UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant x

Filed by a Party other than the Registrant o

Check the appropriate box:

o     Preliminary Proxy Statement

o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x  Definitive Proxy Statement

o      Definitive Additional Materials

o      Soliciting Material Pursuant to § 240.14a-12

MIDDLEBURG FINANCIAL CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

x  No fee required.

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(1)	Title of each class of securities to which transaction applies:
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  o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or  the Form or Schedule and the date of its filing.

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MIDDLEBURG FINANCIAL CORPORATION

Dear Shareholder:

You are cordially invited to attend the 2012 Annual Meeting of Shareholders of Middleburg Financial Corporation (the “Company”) to be held on Wednesday, May 2, 2012, at 10:00 a.m. at the Middleburg Community Center, 300 West Washington Street, Middleburg, Virginia.

At the Annual Meeting, you will be asked to elect 12 directors for terms of one year each and ratify the appointment of Yount, Hyde & Barbour, P.C., to serve as our independent auditors for the year ending December 31, 2012.   Enclosed with this letter are a formal notice of the Annual Meeting, a Proxy Statement and a form of proxy.

Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented and voted.  Please complete, sign, date and return the enclosed proxy promptly using the enclosed postage-paid envelope.  The enclosed proxy, when returned properly executed, will be voted in the manner directed in the proxy.

We hope you will participate in the Annual Meeting, either in person or by proxy.

Sincerely,

Gary R. Shook

Chief Executive Officer and President

Middleburg, Virginia

April 2, 2012

MIDDLEBURG FINANCIAL CORPORATION

111 West Washington Street

Middleburg, Virginia  20117

___________________

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

___________________

The Annual Meeting of Shareholders (the “Annual Meeting”) of Middleburg Financial Corporation (the “Company”) will be held on Wednesday, May 2, 2012, at 10:00 a.m. at the Middleburg Community Center, 300 West Washington Street, Middleburg, Virginia, for the following purposes:

1.   To elect 12 directors to serve for terms of one year each expiring at the 2013 Annual Meeting of Shareholders;

2.   To ratify the appointment of Yount, Hyde & Barbour, P.C., as our independent registered public accounting firm for the year ending December 31, 2012, and

3.   To act upon such other matters as may properly come before the Annual Meeting.

Only holders of shares of Common Stock of record at the close of business on March 16, 2012, the record date fixed by the Board of Directors of the Company, are entitled to notice of, and to vote at, the Annual Meeting.

By Order of the Board of Directors

 

Jeffrey H. Culver

Executive Vice President, Chief Operating Officer

and Corporate Secretary

April 2, 2012

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 2, 2012.

The proxy statement and the Company’s 2011 annual report on Form 10-K are available at www.middleburgbank.com/2012proxy.

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MIDDLEBURG FINANCIAL CORPORATION

111 West Washington Street

Middleburg, Virginia  20117

PROXY STATEMENT

This Proxy Statement is furnished to holders of the common stock, par value $2.50 per share (“Common Stock”), of Middleburg Financial Corporation (the “Company”), in connection with the solicitation of proxies by the Board of Directors of the Company to be used at the 2012 Annual Meeting of Shareholders (the “Annual Meeting”) to be held on Wednesday, May 2, at 10:00 a.m. at the Middleburg Community Center, 300 West Washington Street, Middleburg, Virginia, and any duly reconvened meeting after adjournment thereof.

Any shareholder who executes a proxy has the power to revoke it at any time by written notice to the Secretary of the Company, by executing a proxy dated as of a later date, or by voting in person at the Annual Meeting.  It is expected that this Proxy Statement and the enclosed proxy card will be mailed on or about April 2, 2012, to all shareholders entitled to vote at the Annual Meeting.

The cost of soliciting proxies for the Annual Meeting will be borne by the Company.  The Company does not intend to solicit proxies otherwise than by use of the mail, but certain officers and regular employees of the Company or its subsidiaries, without additional compensation, may use their personal efforts, by telephone or otherwise, to obtain proxies.  The Company may also reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses in forwarding proxy materials to the beneficial owners of shares of Common Stock.

On March 16, 2012, the record date for determining those shareholders entitled to notice of and to vote at the Annual Meeting, there were 6,996,932 shares of Common Stock issued and outstanding.  Each outstanding share of Common Stock is entitled to one vote on all matters to be acted upon at the Annual Meeting.  A majority of the shares of Common Stock entitled to vote, represented in person or by proxy, constitutes a quorum for the transaction of business at the Annual Meeting.

A shareholder may abstain or (only with respect to the election of directors) withhold his or her vote (collectively, “Abstentions”) with respect to each item submitted for shareholder approval.  Abstentions will be counted for purposes of determining the existence of a quorum.  Abstentions will not be counted as voting in favor of or against the relevant item.

A broker who holds shares in “street name” has the authority to vote on certain items when it has not received instructions from the beneficial owner.  Except for certain items for which brokers are prohibited from exercising their discretion, a broker is entitled to vote on matters presented to shareholders without instructions from the beneficial owner.  “Broker shares” that are voted on at least one matter will be counted for purposes of determining the existence of a quorum for the transaction of business at the Annual Meeting.  Where brokers do not have or do not exercise such discretion, the inability or failure to vote is referred to as a “broker nonvote.”  Under the circumstances where the broker is not permitted to, or does not, exercise its discretion, assuming proper disclosure to the Company of such inability to vote, broker nonvotes will not be counted as voting in favor of or against the particular matter.  A broker is prohibited from voting on the election of directors without instructions from the beneficial owner; therefore, there may be broker nonvotes on Proposal One.  A broker may vote on the ratification of the independent public accountants; therefore, no broker nonvotes are expected to exist in

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connection with Proposal Two.  Abstentions and broker nonvotes will not count as votes cast and will have no effect on the outcome of any of the matters at the meeting.

The Board of Directors is not aware of any matters other than those described in this Proxy Statement that may be presented for action at the Annual Meeting.  However, if other matters do properly come before the Annual Meeting, the persons named in the enclosed proxy card possess discretionary authority to vote in accordance with their best judgment with respect to such other matters.

PROPOSAL ONE

ELECTION OF DIRECTORS

General

Twelve directors will be elected at the Annual Meeting.  The individuals listed below are nominated by the Board of Directors for election at the Annual Meeting.  In December 2011, James R. Treptow announced that he would not stand for re-election at the Annual Meeting.  The Board of Directors amended the Company’s bylaws to decrease the size of the Board to twelve directors, effective as of the Annual Meeting.

The election of each nominee for director requires the affirmative vote of the holders of a plurality of the shares of Common Stock cast in the election of directors.  If the proxy is executed in such manner as not to withhold authority for the election of any or all of the nominees for directors, then the persons named in the proxy will vote the shares represented by the proxy for the election of the 12 nominees named below.  If the proxy indicates that the shareholder wishes to withhold a vote from one or more nominees for director, such instructions will be followed by the persons named in the proxy.

Each nominee has consented to being named in this Proxy Statement and has agreed to serve if elected.  The Board of Directors has no reason to believe that any of the nominees will be unable or unwilling to serve.  If at the time of the Annual Meeting, any nominee is unable or unwilling to serve as a director, votes will be cast pursuant to the enclosed proxy, for such substitute nominee as may be nominated by the Board of Directors.  There are no current arrangements between any nominee and any other person pursuant to which a nominee was selected.  No family relationships exist among any of the directors or between any of the directors and executive officers of the Company.

The following biographical information discloses each nominee’s age, business experience and other directorships held during the past five years.  It also includes the experiences, qualifications, attributes and skills that caused the nominating committee and the Board of Directors to determine that the individual should serve as a director for the Company, and the year that each individual was first elected to the Board of Directors of the Company or previously to the Board of Directors of Middleburg Bank (the “Bank”), the predecessor to and now a wholly owned subsidiary of the Company. Unless otherwise specified, each nominee has held his or her current position for at least five years. 

Nominees for Election for Terms Expiring in 2013

Howard M. Armfield, 69, has been a director since 1984.

Mr. Armfield is the retired President of Armfield, Harrison & Thomas, Inc., an independent

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insurance agency based in Leesburg, Virginia. Mr. Armfield holds a bachelor of arts degree from Duke University. A significant factor in Mr. Armfield’s contribution to the Board is his knowledge and experience in chairing the audit committee for the Company as he also holds a Certified Public Accountant (CPA) designation.  Mr. Armfield brings extensive experience in executive management, corporate governance and risk management.

Henry F. Atherton, III, 67, has been a director since 2004.

Mr. Atherton owns and operates a cattle and hay farm in Fauquier County, Virginia.  Previously Mr. Atherton served as a member and as Chairman of the Fauquier County Planning Commission and also served as a member and Chairman of the Fauquier County Board of Supervisors. Mr. Atherton has demonstrated his civic mindedness and commitment by serving with many community and civic organizations.  He is a trustee of the Virginia Outdoors Foundation, and has served on the Agricultural and Forestall District Advisory Committee, the Agricultural Development Advisory Committee and the Virginia Association of Counties – Agricultural and Environmental Steering Committee. Mr. Atherton holds a bachelor of arts degree from Harvard University and a J.D. degree from Columbus School of Law, Catholic University. Mr. Atherton has also served in the U.S. Army. Overall, Mr. Atherton brings to our Board an understanding of our company’s business, proven leadership skills and knowledge of the important role of agribusiness and community leadership in our local economy.

Joseph L. Boling, 67, has been a director since 1993.

Mr. Boling has been Chairman of the Board since May 2010.  From 2008 to May 2010, Mr. Boling was Chairman and Chief Executive Officer of the Company and Chairman of the Bank.  From 1997 to 2008, he was the Chairman and Chief Executive Officer of the Company and the Bank.  From 1993 to 1997, he was President and Chief Executive Officer of the Company and the Bank. Mr. Boling also serves on the Board of Middleburg Investment Group and its subsidiary, Middleburg Trust Company, and as a Director of Southern Trust Mortgage, LLC. Mr. Boling brings extensive experience in banking and executive management to our Board. In addition, his activities as a civic and business leader in the markets where we operate provide insight on the factors that impact both our company and our communities. Mr. Boling has been involved as a member of the Loudoun County Economic Development Commission, Chairman of the James Madison University Foundation, past Chairman of the Virginia Bankers Association, on the Founding Board of the Piedmont Community Foundation, and a Rotarian. Mr. Boling holds a bachelor of arts degree in history from North Carolina Wesleyan and did his graduate work at University of Virginia in finance. Moreover, Mr. Boling’s day to day leadership and intimate knowledge of our business and operations provide the Board with company-specific experience and expertise.

Childs F. Burden, 61, has been a director since 1997.

Since 1978, Mr. Burden has been a partner with Secor Group, an investment firm in Washington, DC.  In addition, Mr. Burden is committed to volunteer service for historic preservation and serves on many preservation associated boards. Mr. Burden holds a bachelor of arts degree from the University of Virginia and is a Chartered Financial Analyst (CFA).  He brings to our Board extensive knowledge of investments and financial services, having many years of experience in such fields.

J. Bradley Davis, 72, has been a director since 2008.

Mr. Davis is the founder and managing partner of Ridge Capital Partners, LLC, a private equity investment firm based outside of Washington, DC. Mr. Davis was also co-founder and managing partner of Trivest, Inc., where he led Trivest from a private high net worth individual fund to an institutional fund. Mr. Davis’s other business experiences include Senior Vice President of

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LaSalle Partners, Vice President at Chemical Bank and Vice President, Account Executive for McCaffrey & McCall. Mr. Davis earned a bachelor of arts degree in journalism from Pennsylvania State University. He also served as Captain in the U.S. Army. From these experiences, Mr. Davis brings to our Board entrepreneurial experience coupled with a deep understanding of private equity, real estate and wealth management services for high net worth individuals as well as institutional investors.

Alexander G. Green, III, 63, has been a director since 2008.

Mr. Green is the President and Chief Executive Officer of Armfield, Harrison & Thomas, Inc., an independent insurance agency in Leesburg, Virginia.   Earlier in his career he worked for First and Merchants National Bank as Assistant Vice President of Regional Commercial and Mortgage Lending. Mr. Green has served on other bank boards and multiple insurance agency councils.  Mr. Green has also been very active in community groups such as the Leesburg Airport Commission, Loudoun County Planning Commission, Loudoun County Industrial Development Advisory Commission and the Loudoun Advisory Board of George Washington University.  Mr. Green holds both his bachelor of science in finance and his master in business administration degrees from Virginia Polytechnic Institute and State University.  As the principal executive officer of a successful company, Mr. Green provides the Board with valuable insight and guidance on the issues of corporate strategy, commercial and mortgage lending, business community growth and risk management.

Gary D. LeClair, 56, has been a director since 2008.

Prior to 2008 Mr. LeClair had served as a Director of the Company from 2001 to 2006.   Mr. LeClair also serves as a Director of Middleburg Investment Group and its subsidiary, Middleburg Trust Company.  Mr. LeClair is Chairman of the law firm of LeClairRyan, a Professional Corporation, resident in its Richmond, Virginia, office.  Mr. LeClair holds a bachelor of business administration degree in accounting from the College of William and Mary and a J.D. Degree from Georgetown University School of Law.  Mr. LeClair’s extensive experience in the various aspects of the law, including dispute resolution, employee relations matters and contract negotiations, combined with his focus on the capital needs of a growing company and his extensive skills at managing risk and directing corporate strategy provide our Board with an invaluable resource as it manages the current environment and looks to its future.  

John C. Lee, IV, 54, has been a director since November 2006.

John Lee IV is Chairman and CEO of Lee Technologies which he founded in 1983.  Today it is the nation’s leading expert on design/build, commissioning, staffing, operations/maintenance and 24x7 monitoring of a data center’s critical infrastructure serving customers across industries including the federal government, financial services, telecommunications, information technology and healthcare.  The company was acquired in 2011 by Schneider Electric, a France-based global specialist in energy management, and John continues to serve as Chairman and CEO of Lee Technologies.  John is involved in numerous philanthropic activities and charitable organizations.  He is a Member of the Board of Visitors of Virginia Polytechnic Institute and State University and serveson the boards of Wolf Trap Foundation (Chairman), Loyola University Maryland Board of Trustees, Northern Virginia Technology Council, Economic Club of Washington, DC, Virginia Foundation for Independent Colleges, Middleburg Financial Corporation (public), and Coaxis,Inc.(private).  Mr. Lee holds a bachelor of arts degree in economics and business administration from Randolph-Macon College.  Mr. Lee’s entrepreneurial and professional experience, together with his dedicated and wide-ranging philanthropic involvement as a business leader, provides our Board with valuable insight in matters of corporate strategy and planning.

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Keith W. Meurlin, 62, has been a director since 2005.

Mr. Meurlin retired as Vice President and Airport Manager of Washington Dulles International Airport in 2005, after 28 years of service.  Mr. Meurlin is also a retired Major General in the United States Air Force Reserve and was called back to active duty in 2005.  His final assignment was to establish for the Secretary of Defense the office to manage the care and benefits for wounded warriors from all services.  Mr. Meurlin has been actively involved in our communities by serving on the Board of Directors for both the Reston Chamber of Commerce as well as the Loudoun Chamber of Commerce, past Regional Chairman of the United Way of the National Capital Area as well as past Chairman of the Heart Association of Northern Virginia.  He currently is the Senior Vice President for the Washington Airports Task Force, a public/private enterprise supporting the growth of aviation services for the Washington DC region.  Mr. Meurlin is also a member of the Loudoun Economic Development Commission as well as a Board Member of the Dulles South Alliance, an organization focused on the long term planning and development of the Dulles south region.  Mr. Meurlin holds a bachelor of arts degree in political science from the University of Vermont and a master of science in systems management from The University of Southern California.

Janet A. Neuharth, 56, has been a director since 2006.

Ms. Neuharth is the Founder and President of Paper Chase Farms, Inc., an equestrian company based in Middleburg, Virginia.   Ms. Neuharth is an active participant in Paper Chase Farms’ subsidiaries where she serves as Director of Promotions and Marketing for the manufacturing and retail area, and is also a publisher, editorial director and author.  Ms. Neuharth is the Chair of The Freedom Forum and the former Chair of the National Council at Vanderbilt University School of Law.   Ms. Neuharth also serves on the boards of the Library of Virginia Foundation and the Middleburg Community Center.  Ms. Neuharth holds a bachelor of arts degree in political science and English from the University of Florida and a J.D. Degree from Vanderbilt University School of Law.  Ms. Neuharth’s leadership skills in consensus-building, risk management and executive management and her legal acumen add an important dimension and provide a valuable resource for our Board.

John M. Rust, 61, has been a director since 2009.

Mr. Rust is the Managing Director of Dominick & Dominick, LLC, a full service securities firm founded in 1870 and based in New York City. Mr. Rust’s family’s long standing community leadership in Loudoun County provides the corporation with valuable insights as to the specific needs of our community. Mr. Rust is a Board member for the Piedmont Community Foundation and Oatlands Plantation. In addition, Mr. Rust serves as a Trustee of the Rust Foundation. Mr. Rust holds a bachelor of science degree in finance from Lehigh University.  Mr. Rust’s extensive experience in the various aspects of investment management, his focus on the capital needs of a growing company and his extensive skills at managing risk and directing corporate strategy provide our Board with an invaluable resource as it manages the current economic environment.

Gary R. Shook, 51, has been a director since 2007.

Mr. Shook hasserved as Chief Executive Officer and President of the Company since May 2010, and as President and Chief Executive Officer of the Bank since August 2008.  From 2007 to 2008, he served as President of the Company and the Bank.  From 2005 to 2007, Mr. Shook served as Executive Vice President, Investment Services and Fauquier Community Executive with the Company.  Mr. Shook serves as a Director and Chairman of the Board of Middleburg Investment Group and is Chairman of the Board of Middleburg Trust Company.  He is also a Director of Southern Trust Mortgage, LLC.  From 1995 to 2005, he was Senior Vice President, Fauquier Bankshares, Inc.  Mr. Shook has served as a Director of the Loudoun County Chamber of Commerce, Vice Chairman of the Fauquier Chamber of Commerce; Chairman of the Bluemont Concert Series; President of the Rotary Club of Warrenton; and Senior Warden and Vestryman of St. James’ Episcopal Church.  He has served as a Director and is currently a

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Member of the Executive Committee of the Virginia Bankers Association.  He is a Trustee of the Virginia Foundation for Independent Colleges and a Member of the CEO Cabinet of Loudoun County.  Mr. Shook holds a bachelor of arts degree from the University of Virginia.  Mr. Shook’s experience with Middleburg Financial Corporation and his extensive understanding of the financial services industry provide the Board with an invaluable resource for assessing and managing risks and planning for corporate strategy.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE NOMINEES SET FORTH ABOVE.

Directors Not Standing for Re-election

James R. Treptow, 65, has been a director since 2007.

Mr. Treptow is Chairman of Pong Research Corporation, a manufacturer of patented cellular communications devices.  Mr. Treptow also serves as Chairman/CEO of Magellan Resources Group, a Chantilly, Virginia based company, engaged in the development, operation, and ownership of alternative energy projects nationwide.  Mr. Treptow received a BBA degree in Industrial Management from the University of Texas-Austin. He has served on numerous civic, educational, and corporate boards in Virginia, Texas, and California. Mr. Treptow's management skills and experience with corporate strategy and finance provide valuable insight and guidance to our board's oversight function.

Executive Officers Who Are Not Directors

John Mason L. Antrim, 61, has served as President and Chief Executive Officer of Middleburg Trust Company (formerly known as Tredegar Trust Company), a subsidiary of the Middleburg Investment Group, since 2001.  From 1995 to 2001, Mr. Antrim served as Vice President, Trust Administration of Middleburg Trust Company.  Mr. Antrim holds a bachelor of arts degree in history from the University of Virginia.

Jeffery H. Culver, 43, has served as Executive Vice President and Chief Operating Officer of the Company and Executive Vice President and Chief Operating Officer of the Bank since December 31, 2008. Mr. Culver has also served as Corporate Secretary since November 2008. From May 2007 until December 2008, he served as Senior Vice President, Credit Administration and Strategic Planning.  From 2003 to 2007, Mr. Culver was Senior Vice President, Credit Administration. Additionally, Mr. Culver serves as a Director of Southern Trust Mortgage, LLC.  Mr. Culver holds abachelor of arts degree from Ursinus College and master of arts degree in economics from American University.

David L. Hartley, 48, has served as President and Chief Executive Officer of Middleburg Investment Group since January of 2011 and also serves as Secretary on its Board of Directors.  Prior to that Mr. Hartley served as Senior Vice President of Middleburg Trust Company, a subsidiary of Middleburg Investment Group.  Mr. Hartley holds a Certified Trust and Financial Advisor designation.  He holds a bachelor of arts degree from Randolph-Macon College and has 21 years of investment experience.

Dwight S. Lampley, 60,joined Middleburg Bank in December 2010 as Senior Vice President, Chief Revenue Officer, with responsibility for all Commercial and Retail banking activities.  Mr. Lampley has over 38 years of financial services experience, including branch management, commercial lending, sales training and business development. Previously Mr. Lampley served as

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Executive Vice President of St. Meyer & Hubbard, a leading sales training company in the financial services industry and as Executive Vice President of First American National Bank.  Mr. Lampley holds a bachelor of science degree from Austin Peay State University.

Rajesh Mehra, 51, joined the company on November 2, 2009, as Executive Vice President, Chief Financial Officer and Treasurer.  Prior to joining the Company, Mr. Mehra was Executive Vice President and Chief Financial Officer for Fidelity Co-Operative Bank in Leominster, MA, for a period of one year.  He has also served as the President of Chelsea Advisory Services, LLC, a consulting firm specializing in banking and capital markets in McLean, VA.  From 2005 – 2007 Mr. Mehra was the Senior Vice President and Chief Financial Officer for Urban Trust Bank in Bethesda, MD.  Earlier in his career, Mr. Mehra worked at Fannie Mae and PricewaterhouseCoopers in Washington, DC, and Credit Suisse and JP Morgan in New York. Mr. Mehra earned a bachelors degree in engineering from the Indian Institute of Technology.  He also holds master of science and master of business administration degrees from the University of Massachusetts.

Robert S. Miller, 55, is Executive Vice President, Chief Marketing Officer.  Mr. Miller has led the company’s marketing efforts since joining the Bank in 2006.  He served as Senior Vice President, Marketing and Retail Banking from 2008 to 2010 and as Senior Vice President of Marketing from 2006 to 2008.   Prior to joining Middleburg Bank, Mr. Miller was Vice President, Marketing for NEW Customer Services Companies from 2001 to 2006, and Vice President, Marketing Communications for Teligent, Inc., from 1998 to 2001.  Mr. Miller holds a bachelor of arts degree from Texas Tech University.

Suzanne K. Withers, 61, Executive Vice President, Human Resources and Organizational Development, has served with the Company since 2004. From 2002 to 2004, Ms. Withers was a human resource independent contractor.  From 1998 to 2001, she was employed with ALCATEL (formerly Newbridge Networks, Inc.) in Chantilly, Virginia, as the Vice President, Human Resources.  From 1983 – 1998, Ms. Withers was employed with Freddie Mac in McLean, Virginia, as Director, Human Resources.  Ms. Withers holds a bachelor of science degree in sociology with a minor in psychology from Iowa State University and a master of education degree in personnel and guidance & counseling from Clemson University.

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SECURITY OWNERSHIP

Security Ownership of Management

The following table sets forth, as of March 16, 2012, certain information with respect to beneficial ownership of shares of Common Stock by each of the members of the Board of Directors, by each of the executive officers named in the “Summary Compensation Table” below (the “named executive officers”) and by all current directors and executive officers as a group.  Beneficial ownership includes shares, if any, held in the name of the spouse, minor children or other relatives of a director living in such person’s home, as well as shares, if any, held in the name of another person under an arrangement whereby the director or executive officer can vest title in his or herself at once or at some future time.

	Option Shares of
	Common Stock that	Shares of Common
	May Be Acquired	Stock Beneficially
	Within 60 days of	Owned as of		Percent of
Name	March 16, 2012	March 16, 2012 (1)		Class (%)(2)
John Mason L. Antrim	23,138	39,350	(4)	*
Howard M. Armfield	-	48,745	(3)	*
Henry F. Atherton, III	-	1,400		*
Joseph L. Boling	-	75,448	(4)	1.08%
Childs F. Burden	-	22,720		*
Jeffery H. Culver	5,573	21,139	(4)	*
J. Bradley Davis	-	8,788		*
Alexander G. Green, III	-	5,035		*
David L. Hartley	5,142	11,769	(4)	*
John C. Lee, IV	-	10,456		*
Gary D. LeClair	-	4,838	(5)	*
Rajesh Mehra	2,500	10,575	(4)	*
Keith W. Meurlin	-	895		*
Janet A. Neuharth	-	2,000	(6)	*
John M. Rust	-	11,296	(7)	*
Gary R. Shook	10,209	32,636	(4)	*
James R. Treptow	-	3,186		*
Current directors and executive
officers as a group (20 persons)	55,507	340,161		4.82%

*      Percentage of ownership is less than one percent of the outstanding shares of Common Stock.

(1) Includes shares of MFC common stock that could be acquired through the exercise of stock options within 60 days after March 16, 2012.

(2) Based on 6,996,932 shares outstanding as of March 16, 2012.

(3) Includes 3,500 shares held by Mr. Armfield’s wife and 44,245 shares held in revocable trusts in which Mr. and  Mrs. Armfield are trustees.

(4) Includes shares of unvested restricted stock with voting and dividend rights as follows:  Mr. Antrim 1,026 shares; Mr. Boling 1,063 shares; Mr. Culver 13,200 shares; Mr. Hartley 6,027 shares, Mr. Mehra 7,681 shares; and Mr. Shook 17,564 shares.

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(5) Includes 4,338 shares owned jointly with Mr. LeClair’s wife.

(6) Includes 1,000 shares held in revocable trusts for Ms. Neuharth’s children.

(7) Includes 10,996 held in a trust in which Mr. Rust is trustee.

Security Ownership of Certain Beneficial Owners

The following table sets forth, as of March 16, 2012, certain information with respect to the beneficial ownership of shares of Common Stock by each person who owns, to the Company’s knowledge, more than 5% of the outstanding shares of Common Stock.

Name and Address	Amount and Nature	Percent of Class (1)
	Of Beneficial Ownership
David L. Sokol (2)	1,640,221	23.44%
P.O. Box 2080
Wilson, WY 83014

(1)   Based on 6,996,932 shares outstanding as of March 16, 2012

(2)   According to the most current information available to the Company as of February 24, 2012, David L. Sokol, through certain investment accounts, reported that he has sole voting and dispositive power over 1,640,221 shares of our common stock.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors and executive officers, and any persons who own more than 10% of the outstanding shares of Common Stock, to file with the Securities and Exchange Commission (the “SEC”) reports of ownership and changes in ownership of Common Stock.  Directors and executive officers are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports that they file.  Based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required to be filed, the Company believes that, during 2011, all directors, executive officers and beneficial owners of more than 10% of the Company’s Common Stock have filed with the SEC on a timely basis all reports required to be filed under Section 16(a).

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CORPORATE GOVERNANCE AND

THE BOARD OF DIRECTORS

General

The business and affairs of the Company are managed under the direction of the Board of Directors in accordance with the Virginia Stock Corporation Act and the Company’s Articles of Incorporation and Bylaws, as amended.  Members of the Board are kept informed of the Company’s business through discussions with the Chief Executive Officer and President and other officers, by reviewing materials provided to them and by participating in meetings of the Board of Directors and its committees.

Independence of the Directors

The Board of Directors has determined that the following 10 individuals of its total 12 members are independent as defined by the listing standards of the NASDAQ Stock Market (“NASDAQ”): Ms. Neuharth and Messrs. Armfield, Atherton, Burden, Davis, Green, LeClair, Lee, Meurlin and Rust.  In reaching this conclusion, the Board of Directors considered that the Company and its subsidiary bank conduct business with companies of which certain members of the Board of Directors or members of their immediate families are or were directors or officers.

In addition to the transactions disclosed under “Certain Relationships and Related Transactions,” the Board of Directors considered the following relationships between the Company and certain of its directors to determine whether such director was independent under NASDAQ’s listing standards:

·   The Bank procures maintenance services from Lee Technologies, a company that Mr. Lee founded and of which he is Chairman and Chief Executive Officer.  The fees paid by the Bank to Lee Technologies during 2011 totaled $18,504.

·   The Bank procures human resources advisory services from LeClairRyan, a legal firm in Richmond, Virginia.  Gary LeClair is one of the founders and Chairman of this law firm.  The fees paid by the Bank in 2011 to LeClairRyan were $4,085.

·   The Bank procures insurance services from Armfield, Harrison & Thomas, Inc., an independent insurance company in Leesburg, Virginia.  Mr. Armfield is one of the founders and is retired from this company.  Mr. Green is President and Chief Executive Officer.  The fees paid by the Bank in 2011 to Armfield, Harrison & Thomas were $75,559.

Leadership Structure

On April 28, 2010, we changed our senior leadership structure as it relates to Board and Company leadership.  Joseph L. Boling, who had served as Chief Executive Officer and Chairman of the Board of Directors since 1997, retired from his position as Chief Executive Officer of the Corporation but remains as Chairman of the Board.  The Company appointed Gary R. Shook as Chief Executive Officer, effective May 1, 2010.  Mr. Shook also retains his current duties as President and director of the Company.  This change in our Board and Company leadership reflects the implementation of our plan of leadership and management succession as well as the retention of key talent at the Board level.  Mr. Boling continues to serve as Board Chairman in recognition of his long service, industry expertise, and intimate knowledge of

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our Company, our customers, and our shareholders.  In separating the roles of Board Chairman and CEO, we believe that the strong teamwork exhibited by Mr. Boling and Mr. Shook in their previous roles will continue in their new roles and contribute greatly to the leadership and performance of our Company.  This separation of Board Chairman and CEO roles is also commonly utilized by other public companies in the United States, and we believe that this new leadership structure will be highly effective for the company.

In addition to Mr. Boling and Mr. Shook, our board is comprised of 10 independent directors.  Our corporate governance guidelines require the election, by the independent directors, of an independent Lead Director to serve during any period when there is no independent Chairman of the Board.  Howard M. Armfield is the elected independent Lead Director.  The Board has 5 standing committees—Audit, Compensation, Investment, Nominating, and Governance.  Each of the Board committees is comprised solely of independent directors, with each of the committees having a separate chair.  Our corporate governance guidelines provide that our non-management directors will meet in executive session no less than once each year and that our independent Lead Director will preside at these sessions.  Our independent directors meet periodically outside of regularly scheduled Board meetings.  In addition, our independent Lead Director chairs meetings in the absence of our Chairman.

Risk Oversight

Under the Company’s Corporate Governance Guidelines, the Board is charged with providing oversight of the Company’s risk management processes.  The Audit Committee is primarily responsible for overseeing the risk management function at the Company on behalf of the Board.  In carrying out its responsibilities, the Audit Committee works closely with the Company’s Senior Vice President of Risk Management and other members of the Company’s enterprise risk management team.  The Audit Committee meets regularly with the Senior Vice President of Risk Management and other members of management and receives an overview of findings from various risk management initiatives including internal audits, Sarbanes Oxley and compliance reports.  The Audit Committee also receives updates between meetings from the Senior Vice President of Risk Management, the Chief Executive Officer, the Chief Financial Officer and other members of management relating to risk oversight matters.  The Audit Committee provides minutes of all meetings, including actions taken, to the full Board on a quarterly basis.  The Board also receives a report from our Senior Vice President of Risk Management on a quarterly basis.

We believe that our directors provide effective oversight of the risk management function, especially through the work of the Audit Committee and the dialogue between the full board and David Stalnaker, Senior Vice President of Risk Management.

In addition to the Audit Committee, the other committees of the Board consider the risks within their areas of responsibility.  For example, the Compensation Committee considers the risks that may be implicated by our executive compensation programs.  For a discussion of the Compensation Committee’s review of the Company’s senior executive officer compensation plans, employee incentive compensation plans and the risks associated with these plans, see “Compensation Policy and Practices Review” on page 18 of this Proxy Statement.

Code of Ethics

The Executive Committee of the Board of Directors has approved a Code of Business Conduct and Ethics for directors, officers and all employees of the Company and its subsidiaries, and an addendum to the Code of Ethics applicable to all of the Company’s executive officers including the Chief Executive Officer, Chief Financial Officer

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and other principal financial and accounting officers.  The Code addresses such topics as protection and proper use of Company assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting and conflicts of interest.  The Code of Ethics is available at www.middleburgbank.com, and requests for a copy of the Company’s Code of Ethics may be sent to ir@middleburgbank.com.

Board and Committee Meeting Attendance

There were 15 meetings of the Board of Directors in 2011.  Each incumbent director attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings of committees of which the director was a member in 2011.

Committees of the Board

Audit Committee

The Audit Committee assists the Board of Directors in fulfilling its oversight responsibility to the shareholders relating to the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements and the qualifications, independence and the performance of the internal audit function.  During 2011, the Company outsourced the majority of its internal audit function to an independent public accounting firm that specializes in financial institutions.  The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of both the Company’s Risk Management Officer and the independent auditor engaged for the purpose of preparing and issuing an audit report and performing other audit, review or attestation services for the Company.  The Board of Directors has adopted a written charter for the Audit Committee.  In addition, the Audit Committee is primarily responsible for overseeing the Company’s risk management.  Requests for a copy of the Company’s Audit Committee Charter may be sent to ir@middleburgbank.com, and it is also available on the Company’s website at www.middleburgbank.com.

The members of the Audit Committee are Ms. Neuharth and Messrs. Armfield, Atherton, Davis and LeClair, all of whom the Board in its business judgment has determined are independent as defined by NASDAQ listing standards and SEC regulations.  The Board of Directors has also determined that all of the members of the Audit Committee have sufficient knowledge in financial and auditing matters to serve on the Audit Committee and that Mr. Armfield qualifies as an audit committee financial expert as defined by SEC regulations.

The Audit Committee met five times in 2011.  For additional information regarding the Audit Committee, see “Audit Information – Audit Committee Report” on page 43 of this Proxy Statement.

Compensation Committee

The Compensation Committee reviews the CEO’s performance, including the results of CEO performance review questionnaires completed by all individual outside directors, sets CEO compensation, and reviews and sets guidelines for compensation of the other executive officers.  In carrying out its responsibilities, the Compensation Committee annually reviews the recommendations made by the Chairman for the compensation of the CEO as well as recommendations made by the CEO for the compensation of other senior executive officers, and thereby establishes the compensation of the Company’s executive officers.  The Compensation Committee may annually approve, with assistance from an independent consultant, the issuance of stock grants and other compensation related matters.

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The members of the Compensation Committee are Messrs. Armfield, Burden, Green, Lee and Rust.  The Board of Directors in its business judgment has determined that all members are independent as defined by the NASDAQ listing standards.  The Compensation Committee met five times in 2011.  For additional information regarding the Compensation Committee, see “Executive Compensation” on page 18 of this Proxy Statement.  Requests for a copy of the Company’s Compensation Committee Charter may be sent to ir@middleburgbank.com, and it is also available on the Company’s website at www.middleburgbank.com.

Governance Committee

The Governance Committee consists of Messrs. Armfield, Boling, Burden, Green and Lee.  The Governance Committee is called, as necessary, to consider any matters that arise between regularly scheduled Board of Directors’ meetings that require a quorum of the Board members, but when the Company’s full Board of Directors is unable to meet.  The Governance Committee did not meet in 2011.

Investment Committee

The Investment Committee consists of Messrs. Boling, Burden, Meurlin, Rust and Shook.  The Investment Committee meets with management to review the Company’s investment strategy.  The Investment Committee met four times in 2011.

Nominating Committee

The Nominating Committee consists of Ms. Neuharth and Messrs. Armfield, Atherton, Green, Lee and Meurlin.  The Board of Directors in its business judgment has determined that all members are independent as defined by NASDAQ’s listing standards.  The Nominating Committee nominates the individuals proposed for election as directors in accordance with the Company’s Articles of Incorporation and Bylaws.  The Nominating Committee does not have a charter.  The Nominating Committee met one time in 2011.

In identifying potential nominees, the Nominating Committee takes into account such factors as it deems appropriate, including the current composition of the Board, the range of talents, experiences and skills that would best complement those that are already represented on the Board, the balance of management and independent directors and the need for specialized expertise.  The Nominating Committee considers candidates for Board membership suggested by Board members and by management.  The Nominating Committee will also consider candidates suggested informally by a shareholder of the Company.

The Nominating Committee considers, at a minimum, the following factors in recommending to the Board of Directors potential new directors, or the continued service of existing directors:

·   The ability of the prospective nominee to represent the interests of the shareholders of the Company;

·   The prospective nominee’s standards of integrity, commitment and independence of thought and judgment;

·   The prospective nominee’s ability to dedicate sufficient time, energy and attention to the diligent performance of his or her duties, including the prospective nominee’s service on other public company boards;

·   The extent to which the prospective nominee contributes to the diversity of talent, skill and expertise appropriate for the Board of Directors; and

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·   The prospective nominee’s involvement within the communities the Company serves.

Shareholders entitled to vote for the election of directors may submit candidates for formal consideration by the Nominating Committee in connection with an annual meeting if the Company receives timely written notice, in proper form, for each such recommended director nominee.  If the notice is not timely and in proper form, the nominee will not be considered by the Company.  To be timely for the 2013 annual meeting, the notice must be received within the time frame set forth in “Proposals for 2013 Annual Meeting of Shareholders” on page 44 of this Proxy Statement.  To be in proper form, the notice must include each nominee’s written consent to be named as a nominee and to serve, if elected, and information about the shareholder making the nomination and the person nominated for election.  These requirements are more fully described in Section 2.5 of the Company’s Bylaws, a copy of which will be provided, without charge, to any shareholder upon written request to the Secretary of the Company, whose address is Middleburg Financial Corporation, 111 West Washington Street, Middleburg, Virginia, 20117.

Under the current process for selecting new Board candidates, the Chairman, the Nominating Committee or other Board members identify the need to add a new Board member with specific qualifications or to fill a vacancy on the Board.  The Chairman of the Nominating Committee will initiate a search, working with staff support and seeking input from Board members and senior management, hiring a search firm, if necessary, and considering any candidates suggested informally or recommended by shareholders.  An initial slate of candidates that will satisfy criteria and otherwise qualify for membership on the Board may be presented to the Nominating Committee.  A determination is made as to whether the Nominating Committee members or Board members have relationships with preferred candidates and can initiate contacts.  The Chairman and at least one member of the Nominating Committee interview prospective candidates.  The Nominating Committee meets to conduct additional interviews of prospective candidates, if necessary, and to consider and recommend final candidates for approval by the full Board of Directors.

Annual Meeting Attendance

The Company encourages members of the Board of Directors to attend the annual meeting of shareholders.  Twelve of thirteen members of the Board of Directors attended the 2011 annual meeting.

Communications with Directors

Any director may be contacted by writing to him or her c/o Middleburg Financial Corporation, 111 West Washington Street, Middleburg, Virginia, 20117.  Communications to the non-management directors as a group may be sent to the same address, c/o the Secretary of the Company.  The Company promptly forwards, without screening, all such correspondence to the indicated directors.

Director Compensation

As compensation for his or her service to the Company, each member of the Board of Directors, other than the Board Chairman, receives a fee of $600 for each meeting of the Board, $400 for each loan committee meeting and $350 for other board committee meetings attended.

Joseph L. Boling serves as Chairman of the Board of the Company.  For the period January 1 through April 30, 2011, he was compensated under an agreement entered into on April 28, 2010.  For his service as Chairman, the agreement provided annual cash compensation of $40,000 and a grant of

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restricted shares equal to $24,000 divided by the closing price of the Company’s stock on April 30, 2010.  In addition, Mr. Boling received $8,000 per month for the period January 1 through April 30, 2011 for serving in other advisory and representative roles for the Company.  On July 18, 2011, the Company entered into a new agreement with Mr. Boling which set his compensation for the period May 1, 2011 through April 30, 2012.  This agreement provided for annual cash compensation as Chairman of $43,000 and provided Mr. Boling with annual cash compensation of $64,000 for providing services in certain other advisory and representative roles for the Company.  In addition, Mr. Boling received a grant of restricted shares of stock equal to $16,000 divided by the closing price of the Company’s stock on May 1, 2011.  Each grant has a one-year vesting period and requires continuous service through the vesting period in order to vest and become transferable.

The following table shows the compensation earned by each of the nonemployee directors during 2011:

	Fees Earned or Paid	Stock	All Other
	in Cash	Awards(1)	Compensation(2)	Total
Name	($)	($)	($)	($)
Howard M. Armfield	12,000	--	--	12,000
Henry F. Atherton, III	17,100	--	--	17,100
Joseph L. Boling	42,000	16,000	78,152	136,152
Childs F. Burden	18,100	--	--	18,100
J. Bradley Davis	15,900	--	--	15,900
Alexander G. Green, III	9,900	--	--	9,900
Gary D. LeClair	9,550	--	--	9,550
John C. Lee, IV	8,350	--	--	8,350
Keith W. Meurlin	15,750	--	--	15,750
Janet A. Neuharth	16,700	--	--	16,700
John M. Rust	10,000	--	--	10,000
James R. Treptow	7,050	--	--	7,050

(1)   This amount reflects the grant date fair value ($15.06 per share) computed in accordance with FASB ASC topic 718 for 1,063 shares of restricted stock granted to Mr. Boling on May 2, 2011.  For information on the model and assumptions used to calculate the Company’s share-based compensation expense, see Note 8 to the audited consolidated financial statements in our 2011 Form 10-K.

(2)   For Mr. Boling, the amount shown in this column is comprised of $74,667 for advisory and representative services and $3,485 for club dues paid by the Company.

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Compensation Policy and Practices Review

Beginning with proxy statements filed in 2010, the SEC implemented a new rule that requires the Company to review its compensation policies and practices to identify any risks arising from these policies or practices that are “reasonably likely to have a material adverse affect” on the Company.  This review covers senior executive officers as well as all employees.  While we do not believe such risks are reasonably likely to have a material adverse effect, we believe it is in the best interest of effective communication to our shareholders to explain the process and results of our review.

During 2011, the Compensation Committee conducted a review of its compensation policies and practices, incorporating guidelines on sound compensation principles established by the Federal Reserve and jointly supported by the FDIC and the OCC.  The Committee reviewed an extensive report prepared by the Company’s senior risk officer and utilized the assistance of the Company’s independent compensation advisor.  We reviewed each plan’s stated objective and purpose, categories of participants, the manner in which accountability is assigned for the administration of each plan, performance measures used and the process for determining and verifying results, and the range of potential payouts.  In addition, our advisor reviewed the competitiveness and mix of compensation elements comprising our total executive compensation package.

As a result of our review, we find that the Company’s compensation policies, plans and practices do not encourage unnecessary or unreasonable risk-taking and do not give rise to risks that are reasonably likely to have a material adverse effect on the Company.

EXECUTIVE COMPENSATION

Compensation Committee Report

The Compensation Committee has reviewed the Compensation Discussion and Analysis included in this proxy statement and discussed it with the Company’s management. Based on this review and discussion, the Compensation Committee recommended that the Compensation Discussion and Analysis be included in the Company’s annual report on Form 10-K for the year ended December 31, 2011  and this Proxy Statement.

Compensation Committee

Childs F. Burden, Chairman

Howard M. Armfield

John C. Lee, IV

Alexander G. Green III

John M. Rust

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee is a current or former officer or employee of the company or any of our subsidiaries.  In addition, there are no compensation committee interlocks with other entities with respect to any such member.

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Update On Advisory Vote On Executive Compensation

In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, usually referred to as the Dodd-Frank Act.  Among the provisions of the act is the opportunity for our shareholders to vote their approval, on a non-binding basis, of the compensation of our executives that we describe in our proxy statement, including the Compensation Discussion & Analysis (“CD&A), compensation tables and narrative discussion.

As discussed in this proxy statement, our Compensation Committee, comprised of independent directors, is accountable for establishing our compensation philosophy, determining the key elements that comprise the overall compensation program, approving plans, monitoring performance, and determining pay actions including salary adjustments, incentive awards, and equity grants.  The Committee uses the services of an independent compensation consultant that receives direction from and reports directly to the Committee.  The Committee meets frequently throughout the year with its advisor and, periodically, without executive management present.

In 2011, our shareholders voted their approval of the compensation of our executives as described in the Compensation Discussion & Analysis section and accompanying tables in the proxy statement for the 2011 Annual Meeting of Shareholders. Of note is that over 95% of all votes cast were for approval.  The Compensation Committee appreciates this very strong show of shareholder support for our compensation philosophy, plans and practices and strives to continue its work consistent with this support.

Also in 2011, our shareholders voted on the frequency with which their advisory vote should be held in the future.  Options available to shareholders were to conduct voting annually, every two years, or every three years.  Consistent with shareholder voting in 2011, we will follow a three-year cycle and conduct the next advisory vote on executive compensation in 2014.

Compensation Discussion and Analysis

General

The Compensation Committee of the Board of Directors, which is composed of five non-employee directors of the Company, is responsible for the development, oversight and implementation of the Company’s compensation program for executive officers, including the executive officers named in the Summary Compensation Table.  The Committee consists entirely of non-employee, independent members of our Board of Directors and operates under a written charter approved by the Board of Directors.

The Company’s executive compensation program is designed to provide levels of compensation that are reflective of both the individual’s and the Company’s performance in achieving its goals and objectives.  The Compensation Committee seeks to provide a mix of annual and long-term compensation that will align the short-term and long-term interests of the Company’s executive officers with those of its shareholders.

During 2011, the Committee engaged a consultant from Matthews, Young – Management Consulting to act as an independent advisor to the Committee.  This advisor has provided ongoing assistance to the Committee throughout 2011 and since the fourth quarter of 2008.  The consultant assisted the Committee in reviewing compensation strategy, selecting and reviewing compensation and

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performance data for a peer group of comparable, community financial institutions, conducting assessments of compensation policy, plans, and practices to address  reporting requirements and Federal Reserve joint guidelines on effective incentive compensation, assisting with long term incentive grant determinations, and providing periodic updates on regulatory and reporting requirement changes related to compensation.  In the capacity as advisor to the Compensation Committee, the consultant worked directly for the Committee and periodically met with Committee members without the presence of Company management.

In carrying out its responsibilities and objectives, the Compensation Committee annually reviews the Chief Executive Officer’s performance and compensation, with input from the Chairman.  The Committee also reviews and approves recommendations made by the Chief Executive Officer for the compensation of the CFO, COO and other executive officers and thereby establishes the compensation of these executive officers. The Chairman, Chief Executive Officer, and the members of the Compensation Committee are provided peer group compensation data for consideration and review when determining executive compensation levels. Additionally, the Committee may confer independently with its consultant prior to accepting management recommendations.

In 2011, the Compensation Committee established executive base salaries and determined annual cash bonuses/incentives and long-term incentives.

Additional information on the Compensation Committee’s processes and procedures for the consideration and determination of executive and director compensation is included under the caption “Corporate Governance and the Board of Directors – Committees of the Board – Compensation Committee.”

Objectives of Our Compensation Program

The primary objective of our executive compensation program is to attract and retain highly skilled and motivated executive officers who will manage the Company in a manner to promote our growth and profitability and advance the interests of our shareholders.  Additional objectives of our executive compensation program are the following:

·   Support our business strategy and business plan with clearly communicated expectations for executive officers related to our common goals.

·   Align executive pay with shareholders’ interests.

·   Recognize individual initiative and achievements.

The Compensation Committee will continue to be guided by the following key principles:

·   Balancing Shareholder and Executive Interests – We balance our goal of using compensation as a key tool in attracting and retaining highly skilled and motivated executives with our commitment to using compensation to support our business strategy, align executive pay with shareholder interests, and recognize initiative and performance.

·   Competitiveness and Reasonableness – We target compensation to be competitive with our peer organizations while reflecting the skill set, track record, and performance of our executives.  We evaluate our actual compensation levels to ensure reasonableness (comparable pay for comparable performance, benchmarking against financial institutions of similar size, complexity, and geographic location).

·   Balancing Pay-for-Performance with Safety and Soundness – A significant portion of executive pay is tied to annual and long-term performance of the Company as well as individualjob performance.  Annual cash incentives and equity grants are truly at-risk and are only earned through performance.  However, we carefully monitor and assess our incentive plans to ensure that they do not encourage unnecessary risk-taking.  Also, we include objectives related to asset and credit quality to emphasize the importance of operating the Company in a safe and sound manner.

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·   Executive Investment in the Company – We link our key executives to the Company and the interest of our shareholders through two vehicles:  employment agreements that spell out the Company’s expectations; and the use of equity compensation that encourages executives to think like shareholders because a material part of their pay depends on creating durable value for our shareholders.

Executive Compensation Philosophy

Our executive compensation program consists of base salaries, annual cash bonus and incentives, and long-term equity incentives in the form of stock-based awards. These components of executive compensation are used together to strike an appropriate balance between cash and stock compensation and between short-term and long-term incentives.  We have determined that the targeted mix of cash and equity-based pay for executive team will be generally weighted 65% for base salary, 20% for annual incentives and 15% for long term equity-based incentives (when considered over a multi-year period).  The Compensation Committee believes this compensation mix to be both appropriate to meet the Company’s executive compensation philosophy and competitive from a peer group standpoint.

We expect a reasonable and competitive portion of an executive officer’s total compensation to be at risk, tied both to our annual and long-term performance as well as to the creation of shareholder value. In particular, we believe that short-term annual cash incentive compensation should be tied directly to both corporate performance and individual performance for the fiscal year that support the Company’s long term success and creation of shareholder value.  Performance measures also include the achievement of identified goals as they pertain to the areas of our operations for which the executive officer is personally responsible and accountable.  In coordination with our annual cash incentive plan, we believe that the value of long-term incentive compensation should be tied directly to future service, long-term corporate performance and an increase in shareholder value.

We differentiate compensation among executive officers based on the philosophy that total compensation should increase with an executive officer’s position and responsibility and that a greater percentage of total compensation should be tied to corporate and individual performance, and therefore at risk, as position and responsibility increase.  Thus, executive officers with greater roles and responsibilities associated with achieving our performance targets should bear a greater proportion of the risk that those goals are not achieved and should receive a greater proportion of the reward if our performance targets are met or surpassed.  In addition, as an executive officer’s position and responsibility increases, the use of long-term incentive compensation should increase where our executive officers have the greatest influence on our strategic performance over time.

We currently have no executive stock ownership guidelines, but do monitor the overall level of executive stock ownership as well as the level of outstanding and unvested or unearned stock grants.  In addition, we maintain an incentive claw back policy which requires that senior executive officers repay incentive payments and awards, whether in cash or stock, if based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria.

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Basis for Executive Pay Levels

The Compensation Committee generally meets at least quarterly to review our executive compensation program and its elements. At meetings, it also reviews peer group data provided by our executive compensation consultant.

In determining the compensation of our executive officers, the Committee evaluates total overall compensation, including benefits, as well as the mix of salary, cash bonuses and incentives, and equity incentives, using a number of factors including the following:

·   Our financial and operating performance, measured by attainment of specific strategic objectives and operating results.

·   The Chief Executive Officer’s review of the duties, responsibilities and performance of each executive officer. These include the achievement of identified goals for the year as they pertain to the areas of our operations for which the executive is personally responsible and accountable.

·   Historical cash and equity compensation levels.

·   Comparative industry market data to assess compensation competitiveness.

With respect to comparative industry data, the Compensation Committee reviews executive salaries and evaluates compensation structures and the financial performance of comparable companies in a designated peer group established by the Compensation Committee, with assistance from its executive compensation consultant. The peer group used for comparison purposes focuses principally on public companies in the banking industry that are similar to us in size and complexity, considering multiple factors including size of balance sheet, workforce, and branch network, business structure, market areas served, market capitalization, and other factors.

In 2011, the Compensation Committee worked with its independent consultant to review the existing peer group against which to compare the Company.  The criteria used in selecting and evaluating the suitability of peer organizations focused on SEC reporting community banking institutions of comparable size and located in Virginia and surrounding states.  No changes were made in the peer group from the prior year.  The independent consultant compiled compensation data from proxy statements of the peer group and from market survey data contained in published surveys.  The Compensation Committee used both sources of information when considering 2011 levels of base salary and total compensation for executive officers.

Members of our peer group include:

Access National Corp - Reston, VA	First South Bancorp – Washington, NC
Alliance Bankshares Corp – Chantilly, VA	FNB United Corp – Asheboro, NC
American National Bankshares, - Danville, VA	Four Oaks Fincorp – Four Oaks, NC
Bank of Granite Corp – Granite Falls, VA (1)	Highlands Bankshares – Abingdon, VA
BNC Bancorp – High Point, NC	Monarch Financial Holdings – Chesapeake, VA
C&F Financial Corp – West Point, VA	New Century Bancorp – Dunn, NC
Capital Bank Corp – Raleigh, NC (1)	Old Point Financial Corp – Hampton, VA
Cardinal Financial Corp – McLean, VA	Peoples Bancorp of North Carolina – Newton, NC
Commonwealth Bankshares – Norfolk, VA	Porter Bancorp – Louisville, KY
Crescent Financial Corp – Cary, NC (1)	SY Bancorp – Louisville, KY
Eagle Bancorp – Bethesda, MD	Shore Bancshares – Easton, MD
Eagle Financial Services – Berryville, VA	Southern Community Fin Corp – Winston-Salem, NC
Eastern Virginia Bankshares – Tappahannock, VA	Tri-County Financial Corp – Waldorf, MD
ECB Bancorp – Engelhard, NC	Union Bankshares Corp – Richmond, VA
Fauquier Bankshares – Warrenton, VA	Valley Financial Corp – Roanoke, VA
First Financial Service Corp – Elizabethtown, KY	Virginia Commerce Bancorp – Arlington, VA

(1) Banks acquired, merged, or entered into merger agreements during 2011.

(2) Bank failed during 2011.

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Components of Executive Compensation

The elements of the 2011 executive compensation program included base annual salary, short-term incentive compensation under our Management Incentive Plan, and long-term incentives using stock-based awards under our 2006 Equity Compensation Plan.

We provide certain retirement benefits through supplemental executive retirement plans and our 401(k) savings plan.  We also provide health and welfare benefits that include participation in our health, dental and vision plans and various insurance plans, including disability and life insurance.

Each of the three principal components of executive compensation is designed to reward and provide incentives to executive officers consistent with our overall policies and principles on executive compensation.  These components and the rationale and methodology for each are described below. Specific information on the amounts and types of compensation earned by the named executive officers during 2011 can be found in the Summary Compensation Table and other tables and narrative disclosures following this discussion.

Base Salary

Our base salary philosophy is to provide reasonable current income to our named executive officers in amounts that will attract and retain individuals with a broad, proven track record of performance.

The Compensation Committee establishes annual salary ranges for each executive officer position.  In establishing these ranges, the Compensation Committee balances the need to offer salaries that are competitive with peer companies with the need to maintain careful control of salary and benefits expense.  As described above, the Compensation Committee also reviews peer group data, prepared by an independent consulting firm, of commercial banks that are similarly situated to us in terms of size, economic conditions and other factors.  Based upon the review of the peer group data provided and the Committee’s assessment of the CEO’s performance and track record, including a review of CEO performance review questionnaires prepared by each outside director, the Committee determines an appropriate salary level for the CEO.  Based upon the review of peer group salary data and his performance assessments, the CEO of the Company recommends base salaries for the CFO and COO and reports salary changes for other executives to the Compensation Committee for review.

In reviewing the CEO’s compensation recommendations for 2011, the Compensation Committee considered our financial performance, achievements in implementing our long-term strategy, and the personal observations of the executive officers’ performance, other than the CEO, made by the members of the Compensation Committee.  The CEO recommended to the Compensation Committee increases in base salaries after considering the executives’ performance and the peer group salary and compensation data.  No particular weight was given to any particular aspects of the performance of the executive officers.

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Mr. Shook, Mr. Culver, Mr. Mehra, and Mr. Hartley are compensated pursuant to employment agreements, which are described under “Annual Compensation of Executive Officers” below.    Mr. Shook, Mr. Culver, and Mr. Mehra are eligible for base salary increases, bonuses and incentives as the Compensation Committee may determine.

In making this determination for the CEO for 2011, the Compensation Committee evaluated the performance of the CEO based on our financial performance, achievements in implementing the Bank’s long-term strategy, and the independent review of the performance of the CEO by the members of the Board of Directors.  As with executive officers generally, the Compensation Committee also considered a salary range evaluation of an independent consulting firm.   In 2011, the Compensation Committee adjusted the base salaries of the named executive officers to a level targeted to be competitive with the 50th percentile of our peer group.

The annual base salaries for our named executive officers for 2011 and the percentage change from 2010 are as follows:

Name and Position	2011 Annual Salary	Percent Change From 2010
Gary R. Shook   President	$350,000	12.40%
Jeffrey H. Culver EVP, Chief Operating Officer	$217,000	12.44%
Rajesh Mehra, EVP, Chief Financial Officer	$201,000	5.79%
David L. Hartley, EVP, President   Middleburg Investment Group	$185,000	7.68%
John Mason L. Antrim   President, Middleburg Trust Company	$172,000	0.00%

Annual Incentives

In 2011, the Compensation Committee approved performance metrics under our Management Incentive Plan (MIP), which sets the target level of executive cash incentives at 20% of base salary at December 31, 2011.   Management Incentive Plan participants include the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, President of Middleburg Investment Group (MIG), and the President of Middleburg Trust Company.

Executive officers currently have the opportunity to earn an annual incentive award up to a predetermined percentage of total compensation based on achievement of company operating or consolidated performance goals. In addition to promoting the achievement of corporate performance goals, the incentive awards are designed to align the interests of executive management into a common objective.  The Compensation Committee officially adopted the 2011 performance metrics on April 20, 2011.

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The 2011 Management Incentive Plan was designed to provide incentives that would be reasonable in relation to the payment of base salaries and overall compensation to executive officers, to be competitive with market and peer group incentive practices, and to provide executive officers the opportunity to earn above-target incentives for above-target performance. Consistent with the design goals of our Management Incentive Plan, the Compensation Committee determined that 2011 incentive opportunities for the named executive officers should be targeted at approximately 20% of base salary, the same target level used for 2010.  The incentive payout scale, depending on actual results versus target is shown in the following table, extracted from our 2011 Management Incentive Plan.

Award Leverage Schedule:  Proxy Executives

Percent of all Corporate Measures of Performance	Percent of Base Salary
120%	30% of base
110%	25%
100%	20%
90%	10%
<90%	0

Note:  Awards are interpolated between performance levels shown above.

Awards are capped 1.5 times the executive’s Target Award.

As shown in the table above, awards are increased when performance exceeds performance targets, and awards are decreased when performance falls below performance targets.  Results that fall below a pre-set threshold result in no incentives being awarded.  Ultimately, all incentive awards under the 2011 Management Incentive Plan are at the discretion of the Compensation Committee.  Based on discussion with executive management, the Compensation Committee approved the plan performance objectives and the award formula or matrix by which all awards under the 2011 Management Incentive Plan were calculated.    Performance measures were selected based on our most important priorities for 2011.  The Committee assigned a weight to each performance measure to indicate its relative importance and the percent of overall incentives that could be earned for that particular performance measure.  The following table identifies the performance measured used and their assigned weights.

Award Percentages and Performance Measure Weightings

Participant	MFC Net Income		MFC ROAA		MFC ROAE		MFC Efficiency Ratio		Individual Goals
CEO & President	25%	+	25%	+	25%	+	25%	+	-
EVP, CFO	24%	+	22%	+	22%	+	22%	+	10%
EVP, COO	24%	+	22%	+	22%	+	22%	+	10%
President, MIG	24%	+	22%	+	22%	+	22%	+	10%
President, Middleburg Trust	24%	+	22%	+	22%	+	22%	+	10%

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As shown above, the financial and operating targets approved by the Compensation Committee for the 2011 Management Incentive Plan were net income, return on average equity (ROAE), return on average assets (ROAA), efficiency ratio (ER), and individual operating goals for each executive. An additional objective related to Asset Quality was also included for all participants. For 2011, we defined asset quality as non-performing assets as a percent of total assets, where non-performing assets equals the sum of Other Real Estate Owned (OREO), non-accruals and loans in excess of 90 days past due and still accruing.  This asset quality performance measure can increase, keep intact or decrease the total amount of the incentive award achieved for performance on other measures.  More specifically, the asset quality performance measure is structured such that incentive earnings from other objectives are reduced if non-performing assets are greater than the pre-set level or range.  Because increases to loan loss reserves also reduce earnings on Net Income, ROAA and ROAE objectives, asset quality has the potential to further reduce incentives through these metrics as well, and thus reinforce its importance to the Company.  The Asset Quality performance range was as follows:

Non-Performing Assets %	Impact on Incentives
> 2.5%	-15%
.5 to 2.5%	0
< .5%	15%

For 2011, the Committee approved the following target performance levels: Net Income of $4,936,581, Efficiency Ratio of 84.3%, ROAA of 0.44%, and ROAE of 4.99%.

For 2011, the Company’s actual results were as follows:  Net Income of $4,960,481, Efficiency Ratio of 84.81%, ROAA of 0.44%, and ROAE of 4.87%.  Actual results for all four objectives were 98% of target or higher.

Actual non-performing assets as a percent of total assets was 3.27%, and above our target range.    As a result, 15% was subtracted from incentives earned for performance on other objectives.

Based on the Committee’s review of these results, the Committee authorized an incentive award to Mr. Shook of 16.36% of salary.  Incentive awards to Messrs. Culver, Mehra, Hartley, and Antrim averaged 16.53% of their respective salaries.

The Compensation Committee may also consider the award of individual bonus amounts to executive officers outside of the 2011 Management Incentive Plan.  The Compensation Committee considers but is not bound by the recommendations of the Chief Executive Officer with respect to the payment or amounts of bonuses to Executive Officers.  For 2011, the Compensation Committee awarded no individual bonuses outside of the management incentive plan.

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Long-Term Equity Incentives

The Compensation Committee may provide equity incentives to executive officers through long-term awards.  These awards provide executive officers with an opportunity to accumulate our common stock and associated compensation related to that ownership. The goal of the Compensation Committee in granting equity awards is to directly link an executive’s compensation opportunities with shareholder value creation.

The Compensation Committee currently employs multi-year vesting of equity incentive awards. Multi-year vesting focuses executive officers on consistent long-term growth in shareholder value and requires executive officers to remain employed with us for extended periods to receive the full benefit of the awards.

In 2006, we adopted the 2006 Equity Compensation Plan, which permits the grant of stock options, stock appreciation rights, stock awards, performance stock awards, incentive awards and stock units.

In determining the amount of stock awards, the Compensation Committee considered our compensation philosophy, the equity compensation practices of our peer group, and the availability of shares in our equity plan reserve.  Based on these considerations, the Compensation Committee determined that the 2011 stock awards to executive officers would be in the form of restricted stock with a combination of time and performance-vesting requirements.  The following awards were made to the named executive officers May 1, 2011:

Mr. Shook	15,000 shares
Mr. Culver	12,000 shares
Mr. Mehra	6,500 shares
Mr. Hartley	5,000 shares

In determining the amount of stock awards, the Compensation Committee considered our compensation philosophy, the equity compensation practices of our peer group, and the availability of shares in our equity plan reserve.

The performance-vesting requirement compares Middleburg’s return on average assets (ROAA) over the period beginning January 1, 2011 and ending December 31, 2015.  A portion of the granted shares may vest beginning after December 31, 2013 based on the following performance requirements:

·   If Middleburg’s average ROAA for the period 2011 – 2013 equals or exceeds the 50th percentile ROAA of our peer group, then 25% of granted shares will vest.

·   If Middleburg’s average ROAA for the period 2012 – 2014 equals or exceeds the peer group 50th percentile, 25% of granted shares will vest.

·   If either of these three-year hurdles is not met but Middleburg’s average ROAA for 2011 – 2014 equals or exceeds the peer group 50th percentile, a total of 50% of granted shares vest (minus any shares already vested).

·   If Middleburg’s average ROAA for the period 2013 – 2015 equals or exceeds the peer group 50th percentile, 25% of shares will vest.

·   If any of the three-year hurdles are not met but Middleburg’s five-year average ROAA for 2011 – 2015 equals or exceeds the peer group 50th percentile, a total of 75% of granted shares vest (minus any shares already vested).

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In addition to the performance requirements that may trigger vesting, any remaining shares will vest on December 31, 2016 provided that the grant recipient has maintained service for the entire six-year period.  This six-year service requirement for full vesting of shares, which is twice the vesting period of our prior stock grants, is intended to further emphasize the long-term nature of our stock incentives.

Timing of Long-Term Incentive Awards

Our normal practice with respect to the timing of long-term incentive awards is to grant stock-based awards to executive officers once each year, usually during the first quarter. On May 1, 2011, the Company granted restricted stock awards to nine executives and officers of the Company.

We are aware that the release of some information, including information related to our financial results, may have an impact on the market price of our common stock.  However, our granting of performance and service-vested restricted stock is not directly impacted by our stock price on the grant date.  Rather, the incentive value to executives and officers that receive grants is determined by the number of shares they ultimately earn and the price of the stock when such shares vest and are transferred.  Furthermore, we believe that a consistent application of our stock awarding practices from year to year is vital and that the restricted stock awarded by the Compensation Committee represents an effective incentive for management to create long-term shareholder value.

Retirement, Deferred Compensation, Pension Plans and Life Insurance

We believe that non-qualified deferred compensation plays an important role in retaining key executives, as well as helping them provide for retirement.  The Committee retained an independent consultant to analyze the total retirement benefits provided by us and Social Security to executives with various amounts of compensation and years of service so that the Committee could determine appropriate non-qualified deferred compensation levels.

Because of limits under our qualified retirement plans on the amount of deferrals that executives can make, and on the amount of defined benefits they can receive, several of our executives can expect to have a lower level of compensation replaced or a lower retirement replacement ratio than that targeted for all other employees. Consequently, as a matter of “pension equity”, the Company has adopted several non-qualified deferred compensation plans.  The Compensation Committee oversees these plans and the Compensation Committee considers these plans when reviewing an executive’s total annual compensation and determining the annual and long-term compensation components described above.  These plans are described below.

Defined Benefit Pension Plan

We have a Defined Benefit Pension Plan that conforms to the Employee Retirement Income Security Act of 1974, as amended.  This noncontributory pension plan was adopted to provide assistance to our employees with meeting their personal post-retirement income requirements.The amount of benefits payable under the plan is determined by an employee’s period of credited service. The amount of normal retirement benefit will be determined based on a participant’s credited service, earnings and the benefit formula as described in the plan’s adoption agreement. The plan provides for early retirement for participants with 10 years of vesting service and the attainment of age 55.  A participant who terminates employment with five or more years of vesting service will be entitled to a benefit. The benefits are payable in single or joint and survivor annuities, as well as a lump sum payment option upon retirement or separation of service (subject to limitations as described in the plan’s adoption agreement).

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Compensation under the plan is limited to $245,000 in 2011 by the Internal Revenue Code of 1986, as amended. Additional information on the plan is set forth under “Pension Benefits” below.

Based on the Board of Directors approval to freeze the Defined Benefit Pension Plan, the plan was terminated on February 1, 2011.

    Money Purchase Pension Plan (MPPP)

The Middleburg Financial Corporation Defined Benefit Pension Plan was replaced by a Money Purchase Pension Plan put into effect on January 1, 2010.  Employees who have attained age 21 and completed one year of service are eligible to participate in the plan as of the first day of the month following the completion of such eligibility provisions.  Employees earn a year of service if they complete 1,000 hours of service in a plan year.  Service with Middleburg Financial Corporation and its subsidiaries prior to the effective date of the Plan counts toward a participant’s initial eligibility to participate in the Plan.

Each year, a participant receives an allocation of an employer contribution equal to 6.5% of total compensation (up to the statutory maximum) plus an additional contribution of 2.75% of compensation in excess of the Social Security taxable wage base (up to the statutory maximum).  To receive an allocation, the participant must complete 1,000 hours of service in the plan year and be employed on the last day of the plan year, or die, retire, or become disabled during the plan year.

A participant becomes vested in his employer contributions according to a schedule which allows for graduated vesting and full vesting after five years of service. Service with Middleburg Financial Corporation and its subsidiaries prior to the effective date of the Plan count toward a participant’s vested percentage.

Assets are held in a pooled investment account and managed by Middleburg Trust Company.  Distributions are made upon termination of employment, death or disability.  The automatic form of benefit is a joint and 50% survivor annuity for married participants and single life annuity for single participants.  Participants may elect, with spousal consent, payment in a lump sum.  Annuity payments will be provided through an annuity contract purchased from a life insurance company.

The Plan is administered by the Benefits Committee.  The Plan may be amended from time to time by the Board or its delegate.  The Plan may be terminated by the Board at any time for any reason.

401(k) Savings Plan

We have a 401(k) Savings Plan available to all eligible employees. The plan’s primary purpose is to allow employees to save for retirement on a pre-tax basis.  The plan provides for matching contributions by us equal to 50% of the first six percent of salary reduction contributions made by the employee.  The plan also provides for discretionary profit sharing contributions to be made by us and allocated to participant accounts in proportion to the participant’s compensation.

The 401(k) savings plan was adopted to provide assistance to our employees with meeting their personal post-retirement income requirements.

Supplemental Executive Retirement Plans

The Company has a Supplemental Executive Retirement Plan (“SERP”), in which Mr. Shook, Mr. Culver, Mr. Mehra and Mr. Hartley participate.  The SERP is a defined contribution plan.  Each year, we

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credit to their individual accounts an amount equal to a specified percentage of each participant’s annual base compensation, including any pre-tax deferrals of base compensation.  The specified percentage for each participant varies depending on individual circumstances (e.g., age, years of service until retirement).  Benefits will ultimately be a function of amounts credited to the account.

The SERP is unfunded for tax purposes; the participants are general unsecured creditors of the Bank in the amount of their promised benefits or balances.

Split Dollar Life Insurance Plans

Mr. Shook, Mr. Culver, Mehra, Mr. Hartley and Mr. Antrim participate in a Split Dollar Life Insurance Plan.  In the event Mr. Shook, Mr. Mehra, Mr. Culver, or Mr. Hartley was to die while employed by the Company, each executive’s named beneficiary would receive a death benefit of three times annual compensation.  In the event Mr. Antrim was to die while employed by the Company, his named beneficiary would receive a death benefit of $200,000.  Death benefit obligations under the Plan are supported by life insurance policies insuring the participants and owned by the Company.  No benefit is paid under the Plan for a death that occurs after termination of service from the Company.

The Split Dollar Life Insurance Plans were adopted to assist both the Company and the beneficiaries of the executives with any known and unknown financial obligations in the event of the executive’s death during employment with the Company.

Severance Payments

We have severance arrangements with the Mr. Shook, Chief Executive Officer and President, Mr. Culver, Chief Operating Officer, Mr. Mehra, Chief Financial Officer, and Mr. Hartley, President, Middleburg Investment Group, as stated in their employment agreements.

The Compensation Committee believes that the components, the rationale and the methodology of the executive compensation strategy provide each executive with a comprehensive compensation package that is competitive and ultimately rewarding for the executive, the Company and its shareholders. For more information see “Payment upon Termination or Change in Control” on page 39.

Annual Compensation of Executive Officers

In the following tables and discussion, we summarize the compensation earned during 2011 by persons serving as Chief Executive Officer, Chief Financial Officer and our three next most highly compensated executive officers with over $100,000 in total compensation for services rendered in all capacities during 2011, collectively referred to as the “named executive officers.” 

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Summary Compensation Table

Name and Principal Position	Year	Salary ($)	Stock Awards(1) ($)	Options Awards(1) ($)	Non-Equity Incentive Plan Compensation(2) ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings(3) ($)	Other Compensation(4) ($)	Total ($)
Gary R. Shook President & Chief   Executive Officer	2011 2010 2009	350,000 311,400 240,000	225,900 80,370 --	-- -- 18,172	57,260 -- 10,200	-- 11,320 15,142	121,033 82,299 40,818	754,193 485,389 324,332
Jeffrey H. Culver EVP, Chief Operating Officer	2011 2010 2009	217,000 193,000 193,000	180,720 44,544 --	-- -- 9,030	37,519 -- --	-- 5,300 --	36,009 22,033 --	471,248 264,877 202,030
Rajesh Mehra EVP, Chief Financial Officer	2011 2010 2009	201,000 190,000 190,000	97,890 43,848 --	-- -- 8,900	33,034 -- --	-- -- --	56,190 34,579 40,000	388,114 268,427 238,900
David L. Hartley  President Middleburg Investment Group	2011 2010 2009	185,000 171,800 165,211	75,300 38,112 --	-- -- 8,263	30,414 -- 23,079	-- 15,930 10,229	48,456 4,021 2,853	339,170 229,863 209,635
John Mason L. Antrim President, Middleburg Trust Company	2011 2010 2009	172,000 172,000 165,060	-- 38,085 --	-- -- 8,256	28,277 -- --	-- 22,851 --	32,957 25,780 3,309	233,234 258,716 176,625

(1)   These amounts reflect the grant date fair values computed in accordance with FASB ASC topic 718 for equity awards granted in 2011, 2010 and 2009.  For information on the model and assumptions used to calculate the compensation cost, see Note 8 to the audited consolidated financial statements in our 2011 10-K.  See the Grants of Plan-Based Awards Table on page 34 for the grant date fair value of each stock grant awarded in 2011.  During 2011, 5,744 shares awarded under the 2006 Equity Compensation Plan were forfeited.

(2)   The amounts reflected are the awards under the 2011 Management Incentive Plan, as described in “Compensation   Discussion and Analysis”.

(3)   The Company terminated its defined benefit pension plan effective February 1, 2011.  All benefit liabilities were paid out to participants or transferred to an insurance company by December 31, 2011.  Accordingly, the change in accumulated pension value during 2011 was a negative value based on the accumulated value at December 31, 2010.  The changes in accumulated pension value for Messrs. Shook, Culver, Hartley, and Antrim during 2011 were declines in value of $69,334, $34,058, $88,142, and $240,528 respectively.  Mr. Mehra did not participate in the defined benefit pension plan because it was frozen prior to his hire date.

(4)   Additional information regarding other compensation is provided in the “Components of Other Compensation” tablebelow.

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Components of Other Compensation

				Company Contributions to 401(k) Plan(3)	Contributions
			Club Memberships(2)		to Supplemental Executive	Director Fees(5)	Split Dollar Insurance(6)
		Automobile(1)			Retirement Plan(4)			Other(7)	Total
Name	Year	($)	($)	($)	($)	($)	($)	($)	($)
Gary R. Shook	2011	1,570	4,234	8,250	77,350	7,800	1,197	20,632	121,033
Jeffrey C. Culver	2011	2,679	--	6,130	9,006	--	423	17,771	36,009
Rajesh Mehra	2011	6,400	--	5,950	21,306	--	696	21,838	56,190
David L. Hartley	2011	8,800	--	3,898	17,205	1,800	527	16,226	48,456
John Mason L. Antrim	2011	9,600	2,040	3,417	--	1,800	588	15,512	32,957

(1)   Amounts disclosed in this column represent estimated cost of personal use of a Company-provided automobile or an automobile allowance provided by the Company.

(2)   Amounts disclosed in this column represent the cost of membership fees for social clubs.

(3)   Amounts disclosed in this column represent payments by the Company to the executive officer’s account in the Company’s 401(k) plan.  The Company made matching contributions during the year.

(4)   Amounts disclosed in this column represent credits to the executive’s accounts under the SERP of an amount equal the participant’s compensation in excess of the social security wage base times the employer social security contribution percentage and the equivalent amount of matching contributions under our 401(k) plan for compensation in excess of $110,000 (as adjusted under the Internal Revenue Code).

(5)   Amounts disclosed in this column represent director fees paid to Mr. Shook, Mr.  Antrim and Mr. Hartley for attendance at meetings of the boards of directors of the Company, Middleburg Trust Company and Middleburg Investment Group.

(6)   Amounts disclosed in this column represent the imputed income to the executive resulting from the split dollar insurance plans.  The imputed income is equal to the plan benefit times the insurance carrier rate for the executive times the number of months covered during the year.

(7)   Amounts disclosed in this column represent the cost of other items considered to be compensation including employer contributions to the Company’s Money Purchase Pension Plan (“MPPP”), non-incentive bonuses, and miscellaneous elements of compensation not disclosed in other columns.

Supplemental Discussion of Compensation

All compensation that we pay to our named executive officers is determined as described above in our “Compensation Discussion and Analysis” section. Salary and bonus earnings comprise between 63% - 97% of total 2011 compensation for the above named executive officers.

On April 30, 2010, the Company and Mr. Shook entered into an employment agreement effective May 1, 2010. The term of Mr. Shook’s agreement was automatically extended on May 31, 2011, and  will automatically extend for one additional year on each May 31 thereafter unless notice of non-renewal is provided or employment otherwise terminates according to the agreement’s provisions.  Mr. Shook’s agreement provides a base salary along with eligibility to receive salary increases and incentive, bonus, or other compensation and reimbursement for certain country club membership dues as directed by the Compensation Committee of the Board of Directors.  Mr. Shook’s employment may be terminated by us with or without cause.  Information on severance payments is provided in the section entitled “Payments upon Termination or Change in Control”.  Mr. Shook’s contract contains restrictive covenants that apply

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during employment and for a period following termination.  For a 12-month period following termination, he is precluded from holding a key officer position in nearby financial institutions.  For a 24-month period following termination, he is also precluded from soliciting our employees or soliciting or providing competitive services to our customers as well as owning, in the aggregate, greater than 1% of the outstanding shares of a competitor public company.

We entered into an initial two-year employment agreement with Raj Mehra as the Company’s Executive Vice President and Chief Financial Officer on May 1, 2010 and continuing until April 30, 2012, unless terminated earlier.  Beginning April 30, 2012 and each April 30th thereafter, the contract term automatically extends for an additional year, unless notice of non-renewal is provided or employment otherwise terminates.  Mr. Mehra is eligible to receive base salary increases and incentive, bonus compensation or other compensation, and to participate in the Company’s benefit plans and programs for which he is or will be eligible.  His employment may be terminated by the Company with or without cause.  Information on severance payments is provided in the section entitled “Payments Upon Termination or Change in Control”.  Mr. Mehra’s contract contains restrictive covenants that apply during employment and for a period following termination.  For a 12-month period following termination, he is precluded from holding a key officer position in nearby financial institutions.  For a 24-month period following termination, he is also precluded from soliciting our employees or soliciting or providing competitive services to our customers.

We entered into an employment agreement with Jeffrey H. Culver, as Executive Vice President and Chief Operating Officer, with an initial term until April 30, 2012, unless terminated earlier.  Beginning April 30, 2012, and each April 30 thereafter, the contract term automatically extends for an additional year, unless notice of non-renewal is provided or employment services terminate.  The agreement sets an initial salary of $193,000 and provides an automobile and reimbursement of related expenses.  All other elements of Mr. Culver’s agreement mirror those of Mr. Mehra’s agreement as described above.

We also entered into an employment agreement with David L. Hartley, as President of Middleburg Investment Group, with an initial term ending December 31, 2011. The term of Mr. Hartley’s agreement was automatically extended on December 31, 2011. Beginning December 31, 2012, and each December 31st thereafter, the contract term automatically extends for an additional year, unless notice of non-renewal is provided or employment services terminate.  The agreement sets an initial salary of $185,000 with an initial bonus of $15,000 which was paid on December 31, 2010, and provides an automobile allowance and reimbursement of reasonable expenses.  All other elements of Mr. Hartley’s agreement mirror those of Mr. Mehra’s and Mr. Culver’s agreements as described above.

The following table contains information concerning estimated future payouts under our non-equity incentive plan and stock awards granted to our named executive officers during 2011.

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Grants of Plan-Based Awards for Fiscal Year 2011

					All Other
					Stock	Grant Date
					Awards:	Fair Value
		Estimated Future Payouts			Number of	of Stock
		Under Non-Equity Incentive			Shares of	and
		Plan Awards(1)			Stock or	Options
	Grant	Threshold	Target	Maximum	Units	Awards
Name	Date	($)(2)	($)(3)	($)(4)	(#)	($)(5)
Gary R. Shook	5/1/2011	- -	- -	- -	15,000	225,900
	N/A	35,000	70,000	105,000	- -	- -
Jeffrey Culver	5/1/2011	- -	- -	- -	12,000	180,720
	N/A	21,700	43,400	65,100	- -	- -
Rajesh Mehra	5/1/2011	- -	- -	- -	6,500	97,890
	N/A	20,000	40,300	60,300	- -	- -
David Hartley	5/1/2011	- -	- -	- -	5,000	75,300
	N/A	18,500	37,000	55,500	- -	- -
John Mason L. Antrim	5/1/2011	- -	- -	- -	- -	- -
	N/A	17,200	34,400	51,600	- -	- -

(1) All estimated future payouts were set under the 2011  Management Incentive Plan, as described in “Compensation Discussion and Analysis” above.

(2) The “threshold” amount represented 10% of the individual’s base salary 2011.

(3) The “target” amount represented 20% of the individual’s base salary for 2011.

(4) The “maximum” amount represented 30% of the individual’s base salary for 2011.

(5) The amounts in this column reflect the fair market value of restricted stock awards and option awards on the date of grant determined in accordance with generally accepted accounting principles.  We value restricted stock awards at the date of grant based on the number of shares subject to the grant multiplied by the closing price of our common stock on the date of grant.  We determined the fair market value of option awards based on the Black-Sholes- Merton option pricing model.

Stock Options and Stock Awards

The following table provides information concerning unexercised options and unvested restricted stock unit awards held by the named executive officers of the Company as of December 31, 2011. Information regarding the amounts in the columns follows the table.

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Outstanding Equity Awards at Fiscal Year-End 2011

		Option Awards (1)								Stock Awards (2)
														Equity
										Equity				Incentive
										Incentive				Plan Awards:		All Other				All Other
		Number of		Number of						Plan Awards:				Market or		Stock				Stock
		Securities		Securities						Number of				Payout Value		Awards:				Awards:
		Underlying		Underlying						Unearned				of Unearned		Number of				Market Value
		Unexercised		Unexercised		Option		Option		Shares That				Shares That		Shares That				of Shares
	Grant	Options(#)		Options(#)		Exercise		Expiration		Have Not				Have Not		Have Not				That Have
Name	Date	Exercisable		Unexercisable		Price ($)		Date		Vested (#)				Vested ($) (6)		Vested (#)				Not Vested ($)
Gary R. Shook	12/31/2008		--		--		--		--		1,674	(3	)		23,855		--				--
	3/16/2009		5,104		5,105		14.00	3/15/2019
	3/15/2010		--		--		--		--		1,989	(3	)		28,343		1,492	(3	)		21,261
	5/1/2010		--		--		--		--		--				--		1,042	(4	)		14,849
	5/1/2011		--		--		--		--		--				--		15,000	(5	)		213,750
Jeffrey H. Culver	10/15/2003		500		--		37.00	10/14/2013			--				--		--				--
	12/31/2008		--		--		--		--		1,201	(3	)		17,114		--				--
	3/16/2009		2,536		2,537		14.00	3/15/2019			--				--		--				--
	3/15/2010		--		--		--		--		1,600	(3	)		22,800		1,200	(3	)		17,100
	5/1/2011		--		--		--		--		--				--		12,000	(5	)		171,000
Rajesh Mehra	11/2/2009		2,500		2,500		14.00	11/1/2019			--				--		--				--
	3/15/2010		--		--		--		--		1,575	(3	)		22,444		1,181	(3	)		16,829
	5/1/2011		--		--		--		--		--				--		6,500	(5	)		92,625
David Hartley	10/15/2003		500		--		37.00	10/14/2013			--				--		--				--
	3/16/2009		2,321		2,321		14.00	3/15/2019			--				--		--				--
	3/15/2010		--		--		--		--		1,369	(3	)		19,508		1,027	(3	)		14,635
	5/1/2011		--		--		--		--		--				--		5,000	(5	)		71,250
John Mason Antrim	4/17/2002		10,000		--		22.75	4/16/2012			--				--		--				--
	4/18/2003		8,000		--		22.00	4/17/2013			--				--		--				--
	1/21/2004		500		--		39.40	1/20/2014			--				--		--				--
	12/31/2008		--		--		--		--		1,345	(3	)		19,166		--				--
	3/16/2009		2,320		2,318		14.00	3/16/2019			--				--		--				--
	3/15/2010		--		--		--		--		1,368	(3	)		19,494		1,026	(3	)		14,621

(1) Options were granted under our 1997 Stock Incentive Plan and our 2006 Equity Compensation Plan.  The exercise price of each option equals the market price of our stock on the date of grant.  Options under the 1997 plan vested over the three years following the date of grant.  The options granted under the 2006 plan will vest on the grant anniversary date at the following percentages per year over a period of three years: 25%, 25%, and 50%.

(2) These columns report the number and market value, respectively, of shares granted under the 2006 Equity Compensation Plan.

(3) These restricted stock awards are composed of 50% performance-based vesting shares and 50% that is subject to time-based vesting.  Those shares subject to time vesting conditions will vest on the grant anniversary date at the following percentages over a period of three years: 25%, 25%, and 50%.  The shares that are subject to performance vesting are evaluated at each monitoring interval by the Compensation Committee to determine the level of vesting, if any.

(4) This stock award is a time-based restricted stock award which vests at 100% one year after the award date.

(5) The May1, 2011 restricted stock award is a time vested award with performance-based vesting acceleration provisions.  Additional information on this award and its vesting provisions is provided under the “Components of Executive compensation” section of this Proxy document.  (See page 27)

(6) Market value is calculated by multiplying the number of shares not vested at December 31, 2011 by the closing price of the Company's stock on that date, $14.25.

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Option Exercises and Stock Vested

In the table below, we list information on the vesting of stock awards during the year ended December 31, 2011, for each of the named executive officers.

Option Exercises and Stock Vested

Fiscal Year 2011

	Option Awards		Stock Awards
	Number of Shares	Value	Number of Shares	Value
	Acquired on	Realized on	Acquired on	Realized on
Name	Exercise	Exercise (1)	Vesting	Vesting  (2)
	(#)	($)	(#)	($)
Gary R. Shook	-	-	1,387	20,909
Jeffrey H. Culver	-	-	783	11,810
Raj Mehra	-	-	394	5,914
David L.Hartley	-	-	342	5,133
John Mason Antrim	-	-	771	11,646
(1) The value realized on exercise is calculated as the number of shares acquired on exercise multiplied by the difference between the
market value of the underlying shares on the exercise date and the exercise price of the  options on the exercise date.
(2) The value realized on vesting is calculated as the number of shares acquired on vesting multiplied by the market value of the
underlying shares on the vesting dates of March, 15, 2011 ($15.01) and June 11, 2011 ($15.18).

Equity Compensation Plans

The following table sets forth information as of December 31, 2011, with respect to compensation plans under which shares of Common Stock are authorized for issuance.

Plan Category	Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (1)
Equity Compensation Plans
Approved by Shareholders:
1997 Incentive Stock Option Plan	100,000	24.25	--
2006 Equity Compensation Plan	146,391	14.00	94,255
Equity Compensation Plans Not Approved by Shareholders (2)	--	--	--
Total	246,391	20.40	94,255

(1) Amounts exclude any securities to be issued upon exercise of outstanding options, warrants and rights.

(2) The Company does not have any equity compensation plans that have not been approved by shareholders.

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Pension Benefits

The following table sets forth information as of December 31, 2011, with respect to the pension plans in which the named executive officers participate:

Pension Benefits

Fiscal Year 2011

		Number of Years	Present Value of	Payments During
		Credited Service	Accumulated Benefit	Last Fiscal Year
Name	Plan Name	(1)	($) (1)	($)(1)
Gary R. Shook	VBA Master Defined Benefit Plan	N/A	--	89,342
Rajesh Mehra  (2)	VBA Master Defined Benefit Plan	N/A	--	--
Jeffrey H. Culver	VBA Master Defined Benefit Plan	N/A	--	41,291
David L.Hartley	VBA Master Defined Benefit Plan	N/A	--	112,756
John Mason Antrim	VBA Master Defined Benefit Plan	N/A	--	316,365

(1)   The Company terminated its defined benefit pension plan effective February 1, 2011.  A final payout of all benefit liabilities was made to participants or transferred to an insurance company by December 31, 2011.

(2)   Mr. Mehra was hired after the Defined Benefit Plan was frozen and, accordingly, did not participate in the plan.

Supplemental Discussion of Pension Benefits

On September 30, 2009, the Board froze the Defined Benefit Plan and the Company terminated this plan effective February 1, 2011.  A final payout of all benefit liabilities was made to participants or transferred to an insurance company by December 31, 2011.  As discussed under “Retirement, Deferred Compensation, Pension Plans and Life Insurance”, we replaced this plan with the Money Purchase Pension Plan effective January 1, 2010.  This noncontributory defined benefit pension plan was available for employees who were age 21 and had completed one year of eligible service.  Benefits payable under the plan are based on years of credited service on or after October 1, 2000 but before September 30, 2009, when additional benefits were no longer accrued, average compensation over the highest consecutive three years, and the plan’s benefit formula (1% of average compensation times years of credited service plus 0.65% of average compensation in excess of the Social Security Wage Base times years of credited service up to a maximum of 35 years).  For years of service prior to October 1, 2000, benefits are based on the accrued benefit as of September 30, 2000, under the plan’s prior benefit formula.  For 2011 the maximum allowable annual benefit payable by the plan at age 65 (the plan’s normal retirement age) was $195,000 and the maximum compensation covered by the plan was $245,000.  Reduced early retirement benefits are payable on or after age 55 upon completion of 10 years of credited service. Amounts payable under the plan are not subject to reduction for Social Security benefits.

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Changes in Nonqualified Deferred Compensation

The following table shows the changes in the balance of the named executive officers’ nonqualified deferred compensation plans during 2011:

Nonqualified Deferred Compensation

Fiscal Year 2011

Name	Registrant Contributions in Last Fiscal Year (1) ($)	Aggregate Earnings in Last Fiscal Year ($)	Aggregate Withdrawals and/or Distributions	Aggregate Balance at Last Fiscal Year End ($)
Gary R. Shook	77,350	3,931	--	169,224
Rajesh Mehra	21,306	722	--	38,178
Jeffrey H. Culver	9,006	181	--	13,240
David L. Hartley	17,205	--	--	17,205
John Mason Antrim	--	--	--	--

(1)   The amounts reflected are also included in the “All Other Compensation” column of the “Summary Compensation Table” above.

Supplemental Discussion of Deferred Compensation

We believe that non-qualified deferred compensation plays an important role in retaining key executives, as well as helping them provide for retirement.  The Committee retained an independent consultant to analyze the total retirement benefits provided by us and Social Security to executives with various amounts of compensation and years of service so that the Committee could determine appropriate non-qualified deferred compensation levels.

Because of limits under our qualified retirement plans on the amount of deferrals that executives can make, and on the amount of defined benefits they can receive, several of executives can expect to have a lower level of compensation replaced or a lower retirement replacement ratio than targeted for all employees.  Accordingly, we have adopted several non-qualified deferred compensation plans.

We also provide a Supplemental Executive Retirement Plan (SERP) for Mr. Shook, Mr. Culver, Mr. Mehra, and Mr. Hartley.  Under their plans, we credit their accounts under such SERP for an amount equal the participant’s compensation in excess of the social security wage base times the employer social security contribution percentage and the equivalent amount of matching contributions under our 401(k) plan for compensation in excess of $110,000  (as adjusted under the Internal Revenue Code).

In the event of termination of service, other than due to death, accumulated Company contributions plus earnings will be paid to the participant over a 10 year period.  Mr. Shook, Mr. Culver,

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Mr. Mehra, and Mr. Hartley receive their accrued benefits under the Plan in the event of a pre-retirement death.

Payments Upon Termination or Change in Control

Mr. Gary. R. Shook is entitled to severance payments in connection with certain types of termination of employment under his employment agreement.  Under the terms of his employment agreement, if Mr. Shook is terminated without “cause” or resigns for “good reason” (as defined in the agreement), he is entitled to severance payments as follows:  300% of his current salary; any bonus or incentive earned but not yet paid for prior years; a prorated amount for bonus or incentive earned in the termination year; continuation, for the time period allowed by COBRA, of group health and dental benefits if he elects COBRA coverage, and payment of club membership dues and the continued provision of an automobile and related expense reimbursement  for the longer of 36 months or the end of the agreement’s term.

Mr. Raj Mehra, Mr. Jeffrey Culver, and Mr. David Hartley are also entitled to severance payments in connection with certain types of termination of employment that are essentially the same as provided for Mr. Shook, with the exception that 200% of current salary is paid to Mr. Culver along with automobile related benefits for a two year period. There are severance payments of  200% of current salary for Mr. Mehra and Mr. Hartley as well but no continued payments for club dues or automobile-related benefits beyond the separation date. Payment of these amounts are subject the provision of Section 409A of the Internal Revenue Code which may require that disbursement of benefits be postponed for six months from date of termination.  In addition, each officer’s compensation related to the change of control and employment termination will be reduced as necessary to avoid any “excess parachute payment” as defined by Section 280G of the Internal Revenue Code.  This adjustment is intended to preserve the tax deductibility of these payments by the Company and avoid any related excise taxes under Section 4999 of the Internal Revenue Code.

In addition, severance payments may be paid to Mr. Shook, Mr. Mehra, Mr. Culver, and Mr. Hartley related to a Change of Control.  If any executive’s employment is terminated without “cause” or if the executive resigns for “good reason” within one year after a Change of Control, the Company will pay Mr. Shook 300% of his highest cash compensation earned after 2009 and pay Mr. Culver, Mr. Mehra, and Mr. Hartley 200% of their highest cash compensation earned after 2009.  Payment of these amounts are subject the provision of Section 409A of the Internal Revenue Code which may require that disbursement of benefits be postponed for six months from date of termination.  In addition, each officer’s compensation related to the change of control and employment termination will be reduced as necessary to avoid any “excess parachute payment” as defined by Section 280G of the Code.  This adjustment is intended to preserve the tax deductibility of these payments by the Company and avoid any related excise taxes under Section 4999 of the Code.

If Mr. Shook, Mr. Mehra, Mr. Culver, or Mr. Hartley breach any of the covenants in their respective agreements related to the protection of confidential information, non-disclosure, non-competition and non-solicitation, or is terminated “for cause,” he is not entitled to any further compensation.

The following table summarizes the payments to be made to Mr. Shook, Mr. Mehra, Mr. Culver, and Mr. Hartley under the circumstances described above, assuming the event of termination occurred as of December 31, 2011:

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		No Change in Control	After Change in Control
		Termination	Termination
		Without Cause	Without Cause
		or for Good Reason	or for Good Reason
Name	Benefit	($)	($)
Gary R. Shook	Post termination 3X base salary	1,050,000	1,050,000
	Health care benefits continuation	44,357	44,357
	Club membership continuation	10,617	10,617
	Provided auto continuation	9,120	9,120
	Total	1,114,094	1,114,094
Rajesh Mehra	Post termination 2X base salary	402,000	402,000
	Health care benefits continuation	9,939	9,939
	Club membership continuation Provided auto continuation	0 0	0 0
	Total	411,939	411,939
Jeffrey H. Culver	Post termination 2X base salary	434,000	434,000
	Health care benefits continuation	32,608	32,608
	Club membership continuation	0	0
	Provided auto continuation	5,358	5,358
	Total	471,966	471,966
David L. Hartley	Post termination 2X base salary	370,000	370,000
	Health care benefits continuation	29,568	29,568
	Club membership continuation	0	0
	Provided auto continuation	0	0
	Total	399,568	399,568

The Company has not entered into any other agreements or arrangements that provide for the payment of severance or similar benefits to Mr. Shook, Mr. Mehra, Mr. Culver, or Mr. Hartley in connection with a termination of employment for any reason and whether or not it is in connection with a change in control.

The Company has not entered into any agreement or other arrangement that provides for the payment of severance or similar benefits in connection with a termination of employment for any reason, and whether or not it is in connection with a change in control, with any of the other named executive officers.

Certain Relationships and Related Transactions

Some of the directors and officers of the Company are at present, as in the past, customers of the Company and its subsidiaries, and the Company and its subsidiaries have had, and expect to have in the future, banking transactions in the ordinary course of its business with directors, officers, principal shareholders and their associates, on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with persons not related to the Company.  These transactions do not involve more than the normal risk of collectability or present other unfavorable features.  The balance of loans to directors, executive officers and their associates totaled

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$18.4 million at December 31, 2011, or 17.1% of the Company’s equity capital at that date.   Additionally, unused commitments to extend credit to directors, executive officers and their associates amounted to an additional $3.8 million at December 31, 2011, or 3.5% of the Company’s equity capital at that date.

There are no legal proceedings to which any director, officer or principal shareholder, or any affiliate thereof, is a party that would be material and adverse to the Company.

The Company has not adopted a formal policy that covers the review and approval of related person transactions by the Board of Directors.  The Board, however, does review all such transactions that are proposed to it for approval.  During such a review, the Board will consider, among other things, the related person’s relationship to the Company, the facts and circumstances of the proposed transaction, the aggregate dollar amount of the transaction, the related person’s relationship to the transaction and any other material information.  The Audit Committee of the Board also has the responsibility to review significant conflicts of interest involving directors or executive officers.

In addition, any extensions of credit to our directors and officers are required to be on substantially the same terms as comparable transactions to non-related parties at the time of the extension of credit, pursuant to Regulation O – Loans to Executive Officers, Directors and Principal Shareholders of Member Banks – of the banking regulations applicable to us.

PROPOSAL TWO

RATIFICATION OF APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Our Board of Directors has appointed the firm of Yount, Hyde & Barbour, P.C., as independent public accountants to audit the consolidated financial statements of the Company for the fiscal year ending December 31, 2012.  Yount, Hyde & Barbour, P.C., has audited the financial statements of the Company and the Bank for over 30 years.  Representatives of Yount, Hyde & Barbour, P.C., are expected to be present at the Annual Meeting, will have an opportunity to make a statement, if they desire to do so, and are expected to be available to respond to appropriate questions from shareholders.

Although our Bylaws do not require shareholder ratification or other approval of the retention of our independent registered public accounting firm, as a matter of good corporate governance, the Board of Directors is requesting that the shareholders ratify the appointment of Yount, Hyde & Barbour, P.C., as our independent registered public accounting firm for the fiscal year ending December 31, 2012.  A majority of the votes cast by the holders of our common stock is required for the ratification of the appointment of Yount, Hyde & Barbour, P.C., as our independent registered public accounting firm.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE TO RATIFY THE APPOINTMENT OF YOUNT, HYDE & BARBOUR, P.C., AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2012.

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AUDIT INFORMATION

Fees of Independent Public Accountants

Yount, Hyde & Barbour, P.C., audited our consolidated financial statements for the fiscal years ended December 31, 2011 and 2010.  The following information is furnished with respect to fees billed for professional services rendered to us by Yount, Hyde & Barbour, P.C., for the fiscal years ended December 31, 2011 and 2010.

Audit Fees

The aggregate fees billed by Yount, Hyde & Barbour, P.C., for professional services rendered for the audit of the Company’s annual financial statements for the fiscal years ended December 31, 2011 and 2010, and also for the review of the financial statements included in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, and services that are normally provided in connection with statutory and regulatory filings and engagements, for those fiscal years were $180,350 for 2011 and $175,150 for 2010.

Audit Related Fees

The aggregate fees billed by Yount, Hyde & Barbour, P.C., for professional services for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and not reported under the heading “Audit Fees” above for the fiscal years ended December 31, 2011, and December 31, 2010, were $82,200 and $71,900, respectively.  During 2011 and 2010, audit related fees included consultation concerning financial accounting and reporting standards, employee benefit plan audits, agreed upon procedures engagement for the Middleburg Trust Company and the SysTrust information technology audit.

Tax Fees

The aggregate fees billed by Yount, Hyde & Barbour, P.C., for professional services for tax compliance for the fiscal years ended December 31, 2011, and December 31, 2010, were $24,650 and $23,925, respectively.  During 2011 and 2010, these services included preparation of federal and state income tax returns, preparation of trust income tax returns related to the trust preferred entities and consultation regarding tax compliance issues.  

All Other Fees

There were no fees billed by Yount, Hyde & Barbour, P.C., for any other services rendered to the Company for the fiscal years ended December 31, 2011 and 2010.

Pre-Approval Policies

All audit related services, tax services and other services were pre-approved by the Audit Committee, which concluded that the provision of such services by Yount, Hyde & Barbour, P.C., was

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compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.  The Audit Committee’s Charter provides for pre-approval of audit, audit-related and tax services.  The Charter authorizes the Audit Committee to delegate to one or more of its members pre-approval authority with respect to permitted services.

Audit Committee Report

The Audit Committee is comprised of five directors, each of whom is independent within the meaning of the listing standards of the NASDAQ Stock Market.  The Audit Committee operates under a written charter adopted by the Board of Directors.  The Audit Committee reviews its charter at least annually and revises it as necessary to ensure compliance with current regulatory requirements.

Management is responsible for the establishment and maintenance of the Company’s internal controls over financial reporting, assessing the effectiveness of those internal controls over financial reporting, maintaining the financial reporting process to ensure the accuracy and integrity of the Company’s consolidated financial statements, and compliance with laws and regulations and ethical business standards.  The independent registered accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards and the Company’s internal controls over financial reporting, expressing an opinion as to the conformity of the Company’s consolidated financial statements with U.S. generally accepted accounting principles and expressing an opinion as to management’s assessment of the effectiveness of the Company’s internal control over financial reporting and the effectiveness of the Company’s internal control over financial reporting.

The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the independent registered accounting firm engaged for the purpose of issuing an audit report and performing other audit, review, or attestation services for the Company.  Because the Company outsources its internal audit function, the Audit Committee is also responsible for the appointment, compensation, retention and oversight of the work of the independent registered accounting firm engaged to perform internal audit services for the Company.  The Audit Committee also monitors and oversees the accounting and financial reporting processes of the Company on behalf of the Board of Directors.

In this context, the Audit Committee has met and held discussions with management and Yount, Hyde & Barbour, P.C., the Company’s independent registered public accounting firm.  Management represented to the Audit Committee that the Company’s consolidated financial statements for the year ended December 31, 2011, were prepared in accordance with U.S. generally accepted accounting principles.  The Audit Committee has reviewed and discussed these consolidated financial statements with management and Yount, Hyde & Barbour, P.C., including the scope of the independent registered public accounting firm’s responsibilities, critical accounting policies, and practices used and significant reporting issues and judgments made in connection with the preparation of such financial statements.

The Audit Committee has discussed with Yount, Hyde & Barbour, P.C., the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380) as adopted by the Public Company Accounting Oversight Board in Rule 3200T.  In addition, the Audit Committee has received from the independent registered accounting firm the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and discussed with them their independence from the Company and its management.  Moreover, the Audit Committee has considered whether the independent registered accounting firm’s provision of other non-audit services to the Company is compatible with maintaining the auditor’s independence.

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Finally, the Audit Committee has discussed with management its assessment of the effectiveness of internal control over financial reporting and has also discussed with Yount, Hyde & Barbour, P.C. its opinion as to the effectiveness of the Company’s internal control over financial reporting.

Based upon its discussions with management and Yount, Hyde & Barbour, P.C. and its review of the representations of management and the report of Yount, Hyde & Barbour, P.C. to the Audit Committee, the Audit Committee recommended that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, for filing with the Securities and Exchange Commission.  By recommending that the audited consolidated financial statements be so included, the Audit Committee is not opining on the accuracy, completeness or presentation of the information contained in the audited financial statements.

Audit Committee

Howard M. Armfield, Chairman

Henry F. Atherton, III

J. Bradley Davis

Gary D. LeClair

Janet A. Neuharth

March 14, 2012

PROPOSALS FOR 2013 ANNUAL MEETING OF SHAREHOLDERS

Under the regulations of the SEC, any shareholder desiring to make a proposal to be acted upon at the 2013 annual meeting of shareholders must cause such proposal to be received, in proper form, at the Company’s principal executive offices at 111 West Washington Street, Middleburg, Virginia 20117, no later than December 3, 2012, in order for the proposal to be considered for inclusion in the Company’s Proxy Statement for that meeting.  The Company presently anticipates holding the 2013 Annual Meeting of Shareholders on May 1, 2013.

The Company’s Bylaws also prescribe the procedure that a shareholder must follow to nominate directors or to bring other business before shareholders’ meetings outside of the proxy statement process.  For a shareholder to nominate a candidate for director at the 2013 annual meeting of shareholders, notice of nomination must be received by the Secretary of the Company not less than 60 days and not more than 90 days prior to the date of the 2013 annual meeting.  The notice must describe various matters regarding the nominee and the shareholder giving the notice.  For a shareholder to bring other business before the 2013 annual meeting of shareholders, notice must be received by the Secretary of the Company not less than 60 days and not more than 90 days prior to the date of the 2013 annual meeting.  The notice must include a description of the proposed business, the reasons therefore, and other specified matters.  Any shareholder may obtain a copy of the Company’s Bylaws, without charge, upon written request to the Secretary of the Company.  Based upon an anticipated date of May 1, 2013, for the 2013 Annual Meeting of Shareholders, the Company must receive any notice of nomination or other business no later than March 2, 2013, and no earlier than January 31, 2013.

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OTHER MATTERS

THE COMPANY’S 2011 ANNUAL REPORT TO SHAREHOLDERS (THE “ANNUAL REPORT”), WHICH INCLUDES A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011 (EXCLUDING EXHIBITS), AS FILED WITH THE SEC, IS BEING MAILED TO SHAREHOLDERS WITH THIS PROXY STATEMENT.  A COPY OF THE ANNUAL REPORT MAY ALSO BE OBTAINED WITHOUT CHARGE BY WRITING TO THE CORPORATE SECRETARY, WHOSE ADDRESS IS 111 WEST WASHINGTON STREET, MIDDLEBURG, VIRGINIA 20117.  THE ANNUAL REPORT IS NOT PART OF THE PROXY SOLICITATION MATERIALS.

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[FORM OF PROXY]