UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549



FORM 10-Q



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

of the Securities Exchange Act of 1934



For the quarterly period ended September 30, 2005



or



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

of the Securities Exchange Act of 1934



For the transition period from ____________ to _____________



Commission File Number:  0-24159



CITIZENS BANCORP OF VIRGINIA, INC.

(Exact name of registrant as specified in its charter)



|Virginia
(State or other jurisdiction of
incorporation or organization)       | 54-0169450
(I.R.S. Employer
Identification No.)
|----------------------------------------------------------------------------- | -----------------------------------------------
|126 South Main Street
Blackstone, VA
(Address of principal executive offices) | 23824
(Zip Code)                               



434-292-7221

(Registrants telephone number, including area code)



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

|Yes | X |  | No | 
|--- | - |  | -- | 



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

|Yes |  |  | No | X
|--- |  |  | -- | -



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

|Yes |  |  | No | X
|--- |  |  | -- | -



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:

2,440,750 shares of common stock, par value of $.50 per share,

outstanding as of  November 10, 2005.

---





CITIZENS BANCORP OF VIRGINIA, INC.

FORM 10-Q



For the Quarter Ended September 30, 2005



INDEX



Part I.    Financial Information

Page No.



Item 1.

Financial Statements



Consolidated Balance Sheets

3



Consolidated Statements of Income

4



Consolidated Statements of Changes in Stockholders Equity

5



Consolidated Statements of Cash Flows

6



Notes to Interim Consolidated Financial Statements

7



Item 2.

Managements Discussion and Analysis of Financial

Condition and Results of Operations

12



Item 3.       Quantitative and Qualitative Disclosures About Market Risk

17



Item 4.       Controls and Procedures

17





Part II.     Other Information



Item 1.

Legal Proceedings



18



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

18



Item 3.

Defaults upon Senior Securities

18



Item 4.

Submission of Matters to a Vote of Security Holders

18



Item 5.

Other Information

18



Item 6.

Exhibits

18





Signatures

19







2

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Part I.  Financial Information



Item 1.  Financial Statements



CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(Dollars in thousands, except share data)

|                                                                     |  | September 30,       |  | December 31,     
|-------------------------------------------------------------------- |  | ------------------- |  | -----------------
|                                                                     |  | 2005                |  | 2004             
|Assets                                                               |  | (Unaudited)         |  |                  
|                                                                     |  |                     |  |                  
|Cash and due from banks                                              |  | $          9,127    |  | $          8,419 
|Interest-bearing deposits in banks                                   |  | 67                  |  | 1,557            
|Federal funds sold                                                   |  | 4,758               |  | 11,604           
|Securities available for sale, at fair market value                  |  | 46,403              |  | 46,364           
|Restricted securities                                                |  | 684                 |  | 631              
|Loans, net of allowance for loan losses of $1,995                    |  |                     |  |                  
|and $2,740                                                           |  | 199,478             |  | 195,498          
|Premises and equipment, net                                          |  | 7,187               |  | 7,427            
|Accrued interest receivable                                          |  | 1,734               |  | 1,509            
|Other assets                                                         |  | 8,568               |  | 7,985            
|                                                                     |  |                     |  |                  
|Total assets                                                         |  | $        278,006    |  | $       280,994  
|                                                                     |  |                     |  |                  
|Liabilities and Stockholders' Equity                                 |  |                     |  |                  
|                                                                     |  |                     |  |                  
|Liabilities                                                          |  |                     |  |                  
|Deposits:                                                            |  |                     |  |                  
|Noninterest-bearing                                                  |  | $       34,717      |  | $     35,125     
|Interest-bearing                                                     |  | 203,728             |  | 210,574          
|Total deposits                                                       |  | $       238,445     |  | $      245,699   
|                                                                     |  |                     |  |                  
|Short-term borrowings                                                |  | $          4,126    |  | $        1,264   
|Accrued interest payable                                             |  | 798                 |  | 675              
|Accrued expenses and other liabilities                               |  | 1,289               |  | 903              
|Total liabilities                                                    |  | $       244,658     |  | $      248,541   
|                                                                     |  |                     |  |                  
|Commitments and Contingencies                                        |  |                     |  |                  
|                                                                     |  |                     |  |                  
|Stockholders' Equity                                                 |  |                     |  |                  
|Preferred stock, $0.50 par value; authorized 1,000,000 shares;       |  |                     | 
|none outstanding                                                     |  | $                 - |  | $               -
|Common stock, $0.50 par value; authorized 10,000,000 shares;         |  |                     | 
|issued and outstanding, 2,440,750                                    |  | 1,220               |  | 1,220            
|Additional paid-in capital                                           |  | 49                  |  | 49               
|Retained earnings                                                    |  | 32,479              |  | 31,358           
|Accumulated other comprehensive (loss), net                          |  | (400)               |  | (174)            
|Total stockholders' equity                                           |  | $         33,348    |  | $         32,453 
|                                                                     |  |                     |  |                  
|Total liabilities and stockholders' equity                           |  | $       278,006     |  | $       280,994  
|                                                                     |  |                     |  |                  
|See accompanying Notes to Interim Consolidated Financial Statements. |  |                     |  |                  

3

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|CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
|---------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                             
|                                                                                                                                             
|Interest and Dividend Income                                                                                                                 
|Loans, including fees                                                                                                                        
|Investment securities:                                                                                                                       
|Taxable                                                                                                                                      
|Exempt from federal income taxes                                                                                                             
|Dividends                                                                                                                                    
|Federal Funds sold                                                                                                                           
|Other                                                                                                                                        
|                                                                                                                                             
|Total interest and dividend income                                                                                                           
|                                                                                                                                             
|Interest Expense                                                                                                                             
|Deposits                                                                                                                                     
|Short-term borrowings                                                                                                                        
|Total interest expense                                                                                                                       
|Net interest income                                                                                                                          
|Provision for loan losses                                                                                                                    
|                                                                                                                                             
|Net interest income after provision                                                                                                          
|for loan losses                                                                                                                              
|                                                                                                                                             
|Noninterest Income                                                                                                                           
|Service charges on deposit accounts                                                                                                          
|Net gain on sales and calls of securities                                                                                                    
|Net gain on sales of loans                                                                                                                   
|Net gain (loss) on sale of other real estate owned                                                                                           
|Income from bank owned life insurance                                                                                                        
|Other                                                                                                                                        
|Total noninterest income                                                                                                                     
|                                                                                                                                             
|Noninterest Expense                                                                                                                          
|Salaries and employee benefits                                                                                                               
|Net occupancy expense                                                                                                                        
|Equipment expense                                                                                                                            
|Other                                                                                                                                        
|Total noninterest expense                                                                                                                    
|                                                                                                                                             
|Income before income taxes                                                                                                                   
|                                                                                                                                             
|Income taxes                                                                                                                                 
|                                                                                                                                             
|Net income                                                                                                                                   
|                                                                                                                                             
|Earnings per share, basic and diluted                                                                                                        
|Dividends per share                                                                                                                          



See accompanying Notes to Interim Consolidated Financial Statements.

4

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|CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY                  
|-------------------------------------------------------------------
|Consolidated Statements of Changes in Stockholders' Equity         
|For the  Nine Months Ended September 30,  2005 and 2004
(Unaudited)
|                                                                   
|                                                                   
|(Dollars in thousands)                                             
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Balance at December 31, 2003                                       
|Comprehensive income:                                              
|Net income                                                         
|Other comprehensive loss:                                          
|Unrealized (losses) on securities available                        
|for sale, net of deferred taxes                                    
|Total comprehensive income                                         
|Shares repurchased                                                 
|                                                                   
|Cash dividends                                                     
|Balance at September 30, 2004                                      
|                                                                   
|Balance at December 31, 2004                                       
|Comprehensive income:                                              
|Net income                                                         
|Other comprehensive loss:                                          
|Unrealized (losses) on securities available                        
|for sale, net of deferred taxes                                    
|Total comprehensive income                                         
|Cash dividends                                                     
|Balance at  September 30, 2005                                     
|                                                                   



See accompanying Notes to Interim Consolidated Financial Statements.



5

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|CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY                   
|--------------------------------------------------------------------
|Consolidated Statements of Cash Flows                               
|(Dollars in thousands)                                              
|(Unaudited)                                                         
|                                                                    
|                                                                    
|                                                                    
|Cash Flows from Operating Activities                                
|Net income                                                          
|Adjustments to reconcile net income to net cash                     
|provided by operating activities:                                   
|Depreciation                                                        
|Provision for loan losses                                           
|Net (gain) on sales and calls of securities                         
|Net  loss on sale of OREO                                           
|Net amortization of securities                                      
|Changes in assets and liabilities:                                  
|(Increase) in accrued interest receivable                           
|(Increase) in other assets                                          
|Increase in accrued interest payable                                
|Increase in accrued expenses and other liabilities                  
|Net cash provided by operating activities                           
|Cash Flows from Investing Activities                                
|Activity in available for sale securities:                          
|Sales and calls                                                     
|Maturities and prepayments                                          
|Purchases                                                           
|(Purchase) redemption of restricted securities                      
|Net (increase) in loans                                             
|Purchases of land, premises and equipment                           
|Proceeds from sale of other real estate owned                       
|Net cash (used in) investing activities                             
|Cash Flows from Financing Activities                                
|Net increase (decrease) in deposits                                 
|Net (decrease) in short-term borrowings                             
|Repurchase of common stock                                          
|Dividends paid                                                      
|Net cash provided by (used in) financing activities                 
|Net increase (decrease) in cash and cash equivalents                
|Cash and Cash Equivalents                                           
|Beginning of period                                                 
|End of period                                                       
|Supplemental Disclosures of Cash Flow Information                   
|Cash paid during the year for:                                      
|Interest                                                            
|Income taxes                                                        
|Supplemental Disclosures of Noncash Investing                       
|and Financing Activities                                            
|Other real estate acquired in settlement of loans                   
|Unrealized (losses) on securities available for sale                
|See accompanying Notes to Interim Consolidated Financial Statements.

6

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CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY

Notes to Interim Consolidated Financial Statements

(Unaudited)







Note 1.

General



| | The Consolidated Balance Sheets at September 30, 2005 and December 31, 2004 and the Consolidated Statements of Income, Changes in Stockholders Equity and Cash Flows for the nine months ended September 30, 2005 and 2004, prepared in accordance with instructions for Form 10-Q, do not include all of the information and footnotes required by accounting principles (GAAP) generally accepted in the United States of America for complete financial statements. However, in the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position at September 30, 2005.  The
statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Citizens Bancorp of Virginia, Inc. Annual Report on Form 10-K
for the year ended December 31, 2004. The results of operations for the nine-month period ended September 30, 2005 are not necessarily indicative of the results to be expected for the full year.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Citizens Bancorp of Virginia, Inc. (Company) is a one-bank holding company formed on September 24, 2003.  The Company is the sole shareholder of its only subsidiary, Citizens Bank and Trust Company (Bank).  The Bank conducts and transacts the general business of a commercial bank as authorized by the banking laws of the Commonwealth of Virginia and the rules and regulations of the Federal Reserve System.   The Bank was incorporated in 1873 under the laws of Virginia.  Deposits are insured by the Federal Deposit Insurance Corporation.  As of September 30, 2005, the Bank had 111 full-time equivalent employees.  The main office of the Bank is located in Blackstone, Virginia, and all branch offices are located in Virginia.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Note 2.

Securities



Securities available for sale are summarized below:



|(Dollars in thousands) | September 30, 2005
|---------------------- | ------------------
|                       |                   
|                       | Amortized         
|                       | Cost              
|U.S. government        |                   
|and federal agency     | $      19,434     
|State and municipal    | 16,133            
|Mortgage-backed        | 7,801             
|Corporate              | 3,640             
|                       | $     47,008      















7

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|(Dollars in thousands) | December 31, 2004
|---------------------- | -----------------
|                       |                  
|                       | Amortized        
|                       | Cost             
|U.S. government        |                  
|and federal agency     | $    18,434      
|State and municipal    | 16,134           
|Mortgage-backed        | 8,378            
|Corporate              | 3,682            
|                       | $    46,628      
|                       |                  



Information pertaining to securities with gross unrealized losses at September 30, 2005 and December 31, 2004, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is summarized as follows:





|                    |  | Less than 12 Months    |  | 12 Months or More 
|------------------- |  | ---------------------- |  | ------------------
|                    |  | Fair                   |  | Unrealized        
|2005                |  | Value                  |  | (Loss)            
|                    |  | (Dollars in thousands)
|U.S. government     |  |                        |  |                   
|and federal agency  |  | $          6,639       |  | $             (74)
|State and municipal |  | 1,431                  |  | (11)              
|Mortgage-backed     |  | 4,288                  |  | (38)              
|Corporate           |  | 1,022                  |  | (21)              
|Total temporarily   |  |                        |  |                   
|impaired securities |  | $         13,380       |  | $           (144) 
|                    |  |                        |  |                   



|                    |  | Less than 12 Months    |  | 12 Months or More
|------------------- |  | ---------------------- |  | -----------------
|                    |  | Fair                   |  | Unrealized       
|2004                |  | Value                  |  | (Loss)           
|                    |  | (Dollars in thousands)
|U.S. government     |  |                        |  |                  
|and federal agency  |  | $       6,917          |  | $           (89) 
|State and municipal |  | 3,101                  |  | (73)             
|Mortgage-backed     |  | 4,486                  |  | (29)             
|Corporate           |  | 2,322                  |  | (30)             
|Total temporarily   |  |                        |  |                  
|impaired securities |  | $      16,826          |  | $          (221) 
|                    |  |                        |  |                  



The
unrealized losses in the investment portfolio as of September 30, 2005 are considered temporary and are a
result of general market fluctuations that occur daily.  The unrealized losses are from investment
 grade securities, backed by insurance, U.S. government agency guarantees, or the full faith and credit of
 local municipalities throughout the United States.  Market prices change daily and are affected by
 conditions beyond the control of the Company.  Investment decisions are made by the management group
of the Company and reflect the overall liquidity and strategic asset/liability objectives of the Company.
  Management analyzes the securities portfolio frequently and manages the portfolio to provide an
overall positive impact to the Companys income statement and balance sheet.  Since the Company
 has the ability and intent to hold debt securities for the foreseeable future, no declines are deemed to be other than temporary.

8

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Note  3.

Loans



The loan portfolio was composed of the following at the dates indicated:



|(Dollars in thousands)           | September 30,
2005 |  | December 31,  2004
|-------------------------------- | ------------------ |  | ------------------
|Mortgage loans on real estate:   |                    |  |                   
|Commercial                       | $       53,591     |  | $       50,624    
|Residential 1-4 family           | 94,489             |  | 93,002            
|Construction                     | 10,542             |  | 10,767            
|Total real estate loans          | $     158,622      |  | $     154,393     
|Commercial loans                 | 24,766             |  | 26,464            
|Consumer                         | 18,085             |  | 17,381            
|Total loans                      | $     201,473      |  | $     198,238     
|Less:  Allowance for Loan Losses | 1,995              |  | 2,740             
|Loans, net                       | $     199,478      |  | $     195,498     



The Company had $1.2 million in non-performing loans at September 30, 2005, as compared to $2.2 million at December 31, 2004.



Note 4.

Allowance for Loan Losses



The following is a summary of transactions in the Allowance for Loan Losses for the periods indicated:

|                                           | Six Months Ended |  | YearEnded           
|------------------------------------------ | ---------------- |  | --------------------
|(Dollars in thousands)                     | June 30,
2005    |  | December 31,    2004
|Balance, beginning                         | $         2,740  |  | $         2,371     
|Provision for loan losses                  | 228              |  | 703                 
|Loans charged off                          | (1,342)          |  | (468)               
|Recoveries of loans previously charged off | 369              |  | 134                 
|Balance, ending                            | $         1,995  |  | $         2,740     



The following is a summary of impaired loans at the dates indicated:



|                                                                                       | September 30               | December 31          
|-------------------------------------------------------------------------------------- | -------------------------- | ---------------------
|(Dollars in Thousands)                                                                 | 2005                       | 2004                 
|Impaired loans with a valuation allowance                                              | $                 1,150    | $             1,705  
|Impaired loans without a valuation allowance                                           | - -                        | - -                  
|Total impaired loans                                                                   | $                  1,150   | $             1,705  
|                                                                                       |                            |                      
|Valuation allowance related to impaired loans                                          | $                    336   | $             1,032  
|                                                                                       |                            |                      
|Average investment in impaired loans for nine months of 2005 and twelve months of 2004 | $                 1,305    | $             2,690  
|                                                                                       |                            |                      
|Interest income recognized                                                             | $                        8 | $                 - -



9

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Non-accrual loans,
excluded from the impairment disclosure above, under the Statement of Financial Accounting Standard (SFAS) No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures (SFAS No. 118), totaled $75,987 and $483,534 at September 30, 2005 and December 31, 2004, respectively.  Income on non-accrual and impaired loans under the original terms would have been approximately $102,717 and $55,792 for September 30, 2005 and December 31, 2004, respectively.





Note 5.

Earnings Per Share



The weighted average number of shares used in computing earnings per share was 2,440,750 shares for the three months and nine months ended September 30, 2005 and 2,447,086 shares for the nine months ended September 30, 2004.





Note 6.

Defined Benefit Pension Plan



The components of Net Periodic Benefit Cost for the nine months ended September 30, 2005 and 2004 were as follows:



|(Dollars in thousands)             |  | Pension Benefits
|---------------------------------- |  | ----------------
|                                   |  | 2005            
|                                   |  |                 
|Service cost                       |  | $       226     
|Interest cost                      |  | 162             
|Expected return on plan assets     |  | (172)           
|Amortization of prior service cost |  | (72)            
|Amortization of net actuarial loss |  | 69              
|Net periodic benefit cost          |  | $       213     
|                                   |  |                 

The Company made its required 2005 fiscal year contribution to the pension plan in December 2004 in the amount of $252,000 and anticipates making the 2006 contribution in December 2005.   The Company estimates this contribution to be approximately $250,000.  The pension plan has a fiscal year ending September 30, providing the Company the flexibility as to the calendar year in which it makes pension plan contributions.



Note 7.

Recent Accounting Pronouncements









In
May 2005, the Financial Accounting Standards Board (FASB) issued Statement No. 154
(SFAS No. 154), Accounting Changes and Error Corrections - A Replacement of APB
 Opinion No. 20 and FASB Statement No. 3.  The new standard changes the requirements
 for the accounting for and reporting of a change in accounting principle.  Among other changes, SFAS
 No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all
 prior period financial statements presented on the new accounting principle, unless it is impracticable to
 do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a
long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected
by a change in accounting principle, and (2) correction of errors in previously issued financial statements
should be termed a restatement.  The new standard is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The company does not anticipate this revision will
 have a material effect on its financial statements.

10

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On
December 16, 2004, the FASB issued Statement No. 123R (revised 2004), Share-Based Payment
(FAS 123R), that addresses the accounting for share-based payment transactions in which a company receives
employee services in exchange for either equity instruments of the company or liabilities that are based on
 the fair value of the companys equity instruments or that may be settled by the issuance of such
equity instruments.  FAS 123R eliminates the ability to account for share-based compensation
transactions using the intrinsic method and requires that such transactions be accounted for using
a fair-value-based method and recognized as expense in the consolidated statement of income.  
The effective date of FAS 123R (as amended by the Securities and Exchange Commission (SEC))
 is for annual periods beginning after June 15, 2005.  The provisions of FAS 123R do not have
an impact on the Companys results of operations at the present time.



In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107).  SAB 107 expresses the views of the SEC staff regarding the interaction of FAS 123R and certain SEC rules and regulations and provides the SEC staffs view regarding the valuation of share-based payment arrangements for public companies.  SAB 107 does not impact the Companys results of operations at the present time.



In November 2003, the Emerging Issues Task
Force (EITF or Task Force) published Issue 03-1, The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain Investments. The Task
 Force discussed the meaning of other-than-temporary impairment and its application to certain
 investments carried at cost. The Task Force requested that the FASB staff consider other impairment
 models within U.S. Generally Accepted Accounting Principles (GAAP) when developing its
views. The Task Force also requested that the scope of the impairment issue be expanded to include equity
 investments and investments subject to FASB Statement No. 115, Accounting for Certain Investments
 in Debt and Equity Securities, and that the issue be addressed by the Task Force as a separate
EITF issue. At the EITF meeting, the Task Force reached a consensus on one issue that
certain quantitative and qualitative disclosures should be required
 for securities accounted for under Statement 115 that are impaired at the balance
sheet date but for which an other-than-temporary impairment has not been recognized. The
 FASB ratified the consensus on that one issue. In November 2004, the FASB directed its staff to
issue two proposed FASB Staff Positions (FSP): Proposed FSP EITF Issue 03-1-a, which provides
 guidance for the application of paragraph 16 of EITF Issue 03-1 to debt securities that are impaired
because of interest rate and/or sector spread increases, and Proposed FSP EITF Issue 03-1-b, which
delays the effective date of Issue 03-1 for debt securities that are impaired because of interest rate
and/or sector spread increases. In June 2005, the FASB reached a decision whereby it declined to
provide additional guidance on the meaning of other-than-temporary impairment. The FASB directed its
staff to issue EITF Issue 03-1-a as final and to draft a new FSP that will replace EITF Issue 03-1.  The
 final FSP (retitled FAS 115-1, The Meaning of Other-Than-Temporary Impairment and it Application to
Certain Investments) would be effective for other-than-temporary impairment analysis conducted in
periods beginning after September 15, 2005. The Company does not anticipate this revision will have
a material effect on its financial statements.



11

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Item 2.      Managements Discussion and Analysis of Financial Condition and Results of Operations



GENERAL



The following discussion provides information about the major components of the results of operations and financial condition, liquidity, and capital resources of Citizens Bancorp of Virginia, Inc. (the Company).  This discussion and analysis should be read in conjunction with the Companys Consolidated Financial Statements and Notes to the Interim Consolidated Financial Statements included in this quarterly report.



The Company conducts the general business of a commercial bank, offering traditional lending and deposit products to businesses and individuals.  Revenue is generated primarily from interest income received on loans and investments, as well as fee income from services provided and other miscellaneous sources.  This income is primarily offset by interest paid on deposits and borrowed funds, provision for loan losses, and other operating expenses such as salaries and employee benefits, occupancy expense and other miscellaneous expenses.



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



On September 27, 2005, the Board of Directors of the Company and the Bank elected Mr. Joseph D. Borgerding as Director, President and Chief Executive Officer for the Company and the Bank.  Mr. Borgerdings election completed the management-restructuring that included the addition of Ronald E. Baron as Chief Financial Officer for the Company and the Bank in May 2005 and recent management changes to other key positions.





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 (the Exchange Act).  These forward-looking statements are generally identified by phrases such as the Company expects, the Company believes or words of similar import.  Such forward-looking statements involve known and unknown risks including, but not limited to, the following factors:



·

successfully manage the Companys growth and implement its growth strategies:

·

continue to attract low cost core deposits to fund asset growth;

·

maintain capital levels adequate to support the Companys growth;

·

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

·

rely on the Companys management team, including its ability to attract and retain key personnel;

·

successfully manage interest rate risk;

·

respond to or anticipate changes in general economic and business conditions in the Companys market area;

·

manage changes in interest rates and interest rate policies;

·

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

·

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

·

respond to demand, development and acceptance of new products and services;

·

handle problems with technology utilized by the Company;

·

plan for changing trends in customer profiles and behavior; and

·

monitor and manage changes in banking and other laws and regulations applicable to the Company.



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

12

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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.





CRITICAL ACCOUNTING POLICIES



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



Allowance for Loan Losses



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



The
Company evaluates various loans individually for impairment as required by
Statement of Financial   Accounting Standards (SFAS) No.  114,
Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures.Loans evaluated
individually for impairment include non-performing loans, such as loans on non-accrual, loans past
due by 90 days or more, restructured loans and other loans selected by management.  The evaluations
 are based upon discounted expected cash flows or collateral valuations. If the evaluation shows that a
loan is individually impaired, then a specific reserve is established for the amount of impairment. If a
loan evaluated individually is not impaired, then the loan is assessed for impairment under SFAS No. 5,
Accounting for Contingencies, with a group of loans that have similar characteristics.



For
loans without individual measures of impairment, the Company makes estimates of losses for groups of loans
as required by SFAS No. 5. Loans are grouped by similar characteristics, including the type of loan, the
 assigned loan grade and the general collateral type.  A loss rate  reflecting  the
 expected  loss inherent in a group of loans is derived  based upon  estimates of
default  rates for a given loan grade,  the  predominant  collateral type for the
group and the terms of the loan.  The  resulting  estimate  of losses  for groups
 of loans are adjusted  for  relevant  environmental  factors  and  other
 conditions  of  the portfolio of loans, including:  borrower and industry
concentrations; levels and  trends in delinquencies,  charge-offs  and  recoveries;  changes in underwriting  standards and risk  selection;  level of
 experience,  ability and depth of lending management; and national and local economic conditions.



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



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FINANCIAL CONDITION AND RESULTS OF OPERATIONS







Financial Condition



Total
 assets for the Company were $278.0 million at September 30, 2005 compared to $281.0 million at December 31,
 2004, representing a decrease of $3.0 million, or 1.1%.  The reduction in assets was chiefly related
 to the elimination of volatile, non-core deposit balances, as discussed below.   Total loans at
 September 30, 2005 were $199.5 million, an increase of $4.0 from the December 31, 2004 amount of $195.5
million.  Net loans as a percent of total assets were 71.8% at September 30, 2005 as compared to 69.6%
at December 31, 2004.  Cash balances and federal funds sold totaled $14.0 million, which is a decrease
 of $7.6 million from $21.6 million at December 31, 2004.  The decrease in cash balances and federal
funds sold is an intended consequence of the change to the liquidity policy that called for a lower level
of overnight balances so they could be redeployed into higher yielding investments and loans.



The
allowance for loan losses at September 30, 2005 was $2.0 million compared to $2.7 million at December 31,
2004.  The allowance for loan losses was 0.99% of total loans outstanding at September 30, 2005 compared
 to 1.38% of total loans outstanding at December 31, 2004. Previously, the Company reported that the
allowance for loan losses had increased primarily as the result of deterioration in two large commercial
credits.   Previously reported commercial loan charge-offs totaling $1.0 million in the quarter
 ended March 31, 2005, is the primary reason for the decrease in the allowance.  After considering
portfolio and economic conditions, delinquency trends, past loan loss experience, the volume of loans and
related factors, management felt that the allowance for loan losses was adequate to cover credit losses
inherent in the loan portfolio at September 30, 2005.  Loans classified as
loss, doubtful, substandard or special mention are adequately reserved for and are not expected to have
a material impact beyond what has been reserved.







Total
 deposits of $238.4 million at September 30, 2005 represented a decrease of $7.3 million from $245.7 million
 at December 31, 2004.  Controlling the Banks cost of funds is a critical management focus during
 the current period when short-term interest rates continued to rise.  One avenue to achieve this is to
 reduce or eliminate volatile, non-core time deposits.  Volatile, non-core deposits are generally
  deposit accounts with balances greater than $100,000.  During the first six months of
 2005, $12.6 million of these deposits were allowed to mature and were not renewed.  Of this amount
 $7.9 million were in the form of public funds.  Total certificates of deposit at September 30, 2005
 were $128.8 million, down $6.2 million from December 31, 2004 when the total was $135.0 million.  
Demand deposits, MMDA and Savings accounts totaled $109.7 million, down $2.3 million for the first three quarters of 2005 when compared to December 31, 2004.



Stockholders equity was $33.3 million at September 30, 2005 compared to $32.5 million at December 31, 2004.    The book value per common share was $13.66 at September 30, 2005 compared to $13.30 at December 31, 2004.  Financial Accounting Standards Board Pronouncement No. 115 requires the Company to show the effect of market changes in the value of securities available for sale. The effect of the change in market value of securities, net of income taxes, is reflected in a line titled Accumulated other comprehensive (loss), net in the Stockholders Equity section of the Consolidated Balance Sheet and was an unrealized loss of $400 thousand at September 30, 2005, an increase of $226 thousand over the net unrealized loss of $174 thousand from December 31, 2004.





Results of Operations



The Company reported net income for the nine months ended September 30, 2005 of $2.22 million, or $.91 per share compared to $2.18 million or $.89 per share for the first nine months of 2004.  Annualized returns on average assets and equity for the nine months ended September 30, 2005 were 1.08% and 8.97%, respectively, compared to 1.10% and 9.18% for the same period in 2004.



14

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Net Interest Income



Net
interest income is the Companys primary source of earnings and represents the difference
between interest and fees earned on loans and other earning assets and the interest expense paid
 on deposits and other interest bearing liabilities.  Net interest income totaled $7.7 million
for the nine months ended September 30, 2005 compared to $7.3 million for the same period in 2004,
or a 5.6% improvement.  Loan production for the first nine months of 2005 could be characterized
 as steady with the local economy continuing on a firm footing and new customer relationships being
expanded in new and existing markets.  The competitive lending environment continues to limit the
 loan pricing capabilities of the Bank, while pressure to raise interest bearing deposit rates is present
as the Federal Reserve Board continued to increase short-term interest rates during the third quarter.   Loan balances from December 31, 2004 to September 30, 2005 reflected a net
increase of $3.2 million to $201.5 million, as compared to $198.2 million at December 31, 2004.  On
 average, earning assets increased approximately $2.9 million over the year-ago period, and yields were
 better by 37 basis points at 5.72% for the first nine months of 2005 versus 5.35% for the first nine
months 2004.  This improvement is due in part to the rise in short-term interest rates and loans
repricing at higher rates.  Interest-bearing deposits averaged approximately $800 thousand higher
than the first nine months of 2004 at $204.3 million versus $203.5 million.  Interest cost on deposits
 and borrowed money totaled $3.1 million for the first three quarters of 2005 or $410 thousand higher than
 the same period in 2004.  Despite the Federal Reserves increases in short-term rates of
approximately 225 basis points over the last year, interest cost rose only 27 basis points to 1.98% in the first nine months of 2005 as compared to 1.71% for the same period in 2004.  The Banks
emphasis on attracting lower cost deposits is expected to continue to have a favorable impact on the net interest margin for the rest of 2005.  The net interest margin, year to date through September 30, 2005, was 4.10% as compared to 3.93% for the same period in 2004.





Provision for loan losses



The provision for loan losses for the first nine months of 2005 amounted to $208 thousand or $168 thousand greater than the year-ago period.  In the first quarter of 2005, two commercial credits were charged off and the Bank made an additional provision of $94 thousand in conjunction with this event.  Excluding the additional provision of $94 thousand, the nine month provision for 2005 would total $114 thousand, or $54 thousand less than the first nine months of 2004.  Loan charge-offs were $1.3 million for the first nine months of 2005, which compares to $433 thousand for the same period in 2004.  Meanwhile, recoveries for the first nine months of 2005 totaled $369 thousand, which is $277 thousand greater than the same period in 2004.  Management anticipates adjusting the monthly provision up or down, as conditions and loan growth dictate.



Asset quality remains strong with 11 non-accruing loans with an outstanding balance totaling $1.2 million at September 30, 2005, versus 21 loans with an outstanding balance of $2.0 million at September 30, 2004.  Criticized assets at September 30, 2005 totaled $3.6 million, which is a decrease of $1.4 million from $5.0 million at September 30, 2004.   Criticized assets consist of loans that show signs of potentially defaulting on the original loan agreement as a result of late payments, deteriorating credit conditions or impairment of loan collateral.





Non-interest Income



Non-interest income increased 6.45% to $1.5 million for the first nine months of 2005 compared to $1.4 million for the same period in 2004 as a result of changes in the following components:



|(In thousands)                                | Nine months ended |                   
|--------------------------------------------- | ----------------- | ------------------
|Non-interest Income                           | September 30,2005 | September 30, 2004
|Service charges on deposit accounts           | $         959     | $          822    
|Net gain on sales and calls of securities     | - -               | 102               
|Net gain on sales of loans                    | 41                | - -               
|Net (loss) on sale of other real estate owned | (2)               | - -               
|Income from bank owned life insurance         | 185               | 197               
|Other operating income                        | 331               | 301               
|Total Non-interest income                     | $      1,514      | $       1,422     



15

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·

Service charges on deposit accounts income increased 16.7% or $137 thousand.  The increase in new deposit accounts and a full nine months of the automatic overdraft program in 2005 was the major reason for the increase over the same period in 2004.



·

Net gain on sale of loans.  The Bank began in the later part of 2004 to implement the sale of fixed-rate residential mortgages into the secondary market.  This has benefited the Bank by being able to offer loans preferred by some customers while mitigating the Banks exposure to interest rate risk, which would result from holding onto long-term fixed-rate loans.



·

Other operating income increased $30 thousand primarily due to an increase in title company dividends, ATM fees and other service fees.











Non-interest Expense



Non-interest expense includes employee-related costs, occupancy and equipment expense and other overhead.  Total non-interest expense was $6.0 million for the first nine months of 2005 compared to $5.9 million for the same period in 2004, an increase of $142 thousand.  The majority of the increase in costs for the comparative period was the result of the costs associated with the two new banking offices.  The Chester Office was opened in June 2004 and costs for 2005 reflect a full nine months of operation.  The Colonial Heights Office opened on April 15, 2005 and operating costs from April 15, 2005 to September 30, 2005.



The following table outlines the changes in its components:



|(In thousands)                 | Nine months ended  |                   
|------------------------------ | ------------------ | ------------------
|Non-interest Expense           | September 30, 2005 | September 30, 2004
|Salaries and employee benefits | $    3,386         | $     3,390       
|Net occupancy expense          | 324                | 254               
|Equipment expense              | 605                | 636               
|Other operating expenses       | 1,732              | 1,625             
|Total Non-interest expense     | $    6,047         | $     5,905       





·

Salaries and employee benefits decreased $4 thousand as a result of several factors, including open senior management positions, which were offset with additional staffing costs for the new branches, cost of living increases effective January 2005, and higher medical insurance premiums.



·

Net occupancy expense increased $70 thousand due to higher depreciation, and leasing costs associated with the new branch locations, and increases in real estate taxes.





·

Other operating expenses increased $107 thousand due in part to the operations of the new branch facilities, expenses related to compliance with the Sarbanes-Oxley Act of 2002 and related regulations of approximately $84 thousand, and internet banking costs of nearly $56 thousand for the service that began in 2004.





Income Taxes



The provision for income taxes for the first nine months of 2005 totaled $758 thousand and it is based upon the results of operation for the period.  This compares to $611 thousand for the same period in 2004, or $147 thousand greater.  The tax provision considers the timing differences inherent between generally accepted accounting principles and tax regulations used in filing the Companys income tax returns.  Temporary
differences are recognized currently as deferred income tax assets or liabilities, as appropriate, and represent the difference between financial statement and income tax bases of assets and liabilities using the applicable marginal tax rate.



Commercial banking organizations conducting business in Virginia are not subject to Virginia income taxes.  A franchise tax is imposed based upon bank capital and the information is submitted to the Virginia Department of Taxation.  The Bank recorded a franchise tax of $144 thousand and $134 thousand for the nine months ended September 30, 2005 and September 30, 2004, respectively.



Liquidity



The Company maintains its liquidity position through a number of avenues, including cash on hand, correspondent bank balances, investing in federal funds sold, maintaining its investment portfolio in available for sale status and through the availability of borrowing lines at the Federal Home Loan Bank of Atlanta and at various correspondent banks.  The Company monitors its liquidity position on a monthly basis and adjustments are made to ensure adequate liquidity levels are maintained as the Companys assets grow.  The Company has established satisfactory liquidity targets, monitors its liquidity position daily, and reports its liquidity ratios to the Board of Directors on a monthly basis.  The Company considers its sources of liquidity to be ample to meet its anticipated needs.



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At September 30,
 2005, the Company had available lines of credit totaling $82.8 million, with $63.4 million of this amount available from the Federal Home Loan Bank of Atlanta.





Capital Resources



Stockholders equity at September 30, 2005 and December 31, 2004 was $33.3 million and $32.5 million, respectively.  Total common shares outstanding at September 30, 2005 and September 30, 2004 were 2,440,750 and 2,444,450, respectively.



At September 30, 2005, the Companys Tier 1 and total risk-based capital ratios were 18.4% and 19.5%, respectively, compared to 18.2% and 19.4% at December 31, 2004.  The Companys leverage ratio was 12.3% at September 30, 2005 compared to 11.6% at December 31, 2004.  The Banks capital structure places it well above the regulatory guidelines, which affords the Company the opportunity to take advantage of business opportunities while ensuring that it has the resources to protect against risk inherent in its business.





Off Balance Sheet Arrangements



There is no material change to these arrangements since the disclosure in the Companys Annual Report on Form 10-K for the year ended December 31, 2004.





Contractual Obligations



There is no material change to these arrangements since the disclosure in the Companys Annual Report on Form 10-K for the year ended December 31, 2004.







Item 3.

Quantitative and Qualitative Disclosures about Market Risk





In order to more closely measure interest sensitivity, the Company uses earnings simulation models on a quarterly basis.  These models utilize the Companys financial data and various management assumptions as to growth and earnings to forecast a base level of net interest income and earnings over a one-year period.  This base level of earnings is then shocked assuming a sudden increase or decrease in interest rates.



There have been no changes that would significantly alter the disclosure previously reported as of December 31, 2004.  For more information, see the Companys Annual Report on Form 10-K for the year ended December 31, 2004.



Item 4.

Controls and Procedures



Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.



Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this quarterly report.  Based on that evaluation, management has concluded that these controls and procedures are effective. In addition, there was no change in the Companys internal control over financial reporting that occurred during the nine months ended September 30, 2005 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



17

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Part II.  Other Information



Item 1.  Legal Proceedings





There are no material pending legal proceedings, other that ordinary routine litigation incidental to the business, to which the Company or the Bank is a party or of which any of their property is the subject.





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



The Stock Buy-Back Program enacted on April 21, 2004 was terminated by the Board of Directors of the Company on August 17, 2005.  No shares were repurchased from January 1, 2005 to August 17, 2005.





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



See Exhibit Index.

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SIGNATURES



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



CITIZENS BANCORP OF VIRGINIA, INC.



(Registrant)





Date:

November 10, 2005

/s/ Joseph D. Borgerding



Joseph D. Borgerding

President and Chief Executive Officer





Date:

November 10, 2005

/s/ Ronald E. Baron



Ronald E. Baron

Senior Vice President and Chief Financial Officer





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EXHIBIT INDEX



Exhibit Number



31.1

Rule 13a-14(a) Certification of Principal Executive Officer



31.2

Rule 13a-14(a) Certification of Principal Financial Officer



32.1

Statement of Principal Executive Officer Pursuant to 18 U.S.C. ss.1350



32.2

Statement of Principal Financial Officer Pursuant to 18 U.S.C. ss.1350