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, 2004



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



2,440,450 shares of common stock, par value of $0.50 per share,

outstanding as of  November 12, 2004.



---





CITIZENS BANCORP OF VIRGINIA, INC.

FORM 10-Q



For the Quarter Ended September 30, 2004



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

10



Item 3.       Quantitative and Qualitative Disclosures About Market Risk

14



Item 4.       Controls and Procedures

14





Part II.     Other Information



Item 1.

Legal Proceedings



15



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

15



Item 3.

Defaults upon Senior Securities

15



Item 4.

Submission of Matters to a Vote of Security Holders

15



Item 5.

Other Information

15



Item 6.

Exhibits

15



Signatures

16















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,       
|-------------------------------------------------------------------- |  | ------------------- |  | -------------------
|                                                                     |  | 2004                |  | 2003               
|Assets                                                               |  | (Unaudited)         |  |                    
|                                                                     |  |                     |  |                    
|Cash and due from banks                                              |  | $           9,725   |  | $           7,309  
|Interest-bearing deposits in banks                                   |  | 974                 |  | 763                
|Federal funds sold                                                   |  | 13,923              |  | 12,156             
|Securities available for sale, at fair market value                  |  | 48,363              |  | 60,317             
|Restricted securities                                                |  | 1,196               |  | 1,369              
|Loans, net of allowance for loan losses of $2,070                    |  |                     |  |                    
|and $2,371                                                           |  | 190,807             |  | 173,075            
|Premises and equipment, net                                          |  | 6,061               |  | 5,372              
|Accrued interest receivable                                          |  | 1,604               |  | 1,458              
|Other assets                                                         |  | 8,152               |  | 7,554              
|                                                                     |  |                     |  |                    
|Total assets                                                         |  | $       280,805     |  | $       269,373    
|                                                                     |  |                     |  |                    
|Liabilities and Stockholders' Equity                                 |  |                     |  |                    
|                                                                     |  |                     |  |                    
|Liabilities                                                          |  |                     |  |                    
|Deposits:                                                            |  |                     |  |                    
|Noninterest-bearing                                                  |  | $         36,357    |  | $         32,428   
|Interest-bearing                                                     |  | 209,472             |  | 203,993            
|Total deposits                                                       |  | $       245,829     |  | $       236,421    
|Accrued interest payable                                             |  | 627                 |  | 724                
|Accrued expenses and other liabilities                               |  | 1,544               |  | 153                
|Total liabilities                                                    |  | $       248,000     |  | $       237,298    
|                                                                     |  |                     |  |                    
|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 2,500,000 shares;          |  |                     | 
|issued and outstanding, 2,444,450 and 2,448,000                      |  | 1,222               |  | 1,224              
|Additional paid-in capital                                           |  | 125                 |  | 193                
|Retained earnings                                                    |  | 31,427              |  | 30,620             
|Accumulated other comprehensive income, net                          |  | 31                  |  | 38                 
|Total stockholders' equity                                           |  | $         32,805    |  | $         32,075   
|                                                                     |  |                     |  |                    
|Total liabilities and stockholders' equity                           |  | $       280,805     |  | $       269,373    
|                                                                     |  |                     |  |                    
|                                                                     |  |                     |  |                    
|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                                                                                                                                     
|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 (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                                                                                                        
|                                                                                                                                             





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,  2004 and 2003
(Unaudited)
|                                                                   
|                                                                   
|(Dollars in thousands)                                             
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Balance at December 31, 2002                                       
|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, 2003                                      
|                                                                   
|Balance at December 31, 2003                                       
|Comprehensive income:                                              
|Net income                                                         
|Other comprehensive income:                                        
|Unrealized (losses) on securities available                        
|for sale, net of deferred taxes                                    
|Total comprehensive income                                         
|Shares repurchased                                                 
|Cash dividends                                                     
|Balance at  September 30, 2004                                     
|                                                                   



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 (used in) operating activities:                         
|Depreciation                                                        
|Provision for loan losses                                           
|Net gain on sales and calls of securities                           
|Net amortization of securities                                      
|Changes in assets and liabilities:                                  
|(Increase) in other assets                                          
|Increase (decrease) in accrued expenses and other liabilities       
|Net cash provided by (used in) 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                           
|Net cash provided by (used in) investing activities                 
|                                                                    
|Cash Flows from Financing Activities                                
|Net increase (decrease) in deposits                                 
|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                                            
|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 as of September 30, 2004 and December 31, 2003 and the Consolidated Statements of Income,
 Changes in Stockholders Equity and Cash Flows for the three month and nine-month periods ended
September 30, 2004 and 2003, prepared in accordance with instructions for Form 10Q, 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 as of
September 30, 2004.  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-KSB for the year ended December 31,
2003. The results of operations for the nine-month period ended September 30, 2004 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 December 18, 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, 2004, there were 108 full-time employees on the payroll.  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:



|                       | September 30, 2004
|---------------------- | ------------------
|(Dollars in thousands) |                   
|                       | Amortized         
|                       | Cost              
|U.S. Government        |                   
|and federal agency     | $       18,737    
|State and municipal    | 16,852            
|Mortgage-backed        | 9,030             
|Corporate              | 3,696             
|                       | $       48,315    
|                       |                   



7

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|(Dollars in thousands) | December 31, 2003
|---------------------- | -----------------
|                       |                  
|                       | Amortized        
|                       | Cost             
|U.S. Government        |                  
|and federal agency     | $       17,987   
|State and municipal    | 19,173           
|Mortgage-backed        | 17,317           
|Corporate              | 5,782            
|Other                  | - -              
|                       | $       60,259   
|                       |                  



Note 3.

Loans



The loan portfolio is composed of the following:



|(Dollars in thousands)           | September 30,
2004 |  | December 31, 2003
|-------------------------------- | ------------------ |  | -----------------
|Mortgage loans on real estate:   |                    |  |                  
|Commercial                       | $       44,841     |  | $       39,028   
|Residential 1-4 family           | 93,255             |  | 87,579           
|Construction                     | 10,033             |  | 5,040            
|Commercial                       | 26,512             |  | 24,492           
|Consumer installment             | 18,236             |  | 19,307           
|Total loans                      | $     192,877      |  | $     175,446    
|Less:  allowance for loan losses | 2,070              |  | 2,371            
|Loans, net                       | $     190,807      |  | $     173,075    



The Company has $2.0 million in non-performing loans at September 30, 2004.



Note 4.

Allowance for Loan Losses



The following is a summary of transactions in the allowance for loan losses:



|                                           | Nine Months Ended  |  | Year Ended          
|------------------------------------------ | ------------------ |  | --------------------
|(Dollars in thousands)                     | September 30,
2004 |  | December 31,    2003
|Balance, beginning                         | $         2,371    |  | $         2,925     
|Provision for loan losses                  | 40                 |  | 250                 
|Loans charged off                          | (433)              |  | (918)               
|Recoveries of loans previously charged off | 92                 |  | 114                 
|Balance, ending                            | $         2,070    |  | $         2,371     



8

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Note 5.

Earnings Per Share



The weighted average number of shares used in computing earnings per share was 2,447,086 shares for the nine months ended September 30, 2004 and 2,448,000 shares for the nine months ended September 30, 2003.  For the three months ended September 30, 2004 and 2003, the weighted average number of shares was 2,445,605 and 2,448,000, respectively.



Note 6.

Defined Benefit Pension Plan



The components of Net Periodic Benefit Cost for the nine months ended September 30, 2004 and 2003 are as follows:



|(Dollars in thousands)             |  | Pension Benefits
|---------------------------------- |  | ----------------
|                                   |  | 2004            
|                                   |  |                 
|Service cost                       |  | $       159     
|Interest cost                      |  | 117             
|Expected return on plan assets     |  | (123)           
|Amortization of prior service cost |  | (72)            
|Amortization of net actuarial loss |  | 70              
|Net periodic benefit cost          |  | $       151     
|                                   |  |                 
|                                   |  |                 

The Company previously disclosed in its financial statements for the year ended December 31, 2003 that
it expected to contribute $156,000 to its pension plan in 2004.  As of September 30, 2004, no contributions have been made.





Note 7.

Recent Accounting Pronouncements



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.

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.

9

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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 of Financial Condition and Results of Operations



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
Interim Consolidated Financial Statements.



Critical Accounting Policies



General



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.



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.



10

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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.





OVERVIEW AND FINANCIAL CONDITION





The Company reported net income and earnings per share for the nine months ended September 30, 2004 of $2.2 million and $.89 per share compared to $2.0 million or $.82 per share for the first nine months of 2003.  Annualized returns on average assets and equity for the nine months ended September 30, 2004 were 1.07% and 8.99%, respectively, compared to 1.00% and 8.74% for the same period in 2003.



Total assets for the Company increased to $280.8 million at September 30, 2004 compared to $269.3 million at December 31, 2003, representing an increase of $11.5 million or 4.3%.   Total loans at September 30, 2004 were $192.9 million, an increase of $17.5 million from the December 31, 2003 amount of $175.4 million. Net loans as a percent of total assets were 67.9% at September 30, 2004 as compared to 64.3% at December 31, 2003, while the securities portfolio decreased $11.9 million from $60.3 million at December 31, 2003 to $48.4 million at September 30, 2004, a decrease of 19.7%.



Total deposits of $245.8 million at September 30, 2004 represented an increase of $9.4 million or 4.0% from $236.4 million at December 31, 2003.  Total Certificates of Deposits at September 30, 2004, exclusive of $7.9 million in new funds from Public Funds CDs, were $124.8 million, down $1.2 million, or 1.0%, from the amount at December 31, 2003.  The deposit shift experienced during the nine months ended September 30, 2004 also reflects an increase in interest-bearing checking and savings accounts of $1.3 million combined with an increase in noninterest-bearing deposits of $3.9 million.



Stockholders equity was $32.8 million at September 30, 2004.  This amount represents an increase of 2.2% from the December 31, 2003 amount of $32.1 million.  The book value per common share was $13.42 at September 30, 2004 compared to $13.10 at December 31, 2003.



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 income (loss), in the
Stockholders Equity section of the Consolidated Balance Sheet and was $31,000 at September 30, 2004, a decrease of $7,000 from December 31, 2003.



11

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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 $7.3 million for the nine months ended September 30, 2004 compared to $7.3 million for the same period in 2003.  In previous quarters, the Company reported a decrease in net interest income due to continued tightening in its net interest margin.  More recent quarterly comparisons indicated that this trend had stopped as is now reflected in the nine months comparison.  This shift is primarily attributed to interest income from loans which were funded with sales of lower yielding investments as well as
 funds from low cost deposits, increased non-interest bearing and low-cost transactional deposits.



Two major components of net interest income are interest income on loans and interest expense on deposits. Interest income on loans decreased $439,000 for the nine months ended September 30, 2004 compared to the prior year, while interest expense on deposits decreased $805,000 over the same periods. The remaining impact comes from interest income on the investment portfolio and fed funds position which decreased $378,000 for the same periods.



Non-interest Income



Non-interest income increased 33% to $1.4 million for the first nine months of 2004 compared to $1.0 million for the same period in 2003 as a result of changes in the following components:



Nine months ended

|(In thousands)                              |                       |                       |        
|------------------------------------------- | --------------------- | --------------------- | -------
|Noninterest Income                          | September 30,2004     | September 30,2003     | %Change
|Service charges on deposit accounts         | $                 822 | $                 533 | 54.2%  
|Net gain on sales and calls of securities   | 102                   | 100                   | 2.0%   
|Net gain on sale of other real estate owned | -                     | 137                   | -100.0%
|BOLI income                                 | 197                   | 145                   | 35.9%  
|Other operating income                      | 301                   | 158                   | 90.5%  
|Total noninterest income                    | $              1,422  | $              1,073  | 32.5%  



·

Service charges on deposit accounts income increased 54.2% or $289,000 primarily as the result of an automatic overdraft program implemented by the Company in mid-May, 2004.



·

Net gain on sale of other real estate owned decreased $137,000 or 100% due to a sale in 2003.



·

BOLI income increased $52,000 due to the fact that the plan was started in April, 2003.



·

Other operating income increased $143,000 primarily due to an increase in title company dividends of $59,000, an increase of $55,000 in ATM fees charges  and an increase of  $29,000 in other fees charged.



Non-interest Expense



Non-interest expense includes employee-related costs, occupancy and equipment expense and other overhead.  Total non-interest expense was $5.9 million for the first nine months of 2004 compared to $5.5 million for the same period in 2003, an increase of $380,000.  The following table outlines the major changes:



Nine months ended

|(In thousands)                    |                      |                      |        
|--------------------------------- | -------------------- | -------------------- | -------
|Noninterest Expense               | September 30,2004    | September 30,2003    | %Change
|Compensation and benefits         | $              3,390 | $              3,152 | 7.6%   
|Net occupancy expense of premises | 254                  | 235                  | 8.1%   
|Equipment expense                 | 636                  | 510                  | 24.7%  
|Other operating expenses          | 1,625                | 1,628                | -0.2%  
|Total noninterest expense         | $              5,905 | $              5,525 | 6.9%   

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·

Compensation and benefits increased $238,000 as a result of increased salary expense attributed to additional employees in the operating and lending functions, additional staffing for branch expansion,  benefit expense increases from enhanced medical insurance benefits for the employees, an enhanced 401(k) plan and implementation of a deferred compensation executive benefit plan.



·

Equipment expense increased $126,000 for the first nine months of 2004 compared to the same period in 2003 as the Company updated its technology to improve services to its customers which included implementation of complete systems conversion, network and new phone system.



Allowance for Loan Losses



The allowance for loan losses at September 30, 2004 was $2.1 million compared to $2.4 million at December 31, 2003.  The allowance for loan losses was 1.07% of total loans outstanding at September 30, 2004 and 1.35% of total loans outstanding at December 31, 2003.
 Management believes that the level of allowance for loan losses is sufficient
 after taking into consideration portfolio and economic conditions, delinquency trends, past loan loss experience, the volume of loans and related factors. Management also believes the allowance for loan losses is adequate to cover credit losses inherent in the loan portfolio at September 30, 2004.  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.



The Company has $2.0 million in non-performing loans at September 30, 2004 compared to $2.7 million at September 30, 2003, a decrease of $700,000 or 25.9%.



Liquidity



The Company maintains its liquidity position through cash on hand, correspondent bank balances and investment in Federal Funds sold, by 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 its correspondent banks.  The Company monitors its liquidity position on a regular basis and continuously adjusts its assets to maintain adequate liquidity levels.  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. We consider our sources of liquidity to be ample to meet our estimated needs.



Capital Resources



Stockholders equity at September 30, 2004 and December 31, 2003 was $32.8 million and $32.1 million, respectively.  Total common shares outstanding at September 30, 2004 and September 30, 2003 were 2,444,450 and 2,448,000, respectively.



At September 30, 2004, the Companys Tier 1 and total risk-based capital ratios were 18.9% and 20.1%, respectively, compared to 19.6% and 20.9% at December 31, 2003.  The Companys leverage ratio was 12.0% at September 30, 2004 compared to 11.8% at December 31, 2003.  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.



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.

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



·

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

·

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 assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.



Item 3.

Quantitative and Qualitative Disclosures about Market Risk



Interest Rate 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, 2003.  For more information, see the Companys Annual Report on Form 10-KSB for the year ended December 31, 2003.



Item 4.

Controls and Procedures



Under the
supervision and with the participation of management, including  the
principal executive officer and principal 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. There was no change in the Companys internal control over financial reporting that occurred during the nine months ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to
management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure.

14

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Part II.  Other Information



Item 1.  Legal Proceedings



None



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



Repurchase Plan Table

|                                          |                                  |                              |                                                                            |                                                                 
|----------------------------------------- | -------------------------------- | ---------------------------- | -------------------------------------------------------------------------- | ----------------------------------------------------------------
|Issuer Purchases of Equity Securities (1) |                                  |                             
|                                          |                                  |                              |                                                                            |                                                                 
|                                          | Total Number of
Shares Purchased | Average
Price Paid
Per Share | Total Number of Shares
Shares Purchased as Part of Publicly Announced Plan | Maximum Number of Sharesthat May Yet Be Purchased
Under the Plan
|                                          |                                  |                              |                                                                            |                                                                 
|July 1-31, 2004                           | -                                | $         -                  | -                                                                          | 120,900                                                         
|Aug 1-31, 2004                            | 2,050                            | $         20                 | 3,550                                                                      | 118,850                                                         
|Sept 1-30, 2004                           | -                                | $         -                  | -                                                                          | 118,850                                                         
|TOTAL                                     | 2,050                            | $         20                 | 3,550                                                                      | 118,850                                                         



(1)  On April 21, 2004, the Companys Board of Directors authorized a stock repurchase plan to repurchase up to 122,400 shares of the Companys common stock. The stock repurchase plan does not have a set expiration date.





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 15, 2004

/s/ Joseph D. Borgerding

Joseph D. Borgerding

Acting Chief Executive Officer





Date:

November 15, 2004

/s/ Beverly A. Adams

Beverly A. Adams

Vice President and Chief Financial Officer





16

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EXHIBIT INDEX



Exhibit Number

Description



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