors.

Deposits

Total deposits decreased by $21.15 million from December 31, 2013 to $961.25 million as of quarter end March 31, 2014, primarily due to seasonal activity and maturing wholesale borrowings that we elected not to renew.

The Company has an interest bearing product, known as Tredegar Institutional Select, that integrates the use of the cash within client accounts at Middleburg Trust Company for overnight funding at the Bank. The overall balance of this product was $38.9 million at March 31, 2014, $42.1 million as of December 31, 2013 and $36.6 million as of March 31, 2013 and is reflected in both the savings and interest bearing demand deposits and securities sold under agreements to repurchase amounts on the consolidated balance sheet. Fluctuations in these balances are due to cash entering and exiting the market as a result of trends within the marketplace and changes in investors' confidence.

Time deposits decreased by $12.72 million or 4.75% from December 31, 2013 to $255.22 million at March 31, 2014. Time deposits include brokered certificates of deposit and CDARS deposits. Securities sold under agreements to repurchase (“Repo Accounts”) decreased by $1.92 million from $34.54 million at December 31, 2013 to $32.62 million at March 31, 2014. The Repo Accounts include certain long-term commercial checking accounts with average balances that typically exceed $100,000 and the Tredegar Institutional Select account which includes accounts maintained by Middleburg Trust Company’s business clients. All repurchase agreement transactions entered into by the Company are accounted for as collateralized financings and not as sales.

Short-term Borrowings and FHLB Borrowings

The Company had no overnight advances from the Federal Home Loan Bank of Atlanta (“FHLB”) outstanding at March 31, 2014. FHLB term advances were $80.00 million at March 31, 2014, unchanged from December 31, 2013.

Southern Trust Mortgage has a $5.0 million line of credit and a $75.0 million participation agreement with Middleburg Bank. The line of credit and the outstanding balance under the participation agreement are eliminated in the consolidation process and are not reflected in the consolidated financial statements of the Company.

Non-controlling Interest in Consolidated Subsidiary

The Company, through Middleburg Bank owns 62.3% of the issued and outstanding membership interest units in Southern Trust Mortgage. The remaining 37.7% of issued and outstanding membership interest units are owned by other partners. The ownership interest of these partners is represented in the financial statements as “Non-controlling Interest in Consolidated Subsidiary.” The non-controlling interest is reflected in total shareholders’ equity. Southern Trust Mortgage also has preferred stock of $1.6 million issued and outstanding at March 31, 2014. As of March 31, 2014, the Company, through Middleburg Bank owned 83.5% of the issued and outstanding preferred stock in Southern Trust Mortgage. The remaining 16.5% of issued and outstanding preferred stock is owned by other partners. The preferred stock held by these other partners is reflected in other liabilities.

On March 26, 2014, the Company announced an agreement to sell its membership interests in Southern Trust Mortgage to a consortium of banks and the President of Southern Trust Mortgage. The sale is expected to close in the second quarter of 2014, which will eliminate the Company's ownership and non-controlling interest in Southern Trust Mortgage.

Capital Resources and Dividends

Shareholders' equity was $115.84 million at March 31, 2014 compared with $112.58 million at December 31, 2013. During the quarter ended March 31, 2014 the Company declared common stock dividends of $0.07 per share, compared to $0.05 per share

36

for the same period in 2013. The book value of common stock was $16.37 per share at March 31, 2014 and $15.90 at December 31, 2013.

The Company had a ratio of total capital to risk-weighted assets of 15.93% and 15.60% at March 31, 2014 and 2013, respectively.  The ratio of Tier 1 capital to risk-weighted assets was 14.67% and 14.35% at March 31, 2014 and 2013, respectively.  The Company’s leverage ratio was 9.61% at March 31, 2014 compared to 9.11% at March 31, 2013. These ratios exceed the minimum capital requirements adopted by the federal banking regulatory agencies.

The Company’s Tier 1 capital and total capital include $5.0 million of trust preferred securities. Under the changes to the regulatory capital framework that were approved on July 9, 2013 by the federal banking agencies (Basel III Final Rule), the Company's trust preferred securities will continue to be included in Tier 1 capital and total capital until they mature, pursuant to a "grandfathering" provision that exempts Middleburg Financial Corporation's securities from the more stringent regulatory capital treatment contained in the Basel III Final Rule for trust preferred securities. In addition to "grandfathering" certain previously outstanding trust preferred securities for community banks, the Basel III Final Rule introduces a new Common Equity Tier 1 capital measure, increases the applicable minimum regulatory capital levels and certain prompt corrective action capital levels, and establishes a capital conservation buffer and new risk weights for certain types of assets. The Basel III Final Rule is effective for community banks on January 1, 2015 and has a transition period applicable to certain regulatory capital changes until January 1, 2019.

Liquidity

Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management.  Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, short-term investments, securities classified as available for sale and loans and securities maturing within one year.  As a result of the Company’s management of liquid assets and the ability to generate liquidity through liability funding, management believes the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.

The Company also maintains additional sources of liquidity through a variety of borrowing arrangements.  Middleburg Bank maintains federal funds lines with large regional and money-center banking institutions.  These available lines total approximately $24.0 million, none of which were outstanding at March 31, 2014.  Middleburg Bank is also able to borrow from the discount window of the Federal Reserve Bank of Richmond.  Available borrowing capacity from this source at March 31, 2014 was $44.2 million.  At March 31, 2014, Middleburg Bank had $20.3 million of outstanding borrowings pursuant to securities sold under agreement to repurchase transactions (“Repo Accounts”), with maturities of one day.  The Repo Accounts are long-term commercial checking accounts with average balances that typically exceed $100,000.  At March 31, 2014, the Company had $7.3 million and $5.0 million of outstanding borrowings pursuant to securities sold under agreement to repurchase transactions with remaining maturities of less than one year and greater than one year, respectively.

As of March 31, 2014, Middleburg Bank had remaining credit availability in the amount of $96.0 million at the Federal Home Loan Bank of Atlanta.  This line may be utilized for short and/or long-term borrowing.  

At March 31, 2014, cash, interest-bearing deposits with financial institutions, federal funds sold, short-term investments and unencumbered securities available for sale were 24.62% of total deposits and liabilities.

Off-Balance Sheet Arrangements

As of March 31, 2014, there have been no material changes to the off-balance sheet arrangements disclosed in “Management’s Discussion and Analysis” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Caution About Forward Looking Statements

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import.

Such forward-looking statements involve known and unknown risks including, but not limited to, the following factors:

• further adverse changes in general economic and business conditions in the Company’s market area;

• changes in banking and other laws and regulations applicable to the Company;

• maintaining asset qualities;

37

• the ability to properly identify risks in our loan portfolio and calculate an adequate loan loss allowance;

• risks inherent in making loans such as repayment risks and fluctuating collateral values;

• concentration in loans secured by real estate;

• changing trends in customer profiles and behavior;

• changes in interest rates and interest rate policies;

• maintaining cost controls as the Company opens or acquires new facilities;

• competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;

• the ability to continue to attract low cost core deposits to fund asset growth;

• the ability to successfully manage the Company’s growth or implement its growth strategies if it is unable to identify attractive markets, locations or opportunities to expand in the future;

• reliance on the Company’s management team, including its ability to attract and retain key personnel;

• demand, development and acceptance of new products and services;

• problems with technology utilized by the Company;

• maintaining capital levels adequate to support the Company’s growth; and

• other factors described in Item 1A, “Risk Factors,” discussed in more detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices and equity prices.  The Company’s primary market risk exposure is interest rate risk, though it should be noted that the assets under management by Middleburg Trust Company are affected by equity price risk.  The ongoing monitoring and management of this risk is an important component of the Company’s asset/liability management process, which is governed by policies established by its Board of Directors that are reviewed and approved every three years baring any significant changes.  The Board of Directors delegates responsibility for carrying out asset/liability management policies to the Asset/Liability Committee (“ALCO”) of Middleburg Bank.  In this capacity, ALCO develops guidelines and strategies that govern the Company’s asset/liability management related activities, based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends.

Interest rate risk represents the sensitivity of earnings to changes in market interest rates.  As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, affecting net interest income, the primary component of the Company’s earnings.  ALCO uses the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes.  While ALCO routinely monitors simulated net interest income sensitivity over a rolling two-year horizon, it also employs additional tools to monitor potential longer-term interest rate risk.  

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s balance sheet.  The simulation model is prepared and updated four times during each year.  This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon, assuming no balance sheet growth, given a 200 basis point (bp) upward shift and a 200 basis point downward shift in interest rates.  The following reflects the range of the Company’s net interest income sensitivity analysis as of March 31, 2014 and December 31, 2013.

Estimated Net Interest Income Sensitivity
Rate Change	March 31, 2014	December 31, 2013
+ 200 bps	1.5%	2.7%
- 200 bps	(9.5)%	(11.6)%

At March 31, 2014, the Company’s interest rate risk model indicated that in a  rate environment of an immediate 200 basis points increase, net interest income will increase by 1.5% over a 12-month period.  For the same time period, the interest rate risk model indicated that, in a rate environment of an immediate 200 basis points decrease, net interest income could decrease by 9.5% over

38

a 12-month period.  While these numbers are subjective based upon the parameters used within the model, management believes the balance sheet is very balanced and is working to minimize risks to rising rates in the future.

The Company’s specific goal is to lower, where possible, the cost of its borrowed funds.

The preceding sensitivity analysis does not represent the Company's forecast and should not be relied upon as being indicative of expected operating results.  These hypothetical estimates are based upon numerous assumptions, including the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows.  While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances about the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to factors such as prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change, caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables.  Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in response to or anticipation of changes in interest rates.

ITEM 4.    CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended.)  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting.  There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II

ITEM 1.    LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company is a party or of which the property of the Company is subject.

ITEM 1A.    RISK FACTORS

Our operations are subject to many risks that could adversely affect our future financial condition and performance and, therefore, the market value of our securities. The risk factors that are applicable to us are outlined in our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no material changes in our risk factors from those disclosed in this report.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.    OTHER INFORMATION

None.

39

ITEM 6.    EXHIBITS

31.1 Rule 13a-14(a) Certification of Chief Executive Officer

31.2 Rule 13a-14(a) Certification of Chief Financial Officer

32.1 Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350

101 The following materials from the Middleburg Financial Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 formatted in Extensible Business reporting Language (XBRL):  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MIDDLEBURG FINANCIAL CORPORATION
Date:	May 12, 2014	By:	/s/ Gary R. Shook
			Gary R. Shook
			Chief Executive Officer
Date:	May 12, 2014	By:	/s/ Raj Mehra
			Raj Mehra
			Chief Financial Officer

EXHIBIT INDEX

Exhibits

31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350
101	The following materials from the Middleburg Financial Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 formatted in Extensible Business reporting Language (XBRL):  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

40

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Gary R. Shook, certify that:

1. I have reviewed the Quarterly Report on Form 10-Q of Middleburg Financial Corporation for the period ended March 31, 2014;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 12, 2014

/s/ Gary R. Shook

Gary R. Shook

President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Raj Mehra, certify that:

1. I have reviewed the Quarterly Report on Form 10-Q of Middleburg Financial Corporation for the period ended March 31, 2014;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 12, 2014

/s/ Raj Mehra

Raj Mehra

Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350

In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2014 (the “Form 10-Q”) of Middleburg Financial Corporation (the “Company”), we, Gary R. Shook, Chief Executive Officer of the Company, and Raj Mehra, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

(a) the Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

(b) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Form 10-Q.

By:	/s/ Gary R. Shook	Date:	May 12, 2014
	Gary R. Shook
	Chief Executive Officer
By:	/s/ Raj Mehra	Date:	May 12, 2014
	Raj Mehra
	Chief Financial Officer

XML

Loans, Net Consolidated loan portfolio (Details) (USD $)	Mar. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	$ 731,464,000	[1]	$ 728,480,000	[1]
Less allowance for loan losses	13,228,000		13,320,000		14,311,000
Net loans	718,236,000		715,160,000
Percent of Total Portfolio	100.00%	[1]	100.00%	[1]
Net of deferred loan costs	2,200,000		2,400,000
Real Estate Loans Construction [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	34,977,000		36,025,000
Less allowance for loan losses	1,652,000		847,000		1,258,000
Percent of Total Portfolio	4.80%		5.00%
Real Estate Loans Secured by farmland [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	17,738,000		16,578,000
Percent of Total Portfolio	2.40%		2.30%
Real Estate Loans Secured by 1 - 4 family residential [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	274,566,000		273,384,000
Less allowance for loan losses	6,079,000		6,734,000		6,276,000
Percent of Total Portfolio	37.50%		37.50%
Other real estate loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	265,993,000		260,333,000
Less allowance for loan losses	3,349,000		3,506,000		4,348,000
Percent of Total Portfolio	36.40%		35.70%
Commercial loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	125,395,000		129,554,000
Less allowance for loan losses	1,791,000		1,890,000		2,098,000
Percent of Total Portfolio	17.10%		17.80%
Consumer loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	12,795,000		12,606,000
Less allowance for loan losses	$ 178,000		$ 177,000		$ 196,000
Percent of Total Portfolio	1.80%		1.70%

[1] Gross loan balances at March 31, 2014 and December 31, 2013 are net of deferred loan costs of $2.2 million and $2.4 million, respectively.

XML

Fair Value Measurements Narrative (Details)	3 Months Ended
	Mar. 31, 2014
Fair Value Disclosures [Abstract]
Impaired loans discount rate	10.00%
Percentage at which new appraisals are discounted	10.00%

XML

Earnings Per Share (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Shares [Abstract]
Earning per share, basic (in shares)	7,078,470	7,051,009
Effect of dilutive securities:
Stock options, grants and warrant (in shares)	25,315	31,345
Earnings per share, diluted (in shares)	7,103,785	7,082,354
Per Share Amount [Abstract]
Earnings per share, basic (in dollars per share)	$ 0.28	$ 0.19
Earnings per share, diluted (in dollars per share)	$ 0.28	$ 0.19
Stock options and warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities not included in the calculation of earning per share (in shares)	0	32,500

XML

Fair Value Measurements Financial and non-financial assets measured at fair value on a nonrecurring basis (Details) (Nonrecurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 8,733	$ 7,614
Other real estate owned	4,491	3,424
Level I [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Other real estate owned	0	0
Level II [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	7,038	5,756
Other real estate owned	4,491	3,424
Level III [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	1,695	1,858
Other real estate owned	$ 0	$ 0

XML

Loans, Net Schedule of TDR payment defaults (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 loan	Mar. 31, 2013 loan
Financing Receivable, Modifications [Line Items]
Number of Loans	3	4
Recorded Investment	$ 297	$ 1,017
Real Estate Loans [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	3	3
Recorded Investment	297	962
Real Estate Loans Construction [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	1
Recorded Investment	0	106
Real Estate Loans Secured by farmland [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0
Recorded Investment	0	0
Real Estate Loans Secured by 1 - 4 family residential [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	3	2
Recorded Investment	297	856
Other real estate loans [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0
Recorded Investment	0	0
Commercial loans [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	1
Recorded Investment	0	55
Consumer loans [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0
Recorded Investment	$ 0	$ 0

XML

Securities Amortized costs and fair values of securities available for sale (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 322,693	$ 328,027
Gross Unrealized Gains	6,407	5,815
Gross Unrealized Losses	(3,580)	(5,419)
Fair Value	325,520	328,423
U.S. government agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	22,378	21,367
Gross Unrealized Gains	179	304
Gross Unrealized Losses	(282)	(332)
Fair Value	22,275	21,339
Obligations of states and political subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	65,389	68,904
Gross Unrealized Gains	1,507	1,083
Gross Unrealized Losses	(1,580)	(2,749)
Fair Value	65,316	67,238
Mortgage-backed securities, Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	169,425	166,095
Gross Unrealized Gains	3,970	3,539
Gross Unrealized Losses	(1,251)	(1,624)
Fair Value	172,144	168,010
Mortgage-backed securities, Non-agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	23,012	22,029
Gross Unrealized Gains	151	116
Gross Unrealized Losses	(126)	(211)
Fair Value	23,037	21,934
Other asset backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	27,007	33,883
Gross Unrealized Gains	540	710
Gross Unrealized Losses	(82)	(175)
Fair Value	27,465	34,418
Corporate preferred stock [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	68	69
Gross Unrealized Gains	10	5
Gross Unrealized Losses	0	0
Fair Value	78	74
Corporate securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	15,414	15,680
Gross Unrealized Gains	50	58
Gross Unrealized Losses	(259)	(328)
Fair Value	$ 15,205	$ 15,410

XML

Fair Value Measurements Estimated fair values and related carrying values of financial instruments (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Level I [Member]
Financial assets:
Cash and cash equivalents	$ 53,063	$ 67,343
Securities available for sale	0	0
Loans held for sale	0	0
Loans, net	0	0
Bank owned life insurance	0	0
Accrued interest receivable	0	0
Mortgage interest rate locks	0	0
Interest rate swaps	0	0
Mortgage banking hedge instruments	0	0
Mortgage servicing rights	0	0
Financial liabilities:
Deposits	0	0
Securities sold under agreements to repurchase	0	0
FHLB borrowings	0	0
Subordinated notes	0	0
Accrued interest payable	0	0
Interest rate swaps	0	0
Level II [Member]
Financial assets:
Cash and cash equivalents	0	0
Securities available for sale	325,030	327,935
Loans held for sale	31,771	33,175
Loans, net	7,038	5,756
Bank owned life insurance	22,117	21,955
Accrued interest receivable	3,916	3,992
Mortgage interest rate locks	211	16
Interest rate swaps	235	333
Mortgage banking hedge instruments	6	202
Mortgage servicing rights	251	203
Financial liabilities:
Deposits	963,068	984,420
Securities sold under agreements to repurchase	32,617	34,539
FHLB borrowings	80,356	80,666
Subordinated notes	5,178	5,198
Accrued interest payable	451	501
Interest rate swaps	292	303
Level III [Member]
Financial assets:
Cash and cash equivalents	0	0
Securities available for sale	490	488
Loans held for sale	0	0
Loans, net	722,403	720,483
Bank owned life insurance	0	0
Accrued interest receivable	0	0
Mortgage interest rate locks	0	0
Interest rate swaps	0	0
Mortgage banking hedge instruments	0	0
Mortgage servicing rights	0	0
Financial liabilities:
Deposits	0	0
Securities sold under agreements to repurchase	0	0
FHLB borrowings	0	0
Subordinated notes	0	0
Accrued interest payable	0	0
Interest rate swaps	0	0
Carrying Amount [Member]
Financial assets:
Cash and cash equivalents	53,063	67,343
Securities available for sale	325,520	328,423
Loans held for sale	31,771	33,175
Loans, net	718,236	715,160
Bank owned life insurance	22,117	21,955
Accrued interest receivable	3,916	3,992
Mortgage interest rate locks	211	16
Interest rate swaps	235	333
Mortgage banking hedge instruments	6	202
Mortgage servicing rights	251	203
Financial liabilities:
Deposits	961,251	982,396
Securities sold under agreements to repurchase	32,617	34,539
FHLB borrowings	80,000	80,000
Subordinated notes	5,155	5,155
Accrued interest payable	451	501
Interest rate swaps	292	303
Fair Value [Member]
Financial assets:
Cash and cash equivalents	53,063	67,343
Securities available for sale	325,520	328,423
Loans held for sale	31,771	33,175
Loans, net	729,441	726,239
Bank owned life insurance	22,117	21,955
Accrued interest receivable	3,916	3,992
Mortgage interest rate locks	211	16
Interest rate swaps	235	333
Mortgage banking hedge instruments	6	202
Mortgage servicing rights	251	203
Financial liabilities:
Deposits	963,068	984,420
Securities sold under agreements to repurchase	32,617	34,539
FHLB borrowings	80,356	80,666
Subordinated notes	5,178	5,198
Accrued interest payable	451	501
Interest rate swaps	$ 292	$ 303

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Weighted-average number of shares used in computing earnings (loss) per share and the effect on weighted-average number of shares of diluted potential common stock

The following shows the weighted-average number of shares used in computing earnings per share and the effect on weighted-average number of shares of diluted potential common stock. Potential dilutive common stock had no effect on income available to common stockholders.

	March 31, 2014			March 31, 2013
	Shares	Per Share Amount		Shares	Per Share Amount
Earnings per share, basic	7,078,470	$	0.28	7,051,009	$	0.19
Effect of dilutive securities:
Stock options, grants and warrant	25,315			31,345
Earnings per share, diluted	7,103,785	$	0.28	7,082,354	$	0.19

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Capital Purchase Program and Stock Warrant (Details) (USD $)					0 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Dec. 31, 2009	Jan. 30, 2009	Jan. 30, 2009 Series A Cumulative Perpetual Preferred Stock [Member]	Dec. 31, 2009 Series A Cumulative Perpetual Preferred Stock [Member]
Equity, Class of Treasury Stock [Line Items]
Preferred stock issued under capital repurchase program (in shares)					22,000
Preferred stock, par value (in dollars per share)					$ 2.50
Liquidation preference per share (in dollars per shares)					$ 1,000
Warrants issued under capital repurchase program (in shares)			104,101	208,202
Common stock, par value (in dollars per share)	$ 2.50	$ 2.50		$ 2.50
Exercise price of warrants (in dollars per share)				15.85
Shares redeemed during period (in shares)						22,000

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Loans, Net Summary of loan classifications by class of loan (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014		Dec. 31, 2013
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	$ 731,464	[1]	$ 728,480	[1]
Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	673,548		670,431
Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	22,100		22,145
Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	34,136		33,366
Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,680		2,538
Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0		0
Real Estate Loans Construction [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	34,977		36,025
Real Estate Loans Construction [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	24,936		31,143
Real Estate Loans Construction [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	2,222		2,245
Real Estate Loans Construction [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	7,302		2,090
Real Estate Loans Construction [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	517		547
Real Estate Loans Construction [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0		0
Real Estate Loans Secured by Farmland [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	17,738		16,578
Real Estate Loans Secured by Farmland [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	9,228		8,067
Real Estate Loans Secured by Farmland [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	7,903		7,903
Real Estate Loans Secured by Farmland [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	607		608
Real Estate Loans Secured by Farmland [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0		0
Real Estate Loans Secured by Farmland [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0		0
Real Estate Loans Secured by 1 - 4 Family Residential [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	274,566		273,384
Real Estate Loans Secured by 1 - 4 Family Residential [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	256,869		253,654
Real Estate Loans Secured by 1 - 4 Family Residential [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,852		1,732
Real Estate Loans Secured by 1 - 4 Family Residential [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	14,832		16,158
Real Estate Loans Secured by 1 - 4 Family Residential [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,013		1,840
Real Estate Loans Secured by 1 - 4 Family Residential [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0		0
Other Real Estate Loans [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	265,993		260,333
Other Real Estate Loans [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	247,534		238,811
Other Real Estate Loans [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	9,410		9,475
Other Real Estate Loans [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	9,025		12,047
Other Real Estate Loans [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	24		0
Other Real Estate Loans [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0		0
Commercial [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	125,395		129,554
Commercial [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	122,258		126,246
Commercial [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	698		775
Commercial [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	2,350		2,419
Commercial [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	89		114
Commercial [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0		0
Consumer loans [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	12,795		12,606
Consumer loans [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	12,723		12,510
Consumer loans [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	15		15
Consumer loans [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	20		44
Consumer loans [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	37		37
Consumer loans [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	$ 0		$ 0

[1] Gross loan balances at March 31, 2014 and December 31, 2013 are net of deferred loan costs of $2.2 million and $2.4 million, respectively.

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Securities Other-than temporary impairment losses Narrative (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Investments, Debt and Equity Securities [Abstract]
Credit losses recognized in prior period earnings	$ 0	$ 0
Investment in FHLB stock	$ 4,700,000

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Fair Value Measurements Schedule of Level III Activity (Details) (Level III [Member], Securities (Assets) [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014
Level III [Member] | Securities (Assets) [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	$ 488
Included in Earnings	0
Included in Other Comprehensive Income	2
Transfers In/Out of Level II and III	0
Ending balance	$ 490

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Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2014		Dec. 31, 2013
Allowance for loan losses [Roll Forward]
Beginning balance	$ 13,320		$ 14,311
Charge-offs	(1,389)		(1,381)
Recoveries	409		281
Provision	888		109
Ending balance	13,228		13,320
Ending allowance balance attributable to loans:
Individually evaluated for impairment	4,258		4,655
Collectively evaluated for impairment	8,970		8,665
Total ending allowance balance	13,228		13,320
Loans:
Individually evaluated for impairment	25,175		24,696
Collectively evaluated for impairment	706,289		703,784
Total Loans	731,464	[1]	728,480	[1]
Real Estate Construction [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	847		1,258
Charge-offs	(90)		(394)
Recoveries	151		68
Provision	744		(85)
Ending balance	1,652		847
Ending allowance balance attributable to loans:
Individually evaluated for impairment	1,300		486
Collectively evaluated for impairment	352		361
Total ending allowance balance	1,652		847
Loans:
Individually evaluated for impairment	7,819		2,636
Collectively evaluated for impairment	27,158		33,389
Total Loans	34,977		36,025
Real Estate Loans Secured by Farmland [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	166		135
Charge-offs	0		0
Recoveries	0		0
Provision	13		31
Ending balance	179		166
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	179		166
Total ending allowance balance	179		166
Loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	17,738		16,578
Total Loans	17,738		16,578
Real Estate Loans Secured by 1 - 4 Family Residential [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	6,734		6,276
Charge-offs	(588)		(785)
Recoveries	108		140
Provision	(175)		1,103
Ending balance	6,079		6,734
Ending allowance balance attributable to loans:
Individually evaluated for impairment	2,401		3,045
Collectively evaluated for impairment	3,678		3,689
Total ending allowance balance	6,079		6,734
Loans:
Individually evaluated for impairment	8,790		10,411
Collectively evaluated for impairment	265,776		262,973
Total Loans	274,566		273,384
Other Real Estate Loans [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	3,506		4,348
Charge-offs	(684)		(97)
Recoveries	104		37
Provision	423		(782)
Ending balance	3,349		3,506
Ending allowance balance attributable to loans:
Individually evaluated for impairment	305		812
Collectively evaluated for impairment	3,044		2,694
Total ending allowance balance	3,349		3,506
Loans:
Individually evaluated for impairment	6,156		9,142
Collectively evaluated for impairment	259,837		251,191
Total Loans	265,993		260,333
Commercial [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	1,890		2,098
Charge-offs	(13)		(75)
Recoveries	4		9
Provision	(90)		(142)
Ending balance	1,791		1,890
Ending allowance balance attributable to loans:
Individually evaluated for impairment	215		275
Collectively evaluated for impairment	1,576		1,615
Total ending allowance balance	1,791		1,890
Loans:
Individually evaluated for impairment	2,373		2,470
Collectively evaluated for impairment	123,022		127,084
Total Loans	125,395		129,554
Consumer [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	177		196
Charge-offs	(14)		(30)
Recoveries	42		27
Provision	(27)		(16)
Ending balance	178		177
Ending allowance balance attributable to loans:
Individually evaluated for impairment	37		37
Collectively evaluated for impairment	141		140
Total ending allowance balance	178		177
Loans:
Individually evaluated for impairment	37		37
Collectively evaluated for impairment	12,758		12,569
Total Loans	$ 12,795		$ 12,606

[1] Gross loan balances at March 31, 2014 and December 31, 2013 are net of deferred loan costs of $2.2 million and $2.4 million, respectively.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash Flows From Operating Activities
Net income	$ 1,820	$ 1,260
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	526	486
Provision for (recovery of) loan losses	888	(188)
Gain on securities available for sale. net	(63)	(47)
Loss on disposal of assets, net	1	1
Premium amortization on securities, net	714	874
Origination of loans held for sale	(109,361)	(191,131)
Proceeds from sales of loans held for sale	113,707	228,417
Gain on mortgages held for sale, net	(2,942)	(3,893)
Share-based compensation	96	104
Loss on sale of other real estate owned, net	0	628
Valuation adjustment on other real estate owned	116	0
Decrease in prepaid FDIC insurance	0	247
Changes in assets and liabilities:
Decrease in other assets	3,311	1,444
Increase (decrease) in other liabilities	647	(1,419)
Net cash provided by operating activities	9,460	36,783
Cash Flows from Investing Activities
Proceeds from maturity, calls and sales of securities available for sale	43,618	28,245
Purchase of securities available for sale	(38,934)	(41,638)
(Purchase) redemption of restricted stock	376	(15)
Purchases of bank premises and equipment, net	(154)	(248)
Increase in loans, net	(5,147)	(7,575)
Proceeds from sale of other real estate owned	0	3,248
Net cash used in investing activities	(241)	(17,983)
Cash Flows from Financing Activities
Decrease in demand, interest-bearing demand and savings deposits	(8,425)	(11,184)
Decrease in certificates of deposit	(12,720)	(4,640)
Decrease in securities sold under agreements to repurchase	(1,922)	(2,095)
Decrease in short-term borrowings	0	(11,355)
Increase in FHLB borrowings	0	7,088
Distributions to non-controlling interest	(29)	(207)
Payment of dividends on common stock	(495)	(353)
Proceeds from issuance of common stock, net	91	0
Repurchase of stock	0	(19)
Net cash used in financing activities	(23,500)	(22,765)
Decrease in cash and and cash equivalents	(14,281)	(3,965)
Cash and cash equivalents at beginning of the period	67,343	54,415
Cash and cash equivalents at end of the period	53,062	50,450
Supplemental Disclosures of Cash Flow Information
Interest paid	1,445	1,868
Income taxes	425	0
Supplemental Disclosure of Non-Cash Transactions
Unrealized gain (loss) on securities available for sale	2,432	(373)
Change in market value of interest rate swap	(13)	59
Transfer of loans to other real estate owned	$ 1,183	$ 1,851

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Loans, Net Loans identified as impaired by class of loan (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Recorded Investment [Abstract]
With no related allowance recorded	$ 12,184	$ 12,427
With an allowance recorded	12,991	12,269
Total	25,175	24,696
Unpaid Principal Balance [Abstract]
With no related allowance recorded	13,153	13,500
With an allowance recorded	13,064	12,238
Total	26,217	25,738
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	4,258	4,655
Total	4,258	4,655
Average Recorded Investment [Abstract]
With no related allowance recorded	12,121	13,209
With an allowance recorded	13,037	12,788
Total	25,158	25,997
Interest Income Recognized [Abstract]
With no related allowance recorded	36	123
With an allowance recorded	96	128
Total	132	251
Real Estate Loans Construction [Member]
Recorded Investment [Abstract]
With no related allowance recorded	1,915	1,924
With an allowance recorded	5,904	712
Unpaid Principal Balance [Abstract]
With no related allowance recorded	2,466	2,475
With an allowance recorded	5,904	712
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	1,300	486
Average Recorded Investment [Abstract]
With no related allowance recorded	1,785	1,975
With an allowance recorded	5,927	878
Interest Income Recognized [Abstract]
With no related allowance recorded	2	13
With an allowance recorded	66	0
Real Estate Loans Secured by farmland [Member]
Recorded Investment [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Unpaid Principal Balance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Average Recorded Investment [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Interest Income Recognized [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Real Estate Loans Secured by 1 - 4 family residential [Member]
Recorded Investment [Abstract]
With no related allowance recorded	3,323	3,930
With an allowance recorded	5,467	6,481
Unpaid Principal Balance [Abstract]
With no related allowance recorded	3,741	4,452
With an allowance recorded	5,519	6,428
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	2,401	3,045
Average Recorded Investment [Abstract]
With no related allowance recorded	3,355	4,415
With an allowance recorded	5,478	6,632
Interest Income Recognized [Abstract]
With no related allowance recorded	4	6
With an allowance recorded	11	47
Other real estate loans [Member]
Recorded Investment [Abstract]
With no related allowance recorded	4,862	4,458
With an allowance recorded	1,294	4,684
Unpaid Principal Balance [Abstract]
With no related allowance recorded	4,862	4,458
With an allowance recorded	1,294	4,684
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	305	812
Average Recorded Investment [Abstract]
With no related allowance recorded	4,881	4,552
With an allowance recorded	1,299	4,840
Interest Income Recognized [Abstract]
With no related allowance recorded	26	104
With an allowance recorded	17	71
Commercial loans [Member]
Recorded Investment [Abstract]
With no related allowance recorded	2,084	2,115
With an allowance recorded	289	355
Unpaid Principal Balance [Abstract]
With no related allowance recorded	2,084	2,115
With an allowance recorded	310	377
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	215	275
Average Recorded Investment [Abstract]
With no related allowance recorded	2,100	2,267
With an allowance recorded	296	399
Interest Income Recognized [Abstract]
With no related allowance recorded	4	0
With an allowance recorded	2	10
Consumer loans [Member]
Recorded Investment [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	37	37
Unpaid Principal Balance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	37	37
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	37	37
Average Recorded Investment [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	37	39
Interest Income Recognized [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	$ 0	$ 0

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Share-Based Compensation Plan Narrative (Details) (USD $)	3 Months Ended		12 Months Ended		3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013 share_based_compensation_plan	Dec. 31, 2013 2006 Equity Compensation Plan [Member]	Dec. 31, 2012 2006 Equity Compensation Plan [Member]	Mar. 31, 2014 2006 Equity Compensation Plan [Member] Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of plans		1
Number of shares authorized (in shares)			430,000	255,000
Number of additional shares authorized			175,000
Share based compensation expense	$ 96,000
Restricted stock nonvested outstanding, Weighted average remaining contractual terms					3 years 8 months 23 days
Unrecognized compensation expense related to nonvested restricted stock awards					1,300,000
Aggregate intrinsic value of options exercised	$ 22,000

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Accumulated Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2014

Equity [Abstract]

Change in other comprehensive income (loss) for the period

The following table presents information on changes in accumulated other comprehensive income for the periods indicated:

(Dollars in thousands)	Unrealized Gains on Securities			Cash Flow Hedges			Accumulated Other Comprehensive Income
Balance December 31, 2012	$	6,771		$	(304	)	$	6,467
Unrealized holding losses (net of tax, $111)	(215		)	—			(215		)
Reclassification adjustment (net of tax, $16)	(31		)	—			(31		)
Unrealized gain on interest rate swaps (net of tax, $20 )	—			39			39
Balance March 31, 2013	$	6,525		$	(265	)	$	6,260
Balance December 31, 2013	$	261		$	(29	)	$	232
Unrealized holding gains (net of tax of $848)	1,647			—			1,647
Reclassification adjustment (net of tax, $21)	(42		)	—			(42		)
Unrealized loss on interest rate swap (net of tax, $4)	—			(9		)	(9		)
Balance March 31, 2014	$	1,866		$	(38	)	$	1,828

Reclassification out of Accumulated Other Comprehensive Income

The following table presents information related to reclassifications from accumulated other comprehensive income:

Details about Accumulated Other Comprehensive Income	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Consolidated Statements of Income
(Dollars in thousands)	March 31, 2014			March 31, 2013
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(63	)	$	(47	)	Gain on securities available for sale
Related income tax expense	21			16			Income tax expense
Net effect on accumulated other comprehensive income	(42		)	(31		)	Net of tax
Total reclassifications	$	(42	)	$	(31	)	Net of tax

⁽¹⁾    For more information related to unrealized gains on securities available for sale, see Note 3, "Securities".

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Fair Value Measurements Quantitative information about Level III fair value measurements (Details) (Impaired Loans [Member], Discounted appraised value [Member], Level III [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired Loans, Fair Value	$ 1,695	$ 1,858
Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	0.00%	0.00%
Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	100.00%	100.00%
Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	2.00%	4.00%

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Loans, Net Troubled Debt Restructurings Narrative (Details) (USD $)	3 Months Ended
	Mar. 31, 2014 loan	Mar. 31, 2013 loan	Dec. 31, 2013
Receivables [Abstract]
Total TDR	$ 11,300,000		$ 15,600,000
TDR included in nonaccrual loans	6,500,000
TDR performing as agreed	4,800,000
Valuation Allowance related to total TDR	1,500,000		2,800,000
TDR's charged off	5,000,000
Number of Contracts	4	3
Number of loans for which allowance for loan losses measured under general allowance methodology	2
Recorded investment as TDR for which allowance for loan losses measured under general allowance methodology	507,000
Allowance for loan losses on recorded investment as TDR	$ 0

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Share-Based Compensation Plan Restricted stock service awards and performance awarded under the 2006 Equity Compensation Plan (Details) (2006 Equity Compensation Plan [Member], Restricted Stock [Member], USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014
2006 Equity Compensation Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Non-vested at beginning of year (in shares)	119,250
Granted (in shares)	133
Vested (in shares)	0
Forfeited (in shares)	(9,500)
Non-vested at end of period (in shares)	109,883
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Non-vested at beginning of year (in dollars per share)	$ 16.39
Granted (in dollars per share)	$ 18.31
Vested (in dollars per share)	$ 0.00
Forfeited (in dollars per share)	$ 15.91
Non-vested at end of period (in dollars per share)	$ 16.14
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Aggregate Intrinsic Value [Abstract]
Non-vested at end of period	$ 1,935

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Share-Based Compensation Plan Stock options outstanding activity (Details) (USD $)	3 Months Ended
	Mar. 31, 2014
Shares [Roll Forward]
Outstanding at beginning of year (in shares)	58,513
Granted (in shares)	0
Exercised (in shares)	(4,921)
Forfeited (in shares)	(3,000)
Outstanding at end of period (in shares)	50,592
Options exercisable at year end (in shares)	50,592
Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning of year (in dollars per share)	$ 15.30
Granted (in dollars per share)	$ 0.00
Exercised (in dollars per share)	$ 14.00
Forfeited (in dollars per share)	$ 39.40
Outstanding at end of period (in dollars per share)	$ 14.00
Options exercisable at year end (in dollars per share)	$ 14.00

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash dividends:
Cash dividends, Common stock (in dollars per share)	$ 0.07	$ 0.05
Exercise of stock options (in shares)	4,921
Restricted stock vesting (in shares)		5,255
Repurchase of restricted stock (in shares)		967

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Share-Based Compensation Plan Schedule of options outstanding and exercisable (Details) (USD $)			3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2014 14.00 [Member]	Mar. 31, 2014 14.00 [Member]	Mar. 31, 2014 $14.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices (in dollars per share)	$ 14.00	$ 15.30	$ 14.00	$ 14.00	$ 14.00
Options Outstanding (in shares)	50,592	58,513	45,592	5,000	50,592
Remaining Contractual Life			4 years 11 months 15 days	5 years 7 months 2 days	5 years 0 months 7 days
Options Exercisable (in shares)	50,592		45,592	5,000	50,592

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Loans, Net Recorded investment in past due loans by class of loans (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014		Dec. 31, 2013
Past due loans by class of loans [Abstract]
30-59 Days Past Due	$ 4,043		$ 975
60-89 Days Past Due	1,670		6,922
90 Days Or Greater	8,608		5,838
Total Past Due	14,321		13,735
Current	717,143		714,745
Total Loans	731,464	[1]	728,480	[1]
Real Estate Loans Construction [Member]
Past due loans by class of loans [Abstract]
30-59 Days Past Due	170		76
60-89 Days Past Due	93		1,649
90 Days Or Greater	1,821		554
Total Past Due	2,084		2,279
Current	32,893		33,746
Total Loans	34,977		36,025
Real Estate Loans Secured by farmland [Member]
Past due loans by class of loans [Abstract]
30-59 Days Past Due	0		0
60-89 Days Past Due	0		0
90 Days Or Greater	0		0
Total Past Due	0		0
Current	17,738		16,578
Total Loans	17,738		16,578
Real Estate Loans Secured by 1 - 4 family residential [Member]
Past due loans by class of loans [Abstract]
30-59 Days Past Due	2,675		590
60-89 Days Past Due	1,241		3,751
90 Days Or Greater	4,213		1,022
Total Past Due	8,129		5,363
Current	266,437		268,021
Total Loans	274,566		273,384
Other real estate loans [Member]
Past due loans by class of loans [Abstract]
30-59 Days Past Due	1,096		116
60-89 Days Past Due	287		0
90 Days Or Greater	1,043		4,197
Total Past Due	2,426		4,313
Current	263,567		256,020
Total Loans	265,993		260,333
Commercial loans [Member]
Past due loans by class of loans [Abstract]
30-59 Days Past Due	95		162
60-89 Days Past Due	49		1,513
90 Days Or Greater	1,490		27
Total Past Due	1,634		1,702
Current	123,761		127,852
Total Loans	125,395		129,554
Consumer loans [Member]
Past due loans by class of loans [Abstract]
30-59 Days Past Due	7		31
60-89 Days Past Due	0		9
90 Days Or Greater	41		38
Total Past Due	48		78
Current	12,747		12,528
Total Loans	$ 12,795		$ 12,606

[1] Gross loan balances at March 31, 2014 and December 31, 2013 are net of deferred loan costs of $2.2 million and $2.4 million, respectively.

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Fair Value Measurements Quantitative information related to Level III inputs (Details) (Recurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Corporate securities	$ 15,205	$ 15,410
Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Corporate securities	490	488
Level III [Member] | Third Party Trading Desk [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Corporate securities	$ 490	$ 488

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
ASSETS
Cash and due from banks	$ 6,238	$ 6,648
Interest bearing deposits with other institutions	46,824	60,695
Total cash and cash equivalents	53,062	67,343
Securities available for sale	325,520	328,423
Loans held for sale, net	31,771	33,175
Restricted securities, at cost	6,404	6,780
Loans, net of allowance for loan losses of $13,228 and $13,320, respectively	718,236	715,160
Premises and equipment, net	19,688	20,017
Goodwill and identified intangibles	5,303	5,346
Other real estate owned, net of valuation allowance of $514 and $398, respectively	4,491	3,424
Bank owned life insurance	22,117	21,955
Accrued interest receivable and other assets	21,820	26,130
TOTAL ASSETS	1,208,412	1,227,753
Deposits:
Non-interest bearing demand deposits	188,651	185,577
Savings and interest bearing demand deposits	517,380	528,879
Time deposits	255,220	267,940
Total deposits	961,251	982,396
Securities sold under agreements to repurchase	32,617	34,539
Federal Home Loan Bank borrowings	80,000	80,000
Subordinated notes	5,155	5,155
Accrued interest payable and other liabilities	11,237	10,590
TOTAL LIABILITIES	1,090,260	1,112,680
SHAREHOLDERS' EQUITY
Common stock ($2.50 par value; 20,000,000 shares authorized; 7,076,145 and 7,080,591 issued and outstanding, respectively)	17,415	17,403
Capital surplus	44,426	44,251
Retained earnings	52,171	50,689
Accumulated other comprehensive income	1,828	232
Total Middleburg Financial Corporation shareholders' equity	115,840	112,575
Non-controlling interest in consolidated subsidiary	2,312	2,498
TOTAL SHAREHOLDERS' EQUITY	118,152	115,073
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,208,412	$ 1,227,753

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Loans, Net Loans modified in TDR by class of loan (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 loan	Mar. 31, 2013 loan
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts	4	3
Pre-Modification Outstanding Recorded Investment	$ 981	$ 216
Post-Modification Outstanding Recorded Investment	906	196
Real Estate Loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts	4	3
Pre-Modification Outstanding Recorded Investment	981	216
Post-Modification Outstanding Recorded Investment	906	196
Real Estate Loans Construction [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts	0	0
Pre-Modification Outstanding Recorded Investment	0	0
Post-Modification Outstanding Recorded Investment	0	0
Real Estate Loans Secured by farmland [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts	0	0
Pre-Modification Outstanding Recorded Investment	0	0
Post-Modification Outstanding Recorded Investment	0	0
Real Estate Loans Secured by 1 - 4 family residential [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts	3	1
Pre-Modification Outstanding Recorded Investment	781	48
Post-Modification Outstanding Recorded Investment	733	48
Other real estate loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts	1	2
Pre-Modification Outstanding Recorded Investment	200	168
Post-Modification Outstanding Recorded Investment	173	148
Commercial loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts	0	0
Pre-Modification Outstanding Recorded Investment	0	0
Post-Modification Outstanding Recorded Investment	0	0
Consumer loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts	0	0
Pre-Modification Outstanding Recorded Investment	0	0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Other comprehensive income (loss), net of tax:
Net unrealized gains on investment securities tax	$ 848	$ 111
Reclassification adjustment for investment securities transactions tax	21	16
Unrealized gain on interest rate swaps tax	$ 4	$ 20

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Accumulated Other Comprehensive Income Change in other comprehensive income for period (Parenthetical) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Equity [Abstract]
Net unrealized gains on investment securities tax	$ 848	$ 111
Reclassification adjustment for investment securities transactions tax	21	16
Unrealized gain on interest rate swaps tax	$ 4	$ 20

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Securities Narrative (Details) (USD $)	3 Months Ended
	Mar. 31, 2014 Security
Investments, Debt and Equity Securities [Abstract]
Proceeds from sales of securities	$ 26,000,000
Gross gains realized on sale of securities	323,000
Gross loss realized on sale of securities	260,000
Tax expense related to realized gains	21,000
Carrying value of securities pledged for fiduciary powers	$ 112,800,000
Number of securities temporarily impaired	110
Number of securities temporarily impaired in investment grade	109
Number of securities temporarily impaired in speculative grade	1

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Securities (Tables)

3 Months Ended

Mar. 31, 2014

Investments, Debt and Equity Securities [Abstract]

Amortized costs and fair values of securities available for sale

Amortized costs and fair values of securities available for sale are summarized as follows:

	March 31, 2014
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	22,378	$	179	$	(282	)	$	22,275
Obligations of states and political subdivisions	65,389		1,507		(1,580		)	65,316
Mortgage-backed securities:
Agency	169,425		3,970		(1,251		)	172,144
Non-agency	23,012		151		(126		)	23,037
Other asset backed securities	27,007		540		(82		)	27,465
Corporate preferred stock	68		10		—			78
Corporate securities	15,414		50		(259		)	15,205
Total	$	322,693	$	6,407	$	(3,580	)	$	325,520

	December 31, 2013
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	21,367	$	304	$	(332	)	$	21,339
Obligations of states and political subdivisions	68,904		1,083		(2,749		)	67,238
Mortgage-backed securities:
Agency	166,095		3,539		(1,624		)	168,010
Non-agency	22,029		116		(211		)	21,934
Other asset backed securities	33,883		710		(175		)	34,418
Corporate preferred stock	69		5		—			74
Corporate securities	15,680		58		(328		)	15,410
Total	$	328,027	$	5,815	$	(5,419	)	$	328,423

Amortized cost and fair value of securities available for sale by contractual maturity

Therefore, these securities are not included in the maturity categories in the following maturity summary.

	March 31, 2014
(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	5,400	$	5,498
Due after one year through five years	29,278		30,030
Due after five years through ten years	41,011		40,709
Due after ten years	27,492		26,559
Mortgage-backed securities	192,437		195,181
Other asset backed securities	27,007		27,465
Corporate preferred stock	68		78
Total	$	322,693	$	325,520

Investments in continuous unrealized loss position

Investments in an unrealized loss position that are temporarily impaired are as follows:

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
March 31, 2014	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	9,793	$	(217	)	$	1,396	$	(65	)	$	11,189	$	(282	)
Obligations of states and political subdivisions	11,822		(766		)	5,434		(814		)	17,256		(1,580		)
Mortgage-backed securities:
Agency	38,442		(814		)	12,590		(437		)	51,032		(1,251		)
Non-agency	8,775		(89		)	1,371		(37		)	10,146		(126		)
Other asset backed securities	4,956		(56		)	1,082		(26		)	6,038		(82		)
Corporate preferred stock	—		—			—		—			—		—
Corporate securities	7,005		(249		)	490		(10		)	7,495		(259		)
Total	$	80,793	$	(2,191	)	$	22,363	$	(1,389	)	$	103,156	$	(3,580	)

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
December 31, 2013	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	10,218	$	(273	)	$	1,416	$	(59	)	$	11,634	$	(332	)
Obligations of states and political subdivisions	24,568		(2,539		)	1,798		(210		)	26,366		(2,749		)
Mortgage-backed securities:
Agency	50,048		(1,264		)	8,228		(360		)	58,276		(1,624		)
Non-agency	14,505		(152		)	1,351		(59		)	15,856		(211		)
Other asset backed securities	1,585		(39		)	2,187		(136		)	3,772		(175		)
Corporate preferred stock	—		—			—		—			—		—
Corporate securities	6,247		(274		)	4,446		(54		)	10,693		(328		)
Total	$	107,171	$	(4,541	)	$	19,426	$	(878	)	$	126,597	$	(5,419	)

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Securities Investments in continuous unrealized loss position (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	$ 80,793	$ 107,171
Gross Unrealized Losses, Less than Twelve Months	(2,191)	(4,541)
Fair Value, Twelve Months or Greater	22,363	19,426
Gross Unrealized Losses, Twelve Months or Greater	(1,389)	(878)
Fair Value, Total	103,156	126,597
Gross Unrealized Losses, Total	(3,580)	(5,419)
U.S. government agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	9,793	10,218
Gross Unrealized Losses, Less than Twelve Months	(217)	(273)
Fair Value, Twelve Months or Greater	1,396	1,416
Gross Unrealized Losses, Twelve Months or Greater	(65)	(59)
Fair Value, Total	11,189	11,634
Gross Unrealized Losses, Total	(282)	(332)
Obligations of states and political subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	11,822	24,568
Gross Unrealized Losses, Less than Twelve Months	(766)	(2,539)
Fair Value, Twelve Months or Greater	5,434	1,798
Gross Unrealized Losses, Twelve Months or Greater	(814)	(210)
Fair Value, Total	17,256	26,366
Gross Unrealized Losses, Total	(1,580)	(2,749)
Mortgage-backed securities, Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	38,442	50,048
Gross Unrealized Losses, Less than Twelve Months	(814)	(1,264)
Fair Value, Twelve Months or Greater	12,590	8,228
Gross Unrealized Losses, Twelve Months or Greater	(437)	(360)
Fair Value, Total	51,032	58,276
Gross Unrealized Losses, Total	(1,251)	(1,624)
Mortgage-backed securities, Non-agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	8,775	14,505
Gross Unrealized Losses, Less than Twelve Months	(89)	(152)
Fair Value, Twelve Months or Greater	1,371	1,351
Gross Unrealized Losses, Twelve Months or Greater	(37)	(59)
Fair Value, Total	10,146	15,856
Gross Unrealized Losses, Total	(126)	(211)
Other asset backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	4,956	1,585
Gross Unrealized Losses, Less than Twelve Months	(56)	(39)
Fair Value, Twelve Months or Greater	1,082	2,187
Gross Unrealized Losses, Twelve Months or Greater	(26)	(136)
Fair Value, Total	6,038	3,772
Gross Unrealized Losses, Total	(82)	(175)
Corporate preferred stock [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	0	0
Gross Unrealized Losses, Less than Twelve Months	0	0
Fair Value, Twelve Months or Greater	0	0
Gross Unrealized Losses, Twelve Months or Greater	0	0
Fair Value, Total	0	0
Gross Unrealized Losses, Total	0	0
Corporate securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	7,005	6,247
Gross Unrealized Losses, Less than Twelve Months	(249)	(274)
Fair Value, Twelve Months or Greater	490	4,446
Gross Unrealized Losses, Twelve Months or Greater	(10)	(54)
Fair Value, Total	7,495	10,693
Gross Unrealized Losses, Total	$ (259)	$ (328)

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Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2014

Allowance for Loan Losses [Abstract]

Allowance for loan losses

The following table presents, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).

	March 31, 2014
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2013	$	847		$	166	$	6,734		$	3,506		$	1,890		$	177		$	13,320
Charge-offs	(90		)	—		(588		)	(684		)	(13		)	(14		)	(1,389		)
Recoveries	151			—		108			104			4			42			409
Provision	744			13		(175		)	423			(90		)	(27		)	888
Balance at March 31, 2014	$	1,652		$	179	$	6,079		$	3,349		$	1,791		$	178		$	13,228
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,300		$	—	$	2,401		$	305		$	215		$	37		$	4,258
Collectively evaluated for impairment	352			179		3,678			3,044			1,576			141			8,970
Total ending allowance balance	$	1,652		$	179	$	6,079		$	3,349		$	1,791		$	178		$	13,228
Loans:
Individually evaluated for impairment	$	7,819		$	—	$	8,790		$	6,156		$	2,373		$	37		$	25,175
Collectively evaluated for impairment	27,158			17,738		265,776			259,837			123,022			12,758			706,289
Total ending loans balance	$	34,977		$	17,738	$	274,566		$	265,993		$	125,395		$	12,795		$	731,464

	December 31, 2013
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2012	$	1,258		$	135	$	6,276		$	4,348		$	2,098		$	196		$	14,311
Charge-offs	(394		)	—		(785		)	(97		)	(75		)	(30		)	(1,381		)
Recoveries	68			—		140			37			9			27			281
Provision	(85		)	31		1,103			(782		)	(142		)	(16		)	109
Balance at December 31, 2013	$	847		$	166	$	6,734		$	3,506		$	1,890		$	177		$	13,320
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	486		$	—	$	3,045		$	812		$	275		$	37		$	4,655
Collectively evaluated for impairment	361			166		3,689			2,694			1,615			140			8,665
Total ending allowance balance	$	847		$	166	$	6,734		$	3,506		$	1,890		$	177		$	13,320
Loans:
Individually evaluated for impairment	$	2,636		$	—	$	10,411		$	9,142		$	2,470		$	37		$	24,696
Collectively evaluated for impairment	33,389			16,578		262,973			251,191			127,084			12,569			703,784
Total ending loans balance	$	36,025		$	16,578	$	273,384		$	260,333		$	129,554		$	12,606		$	728,480

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (USD $) In Thousands, unless otherwise specified	Total	Common Stock [Member]	Capital Surplus [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]	Noncontrolling Interest [Member]
Balance at Dec. 31, 2012	$ 117,122	$ 17,357	$ 43,869	$ 46,235	$ 6,467	$ 3,194
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	1,260			1,327		(67)
Other comprehensive income (loss), net of tax	(207)				(207)
Cash dividends ($0.05 and $0.07 for 3 months ended March 31, 2013 and 2014, respectively)	(353)			(353)
Distributions to non-controlling interest	(207)					(207)
Restricted stock vesting (5,255 in 3 months ended March 31, 2013)		11	(11)
Repurchase of restricted stock (967 for the 3 months ended March 31, 2013)	(19)	(3)	(16)
Share-based compensation	104		104
Balance at Mar. 31, 2013	117,700	17,365	43,946	47,209	6,260	2,920
Balance at Dec. 31, 2013	115,073	17,403	44,251	50,689	232	2,498
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	1,820			1,977		(157)
Other comprehensive income (loss), net of tax	1,596				1,596
Cash dividends ($0.05 and $0.07 for 3 months ended March 31, 2013 and 2014, respectively)	(495)			(495)
Distributions to non-controlling interest	(29)					(29)
Exercise of stock options (4,921 for the 3 months ended March 31, 2014)	91	12	79
Share-based compensation	96		96
Balance at Mar. 31, 2014	$ 118,152	$ 17,415	$ 44,426	$ 52,171	$ 1,828	$ 2,312

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
ASSETS
Loans, allowance for loan losses	$ 13,228	$ 13,320
Other real estate owned, valuation allowance	$ 514	$ 398
SHAREHOLDERS' EQUITY
Common stock, par value	$ 2.50	$ 2.50
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	7,076,145	7,080,591
Common stock, shares outstanding	7,076,145	7,080,591

XML

Capital Purchase Program

3 Months Ended

Mar. 31, 2014

Stockholders' Equity Note [Abstract]

Capital Purchase Program

Capital Purchase Program

On January 30, 2009, as part of the Capital Purchase Program established by the U.S. Department of the Treasury (the “Treasury”) under the Emergency Economic Stabilization Act of 2008, the Company entered into a Letter Agreement and Securities Purchase Agreement—Standard Terms (collectively, the “Purchase Agreement”) with the Treasury, pursuant to which the Company sold (i) 22,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $2.50 per share, having a liquidation preference of $1,000 per share (the “Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 208,202 shares of the Company’s common stock, par value $2.50 per share, at an initial exercise price of $15.85 per share. As a result of the completion of a public stock offering in 2009, the number of shares of common stock underlying the Warrant was reduced by one-half to 104,101 and the Company redeemed all 22,000 shares of Preferred Stock pursuant to the Purchase Agreement. During 2011, the Warrant was sold by the U.S. Treasury at public auction and has not been exercised as of March 31, 2014.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 09, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	MIDDLEBURG FINANCIAL CORP
Entity Central Index Key	0000914138
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		7,076,145
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2014

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company follows ASC 820, "Fair Value Measurements" to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  ASC 820 clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.  The three levels of the fair value hierarchy under ASC 820 based on these two types of inputs are as follows:

Level I. Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II. Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date.  The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III. Assets and liabilities that have little to no pricing observability as of the reported date.  These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Measured on a recurring basis

The following describes the valuation techniques and inputs used by the Company in determining the fair value of certain assets recorded at fair value on a recurring basis in the financial statements.

Securities Available for Sale

The Company primarily values its investment portfolio using Level II fair value measurements, but may also use Level I or Level III measurements if required by the composition of the portfolio. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level II). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified as Level III of the valuation hierarchy.

Loans Held for Sale

Loans held for sale are carried at market value. These loans currently consist of 1-4 family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data (Level II). Gains and losses on the sale of loans are recorded within income from mortgage banking activities on the consolidated statements of income.

Mortgage Interest Rate Locks

The Company recognizes mortgage interest rate locks at fair value. Fair value is based on either (i) the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis or (ii) the observable price for individual loans traded in the secondary market for loans that will be delivered on a mandatory basis. All of the Company's mortgage interest rate locks are classified as Level II.

Mortgage Banking Hedge Instruments

Mortgage banking hedge instruments are used to mitigate interest rate risk for residential mortgage loans held for sale and interest rate locks. These instruments are considered derivatives and are recorded at fair value, based on (i) committed sales prices from investors for commitments to sell mortgage loans or (ii) observable market data inputs for commitments to sell mortgage backed securities. The Company's mortgage banking hedge instruments are classified as Level II.

Interest Rate Swaps

Interest rate swaps are recorded at fair value based on third party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data (Level II).

Mortgage Servicing Rights

The Company obtains the fair value of mortgage servicing rights from an independent valuation service. The model used by the independent service to value mortgage servicing rights incorporates inputs and assumptions such as loan characteristics, contractually specified servicing fees, prepayment speeds, delinquency rates, late charges, escrow income, other ancillary revenue, costs to service and other economic factors. Fair value estimates from the model are adjusted for recent market activity, actual experience and, when available, other observable market data (Level II).

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013.

(Dollars in thousands)	March 31, 2014
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	22,275	$	—	$	22,275	$	—
Obligations of states and political subdivisions	65,316		—		65,316		—
Mortgage-backed securities:
Agency	172,144		—		172,144		—
Non-agency	23,037		—		23,037		—
Other asset backed securities	27,465		—		27,465		—
Corporate preferred stock	78		—		78		—
Corporate securities	15,205		—		14,715		490
Mortgage loans held for sale	31,771		—		31,771		—
Mortgage interest rate locks	211		—		211		—
Interest rate swaps	235		—		235		—
Mortgage servicing rights	251		—		251		—
Mortgage banking hedge instruments	6		—		6		—
Liabilities:
Interest rate swaps	292		—		292		—

(Dollars in thousands)	December 31, 2013
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	21,339	$	—	$	21,339	$	—
Obligations of states and political subdivisions	67,238		—		67,238		—
Mortgage-backed securities:
Agency	168,010		—		168,010		—
Non-agency	21,934		—		21,934		—
Other asset backed securities	34,418		—		34,418		—
Corporate preferred stock	74		—		74		—
Corporate securities	15,410		—		14,922		488
Mortgage loans held for sale	33,175		—		33,175		—
Mortgage interest rate locks	16		—		16		—
Interest rate swaps	333		—		333		—
Mortgage servicing rights	203		—		203		—
Mortgage banking hedge instruments	202		—		202		—
Liabilities:
Interest rate swaps	303		—		303		—

The following table presents changes in Level III assets measured at fair value on a recurring basis during the three months ended March 31, 2014:

(Dollars in thousands)	March 31, 2014
Description	Balance December 31, 2013		Included in Earnings		Included in Other Comprehensive Income		Transfers In/Out of Level II and III		Balance March 31, 2014
Available for sale securities - corporate securities	$	488	$	—	$	2	$	—	$	490

The following table presents quantitative information as of March 31, 2014 and December 31, 2013 related to Level III fair value measurements for financial assets measured at fair value on a recurring basis:

	Fair Value (Dollars in thousands)		Valuation Technique	Unobservable Inputs
March 31, 2014
Corporate securities	$	490	Third party trading desk	Prices heavily influenced by unobservable market inputs.

	Fair Value (Dollars in thousands)		Valuation Technique	Unobservable Inputs
December 31, 2013
Corporate securities	$	488	Third party trading desk	Prices heavily influenced by unobservable market inputs.

Measured on nonrecurring basis

The Company may be required, from time to time, to measure and recognize certain other assets at fair value on a nonrecurring basis in accordance with GAAP. The following describes the valuation techniques and inputs used by the Company in determining the fair value of certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected.  The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral.  Fair value is measured based on the value of the collateral securing the loans.  Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable.  The vast majority of the collateral is real estate.  The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level II).  However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level III.  The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business's financial statements if not considered significant using observable market data.  Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level III).  Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the consolidated statements of income.

When collateral-dependent loans are performing in accordance with the original terms of their contract, the Company continues to use the appraisal that was performed at origination as the basis for the collateral value. When collateral-dependent loans are considered nonperforming, they are reviewed to determine the next appropriate course of action, either foreclosure or modification with forbearance agreement. The loans would then be reappraised prior to foreclosure or before a forbearance agreement is executed. This process does not vary by loan type.

The Company's procedure to monitor the value of collateral for collateral-dependent impaired loans between the receipt of the original appraisal and an updated appraisal is to review annual tax assessment records. At this time, adjustments are made, if necessary. Information considered in the determination not to order an updated appraisal includes the availability and reliability of tax assessment records and significant changes in capitalization rates for income properties. Other facts and circumstances on a case-by-case basis may be considered relative to a decision not to order an updated appraisal. If, in the judgment of management, a reliable collateral value cannot be obtained by an alternative method, an updated appraisal would be obtained.

Circumstances that may warrant a reappraisal for nonperforming loans might include foreclosure proceedings or a material adverse change in the borrower's condition or that of the collateral underlying the loan. In some cases, management may decide that an updated appraisal for a nonperforming loan is not necessary, In such cases, an estimate of the fair value of the collateral would be made by management by reference to current tax assessments, the latest appraised value, and knowledge of collateral value fluctuations in a loan's market area. If, in management's judgment, a reliable collateral value cannot be obtained by an alternative method, an updated appraisal would be obtained.

For the purpose of evaluating the allowance for loan losses, new appraisals are discounted 10% for estimated selling costs when determining the amount of specific reserves. Thereafter, for collateral-dependent impaired loans, we consider each loan on a case-by-case basis to determine whether or not the recorded values are appropriate given current market conditions. When necessary, new appraisals are obtained. If an appraisal is less than 12 months old, the only adjustment made is the 10% discount for selling costs. If an appraisal is older than 12 months, management will use judgment based on knowledge of current market values and specific facts surrounding any particular property to determine if an additional valuation adjustment may be necessary.

Other Real Estate Owned

The value of other real estate owned (“OREO”) is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data (Level II).  For other real estate owned properties that may be in construction, the Company’s policy is to obtain “as-is” appraisals on an annual basis as opposed to “as-completed” appraisals.  This approach provides current values without regard to completion of any construction or renovation that may be in process.  Accordingly, the Company considers the valuations to be Level II valuations even though some properties may be in process of renovation or construction. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability or other factors, then the fair value is considered Level III. Any initial fair value adjustment is charged against the Allowance for Loan Losses. Any subsequent fair value adjustments are recorded in the period incurred and included in other non-interest expense on the consolidated statements of income.

For the purpose of OREO valuations, appraisals are discounted 10% for selling and holding costs and it is the policy of the Company to obtain annual appraisals for properties held in OREO. Any fair value adjustments are recorded in the period incurred as loss on other real estate owned on the consolidated statements of income.

The following table summarizes the Company’s non-financial assets that were measured at fair value on a nonrecurring basis during the period.

(Dollars in thousands)	March 31, 2014
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	8,733	$	—	$	7,038	$	1,695
Other real estate owned	$	4,491	$	—	$	4,491	$	—
(Dollars in thousands)	December 31, 2013
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	7,614	$	—	$	5,756	$	1,858
Other real estate owned	$	3,424	$	—	$	3,424	$	—

The following table presents quantitative information as of March 31, 2014 and December 31, 2013 about Level III fair value measurements for financial assets measured at fair value on a non-recurring basis:

March 31, 2014	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired Loans	$	1,695	Discounted appraised value	Discount for selling costs and age of appraisals.	0% - 100% (2%)

December 31, 2013	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired Loans	$	1,858	Discounted appraised value	Discount for selling costs and age of appraisals.	0% - 100% (4%)

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation.  Fair value is best determined based upon quoted market prices.  However, in many instances, there are no quoted market prices for the Company’s various financial instruments.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.  U.S. generally accepted accounting principles excludes certain financial instruments and all non-financial instruments from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments (not previously described) for which it is practicable to estimate that value:

Cash and Cash Equivalents

For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

Loans, Net

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.  For fixed rate loans, the fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality.  Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value. Fair value for impaired loans is described above.

Bank Owned Life Insurance

The carrying amount of bank owned life insurance is a reasonable estimate of fair value.

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate fair values.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date.  For all other deposits, the fair value is determined using the discounted cash flow method.  The discount rate is equal to the rate currently offered on similar products.

Securities Sold Under Agreements to Repurchase and Short-Term  Debt

The carrying amounts approximate fair values.

FHLB Borrowings and Subordinated Debt

For variable rate long-term debt, fair values are based on carrying values.  For fixed rate debt, fair values are estimated based on observable market prices and discounted cash flow analysis using interest rates for borrowings of similar remaining maturities and characteristics.  The fair values of the Company's Subordinated Debentures are estimated using discounted cash flow analysis based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.  At March 31, 2014 and December 31, 2013, the fair values of loan commitments and standby letters of credit were deemed immaterial; therefore, they have not been included in the tables below.

Fair Value of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company's financial instruments are as follows:

(Dollars in thousands)	March 31, 2014
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	53,063	$	53,063	$	53,063	$	—	—
Securities available for sale	325,520		325,520		—		325,030		490
Loans held for sale	31,771		31,771		—		31,771		—
Loans, net	718,236		729,441		—		7,038		722,403
Bank owned life insurance	22,117		22,117		—		22,117		—
Accrued interest receivable	3,916		3,916		—		3,916		—
Mortgage interest rate locks	211		211		—		211		—
Interest rate swaps	235		235		—		235		—
Mortgage banking hedge instruments	6		6		—		6		—
Mortgage servicing rights	251		251		—		251		—
Financial liabilities:
Deposits	$	961,251	$	963,068	$	—	$	963,068	—
Securities sold under agreements to repurchase	32,617		32,617		—		32,617		—
FHLB borrowings	80,000		80,356		—		80,356		—
Subordinated notes	5,155		5,178		—		5,178		—
Accrued interest payable	451		451		—		451		—
Interest rate swaps	292		292		—		292		—

(Dollars in thousands)	December 31, 2013
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	67,343	$	67,343	$	67,343	$	—	$	—
Securities available for sale	328,423		328,423		—		327,935		488
Loans held for sale	33,175		33,175		—		33,175		—
Net loans	715,160		726,239		—		5,756		720,483
Bank-owned life insurance	21,955		21,955		—		21,955		—
Accrued interest receivable	3,992		3,992		—		3,992		—
Mortgage interest rate locks	16		16		—		16		—
Interest rate swap	333		333		—		333		—
Mortgage banking hedge instruments	202		202		—		202		—
Mortgage servicing rights	203		203		—		203		—
Financial liabilities:
Deposits	$	982,396	$	984,420	$	—	$	984,420	$	—
Securities sold under agreements to repurchase	34,539		34,539		—		34,539		—
FHLB borrowings and other debt	80,000		80,666		—		80,666		—
Subordinated notes	5,155		5,198		—		5,198		—
Accrued interest payable	501		501		—		501		—
Interest rate swap	303		303		—		303		—

The Company assumes interest rate risk as a result of its normal operations.  As a result, the fair values of the Company's financial instruments will change when interest rate levels change, which may be either favorable or unfavorable to the Company.  Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk.  However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment.  Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment.  Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company's overall interest rate risk.

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
INTEREST INCOME
Interest and fees on loans	$ 8,806	$ 8,965
Interest and dividends on securities available for sale
Taxable	1,617	1,531
Tax-exempt	584	630
Dividends	73	56
Interest on deposits in banks and federal funds sold	26	30
Total interest and dividend income	11,106	11,212
INTEREST EXPENSE
Interest on deposits	1,002	1,373
Interest on securities sold under agreements to repurchase	80	80
Interest on short-term borrowings	0	29
Interest on FHLB borrowings and other debt	313	295
Total interest expense	1,395	1,777
NET INTEREST INCOME	9,711	9,435
Provision for (recovery of) loan losses	888	(188)
NET INTEREST INCOME AFTER PROVISION FOR (RECOVERY OF) LOAN LOSSES	8,823	9,623
NON-INTEREST INCOME
Service charges on deposit accounts	557	534
Trust services income	1,048	960
Gains on loans held for sale	2,942	3,893
Gains on securities available for sale, net	63	47
Commissions on investment sales	140	94
Fees on mortgages held for sale	28	17
Bank owned life insurance	162	120
Other operating income	941	263
Total non-interest income	5,881	5,928
NON-INTEREST EXPENSE
Salaries and employee benefits	7,033	7,799
Occupancy and equipment	1,900	1,805
Advertising	163	268
Computer operations	458	461
Other real estate owned	167	820
Other taxes	197	192
Federal deposit insurance	238	265
Other operating expenses	1,979	2,318
Total non-interest expense	12,135	13,928
Income before income taxes	2,569	1,623
Income tax expense	749	363
NET INCOME	1,820	1,260
Net loss attributable to non-controlling interest	157	67
Net income attributable to Middleburg Financial Corporation	$ 1,977	$ 1,327
Earnings per share:
Basic (in dollars per share)	$ 0.28	$ 0.19
Diluted (in dollars per share)	$ 0.28	$ 0.19

XML

Securities

3 Months Ended

Mar. 31, 2014

Investments, Debt and Equity Securities [Abstract]

Securities

Securities

Amortized costs and fair values of securities available for sale are summarized as follows:

	March 31, 2014
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	22,378	$	179	$	(282	)	$	22,275
Obligations of states and political subdivisions	65,389		1,507		(1,580		)	65,316
Mortgage-backed securities:
Agency	169,425		3,970		(1,251		)	172,144
Non-agency	23,012		151		(126		)	23,037
Other asset backed securities	27,007		540		(82		)	27,465
Corporate preferred stock	68		10		—			78
Corporate securities	15,414		50		(259		)	15,205
Total	$	322,693	$	6,407	$	(3,580	)	$	325,520

	December 31, 2013
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	21,367	$	304	$	(332	)	$	21,339
Obligations of states and political subdivisions	68,904		1,083		(2,749		)	67,238
Mortgage-backed securities:
Agency	166,095		3,539		(1,624		)	168,010
Non-agency	22,029		116		(211		)	21,934
Other asset backed securities	33,883		710		(175		)	34,418
Corporate preferred stock	69		5		—			74
Corporate securities	15,680		58		(328		)	15,410
Total	$	328,027	$	5,815	$	(5,419	)	$	328,423

The amortized cost and fair value of securities available for sale as of March 31, 2014, by contractual maturity are shown below.  Maturities may differ from contractual maturities in corporate and mortgage-backed securities because the securities and mortgages underlying the securities may be called or repaid without any penalties.  Therefore, these securities are not included in the maturity categories in the following maturity summary.

	March 31, 2014
(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	5,400	$	5,498
Due after one year through five years	29,278		30,030
Due after five years through ten years	41,011		40,709
Due after ten years	27,492		26,559
Mortgage-backed securities	192,437		195,181
Other asset backed securities	27,007		27,465
Corporate preferred stock	68		78
Total	$	322,693	$	325,520

Proceeds from sales of securities during the three months ended March 31, 2014, were $26.0 million.  Gross gains of $323,000 and gross losses of $260,000 were realized on those sales, respectively.  The tax expense applicable to these net realized gains amounted to $21,000.

The carrying value of securities pledged to qualify for fiduciary powers, to secure public monies and for other purposes as required by law amounted to $112.8 million at March 31, 2014.

Investments in an unrealized loss position that are temporarily impaired are as follows:

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
March 31, 2014	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	9,793	$	(217	)	$	1,396	$	(65	)	$	11,189	$	(282	)
Obligations of states and political subdivisions	11,822		(766		)	5,434		(814		)	17,256		(1,580		)
Mortgage-backed securities:
Agency	38,442		(814		)	12,590		(437		)	51,032		(1,251		)
Non-agency	8,775		(89		)	1,371		(37		)	10,146		(126		)
Other asset backed securities	4,956		(56		)	1,082		(26		)	6,038		(82		)
Corporate preferred stock	—		—			—		—			—		—
Corporate securities	7,005		(249		)	490		(10		)	7,495		(259		)
Total	$	80,793	$	(2,191	)	$	22,363	$	(1,389	)	$	103,156	$	(3,580	)

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
December 31, 2013	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	10,218	$	(273	)	$	1,416	$	(59	)	$	11,634	$	(332	)
Obligations of states and political subdivisions	24,568		(2,539		)	1,798		(210		)	26,366		(2,749		)
Mortgage-backed securities:
Agency	50,048		(1,264		)	8,228		(360		)	58,276		(1,624		)
Non-agency	14,505		(152		)	1,351		(59		)	15,856		(211		)
Other asset backed securities	1,585		(39		)	2,187		(136		)	3,772		(175		)
Corporate preferred stock	—		—			—		—			—		—
Corporate securities	6,247		(274		)	4,446		(54		)	10,693		(328		)
Total	$	107,171	$	(4,541	)	$	19,426	$	(878	)	$	126,597	$	(5,419	)

A total of 110 securities have been identified by the Company as temporarily impaired at March 31, 2014.  Of the 110 securities, 109 are investment grade and one is speculative grade.  Mortgage-backed securities and municipal securities make up the majority of temporarily impaired securities at March 31, 2014.  Market prices change daily and are affected by conditions beyond the control of the Company.  Although the Company has the ability to hold these securities until the temporary loss is recovered, decisions by management may necessitate a sale before the loss is fully recovered.  No such sales were anticipated or required as of March 31, 2014.  Investment decisions reflect the strategic asset/liability objectives of the Company.  The investment portfolio is analyzed frequently by the Company and managed to provide an overall positive impact to the Company’s consolidated income statement and balance sheet.

Trust preferred securities

As of March 31, 2014 and December 31, 2013 the Company held no trust preferred securities in its investment portfolio.

Other-than-temporary impairment losses

At March 31, 2014, the Company evaluated the investment portfolio for possible other-than-temporary impairment losses and concluded that no adverse change in cash flows occurred and did not consider any portfolio securities to be other-than-temporarily impaired.  Based on this analysis and because the Company does not intend to sell securities prior to maturity and it is more likely than not the Company will not be required to sell any securities before recovery of amortized cost basis, which may be at maturity. For debt securities related to corporate securities, the Company determined that there was no other adverse change in the cash flows as viewed by a market participant; therefore, the Company does not consider the investments in these assets to be other-than-temporarily impaired at March 31, 2014.  However, there is a risk that the Company’s continuing reviews could result in recognition of other-than-temporary impairment charges in the future. For the three months ended March 31, 2014 and the year ended December 31, 2013, no credit related impairment losses were recognized by the Company.

The Company’s investment in FHLB stock totaled $4.7 million at March 31, 2014.  FHLB stock is generally viewed as a long-term investment and as a restricted security which is carried at cost because there is no market for the stock other than the FHLB or member institutions.  Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.  The Company does not consider this investment to be other-than-temporarily impaired at March 31, 2014, and no impairment has been recognized.  FHLB stock is shown in restricted securities on the consolidated balance sheets and is not part of the available for sale portfolio.

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Share-Based Compensation Plan

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation Plan

Share-Based Compensation Plan

The Company sponsors one share-based compensation plan, the 2006 Equity Compensation Plan, which provides for the granting of stock options, stock appreciation rights, stock awards, performance share awards, incentive awards, and stock units.  The 2006 Equity Compensation Plan was approved by the Company’s shareholders at the Annual Meeting held on April 26, 2006, and has succeeded the Company’s 1997 Stock Incentive Plan.  Under the plan, the Company may grant share-based compensation to its directors, officers, employees, and other persons the Company determines have contributed to the profits or growth of the Company.  During 2013, the Company's Board of Directors and shareholders approved an amendment to this Plan to increase the number of shares reserved for issuance from 255,000 shares to 430,000 shares, an increase of 175,000 shares.

For the three months ended March 31, 2014, the Company recorded $96,000 in share-based compensation expense related to restricted stock and option grants.  

The following table summarizes restricted stock service awards awarded under the 2006 Equity Compensation Plan:

	March 31, 2014
(Dollars in thousands)	Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value
Non-vested at December 31, 2013	119,250		$	16.39
Granted	133		18.31
Vested	—		—
Forfeited	(9,500	)	15.91
Non-vested at March 31, 2014	109,883		$	16.14	$	1,935

The weighted-average remaining contractual term for non-vested service award grants at March 31, 2014, was 3.73 years.  As of March 31, 2014, there was $1.3 million of total unrecognized compensation expense related to the non-vested service award grants under the 2006 Equity Compensation Plan.

The aggregate intrinsic value represents the amount by which the current market value of the underlying stock exceeds the exercise price. This amount changes based on changes in the market value of the Company’s common stock.

The following table summarizes options outstanding under the 2006 Equity Compensation Plan and remaining outstanding unexercised options under the 1997 Stock Incentive Plan.  

	March 31, 2014
	Shares		Weighted-Average Exercise Price		Intrinsic Value
Outstanding at December 31, 2013	58,513		$	15.30
Granted	—		—
Exercised	(4,921	)	14.00
Forfeited	(3,000	)	39.40
Outstanding at March 31, 2014	50,592		$	14.00	$	—
Options exercisable at March 31, 2014	50,592		$	14.00	$	—

The total intrinsic value of options exercised was $22,000 at March 31, 2014.

As of March 31, 2014, options outstanding and exercisable are summarized as follows:

Range of Exercise Prices		Options Outstanding	Weighted-Average Remaining Contractual Life (years)	Options Exercisable
$	14.00	45,592	4.96	45,592
$	14.00	5,000	5.59	5,000
$	14.00	50,592	5.02	50,592

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Loans, Net (Tables)

3 Months Ended

Mar. 31, 2014

Receivables [Abstract]

Consolidated loan portfolio

The consolidated loan portfolio was composed of the following:

	March 31, 2014				December 31, 2013
(Dollars in thousands)	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
Real estate loans:
Construction	$	34,977	4.8	%	$	36,025	5.0	%
Secured by farmland	17,738		2.4		16,578		2.3
Secured by 1-4 family residential	274,566		37.5		273,384		37.5
Other real estate loans	265,993		36.4		260,333		35.7
Commercial loans	125,395		17.1		129,554		17.8
Consumer loans	12,795		1.8		12,606		1.7
Total Gross Loans (1)	$	731,464	100.00	%	$	728,480	100.00	%
Less allowance for loan losses	13,228				13,320
Net loans	$	718,236			$	715,160

⁽¹⁾  Gross loan balances at March 31, 2014 and December 31, 2013 are net of deferred loan costs of $2.2 million and $2.4 million, respectively.

Past due loans by class of loans

The following tables present a contractual aging of the recorded investment in past due loans by class of loans:

	March 31, 2014
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	170	$	93	$	1,821	$	2,084	$	32,893	$	34,977
Secured by farmland	—		—		—		—		17,738		17,738
Secured by 1-4 family residential	2,675		1,241		4,213		8,129		266,437		274,566
Other real estate loans	1,096		287		1,043		2,426		263,567		265,993
Commercial loans	95		49		1,490		1,634		123,761		125,395
Consumer loans	7		—		41		48		12,747		12,795
Total	$	4,043	$	1,670	$	8,608	$	14,321	$	717,143	$	731,464

	December 31, 2013
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	76	$	1,649	$	554	$	2,279	$	33,746	$	36,025
Secured by farmland	—		—		—		—		16,578		16,578
Secured by 1-4 family residential	590		3,751		1,022		5,363		268,021		273,384
Other real estate loans	116		—		4,197		4,313		256,020		260,333
Commercial loans	162		1,513		27		1,702		127,852		129,554
Consumer loans	31		9		38		78		12,528		12,606
Total	$	975	$	6,922	$	5,838	$	13,735	$	714,745	$	728,480

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans:

	March 31, 2014				December 31, 2013
(Dollars in thousands)	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
Real estate loans:
Construction	$	2,234	$	268	$	2,368	$	268
Secured by 1-4 family residential	7,771		227		9,458		539
Other real estate loans	3,069		—		6,045		—
Commercial loans	1,765		4		1,844		—
Consumer loans	37		4		37		1
Total	$	14,876	$	503	$	19,752	$	808

Summary of loan classifications by class of loan

The following tables present the recorded investment in loans by class of loan that have been classified according to the internal classification system:

March 31, 2014
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	24,936	$	9,228	$	256,869	$	247,534	$	122,258	$	12,723	$	673,548
Special Mention	2,222		7,903		1,852		9,410		698		15		22,100
Substandard	7,302		607		14,832		9,025		2,350		20		34,136
Doubtful	517		—		1,013		24		89		37		1,680
Loss	—		—		—		—		—		—		—
Ending Balance	$	34,977	$	17,738	$	274,566	$	265,993	$	125,395	$	12,795	$	731,464

December 31, 2013
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	31,143	$	8,067	$	253,654	$	238,811	$	126,246	$	12,510	$	670,431
Special Mention	2,245		7,903		1,732		9,475		775		15		22,145
Substandard	2,090		608		16,158		12,047		2,419		44		33,366
Doubtful	547		—		1,840		—		114		37		2,538
Loss	—		—		—		—		—		—		—
Ending Balance	$	36,025	$	16,578	$	273,384	$	260,333	$	129,554	$	12,606	$	728,480

Loans identified as impaired by class of loan

The following tables present loans individually evaluated for impairment by class of loan:

	March 31, 2014
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,915	$	2,466	$	—	$	1,785	$	2
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,323		3,741		—		3,355		4
Other real estate loans	4,862		4,862		—		4,881		26
Commercial loans	2,084		2,084		—		2,100		4
Consumer loans	—		—		—		—		—
Total with no related allowance	$	12,184	$	13,153	$	—	$	12,121	$	36
With an allowance recorded:
Real estate loans:
Construction	$	5,904	$	5,904	$	1,300	$	5,927	$	66
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	5,467		5,519		2,401		5,478		11
Other real estate loans	1,294		1,294		305		1,299		17
Commercial loans	289		310		215		296		2
Consumer loans	37		37		37		37		—
Total with a related allowance	$	12,991	$	13,064	$	4,258	$	13,037	$	96
Total	$	25,175	$	26,217	$	4,258	$	25,158	$	132

	December 31, 2013
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,924	$	2,475	$	—	$	1,975	$	13
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,930		4,452		—		4,415		6
Other real estate loans	4,458		4,458		—		4,552		104
Commercial loans	2,115		2,115		—		2,267		—
Consumer loans	—		—		—		—		—
Total with no related allowance	$	12,427	$	13,500	$	—	$	13,209	$	123
With an allowance recorded:
Real estate loans:
Construction	$	712	$	712	$	486	$	878	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	6,481		6,428		3,045		6,632		47
Other real estate loans	4,684		4,684		812		4,840		71
Commercial loans	355		377		275		399		10
Consumer loans	37		37		37		39		—
Total with a related allowance	$	12,269	$	12,238	$	4,655	$	12,788	$	128
Total	$	24,696	$	25,738	$	4,655	$	25,997	$	251

Loans modified in TDR by class of loan

TDR payment defaults during three months ended March 31, 2014 and 2013 were as follows:

	For the Three Months Ended March 31,
(Dollars in thousands)	2014			2013
Class of Loan	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Real estate loans:
Construction	—	$	—	1	$	106
Secured by farmland	—	—		—	—
Secured by 1-4 family residential	3	297		2	856
Other real estate loans	—	—		—	—
Total real estate loans	3	$	297	3	$	962
Commercial loans	—	—		1	55
Consumer loans	—	—		—	—
Total	3	$	297	4	$	1,017

Loan modifications that were classified as TDRs during the three months ended March 31, 2014 and 2013 were as follows:

	Loans Modified as TDRs
	For the Three Months Ended March 31,
(Dollars in thousands)	2014					2013
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	—	$	—	$	—	—	$	—	$	—
Secured by farmland	—	—		—		—	—		—
Secured by 1-4 family residential	3	781		733		1	48		48
Other real estate loans	1	200		173		2	168		148
Total real estate loans	4	$	981	$	906	3	$	216	$	196
Commercial loans	—	—		—		—	—		—
Consumer loans	—	—		—		—	—		—
Total	4	$	981	$	906	3	$	216	$	196

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-01, “Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this ASU should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company is currently assessing the impact that ASU 2014-01 will have on its consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU clarify that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company is currently assessing the impact that ASU 2014-04 will have on its consolidated financial statements.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amendments in this ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results and include disposals of a major geographic area, a major line of business, or a major equity method investment. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Additionally, the new guidance requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-08 to have a material impact on its consolidated financial statements.

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Earnings Per Share

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

The following shows the weighted-average number of shares used in computing earnings per share and the effect on weighted-average number of shares of diluted potential common stock. Potential dilutive common stock had no effect on income available to common stockholders.

	March 31, 2014			March 31, 2013
	Shares	Per Share Amount		Shares	Per Share Amount
Earnings per share, basic	7,078,470	$	0.28	7,051,009	$	0.19
Effect of dilutive securities:
Stock options, grants and warrant	25,315			31,345
Earnings per share, diluted	7,103,785	$	0.28	7,082,354	$	0.19

There were no stock options and warrant considered anti-dilutive as of March 31, 2014. Stock options and restricted grants representing approximately 32,500 shares as of March 31, 2013 were not included in the calculation of earnings per share because they would have been anti-dilutive. 

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Accumulated Other Comprehensive Income Reclassification out of Accumulated Other Comprehensive Income (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014		Mar. 31, 2013
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on securities available for sale	$ 63		$ 47
Income tax expense	(749)		(363)
NET INCOME	1,820		1,260
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
NET INCOME	(42)	[1]	(31)	[1]
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized Gains (Losses) on Securities [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on securities available for sale	(63)	[1]	(47)	[1]
Income tax expense	21	[1]	16	[1]
NET INCOME	$ (42)	[1]	$ (31)	[1]

[1] For more information related to unrealized gains on securities available for sale, see Note 3, "Securities".

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Loans, Net

3 Months Ended

Mar. 31, 2014

Receivables [Abstract]

Loans, Net

Loans, Net

The Company segregates its loan portfolio into three primary loan segments:  Real Estate Loans, Commercial Loans, and Consumer Loans.  Real estate loans are further segregated into the following classes: construction loans, loans secured by farmland, loans secured by 1-4 family residential real estate, and other real estate loans.  Other real estate loans include commercial real estate loans.  The consolidated loan portfolio was composed of the following:

	March 31, 2014				December 31, 2013
(Dollars in thousands)	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
Real estate loans:
Construction	$	34,977	4.8	%	$	36,025	5.0	%
Secured by farmland	17,738		2.4		16,578		2.3
Secured by 1-4 family residential	274,566		37.5		273,384		37.5
Other real estate loans	265,993		36.4		260,333		35.7
Commercial loans	125,395		17.1		129,554		17.8
Consumer loans	12,795		1.8		12,606		1.7
Total Gross Loans (1)	$	731,464	100.00	%	$	728,480	100.00	%
Less allowance for loan losses	13,228				13,320
Net loans	$	718,236			$	715,160

⁽¹⁾  Gross loan balances at March 31, 2014 and December 31, 2013 are net of deferred loan costs of $2.2 million and $2.4 million, respectively.

Loans presented in the table above exclude loans held for sale.  The Company had $31.8 million and $33.2 million in mortgages held for sale at March 31, 2014 and December 31, 2013, respectively.

The following tables present a contractual aging of the recorded investment in past due loans by class of loans:

	March 31, 2014
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	170	$	93	$	1,821	$	2,084	$	32,893	$	34,977
Secured by farmland	—		—		—		—		17,738		17,738
Secured by 1-4 family residential	2,675		1,241		4,213		8,129		266,437		274,566
Other real estate loans	1,096		287		1,043		2,426		263,567		265,993
Commercial loans	95		49		1,490		1,634		123,761		125,395
Consumer loans	7		—		41		48		12,747		12,795
Total	$	4,043	$	1,670	$	8,608	$	14,321	$	717,143	$	731,464

	December 31, 2013
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	76	$	1,649	$	554	$	2,279	$	33,746	$	36,025
Secured by farmland	—		—		—		—		16,578		16,578
Secured by 1-4 family residential	590		3,751		1,022		5,363		268,021		273,384
Other real estate loans	116		—		4,197		4,313		256,020		260,333
Commercial loans	162		1,513		27		1,702		127,852		129,554
Consumer loans	31		9		38		78		12,528		12,606
Total	$	975	$	6,922	$	5,838	$	13,735	$	714,745	$	728,480

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans:

	March 31, 2014				December 31, 2013
(Dollars in thousands)	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
Real estate loans:
Construction	$	2,234	$	268	$	2,368	$	268
Secured by 1-4 family residential	7,771		227		9,458		539
Other real estate loans	3,069		—		6,045		—
Commercial loans	1,765		4		1,844		—
Consumer loans	37		4		37		1
Total	$	14,876	$	503	$	19,752	$	808

If interest on nonaccrual loans had been accrued, such income would have approximated $206,500, and $1.1 million for the three months ended March 31, 2014 and the year ended December 31, 2013, respectively.

The Company utilizes an internal asset classification system as a means of measuring and monitoring credit risk in the loan portfolio.  Under the Company’s classification system, problem and potential problem loans are classified as “Special Mention”, “Substandard”, and “Doubtful”.

Special Mention:  Loans with potential weaknesses that deserve management’s close attention.  If  left uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects for the credit.

Substandard:  Loans with well-defined weakness that jeopardize the liquidation of the debt.  Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.

Doubtful:  Loans with a very high possibility of loss.  However, because of important and reasonably specific pending factors, classification as a loss is deferred until a more exact status may be determined.

Loss: Loans are deemed uncollectible and are charged off immediately.

The following tables present the recorded investment in loans by class of loan that have been classified according to the internal classification system:

March 31, 2014
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	24,936	$	9,228	$	256,869	$	247,534	$	122,258	$	12,723	$	673,548
Special Mention	2,222		7,903		1,852		9,410		698		15		22,100
Substandard	7,302		607		14,832		9,025		2,350		20		34,136
Doubtful	517		—		1,013		24		89		37		1,680
Loss	—		—		—		—		—		—		—
Ending Balance	$	34,977	$	17,738	$	274,566	$	265,993	$	125,395	$	12,795	$	731,464

December 31, 2013
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	31,143	$	8,067	$	253,654	$	238,811	$	126,246	$	12,510	$	670,431
Special Mention	2,245		7,903		1,732		9,475		775		15		22,145
Substandard	2,090		608		16,158		12,047		2,419		44		33,366
Doubtful	547		—		1,840		—		114		37		2,538
Loss	—		—		—		—		—		—		—
Ending Balance	$	36,025	$	16,578	$	273,384	$	260,333	$	129,554	$	12,606	$	728,480

The following tables present loans individually evaluated for impairment by class of loan:

	March 31, 2014
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,915	$	2,466	$	—	$	1,785	$	2
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,323		3,741		—		3,355		4
Other real estate loans	4,862		4,862		—		4,881		26
Commercial loans	2,084		2,084		—		2,100		4
Consumer loans	—		—		—		—		—
Total with no related allowance	$	12,184	$	13,153	$	—	$	12,121	$	36
With an allowance recorded:
Real estate loans:
Construction	$	5,904	$	5,904	$	1,300	$	5,927	$	66
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	5,467		5,519		2,401		5,478		11
Other real estate loans	1,294		1,294		305		1,299		17
Commercial loans	289		310		215		296		2
Consumer loans	37		37		37		37		—
Total with a related allowance	$	12,991	$	13,064	$	4,258	$	13,037	$	96
Total	$	25,175	$	26,217	$	4,258	$	25,158	$	132

	December 31, 2013
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,924	$	2,475	$	—	$	1,975	$	13
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,930		4,452		—		4,415		6
Other real estate loans	4,458		4,458		—		4,552		104
Commercial loans	2,115		2,115		—		2,267		—
Consumer loans	—		—		—		—		—
Total with no related allowance	$	12,427	$	13,500	$	—	$	13,209	$	123
With an allowance recorded:
Real estate loans:
Construction	$	712	$	712	$	486	$	878	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	6,481		6,428		3,045		6,632		47
Other real estate loans	4,684		4,684		812		4,840		71
Commercial loans	355		377		275		399		10
Consumer loans	37		37		37		39		—
Total with a related allowance	$	12,269	$	12,238	$	4,655	$	12,788	$	128
Total	$	24,696	$	25,738	$	4,655	$	25,997	$	251

The “Recorded Investment” amounts in the table above represent the outstanding principal balance on each loan represented in the table.  The “Unpaid Principal Balance” represents the outstanding principal balance on each loan represented in the table plus any amounts that have been charged-off on each loan.

Included in certain loan categories of impaired loans are troubled debt restructurings (“TDRs”). The total balance of TDRs at March 31, 2014 was $11.3 million of which $6.5 million were included in the Company’s nonaccrual loan totals at that date and $4.8 million represented loans performing as agreed according to the restructured terms. This compares with $15.6 million in total restructured loans at December 31, 2013.  The amount of the valuation allowance related to TDRs was $1.5 million and $2.8 million as of March 31, 2014 and December 31, 2013, respectively. During the quarter ended March 31, 2014, $5.0 million in loans that were classified as TDRs as of December 31, 2013 were charged-off.

Loan modifications that were classified as TDRs during the three months ended March 31, 2014 and 2013 were as follows:

	Loans Modified as TDRs
	For the Three Months Ended March 31,
(Dollars in thousands)	2014					2013
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	—	$	—	$	—	—	$	—	$	—
Secured by farmland	—	—		—		—	—		—
Secured by 1-4 family residential	3	781		733		1	48		48
Other real estate loans	1	200		173		2	168		148
Total real estate loans	4	$	981	$	906	3	$	216	$	196
Commercial loans	—	—		—		—	—		—
Consumer loans	—	—		—		—	—		—
Total	4	$	981	$	906	3	$	216	$	196

Of the four TDRs identified during the three months ended March 31, 2014, two loans had previously been measured under the general allowance methodology of the allowance for loan losses. Upon identifying these loans as TDRs, the Company evaluated them for impairment. The accounting amendments require prospective application of the impairment measurement guidance for those loans newly identified as impaired. As of March 31, 2014, the recorded investment in the loans restructured during the quarter for which the allowance was previously measured under the general allowance methodology was $507,000. There was no allowance for loan losses associated with those loans on the basis of a current evaluation of loss.

TDR payment defaults during three months ended March 31, 2014 and 2013 were as follows:

	For the Three Months Ended March 31,
(Dollars in thousands)	2014			2013
Class of Loan	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Real estate loans:
Construction	—	$	—	1	$	106
Secured by farmland	—	—		—	—
Secured by 1-4 family residential	3	297		2	856
Other real estate loans	—	—		—	—
Total real estate loans	3	$	297	3	$	962
Commercial loans	—	—		1	55
Consumer loans	—	—		—	—
Total	3	$	297	4	$	1,017

For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

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Allowance for Loan Losses

3 Months Ended

Mar. 31, 2014

Allowance for Loan Losses [Abstract]

Allowance for Loan Losses

Allowance for Loan Losses

The following table presents, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).

	March 31, 2014
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2013	$	847		$	166	$	6,734		$	3,506		$	1,890		$	177		$	13,320
Charge-offs	(90		)	—		(588		)	(684		)	(13		)	(14		)	(1,389		)
Recoveries	151			—		108			104			4			42			409
Provision	744			13		(175		)	423			(90		)	(27		)	888
Balance at March 31, 2014	$	1,652		$	179	$	6,079		$	3,349		$	1,791		$	178		$	13,228
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,300		$	—	$	2,401		$	305		$	215		$	37		$	4,258
Collectively evaluated for impairment	352			179		3,678			3,044			1,576			141			8,970
Total ending allowance balance	$	1,652		$	179	$	6,079		$	3,349		$	1,791		$	178		$	13,228
Loans:
Individually evaluated for impairment	$	7,819		$	—	$	8,790		$	6,156		$	2,373		$	37		$	25,175
Collectively evaluated for impairment	27,158			17,738		265,776			259,837			123,022			12,758			706,289
Total ending loans balance	$	34,977		$	17,738	$	274,566		$	265,993		$	125,395		$	12,795		$	731,464

	December 31, 2013
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2012	$	1,258		$	135	$	6,276		$	4,348		$	2,098		$	196		$	14,311
Charge-offs	(394		)	—		(785		)	(97		)	(75		)	(30		)	(1,381		)
Recoveries	68			—		140			37			9			27			281
Provision	(85		)	31		1,103			(782		)	(142		)	(16		)	109
Balance at December 31, 2013	$	847		$	166	$	6,734		$	3,506		$	1,890		$	177		$	13,320
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	486		$	—	$	3,045		$	812		$	275		$	37		$	4,655
Collectively evaluated for impairment	361			166		3,689			2,694			1,615			140			8,665
Total ending allowance balance	$	847		$	166	$	6,734		$	3,506		$	1,890		$	177		$	13,320
Loans:
Individually evaluated for impairment	$	2,636		$	—	$	10,411		$	9,142		$	2,470		$	37		$	24,696
Collectively evaluated for impairment	33,389			16,578		262,973			251,191			127,084			12,569			703,784
Total ending loans balance	$	36,025		$	16,578	$	273,384		$	260,333		$	129,554		$	12,606		$	728,480

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Segment Reporting

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

The Company operates in a decentralized fashion in three principal business activities: retail banking services; wealth management services; and mortgage banking services.  

• Revenue from retail banking activity consists primarily of interest earned on loans and investment securities and service charges on deposit accounts.

• Revenue from the wealth management activities is comprised of fees based upon the market value of the accounts under administration as well as commissions on investment transactions. The wealth management services are conducted by Middleburg Investment Group.

• Revenue from the mortgage banking activities is comprised of interest earned on loans and fees received as a result of the mortgage origination process. The Company recognizes gains on the sale of loans as part of other income. The mortgage banking services are conducted by Southern Trust Mortgage, LLC.

Middleburg Bank and the Company have assets in custody with Middleburg Trust Company and accordingly pay Middleburg Trust Company a monthly fee. Middleburg Bank also pays interest to Middleburg Trust Company on deposit accounts with Middleburg Bank. Middleburg Bank provides a warehouse line and office space, data processing and accounting services to Southern Trust Mortgage for which it receives income. Transactions related to these relationships are eliminated to reach consolidated totals.

Information about reportable segments and reconciliation to the consolidated financial statements follows:

	March 31, 2014
(Dollars in thousands)	Commercial & Retail Banking		Wealth Management		Mortgage Banking			Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	11,013	$	4	$	287		$	(198	)	$	11,106
Trust services income	—		1,086		—			(38		)	1,048
Other income	1,746		—		3,113			(26		)	4,833
Total operating income	12,759		1,090		3,400			(262		)	16,987
Expenses:
Interest expense	1,395		—		198			(198		)	1,395
Salaries and employee benefits	3,951		569		2,513			—			7,033
Provision for (recovery of) loan losses	926		—		(38		)	—			888
Other expense	3,757		263		1,146			(64		)	5,102
Total operating expenses	10,029		832		3,819			(262		)	14,418
Income (loss) before income taxes and non-controlling interest	2,730		258		(419		)	—			2,569
Income tax expense	644		105		—			—			749
Net income (loss)	2,086		153		(419		)	—			1,820
Non-controlling interest in consolidated subsidiary	—		—		157			—			157
Net income (loss) attributable to Middleburg Financial Corporation	$	2,086	$	153	$	(262	)	$	—		$	1,977
Total assets	$	1,204,499	$	6,458	$	40,284		$	(42,829	)	$	1,208,412
Capital expenditures	$	143	$	8	$	3		$	—		$	154
Goodwill and other intangibles	$	—	$	3,936	$	1,367		$	—		$	5,303

	March 31, 2013
(Dollars in thousands)	Commercial & Retail Banking			Wealth Management		Mortgage Banking			Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	11,089		$	3	$	469		$	(349	)	$	11,212
Trust services income	—			1,001		—			(41		)	960
Other income	1,012			—		4,112			(156		)	4,968
Total operating income	12,101			1,004		4,581			(546		)	17,140
Expenses:
Interest expense	1,748			—		378			(349		)	1,777
Salaries and employee benefits	4,275			527		2,997			—			7,799
Provision for (recovery of) loan losses	(189		)	—		1			—			(188		)
Other expense	4,635			309		1,382			(197		)	6,129
Total operating expenses	10,469			836		4,758			(546		)	15,517
Income (loss) before income taxes and non-controlling interest	1,632			168		(177		)	—			1,623
Income tax expense	291			72		—			—			363
Net income (loss)	1,341			96		(177		)	—			1,260
Non-controlling interest in consolidated subsidiary	—			—		67			—			67
Net income (loss) attributable to Middleburg Financial Corporation	$	1,341		$	96	$	(110	)	$	—		$	1,327
Total assets	$	1,208,288		$	6,232	$	59,623		$	(60,387	)	$	1,213,756
Capital expenditures	$	248		$	—	$	—		$	—		$	248
Goodwill and other intangibles	$	—		$	4,108	$	1,867		$	—		$	5,975

XML

Securities Amortized cost and fair value of securities available for sale by contractual maturity (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014
Amortized Cost
Due in one year or less	$ 5,400
Due after one year through five years	29,278
Due after five years through ten years	41,011
Due after ten years	27,492
Total	322,693
Fair Value
Due in one year or less	5,498
Due after one year through five years	30,030
Due after five years through ten years	40,709
Due after ten years	26,559
Total	325,520
Mortgage-backed securities [Member]
Amortized Cost
Total	192,437
Fair Value
Total	195,181
Other asset backed securities [Member]
Amortized Cost
Total	27,007
Fair Value
Total	27,465
Corporate preferred stock [Member]
Amortized Cost
Total	68
Fair Value
Total	$ 78

XML

Fair Value Measurements Financial assets and liabilities measured at fair value on a recurring basis (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Level I [Member]
Mortgage-backed securities:
Mortgage loans held for sale	$ 0	$ 0
Mortgage interest rate locks	0	0
Mortgage servicing rights	0	0
Mortgage banking hedge instruments	0	0
Liabilities:
Interest rate swaps	0	0
Level II [Member]
Mortgage-backed securities:
Mortgage loans held for sale	31,771	33,175
Mortgage interest rate locks	235	333
Mortgage servicing rights	251	203
Mortgage banking hedge instruments	6	202
Liabilities:
Interest rate swaps	292	303
Level III [Member]
Mortgage-backed securities:
Mortgage loans held for sale	0	0
Mortgage interest rate locks	0	0
Mortgage servicing rights	0	0
Mortgage banking hedge instruments	0	0
Liabilities:
Interest rate swaps	0	0
Recurring [Member]
Assets:
U.S. government agencies	22,275	21,339
Obligations of states and political subdivisions	65,316	67,238
Mortgage-backed securities:
Agency	172,144	168,010
Non-agency	23,037	21,934
Other asset backed securities	27,465	34,418
Corporate preferred stock	78	74
Corporate securities	15,205	15,410
Mortgage loans held for sale	31,771	33,175
Mortgage interest rate locks	211	16
Interest rate swaps	235	333
Mortgage servicing rights	251	203
Mortgage banking hedge instruments	6	202
Liabilities:
Interest rate swaps	292	303
Recurring [Member] | Level I [Member]
Assets:
U.S. government agencies	0	0
Obligations of states and political subdivisions	0	0
Mortgage-backed securities:
Agency	0	0
Non-agency	0	0
Other asset backed securities	0	0
Corporate preferred stock	0	0
Corporate securities	0	0
Mortgage loans held for sale	0	0
Mortgage interest rate locks	0	0
Interest rate swaps	0	0
Mortgage servicing rights	0	0
Mortgage banking hedge instruments	0	0
Liabilities:
Interest rate swaps	0	0
Recurring [Member] | Level II [Member]
Assets:
U.S. government agencies	22,275	21,339
Obligations of states and political subdivisions	65,316	67,238
Mortgage-backed securities:
Agency	172,144	168,010
Non-agency	23,037	21,934
Other asset backed securities	27,465	34,418
Corporate preferred stock	78	74
Corporate securities	14,715	14,922
Mortgage loans held for sale	31,771	33,175
Mortgage interest rate locks	211	16
Interest rate swaps	235	333
Mortgage servicing rights	251	203
Mortgage banking hedge instruments	6	202
Liabilities:
Interest rate swaps	292	303
Recurring [Member] | Level III [Member]
Assets:
U.S. government agencies	0	0
Obligations of states and political subdivisions	0	0
Mortgage-backed securities:
Agency	0	0
Non-agency	0	0
Other asset backed securities	0	0
Corporate preferred stock	0	0
Corporate securities	490	488
Mortgage loans held for sale	0	0
Mortgage interest rate locks	0	0
Interest rate swaps	0	0
Mortgage servicing rights	0	0
Mortgage banking hedge instruments	0	0
Liabilities:
Interest rate swaps	$ 0	$ 0

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Share-Based Compensation Plan (Tables)

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Restricted stock service awards awarded under the 2006 Equity Compensation Plan

The following table summarizes restricted stock service awards awarded under the 2006 Equity Compensation Plan:

	March 31, 2014
(Dollars in thousands)	Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value
Non-vested at December 31, 2013	119,250		$	16.39
Granted	133		18.31
Vested	—		—
Forfeited	(9,500	)	15.91
Non-vested at March 31, 2014	109,883		$	16.14	$	1,935

Stock options outstanding activity

The following table summarizes options outstanding under the 2006 Equity Compensation Plan and remaining outstanding unexercised options under the 1997 Stock Incentive Plan.  

	March 31, 2014
	Shares		Weighted-Average Exercise Price		Intrinsic Value
Outstanding at December 31, 2013	58,513		$	15.30
Granted	—		—
Exercised	(4,921	)	14.00
Forfeited	(3,000	)	39.40
Outstanding at March 31, 2014	50,592		$	14.00	$	—
Options exercisable at March 31, 2014	50,592		$	14.00	$	—

Schedule of options outstanding and exercisable

As of March 31, 2014, options outstanding and exercisable are summarized as follows:

Range of Exercise Prices		Options Outstanding	Weighted-Average Remaining Contractual Life (years)	Options Exercisable
$	14.00	45,592	4.96	45,592
$	14.00	5,000	5.59	5,000
$	14.00	50,592	5.02	50,592

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Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

Schedule of reportable segments and reconciliation to the consolidated financial statements

Information about reportable segments and reconciliation to the consolidated financial statements follows:

	March 31, 2014
(Dollars in thousands)	Commercial & Retail Banking		Wealth Management		Mortgage Banking			Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	11,013	$	4	$	287		$	(198	)	$	11,106
Trust services income	—		1,086		—			(38		)	1,048
Other income	1,746		—		3,113			(26		)	4,833
Total operating income	12,759		1,090		3,400			(262		)	16,987
Expenses:
Interest expense	1,395		—		198			(198		)	1,395
Salaries and employee benefits	3,951		569		2,513			—			7,033
Provision for (recovery of) loan losses	926		—		(38		)	—			888
Other expense	3,757		263		1,146			(64		)	5,102
Total operating expenses	10,029		832		3,819			(262		)	14,418
Income (loss) before income taxes and non-controlling interest	2,730		258		(419		)	—			2,569
Income tax expense	644		105		—			—			749
Net income (loss)	2,086		153		(419		)	—			1,820
Non-controlling interest in consolidated subsidiary	—		—		157			—			157
Net income (loss) attributable to Middleburg Financial Corporation	$	2,086	$	153	$	(262	)	$	—		$	1,977
Total assets	$	1,204,499	$	6,458	$	40,284		$	(42,829	)	$	1,208,412
Capital expenditures	$	143	$	8	$	3		$	—		$	154
Goodwill and other intangibles	$	—	$	3,936	$	1,367		$	—		$	5,303

	March 31, 2013
(Dollars in thousands)	Commercial & Retail Banking			Wealth Management		Mortgage Banking			Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	11,089		$	3	$	469		$	(349	)	$	11,212
Trust services income	—			1,001		—			(41		)	960
Other income	1,012			—		4,112			(156		)	4,968
Total operating income	12,101			1,004		4,581			(546		)	17,140
Expenses:
Interest expense	1,748			—		378			(349		)	1,777
Salaries and employee benefits	4,275			527		2,997			—			7,799
Provision for (recovery of) loan losses	(189		)	—		1			—			(188		)
Other expense	4,635			309		1,382			(197		)	6,129
Total operating expenses	10,469			836		4,758			(546		)	15,517
Income (loss) before income taxes and non-controlling interest	1,632			168		(177		)	—			1,623
Income tax expense	291			72		—			—			363
Net income (loss)	1,341			96		(177		)	—			1,260
Non-controlling interest in consolidated subsidiary	—			—		67			—			67
Net income (loss) attributable to Middleburg Financial Corporation	$	1,341		$	96	$	(110	)	$	—		$	1,327
Total assets	$	1,208,288		$	6,232	$	59,623		$	(60,387	)	$	1,213,756
Capital expenditures	$	248		$	—	$	—		$	—		$	248
Goodwill and other intangibles	$	—		$	4,108	$	1,867		$	—		$	5,975

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Segment Reporting (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 segment	Mar. 31, 2013	Dec. 31, 2013
Segment Reporting [Abstract]
Number of reportable segments	3
Revenues:
Interest income	$ 11,106	$ 11,212
Trust services income	1,048	960
Other income	4,833	4,968
Total operating income	16,987	17,140
Expenses:
Interest expense	1,395	1,777
Salaries and employee benefits	7,033	7,799
Provision for (recovery of) loan losses	888	(188)
Other expense	5,102	6,129
Total operating expenses	14,418	15,517
Income before income taxes	2,569	1,623
Income tax expense	749	363
NET INCOME	1,820	1,260
Non-controlling interest in consolidated subsidiary	157	67
Net income attributable to Middleburg Financial Corporation	1,977	1,327
Total assets	1,208,412	1,213,756	1,227,753
Capital expenditures	154	248
Goodwill and other intangibles	5,303	5,975	5,346
Commercial & Retail Banking [Member]
Revenues:
Interest income	11,013	11,089
Trust services income	0	0
Other income	1,746	1,012
Total operating income	12,759	12,101
Expenses:
Interest expense	1,395	1,748
Salaries and employee benefits	3,951	4,275
Provision for (recovery of) loan losses	926	(189)
Other expense	3,757	4,635
Total operating expenses	10,029	10,469
Income before income taxes	2,730	1,632
Income tax expense	644	291
NET INCOME	2,086	1,341
Non-controlling interest in consolidated subsidiary	0	0
Net income attributable to Middleburg Financial Corporation	2,086	1,341
Total assets	1,204,499	1,208,288
Capital expenditures	143	248
Goodwill and other intangibles	0	0
Wealth Management [Member]
Revenues:
Interest income	4	3
Trust services income	1,086	1,001
Other income	0	0
Total operating income	1,090	1,004
Expenses:
Interest expense	0	0
Salaries and employee benefits	569	527
Provision for (recovery of) loan losses	0	0
Other expense	263	309
Total operating expenses	832	836
Income before income taxes	258	168
Income tax expense	105	72
NET INCOME	153	96
Non-controlling interest in consolidated subsidiary	0	0
Net income attributable to Middleburg Financial Corporation	153	96
Total assets	6,458	6,232
Capital expenditures	8	0
Goodwill and other intangibles	3,936	4,108
Mortgage Banking [Member]
Revenues:
Interest income	287	469
Trust services income	0	0
Other income	3,113	4,112
Total operating income	3,400	4,581
Expenses:
Interest expense	198	378
Salaries and employee benefits	2,513	2,997
Provision for (recovery of) loan losses	(38)	1
Other expense	1,146	1,382
Total operating expenses	3,819	4,758
Income before income taxes	(419)	(177)
Income tax expense	0	0
NET INCOME	(419)	(177)
Non-controlling interest in consolidated subsidiary	157	67
Net income attributable to Middleburg Financial Corporation	(262)	(110)
Total assets	40,284	59,623
Capital expenditures	3	0
Goodwill and other intangibles	1,367	1,867
Intercompany Eliminations [Member]
Revenues:
Interest income	(198)	(349)
Trust services income	(38)	(41)
Other income	(26)	(156)
Total operating income	(262)	(546)
Expenses:
Interest expense	(198)	(349)
Salaries and employee benefits	0	0
Provision for (recovery of) loan losses	0	0
Other expense	(64)	(197)
Total operating expenses	(262)	(546)
Income before income taxes	0	0
Income tax expense	0	0
NET INCOME	0	0
Non-controlling interest in consolidated subsidiary	0	0
Net income attributable to Middleburg Financial Corporation	0	0
Total assets	(42,829)	(60,387)
Capital expenditures	0	0
Goodwill and other intangibles	$ 0	$ 0

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Loans, Net Recorded investment in nonaccrual loans and loans past due and still accruing by class of loans (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	$ 14,876	$ 19,752
Past due 90 days or more and still accruing	503	808
Real Estate Loans Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	2,234	2,368
Past due 90 days or more and still accruing	268	268
Real Estate Loans Secured by 1 - 4 family residential [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	7,771	9,458
Past due 90 days or more and still accruing	227	539
Other real estate loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	3,069	6,045
Past due 90 days or more and still accruing	0	0
Commercial loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	1,765	1,844
Past due 90 days or more and still accruing	4	0
Consumer loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	37	37
Past due 90 days or more and still accruing	$ 4	$ 1

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Statement of Comprehensive Income [Abstract]
Net income	$ 1,820	$ 1,260
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the period, net of tax of $848 and $111, respectively	1,647	(215)
Reclassification adjustment for gains included in net income, net of tax of $21 and $16, respectively	(42)	(31)
Unrealized gain (loss) on interest rate swaps, net of tax of $4 and $20, respectively	(9)	39
Total other comprehensive income (loss)	1,596	(207)
Total comprehensive income	3,416	1,053
Comprehensive (income) loss attributable to non-controlling interest	(9)	67
Comprehensive income attributable to Middleburg Financial Corporation	$ 3,407	$ 1,120

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General

3 Months Ended

Mar. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

General

General

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at March 31, 2014 and December 31, 2013, the results of operations, comprehensive income, changes in shareholders’ equity and cash flows for the three months ended March 31, 2014 and 2013, in accordance with accounting principles generally accepted in the United States of America.  The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”) of Middleburg Financial Corporation (the “Company”).  The results of operations for the three month period ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year.

In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date these financial statements were issued.  On March 26, 2014, the Company announced an agreement to sell its membership interests in Southern Trust Mortgage to a consortium of banks and the President of Southern Trust Mortgage. Management believes that there will be no material financial impact upon the closing of this transaction. The sale is expected to close in the second quarter of 2014.

Certain amounts in the 2013 consolidated financial statements have been reclassified to conform to the 2014 presentation. The amounts of these items are not considered to be material variations from the original classifications and presentations.

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Accumulated Other Comprehensive Income Change in other comprehensive income for the period (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance beginning of period	$ 232	$ 6,467
Unrealized holding gains (losses) (net of tax, $111 and $848 for 3 months ended March 31, 2013 and 2014, respectively)	1,647	(215)
Reclassification adjustment (net of tax, $16 and $21 for 3 months ended March 31, 2013 and 2014, respectively)	(42)	(31)
Unrealized gain (loss) on interest rate swaps (net of tax, $20 and $4 for 3 months ended March 31, 2013 and 2014, respectively)	(9)	39
Balance end of period	1,828	6,260
Unrealized Gains on Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance beginning of period	261	6,771
Unrealized holding gains (losses) (net of tax, $111 and $848 for 3 months ended March 31, 2013 and 2014, respectively)	1,647	(215)
Reclassification adjustment (net of tax, $16 and $21 for 3 months ended March 31, 2013 and 2014, respectively)	(42)	(31)
Unrealized gain (loss) on interest rate swaps (net of tax, $20 and $4 for 3 months ended March 31, 2013 and 2014, respectively)	0	0
Balance end of period	1,866	6,525
Cash Flow Hedges [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance beginning of period	(29)	(304)
Unrealized holding gains (losses) (net of tax, $111 and $848 for 3 months ended March 31, 2013 and 2014, respectively)	0	0
Reclassification adjustment (net of tax, $16 and $21 for 3 months ended March 31, 2013 and 2014, respectively)	0	0
Unrealized gain (loss) on interest rate swaps (net of tax, $20 and $4 for 3 months ended March 31, 2013 and 2014, respectively)	(9)	39
Balance end of period	$ (38)	$ (265)

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Financial assets and liabilities measured at fair value on a recurring basis

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013.

(Dollars in thousands)	March 31, 2014
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	22,275	$	—	$	22,275	$	—
Obligations of states and political subdivisions	65,316		—		65,316		—
Mortgage-backed securities:
Agency	172,144		—		172,144		—
Non-agency	23,037		—		23,037		—
Other asset backed securities	27,465		—		27,465		—
Corporate preferred stock	78		—		78		—
Corporate securities	15,205		—		14,715		490
Mortgage loans held for sale	31,771		—		31,771		—
Mortgage interest rate locks	211		—		211		—
Interest rate swaps	235		—		235		—
Mortgage servicing rights	251		—		251		—
Mortgage banking hedge instruments	6		—		6		—
Liabilities:
Interest rate swaps	292		—		292		—

(Dollars in thousands)	December 31, 2013
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	21,339	$	—	$	21,339	$	—
Obligations of states and political subdivisions	67,238		—		67,238		—
Mortgage-backed securities:
Agency	168,010		—		168,010		—
Non-agency	21,934		—		21,934		—
Other asset backed securities	34,418		—		34,418		—
Corporate preferred stock	74		—		74		—
Corporate securities	15,410		—		14,922		488
Mortgage loans held for sale	33,175		—		33,175		—
Mortgage interest rate locks	16		—		16		—
Interest rate swaps	333		—		333		—
Mortgage servicing rights	203		—		203		—
Mortgage banking hedge instruments	202		—		202		—
Liabilities:
Interest rate swaps	303		—		303		—

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The following table presents changes in Level III assets measured at fair value on a recurring basis during the three months ended March 31, 2014:

(Dollars in thousands)	March 31, 2014
Description	Balance December 31, 2013		Included in Earnings		Included in Other Comprehensive Income		Transfers In/Out of Level II and III		Balance March 31, 2014
Available for sale securities - corporate securities	$	488	$	—	$	2	$	—	$	490

Quantitative information related to Level III inputs

The following table presents quantitative information as of March 31, 2014 and December 31, 2013 related to Level III fair value measurements for financial assets measured at fair value on a recurring basis:

	Fair Value (Dollars in thousands)		Valuation Technique	Unobservable Inputs
March 31, 2014
Corporate securities	$	490	Third party trading desk	Prices heavily influenced by unobservable market inputs.

	Fair Value (Dollars in thousands)		Valuation Technique	Unobservable Inputs
December 31, 2013
Corporate securities	$	488	Third party trading desk	Prices heavily influenced by unobservable market inputs.

Estimated fair values and related carrying amounts of financial instruments

The following table summarizes the Company’s non-financial assets that were measured at fair value on a nonrecurring basis during the period.

(Dollars in thousands)	March 31, 2014
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	8,733	$	—	$	7,038	$	1,695
Other real estate owned	$	4,491	$	—	$	4,491	$	—
(Dollars in thousands)	December 31, 2013
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	7,614	$	—	$	5,756	$	1,858
Other real estate owned	$	3,424	$	—	$	3,424	$	—

The estimated fair values, and related carrying amounts, of the Company's financial instruments are as follows:

(Dollars in thousands)	March 31, 2014
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	53,063	$	53,063	$	53,063	$	—	—
Securities available for sale	325,520		325,520		—		325,030		490
Loans held for sale	31,771		31,771		—		31,771		—
Loans, net	718,236		729,441		—		7,038		722,403
Bank owned life insurance	22,117		22,117		—		22,117		—
Accrued interest receivable	3,916		3,916		—		3,916		—
Mortgage interest rate locks	211		211		—		211		—
Interest rate swaps	235		235		—		235		—
Mortgage banking hedge instruments	6		6		—		6		—
Mortgage servicing rights	251		251		—		251		—
Financial liabilities:
Deposits	$	961,251	$	963,068	$	—	$	963,068	—
Securities sold under agreements to repurchase	32,617		32,617		—		32,617		—
FHLB borrowings	80,000		80,356		—		80,356		—
Subordinated notes	5,155		5,178		—		5,178		—
Accrued interest payable	451		451		—		451		—
Interest rate swaps	292		292		—		292		—

(Dollars in thousands)	December 31, 2013
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	67,343	$	67,343	$	67,343	$	—	$	—
Securities available for sale	328,423		328,423		—		327,935		488
Loans held for sale	33,175		33,175		—		33,175		—
Net loans	715,160		726,239		—		5,756		720,483
Bank-owned life insurance	21,955		21,955		—		21,955		—
Accrued interest receivable	3,992		3,992		—		3,992		—
Mortgage interest rate locks	16		16		—		16		—
Interest rate swap	333		333		—		333		—
Mortgage banking hedge instruments	202		202		—		202		—
Mortgage servicing rights	203		203		—		203		—
Financial liabilities:
Deposits	$	982,396	$	984,420	$	—	$	984,420	$	—
Securities sold under agreements to repurchase	34,539		34,539		—		34,539		—
FHLB borrowings and other debt	80,000		80,666		—		80,666		—
Subordinated notes	5,155		5,198		—		5,198		—
Accrued interest payable	501		501		—		501		—
Interest rate swap	303		303		—		303		—

Quantitative information about Level III fair value measurements

The following table presents quantitative information as of March 31, 2014 and December 31, 2013 about Level III fair value measurements for financial assets measured at fair value on a non-recurring basis:

March 31, 2014	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired Loans	$	1,695	Discounted appraised value	Discount for selling costs and age of appraisals.	0% - 100% (2%)

December 31, 2013	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired Loans	$	1,858	Discounted appraised value	Discount for selling costs and age of appraisals.	0% - 100% (4%)

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Loans, Net Narrative (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2014 loan_segment	Dec. 31, 2013
Receivables [Abstract]
Number of loan segments	3
Mortgages held for sale	$ 31,771,000	$ 33,175,000
Interest on non-accrual loans foregone	$ 206,500	$ 1,100,000

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Accumulated Other Comprehensive Income

3 Months Ended

Mar. 31, 2014

Equity [Abstract]

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income

The following table presents information on changes in accumulated other comprehensive income for the periods indicated:

(Dollars in thousands)	Unrealized Gains on Securities			Cash Flow Hedges			Accumulated Other Comprehensive Income
Balance December 31, 2012	$	6,771		$	(304	)	$	6,467
Unrealized holding losses (net of tax, $111)	(215		)	—			(215		)
Reclassification adjustment (net of tax, $16)	(31		)	—			(31		)
Unrealized gain on interest rate swaps (net of tax, $20 )	—			39			39
Balance March 31, 2013	$	6,525		$	(265	)	$	6,260
Balance December 31, 2013	$	261		$	(29	)	$	232
Unrealized holding gains (net of tax of $848)	1,647			—			1,647
Reclassification adjustment (net of tax, $21)	(42		)	—			(42		)
Unrealized loss on interest rate swap (net of tax, $4)	—			(9		)	(9		)
Balance March 31, 2014	$	1,866		$	(38	)	$	1,828

The following table presents information related to reclassifications from accumulated other comprehensive income:

Details about Accumulated Other Comprehensive Income	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Consolidated Statements of Income
(Dollars in thousands)	March 31, 2014			March 31, 2013
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(63	)	$	(47	)	Gain on securities available for sale
Related income tax expense	21			16			Income tax expense
Net effect on accumulated other comprehensive income	(42		)	(31		)	Net of tax
Total reclassifications	$	(42	)	$	(31	)	Net of tax

⁽¹⁾    For more information related to unrealized gains on securities available for sale, see Note 3, "Securities".