10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

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

of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2012

or

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

of the Securities Exchange Act of 1934

For the transition period from ____________ to _____________

Commission File Number:  0-24159

MIDDLEBURG FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

(703) 777-6327

(Registrant’s telephone number, including area code)

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

Yes  R No  £

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

Yes  R No  £

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

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

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

Yes  £ No  R

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.   7,052,554 shares of Common Stock as of October 31, 2012.

1

MIDDLEBURG FINANCIAL CORPORATION

INDEX

Part I.    Financial Information			Page No.
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets	3
		Consolidated Statements of Income	4
		Consolidated Statements of Comprehensive Income	5
		Consolidated Statements of Changes in Shareholders’ Equity	6
		Consolidated Statements of Cash Flows	7
		Notes to Consolidated Financial Statements	9
	Item 2.	Management’s Discussion and Analysis of Financial
		Condition and Results of Operations	32
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
	Item 4.	Controls and Procedures	49
Part II.     Other Information			50
	Item 1.	Legal Proceedings	50
	Item 1A.	Risk Factors	50
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
	Item 3.	Defaults upon Senior Securities	50
	Item 4.	Mine Safety Disclosures	50
	Item 5.	Other Information	50
	Item 6.	Exhibits	50
Signatures			51

2

PART I.  FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

MIDDLEBURG FINANCIAL CORPORATION
Consolidated Balance Sheets
(In thousands, except for share and per share data)
	(Unaudited)
	September 30, 2012		December 31, 2011
ASSETS
Cash and due from banks	$	8,550	$	6,163
Interest-bearing deposits with other institutions		62,973		45,107
Total cash and cash equivalents		71,523		51,270
Securities available for sale, at fair value		308,374		308,242
Loans held for sale		92,501		92,514
Restricted securities, at cost		6,765		7,117
Loans receivable, net of allowance for loan losses of $13,941 at September 30, 2012 and $14,623 at December 31, 2011		678,423		656,770
Premises and equipment, net		20,618		21,306
Goodwill and identified intangibles		6,060		6,189
Other real estate owned, net of valuation allowance of $3,138 at September 30, 2012 and $1,522 at December 31, 2011		11,933		8,535
Prepaid federal deposit insurance		3,266		3,993
Accrued interest receivable and other assets		36,498		36,924
TOTAL ASSETS	$	1,235,961	$	1,192,860
LIABILITIES
Deposits:
Non-interest-bearing demand deposits	$	176,522	$	143,398
Savings and interest-bearing demand deposits		512,780		460,576
Time deposits		295,145		325,895
Total deposits		984,447		929,869
Securities sold under agreements to repurchase		32,767		31,686
Short-term borrowings		17,657		28,331
FHLB borrowings		72,912		82,912
Subordinated notes		5,155		5,155
Accrued interest payable and other liabilities		7,590		6,894
Commitments and contingent liabilities		—		—
TOTAL LIABILITIES		1,120,528		1,084,847
SHAREHOLDERS' EQUITY
Common stock ($2.50 par value; 20,000,000 shares authorized, 7,052,554 and 6,996,932 issued and outstanding at September 30, 2012 and December 31, 2011, respectively)		17,357		17,331
Capital surplus		43,746		43,498
Retained earnings		45,168		41,157
Accumulated other comprehensive income		6,264		3,926
Total Middleburg Financial Corporation shareholders' equity		112,535		105,912
Non-controlling interest in consolidated subsidiary		2,898		2,101
TOTAL SHAREHOLDERS' EQUITY		115,433		108,013
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,235,961	$	1,192,860

See accompanying notes to the consolidated financial statements.

3

MIDDLEBURG FINANCIAL CORPORATION

Consolidated Statements of Income

(In thousands, except for per share data)

	Unaudited						Unaudited
	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2012			2011			2012			2011
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	9,189		$	9,846		$	28,565		$	29,378
Interest and dividends on securities available for sale
Taxable	1,537			1,727			4,976			4,877
Tax-exempt	596			592			1,799			1,757
Dividends	46			36			135			108
Interest on deposits in banks and federal funds sold	39			30			88			90
Total interest and dividend income	11,407			12,231			35,563			36,210
INTEREST EXPENSE
Interest on deposits	1,728			2,287			5,467			6,927
Interest on securities sold under agreements to repurchase	83			84			250			209
Interest on short-term borrowings	74			58			311			174
Interest on FHLB borrowings and other debt	305			312			889			914
Total interest expense	2,190			2,741			6,917			8,224
NET INTEREST INCOME	9,217			9,490			28,646			27,986
Provision for loan losses	635			1,024			2,156			2,565
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES	8,582			8,466			26,490			25,421
NONINTEREST INCOME
Service charges on deposit accounts	557			538			1,625			1,553
Trust services income	928			932			2,828			2,725
Gains on loans held for sale	6,161			3,846			15,088			8,373
Gains on securities available for sale, net	164			141			452			263
Total other-than-temporary impairment losses	—			(16		)	(46		)	(33		)
Portion of loss recognized in other comprehensive income	—			(5		)	46			11
Net impairment losses	—			(21		)	—			(22		)
Commissions on investment sales	117			100			389			293
Fees on mortgages held for sale	37			84			143			325
Other service charges, commissions and fees	120			98			391			347
Bank-owned life insurance	118			123			363			385
Other operating income	116			6			194			45
Total noninterest income	8,318			5,847			21,473			14,287
NONINTEREST EXPENSE
Salaries and employees' benefits	7,276			6,900			22,139			19,665
Net occupancy and equipment expense	1,732			1,700			5,265			5,016
Advertising	652			446			1,399			887
Computer operations	322			365			1,101			1,073
Other real estate owned	1,506			689			2,666			1,639
Other taxes	203			205			611			607
Federal deposit insurance expense	262			244			781			1,009
Other operating expenses	1,883			1,689			6,501			5,044
Total noninterest expense	13,836			12,238			40,463			34,940
Income before income taxes	3,064			2,075			7,500			4,768
Income tax expense	565			454			1,578			1,072
NET INCOME	2,499			1,621			5,922			3,696
Net (income) loss attributable to noncontrolling interest	(785		)	(223		)	(856		)	128
Net income attributable to Middleburg Financial Corporation	$	1,714		$	1,398		$	5,066		$	3,824
Earnings per share:
Basic	$	0.24		$	0.20		$	0.72		$	0.55
Diluted	$	0.24		$	0.20		$	0.72		$	0.55
Dividends per common share	$	0.05		$	0.05		$	0.15		$	0.15

See accompanying notes to the consolidated financial statements.

4

MIDDLEBURG FINANCIAL CORPORATION

Consolidated Statements of Comprehensive Income

(In thousands)

	Unaudited						Unaudited
	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2012			2011			2012			2011
Net income	$	2,499		$	1,621		$	5,922		$	3,696
Other comprehensive income, net of tax:
Unrealized holding gains arising during the period (net of tax of $673, $942, $1,422 and $3,035 respectively for the periods presented)	1,307			1,828			2,758			5,891
Reclassification adjustment for gains included in net income  (net of tax of $56, $47, $154, and $89 respectively for the periods presented)	(108		)	(94		)	(298		)	(174		)
Unrealized losses on securities for which other-than-temporary impairment has been recognized in earnings (net of tax)	—			14			—			15
Unrealized (loss) on interest rate swap  (net of tax of $18, $169, $63, and $202 respectively for the periods presented)	(35		)	(329		)	(122		)	(393		)
Total other comprehensive income	1,164			1,419			2,338			5,339
Total comprehensive income	3,663			3,040			8,260			9,035
Comprehensive (income) loss attributable to non-controlling interest	(785		)	(223		)	(856		)	128
Comprehensive income attributable to Middleburg Financial Corporation	$	2,878		$	2,817		$	7,404		$	9,163

See accompanying notes to the consolidated financial statements.

5

Middleburg Financial Corporation

Consolidated Statements of Changes in Shareholders' Equity

For the Nine Months Ended September 30, 2012 and 2011

(In Thousands, Except Share Data)

(Unaudited)

Middleburg Financial Corporation Shareholders

	Common Stock			Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total
Balances - December 31, 2010	$	17,314		$	43,058		$	37,593		$	(1,012	)	$	3,040		$	99,993
Net income (loss)							3,824						(128		)	3,696
Other comprehensive income, net of tax										5,339						5,339
Cash dividends declared							(1,044		)							(1,044		)
Vesting of restricted stock awards (7,922 shares)	19			(19		)										—
Cancellation of restricted stock (946 shares)	(2		)	(12		)										(14		)
Distributions to non-controlling interest													(644		)	(644		)
Share-based compensation				247												247
Balances - September 30, 2011	$	17,331		$	43,274		$	40,373		$	4,327		$	2,268		$	107,573
Balances - December 31, 2011	$	17,331		$	43,498		$	41,157		$	3,926		$	2,101		$	108,013
Net income							5,066						856			5,922
Other comprehensive income, net of tax										2,338						2,338
Cash dividends declared							(1,055		)							(1,055		)
Vesting of restricted stock awards (12,932 shares)	33			(33		)										—
Cancellation of restricted stock (2,736 shares)	(7		)	(36		)										(43		)
Distributions to non-controlling interest													(59		)	(59		)
Share-based compensation				317												317
Balances - September 30, 2012	$	17,357		$	43,746		$	45,168		$	6,264		$	2,898		$	115,433

 See accompanying notes to the consolidated financial statements.

6

MIDDLEBURG FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
	Unaudited
	For the nine months ended
	September 30, 2012			September 30, 2011
Cash Flows From Operating Activities
Net income	$	5,922		$	3,696
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,442			1,391
(Undistributed earnings) of affiliate	(4		)	(21		)
Provision for loan losses	2,156			2,565
Net (gain) on securities available for sale	(452		)	(263		)
Other than temporary impairment loss	—			22
Net loss on disposal of assets	8			45
Premium amortization on securities, net	2,765			2,029
Origination of loans held for sale	(696,327		)	(470,006		)
Proceeds from sales of loans held for sale	711,428			470,830
Net (gains) on mortgages held for sale	(15,088		)	(8,373		)
Share-based compensation	317			247
Net loss on sale of other real estate owned	128			336
Valuation adjustment on other real estate owned	1,616			774
Changes in other assets and liabilities:
Decrease in prepaid FDIC insurance	727			927
(Increase) in other assets	(1,081		)	(3,303		)
Increase in other liabilities	696			1,851
Net cash provided by operating activities	$	14,253		$	2,747
Cash Flows from Investing Activities
Proceeds from maturity, principal paydowns and calls of securities available for sale	$	71,036		$	42,050
Proceeds from sale of securities available for sale	39,475			26,154
Purchase of securities available for sale	(109,228		)	(112,259		)
Redemption (purchase) of restricted stock	352			(931		)
Proceeds from disposition of fixed assets	—			57
Purchases of bank premises and equipment	(541		)	(1,430		)
Net (increase) in loans	(31,091		)	(20,641		)
Proceeds from sale of other real estate owned	2,126			2,917
Net cash (used in) investing activities	$	(27,871	)	$	(64,083	)

See Accompanying Notes to Consolidated Financial Statements.

7

MIDDLEBURG FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Continued)
(In Thousands)
	For the nine months ended
	September 30, 2012			September 30, 2011
Cash Flows from Financing Activities
Net increase in non-interest-bearing and interest-bearing demand deposits and savings accounts	$	85,328		$	34,080
Net (decrease) in time deposits	(30,750		)	(14,690		)
Increase in securities sold under agreements
to repurchase	1,081			5,724
Proceeds from short-term borrowings	89,424			67,470
Payments on short-term borrowings	(100,098		)	(67,926		)
Proceeds from FHLB borrowings	62,912			40,000
Payments on FHLB borrowings	(72,912		)	(25,000		)
Distributions to non-controlling interest	(59		)	(644		)
Payment of dividends on common stock	(1,055		)	(1,044		)
Net cash provided by financing activities	$	33,871		$	37,970
Increase (decrease) in cash and and cash equivalents	20,253			(23,366		)
Cash and Cash Equivalents
Beginning	51,270			64,724
Ending	$	71,523		$	41,358
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	7,080		$	8,345
Income taxes	$	1,850		$	450
Supplemental Disclosure of Non-cash Transactions
Unrealized gain on securities available for sale	$	3,727		$	8,685
Change in market value of interest rate swap	$	(185	)	$	(596	)
Transfer of loans to other real estate owned	$	7,431		$	2,266
Loans originated from sale of other real estate owned	$	149		$	533

See accompanying notes to the consolidated financial statements.

8

MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the nine months ended September 30, 2012

(Unaudited)

Note 1.   General

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at September 30, 2012 and December 31, 2011, the results of operations and comprehensive income for the three and nine months ended September 30, 2012 and 2011, and changes in shareholders’ equity and cash flows for the nine months ended September 30, 2012 and 2011, in accordance with accounting principles generally accepted in the United States of America.  The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”) of Middleburg Financial Corporation (the “Company”).  The results of operations for the three and nine month periods ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year.

In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date these financial statements were issued.  Management has concluded there were no additional material subsequent events to be disclosed.

Certain amounts in the 2011 consolidated financial statements have been reclassified to conform to the 2012 presentation.  Commissions and fees paid on the origination of mortgages held for sale and commissions paid on investments sales have been netted against the related revenue amounts for these sources of revenue for both 2012 and 2011.  Management considers the net presentation to more accurately reflect the net contribution to consolidated net income of the mortgage and wealth management segments.

Note 2.   Stock–Based Compensation Plan

As of September 30, 2012, the Company sponsored one stock-based compensation plan (the 2006 Equity Compensation Plan), which provides for the granting of stock options, stock appreciation rights, stock awards, performance share awards, incentive awards and stock units.  The 2006 Equity Compensation Plan was approved by the Company’s shareholders at the Annual Meeting held on April 26, 2006 and has succeeded the Company’s 1997 Stock Incentive Plan.  Under the plan, the Company may grant stock-based compensation to its directors, officers, employees and other persons the Company determines have contributed to the profits or growth of the Company.  The Company may grant awards of up to 255,000 shares of common stock under the 2006 Equity Compensation Plan.

The Company recognized $317,000 for stock-based compensation expenses for the nine months ended September 30, 2012.

The following table summarizes stock options awarded under the 2006 Equity Compensation Plan and remaining un-exercised options under the 1997 Stock Incentive Plan at the end of the reporting period.

	September 30, 2012
	Shares		Weighted Average Exercise Price			Aggregate Intrinsic Value
Outstanding at beginning of year	160,171		$	20.40
Granted	—		—
Exercised	—		—
Forfeited	(78,000	)	(23.64		)
Outstanding at end of period	82,171		$	(17.32	)	$	—

As of the end of the reporting period, 79,671 options were vested and exercisable representing 22,000 shares issued under the original 1997 plan and 57,671 vested options under the 2006 Plan.  As of September 30, 2012,  no outstanding options were unvested from the original 1997 plan and 2,500 outstanding options were not vested under the 2006 plan.  At September 30, 2012, the weighted average exercise price of these stock options was greater than the average market price during the period.  The weighted average remaining contractual term for options outstanding and exercisable at September 30, 2012 was

9

4.9 years.  As of September 30, 2012,  there was $600 of total unrecognized compensation expense related to stock option awards under the 2006 Equity Compensation Plan.

The following table summarizes restricted stock awarded under the 2006 Equity Compensation Plan at the end of the reportable period.

	September 30, 2012
	Shares		Weighted Average Grant-Date Fair Value			Aggregate Intrinsic Value
Outstanding at beginning of year	86,220		$	14.79
Granted	49,975		16.86
Vested	(12,932	)	(13.28		)
Forfeited	(2,808	)	(14.59		)
Non-vested at end of period	120,455		$	15.66		$	2,139,281

The weighted average remaining contractual term for non-vested restricted stock at September 30, 2012 was 4.2 years.  As of September 30, 2012, there was approximately $1,471,144 of total unrecognized compensation expense related to non-vested restricted stock awards under the 2006 Equity Compensation Plan.

Note 3.   Securities

Amortized costs and fair values of securities available for sale at September 30, 2012 are summarized as follows:

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	13,246	$	411	$	(3	)	$	13,654
Obligations of states and
political subdivisions		70,460		3,852		(8	)		74,304
Mortgage-backed securities:
Agency		159,790		5,994		(272	)		165,512
Non-agency		15,015		298		(8	)		15,305
Other asset backed securities		31,575		703		(86	)		32,192
Corporate preferred stock		68		—		(7	)		61
Corporate securities		8,230		11		(895	)		7,346
Total	$	298,384	$	11,269	$	(1,279	)	$	308,374

Amortized costs and fair values of securities available for sale at December 31, 2011 are summarized as follows:

10

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	9,068	$	293	$	(18	)	$	9,343
Obligations of states and
political subdivisions		65,090		2,503		(51	)		67,542
Mortgage-backed securities:
Agency		181,797		5,482		(209	)		187,070
Non-agency		18,737		67		(598	)		18,206
Other asset backed securities		16,110		90		(404	)		15,796
Corporate preferred stock		68		—		(28	)		40
Corporate securities		10,612		5		(641	)		9,976
Trust-preferred securities		497		—		(228	)		269
Total	$	301,979	$	8,440	$	(2,177	)	$	308,242

The amortized cost and fair value of securities available for sale as of September 30, 2012, by contractual maturity are shown below.  Maturities may differ from contractual maturities in mortgage-backed, other asset-backed, and corporate securities because the mortgages, loans, and securities underlying the securities may be called or repaid without any penalties.  Therefore, these securities are not included in the maturity categories in the following maturity summary.

	September 30, 2012
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	4,863	$	4,892
Due after one year through
five years		22,698		22,772
Due after five years through
ten years		31,943		33,717
Due after ten years		32,432		33,923
Mortgage-backed securities		174,805		180,817
Other asset backed securities		31,575		32,192
Corporate preferred stock		68		61
Total	$	298,384	$	308,374

Proceeds from the sale of securities during the nine months ended September 30, 2012 were $39.5 million and net gains of $452,000 were realized on those sales.  The tax expense applicable to the net realized gains amounted to $154,000.  Additionally, no loss on securities with other than temporary impairment was recognized during the nine months ended September 30, 2012.

The carrying value of securities pledged to qualify for fiduciary powers, to secure public monies and for other purposes as required by law amounted to $143.2 million at September 30, 2012.

At September 30, 2012, investments in an unrealized loss position that were temporarily impaired are as follows:

11

	September 30, 2012
						(In thousands)
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	2,568	$	(3	)	$	57	$	—		$	2,625	$	(3	)
Obligations of states and
political subdivisions	1,302		(8		)	—		—			1,302		(8		)
Mortgage backed securities:
Agency	16,213		(272		)	—		—			16,213		(272		)
Non-agency	2,760		(8		)	—		—			2,760		(8		)
Other asset backed securities	4,231		(56		)	1,431		(30		)	5,662		(86		)
Corporate preferred stock	—		—			32		(7		)	32		(7		)
Corporate securities	—		—			7,105		(895		)	7,105		(895		)
Total	$	27,074	$	(347	)	$	8,625	$	(932	)	$	35,699	$	(1,279	)

At December 31, 2011, investments in an unrealized loss position that were temporarily impaired are as follows:

	December 31, 2011
						(In thousands)
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	2,045	$	(18	)	$	26	$	—		$	2,071	$	(18	)
Obligations of states and
political subdivisions	43		—			2,243		(51		)	2,286		(51		)
Mortgage backed securities:
Agency	22,768		(209		)	—		—			22,768		(209		)
Non-agency	4,773		(103		)	4,522		(495		)	9,295		(598		)
Other asset backed securities	10,572		(362		)	1,467		(42		)	12,039		(404		)
Corporate preferred stock	—		—			11		(28		)	11		(28		)
Corporate securities	7,775		(227		)	2,057		(414		)	9,832		(641		)
Trust-preferred securities	—		—			269		(228		)	269		(228		)
Total	$	47,976	$	(919	)	$	10,595	$	(1,258	)	$	58,571	$	(2,177	)

A total of 51 securities have been identified by the Company as temporarily impaired at September 30, 2012.  Of the 51 securities, 50 are investment grade and 1 is speculative grade.  Agency, non-agency mortgage-backed securities, and corporate debt securities make up the majority of temporarily impaired securities at September 30, 2012.  The speculative grade security is an asset backed security that is collateralized by trust preferred issuances of financial institutions.  Market prices change daily and are affected by conditions beyond the control of the Company.  Although the Company has the ability to hold these securities until the temporary loss is recovered, decisions by management may necessitate a sale before the loss is fully recovered.  No such sales are anticipated or required as of September 30, 2012.  Investment decisions reflect the strategic asset/liability objectives of the Company.  

Trust preferred securities

As of September 30, 2012, the Company held no trust preferred securities in its investment portfolio.

12

The Company previously held trust preferred securities that were identified as other-than-temporarily impaired.  These securities were sold during the second quarter of 2012 with a recognized net loss of approximately $142,000.  Additionally, these securities incurred cumulative other-than-temporary credit losses recognized in prior period earnings of approximately $2.4 million through December 31, 2011.

The Company also previously held one trust preferred security that was not considered other-than-temporarily impaired while held in its investment portfolio.  The security was sold during the third quarter of 2012 with a recognized net loss of approximately $149,000.  No credit losses were recognized on this security while held.

Other-than-temporary impairment losses

At September 30, 2012, the Company concluded that no adverse change in cash flows occurred during the quarter and did not consider any portfolio securities to be other-than-temporarily impaired.  Based on this analysis and because the Company does not intend to sell securities prior to maturity and it is more likely than not the Company will not be required to sell any securities before recovery of amortized cost basis, which may be at maturity; and, for debt securities related to corporate securities, determined that there was no other adverse change in the cash flows as viewed by a market participant, the Company does not consider the investments in these assets to be other than temporarily impaired at September 30, 2012.  However, there is a risk that the Company’s continuing reviews could result in recognition of other-than-temporary impairment charges in the future.  Accordingly, during the nine months ended September 30, 2012, no credit related impairment losses were recognized by the Company compared to $22,000 recognized for the nine months ended September 30, 2011.

Note 4.   Loan Portfolio

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

	September 30, 2012					December 31, 2011
	Outstanding Balance		Percent of Total Portfolio			Outstanding Balance		Percent of Total Portfolio
	(In Thousands)					(In Thousands)
Real estate loans:
Construction	$	48,740		7.0	%	$	42,208		6.3	%
Secured by farmland		9,438		1.4	%		10,047		1.5	%
Secured by 1-4 family residential		254,079		36.7	%		236,760		35.3	%
Other real estate loans		258,679		37.4	%		275,428		41.0	%
Commercial loans		108,962		15.7	%		94,427		14.1	%
Consumer loans		12,466		1.8	%		12,523		1.8	%
		692,364		100.0	%		671,393		100.0	%
Less allowance for loan losses		13,941					14,623
Net loans	$	678,423				$	656,770

Loans presented in the table above exclude loans held for sale.  The Company had $92.5 million in mortgages held for sale at both  September 30, 2012 and December 31, 2011.

13

The following table presents a contractual aging of the recorded investment in past due loans by class of loans as of September 30, 2012 and December 31, 2011.

	September 30, 2012
					(In thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	175	$	—	$	3,142	$	3,317	$	45,423	$	48,740
Secured by farmland		—		—		—		—		9,438		9,438
Secured by 1-4 family residential		4,838		208		2,817		7,863		246,216		254,079
Other real estate loans		855		253		6,794		7,902		250,777		258,679
Commercial loans		15		126		1,960		2,101		106,861		108,962
Consumer loans		61		22		33		116		12,350		12,466
Total	$	5,944	$	609	$	14,746	$	21,299	$	671,065	$	692,364

	December 31, 2011
					(In thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	696	$	—	$	3,285	$	3,981	$	38,227	$	42,208
Secured by farmland		415		—		—		415		9,632		10,047
Secured by 1-4 family residential		2,036		1,721		7,639		11,396		225,364		236,760
Other real estate loans		6,079		1,736		1,466		9,281		266,147		275,428
Commercial loans		1,751		121		315		2,187		92,240		94,427
Consumer loans		23		—		—		23		12,500		12,523
Total	$	11,000	$	3,578	$	12,705	$	27,283	$	644,110	$	671,393

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of September 30, 2012 and December 31, 2011:

	September 30, 2012				December 31, 2011
	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
	(In Thousands)
Real estate loans:
Construction	$	2,943	$	268	$	3,804	$	86
Secured by 1-4 family residential		8,653		399		11,839		1,097
Other real estate loans		8,881		130		7,567		—
Commercial loans		2,176		60		2,136		50
Consumer loans		30		3		—		—
Total	$	22,683	$	860	$	25,346	$	1,233

If interest on non-accrual loans had been accrued, such income would have approximated $1.0 million for the nine months ended September 30, 2012 and $1.5 million for the year ended December 31, 2011.

14

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

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

Substandard:  Loans classified as substandard have a well-defined weakness that jeopardizes the liquidation of the debt.  Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.

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

Loss: Loans are classified as loss when they are deemed uncollectable and are charged off immediately.

The following tables present a summary of loan classifications by class of loan as of September 30, 2012 and December 31, 2011:

September 30, 2012

(In Thousands)

	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	27,342	$	8,629	$	230,963	$	218,427	$	102,620	$	12,310	$	600,291
Special Mention		15,810		199		4,235		23,155		3,442		60		46,901
Substandard		4,553		610		17,396		16,044		2,772		66		41,441
Doubtful		1,035		—		1,485		1,053		128		30		3,731
Loss		—		—		—		—		—		—		—
Ending Balance	$	48,740	$	9,438	$	254,079	$	258,679	$	108,962	$	12,466	$	692,364

December 31, 2011

(In thousands)

	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	22,250	$	9,235	$	207,332	$	239,156	$	87,731	$	12,448	$	578,152
Special Mention		5,764		199		10,773		23,434		4,127		61		44,358
Substandard		13,163		613		17,062		12,592		2,374		14		45,818
Doubtful		1,031		—		1,593		246		195		—		3,065
Loss		—		—		—		—		—		—		—
Ending Balance	$	42,208	$	10,047	$	236,760	$	275,428	$	94,427	$	12,523	$	671,393

The following table presents loans identified as impaired by class of loan as of and for the nine months ended September 30, 2012:

15

	September 30, 2012
	(In thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,629	$	2,180	$	—	$	2,071	$	—
Secured by farmland		—		—		—		—		—
Secured by 1-4 family residential		3,136		3,554		—		3,360		36
Other real estate loans		3,814		3,857		—		4,438		91
Commercial loans		1,938		1,938		—		1,919		—
Consumer loans		—		—		—		—		—
Total with no related allowance		10,517		11,529		—		11,788		127
With an allowance recorded:
Real estate loans:
Construction		1,314		2,539		198		1,913		—
Secured by farmland		—		—		—		—		—
Secured by 1-4 family residential		6,802		7,460		2,577		7,034		30
Other real estate loans		7,852		7,952		1,408		7,975		51
Commercial loans		471		492		361		467		13
Consumer loans		30		30		30		30		—
Total with a related allowance		16,469		18,473		4,574		17,419		94
Total	$	26,986	$	30,002	$	4,574	$	29,207	$	221

The following table presents loans identified as impaired by class of loan as of and for the year ended December 31, 2011:

16

	December 31, 2011
	(In thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	2,992	$	3,652	$	—	$	3,948	$	—
Secured by farmland		—		—		—		—
Secured by 1-4 family residential		3,978		4,656		—		4,424		7
Other real estate loans		4,732		4,775		—		5,729		95
Commercial loans		1,751		1,751		—		1,735		—
Consumer loans		—		—		—		—		—
Total with no related allowance		13,453		14,834		—		15,836		102
With an allowance recorded:
Real estate loans:
Construction		812		842		328		812		—
Secured by farmland		—		—		—		—
Secured by 1-4 family residential		8,697		10,417		3,076		9,047		17
Other real estate loans		5,581		5,581		1,192		5,076		64
Commercial loans		656		678		502		662		14
Consumer loans		—		—		—		—		—
Total with a related allowance		15,746		17,518		5,098		15,597		95
Total	$	29,199	$	32,352	$	5,098	$	31,433	$	197

The “Recorded Investment” amounts in the tables above represent the outstanding principal balance on each loan represented in the tables plus any accrued interest receivable on such loans.  The “Unpaid Principal Balance” represents the outstanding principal balance on each loan represented in the tables plus any amounts that have been charged off on each loan.

Troubled Debt Restructurings

Included in certain loan categories in the impaired loans table above are troubled debt restructurings (“TDRs”) that were classified as impaired.  The total balance of TDRs at September 30, 2012 was $11.5 million of which $7.2 million were included in the Company’s non-accrual loan totals at that date and $4.3 million represented loans performing as agreed according to the restructured terms. This compares with $11.2 million in total restructured loans at December 31, 2011, an increase of $0.3 million or 2.7%.  The amount of the valuation allowance related to total TDRs was $2.0 million and $1.7 million as of September 30, 2012 and December 31, 2011 respectively.

The $7.2 million in nonaccrual TDRs as of September 30, 2012 is comprised of $74,000 in real estate construction loans, $2.3 million in 1-4 family real estate loans, $4.7 million in other real estate loans, and $213,000 in consumer loans.  The $4.3 million in TDRs which were performing as agreed under restructured terms as of September 30, 2012 is comprised of $1.3 million in 1-4 family real estate loans, $2.8 million in other real estate loans and $233,000 in commercial loans.  The Company considers all loans classified as TDRs to be impaired.

The following table presents by class of loan, information related to loans modified in a TDR during the three months ended September 30, 2012:

17

	Loans modified as TDR's
	For the three months ended
	September 30, 2012
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)
Real estate loans:
Construction	—	$	—	$	—
Secured by farmland	—	—		—
Secured by 1-4 family residential	3	2,163		1,595
Other real estate loans	1	1,528		1,524
Total real estate loans	4	3,691		3,119
Commercial loans	—	—		—
Consumer loans	1	217		213
Total	5	$	3,908	$	3,332

During the three months ended September 30, 2012, the Company modified five loans that were considered to be TDRs and are summarized in the above table.  The interest rate was lowered on three of the loans and repayment terms were modified on the other two.

	Loans modified as TDR's
	For the nine months ended
	September 30, 2012
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)
Real estate loans:
Construction	—	$	—	$	—
Secured by farmland	—	—		—
Secured by 1-4 family residential	5	3,075		2,486
Other real estate loans	1	1,528		1,524
Total real estate loans	6	4,603		4,010
Commercial loans	—	—		—
Consumer loans	1	217		213
Total	7	$	4,820	$	4,223

During the nine months ended September 30, 2012, the Company modified seven loans that were considered to be TDRs and are summarized on the above table.  The interest rate was lowered for five of the loans, term was extended for one loan, and repayment terms were modified for two loans.

During the nine months ended September 30, 2012, the Company identified four loans with an aggregate recorded investment of $2.6 million as TDRs for which the allowance for loan losses had previously been measured under a general allowance methodology. Upon identifying these loans as TDRs, the Company evaluated them for impairment.  On the basis of a current evaluation of loss for these loans, they required the establishment of an allowance for loan losses of approximately $536,000 at September 30, 2012.

As of September 30, 2012, four loans restructured as TDRs during the nine month period with an aggregate recorded investment of $3.3 million are included in the Company’s non-accrual loans total.  The remaining loans identified as TDRs

18

during this period are included in the Company's non-performing assets that are performing as agreed under the restructured terms.

No loans modified as TDRs from October 1, 2011 through September 30, 2012 subsequently defaulted (i.e., 90 days or more past due following a restructuring) during the three and nine months ended September 30, 2012.

Management considers troubled debt restructurings and subsequent defaults in restructured loans in the determination of the adequacy of the Company’s allowance for loan losses.  When identified as a TDR, a loan is evaluated for potential loss based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs if the loan is collateral dependent.  Loans identified as TDRs frequently are on non-accrual status at the time of the restructuring and, in some cases, partial charge-offs may have already been taken against the loan and a specific allowance may have already been established for the loan.  As a result of any modification as a TDR, the specific reserve associated with the loan may be increased.  Additionally, loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future defaults.  If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment.  As a result, any specific allowance may be increased, adjustments may be made in the allocation of the total allowance balance, or partial charge-offs may be taken to further write-down the carrying value of the loan. 

Note 5.   Allowance for Loan Losses

The following tables present a rollforward of the changes in the allowance for loan losses balance by class of loan,  the balances in the allowance for loan losses and the recorded investment in loans by class of loan and, for the ending loan balances, based on impairment evaluation method as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	(In Thousands)
	Real Estate Construction			Real Estate Secured by Farmland			Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balances as of December 31, 2011	$	897		$	110		$	7,465		$	4,385		$	1,621		$	145		$	14,623
Chargeoffs	(1,521		)	—			(740		)	(715		)	(189		)	(46		)	(3,211		)
Recoveries	1			—			268			65			9			30			373
Provision	1,668			(3		)	(1,158		)	1,029			553			67			2,156
Balances as of September 30, 2012	$	1,045		$	107		$	5,835		$	4,764		$	1,994		$	196		$	13,941
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	198		$	—		$	2,577		$	1,408		$	361		$	30		$	4,574
Collectively evaluated for impairment	847			107			3,258			3,356			1,633			166			9,367
Total ending allowance balances	$	1,045		$	107		$	5,835		$	4,764		$	1,994		$	196		$	13,941
Ending loan recorded investment balances:
Individually evaluated for impairment	$	2,943		$	—		$	9,937		$	11,667		$	2,409		$	30		$	26,986
Collectively evaluated for impairment	45,797			9,438			244,142			247,012			106,553			12,436			665,378
Total ending loan balances	$	48,740		$	9,438		$	254,079		$	258,679		$	108,962		$	12,466		$	692,364

19

	December 31, 2011
	(In Thousands)
	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balances at December 31, 2010	$	4,684		$	107	$	3,965		$	4,771		$	1,055		$	385		$	14,967
Chargeoffs	(467		)	—		(2,062		)	(438		)	(180		)	(318		)	(3,465		)
Recoveries	29			—		41			98			41			28			237
Provision	(3,349		)	3		5,521			(46		)	705			50			2,884
Balances at December 31, 2011	$	897		$	110	$	7,465		$	4,385		$	1,621		$	145		$	14,623
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	328		$	—	$	3,076		$	1,192		$	502		$	—		$	5,098
Collectively evaluated for impairment	569			110		4,389			3,193			1,119			145			9,525
Total ending allowance balances	$	897		$	110	$	7,465		$	4,385		$	1,621		$	145		$	14,623
Ending loan recorded investment balances:
Individually evaluated for impairment	$	3,804		$	—	$	12,675		$	10,313		$	2,407		$	—		$	29,199
Collectively evaluated for impairment	38,404			10,047		224,085			265,115			92,020			12,523			642,194
Total ending loan balances	$	42,208		$	10,047	$	236,760		$	275,428		$	94,427		$	12,523		$	671,393

Note 6.   Earnings Per Share

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

	Three months ended
	September 30, 2012			September 30, 2011
	Weighted Average Shares	Per share Amount		Weighted Average Shares	Per share Amount
Basic earnings per share	7,036,536	$	0.24	6,996,932	$	0.20
Effect of dilutive securities:
stock options and grants	15,324	$	—	1,562	$	—
Diluted earnings per share	7,051,860	$	0.24	6,998,494	$	0.20

	Nine months ended
	September 30, 2012			September 30, 2011
	Weighted Average Shares	Per share Amount		Weighted Average Shares	Per share Amount
Basic earnings per share	7,026,663	$	0.72	6,968,999	$	0.55
Effect of dilutive securities:
stock options and grants	9,987	$	—	2,296
Diluted earnings per share	7,036,650	$	0.72	6,971,295	$	0.55

20

At September 30, 2012 and 2011, stock options, restricted grants and warrants representing approximately 32,500 and 318,100 shares, respectively, were not included in the calculation of earnings per share because they would have been anti-dilutive.

Note 7.   Segment Reporting

The Company operates in a decentralized fashion in three principal business activities: retail banking services; wealth management services; and mortgage banking services.  Revenue from retail banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts.

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

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

Middleburg Bank and the Company have assets in custody with Middleburg Trust Company and accordingly pay Middleburg Trust Company a monthly fee.  Middleburg Bank also pays interest to Middleburg Trust Company and Southern Trust Mortgage on deposit accounts that each company has at Middleburg Bank.  Southern Trust Mortgage has an outstanding line of credit of $5.0 million and a participation agreement of $75.0 million for which it pays interest to Middleburg Bank on any outstanding balance.  Middleburg Bank provides office space and data processing and accounting services to Southern Trust Mortgage for which it receives rental and fee income.  Transactions related to these relationships are eliminated to reach consolidated totals.

The following table presents segment information for the three months ended September 30, 2012 and 2011, respectively.

	For the three months ended													For the three months ended
	September 30, 2012													September 30, 2011
	Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated			Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated
(In Thousands)
Revenues:
Interest income	$	11,262	$	2	$	630		$	(487	)	$	11,407		$	11,956	$	2	$	617		$	(344	)	$	12,231
Trust and investment fee income		—		1,080		—			(35	)		1,045			—		1,032		—			—			1,032
Other income		1,046		—		6,307			(80	)		7,273			970		—		3,846			(1	)		4,815
Total operating income		12,308		1,082		6,937			(602	)		19,725			12,926		1,034		4,463			(345	)		18,078
Expenses:
Interest expense		2,115		—		562			(487	)		2,190			2,684		—		401			(344	)		2,741
Salaries and employee benefits		3,722		548		3,006			—			7,276			4,070		608		2,222			—			6,900
Provision for loan losses		570		—		65			—			635			1,100		—		(76	)		—			1,024
Other		5,146		309		1,220			(115	)		6,560			3,691		321		1,327			(1	)		5,338
Total operating expenses		11,553		857		4,853			(602	)		16,661			11,545		929		3,874			(345	)		16,003
Income before income taxes and non-controlling interest		755		225		2,084			—			3,064			1,381		105		589			—			2,075
Income tax expense		472		93		—			—			565			381		73		—			—			454
Net Income		283		132		2,084			—			2,499			1,000		32		589			—			1,621
Non-controlling interest in (income) of consolidated subsidiary		—		—		(785	)		—			(785	)		—		—		(223	)		—			(223	)
Net income attributable to Middleburg Financial Corporation	$	283	$	132	$	1,299		$	—		$	1,714		$	1,000	$	32	$	366		$	—		$	1,398
Total assets	$	1,209,455	$	12,789	$	104,919		$	(91,202	)	$	1,235,961		$	1,139,348	$	12,378	$	77,177		$	(75,247	)	$	1,153,656
Capital expenditures	$	6	$	—	$	—		$	—		$	6		$	585	$	—	$	151		$	—		$	736
Goodwill and other intangibles	$	—	$	4,193	$	1,867		$	—		$	6,060		$	—	$	4,377	$	1,867		$	—		$	6,244

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The following table presents segment information for the nine months ended September 30, 2012 and 2011, respectively.

	For the nine months ended													For the nine months ended
	September 30, 2012													September 30, 2011
	Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated			Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated
(In Thousands)
Revenues:
Interest income	$	34,837	$	7	$	2,067		$	(1,348	)	$	35,563		$	35,076	$	8	$	2,008		$	(882	)	$	36,210
Trust and investment fee income		—		3,323		—			(104	)		3,219			—		3,018		—			—			3,018
Other income		2,960		—		15,719			(425	)		18,254			2,898		—		8,373			(2	)		11,269
Total operating income		37,797		3,330		17,786			(1,877	)		57,036			37,974		3,026		10,381			(884	)		50,497
Expenses:
Interest expense		6,606		—		1,659			(1,348	)		6,917			8,051		—		1,055			(882	)		8,224
Salaries and employee benefits		11,395		1,628		9,116			—			22,139			11,450		1,921		6,294			—			19,665
Provision for loan losses		2,127		—		29			—			2,156			2,641		—		(76	)		—			2,565
Other		13,191		951		4,711			(529	)		18,324			10,940		962		3,375			(2	)		15,275
Total operating expenses		33,319		2,579		15,515			(1,877	)		49,536			33,082		2,883		10,648			(884	)		45,729
Income (loss) before income taxes and non-controlling interest		4,478		751		2,271			—			7,500			4,892		143		(267	)		—			4,768
Income tax expense		1,277		301		—			—			1,578			986		86		—			—			1,072
Net Income (loss)		3,201		450		2,271			—			5,922			3,906		57		(267	)		—			3,696
Non-controlling interest in (income)  loss of consolidated subsidiary		—		—		(856	)		—			(856	)		—		—		128			—			128
Net income (loss) attributable to Middleburg Financial Corporation	$	3,201	$	450	$	1,415		$	—		$	5,066		$	3,906	$	57	$	(139	)	$	—		$	3,824
Total assets	$	1,209,455	$	12,789	$	104,919		$	(91,202	)	$	1,235,961		$	1,139,348	$	12,378	$	77,177		$	(75,247	)	$	1,153,656
Capital expenditures	$	541	$	—	$	—		$	—		$	541		$	1,276	$	3	$	151					$	1,430
Goodwill and other intangibles	$	—	$	4,193	$	1,867		$	—		$	6,060		$	—	$	4,377	$	1,867		$	—		$	6,244

Note 8.   Defined Benefit Pension Plan

Prior to December 31, 2011, the Company sponsored a noncontributory, defined benefit pension plan covering substantially all full-time employees of Middleburg Bank and Middleburg Trust Company.  The defined benefit pension plan was terminated in in February of 2011, and all plan assets were distributed to participants as of December 31, 2011.  When the plan was active, the Company funded pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act.  Benefit accruals and eligibility were frozen as of September 30, 2009.

The table below reflects the components of the Net Periodic Benefit Cost related to the Company’s defined benefit pension plan for the indicated periods.

	Three months ended September 30,
	2012		2011
	(In Thousands)
Interest cost	$	—	$	46
Expected return on plan assets		—		(15	)
Amortization of unrecognized  net actuarial  loss		—		305
Net periodic benefit cost	$	—	$	336

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	Nine months ended September 30,
	2012		2011
	(In Thousands)
Interest cost	$	—	$	137
Expected return on plan assets		—		(44	)
Amortization of unrecognized  net actuarial  loss		—		914
Net periodic benefit cost	$	—	$	1,007

Note 9.   Capital Purchase Program

During 2009, the Company participated in the Capital Purchase Program established by the U.S. Department of the Treasury (the “Treasury”) under the Emergency Economic Stabilization Act of 2008 and issued 22,000 shares of preferred stock to the Treasury as well as a warrant (“the Warrant”) to purchase 208,202 shares of the Company’s common stock at an initial exercise price of $15.85 per share.  As a result of the completion of the Company’s public stock offering in August 2009, the number of shares of common stock underlying the Warrant was reduced by one-half to 104,101.  On December 23, 2009, the Company redeemed all of the shares of preferred stock issued to the Treasury.   During 2011, the Warrant was sold by the U.S. Treasury at public auction and has not been exercised as of September 30, 2012.

Note 10.   Fair Value Measurements

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

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

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

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

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

Measured on recurring basis

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements:

Securities available for sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level I). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level II).

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Derivatives

Derivatives are recorded at fair value on a recurring basis.  Third party vendors compile prices from various sources and may determine the fair value of identical or similar instruments by using pricing models that consider observable market data (Level II).

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	13,654	$	—	$	13,654	$	—
Obligations of states and political subdivisions		74,304		—		74,304		—
Mortgage-backed securities:
Agency		165,512		—		165,512		—
Non-agency		15,305		—		15,305		—
Other asset-backed securities		32,192		—		32,192		—
Corporate preferred stock		61		—		61		—
Corporate securities		7,346		—		7,346		—
Mortgage interest rate locks		91		—		91		—
Liabilities:
Interest rate swap	$	500	$	—	$	500	$	—
Mortgage banking hedge instruments		63		—		63		—

	December 31, 2011
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	9,343	$	—	$	9,343	$	—
Obligations of states and political subdivisions		67,542		—		67,542		—
Mortgage-backed securities:
Agency		187,070		—		187,070		—
Non-agency		18,206		—		18,206		—
Other asset-backed securities		15,796		—		15,796		—
Corporate preferred stock		40		—		40		—
Corporate securities		9,976		—		9,976		—
Trust preferred securities		269		—		269		—
Liabilities:
Interest rate swap		314		—		314		—

There were no financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the nine months ended September 30, 2012. 

Measured on nonrecurring basis

Certain financial assets and certain financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances.  Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or impairment of individual assets.

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The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the consolidated financial statements:

Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four-family residential loans originated for sale in the secondary market.  Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level II).  As such, the Company records any fair value adjustments on a nonrecurring basis.  No nonrecurring fair value adjustments were recorded on loans held for sale during the nine months ended September 30, 2012.  Gains and losses on the sale of loans are recorded within income from mortgage banking activities on the consolidated statements of income.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected.  The measurement of loss associated with impaired loans can be based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the observable market price of the loan, or the fair value of the underlying collateral.  Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable.  The vast majority of the collateral is real estate.  The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data (Level II).  However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level III. As of September 30, 2012, seventeen impaired loans with a net balance of $2.1 million were categorized as having a Level III valuation due to the date of the last appraisal.  The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data.  Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level III).  Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Impaired loans for which no further loss is expected are not considered to be measured at fair value on a nonrecurring basis.  Any fair value adjustments as a result of the evaluation process are recorded in the period incurred as provision for loan losses on the consolidated statements of income.

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

The Company’s procedure to monitor the value of collateral for collateral dependent impaired loans between the receipt of an original appraisal and an updated appraisal is to review tax assessment records when they change annually.  At the time of any change in tax assessment, an appropriate adjustment is made to the existing appraised value.  Information considered in a determination not to order an updated appraisal includes the availability and reliability of tax assessment records, the results of any independent real estate evaluation, and significant changes in capitalization rates for income properties since the original appraisal.  Other facts and circumstances on a case by case basis may be considered relative to a decision to order or not to order an updated appraisal.  If, in the judgment of management, a reliable collateral value estimate can not be obtained by an alternative method, an updated appraisal is obtained.

Circumstances that may warrant a re-appraisal for non-performing (impaired) loans might include foreclosure proceedings or a material adverse change in the borrower’s condition or that of the collateral underlying the loan.  Examples include bankruptcy filing by the debtor or guarantors, loss of a major tenant in an income property, or a significant increase in capitalization rates for income properties.  In some cases, management may decide that an updated appraisal for a non-performing loan is not necessary.  In such cases, an estimate of the fair value of the collateral for the loans would be made by management by reference to current tax assessment records, the latest appraised value, and knowledge of collateral value fluctuations in a loan’s market area.  If, in the judgment of management, a reliable collateral value estimate can not be obtained by an alternative method, an updated appraisal would be obtained.

For the purpose of the evaluation of the adequacy of our allowance for loan losses, new appraisals are discounted 10% for selling costs when determining the amount of the specific reserve.  Thereafter, for collateral dependent impaired loans, we

25

consider each loan on a case-by-case basis to determine whether or not the recorded values are appropriate given current market conditions.  When warranted, new appraisals or independent real estate evaluations are obtained.  If an appraisal is less than 12 months old, the only adjustment made to appraised values is the 10% discount for selling costs.  If an appraisal is older than 12 months, management will use judgment based on knowledge of current market values and specific facts surrounding any particular property to determine if an additional valuation adjustment may be necessary.

For real estate-secured impaired loans, if the Company does not have an adequate appraisal a new one is ordered to determine fair value.  An appraisal that would be considered adequate for real estate-secured loans is one that is less than 12 months or one that is more than 12 months old but alternative methods with which to monitor the collateral value exist, such as reference to frequently updated tax assessments.  Appraisals that would be considered inadequate for real estate-secured loans include appraisals older than 12 months and with a property located in a jurisdiction that does not reassess property values on a regular basis, or with a property to which substantial changes have been made since the last assessment. If the loan is secured by assets other than real estate and an appraisal is neither available nor feasible, the loan is treated as unsecured.

It is the Company’s policy to account for partially charged-off loans consistently both before and after updated appraisals are obtained.  Partially charged-off loans are placed in non-accrual status and remain in that status until the borrower has made a minimum of six consecutive monthly payments on a timely basis and there is evidence that the borrower has the ability to repay the balance of the loan plus accrued interest in full.   Partially charged-off loans are not automatically returned to accrual status when updated appraisals are obtained.

The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis as of September 30, 2012 and December 31, 2011:

	September 30, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	92,501	$	—	$	92,501	$	—
Impaired loans	11,895		—		9,823		2,072
	December 31, 2011
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	92,514	$	—	$	92,514	$	—
Impaired loans	10,648		—		6,767		3,881

The following table presents a roll-forward of the transfers in and out of the Level III valuation method for financial assets that are measured at fair value on a nonrecurring basis as of  September 30, 2012:

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	Impaired Loans
	(in thousands)
Balance at December 31, 2011	$	3,881
Transfers in	2,452
Transfers out (1)	(3,744		)
Other (2)	(517		)
Balance at September 30, 2012	$	2,072

  (1)   Impaired loans are considered to have a Level III valuation methodology if the appraisal on the loan is older than two years.  Transfers out of level three status represent loans for which current appraisals have been obtained or loans which have been transferred to other real estate owned and the collateral re-appraised at the time of the transfer.

  (2)   Other changes in the Level III balances during the period represent principal changes on level three impaired loans and valuation adjustments since December 31, 2011.

The following table presents quantitative information as of September 30, 2012 about Level III fair value measurements for financial assets measured at fair value on a non-recurring basis:

	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired Loans	$	2,072	Discounted appraised value	Discount for selling costs and age of appraisals.	10% - 30% (21%)

Other Real Estate Owned

The value of other real estate owned (“OREO”) is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data (Level II).  For other real estate owned properties, the Company’s policy is to obtain “as-is” appraisals on an annual basis as opposed to “as-completed” appraisals.  This approach provides current values without regard to completion of any construction or renovation that may be in process on OREO properties.  Accordingly, the Company considers the valuations to be Level II valuations even though some properties may be in process of renovation or construction. 

For the purpose of OREO valuations, appraisals are discounted 10% for selling and holding costs and it is the policy of the Company to obtain annual appraisals for properties held in OREO.

Any fair value adjustments are recorded in the period incurred as “Other real estate owned expenses” on the consolidated statements of income.

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

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	September 30, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Other real estate owned	$	11,933	$	—	$	11,933	$	—
	December 31, 2011
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Other real estate owned	$	8,535	$	—	$	8,535	$	—

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

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

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

Loans, Net and Loans Held for Sale

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

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate fair values.

Deposits

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

Securities Sold Under Agreements to Repurchase and Short-Term Debt

The carrying amounts approximate fair values.

FHLB Borrowings, Long-Term and Subordinated Debt

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

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Off-Balance-Sheet Financial Instruments

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.  At September 30, 2012 and December 31, 2011, the fair values of loan commitments and standby letters of credit were deemed immaterial; therefore, they have not been included in the table below.

Fair Value of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company's financial instruments as of September 30, 2012 are as follows:

					September 30, 2012
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
	(In thousands)
Financial assets:
Cash and cash equivalents	$	71,523	$	71,523	$	71,523	$	—		—
Securities		308,374		308,374		—		308,374		—
Loans held for sale		92,501		92,501		—		92,501		—
Net portfolio loans		678,423		700,504		—		698,432		2,072
Bank-owned life insurance		16,388		16,388		—		16,388		—
Accrued interest receivable		3,999		3,999		—		3,999		—
Mortgage interest rate locks		91		91		—		91		—
Financial liabilities:
Deposits	$	984,447	$	987,735	$	—	$	987,735		—
Securities sold under agreements
to repurchase		32,767		32,767		—		32,767		—
Short-term debt		17,657		17,657		—		17,657		—
FHLB borrowings		72,912		74,059		—		74,059		—
Trust preferred capital notes		5,155		5,236		—		5,236		—
Accrued interest payable		681		681		—		681		—
Interest rate swap		500		500		—		500		—
Mortgage banking hedge instruments		63		63		—		63		—

The estimated fair values, and related carrying amounts, of the Company's financial instruments as of December 31, 2011 are as follows:

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		December 31, 2011
		Carrying Amount		Fair Value
	(In thousands)
Financial assets:
Cash and cash equivalents		$	51,270	$	51,270
Securities		308,242		308,242
Loans		749,284		770,759
Bank-owned life insurance		16,025		16,025
Accrued interest receivable		4,221		4,221
Financial liabilities:
Deposits		$	929,869	$	934,322
Securities sold under agreements
to repurchase		31,686		31,686
Short-term debt		28,331		28,331
FHLB borrowings		82,912		83,899
Trust preferred capital notes		5,155		5,216
Accrued interest payable		844		844
Interest rate swap		314		314

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

Note 11.   Recent Accounting Pronouncements

In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements.”  The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion.  The amendments in this ASU are effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date.  Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.”  This ASU is the result of joint efforts by the FASB and International Accounting Standards Board (IASB) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements.  The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards (IFRS).  The amendments are effective for interim and annual periods beginning after December 15, 2011 with prospective application.  Early application is not permitted.  The Company has included the required disclosures in its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income.”  The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity.  The amendments require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The single statement of comprehensive income should include the components of net

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income, a total for net income, the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.  The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share.  The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2011.  Early adoption is permitted because compliance with the amendments is already permitted. The amendments do not require transition disclosures.  The Company has included the required disclosures in its consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Intangible - Goodwill and Other (Topic 350) - Testing Goodwill for Impairment.”  The amendments in this ASU permit an entity to first assess qualitative factors related to goodwill to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill test described in Topic 350.  The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.  Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.  The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued.  The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities.”  This ASU requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-11 to have a material impact on its consolidated financial statements.

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.”  The amendments are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05.  All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company has included the required disclosures in its consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.”  The amendments in this ASU apply to all entities that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements.  The amendments in this ASU provide an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. The amendments also enhance the consistency of impairment testing guidance among long-lived asset categories by permitting an entity to assess qualitative factors to determine whether it is necessary to calculate the asset's fair value when testing an indefinite-lived intangible asset for impairment.  The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted.  The Company does not expect the adoption of ASU 2012-02 to have a material impact on its consolidated financial statements.

In October 2012, the FASB issued ASU 2012-06, “Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution.”  The amendments in this ASU clarify the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution.  In addition, the amendments should resolve current diversity in practice on the subsequent measurement of these types of indemnification assets.  The amendments

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are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012.  Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution.  The Company does not expect the adoption of ASU 2012-06 to have a material impact on its consolidated financial statements.

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition at September 30, 2012 and results of operations of the Company for the three and nine months ended September 30, 2012 should be read in conjunction with the Company’s Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in this report and in the 2011 Form 10-K.  It should also be read in conjunction with the “Caution About Forward Looking Statements” section at the end of this discussion.

Overview

The Company is headquartered in Middleburg, Virginia and conducts its primary operations through two wholly owned subsidiaries, Middleburg Bank and Middleburg Investment Group, Inc., and a majority owned subsidiary, Southern Trust Mortgage, LLC.  Middleburg Bank is a community bank serving the Virginia counties of Loudoun, Fairfax, Fauquier and western Prince William as well as the town of Williamsburg, Virginia and the city of Richmond, Virginia.  The Bank operates eleven financial service centers and one limited service facility. Middleburg Investment Group is a non-bank holding company that was formed in the fourth quarter of  2005.  It has one wholly-owned subsidiary, Middleburg Trust Company which is headquartered in Richmond, Virginia, and maintains offices in Williamsburg, Virginia and in several of Middleburg Bank’s facilities.  Southern Trust Mortgage is a regional mortgage company headquartered in Virginia Beach, Virginia and maintains offices in Virginia, Maryland, Georgia, North Carolina and South Carolina.

The Company operates under a business model that makes all of its financial and wealth management services available to its clients at all of its financial service centers.  Financial service centers are larger than most traditional retail banking branches in order to allow commercial, mortgage, retail and wealth management personnel and services to be readily available to serve clients.  By working together in the financial service center and the market, the team at each financial service center becomes more effective in expanding relationships with current clients and new clients.  The Company’s goal is to assist in the creation, preservation and ultimate transfer of the wealth of its clients.

The Company generates a significant amount of its income from the net interest income earned by Middleburg Bank.  Net interest income is the difference between interest income and interest expense.  Interest income depends on the amount of interest-earning assets outstanding during the period and the interest rates earned thereon.  Middleburg Bank’s cost of money is a function of the average amount of deposits and borrowed money outstanding during the period and the interest rates paid thereon.  The quality of the assets further influences the amount of interest income lost on non-accrual loans and the amount of additions to the allowance for loan losses.  Middleburg Bank also generates income from fees on deposits and loans.

Middleburg Investment Group’s subsidiary, Middleburg Trust Company, generates fee income by providing trust and investment management services to its clients.  Investment management and trust fees are generally based upon the value of assets under administration and, therefore, can be significantly affected by fluctuation in the values of securities caused by changes in the capital markets.

Southern Trust Mortgage generates fees from the origination and sale of mortgage loans. Southern Trust Mortgage also maintains a real estate construction portfolio and receives interest and fee income from these loans, which, net of interest expense, is included in net interest income.

Net income attributable to Middleburg Financial Corporation for the nine months ended September 30, 2012 increased 34.2% to $5.1 million from $3.8 million over the same period in 2011.  Net income attributable to Middleburg Financial Corporation for the third quarter increased 21.4% to $1.7 million from $1.4 million during the third quarter of 2011.  Earnings per fully diluted share for the nine months ended September 30, 2012 was $0.72 per share versus $0.55 per share for the same period in 2011 and $0.24 per share for the quarter ended September 30, 2012 versus $0.20 per share for the quarter ended September 30, 2011.

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Annualized return on total average assets for the three months ended September 30, 2012 was 0.56%, compared to 0.46% for the same period in 2011.  Annualized return on total average equity of Middleburg Financial Corporation, which excludes the non-controlling interest in Southern Trust Mortgage, for the three months ended September 30, 2012 was 6.11%, compared to 5.07% for the same period in 2011.

As a result of the evaluation of the adequacy of the reserve for loan losses, a loan loss provision of $635,000 was made during the quarter ended September 30, 2012 compared to a provision of $1.0 million during the three months ended September 30, 2011.  

Net interest income for the three months ended September 30, 2012 was $9.2 million compared to $9.5 million for the three months ended September 30, 2011.  Total non-interest income increased $2.5 million to $8.3 million for the three months ended September 30, 2012 from $5.8 million for the three months ended September 30, 2011.  Total non-interest expenses increased approximately $1.6 million to $13.8 million for the three months ended September 30, 2012 from $12.2 million for the same period in 2011.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law.  The Dodd-Frank Act contains significant modifications to the current bank regulatory structure and requires various federal agencies to adopt a broad range of new rules and regulations throughout 2012 and beyond.  While not fully determinable at this time, the impact of the Dodd-Frank Act and the rules and regulations that will be promulgated thereunder could significantly affect our operations, increase our operating costs and divert management resources.  Other than the potential impact of this legislation, the Company is not aware of any current recommendations by any regulatory authorities that, if implemented, would have a material effect on the Company’s liquidity, capital resources or results of operations.

Critical Accounting Policies

General

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

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

Allowance for Loan Losses

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

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

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

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

Intangibles and Goodwill

The Company had approximately $6.0 million in intangible assets and goodwill at September 30, 2012, a decrease of $129,000 or 2.1% since December 31, 2011 which was attributable to regular amortization of intangible assets.

On April 1, 2002, the Company acquired Middleburg Investment Advisors for $6.0 million.  Approximately $5.9 million of the purchase price was allocated to intangible assets and goodwill.  In connection with this investment, a purchase price valuation was completed to determine the appropriate allocation to identified intangibles.  The valuation concluded that approximately 42% of the purchase price was related to the acquisition of customer relationships with an amortizable life of 15 years.  Another 19% of the purchase price was allocated to a non-compete agreement with an amortizable life of seven years.  The remainder of the purchase price has been allocated to goodwill.  On January 3, 2011, Middleburg Investment Advisors was merged into Middleburg Trust Company and its goodwill balance is reflected in the total goodwill balance reported for Middleburg Investment Group of $3.4 million.  The remaining balance of unamortized identified intangible assets related to the acquisition of Middleburg Investment Advisors is approximately $770,000.  Approximately $1.0 million of the $6.0 million in total intangible assets and goodwill at September 30, 2012 was attributable directly to the Company’s investment in Middleburg Trust Company exclusive of the goodwill related to the former Middleburg Investment Advisors.  With the consolidation of Southern Trust Mortgage, the Company recognized $1.9 million in goodwill as part of its equity investment.

The purchase price allocation process requires management estimates and judgment as to expectations for the life span of various customer relationships as well as the value that key members of management add to the success of the Company.  For example, customer attrition rates were determined based upon assumptions that the past five years may predict the future.  If the actual attrition rates, among other assumptions, differed from the estimates and judgments used in the purchase price allocation, the amounts recorded in the Consolidated Financial Statements could result in a possible impairment of the intangible assets and goodwill or require acceleration in the amortization expense.

In addition, current accounting standards permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two step goodwill impairment test.  If a two step process is necessary, the first step is to identify whether or not any  impairment exists.  The second step measures the amount of the impairment loss, if any.  The most recent evaluation of the Company's goodwill balance was conducted as of December 31, 2011.

As of September 30, 2012, the Company recognized two consolidated subsidiaries as reporting units for the purpose of goodwill evaluation and reporting:  Southern Trust Mortgage (“STM”) and Middleburg Investment Group (“MIG”).   MIG is the parent company of Middleburg Trust Company and the former Middleburg Investment Advisors.  The following table shows the allocation of goodwill between the two reporting units and the percentage by which the fair value of each reporting unit as of December 31, 2011 (the most recent fair value evaluation date) exceeded the carrying value as of that date.  Management does not believe the estimated fair values have changed significantly from December 31, 2011 to September 30, 2012.

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	Allocation of Goodwill to Reporting Units
			(Dollars in Thousands)
	Carrying Value of  Goodwill		(1) Carrying Value of Reporting Unit			(1) Estimated Fair Value of Reporting Unit		(1) Percentage by which Estimated Fair Value of Reporting Unit Exceeds
Reporting Unit	December 31, 2011		December 31, 2011			December 31, 2011		Carrying Value
STM	$	1,867	$	6,039		$	6,828	13.07	%
MIG	3,422		5,891		(2)	6,691		13.58	%
Total	$	5,289	$	11,930		$	13,519	13.32	%

(1)   Reported amounts reflect only Middleburg Financial Corporation shareholders' ownership interests. Estimated fair values are as of December 31, 2011. Management does not believe the estimated fair values have changed significantly from December 31, 2011 to September 30, 2012.

(2)   Includes $900,000 of amortizing intangible assets at December 31, 2011.

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

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

Other-Than-Temporary Impairment (OTTI)

There were no losses related to other-than-temporary impairment on  securities  for the nine months ended September 30, 2012.

Financial Condition

Assets, Liabilities and Shareholders’ Equity

Total assets for the Company were $1.2 billion at September 30, 2012, an increase of $43.1 million or 3.6% compared to total assets at December 31, 2011.  Total average assets increased 8.2% from $1.11 billion for the nine months ended September 30, 2011 to $1.20 billion for the nine months ended September 30, 2012.  Total liabilities were $1.12 billion at September 30, 2012, compared to $1.08 billion at December 31, 2011.  Total average liabilities increased $82.4 million or 8.2% to $1.1 billion for the nine months ended September 30, 2012 compared to $1.0 billion for the same period in 2011.  Average shareholders’ equity increased 8.5% or $8.6 million over the same periods.

Loans

Total loans, including loans held for sale at September 30, 2012 were at $784.8 million, higher by $20.9 million from the December 31, 2011 amount of $763.9 million.  Loans held for sale were at $92.5 million at September 30, 2012, compared to $92.5 million at December 31, 2011, unchanged during the period.  Southern Trust Mortgage originated $696.3 million in loans for the nine months ended September 30, 2012, compared to $470.0 million for the nine months ended September 30, 2011.  The Company experienced an increase in real estate construction loans, which were $48.7 million at September 30, 2012, compared to $42.2 million at December 31, 2011.  Real estate mortgage loans of $512.8 million at September 30, 2012

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increased from the December 31, 2011 amount of $512.2 million.  Commercial loans, which are primarily loans to businesses, increased to $109.0 million at September 30, 2012, compared to $94.4 million at December 31, 2011.  Net charge-offs were $2.84 million for the nine months ended September 30, 2012 versus $2.41 million for the same period in 2011.  The provision for loan losses for the nine months ended September 30, 2012 was $2.2 million compared to $2.5 million for the same period in 2011 and $635,000 for the three months ended September 30, 2012 compared to $1.0 million for the three months ended September 30, 2011.  The allowance for loan losses at September 30, 2012 was $13.9 million or 2.01% of total loans outstanding, excluding loans held for sale, compared to $14.6 million and 2.18% at December 31, 2011.

The following table presents information on the Company’s nonperforming assets as of the dates indicated:

	Nonperforming Assets Middleburg Financial Corporation
	September 30,			December 31,
	2012			2011			2010			2009			2008
	(In thousands)
Nonperforming assets:
Nonaccrual loans	$	22,683		$	25,346		$	29,386		$	8,606		$	6,890
Restructured loans (1)	4,302			3,853			1,254			2,096			—
Accruing loans greater than 90 days past due	860			1,233			909			908			1,117
Total nonperforming loans	$	27,845		$	30,432		$	31,549		$	11,610		$	8,007
Foreclosed property	11,933			8,535			8,394			6,511			7,597
Total nonperforming assets	$	39,778		$	38,967		$	39,943		$	18,121		$	15,604
Allowance for loan losses	$	13,941		$	14,623		$	14,967		$	9,185		$	10,020
Nonperforming loans to period end portfolio loans	4.02		%	4.53		%	4.79		%	1.80		%	1.19		%
Allowance for loan losses to nonperforming loans	50.06		%	48.05		%	47.44		%	79.11		%	125.14		%
Nonperforming assets to period end assets	3.22		%	3.27		%	3.62		%	1.86		%	1.58		%

(1) Amount reflects restructured loans that are performing as agreed to the restructured terms and are not included in nonaccrual loans.

The Company utilizes the ratios included in the above table to evaluate the relative level of nonperforming assets included in the Company’s balance sheet.  Changes in the ratios assist management in evaluating the overall adequacy of the allowance for loan losses and any reserve against other real estate owned.

Our accounting policy for foreclosed property does not include any allowance for loan loss amounts subsequent to the reclassification event which writes the loan down to fair value when moved into foreclosed property.

The following table depicts the transactions, in summary form, that occurred to the allowance for loan losses in each period presented:

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Allowance for Loan Losses
	Nine Months Ended			Year Ended
	September 30, 2012			December 31, 2011
Balance, beginning of year	$	14,623		$	14,967
Provision for loan losses		2,156			2,884
Charge-offs:
Real estate loans:
Construction		1,521			467
Secured by 1-4 family residential		740			2,062
Other real estate loans		715			438
Commercial loans		189			180
Consumer loans		46			318
Total charge-offs	$	3,211		$	3,465
Recoveries:
Real estate loans:
Construction	$	1		$	29
Secured by 1-4 family residential		268			41
Other real estate loans		65			98
Commercial loans		9			41
Consumer loans		30			28
Total recoveries	$	373		$	237
Net charge-offs		2,838			3,228
Balance, end of period	$	13,941		$	14,623
Ratio of allowance for loan losses to portfolio loans outstanding at end of period		2.01	%		2.18	%
Annualized ratio of net charge offs to average portfolio loans outstanding during the period		0.55	%		0.44	%

The following table shows the balance of the allowance for loan losses allocated to each major loan type and the percent of loans in each category to total loans as of September 30, 2012 and December 31, 2011:

Allocation of Allowance for Loan Losses
	September 30, 2012		Percent of loans in  each category to total loans			December 31, 2011		Percent of loans in  each category to  total loans
Commercial, financial and agricultural	$	2,101		17.10	%	$	1,731		15.56	%
Real estate construction		1,045		7.04	%		897		6.29	%
Real estate mortgage		10,599		74.06	%		11,850		76.29	%
Consumer loans		196		1.80	%		145		1.86	%
Totals	$	13,941		100.00	%	$	14,623		100.00	%

Non-performing Loans

Non-performing loans were $27.8 million at September 30, 2012 compared to $30.4 million at December 31, 2011.

Non-accrual loans were $22.7 million at the end of the third quarter of 2012 compared to $25.3 million as of December 31, 2011, representing a decrease of 10.3% during the first nine months of 2012.  The decrease was primarily attributable to non-accrual loans being transferred to other real estate owned during the period.

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Restructured Loans

Included in the "Nonperforming Assets" table above  are troubled debt restructurings (“TDRs”) that were classified as impaired.  The total balance of TDRs at September 30, 2012 was $11.5 million of which $7.2 million were included in the Company’s non-accrual loan totals at that date and $4.3 million represented loans performing as agreed according to the restructured terms. This compares with $11.2 million in total restructured loans at December 31, 2011, an increase of $0.3 million or 2.7%.  The amount of the valuation allowance related to total TDRs was $2.0 million and $1.7 million as of September 30, 2012 and December 31, 2011 respectively.

The $7.2 million in nonaccrual TDRs as of September 30, 2012 is comprised of $74,000 in real estate construction loans, $2.3 million in 1-4 family real estate loans, $4.7 million in other real estate loans, and $213,000 in consumer loans.  The $4.3 million in TDRs which were performing as agreed under restructured terms as of September 30, 2012 is comprised of $1.3 million in 1-4 family real estate loans, $2.8 million in other real estate loans and $233,000 in commercial loans.  The Company considers all loans classified as TDRs to be impaired.

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

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

Other Real Estate Owned

Other real estate owned, net of valuation allowance, increased by $3.4 million to $11.9 million at September 30, 2012 from $8.5 million at December 31, 2011.  The increase was primarily due to the transfer of a single large loan to Other Real Estate Owned ("OREO"). The change in balance is the net of foreclosed real estate loans  added to other real estate owned, valuation adjustments and sales of other real estate owned properties during the period.  During the nine months ended September 30, 2012, the Company received proceeds of $2.1 million from the sale of other real estate owned properties and incurred a net loss of $128,000 on the sales. Valuation adjustments to properties held in OREO were approximately $1.6 million during the nine months ended September 30, 2012.

Securities

Securities, excluding Federal Reserve and Federal Home Loan Bank stock, were $308.4 million at September 30, 2012 compared to $308.2 million at December 31, 2011, minimally changed during the period. The balance in interest-bearing bank balances increased to $63.0 million as of  September 30, 2012 versus $45.1 million at December 31, 2011.  The Company sold $39.5 million in securities, received proceeds of $71.0 million from maturities and principal payments, and purchased securities of $109.2 million for the nine months ended September 30, 2012.  No losses related to other-than-temporary impairments were recognized for the nine months ended September 30, 2012.

The Company will continue to maintain its securities portfolio as a source of liquidity and collateral.  At September 30, 2012, the year-to-date tax equivalent yield on the securities portfolio was 3.21%.

Premises and Equipment

Net premises and equipment decreased by $700,000 from $21.3 million at December 31, 2011 to $20.6 million at September 30, 2012.  The decrease is the net of the change in accumulated depreciation and additions to premises and equipment during the period.

Goodwill and Other Identified Intangibles

Goodwill and other identified intangibles decreased by $129,000 in the first nine months of 2012 to $6.0 million at September 30, 2012 as the result of amortization of identified intangibles related to the acquisition of Middleburg Investment Advisors.

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Other Assets

Other assets decreased by $426,000 to $36.5 million at September 30, 2012 when compared to December 31, 2011.  The other assets section of the balance sheet includes Bank Owned Life Insurance (BOLI), in the amount of $16.4 million and net deferred tax assets in the amount of $5.4 million at September 30, 2012.

Deposits

Deposits increased by $54.6 million to $984.4 million at September 30, 2012 from $929.9 million at December 31, 2011.  Average deposits for the nine months ended September 30, 2012 increased 8.3% or $73.5 million compared to average deposits for the nine months ended September 30, 2011.  Average interest bearing deposits were $801.1 million for the nine months ended September 30, 2012 compared to $754.7 million for the nine months ended September 30, 2011.

The Company has an interest bearing product, known as Tredegar Institutional Select, that integrates the use of the cash within client accounts at Middleburg Trust Company for overnight funding at the Bank.  The overall balance of this product was $32.7 million at September 30, 2012 and is reflected in both the savings and interest bearing demand deposits and the “securities sold under agreements to repurchase” amounts on the balance sheet.

Time deposits decreased by $30.8 million or 9.5% from December 31, 2011 to $295.1 million at September 30, 2012.  Time deposits include brokered certificates of deposit and CDARS deposits. The primary reasons for the decrease in balances of time deposits is reductions in brokered certificates of deposits as we paid off brokered  time deposits that either matured or were callable during the third quarter.  These deposit sources decreased by $27.7 million or 28.6% to $69.1 million at September 30, 2012 from the December 31, 2011 amount of $96.8 million.  The brokered certificates of deposit have maturities ranging from one month to ten years.  Securities sold under agreements to repurchase (“Repo Accounts”) increased by $1.1 million from $31.7 million at December 31, 2011 to $32.8 million at September 30, 2012.  The Repo Accounts include certain long-term commercial checking accounts with average balances that typically exceed $100,000 and the Tredegar Institutional Select account which includes accounts maintained by Middleburg Trust Company’s business clients.  All repurchase agreement transactions entered into by the Company are accounted for as collateralized financings and not as sales.

Short-term Borrowings and FHLB Borrowings

The Company had no overnight or short term advances from the Federal Home Loan Bank of Atlanta (“FHLB”) outstanding at September 30, 2012 or December 31, 2011.  Southern Trust Mortgage has a line of credit with a regional bank that is primarily used to fund its loans held for sale.  At September 30, 2012, this line had an outstanding balance of $17.6 million compared to $28.3 million at December 31, 2011.  The interest rate on the line of credit is based on the 30-day London Inter-Bank Offered Rate (“LIBOR”).  Southern Trust Mortgage also has a $5.0 million line of credit and a $75.0 million participation agreement with Middleburg Bank.  The line of credit and the outstanding balance under the participation agreement are eliminated in the consolidation process and are not reflected in the consolidated financial statements of the Company.  Long term FHLB advances were $72.9 million at September 30, 2012 compared to $82.9 at December 31, 2011.  

Other Liabilities

Other liabilities increased by $696,000 to $7.6 million at September 30, 2012, when compared to December 31, 2011.

Non-controlling Interest in Consolidated Subsidiary

The Company, through Middleburg Bank owns 62.3% of the issued and outstanding membership interest units in Southern Trust Mortgage.  The remaining 37.7% of issued and outstanding membership interest units are owned by other partners.  The ownership interest of these partners is represented in the financial statements as “Non-controlling Interest in Consolidated Subsidiary.”  The non-controlling interest is reflected in total shareholders’ equity.  Southern Trust Mortgage also has preferred stock of $865,000 issued and outstanding at September 30, 2012. The Company, through Middleburg Bank owns 70.4% of the issued and outstanding preferred stock in Southern Trust Mortgage.  The remaining 29.6% of issued and outstanding preferred stock is owned by other partners.  The preferred stock held by these other partners is reflected in other liabilities.

Capital

Total shareholders’ equity, including the non-controlling interest in Southern Trust Mortgage, was $115.4 million at September 30, 2012.  This amount represents an increase of 6.9% from the December 31, 2011 amount of $108.0 million. Middleburg Financial Corporation’s shareholders’ equity, which excludes the non-controlling interest, was $112.5 million at September 30, 2012 compared to $105.9 million at December 31, 2011.  The book value of common stock was $15.96 per share at September 30, 2012 and $15.13 at December 31, 2011.  The following table shows the Company’s risk-based capital ratios as of September 30, 2012 and December 31, 2011:

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	September 30, 2012			December 31, 2011
Total risk-based capital ratio		15.2	%		14.7	%
Tier 1 risk-based capital ratio		14.0	%		13.5	%
Tier 1 leverage ratio		8.9	%		8.8	%

Results of Operations

Net Interest Income

Net interest income is the Company’s primary source of earnings and represents the difference between interest and fees earned on earning assets and the interest expense paid on deposits and other interest bearing liabilities.

Net interest income for the nine months ended September 30, 2012 was $28.6 million, compared to $28.0 million for the same period in 2011.  Total interest income for the nine months ended September 30, 2012 was $35.6 million compared to $36.2 million for the nine months ended September 30, 2011 representing a decrease of 1.7%.  Total interest expense was $6.9 million for the nine months ended September 30, 2012 compared to $8.2 million for the same period in 2011 representing a decrease of 15.9%.  Average earning assets increased by $99.5 million to $1.1 billion for the nine months ended September 30, 2012 from $1.0 billion for the nine months ended September 30, 2011.  Average interest bearing liabilities increased by $55.8 million or 6.4% to $928.9 million for the nine months ended September 30, 2012 when compared to the same period in 2011.

Net interest income for the three months ended September 30, 2012 was $9.2 million, compared to $9.5 million for the same period in 2011.  Total interest income for the three months ended September 30, 2012 was $11.4 million compared to $12.2 million for the three months ended September 30, 2011 representing a decrease of 6.6%.  Total interest expense was $2.2 million for the three months ended September 30, 2012 compared to $2.7 million for the same period in 2011 representing a decrease of 18.5%.  Average earning assets increased by $83.1 million to $1.2 billion for the three months ended September 30, 2012 from $1.1 billion for the three months ended September 30, 2011.  Average interest bearing liabilities increased by $44.5 million or 5.0% to $940.2 million for the three months ended September 30, 2012 when compared to the same period in 2011.

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

	MIDDLEBURG FINANCIAL CORPORATION Average Balances, Income and Expenses, Yields and Rates
	Three months ended September 30,
				2012								2011
	Average Balance			Income/ Expense		Yield/ Rate (2)			Average Balance			Income/ Expense		Yield/ Rate (2)
	(Dollars in thousands)
Assets :
Securities:
Taxable	$	264,234		$	1,583		2.38	%	$	242,906		$	1,763		2.88	%
Tax-exempt (1)		62,175			903		5.78	%		57,800			897		6.16	%
Total securities	$	326,409		$	2,486		3.03	%	$	300,706		$	2,660		3.51	%
Total loans (3)	$	760,442		$	9,189		4.81	%	$	724,450		$	9,846		5.39	%
Interest bearing deposits in other financial institutions		69,802			39		0.22	%		48,355			30		0.25	%
Total earning assets	$	1,156,653		$	11,714		4.03	%	$	1,073,511		$	12,536		4.63	%
Less: allowances for credit losses		(15,202	)							(14,956	)
Total nonearning assets		84,082								84,315
Total assets	$	1,225,533							$	1,142,870
Liabilities:
Interest-bearing deposits:
Checking	$	342,360		$	299		0.35	%	$	305,761		$	530		0.69	%
Regular savings		105,716			79		0.30	%		99,344			175		0.70	%
Money market savings		66,859			50		0.30	%		58,903			98		0.66	%
Time deposits:
$100,000 and over		144,566			535		1.47	%		137,483			593		1.71	%
Under $100,000		159,693			765		1.91	%		169,087			892		2.09	%
Total interest-bearing deposits	$	819,194		$	1,728		0.84	%	$	770,578		$	2,288		1.18	%
Short-term borrowings		6,531			74		4.51	%		5,576			58		4.13	%
Securities sold under agreements to repurchase		34,805			83		0.95	%		36,241			84		0.92	%
FHLB advances and other borrowings		79,697			305		1.52	%		83,067			312		1.49	%
Federal Funds Purchased		—			—		—			239			—		—
Total interest-bearing liabilities	$	940,227		$	2,190		0.93	%	$	895,701		$	2,742		1.21	%
Non-interest bearing liabilities
Demand Deposits		164,261								133,365
Other liabilities		6,600								7,376
Total liabilities	$	1,111,088							$	1,036,442
Non-controlling interest		2,920								2,189
Shareholders' equity		111,525								104,239
Total liabilities and shareholders' equity	$	1,225,533							$	1,142,870
Net interest income				$	9,524							$	9,794
Interest rate spread							3.10	%							3.42	%
Cost of Funds							0.79	%							1.06	%
Interest expense as a percent of average earning assets							0.75	%							1.01	%
Net interest margin							3.28	%							3.62	%

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

(2) All yields and rates have been annualized on a 366 day year for 2012 and a 365 day year for 2011.

(3) Total average loans include loans on non-accrual status and loans held for sale.

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	MIDDLEBURG FINANCIAL CORPORATION Average Balances, Income and Expenses, Yields and Rates
	Nine months ended September 30,
				2012								2011
	Average Balance			Income/ Expense		Yield/ Rate (2)			Average Balance			Income/ Expense		Yield/ Rate (2)
	(Dollars in thousands)
Assets :
Securities:
Taxable	$	263,981		$	5,111		2.59	%	$	224,461		$	4,985		2.97	%
Tax-exempt (1)		61,867			2,726		5.89	%		55,739			2,662		6.39	%
Total securities	$	325,848		$	7,837		3.21	%	$	280,200		$	7,647		3.65	%
Total loans (3)	$	751,943		$	28,565		5.07	%	$	706,995		$	29,378		5.56	%
Interest bearing deposits in other financial institutions		54,772			88		0.21	%		45,819			90		0.26	%
Total earning assets	$	1,132,563		$	36,490		4.30	%	$	1,033,014		$	37,115		4.80	%
Less: allowances for credit losses		(15,071	)							(14,816	)
Total nonearning assets		83,114								91,379
Total assets	$	1,200,606							$	1,109,577
Liabilities:
Interest-bearing deposits:
Checking	$	318,841		$	1,017		0.43	%	$	295,782		$	1,506		0.68	%
Regular savings		105,816			290		0.37	%		95,224			567		0.80	%
Money market savings		60,373			156		0.35	%		59,266			293		0.66	%
Time deposits:
$100,000 and over		142,503			1,666		1.56	%		135,973			1,831		1.80	%
Under $100,000		173,559			2,338		1.80	%		168,470			2,730		2.17	%
Total interest-bearing deposits	$	801,092		$	5,467		0.91	%	$	754,715		$	6,927		1.23	%
Short-term borrowings		9,195			311		4.52	%		5,687			174		4.09	%
Securities sold under agreements to repurchase		33,736			250		0.99	%		32,859			209		0.85	%
FHLB advances and other borrowings		84,965			889		1.40	%		79,844			914		1.53	%
Federal Funds Purchased		1			—		—			56			—		—
Total interest-bearing liabilities	$	928,989		$	6,917		0.99	%	$	873,161		$	8,224		1.26	%
Non-interest bearing liabilities
Demand Deposits		153,069								125,979
Other liabilities		6,557								7,081
Total liabilities	$	1,088,615							$	1,006,221
Non-controlling interest		2,504								2,458
Shareholders' equity		109,487								100,898
Total liabilities and shareholders' equity	$	1,200,606							$	1,109,577
Net interest income				$	29,573							$	28,891
Interest rate spread							3.31	%							3.54	%
Cost of Funds							0.85	%							1.10	%
Interest expense as a percent of average earning assets							0.82	%							1.06	%
Net interest margin							3.49	%							3.74	%

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

(2)  All yields and rates have been annualized on a 366 day year for 2012 and a 365 day year for 2011.

(3)  Total average loans include loans on non-accrual status and loans held for sale.

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For the nine months ended September 30, 2012, interest and fees from loans was $28.6 million compared to $29.4 million for the nine months ended September 30, 2011. For the three months ended September 30, 2012, interest and fees from loans was $9.2 million compared to $9.8 million for the three months ended September 30, 2011. The tax equivalent weighted average yield of loans decreased 49 basis points from 5.56% for the nine months ended September 30, 2011 to 5.07% for the nine months ended September 30, 2012.

For the nine month period ended September 30, 2012, interest income from the securities portfolio and invested liquid funds increased by $166,000 to $7.0 million compared to the same period in 2011.  For the three month period ended September 30, 2012, interest income from the securities portfolio and invested liquid funds decreased by $167,000 to $2.2 million compared to the same period in 2011.  The tax equivalent yield on securities for the nine months ended September 30, 2012 decreased 44 basis points to 3.21% compared to 3.65% for the nine months ended September 30, 2011.

The decline in loan yields was primarily related to the following factors:

•   A one time reversal of accrued interest income during the quarter for certain loans that were placed on non accrual. We estimate the reduction in annualized total yield on loans for the quarter due to this one time reversal to be 9.5 basis points.

•   Balances of lower yielding held-for-sale mortgage loans increased more than did balances of commercial loans which tend to have higher yields. This lowered the overall weighted average loan yield for the quarter.

•   Accelerated premium amortizations for purchased loans due to faster prepayments during the quarter.

The decline in yield for securities was related to the following factors:

•   Lower yields on very short duration investments that were purchased during the quarter

•   Accelerated amortizations of premiums on mortgage and asset backed securities during the quarter due to faster prepayments.

•   We also sold some securities during the quarter in a continuing effort to rebalance the investment portfolio. We recognized gains on the sale of the securities but since the proceeds were not immediately reinvested back into the portfolio, the net effect was a decline in yield for the securities portfolio.

We also took actions during the third quarter to reduce our cost of funds. Rates paid on interest bearing deposits were reduced.  Furthermore, we paid off brokered time deposits that either matured or were callable during the third quarter. While those actions reduced interest expense, most of the maturities and calls of brokered time deposits occurred in the last month of the quarter. Since the rate reductions were not in effect for the entire quarter, the reduction in interest expense was somewhat muted.

Interest expense on deposits was $5.5 million for the nine months ended September 30, 2012 and  $1.7 million for the three months ended September 30, 2012.  Interest expense on deposits for the nine months ended September 30, 2012, decreased by $1.5 million or 21.0% compared to the same period in 2011.  Interest expense on deposits for the three months ended September 30, 2012 decreased by $559,000 or 24.4% compared to the same period in 2011.  For the nine months ended September 30, 2012, average deposits increased by $73.5 million to $954.2 million compared to the same period in 2011.  The mix of demand and savings deposits versus time deposits changed to 70.0% in demand and savings deposits, and 30.0% in time deposits at September 30, 2012.  At December 31, 2011, the mix was 64.9% in savings and demand deposits, versus 35.1% in time deposits.  

Interest expense for securities sold under agreements to repurchase increased to $250,000 for the nine months ended September 30, 2012 from $209,000 for the nine months ended September 30, 2011.  Interest expense related to short-term borrowings increased  by $137,000 from $174,000 for the nine months ended September 30, 2011 to $311,000 for the nine months ended September 30, 2012.  Interest expense related to FHLB advances and other debt decreased by $25,000 from $914,000 for the nine months ended September 30, 2011 to $889,000 for the nine months ended September 30, 2012.

Interest expense for securities sold under agreements to repurchase decreased to $83,000 for the three months ended September 30, 2012 from $84,000 for the three months ended September 30, 2011.  Interest expense related to short-term borrowings increased by $16,000 from $58,000 for the three months ended September 30, 2011 to $74,000 for the three months ended September 30, 2012.  Interest expense related to FHLB advances and other debt decreased by $7,000 from $312,000 for the three months ended September 30, 2011 to $305,000 for the three months ended September 30, 2012. The average rate on wholesale borrowings (excluding brokered deposits) increased during the third quarter, even as the balances of wholesale borrowings (excluding brokered deposits) declined, as we paid off maturing short term FHLB advances. Since the rate on the

43

short term advances was lower than the rates on the remaining longer term advances, the removal of the short term advance resulted in a higher average rate for the remaining portfolio of advances.

Average balances in interest checking, regular savings and money market accounts increased by $34.7 million when comparing the nine months ended September 30, 2012 to the same period in 2011.  The weighted average cost of these accounts for the nine months ended September 30, 2012 and 2011 was 0.40% and 0.70%, respectively.  The average balance of certificates of deposits increased by $11.6 million when comparing the nine months ended September 30, 2012 to the nine months ended  September 30, 2011. The weighted average cost of the Company’s certificates of deposits decreased by 31 basis points to 1.69% for the nine months ended September 30, 2012 versus 2.00% the nine months ended September 30, 2011.

The net interest margin, on a tax equivalent basis, was 3.49% for the nine months ended September 30, 2012 compared to 3.74% for the nine-month period ended September 30, 2011.  The net interest margin, on a tax equivalent basis, was 3.28% for the three months ended September 30, 2012 compared to 3.62% for the three-month period ended September 30, 2011.  The average yield on earning assets was 4.03% for the quarter ended September 30, 2012 compared to  4.63% for the quarter ended September 30, 2011, representing a decrease of 60 basis points from the quarter ended September 30, 2011. The decrease in yields on earning assets from the quarter ended September 30, 2011 reflected a decrease of 48 basis points in the yield of the securities portfolio and a 58 basis point decrease in yields for the loan portfolio. The drop in net interest margin for the quarter ended September 30, 2012 compared to the previous quarter was principally due to a reduction in net interest income coupled with an increase in average earning assets during the quarter.

The Company’s net interest margin is not a measurement under accounting principles generally accepted in the United States, but it is a common measure used by the financial service industry to determine how profitably earning assets are funded.  The net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets.  Because a portion of interest income earned by the Company is non taxable, the tax equivalent net interest income is considered in the calculation of this ratio.  Tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense.  The tax rate utilized in calculating the tax benefit is 34.0% for all periods presented.  The reconciliation of tax equivalent net interest income, which is not a measurement under accounting principles generally accepted in the United States, to net interest income is reflected in the table below.

Reconciliation of Net Interest Income to

Tax Equivalent Net Interest Income

	For the three months ended September 30,
	2012		2011
GAAP measures:	(in thousands)
Interest Income – Loans	$	9,189	$	9,846
Interest Income - Investments & Other		2,218		2,385
Interest Expense – Deposits		1,728		2,287
Interest Expense - Other Borrowings		462		454
Total Net Interest Income	$	9,217	$	9,490
NON-GAAP measures:
Tax Benefit Realized on Non-Taxable Interest Income - Municipal Securities		307		304
Total Tax Benefit Realized on Non-Taxable Interest Income	$	307	$	304
Total Tax Equivalent Net Interest Income	$	9,524	$	9,794

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	For the nine months ended September 30,
	2012		2011
GAAP measures:	(in thousands)
Interest Income – Loans	$	28,565	$	29,378
Interest Income - Investments & Other		6,998		6,832
Interest Expense – Deposits		5,467		6,927
Interest Expense - Other Borrowings		1,450		1,297
Total Net Interest Income	$	28,646	$	27,986
NON-GAAP measures:
Tax Benefit Realized on Non-Taxable Interest Income - Municipal Securities		927		905
Total Tax Benefit Realized on Non-Taxable Interest Income	$	927	$	905
Total Tax Equivalent Net Interest Income	$	29,573	$	28,891

Other Income

Other income includes, among other items,  income from the Company’s 62.3% ownership interest in Southern Trust Mortgage, LLC. Other income also includes fees generated by the retail banking and investment services departments of the Bank and by Middleburg Trust Company.  Other income increased 50.3% to $21.5 million for the nine months ended September 30, 2012 compared to $14.3 million for the same period in 2011 and increased 42.3% to $8.3 million  for the three months ended September 30, 2012 compared to $5.8 million for the second quarter of 2011.

The revenues and expenses of Southern Trust Mortgage for the three and nine months ended September 30, 2012 are reflected in the Company’s financial statements on a consolidated basis, with the proportionate share not owned by the Company reported as “Non-controlling Interest in Consolidated Subsidiary.” Southern Trust Mortgage originated $251.2 million in mortgage loans during the quarter ended September 30, 2012 compared to $212.2 million originated during the quarter ended September 30, 2011.  Originations for the nine months ended September 30, 2012 were $695.8 million versus $501.7 million originated during the nine months ended September 30, 2011.  Gains on mortgage loan sales increased by 60.2% when comparing the quarter ended September 30, 2012 to the quarter ended September 30, 2011 and by 80.2% when comparing the nine months ended September 30, 2012 to September 30, 2011.

Trust and investment service fees earned by Middleburg Trust Company (“MTC”) increased by 3.8% when comparing the nine months ended September 30, 2012 compared to the same period ended September 30, 2011.  Trust and investment service fees earned by Middleburg Trust Company (“MTC”) decreased by 0.4% when comparing the three months ended September 30, 2012 compared to the quarter ended September 30, 2011.  Trust and investment service fees are based primarily upon the market value of the accounts under administration.  Total consolidated assets under administration by MTC were at $1.3 billion at September 30, 2012, an increase of 4.9% relative to December 31, 2011 and an increase of 8.3% relative to September 30, 2011.

Service charges on deposits increased 4.6% to $1.6 million for the nine months ended September 30, 2012  compared to $1.5 million for the nine months ended September 30, 2011.   Service charges on deposits increased 3.5% to $557,000 for the three months ended September 30, 2012 compared to $538,000 for the three months ended September 30, 2011.  

The Company sold $39.5 million in securities and purchased $109.2 million in securities during the nine months ended September 30, 2012.  The Company realized a net gain of $452,000 on the sale of securities in the nine months ended September 30, 2012.  

In connection with the preparation of the financial statements included in this Form 10-Q, the Company concluded that there were no securities with other-than-temporary impairment within its portfolio as of September 30, 2012.  Accordingly, during the nine months ended September 30, 2012, no credit related impairment losses were recognized by the Company compared to $22,000 recognized for the nine months ended September 30, 2011.  The Company previously held trust preferred securities in its portfolio that were identified as other-than-temporarily impaired.  These securities were sold during the quarter ended June 30, 2012 with a recognized net loss of approximately $142,000.

Commissions on investment sales increased by $96,000 or 32.8% to $389,000 for the nine months ended September 30, 2012, compared to $293,000 for the nine months ended September 30, 2011. Commissions on investment sales increased by $17,000

45

or 17.0% to $117,000 for the three months ended September 30, 2012, compared to $100,000 for the three months ended September 30, 2011.

Income earned from the Bank’s $16.4 million investment in Bank Owned Life Insurance (BOLI) contributed $363,000 to total other income for the nine months ended September 30, 2012.  The Company purchased $6.0 million of BOLI in the third quarter of 2004, $4.8 million in the fourth quarter of 2004, $485,000 in the second quarter of 2007, $453,000 in the fourth quarter of 2009, and $682,000 in the second quarter of 2010 to help subsidize increasing employee benefit costs and expenses related to the restructure of its supplemental retirement plans.

Other service charges, commissions and fees increased by 12.7% to $391,000 for the nine months ended September 30, 2012, compared to $347,000 for the same period in 2011.

Other Expense

Total other expense includes employee-related costs, occupancy and equipment expense and other overhead.  Total other expense increased by $5.5 million from $34.9 million for the nine months ended September 30, 2011 to $40.5 million for the nine months ended September 30, 2012.  When taken as a percentage of total average assets on an annualized basis, other expense was 4.5% of total average assets for the nine months ended September 30, 2012 versus 4.2% for the same period in 2011.   Total other expense increased by $1.6 million from $12.2 million for the three months ended September 30, 2011  to $13.8 million for the three months ended September 30, 2012.

Salaries and employee benefit expenses increased by $2.5 million or 12.6% when comparing the first nine months of 2012 to the same period ended September 30, 2011.  Salaries and employee benefit expenses increased by $376,000 or 5.4% when comparing the  three months ended September 30, 2012 to the same period ended September 30, 2011.

Net occupancy expense increased by $249,000 or 5.0% for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. Net occupancy expense increased by $32,000 or 1.9% for the three months ended September 30, 2012 compared to the three months ended September 30, 2011. The increase is the result of the Company’s growth as well as maintenance and improvements of the Company’s facilities. As growth efforts continue to progress, the Company anticipates higher levels of occupancy expense to be incurred.

Other tax expense increased by 0.7% to $611,000 for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. Other tax expenses were $203,000 for the three months ended September 30, 2012  compared to $205,000 for the three months ended September 30, 2011. The other tax expenses is franchise taxes paid by Middleburg Bank and Middleburg Trust Company in lieu of an income tax.  The tax is based on each subsidiary’s equity capital at January 1st of each year, net of adjustments.

Advertising expense increased by $512,000 to $1.4 million for the nine months ended September 30, 2012 compared to $887,000 for the nine months ended September 30, 2011. Advertising expense increased by $206,000 to $652,000 for the three months ended September 30, 2012 compared to $446,000 for the three months ended September 30, 2011. 

Other real estate owned expense increased by $1.0 million to $2.7 million for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.  Other real estate owned expense increased by $817,000 to $1.5 million for the three months ended September 30, 2012 compared to the three months ended September 30, 2011. The increase in expenses was primarily due to increases in legal expenses related to foreclosure, valuation adjustments and losses on the sales of these assets.

FDIC insurance expense decreased by $228,000 to $781,000 for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.  FDIC insurance expense increased by $18,000 to $262,000 for the three months ended September 30, 2012 compared to the three months ended September 30, 2011. The decrease in FDIC insurance expense for the  nine month period occurred because of a change in expense calculation methods implemented by the FDIC during 2011.

Other expenses increased 28.9% or $1.4 million to $6.5 million for the nine months ended September 30, 2012 compared to the same period in 2011.  This increase is primarily a result of a $1.125 million one-time charge in the first quarter of 2012 associated with a settlement agreement entered into with one of Southern Trust Mortgage's mortgage correspondents related to the loan purchase agreement between the two parties. This one-time settlement agreement provided for the release of known and unknown claims prior to December 31, 2009, by the mortgage correspondent in exchange for aggregate cash payments of $1.125 million.  Other expenses increased 11.5% or $194,000 to $1.9 million for the three months ended September 30, 2012 compared to the same period in 2011.

46

Allowance for Loan Losses

The allowance for loan losses at September 30, 2012 was $13.9 million, or 2.01% of total portfolio loans, compared to $14.6 million, or 2.18% of total portfolio loans at December 31, 2011.  The provision for loan losses was $2.2 million for the nine months ended September 30, 2012, compared to $2.6 million for the nine months ended September 30, 2011.  For the nine months ended September 30, 2012, net loan charge-offs totaled $2.8 million compared to net loan charge-offs of $3.2 million for the same period in 2011.  The provision for loan losses was $635,000 for the three months ended September 30, 2012, compared to $1.0 million for the three months ended September 30, 2011.  For the three months ended September 30, 2012, net loan charge-offs totaled $1.6 million compared to net loan charge-offs of $973,000 for the same period in 2011.  There were $860,000 in loans past due 90 days or more and still accruing at September 30, 2012, compared to $1.2 million at December 31, 2011.  Non-performing loans were $27.8 million at September 30, 2012, compared to $30.4 million at December 31, 2011.  Management believes that the allowance for loan losses was adequate to cover credit losses inherent in the loan portfolio at September 30, 2012.  Loans classified as loss, doubtful, substandard and special mention are adequately reserved for and are not expected to have a material impact beyond what has been reserved.  Approximately $2.0 million has been included in the allowance for loan losses related to total restructured loans.

Non-performing assets increased from $39.0 million or 3.3% of total assets at December 31, 2011 to $39.8 million or 3.2% of total assets as of September 30, 2012.   Non-accrual loans decreased from $25.3 million at December 31, 2011 to $22.7 million at September 30, 2012.

Capital Resources

Total shareholders’ equity at September 30, 2012 and December 31, 2011 was $115.4 million and $108.0 million, respectively.  Total common shares outstanding at September 30, 2012 were 7,052,554.

At September 30, 2012, the Company’s Tier 1 and total risk-based capital ratios were 14.0% and 15.2%, respectively, compared to 13.5% and 14.7% at December 31, 2011.  The Company’s leverage ratio was 8.9% at September 30, 2012 compared to 8.8% at December 31, 2011.  The Company’s capital structure places it above the well capitalized regulatory guidelines, which enables it to take advantage of business opportunities and indicates it has the resources to protect against risk inherent in its business.

Liquidity

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

The Company also maintains additional sources of liquidity through a variety of borrowing arrangements.  The Company maintains federal funds lines with large regional and money-center banking institutions.  These available lines totaled $24.0 million, none of which were outstanding at September 30, 2012.  At September 30, 2012 and December 31, 2011, the Company had $32.7 million and $31.7 million, respectively, of outstanding borrowings pursuant to repurchase agreements.

The Company has a credit line at the Federal Home Loan Bank of Atlanta with available borrowing capacity of $64.8 million as of September 30, 2012.  This line may be utilized for short and/or long-term borrowing.  The Company utilized the credit line for both overnight and long-term funding throughout the first nine months of 2012.  Southern Trust Mortgage has a revolving line of credit with a regional bank having a credit limit of $24.0 million.  This line is primarily used to fund its loans held for sale.    Middleburg Bank guarantees up to $10 million of borrowings on this line.  At September 30, 2012, the line had an outstanding balance of $17.6 million and is included in total short-term borrowings on the Company’s balance sheet.    

At September 30, 2012, cash, interest bearing deposits with financial institutions, federal funds sold, short-term investments, loans held for sale and securities available for sale were 47.9% of total deposits.

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments to extend credit (excluding standby letters of credit) decreased $4.5 million to $87.6 million at September 30, 2012 compared to $92.0 million at December 31, 2011.  Commitments to extend credit are agreements to lend to a customer as

47

long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent expected future cash flows.  Standby letters of credit were $3.8 million at September 30, 2012 representing an increase of $2.0 million from December 31, 2011.

Contractual obligations, representing FHLB advance obligations, operating leases, and capital notes, decreased $12.4 million to $108.4 million at September 30, 2012 compared to $120.8 million at December 31, 2011.   These results do not include changes in certificates of deposit and short-term borrowings.   Additional information on commitments to extend credit, standby letters of credit and contractual obligations is included in the Company’s 2011 Form 10-K.

Caution About Forward Looking Statements

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

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

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

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

•   maintaining asset qualities;

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

•   changing trends in customer profiles and behavior;

•   maintaining cost controls and asset qualities as the Company opens or acquires new branches;

•   changes in interest rates and interest rate policies;

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

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

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

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

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

•   problems with technology utilized by the Company;

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

•   other factors described in Item 1A, “Risk Factors,” included in our quarterly reports on Form 10-Q and the 2011 Form 10-K.

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

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest rate risk represents the sensitivity of earnings to changes in market interest rates.  As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, affecting net interest income, the primary component of the Company’s earnings.  ALCO uses the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes.  The results of the simulation are dependent upon assumptions and parameters within the model used which change from time to time based on historical interest

48

rate relationships, current market conditions, and anticipated future market conditions.  While ALCO routinely monitors simulated net interest income sensitivity over a rolling two-year horizon, it also employs additional tools to monitor potential longer-term interest rate risk.  The model prepared for September 30, 2012 did not include the assets and liabilities of Southern Trust Mortgage.

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s balance sheet excluding the assets of Southern Trust Mortgage.  The simulation model is prepared and updated four times during each year.  This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon, assuming no balance sheet growth, given a 200 basis point (bp) upward shift and a 200 basis point downward shift in interest rates.  A parallel shift in rates over a 12-month period is assumed.  The following reflects the Company’s net interest income sensitivity analysis as of September 30, 2012 and December 31, 2011.

	Estimated Net Interest Income Sensitivity
Rate Change	As of September 30, 2012	As of December 31, 2011
+ 200 bp	3.0%	—%
- 200 bp	(11.0)%	(10.0)%

At September 30, 2012, the Company’s interest rate risk model indicated that, in a rising rate environment of 200 basis points, net interest income could increase by 3.0% on average over the next 12 months.  For the same time period the interest rate risk model indicated that in a declining rate environment of 200 basis points, net interest income could decrease by 11.0% on average over the next 12 months.  While these numbers are subjective based upon the assumptions and parameters used within the model, management believes the balance sheet is properly structured to minimize interest rate risk in the future.

Based upon a September 30, 2012 simulation, the Company could expect an average positive impact to net interest income of $1.2 million over the next 12 months if rates rise 200 basis points.  If rates were to decline 200 basis points, the Company could expect an average negative impact to net interest income of $4.2 million over the next 12 months.

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

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

Item 4.  CONTROLS AND PROCEDURES

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

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

49

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company, including its subsidiaries, is a party or of which the property of the Company is subject.

Item 1A.  Risk Factors

Our operations are subject to many risks that could adversely affect our future financial condition and performance and, therefore, the market value of our securities. The risk factors that are applicable to us are outlined in our Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes in our risk factors from those disclosed in this report.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

None

Item 5.  Other Information

None

Item 6.  Exhibits

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

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

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

101 The following materials from the Middleburg Financial Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in Extensible Business reporting Language (XBRL):  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

50

SIGNATURES

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

		MIDDLEBURG FINANCIAL CORPORATION
			(Registrant)
Date:	November 9, 2012	/s/ Gary R. Shook
		Gary R. Shook
		President & Chief Executive Officer
Date:	November 9, 2012	/s/ Raj Mehra
		Raj Mehra
		Executive Vice President
		& Chief Financial Officer

51

EXHIBIT INDEX

Exhibits

31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350
101	The following materials from the Middleburg Financial Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in Extensible Business reporting Language (XBRL):  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Gary R. Shook, certify that:

1.   I have reviewed the Quarterly Report on Form 10-Q of Middleburg Financial Corporation for the period ended September 30, 2012;

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

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

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

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

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

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

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

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

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

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

Date:  November 9, 2012

/s/ Gary R. Shook

Gary R. Shook

President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Raj Mehra, certify that:

1.   I have reviewed the Quarterly Report on Form 10-Q of Middleburg Financial Corporation for the period ended September 30, 2012;

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

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

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

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

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

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

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

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

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

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

Date:  November 9, 2012

/s/ Raj Mehra

Raj Mehra

Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER AND

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

In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2012 (the “Form 10-Q”) of Middleburg Financial Corporation (the “Company”), we, Gary R. Shook, Chief Executive Officer of the Company, and Raj Mehra, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

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

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

By:	/s/ Gary R. Shook	Date:	November 9, 2012
	Gary R. Shook
	Chief Executive Officer
By:	/s/ Raj Mehra	Date:	November 9, 2012
	Raj Mehra
	Chief Financial Officer

XML

Fair Value Measurements, Balance Sheet Grouping (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Level 1 [Member]
Financial assets [Abstract]
Cash and Cash Equivalents	$ 71,523
Securities	0
Loans Held-for-sale	0
Net portfolio loans	0
Bank-owned life insurance	0
Accrued interest receivable	0
Derivative financial instruments	0
Financial liabilities [Abstract]
Deposits	0
Securities sold under agreements to repurchase	0
Short-term debt	0
FHLB borrowings	0
Trust preferred capital notes	0
Accrued interest payable	0
Interest rate swap	0
Mortgage banking hedge instruments	0
Level 2 [Member]
Financial assets [Abstract]
Cash and Cash Equivalents	0
Securities	308,374
Loans Held-for-sale	92,501
Net portfolio loans	698,432
Bank-owned life insurance	16,388
Accrued interest receivable	3,999
Derivative financial instruments	91
Financial liabilities [Abstract]
Deposits	987,735
Securities sold under agreements to repurchase	32,767
Short-term debt	17,657
FHLB borrowings	74,059
Trust preferred capital notes	5,236
Accrued interest payable	681
Interest rate swap	563
Mortgage banking hedge instruments	63
Level 3 [Member]
Financial assets [Abstract]
Cash and Cash Equivalents	0
Securities	0
Loans Held-for-sale	0
Net portfolio loans	2,072
Bank-owned life insurance	0
Accrued interest receivable	0
Derivative financial instruments	0
Financial liabilities [Abstract]
Deposits	0
Securities sold under agreements to repurchase	0
Short-term debt	0
FHLB borrowings	0
Trust preferred capital notes	0
Accrued interest payable	0
Interest rate swap	0
Mortgage banking hedge instruments	0
Carrying Amount [Member]
Financial assets [Abstract]
Cash and Cash Equivalents	71,523	51,270
Securities	308,374	308,242
Loans Held-for-sale	92,501	749,284
Net portfolio loans	678,423
Bank-owned life insurance	16,388	16,025
Accrued interest receivable	3,999	4,221
Derivative financial instruments	91
Financial liabilities [Abstract]
Deposits	984,447	929,869
Securities sold under agreements to repurchase	32,767	31,686
Short-term debt	17,657	28,331
FHLB borrowings	72,912	82,912
Trust preferred capital notes	5,155	5,155
Accrued interest payable	681	844
Interest rate swap	563	314
Mortgage banking hedge instruments	63
Fair Value [Member]
Financial assets [Abstract]
Cash and Cash Equivalents	71,523	51,270
Securities	308,374	308,242
Loans Held-for-sale	92,501	770,759
Net portfolio loans	700,504
Bank-owned life insurance	16,388	16,025
Accrued interest receivable	3,999	4,221
Derivative financial instruments	91
Financial liabilities [Abstract]
Deposits	987,735	934,322
Securities sold under agreements to repurchase	32,767	31,686
Short-term debt	17,657	28,331
FHLB borrowings	74,059	83,899
Trust preferred capital notes	5,236	5,216
Accrued interest payable	681	844
Interest rate swap	563	314
Mortgage banking hedge instruments	$ 63

XML

Earnings Per Share (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Shares [Abstract]
Basic earnings per share (in shares)	7,036,536	6,996,932	7,026,663	6,968,999
Effect of dilutive securities [Abstract]
stock options and grants (in shares)	15,324	1,562	9,987	2,296
Diluted earnings per share ( in shares)	7,051,860	6,998,494	7,036,650	6,971,295
Per share Amount [Abstract]
Basic earnings per share (in dollars per share)	$ 0.24	$ 0.20	$ 0.72	$ 0.55
Diluted earnings per shares (in dollars per share)	$ 0.24	$ 0.20	$ 0.72	$ 0.55
Stock options, restricted grants and warrants excluded from computation of earnings per share (in shares)			32,500	318,100

XML

Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Weighted average number of common shares used in computing earnings per share

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

	Three months ended
	September 30, 2012			September 30, 2011
	Weighted Average Shares	Per share Amount		Weighted Average Shares	Per share Amount
Basic earnings per share	7,036,536	$	0.24	6,996,932	$	0.20
Effect of dilutive securities:
stock options and grants	15,324	$	—	1,562	$	—
Diluted earnings per share	7,051,860	$	0.24	6,998,494	$	0.20

	Nine months ended
	September 30, 2012			September 30, 2011
	Weighted Average Shares	Per share Amount		Weighted Average Shares	Per share Amount
Basic earnings per share	7,026,663	$	0.72	6,968,999	$	0.55
Effect of dilutive securities:
stock options and grants	9,987	$	—	2,296
Diluted earnings per share	7,036,650	$	0.72	6,971,295	$	0.55

XML

Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Number Of Impaired Loans With Unobservable Inputs	17
Assets [Abstract]
Other real estate owned	$ 0	$ 0
Percentage at which new appraisals discounted (in hundredths)	10.00%
Number of consecutive monthly payments for come out from non accrual status	6
Recurring [Member]
Assets [Abstract]
U.S. government agencies	13,654	9,343
Obligations of states and political subdivisions	74,304	67,542
Mortgage-backed securities [Abstract]
Agency	165,512	187,070
Non-agency	15,305	18,206
Other-asset backed securities	32,192	15,796
Corporate preferred securities	61	40
Corporate securities	7,346	9,976
Trust preferred securities		269
Mortgage interest rate locks	91
Liabilities [Abstract]
Interest rate swap	563	314
Mortgage banking hedge instruments	63
Nonrecurring [Member]
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Loans Held-for-sale	92,501	92,514
Impaired loans	11,895	10,648
Assets [Abstract]
Other real estate owned	11,933	8,535
Level 1 [Member]
Mortgage-backed securities [Abstract]
Mortgage interest rate locks	0
Liabilities [Abstract]
Interest rate swap	0
Mortgage banking hedge instruments	0
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Loans Held-for-sale	0
Level 1 [Member] | Recurring [Member]
Assets [Abstract]
U.S. government agencies	0	0
Obligations of states and political subdivisions	0	0
Mortgage-backed securities [Abstract]
Agency	0	0
Non-agency	0	0
Other-asset backed securities	0	0
Corporate preferred securities	0	0
Corporate securities	0	0
Trust preferred securities		0
Mortgage interest rate locks	0
Liabilities [Abstract]
Interest rate swap	0	0
Mortgage banking hedge instruments	0
Level 1 [Member] | Nonrecurring [Member]
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Loans Held-for-sale	0	0
Impaired loans	0	0
Assets [Abstract]
Other real estate owned	0	0
Level 2 [Member]
Mortgage-backed securities [Abstract]
Mortgage interest rate locks	91
Liabilities [Abstract]
Interest rate swap	563
Mortgage banking hedge instruments	63
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Loans Held-for-sale	92,501
Level 2 [Member] | Recurring [Member]
Assets [Abstract]
U.S. government agencies	13,654	9,343
Obligations of states and political subdivisions	74,304	67,542
Mortgage-backed securities [Abstract]
Agency	165,512	187,070
Non-agency	15,305	18,206
Other-asset backed securities	32,192	15,796
Corporate preferred securities	61	40
Corporate securities	7,346	9,976
Trust preferred securities		269
Mortgage interest rate locks	91
Liabilities [Abstract]
Interest rate swap	563	314
Mortgage banking hedge instruments	63
Level 2 [Member] | Nonrecurring [Member]
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Loans Held-for-sale	92,501	92,514
Impaired loans	9,823	6,767
Assets [Abstract]
Other real estate owned	11,933	8,535
Level 3 [Member]
Mortgage-backed securities [Abstract]
Mortgage interest rate locks	0
Liabilities [Abstract]
Interest rate swap	0
Mortgage banking hedge instruments	0
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Loans Held-for-sale	0
Level 3 [Member] | Recurring [Member]
Assets [Abstract]
U.S. government agencies	0	0
Obligations of states and political subdivisions	0	0
Mortgage-backed securities [Abstract]
Agency	0	0
Non-agency	0	0
Other-asset backed securities	0	0
Corporate preferred securities	0	0
Corporate securities	0	0
Trust preferred securities		0
Mortgage interest rate locks	0
Liabilities [Abstract]
Interest rate swap	0	0
Mortgage banking hedge instruments	0
Level 3 [Member] | Nonrecurring [Member]
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Loans Held-for-sale	0	0
Impaired loans	$ 2,072	$ 3,881

XML

Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash Flows From Operating Activities
Net income	$ 5,922	$ 3,696
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,442	1,391
(Undistributed earnings) of affiliate	(4)	(21)
Provision for loan losses	2,156	2,565
Net (gain) on securities available for sale	(452)	(263)
Other than temporary impairment loss	0	22
Net loss on disposal of assets	8	45
Premium amortization on securities, net	2,765	2,029
Origination of loans held for sale	(696,327)	(470,006)
Proceeds from sales of loans held for sale	711,428	470,830
Net (gains) on mortgages held for sale	(15,088)	(8,373)
Share-based compensation	317	247
Net loss on sale of other real estate owned	128	336
Valuation adjustment on other real estate owned	1,616	774
Changes in assets and liabilities:
Decrease in prepaid FDIC insurance	727	927
(Increase) in other assets	(1,081)	(3,303)
Increase in other liabilities	696	1,851
Net cash provided by operating activities	14,253	2,747
Cash Flows from Investing Activities
Proceeds from maturity, principal paydowns and calls of securities available for sale	71,036	42,050
Proceeds from sale of securities available for sale	39,475	26,154
Purchase of securities available for sale	(109,228)	(112,259)
Redemption (purchase) of restricted stock	352	(931)
Proceeds from disposition of fixed assets	0	57
Purchases of bank premises and equipment	(541)	(1,430)
Net (increase) in loans	(31,091)	(20,641)
Proceeds from sale of other real estate owned	2,126	2,917
Net cash (used in) investing activities	(27,871)	(64,083)
Cash Flows from Financing Activities
Net increase in non-interest-bearing and interest-bearing demand deposits and savings accounts	85,328	34,080
Net (decrease) in time deposits	(30,750)	(14,690)
Increase in securities sold under agreements to repurchase	1,081	5,724
Proceeds from short-term borrowings	89,424	67,470
Payments on short-term borrowings	(100,098)	(67,926)
Proceeds from FHLB borrowings	62,912	40,000
Payments on FHLB borrowings	(72,912)	(25,000)
Distributions to non-controlling interest	(59)	(644)
Payment of dividends on common stock	(1,055)	(1,044)
Net cash provided by financing activities	33,871	37,970
Increase (decrease) in cash and and cash equivalents	20,253	(23,366)
Cash and Cash Equivalents
Beginning	51,270	64,724
Ending	71,523	41,358
Cash payments for:
Interest	7,080	8,345
Income taxes	1,850	450
Supplemental Disclosure of Non-cash Transactions
Unrealized gain on securities available for sale	3,727	8,685
Change in market value of interest rate swap	(185)	(596)
Transfer of loans to other real estate owned	7,431	2,266
Loans originated from sale of other real estate owned	$ 149	$ 533

XML

Stock-Based Compensation Plan (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)	255,000
Share based compensation expense	$ 317,000	$ 247,000
Stock Options [Member]
Shares [Roll Forward]
Outstanding at beginning of year (in shares)	160,171
Granted (in shares)	0
Exercised (in shares)	0
Forfeited (in shares)	(78,000)
Outstanding at end of period (in shares)	82,171
Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning of year (in dollars per share)	$ 20.40
Granted (in dollars per share)	$ 0
Exercised (in dollars per share)	$ 0
Forfeited (in dollars per share)	$ (23.64)
Outstanding at end of period (in dollars per share)	$ (17.32)
Aggregate Intrinsic Value [Abstract]
Outstanding at end of period	0
Options vested and exercisable (in shares)	79,671
Weighted average remaining contractual term for options	4 years 10 months 24 days
2006 Equity Compensation Plan [Member] | Stock Options [Member]
Aggregate Intrinsic Value [Abstract]
Options vested and exercisable (in shares)	57,671
Non vested stock option (in shares)	2,500
Unrecognized compensation expense related to nonvested stock options awards	600
2006 Equity Compensation Plan [Member] | Restricted Stock [Member]
Shares [Roll Forward]
Outstanding at beginning of year (in shares)	86,220
Granted (in shares)	49,975
Vested (in shares)	(12,932)
Forfeited (in shares)	(2,808)
Non-vested at end of period (in shares)	120,455
Weighted Average Grant-Date Fair Value [Roll Forward]
Outstanding at beginning of year (in dollars per share)	$ 14.79
Granted (in dollars per share)	$ 16.86
Vested (in dollars per share)	$ (13.28)
Forfeited (in dollars per share)	$ (14.59)
Outstanding at end of period (in dollars per share)	$ 15.66
Aggregate Intrinsic Value [Abstract]
Outstanding at end of period	2,139,281
Restricted stock nonvested outstanding, Weighted average remaining contractual terms	4 years 2 months 12 days
Unrecognized compensation expense related to nonvested restricted stock awards	$ 1,471,144
1997 Stock Incentive Plan [Member] | Stock Options [Member]
Aggregate Intrinsic Value [Abstract]
Options vested and exercisable (in shares)	22,000
Non vested stock option (in shares)	0

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

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

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	13,654	$	—	$	13,654	$	—
Obligations of states and political subdivisions		74,304		—		74,304		—
Mortgage-backed securities:
Agency		165,512		—		165,512		—
Non-agency		15,305		—		15,305		—
Other asset-backed securities		32,192		—		32,192		—
Corporate preferred stock		61		—		61		—
Corporate securities		7,346		—		7,346		—
Mortgage interest rate locks		91		—		91		—
Liabilities:
Interest rate swap	$	500	$	—	$	500	$	—
Mortgage banking hedge instruments		63		—		63		—

	December 31, 2011
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	9,343	$	—	$	9,343	$	—
Obligations of states and political subdivisions		67,542		—		67,542		—
Mortgage-backed securities:
Agency		187,070		—		187,070		—
Non-agency		18,206		—		18,206		—
Other asset-backed securities		15,796		—		15,796		—
Corporate preferred stock		40		—		40		—
Corporate securities		9,976		—		9,976		—
Trust preferred securities		269		—		269		—
Liabilities:
Interest rate swap		314		—		314		—

Financial and non financial assets measured at fair value on a nonrecurring basis

The following table summarizes the Company's financial assets that were measured at fair value on a nonrecurring basis as of September 30, 2012 and December 31, 2011:

	September 30, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	92,501	$	—	$	92,501	$	—
Impaired loans	11,895		—		9,823		2,072
	December 31, 2011
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	92,514	$	—	$	92,514	$	—
Impaired loans	10,648		—		6,767		3,881

Roll-forward of the transfers in and out of the Level III valuation method

The following table presents a roll-forward of the transfers in and out of the Level III valuation method for financial assets that are measured at fair value on a nonrecurring basis as of September 30, 2012:

	Impaired Loans
	(in thousands)
Balance at December 31, 2011	$	3,881
Transfers in	2,452
Transfers out (1)	(3,744		)
Other (2)	(517		)
Balance at September 30, 2012	$	2,072

(1) Impaired loans are considered to have a Level III valuation methodology if the appraisal on the loan is older than two years. Transfers out of level three status represent loans for which current appraisals have been obtained or loans which have been transferred to other real estate owned and the collateral re-appraised at the time of the transfer.

(2) Other changes in the Level III balances during the period represent principal changes on level three impaired loans and valuation adjustments since December 31, 2011.

Quantitative information on Level III assets

The following table presents quantitative information as of September 30, 2012 about Level III fair value measurements for financial assets measured at fair value on a non-recurring basis:

	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired Loans	$	2,072	Discounted appraised value	Discount for selling costs and age of appraisals.	10% - 30% (21%)

Balance of financial assets and liabilities

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	13,654	$	—	$	13,654	$	—
Obligations of states and political subdivisions		74,304		—		74,304		—
Mortgage-backed securities:
Agency		165,512		—		165,512		—
Non-agency		15,305		—		15,305		—
Other asset-backed securities		32,192		—		32,192		—
Corporate preferred stock		61		—		61		—
Corporate securities		7,346		—		7,346		—
Mortgage interest rate locks		91		—		91		—
Liabilities:
Interest rate swap	$	500	$	—	$	500	$	—
Mortgage banking hedge instruments		63		—		63		—

	December 31, 2011
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	9,343	$	—	$	9,343	$	—
Obligations of states and political subdivisions		67,542		—		67,542		—
Mortgage-backed securities:
Agency		187,070		—		187,070		—
Non-agency		18,206		—		18,206		—
Other asset-backed securities		15,796		—		15,796		—
Corporate preferred stock		40		—		40		—
Corporate securities		9,976		—		9,976		—
Trust preferred securities		269		—		269		—
Liabilities:
Interest rate swap		314		—		314		—

XML

Securities (Details) (USD $)	3 Months Ended			9 Months Ended
	Sep. 30, 2012	Jun. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Amortized costs and fair values of securities available for sale [Abstract]
Amortized Cost	$ 298,384,000			$ 298,384,000		$ 301,979,000
Gross Unrealized Gains	11,269,000			11,269,000		8,440,000
Gross Unrealized Losses	(1,279,000)			(1,279,000)		(2,177,000)
Fair Value	308,374,000			308,374,000		308,242,000
Amortized Cost [Abstract]
Due in one year or less	4,863,000			4,863,000
Due after one year through five years	22,698,000			22,698,000
Due after five years through ten years	31,943,000			31,943,000
Due after ten years	32,432,000			32,432,000
Total	298,384,000			298,384,000
Fair Value [Abstract]
Due in one year or less	4,892,000			4,892,000
Due after one year through five years	22,772,000			22,772,000
Due after five years through ten years	33,717,000			33,717,000
Due after ten years	33,923,000			33,923,000
Total	308,374,000			308,374,000
Sale proceeds of securities				39,500,000
Gains on sale of securities	164,000		141,000	452,000	263,000
Tax expense related to realized gains				154,000
Carrying value of securities pledged for fiduciary powers	143,200,000			143,200,000
Gross Unrealized Losses [Abstract]
Less than Twelve Months	(347,000)			(347,000)		(919,000)
Twelve Months or Greater	(932,000)			(932,000)		(1,258,000)
Total	(1,279,000)			(1,279,000)		(2,177,000)
Fair Value [Abstract]
Less than Twelve Months	27,074,000			27,074,000		47,976,000
Twelve Months or Greater	8,625,000			8,625,000		10,595,000
Total	35,699,000			35,699,000		58,571,000
Amount of OTTI Related to Credit Loss		142,000
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Number of securities temporarily impaired	51			51
Number of securities temporarily impaired in investment grade	50			50
Number of securities temporarily impaired in speculative grade	1			1
Amount of OTTI Related to Credit Loss		142,000
Net impairment recognized in earnings through end of period						2,400,000
Credit related impairment losses on securities				0	22,000
U.S. government agencies [Member]
Amortized costs and fair values of securities available for sale [Abstract]
Amortized Cost	13,246,000			13,246,000		9,068,000
Gross Unrealized Gains	411,000			411,000		293,000
Gross Unrealized Losses	(3,000)			(3,000)		(18,000)
Fair Value	13,654,000			13,654,000		9,343,000
Gross Unrealized Losses [Abstract]
Less than Twelve Months	(3,000)			(3,000)		(18,000)
Twelve Months or Greater	0			0		0
Total	(3,000)			(3,000)		(18,000)
Fair Value [Abstract]
Less than Twelve Months	2,568,000			2,568,000		2,045,000
Twelve Months or Greater	57,000			57,000		26,000
Total	2,625,000			2,625,000		2,071,000
Obligations of states and political subdivisions [Member]
Amortized costs and fair values of securities available for sale [Abstract]
Amortized Cost	70,460,000			70,460,000		65,090,000
Gross Unrealized Gains	3,852,000			3,852,000		2,503,000
Gross Unrealized Losses	(8,000)			(8,000)		(51,000)
Fair Value	74,304,000			74,304,000		67,542,000
Gross Unrealized Losses [Abstract]
Less than Twelve Months	(8,000)			(8,000)		0
Twelve Months or Greater	0			0		(51,000)
Total	(8,000)			(8,000)		(51,000)
Fair Value [Abstract]
Less than Twelve Months	1,302,000			1,302,000		43,000
Twelve Months or Greater	0			0		2,243,000
Total	1,302,000			1,302,000		2,286,000
Mortgage-backed Securities, Agency [Member]
Amortized costs and fair values of securities available for sale [Abstract]
Amortized Cost	159,790,000			159,790,000		181,797,000
Gross Unrealized Gains	5,994,000			5,994,000		5,482,000
Gross Unrealized Losses	(272,000)			(272,000)		(209,000)
Fair Value	165,512,000			165,512,000		187,070,000
Gross Unrealized Losses [Abstract]
Less than Twelve Months	(272,000)			(272,000)		(209,000)
Twelve Months or Greater	0			0		0
Total	(272,000)			(272,000)		(209,000)
Fair Value [Abstract]
Less than Twelve Months	16,213,000			16,213,000		22,768,000
Twelve Months or Greater	0			0		0
Total	16,213,000			16,213,000		22,768,000
Mortgage-backed Securities, Non-agency [Member]
Amortized costs and fair values of securities available for sale [Abstract]
Amortized Cost	15,015,000			15,015,000		18,737,000
Gross Unrealized Gains	298,000			298,000		67,000
Gross Unrealized Losses	(8,000)			(8,000)		(598,000)
Fair Value	15,305,000			15,305,000		18,206,000
Gross Unrealized Losses [Abstract]
Less than Twelve Months	(8,000)			(8,000)		(103,000)
Twelve Months or Greater	0			0		(495,000)
Total	(8,000)			(8,000)		(598,000)
Fair Value [Abstract]
Less than Twelve Months	2,760,000			2,760,000		4,773,000
Twelve Months or Greater	0			0		4,522,000
Total	2,760,000			2,760,000		9,295,000
Other Asset-backed Securities [Member]
Amortized costs and fair values of securities available for sale [Abstract]
Amortized Cost	31,575,000			31,575,000		16,110,000
Gross Unrealized Gains	703,000			703,000		90,000
Gross Unrealized Losses	(86,000)			(86,000)		(404,000)
Fair Value	32,192,000			32,192,000		15,796,000
Amortized Cost [Abstract]
Total	31,575,000			31,575,000
Fair Value [Abstract]
Total	32,192,000			32,192,000
Gross Unrealized Losses [Abstract]
Less than Twelve Months	(56,000)			(56,000)		(362,000)
Twelve Months or Greater	(30,000)			(30,000)		(42,000)
Total	(86,000)			(86,000)		(404,000)
Fair Value [Abstract]
Less than Twelve Months	4,231,000			4,231,000		10,572,000
Twelve Months or Greater	1,431,000			1,431,000		1,467,000
Total	5,662,000			5,662,000		12,039,000
Corporate Preferred Stock [Member]
Amortized costs and fair values of securities available for sale [Abstract]
Amortized Cost	68,000			68,000		68,000
Gross Unrealized Gains	0			0		0
Gross Unrealized Losses	(7,000)			(7,000)		(28,000)
Fair Value	61,000			61,000		40,000
Amortized Cost [Abstract]
Total	68,000			68,000
Fair Value [Abstract]
Total	61,000			61,000
Gross Unrealized Losses [Abstract]
Less than Twelve Months	0			0		0
Twelve Months or Greater	(7,000)			(7,000)		(28,000)
Total	(7,000)			(7,000)		(28,000)
Fair Value [Abstract]
Less than Twelve Months	0			0		0
Twelve Months or Greater	32,000			32,000		11,000
Total	32,000			32,000		11,000
Corporate securities [Member]
Amortized costs and fair values of securities available for sale [Abstract]
Amortized Cost	8,230,000			8,230,000		10,612,000
Gross Unrealized Gains	11,000			11,000		5,000
Gross Unrealized Losses	(895,000)			(895,000)		(641,000)
Fair Value	7,346,000			7,346,000		9,976,000
Gross Unrealized Losses [Abstract]
Less than Twelve Months	0			0		(227,000)
Twelve Months or Greater	(895,000)			(895,000)		(414,000)
Total	(895,000)			(895,000)		(641,000)
Fair Value [Abstract]
Less than Twelve Months	0			0		7,775,000
Twelve Months or Greater	7,105,000			7,105,000		2,057,000
Total	7,105,000			7,105,000		9,832,000
Trust-preferred securities [Member]
Amortized costs and fair values of securities available for sale [Abstract]
Amortized Cost						497,000
Gross Unrealized Gains						0
Gross Unrealized Losses						(228,000)
Fair Value						269,000
Gross Unrealized Losses [Abstract]
Less than Twelve Months						0
Twelve Months or Greater						(228,000)
Total						(228,000)
Fair Value [Abstract]
Less than Twelve Months						0
Twelve Months or Greater						269,000
Total						269,000
Amount of OTTI Related to Credit Loss	149,000
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Amount of OTTI Related to Credit Loss	149,000
Mortgage-backed securities [Member]
Amortized Cost [Abstract]
Total	174,805,000			174,805,000
Fair Value [Abstract]
Total	$ 180,817,000			$ 180,817,000

XML

Loan Portfolio (Details) (USD $)	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Dec. 31, 2011
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	$ 692,364,000	$ 692,364,000	$ 671,393,000
Less allowance for loans losses	13,941,000	13,941,000	14,623,000
Net Loans	678,423,000	678,423,000	656,770,000
Percent of Total Portfolio (in hundredths)	100.00%	100.00%	100.00%
Mortgages held for sale	92,501,000	92,501,000	92,514,000
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	5,944,000	5,944,000	11,000,000
60 to 89 Days Past Due	609,000	609,000	3,578,000
Equal to Greater than 90 Days Past Due	14,746,000	14,746,000	12,705,000
Past Due, Total	21,299,000	21,299,000	27,283,000
Current	671,065,000	671,065,000	644,110,000
Total ending loan balances	692,364,000	692,364,000	671,393,000
Nonaccrual Status	22,683,000	22,683,000	25,346,000
90 Days Past Due and Still Accruing	860,000	860,000	1,233,000
Interest on non-accrual loans foregone		1,000,000	1,500,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	692,364,000	692,364,000	671,393,000
Recorded Investment [Abstract]
With no related allowance recorded	10,517,000	10,517,000	13,453,000
With an allowance recorded	16,469,000	16,469,000	15,746,000
Total	26,986,000	26,986,000	29,199,000
Unpaid Principal Balance [Abstract]
With no related allowance recorded	11,529,000	11,529,000	14,834,000
With an allowance recorded	18,473,000	18,473,000	17,518,000
Total	30,002,000	30,002,000	32,352,000
Related Allowance [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	4,574,000	4,574,000	5,098,000
Total	4,574,000	4,574,000	5,098,000
Average Recorded Investment [Abstract]
With no related allowance recorded		11,788,000	15,836,000
With an allowance recorded		17,419,000	15,597,000
Total		29,207,000	31,433,000
Interest Income Recognized [Abstract]
With no related allowance recorded		127,000	102,000
With an allowance recorded		94,000	95,000
Total		221,000	197,000
Financing Receivable, Modifications [Line Items]
Total TDR	11,500,000	11,500,000	11,200,000
TDR included in nonaccrual loans	7,200,000	7,200,000
Valuation Allowance related to total TDR	2,000,000	2,000,000	1,700,000
TDR performing as agreed	4,300,000	4,300,000
Increase in TDR		300,000
Percentage increase in TDR (in hundredths)		2.70%
Loans modified in a TDR by class of loan [Abstract]
Financing Receivable Modifications Number Of Contracts2	5	7
Financing Receivable Modifications Pre Modification Recorded Investment2	3,908,000	4,820,000
Financing Receivable Modifications Post Modification Recorded Investment2	3,332,000	4,223,000
Number of loans for lowering interest	3	5
Number of loans for modifying repayment terms	2	2
Number of loans for extended terms		1
Number of loans for which allowance for loan losses measured under general allowance methodology		4
Recorded investment as TDR for which allowance for loan losses measured under general allowance methodology		2,600,000
Allowance for loan losses on recorded investment as TDR	536,000	536,000
Number of loans restructured included in non accrual loans		4
Recorded investment restructured as TDR included in non accrual loans	3,300,000	3,300,000
Pass [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	600,291,000	600,291,000	578,152,000
Past due loans by class of loans [Abstract]
Total ending loan balances	600,291,000	600,291,000	578,152,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	600,291,000	600,291,000	578,152,000
Special Mention [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	46,901,000	46,901,000	44,358,000
Past due loans by class of loans [Abstract]
Total ending loan balances	46,901,000	46,901,000	44,358,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	46,901,000	46,901,000	44,358,000
Substandard [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	41,441,000	41,441,000	45,818,000
Past due loans by class of loans [Abstract]
Total ending loan balances	41,441,000	41,441,000	45,818,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	41,441,000	41,441,000	45,818,000
Doubtful [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	3,731,000	3,731,000	3,065,000
Past due loans by class of loans [Abstract]
Total ending loan balances	3,731,000	3,731,000	3,065,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	3,731,000	3,731,000	3,065,000
Loss [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	0	0	0
Past due loans by class of loans [Abstract]
Total ending loan balances	0	0	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0	0
Real estate loans Construction [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	48,740,000	48,740,000	42,208,000
Less allowance for loans losses	1,045,000	1,045,000	897,000
Percent of Total Portfolio (in hundredths)	7.00%	7.00%	6.30%
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	175,000	175,000	696,000
60 to 89 Days Past Due	0	0	0
Equal to Greater than 90 Days Past Due	3,142,000	3,142,000	3,285,000
Past Due, Total	3,317,000	3,317,000	3,981,000
Current	45,423,000	45,423,000	38,227,000
Total ending loan balances	48,740,000	48,740,000	42,208,000
Nonaccrual Status	2,943,000	2,943,000	3,804,000
90 Days Past Due and Still Accruing	268,000	268,000	86,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	48,740,000	48,740,000	42,208,000
Recorded Investment [Abstract]
With no related allowance recorded	1,629,000	1,629,000	2,992,000
With an allowance recorded	1,314,000	1,314,000	812,000
Unpaid Principal Balance [Abstract]
With no related allowance recorded	2,180,000	2,180,000	3,652,000
With an allowance recorded	2,539,000	2,539,000	842,000
Related Allowance [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	198,000	198,000	328,000
Average Recorded Investment [Abstract]
With no related allowance recorded		2,071,000	3,948,000
With an allowance recorded		1,913,000	812,000
Interest Income Recognized [Abstract]
With no related allowance recorded		0	0
With an allowance recorded		0	0
Financing Receivable, Modifications [Line Items]
TDR included in nonaccrual loans	74,000	74,000
Loans modified in a TDR by class of loan [Abstract]
Financing Receivable Modifications Number Of Contracts2	0	0
Financing Receivable Modifications Pre Modification Recorded Investment2	0	0
Financing Receivable Modifications Post Modification Recorded Investment2	0	0
Real estate loans Construction [Member] | Pass [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	27,342,000	27,342,000	22,250,000
Past due loans by class of loans [Abstract]
Total ending loan balances	27,342,000	27,342,000	22,250,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	27,342,000	27,342,000	22,250,000
Real estate loans Construction [Member] | Special Mention [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	15,810,000	15,810,000	5,764,000
Past due loans by class of loans [Abstract]
Total ending loan balances	15,810,000	15,810,000	5,764,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	15,810,000	15,810,000	5,764,000
Real estate loans Construction [Member] | Substandard [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	4,553,000	4,553,000	13,163,000
Past due loans by class of loans [Abstract]
Total ending loan balances	4,553,000	4,553,000	13,163,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	4,553,000	4,553,000	13,163,000
Real estate loans Construction [Member] | Doubtful [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	1,035,000	1,035,000	1,031,000
Past due loans by class of loans [Abstract]
Total ending loan balances	1,035,000	1,035,000	1,031,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,035,000	1,035,000	1,031,000
Real estate loans Construction [Member] | Loss [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	0	0	0
Past due loans by class of loans [Abstract]
Total ending loan balances	0	0	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0	0
Real estate loans Secured by farmland [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	9,438,000	9,438,000	10,047,000
Percent of Total Portfolio (in hundredths)	1.40%	1.40%	1.50%
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	0	0	415,000
60 to 89 Days Past Due	0	0	0
Equal to Greater than 90 Days Past Due	0	0	0
Past Due, Total	0	0	415,000
Current	9,438,000	9,438,000	9,632,000
Total ending loan balances	9,438,000	9,438,000	10,047,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	9,438,000	9,438,000	10,047,000
Recorded Investment [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	0	0	0
Unpaid Principal Balance [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	0	0	0
Related Allowance [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	0	0	0
Average Recorded Investment [Abstract]
With no related allowance recorded		0	0
With an allowance recorded		0	0
Interest Income Recognized [Abstract]
With no related allowance recorded		0
With an allowance recorded		0
Loans modified in a TDR by class of loan [Abstract]
Financing Receivable Modifications Number Of Contracts2	0	0
Financing Receivable Modifications Pre Modification Recorded Investment2	0	0
Financing Receivable Modifications Post Modification Recorded Investment2	0	0
Real estate loans Secured by farmland [Member] | Pass [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	8,629,000	8,629,000	9,235,000
Past due loans by class of loans [Abstract]
Total ending loan balances	8,629,000	8,629,000	9,235,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	8,629,000	8,629,000	9,235,000
Real estate loans Secured by farmland [Member] | Special Mention [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	199,000	199,000	199,000
Past due loans by class of loans [Abstract]
Total ending loan balances	199,000	199,000	199,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	199,000	199,000	199,000
Real estate loans Secured by farmland [Member] | Substandard [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	610,000	610,000	613,000
Past due loans by class of loans [Abstract]
Total ending loan balances	610,000	610,000	613,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	610,000	610,000	613,000
Real estate loans Secured by farmland [Member] | Doubtful [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	0	0	0
Past due loans by class of loans [Abstract]
Total ending loan balances	0	0	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0	0
Real estate loans Secured by farmland [Member] | Loss [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	0	0	0
Past due loans by class of loans [Abstract]
Total ending loan balances	0	0	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0	0
Real estate loans Secured by 1 - 4 family residential [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	254,079,000	254,079,000	236,760,000
Less allowance for loans losses	5,835,000	5,835,000	7,465,000
Percent of Total Portfolio (in hundredths)	36.70%	36.70%	35.30%
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	4,838,000	4,838,000	2,036,000
60 to 89 Days Past Due	208,000	208,000	1,721,000
Equal to Greater than 90 Days Past Due	2,817,000	2,817,000	7,639,000
Past Due, Total	7,863,000	7,863,000	11,396,000
Current	246,216,000	246,216,000	225,364,000
Total ending loan balances	254,079,000	254,079,000	236,760,000
Nonaccrual Status	8,653,000	8,653,000	11,839,000
90 Days Past Due and Still Accruing	399,000	399,000	1,097,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	254,079,000	254,079,000	236,760,000
Recorded Investment [Abstract]
With no related allowance recorded	3,136,000	3,136,000	3,978,000
With an allowance recorded	6,802,000	6,802,000	8,697,000
Unpaid Principal Balance [Abstract]
With no related allowance recorded	3,554,000	3,554,000	4,656,000
With an allowance recorded	7,460,000	7,460,000	10,417,000
Related Allowance [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	2,577,000	2,577,000	3,076,000
Average Recorded Investment [Abstract]
With no related allowance recorded		3,360,000	4,424,000
With an allowance recorded		7,034,000	9,047,000
Interest Income Recognized [Abstract]
With no related allowance recorded		36,000	7,000
With an allowance recorded		30,000	17,000
Financing Receivable, Modifications [Line Items]
TDR included in nonaccrual loans	2,300,000	2,300,000
TDR performing as agreed	1,300,000	1,300,000
Loans modified in a TDR by class of loan [Abstract]
Financing Receivable Modifications Number Of Contracts2	3	5
Financing Receivable Modifications Pre Modification Recorded Investment2	2,163,000	3,075,000
Financing Receivable Modifications Post Modification Recorded Investment2	1,595,000	2,486,000
Real estate loans Secured by 1 - 4 family residential [Member] | Pass [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	230,963,000	230,963,000	207,332,000
Past due loans by class of loans [Abstract]
Total ending loan balances	230,963,000	230,963,000	207,332,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	230,963,000	230,963,000	207,332,000
Real estate loans Secured by 1 - 4 family residential [Member] | Special Mention [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	4,235,000	4,235,000	10,773,000
Past due loans by class of loans [Abstract]
Total ending loan balances	4,235,000	4,235,000	10,773,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	4,235,000	4,235,000	10,773,000
Real estate loans Secured by 1 - 4 family residential [Member] | Substandard [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	17,396,000	17,396,000	17,062,000
Past due loans by class of loans [Abstract]
Total ending loan balances	17,396,000	17,396,000	17,062,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	17,396,000	17,396,000	17,062,000
Real estate loans Secured by 1 - 4 family residential [Member] | Doubtful [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	1,485,000	1,485,000	1,593,000
Past due loans by class of loans [Abstract]
Total ending loan balances	1,485,000	1,485,000	1,593,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,485,000	1,485,000	1,593,000
Real estate loans Secured by 1 - 4 family residential [Member] | Loss [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	0	0	0
Past due loans by class of loans [Abstract]
Total ending loan balances	0	0	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0	0
Other real estate loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	258,679,000	258,679,000	275,428,000
Less allowance for loans losses	4,764,000	4,764,000	4,385,000
Percent of Total Portfolio (in hundredths)	37.40%	37.40%	41.00%
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	855,000	855,000	6,079,000
60 to 89 Days Past Due	253,000	253,000	1,736,000
Equal to Greater than 90 Days Past Due	6,794,000	6,794,000	1,466,000
Past Due, Total	7,902,000	7,902,000	9,281,000
Current	250,777,000	250,777,000	266,147,000
Total ending loan balances	258,679,000	258,679,000	275,428,000
Nonaccrual Status	8,881,000	8,881,000	7,567,000
90 Days Past Due and Still Accruing	130,000	130,000	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	258,679,000	258,679,000	275,428,000
Recorded Investment [Abstract]
With no related allowance recorded	3,814,000	3,814,000	4,732,000
With an allowance recorded	7,852,000	7,852,000	5,581,000
Unpaid Principal Balance [Abstract]
With no related allowance recorded	3,857,000	3,857,000	4,775,000
With an allowance recorded	7,952,000	7,952,000	5,581,000
Related Allowance [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	1,408,000	1,408,000	1,192,000
Average Recorded Investment [Abstract]
With no related allowance recorded		4,438,000	5,729,000
With an allowance recorded		7,975,000	5,076,000
Interest Income Recognized [Abstract]
With no related allowance recorded		91,000	95,000
With an allowance recorded		51,000	64,000
Financing Receivable, Modifications [Line Items]
TDR included in nonaccrual loans	4,700,000	4,700,000
TDR performing as agreed	2,800,000	2,800,000
Loans modified in a TDR by class of loan [Abstract]
Financing Receivable Modifications Number Of Contracts2	1	1
Financing Receivable Modifications Pre Modification Recorded Investment2	1,528,000	1,528,000
Financing Receivable Modifications Post Modification Recorded Investment2	1,524,000	1,524,000
Other real estate loans [Member] | Pass [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	218,427,000	218,427,000	239,156,000
Past due loans by class of loans [Abstract]
Total ending loan balances	218,427,000	218,427,000	239,156,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	218,427,000	218,427,000	239,156,000
Other real estate loans [Member] | Special Mention [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	23,155,000	23,155,000	23,434,000
Past due loans by class of loans [Abstract]
Total ending loan balances	23,155,000	23,155,000	23,434,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	23,155,000	23,155,000	23,434,000
Other real estate loans [Member] | Substandard [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	16,044,000	16,044,000	12,592,000
Past due loans by class of loans [Abstract]
Total ending loan balances	16,044,000	16,044,000	12,592,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	16,044,000	16,044,000	12,592,000
Other real estate loans [Member] | Doubtful [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	1,053,000	1,053,000	246,000
Past due loans by class of loans [Abstract]
Total ending loan balances	1,053,000	1,053,000	246,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,053,000	1,053,000	246,000
Other real estate loans [Member] | Loss [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	0	0	0
Past due loans by class of loans [Abstract]
Total ending loan balances	0	0	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0	0
Real estate loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Financing Receivable Modifications Number Of Contracts2	4	6
Financing Receivable Modifications Pre Modification Recorded Investment2	3,691,000	4,603,000
Financing Receivable Modifications Post Modification Recorded Investment2	3,119,000	4,010,000
Commercial loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	108,962,000	108,962,000	94,427,000
Less allowance for loans losses	1,994,000	1,994,000	1,621,000
Percent of Total Portfolio (in hundredths)	15.70%	15.70%	14.10%
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	15,000	15,000	1,751,000
60 to 89 Days Past Due	126,000	126,000	121,000
Equal to Greater than 90 Days Past Due	1,960,000	1,960,000	315,000
Past Due, Total	2,101,000	2,101,000	2,187,000
Current	106,861,000	106,861,000	92,240,000
Total ending loan balances	108,962,000	108,962,000	94,427,000
Nonaccrual Status	2,176,000	2,176,000	2,136,000
90 Days Past Due and Still Accruing	60,000	60,000	50,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	108,962,000	108,962,000	94,427,000
Recorded Investment [Abstract]
With no related allowance recorded	1,938,000	1,938,000	1,751,000
With an allowance recorded	471,000	471,000	656,000
Unpaid Principal Balance [Abstract]
With no related allowance recorded	1,938,000	1,938,000	1,751,000
With an allowance recorded	492,000	492,000	678,000
Related Allowance [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	361,000	361,000	502,000
Average Recorded Investment [Abstract]
With no related allowance recorded		1,919,000	1,735,000
With an allowance recorded		467,000	662,000
Interest Income Recognized [Abstract]
With no related allowance recorded		0	0
With an allowance recorded		13,000	14,000
Financing Receivable, Modifications [Line Items]
TDR performing as agreed	233,000	233,000
Loans modified in a TDR by class of loan [Abstract]
Financing Receivable Modifications Number Of Contracts2	0	0
Financing Receivable Modifications Pre Modification Recorded Investment2	0	0
Financing Receivable Modifications Post Modification Recorded Investment2	0	0
Commercial loans [Member] | Pass [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	102,620,000	102,620,000	87,731,000
Past due loans by class of loans [Abstract]
Total ending loan balances	102,620,000	102,620,000	87,731,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	102,620,000	102,620,000	87,731,000
Commercial loans [Member] | Special Mention [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	3,442,000	3,442,000	4,127,000
Past due loans by class of loans [Abstract]
Total ending loan balances	3,442,000	3,442,000	4,127,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	3,442,000	3,442,000	4,127,000
Commercial loans [Member] | Substandard [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	2,772,000	2,772,000	2,374,000
Past due loans by class of loans [Abstract]
Total ending loan balances	2,772,000	2,772,000	2,374,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	2,772,000	2,772,000	2,374,000
Commercial loans [Member] | Doubtful [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	128,000	128,000	195,000
Past due loans by class of loans [Abstract]
Total ending loan balances	128,000	128,000	195,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	128,000	128,000	195,000
Commercial loans [Member] | Loss [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	0	0	0
Past due loans by class of loans [Abstract]
Total ending loan balances	0	0	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0	0
Consumer loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	12,466,000	12,466,000	12,523,000
Less allowance for loans losses	196,000	196,000	145,000
Percent of Total Portfolio (in hundredths)	1.80%	1.80%	1.80%
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	61,000	61,000	23,000
60 to 89 Days Past Due	22,000	22,000	0
Equal to Greater than 90 Days Past Due	33,000	33,000	0
Past Due, Total	116,000	116,000	23,000
Current	12,350,000	12,350,000	12,500,000
Total ending loan balances	12,466,000	12,466,000	12,523,000
Nonaccrual Status	30,000	30,000	0
90 Days Past Due and Still Accruing	3,000	3,000	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	12,466,000	12,466,000	12,523,000
Recorded Investment [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	30,000	30,000	0
Unpaid Principal Balance [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	30,000	30,000	0
Related Allowance [Abstract]
With no related allowance recorded	0	0	0
With an allowance recorded	30,000	30,000	0
Average Recorded Investment [Abstract]
With no related allowance recorded		0	0
With an allowance recorded		30,000	0
Interest Income Recognized [Abstract]
With no related allowance recorded		0	0
With an allowance recorded		0	0
Financing Receivable, Modifications [Line Items]
TDR included in nonaccrual loans	213,000	213,000
Loans modified in a TDR by class of loan [Abstract]
Financing Receivable Modifications Number Of Contracts2	1	1
Financing Receivable Modifications Pre Modification Recorded Investment2	217,000	217,000
Financing Receivable Modifications Post Modification Recorded Investment2	213,000	213,000
Consumer loans [Member] | Pass [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	12,310,000	12,310,000	12,448,000
Past due loans by class of loans [Abstract]
Total ending loan balances	12,310,000	12,310,000	12,448,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	12,310,000	12,310,000	12,448,000
Consumer loans [Member] | Special Mention [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	60,000	60,000	61,000
Past due loans by class of loans [Abstract]
Total ending loan balances	60,000	60,000	61,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	60,000	60,000	61,000
Consumer loans [Member] | Substandard [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	66,000	66,000	14,000
Past due loans by class of loans [Abstract]
Total ending loan balances	66,000	66,000	14,000
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	66,000	66,000	14,000
Consumer loans [Member] | Doubtful [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	30,000	30,000	0
Past due loans by class of loans [Abstract]
Total ending loan balances	30,000	30,000	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	30,000	30,000	0
Consumer loans [Member] | Loss [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	0	0	0
Past due loans by class of loans [Abstract]
Total ending loan balances	0	0	0
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	$ 0	$ 0	$ 0

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Consolidated Statements of Changes in Shareholders' Equity [Abstract]
Vesting of restricted stock awards (in shares)	12,932	7,922
Cancellation of restricted stock (in shares)	2,736	946

XML

Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Allowance for loan losses [Roll Forward]
Beginning Balance	$ 14,623	$ 14,967
Charge-offs	(3,211)	(3,465)
Recoveries	373	237
Provision	2,156	2,884
Ending Balance	13,941	14,623
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	4,574	5,098
Collectively evaluated for impairment	9,367	9,525
Total ending allowance balances	13,941	14,623
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	26,986	29,199
Collectively Evaluated for Impairment	665,378	642,194
Total ending loan balances	692,364	671,393
Real Estate Construction [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	897	4,684
Charge-offs	(1,521)	(467)
Recoveries	1	29
Provision	1,668	(3,349)
Ending Balance	1,045	897
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	198	328
Collectively evaluated for impairment	847	569
Total ending allowance balances	1,045	897
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	2,943	3,804
Collectively Evaluated for Impairment	45,797	38,404
Total ending loan balances	48,740	42,208
Real estate loans Secured by Farmland [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	110	107
Charge-offs	0	0
Recoveries	0	0
Provision	(3)	3
Ending Balance	107	110
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	107	110
Total ending allowance balances	107	110
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	0	0
Collectively Evaluated for Impairment	9,438	10,047
Total ending loan balances	9,438	10,047
Real Estate Secured by 1 - 4 Family Residential [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	7,465	3,965
Charge-offs	(740)	(2,062)
Recoveries	268	41
Provision	(1,158)	5,521
Ending Balance	5,835	7,465
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	2,577	3,076
Collectively evaluated for impairment	3,258	4,389
Total ending allowance balances	5,835	7,465
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	9,937	12,675
Collectively Evaluated for Impairment	244,142	224,085
Total ending loan balances	254,079	236,760
Other Real Estate Loans [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	4,385	4,771
Charge-offs	(715)	(438)
Recoveries	65	98
Provision	1,029	(46)
Ending Balance	4,764	4,385
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	1,408	1,192
Collectively evaluated for impairment	3,356	3,193
Total ending allowance balances	4,764	4,385
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	11,667	10,313
Collectively Evaluated for Impairment	247,012	265,115
Total ending loan balances	258,679	275,428
Commercial [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	1,621	1,055
Charge-offs	(189)	(180)
Recoveries	9	41
Provision	553	705
Ending Balance	1,994	1,621
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	361	502
Collectively evaluated for impairment	1,633	1,119
Total ending allowance balances	1,994	1,621
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	2,409	2,407
Collectively Evaluated for Impairment	106,553	92,020
Total ending loan balances	108,962	94,427
Consumer [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	145	385
Charge-offs	(46)	(318)
Recoveries	30	28
Provision	67	50
Ending Balance	196	145
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	30	0
Collectively evaluated for impairment	166	145
Total ending allowance balances	196	145
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	30	0
Collectively Evaluated for Impairment	12,436	12,523
Total ending loan balances	$ 12,466	$ 12,523

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and due from banks	$ 8,550	$ 6,163
Interest-bearing deposits with other institutions	62,973	45,107
Total cash and cash equivalents	71,523	51,270
Securities available for sale, at fair value	308,374	308,242
Loans held for sale	92,501	92,514
Restricted securities, at cost	6,765	7,117
Loans receivable, net of allowance for loan losses of $13,941 at September 30, 2012 and $14,623 at December 31, 2011	678,423	656,770
Premises and equipment, net	20,618	21,306
Goodwill and identified intangibles	6,060	6,189
Other real estate owned, net of valuation allowance of $3,138 at September 30, 2012 and $1,522 at December 31, 2011	11,933	8,535
Prepaid federal deposit insurance	3,266	3,993
Accrued interest receivable and other assets	36,498	36,924
TOTAL ASSETS	1,235,961	1,192,860
Deposits:
Non-interest-bearing demand deposits	176,522	143,398
Savings and interest-bearing demand deposits	512,780	460,576
Time deposits	295,145	325,895
Total deposits	984,447	929,869
Securities sold under agreements to repurchase	32,767	31,686
Short-term borrowings	17,657	28,331
FHLB borrowings	72,912	82,912
Subordinated notes	5,155	5,155
Accrued interest payable and other liabilities	7,590	6,894
Commitments and contingent liabilities	0	0
TOTAL LIABILITIES	1,120,528	1,084,847
SHAREHOLDERS' EQUITY
Common stock ($2.50 par value; 20,000,000 shares authorized, 7,052,554 and 6,996,932 issued and outstanding at September 30, 2012 and December 31, 2011, respectively)	17,357	17,331
Capital surplus	43,746	43,498
Retained earnings	45,168	41,157
Accumulated other comprehensive income	6,264	3,926
Total Middleburg Financial Corporation shareholders' equity	112,535	105,912
Non-controlling interest in consolidated subsidiary	2,898	2,101
TOTAL SHAREHOLDERS' EQUITY	115,433	108,013
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,235,961	$ 1,192,860

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Consolidated Statements of Comprehensive Income (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Other comprehensive income, net of tax:
Unrealized holding gains arising during the period, tax	$ 673	$ 942	$ 1,422	$ 3,035
Reclassification adjustment for gains included in net income, tax	56	47	154	89
Unrealized gain on interest rate swap, tax	$ 18	$ 169	$ 63	$ 202

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Defined Benefit Pension Plan (Details) (Pension Plan [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Pension Plan [Member]
Net periodic benefit cost [Abstract]
Interest Cost	$ 0	$ 46	$ 0	$ 137
Expected return on plan assets	0	(15)	0	(44)
Amortization of unrecognized net actuarial loss	0	305	0	914
Net periodic benefit cost	$ 0	$ 336	$ 0	$ 1,007

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Securities (Tables)

9 Months Ended

Sep. 30, 2012

Securities [Abstract]

Amortized costs and fair values of securities available for sale

Amortized costs and fair values of securities available for sale at September 30, 2012 are summarized as follows:

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	13,246	$	411	$	(3	)	$	13,654
Obligations of states and
political subdivisions		70,460		3,852		(8	)		74,304
Mortgage-backed securities:
Agency		159,790		5,994		(272	)		165,512
Non-agency		15,015		298		(8	)		15,305
Other asset backed securities		31,575		703		(86	)		32,192
Corporate preferred stock		68		—		(7	)		61
Corporate securities		8,230		11		(895	)		7,346
Total	$	298,384	$	11,269	$	(1,279	)	$	308,374

Amortized costs and fair values of securities available for sale at December 31, 2011 are summarized as follows:

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	9,068	$	293	$	(18	)	$	9,343
Obligations of states and
political subdivisions		65,090		2,503		(51	)		67,542
Mortgage-backed securities:
Agency		181,797		5,482		(209	)		187,070
Non-agency		18,737		67		(598	)		18,206
Other asset backed securities		16,110		90		(404	)		15,796
Corporate preferred stock		68		—		(28	)		40
Corporate securities		10,612		5		(641	)		9,976
Trust-preferred securities		497		—		(228	)		269
Total	$	301,979	$	8,440	$	(2,177	)	$	308,242

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

The amortized cost and fair value of securities available for sale as of September 30, 2012, by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed, other asset-backed, and corporate securities because the mortgages, loans, and securities underlying the securities may be called or repaid without any penalties. Therefore, these securities are not included in the maturity categories in the following maturity summary.

	September 30, 2012
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	4,863	$	4,892
Due after one year through
five years		22,698		22,772
Due after five years through
ten years		31,943		33,717
Due after ten years		32,432		33,923
Mortgage-backed securities		174,805		180,817
Other asset backed securities		31,575		32,192
Corporate preferred stock		68		61
Total	$	298,384	$	308,374

Investments in unrealized loss position

At September 30, 2012, investments in an unrealized loss position that were temporarily impaired are as follows:

	September 30, 2012
						(In thousands)
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	2,568	$	(3	)	$	57	$	—		$	2,625	$	(3	)
Obligations of states and
political subdivisions	1,302		(8		)	—		—			1,302		(8		)
Mortgage backed securities:
Agency	16,213		(272		)	—		—			16,213		(272		)
Non-agency	2,760		(8		)	—		—			2,760		(8		)
Other asset backed securities	4,231		(56		)	1,431		(30		)	5,662		(86		)
Corporate preferred stock	—		—			32		(7		)	32		(7		)
Corporate securities	—		—			7,105		(895		)	7,105		(895		)
Total	$	27,074	$	(347	)	$	8,625	$	(932	)	$	35,699	$	(1,279	)

At December 31, 2011, investments in an unrealized loss position that were temporarily impaired are as follows:

	December 31, 2011
						(In thousands)
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	2,045	$	(18	)	$	26	$	—		$	2,071	$	(18	)
Obligations of states and
political subdivisions	43		—			2,243		(51		)	2,286		(51		)
Mortgage backed securities:
Agency	22,768		(209		)	—		—			22,768		(209		)
Non-agency	4,773		(103		)	4,522		(495		)	9,295		(598		)
Other asset backed securities	10,572		(362		)	1,467		(42		)	12,039		(404		)
Corporate preferred stock	—		—			11		(28		)	11		(28		)
Corporate securities	7,775		(227		)	2,057		(414		)	9,832		(641		)
Trust-preferred securities	—		—			269		(228		)	269		(228		)
Total	$	47,976	$	(919	)	$	10,595	$	(1,258	)	$	58,571	$	(2,177	)

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Capital Purchase Program (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2009
Capital Purchase Program [Abstract]
Preferred stock issued (in shares)		22,000
Exercise price of warrants (in dollars per share)		$ 15.85
Common stock and warrants issued during period preferred stock and warrants (in shares)	208,202
Class of warrant or right outstanding (in shares)	104,101

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Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2012

Allowance for Loan Losses [Abstract]

Allowance for loan losses

The following tables present a rollforward of the changes in the allowance for loan losses balance by class of loan, the balances in the allowance for loan losses and the recorded investment in loans by class of loan and, for the ending loan balances, based on impairment evaluation method as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	(In Thousands)
	Real Estate Construction			Real Estate Secured by Farmland			Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balances as of December 31, 2011	$	897		$	110		$	7,465		$	4,385		$	1,621		$	145		$	14,623
Chargeoffs	(1,521		)	—			(740		)	(715		)	(189		)	(46		)	(3,211		)
Recoveries	1			—			268			65			9			30			373
Provision	1,668			(3		)	(1,158		)	1,029			553			67			2,156
Balances as of September 30, 2012	$	1,045		$	107		$	5,835		$	4,764		$	1,994		$	196		$	13,941
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	198		$	—		$	2,577		$	1,408		$	361		$	30		$	4,574
Collectively evaluated for impairment	847			107			3,258			3,356			1,633			166			9,367
Total ending allowance balances	$	1,045		$	107		$	5,835		$	4,764		$	1,994		$	196		$	13,941
Ending loan recorded investment balances:
Individually evaluated for impairment	$	2,943		$	—		$	9,937		$	11,667		$	2,409		$	30		$	26,986
Collectively evaluated for impairment	45,797			9,438			244,142			247,012			106,553			12,436			665,378
Total ending loan balances	$	48,740		$	9,438		$	254,079		$	258,679		$	108,962		$	12,466		$	692,364

	December 31, 2011
	(In Thousands)
	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balances at December 31, 2010	$	4,684		$	107	$	3,965		$	4,771		$	1,055		$	385		$	14,967
Chargeoffs	(467		)	—		(2,062		)	(438		)	(180		)	(318		)	(3,465		)
Recoveries	29			—		41			98			41			28			237
Provision	(3,349		)	3		5,521			(46		)	705			50			2,884
Balances at December 31, 2011	$	897		$	110	$	7,465		$	4,385		$	1,621		$	145		$	14,623
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	328		$	—	$	3,076		$	1,192		$	502		$	—		$	5,098
Collectively evaluated for impairment	569			110		4,389			3,193			1,119			145			9,525
Total ending allowance balances	$	897		$	110	$	7,465		$	4,385		$	1,621		$	145		$	14,623
Ending loan recorded investment balances:
Individually evaluated for impairment	$	3,804		$	—	$	12,675		$	10,313		$	2,407		$	—		$	29,199
Collectively evaluated for impairment	38,404			10,047		224,085			265,115			92,020			12,523			642,194
Total ending loan balances	$	42,208		$	10,047	$	236,760		$	275,428		$	94,427		$	12,523		$	671,393

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD $) In Thousands, unless otherwise specified	Common Stock [Member]	Capital Surplus [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Noncontrolling Interest [Member]	Total
Balance at Dec. 31, 2010	$ 17,314	$ 43,058	$ 37,593	$ (1,012)	$ 3,040	$ 99,993
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)			3,824		(128)	3,696
Other comprehensive income, net of tax				5,339		5,339
Cash dividends declared			(1,044)			(1,044)
Vesting of restricted stock awards	19	(19)				0
Cancellation of restricted stock	(2)	(12)				(14)
Distributions to non-controlling interest					(644)	(644)
Share-based compensation		247				247
Balance at Sep. 30, 2011	17,331	43,274	40,373	4,327	2,268	107,573
Balance at Dec. 31, 2011	17,331	43,498	41,157	3,926	2,101	108,013
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)			5,066		856	5,922
Other comprehensive income, net of tax				2,338		2,338
Cash dividends declared			(1,055)			(1,055)
Vesting of restricted stock awards	33	(33)				0
Cancellation of restricted stock	(7)	(36)				(43)
Distributions to non-controlling interest					(59)	(59)
Share-based compensation		317				317
Balance at Sep. 30, 2012	$ 17,357	$ 43,746	$ 45,168	$ 6,264	$ 2,898	$ 115,433

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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Loans, allowance for loan losses	$ 13,941	$ 14,623
Other real estate owned, valuation allowance	$ 3,138	$ 1,522
SHAREHOLDERS' EQUITY
Common stock, par value (in dollars per share)	$ 2.50	$ 2.50
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	7,052,554	6,996,932
Common stock, shares outstanding (in shares)	7,052,554	6,996,932

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Defined Benefit Pension Plan

9 Months Ended

Sep. 30, 2012

Defined Benefit Pension Plan [Abstract]

Defined Benefit Pension Plan

Note 8.  Defined Benefit Pension Plan

Prior to December 31, 2011, the Company sponsored a noncontributory, defined benefit pension plan covering substantially all full-time employees of Middleburg Bank and Middleburg Trust Company. The defined benefit pension plan was terminated in in February of 2011, and all plan assets were distributed to participants as of December 31, 2011. When the plan was active, the Company funded pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act. Benefit accruals and eligibility were frozen as of September 30, 2009.

The table below reflects the components of the Net Periodic Benefit Cost related to the Company's defined benefit pension plan for the indicated periods.

	Three months ended September 30,
	2012		2011
	(In Thousands)
Interest cost	$	—	$	46
Expected return on plan assets		—		(15	)
Amortization of unrecognized net actuarial loss		—		305
Net periodic benefit cost	$	—	$	336

	Nine months ended September 30,
	2012		2011
	(In Thousands)
Interest cost	$	—	$	137
Expected return on plan assets		—		(44	)
Amortization of unrecognized net actuarial loss		—		914
Net periodic benefit cost	$	—	$	1,007

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 31, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	MIDDLEBURG FINANCIAL CORP
Entity Central Index Key	0000914138
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		7,052,554
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012

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Capital Purchase Program

9 Months Ended

Sep. 30, 2012

Capital Purchase Program [Abstract]

Capital Purchase Program

Note 9.  Capital Purchase Program

During 2009, the Company participated in the Capital Purchase Program established by the U.S. Department of the Treasury (the "Treasury") under the Emergency Economic Stabilization Act of 2008 and issued 22,000 shares of preferred stock to the Treasury as well as a warrant ("the Warrant") to purchase 208,202 shares of the Company's common stock at an initial exercise price of $15.85 per share. As a result of the completion of the Company's public stock offering in August 2009, the number of shares of common stock underlying the Warrant was reduced by one-half to 104,101. On December 23, 2009, the Company redeemed all of the shares of preferred stock issued to the Treasury. During 2011, the Warrant was sold by the U.S. Treasury at public auction and has not been exercised as of September 30, 2012.

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Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$ 9,189	$ 9,846	$ 28,565	$ 29,378
Interest and dividends on securities available for sale
Taxable	1,537	1,727	4,976	4,877
Tax-exempt	596	592	1,799	1,757
Dividends	46	36	135	108
Interest on deposits in banks and federal funds sold	39	30	88	90
Total interest and dividend income	11,407	12,231	35,563	36,210
INTEREST EXPENSE
Interest on deposits	1,728	2,287	5,467	6,927
Interest on securities sold under agreements to repurchase	83	84	250	209
Interest on short-term borrowings	74	58	311	174
Interest on FHLB borrowings and other debt	305	312	889	914
Total interest expense	2,190	2,741	6,917	8,224
NET INTEREST INCOME	9,217	9,490	28,646	27,986
Provision for loan losses	635	1,024	2,156	2,565
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	8,582	8,466	26,490	25,421
NONINTEREST INCOME
Service charges on deposit accounts	557	538	1,625	1,553
Trust services income	928	932	2,828	2,725
Gains on loans held for sale	6,161	3,846	15,088	8,373
Gains on securities available for sale, net	164	141	452	263
Total other-than-temporary impairment losses	0	(16)	(46)	(33)
Portion of loss recognized in other comprehensive income	0	(5)	46	11
Net impairment losses	0	(21)	0	(22)
Commissions on investment sales	117	100	389	293
Fees on mortgages held for sale	37	84	143	325
Other service charges, commissions and fees	120	98	391	347
Bank-owned life insurance	118	123	363	385
Other operating income	116	6	194	45
Total noninterest income	8,318	5,847	21,473	14,287
NONINTEREST EXPENSE
Salaries and employees' benefits	7,276	6,900	22,139	19,665
Net occupancy and equipment expense	1,732	1,700	5,265	5,016
Advertising	652	446	1,399	887
Computer operations	322	365	1,101	1,073
Other real estate owned	1,506	689	2,666	1,639
Other taxes	203	205	611	607
Federal deposit insurance expense	262	244	781	1,009
Other operating expenses	1,883	1,689	6,501	5,044
Total noninterest expense	13,836	12,238	40,463	34,940
Income before income taxes	3,064	2,075	7,500	4,768
Income tax expense	565	454	1,578	1,072
NET INCOME	2,499	1,621	5,922	3,696
Net (income) loss attributable to noncontrolling interest	(785)	(223)	(856)	128
Net income attributable to Middleburg Financial Corporation	$ 1,714	$ 1,398	$ 5,066	$ 3,824
Earnings per share:
Basic (in dollars per share)	$ 0.24	$ 0.20	$ 0.72	$ 0.55
Diluted (in dollars per share)	$ 0.24	$ 0.20	$ 0.72	$ 0.55
Dividends per common share (in dollars per share)	$ 0.05	$ 0.05	$ 0.15	$ 0.15

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Securities

9 Months Ended

Sep. 30, 2012

Securities [Abstract]

Securities

Note 3.  Securities

Amortized costs and fair values of securities available for sale at September 30, 2012 are summarized as follows:

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	13,246	$	411	$	(3	)	$	13,654
Obligations of states and
political subdivisions		70,460		3,852		(8	)		74,304
Mortgage-backed securities:
Agency		159,790		5,994		(272	)		165,512
Non-agency		15,015		298		(8	)		15,305
Other asset backed securities		31,575		703		(86	)		32,192
Corporate preferred stock		68		—		(7	)		61
Corporate securities		8,230		11		(895	)		7,346
Total	$	298,384	$	11,269	$	(1,279	)	$	308,374

Amortized costs and fair values of securities available for sale at December 31, 2011 are summarized as follows:

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	9,068	$	293	$	(18	)	$	9,343
Obligations of states and
political subdivisions		65,090		2,503		(51	)		67,542
Mortgage-backed securities:
Agency		181,797		5,482		(209	)		187,070
Non-agency		18,737		67		(598	)		18,206
Other asset backed securities		16,110		90		(404	)		15,796
Corporate preferred stock		68		—		(28	)		40
Corporate securities		10,612		5		(641	)		9,976
Trust-preferred securities		497		—		(228	)		269
Total	$	301,979	$	8,440	$	(2,177	)	$	308,242

The amortized cost and fair value of securities available for sale as of September 30, 2012, by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed, other asset-backed, and corporate securities because the mortgages, loans, and securities underlying the securities may be called or repaid without any penalties. Therefore, these securities are not included in the maturity categories in the following maturity summary.

	September 30, 2012
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	4,863	$	4,892
Due after one year through
five years		22,698		22,772
Due after five years through
ten years		31,943		33,717
Due after ten years		32,432		33,923
Mortgage-backed securities		174,805		180,817
Other asset backed securities		31,575		32,192
Corporate preferred stock		68		61
Total	$	298,384	$	308,374

Proceeds from the sale of securities during the nine months ended September 30, 2012 were $39.5 million and net gains of $452,000 were realized on those sales. The tax expense applicable to the net realized gains amounted to $154,000. Additionally, no loss on securities with other than temporary impairment was recognized during the nine months ended September 30, 2012.

The carrying value of securities pledged to qualify for fiduciary powers, to secure public monies and for other purposes as required by law amounted to $143.2 million at September 30, 2012.

At September 30, 2012, investments in an unrealized loss position that were temporarily impaired are as follows:

	September 30, 2012
						(In thousands)
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	2,568	$	(3	)	$	57	$	—		$	2,625	$	(3	)
Obligations of states and
political subdivisions	1,302		(8		)	—		—			1,302		(8		)
Mortgage backed securities:
Agency	16,213		(272		)	—		—			16,213		(272		)
Non-agency	2,760		(8		)	—		—			2,760		(8		)
Other asset backed securities	4,231		(56		)	1,431		(30		)	5,662		(86		)
Corporate preferred stock	—		—			32		(7		)	32		(7		)
Corporate securities	—		—			7,105		(895		)	7,105		(895		)
Total	$	27,074	$	(347	)	$	8,625	$	(932	)	$	35,699	$	(1,279	)

At December 31, 2011, investments in an unrealized loss position that were temporarily impaired are as follows:

	December 31, 2011
						(In thousands)
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	2,045	$	(18	)	$	26	$	—		$	2,071	$	(18	)
Obligations of states and
political subdivisions	43		—			2,243		(51		)	2,286		(51		)
Mortgage backed securities:
Agency	22,768		(209		)	—		—			22,768		(209		)
Non-agency	4,773		(103		)	4,522		(495		)	9,295		(598		)
Other asset backed securities	10,572		(362		)	1,467		(42		)	12,039		(404		)
Corporate preferred stock	—		—			11		(28		)	11		(28		)
Corporate securities	7,775		(227		)	2,057		(414		)	9,832		(641		)
Trust-preferred securities	—		—			269		(228		)	269		(228		)
Total	$	47,976	$	(919	)	$	10,595	$	(1,258	)	$	58,571	$	(2,177	)

A total of 51 securities have been identified by the Company as temporarily impaired at September 30, 2012. Of the 51 securities, 50 are investment grade and 1 is speculative grade. Agency, non-agency mortgage-backed securities, and corporate debt securities make up the majority of temporarily impaired securities at September 30, 2012. The speculative grade security is an asset backed security that is collateralized by trust preferred issuances of financial institutions. Market prices change daily and are affected by conditions beyond the control of the Company. Although the Company has the ability to hold these securities until the temporary loss is recovered, decisions by management may necessitate a sale before the loss is fully recovered. No such sales are anticipated or required as of September 30, 2012. Investment decisions reflect the strategic asset/liability objectives of the Company.

Trust preferred securities

As of September 30, 2012, the Company held no trust preferred securities in its investment portfolio.

The Company previously held trust preferred securities that were identified as other-than-temporarily impaired. These securities were sold during the second quarter of 2012 with a recognized net loss of approximately $142,000. Additionally, these securities incurred cumulative other-than-temporary credit losses recognized in prior period earnings of approximately $2.4 million through December 31, 2011.

The Company also previously held one trust preferred security that was not considered other-than-temporarily impaired while held in its investment portfolio. The security was sold during the third quarter of 2012 with a recognized net loss of approximately $149,000. No credit losses were recognized on this security while held.

Other-than-temporary impairment losses

At September 30, 2012, the Company concluded that no adverse change in cash flows occurred during the quarter and did not consider any portfolio securities to be other-than-temporarily impaired. Based on this analysis and because the Company does not intend to sell securities prior to maturity and it is more likely than not the Company will not be required to sell any securities before recovery of amortized cost basis, which may be at maturity; and, for debt securities related to corporate securities, determined that there was no other adverse change in the cash flows as viewed by a market participant, the Company does not consider the investments in these assets to be other than temporarily impaired at September 30, 2012. However, there is a risk that the Company's continuing reviews could result in recognition of other-than-temporary impairment charges in the future. Accordingly, during the nine months ended September 30, 2012, no credit related impairment losses were recognized by the Company compared to $22,000 recognized for the nine months ended September 30, 2011.

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Stock-Based Compensation Plan

9 Months Ended

Sep. 30, 2012

Stock-Based Compensation Plan [Abstract]

Stock-Based Compensation Plan

Note 2.  Stock–Based Compensation Plan

As of September 30, 2012, the Company sponsored one stock-based compensation plan (the 2006 Equity Compensation Plan), which provides for the granting of stock options, stock appreciation rights, stock awards, performance share awards, incentive awards and stock units. The 2006 Equity Compensation Plan was approved by the Company's shareholders at the Annual Meeting held on April 26, 2006 and has succeeded the Company's 1997 Stock Incentive Plan. Under the plan, the Company may grant stock-based compensation to its directors, officers, employees and other persons the Company determines have contributed to the profits or growth of the Company. The Company may grant awards of up to 255,000 shares of common stock under the 2006 Equity Compensation Plan.

The Company recognized $317,000 for stock-based compensation expenses for the nine months ended September 30, 2012.

The following table summarizes stock options awarded under the 2006 Equity Compensation Plan and remaining un-exercised options under the 1997 Stock Incentive Plan at the end of the reporting period.

	September 30, 2012
	Shares		Weighted Average Exercise Price			Aggregate Intrinsic Value
Outstanding at beginning of year	160,171		$	20.40
Granted	—		—
Exercised	—		—
Forfeited	(78,000	)	(23.64		)
Outstanding at end of period	82,171		$	(17.32	)	$	—

As of the end of the reporting period, 79,671 options were vested and exercisable representing 22,000 shares issued under the original 1997 plan and 57,671 vested options under the 2006 Plan. As of September 30, 2012, no outstanding options were unvested from the original 1997 plan and 2,500 outstanding options were not vested under the 2006 plan. At September 30, 2012, the weighted average exercise price of these stock options was greater than the average market price during the period. The weighted average remaining contractual term for options outstanding and exercisable at September 30, 2012 was 4.9 years. As of September 30, 2012, there was $600 of total unrecognized compensation expense related to stock option awards under the 2006 Equity Compensation Plan.

The following table summarizes restricted stock awarded under the 2006 Equity Compensation Plan at the end of the reportable period.

	September 30, 2012
	Shares		Weighted Average Grant-Date Fair Value			Aggregate Intrinsic Value
Outstanding at beginning of year	86,220		$	14.79
Granted	49,975		16.86
Vested	(12,932	)	(13.28		)
Forfeited	(2,808	)	(14.59		)
Non-vested at end of period	120,455		$	15.66		$	2,139,281

The weighted average remaining contractual term for non-vested restricted stock at September 30, 2012 was 4.2 years. As of September 30, 2012, there was approximately $1,471,144 of total unrecognized compensation expense related to non-vested restricted stock awards under the 2006 Equity Compensation Plan.

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Loan Portfolio (Tables)

9 Months Ended

Sep. 30, 2012

Loan Portfolio [Abstract]

Consolidated loan portfolio

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

	September 30, 2012					December 31, 2011
	Outstanding Balance		Percent of Total Portfolio			Outstanding Balance		Percent of Total Portfolio
	(In Thousands)					(In Thousands)
Real estate loans:
Construction	$	48,740		7.0	%	$	42,208		6.3	%
Secured by farmland		9,438		1.4	%		10,047		1.5	%
Secured by 1-4 family residential		254,079		36.7	%		236,760		35.3	%
Other real estate loans		258,679		37.4	%		275,428		41.0	%
Commercial loans		108,962		15.7	%		94,427		14.1	%
Consumer loans		12,466		1.8	%		12,523		1.8	%
		692,364		100.0	%		671,393		100.0	%
Less allowance for loan losses		13,941					14,623
Net loans	$	678,423				$	656,770

Past due loans by class of loans

The following table presents a contractual aging of the recorded investment in past due loans by class of loans as of September 30, 2012 and December 31, 2011.

	September 30, 2012
					(In thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	175	$	—	$	3,142	$	3,317	$	45,423	$	48,740
Secured by farmland		—		—		—		—		9,438		9,438
Secured by 1-4 family residential		4,838		208		2,817		7,863		246,216		254,079
Other real estate loans		855		253		6,794		7,902		250,777		258,679
Commercial loans		15		126		1,960		2,101		106,861		108,962
Consumer loans		61		22		33		116		12,350		12,466
Total	$	5,944	$	609	$	14,746	$	21,299	$	671,065	$	692,364

	December 31, 2011
					(In thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	696	$	—	$	3,285	$	3,981	$	38,227	$	42,208
Secured by farmland		415		—		—		415		9,632		10,047
Secured by 1-4 family residential		2,036		1,721		7,639		11,396		225,364		236,760
Other real estate loans		6,079		1,736		1,466		9,281		266,147		275,428
Commercial loans		1,751		121		315		2,187		92,240		94,427
Consumer loans		23		—		—		23		12,500		12,523
Total	$	11,000	$	3,578	$	12,705	$	27,283	$	644,110	$	671,393

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of September 30, 2012 and December 31, 2011:

	September 30, 2012				December 31, 2011
	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
	(In Thousands)
Real estate loans:
Construction	$	2,943	$	268	$	3,804	$	86
Secured by 1-4 family residential		8,653		399		11,839		1,097
Other real estate loans		8,881		130		7,567		—
Commercial loans		2,176		60		2,136		50
Consumer loans		30		3		—		—
Total	$	22,683	$	860	$	25,346	$	1,233

Summary of loan classifications by class of loan

The following tables present a summary of loan classifications by class of loan as of September 30, 2012 and December 31, 2011:

September 30, 2012

(In Thousands)

	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	27,342	$	8,629	$	230,963	$	218,427	$	102,620	$	12,310	$	600,291
Special Mention		15,810		199		4,235		23,155		3,442		60		46,901
Substandard		4,553		610		17,396		16,044		2,772		66		41,441
Doubtful		1,035		—		1,485		1,053		128		30		3,731
Loss		—		—		—		—		—		—		—
Ending Balance	$	48,740	$	9,438	$	254,079	$	258,679	$	108,962	$	12,466	$	692,364

December 31, 2011

(In thousands)

	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	22,250	$	9,235	$	207,332	$	239,156	$	87,731	$	12,448	$	578,152
Special Mention		5,764		199		10,773		23,434		4,127		61		44,358
Substandard		13,163		613		17,062		12,592		2,374		14		45,818
Doubtful		1,031		—		1,593		246		195		—		3,065
Loss		—		—		—		—		—		—		—
Ending Balance	$	42,208	$	10,047	$	236,760	$	275,428	$	94,427	$	12,523	$	671,393

Loans identified as impaired by class of loan

The following table presents loans identified as impaired by class of loan as of and for the nine months ended September 30, 2012:

	September 30, 2012
	(In thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,629	$	2,180	$	—	$	2,071	$	—
Secured by farmland		—		—		—		—		—
Secured by 1-4 family residential		3,136		3,554		—		3,360		36
Other real estate loans		3,814		3,857		—		4,438		91
Commercial loans		1,938		1,938		—		1,919		—
Consumer loans		—		—		—		—		—
Total with no related allowance		10,517		11,529		—		11,788		127
With an allowance recorded:
Real estate loans:
Construction		1,314		2,539		198		1,913		—
Secured by farmland		—		—		—		—		—
Secured by 1-4 family residential		6,802		7,460		2,577		7,034		30
Other real estate loans		7,852		7,952		1,408		7,975		51
Commercial loans		471		492		361		467		13
Consumer loans		30		30		30		30		—
Total with a related allowance		16,469		18,473		4,574		17,419		94
Total	$	26,986	$	30,002	$	4,574	$	29,207	$	221

The following table presents loans identified as impaired by class of loan as of and for the year ended December 31, 2011:

	December 31, 2011
	(In thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	2,992	$	3,652	$	—	$	3,948	$	—
Secured by farmland		—		—		—		—
Secured by 1-4 family residential		3,978		4,656		—		4,424		7
Other real estate loans		4,732		4,775		—		5,729		95
Commercial loans		1,751		1,751		—		1,735		—
Consumer loans		—		—		—		—		—
Total with no related allowance		13,453		14,834		—		15,836		102
With an allowance recorded:
Real estate loans:
Construction		812		842		328		812		—
Secured by farmland		—		—		—		—
Secured by 1-4 family residential		8,697		10,417		3,076		9,047		17
Other real estate loans		5,581		5,581		1,192		5,076		64
Commercial loans		656		678		502		662		14
Consumer loans		—		—		—		—		—
Total with a related allowance		15,746		17,518		5,098		15,597		95
Total	$	29,199	$	32,352	$	5,098	$	31,433	$	197

Loans modified in a TDR by class of loan

The following table presents by class of loan, information related to loans modified in a TDR during the three months ended September 30, 2012:

	Loans modified as TDR's
	For the three months ended
	September 30, 2012
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)
Real estate loans:
Construction	—	$	—	$	—
Secured by farmland	—	—		—
Secured by 1-4 family residential	3	2,163		1,595
Other real estate loans	1	1,528		1,524
Total real estate loans	4	3,691		3,119
Commercial loans	—	—		—
Consumer loans	1	217		213
Total	5	$	3,908	$	3,332

During the three months ended September 30, 2012, the Company modified five loans that were considered to be TDRs and are summarized in the above table. The interest rate was lowered on three of the loans and repayment terms were modified on the other two.

	Loans modified as TDR's
	For the nine months ended
	September 30, 2012
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)
Real estate loans:
Construction	—	$	—	$	—
Secured by farmland	—	—		—
Secured by 1-4 family residential	5	3,075		2,486
Other real estate loans	1	1,528		1,524
Total real estate loans	6	4,603		4,010
Commercial loans	—	—		—
Consumer loans	1	217		213
Total	7	$	4,820	$	4,223

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Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 10.  Fair Value Measurements

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

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

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

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

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

Measured on recurring basis

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements:

Securities available for sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level I). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level II).

Derivatives

Derivatives are recorded at fair value on a recurring basis. Third party vendors compile prices from various sources and may determine the fair value of identical or similar instruments by using pricing models that consider observable market data (Level II).

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	13,654	$	—	$	13,654	$	—
Obligations of states and political subdivisions		74,304		—		74,304		—
Mortgage-backed securities:
Agency		165,512		—		165,512		—
Non-agency		15,305		—		15,305		—
Other asset-backed securities		32,192		—		32,192		—
Corporate preferred stock		61		—		61		—
Corporate securities		7,346		—		7,346		—
Mortgage interest rate locks		91		—		91		—
Liabilities:
Interest rate swap	$	500	$	—	$	500	$	—
Mortgage banking hedge instruments		63		—		63		—

	December 31, 2011
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	9,343	$	—	$	9,343	$	—
Obligations of states and political subdivisions		67,542		—		67,542		—
Mortgage-backed securities:
Agency		187,070		—		187,070		—
Non-agency		18,206		—		18,206		—
Other asset-backed securities		15,796		—		15,796		—
Corporate preferred stock		40		—		40		—
Corporate securities		9,976		—		9,976		—
Trust preferred securities		269		—		269		—
Liabilities:
Interest rate swap		314		—		314		—

There were no financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the nine months ended September 30, 2012.

Measured on nonrecurring basis

Certain financial assets and certain financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or impairment of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the consolidated financial statements:

Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four-family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level II). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the nine months ended September 30, 2012. Gains and losses on the sale of loans are recorded within income from mortgage banking activities on the consolidated statements of income.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on the present value of expected future cash flows discounted at the loan's effective interest rate, the observable market price of the loan, or the fair value of the underlying collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data (Level II). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level III. As of September 30, 2012, seventeen impaired loans with a net balance of $2.1 million were categorized as having a Level III valuation due to the date of the last appraisal. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business' financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level III). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Impaired loans for which no further loss is expected are not considered to be measured at fair value on a nonrecurring basis. Any fair value adjustments as a result of the evaluation process are recorded in the period incurred as provision for loan losses on the consolidated statements of income.

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

The Company's procedure to monitor the value of collateral for collateral dependent impaired loans between the receipt of an original appraisal and an updated appraisal is to review tax assessment records when they change annually. At the time of any change in tax assessment, an appropriate adjustment is made to the existing appraised value. Information considered in a determination not to order an updated appraisal includes the availability and reliability of tax assessment records, the results of any independent real estate evaluation, and significant changes in capitalization rates for income properties since the original appraisal. Other facts and circumstances on a case by case basis may be considered relative to a decision to order or not to order an updated appraisal. If, in the judgment of management, a reliable collateral value estimate can not be obtained by an alternative method, an updated appraisal is obtained.

Circumstances that may warrant a re-appraisal for non-performing (impaired) loans might include foreclosure proceedings or a material adverse change in the borrower's condition or that of the collateral underlying the loan. Examples include bankruptcy filing by the debtor or guarantors, loss of a major tenant in an income property, or a significant increase in capitalization rates for income properties. In some cases, management may decide that an updated appraisal for a non-performing loan is not necessary. In such cases, an estimate of the fair value of the collateral for the loans would be made by management by reference to current tax assessment records, the latest appraised value, and knowledge of collateral value fluctuations in a loan's market area. If, in the judgment of management, a reliable collateral value estimate can not be obtained by an alternative method, an updated appraisal would be obtained.

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

For real estate-secured impaired loans, if the Company does not have an adequate appraisal a new one is ordered to determine fair value. An appraisal that would be considered adequate for real estate-secured loans is one that is less than 12 months or one that is more than 12 months old but alternative methods with which to monitor the collateral value exist, such as reference to frequently updated tax assessments. Appraisals that would be considered inadequate for real estate-secured loans include appraisals older than 12 months and with a property located in a jurisdiction that does not reassess property values on a regular basis, or with a property to which substantial changes have been made since the last assessment. If the loan is secured by assets other than real estate and an appraisal is neither available nor feasible, the loan is treated as unsecured.

It is the Company's policy to account for partially charged-off loans consistently both before and after updated appraisals are obtained. Partially charged-off loans are placed in non-accrual status and remain in that status until the borrower has made a minimum of six consecutive monthly payments on a timely basis and there is evidence that the borrower has the ability to repay the balance of the loan plus accrued interest in full. Partially charged-off loans are not automatically returned to accrual status when updated appraisals are obtained.

The following table summarizes the Company's financial assets that were measured at fair value on a nonrecurring basis as of September 30, 2012 and December 31, 2011:

	September 30, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	92,501	$	—	$	92,501	$	—
Impaired loans	11,895		—		9,823		2,072
	December 31, 2011
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	92,514	$	—	$	92,514	$	—
Impaired loans	10,648		—		6,767		3,881

The following table presents a roll-forward of the transfers in and out of the Level III valuation method for financial assets that are measured at fair value on a nonrecurring basis as of September 30, 2012:

	Impaired Loans
	(in thousands)
Balance at December 31, 2011	$	3,881
Transfers in	2,452
Transfers out (1)	(3,744		)
Other (2)	(517		)
Balance at September 30, 2012	$	2,072

(1) Impaired loans are considered to have a Level III valuation methodology if the appraisal on the loan is older than two years. Transfers out of level three status represent loans for which current appraisals have been obtained or loans which have been transferred to other real estate owned and the collateral re-appraised at the time of the transfer.

(2) Other changes in the Level III balances during the period represent principal changes on level three impaired loans and valuation adjustments since December 31, 2011.

The following table presents quantitative information as of September 30, 2012 about Level III fair value measurements for financial assets measured at fair value on a non-recurring basis:

	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired Loans	$	2,072	Discounted appraised value	Discount for selling costs and age of appraisals.	10% - 30% (21%)

Other Real Estate Owned

The value of other real estate owned ("OREO") is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data (Level II). For other real estate owned properties, the Company's policy is to obtain "as-is" appraisals on an annual basis as opposed to "as-completed" appraisals. This approach provides current values without regard to completion of any construction or renovation that may be in process on OREO properties. Accordingly, the Company considers the valuations to be Level II valuations even though some properties may be in process of renovation or construction.

For the purpose of OREO valuations, appraisals are discounted 10% for selling and holding costs and it is the policy of the Company to obtain annual appraisals for properties held in OREO.

Any fair value adjustments are recorded in the period incurred as "Other real estate owned expenses" on the consolidated statements of income.

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

	September 30, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Other real estate owned	$	11,933	$	—	$	11,933	$	—
	December 31, 2011
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Other real estate owned	$	8,535	$	—	$	8,535	$	—

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

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

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

Loans, Net and Loans Held for Sale

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

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate fair values.

Deposits

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

Securities Sold Under Agreements to Repurchase and Short-Term Debt

The carrying amounts approximate fair values.

FHLB Borrowings, Long-Term and Subordinated Debt

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

Off-Balance-Sheet Financial Instruments

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At September 30, 2012 and December 31, 2011, the fair values of loan commitments and standby letters of credit were deemed immaterial; therefore, they have not been included in the table below.

Fair Value of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company's financial instruments as of September 30, 2012 are as follows:

					Sepetember 30, 2012
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
	(In thousands)
Financial assets:
Cash and cash equivalents	$	71,523	$	71,523	$	71,523	$	—		—
Securities		308,374		308,374		—		308,374		—
Loans held for sale		92,501		92,501		—		92,501		—
Net portfolio loans		678,423		700,504		—		698,432		2,072
Bank-owned life insurance		16,388		16,388		—		16,388		—
Accrued interest receivable		3,999		3,999		—		3,999		—
Mortgage interest rate locks		91		91		—		91		—
Financial liabilities:
Deposits	$	984,447	$	987,735	$	—	$	987,735		—
Securities sold under agreements
to repurchase		32,767		32,767		—		32,767		—
Short-term debt		17,657		17,657		—		17,657		—
FHLB borrowings		72,912		74,059		—		74,059		—
Trust preferred capital notes		5,155		5,236		—		5,236		—
Accrued interest payable		681		681		—		681		—
Interest rate swap		500		500		—		500		—
Mortgage banking hedge instruments		63		63		—		63		—

The estimated fair values, and related carrying amounts, of the Company's financial instruments as of December 31, 2011 are as follows:

		December 31, 2011
		Carrying Amount		Fair Value
	(In thousands)
Financial assets:
Cash and cash equivalents		$	51,270	$	51,270
Securities		308,242		308,242
Loans		749,284		770,759
Bank-owned life insurance		16,025		16,025
Accrued interest receivable		4,221		4,221
Financial liabilities:
Deposits		$	929,869	$	934,322
Securities sold under agreements
to repurchase		31,686		31,686
Short-term debt		28,331		28,331
FHLB borrowings		82,912		83,899
Trust preferred capital notes		5,155		5,216
Accrued interest payable		844		844
Interest rate swap		314		314

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

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Earnings Per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share

Note 6.  Earnings Per Share

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

	Three months ended
	September 30, 2012			September 30, 2011
	Weighted Average Shares	Per share Amount		Weighted Average Shares	Per share Amount
Basic earnings per share	7,036,536	$	0.24	6,996,932	$	0.20
Effect of dilutive securities:
stock options and grants	15,324	$	—	1,562	$	—
Diluted earnings per share	7,051,860	$	0.24	6,998,494	$	0.20

	Nine months ended
	September 30, 2012			September 30, 2011
	Weighted Average Shares	Per share Amount		Weighted Average Shares	Per share Amount
Basic earnings per share	7,026,663	$	0.72	6,968,999	$	0.55
Effect of dilutive securities:
stock options and grants	9,987	$	—	2,296
Diluted earnings per share	7,036,650	$	0.72	6,971,295	$	0.55

At September 30, 2012 and 2011, stock options, restricted grants and warrants representing approximately 32,500 and 318,100 shares, respectively, were not included in the calculation of earnings per share because they would have been anti-dilutive.

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Loan Portfolio

9 Months Ended

Sep. 30, 2012

Loan Portfolio [Abstract]

Loan Portfolio

Note 4.  Loan Portfolio

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

	September 30, 2012					December 31, 2011
	Outstanding Balance		Percent of Total Portfolio			Outstanding Balance		Percent of Total Portfolio
	(In Thousands)					(In Thousands)
Real estate loans:
Construction	$	48,740		7.0	%	$	42,208		6.3	%
Secured by farmland		9,438		1.4	%		10,047		1.5	%
Secured by 1-4 family residential		254,079		36.7	%		236,760		35.3	%
Other real estate loans		258,679		37.4	%		275,428		41.0	%
Commercial loans		108,962		15.7	%		94,427		14.1	%
Consumer loans		12,466		1.8	%		12,523		1.8	%
		692,364		100.0	%		671,393		100.0	%
Less allowance for loan losses		13,941					14,623
Net loans	$	678,423				$	656,770

Loans presented in the table above exclude loans held for sale. The Company had $92.5 million in mortgages held for sale at both September 30, 2012 and December 31, 2011.

The following table presents a contractual aging of the recorded investment in past due loans by class of loans as of September 30, 2012 and December 31, 2011.

	September 30, 2012
					(In thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	175	$	—	$	3,142	$	3,317	$	45,423	$	48,740
Secured by farmland		—		—		—		—		9,438		9,438
Secured by 1-4 family residential		4,838		208		2,817		7,863		246,216		254,079
Other real estate loans		855		253		6,794		7,902		250,777		258,679
Commercial loans		15		126		1,960		2,101		106,861		108,962
Consumer loans		61		22		33		116		12,350		12,466
Total	$	5,944	$	609	$	14,746	$	21,299	$	671,065	$	692,364

	December 31, 2011
					(In thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	696	$	—	$	3,285	$	3,981	$	38,227	$	42,208
Secured by farmland		415		—		—		415		9,632		10,047
Secured by 1-4 family residential		2,036		1,721		7,639		11,396		225,364		236,760
Other real estate loans		6,079		1,736		1,466		9,281		266,147		275,428
Commercial loans		1,751		121		315		2,187		92,240		94,427
Consumer loans		23		—		—		23		12,500		12,523
Total	$	11,000	$	3,578	$	12,705	$	27,283	$	644,110	$	671,393

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of September 30, 2012 and December 31, 2011:

	September 30, 2012				December 31, 2011
	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
	(In Thousands)
Real estate loans:
Construction	$	2,943	$	268	$	3,804	$	86
Secured by 1-4 family residential		8,653		399		11,839		1,097
Other real estate loans		8,881		130		7,567		—
Commercial loans		2,176		60		2,136		50
Consumer loans		30		3		—		—
Total	$	22,683	$	860	$	25,346	$	1,233

If interest on non-accrual loans had been accrued, such income would have approximated $1.0 million for the nine months ended September 30, 2012 and $1.5 million for the year ended December 31, 2011.

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

Special Mention: Loans classified as special mention have potential weaknesses that deserve management's close attention. If left uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects for the credit.

Substandard: Loans classified as substandard have a well-defined weakness that jeopardizes the liquidation of the debt. Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.

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

Loss: Loans are classified as loss when they are deemed uncollectable and are charged off immediately.

The following tables present a summary of loan classifications by class of loan as of September 30, 2012 and December 31, 2011:

September 30, 2012

(In Thousands)

	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	27,342	$	8,629	$	230,963	$	218,427	$	102,620	$	12,310	$	600,291
Special Mention		15,810		199		4,235		23,155		3,442		60		46,901
Substandard		4,553		610		17,396		16,044		2,772		66		41,441
Doubtful		1,035		—		1,485		1,053		128		30		3,731
Loss		—		—		—		—		—		—		—
Ending Balance	$	48,740	$	9,438	$	254,079	$	258,679	$	108,962	$	12,466	$	692,364

December 31, 2011

(In thousands)

	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	22,250	$	9,235	$	207,332	$	239,156	$	87,731	$	12,448	$	578,152
Special Mention		5,764		199		10,773		23,434		4,127		61		44,358
Substandard		13,163		613		17,062		12,592		2,374		14		45,818
Doubtful		1,031		—		1,593		246		195		—		3,065
Loss		—		—		—		—		—		—		—
Ending Balance	$	42,208	$	10,047	$	236,760	$	275,428	$	94,427	$	12,523	$	671,393

The following table presents loans identified as impaired by class of loan as of and for the nine months ended September 30, 2012:

	September 30, 2012
	(In thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,629	$	2,180	$	—	$	2,071	$	—
Secured by farmland		—		—		—		—		—
Secured by 1-4 family residential		3,136		3,554		—		3,360		36
Other real estate loans		3,814		3,857		—		4,438		91
Commercial loans		1,938		1,938		—		1,919		—
Consumer loans		—		—		—		—		—
Total with no related allowance		10,517		11,529		—		11,788		127
With an allowance recorded:
Real estate loans:
Construction		1,314		2,539		198		1,913		—
Secured by farmland		—		—		—		—		—
Secured by 1-4 family residential		6,802		7,460		2,577		7,034		30
Other real estate loans		7,852		7,952		1,408		7,975		51
Commercial loans		471		492		361		467		13
Consumer loans		30		30		30		30		—
Total with a related allowance		16,469		18,473		4,574		17,419		94
Total	$	26,986	$	30,002	$	4,574	$	29,207	$	221

The following table presents loans identified as impaired by class of loan as of and for the year ended December 31, 2011:

	December 31, 2011
	(In thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	2,992	$	3,652	$	—	$	3,948	$	—
Secured by farmland		—		—		—		—
Secured by 1-4 family residential		3,978		4,656		—		4,424		7
Other real estate loans		4,732		4,775		—		5,729		95
Commercial loans		1,751		1,751		—		1,735		—
Consumer loans		—		—		—		—		—
Total with no related allowance		13,453		14,834		—		15,836		102
With an allowance recorded:
Real estate loans:
Construction		812		842		328		812		—
Secured by farmland		—		—		—		—
Secured by 1-4 family residential		8,697		10,417		3,076		9,047		17
Other real estate loans		5,581		5,581		1,192		5,076		64
Commercial loans		656		678		502		662		14
Consumer loans		—		—		—		—		—
Total with a related allowance		15,746		17,518		5,098		15,597		95
Total	$	29,199	$	32,352	$	5,098	$	31,433	$	197

The "Recorded Investment" amounts in the tables above represent the outstanding principal balance on each loan represented in the tables plus any accrued interest receivable on such loans. The "Unpaid Principal Balance" represents the outstanding principal balance on each loan represented in the tables plus any amounts that have been charged off on each loan.

Troubled Debt Restructurings

Included in certain loan categories in the impaired loans table above are troubled debt restructurings ("TDRs") that were classified as impaired. The total balance of TDRs at September 30, 2012 was $11.5 million of which $7.2 million were included in the Company's non-accrual loan totals at that date and $4.3 million represented loans performing as agreed according to the restructured terms. This compares with $11.2 million in total restructured loans at December 31, 2011, an increase of $0.3 million or 2.7%. The amount of the valuation allowance related to total TDRs was $2.0 million and $1.7 million as of September 30, 2012 and December 31, 2011 respectively.

The $7.2 million in nonaccrual TDRs as of September 30, 2012 is comprised of $74,000 in real estate construction loans, $2.3 million in 1-4 family real estate loans, $4.7 million in other real estate loans, and $213,000 in consumer loans. The $4.3 million in TDRs which were performing as agreed under restructured terms as of September 30, 2012 is comprised of $1.3 million in 1-4 family real estate loans, $2.8 million in other real estate loans and $233,000 in commercial loans. The Company considers all loans classified as TDRs to be impaired.

The following table presents by class of loan, information related to loans modified in a TDR during the three months ended September 30, 2012:

	Loans modified as TDR's
	For the three months ended
	September 30, 2012
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)
Real estate loans:
Construction	—	$	—	$	—
Secured by farmland	—	—		—
Secured by 1-4 family residential	3	2,163		1,595
Other real estate loans	1	1,528		1,524
Total real estate loans	4	3,691		3,119
Commercial loans	—	—		—
Consumer loans	1	217		213
Total	5	$	3,908	$	3,332

During the three months ended September 30, 2012, the Company modified five loans that were considered to be TDRs and are summarized in the above table. The interest rate was lowered on three of the loans and repayment terms were modified on the other two.

	Loans modified as TDR's
	For the nine months ended
	September 30, 2012
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)
Real estate loans:
Construction	—	$	—	$	—
Secured by farmland	—	—		—
Secured by 1-4 family residential	5	3,075		2,486
Other real estate loans	1	1,528		1,524
Total real estate loans	6	4,603		4,010
Commercial loans	—	—		—
Consumer loans	1	217		213
Total	7	$	4,820	$	4,223

During the nine months ended September 30, 2012, the Company modified seven loans that were considered to be TDRs and are summarized on the above table. The interest rate was lowered for five of the loans, term was extended for one loan, and repayment terms were modified for two loans.

During the nine months ended September 30, 2012, the Company identified four loans with an aggregate recorded investment of $2.6 million as TDRs for which the allowance for loan losses had previously been measured under a general allowance methodology. Upon identifying these loans as TDRs, the Company evaluated them for impairment. On the basis of a current evaluation of loss for these loans, they required the establishment of an allowance for loan losses of approximately $536,000 at September 30, 2012.

As of September 30, 2012, four loans restructured as TDRs during the nine month period with an aggregate recorded investment of $3.3 million are included in the Company's non-accrual loans total. The remaining loans identified as TDRs during this period are included in the Company's non-performing assets that are performing as agreed under the restructured terms.

No loans modified as TDRs from October 1, 2011 through September 30, 2012 subsequently defaulted (i.e., 90 days or more past due following a restructuring) during the three and nine months ended September 30, 2012.

Management considers troubled debt restructurings and subsequent defaults in restructured loans in the determination of the adequacy of the Company's allowance for loan losses. When identified as a TDR, a loan is evaluated for potential loss based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the estimated fair value of the collateral, less any selling costs if the loan is collateral dependent. Loans identified as TDRs frequently are on non-accrual status at the time of the restructuring and, in some cases, partial charge-offs may have already been taken against the loan and a specific allowance may have already been established for the loan. As a result of any modification as a TDR, the specific reserve associated with the loan may be increased. Additionally, loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future defaults. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. As a result, any specific allowance may be increased, adjustments may be made in the allocation of the total allowance balance, or partial charge-offs may be taken to further write-down the carrying value of the loan.

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Allowance for Loan Losses

9 Months Ended

Sep. 30, 2012

Allowance for Loan Losses [Abstract]

Allowance for Loan Losses

Note 5.  Allowance for Loan Losses

The following tables present a rollforward of the changes in the allowance for loan losses balance by class of loan, the balances in the allowance for loan losses and the recorded investment in loans by class of loan and, for the ending loan balances, based on impairment evaluation method as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	(In Thousands)
	Real Estate Construction			Real Estate Secured by Farmland			Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balances as of December 31, 2011	$	897		$	110		$	7,465		$	4,385		$	1,621		$	145		$	14,623
Chargeoffs	(1,521		)	—			(740		)	(715		)	(189		)	(46		)	(3,211		)
Recoveries	1			—			268			65			9			30			373
Provision	1,668			(3		)	(1,158		)	1,029			553			67			2,156
Balances as of September 30, 2012	$	1,045		$	107		$	5,835		$	4,764		$	1,994		$	196		$	13,941
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	198		$	—		$	2,577		$	1,408		$	361		$	30		$	4,574
Collectively evaluated for impairment	847			107			3,258			3,356			1,633			166			9,367
Total ending allowance balances	$	1,045		$	107		$	5,835		$	4,764		$	1,994		$	196		$	13,941
Ending loan recorded investment balances:
Individually evaluated for impairment	$	2,943		$	—		$	9,937		$	11,667		$	2,409		$	30		$	26,986
Collectively evaluated for impairment	45,797			9,438			244,142			247,012			106,553			12,436			665,378
Total ending loan balances	$	48,740		$	9,438		$	254,079		$	258,679		$	108,962		$	12,466		$	692,364

	December 31, 2011
	(In Thousands)
	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balances at December 31, 2010	$	4,684		$	107	$	3,965		$	4,771		$	1,055		$	385		$	14,967
Chargeoffs	(467		)	—		(2,062		)	(438		)	(180		)	(318		)	(3,465		)
Recoveries	29			—		41			98			41			28			237
Provision	(3,349		)	3		5,521			(46		)	705			50			2,884
Balances at December 31, 2011	$	897		$	110	$	7,465		$	4,385		$	1,621		$	145		$	14,623
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	328		$	—	$	3,076		$	1,192		$	502		$	—		$	5,098
Collectively evaluated for impairment	569			110		4,389			3,193			1,119			145			9,525
Total ending allowance balances	$	897		$	110	$	7,465		$	4,385		$	1,621		$	145		$	14,623
Ending loan recorded investment balances:
Individually evaluated for impairment	$	3,804		$	—	$	12,675		$	10,313		$	2,407		$	—		$	29,199
Collectively evaluated for impairment	38,404			10,047		224,085			265,115			92,020			12,523			642,194
Total ending loan balances	$	42,208		$	10,047	$	236,760		$	275,428		$	94,427		$	12,523		$	671,393

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Segment Reporting

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Segment Reporting

Note 7.  Segment Reporting

The Company operates in a decentralized fashion in three principal business activities: retail banking services; wealth management services; and mortgage banking services. Revenue from retail banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts.

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

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

Middleburg Bank and the Company have assets in custody with Middleburg Trust Company and accordingly pay Middleburg Trust Company a monthly fee. Middleburg Bank also pays interest to Middleburg Trust Company and Southern Trust Mortgage on deposit accounts that each company has at Middleburg Bank. Southern Trust Mortgage has an outstanding line of credit of $5.0 million and a participation agreement of $75.0 million for which it pays interest to Middleburg Bank on any outstanding balance. Middleburg Bank provides office space and data processing and accounting services to Southern Trust Mortgage for which it receives rental and fee income. Transactions related to these relationships are eliminated to reach consolidated totals.

The following table presents segment information for the three months ended September 30, 2012 and 2011, respectively.

	For the three months ended													For the three months ended
	September 30, 2012													September 30, 2011
	Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated			Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated
(In Thousands)
Revenues:
Interest income	$	11,262	$	2	$	630		$	(487	)	$	11,407		$	11,956	$	2	$	617		$	(344	)	$	12,231
Trust and investment fee income		—		1,080		—			(35	)		1,045			—		1,032		—			—			1,032
Other income		1,046		—		6,307			(80	)		7,273			970		—		3,846			(1	)		4,815
Total operating income		12,308		1,082		6,937			(602	)		19,725			12,926		1,034		4,463			(345	)		18,078
Expenses:
Interest expense		2,115		—		562			(487	)		2,190			2,684		—		401			(344	)		2,741
Salaries and employee benefits		3,722		548		3,006			—			7,276			4,070		608		2,222			—			6,900
Provision for loan losses		570		—		65			—			635			1,100		—		(76	)		—			1,024
Other		5,146		309		1,220			(115	)		6,560			3,691		321		1,327			(1	)		5,338
Total operating expenses		11,553		857		4,853			(602	)		16,661			11,545		929		3,874			(345	)		16,003
Income before income taxes and non-controlling interest		755		225		2,084			—			3,064			1,381		105		589			—			2,075
Income tax expense		472		93		—			—			565			381		73		—			—			454
Net Income		283		132		2,084			—			2,499			1,000		32		589			—			1,621
Non-controlling interest in (income) of consolidated subsidiary		—		—		(785	)		—			(785	)		—		—		(223	)		—			(223	)
Net income attributable to Middleburg Financial Corporation	$	283	$	132	$	1,299		$	—		$	1,714		$	1,000	$	32	$	366		$	—		$	1,398
Total assets	$	1,209,455	$	12,789	$	104,919		$	(91,202	)	$	1,235,961		$	1,139,348	$	12,378	$	77,177		$	(75,247	)	$	1,153,656
Capital expenditures	$	6	$	—	$	—		$	—		$	6		$	585	$	—	$	151		$	—		$	736
Goodwill and other intangibles	$	—	$	4,193	$	1,867		$	—		$	6,060		$	—	$	4,377	$	1,867		$	—		$	6,244

The following table presents segment information for the nine months ended September 30, 2012 and 2011, respectively.

	For the nine months ended													For the nine months ended
	September 30, 2012													September 30, 2011
	Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated			Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated
(In Thousands)
Revenues:
Interest income	$	34,837	$	7	$	2,067		$	(1,348	)	$	35,563		$	35,076	$	8	$	2,008		$	(882	)	$	36,210
Trust and investment fee income		—		3,323		—			(104	)		3,219			—		3,018		—			—			3,018
Other income		2,960		—		15,719			(425	)		18,254			2,898		—		8,373			(2	)		11,269
Total operating income		37,797		3,330		17,786			(1,877	)		57,036			37,974		3,026		10,381			(884	)		50,497
Expenses:
Interest expense		6,606		—		1,659			(1,348	)		6,917			8,051		—		1,055			(882	)		8,224
Salaries and employee benefits		11,395		1,628		9,116			—			22,139			11,450		1,921		6,294			—			19,665
Provision for loan losses		2,127		—		29			—			2,156			2,641		—		(76	)		—			2,565
Other		13,191		951		4,711			(529	)		18,324			10,940		962		3,375			(2	)		15,275
Total operating expenses		33,319		2,579		15,515			(1,877	)		49,536			33,082		2,883		10,648			(884	)		45,729
Income (loss) before income taxes and non-controlling interest		4,478		751		2,271			—			7,500			4,892		143		(267	)		—			4,768
Income tax expense		1,277		301		—			—			1,578			986		86		—			—			1,072
Net Income (loss)		3,201		450		2,271			—			5,922			3,906		57		(267	)		—			3,696
Non-controlling interest in (income) loss of consolidated subsidiary		—		—		(856	)		—			(856	)		—		—		128			—			128
Net income (loss) attributable to Middleburg Financial Corporation	$	3,201	$	450	$	1,415		$	—		$	5,066		$	3,906	$	57	$	(139	)	$	—		$	3,824
Total assets	$	1,209,455	$	12,789	$	104,919		$	(91,202	)	$	1,235,961		$	1,139,348	$	12,378	$	77,177		$	(75,247	)	$	1,153,656
Capital expenditures	$	541	$	—	$	—		$	—		$	541		$	1,276	$	3	$	151					$	1,430
Goodwill and other intangibles	$	—	$	4,193	$	1,867		$	—		$	6,060		$	—	$	4,377	$	1,867		$	—		$	6,244

XML

Segment Reporting (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Segment Reporting [Abstract]
Number of principal business activities			3
Line of credit	$ 5,000,000		$ 5,000,000
Participating agreement	75,000,000		75,000,000
Revenue [Abstract]
Interest Income	11,407,000	12,231,000	35,563,000	36,210,000
Trust and investment fee income	1,045,000	1,032,000	3,219,000	3,018,000
Other income	7,273,000	4,815,000	18,254,000	11,269,000
Total operating income	19,725,000	18,078,000	57,036,000	50,497,000
Expense [Abstract]
Interest Expense	2,190,000	2,741,000	6,917,000	8,224,000
Salaries and employee benefits	7,276,000	6,900,000	22,139,000	19,665,000
Provision for loan losses	635,000	1,024,000	2,156,000	2,565,000
Other	6,560,000	5,338,000	18,324,000	15,275,000
Total operating expenses	16,661,000	16,003,000	49,536,000	45,729,000
Income (loss) before income taxes and non-controlling interest	3,064,000	2,075,000	7,500,000	4,768,000
Income tax expense	565,000	454,000	1,578,000	1,072,000
NET INCOME	2,499,000	1,621,000	5,922,000	3,696,000
Non-controlling interest in loss of consolidated subsidiary	(785,000)	(223,000)	(856,000)	128,000
Net income attributable to Middleburg Financial Corporation	1,714,000	1,398,000	5,066,000	3,824,000
Total assets	1,235,961,000	1,153,656,000	1,235,961,000	1,153,656,000	1,192,860,000
Capital Expenditure	6,000	736,000	541,000	1,430,000
Goodwill and other intangibles	6,060,000	6,244,000	6,060,000	6,244,000
Retail Banking [Member]
Revenue [Abstract]
Interest Income	11,262,000	11,956,000	34,837,000	35,076,000
Trust and investment fee income	0	0	0	0
Other income	1,046,000	970,000	2,960,000	2,898,000
Total operating income	12,308,000	12,926,000	37,797,000	37,974,000
Expense [Abstract]
Interest Expense	2,115,000	2,684,000	6,606,000	8,051,000
Salaries and employee benefits	3,722,000	4,070,000	11,395,000	11,450,000
Provision for loan losses	570,000	1,100,000	2,127,000	2,641,000
Other	5,146,000	3,691,000	13,191,000	10,940,000
Total operating expenses	11,553,000	11,545,000	33,319,000	33,082,000
Income (loss) before income taxes and non-controlling interest	755,000	1,381,000	4,478,000	4,892,000
Income tax expense	472,000	381,000	1,277,000	986,000
NET INCOME	283,000	1,000,000	3,201,000	3,906,000
Non-controlling interest in loss of consolidated subsidiary	0	0	0	0
Net income attributable to Middleburg Financial Corporation	283,000	1,000,000	3,201,000	3,906,000
Total assets	1,209,455,000	1,139,348,000	1,209,455,000	1,139,348,000
Capital Expenditure	6,000	585,000	541,000	1,276,000
Goodwill and other intangibles	0	0	0	0
Wealth Management [Member]
Revenue [Abstract]
Interest Income	2,000	2,000	7,000	8,000
Trust and investment fee income	1,080,000	1,032,000	3,323,000	3,018,000
Other income	0	0	0	0
Total operating income	1,082,000	1,034,000	3,330,000	3,026,000
Expense [Abstract]
Interest Expense	0	0	0	0
Salaries and employee benefits	548,000	608,000	1,628,000	1,921,000
Provision for loan losses	0	0	0	0
Other	309,000	321,000	951,000	962,000
Total operating expenses	857,000	929,000	2,579,000	2,883,000
Income (loss) before income taxes and non-controlling interest	225,000	105,000	751,000	143,000
Income tax expense	93,000	73,000	301,000	86,000
NET INCOME	132,000	32,000	450,000	57,000
Non-controlling interest in loss of consolidated subsidiary	0	0	0	0
Net income attributable to Middleburg Financial Corporation	132,000	32,000	450,000	57,000
Total assets	12,789,000	12,378,000	12,789,000	12,378,000
Capital Expenditure	0	0	0	3,000
Goodwill and other intangibles	4,193,000	4,377,000	4,193,000	4,377,000
Mortgage Banking [Member]
Revenue [Abstract]
Interest Income	630,000	617,000	2,067,000	2,008,000
Trust and investment fee income	0	0	0	0
Other income	6,307,000	3,846,000	15,719,000	8,373,000
Total operating income	6,937,000	4,463,000	17,786,000	10,381,000
Expense [Abstract]
Interest Expense	562,000	401,000	1,659,000	1,055,000
Salaries and employee benefits	3,006,000	2,222,000	9,116,000	6,294,000
Provision for loan losses	65,000	(76,000)	29,000	(76,000)
Other	1,220,000	1,327,000	4,711,000	3,375,000
Total operating expenses	4,853,000	3,874,000	15,515,000	10,648,000
Income (loss) before income taxes and non-controlling interest	2,084,000	589,000	2,271,000	(267,000)
Income tax expense	0	0	0	0
NET INCOME	2,084,000	589,000	2,271,000	(267,000)
Non-controlling interest in loss of consolidated subsidiary	(785,000)	(223,000)	(856,000)	128,000
Net income attributable to Middleburg Financial Corporation	1,299,000	366,000	1,415,000	(139,000)
Total assets	104,919,000	77,177,000	104,919,000	77,177,000
Capital Expenditure	0	151,000	0	151,000
Goodwill and other intangibles	1,867,000	1,867,000	1,867,000	1,867,000
Intercompany Eliminations [Member]
Revenue [Abstract]
Interest Income	(487,000)	(344,000)	(1,348,000)	(882,000)
Trust and investment fee income	(35,000)	0	(104,000)	0
Other income	(80,000)	(1,000)	(425,000)	(2,000)
Total operating income	(602,000)	(345,000)	(1,877,000)	(884,000)
Expense [Abstract]
Interest Expense	(487,000)	(344,000)	(1,348,000)	(882,000)
Salaries and employee benefits	0	0	0	0
Provision for loan losses	0	0	0	0
Other	(115,000)	(1,000)	(529,000)	(2,000)
Total operating expenses	(602,000)	(345,000)	(1,877,000)	(884,000)
Income (loss) before income taxes and non-controlling interest	0	0	0	0
Income tax expense	0	0	0	0
NET INCOME	0	0	0	0
Non-controlling interest in loss of consolidated subsidiary	0	0	0	0
Net income attributable to Middleburg Financial Corporation	0	0	0	0
Total assets	(91,202,000)	(75,247,000)	(91,202,000)	(75,247,000)
Capital Expenditure	0	0	0
Goodwill and other intangibles	$ 0	$ 0	$ 0	$ 0

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Stock-Based Compensation Plan (Tables)

9 Months Ended

Sep. 30, 2012

Stock-Based Compensation Plan [Abstract]

Stock options awarded under the 2006 Equity Compensation Plan

The following table summarizes stock options awarded under the 2006 Equity Compensation Plan and remaining un-exercised options under the 1997 Stock Incentive Plan at the end of the reporting period.

	September 30, 2012
	Shares		Weighted Average Exercise Price			Aggregate Intrinsic Value
Outstanding at beginning of year	160,171		$	20.40
Granted	—		—
Exercised	—		—
Forfeited	(78,000	)	(23.64		)
Outstanding at end of period	82,171		$	(17.32	)	$	—

Restricted stock awarded under the 2006 Equity Compensation Plan

The following table summarizes restricted stock awarded under the 2006 Equity Compensation Plan at the end of the reportable period.

	September 30, 2012
	Shares		Weighted Average Grant-Date Fair Value			Aggregate Intrinsic Value
Outstanding at beginning of year	86,220		$	14.79
Granted	49,975		16.86
Vested	(12,932	)	(13.28		)
Forfeited	(2,808	)	(14.59		)
Non-vested at end of period	120,455		$	15.66		$	2,139,281

XML

Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Segment information

The following table presents segment information for the three months ended September 30, 2012 and 2011, respectively.

	For the three months ended													For the three months ended
	September 30, 2012													September 30, 2011
	Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated			Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated
(In Thousands)
Revenues:
Interest income	$	11,262	$	2	$	630		$	(487	)	$	11,407		$	11,956	$	2	$	617		$	(344	)	$	12,231
Trust and investment fee income		—		1,080		—			(35	)		1,045			—		1,032		—			—			1,032
Other income		1,046		—		6,307			(80	)		7,273			970		—		3,846			(1	)		4,815
Total operating income		12,308		1,082		6,937			(602	)		19,725			12,926		1,034		4,463			(345	)		18,078
Expenses:
Interest expense		2,115		—		562			(487	)		2,190			2,684		—		401			(344	)		2,741
Salaries and employee benefits		3,722		548		3,006			—			7,276			4,070		608		2,222			—			6,900
Provision for loan losses		570		—		65			—			635			1,100		—		(76	)		—			1,024
Other		5,146		309		1,220			(115	)		6,560			3,691		321		1,327			(1	)		5,338
Total operating expenses		11,553		857		4,853			(602	)		16,661			11,545		929		3,874			(345	)		16,003
Income before income taxes and non-controlling interest		755		225		2,084			—			3,064			1,381		105		589			—			2,075
Income tax expense		472		93		—			—			565			381		73		—			—			454
Net Income		283		132		2,084			—			2,499			1,000		32		589			—			1,621
Non-controlling interest in (income) of consolidated subsidiary		—		—		(785	)		—			(785	)		—		—		(223	)		—			(223	)
Net income attributable to Middleburg Financial Corporation	$	283	$	132	$	1,299		$	—		$	1,714		$	1,000	$	32	$	366		$	—		$	1,398
Total assets	$	1,209,455	$	12,789	$	104,919		$	(91,202	)	$	1,235,961		$	1,139,348	$	12,378	$	77,177		$	(75,247	)	$	1,153,656
Capital expenditures	$	6	$	—	$	—		$	—		$	6		$	585	$	—	$	151		$	—		$	736
Goodwill and other intangibles	$	—	$	4,193	$	1,867		$	—		$	6,060		$	—	$	4,377	$	1,867		$	—		$	6,244

The following table presents segment information for the nine months ended September 30, 2012 and 2011, respectively.

	For the nine months ended													For the nine months ended
	September 30, 2012													September 30, 2011
	Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated			Retail Banking		Wealth Management		Mortgage Banking			Inter-company Elimina-tions			Consolidated
(In Thousands)
Revenues:
Interest income	$	34,837	$	7	$	2,067		$	(1,348	)	$	35,563		$	35,076	$	8	$	2,008		$	(882	)	$	36,210
Trust and investment fee income		—		3,323		—			(104	)		3,219			—		3,018		—			—			3,018
Other income		2,960		—		15,719			(425	)		18,254			2,898		—		8,373			(2	)		11,269
Total operating income		37,797		3,330		17,786			(1,877	)		57,036			37,974		3,026		10,381			(884	)		50,497
Expenses:
Interest expense		6,606		—		1,659			(1,348	)		6,917			8,051		—		1,055			(882	)		8,224
Salaries and employee benefits		11,395		1,628		9,116			—			22,139			11,450		1,921		6,294			—			19,665
Provision for loan losses		2,127		—		29			—			2,156			2,641		—		(76	)		—			2,565
Other		13,191		951		4,711			(529	)		18,324			10,940		962		3,375			(2	)		15,275
Total operating expenses		33,319		2,579		15,515			(1,877	)		49,536			33,082		2,883		10,648			(884	)		45,729
Income (loss) before income taxes and non-controlling interest		4,478		751		2,271			—			7,500			4,892		143		(267	)		—			4,768
Income tax expense		1,277		301		—			—			1,578			986		86		—			—			1,072
Net Income (loss)		3,201		450		2,271			—			5,922			3,906		57		(267	)		—			3,696
Non-controlling interest in (income) loss of consolidated subsidiary		—		—		(856	)		—			(856	)		—		—		128			—			128
Net income (loss) attributable to Middleburg Financial Corporation	$	3,201	$	450	$	1,415		$	—		$	5,066		$	3,906	$	57	$	(139	)	$	—		$	3,824
Total assets	$	1,209,455	$	12,789	$	104,919		$	(91,202	)	$	1,235,961		$	1,139,348	$	12,378	$	77,177		$	(75,247	)	$	1,153,656
Capital expenditures	$	541	$	—	$	—		$	—		$	541		$	1,276	$	3	$	151					$	1,430
Goodwill and other intangibles	$	—	$	4,193	$	1,867		$	—		$	6,060		$	—	$	4,377	$	1,867		$	—		$	6,244

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) [Abstract]
Net income	$ 2,499	$ 1,621	$ 5,922	$ 3,696
Other comprehensive income, net of tax:
Unrealized holding gains arising during the period (net of tax of $673, $942, $1,422 and $3,035 respectively for the periods presented)	1,307	1,828	2,758	5,891
Reclassification adjustment for gains included in net income (net of tax of $56, $47, $154, and $89 respectively for the periods presented)	(108)	(94)	(298)	(174)
Unrealized losses on securities for which other-than-temporary impairment has been recognized in earnings (net of tax)	0	14	0	15
Unrealized (loss) on interest rate swap (net of tax of $18, $169, $63, and $202 respectively for the periods presented)	(35)	(329)	(122)	(393)
Total other comprehensive income	1,164	1,419	2,338	5,339
Total comprehensive income	3,663	3,040	8,260	9,035
Comprehensive (income) loss attributable to non-controlling interest	(785)	(223)	(856)	128
Comprehensive income attributable to Middleburg Financial Corporation	$ 2,878	$ 2,817	$ 7,404	$ 9,163

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General

9 Months Ended

Sep. 30, 2012

General [Abstract]

General

Note 1.   General

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at September 30, 2012 and December 31, 2011, the results of operations and comprehensive income for the three and nine months ended September 30, 2012 and 2011, and changes in shareholders' equity and cash flows for the nine months ended September 30, 2012 and 2011, in accordance with accounting principles generally accepted in the United States of America. The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K") of Middleburg Financial Corporation (the "Company"). The results of operations for the three and nine month periods ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year.

In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date these financial statements were issued. Management has concluded there were no additional material subsequent events to be disclosed.

Certain amounts in the 2011 consolidated financial statements have been reclassified to conform to the 2012 presentation. Commissions and fees paid on the origination of mortgages held for sale and commissions paid on investments sales have been netted against the related revenue amounts for these sources of revenue for both 2012 and 2011. Management considers the net presentation to more accurately reflect the net contribution to consolidated net income of the mortgage and wealth management segments.

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Defined Benefit Pension Plan (Tables)

9 Months Ended

Sep. 30, 2012

Defined Benefit Pension Plan [Abstract]

Net periodic benefit cost

The table below reflects the components of the Net Periodic Benefit Cost related to the Company's defined benefit pension plan for the indicated periods.

	Three months ended September 30,
	2012		2011
	(In Thousands)
Interest cost	$	—	$	46
Expected return on plan assets		—		(15	)
Amortization of unrecognized net actuarial loss		—		305
Net periodic benefit cost	$	—	$	336

	Nine months ended September 30,
	2012		2011
	(In Thousands)
Interest cost	$	—	$	137
Expected return on plan assets		—		(44	)
Amortization of unrecognized net actuarial loss		—		914
Net periodic benefit cost	$	—	$	1,007

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Fair Value Measurements, Level III Valuation (Details) (Impaired Loans [Member], USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Roll-forward of the transfers in and out of the Level III valuation method [Roll Forward]
Beginning balance	$ 3,881
Transfers in	2,452
Transfers out	(3,744)	[1]
Other	(517)	[2]
Ending balance	2,072
Level 3 [Member] | Nonrecurring [Member] | Market Approach Valuation Technique [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets fair value	$ 2,072
Level 3 [Member] | Nonrecurring [Member] | Maximum [Member] | Market Approach Valuation Technique [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount for selling costs and age of appraisals	30.00%
Level 3 [Member] | Nonrecurring [Member] | Minimum [Member] | Market Approach Valuation Technique [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount for selling costs and age of appraisals	10.00%
Level 3 [Member] | Nonrecurring [Member] | Weighted Average [Member] | Market Approach Valuation Technique [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount for selling costs and age of appraisals	21.00%

[1] Impaired loans are considered to have a Level III valuation methodology if the appraisal on the loan is older than two years. Transfers out of level three status represent loans for which current appraisals have been obtained or loans which have been transferred to other real estate owned and the collateral re-appraised at the time of the transfer.

[2] Other changes in the Level III balances during the period represent principal changes on level three impaired loans and minor valuation adjustments.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2012

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 11.  Recent Accounting Pronouncements

In April 2011, the FASB issued ASU 2011-03, "Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements." The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this ASU are effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This ASU is the result of joint efforts by the FASB and International Accounting Standards Board (IASB) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements. The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments are effective for interim and annual periods beginning after December 15, 2011 with prospective application. Early application is not permitted. The Company has included the required disclosures in its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220) - Presentation of Comprehensive Income." The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The single statement of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2011. Early adoption is permitted because compliance with the amendments is already permitted. The amendments do not require transition disclosures. The Company has included the required disclosures in its consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, "Intangible - Goodwill and Other (Topic 350) - Testing Goodwill for Impairment." The amendments in this ASU permit an entity to first assess qualitative factors related to goodwill to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, "Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities." This ASU requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-11 to have a material impact on its consolidated financial statements.

In December 2011, the FASB issued ASU 2011-12, "Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." The amendments are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company has included the required disclosures in its consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, "Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." The amendments in this ASU apply to all entities that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements. The amendments in this ASU provide an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. The amendments also enhance the consistency of impairment testing guidance among long-lived asset categories by permitting an entity to assess qualitative factors to determine whether it is necessary to calculate the asset's fair value when testing an indefinite-lived intangible asset for impairment. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company does not expect the adoption of ASU 2012-02 to have a material impact on its consolidated financial statements.

In October 2012, the FASB issued ASU 2012-06, "Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution." The amendments in this ASU clarify the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. In addition, the amendments should resolve current diversity in practice on the subsequent measurement of these types of indemnification assets. The amendments are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. The Company does not expect the adoption of ASU 2012-06 to have a material impact on its consolidated financial statements.