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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



For the quarterly period ended September 30, 2004



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------



For the transition period from              to



Commission File No. 000-31711



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BOE FINANCIAL SERVICES OF VIRGINIA, INC.

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Virginia                                                       |  | 54-1980794                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|323 Prince St., Tappahannock, VA         |  | 22560     
|(Address of principal executive offices) |  | (Zip Code)



(804) 443-4343

(Issuers telephone number, including area code)



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Check whether
the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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  x    No ̈



State the number of shares outstanding of each of the issuers
classes of common equity as of November 5, 2004.



|                              |  |                                
|----------------------------- |  | -------------------------------
|Class                         |  | Outstanding at November 5, 2004
|Common Stock, $5.00 par value |  | 1,186,934                      



Transitional Small Business Disclosure
Format (Check one):    Yes ̈No  x



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##### Table of Contents

BOE Financial Services of Virginia, Inc.



FORM 10-QSB



INDEX





|                                                                                                         |  |                                                             |  |     
|-------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------- |  | ----
|                                                                                                         |  |                                                             |  | Page
|                                                                                                         |  | PART I - FINANCIAL INFORMATION                              |  |     
|                                                                                                         |  |                                                            
|Item 1.                                                                                                  |  | Financial Statements                                        |  | 1-6 
|                                                                                                         | 
|Consolidated Balance Sheets September 30, 2004 and December 31, 2003                                     |  | 1-2                                                        
|                                                                                                         | 
|Consolidated Statements of Income Three months ended September 30, 2004 and 2003                         |  | 3                                                          
|                                                                                                         | 
|Consolidated Statements of Income Nine months ended September 30, 2004 and 2003                          |  | 4                                                          
|                                                                                                         | 
|Consolidated Statements of Cash Flows Nine months ended September 30, 2004 and 2003                      |  | 5                                                          
|                                                                                                         | 
|Consolidated Statements of Changes in Stockholders Equity Nine months ended September 30, 2004 and 2003 |  | 6                                                          
|                                                                                                         | 
|Notes to Consolidated Financial Statements                                                               |  | 7-9                                                        
|                                                                                                         |  |                                                            
|Item 2.                                                                                                  |  | Managements Discussion and Analysis or Plan of Operation   |  | 9-13
|                                                                                                         |  |                                                            
|Item 3.                                                                                                  |  | Controls and Procedures                                     |  | 13  
|                                                                                                         |  |                                                            
|                                                                                                         |  | PART II - OTHER INFORMATION                                 |  |     
|                                                                                                         |  |                                                            
|Item 1.                                                                                                  |  | Legal Proceedings                                           |  | 14  
|                                                                                                         |  |                                                            
|Item 2.                                                                                                  |  | Unregistered Sales of Equity Securities and Use Of Proceeds |  | 14  
|                                                                                                         |  |                                                            
|Item 3.                                                                                                  |  | Defaults Upon Senior Securities                             |  | 14  
|                                                                                                         |  |                                                            
|Item 4.                                                                                                  |  | Submission of Matters to a Vote of Security Holders         |  | 14  
|                                                                                                         |  |                                                            
|Item 5.                                                                                                  |  | Other Information                                           |  | 14  
|                                                                                                         |  |                                                            
|Item 6.                                                                                                  |  | Exhibits                                                    |  | 14  
|                                                                                                         | 
|Signatures                                                                                               |  | 16                                                         



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##### Table of Contents

PART I  FINANCIAL INFORMATION



Item 1.  Financial Statements

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Balance Sheets

(in Thousands except share data)



|                                                                                              |  |                   |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                              |  | September 30,2004 |         |   | December 31,2003 |  
|                                                                                              |  | (Unaudited)       |         |   |                  |  
|ASSETS                                                                                        |  |                   |         |   |                  |   |         |  
|Cash and due from banks                                                                       |  | $                 | 3,813   |   |                  | $ | 8,948   |  
|Federal funds sold                                                                            |  |                   | 2,281   |   |                  |   | 285     |  
|Securities available for sale                                                                 |  |                   |         |   |                  |   |         |  
|U.S. Treasury and Government agencies (book value of $12,220-2004 and $14,048-2003)           |  |                   | 12,225  |   |                  |   | 14,098  |  
|Obligations of state and political subdivisions (book value of $32,438-2004 and $31,373-2003) |  |                   | 33,718  |   |                  |   | 32,869  |  
|Other Securities (book value of $3,157-2004 and $4,804-2003)                                  |  |                   | 3,443   |   |                  |   | 5,234   |  
|Equity Securities, restricted, at cost                                                        |  |                   | 937     |   |                  |   | 947     |  
|Loans                                                                                         |  |                   | 166,992 |   |                  |   | 160,509 |  
|Less: Allowance for loan losses                                                               |  |                   | (2,021  | ) |                  |   | (2,128  | )
|                                                                                              |  |                   |         |   |                  |   |         |  
|Net loans                                                                                     |  |                   | 164,971 |   |                  |   | 158,381 |  
|                                                                                              |  |                  
|Bank premises and equipment, net                                                              |  |                   | 6,899   |   |                  |   | 6,526   |  
|Accrued interest receivable                                                                   |  |                   | 1,156   |   |                  |   | 1,186   |  
|Intangible assets, net                                                                        |  |                   | 807     |   |                  |   | 902     |  
|Other assets                                                                                  |  |                   | 2,332   |   |                  |   | 2,340   |  
|                                                                                              |  |                   |         |   |                  |   |         |  
|Total assets                                                                                  |  | $                 | 232,582 |   |                  | $ | 231,716 |  
|                                                                                              |  |                   |         |   |                  |   |         |  



See
accompanying notes to consolidated financial statements.



Page: 1



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##### Table of Contents

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Balance Sheets

(in Thousands except share data)



|                                            |  |            |  |            |  |                   |         |                  |   |        
|------------------------------------------- |  | ---------- |  | ---------- |  | ----------------- | ------- | ---------------- | - | -------
|                                            |  |            |  |            |  | September 30,2004 |         | December 31,2003
|                                            |  |            |  |            |  | (Unaudited)       |         |                 
|LIABILITIES AND STOCKHOLDERS EQUITY        |  |            |  |            |  |                   |         |                  |   |        
|Deposits                                    |  |            |  |            |  |                   |         |                  |   |        
|Noninterest bearing deposits                |  |            |  |            |  | $                 | 23,658  |                  | $ | 24,521 
|Interest bearing deposits                   |  |            |  |            |  |                   | 178,909 |                  |   | 178,760
|                                            |  |            |  |            |  |                   |         |                  |   |        
|Total deposits                              |  |            |  |            |  |                   | 202,567 |                  |   | 203,281
|                                            |  |            |  |           
|Accrued interest payable                    |  |            |  |            |  |                   | 309     |                  |   | 330    
|Other liabilities                           |  |            |  |            |  |                   | 1,207   |                  |   | 1,183  
|Trust preferred capital notes               |  |            |  |            |  |                   | 4,000   |                  |   | 4,000  
|                                            |  |            |  |            |  |                   |         |                  |   |        
|Total liabilities                           |  |            |  |            |  |                   | 208,083 |                  |   | 208,794
|                                            |  |            |  |            |  |                   |         |                  |   |        
|Commitments                                 |  |            |  |            |  |                   |         |                  |   |        
|Stockholders equity                        |  |            |  |            |  |                   |         |                  |   |        
|Common stock, $5.00 par value               |  |            |  |            |  |                   | 5,934   |                  |   | 5,916  
|                                            |  |            |  |           
|                                            |  | 9/30/04    |  | 12/31/03   |  |                   |         |                 
|Shares authorized                           |  | 10,000,000 |  | 10,000,000 |  |                   |         |                  |   |        
|Shares outstanding                          |  | 1,186,934  |  | 1,183,147  |  |                   |         |                  |   |        
|Paid in capital                             |  |            |  |            |  |                   | 5,061   |                  |   | 5,009  
|Accumulated other comprehensive Income, net |  |            |  |            |  |                   | 1,038   |                  |   | 1,304  
|Retained earnings                           |  |            |  |            |  |                   | 12,466  |                  |   | 10,693 
|                                            |  |            |  |            |  |                   |         |                  |   |        
|Total stockholders equity                  |  |            |  |            |  |                   | 24,499  |                  |   | 22,922 
|                                            |  |            |  |            |  |                   |         |                  |   |        
|Total liabilities and stockholders equity  |  |            |  |            |  | $                 | 232,582 |                  | $ | 231,716
|                                            |  |            |  |            |  |                   |         |                  |   |        



See
accompanying notes to consolidated financial statements.



Page: 2



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##### Table of Contents

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Statements of Income

(in Thousands, except per share information)



|                                                                 |  |                                 |       |      |   |      
|---------------------------------------------------------------- |  | ------------------------------- | ----- | ---- | - | -----
|                                                                 |  | Three Months EndedSeptember 30,
|                                                                 |  | 2004                            |       | 2003
|                                                                 |  | (Unaudited)                     |       |     
|Interest Income                                                  |  |                                 |       |      |   |      
|Interest and fees on loans                                       |  | $                               | 2,877 |      | $ | 2,754
|Interest on federal funds sold                                   |  |                                 | 2     |      |   | 9    
|Interest on U.S. Treasury securities and U.S. Agency Obligations |  |                                 | 117   |      |   | 69   
|Interest on obligations of state and political subdivisions      |  |                                 | 335   |      |   | 302  
|Interest on other securities                                     |  |                                 | 55    |      |   | 113  
|Other interest income                                            |  |                                 | 1     |      |   | 0    
|                                                                 |  |                                 |       |      |   |      
|Total interest income                                            |  |                                 | 3,387 |      |   | 3,247
|                                                                 |  |                                
|Interest Expense                                                 |  |                                 |       |      |   |      
|Interest on savings and interest bearing deposits                |  |                                 | 102   |      |   | 107  
|Interest on certificates of deposit                              |  |                                 | 747   |      |   | 853  
|Interest on federal funds purchased                              |  |                                 | 9     |      |   |     
|Interest Federal Home Loan Bank advances                         |  |                                 | 0     |      |   | 27   
|Interest on trust preferred capital notes                        |  |                                 | 49    |      |   | 0    
|                                                                 |  |                                 |       |      |   |      
|Total interest expense                                           |  |                                 | 907   |      |   | 987  
|                                                                 |  |                                 |       |      |   |      
|Net interest income                                              |  |                                 | 2,480 |      |   | 2,260
|Provision for loan losses                                        |  |                                 | 75    |      |   | 150  
|                                                                 |  |                                 |       |      |   |      
|Net interest income after provision for loan losses              |  |                                 | 2,405 |      |   | 2,110
|                                                                 |  |                                 |       |      |   |      
|Noninterest Income                                               |  |                                 |       |      |   |      
|Service charges on deposit accounts                              |  |                                 | 248   |      |   | 258  
|Gains on sale of loans                                           |  |                                 | 11    |      |   | 22   
|Other fee income                                                 |  |                                 | 40    |      |   | 53   
|All other noninterest income                                     |  |                                 | 92    |      |   | 70   
|                                                                 |  |                                 |       |      |   |      
|Total noninterest income                                         |  |                                 | 391   |      |   | 403  
|                                                                 |  |                                 |       |      |   |      
|Noninterest Expense                                              |  |                                 |       |      |   |      
|Salaries and employee benefits                                   |  |                                 | 944   |      |   | 933  
|Premises and fixed assets                                        |  |                                 | 278   |      |   | 222  
|Intangible premium amortization                                  |  |                                 | 31    |      |   | 31   
|Other expenses                                                   |  |                                 | 494   |      |   | 538  
|                                                                 |  |                                 |       |      |   |      
|Total noninterest expense                                        |  |                                 | 1,747 |      |   | 1,724
|                                                                 |  |                                 |       |      |   |      
|Income before income taxes                                       |  |                                 | 1,049 |      |   | 789  
|Income tax provision                                             |  |                                 | 232   |      |   | 190  
|                                                                 |  |                                 |       |      |   |      
|Net income                                                       |  | $                               | 817   |      | $ | 599  
|                                                                 |  |                                 |       |      |   |      
|Earnings per share, basic                                        |  | $                               | 0.69  |      | $ | 0.51 
|Earnings per share, diluted                                      |  | $                               | 0.68  |      | $ | 0.50 



See
accompanying notes to consolidated financial statements.



Page: 3



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##### Table of Contents

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Statements of Income

(in Thousands, except per share information)



|                                                                 |  |                                |       |      |   |      
|---------------------------------------------------------------- |  | ------------------------------ | ----- | ---- | - | -----
|                                                                 |  | Nine Months EndedSeptember 30,
|                                                                 |  | 2004                           |       | 2003
|                                                                 |  | (Unaudited)                    |       |     
|Interest Income                                                  |  |                                |       |      |   |      
|Interest and fees on loans                                       |  | $                              | 8,135 |      | $ | 8,423
|Interest on federal funds sold                                   |  |                                | 8     |      |   | 17   
|Interest on U.S. Treasury securities and U.S. Agency Obligations |  |                                | 363   |      |   | 212  
|Interest on obligations of state and political subdivisions      |  |                                | 994   |      |   | 979  
|Interest on other securities                                     |  |                                | 222   |      |   | 279  
|Other interest income                                            |  |                                | 3     |      |   | 0    
|                                                                 |  |                                |       |      |   |      
|Total interest income                                            |  |                                | 9,725 |      |   | 9,910
|                                                                 |  |                               
|Interest Expense                                                 |  |                                |       |      |   |      
|Interest on savings and interest bearing deposits                |  |                                | 310   |      |   | 354  
|Interest on certificates of deposit                              |  |                                | 2,218 |      |   | 2,734
|Interest on federal funds purchased                              |  |                                | 20    |      |   | 4    
|Interest Federal Home Loan Bank advances                         |  |                                | 0     |      |   | 82   
|Interest on trust preferred capital notes                        |  |                                | 135   |      |   | 0    
|                                                                 |  |                                |       |      |   |      
|Total interest expense                                           |  |                                | 2,683 |      |   | 3,174
|                                                                 |  |                                |       |      |   |      
|Net interest income                                              |  |                                | 7,042 |      |   | 6,736
|Provision for loan losses                                        |  |                                | 225   |      |   | 550  
|                                                                 |  |                                |       |      |   |      
|Net interest income after provision for loan losses              |  |                                | 6,817 |      |   | 6,186
|                                                                 |  |                                |       |      |   |      
|Noninterest Income                                               |  |                                |       |      |   |      
|Service charges on deposit accounts                              |  |                                | 750   |      |   | 610  
|Securities gains                                                 |  |                                | 50    |      |   | 22   
|Gains on sale of loans                                           |  |                                | 47    |      |   | 63   
|Other fee income                                                 |  |                                | 162   |      |   | 193  
|All other noninterest income                                     |  |                                | 265   |      |   | 196  
|                                                                 |  |                                |       |      |   |      
|Total noninterest income                                         |  |                                | 1,274 |      |   | 1,084
|                                                                 |  |                                |       |      |   |      
|Noninterest Expense                                              |  |                                |       |      |   |      
|Salaries and employee benefits                                   |  |                                | 2,868 |      |   | 2,757
|Premises and fixed assets                                        |  |                                | 751   |      |   | 646  
|Other expenses                                                   |  |                                | 1,579 |      |   | 1,497
|Intangible premium amortization                                  |  |                                | 94    |      |   | 94   
|                                                                 |  |                                |       |      |   |      
|Total noninterest expense                                        |  |                                | 5,292 |      |   | 4,994
|                                                                 |  |                                |       |      |   |      
|Income before income taxes                                       |  |                                | 2,799 |      |   | 2,276
|Income taxes                                                     |  |                                | 665   |      |   | 503  
|                                                                 |  |                                |       |      |   |      
|Net income                                                       |  | $                              | 2,134 |      | $ | 1,773
|                                                                 |  |                                |       |      |   |      
|Earnings per share, basic                                        |  | $                              | 1.80  |      | $ | 1.50 
|Earnings per share, diluted                                      |  | $                              | 1.79  |      | $ | 1.49 



See
accompanying notes to consolidated financial statements.



Page: 4



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##### Table of Contents

BOE FINANCIAL SERVICES OF VIRGINIA, Inc.

Consolidated Statements of Cash Flows

(in Thousands)



|                                                                                  |  |                                |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Nine Months EndedSeptember 30, |       
|                                                                                  |  | 2004                           |        |   | 2003 |  
|                                                                                  |  | (Unaudited)                    |        |   |      |  
|Cash Flows from Operating Activities                                              |  |                                |        |   |      |   |        |  
|Net income                                                                        |  | $                              | 2,134  |   |      | $ | 1,773  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |        |   |      |   |        |  
|Depreciation and amortization                                                     |  |                                | 380    |   |      |   | 372    |  
|Origination of loans held for sale                                                |  |                                | (5,220 | ) |      |   | (9,167 | )
|Proceeds from sale of loans held for sale                                         |  |                                | 5,267  |   |      |   | 8,998  |  
|Provision for loan losses                                                         |  |                                | 225    |   |      |   | 550    |  
|Net amortization on securities                                                    |  |                                | 164    |   |      |   | 161    |  
|Net loss on sale of securities                                                    |  |                                | (50    | ) |      |   | (22    | )
|(Gain) on sale of loans                                                           |  |                                | (47    | ) |      |   | (63    | )
|Decrease in accrued interest receivable and other assets                          |  |                                | 178    |   |      |   | 1,307  |  
|Increase (decrease) in accrued expenses and other liabilities                     |  |                                | 3      |   |      |   | 214    |  
|                                                                                  |  |                                |        |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                                | 3,034  |   |      |   | 4,123  |  
|                                                                                  |  |                                |        |   |      |   |        |  
|Cash Flows from Investing Activities                                              |  |                                |        |   |      |   |        |  
|Proceeds from sale of securities available-for-sale                               |  |                                | 7,035  |   |      |   | 561    |  
|Proceeds from maturities and calls of securities available-for-sale               |  |                                | 3,049  |   |      |   | 4,607  |  
|Purchase of securities available for sale                                         |  |                                | (7,788 | ) |      |   | (8,590 | )
|Proceeds from redemption of equity securities                                     |  |                                | 10     |   |      |   |       |  
|Net decrease (increase) in loans to customers                                     |  |                                | (6,815 | ) |      |   | 6,936  |  
|(Increase) in federal funds sold                                                  |  |                                | (1,996 | ) |      |   | (4,846 | )
|Capital expenditures                                                              |  |                                | (659   | ) |      |   | (142   | )
|                                                                                  |  |                                |        |   |      |   |        |  
|Net cash (used in) investing activities                                           |  |                                | (7,164 | ) |      |   | (1,474 | )
|                                                                                  |  |                                |        |   |      |   |        |  
|Cash Flows from Financing Activities                                              |  |                                |        |   |      |   |        |  
|Net increase (decrease) in deposits                                               |  |                                | (714   | ) |      |   | 307    |  
|Proceeds from issuance of common stock                                            |  |                                | 70     |   |      |   | 55     |  
|Dividends paid                                                                    |  |                                | (361   | ) |      |   | (319   | )
|                                                                                  |  |                                |        |   |      |   |        |  
|Net cash provided by (used in) financing activities                               |  |                                | (1,005 | ) |      |   | 43     |  
|                                                                                  |  |                                |        |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents                              |  |                                | (5,135 | ) |      |   | 2,692  |  
|Cash and Cash Equivalents                                                         |  |                                |        |   |      |   |        |  
|Beginning of period                                                               |  |                                | 8,948  |   |      |   | 5,603  |  
|                                                                                  |  |                                |        |   |      |   |        |  
|End of period                                                                     |  | $                              | 3,813  |   |      | $ | 8,295  |  
|                                                                                  |  |                                |        |   |      |   |        |  
|Supplemental disclosure of cash flow information                                  |  |                                |        |   |      |   |        |  
|Cash paid during the year Interest                                                |  | $                              | 2,704  |   |      | $ | 3,267  |  
|                                                                                  |  |                                |        |   |      |   |        |  
|Income Taxes                                                                      |  | $                              | 620    |   |      | $ | 434    |  
|                                                                                  |  |                                |        |   |      |   |        |  



See
accompanying notes to consolidated financial statements.



Page: 5



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##### Table of Contents

BOE Financial Services of Virginia, Inc.

Statements of Changes in Stockholders Equity

For the Nine Month Periods Ended September 30, 2004 and 2003

(in thousands)

(Unaudited)



|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|------------------------------------------------------------------------------- |  | ----------- | ----- | ------------------------ | - | ---------------- |  | - | ----------------------------------- | - |  | ------------------- | ----- | - | ----- | - | ----- | - |  | - | ------ | -
|                                                                                |  | CommonStock |       | AdditionalPaid-InCapital |   | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome |   |  | ComprehensiveIncome |       |   | Total |  
|Balance, December 31, 2002                                                      |  | $           | 5,889 |                          | $ | 4,931            |  | $ | 8,948                               |   |  | $                   | 1,578 |   |       |   |       |   |  | $ | 21,346 |  
|Comprehensive Income:                                                           |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|                                                                                |  |             |       |                          |   |                 
|Net income                                                                      |  |             |       |                          |   |                  |  |   | 1,773                               |   |  |                     |       |   |       | $ | 1,773 |   |  |   | 1,773  |  
|Other comprehensive income, net of tax:                                         |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Unrealized loss on securities available for sale, net of deferred taxes of $118 |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   | (227  | ) |  |   |        |  
|Less: Reclassification adjustment, net of taxes of $7                           |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   | (15   | ) |  |   |        |  
|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Other comprehensive income, net of tax:                                         |  |             |       |                          |   |                  |  |   |                                     |   |  |                     | (242  | ) |       |   | (242  | ) |  |   | (242   | )
|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Total comprehensive income                                                      |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       | $ | 1,552 |   |  |   |        |  
|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Cash dividends, $0.27 per share                                                 |  |             |       |                          |   |                  |  |   | (319                                | ) |  |                     |       |   |       |   |       |   |  |   | (319   | )
|                                                                                |  |             |       |                          |   |                 
|Issuance of common stock                                                        |  |             | 15    |                          |   | 40               |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   | 55     |  
|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Balance, September 30, 2003                                                     |  | $           | 5,904 |                          | $ | 4,971            |  | $ | 10,402                              |   |  | $                   | 1,336 |   |       |   |       |   |  | $ | 22,613 |  
|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|                                                                                |  |             |       |                          |   |                 
|                                                                                |  | CommonStock |       | AdditionalPaid-InCapital |   | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome |   |  | ComprehensiveIncome |       |   | Total |  
|Balance, December 31, 2003                                                      |  | $           | 5,916 |                          | $ | 5,009            |  | $ | 10,693                              |   |  | $                   | 1,304 |   |       |   |       |   |  | $ | 22,922 |  
|Comprehensive Income:                                                           |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|                                                                                |  |             |       |                          |   |                 
|Net income                                                                      |  |             |       |                          |   |                  |  |   | 2,134                               |   |  |                     |       |   |       | $ | 2,134 |   |  |   | 2,134  |  
|Other comprehensive income, net of tax:                                         |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Unrealized loss on securities available for sale, net of deferred taxes of $120 |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   | (233  | ) |  |   |        |  
|Add: Reclassification adjustment, net of taxes of $17                           |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   | (33   | ) |  |   |        |  
|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Other comprehensive income, net of tax:                                         |  |             |       |                          |   |                  |  |   |                                     |   |  |                     | (266  | ) |       |   | (266  | ) |  |   | (266   | )
|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Total comprehensive income                                                      |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       | $ | 1,868 |   |  |   |        |  
|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Cash dividends, $0.30 per share                                                 |  |             |       |                          |   |                  |  |   | (361                                | ) |  |                     |       |   |       |   |       |   |  |   | (361   | )
|                                                                                |  |             |       |                          |   |                 
|Issuance of common stock under                                                  |  |             | 18    |                          |   | 52               |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   | 70     |  
|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Balance, September 30, 2004                                                     |  | $           | 5,934 |                          | $ | 5,061            |  | $ | 12,466                              |   |  | $                   | 1,038 |   |       |   |       |   |  | $ | 24,499 |  
|                                                                                |  |             |       |                          |   |                  |  |   |                                     |   |  |                     |       |   |       |   |       |   |  |   |        |  



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BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Notes to Consolidated Financial Statements

(in Thousands)

(Unaudited)



1. The accounting and reporting policies of the registrant conform to accounting principles
generally accepted in the United States of America and to the general practices within the banking industry. The interim financial statements have not been audited; however, in the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the consolidated financial statements, have been included. Operating results for the three month and nine month periods ended September 30, 2004 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2004.



These financial statements should be read in conjunction with the financial statements and the footnotes included in the registrants 2003 Annual Report to Shareholders.



2. At September 30, 2004, the Company had a stock-based employee compensation plan. The Company accounts for the plan under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an
exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Corporation had applied the fair value recognition provisions of
SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



3. Earnings per share are based on the weighted average number of common shares and common stock equivalents outstanding during the applicable periods. The following is a summary of the basic and diluted earnings per
share calculation for the three and nine months ended September 30, 2004 and 2003:



|                                  |  |                                 |       |                                |   |       |  |      |       |  |   |      
|--------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                  |  | Three months endedSeptember 30, |       | Nine months endedSeptember 30,
|                                  |  | 2004                            |       | 2003                           |   | 2004  |  | 2003
|Basic earnings per share:         |  |                                 |       |                                |   |       |  |      |       |  |   |      
|Net income                        |  | $                               | 817   |                                | $ | 599   |  | $    | 2,134 |  | $ | 1,773
|Average common shares outstanding |  |                                 | 1,187 |                                |   | 1,181 |  |      | 1,185 |  |   | 1,179
|Basic net income per share        |  | $                               | 0.69  |                                | $ | 0.51  |  | $    | 1.80  |  | $ | 1.50 
|Diluted earnings per share:       |  |                                 |       |                                |   |       |  |      |       |  |   |      
|Net income                        |  | $                               | 817   |                                | $ | 599   |  | $    | 2,134 |  | $ | 1,773
|Average common shares outstanding |  |                                 | 1,194 |                                |   | 1,189 |  |      | 1,194 |  |   | 1,187
|Diluted net income per share      |  | $                               | 0.68  |                                | $ | 0.50  |  | $    | 1.79  |  | $ | 1.49 



4. Loans are shown on the balance
sheets net of unearned discounts and the allowance for loan losses. Interest is computed by methods which result in level rates of return on principal. Loans are charged off when in the opinion of management they are deemed to be uncollectable after
taking into consideration such factors as the current financial condition of the customer and the underlying collateral and guarantees. Loan fees and origination costs are deferred and the net amount amortized as an adjustment of the related loans
yield using the level yield method. Bank of Essex (the Bank), a wholly owned subsidiary of the registrant, is amortizing these amounts over the contractual life of the related loans.



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|                                                                                                                                  |  |      |       |   |      |   |       |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|Nine months Ended September 30,                                                                                                   |  | 2004 |       |   | 2003 |  
|Net income, as reported                                                                                                           |  | $    | 2,134 |   |      | $ | 1,773 |  
|Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of tax
effect |  |      | (34   | ) |      |   | (31   | )
|                                                                                                                                  |  |      |       |   |      |   |       |  
|Pro forma net income                                                                                                              |  | $    | 2,100 |   |      | $ | 1,742 |  
|                                                                                                                                  |  |      |       |   |      |   |       |  
|Earnings per share:                                                                                                               |  |      |       |   |      |   |       |  
|Basic-as reported                                                                                                                 |  | $    | 1.80  |   |      | $ | 1.50  |  
|                                                                                                                                  |  |      |       |   |      |   |       |  
|Basic-pro forma                                                                                                                   |  | $    | 1.77  |   |      | $ | 1.48  |  
|                                                                                                                                  |  |      |       |   |      |   |       |  
|Diluted-as reported                                                                                                               |  | $    | 1.79  |   |      | $ | 1.49  |  
|                                                                                                                                  |  |      |       |   |      |   |       |  
|Diluted-pro forma                                                                                                                 |  | $    | 1.76  |   |      | $ | 1.47  |  
|                                                                                                                                  |  |      |       |   |      |   |       |  
|                                                                                                                                  |  |     
|Three months Ended September 30,                                                                                                  |  | 2004 |       |   | 2003 |  
|Net income, as reported                                                                                                           |  | $    | 817   |   |      | $ | 599   |  
|Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of tax
effect |  |      | (11   | ) |      |   | (10   | )
|                                                                                                                                  |  |      |       |   |      |   |       |  
|Pro forma net income                                                                                                              |  | $    | 806   |   |      | $ | 589   |  
|                                                                                                                                  |  |      |       |   |      |   |       |  
|Earnings per share:                                                                                                               |  |      |       |   |      |   |       |  
|Basic-as reported                                                                                                                 |  | $    | 0.69  |   |      | $ | 0.51  |  
|                                                                                                                                  |  |      |       |   |      |   |       |  
|Basic-pro forma                                                                                                                   |  | $    | 0.68  |   |      | $ | 0.50  |  
|                                                                                                                                  |  |      |       |   |      |   |       |  
|Diluted-as reported                                                                                                               |  | $    | 0.68  |   |      | $ | 0.50  |  
|                                                                                                                                  |  |      |       |   |      |   |       |  
|Diluted-pro forma                                                                                                                 |  | $    | 0.67  |   |      | $ | 0.50  |  
|                                                                                                                                  |  |      |       |   |      |   |       |  



5.
Recent Accounting Pronouncements



On March 9, 2004, the SEC
Staff issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments(SAB 105). SAB 105 clarifies existing accounting practices relating to the valuation of issued loan commitments,
including interest rate lock commitments (IRLC), subject to SFAS No. 149 and Derivative Implementation Group Issue C13, Scope Exceptions: When a Loan Commitment is included in the Scope of Statement 133. Furthermore,
SAB 105 disallows the inclusion of the values of a servicing component and other internally developed intangible assets in the initial and subsequent IRLC valuation. The provisions of SAB 105 were effective for loan commitments entered into after
March 31, 2004. The Company has adopted the provisions of SAB 105. Since the provisions of SAB 105 affect only the timing of the recognition of mortgage banking income, management does not anticipate that this guidance will have a material adverse
effect on either the Companys consolidated financial position or consolidated results of operations.



Emerging Issues Task Force Issue No. 03-1 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments(EITF 03-1) was issued and is effective March 31, 2004. The EITF 03-1 provides guidance for determining the meaning of other -than-temporarily impaired and its application to certain debt and equity securities within the
scope of Statement of Financial Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities(SFAS No. 115) and investments accounted for under the cost method. The guidance requires
that investments which have declined in value due to credit concerns or solely due to changes in interest rates must be recorded as other-than-temporarily impaired unless the Company can assert and demonstrate its intention to hold the security for
a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the investment which might mean maturity. This issue also requires disclosures assessing the ability and intent to hold investments in instances in which
an investor determines that an investment with a fair value less than cost is not other-than-temporarily impaired.



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On September 30, 2004, the Financial Accounting Standards Board decided to delay the effective date for
the measurement and recognition guidance contained in Issue 03-1. This delay does not suspend the requirement to recognize other-than-temporary impairments as required by existing authoritative literature. The disclosure guidance in Issue 03-1 was
not delayed.



EITF No. 03-16, Accounting for
Investments in Limited Liability Companies was ratified by the Board and is effective for reporting periods beginning after June 15, 2004.APB Opinion No. 18, The Equity Method of Accounting Investments in Common
Stock, prescribes the accounting for investments in common stock of corporations that are not consolidated. AICPA Accounting Interpretation 2, Investments in Partnerships Ventures,of Opinion 18, indicates that
many of the provisions of the Opinion would be appropriate in accounting for partnerships. In EITF Abstracts,Topic No. D-46, Accounting for Limited Partnership Investments,the SEC staff clarified its view that
investments of more than 3 to 5 percent are considered to be more than minor and, therefore, should be accounted for using the equity method. Limited liability companies (LLCs) have characteristics of both characteristics of both corporations and
partnerships, but are dissimilar from both in certain respects. Due to those similarities and differences, diversity in practice exists with respect to accounting for non-controlling investments in LLCs. The consensus reached was that an LLC should
be viewed as similar to a corporation or similar to a partnership for purposes of determining whether a non-controlling investment should be accounted for using the cost method or the equity method of accounting.



Item 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION CRITICAL ACCOUNTING POLICIES



General



The Companys financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The
financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the
ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. The Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan
portfolio. Actual losses could differ significantly from the historical factors that the Company uses. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the Companys
transactions would be the same, the timing of events that would impact its transactions could change.



Allowance for Loan Losses



The allowance for loan losses is an estimate of the losses that may be sustained in the Banks loan portfolio. The allowance is based on two basic
principles of accounting: (i) SFAS 5, Accounting for Contingencies,which requires that losses be accrued when they are probable of occurring and estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan,which
requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. The use of these values is inherently subjective
and our actual losses could be greater or less than the estimates.



The allowance consists of specific, general and unallocated components. The specific components relate to loans that are classified as either doubtful or substandard. For such loans that are also classified as impaired, an allowance is
established when the discounted cash flows ( or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss
experience adjusted for qualitative factors.



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An unallocated component is maintained to cover uncertainties that could affect managements estimate of losses. The
unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio



The allowance for loan losses is increased by charges to income and decreased
by charge-offs (net of recoveries). Managements periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers
ability to repay, the estimated value of any underlying collateral, and current economic conditions.



Overview



On September 30, 2004 BOE had total assets of $232.6 million, an increase of $866,000 or 0.4% from $231.7 million at December 31, 2003. Total assets at
September 30, 2003 were $229.9 million. The September 30, 2004 total assets figure represents an increase of 1.2% or $2.7 million over one year ago.



Total loans amounted to $167.0 million on September 30, 2004, an increase of $6.5 million, or 4.0% more than the December 31, 2003 total loans of $160.5
million. This September 30, 2004 figure represents an increase of $10.0 million or 6.4% from total loans of $157.0 million on September 30, 2003. This loan growth has occurred primarily from commercial loans secured by real estate. These loans have
been funded by a reduction in cash and due from banks and a reduction in federal funds sold from one year ago.



The Companys securities portfolio decreased $2.8 million, or 5.3% from $53.1 million at December 31, 2003 to $50.3 million at September 30, 2004.
Total securities were $46.9 million on September 30, 2003. Federal funds sold were $2.3 million on September 30, 2004. At December 31, 2003 BOE had sold $285,000 of federal funds. The Bank had federal funds sold of $7.2 million as of September 30,
2003.



The Company is required to account for the effect of
market changes in the value of securities available-for-sale (AFS) under SFAS 115. The impact of the change in market value of AFS securities, net of deferred income taxes, is reflected in the Statement of Changes in Stockholders Equity under
Accumulated Other Comprehensive Income. On September 30, 2004, the Companys net unrealized gain on AFS securities represented $1.0 million, compared to $1.3 million at December 31, 2003 and a net unrealized gain of $1.3 million at September
30, 2003.



Total deposits at September 30, 2004 were $202.6
million. This amount reflects a $714,000 decrease is 0.4% less than total deposits of $203.2 million at December 31, 2003 and $999,000 or 0.5% greater than total deposits of $201.6 million at September 30, 2003.



Stockholders equity at September 30, 2004 was $24.5 million and
represented 10.5% of total assets. Stockholders equity was $22.9 million, or 9.9% of total assets at December 31, 2003, and $22.6 million, or 9.8% of total assets at September 30, 2003.



Results of Operations



Net Income



Net income was $817,000 for the third quarter of 2004, or $0.68 per diluted
share. This compares to net income of $599,000, or $0.50 per diluted share in the third quarter of 2003. The increase in earnings for the third quarter of 2004 over 2003 was $218,000, or 36.4%.



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This increase in earnings for the third quarter of 2004 compared to the same period in 2003 was primarily
the result of an increase of $140,000, or 4.3%, in interest income. Interest income, on a tax equivalent basis, was $3.421 million in the third quarter of 2004 compared to $3.290 million in the third quarter of 2003. Contributing to the increase in
income for the comparison period was an $80,000, or 8.1%, decrease in interest expense, and a $75,000 decrease in provision for loan losses. Offsetting these increases was an additional $23,000 in noninterest expenses and $42,000 more in income tax
expenses for the third quarter of 2004 compared to the same period in 2003.



On a year-to-date basis net income was up 20.4%, or $361,000. Net income was $2.134 million for the first nine months of 2004 compared to $1.773 million for the same period in 2003. This increase in net income was the
result of improved asset quality, causing the provision for loan losses to decrease $325,000, or 59.1%. The provision for loan losses was $225,000 for the first nine months of 2004 and $550,000 for the first nine months of 2003. Additionally, net
interest income increased $306,000, or 4.5%. Net interest income was $7.042 million in the first nine months of 2004 compared to net interest income of $6.736 million for the same period in 2003. Noninterest income increased $190,000 for the nine
month comparison period and securities gains increased $28,000. Offsetting these increases in net income was $298,000 in additional noninterest expenses and $162,000 in additional income tax expenses recognized for the nine month period.



Net Interest Income



The Companys results of operations are significantly affected by its
ability to manage effectively the interest rate sensitivity and maturity of its interest-earning assets and interest-bearing liabilities. At September 30, 2004, the Companys interest-earning assets exceeded its interest-bearing
liabilities by approximately $34.5 million, compared with a $27.8 million excess one year ago. Net interest margins were 4.43% through September 30, 2004 compared to 4.20% through September 30, 2003.



Annualized net interest income on a tax-equivalent basis through nine months
of 2004 increased by 6.5% to $9.526 million from $8.944 million for the same period a year ago. (The Company uses a 34% federal tax rate to compute yields on tax-exempt securities.) Through the first nine months of 2004 the Companys yield on
earning assets was 6.00%, down from 6.18% a year ago, while its cost of average interest bearing liabilities decreased from 2.26% to 1.87% during the nine month period. The Bank had outstanding a one year line of credit from the Federal Home Loan
Bank of Atlanta for $4,000,000 on September 30, 2003. The cost of this borrowing was 2.75%. The Companys average loan-to-deposit ratio has decreased from 81.6% for the nine month period ended September 30, 2003 to 80.5% for the same period
ended September 30, 2004.



Provision for Loan
Losses



The Companys provision for loan losses decreased
to $75,000 for the third quarter of 2004 compared to $150,000 in the third quarter of 2003. For the nine month period ended September 30, 2004 the Company had expensed $225,000 to its provision compared to $550,000 for the same period in 2003. Net
charged-off loans were $332,000 in the first nine months of 2004 and $486,000 in the first nine months of 2003. The allowance for loan losses as a percentage of total loans was 1.21%, 1.33%, and 1.39%, respectively as of September 30, 2004, December
31, 2003 and September 30, 2003. The decrease in provision for loan losses for the 2004 time periods compared to 2003 was the result of improved asset quality, resulting in a $1.5 million reduction in nonaccrual loans from September 30, 2003 to
September 30, 2004 and a reduction of $577,000 in loans past due 90 days or more from the same comparison period.



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Noninterest Income



Noninterest income, including gains on securities, was $391,000 for the third quarter of 2004 compared to $403,000 in the
same period of 2003. This represented a decrease of 3.0%, or $12,000. All other noninterest income was $92,000 for the third quarter of 2004 compared to $70,000 for the same period in 2003. This represented an increase of $22,000, or 31.4%. Several
small decreases in noninterest income categories related to fee income produced by loan volume resulted in the $12,00 reduction in this category. Other fee income decreased $13,000, or 24.5%, from $53,000 in the third quarter of 2003 compared to
$40,000 for the same period in 2004. Gains on sale of loans decreased $11,000, or 50%. The sale of loans underwritten for the secondary market resulted in noninterest income of $11,000 for the third quarter of 2004 compared to $22,000 for the same
period in 2003. Service charges on deposit accounts were $248,000 for the third quarter of 2004 compared to $258,000 for the same period in 2003. This is a decrease of $10,000, or 3.9%.



On a year-to-date basis noninterest income increased 17.5%, or $190,000, from $1.084 million for the first nine months of
2003 to $1.274 million for the same period in 2004. Service charges on deposit accounts increased $140,000, or 23.0%, from $610,000, through nine months of 2003, to $750,000 through nine months in 2004. This increase is the result of the
implementation in July of 2003 of an automated program for overdraft fees, which significantly reduced the percentage of fees waived by the bank. All other noninterest income increased 35.2%, or $69,000, from $196,000 in the first nine months of
2003 to $265,000 in the first nine months of 2004. Offsetting these increases was other fee income decreased $31,000, or 16.1%, from $193,000 in the first nine months of 2003 to $162,000 in the first nine months of 2004. Gains/(losses) on sale of
loans decreased $16,000, or 25.4% and was $47,000 and $63,000 in the first nine months of 2004 and 2003, respectively.



Noninterest Expenses



Noninterest expenses increased $23,000, or 1.3%, from $1.724 million in the third quarter of 2003 to $1.747 million in the third quarter of 2004. Premises
and fixed assets increased $56,000, or 25.2%. This increase is primarily from computer upgrades throughout the Company and start up costs related to internet banking which was launched in September 2004. Salaries and employee benefits were $11,000
greater in the third quarter of 2004 compared to the same period in 2003. Other expenses decreased $44,000, or 8.2%.



For the nine month period ended September 30, 2004, noninterest expenses increased $298,000, or 6.0%, to $5.292 million in the 2004 comparison period from
$4.994 million in 2003. Premises and fixed assets were $751,000 in the first nine months of 2004, up $105,000, or 16.3%, from $646,000 in the first nine months of 2003. Salaries and employee benefits were $111,000, or 4.0% greater through nine
months of 2004 compared to the same period in 2003. Other expenses were $1.579 million for the first nine months of 2004 and $1.497 for the first nine months of 2003. This $82,000 increase equates to 5.5%.



Income Taxes



Income tax expense for the third quarter of 2004 was $232,000 compared to
$190,000 for the same period in 2003. This represents an increase of $42,000, or 22.1% and was the result of higher earnings for the third quarter of 2004 compared to the same period in 2003.



For the nine month period ended September 30, 2004 income tax expense totaled
$665,000 compared to $503,000 through nine months in 2003. This is an increase of $162,000 or 32.2% and is the result of higher earnings for year-to-date 2004 compared to the same period in 2003.



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Asset Quality



The Companys allowance for loan losses totaled $2.021 million on September 30, 2004 or 1.21% of total loans, as
compared to 1.33% at December 31, 2003 and 1.39% on September 30, 2003. On September 30, 2004, the Company had non-accruing loans of $376,000 compared to $1.853 million on September 30, 2003. Loans past due 90 days or more and still accruing
interest totaled $86,000 on September 30, 2004 compared to $663,000 on September 30, 2003. The decrease in non-accruing loans for September 30, 2004 compared to September 30, 2003 corresponds to the third quarter of 2004 restoration of a previously
nonaccruing loan to an interest accruing basis and to the decrease in loans past due 90 days or more and still accruing interest for the same period.



Capital Requirements



The determination of capital adequacy depends upon a number of factors, such as asset quality, liquidity, earnings, growth trends and economic conditions.
The Bank seeks to maintain a strong capital base to support its growth and expansion plans, provide stability to current operations and promote public confidence in the Bank.



The federal banking regulators have defined three tests for assessing the capital strength and adequacy of banks, based on
two definitions of capital. Tier 1 Capital is defined as a combination of common and qualifying preferred stockholders equity less goodwill. Tier 2 Capital is defined as qualifying subordinated debt and a portion of the
allowance for loan losses. Total Capitalis defined as Tier 1 Capital plus Tier 2 Capital.



Three risk-based capital ratios are computed using the above capital definitions, total assets and risk-weighted assets and are measured against
regulatory minimums to ascertain adequacy. All assets and off-balance sheet risk items are grouped into categories according to degree of risk and assigned a risk-weighting and the resulting total is risk-weighted assets. Tier 1 Risk-based
Capital is Tier 1 Capital divided by risk-weighted assets. Total Risk-based Capital is Total Capital divided by risk-weighted assets. The Leverage ratio is Tier 1 Capital divided by total average assets.



At September 30, 2004, the Banks ratio of total capital to
risk-weighted assets was 15.57% and its ratio of Tier 1 Capital to risk-weighted assets was 14.46%. The Banks leverage ratio (Tier I capital to average adjusted total assets) was 11.29%. These ratios exceed regulatory minimums.



The improvement in these ratios in 2004 compared to 2003 were the result of
the Company raising $4.0 million in trust preferred subordinated debt that qualifies as regulatory capital in the fourth quarter of 2003. This trust preferred debt has a 30-year maturity with a 5-year call option and was issued at a rate of three
month LIBOR plus 3.00% for an initial rate of 4.17%.



Item 3. Controls and Procedures



As
of the end of the period covered by this report, the Company has carried out an evaluation, under the supervision and with the participation of the companys management, including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14. Based on that evaluation, the Companys disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic SEC filings. There have been no significant changes in the Companys internal
controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation.



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##### Table of Contents

PART II - OTHER INFORMATION



Item 1. Legal Proceedings



None



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



None



Item 3. Defaults Upon Senior Securities



None



Item 4. Submission of Matters to a Vote of Security Holders



None



Item 5. -Other Information



None



Item 6. Exhibits



Exhibit
Listing



|              |  |                                                                                                                                                                                                                                                                                   
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                       
|2             |  | Agreement and Plan of Reorganization (the Reorganization Agreement) dated as of March 20, 2000 between the Corporation and Bank. (Exhibit A of the Proxy Statement included in Form
S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by reference).
|              | 
|3(a)          |  | Articles of Incorporation of the Corporation (Appendix 1 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by
reference).                                                                        
|              | 
|3(b)          |  | Bylaws (Appendix 2 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by reference).                                                                                                              
|              | 
|10(a)         |  | The Corporations Stock Incentive Plan (Appendix 3 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by
reference).                                                                              
|              | 
|10(b)         |  | First Amendment to the Corporations Stock Incentive Plan (Exhibit 99(b) to Form S-8 Registration Statement (No. 333-49538) filed November 8, 2000, incorporated by
reference).                                                                                                   
|              | 
|10(c)         |  | The Corporations Stock Option Plan for Outside Directors (Appendix 4 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24,
2000, incorporated by reference).                                                           



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##### Table of Contents

|      |  |                                                                                                                                                                                                   
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10(d) |  | First Amendment to the Corporations Stock Option Plan for Outside Directors (Exhibit 99(d) to Form S-8 Registration Statement (No. 333-49538) filed November 8, 2000, incorporated by
reference).
|      | 
|      |  | BOE Financial Services Dividend Reinvestment Plan (Incorporated by reference to the Registrants Registration Statement on Form S-3D filed November 8, 2000)                                      
|      | 
|31.1  |  | Certification of Chief Executive Officer required by Rule 13a14(a)/15d- 14(a) under the Exchange Act                                                                                             
|      | 
|31.2  |  | Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                                                                              
|      | 
|32.   |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002                            
|      | 
|99.1  |  | BOE Financial Services Dividend Reinvestment Plan (Incorporated by reference to the Registrants Registration Statement on Form S-3D filed November 8, 2000)                                      



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##### Table of Contents

Signatures



In accordance with to the
requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|         |  |                                          |  |                                                    
|-------- |  | ---------------------------------------- |  | ---------------------------------------------------
|         |  | BOE Financial Services of Virginia, Inc.
|         |  | (Registrant)                            
|         |  |                                         
|11/12/04 |  | By:                                      |  | /s/ George M. Longest, Jr.                         
|(Date)   |  |                                          |  | (Signature)                                        
|         |  |                                          |  | George M. Longest, Jr.                             
|         |  |                                          |  | President and Chief Executive Officer              
|         |  |                                         
|11/12/04 |  | By:                                      |  | /s/ Bruce E. Thomas                                
|(Date)   |  |                                          |  | (Signature)                                        
|         |  |                                          |  | Bruce E. Thomas                                    
|         |  |                                          |  | Secretary, Vice President & Chief Financial Officer



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