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U.S. 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 June 30, 2004

[   ] 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)

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.

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

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

2,446,500 shares of common stock, par value of $.50 per share,

outstanding as of  August 3, 2004

CITIZENS BANCORP OF VIRGINIA, INC.

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

13

Item 4.   Controls and Procedures

13

Part II.    Other Information

Item 1.  Legal Proceedings

13

Item 2.   Change in Securities, Use of Proceeds and Issuer Purchases
                                    of Equity Securities

14

Item 3.   Defaults upon Senior Securities

14

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

14

Item 5.   Other Information

15

Item 6.   Exhibits and Reports on Form 8-K

15

Signatures

16

2

Part I – Financial Information  

Item 1.  Financial Statements

CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(Dollars in thousands, except share data)

3

CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)

See accompanying Notes to Interim Financial Statements.

4

See accompanying Notes to Interim Financial Statements.

5

6

CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY

Notes to Interim Consolidated Financial Statements

(Unaudited)

Note 1.

General

 Note 2.

Securities

       Securities available for sale are summarized below:

7

Note  3.

Loans

The loan portfolio is composed of the following:

The Company has $2.1 million in non-performing loans at June 30, 2004.

Note 4.   

Allowance for Loan Losses

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

8

Note 5.  

Earnings Per Share

The weighted average number of shares used in computing earnings per share was 2,447,835 shares for the six months ended June 30, 2004 and 2,448,000 for the six months ended June 30, 2003.  For the three months ended June 30, 2004 and 2003, the weighted average number of shares was 2,447,670 and 2,448,000 respectively.

Note 6.

Defined Benefit Pension Plan

Components of Net Periodic Benefit Cost

Six months ended June 30, 2004 and 2003

Note 7.

Recent Accounting Pronouncements

There have been no new accounting pronouncements since December 31, 2003 that impacted the Company.  

9

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 the Company.  This discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.

Critical Accounting Policies

General

The  financial  condition  and results of  operations  presented in the Financial  Statements,  accompanying  Notes  to  the  Financial  Statements and  management's  discussion and analysis are, to a large degree,   dependent  upon  the  accounting  policies  of Citizens Bancorp of Virginia, Inc. (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 that management believes are the most important (Critical Accounting Policies) to the portrayal and understanding of the Company’s financial condition and results of operations.   These 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,  the  possibility of a 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 they are  maintained  in  accordance  with  accounting principles  generally  accepted in the United States of America;  the accounting policies for loan charge-offs and recoveries;  the assessment and measurement of impairment in the loan portfolio; and the loan grading system.

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

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

The amount of estimated impairment for individually evaluated loans and groups of loans is added together for a total estimate of loans 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 Financial Statements.

10

OVERVIEW AND FINANCIAL CONDITION

The Company reported net income and earnings per share for the six months ended June 30, 2004 of $1.48 million and $.60 per share compared to $1.45 million or $.59 per share for the first six months of 2003.  Annualized returns on average assets and equity for the six months ended June 30, 2004 were 1.10% and 9.18% respectively compared to 1.09% and 9.04% for the same period in 2003.

Total assets for the Company increased to $272.4 million at June 30, 2004 compared to $269.3 million at December 31, 2003, representing an increase of $3.1 million or 1.2%. The Company competes aggressively for loans in its market areas.  As a result, total loans at June 30, 2004 were $186.8 million, an increase of $11.4 million from December 31, 2003 balance of $175.4 million. In addition, net loans as a percent of total assets were 67.8% at June 30, 2004, as compared to 64.3% at December 31, 2003.  

The securities portfolio was a primary source of funds for increased loan demand. The portfolio decreased $8.8 million from $60.3 million at December 31, 2003 to $51.5 million at June 30, 2004, a decrease of 14.6%.   Another source of liquidity used was Federal Funds sold.   On June 30, 2004, Fed Funds were $9.2 million, compared to $12.2 million at December 31, 2003.  

Total deposits of $238.9 million at June 30, 2004 represented an increase of $2.5 million or 1.1% from $236.4 million at December 31, 2003. It has been the Company’s position to allow higher rate Certificates of Deposits to flow out of the Company or into other products.  As a result, total Certificates of Deposits at June 30, 2004 were $124.5 million, down $1.5 million, or 1.2%, from December 31, 2003.  The deposit shift experienced during the six months ended June 30, 2004 was primarily offset by an increase in interest-bearing checking and savings accounts of $2.4 million combined with an increase in non-interest bearing deposits of $1.6 million.    

Stockholders’ equity was $31.7 million at June 30, 2004.  This amount represents a decrease of 1.2% from the December 31, 2003 balance of $32.1 million.  The book value per common share was $12.94 at June 30, 2004 compared to $13.10 at December 31, 2003.  This decrease is explained by the unrealized holding loss on available for sale securities and the Company’s transition from semi-annual to quarterly dividends.

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 Shareholders’ Equity section of the Balance Sheet and was ($815,000) at June 30, 2004, a decrease of $853,000 from December 31, 2003. The decrease in the equity effect of the change in the value of securities in the six months ended June 30, 2004 compared to the period ended December 31, 2003 results primarily from depreciation caused by an  increase in market interest rates in the period ended June 30, 2004.

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 $4.8 million for the six months ended June 30, 2004 compared to $4.9 million for the same period in 2003.  The decrease is largely due to a decline in the yield on loans as rates remained low offset by the decline in interest rates on deposits for the same period.  Two major components of net interest income are interest income on loans and interest expense on deposits. Interest income on loans decreased $431,000, while interest expense on deposits decreased $622,000. The remaining impact comes from interest income on the investment portfolio and fed funds position which decreased $312,000 for the same period.  

11

Non-interest Income

Non-interest income increased 20.3% to $884,000 for the first six months of 2004 compared to $735,000 for the same period in 2003. The Company realized $91,000 in net gains on investment sales for the six months ended June 30, 2004 along with $133,000 in income from Bank Owned Life Insurance and $36,000 in dividends from Title Company compared to $66,000, $73,000 and $0 respectively for the six months ended June 30, 2003.  Additionally, for the six months ended June 30, 2004, the company realized $0 in net gains on sale of OREO compared to $144,000 for the same period in 2003. Other increases in Non-Interest Income resulted from additional Fee Income.

Non-interest Expense

Non-interest expense includes employee-related costs, occupancy and equipment expense and other overhead.  Total non-interest expense was $3.8 million for the first six months of 2004 compared to $3.4 million for the same period in 2003, an increase of $400,000.  One component of Non-Interest Expense is Compensation and Benefits which increased $210,000 for the same period comparison.  Compensation increased as a result of increased salary expense attributed to additional employees in the operating and lending functions as well as additional staffing for branch expansion. Benefit Expense increased as a result of enhanced medical insurance benefits for the employees as well as an enhanced 401(k) plan and implementation of a deferred compensation executive benefit plan.

Equipment Expense increased $152,000 for the first six months of 2004 compared to the same period in 2003 as the Company updated its technology to improve services to its customers.  

Allowance for Loan Losses

The allowance for loan losses at June 30, 2004 was $2.1 million compared to $2.4 million at December 31, 2003.  The allowance for loan losses was 1.12% of total loans outstanding at June 30, 2004 and 1.35% of loans outstanding at December 31, 2003.  After considering portfolio and economic conditions, delinquency trends, past loan loss experience, the volume of loans as well as other factors deserving recognition, management felt that the allowance for loan losses was adequate. Management also believes the allowance for loan losses is adequate to cover credit losses inherent in the loan portfolio at June 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 $2.1 million in non-performing loans at June 30, 2004 compared to $2.7 million at June 30, 2003, a decrease of $600,000 or 22.2%.

Liquidity

The Company maintains required liquidity positions through cash on hand, correspondent bank balances, 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 June 30, 2004 and December 31, 2003 was $31.7 million and $32.1 million, respectively.  Total common shares outstanding at June 30, 2004 and June 30, 2003 were 2,446,500 and 2,448,000 respectively.

At June 30, 2004, the Company’s Tier 1 and total risk-based capital ratios were 18.9% and 20.5%, respectively, compared to 19.6% and 20.9% at December 31, 2003.  The Company’s leverage ratio was        11.9% at June 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.

12

Forward-Looking Statements

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements 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, changes in general economic and business conditions, interest rate fluctuations, competition within and from outside the banking industry, new products and services in the banking industry, risk inherent in making loans, such as repayment risks and fluctuating collateral values, problems with technology utilized by the Company, changing trends in customer profiles and changes in 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 results disclosed 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 our management, including our Chief Executive Officer and principal financial officer, we have evaluated the effectiveness of the design and operation of our 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 six months ended June 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 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, as appropriate, to allow timely decisions regarding required disclosure.

Part II.  Other Information

Item 1.  Legal Proceedings.

None

13

Item 2.  Change in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

Repurchase Plan Table

__________________
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.

The annual meeting of the stockholders was held May 19, 2004.  The Bank had 2,448,000 shares outstanding and eligible to vote at the annual meeting.  Each director received a minimum of 2,023,677 votes or 83.08% our outstanding shares entitled to vote. The following directors were elected by the stockholders at the annual meeting:  

Proposal to amend the Articles of Incorporation to terminate shareholders’ pre-emptive rights:

FOR   1,773,979                  AGAINST   301,272                      ABSTAIN   68,825                     BROKER NON-VOTES   43,262

Proposal to amend the Articles of Incorporation to increase the number of authorizes shares of common stock to 10,000,000 and to authorize 1,000,000 shares of preferred stock:

FOR   1,802,500                   AGAINST   326,800                      ABSTAIN   14,776                     BROKER NON-VOTES   43,262

Proposal to ratify the selection of Yount, Hyde & Barbour, P.C. as independent public accountants for the Company for the fiscal year 2004:

FOR   2,121,841                   AGAINST   11,350                        ABSTAIN   10,885

14

Item 5.  Other Information.

None

Item 6.

Exhibits and Reports on Form 8-K.

a)

Exhibit 31

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

Exhibit 32

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

b)

Reports on Form 8-K

On April 22, 2004, the Company furnished a current report on Form 8-K dated April 16, 2004 to report, under Item 12, and attach as an exhibit and incorporate by reference, a press release that reported the Company’s financial results for the quarter ended March 31, 2004.

15

SIGNATURES

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

CITIZENS BANCORP OF VIRGINIA, INC.

    (Registrant)

Date:  August 16, 2004

/s/ Mark C. Riley             

Mark C. Riley

President and Chief Executive Officer

EXHIBIT INDEX

Exhibit Number

Description

31

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

32

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