MIDDLEBURG FINANCIAL CORP - FORM 8-K - EX-99.1

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8-K - MIDDLEBURG FINANCIAL CORP	f8kmbrg.htm

Exhibit 99.1

E A R N I N G S R E L E A S E

Press Contacts:	Gary R. Shook, President & CEO	540-687-4801 or
		pres@middleburgbank.com

	Raj Mehra, EVP & CFO	540-687-4816 or
		cfo@middleburgbank.com


	Jeffrey H. Culver, EVP & COO	703-737-3470 or
		coo@middleburgbank.com

MIDDLEBURG FINANCIAL CORPORATION ANNOUNCES THIRD QUARTER 2011 RESULTS

MIDDLEBURG, VA. – October 28, 2011 – Middleburg Financial Corporation (the “Company”) (Nasdaq: MBRG), today announced net income of $1.4 million for the quarter ending September 30, 2011 and $3.8 million in net income for the nine-month year to date period.

“We are pleased with the momentum in earnings experienced during the first nine months of 2011,” commented Gary R. Shook, president and chief executive officer of Middleburg Financial Corporation. “Non Performing Assets as a percentage of Total Assets is stabilizing while Revenue continues to expand with growing Net Interest Income and improved fee income from our mortgage and wealth management subsidiaries. Growth in commercial loans is weak due to soft demand from qualified borrowers while residential loan growth is strong in the face of historically low mortgage rates. Continuation of economic uncertainty and a weak employment picture will do little to improve the sluggishness in loan demand from small businesses. However, we are significantly stepping up calling programs targeted at all existing and potential clients at the Bank and at our other subsidiaries, in an effort to broaden customer outreach”

Third Quarter 2011 Highlights:

·	Net income of $1.4 million or $0.20 per diluted share;

·	Net interest margin of 3.64%, compared to 3.27% for the third quarter of 2010;

·	Total revenue of $17.2 million, up 11.7% compared to third quarter of 2010;

·	Loan growth of 2.5% since the beginning of 2011;

·	Total assets of $1.2 billion, an increase of 4.4% since the beginning of the year;

·	Deposits increased by $19.4 million or 2.2% during the year;

·	Provision for loan losses declined by 88.8% compared to third quarter of 2010; and

·	Capital ratios continue to be strong: Tangible Common Equity Ratio of 8.63%, Total Risk-Based Capital Ratio of 14.1%, Tier I Risk-Based Capital Ratio of 12.9%, and a Tier 1 Leverage Ratio of 9.0% at September 30, 2011.

Total Revenue

Total revenue was $17.2 million in the quarter ended September 30, 2011 compared to $15.4 million in the previous quarter and $14.9 million in the quarter ended September 30, 2010, representing an increase of 11.7% compared to the previous quarter and an increase of 16.2% compared to the quarter ended September 30, 2010.

Net interest income was $9.6 million during the three months ended September 30, 2011, which was 2.1% higher than the previous quarter and an increase of 21.5% compared to the quarter ended September 30, 2010. The yield on average earning assets was 4.66% for the quarter ended September 30, 2011 compared to 4.86% for the previous quarter and 4.74% for the quarter ended September 30, 2010, representing a decrease of 20 basis points from the previous quarter and a decrease of 8 basis points from the quarter ended September 30, 2010. Average earning assets increased 4.3% compared to the previous quarter. Loan growth and an increase in investment securities drove the increase in earning assets during the third quarter. The decrease in yields on earning assets from the previous quarter reflected a 13 basis point decrease in yields for the loan portfolio and a decrease of 25 basis points in the yield of the securities portfolio.

The average cost of interest bearing liabilities was 1.21% for the quarter ended September 30, 2011, compared to 1.26% in the previous quarter, and 1.73% for the quarter ended September 30, 2010, representing a decrease of 5 basis points from the previous quarter and a decrease of 52 basis points from the quarter ended September 30, 2010. Costs for wholesale borrowings increased by 1 basis point during the quarter, while costs for retail deposits decreased by 6 basis points during the same period. The decline in the cost of retail deposits during the quarter ended September 30, 2011, compared to the previous quarter, was driven by a 10 basis point decline in the cost of savings deposits. The cost of time deposits decreased by 9 basis points during the quarter ended September 30, 2011, compared to the previous quarter, as maturing CD’s re-priced at lower rates. Cost of funds is calculated by dividing annualized total interest expense by the sum of average interest bearing liabilities and average demand deposits. Cost of funds was 1.05% for the quarter ended September 30, 2011 compared to 1.10% for the quarter ended June 30, 2011, a decrease of 5 basis points from the previous quarter.

The net interest margin for the three months ended September 30, 2011 was 3.64%, compared to 3.78% for the previous quarter, and 3.27% for the quarter ended September 30, 2010, representing a decrease of 14 basis points from the previous quarter and an increase of 37 basis points compared to the quarter ended September 30, 2010.

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 services industry to determine how profitably earning assets are funded. The Company’s net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets. Tax equivalent net interest income is calculated by grossing up interest income for the amounts that are non-taxable (i.e., municipal income) then subtracting interest expense. The tax rate utilized is 34%. Details on the calculation of the net interest margin are included in the “Key Statistics” table.

Non-interest income increased by $1.6 million or 26.5% when comparing the quarter ended September 30, 2011 to the previous quarter and increased by $723,000 or 10.5% compared to the quarter ended September 30, 2010. The primary reason for the higher non-interest income in the third quarter of 2011 relative to the prior quarter was an increase in gain-on-sale revenues from the Company’s mortgage operations.

Southern Trust Mortgage originated $180.4 million in mortgage loans during the quarter ended September 30, 2011 compared to $153.0 million originated during the previous quarter, an increase of 17.9%, and $217.6 million originated during the quarter ended September 30, 2010, a decrease of 17.1% when comparing calendar quarters. Gains on mortgage loan sales increased by 39.7% when comparing the quarter ended September 30, 2011 to the previous quarter. Gains on mortgage loan sales increased by 6.9% when comparing the quarter ended September 30, 2011 to the quarter ended September 30, 2010. The increase in gain-on-sale revenue in the third quarter of 2011 was driven by an increase in gain-on-sale margins during the third quarter.

The revenues and expenses of Southern Trust Mortgage for the three month period ended September 30, 2011 are reflected in the Company’s financial statements on a consolidated basis following generally accepted accounting principles in the United States. The outstanding equity interest not held by the Company is reported on the Company’s balance sheet as “Non-controlling interest in consolidated subsidiary” and the earnings or loss attributable to the non-controlling interest is reported on the Company’s statement of income as “Net (income) / loss attributable to non-controlling interest.”

Trust and investment advisory service fees earned by Middleburg Trust Company (“MTC”) decreased by 2.0% when comparing the quarter ended September 30, 2011 to the previous quarter, and increased by 19.3% compared to the quarter ended September 30, 2010. Trust and investment advisory fees are based primarily upon the market value of the accounts under administration. Total consolidated assets under administration by MTC were at $1.2 billion at September 30, 2011, a decrease of 2.1% relative to June 30, 2011 and an increase of 20.0% relative to September 30, 2010.

Net securities gains were $141,000 during the quarter ended September 30, 2011 compared to net securities gains of $87,000 during the previous quarter and net securities gains of $288,000 during the quarter ended September 30, 2010.

Non-Interest Expense

Non-interest expense in the third quarter of 2011 increased by 8.7% compared to the previous quarter and decreased by 2.1% compared to the quarter ended September 30, 2010.

Salaries and employee benefit expenses increased by $895,000 or 11.4% when comparing the third quarter of 2011 to the previous quarter, primarily due to an increase in commission and recruiting expenses for mortgage loan officers. Expenses related to Other Real Estate Owned (OREO) increased by $83,000 or 13.7% when comparing the third quarter of 2011 to the previous quarter. Advertising expenses increased by $161,000 or 56.5% during the quarter as a result of expenses for bank-wide campaigns related to CD’s and loans and advertising at the mortgage company. FDIC insurance premiums declined by $114,000 or 31.8% compared to the previous quarter. Other operating expenses, which include expenses such as supplies, travel and entertainment expenses, increased by $74,000 or 5.4% when comparing the quarter ended September 30, 2011 to the previous quarter.

The Company’s efficiency ratio which is represented by the ratio of non-interest expense to the sum of tax equivalent net interest income and non-interest income, excluding securities gains and losses, was 80.89% for the third quarter of 2011, compared to an efficiency ratio of 82.79% in the quarter ending June 30, 2011.

Asset Quality and Provision for Loan Losses

The provision for loan losses in the quarter ended September 30, 2011 was $1,024,000 compared to a provision of $1,087,000 in the previous quarter and a provision of $9,130,000 in the quarter ended September 30, 2010, representing a decrease of 5.8% from the previous quarter and a decrease of 88.8% from the quarter ended September 30, 2010.

The Allowance for Loan and Lease Losses (ALLL) at September 30, 2011 was $15.1 million representing 2.24% of total portfolio loans outstanding versus 2.22% at June 30, 2011 and 2.42% of total portfolio loans at September 30, 2010.

Loans that were delinquent for more than 90 days and still accruing were $1.6 million as of September 30, 2011 compared to $3.2 million as of June 30, 2011, representing a decrease of 50% during the quarter.

Non-accrual loans were $30.5 million at the end of the third quarter compared to $32.3 million as of June 30, 2011, representing a decrease of 5.6% during the third quarter. Troubled debt restructurings were $404,000 at the end of the third quarter compared to $112,000 as of June 30, 2011. Other Real Estate Owned (OREO) was $6.1 million as of September 30, 2011 compared to $6.3 million as of June 30, 2011, representing a decrease of 3.2% during the third quarter. Non-performing assets were $38.5 million or 3.3% of total assets at September 30, 2011, compared to $41.9 million or 3.7% of total assets as of June 30, 2011.

Total Consolidated Assets

Total assets at September 30, 2011 were $1.2 billion, an increase of $8.9 million or 0.8% compared to total assets at June 30, 2011.

Total portfolio loans declined by $2.5 million or 0.37% for the third quarter. The securities portfolio increased by $9.9 million or 3.3% in the third quarter relative to the previous quarter. Balances of mortgages held for sale increased by $18.2 million or 37.4% in the third quarter of 2011. Cash balances and deposits at other banks decreased by 29.4% in the third quarter of 2011.

Deposits and Other Borrowings

Total deposits were unchanged in the third quarter. Brokered deposits, including CDARS program funds, were $91.9 million at September, 2011, down 1.0% from June 30, 2011. FHLB advances were $84.9 million at September 30, 2011, up $7.0 million from June 30, 2011, or an increase of 8.9%.

Equity and Capital

Total shareholders’ equity at September 30, 2011 was $105.3 million, compared to shareholders’ equity of $102.7 million as of June 30, 2011. Retained earnings at September 30, 2011 were $40.4 million compared to $39.3 million at June 30, 2011. The book value of the Company’s common stock at September 30, 2011 was $15.04 per share.

The Company’s total risk-based capital ratio was 14.1% at September 30, 2011 and December 31, 2010. The Tier 1 risk-based capital ratio increased from 12.8% to 12.9% from December 31, 2010 to September 30, 2011 and the Tier 1 Leverage Ratio remained at 9.0% as of both period ends.

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 relate to the Company’s future operations and are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import. 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. For details on factors that could affect expectations, see the risk factors and other cautionary language included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, and other filings with the Securities and Exchange Commission.

About Middleburg Financial Corporation

Middleburg Financial Corporation is headquartered in Middleburg, Virginia and has two wholly owned subsidiaries, Middleburg Bank and Middleburg Investment Group, Inc. Middleburg Bank serves communities in Virginia with financial centers in Ashburn, Gainesville, Leesburg, Marshall, Middleburg, Purcellville, Reston, Warrenton and Williamsburg. Middleburg Investment Group owns Middleburg Trust Company, which is headquartered in Richmond, Virginia with offices in Middleburg, Alexandria and Williamsburg. Middleburg Financial Corporation is also the majority owner of Southern Trust Mortgage, which is based in Virginia Beach and provides mortgages through 17 offices in 11 states.

MIDDLEBURG FINANCIAL CORPORATION
Consolidated Statements of Operations
(In thousands, except for per share data)


	Unaudited						Unaudited
	For the Nine Months						For the Three Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	29,378		$	30,661		$	9,912		$	9,832
Interest and dividends on securities available for sale
Taxable		4,877			3,194			1,727			1,166
Tax-exempt		1,757			1,914			592			621
Dividends		108			75			36			32
Interest on deposits in banks and federal funds sold		90			99			30			36
Total interest and dividend income		36,210			35,943			12,297			11,687

INTEREST EXPENSE
Interest on deposits		6,927			9,410			2,287			3,160
Interest on securities sold under agreements to
repurchase		209			144			84			63
Interest on short-term borrowings		174			245			58			134
Interest on long-term debt		914			1,298			312			372
Total interest expense		8,224			11,097			2,741			3,729

NET INTEREST INCOME		27,986			24,846			9,556			7,958
Provision for loan losses		2,565			11,350			1,024			9,130

NET INTEREST INCOME (LOSS) AFTER PROVISION
FOR LOAN LOSSES		25,421			13,496			8,532			(1,172	)

NONINTEREST INCOME
Service charges on deposit accounts		1,553			1,396			538			487
Trust services income		2,813			2,497			963			807
Gains on loans held for sale		12,286			11,621			5,501			5,147
Gains on securities available for sale, net		263			757			141			288
Total other-than-temporary impairment losses		(33	)		(857	)		(16	)		(557	)
Portion of (gain) loss recognized in other
comprehensive income		11			(117	)		(5	)		(169	)
Net impairment losses		(22	)		(974	)		(21	)		(726	)
Commissions on investment sales		552			453			187			142
Fees on mortgages held for sale		325			1,311			84			477
Other service charges, commissions and fees		347			353			98			97
Bank-owned life insurance		385			391			123			136
Other operating income		111			221			6			42
Total noninterest income		18,613			18,026			7,620			6,897

NONINTEREST EXPENSE
Salaries and employees' benefits		23,837			22,046			8,708			7,665
Net occupancy and equipment expense		5,016			4,651			1,700			1,557
Advertising		887			685			446			257
Computer operations		1,073			1,008			365			340
Other real estate owned		1,639			1,171			689			666
Other taxes		607			598			205			201
Federal deposit insurance expense		1,009			1,521			244			368
Other operating expenses		5,198			6,916			1,720			3,333
Total noninterest expense		39,266			38,596			14,077			14,387

Income (loss) before income taxes		4,768			(7,074	)		2,075			(8,662	)
Income tax expense (benefit)		1,072			(3,135	)		454			(3,297	)

NET INCOME (LOSS)		3,696			(3,939	)		1,621			(5,365	)
Net (income) loss attributable to non-
controlling interest		128			(311	)		(223	)		(423	)
Net income (loss) attributable to Middleburg
Financial Corporation	$	3,824		$	(4,250	)	$	1,398		$	(5,788	)

Earnings (loss) per share:
Basic	$	0.55		$	(0.61	)	$	0.20		$	(0.83	)
Diluted	$	0.55		$	(0.61	)	$	0.20		$	(0.83	)
Dividends per common share	$	0.15		$	0.30		$	0.05		$	0.10

MIDDLEBURG FINANCIAL CORPORATION
Consolidated Balance Sheets
(In thousands, except for share and per share data)

		(Unaudited)		(Unaudited)
		September 30,		June 30,		December 31,
		2011		2011		2010
ASSETS
	Cash and due from banks	$	5,334	$	19,598	$	21,955
	Interest-bearing deposits with other institutions		36,024		38,988		42,769
	Total cash and cash equivalents		41,358		58,586		64,724
	Securities available for sale		303,014		293,393		252,042
	Loans held for sale		66,910		48,689		59,361
	Restricted securities, at cost		7,227		6,932		6,296
	Loans receivable, net of allowance for loan losses of $15,124 at Sept. 30,
	2011, $15,073 at June 30, 2011, and $14,967 at Dec. 31, 2010		660,689		663,242		644,345
	Premises and equipment, net		21,464		21,393		21,112
	Goodwill and identified intangibles		6,244		6,286		6,360
	Other real estate owned, net of valuation allowance of $1,057 at Sept. 30,
	2011, $1,006 at June 30, 2011, and $1,486 at Dec. 31, 2010		6,096		6,255		8,394
	Prepaid federal deposit insurance		4,227		4,454		5,154
	Accrued interest receivable and other assets		36,427		35,437		36,779

	TOTAL ASSETS	$	1,153,656	$	1,144,667	$	1,104,567

LIABILITIES
	Deposits:
	Non-interest-bearing demand deposits	$	145,393	$	131,191	$	130,488
	Savings and interest-bearing demand deposits		455,893		460,518		436,718
	Time deposits		308,410		316,776		323,100
	Total deposits		909,696		908,485		890,306
	Securities sold under agreements to repurchase		31,286		35,210		25,562
	Short-term borrowings		12,864		5,692		13,320
	Long-term debt		77,912		77,912		62,912
	Subordinated notes		5,155		5,155		5,155
	Accrued interest payable and other liabilities		9,170		7,405		7,319
	Commitments and contingent liabilities		-		-		-
	TOTAL LIABILITIES		1,046,083		1,039,859		1,004,574

SHAREHOLDERS' EQUITY
	Common stock ($2.50 par value; 20,000,000 shares authorized,
	7,000,824 issued; 6,996,932, 6,992,932, and 6,925,437 outstanding at
	Sept. 30, 2011, June 30, 2011, and Dec. 31, 2010, respectively)		17,331		17,331		17,314
	Capital surplus		43,274		43,150		43,058
	Retained earnings		40,373		39,322		37,593
	Accumulated other comprehensive income (loss)		4,327		2,908		(1,012	)
	Total Middleburg Financial Corporation shareholders' equity		105,305		102,711		96,953
	Non-controlling interest in consolidated subsidiary		2,268		2,097		3,040

	TOTAL SHAREHOLDERS' EQUITY		107,573		104,808		99,993


	TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,153,656	$	1,144,667	$	1,104,567

QUARTERLY SUMMARY STATEMENTS OF OPERATIONS
MIDDLEBURG FINANCIAL CORPORATION
(Unaudited. Dollars in thousands except per share data)
	For the Three Months Ended
	Sep. 30, 2011			Jun. 30, 2011			Mar. 31, 2011			Dec. 31, 2010			Sep. 30, 2010
Interest and Dividend Income
Interest and fees on loans	$	9,912		$	9,731		$	9,735		$	9,887		$	9,832
Interest on securities available for sale
Taxable		1,727			1,751			1,399			1,539			1,166
Exempt from federal income taxes		592			604			561			600			621
Dividends		36			36			36			30			32
Interest on federal funds sold and other		30			33			27			32			36
Total interest and dividend income	$	12,297		$	12,155		$	11,758		$	12,088		$	11,687
Interest Expense
Interest on deposits	$	2,287		$	2,332		$	2,308		$	2,623		$	3,160
Interest on securities sold under agreements to repurchase		84			69			56			61			63
Interest on short-term borrowings		58			53			63			148			134
Interest on long-term debt		312			306			296			246			372
Total interest expense	$	2,741		$	2,760		$	2,723		$	3,078		$	3,729
Net interest income	$	9,556		$	9,395		$	9,035		$	9,010		$	7,958
Provision for loan losses		1,024			1,087			454			655			9,130
Net interest income (loss) after provision
for loan losses	$	8,532		$	8,308		$	8,581		$	8,355		$	(1,172	)
Other Income
Trust services income	$	963		$	983		$	867		$	838		$	807
Service charges on deposit accounts		538			526			489			488			487
Net gains (losses) on securities available for sale		141			87			35			109			288
Total other-than-temporary impairment gain (loss) on securities		(16	)		6			(17	)		(44	)		(557	)
Portion of (gain) loss recognized in other comprehensive income		(5	)		(6	)		16			(85	)		(169	)
Net other-than-temporary impairment loss		(21	)		-			(1	)		(129	)		(726	)
Commissions on investment sales		187			185			180			169			142
Bank owned life insurance		123			139			123			112			136
Gain on loans held for sale		5,501			3,938			2,847			5,537			5,147
Fees on loans held for sale		84			87			154			570			477
Other service charges, commissions and fees		98			134			115			114			97
Other operating income (loss)		6			(55	)		160			169			42
Total other income	$	7,620		$	6,024		$	4,969		$	7,977		$	6,897
Other Expense
Salaries and employee benefits	$	8,708		$	7,813		$	7,316		$	7,748		$	7,665
Net occupancy expense of premises		1,700			1,640			1,676			1,598			1,557
Other taxes		205			205			197			200			201
Advertising		446			285			156			386			257
Computer operations		365			343			365			316			340
Other real estate owned		689			606			344			842			666
Audits and examinations		103			156			126			219			96
Legal fees		172			176			89			50			96
FDIC insurance		244			358			407			386			368
Other operating expenses		1,445			1,371			1,560			2,401			3,141
Total other expense	$	14,077		$	12,953		$	12,236		$	14,146		$	14,387

Income (loss) before income taxes	$	2,075		$	1,379		$	1,314		$	2,186		$	(8,662	)
Income tax expense (benefit)		454			301			317			573			(3,297	)
Net income (loss)	$	1,621		$	1,078		$	997		$	1,613		$	(5,365	)
Less: Net (income) loss attributable to non-controlling interest		(223	)		121			230			(51	)		(423	)
Net income (loss) attributable to Middleburg Financial Corporation	$	1,398		$	1,199		$	1,227		$	1,562		$	(5,788	)

Net income (loss) per common share, basic	$	0.20		$	0.17		$	0.18		$	0.23		$	(0.83	)
Net income (loss) per common share, diluted	$	0.20		$	0.17		$	0.18		$	0.23		$	(0.83	)
Dividends per common share	$	0.05		$	0.05		$	0.05		$	0.05		$	0.10

MIDDLEBURG FINANCIAL CORPORATION
KEY STATISTICS
(Unaudited. Dollars in thousands except per share data)	For the Three Months Ended
	Sep 30, 2011			Jun 30, 2011			Mar 31, 2011			Dec 31, 2010			Sep 30, 2010

Net income (loss)	$	1,398		$	1,199		$	1,227		$	1,562		$	(5,788	)
Earnings (loss) per share, basic	$	0.20		$	0.17		$	0.18		$	0.23		$	(0.83	)
Earnings (loss) per share, diluted	$	0.20		$	0.17		$	0.18		$	0.23		$	(0.83	)
Dividend per share	$	0.05		$	0.05		$	0.05		$	0.05		$	0.10

Return on average total assets - Year to Date		0.46	%		0.45	%		0.46	%		-0.25	%		-2.11	%
Return on average total equity - Year to Date		5.07	%		4.95	%		5.11	%		-2.71	%		-22.03	%
Dividend payout ratio		25.00	%		29.41	%		27.78	%		22.21	%	NA
Non-interest revenue to total revenue (1)		43.90	%		38.72	%		35.02	%		39.82	%		38.56	%

Net interest margin (2)		3.64	%		3.78	%		3.80	%		3.60	%		3.27	%
Yield on average earning assets		4.66	%		4.86	%		4.91	%		4.78	%		4.74	%
Yield on average interest-bearing liabilities		1.21	%		1.26	%		1.30	%		1.41	%		1.73	%
Net interest spread		3.45	%		3.60	%		3.61	%		3.37	%		3.01	%

Non-interest income to average assets (3)		2.67	%		2.17	%		1.82	%		2.88	%		2.69	%
Non-interest expense to average assets (3)		4.93	%		4.67	%		4.53	%		5.09	%		5.29	%

Efficiency ratio - QTD (Tax Equiv) (4)		80.89	%		82.79	%		84.96	%		81.42	%		91.77	%

(1)	Excludes securities gains and losses including OTTI adjustments.

(2)

The net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets. Tax equivalent net interest income is calculated by grossing up interest income for the amounts that are non taxable (i.e., municipal income) then subtracting interest expense. The tax rate utilized is 34%. The Company’s net interest margin is a common measure used by the financial service industry to determine how profitably earning assets are funded. Because the Company earns a fair amount of non taxable interest income due to the mix of securities in its investment security portfolio, net interest income for the ratio is calculated on a tax equivalent basis as described above. This calculation excludes net securities gains and losses.

(3)	Ratios are computed by dividing annualized income and expense amounts by quarterly average assets.

(4)

The efficiency ratio is not a measurement under accounting principles generally accepted in the United States. It is calculated by dividing non interest expense by the sum of tax equivalent net interest income and non interest income excluding gains and losses on the investment portfolio. The tax rate utilized is 34%. The Company calculates this ratio in order to evaluate its overhead structure or how effectively it is operating.

MIDDLEBURG FINANCIAL CORPORATION
SELECTED FINANCIAL DATA BY QUARTER
(Unaudited. Dollars in thousands except per share data)	Sep 30, 2011			Jun 30, 2011			Mar 31, 2011			Dec 31, 2010			Sep 30, 2010
BALANCE SHEET RATIOS
Loans to deposits (Including HFS)		81.65	%		80.02	%		80.53	%		80.72	%		81.69	%
Portfolio loans to deposits		74.29	%		74.66	%		76.56	%		74.05	%		73.05	%
Average interest-earning assets to
average-interest bearing liabilities		119.85	%		117.42	%		117.58	%		118.50	%		117.22	%
PER SHARE DATA
Dividends	$	0.05		$	0.05		$	0.05		$	0.05		$	0.10
Book value (MFC Shareholders)	$	15.04		$	14.68		$	14.18		$	14.02		$	14.22
Tangible book value (3)	$	14.15		$	13.78		$	13.27		$	13.10		$	13.29
SHARE PRICE DATA
Closing price	$	15.00		$	14.94		$	17.75		$	14.26		$	14.08
Diluted earnings multiple (1)		18.75			21.97			24.65			15.50		NA
Book value multiple(2)		1.00			1.02			1.25			1.02			0.99

COMMON STOCK DATA
Outstanding shares at end of period		7,000,824			6,996,932			6,942,315			6,925,437			6,915,687
Weighted average shares O/S Basic - QTD		6,996,932			6,977,503			6,940,154			6,937,801			6,934,366
Weighted average shares O/S, diluted - QTD		6,998,494			6,980,331			6,943,189			6,938,359			6,934,366
CAPITAL RATIOS
Capital to Assets - Common shareholders		9.13	%		8.97	%		9.08	%		8.79	%		8.85	%
Capital to Assets - with Noncontrolling Interest		9.32	%		9.16	%		9.33	%		9.05	%		9.13	%
Tangible common equity ratio (4)		8.63	%		8.47	%		8.54	%		8.26	%		8.32	%
Total risk based capital ratio		14.12	%		14.16	%		14.52	%		14.10	%		13.54	%
Tier 1 risk based capital ratio		12.86	%		12.90	%		13.26	%		12.84	%		12.29	%
Leverage ratio		8.96	%		9.12	%		9.38	%		9.04	%		9.08	%
CREDIT QUALITY
Net charge-offs to average loans		0.13	%		0.08	%		0.12	%		0.22	%		0.47	%
Total non-performing loans to total portfolio loans		4.80	%		5.25	%		5.36	%		4.66	%		4.69	%
Total non-performing assets to total assets		3.34	%		3.66	%		3.99	%		3.54	%		3.50	%
Non-accrual loans to:
total loans		4.51	%		4.76	%		4.17	%		4.46	%		4.57	%
total assets		2.64	%		2.82	%		2.55	%		2.66	%		2.69	%
Allowance for loan losses to:
total portfolio loans		2.24	%		2.22	%		2.20	%		2.27	%		2.42	%
non-performing assets		39.24	%		35.98	%		33.65	%		38.29	%		40.84	%
non-accrual loans		49.61	%		46.67	%		52.74	%		50.93	%		53.04	%
NON-PERFORMING ASSETS:
Loans delinquent over 90 days and still accruing	$	1,561		$	3,230		$	6,593		$	909		$	388
Non-accrual loans		30,485			32,298			27,638			29,385			29,923
Restructured Loans		404			112			1,254			1,254			404
Other real estate owned and repossessed assets		6,096			6,255			7,825			8,394			8,142
Total non-performing assets	$	38,546		$	41,895		$	43,310		$	39,942		$	38,857
NET LOAN CHARGE-OFFS:
Loans charged off	$	1,017		$	621		$	933		$	1,600		$	3,351
Recoveries		(44	)		(32	)		(87	)		(42	)		(16	)
Net charge-offs	$	973		$	589		$	846		$	1,558		$	3,335
PROVISION FOR LOAN LOSSES	$	1,024		$	1,087		$	454		$	655		$	9,130
ALLOWANCE FOR LOAN LOSS SUMMARY
Balance at the beginning of period	$	15,073		$	14,575		$	14,967		$	15,870		$	10,075
Provision		1,024			1,087			454			655			9,130
Net charge-offs		(973	)		(589	)		(846	)		(1,558	)		(3,335	)
Balance at the end of period	$	15,124		$	15,073		$	14,575		$	14,967		$	15,870

(1)

The diluted earnings multiple is calculated by dividing the period’s closing market price per share by the annualized diluted earnings per share for the period. The diluted earnings multiple is a measure of how much an investor may be willing to pay for $1.00 of the Company’s earnings. In quarters where the Company incurs net losses, the diluted earnings multiple is not meaningful and is shown as “NA”.

(2)	The book value multiple (or price to book ratio) is calculated by dividing the period’s closing market price per share by the period’s book value per share. The book value multiple is a measure used to compare the Company’s market value per share to its book value per share.

(3)

Tangible book value is not a measurement under accounting principles generally accepted in the United States. It is computed by subtracting identified intangible assets and goodwill from total Middleburg Financial Corporation shareholders’ equity and then dividing the result by the number of shares of common stock issued and outstanding at the end of the accounting period.

(4)

The tangible common equity ratio is not a measurement under accounting principles generally accepted in the United States. It is computed by subtracting identified intangible assets and goodwill from total Middleburg Financial Corporation shareholders’ equity and total assets and then dividing the adjusted shareholders’ equity balance by the adjusted total asset balance.

	MIDDLEBURG FINANCIAL CORPORATION
	Average Balances, Income and Expenses, Yields and Rates
	Three months ended September 30,
	2011								2010
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate (2)			Balance			Expense		Rate (3)
	(Dollars in thousands)
Assets :
Securities:
Taxable	$	242,906		$	1,763		2.88	%	$	172,955		$	1,198		2.75	%
Tax-exempt (1)		57,800			897		6.16	%		60,101			941		6.21	%
Total securities	$	300,706		$	2,660		3.51	%	$	233,056		$	2,139		3.64	%
Total loans (3)		724,450			9,912		5.43	%		716,173			9,832		5.45	%
Interest bearing deposits in
other financial institutions		48,355			30		0.25	%		55,721			36		0.25	%
Total earning assets	$	1,073,511		$	12,602		4.66	%	$	1,004,950		$	12,007		4.74	%
Less: allowances for credit losses		(14,956	)							(10,156	)
Total nonearning assets		84,315								93,947
Total assets	$	1,142,870							$	1,088,741

Liabilities:
Interest-bearing deposits:
Checking	$	305,761		$	529		0.69	%	$	280,585		$	569		0.80	%
Regular savings		99,344			175		0.70	%		79,348			173		0.86	%
Money market savings		58,903			98		0.66	%		55,190			101		0.73	%
Time deposits:
$100,000 and over		137,483			593		1.71	%		169,903			1,217		2.84	%
Under $100,000		169,087			892		2.09	%		171,379			1,100		2.55	%
Total interest-bearing deposits	$	770,578		$	2,287		1.18	%	$	756,405		$	3,160		1.66	%

Short-term borrowings		5,576			58		4.13	%		16,341			134		3.25	%
Securities sold under agreements
to repurchase		36,241			84		0.92	%		26,534			63		0.94	%
Long-term debt		83,067			312		1.49	%		58,067			372		2.54	%
Federal funds purchased		239			-		0.00	%		-			-		-
Total interest-bearing liabilities	$	895,701		$	2,741		1.21	%	$	857,347		$	3,729		1.73	%
Non-interest bearing liabilities
Demand deposits		133,365								117,110
Other liabilities		7,376								7,080
Total liabilities	$	1,036,442							$	981,537
Non-controlling interest		2,189								2,947
Shareholders' equity		104,239								104,257
Total liabilities and shareholders'
equity	$	1,142,870							$	1,088,741

Net interest income				$	9,861							$	8,278

Interest rate spread							3.45	%							3.01	%
Cost of Funds							1.06	%							1.59	%
Interest expense as a percent of
average earning assets							1.01	%							1.47	%
Net interest margin							3.64	%							3.27	%


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

	MIDDLEBURG FINANCIAL CORPORATION
	Average Balances, Income and Expenses, Yields and Rates
	Nine Months Ended September 30
	2011								2010
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate (2)			Balance			Expense		Rate (3)
	(Dollars in thousands)
Assets :
Securities:
Taxable	$	224,461		$	4,985		2.97	%	$	145,188		$	3,269		3.01	%
Tax-exempt (1)		55,739			2,662		6.39	%		60,078			2,900		6.45	%
Total securities	$	280,200		$	7,647		3.65	%	$	205,266		$	6,169		4.02	%
Total loans (3)		706,995			29,378		5.56	%		701,446			30,661		5.84	%
Interest bearing deposits in
other financial institutions		45,819			90		0.26	%		49,194			99		0.27	%
Total earning assets	$	1,033,014		$	37,115		4.80	%	$	955,906		$	36,929		5.17	%
Less: allowances for credit losses		(14,816	)							(9,742	)
Total nonearning assets		91,379								92,521
Total assets	$	1,109,577							$	1,038,685

Liabilities:
Interest-bearing deposits:
Checking	$	295,782		$	1,506		0.68	%	$	282,245		$	1,748		0.83	%
Regular savings		95,224			567		0.80	%		75,671			544		0.96	%
Money market savings		59,266			293		0.66	%		52,625			323		0.82	%
Time deposits:
$100,000 and over		135,973			1,831		1.80	%		163,380			3,508		2.87	%
Under $100,000		168,470			2,730		2.17	%		153,284			3,287		2.87	%
Total interest-bearing deposits	$	754,715		$	6,927		1.23	%	$	727,205		$	9,410		1.73	%

Short-term borrowings		5,687			174		4.07	%		9,050			245		3.61	%
Securities sold under agreements
to repurchase		32,859			209		0.85	%		24,402			144		0.79	%
Long-term debt		79,844			914		1.53	%		53,236			1,298		3.26	%
Federal Funds Purchased		56			-		0.00	%		15			-		0.00	%
Total interest-bearing liabilities	$	873,161		$	8,224		1.26	%	$	813,908		$	11,097		1.82	%
Non-interest bearing liabilities
Demand Deposits		125,979								112,721
Other liabilities		7,081								6,657
Total liabilities	$	1,006,221							$	933,286
Non-controlling interest		2,458								2,781
Shareholders' equity		100,898								102,618
Total liabilities and shareholders'
equity	$	1,109,577							$	1,038,685

Net interest income				$	28,891							$	25,832

Interest rate spread							3.54	%							3.35	%
Cost of Funds							1.10	%							1.64	%
Interest expense as a percent of
average earning assets							1.06	%							1.55	%
Net interest margin							3.74	%							3.61	%

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

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