UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C.  20549  ------ FORM 10-Q ------ xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  For the quarterly period ended September 30, 2007  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: 0-50576  CITIZENS BANCORP OF VIRGINIA, INC. (Exact name of registrant as specified in its charter)  Virginia
(State of incorporation or organization)
        20-0469337
(I.R.S. Employer Identification No.)126 South Main Street
Blackstone, VA  23824
(434) 292-7221
(Address and telephone number of principal executive offices)
   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. Yesx
        Noo
  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.  (Check one):  Large accelerated filero
        Accelerated filero
        Non-accelerated filerx
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).YesoNox  Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.2,436,550 shares of Common Stock as of November 5, 2007.       FORM 10-Q For the Period Ended September 30, 2007  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
        11
  Item 3.
        Quantitative and Qualitative Disclosures About Market Risk
        21
  Item 4.
        Controls and Procedures
        21
   Part II.
        Other Information
  Item 1.
        Legal Proceedings
        22
  Item 1A.
        Risk Factors
        22
  Item 2.
        Unregistered Sales of Equity Securities and Use of Proceeds
        22
  Item 3.
        Defaults upon Senior Securities
        22
  Item 4.
        Submission of Matters to a Vote of Security Holders
        23
  Item 5.
        Other Information
        23
  Item 6.
        Exhibits
        23
   Signatures
        24
   - 2 -    Part I.  Financial Information  Item 1.  Financial Statements  Consolidated Balance Sheets (Dollars in thousands, except share data)  September 30,
        
        December 31,2007
        
        2006Assets
        
        (Unaudited)Cash and due from banks
        
        $               8,702
        
        $               8,318Interest-bearing deposits in banks
        
        2,741
        
        653Federal funds sold
        
        2,438
        
        4,114Securities available for sale, at fair market value
        
        49,037
        
        51,078Restricted securities
        
        631
        
        632Loans, net of allowance for loan losses of $1,888and $1,935
        
        208,499
        
        198,234Premises and equipment, net
        
        7,871
        
        8,033Accrued interest receivable
        
        1,806
        
        1,820Other assets
        
        8,208
        
        8,033Total assets
        
        $           289,933
        
        $           280,915Liabilities and Stockholders' EquityLiabilitiesDeposits:Noninterest-bearing
        
        $             38,715
        
        $             38,085Interest-bearing
        
        205,295
        
        201,258Total deposits
        
        $           244,010
        
        $           239,343Short term borrowings
        
        6,863
        
        4,368Accrued interest payable
        
        1,435
        
        1,374Accrued expenses and other liabilities
        
        1,201
        
        772Total liabilities
        
        $           253,509
        
        $           245,857Stockholders' EquityPreferred 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, 2,440,250 in 2007 and
        
        1,220
        
        1,2202,440,750 in 2006Additional paid-in capital
        
        41
        
        49Retained earnings
        
        35,964
        
        34,654Accumulated other comprehensive loss
        
        (801)
        
        (866)Total stockholders' equity
        
        $             36,424
        
        $             35,057Total liabilities and stockholders' equity
        
        $           289,933
        
        $           280,915
 See accompanying Notes to Interim Consolidated Financial Statements.  - 3 -     Consolidated Statements of Income (Unaudited) (Dollars in thousands, except per share data)  Three Months Ended
September 30,
        
        Nine Months Ended
September 30,2007
        
        2006
        
        2007
        
        2006Interest and Dividend IncomeLoans, including fees
        $       3,845
        
        $          3,625
        
        $    11,329
        
        $    10,552Investment securities:Taxable
        444
        
        396
        
        1,221
        
        1,100Tax-exempt
        66
        
        111
        
        303
        
        336Dividends
        9
        
        9
        
        25
        
        32Federal Funds sold
        27
        
        13
        
        96
        
        57Other
        37
        
        2
        
        93
        
        7Total interest and dividend income
        $       4,428
        
        $          4,156
        
        $    13,067
        
        $    12,084Interest ExpenseDeposits
        $       1,661
        
        $          1,369
        
        $      4,782
        
        $      3,816Short term borrowings
        57
        
        57
        
        151
        
        150Total interest expense
        $       1,718
        
        $          1,426
        
        $      4,933
        
        $      3,967Net interest income
        $       2,710
        
        $          2,730
        
        $      8,134
        
        $      8,117Provision for loan losses
        0
        
        (355)
        
        0
        
        (320)Net interest income after provisionfor loan losses
        $       2,710
        
        $          3,085
        
        $      8,134
        
        $      8,437Noninterest IncomeService charges on deposit accounts
        $          311
        
        $             306
        
        $         911
        
        $         941Net gain on sales of securities
        -
        
        40
        
        -
        
        40Net gain on sales of loans
        20
        
        25
        
        80
        
        70Net gain on sale of OREO
        -
        
        -
        
        15
        
        77Income from bank owned life insurance
        74
        
        67
        
        212
        
        194ATM fee income
        104
        
        76
        
        296
        
        204Other
        76
        
        89
        
        223
        
        189Total noninterest income
        $          585
        
        $             603
        
        $      1,737
        
        $      1,715Noninterest ExpenseSalaries and employee benefits
        $       1,286
        
        $          1,188
        
        $      3,758
        
        $      3,548Net occupancy expense
        145
        
        127
        
        414
        
        391Equipment expense
        191
        
        200
        
        518
        
        571Other
        611
        
        624
        
        1,706
        
        1,765Total noninterest expense
        $       2,233
        
        $          2,139
        
        $      6,396
        
        $      6,275Income before income taxes
        1,062
        
        1,549
        
        3,475
        
        3,877Income taxes
        296
        
        462
        
        994
        
        1,124Net income
        $          766
        
        $          1,087
        
        $      2,481
        
        $      2,754Earnings per share, basic & diluted
        $         0.32
        
        $            0.45
        
        $        1.02
        
        $        1.13
  See accompanying Notes to Interim Consolidated Financial Statements.  - 4 -        Consolidated Statements of Changes in Stockholders Equity For the Nine Months Ended September 30, 2007 and 2006  AccumulatedOtherCompre-Additional
        
        
        
        hensive
        
        Compre-Common
        
        Paid-In
        
        Retained
        
        Income
        
        hensiveStock
        
        Capital
        
        Earnings
        
        (Loss)
        
        Income
        
        TotalBalance at December 31, 2005
        $     1,220
        
        $          49
        
        $   32,971
        
        $       (781)
        
        
        
        $      33,459Comprehensive income:Net income
        - -
        
        - -
        
        2,754
        
        - -
        
        $     2,754
        
        $        2,754Other comprehensive income, net of taxesUnrealized gains on securities availablefor sale, net of deferred taxes
        - -
        
        - -
        
        - -
        
        111
        
        $        111
        
        111Reclassification adjustment, net ofincome taxes of $14
        
        
        
        
        
        
        (26)
        
        $         (26)
        
        (26)Total comprehensive income
        - -
        
        - -
        
        - -
        
        - -
        
        $     2,865
        
        - -Cash dividends declared ($0.48 per share)
        - -
        
        - -
        
        (1,171)
        
        - -
        
        
        
        $      (1,171)Balance at September 30, 2006
        $     1,220
        
        $          49
        
        $   34,554
        
        $       (696)
        
        
        
        $      35,127Balance at December 31, 2006
        $     1,220
        
        $          49
        
        $   34,654
        
        $       (866)
        
        
        
        $      35,057Comprehensive income:Net income
        - -
        
        - -
        
        2,481
        
        - -
        
        $     2,481
        
        $        2,481Other comprehensive income, net of taxesUnrealized gains on securities availablefor sale, net of deferred taxes
        - -
        
        - -
        
        - -
        
        65
        
        $          65
        
        65Total comprehensive income
        - -
        
        - -
        
        - -
        
        - -
        
        $     2,546
        
        - -Common stock repurchased  (500 shares)
        (0)
        
        (8)
        
        - -
        
        
        
        
        
        (8)Cash dividends declared ($0.48 per share)
        - -
        
        - -
        
        (1,171)
        
        - -
        
        
        
        (1,171)Balance at September 30, 2007
        $     1,220
        
        $          41
        
        $   35,964
        
        $       (801)
        
        
        
        $      36,424
  See accompanying Notes to Interim Consolidated Financial Statements.  - 5 -      Consolidated Statements of Cash Flows(Dollars in thousands)
        Nine Months Ended(Unaudited)
        September 30,2007
        
        2006Cash Flows from Operating ActivitiesNet income
        $                  2,481
        
        $                  2,754Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation
        517
        
        480Provision for (recovery of) loan losses
        - -
        
        (320)Net (gain) on sales of loans
        (80)
        
        (70)Origination of loans held for sale
        (6,446)
        
        (6,271)Proceeds from sales of loans
        6,603
        
        6,341Net (gain) on sale of securities
        - -
        
        (40)Net (gain) on sale of other real estate owned
        (15)
        
        (77)Net amortization of securities
        34
        
        51Changes in assets and liabilities:Decrease (increase) in accrued interest receivable
        14
        
        (72)(Increase) decrease in other assets
        (294)
        
        12Increase in accrued interest payable
        61
        
        358Increase in accrued expenses and other liabilities
        551
        
        50Net cash provided by operating activities
        $                  3,426
        
        $                  3,196Cash Flows from Investing ActivitiesActivity in available for sale securities:Maturities and prepayments
        $                 5,570
        
        $                   3,121Purchases
        (3,464)
        
        (4,590)Redemption (purchase) of restricted securities
        2
        
        (89)Net (increase) in loans
        (10,342)
        
        (3,638)Purchases of land, premises and equipment
        (355)
        
        (1,032)Proceeds from sale of other real estate owned
        100
        
        277Net cash used in investing activities
        $                (8,489)
        
        $                 (5,951)Cash Flows from Financing ActivitiesNet increase in deposits
        $                 4,667
        
        $                   3,594Net increase in short-term borrowings
        2,494
        
        1,871Repurchase of common stock
        (8)
        
        - -Dividends paid
        (1,294)
        
        (1,171)Net cash provided by financing activities
        $                  5,859
        
        $                   4,294Net increase in cash and cash equivalents
        $                     796
        
        $                   1,539Cash and Cash EquivalentsBeginning of period
        $                 13,085
        
        $                   9,230End of period
        $                 13,881
        
        $                 10,769Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
        $                  4,872
        
        $                   3,609Income taxes
        $                     773
        
        $                   1,065Supplemental Disclosures of Noncash Investingand Financing ActivitiesUnrealized gains on securities available for sale
        $                      99
        
        $                      130
  See accompanying Notes to Interim Consolidated Financial Statements  - 6 -       Notes to Interim Consolidated Financial Statements (Unaudited)  Note 1.
        General
  The Consolidated Balance Sheets at September 30, 2007 and December 31, 2006, the Consolidated Statements of Income for the three months and nine months ended September 30, 2007 and September 30, 2006, and the Consolidated Changes in Stockholders Equity and Cash Flows for the nine months ended September 30, 2007 and 2006, were prepared in accordance with instructions for Form 10-Q, and do not include all of the information and footnotes required by accounting principles  generally accepted in the United States of America (GAAP) 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, 2007 and the results of operations for the three months and the nine months ended
September 30, 2007 and 2006.  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, 2006. The results of operations for the three-month and nine-month periods ended September 30, 2007 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, 2007, the Bank employed 116 full and part-time employees, which resulted in 114 full-time equivalents.  The address of the principal offices for the Company and the main office of the Bank is 126 South Main Street, Blackstone, Virginia, and all banking offices are located within the Commonwealth of Virginia.  Note 2.
        Securities
  Securities available for sale are summarized below:




September 30, 2007(Dollars in thousands)
        
        
        Gross
        
        GrossAmortized
        
        Unrealized
        
        Unrealized
        
        FairCost
        
        Gains
        
        (Losses)
        
        ValueU.S. governmentand federal agency
        $        19,431
        
        $               2
        
        $          (307)
        
        $         19,126State and municipal
        15,098
        
        30
        
        (194)
        
        14,934Mortgage-backed
        11,694
        
        19
        
        (190)
        
        11,523Corporate
        3,520
        
        - -
        
        (66)
        
        3,454$        49,743
        
        $             51
        
        $          (757)
        
        $         49,037






- 7 -



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December 31, 2006Gross
        
        Gross(Dollars in thousands)
        Amortized
        
        Unrealized
        
        Unrealized
        
        FairCost
        
        Gains
        
        (Losses)
        
        ValueU.S. governmentand federal agency
        $       21,877
        
        $             - -
        
        $         (525)
        
        $         21,352State and municipal
        15,353
        
        67
        
        (136)
        
        15,284Mortgage-backed
        11,088
        
        22
        
        (125)
        
        10,985Corporate
        3,565
        
        - -
        
        (108)
        
        3,457$       51,883
        
        $             89
        
        $         (894)
        
        $         51,078




Information pertaining to securities with gross unrealized losses at September 30, 2007 and December 31, 2006, 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 MoreFair
        
        Unrealized
        
        Fair
        
        UnrealizedSeptember 30, 2007
        
        Value
        
        (Loss)
        
        Value
        
        (Loss)(Dollars in thousands)U.S. governmentand federal agency
        
        $               - -
        
        $               - -
        
        $       18,125
        
        $          (307)State and municipal
        
        4,104
        
        (50)
        
        7,234
        
        (144)Mortgage-backed
        
        3,701
        
        (43)
        
        5,008
        
        (147)Corporate
        
        - -
        
        - -
        
        3,453
        
        (66)Total temporarilyimpaired securities
        
        $          7,805
        
        $             (93)
        
        $       33,820
        
        $          (664)




Less than 12 Months
        
        12 Months or MoreFair
        
        Unrealized
        
        Fair
        
        UnrealizedDecember 31, 2006
        
        Value
        
        (Loss)
        
        Value
        
        (Loss)(Dollars in thousands)U.S. governmentand federal agency
        
        $          1,693
        
        $               (1)
        
        $       18,908
        
        $          (524)State and municipal
        
        773
        
        - -
        
        6,818
        
        (136)Mortgage-backed
        
        4,189
        
        (14)
        
        4,395
        
        (111)Corporate
        
        - -
        
        - -
        
        3,458
        
        (108)Total temporarilyimpaired securities
        
        $          6,655
        
        $             (15)
        
        $       33,579
        
        $          (879)




The unrealized losses in the investment portfolio as of September 30, 2007 are considered temporary and are a result of general market fluctuations that occur daily.  The unrealized losses are from 74 securities that are all of investment grade, 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



- 8 -



---



manages the portfolio to provide an overall positive impact to the Companys income statement and balance sheet.  As Management has the ability and intent to hold debt securities for the foreseeable future, no declines are deemed to be other than temporary.



Note  3.
        Loans




The loan portfolio was composed of the following:





(Dollars in thousands)
        September 30,   2007
        
        December 31,  2006Real estate loans:Commercial
        $       50,807
        
        $       48,358Residential 1-4 family
        97,342
        
        95,601Construction
        20,386
        
        17,510Total real estate loans
        $     168,535
        
        $     161,469Commercial loans
        22,482
        
        20,324Consumer loans
        19,370
        
        18,376Total loans
        $     210,387
        
        $     200,169Less:  allowance for loan losses
        1,888
        
        1,935Loans, net
        $     208,499
        
        $     198,234




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,
2007
        
        December 31,    2006Balance, beginning
        $         1,935
        
        $         1,954(Recovery) of provision for loan losses
        --
        
        (316)Loans charged off
        (106)
        
        (155)Recoveries of loans previously charged off
        59
        
        452Balance, ending
        $         1,888
        
        $         1,935




The following is a summary of impaired loans:





(Dollars in thousands)
        September 30,
2007
        December 31
2006Impaired loans with a valuation allowance
        $            1,225
        $             1,906Impaired loans without a valuation allowance
        305
        - -Total impaired loans
        $            1,530
        $             1,906Valuation allowance related to impaired loans
        $               278
        $                348Average investment in impaired loans
        $            1,597
        $             2,200Interest income recognized
        $                 91
        $                  91






- 9 -



---



Non-accrual loans excluded from the impairment disclosure above under Statement of Financial Accounting Standards No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures (SFAS No. 118), totaled $758 thousand and $36 thousand at September 30, 2007 and December 31, 2006, respectively. Income on non-accrual and impaired loans under the original terms would have been approximately $144 thousand and $68 thousand for the nine months ended September 30, 2007 and September 30, 2006, respectively.The Company had $89 thousand in loans that were ninety days or more past due and still accruing at September 30, 2007.   There were no loans ninety days or more past due and still accruing at December 31, 2006.



Note 5.
        Earnings Per Share




The weighted average number of shares used in computing earnings per share was 2,440,728 shares for the three months ended September 30, 2007 and 2,440,750 for the three months ended September 30, 2006.  For the nine months ended September 30, 2007 and September 30, 2006, the weighted average number of shares used in computing earnings per share were 2,440,743 and 2,440,750, respectively.



Note 6.
        Defined Benefit Pension Plan




The components of Net Periodic Benefit Cost for the nine months ended September 30, 2007 and September 30, 2006 were as follows:



Pension Benefits(Dollars in thousands)
        
        2007
        
        2006Service cost
        
        $       231
        
        $      222Interest cost
        
        168
        
        153Expected return on plan assets
        
        (210)
        
        (174)Amortization of prior service cost
        
        (72)
        
        (72)Amortization of net actuarial loss
        
        63
        
        66Net periodic benefit cost
        
        $       180
        
        $     195


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.  The Company made its required 2007 fiscal year contribution to the pension plan in December 2006 in the amount of $240,000.  The Company anticipates making the 2008 contribution by December 31, 2007.  The Company estimates this contribution to be approximately $250,000.



Note 7.
        Recent Accounting Pronouncements




In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157).  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS 157 does not require any new fair value measurements but may change current practice for some entities.  This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years.  The Company does not expect the implementation of SFAS 157 to have a material impact on its consolidated financial statements.



In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159).  This Statement permits entities



- 10 -



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to choose to measure many financial instruments and certain other items at fair value. The objective of this Statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument and is irrevocable. SFAS 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007.  The Company is in the process of
evaluating the impact SFAS 159 may have on its consolidated financial statements.



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 the Interim Consolidated Financial Statements included in this quarterly report and the Companys Annual Report on Form 10-K for the year ended December 31, 2006.



The Companys primary revenue comes from retail banking in the form of interest income received on loans and investments.  This income is partially offset by the Companys interest expense on deposits and borrowed funds, resulting in net interest income.  The Companys earnings also come from noninterest income in the form of deposit fees, gains on the sale of loans and investments, ATM fees, Bank-owned Life Insurance, and other financial services.  The Companys combined noninterest income and net interest income are offset by the Companys noninterest expense which includes employee compensation and benefits, occupancy, equipment and other operating expenses.



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; the loan grading system; and the general economic environment.



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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.



FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Balance Sheet



Total assets for the Company increased to $289.9 million at September 30, 2007 compared to $280.9 million at December 31, 2006, representing an increase of $9.0 million or 3.2%.   Total net loans at September 30, 2007 were $208.5 million, an increase of $10.3 million from the December 31, 2006 amount of $198.2 million.  Loan origination activity for the first nine months of 2007 was strong with $60.2 million in new loans.  Net loans as a percent of total assets were 71.9% at September 30, 2007, an increase of 1.8% from December 31, 2006.  Investment securities decreased to $49.0 million at September 30, 2007, or 16.9% of total assets, which is a decrease of $2.1 million from $51.1 million at December 31, 2006.  The investment portfolios cash flow will typically be used to fund loan demand if deposit account growth is insufficient to meet loan demand and this is the primary reason for the decline in
the investment securities balances between December 31, 2006 and September 30, 2007.  Federal funds sold decreased $1.7 million from $4.1 million at December 31, 2006 to $2.4 million at September 30, 2007.  The Companys liquidity as represented by cash, due from banks and federal funds sold at September 30, 2007 was $13.9 million or 4.8% of total assets which is $800 thousand greater than $13.1 million or 4.7% of total assets at December 31, 2006.



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Allowance for Loan Losses



The allowance for loan losses at September 30, 2007 was $1.888 million compared to $1.935 million at December 31, 2006.  The allowance for loan losses, as a percentage of total outstanding loans, decreased to 0.90% at September 30, 2007 from 0.97% at December 31, 2006.  During the nine months ended September 30, 2007, the Company charged off $106 thousand in loans, recovered $59 thousand from previous write-offs, and did not provide any additional provision to the allowance.



Management believes the allowance for loan losses is adequate to cover credit losses inherent in the loan portfolio at September 30, 2007.  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.
During 2007, Management has been working at improving the status of multiple criticized credits for
which the Bank maintains significant reserves.  These efforts included the addition of more collateral
and/or the collection of payments which served to improve these credits.  Three of these credits, where
the Bank maintained reserves ranging from 3.4% to 15% of the outstanding balance, were collected in
full.  The results of this improvement in credit quality allowed the previously assigned reserves for
criticized loans to be reallocated to new loan growth and as of September 30, 2007 has not required
additional provision for the Allowance for Loan Losses.  For a more detailed discussion of Managements analysis of the loan portfolio, please see the Allowance for Loan Losses discussion, above.



Criticized loans are defined by Management as loans that, after having undergone normal credit review, presently indicate, or have the potential, for significant weakness or high likeliness that the loans will not perform under the original terms of the loans.  Criticized loans may or may not be currently accruing interest and, while they are not classified as impaired loans, Management has computed probable loss amounts should the loans not perform as originally agreed.  Criticized loan balances at September 30, 2007 and December 31, 2006 totaled $1.5 million and $2.2 million, respectively.  At September 30, 2007 and December 31, 2006, $192 thousand and $208 thousand, respectively, were included in the allowance for loan losses to cover for the possible losses on these loans.



The Company had $1.3 million in non-accruing loans at September 30, 2007, or 0.64% of gross loans compared to $1.7 million at December 31, 2006, or 0.87% of gross loans, a decrease of $0.4 million or 23.5%.



Deposits



Total deposits of $244.0 million at September 30, 2007 represented an increase of $4.4 million from $239.3 million at December 31, 2006.  Total certificates of deposit at September 30, 2007 were $137.0 million, up $4.3 million from $132.7 million at December 31, 2006.  Non-interest bearing deposits totaled $38.7 million at September 30, 2007, which is a 1.6% increase from $38.1 million at December 31, 2006.  Interest-bearing deposits accounted for 84.1% of total deposits at each of September 30, 2007 and December 31, 2006.  Bank Management remained focused on growing low-cost deposit account balances during the first nine months of 2007; this strategy has assisted in managing the overall interest cost of deposit accounts.



Short Term Borrowings



The Company utilizes one main source of short term borrowings, overnight repurchase agreements from commercial customers that utilize the Business Investment Sweeps product.  A secondary source of short term borrowings would be overnight advances from the Federal Home Loan Bank of Atlanta or from lines of credit established with correspondent banks.  For additional details on borrowing sources, see the Liquidity section later in this report.  At September 30, 2007, the Company had total short term borrowings of $6.9 million that consisted entirely of overnight repurchase agreements.  This is compared to $4.4 million in short term borrowings at December 31, 2006, which was also entirely from overnight repurchase agreements.



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Stockholders Equity



Stockholders equity was $36.4 million at September 30, 2007 compared to $35.1 million at December 31, 2006.  The book value per common share was $14.93 at September 30, 2007 compared to $14.36 at December 31, 2006.  On July 20, 2007, shareholders were paid a quarterly dividend of $0.16 per share.  On September 19, 2007, the Board of Directors approved a cash dividend of $0.16 per share, or $390 thousand, payable to shareholders on October 12, 2007.  Total average outstanding shares for the first nine months of 2007 were 2,440,743 shares as compared to the average outstanding shares of 2,440,750 shares for the year ended December 31, 2006.



The Board of Directors and Management recognize the intrinsic value of the Company and they further realize that the market price of the Companys shares during the third quarter was not representative of that value.  The banking industry as a whole has seen stock prices decline during the course of the second and third quarters of 2007, due in part to the investment communitys concern over interest margin compression, subprime lending, the decline in housing values and a possible economic recession.  The Board approved the establishment of a stock repurchase plan on July 18, 2007 that would begin on the first trading day of September 2007.  The plans term is for a three month period or until 20,000 shares are purchased, whichever occurs first.  The plan is renewable quarterly, after the initial term, at the discretion of the Board of Directors.



The change in Accumulated Other Comprehensive Loss at September 30, 2007 versus December 31, 2006 was a result of the change in net unrealized losses on available for sale securities.  At September 30, 2007, the Company had an accumulated other comprehensive loss of $801 thousand, a decrease of $65 thousand from $866 thousand at December 31, 2006.



Net Income



For the nine months ended September 30, 2007, the Company reported net income of $2.481 million as compared to $2.754 million for the same period in 2006.  Income per basic and diluted share was $1.02 for the nine months ended September 30, 2007, as compared to $1.13 per basic and diluted share for the period ended September 30, 2006.



The Company had an annualized return on average assets of 1.16% and an annualized return on average equity of 9.24% for the nine months ended September 30, 2007, as compared to an annualized return on average assets and average equity of 1.33% and 10.71%, respectively, for the same period in 2006.



For the three months ended September 30, 2007, the Company reported net income of $766 thousand as compared to $1,087 thousand for the same period in 2006.   Income per basic and diluted share was $0.32 for the three months ended September 30, 2007, as compared to $0.45 per basic and diluted for the period in 2006.



Net income for the three months and year-to-date ended September 30, 2006 included a one time recovery of a previously charged loan loss provision of $259 thousand, net of income taxes.  Net income for the third quarter of 2006, excluding the provision recovery, would have been $831 thousand, or $0.34 per share, or $65 thousand greater than the third quarter 2007.  Earnings for the nine months ended September 30, 2006, excluding the provision recovery, would have been $2.5 million or $1.02 per share.  The 2006 returns on average assets and on average equity, excluding the provision recovery, would have been 1.23% and 9.96%, respectively.



Continued higher short term interest rates, competition for deposits, and the ability to continue growing non-interest bearing demand deposits will continue to put some pressure on the cost of funds for at least the remainder of 2007.



For the first nine months of 2007, the asset quality of the loan portfolio remained high, and based upon the review of the allowance for loan losses, Management did not provide any additional provision to the



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allowance.  For the same nine months of 2006, a net recovery of previously charged loan loss provision of $320 thousand was recognized; earlier in 2006 $45 thousand in loan loss provision was recorded and subsequently followed by the recovery of $365 thousand in loan loss provision in the third quarter.  Management anticipates loan quality to remain high for the remainder of 2007; additional provision for loan losses might be necessary as a result of the overall growth of the loan portfolio, rather than a deterioration of asset quality.



Noninterest income for the first nine months of 2007 was $1.737 million or $22 thousand greater than the same period in 2006.  The results, excluding non-recurring items such as gains on Other Real Estate Owned sales and gains on sale of investment securities, give a better indication of the core improvement in non-interest income over the previous year.  Exclusive of the $15 thousand in OREO gains for the first nine months of 2007, the $77 thousand in OREO gains for the same period of 2006, and the $40 thousand in securities gains, non-interest income would have been $1.722 million, or $124 thousand greater than $1.598 million for the first nine months of 2006, or a 7.8% increase.



Non-interest expenses for the first nine months of 2007 were $6.396 million, or an increase of 1.9% or $121 thousand from the same period in 2006. The year-over-year increase was primarily due to the addition of a new full-service banking office in South Hill, Virginia, and ATM processing-related fees.  Management continues to examine ways to improve operating efficiencies while maintaining a high level of service to our customers.



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, investments and other earning assets and the interest expense paid on deposits and other interest bearing liabilities.  The cost of funds represents interest expense on deposits and other borrowings.  Non-interest bearing deposits and capital are other components representing funding sources.  Changes in the volume and mix of earning assets and funding sources, along with the changes in yields earned and rates paid, determine changes in net interest income.



For the nine months ended September 30, 2007, net interest income was $8.134 million, which was $17 thousand greater than $8.117 million for the same period in 2006.  The average loan balances for the nine months ended September 30, 2007 were $206.1 million or $611 thousand greater than the nine months ended September 30, 2006 when the average loan balances were $205.5 million.  The loan yield increased 48 basis points to 7.35% for the nine months ended September 30, 2007 from 6.87% for the comparable period in 2006.  The average investment securities balance for the first nine months of 2007 was $48.7 million or $1.2 million greater than the average of $47.5 million for the same period in 2006.  The tax-equivalent yield on investment securities for the period in 2007 was 4.74% as compared to 4.64% for 2006, or an increase of 10 basis points from the year-earlier period.  The yield on earning assets for the
nine months ended September 30, 2007 was 6.82%, an increase of 38 basis points from the yield of 6.44% reported in the comparable period of 2006.  The increase in the earning assets yield for the year-to-date in 2007 as compared to the same period in 2006 is primarily the result of higher short-term rates.



A significant component of the Companys increase in net interest income has been the ability to manage interest bearing deposit rates and to attract and retain low cost core deposits, especially non-interest bearing demand deposit accounts.  Average interest bearing deposits for the nine months ended September 30, 2007 was $204.9 million or $4.7 million greater than $200.2 million for the nine months ended September 30, 2006.  The majority of the increase was due to higher average time deposits of $4.3 million, with the average being $134.4 million for the nine months ended September 30, 2007 as compared to $130.1 for the same period in 2006.  The cost of interest bearing deposits for the nine months ended September 30, 2007, expressed as a percentage, was 3.12% as compared to 2.55% for the same period of 2006, or an increase of 57 basis points.  Time deposit costs were 4.44% and 3.72% for the nine
months ended September 30, 2007 and 2006, respectively, or an increase of 72 basis points.  The competition for time deposits in our markets, during this period, remained strong with competitors offering significantly higher rates than Management wished to match.  Despite competitive rates,



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Management maintained a disciplined pricing strategy that helped to generally retain existing relationships and attract some new deposits.  Average non-interest deposit balances for the nine months ended September 30, 2007 was $36.3 million or $500 thousand more than the $35.8 million for the same period of 2006.  The cost of deposits for the nine months ended September 30, 2007 was 2.67% or 47 basis points greater than 2.20% for the nine months ended September 30, 2006.



The net interest margin is net interest income expressed as a percentage of average earning assets.  The net interest margin decreased by 8 basis points to 4.28% for the nine months ended September 30, 2007 as compared to 4.36% for the same period in 2006.



The table on the following page labeled Average Balances, Interest Yields and Rates, and Net Interest Margin presents the average balances and rates of the various categories of the Companys assets and liabilities.  Included in the table is a measurement of interest rate spread and margin.  Interest rate spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest expense on the interest bearing liabilities.  While net interest spread provides a quick comparison of earnings rates versus the cost of funds, Management believes that the interest margin provides a better measurement of performance.



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Average Balances, Interest Yields and Rates, and Net Interest Margin

Nine Months Ended September 30,2007
        
        2006Average
        
        
        
        Average
        
        Average
        
        
        
        Average(Dollars in Thousands)
        Balance
        
        Interest
        
        Yield/Rate
        
        Balance
        
        Interest
        
        Yield/RateASSETS:Interest earning assets:Interest bearing deposits with other banks andother short-term investments
        $        2,388
        
        $            93
        
        5.21%
        
        $         159
        
        $            6
        
        5.05%Loans(1)
        206,103
        
        11,329
        
        7.35%
        
        205,492
        
        10,552
        
        6.87%Investment securities available for sale(2)
        48,725
        
        1,732
        
        4.74%
        
        47,541
        
        1,656
        
        4.64%Federal funds sold
        2,490
        
        96
        
        5.08%
        
        1,604
        
        57
        
        4.69%Total interest earning assets
        $    259,706
        
        $      13,250
        
        6.82%
        
        $  254,796
        
        $   12,271
        
        6.44%Total average non-earning assets
        27,121
        
        
        
        
        
        25,350Less: allowance for credit losses
        1,932
        
        
        
        
        
        1,995Net average non-earning assets
        25,189
        
        
        
        
        
        23,355TOTAL AVERAGE ASSETS
        $    284,895
        
        
        
        
        
        $  278,151LIABILITIES AND STOCKHOLDERS'EQUITY:Interest bearing liabilities:Interest bearing demand
        $      36,152
        
        $            43
        
        0.16%
        
        $    51,571
        
        $        157
        
        0.41%Savings
        34,361
        
        274
        
        1.07%
        
        18,598
        
        44
        
        0.32%Time deposits
        134,435
        
        4,465
        
        4.44%
        
        130,068
        
        3,616
        
        3.72%Other short-term borrowings
        5,407
        
        151
        
        3.73%
        
        5,267
        
        150
        
        3.81%Total interest bearing liabilities
        $    210,355
        
        $       4,933
        
        3.14%
        
        $  205,504
        
        $     3,967
        
        2.58%Noninterest bearing liabilities:Noininterest bearing demand
        36,299
        
        
        
        
        
        35,803Other liabilities
        2,326
        
        
        
        
        
        1,752Total noninterest bearing liabilities
        38,625
        
        
        
        
        
        37,555Stockholders' equity
        35,915
        
        
        
        
        
        34,363TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY
        $    284,895
        
        
        
        
        
        $  277,422Net interest income
        
        
        $       8,317
        
        
        
        
        
        $     8,304Net interest spread
        
        
        
        
        3.69%
        
        
        
        
        
        3.86%Net interest margin
        
        
        
        
        4.28%
        
        
        
        
        
        4.36%(1)Includes Loans Held for Sale and average daily balance of non-accrual loans.(2)Income and yield are reported on a tax equivalent basis assuming a federal tax rate of 34%.




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Noninterest Income



Noninterest income includes deposit fees, gains on the sales of securities, OREO and Loans Held for Sale, and ATM fees.  For the three months ended September 30, 2007, non-interest income totaled $585 thousand as compared to $603 thousand for the same period in 2006.  The third quarter results, excluding non-recurring items such as gains on sale of securities, give a better comparison of core non-interest income over the previous year.  Exclusive of the $40 thousand gain on sale of securities, non-interest income would have been $563 thousand for the three months ended September 30, 2006, or $22 thousand less than the $585 thousand for the three months ended September 30, 2007; an increase of 3.9% over 2006.



Noninterest income increased 1.28% to $1.737 million for the nine months ended September 30, 2007 compared to $1.715 million for the same period in 2006.  Below is a representation of the changes to the significant components:



(Dollars in Thousands)
        Nine  months endedNoninterest Income
        September 30,
2007
        September 30,
2006
        %ChangeService charges on deposit accounts
        $                 911
        $                 941
        (3.2)%Net gain on sales of loans
        80
        70
        14.3%Net gain on sale of securities
        --
        40
        (100.0)%Net gain on sale of OREO
        15
        77
        (80.5)%Income from bank owned life insurance
        212
        194
        9.3%ATM fee income
        296
        204
        45.1%Other income
        223
        189
        18.6%Total noninterest income
        $              1,737
        $             1,715
        1.3%





        Service charges on deposit accountsdecreased 3.2% or $30 thousand primarily as the result of lower overdraft fees, due in part to daily maximum limits being placed for the automatic overdraft program, and in part to consumers moving from fee-generating products to fee-free checking products.





        Net gain on sales of loansincreased 14.3% or $10 thousand as a result of a greater number of fixed-rate residential loans sold into the secondary market.  This program is in its second year of operation and the Bank is producing revenue on loans that it typically would not want to retain on its balance sheet due to the interest-rate risk that these loans can pose for the Bank.





        ATM fee incomeincreased 45.1% or $92 thousand as a result of adding additional ATM machines and increased customer and non-customer usage.





        Other incomeincreased 18.6% or $34 thousand primarily due to commissions earned on non-deposit investment services and title company dividends.




Noninterest Expense



Noninterest expense includes employee-related costs, occupancy and equipment expense and other overhead costs.  For the three months ended September 30, 2007, non-interest expense totaled $2.233 million as compared to $2.139 million for the three months ended September 30, 2006, or a 4.4% increase from the previous year.  Among the primary reason for the year-over-year increase is the additional personnel and new facilities associated with the South Hill, Virginia banking office.



Noninterest expense for the nine months ended September 30, 2007 increased $121 thousand to $6.396 million as compared to $6.275 million for the comparable period in 2006, or an increase of 1.9%.  Management has been working, over the last 2 years, to establish stricter controls over noninterest expenses, and these efforts are being realized by the moderate increases in non-interest expenses over the previous year.  The following table outlines the changes in significant components:





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(Dollars in Thousands)
        Nine months endedNoninterest Expense
        September 30,
2007
        September 30,
2006
        %
ChangeSalaries and employee benefits
        $          3,758
        $          3,548
        5.9%Net occupancy expense
        414
        391
        5.9%Equipment expense
        518
        571
        (9.3)%Other operating expense
        1,706
        1,765
        (3.3)%Total noninterest expense
        $          6,396
        $          6,275
        1.9%







        Salaries and employee benefitsincreased $210 thousand as a result of additional staffing for branch expansion, cost of living increases and employer-match costs for the 401-K Plan and the employee incentive program.





        Net occupancy expenseincreased $23 thousand primarily as a result of depreciation expense related to the South Hill banking office, increases in building repairs and maintenance and real estate taxes.





        Equipment expensedecreased $53 thousand primarily as a result of lower depreciation expenses, due to equipment becoming fully depreciated and lower costs in 2007 due to the reduction in rented postage equipment.




Liquidity



Liquidity represents an institutions ability to meet present and future obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management.   Liquidity is also defined as the Companys ability to meet the borrowing and deposit withdrawal requirements of the customers of the company in addition to meeting current and planned expenditures. 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, the Federal Reserve Bank of Richmond and at its correspondent banks.  Federal funds lines of credit are maintained with four correspondent banks.   As of September 30, 2007, the Company has the following lines
of credit available.



Federal Home Loan Bank of Atlanta
        $62,700,000


Community Bankers Bank
        11,400,000


SunTrust
        8,000,000


Federal Reserve Bank of Richmond
        3,300,000


Total Off-Balance Sheet Borrowing Lines
        $85,400,000




The Company had $6.8 million in short-term borrowings at September 30, 2007, which represented a $2.5 million or 57.1% increase from $4.4 million at December 31, 2006.  At September 30, 2007, short-term borrowings were entirely from balances outstanding in the Investment Sweeps Account product, which is an overnight repurchase agreement product, not insured by FDIC, but guaranteed by the Bank with US Government and Federal Agency securities.  This product is offered to commercial customers only.



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. The Company considers its sources of liquidity to be sufficient to meet its estimated needs.





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Capital Resources



Stockholders equity at September 30, 2007 and December 31, 2006 was $36.4 million and $35.0 million, respectively.  Total number of common shares outstanding was 2,440,250 shares at September 30, 2007 and 2,440,750 shares at December 31, 2006.  The decrease of 500 shares represents the effect of the stock repurchase plan that the Company initiated in September 2007.  Additional information regarding the stock repurchase plan was discussed earlier in this report.



At September 30, 2007, the Companys Tier 1 and total risk-based capital ratios were 19.2% and 20.2%, respectively, compared to 19.1% and 20.2% at December 31, 2006.  The Companys leverage ratio was 12.9% at September 30, 2007 compared to 12.6% at December 31, 2006.  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.



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




        successfully manage the Companys growth and implement its growth strategies;


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


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



        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




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, 2006.  For more information, see the Companys Annual Report on Form 10-K for the year ended December 31, 2006.



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.



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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, the Company 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 three months ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.





Part II.  Other Information



Item 1.  Legal Proceedings



There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Companys business, to which the Company, including its subsidiaries, is a party or of which the property of the Company is subject.



Item 1A.  Risk Factors



There are no material changes to the risk factors previously disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2006.



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



On July 18, 2007, the Board of Directors of the Company voted to establish a stock repurchase plan.  The Plan authorizes the repurchase of 20,000 shares of its common stock over a three month period beginning in September 2007.  The Board of Directors will consider repurchasing additional shares following any initial repurchases based on market conditions, the Companys performance, and other strategic planning considerations.



The table below indicates the shares that were repurchased under the current plan:



Period
        (a)
Total Number of Shares Purchased
        (b)
Weighted Average Price Paid per Share ($)
        (c)
Total Number of Shares Purchased as Part of Publicly Announced Program
        (d)
Maximum Number of Shares that May Yet Be Purchased Under the ProgramJuly 1 - July 31, 2007
        NoneAugust 1 - August 31, 2007
        NoneSeptember 1 - September 30, 2007
        500
        $ 16.70
        500
        19,500Total
        500
        $ 16.70
        500
        19,500






Item 3.  Defaults upon Senior Securities



None.







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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 13, 2007
        /s/ Joseph D. Borgerding


Joseph D. Borgerding


President and Chief Executive Officer






Date:
        November 13, 2007
        /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