10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

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

of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2013

or

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

of the Securities Exchange Act of 1934

For the transition period from ____________ to _____________

Commission File Number:  0-24159

MIDDLEBURG FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

(703) 777-6327

(Registrant’s telephone number, including area code)

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

Yes  þ No  ¨

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

Yes  þ No  ¨

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  þ
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  þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.   7,051,587 shares of Common Stock as of April 30, 2013.

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	31
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
	Item 4.	Controls and Procedures	46
Part II.     Other Information
	Item 1.	Legal Proceedings	46
	Item 1A.	Risk Factors	46
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
	Item 3.	Defaults upon Senior Securities	46
	Item 4.	Mine Safety Disclosures	46
	Item 5.	Other Information	46
	Item 6.	Exhibits	47
Signatures			48

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)
	March 31, 2013		December 31, 2012
ASSETS
Cash and due from banks	$	6,697	$	7,139
Interest-bearing deposits with other institutions		43,753		47,276
Total cash and cash equivalents		50,450		54,415
Securities available for sale, at fair value		331,650		319,457
Loans held for sale		48,721		82,114
Restricted securities, at cost		7,005		6,990
Loans receivable, net of allowance for loan losses of $13,508 at March 31, 2013 and $14,311 at December 31, 2012		701,078		695,166
Premises and equipment, net		20,418		20,587
Goodwill and identified intangibles		5,975		6,017
Other real estate owned, net of valuation allowance of $348 at March 31, 2013 and $1,707 at December 31, 2012		7,904		9,929
Prepaid federal deposit insurance		2,768		3,015
Bank owned life insurance		16,604		16,484
Accrued interest receivable and other assets		21,183		22,607
TOTAL ASSETS	$	1,213,756	$	1,236,781
LIABILITIES
Deposits:
Non-interest-bearing demand deposits	$	163,611	$	167,137
Savings and interest-bearing demand deposits		515,082		522,740
Time deposits		287,383		292,023
Total deposits		966,076		981,900
Securities sold under agreements to repurchase		31,880		33,975
Short-term borrowings		519		11,873
FHLB borrowings		85,000		77,912
Subordinated notes		5,155		5,155
Accrued interest payable and other liabilities		7,426		8,844
Commitments and contingent liabilities		—		—
TOTAL LIABILITIES		1,096,056		1,119,659
SHAREHOLDERS' EQUITY
Common stock ($2.50 par value; 20,000,000 shares authorized, 7,051,587 and 7,052,554 issued and outstanding at March 31, 2013 and December 31, 2012, respectively)		17,365		17,357
Capital surplus		43,946		43,869
Retained earnings		47,209		46,235
Accumulated other comprehensive income		6,260		6,467
Total Middleburg Financial Corporation shareholders' equity		114,780		113,928
Non-controlling interest in consolidated subsidiary		2,920		3,194
TOTAL SHAREHOLDERS' EQUITY		117,700		117,122
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,213,756	$	1,236,781

See accompanying notes to the consolidated financial statements.

3

MIDDLEBURG FINANCIAL CORPORATION

Consolidated Statements of Income

(In thousands, except for per share data)

	Unaudited
	For the Three Months
	Ended March 31,
	2013			2012
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	8,965		$	9,782
Interest and dividends on securities available for sale
Taxable		1,531			1,735
Tax-exempt		630			607
Dividends		56			44
Interest on deposits in banks and federal funds sold		30			24
Total interest and dividend income		11,212			12,192
INTEREST EXPENSE
Interest on deposits		1,373			1,893
Interest on securities sold under agreements to repurchase		80			83
Interest on short-term borrowings		29			148
Interest on FHLB borrowings and other debt		295			297
Total interest expense		1,777			2,421
NET INTEREST INCOME		9,435			9,771
Provision for (recovery of) loan losses		(188	)		792
NET INTEREST INCOME AFTER PROVISION
FOR (RECOVERY OF) LOAN LOSSES		9,623			8,979
NONINTEREST INCOME
Service charges on deposit accounts		534			530
Trust services income		960			921
Gains on loans held for sale		3,893			3,852
Gains on securities available for sale, net		47			140
Total other-than-temporary impairment losses		—			(10	)
Portion of loss recognized in other comprehensive income		—			10
Net impairment losses		—			—
Commissions on investment sales		94			147
Fees on mortgages held for sale		17			42
Other service charges, commissions and fees		130			150
Bank-owned life insurance		120			122
Other operating income		133			80
Total noninterest income		5,928			5,984
NONINTEREST EXPENSE
Salaries and employees' benefits		7,799			7,357
Net occupancy and equipment expense		1,805			1,778
Advertising		268			300
Computer operations		461			385
Other real estate owned		820			286
Other taxes		192			203
Federal deposit insurance expense		265			258
Other operating expenses		2,318			2,747
Total noninterest expense		13,928			13,314
Income before income taxes		1,623			1,649
Income tax expense		363			416
NET INCOME		1,260			1,233
Net loss attributable to noncontrolling interest		67			349
Net income attributable to Middleburg Financial Corporation	$	1,327		$	1,582
Earnings per share:
Basic	$	0.19		$	0.23
Diluted	$	0.19		$	0.23
Dividends per common share	$	0.05		$	0.05

See accompanying notes to the consolidated financial statements.

4

MIDDLEBURG FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(In thousands)
	Unaudited
	For the Three Months
	Ended March 31,
	2013			2012
Net income	$	1,260		$	1,233
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the period (net of tax of $111 and $358 respectively for the periods presented)		(215	)		695
Reclassification adjustment for gains included in net income  (net of tax of $16 and $48 respectively for the periods presented)		(31	)		(92	)
Unrealized gain on interest rate swap  (net of tax of $20 and $27 respectively for the periods presented)		39			53
Total other comprehensive income (loss)		(207	)		656
Total comprehensive income		1,053			1,889
Comprehensive loss attributable to non-controlling interest		67			349
Comprehensive income attributable to Middleburg Financial Corporation	$	1,120		$	2,238

See accompanying notes to the consolidated financial statements.

5

Middleburg Financial Corporation
Consolidated Statements of Changes in Shareholders' Equity
For the Three Months Ended March 31, 2013 and 2012
(In Thousands, Except Share Data)
(Unaudited)
	Middleburg Financial Corporation Shareholders
	Common Stock			Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income			Noncontrolling Interest			Total
Balances - December 31, 2011	$	17,331		$	43,498		$	41,157		$	3,926		$	2,101		$	108,013
Net income (loss)							1,582						(349		)	1,233
Other comprehensive income, net of tax										656						656
Cash dividends declared							(350		)							(350		)
Vesting of restricted stock awards (11,011 shares)	28			(28		)										—
Distributions to non-controlling interest													(38		)	(38		)
Share-based compensation				81												81
Balances - March 31, 2012	$	17,359		$	43,551		$	42,389		$	4,582		$	1,714		$	109,595
Balances - December 31, 2012	$	17,357		$	43,869		$	46,235		$	6,467		$	3,194		$	117,122
Net income (loss)							1,327						(67		)	1,260
Other comprehensive loss, net of tax										(207		)				(207		)
Cash dividends declared							(353		)							(353		)
Vesting of restricted stock awards (5,255 shares)	11			(11		)										—
Repurchase of restricted stock (967 shares)	(3		)	(16		)										(19		)
Distributions to non-controlling interest													(207		)	(207		)
Share-based compensation				104												104
Balances - March 31, 2013	$	17,365		$	43,946		$	47,209		$	6,260		$	2,920		$	117,700

 See accompanying notes to the consolidated financial statements.

6

MIDDLEBURG FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
	Unaudited
	For the three months ended
	March 31, 2013			March 31, 2012
Cash Flows From Operating Activities
Net income	$	1,260		$	1,233
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	486			478
Undistributed earnings of affiliate	(23		)	(3		)
Provision for (recovery of) loan losses	(188		)	792
Net gain on securities available for sale	(47		)	(140		)
Net loss on disposal of assets	1			7
Premium amortization on securities, net	874			918
Origination of loans held for sale	(191,131		)	(211,159		)
Proceeds from sales of loans held for sale	228,417			226,498
Net gains on mortgages held for sale	(3,893		)	(3,852		)
Share-based compensation	104			81
Net loss on sale of other real estate owned	628			14
Valuation adjustment on other real estate owned	—			54
Decrease in prepaid FDIC insurance	247			240
Changes in other assets and liabilities:
Decrease in other assets	1,467			1,257
(Decrease) increase in other liabilities	(1,419		)	563
Net cash provided by operating activities	$	36,783		$	16,981
Cash Flows from Investing Activities
Proceeds from maturity, principal paydowns and calls of securities available for sale	$	24,320		$	20,607
Proceeds from sale of securities available for sale	3,925			3,147
Purchase of securities available for sale	(41,638		)	(38,960		)
Purchase of restricted stock	(15		)	(548		)
Purchases of bank premises and equipment	(248		)	(204		)
Net increase in loans	(7,575		)	(15,287		)
Proceeds from sale of other real estate owned	3,248			213
Net cash used in investing activities	$	(17,983	)	$	(31,032	)

See Accompanying Notes to Consolidated Financial Statements.

7

MIDDLEBURG FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Continued)
(In thousands)
	For the three months ended
	March 31, 2013			March 31, 2012
Cash Flows from Financing Activities
Net (decrease) increase in non-interest-bearing and interest-bearing demand deposits and savings accounts	$	(11,184	)	$	21,549
Net (decrease) increase in time deposits	(4,640		)	354
(Decrease) increase in securities sold under agreements to repurchase	(2,095		)	468
Proceeds from short-term borrowings	3,184			33,971
Payments on short-term borrowings	(14,539		)	(48,136		)
Proceeds from FHLB borrowings	30,000			32,912
Payments on FHLB borrowings	(22,912		)	(32,912		)
Distributions to non-controlling interest	(207		)	(38		)
Payment of dividends on common stock	(353		)	(350		)
Repurchase of common stock	(19		)	—
Net cash (used in) provided by financing activities	$	(22,765	)	$	7,818
Decrease in cash and and cash equivalents	(3,965		)	(6,233		)
Cash and Cash Equivalents
Beginning	54,415			51,270
Ending	$	50,450		$	45,037
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	1,868		$	2,503
Income taxes	$	—		$	100
Supplemental Disclosure of Non-cash Transactions
Unrealized gain (loss) on securities available for sale	$	(373	)	$	914
Change in market value of interest rate swap	$	59		$	80
Transfer of loans to other real estate owned	$	1,851		$	3,906
Loans originated from sale of other real estate owned	$	—		$	149

See accompanying notes to the consolidated financial statements.

8

MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the three months ended March 31, 2013

(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 March 31, 2013 and December 31, 2012, the results of operations and comprehensive income for the three months ended March 31, 2013 and 2012, and changes in shareholders’ equity and cash flows for the three months ended March 31, 2013 and 2012, 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, 2012 (the “2012 Form 10-K”) of Middleburg Financial Corporation (the “Company”).  The results of operations for the three month periods ended March 31, 2013 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 2012 consolidated financial statements have been reclassified to conform to the 2013 presentation.   The amounts of these items are not considered to be material variations from the original classifications and presentations.

Note 2.   Share–Based Compensation Plan

As of March 31, 2013, 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.  The 2006 Equity Compensation plan was amended  by the Company's shareholders at the Annual Meeting held on May, 1, 2013 to increase the total number of shares which may be awarded.  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 430,000 shares of common stock under the 2006 Equity Compensation Plan.

The Company recognized $104,000 for stock-based compensation expenses for the three months ended March 31, 2013.

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.

	March 31, 2013
	Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at beginning of year	82,171	$	17.32
Granted	—	—
Exercised	—	—
Forfeited	—	—
Outstanding at end of period	82,171	$	17.32	$	171,000

As of the end of the reporting period, 82,171 options were vested and exercisable representing 22,000 shares issued under the original 1997 plan and 60,171 vested options under the 2006 Plan.  As of March 31, 2013,  no outstanding options were unvested.

The weighted average remaining contractual term for options outstanding and exercisable at March 31, 2013 was 4.5 years.  As of March 31, 2013,  all compensation expense related to stock option awards has been recognized.  The Aggregate Intrinsic Value above represents the difference between the market value of the stock at the end of the period and the weighted average exercise price of the options at the end of the period.

9

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

	March 31, 2013
	Shares		Weighted Average Grant-Date Fair Value			Aggregate Intrinsic Value
Outstanding at beginning of year	120,455		$	15.66
Granted	—		—
Vested	(5,255	)	(13.92		)
Forfeited	—		—
Non-vested at end of period	115,200		16			2,236,000

The weighted average remaining contractual term for non-vested restricted stock at March 31, 2013 was 3.8 years.  As of March 31, 2013, there was approximately $1.3 million 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 March 31, 2013 are summarized as follows:

	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	14,837	$	442	$	(35	)	$	15,244
Obligations of states and
political subdivisions	79,278		3,415		(229		)	82,464
Mortgage-backed securities:
Agency	164,305		5,630		(335		)	169,600
Non-agency	19,277		223		(101		)	19,399
Other asset backed securities	34,268		1,165		(72		)	35,361
Corporate preferred stock	68		—		(1		)	67
Corporate securities	9,730		41		(256		)	9,515
Total	$	321,763	$	10,916	$	(1,029	)	$	331,650

10

Amortized costs and fair values of securities available for sale at December 31, 2012 are summarized as follows:

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	15,391	$	459	$	(28	)	$	15,822
Obligations of states and
political subdivisions	74,485		3,920		(105		)	78,300
Mortgage-backed securities:
Agency	161,564		5,659		(280		)	166,943
Non-agency	15,310		287		(18		)	15,579
Other asset backed securities	33,648		1,079		(85		)	34,642
Corporate preferred stock	68		—		(6		)	62
Corporate securities	8,730		12		(633		)	8,109
Total	$	309,196	$	11,416	$	(1,155	)	$	319,457

The amortized cost and fair value of securities available for sale as of March 31, 2013, 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.

	March 31, 2013
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	4,601	$	4,660
Due after one year through
five years	33,133		34,410
Due after five years through
ten years	28,179		29,374
Due after ten years	37,932		38,779
Mortgage-backed securities	183,582		188,999
Other asset backed securities	34,268		35,361
Corporate preferred stock	68		67
Total	$	321,763	$	331,650

Proceeds from the sale of securities during the three months ended March 31, 2013 were $3.9 million and net gains of $47,000 were realized on those sales.  The tax expense applicable to the net realized gains amounted to $16,000.  Additionally, no loss on securities with other than temporary impairment was recognized during the three months ended March 31, 2013.

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 $130.4 million at March 31, 2013.

11

At March 31, 2013, investments in an unrealized loss position that were temporarily impaired are as follows:

	March 31, 2013
						(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	$	3,742	$	(35	)	$	16	$	—		$	3,758	$	(35	)
Obligations of states and
political subdivisions	9,687		(229		)	—		—			9,687		(229		)
Mortgage backed securities:
Agency	23,803		(277		)	1,528		(58		)	25,331		(335		)
Non-agency	9,205		(101		)	—		—			9,205		(101		)
Other asset backed securities	1,743		(56		)	1,154		(16		)	2,897		(72		)
Corporate preferred stock	—		—			38		(1		)	38		(1		)
Corporate securities	—		—			4,244		(256		)	4,244		(256		)
Total	$	48,180	$	(698	)	$	6,980	$	(331	)	$	55,160	$	(1,029	)

At December 31, 2012, investments in an unrealized loss position that were temporarily impaired are as follows:

	December 31, 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	$	3,850	$	(28	)	$	16	$	—		$	3,866	$	(28	)
Obligations of states and
political subdivisions	6,966		(105		)	—		—			6,966		(105		)
Mortgage backed securities:
Agency	24,344		(234		)	1,241		(46		)	25,585		(280		)
Non-agency	3,295		(18		)	—		—			3,295		(18		)
Other asset backed securities	2,791		(57		)	1,418		(28		)	4,209		(85		)
Corporate preferred stock	—		—			33		(6		)	33		(6		)
Corporate securities	—		—			6,867		(633		)	6,867		(633		)
Trust-preferred securities	—		—			—		—			—		—
Total	$	41,246	$	(442	)	$	9,575	$	(713	)	$	50,821	$	(1,155	)

A total of 58 securities have been identified by the Company as temporarily impaired at March 31, 2013.  Of the 58 securities, 57 are investment grade and 1 is speculative grade.  Agency, non-agency mortgage-backed securities, municipal and corporate debt securities make up the majority of temporarily impaired securities at March 31, 2013.  The speculative grade security is a municipal bond.  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 March 31, 2013.  Investment decisions reflect the strategic asset/liability objectives of the Company.  

Trust preferred securities

As of March 31, 2013, 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 March 31, 2013, 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 March 31, 2013.  However, there is a risk that the Company’s continuing reviews could result in recognition of other-than-temporary impairment charges in the future.  During the three months ended March 31, 2013 and the three months ended March 31, 2012, no credit related impairment losses were recognized by the Company.

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:

	March 31, 2013				December 31, 2012
	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
	(In Thousands)				(In Thousands)
Real estate loans:
Construction	$	46,089	6.5	%	$	50,218	7.1	%
Secured by farmland	11,805		1.7	%	11,876		1.7	%
Secured by 1-4 family residential	268,770		37.6	%	260,620		36.7	%
Other real estate loans	259,403		36.3	%	254,930		35.9	%
Commercial loans	116,021		16.2	%	118,573		16.7	%
Consumer loans	12,498		1.7	%	13,260		1.9	%
	714,586		100.0	%	709,477		100.0	%
Less allowance for loan losses	13,508				14,311
Net loans	$	701,078			$	695,166

Loans presented in the table above exclude loans held for sale.  The Company had $48.7 million in mortgages held for sale at   March 31, 2013 and $82.1 million at December 31, 2012.

13

The following table presents a contractual aging of the recorded investment in past due loans by class of loans as of March 31, 2013 and December 31, 2012.

	March 31, 2013
					(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	$	—	$	591	$	1,964	$	2,555	$	43,534	$	46,089
Secured by farmland	415		—		—		415		11,390		11,805
Secured by 1-4 family residential	796		244		2,308		3,348		265,422		268,770
Other real estate loans	391		194		4,648		5,233		254,170		259,403
Commercial loans	—		145		1,906		2,051		113,970		116,021
Consumer loans	23		2		42		67		12,431		12,498
Total	$	1,625	$	1,176	$	10,868	$	13,669	$	700,917	$	714,586

	December 31, 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	$	—	$	108	$	2,043	$	2,151	$	48,067	$	50,218
Secured by farmland	415		—		—		415		11,461		11,876
Secured by 1-4 family residential	1,625		568		1,910		4,103		256,517		260,620
Other real estate loans	197		361		6,112		6,670		248,260		254,930
Commercial loans	—		44		144		188		118,385		118,573
Consumer loans	27		10		32		69		13,191		13,260
Total	$	2,264	$	1,091	$	10,241	$	13,596	$	695,881	$	709,477

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 March 31, 2013 and December 31, 2012:

	March 31, 2013				December 31, 2012
	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	$	2,790	$	268	$	2,861	$	780
Secured by 1-4 family residential	8,396		532		8,761		228
Other real estate loans	6,663		—		7,866		—
Commercial loans	2,140		—		2,146		34
Consumer loans	30		12		30		2
Total	$	20,019	$	812	$	21,664	$	1,044

If interest on non-accrual loans had been accrued, such income would have approximated $297,000 for the three months ended March 31, 2013 and $1.35 million for the year ended December 31, 2012.

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 uncollectible and are charged off immediately.

The following tables present a summary of loan classifications by class of loan as of March 31, 2013 and December 31, 2012:

	March 31, 2013
					(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	$	26,895	$	11,197	$	247,313	$	235,066	$	112,097	$	12,364	$	644,932
Special Mention	15,329		—		2,472		11,640		1,041		31		30,513
Substandard	3,344		608		17,718		12,455		2,794		63		36,982
Doubtful	521		—		1,267		242		89		40		2,159
Loss	—		—		—		—		—		—		—
Ending Balance	$	46,089	$	11,805	$	268,770	$	259,403	$	116,021	$	12,498	$	714,586

	December 31, 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	$	29,741	$	11,068	$	237,121	$	228,052	$	112,298	$	13,134	$	631,414
Special Mention	15,540		199		3,767		12,949		3,332		47		35,834
Substandard	3,902		609		18,333		12,887		2,831		49		38,611
Doubtful	1,035		—		1,399		1,042		112		30		3,618
Loss	—		—		—		—		—		—		—
Ending Balance	$	50,218	$	11,876	$	260,620	$	254,930	$	118,573	$	13,260	$	709,477

15

The following table presents loans identified as impaired by class of loan as of and for the three months ended March 31, 2013:

	March 31, 2013
	(In thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,812	$	2,445	$	—	$	1,898	$	7
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,798		4,215		—		3,888		37
Other real estate loans	2,509		2,552		—		2,529		93
Commercial loans	1,946		1,946		—		1,946		—
Consumer loans	—		—		—		—		—
Total with no related allowance	10,065		11,158		—		10,261		137
With an allowance recorded:
Real estate loans:
Construction	1,084		1,114		484		1,099		—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	6,379		6,914		2,035		6,407		51
Other real estate loans	6,915		6,915		964		6,940		71
Commercial loans	890		912		791		900		30
Consumer loans	30		30		30		30		—
Total with a related allowance	15,298		15,885		4,304		15,376		152
Total	$	25,363	$	27,043	$	4,304	$	25,637	$	289

16

The following table presents loans identified as impaired by class of loan as of and for the year ended December 31, 2012:

	December 31, 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	$	1,819	$	2,370	$	—	$	2,543	$	—
Secured by farmland	—		—		—		—
Secured by 1-4 family residential	3,248		3,667		—		3,712		50
Other real estate loans	3,135		3,178		—		3,141		91
Commercial loans	1,947		1,947		—		1,924		—
Consumer loans	—		—		—		—		—
Total with no related allowance	10,149		11,162		—		11,320		141
With an allowance recorded:
Real estate loans:
Construction	1,150		2,250		166		1,685		—
Secured by farmland	—		—		—		—
Secured by 1-4 family residential	7,544		8,203		2,724		7,842		65
Other real estate loans	7,505		7,605		1,045		7,691		73
Commercial loans	417		464		338		446		14
Consumer loans	30		30		30		30		—
Total with a related allowance	16,646		18,552		4,303		17,694		152
Total	$	26,795	$	29,714	$	4,303	$	29,014	$	293

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 March 31, 2013 was $12.0 million of which $7.1 million were included in the Company’s non-accrual loan totals at that date and $4.9 million represented loans performing as agreed according to the restructured terms. The total amount of TDRs is unchanged from the amount at December 31, 2012.  The amount of the valuation allowance related to total TDRs was $1.5 million and $2.0 million as of  March 31, 2013 and December 31, 2012 respectively.

The $7.1 million in nonaccrual TDRs as of March 31, 2013 is comprised of $62,000 in real estate construction loans, $2.3 million in 1-4 family real estate loans, $4.7 million in other real estate loans, and $55,000 in commercial loans.  The $4.9 million in TDRs which were performing as agreed under restructured terms as of March 31, 2013 is comprised of $106,000 in real estate construction loans, $1.8 million in 1-4 family real estate loans, $2.8 million in other real estate loans and $206,000 in commercial loans.  The Company considers all loans classified as TDRs to be impaired.

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The following table presents by class of loan, information related to loans modified in a TDR during the three months ended March 31, 2013:

	Loans modified as TDR's
	For the three months ended
	March 31, 2013
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	1	48,000		48,000
Other real estate loans	2	168,000		148,000
Total real estate loans	3	216,000		196,000
Commercial loans	—	—		—
Consumer loans	—	—		—
Total	3	$	216,000	$	196,000

During the three months ended March 31, 2013, the Company modified three loans that were considered to be TDRs and are summarized in the above table.  The maturity dates were extended on two of the loans and repayment terms were modified on one loan.

During the three months ended March 31, 2013, the Company identified two loans with an aggregate recorded investment of $148,000 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 no allowance for loan losses at March 31, 2013.

As of March 31, 2013, two loans restructured as TDRs during the three month period with an aggregate recorded investment of $148,000 are included in the Company’s non-accrual loans total.  The remaining loan identified as a TDR during this period is included in the Company's non-performing assets that are performing as agreed under the restructured terms.

A total of four loans modified as TDRs in the past twelve months subsequently defaulted (i.e., 90 days or more past due following a restructuring) during the three months ended March 31, 2013.

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

As a result of improving trends in non accrual loans and improved risk ratings for several loans during the quarter, the Company recorded a recovery of loan losses of $188,000 for the three months ended March 31, 2013, compared to a provision for loan losses of  $792,000 for the three months ended March 31, 2012.  Non-accruals as a percentage of total loans have decreased from 3.26% in the quarter ended March 31, 2012 to 2.84% in the quarter ended March 31, 2013.  The recovery of loan losses allowed the reserve ratio to decrease to 1.89% of portfolio loans at March 31, 2013 from 2.02% at December 31, 2012. 

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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 March 31, 2013 and December 31, 2012.

	March 31, 2013
							(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, 2012	$	1,258		$	135		$	6,276		$	4,348		$	2,098		$	196		$	14,311
Chargeoffs	(87		)	—			(489		)	(97		)	(38		)	(8		)	(719		)
Recoveries	37			—			50			9			5			3			104
Provision	32			(10		)	(29		)	(161		)	(18		)	(2		)	(188		)
Balances as of March 31, 2013	$	1,240		$	125		$	5,808		$	4,099		$	2,047		$	189		$	13,508
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	484		$	—		$	2,035		$	964		$	791		$	30		$	4,304
Collectively evaluated for impairment	756			125			3,773			3,135			1,256			159			9,204
Total ending allowance balances	$	1,240		$	125		$	5,808		$	4,099		$	2,047		$	189		$	13,508
Ending loan recorded investment balances:
Individually evaluated for impairment	$	2,896		$	—		$	10,177		$	9,424		$	2,836		$	30		$	25,363
Collectively evaluated for impairment	43,193			11,805			258,593			249,979			113,185			12,468			689,223
Total ending loan balances	$	46,089		$	11,805		$	268,770		$	259,403		$	116,021		$	12,498		$	714,586

	December 31, 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 at December 31, 2011	$	897		$	110	$	7,465		$	4,385		$	1,621		$	145		$	14,623
Chargeoffs	(2,152		)	—		(893		)	(760		)	(394		)	(72		)	(4,271		)
Recoveries	2			—		388			86			12			33			521
Provision	2,511			25		(684		)	637			859			90			3,438
Balances at December 31, 2012	$	1,258		$	135	$	6,276		$	4,348		$	2,098		$	196		$	14,311
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	166		$	—	$	2,724		$	1,045		$	338		$	30		$	4,303
Collectively evaluated for impairment	1,092			135		3,552			3,303			1,760			166			10,008
Total ending allowance balances	$	1,258		$	135	$	6,276		$	4,348		$	2,098		$	196		$	14,311
Ending loan recorded investment balances:
Individually evaluated for impairment	$	2,969		$	—	$	10,792		$	10,640		$	2,364		$	30		$	26,795
Collectively evaluated for impairment	47,249			11,876		249,828			244,290			116,209			13,230			682,682
Total ending loan balances	$	50,218		$	11,876	$	260,620		$	254,930		$	118,573		$	13,260		$	709,477

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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
	March 31, 2013			March 31, 2012
	Shares	Per share Amount		Shares	Per share Amount
Basic earnings per share	7,051,009	$	0.19	6,994,858	$	0.23
Effect of dilutive securities:
stock options and grants	31,345			5,311
Diluted earnings per share	7,082,354	$	0.19	7,000,169	$	0.23

At March 31, 2013 and 2012, stock options, restricted grants and warrants representing approximately 32,500 and 157,000 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.

20

The following table presents segment information for the three months ended March 31, 2013 and 2012, respectively.

	For the three months ended														For the three months ended
	March 31, 2013														March 31, 2012
	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	$	11,088		$	4	$	469		$	(349	)	$	11,212		$	11,854	$	2	$	738		$	(402	)	$	12,192
Trust and investment fee income	—			1,095		—			(41		)	1,054			—		956		—			(35		)	921
Other income	844			74		4,112			(156		)	4,874			1,093		—		4,167			(197		)	5,063
Total operating income	11,932			1,173		4,581			(546		)	17,140			12,947		958		4,905			(634		)	18,176
Expenses:
Interest expense	1,748			—		378			(349		)	1,777			2,272		—		551			(402		)	2,421
Salaries and employee benefits	4,185			615		2,999			—			7,799			3,796		528		3,033			—			7,357
Provision for (recovery of) loan losses	(189		)	—		1			—			(188		)	792		—		—			—			792
Other	4,595			350		1,381			(197		)	6,129			3,624		318		2,247			(232		)	5,957
Total operating expenses	10,339			965		4,759			(546		)	15,517			10,484		846		5,831			(634		)	16,527
Income (loss) before income taxes and non-controlling interest	1,593			208		(178		)	—			1,623			2,463		112		(926		)	—			1,649
Income tax expense	277			86		—			—			363			313		103		—			—			416
Net Income (loss)	1,316			122		(178		)	—			1,260			2,150		9		(926		)	—			1,233
Non-controlling interest in loss of consolidated subsidiary	—			—		67			—			67			—		—		349			—			349
Net income (loss) attributable to Middleburg Financial Corporation	$	1,316		$	122	$	(111	)	$	—		$	1,327		$	2,150	$	9	$	(577	)	$	—		$	1,582
Total assets	$	1,208,288		$	6,232	$	59,623		$	(60,387	)	$	1,213,756		$	1,179,087	$	6,239	$	90,128		$	(72,243	)	$	1,203,211
Capital expenditures	$	248		$	—	$	—		$	—		$	248		$	204	$	—	$	—		$	—		$	204
Goodwill and other intangibles	$	—		$	4,108	$	1,867		$	—		$	5,975		$	—	$	4,279	$	1,867		$	—		$	6,146

Note. 8.                      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 March 31, 2013.

Note 9.                      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.

21

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 March 31, 2013 and December 31, 2012.

	March 31, 2013
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	15,244	$	—	$	15,244	$	—
Obligations of states and political subdivisions	82,464		—		82,464		—
Mortgage-backed securities:
Agency	169,600		—		169,600		—
Non-agency	19,399		—		19,399		—
Other asset-backed securities	35,361		—		35,361		—
Corporate preferred stock	67		—		67		—
Corporate securities	9,515		—		9,515		—
Mortgage interest rate locks	69		—		69		—
Interest rate swaps	21		—		21		—
Liabilities:
Interest rate swaps	$	423	$	—	$	423	$	—
Mortgage banking hedge instruments	81		—		81		—

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	December 31, 2012
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	15,822	$	—	$	15,822	$	—
Obligations of states and political subdivisions	78,300		—		78,300		—
Mortgage-backed securities:
Agency	166,943		—		166,943		—
Non-agency	15,579		—		15,579		—
Other asset-backed securities	34,642		—		34,642		—
Corporate preferred stock	62		—		62		—
Corporate securities	8,109		—		8,109		—
Mortgage interest rate locks	35		—		35		—
Interest rate swaps	80		—		80		—
Liabilities:
Interest rate swap	541		—		541		—
Mortgage banking hedge instruments	39		—		39		—

There were no financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the three months ended March 31, 2013. 

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 three months ended March 31, 2013.  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 either 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 a 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.  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.  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.

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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 appraised value.  Information considered in a determination not to order an updated appraisal includes the availability and reliability of tax assessment records and any 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 cannot be obtained by an alternative method, an updated appraisal would be 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 cannot 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 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.

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The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis as of March 31, 2013 and December 31, 2012:

	March 31, 2013
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	48,721	$	—	$	48,721	$	—
Impaired loans	10,994		—		9,094		1,900
	December 31, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	82,114	$	—	$	82,114	$	—
Impaired loans	12,343		—		11,165		1,178

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. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability or other factors, then the fair value is considered Level III.  Any initial fair value adjustment is charged against the Allowance for Loan Losses.  Any subsequent fair value adjustments are recorded in the period incurred and included in other non-interest expense on the consolidated statements of income.

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

Any fair value adjustments are recorded in the period incurred as “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.

	March 31, 2013
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Other real estate owned	$	7,904	$	—	$	7,904	$	—
	December 31, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Other real estate owned	$	9,929	$	—	$	7,619	$	2,310

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The following table presents quantitative information as of March 31, 2013 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	$	1,900	Discounted appraised value	Discount for selling costs and age of appraisals.	10% - 30% (21%)

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.  (See "Impaired Loans" above for a discussion of valuation methodologies for loans considered to be impaired.)

Bank Owned Life Insurance

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

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate fair values.

Deposits

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

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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 March 31, 2013 and December 31, 2012, 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 March 31, 2013 are as follows:

					March 31, 2013
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
	(In thousands)
Financial assets:
Cash and cash equivalents	$	50,450	$	50,450	$	50,450	$	—	—
Securities	331,650		331,650		—		331,650		—
Loans held for sale	48,721		48,721		—		48,721		—
Net portfolio loans	701,078		720,404		—		9,094		711,310
Bank-owned life insurance	16,604		16,604		—		16,604		—
Accrued interest receivable	4,107		4,107		—		4,107		—
Mortgage interest rate locks	69		69		—		69		—
Interest rate swaps	21		21		—		21		—
Financial liabilities:
Deposits	$	966,076	$	969,470	$	—	$	969,470	—
Securities sold under agreements
to repurchase	31,880		31,880		—		31,880		—
Short-term debt	519		519		—		519		—
FHLB borrowings	85,000		85,840		—		85,840		—
Trust preferred capital notes	5,155		5,206		—		5,206		—
Accrued interest payable	617		617		—		617		—
Interest rate swap	423		423		—		423		—
Mortgage banking hedge instruments	81		81		—		81		—

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The estimated fair values, and related carrying amounts, of the Company's financial instruments at December 31, 2012 are as follows:

					December 31, 2012
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
	(In thousands)
Financial assets:
Cash and cash equivalents	$	54,415	$	54,415	$	54,415	$	—	—
Securities	319,457		319,457		—		319,457		—
Loans held for sale	82,114		82,114		—		82,114		—
Net portfolio loans	695,166		716,358		—		11,165		705,193
Bank-owned life insurance	16,484		16,484		—		16,484		—
Accrued interest receivable	3,974		3,974		—		3,974		—
Mortgage interest rate locks	35		35		—		35		—
Interest rate swaps	80		80		—		80		—
Financial liabilities:
Deposits	$	981,900	$	984,682	$	—	$	984,682	—
Securities sold under agreements
to repurchase	33,975		33,975		—		33,975		—
Short-term debt	11,873		11,873		—		11,873		—
FHLB borrowings	72,912		78,912		—		78,912		—
Trust preferred capital notes	5,155		5,221		—		5,221		—
Accrued interest payable	654		654		—		654		—
Interest rate swaps	541		541		—		541		—
Mortgage banking hedge instruments	39		39		—		39		—

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 10.                                Recent Accounting Pronouncements

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 adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

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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 adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In January 2013, the FASB issued ASU 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.”  The amendments in this ASU clarify the scope for derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset or subject to netting arrangements.  An entity is required to apply the amendments for fiscal years, and interim periods within those years, beginning on or after January 1, 2013.  The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.”  The amendments in this ASU require an entity to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income.  In addition, the amendments require a cross-reference to other disclosures currently required for other reclassification items to be reclassified directly to net income in their entirety in the same reporting period.  Companies should apply these amendments for fiscal years, and interim periods within those years, beginning on or after December 15, 2012.  The Company has included the required disclosures from ASU 2013-02 in the consolidated financial statements.

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Note 11.                            Accumulated Other Comprehensive Income

The following table presents information on changes in each component of accumulated other comprehensive income and the ending balances for the periods indicated:

	Accumulated Other Comprehensive Income (1)
	(in thousands)
	Net Unrealized Gains (Losses) on Securities			Derivatives			Total
Balance December 31, 2011	$	4,133		$	(207	)	$	3,926
Other comprehensive income before reclassifications	695			53			748
Amounts reclassified from accumulated other comprehensive income	(92		)	—			(92		)
Change during period	603			53			656
Balance March 31, 2012	$	4,736		$	(154	)	$	4,582
Balance December 31, 2012	$	6,771		$	(304	)	$	6,467
Other comprehensive income (loss) before reclassifications	(215		)	39			(176		)
Amounts reclassified from accumulated other comprehensive income	(31		)	—			(31		)
Change during period	(246		)	39			(207		)
Balance March 31, 2013	$	6,525		$	(265	)	$	6,260

(1)  All amounts shown are net of applicable income taxes using an income tax rate of 34%.

The following table presents information related to reclassifications from accumulated other comprehensive income during the periods indicated.

	Amount Reclassified from Accumulated Other Comprehensive Income
	(in thousands)
Details about Accumulated Other Comprehensive Income Components	For the three months ended March 31,						Affected Line Item in the Consolidated Statements of Income
	2013			2012
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(47	)	$	(140	)	Gain on securities available for sale
Related income tax expense	16			48			Income tax expense
Net effect on accumulated other comprehensive income for the period	(31		)	(92		)	Net of tax
Total reclassifications for the period	$	(31	)	$	(92	)	Net of tax

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

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

The following discussion and analysis of the financial condition at March 31, 2013 and results of operations of the Company for the three months ended March 31, 2013 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 2012 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 twelve 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 three months ended March 31, 2013 decreased 16.1% to $1.3 million from $1.6 million over the same period in 2012.  Earnings per fully diluted share for the three months ended March 31, 2013 was $0.19 per share versus $0.23 per share for the same period in 2012.

Annualized return on total average assets for the three months ended March 31, 2013 was 0.44%, compared to 0.54% for the same period in 2012.  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 March 31, 2013 was 4.71%, compared to 5.95% for the same period in 2012.

As a result of improving trends in non accrual loans and improved risk ratings for several loans during the quarter, the Company recorded a negative loan loss provision of $188,000 for the three months ended March 31, 2013, compared to $792,000 for the three months ended March 31, 2012.  Non-accruals as a percentage of total loans have decreased from 3.26% in the quarter ended March 31, 2012 to 2.84% in the quarter ended March 31, 2013.  The negative provision allowed the reserve ratio to decrease to 1.89% of portfolio loans at March 31, 2013 from 2.02% at December 31, 2012.  After this quarter's reserve decrease, the coverage ratio for non-performing assets (allowance for loan losses balance divided by non-performing assets) increased to 40.2% of nonperforming assets from 37.9% at December 31, 2012. 

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Net interest income for the three months ended March 31, 2013 was $9.4 million compared to $9.8 million for the three months ended March 31, 2012.  Total non-interest income decreased to $5.9 million for the three months ended March 31, 2013 compared to $6.0 million for the three months ended March 31, 2012.  Total non-interest expense increased approximately $614,000 to $13.9 million for the three months ended March 31, 2013 from $13.3 million for the same period in 2012.

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.  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:  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.

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

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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 March 31, 2013, a decrease of $42,000 or 0.7% since December 31, 2012, which is 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 $690,000.  Approximately $1.0 million of the $6.0 million in total intangible assets and goodwill at March 31, 2013 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, 2012.

As of March 31, 2013, 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, 2012 (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, 2012 to March 31, 2013.

	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, 2012		December 31, 2012			December 31, 2012		Carrying Value
STM	$	1,867	$	7,880		$	10,040	27.41	%
MIG	3,422		6,244		(2)	9,167		46.81	%
Total	$	5,289	$	14,124		$	19,207	35.99	%

(1)   Reported amounts reflect only Middleburg Financial Corporation shareholders' ownership interests. Estimated fair values are as of December 31, 2012.

(2)   Includes $728,000 of amortizing intangible assets at December 31, 2012.

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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 quarter ended March 31, 2013.

Financial Condition

Assets, Liabilities and Shareholders’ Equity

Total assets for the Company were $1.2 billion at March 31, 2013, a decrease of $23.0 million or 1.9% compared to total assets at December 31, 2012.  Total average assets increased 3.4% to $1.22 billion for the three months ended March 31, 2013 from $1.18 billion for the three months ended March 31, 2012.  Total liabilities were $1.10 billion at March 31, 2013, compared to $1.12 billion at December 31, 2012.  Total average liabilities increased $27.2 million or 2.54% to $1.10 billion for the three months ended March 31, 2013 compared to $1.07 billion for the same period in 2012.  Average shareholders’ equity attributable to MFC shareholders increased 6.9% or $7.3 million over the same periods.

Loans

Total loans, including loans held for sale at March 31, 2013 were $763.3 million, a decrease of $28.3 million from the December 31, 2012 amount of $791.6 million, primarily as a result of a decrease in loans held for sale.  Portfolio loans were $714.6 million at March 31, 2013, an increase of $5.1 million from the  December 31, 2012 balance of $709.5 million.  Loans held for sale were  $48.7 million at March 31, 2013, compared to $82.1 million at December 31, 2012, a decrease of $33.4 million during the period.  Southern Trust Mortgage originated $191.1 million in loans for the three months ended March 31, 2013, compared to $211.2 million for the three months ended March 31, 2012.  The Company experienced a decrease in real estate construction loans, which were $46.1 million at March 31, 2013, compared to $50.2 million at December 31, 2012.  Real estate mortgage loans of $528.2 million at March 31, 2013 increased from the December 31, 2012 amount of $515.6 million.  Commercial loans, which are primarily loans to businesses, decreased to $116.0 million at March 31, 2013, compared to $118.6 million at December 31, 2012.  Net charge-offs were $615,000 for the three months ended March 31, 2013 versus $554,000 for the same period in 2012000.  The provision for loan losses for the three months ended March 31, 2013 was a negative $188,000 compared to $792,000 for the same period in 2012.  The allowance for loan losses at March 31, 2013 was $13.5 million or 1.89% of portfolio loans outstanding (excluding loans held for sale) compared to $14.3 million and 2.02% at December 31, 2012.

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

	Nonperforming Assets Middleburg Financial Corporation
	March 31,			December 31,
	2013			2012			2011			2010			2009
	(In thousands)
Nonperforming assets:
Nonaccrual loans	$	20,019		$	21,664		$	25,346		$	29,386		$	8,606
Restructured loans (1)	4,854			5,132			3,853			1,254			2,096
Accruing loans greater than 90 days past due	812			1,044			1,233			909			908
Total nonperforming loans	$	25,685		$	27,840		$	30,432		$	31,549		$	11,610
Foreclosed property	7,904			9,929			8,535			8,394			6,511
Total nonperforming assets	$	33,589		$	37,769		$	38,967		$	39,943		$	18,121
Allowance for loan losses	$	13,508		$	14,311		$	14,623		$	14,967		$	9,185
Nonperforming loans to period end portfolio loans	3.59		%	3.92		%	4.53		%	4.79		%	1.80		%
Allowance for loan losses to nonperforming loans	52.59		%	51.40		%	48.05		%	47.44		%	79.11		%
Nonperforming assets to period end assets	2.77		%	3.05		%	3.27		%	3.62		%	1.86		%

(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.

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

Allowance for Loan Losses
	Three Months Ended			Year Ended
	March 31, 2013			December 31, 2012
Balance, beginning of year	$	14,311		$	14,623
Provision for loan losses	(188		)	3,438
Charge-offs:
Real estate loans:
Construction	87			2,152
Secured by 1-4 family residential	489			893
Other real estate loans	97			760
Commercial loans	38			394
Consumer loans	8			72
Total charge-offs	$	719		$	4,271
Recoveries:
Real estate loans:
Construction	$	37		$	2
Secured by 1-4 family residential	50			388
Other real estate loans	9			86
Commercial loans	5			12
Consumer loans	3			33
Total recoveries	$	104		$	521
Net charge-offs	615			3,750
Balance, end of period	$	13,508		$	14,311
Ratio of allowance for loan losses to portfolio loans outstanding at end of period	1.89		%	2.02		%
Annualized ratio of net charge offs to average portfolio loans outstanding during the period	0.35		%	0.54		%

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 March 31, 2013 and December 31, 2012:

Allocation of Allowance for Loan Losses
	March 31, 2013		Percent of loans in each category to total loans		December 31, 2012		Percent of loans in each category to total loans
Commercial, financial and agricultural	$	2,172	17.89	%	$	2,233	18.39	%
Real estate construction	1,240		6.45	%	1,258		7.08	%
Real estate mortgage	9,907		73.91	%	10,624		72.67	%
Consumer loans	189		1.75	%	196		1.86	%
Totals	$	13,508	100.00	%	$	14,311	100.00	%

Non-performing Loans

Non-performing loans were $25.7 million at March 31, 2013 compared to $27.8 million at December 31, 2012.

Non-accrual loans were $20.0 million at the end of the first quarter of 2013 compared to $21.7 million as of December 31, 2012, representing a decrease of 7.8% during the first three months of 2013.  The decrease was primarily attributable to non-accrual loans being transferred to the Other Real Estate Owned category during the quarter.

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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 March 31, 2013 was $12.0 million of which $7.1 million were included in the Company’s non-accrual loan totals at that date and $4.9 million million represented loans performing as agreed according to the restructured terms. Total restructured loans were unchanged from the balance at December 31, 2012.  The amount of the valuation allowance related to total TDRs was $1.5 million and $2.0 million as of March 31, 2013 and December 31, 2012 respectively.

The $7.1 million in nonaccrual TDRs as of March 31, 2013 is comprised of $62,000 in real estate construction loans, $2.3 million in 1-4 family real estate loans, $4.7 million in other real estate loans, and $55,000 in commercial loans.  The $4.9 million in TDRs which were performing as agreed under restructured terms as of March 31, 2013 is comprised of $106,000 in real estate construction loans, $1.8 million in 1-4 family real estate loans, $2.8 million in other real estate loans and $206,000 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, decreased by $2.0 million to $7.9 million at March 31, 2013 from $9.9 million at December 31, 2012.  The decrease was primarily due to the sale of several large Other Real Estate Owned ("OREO") properties during the quarter. 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 three months ended March 31, 2013, the Company received proceeds of $3.2 million from the sale of other real estate owned properties and incurred a net loss of $628,000 on the sales. No valuation adjustments to properties held in OREO were made during the three months ended March 31, 2013.

Securities

Securities, excluding Federal Reserve and Federal Home Loan Bank stock, were $331.7 million at March 31, 2013 compared to $319.5 million at December 31, 2012, an increase of $12.2 million or 3.8% during the period. The balance in interest-bearing bank balances decreased to $43.8 million as of  March 31, 2013 versus $47.3 million at December 31, 2012.  The Company sold $3.9 million in securities, received proceeds of $24.3 million from maturities and principal payments, and purchased securities of $41.6 million for the three months ended March 31, 2013.  No losses related to other-than-temporary impairments were recognized for the three months ended March 31, 2013.

The Company will continue to maintain its securities portfolio as a source of liquidity and collateral.  At March 31, 2013, the year-to-date tax equivalent yield on the securities portfolio was 3.09%.

Premises and Equipment

Net premises and equipment decreased by $200,000 from $20.6 million at December 31, 2012 to $20.4 million at March 31, 2013.  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 $42,000 in the first three months of 2013 to $6.0 million at March 31, 2013 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 $1.4 million to $21.2 million at March 31, 2013 when compared to December 31, 2012.  The other assets section of the balance sheet includes Bank Owned Life Insurance (BOLI), in the amount of $16.6 million and net deferred tax assets in the amount of $4.0 million at March 31, 2013.

Deposits

Deposits decreased by $15.8 million to $966.1 million at March 31, 2013 from $981.9 million at December 31, 2012.  Average deposits for the three months ended March 31, 2013 increased 4.6% or $43.0 million compared to average deposits for the three months ended March 31, 2012.  Average interest bearing deposits were $810.7 million for the three months ended March 31, 2013 compared to $788.1 million for the three months ended March 31, 2012, primarily due to increases in average balances of interest checking and money market savings accounts.

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 $36.6 million at March 31, 2013 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 $4.6 million or 1.6% from December 31, 2012 to $287.4 million at March 31, 2013.  Time deposits include brokered certificates of deposit and CDARS deposits.   Securities sold under agreements to repurchase (“Repo Accounts”) decreased by $2.1 million from $34.0 million at December 31, 2012 to $31.9 million at March 31, 2013.  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 $5 million in overnight advances from the Federal Home Loan Bank of Atlanta (“FHLB”) outstanding at March 31, 2013.  Southern Trust Mortgage has a line of credit with a regional bank that is primarily used to fund its loans held for sale.  At March 31, 2013, this line had an outstanding balance of $519,000 compared to $11.9 million at December 31, 2012.  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.  FHLB term advances were $80.0 million at March 31, 2013 compared to $72.9 at December 31, 2012.  

Other Liabilities

Other liabilities decreased by $1.4 million to $7.4 million at March 31, 2013, when compared to December 31, 2012.

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 March 31, 2013.  As of March 31, 2013, the Company, through Middleburg Bank owned 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 $117.7 million at March 31, 2013.  This amount represents an increase of 0.5% from the December 31, 2012 amount of $117.1 million. Middleburg Financial Corporation’s shareholders’ equity, which excludes the non-controlling interest, was $114.8 million at March 31, 2013 compared to $113.9 million at December 31, 2012.  The book value of common stock was $16.28 per share at March 31, 2013 and $16.15 at December 31, 2012.  The following table shows the Company’s risk-based capital ratios as of March 31, 2013 and December 31, 2012:

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	March 31, 2013	December 31, 2012
Total risk-based capital ratio	15.6%	15.3%
Tier 1 risk-based capital ratio	14.4%	14.0%
Tier 1 leverage ratio	9.1%	9.1%

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 three months ended March 31, 2013 was $9.4 million, compared to $9.8 million for the same period in 2012.  Total interest income for the three months ended March 31, 2013 was $11.2 million compared to $12.2 million for the three months ended March 31, 2012 representing a decrease of 8.0%.  Total interest expense was $1.8 million for the three months ended March 31, 2013 compared to $2.4 million for the same period in 2012 representing a decrease of 26.6%.  Average earning assets remained unchanged at $1.2 billion for the three months ended March 31, 2013 compared to the three months ended March 31, 2012.  Average interest bearing liabilities increased by $6.4 million or 0.7% to $928.9 million for the three months ended March 31, 2013 when compared to the same period in 2012.

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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 March 31,
	2013							2012
	Average Balance			Income/ Expense		Yield/ Rate (2)		Average Balance			Income/ Expense		Yield/ Rate (2)
	(Dollars in thousands)
Assets :
Securities:
Taxable	$	265,972		$	1,587	2.42	%	$	263,408		$	1,779	2.72	%
Tax-exempt (1)	67,252			956		5.77	%	61,802			920		5.99	%
Total securities	$	333,224		$	2,543	3.09	%	$	325,210		$	2,699	3.34	%
Total loans (3)	$	757,004		$	8,967	4.80	%	$	744,776		$	9,782	5.36	%
Interest bearing deposits in other financial institutions	57,904			30		0.21	%	46,111			24		0.21	%
Total earning assets	$	1,148,132		$	11,540	4.08	%	$	1,116,097		$	12,505	4.56	%
Less: allowances for credit losses	(14,213		)					(14,871		)
Total nonearning assets	84,974							81,699
Total assets	$	1,218,893						$	1,182,925
Liabilities:
Interest-bearing deposits:
Checking	$	333,028		$	234	0.28	%	$	303,641		$	383	0.51	%
Regular savings	108,755			61		0.23	%	105,010			115		0.44	%
Money market savings	78,085			47		0.24	%	56,624			58		0.41	%
Time deposits:
$100,000 and over	147,457			507		1.39	%	142,688			572		1.61	%
Under $100,000	143,379			524		1.48	%	180,176			765		1.71	%
Total interest-bearing deposits	$	810,704		$	1,373	0.69	%	$	788,139		$	1,893	0.97	%
Short-term borrowings	2,658			29		4.42	%	12,379			148		4.81	%
Securities sold under agreements to repurchase	34,103			80		0.95	%	34,125			83		0.98	%
FHLB advances and other borrowings	81,416			295		1.47	%	87,792			297		1.36	%
Total interest-bearing liabilities	$	928,881		$	1,777	0.78	%	$	922,435		$	2,421	1.06	%
Non-interest bearing liabilities
Demand Deposits	164,613							144,188
Other liabilities	7,632							7,322
Total liabilities	$	1,101,126						$	1,073,945
Non-controlling interest	3,471							2,023
Shareholders' equity	114,296							106,957
Total liabilities and shareholders' equity	$	1,218,893						$	1,182,925
Net interest income				$	9,763						$	10,084
Interest rate spread						3.30	%						3.50	%
Cost of Funds						0.66	%						0.91	%
Interest expense as a percent of average earning assets						0.63	%						0.87	%
Net interest margin						3.45	%						3.69	%

(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 365 day year for 2013 and a 366 day year for 2012.

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

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For the three months ended March 31, 2013, interest and fees from loans was $9.0 million compared to $9.8 million for the three months ended March 31, 2012. The tax equivalent weighted average yield of loans decreased 56 basis points from 5.36% for the three months ended March 31, 2012 to 4.80% for the three months ended March 31, 2013.

For the three month period ended March 31, 2013, interest income from the securities portfolio and invested liquid funds decreased by $163,000 to $2.2 million compared to the same period in 2012.  The tax equivalent yield on securities for the three months ended March 31, 2013 decreased 25 basis points to 3.09% compared to 3.34% for the three months ended March 31, 2012.

Interest expense on deposits was $1.4 million for the three months ended March 31, 2013.  Interest expense on deposits for the three months ended March 31, 2013, decreased by $520,000 or 27.5% compared to the same period in 2012.  For the three months ended March 31, 2013, average deposits increased by $43.0 million to $975.3 million compared to the same period in 2012.  The mix of demand and savings deposits versus time deposits was 70.2% in demand and savings deposits, and 29.8% in time deposits at March 31, 2013.  At December 31, 2012, the mix was 70.3% in savings and demand deposits, versus 29.7% in time deposits.  

Interest expense for securities sold under agreements to repurchase decreased to $80,000 for the three months ended March 31, 2013 from $83,000 for the three months ended March 31, 2012.  Interest expense related to short-term borrowings decreased  by $119,000 from $148,000 for the three months ended March 31, 2012 to $29,000 for the three months ended March 31, 2013.  Interest expense related to FHLB advances and other debt decreased by $2,000 from $297,000 for the three months ended March 31, 2012 to $295,000 for the three months ended March 31, 2013.

 Average balances in interest checking, regular savings and money market accounts increased by $54.6 million when comparing the three months ended March 31, 2013 to the same period in 2012.  The weighted average cost of these accounts for the three months ended March 31, 2013 and 2012 was 0.26% and 0.48%, respectively.  The average balance of certificates of deposits decreased by $32.0 million when comparing the three months ended March 31, 2013 to the three months ended  March 31, 2012. The weighted average cost of the Company’s certificates of deposits decreased by 24 basis points to 1.43% for the three months ended March 31, 2013 versus 1.67% the three months ended March 31, 2012.

The net interest margin, on a tax equivalent basis, was 3.45% for the three months ended March 31, 2013 compared to 3.69% for the three-month period ended March 31, 2012.  The average yield on earning assets was 4.08% for the quarter ended March 31, 2013 compared to 4.56% for the quarter ended March 31, 2012, representing a decrease of 48 basis points. The drop in net interest margin for the quarter ended March 31, 2013 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.

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Reconciliation of Net Interest Income to

Tax Equivalent Net Interest Income

	For the three months ended March 31,
Earnings Per Share	2013		2012
GAAP measures:	(in thousands)
Interest Income – Loans	$	8,965	$	9,782
Interest Income - Investments & Other	2,247		2,410
Interest Expense – Deposits	1,373		1,893
Interest Expense - Other Borrowings	404		528
Total Net Interest Income	$	9,435	$	9,771
NON-GAAP measures:
Tax Benefit Realized on Non-Taxable Interest Income - Municipal Securities	328		313
Total Tax Benefit Realized on Non-Taxable Interest Income	$	328	$	313
Total Tax Equivalent Net Interest Income	$	9,763	$	10,084

Other Income

Other income includes, among other items,  income from the Company’s 62.4% 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.  Total Other income was $5.9 million for the three months ended March 31, 2013 compared to $6.0 million for the same period in 2012.

The revenues and expenses of Southern Trust Mortgage for the  three months ended March 31, 2013 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 $191.1 million in mortgage loans during the quarter ended March 31, 2013 compared to $211.2 million originated during the quarter ended March 31, 2012.   Gains on mortgage loan sales were $3.9 million for the quarter ended March 31, 2013 compared to $3.8 million for the quarter ended March 31, 2012.

Trust and investment service fees earned by Middleburg Investment Group (“MIG”) were $1.0 million for the three months ended March 31, 2013 compared to $1.1  million for the quarter ended March 31, 2012.  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 $1.5 billion at March 31, 2013, an increase of 4.0% relative to December 31, 2012 and an increase of 6.0% relative to March 31, 2012.

Service charges on deposits were $534,000 for the three months ended March 31, 2013  compared to $530,000 for the three months ended March 31, 2012.  

The Company sold $3.9 million in securities and purchased $41.6 million in securities during the three months ended March 31, 2013.  The Company realized a net gain of $47,000 on the sale of securities in the three months ended March 31, 2013.  

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 March 31, 2013.  Accordingly, during the three months ended March 31, 2013 and 2012, no credit related impairment losses were recognized by the Company.  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 decreased by $53,000 or 36.1% to $94,000 for the three months ended March 31, 2013, compared to $147,000 for the three months ended March 31, 2012.

Income earned from the Bank’s $16.6 million investment in Bank Owned Life Insurance (BOLI) contributed $120,000 to total other income for the three months ended March 31, 2013.  

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Other service charges, commissions and fees decreased by 13.3% to $130,000 for the three months ended March 31, 2013, compared to $150,000 for the same period in 2012.

Other Expense

Total other expense includes employee-related costs, occupancy and equipment expense and other overhead.  Total other expense increased by $614,000 from $13.3 million for the three months ended March 31, 2012 to $13.9 million for the three months ended March 31, 2013.  When taken as a percentage of total average assets on an annualized basis, other expense was 4.6% of total average assets for the three months ended March 31, 2013 versus 4.5% for the same period in 2012.  

Salaries and employee benefit expenses increased by $442,000 or 6.0% when comparing the first three months of 2012 to the same period ended March 31, 2012. The increase in salaries and employee benefit expenses was primarily due to staffing related to the opening of the Richmond branch.

Net occupancy expense increased by $27,000 or 1.5% for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. 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 decreased by 5.4% to $192,000 for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The other tax expenses are 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 decreased by $32,000 to $268,000 for the three months ended March 31, 2013 compared to $300,000 for the three months ended March 31, 2012. 

Other real estate owned expense increased by $534,000 to $820,000 for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The increase in expenses was primarily due to increases in legal expenses related to foreclosure,  and losses on the sales of these assets.

FDIC insurance expense increased by $7,000 to $265,000 for the three months ended March 31, 2013 compared to the three months ended March 31, 2012.  Other expenses decreased 15.6% or $429,000 to $2.3 million for the three months ended March 31, 2013 compared to the same period in 2012.

Allowance for Loan Losses

The allowance for loan losses at March 31, 2013 was $13.5 million, or 1.89% of total portfolio loans, compared to $14.3 million, or 2.02% of total portfolio loans at December 31, 2012.  As a result of improving trends in non accrual loans and improved risk ratings for several loans during the quarter, the Company recorded  a  recovery of loan losses of $188,000 for the three months ended March 31, 2013, compared to a provision for loan losses of $792,000 for the three months ended March 31, 2012.  Non-accruals as a percentage of total loans have decreased from 3.26% in the quarter ended March 31, 2012 to 2.84% in the quarter ended March 31, 2013. For the three months ended March 31, 2013, net loan charge-offs totaled $615,000 compared to net loan charge-offs of $554,000 for the same period in 2012.  There were $812,000 in loans past due 90 days or more and still accruing at March 31, 2013, compared to $1.0 million at December 31, 2012.  Non-performing loans were $25.7 million at March 31, 2013, compared to $27.8 million at December 31, 2012.  Management believes that the allowance for loan losses was adequate to cover credit losses inherent in the loan portfolio at March 31, 2013.  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 $1.5 million has been included in the allowance for loan losses related to total restructured loans.

Non-performing assets decreased from $37.8 million or 3.05% of total assets at December 31, 2012 to $33.6 million or 2.77% of total assets as of March 31, 2013.   Non-accrual loans decreased from $21.7 million at December 31, 2012 to $20.0 million at March 31, 2013.

Capital Resources

Total shareholders’ equity at March 31, 2013 and December 31, 2012 was $117.7 million and $117.1 million, respectively.  Total common shares outstanding at March 31, 2013 were 7,051,587.

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At March 31, 2013, the Company’s Tier 1 and total risk-based capital ratios were 14.4% and 15.6%, respectively, compared to 14.0% and 15.3% at December 31, 2012.  The Company’s leverage ratio was 9.1% at March 31, 2013 and at December 31, 2012.  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 March 31, 2013.  At March 31, 2013 and December 31, 2012, the Company had $31.9 million and $34.0 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 $76.4 million as of March 31, 2013.  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 three months of 2013.  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 March 31, 2013, the line had an outstanding balance of $519,000 and is included in total short-term borrowings on the Company’s balance sheet.    

At March 31, 2013, cash, interest bearing deposits with financial institutions, federal funds sold, short-term investments, loans held for sale and securities available for sale were 44.6% of total deposits.

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments to extend credit (excluding standby letters of credit) increased $8.9 million to $87.1 million at March 31, 2013 compared to $78.3 million at December 31, 2012.  Commitments to extend credit are agreements to lend to a customer as 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 $2.5 million at March 31, 2013 representing a decrease of $905,000 from December 31, 2012.

Contractual obligations, representing FHLB advance obligations, operating leases, and capital notes, increased $6.3 million to $122.3 million at March 31, 2013 compared to $116.0 million at December 31, 2012.   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 2012 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;

44

•   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 2012 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 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 March 31, 2013 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 March 31, 2013 and December 31, 2012.

	Estimated Net Interest Income Sensitivity
Rate Change	As of March 31, 2013	As of December 31, 2012
+ 200 bp	1.2%	0.4%
- 200 bp	(11.5)%	(11.1)%

At March 31, 2013, the Company’s interest rate risk model indicated that, in a rising rate environment of 200 basis points, net interest income could increase by 1.2% 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 11.50% 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.

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Based upon a March 31, 2013 simulation, the Company could expect an average positive impact to net interest income of $453,000 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 $4.3 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.

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, 2012. 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

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Item 6.  Exhibits

3.1 Bylaws of the Company (restated in electronic format as of May 1, 2013)

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

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

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

101 The following materials from the Middleburg Financial Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 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.

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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:	May 10, 2013	/s/ Gary R. Shook
		Gary R. Shook
		President & Chief Executive Officer
Date:	May 10, 2013	/s/ Raj Mehra
		Raj Mehra
		Executive Vice President
		& Chief Financial Officer

48

EXHIBIT INDEX

Exhibits
3.1	Bylaws of the Company (restated in electronic format as of May 1, 2013)
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350
101	The following materials from the Middleburg Financial Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 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-3.1

Exhibit 3.1

BYLAWS

OF

MIDDLEBURG FINANCIAL CORPORATION

(restated in electronic format as of May 1, 2013)

ARTICLE I

Shareholder Matters

Section 1.1.                                Annual Meetings.

A.           The annual meeting of the shareholders of the Corporation shall be held at such a place as may be decided by, the Board of Directors on a date during the month of March, April or May of each and every year, the exact date, place and hour to be fixed by the Board of Directors.

B.           At the annual meeting of the shareholders of the Corporation, Directors shall be elected and reports of the affairs of the Corporation shall be received and considered.  Any other business may be transacted which is within the powers of the shareholders, except that, if any shareholder shall bring new business before the annual meeting, the shareholder must give advance notice as set forth in Section 1.6 of these Bylaws.

C.           The Board of Directors may designate any place, either within or without the Commonwealth of Virginia, as the place of meeting for any annual meeting or for any special meeting.  If no place is designated by the Board, the place of meeting shall be the principal office of the Corporation.

Section 1.2.                                Special Meetings.  A special meeting of the shareholders may be called for any purpose or purposes whatsoever at any time, but only by the President, the Chairman of the Board of Directors, or the Board of Directors.

Section 1.3.                                Notice of Meetings.  Notice of the time and place of every annual meeting or special meeting shall be mailed to each Shareholder of record entitled to vote at the meeting at his address as it appears on the records of the Corporation not less than ten (10) nor more than sixty (60) days before the date of such meeting (except as a different time may be specified by law).

Section 1.4.                                Quorum.  A majority of the votes entitled to be cast on a matter by a voting group constitutes a quorum of such voting group for action on such matter.  If there is not a quorum at the time for which a meeting shall have been called, the meeting may be adjourned from time to time by a majority of the shareholders present or represented by proxy without notice, other than by announcement at the meeting, until there is a quorum.

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Section 1.5.                                Voting.  Except as the Articles of Incorporation otherwise provide, at any meeting of the shareholders, each outstanding share, regardless of class, is entitled to one vote on each matter voted on at a shareholders' meeting.

Section 1.6.                                Notice of Shareholder Business.  At an annual meeting of the shareholders of the Corporation, only such business shall be conducted as shall have been properly brought before the meeting.  To be brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder.  For business to be properly brought before an annual meeting by a shareholder, the Shareholder must have given timely notice thereof in writing to the Secretary of the Corporation.  To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than sixty (60) days nor more than ninety (90) days prior to the date of the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by a shareholder, to be timely, must be so received not later than the close of business on the tenth (10th) day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made.  A shareholder's notice to the Secretary of the Corporation shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books of the shareholder proposing such business and of any other person or entity who is the record or beneficial owner of any shares of the Corporation and who, to the knowledge of the shareholder proposing such business, supports such proposal, (c) the class and number of shares of the Corporation which are beneficially owned and owned of record by the shareholder proposing such business on the date of his notice to the Corporation and the number of shares so owned by any person or entity who, to the knowledge of the shareholder proposing such business, supports such proposal and (d) any material interest (financial or other) of such shareholder in such proposal.  Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 1.6.  The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1.6, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

Section 1.7.                                Order of Business.  All meetings of shareholders shall be conducted in accordance with such rules as are prescribed by the Chairman of the meeting and he shall determine the order of business at all meetings of the shareholders.

Section 1.8.                                Inspectors.  The Board of Directors, in advance of any meeting of shareholders, may, but shall not be required to, appoint one or more inspectors to act at such meeting or any adjournment thereof.  If any of the inspectors so appointed shall fail to appear or

Page 2 of 7

act, the Chairman of the meeting may appoint one or more inspectors.  The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all shareholders.  On request of the Chairman of the meeting, the inspectors shall make a report of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them.  No director or candidate for the office of director shall act as an inspector of an election of directors.  Inspectors need not be shareholders.

ARTICLE II

Directors

Section 2.1.                                General Powers.  The business and affairs of the Corporation shall be managed under the direction of the Board of Directors and, except as otherwise expressly provided by law or by the Articles of Incorporation, or by these Bylaws, all of the powers of the Corporation shall be exercised by or under the authority of said Board of Directors.

Section 2.2.                                Number and Qualification.  The Board of Directors shall consist of eleven Directors.

Section 2.3.                                Election of Directors.  The Directors shall be elected at the annual meeting of shareholders, and shall hold their offices until their successors are elected in accordance with the Articles of Incorporation.  Nominations for the election of Directors shall be given in the manner provided in Section 2.6.

Section 2.4.                                Chairman of the Board.  The Chairman of the Board shall be elected by the Board of Directors, and shall hold office until his successor is elected and qualifies.  He shall preside at all meetings of the Directors and all meetings of the shareholders.  He shall appoint all standing committees and temporary committees.  He shall be a member ex officio of all standing committees and shall have all other powers and duties as may be prescribed by the Board of Directors or by the Bylaws.

Section 2.5.                                Honorary and Advisory Directors.  The Board may appoint to the position of Honorary Director or the position of Advisory Director such person or persons as it deems appropriate.  Honorary Directors shall be entitled to receive notice of, and to attend all meetings of the Board, but they shall not be Directors and shall not be entitled to vote, nor shall they be counted in determining a quorum of the Board. Advisory Directors shall be entitled only to notice of meetings of Advisory or other Boards of the Corporation to which they shall be appointed.  Honorary and Advisory Directors shall receive such compensation as may be authorized by the Board of attendance at meetings of Advisory or other Boards to which such Advisory or Honorary Directors are appointed.

Section 2.6.                                Nominations.  Only persons who are nominated in accordance with the procedures set forth in this Section 2.6 shall be eligible for election as Directors.  Nominations of

Page 3 of 7

persons for election to the Board of Directors of the Corporation may be made by or at the direction of the Board of Directors, or by any shareholder of the Corporation entitled to vote for the election of Directors who complies with the notice procedures set forth in this Section 2.6.  Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation.  To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporations not less than sixty (60) days nor more than ninety (90) days prior to the date of the scheduled annual meeting, regardless of postponements, deferrals, or adjournments of that meeting to a later date; provided, however, in the event that less than seventy (70) days' notice or prior pubic disclosure of the date of the meeting is given or made, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made.  Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election as a Director, (1) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder giving the notice (i) the name and address of such shareholder and of any other person or entity who is the record or beneficial owner of shares of the Corporation and who, to the knowledge of the shareholder giving notice, supports such nominee(s) and (ii) the class and number of shares of the Corporation which are beneficially owned and owned of record by such shareholder and by any other person or entity who is the record or beneficial owner of shares of the Corporation and who, to the knowledge of the shareholder giving the notice, supports such nominee(s).  At the request of the Board of Directors any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary of the Corporation the information required to be set forth in a shareholder's notice of nomination which pertains to the nominee.  No person shall be eligible for election as a Director of the Corporation unless in accordance with the procedures set forth in this Section 2.6.  The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

Section 2.7.                                Meetings of Directors.  Meetings of the Board of Directors shall be held at places within or without the Commonwealth of Virginia and at times fixed by resolution of the Board of Directors, or upon call of the Chairman of the Board of Directors or the President.  The Secretary, or officer performing his duties, shall give at least twenty-four (24) hours' notice by telegraph, letter, telephone or in person, of all meetings of the Directors; provided, that notice need not be given of regular meetings held at times and places fixed by resolution of the Board.  Regular meetings of the Board of Directors shall be held at least once in every calendar month.  Meetings may be held at any time without notice if all of the Directors are present, or if those not present waive notice either before or after the meeting.  Neither the business to be transacted nor the purpose of any annual or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

Page 4 of 7

Section 2.8.                                Quorum.  A majority of the members of the Board of Directors shall constitute a quorum.

Section 2.9.                                Compensation.  The Board of Directors shall fix the compensation of the Directors.

Section 2.10.                              Committees.  The Board of Directors may create committees and appoint members of committees in accordance with Virginia law.  There shall be an Executive Committee and such committee may exercise the authority of the Board of Directors to the fullest extent permitted by law.

ARTICLE III

Officers

Section 3.1.                                Election.  The Officers of the Corporation shall consist of the President, one or more Executive Vice Presidents, one or more senior Vice Presidents, one or more additional Vice Presidents, a Secretary, a Treasurer, one or more Assistant Secretaries, and such other officers as may be elected as provided in Section 3.3 of this Article.  All Officers shall be elected by the Board of Directors, and shall hold office until their successors are elected and qualify.  Vacancies may be filled at any meeting of the Board of Directors.  Subject to any applicable provision of Virginia law, more than one office may be combined in the same person as the Board of Directors may determine.

Section 3.2.                                Removal of Officers.  Any Officer of the Corporation may be summarily removed with or without cause, at any time, by a resolution passed by affirmative vote of a majority of all of the Directors; provided that any such removal shall not affect an Officer's right to any compensation to which he is entitled under any employment contract between him and the Corporation.

Section 3.3.                                Other Officers.  Other Officers may from time to time be appointed by the Board of Directors, and such Officers shall hold office for such term as may be designated by the said Board of Directors.

Section 3.4.                                President.  The President shall be the Chief Executive Officer of the Corporation.  In the absence or disability of the Chairman of the Board, the President shall preside at all meetings of the Directors and at meetings of the shareholders and in the absence or disability of the Chairman of the Board the duties and responsibilities of his office shall devolve upon the President.  The President shall have such other powers and duties as may be prescribed by the Chairman of the Board of Directors, the Board of Directors or by the Bylaws.

Section 3.5.                                Vice Presidents.  Executive Vice Presidents, Senior Vice Presidents and Vice Presidents shall perform such duties as may be prescribed for them from time to time by the Chairman of the Board of Directors, the Board of Directors or the Bylaws.

Page 5 of 7

Section 3.6.                                Secretary.  The Secretary shall have the duties and responsibilities prescribed by law for the secretary of a Virginia corporation.

Section 3.7.                                Surety Bonds.  All Officers and employees who shall have charge or possession of money, securities or property of the Corporation must, before entering upon their duties, be covered by a bond with a surety company approved by the Board of Directors and state and federal authorities.  The costs of such bond shall be borne by the Corporation.

ARTICLE IV

Capital Stock

Section 4.1.                                Issues of Certificate of Stock.  Certificates of capital stock shall be in such form as may be prescribed by law and by the Board of Directors.  All certificates shall be signed by the President and by the Secretary or an Assistant Secretary, or by any other two Officers authorized by resolution of the Board of Directors.

Section 4.2.                                Transfer of Stock.  The stock of the corporation shall be transferable or assignable on the books of the Corporation by the holders in person or by attorney on surrender of the certificate or certificates for such shares duly endorsed, and, if sought to be transferred by attorney, accompanied by a written power of attorney to have such stock transferred on the books of the Corporation.

Section 4.3.                                Restrictions on Transfer of Stock.  Any restrictions that may be imposed by law, by the Articles of Incorporation or Bylaws of the Corporation, or by an agreement among shareholders of the Corporation, or by an agreement among shareholders of the Corporation, shall be noted conspicuously on the front or back of all certificates representing shares of stock of the Corporation.

Section 4.4.                                Lost, Destroyed or Mutilated Certificates. The holder of stock of the Corporation shall immediately notify the Corporation of any loss, destruction, or mutilation of the certificate therefor, and the Corporation may in its discretion cause one or more new certificates for the same aggregate number of shares to be issued to such Stockholder upon the surrender of the mutilated certificate, or upon satisfactory proof of such loss or destruction accompanied by the deposit of a bond in such form and amount and with such surety as the Corporation may require.

Section 4.5.                                Holder of Record.  The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder thereof in fact and shall not be bound to recognize any equitable or other claim to or interest in such shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law.

Section 4.6.                                Record Date.  The Board of Directors shall fix in advance the record date in order to make a determination of shareholders for any purpose, including the determination of shareholders entitled to notice of or to vote at any shareholders' meeting or entitled to payment of any dividend or distribution to shareholders.  Such record date shall not be more than seventy

Page 6 of 7

(70) days prior to the date on which the particular action requiring such determination of shareholders is to be taken.

Section 4.7.                                Control Share Acquisitions.  Article 14.1 of the Virginia Stock Corporation Act shall not apply to the Corporation.

ARTICLE V

Miscellaneous Provisions

Section 5.1.                                Seal.  The seal of the Corporation shall be circular in shape with the name of the Corporation around the circumference thereof, and the word "SEAL" in the center thereof.

Section 5.2.                                Examination of the Books and Records.  The books and records of account of the Corporation, the minutes of the proceedings of the shareholders, the Board and Committees appointed by the Board of Directors and the records of the shareholders showing the names and addresses of all shareholders and the number of shares held by each, shall be subject to inspection during the normal business hours by any person who is a duly qualified Director of the Corporation at the time he makes such inspection.  Shareholders shall have such rights to inspect records of the Corporation as are prescribed by applicable law.

Section 5.3.                                Checks, Notes and Drafts.  Checks, notes, drafts, and other orders for the payment of money shall be signed by such persons as the Board of Directors from time to time may authorize.

Section 5.4.                                Amendments to By-Laws.  These Bylaws may be altered, amended or repealed in accordance with the Articles of Incorporation.

Section 5.5.                                Voting of Stock Held.  Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board of Directors, the President or any Executive Vice President may from time to time appoint an attorney or attorneys as agent or agents of the Corporation to cast in the name of the Corporation the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose stock or securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing to any action by any such other corporation; and such Officers may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, consents, waivers, or other instruments as may be necessary or proper in the premises; or any of such Officers may himself attend any meeting of the holders of stock or other securities of any such other corporation and there vote or exercise any or all other powers of the Corporation as the holder of such stock or other securities of such other corporation.

Page 7 of 7

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Gary R. Shook, certify that:

1.   I have reviewed the Quarterly Report on Form 10-Q of Middleburg Financial Corporation for the period ended March 31, 2013;

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

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

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

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

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

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

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

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

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

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

Date:  May 10, 2013

/s/ Gary R. Shook

Gary R. Shook

President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Raj Mehra, certify that:

1.   I have reviewed the Quarterly Report on Form 10-Q of Middleburg Financial Corporation for the period ended March 31, 2013;

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

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

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

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

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

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

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

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

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

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

Date:  May 10, 2013

/s/ Raj Mehra

Raj Mehra

Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER AND

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

In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2013 (the “Form 10-Q”) of Middleburg Financial Corporation (the “Company”), we, Gary R. Shook, Chief Executive Officer of the Company, and Raj Mehra, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

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

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

By:	/s/ Gary R. Shook	Date:	May 10, 2013
	Gary R. Shook
	Chief Executive Officer
By:	/s/ Raj Mehra	Date:	May 10, 2013
	Raj Mehra
	Chief Financial Officer

XML

Segment Reporting (Details) (USD $)	3 Months Ended
	Mar. 31, 2013 Segment	Mar. 31, 2012	Dec. 31, 2012
Segment Reporting [Abstract]
Number of reportable segments	3
Line of credit	$ 5,000,000
Participating agreement	75,000,000
Revenues [Abstract]
Interest income	11,212,000	12,192,000
Trust and investment fee income	1,054,000	921,000
Other income	4,874,000	5,063,000
Total operating income	17,140,000	18,176,000
Expenses [Abstract]
Interest Expense	1,777,000	2,421,000
Salaries and employee benefits	7,799,000	7,357,000
Provision for (recovery of) loan losses	(188,000)	792,000
Other	6,129,000	5,957,000
Total operating expenses	15,517,000	16,527,000
Income (loss) before income taxes	1,623,000	1,649,000
Income tax expense	363,000	416,000
NET INCOME	1,260,000	1,233,000
Non-controlling interest in loss of consolidated subsidiary	67,000	349,000
Net income (loss) attributable to Middleburg Financial Corporation	1,327,000	1,582,000
Total assets	1,213,756,000	1,203,211,000	1,236,781,000
Capital expenditures	248,000	204,000
Goodwill and other intangibles	5,975,000	6,146,000	6,017,000
Retail Banking [Member]
Revenues [Abstract]
Interest income	11,088,000	11,854,000
Trust and investment fee income	0	0
Other income	844,000	1,093,000
Total operating income	11,932,000	12,947,000
Expenses [Abstract]
Interest Expense	1,748,000	2,272,000
Salaries and employee benefits	4,185,000	3,796,000
Provision for (recovery of) loan losses	(189,000)	792,000
Other	4,595,000	3,624,000
Total operating expenses	10,339,000	10,484,000
Income (loss) before income taxes	1,593,000	2,463,000
Income tax expense	277,000	313,000
NET INCOME	1,316,000	2,150,000
Non-controlling interest in loss of consolidated subsidiary	0	0
Net income (loss) attributable to Middleburg Financial Corporation	1,316,000	2,150,000
Total assets	1,208,288,000	1,179,087,000
Capital expenditures	248,000	204,000
Goodwill and other intangibles	0	0
Wealth Management [Member]
Revenues [Abstract]
Interest income	4,000	2,000
Trust and investment fee income	1,095,000	956,000
Other income	74,000	0
Total operating income	1,173,000	958,000
Expenses [Abstract]
Interest Expense	0	0
Salaries and employee benefits	615,000	528,000
Provision for (recovery of) loan losses	0	0
Other	350,000	318,000
Total operating expenses	965,000	846,000
Income (loss) before income taxes	208,000	112,000
Income tax expense	86,000	103,000
NET INCOME	122,000	9,000
Non-controlling interest in loss of consolidated subsidiary	0	0
Net income (loss) attributable to Middleburg Financial Corporation	122,000	9,000
Total assets	6,232,000	6,239,000
Capital expenditures	0	0
Goodwill and other intangibles	4,108,000	4,279,000
Mortgage Banking [Member]
Revenues [Abstract]
Interest income	469,000	738,000
Trust and investment fee income	0	0
Other income	4,112,000	4,167,000
Total operating income	4,581,000	4,905,000
Expenses [Abstract]
Interest Expense	378,000	551,000
Salaries and employee benefits	2,999,000	3,033,000
Provision for (recovery of) loan losses	1,000	0
Other	1,381,000	2,247,000
Total operating expenses	4,759,000	5,831,000
Income (loss) before income taxes	(178,000)	(926,000)
Income tax expense	0	0
NET INCOME	(178,000)	(926,000)
Non-controlling interest in loss of consolidated subsidiary	67,000	349,000
Net income (loss) attributable to Middleburg Financial Corporation	(111,000)	(577,000)
Total assets	59,623,000	90,128,000
Capital expenditures	0	0
Goodwill and other intangibles	1,867,000	1,867,000
Intercompany Eliminations [Member]
Revenues [Abstract]
Interest income	(349,000)	(402,000)
Trust and investment fee income	(41,000)	(35,000)
Other income	(156,000)	(197,000)
Total operating income	(546,000)	(634,000)
Expenses [Abstract]
Interest Expense	(349,000)	(402,000)
Salaries and employee benefits	0	0
Provision for (recovery of) loan losses	0	0
Other	(197,000)	(232,000)
Total operating expenses	(546,000)	(634,000)
Income (loss) before income taxes	0	0
Income tax expense	0	0
NET INCOME	0	0
Non-controlling interest in loss of consolidated subsidiary	0	0
Net income (loss) attributable to Middleburg Financial Corporation	0	0
Total assets	(60,387,000)	(72,243,000)
Capital expenditures	0	0
Goodwill and other intangibles	$ 0	$ 0

XML

Loan Portfolio, Past Due (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	$ 1,625,000	$ 2,264,000
60 to 89 Days Past Due	1,176,000	1,091,000
90 Days Or Greater	10,868,000	10,241,000
Total Past Due	13,669,000	13,596,000
Current	700,917,000	695,881,000
Total ending loan balances	714,586,000	709,477,000
Nonaccrual	20,019,000	21,664,000
Past due 90 days or more and still accruing	812,000	1,044,000
Interest on non-accrual loans foregone	297,000.0	1,350,000
Real Estate Loans Construction [Member]
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	0	0
60 to 89 Days Past Due	591,000	108,000
90 Days Or Greater	1,964,000	2,043,000
Total Past Due	2,555,000	2,151,000
Current	43,534,000	48,067,000
Total ending loan balances	46,089,000	50,218,000
Nonaccrual	2,790,000	2,861,000
Past due 90 days or more and still accruing	268,000	780,000
Real Estate Loans Secured by Farmland [Member]
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	415,000	415,000
60 to 89 Days Past Due	0	0
90 Days Or Greater	0	0
Total Past Due	415,000	415,000
Current	11,390,000	11,461,000
Total ending loan balances	11,805,000	11,876,000
Real Estate Loans Secured by 1 - 4 Family Residential [Member]
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	796,000	1,625,000
60 to 89 Days Past Due	244,000	568,000
90 Days Or Greater	2,308,000	1,910,000
Total Past Due	3,348,000	4,103,000
Current	265,422,000	256,517,000
Total ending loan balances	268,770,000	260,620,000
Nonaccrual	8,396,000	8,761,000
Past due 90 days or more and still accruing	532,000	228,000
Other Real Estate Loans [Member]
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	391,000	197,000
60 to 89 Days Past Due	194,000	361,000
90 Days Or Greater	4,648,000	6,112,000
Total Past Due	5,233,000	6,670,000
Current	254,170,000	248,260,000
Total ending loan balances	259,403,000	254,930,000
Nonaccrual	6,663,000	7,866,000
Past due 90 days or more and still accruing	0	0
Commercial Loans [Member]
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	0	0
60 to 89 Days Past Due	145,000	44,000
90 Days Or Greater	1,906,000	144,000
Total Past Due	2,051,000	188,000
Current	113,970,000	118,385,000
Total ending loan balances	116,021,000	118,573,000
Nonaccrual	2,140,000	2,146,000
Past due 90 days or more and still accruing	0	34,000
Consumer Loans [Member]
Past due loans by class of loans [Abstract]
30 to 59 Days Past Due	23,000	27,000
60 to 89 Days Past Due	2,000	10,000
90 Days Or Greater	42,000	32,000
Total Past Due	67,000	69,000
Current	12,431,000	13,191,000
Total ending loan balances	12,498,000	13,260,000
Nonaccrual	30,000	30,000
Past due 90 days or more and still accruing	$ 12,000	$ 2,000

XML

Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

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

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
	March 31, 2013			March 31, 2012
	Shares	Per share Amount		Shares	Per share Amount
Basic earnings per share	7,051,009	$	0.19	6,994,858	$	0.23
Effect of dilutive securities:
stock options and grants	31,345			5,311
Diluted earnings per share	7,082,354	$	0.19	7,000,169	$	0.23

XML

Fair Value Measurements, Quantative information (Details) (Impaired Loans [Member], Discounted Appraised Value [Member], Level III [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Fair Value, Option, Quantitative Disclosures [Line Items]
Level III financial assets fair value	1,900
Minimum [Member]
Fair Value, Option, Quantitative Disclosures [Line Items]
Unobservable inputs value assumptions percentage (in hundredths)	10.00%
Maximum [Member]
Fair Value, Option, Quantitative Disclosures [Line Items]
Unobservable inputs value assumptions percentage (in hundredths)	30.00%
Weighted Average [Member]
Fair Value, Option, Quantitative Disclosures [Line Items]
Unobservable inputs value assumptions percentage (in hundredths)	21.00%

XML

Allowance for Loan Losses (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Financing Receivable Allowance For Credit Losses [Line Items]
Provision of loan losses	$ (188,000)	$ 792,000
Decrease percentage non accrual loans to total loans (in hundredths)	2.84%	3.26%
Reserve ratio decrease percentage of portfolio loans (in hundredths)	1.89%		2.02%
Allowance for loan losses [Roll Forward]
Beginning Balance	14,311,000	14,623,000	14,623,000
Charge-offs	(719,000)		(4,271,000)
Recoveries	104,000		521,000
Provision	(188,000)		3,438,000
Ending Balance	13,508,000		14,311,000
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	4,304,000		4,303,000
Collectively evaluated for impairment	9,204,000		10,008,000
Total ending allowance balances	13,508,000		14,311,000
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	25,363,000		26,795,000
Collectively Evaluated for Impairment	689,223,000		682,682,000
Total ending loan balances	714,586,000		709,477,000
Real Estate Construction [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	1,258,000	897,000	897,000
Charge-offs	(87,000)		(2,152,000)
Recoveries	37,000		2,000
Provision	32,000		2,511,000
Ending Balance	1,240,000		1,258,000
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	484,000		166,000
Collectively evaluated for impairment	756,000		1,092,000
Total ending allowance balances	1,240,000		1,258,000
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	2,896,000		2,969,000
Collectively Evaluated for Impairment	43,193,000		47,249,000
Total ending loan balances	46,089,000		50,218,000
Real Estate Loans Secured by Farmland [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	135,000	110,000	110,000
Charge-offs	0		0
Recoveries	0		0
Provision	(10,000)		25,000
Ending Balance	125,000		135,000
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	125,000		135,000
Total ending allowance balances	125,000		135,000
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	0		0
Collectively Evaluated for Impairment	11,805,000		11,876,000
Total ending loan balances	11,805,000		11,876,000
Real Estate Secured by 1 - 4 Family Residential [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	6,276,000	7,465,000	7,465,000
Charge-offs	(489,000)		(893,000)
Recoveries	50,000		388,000
Provision	(29,000)		(684,000)
Ending Balance	5,808,000		6,276,000
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	2,035,000		2,724,000
Collectively evaluated for impairment	3,773,000		3,552,000
Total ending allowance balances	5,808,000		6,276,000
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	10,177,000		10,792,000
Collectively Evaluated for Impairment	258,593,000		249,828,000
Total ending loan balances	268,770,000		260,620,000
Other Real Estate Loans [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	4,348,000	4,385,000	4,385,000
Charge-offs	(97,000)		(760,000)
Recoveries	9,000		86,000
Provision	(161,000)		637,000
Ending Balance	4,099,000		4,348,000
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	964,000		1,045,000
Collectively evaluated for impairment	3,135,000		3,303,000
Total ending allowance balances	4,099,000		4,348,000
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	9,424,000		10,640,000
Collectively Evaluated for Impairment	249,979,000		244,290,000
Total ending loan balances	259,403,000		254,930,000
Commercial [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	2,098,000	1,621,000	1,621,000
Charge-offs	(38,000)		(394,000)
Recoveries	5,000		12,000
Provision	(18,000)		859,000
Ending Balance	2,047,000		2,098,000
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	791,000		338,000
Collectively evaluated for impairment	1,256,000		1,760,000
Total ending allowance balances	2,047,000		2,098,000
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	2,836,000		2,364,000
Collectively Evaluated for Impairment	113,185,000		116,209,000
Total ending loan balances	116,021,000		118,573,000
Consumer [Member]
Allowance for loan losses [Roll Forward]
Beginning Balance	196,000	145,000	145,000
Charge-offs	(8,000)		(72,000)
Recoveries	3,000		33,000
Provision	(2,000)		90,000
Ending Balance	189,000		196,000
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment	30,000		30,000
Collectively evaluated for impairment	159,000		166,000
Total ending allowance balances	189,000		196,000
Ending loan recorded investment balances [Abstract]
Individually Evaluated for Impairment	30,000		30,000
Collectively Evaluated for Impairment	12,468,000		13,230,000
Total ending loan balances	$ 12,498,000		$ 13,260,000

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash Flows From Operating Activities
Net income	$ 1,260	$ 1,233
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	486	478
Undistributed earnings of affiliate	(23)	(3)
Provision for (recovery of) loan losses	(188)	792
Net gain on securities available for sale	(47)	(140)
Net loss on disposal of assets	1	7
Premium amortization on securities, net	874	918
Origination of loans held for sale	(191,131)	(211,159)
Proceeds from sales of loans held for sale	228,417	226,498
Net gains on mortgages held for sale	(3,893)	(3,852)
Share-based compensation	104	81
Net loss on sale of other real estate owned	628	14
Valuation adjustment on other real estate owned	0	54
Decrease in prepaid FDIC insurance	247	240
Changes in assets and liabilities:
Decrease in other assets	1,467	1,257
(Decrease) increase in other liabilities	(1,419)	563
Net cash provided by operating activities	36,783	16,981
Cash Flows from Investing Activities
Proceeds from maturity, principal paydowns and calls of securities available for sale	24,320	20,607
Proceeds from sale of securities available for sale	3,925	3,147
Purchase of securities available for sale	(41,638)	(38,960)
Purchase of restricted stock	(15)	(548)
Purchases of bank premises and equipment	(248)	(204)
Net increase in loans	(7,575)	(15,287)
Proceeds from sale of other real estate owned	3,248	213
Net cash used in investing activities	(17,983)	(31,032)
Cash Flows from Financing Activities
Net (decrease) increase in non-interest-bearing and interest-bearing demand deposits and savings accounts	(11,184)	21,549
Net (decrease) increase in time deposits	(4,640)	354
(Decrease) increase in securities sold under agreements to repurchase	(2,095)	468
Proceeds from short-term borrowings	3,184	33,971
Payments on short-term borrowings	(14,539)	(48,136)
Proceeds from FHLB borrowings	30,000	32,912
Payments on FHLB borrowings	(22,912)	(32,912)
Distributions to non-controlling interest	(207)	(38)
Payment of dividends on common stock	(353)	(350)
Repurchase of common stock	(19)	0
Net cash (used in) provided by financing activities	(22,765)	7,818
Decrease in cash and and cash equivalents	(3,965)	(6,233)
Cash and Cash Equivalents
Beginning	54,415	51,270
Ending	50,450	45,037
Cash payments for:
Interest	1,868	2,503
Income taxes	0	100
Supplemental Disclosure of Non-cash Transactions
Unrealized gain (loss) on securities available for sale	(373)	914
Change in market value of interest rate swap	59	80
Transfer of loans to other real estate owned	1,851	3,906
Loans originated from sale of other real estate owned	$ 0	$ 149

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Fair Value Measurements, Balance Sheet Grouping (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Level I [Member]
Financial assets [Abstract]
Cash and cash equivalents	$ 50,450	$ 54,415
Securities	0	0
Loans held for sale	0	0
Net portfolio loans	0	0
Bank-owned life insurance	0	0
Accrued interest receivable	0	0
Mortgage interest rate locks	0	0
Interest rate swaps	0	0
Financial liabilities [Abstract]
Deposits	0	0
Securities sold under agreements	0	0
Short-term debt	0	0
FHLB borrowings	0	0
Trust preferred capital notes	0	0
Accrued interest payable	0	0
Interest rate swap	0	0
Mortgage banking hedge instruments	0	0
Level II [Member]
Financial assets [Abstract]
Cash and cash equivalents	0	0
Securities	331,650	319,457
Loans held for sale	48,721	82,114
Net portfolio loans	9,094	11,165
Bank-owned life insurance	16,604	16,484
Accrued interest receivable	4,107	3,974
Mortgage interest rate locks	69	35
Interest rate swaps	21	80
Financial liabilities [Abstract]
Deposits	969,470	984,682
Securities sold under agreements	31,880	33,975
Short-term debt	519	11,873
FHLB borrowings	85,840	78,912
Trust preferred capital notes	5,206	5,221
Accrued interest payable	617	654
Interest rate swap	423	541
Mortgage banking hedge instruments	81	39
Level III [Member]
Financial assets [Abstract]
Cash and cash equivalents	0	0
Securities	0	0
Loans held for sale	0	0
Net portfolio loans	711,310	705,193
Bank-owned life insurance	0	0
Accrued interest receivable	0	0
Mortgage interest rate locks	0	0
Interest rate swaps	0	0
Financial liabilities [Abstract]
Deposits	0	0
Securities sold under agreements	0	0
Short-term debt	0	0
FHLB borrowings	0	0
Trust preferred capital notes	0	0
Accrued interest payable	0	0
Interest rate swap	0	0
Mortgage banking hedge instruments	0	0
Carrying Amount [Member]
Financial assets [Abstract]
Cash and cash equivalents	50,450	54,415
Securities	331,650	319,457
Loans held for sale	48,721	82,114
Net portfolio loans	701,078	695,166
Bank-owned life insurance	16,604	16,484
Accrued interest receivable	4,107	3,974
Mortgage interest rate locks	69	35
Interest rate swaps	21	80
Financial liabilities [Abstract]
Deposits	966,076	981,900
Securities sold under agreements	31,880	33,975
Short-term debt	519	11,873
FHLB borrowings	85,000	72,912
Trust preferred capital notes	5,155	5,155
Accrued interest payable	617	654
Interest rate swap	423	541
Mortgage banking hedge instruments	81	39
Fair Value [Member]
Financial assets [Abstract]
Cash and cash equivalents	50,450	54,415
Securities	331,650	319,457
Loans held for sale	48,721	82,114
Net portfolio loans	720,404	716,358
Bank-owned life insurance	16,604	16,484
Accrued interest receivable	4,107	3,974
Mortgage interest rate locks	69	35
Interest rate swaps	21	80
Financial liabilities [Abstract]
Deposits	969,470	984,682
Securities sold under agreements	31,880	33,975
Short-term debt	519	11,873
FHLB borrowings	85,840	78,912
Trust preferred capital notes	5,206	5,221
Accrued interest payable	617	654
Interest rate swap	423	541
Mortgage banking hedge instruments	$ 81	$ 39

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Stock-Based Compensation Plan (Details) (USD $)	3 Months Ended
	Mar. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense	$ 104,000
Stock Options [Member]
Shares [Roll Forward]
Outstanding at beginning of year (in shares)	82,171
Granted (in shares)	0
Exercised (in shares)	0
Forfeited (in shares)	0
Outstanding at end of period (in shares)	82,171
Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning of year (in dollars per share)	$ 17.32
Granted (in dollars per share)	$ 0
Exercised (in dollars per share)	$ 0
Forfeited (in dollars per share)	$ 0
Outstanding at end of period (in dollars per share)	$ 17.32
Aggregate intrinsic value of options outstanding at end of period	171,000
Options vested and exercisable (in shares)	82,171
Non vested stock option (in shares)	0
Weighted average remaining contractual term for options	4 years 6 months
2006 Equity Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)	430,000
2006 Equity Compensation Plan [Member] | Stock Options [Member]
Weighted Average Exercise Price [Roll Forward]
Options vested and exercisable (in shares)	60,171
2006 Equity Compensation Plan [Member] | Restricted Stock [Member]
Shares [Roll Forward]
Outstanding at beginning of year (in shares)	120,455
Granted (in shares)	0
Vested (in shares)	(5,255)
Forfeited (in shares)	0
Non-vested at end of period (in shares)	115,200
Weighted Average Grant-Date Fair Value [Roll Forward]
Outstanding at beginning of year (in dollars per share)	$ 15.66
Granted (in dollars per share)	$ 0
Vested (in dollars per share)	$ (13.92)
Forfeited (in dollars per share)	$ 0
Non-vested at end of period (in dollars per share)	$ 16.00
Aggregate Intrinsic Value [Abstract]
Outstanding at end of period	2,236,000
Restricted stock nonvested outstanding, Weighted average remaining contractual terms	3 years 9 months 18 days
Unrecognized compensation expense related to nonvested restricted stock awards	$ 3,000,000
1997 Stock Incentive Plan [Member] | Stock Options [Member]
Weighted Average Exercise Price [Roll Forward]
Options vested and exercisable (in shares)	22,000

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Accumulated Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2013

Accumulated Other Comprehensive Income [Abstract]

Changes in component of accumulated other comprehensive income for the period

The following table presents information on changes in each component of accumulated other comprehensive income and the ending balances for the periods indicated:

	Accumulated Other Comprehensive Income (1)
	(in thousands)
	Net Unrealized Gains (Losses) on Securities			Derivatives			Total
Balance December 31, 2011	$	4,133		$	(207	)	$	3,926
Other comprehensive income before reclassifications	695			53			748
Amounts reclassified from accumulated other comprehensive income	(92		)	—			(92		)
Change during period	603			53			656
Balance March 31, 2012	$	4,736		$	(154	)	$	4,582
Balance December 31, 2012	$	6,771		$	(304	)	$	6,467
Other comprehensive income (loss) before reclassifications	(215		)	39			(176		)
Amounts reclassified from accumulated other comprehensive income	(31		)	—			(31		)
Change during period	(246		)	39			(207		)
Balance March 31, 2013	$	6,525		$	(265	)	$	6,260

(1) All amounts shown are net of applicable income taxes using an income tax rate of 34%.

Information related to reclassifications from accumulated other comprehensive income during the period

The following table presents information related to reclassifications from accumulated other comprehensive income during the periods indicated.

	Amount Reclassified from Accumulated Other Comprehensive Income
	(in thousands)
Details about Accumulated Other Comprehensive Income Components	For the three months ended March 31,						Affected Line Item in the Consolidated Statements of Income
	2013			2012
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(47	)	$	(140	)	Gain on securities available for sale
Related income tax expense	16			48			Income tax expense
Net effect on accumulated other comprehensive income for the period	(31		)	(92		)	Net of tax
Total reclassifications for the period	$	(31	)	$	(92	)	Net of tax

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

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Accumulated Other Comprehensive Income (Details) (USD $)	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012
Accumulated Other Comprehensive Income Loss [Line Items]
Balance beginning of period	$ 6,467,000	[1]	$ 3,926,000	[1]
Other comprehensive income before reclassifications	(176,000)	[1]	748,000	[1]
Amounts reclassified from accumulated other comprehensive income	(31,000)	[1]	(92,000)	[1]
Total other comprehensive income	(207,000)	[1]	656,000	[1]
Balance end of period	6,260,000	[1]	4,582,000	[1]
Income tax rate (in hundredths)	34.00%
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Income tax expense	(363,000)		(416,000)
Amounts reclassified from accumulated other comprehensive income	(31,000)	[1]	(92,000)	[1]
Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Amounts reclassified from accumulated other comprehensive income	(31,000)		(92,000)
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Amounts reclassified from accumulated other comprehensive income	(31,000)		(92,000)
Net Unrealized Gains (Losses) on Securities [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Balance beginning of period	6,771,000	[1]	4,133,000	[1]
Other comprehensive income before reclassifications	(215,000)	[1]	695,000	[1]
Amounts reclassified from accumulated other comprehensive income	(31,000)	[1]	(92,000)	[1]
Total other comprehensive income	(246,000)	[1]	603,000	[1]
Balance end of period	6,525,000	[1]	4,736,000	[1]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Amounts reclassified from accumulated other comprehensive income	(31,000)	[1]	(92,000)	[1]
Net Unrealized Gains (Losses) on Securities [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Gain on securities available for sale	(47,000)	[2]	(140,000)	[2]
Income tax expense	16,000	[2]	48,000	[2]
Net of tax	(31,000)		(92,000)
Derivatives [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Balance beginning of period	(304,000)	[1]	(207,000)	[1]
Other comprehensive income before reclassifications	39,000	[1]	53,000	[1]
Total other comprehensive income	39,000	[1]	53,000	[1]
Balance end of period	$ (265,000)	[1]	$ (154,000)	[1]

[1] All amounts shown are net of applicable income taxes using an income tax rate of 34%.

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

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Securities (Details) (USD $)	3 Months Ended																	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Mar. 31, 2013 U.S. Government Agencies [Member]	Dec. 31, 2012 U.S. Government Agencies [Member]	Mar. 31, 2013 Obligations of States and Political Subdivisions [Member]	Dec. 31, 2012 Obligations of States and Political Subdivisions [Member]	Mar. 31, 2013 Mortgage-backed Securities, Agency [Member]	Dec. 31, 2012 Mortgage-backed Securities, Agency [Member]	Mar. 31, 2013 Mortgage-backed Securities, Non-agency [Member]	Dec. 31, 2012 Mortgage-backed Securities, Non-agency [Member]	Mar. 31, 2013 Other Asset Backed Securities [Member]	Dec. 31, 2012 Other Asset Backed Securities [Member]	Mar. 31, 2013 Corporate Preferred Stock [Member]	Dec. 31, 2012 Corporate Preferred Stock [Member]	Mar. 31, 2013 Corporate Securities [Member]	Dec. 31, 2012 Corporate Securities [Member]	Sep. 30, 2012 Trust-Preferred Securities [Member]	Jun. 30, 2012 Trust-Preferred Securities [Member]	Dec. 31, 2011 Trust-Preferred Securities [Member]	Dec. 31, 2012 Trust-Preferred Securities [Member]	Mar. 31, 2013 Mortgage-backed Securities [Member]
Amortized costs and fair values of securities available for sale [Abstract]
Amortized Cost	$ 321,763,000		$ 309,196,000	$ 14,837,000	$ 15,391,000	$ 79,278,000	$ 74,485,000	$ 164,305,000	$ 161,564,000	$ 19,277,000	$ 15,310,000	$ 34,268,000	$ 33,648,000	$ 68,000	$ 68,000	$ 9,730,000	$ 8,730,000				$ 0
Gross Unrealized Gains	10,916,000		11,416,000	442,000	459,000	3,415,000	3,920,000	5,630,000	5,659,000	223,000	287,000	1,165,000	1,079,000	0	0	41,000	12,000				0
Gross Unrealized Losses	(1,029,000)		(1,155,000)	(35,000)	(28,000)	(229,000)	(105,000)	(335,000)	(280,000)	(101,000)	(18,000)	(72,000)	(85,000)	(1,000)	(6,000)	(256,000)	(633,000)				0
Fair Value	331,650,000		319,457,000	15,244,000	15,822,000	82,464,000	78,300,000	169,600,000	166,943,000	19,399,000	15,579,000	35,361,000	34,642,000	67,000	62,000	9,515,000	8,109,000				0
Amortized Cost [Abstract]
Due in one year or less	4,601,000
Due after one year through five years	33,133,000
Due after five years through ten years	28,179,000
Due after ten years	37,932,000
Total	321,763,000											34,268,000		68,000								183,582,000
Fair Value [Abstract]
Due in one year or less	4,660,000
Due after one year through five years	34,410,000
Due after five years through ten years	29,374,000
Due after ten years	38,779,000
Total	331,650,000											35,361,000		67,000								188,999,000
Proceeds from sales of securities	3,900,000
Net gains realized on sale of securities	47,000
Tax expense related to realized gains	16,000
Net impairment losses	0	0
Carrying value of securities pledged for fiduciary powers	130,400,000
Fair Value [Abstract]
Less than Twelve Months	48,180,000		41,246,000	3,742,000	3,850,000	9,687,000	6,966,000	23,803,000	24,344,000	9,205,000	3,295,000	1,743,000	2,791,000	0	0	0	0				0
Twelve Months or Greater	6,980,000		9,575,000	16,000	16,000	0	0	1,528,000	1,241,000	0	0	1,154,000	1,418,000	38,000	33,000	4,244,000	6,867,000				0
Total	55,160,000		50,821,000	3,758,000	3,866,000	9,687,000	6,966,000	25,331,000	25,585,000	9,205,000	3,295,000	2,897,000	4,209,000	38,000	33,000	4,244,000	6,867,000				0
Gross Unrealized Losses [Abstract]
Less than Twelve Months	(698,000)		(442,000)	(35,000)	(28,000)	(229,000)	(105,000)	(277,000)	(234,000)	(101,000)	(18,000)	(56,000)	(57,000)	0	0	0	0				0
Twelve Months or Greater	(331,000)		(713,000)	0	0	0	0	(58,000)	(46,000)	0	0	(16,000)	(28,000)	(1,000)	(6,000)	(256,000)	(633,000)				0
Total	(1,029,000)		(1,155,000)	(35,000)	(28,000)	(229,000)	(105,000)	(335,000)	(280,000)	(101,000)	(18,000)	(72,000)	(85,000)	(1,000)	(6,000)	(256,000)	(633,000)				0
Gain on securities available for sale																		149,000	142,000
Credit losses recognized in prior period earnings	$ 0	$ 0																$ 0		$ 2,400,000

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Securities, Other Than Temporary Impairment (Details)	Mar. 31, 2013 Security
Securities [Abstract]
Number of securities temporarily impaired	58
Number of securities temporarily impaired in investment grade	57
Number of securities temporarily impaired in speculative grade	1

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Consolidated Statements of Changes in Shareholders' Equity (Unaudited) [Abstract]
Vesting of restricted stock awards (in shares)	5,255	11,011
Repurchase of restricted stock (in shares)	967

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Loan Portfolio (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	$ 714,586	$ 709,477
Less allowance for loans losses	13,508	14,311
Net Loans	701,078	695,166
Percent of Total Portfolio (in hundredths)	100.00%	100.00%
Mortgages held for sale	48,721	82,114
Real Estate Loans Construction [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	46,089	50,218
Less allowance for loans losses	1,240	1,258
Percent of Total Portfolio (in hundredths)	6.50%	7.10%
Real Estate Loans Secured by Farmland [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	11,805	11,876
Percent of Total Portfolio (in hundredths)	1.70%	1.70%
Real Estate Loans Secured by 1 - 4 Family Residential [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	268,770	260,620
Less allowance for loans losses	5,808	6,276
Percent of Total Portfolio (in hundredths)	37.60%	36.70%
Other Real Estate Loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	259,403	254,930
Less allowance for loans losses	4,099	4,348
Percent of Total Portfolio (in hundredths)	36.30%	35.90%
Commercial Loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	116,021	118,573
Less allowance for loans losses	2,047	2,098
Percent of Total Portfolio (in hundredths)	16.20%	16.70%
Consumer Loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	12,498	13,260
Less allowance for loans losses	$ 189	$ 196
Percent of Total Portfolio (in hundredths)	1.70%	1.90%

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Capital Purchase Program (Details) (USD $)	12 Months Ended
	Dec. 31, 2009	Mar. 31, 2013
Capital Purchase Program [Abstract]
Preferred stock issued under capital repurchase program (in shares)	22,000
Warrants issued under capital repurchase program (in shares)		208,202
Exercise price of warrants (in dollars per share)	$ 15.85
Class of warrant or right outstanding (in shares)		104,101

XML

Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013		Dec. 31, 2012
ASSETS
Cash and due from banks	$ 6,697		$ 7,139
Interest-bearing deposits with other institutions	43,753		47,276
Total cash and cash equivalents	50,450		54,415
Securities available for sale, at fair value	331,650		319,457
Loans held for sale	48,721		82,114
Restricted securities, at cost	7,005		6,990
Loans receivable, net of allowance for loan losses of $13,508 at March 31, 2013 and $14,311 at December 31, 2012	701,078		695,166
Premises and equipment, net	20,418		20,587
Goodwill and identified intangibles	5,975		6,017
Other real estate owned, net of valuation allowance of $348 at March 31, 2013 and $1,707 at December 31, 2012	7,904		9,929
Prepaid federal deposit insurance	2,768		3,015
Bank owned life insurance	16,604		16,484
Accrued interest receivable and other assets	21,183		22,607
TOTAL ASSETS	1,213,756		1,236,781
Deposits:
Non-interest-bearing demand deposits	163,611		167,137
Savings and interest-bearing demand deposits	515,082		522,740
Time deposits	287,383		292,023
Total deposits	966,076		981,900
Securities sold under agreements to repurchase	31,880		33,975
Short-term borrowings	519		11,873
FHLB borrowings	85,000		77,912
Subordinated notes	5,155		5,155
Accrued interest payable and other liabilities	7,426		8,844
Commitments and contingent liabilities	0		0
TOTAL LIABILITIES	1,096,056		1,119,659
SHAREHOLDERS' EQUITY
Common stock ($2.50 par value; 20,000,000 shares authorized, 7,051,587 and 7,052,554 issued and outstanding at March 31, 2013 and December 31, 2012, respectively)	17,365		17,357
Capital surplus	43,946		43,869
Retained earnings	47,209		46,235
Accumulated other comprehensive income	6,260	[1]	6,467	[1]
Total Middleburg Financial Corporation shareholders' equity	114,780		113,928
Non-controlling interest in consolidated subsidiary	2,920		3,194
TOTAL SHAREHOLDERS' EQUITY	117,700		117,122
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,213,756		$ 1,236,781

[1] All amounts shown are net of applicable income taxes using an income tax rate of 34%.

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Consolidated Statements of Comprehensive Income (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Other comprehensive income, net of tax:
Unrealized holding gains arising during the period, tax	$ 111	$ 358
Reclassification adjustment for gains included in net income, tax	16	48
Unrealized gain on interest rate swap, tax	$ 20	$ 27

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Loan Portfolio, Impaired Receivables (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Recorded Investment [Abstract]
With no related allowance recorded	$ 10,065	$ 10,149
With an allowance recorded	15,298	16,646
Total	25,363	26,795
Unpaid Principal Balance [Abstract]
With no related allowance recorded	11,158	11,162
With an allowance recorded	15,885	18,552
Total	27,043	29,714
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	4,304	4,303
Total	4,304	4,303
Average Recorded Investment [Abstract]
With no related allowance recorded	10,261	11,320
With an allowance recorded	15,376	17,694
Total	25,637	29,014
Interest Income Recognized [Abstract]
With no related allowance recorded	137	141
With an allowance recorded	152	152
Total	289	293
Real Estate Loans Construction [Member]
Recorded Investment [Abstract]
With no related allowance recorded	1,812	1,819
With an allowance recorded	1,084	1,150
Unpaid Principal Balance [Abstract]
With no related allowance recorded	2,445	2,370
With an allowance recorded	1,114	2,250
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	484	166
Average Recorded Investment [Abstract]
With no related allowance recorded	1,898	2,543
With an allowance recorded	1,099	1,685
Interest Income Recognized [Abstract]
With no related allowance recorded	7	0
With an allowance recorded	0	0
Real Estate Loans Secured by Farmland [Member]
Recorded Investment [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Unpaid Principal Balance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Average Recorded Investment [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Interest Income Recognized [Abstract]
With no related allowance recorded	0
With an allowance recorded	0
Real Estate Loans Secured by 1 - 4 Family Residential [Member]
Recorded Investment [Abstract]
With no related allowance recorded	3,798	3,248
With an allowance recorded	6,379	7,544
Unpaid Principal Balance [Abstract]
With no related allowance recorded	4,215	3,667
With an allowance recorded	6,914	8,203
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	2,035	2,724
Average Recorded Investment [Abstract]
With no related allowance recorded	3,888	3,712
With an allowance recorded	6,407	7,842
Interest Income Recognized [Abstract]
With no related allowance recorded	37	50
With an allowance recorded	51	65
Other Real Estate Loans [Member]
Recorded Investment [Abstract]
With no related allowance recorded	2,509	3,135
With an allowance recorded	6,915	7,505
Unpaid Principal Balance [Abstract]
With no related allowance recorded	2,552	3,178
With an allowance recorded	6,915	7,605
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	964	1,045
Average Recorded Investment [Abstract]
With no related allowance recorded	2,529	3,141
With an allowance recorded	6,940	7,691
Interest Income Recognized [Abstract]
With no related allowance recorded	93	91
With an allowance recorded	71	73
Commercial Loans [Member]
Recorded Investment [Abstract]
With no related allowance recorded	1,946	1,947
With an allowance recorded	890	417
Unpaid Principal Balance [Abstract]
With no related allowance recorded	1,946	1,947
With an allowance recorded	912	464
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	791	338
Average Recorded Investment [Abstract]
With no related allowance recorded	1,946	1,924
With an allowance recorded	900	446
Interest Income Recognized [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	30	14
Consumer Loans [Member]
Recorded Investment [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	30	30
Unpaid Principal Balance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	30	30
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	30	30
Average Recorded Investment [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	30	30
Interest Income Recognized [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	$ 0	$ 0

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Securities (Tables)

3 Months Ended

Mar. 31, 2013

Securities [Abstract]

Amortized costs and fair values of securities available for sale

Amortized costs and fair values of securities available for sale at March 31, 2013 are summarized as follows:

	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	14,837	$	442	$	(35	)	$	15,244
Obligations of states and
political subdivisions		79,278		3,415		(229	)		82,464
Mortgage-backed securities:
Agency		164,305		5,630		(335	)		169,600
Non-agency		19,277		223		(101	)		19,399
Other asset backed securities		34,268		1,165		(72	)		35,361
Corporate preferred stock		68		—		(1	)		67
Corporate securities		9,730		41		(256	)		9,515
Total	$	321,763	$	10,916	$	(1,029	)	$	331,650

Amortized costs and fair values of securities available for sale at December 31, 2012 are summarized as follows:

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	15,391	$	459	$	(28	)	$	15,822
Obligations of states and
political subdivisions	74,485		3,920		(105		)	78,300
Mortgage-backed securities:
Agency	161,564		5,659		(280		)	166,943
Non-agency	15,310		287		(18		)	15,579
Other asset backed securities	33,648		1,079		(85		)	34,642
Corporate preferred stock	68		—		(6		)	62
Corporate securities	8,730		12		(633		)	8,109
Total	$	309,196	$	11,416	$	(1,155	)	$	319,457

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 March 31, 2013, 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.

	March 31, 2013
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	4,601	$	4,660
Due after one year through
five years		33,133		34,410
Due after five years through
ten years		28,179		29,374
Due after ten years		37,932		38,779
Mortgage-backed securities		183,582		188,999
Other asset backed securities		34,268		35,361
Corporate preferred stock		68		67
Total	$	321,763	$	331,650

Investments in continuous unrealized loss position

At March 31, 2013, investments in an unrealized loss position that were temporarily impaired are as follows:

	March 31, 2013
						(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	$	3,742	$	(35	)	$	16	$	—		$	3,758	$	(35	)
Obligations of states and
political subdivisions	9,687		(229		)	—		—			9,687		(229		)
Mortgage backed securities:
Agency	23,803		(277		)	1,528		(58		)	25,331		(335		)
Non-agency	9,205		(101		)	—		—			9,205		(101		)
Other asset backed securities	1,743		(56		)	1,154		(16		)	2,897		(72		)
Corporate preferred stock	—		—			38		(1		)	38		(1		)
Corporate securities	—		—			4,244		(256		)	4,244		(256		)
Total	$	48,180	$	(698	)	$	6,980	$	(331	)	$	55,160	$	(1,029	)

At December 31, 2012, investments in an unrealized loss position that were temporarily impaired are as follows:

	December 31, 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	$	3,850	$	(28	)	$	16	$	—		$	3,866	$	(28	)
Obligations of states and
political subdivisions	6,966		(105		)	—		—			6,966		(105		)
Mortgage backed securities:
Agency	24,344		(234		)	1,241		(46		)	25,585		(280		)
Non-agency	3,295		(18		)	—		—			3,295		(18		)
Other asset backed securities	2,791		(57		)	1,418		(28		)	4,209		(85		)
Corporate preferred stock	—		—			33		(6		)	33		(6		)
Corporate securities	—		—			6,867		(633		)	6,867		(633		)
Trust-preferred securities	—		—			—		—			—		—
Total	$	41,246	$	(442	)	$	9,575	$	(713	)	$	50,821	$	(1,155	)

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Loan Portfolio, Troubled Debt Restructuring (Details) (USD $)	3 Months Ended
	Mar. 31, 2013 Loan Contract	Dec. 31, 2012
Financing Receivable, Modifications [Line Items]
Total TDR	$ 12,000,000
TDR included in nonaccrual loans	7,100,000
TDR performing as agreed	4,900,000
Valuation Allowance related to total TDR	1,500,000	2,000,000
Loans modified in a TDR by class of loan [Abstract]
Number Of Contracts	3
Pre-Modification Outstanding Recorded Investment	216,000,000
Post-Modification Outstanding Recorded Investment	196,000,000
Number of loans for extended terms	2
Number of loans for modified repayment terms	1
Number of loans for which allowance for loan losses measured under general allowance methodology	2
Recorded investment as TDR for which allowance for loan losses measured under general allowance methodology	148,000
Allowance for loan losses on recorded investment as TDR	0
Number of loans restructured included in non accrual loans	2
Recorded investment restructured as TDR included in non accrual loans	148,000
Real Estate Loans Construction [Member]
Financing Receivable, Modifications [Line Items]
TDR included in nonaccrual loans	62,000
TDR performing as agreed	106,000
Loans modified in a TDR by class of loan [Abstract]
Number Of Contracts	0
Pre-Modification Outstanding Recorded Investment	0
Post-Modification Outstanding Recorded Investment	0
Real Estate Loans Secured by Farmland [Member]
Loans modified in a TDR by class of loan [Abstract]
Number Of Contracts	0
Pre-Modification Outstanding Recorded Investment	0
Post-Modification Outstanding Recorded Investment	0
Real Estate Loans Secured by 1 - 4 Family Residential [Member]
Financing Receivable, Modifications [Line Items]
TDR included in nonaccrual loans	2,300,000
TDR performing as agreed	1,800,000
Loans modified in a TDR by class of loan [Abstract]
Number Of Contracts	1
Pre-Modification Outstanding Recorded Investment	48,000,000
Post-Modification Outstanding Recorded Investment	48,000,000
Other Real Estate Loans [Member]
Financing Receivable, Modifications [Line Items]
TDR included in nonaccrual loans	4,700,000
TDR performing as agreed	2,800,000
Loans modified in a TDR by class of loan [Abstract]
Number Of Contracts	2
Pre-Modification Outstanding Recorded Investment	168,000,000
Post-Modification Outstanding Recorded Investment	148,000,000
Real Estate Loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Number Of Contracts	3
Pre-Modification Outstanding Recorded Investment	216,000,000
Post-Modification Outstanding Recorded Investment	196,000,000
Commercial Loans [Member]
Financing Receivable, Modifications [Line Items]
TDR included in nonaccrual loans	55,000
TDR performing as agreed	206,000
Loans modified in a TDR by class of loan [Abstract]
Number Of Contracts	0
Pre-Modification Outstanding Recorded Investment	0
Post-Modification Outstanding Recorded Investment	0
Consumer Loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Number Of Contracts	0
Pre-Modification Outstanding Recorded Investment	0
Post-Modification Outstanding Recorded Investment	$ 0

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Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2013

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 March 31, 2013 and December 31, 2012.

	March 31, 2013
							(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, 2012	$	1,258		$	135		$	6,276		$	4,348		$	2,098		$	196		$	14,311
Chargeoffs	(87		)	—			(489		)	(97		)	(38		)	(8		)	(719		)
Recoveries	37			—			50			9			5			3			104
Provision	32			(10		)	(29		)	(161		)	(18		)	(2		)	(188		)
Balances as of March 31, 2013	$	1,240		$	125		$	5,808		$	4,099		$	2,047		$	189		$	13,508
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	484		$	—		$	2,035		$	964		$	791		$	30		$	4,304
Collectively evaluated for impairment	756			125			3,773			3,135			1,256			159			9,204
Total ending allowance balances	$	1,240		$	125		$	5,808		$	4,099		$	2,047		$	189		$	13,508
Ending loan recorded investment balances:
Individually evaluated for impairment	$	2,896		$	—		$	10,177		$	9,424		$	2,836		$	30		$	25,363
Collectively evaluated for impairment	43,193			11,805			258,593			249,979			113,185			12,468			689,223
Total ending loan balances	$	46,089		$	11,805		$	268,770		$	259,403		$	116,021		$	12,498		$	714,586

	December 31, 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 at December 31, 2011	$	897		$	110	$	7,465		$	4,385		$	1,621		$	145		$	14,623
Chargeoffs	(2,152		)	—		(893		)	(760		)	(394		)	(72		)	(4,271		)
Recoveries	2			—		388			86			12			33			521
Provision	2,511			25		(684		)	637			859			90			3,438
Balances at December 31, 2012	$	1,258		$	135	$	6,276		$	4,348		$	2,098		$	196		$	14,311
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	166		$	—	$	2,724		$	1,045		$	338		$	30		$	4,303
Collectively evaluated for impairment	1,092			135		3,552			3,303			1,760			166			10,008
Total ending allowance balances	$	1,258		$	135	$	6,276		$	4,348		$	2,098		$	196		$	14,311
Ending loan recorded investment balances:
Individually evaluated for impairment	$	2,969		$	—	$	10,792		$	10,640		$	2,364		$	30		$	26,795
Collectively evaluated for impairment	47,249			11,876		249,828			244,290			116,209			13,230			682,682
Total ending loan balances	$	50,218		$	11,876	$	260,620		$	254,930		$	118,573		$	13,260		$	709,477

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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, 2011	$ 17,331	$ 43,498	$ 41,157	$ 3,926	$ 2,101	$ 108,013
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)			1,582		(349)	1,233
Other comprehensive loss, net of tax				656		656	[1]
Cash dividends declared			(350)			(350)
Vesting of restricted stock awards	28	(28)				0
Distributions to non-controlling interest					(38)	(38)
Share-based compensation		81				81
Balance at Mar. 31, 2012	17,359	43,551	42,389	4,582	1,714	109,595
Balance at Dec. 31, 2012	17,357	43,869	46,235	6,467	3,194	117,122
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)			1,327		(67)	1,260
Other comprehensive loss, net of tax				(207)		(207)	[1]
Cash dividends declared			(353)			(353)
Vesting of restricted stock awards	11	(11)				0
Repurchase of restricted stock	(3)	(16)				(19)
Distributions to non-controlling interest					(207)	(207)
Share-based compensation		104				104
Balance at Mar. 31, 2013	$ 17,365	$ 43,946	$ 47,209	$ 6,260	$ 2,920	$ 117,700

[1] All amounts shown are net of applicable income taxes using an income tax rate of 34%.

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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
ASSETS
Loans, allowance for loan losses	$ 13,508	$ 14,311
Other real estate owned, valuation allowance	$ 348	$ 1,707
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)	7,051,587	7,052,554
Common stock, shares outstanding (in shares)	7,051,587	7,052,554

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Capital Purchase Program

3 Months Ended

Mar. 31, 2013

Capital Purchase Program [Abstract]

Capital Purchase Program

Note. 8 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 March 31, 2013.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	Apr. 30, 2013
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		7,051,587
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 9. 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 March 31, 2013 and December 31, 2012.

	March 31, 2013
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	15,244	$	—	$	15,244	$	—
Obligations of states and political subdivisions	82,464		—		82,464		—
Mortgage-backed securities:
Agency	169,600		—		169,600		—
Non-agency	19,399		—		19,399		—
Other asset-backed securities	35,361		—		35,361		—
Corporate preferred stock	67		—		67		—
Corporate securities	9,515		—		9,515		—
Mortgage interest rate locks	69		—		69		—
Interest rate swaps	21		—		21		—
Liabilities:
Interest rate swaps	$	423	$	—	$	423	$	—
Mortgage banking hedge instruments	81		—		81		—

	December 31, 2012
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	15,822	$	—	$	15,822	$	—
Obligations of states and political subdivisions	78,300		—		78,300		—
Mortgage-backed securities:
Agency	166,943		—		166,943		—
Non-agency	15,579		—		15,579		—
Other asset-backed securities	34,642		—		34,642		—
Corporate preferred stock	62		—		62		—
Corporate securities	8,109		—		8,109		—
Mortgage interest rate locks	35		—		35		—
Interest rate swaps	80		—		80		—
Liabilities:
Interest rate swap	541		—		541		—
Mortgage banking hedge instruments	39		—		39		—

There were no financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the three months ended March 31, 2013.

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 three months ended March 31, 2013. 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 either 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 a 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. 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. 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 appraised value. Information considered in a determination not to order an updated appraisal includes the availability and reliability of tax assessment records and any 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 cannot be obtained by an alternative method, an updated appraisal would be 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 cannot 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 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 March 31, 2013 and December 31, 2012:

	March 31, 2013
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	48,721	$	—	$	48,721	$	—
Impaired loans	10,994		—		9,094		1,900
	December 31, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	82,114	$	—	$	82,114	$	—
Impaired loans	12,343		—		11,165		1,178

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. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability or other factors, then the fair value is considered Level III. Any initial fair value adjustment is charged against the Allowance for Loan Losses. Any subsequent fair value adjustments are recorded in the period incurred and included in other non-interest expense on the consolidated statements of income.

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

Any fair value adjustments are recorded in the period incurred as "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.

	March 31, 2013
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Other real estate owned	$	7,904	$	—	$	7,904	$	—
	December 31, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Other real estate owned	$	9,929	$	—	$	7,619	$	2,310

The following table presents quantitative information as of March 31, 2013 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	$	1,900	Discounted appraised value	Discount for selling costs and age of appraisals.	10% - 30% (21%)

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. (See "Impaired Loans" above for a discussion of valuation methodologies for loans considered to be impaired.)

Bank Owned Life Insurance

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

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate fair values.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. For all other deposits, the fair value is determined using the discounted cash flow method. The discount rate 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 March 31, 2013 and December 31, 2012, 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 March 31, 2013 are as follows:

					March 31, 2013
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
	(In thousands)
Financial assets:
Cash and cash equivalents	$	50,450	$	50,450	$	50,450	$	—	—
Securities	331,650		331,650		—		331,650		—
Loans held for sale	48,721		48,721		—		48,721		—
Net portfolio loans	701,078		720,404		—		9,094		711,310
Bank-owned life insurance	16,604		16,604		—		16,604		—
Accrued interest receivable	4,107		4,107		—		4,107		—
Mortgage interest rate locks	69		69		—		69		—
Interest rate swaps	21		21		—		21		—
Financial liabilities:
Deposits	$	966,076	$	969,470	$	—	$	969,470	—
Securities sold under agreements
to repurchase	31,880		31,880		—		31,880		—
Short-term debt	519		519		—		519		—
FHLB borrowings	85,000		85,840		—		85,840		—
Trust preferred capital notes	5,155		5,206		—		5,206		—
Accrued interest payable	617		617		—		617		—
Interest rate swap	423		423		—		423		—
Mortgage banking hedge instruments	81		81		—		81		—

The estimated fair values, and related carrying amounts, of the Company's financial instruments at December 31, 2012 are as follows:

					December 31, 2012
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
	(In thousands)
Financial assets:
Cash and cash equivalents	$	54,415	$	54,415	$	54,415	$	—	—
Securities	319,457		319,457		—		319,457		—
Loans held for sale	82,114		82,114		—		82,114		—
Net portfolio loans	695,166		716,358		—		11,165		705,193
Bank-owned life insurance	16,484		16,484		—		16,484		—
Accrued interest receivable	3,974		3,974		—		3,974		—
Mortgage interest rate locks	35		35		—		35		—
Interest rate swaps	80		80		—		80		—
Financial liabilities:
Deposits	$	981,900	$	984,682	$	—	$	984,682	—
Securities sold under agreements
to repurchase	33,975		33,975		—		33,975		—
Short-term debt	11,873		11,873		—		11,873		—
FHLB borrowings	72,912		78,912		—		78,912		—
Trust preferred capital notes	5,155		5,221		—		5,221		—
Accrued interest payable	654		654		—		654		—
Interest rate swaps	541		541		—		541		—
Mortgage banking hedge instruments	39		39		—		39		—

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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Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$ 8,965	$ 9,782
Interest and dividends on securities available for sale
Taxable	1,531	1,735
Tax-exempt	630	607
Dividends	56	44
Interest on deposits in banks and federal funds sold	30	24
Total interest and dividend income	11,212	12,192
INTEREST EXPENSE
Interest on deposits	1,373	1,893
Interest on securities sold under agreements to repurchase	80	83
Interest on short-term borrowings	29	148
Interest on FHLB borrowings and other debt	295	297
Total interest expense	1,777	2,421
NET INTEREST INCOME	9,435	9,771
Provision for (recovery of) loan losses	(188)	792
NET INTEREST INCOME AFTER PROVISION FOR (RECOVERY OF) LOAN LOSSES	9,623	8,979
NONINTEREST INCOME
Service charges on deposit accounts	534	530
Trust services income	960	921
Gains on loans held for sale	3,893	3,852
Gains on securities available for sale, net	47	140
Total other-than-temporary impairment losses	0	(10)
Portion of loss recognized in other comprehensive income	0	10
Net impairment losses	0	0
Commissions on investment sales	94	147
Fees on mortgages held for sale	17	42
Other service charges, commissions and fees	130	150
Bank-owned life insurance	120	122
Other operating income	133	80
Total noninterest income	5,928	5,984
NONINTEREST EXPENSE
Salaries and employees' benefits	7,799	7,357
Net occupancy and equipment expense	1,805	1,778
Advertising	268	300
Computer operations	461	385
Other real estate owned	820	286
Other taxes	192	203
Federal deposit insurance expense	265	258
Other operating expenses	2,318	2,747
Total noninterest expense	13,928	13,314
Income (loss) before income taxes	1,623	1,649
Income tax expense	363	416
NET INCOME	1,260	1,233
Net loss attributable to noncontrolling interest	67	349
Net income attributable to Middleburg Financial Corporation	$ 1,327	$ 1,582
Earnings per share:
Basic (in dollars per share)	$ 0.19	$ 0.23
Diluted (in dollars per share)	$ 0.19	$ 0.23
Dividends per common share (in dollars per share)	$ 0.05	$ 0.05

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Securities

3 Months Ended

Mar. 31, 2013

Securities [Abstract]

Securities

Note 3. Securities

Amortized costs and fair values of securities available for sale at March 31, 2013 are summarized as follows:

	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	14,837	$	442	$	(35	)	$	15,244
Obligations of states and
political subdivisions		79,278		3,415		(229	)		82,464
Mortgage-backed securities:
Agency		164,305		5,630		(335	)		169,600
Non-agency		19,277		223		(101	)		19,399
Other asset backed securities		34,268		1,165		(72	)		35,361
Corporate preferred stock		68		—		(1	)		67
Corporate securities		9,730		41		(256	)		9,515
Total	$	321,763	$	10,916	$	(1,029	)	$	331,650

Amortized costs and fair values of securities available for sale at December 31, 2012 are summarized as follows:

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	15,391	$	459	$	(28	)	$	15,822
Obligations of states and
political subdivisions	74,485		3,920		(105		)	78,300
Mortgage-backed securities:
Agency	161,564		5,659		(280		)	166,943
Non-agency	15,310		287		(18		)	15,579
Other asset backed securities	33,648		1,079		(85		)	34,642
Corporate preferred stock	68		—		(6		)	62
Corporate securities	8,730		12		(633		)	8,109
Total	$	309,196	$	11,416	$	(1,155	)	$	319,457

The amortized cost and fair value of securities available for sale as of March 31, 2013, 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.

	March 31, 2013
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	4,601	$	4,660
Due after one year through
five years		33,133		34,410
Due after five years through
ten years		28,179		29,374
Due after ten years		37,932		38,779
Mortgage-backed securities		183,582		188,999
Other asset backed securities		34,268		35,361
Corporate preferred stock		68		67
Total	$	321,763	$	331,650

Proceeds from the sale of securities during the three months ended March 31, 2013 were $3.9 million and net gains of $47,000 were realized on those sales. The tax expense applicable to the net realized gains amounted to $16,000. Additionally, no loss on securities with other than temporary impairment was recognized during the three months ended March 31, 2013.

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 $130.4 million at March 31, 2013.

At March 31, 2013, investments in an unrealized loss position that were temporarily impaired are as follows:

	March 31, 2013
						(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	$	3,742	$	(35	)	$	16	$	—		$	3,758	$	(35	)
Obligations of states and
political subdivisions	9,687		(229		)	—		—			9,687		(229		)
Mortgage backed securities:
Agency	23,803		(277		)	1,528		(58		)	25,331		(335		)
Non-agency	9,205		(101		)	—		—			9,205		(101		)
Other asset backed securities	1,743		(56		)	1,154		(16		)	2,897		(72		)
Corporate preferred stock	—		—			38		(1		)	38		(1		)
Corporate securities	—		—			4,244		(256		)	4,244		(256		)
Total	$	48,180	$	(698	)	$	6,980	$	(331	)	$	55,160	$	(1,029	)

At December 31, 2012, investments in an unrealized loss position that were temporarily impaired are as follows:

	December 31, 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	$	3,850	$	(28	)	$	16	$	—		$	3,866	$	(28	)
Obligations of states and
political subdivisions	6,966		(105		)	—		—			6,966		(105		)
Mortgage backed securities:
Agency	24,344		(234		)	1,241		(46		)	25,585		(280		)
Non-agency	3,295		(18		)	—		—			3,295		(18		)
Other asset backed securities	2,791		(57		)	1,418		(28		)	4,209		(85		)
Corporate preferred stock	—		—			33		(6		)	33		(6		)
Corporate securities	—		—			6,867		(633		)	6,867		(633		)
Trust-preferred securities	—		—			—		—			—		—
Total	$	41,246	$	(442	)	$	9,575	$	(713	)	$	50,821	$	(1,155	)

A total of 58 securities have been identified by the Company as temporarily impaired at March 31, 2013. Of the 58 securities, 57 are investment grade and 1 is speculative grade. Agency, non-agency mortgage-backed securities, municipal and corporate debt securities make up the majority of temporarily impaired securities at March 31, 2013. The speculative grade security is a municipal bond. 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 March 31, 2013. Investment decisions reflect the strategic asset/liability objectives of the Company.

Trust preferred securities

As of March 31, 2013, 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 March 31, 2013, 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 March 31, 2013. However, there is a risk that the Company's continuing reviews could result in recognition of other-than-temporary impairment charges in the future. During the three months ended March 31, 2013 and the three months ended March 31, 2012, no credit related impairment losses were recognized by the Company.

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Stock-Based Compensation Plan

3 Months Ended

Mar. 31, 2013

Stock-Based Compensation Plan [Abstract]

Stock-Based Compensation Plan

Note 2. Share–Based Compensation Plan

As of March 31, 2013, 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. The 2006 Equity Compensation plan was amended by the Company's shareholders at the Annual Meeting held on May, 1, 2013 to increase the total number of shares which may be awarded. 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 430,000 shares of common stock under the 2006 Equity Compensation Plan.

The Company recognized $104,000 for stock-based compensation expenses for the three months ended March 31, 2013.

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.

	March 31, 2013
	Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at beginning of year	82,171	$	17.32
Granted	—	—
Exercised	—	—
Forfeited	—	—
Outstanding at end of period	82,171	$	17.32	$	171,000

As of the end of the reporting period, 82,171 options were vested and exercisable representing 22,000 shares issued under the original 1997 plan and 60,171 vested options under the 2006 Plan. As of March 31, 2013, no outstanding options were unvested.

The weighted average remaining contractual term for options outstanding and exercisable at March 31, 2013 was 4.5 years. As of March 31, 2013, all compensation expense related to stock option awards has been recognized. The Aggregate Intrinsic Value above represents the difference between the market value of the stock at the end of the period and the weighted average exercise price of the options at the end of the period.

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

	March 31, 2013
	Shares		Weighted Average Grant-Date Fair Value			Aggregate Intrinsic Value
Outstanding at beginning of year	120,455		$	15.66
Granted	—		—
Vested	(5,255	)	(13.92		)
Forfeited	—		—
Non-vested at end of period	115,200		16			2,236,000

The weighted average remaining contractual term for non-vested restricted stock at March 31, 2013 was 3.8 years. As of March 31, 2013, there was approximately $1.3 million 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)

3 Months Ended

Mar. 31, 2013

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:

	March 31, 2013					December 31, 2012
	Outstanding Balance		Percent of Total Portfolio			Outstanding Balance		Percent of Total Portfolio
	(In Thousands)					(In Thousands)
Real estate loans:
Construction	$	46,089		6.5	%	$	50,218		7.1	%
Secured by farmland		11,805		1.7	%		11,876		1.7	%
Secured by 1-4 family residential		268,770		37.6	%		260,620		36.7	%
Other real estate loans		259,403		36.3	%		254,930		35.9	%
Commercial loans		116,021		16.2	%		118,573		16.7	%
Consumer loans		12,498		1.7	%		13,260		1.9	%
		714,586		100.0	%		709,477		100.0	%
Less allowance for loan losses		13,508					14,311
Net loans	$	701,078				$	695,166

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 March 31, 2013 and December 31, 2012.

	March 31, 2013
					(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	$	—	$	591	$	1,964	$	2,555	$	43,534	$	46,089
Secured by farmland	415		—		—		415		11,390		11,805
Secured by 1-4 family residential	796		244		2,308		3,348		265,422		268,770
Other real estate loans	391		194		4,648		5,233		254,170		259,403
Commercial loans	—		145		1,906		2,051		113,970		116,021
Consumer loans	23		2		42		67		12,431		12,498
Total	$	1,625	$	1,176	$	10,868	$	13,669	$	700,917	$	714,586

	December 31, 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	$	—	$	108	$	2,043	$	2,151	$	48,067	$	50,218
Secured by farmland	415		—		—		415		11,461		11,876
Secured by 1-4 family residential	1,625		568		1,910		4,103		256,517		260,620
Other real estate loans	197		361		6,112		6,670		248,260		254,930
Commercial loans	—		44		144		188		118,385		118,573
Consumer loans	27		10		32		69		13,191		13,260
Total	$	2,264	$	1,091	$	10,241	$	13,596	$	695,881	$	709,477

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 March 31, 2013 and December 31, 2012:

	March 31, 2013				December 31, 2012
	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	$	2,790	$	268	$	2,861	$	780
Secured by 1-4 family residential	8,396		532		8,761		228
Other real estate loans	6,663		—		7,866		—
Commercial loans	2,140		—		2,146		34
Consumer loans	30		12		30		2
Total	$	20,019	$	812	$	21,664	$	1,044

Summary of loan classifications by class of loan

The following tables present a summary of loan classifications by class of loan as of March 31, 2013 and December 31, 2012:

	March 31, 2013
					(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	$	26,895	$	11,197	$	247,313	$	235,066	$	112,097	$	12,364	$	644,932
Special Mention	15,329		—		2,472		11,640		1,041		31		30,513
Substandard	3,344		608		17,718		12,455		2,794		63		36,982
Doubtful	521		—		1,267		242		89		40		2,159
Loss	—		—		—		—		—		—		—
Ending Balance	$	46,089	$	11,805	$	268,770	$	259,403	$	116,021	$	12,498	$	714,586

	December 31, 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	$	29,741	$	11,068	$	237,121	$	228,052	$	112,298	$	13,134	$	631,414
Special Mention	15,540		199		3,767		12,949		3,332		47		35,834
Substandard	3,902		609		18,333		12,887		2,831		49		38,611
Doubtful	1,035		—		1,399		1,042		112		30		3,618
Loss	—		—		—		—		—		—		—
Ending Balance	$	50,218	$	11,876	$	260,620	$	254,930	$	118,573	$	13,260	$	709,477

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 three months ended March 31, 2013:

	March 31, 2013
	(In thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,812	$	2,445	$	—	$	1,898	$	7
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,798		4,215		—		3,888		37
Other real estate loans	2,509		2,552		—		2,529		93
Commercial loans	1,946		1,946		—		1,946		—
Consumer loans	—		—		—		—		—
Total with no related allowance	10,065		11,158		—		10,261		137
With an allowance recorded:
Real estate loans:
Construction	1,084		1,114		484		1,099		—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	6,379		6,914		2,035		6,407		51
Other real estate loans	6,915		6,915		964		6,940		71
Commercial loans	890		912		791		900		30
Consumer loans	30		30		30		30		—
Total with a related allowance	15,298		15,885		4,304		15,376		152
Total	$	25,363	$	27,043	$	4,304	$	25,637	$	289

The following table presents loans identified as impaired by class of loan as of and for the year ended December 31, 2012:

	December 31, 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	$	1,819	$	2,370	$	—	$	2,543	$	—
Secured by farmland	—		—		—		—
Secured by 1-4 family residential	3,248		3,667		—		3,712		50
Other real estate loans	3,135		3,178		—		3,141		91
Commercial loans	1,947		1,947		—		1,924		—
Consumer loans	—		—		—		—		—
Total with no related allowance	10,149		11,162		—		11,320		141
With an allowance recorded:
Real estate loans:
Construction	1,150		2,250		166		1,685		—
Secured by farmland	—		—		—		—
Secured by 1-4 family residential	7,544		8,203		2,724		7,842		65
Other real estate loans	7,505		7,605		1,045		7,691		73
Commercial loans	417		464		338		446		14
Consumer loans	30		30		30		30		—
Total with a related allowance	16,646		18,552		4,303		17,694		152
Total	$	26,795	$	29,714	$	4,303	$	29,014	$	293

Loans modified in 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 March 31, 2013:

	Loans modified as TDR's
	For the three months ended
	March 31, 2013
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	1	48,000		48,000
Other real estate loans	2	168,000		148,000
Total real estate loans	3	216,000		196,000
Commercial loans	—	—		—
Consumer loans	—	—		—
Total	3	$	216,000	$	196,000

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2013

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 10.  Recent Accounting Pronouncements

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 adoption of the new guidance did not have a material impact on the Company's 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 adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In January 2013, the FASB issued ASU 2013-01, "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities." The amendments in this ASU clarify the scope for derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset or subject to netting arrangements. An entity is required to apply the amendments for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In February 2013, the FASB issued ASU 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The amendments in this ASU require an entity to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. In addition, the amendments require a cross-reference to other disclosures currently required for other reclassification items to be reclassified directly to net income in their entirety in the same reporting period. Companies should apply these amendments for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The Company has included the required disclosures from ASU 2013-02 in the consolidated financial statements.

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Earnings Per Share

3 Months Ended

Mar. 31, 2013

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
	March 31, 2013			March 31, 2012
	Shares	Per share Amount		Shares	Per share Amount
Basic earnings per share	7,051,009	$	0.19	6,994,858	$	0.23
Effect of dilutive securities:
stock options and grants	31,345			5,311
Diluted earnings per share	7,082,354	$	0.19	7,000,169	$	0.23

At March 31, 2013 and 2012, stock options, restricted grants and warrants representing approximately 32,500 and 157,000 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

3 Months Ended

Mar. 31, 2013

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:

	March 31, 2013					December 31, 2012
	Outstanding Balance		Percent of Total Portfolio			Outstanding Balance		Percent of Total Portfolio
	(In Thousands)					(In Thousands)
Real estate loans:
Construction	$	46,089		6.5	%	$	50,218		7.1	%
Secured by farmland		11,805		1.7	%		11,876		1.7	%
Secured by 1-4 family residential		268,770		37.6	%		260,620		36.7	%
Other real estate loans		259,403		36.3	%		254,930		35.9	%
Commercial loans		116,021		16.2	%		118,573		16.7	%
Consumer loans		12,498		1.7	%		13,260		1.9	%
		714,586		100.0	%		709,477		100.0	%
Less allowance for loan losses		13,508					14,311
Net loans	$	701,078				$	695,166

Loans presented in the table above exclude loans held for sale. The Company had $48.7 million in mortgages held for sale at March 31, 2013 and $82.1 million at December 31, 2012.

The following table presents a contractual aging of the recorded investment in past due loans by class of loans as of March 31, 2013 and December 31, 2012.

	March 31, 2013
					(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	$	—	$	591	$	1,964	$	2,555	$	43,534	$	46,089
Secured by farmland	415		—		—		415		11,390		11,805
Secured by 1-4 family residential	796		244		2,308		3,348		265,422		268,770
Other real estate loans	391		194		4,648		5,233		254,170		259,403
Commercial loans	—		145		1,906		2,051		113,970		116,021
Consumer loans	23		2		42		67		12,431		12,498
Total	$	1,625	$	1,176	$	10,868	$	13,669	$	700,917	$	714,586

	December 31, 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	$	—	$	108	$	2,043	$	2,151	$	48,067	$	50,218
Secured by farmland	415		—		—		415		11,461		11,876
Secured by 1-4 family residential	1,625		568		1,910		4,103		256,517		260,620
Other real estate loans	197		361		6,112		6,670		248,260		254,930
Commercial loans	—		44		144		188		118,385		118,573
Consumer loans	27		10		32		69		13,191		13,260
Total	$	2,264	$	1,091	$	10,241	$	13,596	$	695,881	$	709,477

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 March 31, 2013 and December 31, 2012:

	March 31, 2013				December 31, 2012
	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	$	2,790	$	268	$	2,861	$	780
Secured by 1-4 family residential	8,396		532		8,761		228
Other real estate loans	6,663		—		7,866		—
Commercial loans	2,140		—		2,146		34
Consumer loans	30		12		30		2
Total	$	20,019	$	812	$	21,664	$	1,044

If interest on non-accrual loans had been accrued, such income would have approximated $297,000 for the three months ended March 31, 2013 and $1.35 million for the year ended December 31, 2012.

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 uncollectible and are charged off immediately.

The following tables present a summary of loan classifications by class of loan as of March 31, 2013 and December 31, 2012:

	March 31, 2013
					(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	$	26,895	$	11,197	$	247,313	$	235,066	$	112,097	$	12,364	$	644,932
Special Mention	15,329		—		2,472		11,640		1,041		31		30,513
Substandard	3,344		608		17,718		12,455		2,794		63		36,982
Doubtful	521		—		1,267		242		89		40		2,159
Loss	—		—		—		—		—		—		—
Ending Balance	$	46,089	$	11,805	$	268,770	$	259,403	$	116,021	$	12,498	$	714,586

	December 31, 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	$	29,741	$	11,068	$	237,121	$	228,052	$	112,298	$	13,134	$	631,414
Special Mention	15,540		199		3,767		12,949		3,332		47		35,834
Substandard	3,902		609		18,333		12,887		2,831		49		38,611
Doubtful	1,035		—		1,399		1,042		112		30		3,618
Loss	—		—		—		—		—		—		—
Ending Balance	$	50,218	$	11,876	$	260,620	$	254,930	$	118,573	$	13,260	$	709,477

The following table presents loans identified as impaired by class of loan as of and for the three months ended March 31, 2013:

	March 31, 2013
	(In thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	1,812	$	2,445	$	—	$	1,898	$	7
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	3,798		4,215		—		3,888		37
Other real estate loans	2,509		2,552		—		2,529		93
Commercial loans	1,946		1,946		—		1,946		—
Consumer loans	—		—		—		—		—
Total with no related allowance	10,065		11,158		—		10,261		137
With an allowance recorded:
Real estate loans:
Construction	1,084		1,114		484		1,099		—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	6,379		6,914		2,035		6,407		51
Other real estate loans	6,915		6,915		964		6,940		71
Commercial loans	890		912		791		900		30
Consumer loans	30		30		30		30		—
Total with a related allowance	15,298		15,885		4,304		15,376		152
Total	$	25,363	$	27,043	$	4,304	$	25,637	$	289

The following table presents loans identified as impaired by class of loan as of and for the year ended December 31, 2012:

	December 31, 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	$	1,819	$	2,370	$	—	$	2,543	$	—
Secured by farmland	—		—		—		—
Secured by 1-4 family residential	3,248		3,667		—		3,712		50
Other real estate loans	3,135		3,178		—		3,141		91
Commercial loans	1,947		1,947		—		1,924		—
Consumer loans	—		—		—		—		—
Total with no related allowance	10,149		11,162		—		11,320		141
With an allowance recorded:
Real estate loans:
Construction	1,150		2,250		166		1,685		—
Secured by farmland	—		—		—		—
Secured by 1-4 family residential	7,544		8,203		2,724		7,842		65
Other real estate loans	7,505		7,605		1,045		7,691		73
Commercial loans	417		464		338		446		14
Consumer loans	30		30		30		30		—
Total with a related allowance	16,646		18,552		4,303		17,694		152
Total	$	26,795	$	29,714	$	4,303	$	29,014	$	293

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 March 31, 2013 was $12.0 million of which $7.1 million were included in the Company's non-accrual loan totals at that date and $4.9 million represented loans performing as agreed according to the restructured terms. The total amount of TDRs is unchanged from the amount at December 31, 2012. The amount of the valuation allowance related to total TDRs was $1.5 million and $2.0 million as of March 31, 2013 and December 31, 2012 respectively.

The $7.1 million in nonaccrual TDRs as of March 31, 2013 is comprised of $62,000 in real estate construction loans, $2.3 million in 1-4 family real estate loans, $4.7 million in other real estate loans, and $55,000 in commercial loans. The $4.9 million in TDRs which were performing as agreed under restructured terms as of March 31, 2013 is comprised of $106,000 in real estate construction loans, $1.8 million in 1-4 family real estate loans, $2.8 million in other real estate loans and $206,000 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 March 31, 2013:

	Loans modified as TDR's
	For the three months ended
	March 31, 2013
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	1	48,000		48,000
Other real estate loans	2	168,000		148,000
Total real estate loans	3	216,000		196,000
Commercial loans	—	—		—
Consumer loans	—	—		—
Total	3	$	216,000	$	196,000

During the three months ended March 31, 2013, the Company modified three loans that were considered to be TDRs and are summarized in the above table. The maturity dates were extended on two of the loans and repayment terms were modified on one loan.

During the three months ended March 31, 2013, the Company identified two loans with an aggregate recorded investment of $148,000 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 no allowance for loan losses at March 31, 2013.

As of March 31, 2013, two loans restructured as TDRs during the three month period with an aggregate recorded investment of $148,000 are included in the Company's non-accrual loans total. The remaining loan identified as a TDR during this period is included in the Company's non-performing assets that are performing as agreed under the restructured terms.

A total of four loans modified as TDRs in the past twelve months subsequently defaulted (i.e., 90 days or more past due following a restructuring) during the three months ended March 31, 2013.

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

3 Months Ended

Mar. 31, 2013

Allowance for Loan Losses [Abstract]

Allowance for Loan Losses

Note 5. Allowance for Loan Losses

As a result of improving trends in non accrual loans and improved risk ratings for several loans during the quarter, the Company recorded a recovery of loan losses of $188,000 for the three months ended March 31, 2013, compared to a provision for loan losses of $792,000 for the three months ended March 31, 2012. Non-accruals as a percentage of total loans have decreased from 3.26% in the quarter ended March 31, 2012 to 2.84% in the quarter ended March 31, 2013. The recovery of loan losses allowed the reserve ratio to decrease to 1.89% of portfolio loans at March 31, 2013 from 2.02% at December 31, 2012.

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 March 31, 2013 and December 31, 2012.

	March 31, 2013
							(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, 2012	$	1,258		$	135		$	6,276		$	4,348		$	2,098		$	196		$	14,311
Chargeoffs	(87		)	—			(489		)	(97		)	(38		)	(8		)	(719		)
Recoveries	37			—			50			9			5			3			104
Provision	32			(10		)	(29		)	(161		)	(18		)	(2		)	(188		)
Balances as of March 31, 2013	$	1,240		$	125		$	5,808		$	4,099		$	2,047		$	189		$	13,508
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	484		$	—		$	2,035		$	964		$	791		$	30		$	4,304
Collectively evaluated for impairment	756			125			3,773			3,135			1,256			159			9,204
Total ending allowance balances	$	1,240		$	125		$	5,808		$	4,099		$	2,047		$	189		$	13,508
Ending loan recorded investment balances:
Individually evaluated for impairment	$	2,896		$	—		$	10,177		$	9,424		$	2,836		$	30		$	25,363
Collectively evaluated for impairment	43,193			11,805			258,593			249,979			113,185			12,468			689,223
Total ending loan balances	$	46,089		$	11,805		$	268,770		$	259,403		$	116,021		$	12,498		$	714,586

	December 31, 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 at December 31, 2011	$	897		$	110	$	7,465		$	4,385		$	1,621		$	145		$	14,623
Chargeoffs	(2,152		)	—		(893		)	(760		)	(394		)	(72		)	(4,271		)
Recoveries	2			—		388			86			12			33			521
Provision	2,511			25		(684		)	637			859			90			3,438
Balances at December 31, 2012	$	1,258		$	135	$	6,276		$	4,348		$	2,098		$	196		$	14,311
Ending allowance balance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	166		$	—	$	2,724		$	1,045		$	338		$	30		$	4,303
Collectively evaluated for impairment	1,092			135		3,552			3,303			1,760			166			10,008
Total ending allowance balances	$	1,258		$	135	$	6,276		$	4,348		$	2,098		$	196		$	14,311
Ending loan recorded investment balances:
Individually evaluated for impairment	$	2,969		$	—	$	10,792		$	10,640		$	2,364		$	30		$	26,795
Collectively evaluated for impairment	47,249			11,876		249,828			244,290			116,209			13,230			682,682
Total ending loan balances	$	50,218		$	11,876	$	260,620		$	254,930		$	118,573		$	13,260		$	709,477

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Segment Reporting

3 Months Ended

Mar. 31, 2013

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 March 31, 2013 and 2012, respectively.

	For the three months ended														For the three months ended
	March 31, 2013														March 31, 2012
	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	$	11,088		$	4	$	469		$	(349	)	$	11,212		$	11,854	$	2	$	738		$	(402	)	$	12,192
Trust and investment fee income	—			1,095		—			(41		)	1,054			—		956		—			(35		)	921
Other income	844			74		4,112			(156		)	4,874			1,093		—		4,167			(197		)	5,063
Total operating income	11,932			1,173		4,581			(546		)	17,140			12,947		958		4,905			(634		)	18,176
Expenses:
Interest expense	1,748			—		378			(349		)	1,777			2,272		—		551			(402		)	2,421
Salaries and employee benefits	4,185			615		2,999			—			7,799			3,796		528		3,033			—			7,357
Provision for (recovery of) loan losses	(189		)	—		1			—			(188		)	792		—		—			—			792
Other	4,595			350		1,381			(197		)	6,129			3,624		318		2,247			(232		)	5,957
Total operating expenses	10,339			965		4,759			(546		)	15,517			10,484		846		5,831			(634		)	16,527
Income (loss) before income taxes and non-controlling interest	1,593			208		(178		)	—			1,623			2,463		112		(926		)	—			1,649
Income tax expense	277			86		—			—			363			313		103		—			—			416
Net Income (loss)	1,316			122		(178		)	—			1,260			2,150		9		(926		)	—			1,233
Non-controlling interest in loss of consolidated subsidiary	—			—		67			—			67			—		—		349			—			349
Net income (loss) attributable to Middleburg Financial Corporation	$	1,316		$	122	$	(111	)	$	—		$	1,327		$	2,150	$	9	$	(577	)	$	—		$	1,582
Total assets	$	1,208,288		$	6,232	$	59,623		$	(60,387	)	$	1,213,756		$	1,179,087	$	6,239	$	90,128		$	(72,243	)	$	1,203,211
Capital expenditures	$	248		$	—	$	—		$	—		$	248		$	204	$	—	$	—		$	—		$	204
Goodwill and other intangibles	$	—		$	4,108	$	1,867		$	—		$	5,975		$	—	$	4,279	$	1,867		$	—		$	6,146

XML

Loan Portfolio, Credit Quality Indicator (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	$ 714,586	$ 709,477
Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	644,932	631,414
Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	30,513	35,834
Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	36,982	38,611
Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	2,159	3,618
Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Real Estate Loans Construction [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	46,089	50,218
Real Estate Loans Construction [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	26,895	29,741
Real Estate Loans Construction [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	15,329	15,540
Real Estate Loans Construction [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	3,344	3,902
Real Estate Loans Construction [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	521	1,035
Real Estate Loans Construction [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Real Estate Loans Secured by Farmland [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	11,805	11,876
Real Estate Loans Secured by Farmland [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	11,197	11,068
Real Estate Loans Secured by Farmland [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	199
Real Estate Loans Secured by Farmland [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	608	609
Real Estate Loans Secured by Farmland [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Real Estate Loans Secured by Farmland [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Real Estate Loans Secured by 1 - 4 Family Residential [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	268,770	260,620
Real Estate Loans Secured by 1 - 4 Family Residential [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	247,313	237,121
Real Estate Loans Secured by 1 - 4 Family Residential [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	2,472	3,767
Real Estate Loans Secured by 1 - 4 Family Residential [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	17,718	18,333
Real Estate Loans Secured by 1 - 4 Family Residential [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,267	1,399
Real Estate Loans Secured by 1 - 4 Family Residential [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Other Real Estate Loans [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	259,403	254,930
Other Real Estate Loans [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	235,066	228,052
Other Real Estate Loans [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	11,640	12,949
Other Real Estate Loans [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	12,455	12,887
Other Real Estate Loans [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	242	1,042
Other Real Estate Loans [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Commercial Loans [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	116,021	118,573
Commercial Loans [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	112,097	112,298
Commercial Loans [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,041	3,332
Commercial Loans [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	2,794	2,831
Commercial Loans [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	89	112
Commercial Loans [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Consumer Loans [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	12,498	13,260
Consumer Loans [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	12,364	13,134
Consumer Loans [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	31	47
Consumer Loans [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	63	49
Consumer Loans [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	40	30
Consumer Loans [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	$ 0	$ 0

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Stock-Based Compensation Plan (Tables)

3 Months Ended

Mar. 31, 2013

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.

	March 31, 2013
	Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at beginning of year	82,171	$	17.32
Granted	—	—
Exercised	—	—
Forfeited	—	—
Outstanding at end of period	82,171	$	17.32	$	171,000

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.

	March 31, 2013
	Shares		Weighted Average Grant-Date Fair Value			Aggregate Intrinsic Value
Outstanding at beginning of year	120,455		$	15.66
Granted	—		—
Vested	(5,255	)	(13.92		)
Forfeited	—		—
Non-vested at end of period	115,200		16			2,236,000

XML

Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

Schedule of segment information

The following table presents segment information for the three months ended March 31, 2013 and 2012, respectively.

	For the three months ended														For the three months ended
	March 31, 2013														March 31, 2012
	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	$	11,088		$	4	$	469		$	(349	)	$	11,212		$	11,854	$	2	$	738		$	(402	)	$	12,192
Trust and investment fee income	—			1,095		—			(41		)	1,054			—		956		—			(35		)	921
Other income	844			74		4,112			(156		)	4,874			1,093		—		4,167			(197		)	5,063
Total operating income	11,932			1,173		4,581			(546		)	17,140			12,947		958		4,905			(634		)	18,176
Expenses:
Interest expense	1,748			—		378			(349		)	1,777			2,272		—		551			(402		)	2,421
Salaries and employee benefits	4,185			615		2,999			—			7,799			3,796		528		3,033			—			7,357
Provision for (recovery of) loan losses	(189		)	—		1			—			(188		)	792		—		—			—			792
Other	4,595			350		1,381			(197		)	6,129			3,624		318		2,247			(232		)	5,957
Total operating expenses	10,339			965		4,759			(546		)	15,517			10,484		846		5,831			(634		)	16,527
Income (loss) before income taxes and non-controlling interest	1,593			208		(178		)	—			1,623			2,463		112		(926		)	—			1,649
Income tax expense	277			86		—			—			363			313		103		—			—			416
Net Income (loss)	1,316			122		(178		)	—			1,260			2,150		9		(926		)	—			1,233
Non-controlling interest in loss of consolidated subsidiary	—			—		67			—			67			—		—		349			—			349
Net income (loss) attributable to Middleburg Financial Corporation	$	1,316		$	122	$	(111	)	$	—		$	1,327		$	2,150	$	9	$	(577	)	$	—		$	1,582
Total assets	$	1,208,288		$	6,232	$	59,623		$	(60,387	)	$	1,213,756		$	1,179,087	$	6,239	$	90,128		$	(72,243	)	$	1,203,211
Capital expenditures	$	248		$	—	$	—		$	—		$	248		$	204	$	—	$	—		$	—		$	204
Goodwill and other intangibles	$	—		$	4,108	$	1,867		$	—		$	5,975		$	—	$	4,279	$	1,867		$	—		$	6,146

XML

Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Liabilities [Abstract]
Percentage at which new appraisals are discounted (in hundredths)	10.00%
Number of consecutive monthly payments on timely basis	6
Recurring [Member]
Assets [Abstract]
U.S. government agencies	$ 15,244	$ 15,822
Obligations of states and political subdivisions	82,464	78,300
Mortgage-backed securities [Abstract]
Agency	169,600	166,943
Non-agency	19,399	15,579
Other asset-backed securities	35,361	34,642
Corporate preferred stock	67	62
Corporate securities	9,515	8,109
Mortgage interest rate locks	69	35
Interest rate swaps	21	80
Liabilities [Abstract]
Interest rate swaps	423	541
Mortgage banking hedge instruments	81	39
Nonrecurring [Member]
Liabilities [Abstract]
Loans held-for-sale	0
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Loans held for sale	48,721	82,114
Impaired loans	10,994	12,343
Assets [Abstract]
Other real estate owned	7,904	9,929
Level I [Member]
Mortgage-backed securities [Abstract]
Mortgage interest rate locks	0	0
Liabilities [Abstract]
Mortgage banking hedge instruments	0	0
Loans held-for-sale	0	0
Level I [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 stock	0	0
Corporate securities	0	0
Mortgage interest rate locks	0	0
Interest rate swaps	0	0
Liabilities [Abstract]
Interest rate swaps	0	0
Mortgage banking hedge instruments	0	0
Level I [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 II [Member]
Mortgage-backed securities [Abstract]
Mortgage interest rate locks	21	80
Liabilities [Abstract]
Mortgage banking hedge instruments	81	39
Loans held-for-sale	48,721	82,114
Level II [Member] | Recurring [Member]
Assets [Abstract]
U.S. government agencies	15,244	15,822
Obligations of states and political subdivisions	82,464	78,300
Mortgage-backed securities [Abstract]
Agency	169,600	166,943
Non-agency	19,399	15,579
Other asset-backed securities	35,361	34,642
Corporate preferred stock	67	62
Corporate securities	9,515	8,109
Mortgage interest rate locks	69	35
Interest rate swaps	21	80
Liabilities [Abstract]
Interest rate swaps	423	541
Mortgage banking hedge instruments	81	39
Level II [Member] | Nonrecurring [Member]
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Loans held for sale	48,721	82,114
Impaired loans	9,094	11,165
Assets [Abstract]
Other real estate owned	7,904	7,619
Level III [Member]
Mortgage-backed securities [Abstract]
Mortgage interest rate locks	0	0
Liabilities [Abstract]
Mortgage banking hedge instruments	0	0
Loans held-for-sale	0	0
Level III [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 stock	0	0
Corporate securities	0	0
Mortgage interest rate locks	0	0
Interest rate swaps	0	0
Liabilities [Abstract]
Interest rate swaps	0	0
Mortgage banking hedge instruments	0	0
Level III [Member] | Nonrecurring [Member]
Financial assets measured at fair value on a nonrecurring basis [Abstract]
Loans held for sale	0	0
Impaired loans	1,900	1,178
Assets [Abstract]
Other real estate owned	$ 0	$ 2,310

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012
Consolidated Statements of Comprehensive Income (Unaudited) [Abstract]
Net income	$ 1,260		$ 1,233
Other comprehensive income, (loss) net of tax:
Unrealized holding gains (losses) arising during the period (net of tax of $111 and $358 respectively for the periods presented)	(215)		695
Reclassification adjustment for gains included in net income (net of tax of $16 and $47 respectively for the periods presented)	(31)		(92)
Unrealized gain on interest rate swap (net of tax of $20 and $27 respectively for the periods presented)	39		53
Total other comprehensive income	(207)	[1]	656	[1]
Total comprehensive income (loss)	1,053		1,889
Comprehensive loss attributable to non-controlling interest	67		349
Comprehensive income attributable to Middleburg Financial Corporation	$ 1,120		$ 2,238

[1] All amounts shown are net of applicable income taxes using an income tax rate of 34%.

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General

3 Months Ended

Mar. 31, 2013

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 March 31, 2013 and December 31, 2012, the results of operations and comprehensive income for the three months ended March 31, 2013 and 2012, and changes in shareholders' equity and cash flows for the three months ended March 31, 2013 and 2012, 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, 2012 (the "2012 Form 10-K") of Middleburg Financial Corporation (the "Company"). The results of operations for the three month periods ended March 31, 2013 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 2012 consolidated financial statements have been reclassified to conform to the 2013 presentation. The amounts of these items are not considered to be material variations from the original classifications and presentations.

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2013

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 March 31, 2013 and December 31, 2012.

	March 31, 2013
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	15,244	$	—	$	15,244	$	—
Obligations of states and political subdivisions	82,464		—		82,464		—
Mortgage-backed securities:
Agency	169,600		—		169,600		—
Non-agency	19,399		—		19,399		—
Other asset-backed securities	35,361		—		35,361		—
Corporate preferred stock	67		—		67		—
Corporate securities	9,515		—		9,515		—
Mortgage interest rate locks	69		—		69		—
Interest rate swaps	21		—		21		—
Liabilities:
Interest rate swaps	$	423	$	—	$	423	$	—
Mortgage banking hedge instruments	81		—		81		—

	December 31, 2012
	(In thousands)
	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	15,822	$	—	$	15,822	$	—
Obligations of states and political subdivisions	78,300		—		78,300		—
Mortgage-backed securities:
Agency	166,943		—		166,943		—
Non-agency	15,579		—		15,579		—
Other asset-backed securities	34,642		—		34,642		—
Corporate preferred stock	62		—		62		—
Corporate securities	8,109		—		8,109		—
Mortgage interest rate locks	35		—		35		—
Interest rate swaps	80		—		80		—
Liabilities:
Interest rate swap	541		—		541		—
Mortgage banking hedge instruments	39		—		39		—

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 March 31, 2013 and December 31, 2012:

	March 31, 2013
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	48,721	$	—	$	48,721	$	—
Impaired loans	10,994		—		9,094		1,900
	December 31, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Loans held for sale	$	82,114	$	—	$	82,114	$	—
Impaired loans	12,343		—		11,165		1,178

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

	March 31, 2013
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Other real estate owned	$	7,904	$	—	$	7,904	$	—
	December 31, 2012
	(In thousands)
Description	Total		Level I		Level II		Level III
Assets:
Other real estate owned	$	9,929	$	—	$	7,619	$	2,310

Quantitative information about Level III fair value measurements

The following table presents quantitative information as of March 31, 2013 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	$	1,900	Discounted appraised value	Discount for selling costs and age of appraisals.	10% - 30% (21%)

Estimated fair values and related carrying amounts of financial instruments

The estimated fair values, and related carrying amounts, of the Company's financial instruments as of March 31, 2013 are as follows:

					March 31, 2013
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
	(In thousands)
Financial assets:
Cash and cash equivalents	$	50,450	$	50,450	$	50,450	$	—	—
Securities	331,650		331,650		—		331,650		—
Loans held for sale	48,721		48,721		—		48,721		—
Net portfolio loans	701,078		720,404		—		9,094		711,310
Bank-owned life insurance	16,604		16,604		—		16,604		—
Accrued interest receivable	4,107		4,107		—		4,107		—
Mortgage interest rate locks	69		69		—		69		—
Interest rate swaps	21		21		—		21		—
Financial liabilities:
Deposits	$	966,076	$	969,470	$	—	$	969,470	—
Securities sold under agreements
to repurchase	31,880		31,880		—		31,880		—
Short-term debt	519		519		—		519		—
FHLB borrowings	85,000		85,840		—		85,840		—
Trust preferred capital notes	5,155		5,206		—		5,206		—
Accrued interest payable	617		617		—		617		—
Interest rate swap	423		423		—		423		—
Mortgage banking hedge instruments	81		81		—		81		—

The estimated fair values, and related carrying amounts, of the Company's financial instruments at December 31, 2012 are as follows:

					December 31, 2012
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
	(In thousands)
Financial assets:
Cash and cash equivalents	$	54,415	$	54,415	$	54,415	$	—	—
Securities	319,457		319,457		—		319,457		—
Loans held for sale	82,114		82,114		—		82,114		—
Net portfolio loans	695,166		716,358		—		11,165		705,193
Bank-owned life insurance	16,484		16,484		—		16,484		—
Accrued interest receivable	3,974		3,974		—		3,974		—
Mortgage interest rate locks	35		35		—		35		—
Interest rate swaps	80		80		—		80		—
Financial liabilities:
Deposits	$	981,900	$	984,682	$	—	$	984,682	—
Securities sold under agreements
to repurchase	33,975		33,975		—		33,975		—
Short-term debt	11,873		11,873		—		11,873		—
FHLB borrowings	72,912		78,912		—		78,912		—
Trust preferred capital notes	5,155		5,221		—		5,221		—
Accrued interest payable	654		654		—		654		—
Interest rate swaps	541		541		—		541		—
Mortgage banking hedge instruments	39		39		—		39		—

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Earnings Per Share (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Shares [Abstract]
Basic earnings per share (in shares)	7,051,009	6,994,858
Effect of dilutive securities [Abstract]
stock options and grants (in shares)	31,345	5,311
Diluted earnings per share (in shares)	7,082,354	7,000,169
Per Share Amount [Abstract]
Basic earnings (loss) per share (in dollars per share)	$ 0.19	$ 0.23
Diluted earnings (loss) per share (in dollars per share)	$ 0.19	$ 0.23
Stock options, restricted grants and warrants excluded computation of earning per share (in shares)	32,500	157,000

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Accumulated Other Comprehensive Income

3 Months Ended

Mar. 31, 2013

Accumulated Other Comprehensive Income [Abstract]

Accumulated Other Comprehensive Income

Note 11. Accumulated Other Comprehensive Income

The following table presents information on changes in each component of accumulated other comprehensive income and the ending balances for the periods indicated:

	Accumulated Other Comprehensive Income (1)
	(in thousands)
	Net Unrealized Gains (Losses) on Securities			Derivatives			Total
Balance December 31, 2011	$	4,133		$	(207	)	$	3,926
Other comprehensive income before reclassifications	695			53			748
Amounts reclassified from accumulated other comprehensive income	(92		)	—			(92		)
Change during period	603			53			656
Balance March 31, 2012	$	4,736		$	(154	)	$	4,582
Balance December 31, 2012	$	6,771		$	(304	)	$	6,467
Other comprehensive income (loss) before reclassifications	(215		)	39			(176		)
Amounts reclassified from accumulated other comprehensive income	(31		)	—			(31		)
Change during period	(246		)	39			(207		)
Balance March 31, 2013	$	6,525		$	(265	)	$	6,260

(1) All amounts shown are net of applicable income taxes using an income tax rate of 34%.

The following table presents information related to reclassifications from accumulated other comprehensive income during the periods indicated.

	Amount Reclassified from Accumulated Other Comprehensive Income
	(in thousands)
Details about Accumulated Other Comprehensive Income Components	For the three months ended March 31,						Affected Line Item in the Consolidated Statements of Income
	2013			2012
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(47	)	$	(140	)	Gain on securities available for sale
Related income tax expense	16			48			Income tax expense
Net effect on accumulated other comprehensive income for the period	(31		)	(92		)	Net of tax
Total reclassifications for the period	$	(31	)	$	(92	)	Net of tax

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