UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549



FORM 10-Q



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

of the Securities Exchange Act of 1934



For the quarterly period ended March 31, 2006



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 or other jurisdiction
of incorporation or organization)       | 20-0469337
(I.R.S. Employer
Identification No.)
|                                                                              |                                                
|126 South Main Street
Blackstone, VA
(Address of principal executive offices) | 23824
(Zip Code)                               



(434) 292-7221

(Registrants telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes  R   No  £



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 filer  £

Accelerated filer  o

Non-accelerated filer  þ



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  £    No  R



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

2,440,750 shares of Common Stock as of May 5, 2006.

---



CITIZENS BANCORP OF VIRGINIA, INC.

FORM 10-Q



For the Quarter Ended March 31, 2006



INDEX



Part I.    Financial Information

Page No.



Item 1.

Financial Statements



Consolidated Balance Sheets

3



Consolidated Statements of Income

4



Consolidated Statements of Changes in Stockholders Equity

5



Consolidated Statements of Cash Flows

6



Notes to Interim Consolidated Financial Statements

7



Item 2.

Managements Discussion and Analysis of Financial

Condition and Results of Operations

12



Item 3.       Quantitative and Qualitative Disclosures About Market Risk

17



Item 4.       Controls and Procedures

17





Part II.     Other Information



Item 1.

Legal Proceedings

18



Item 1A.

Risk Factors

18



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

18



Item 3.

Defaults upon Senior Securities

18



Item 4.

Submission of Matters to a Vote of Security Holders

18



Item 5.

Other Information

18



Item 6.

Exhibits

18





Signatures

19





2

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Part I.  Financial Information



Item 1.  Financial Statements



CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(Dollars in thousands, except share data)



|                                                                     |  |                        |  |                       
|-------------------------------------------------------------------- |  | ---------------------- |  | ----------------------
|                                                                     |  | March 31,              |  | December 31,          
|                                                                     |  | 2006                   |  | 2005                  
|Assets                                                               |  | (Unaudited)            |  |                       
|                                                                     |  |                        |  |                       
|Cash and due from banks                                              |  | $               7,150  |  | $               8,645 
|Interest-bearing deposits in banks                                   |  | 183                    |  | 72                    
|Federal funds sold                                                   |  | 2,813                  |  | 513                   
|Securities available for sale, at fair market value                  |  | 45,130                 |  | 47,254                
|Restricted securities                                                |  | 659                    |  | 684                   
|Loans, net of allowance for loan losses of $1,978                    |  |                        |  |                       
|and $1,954                                                           |  | 204,903                |  | 198,412               
|Premises and equipment, net                                          |  | 7,083                  |  | 7,174                 
|Accrued interest receivable                                          |  | 1,671                  |  | 1,706                 
|Other assets                                                         |  | 8,617                  |  | 8,616                 
|                                                                     |  |                        |  |                       
|Total assets                                                         |  | $           278,209    |  | $           273,076   
|                                                                     |  |                        |  |                       
|Liabilities and Stockholders' Equity                                 |  |                        |  |                       
|                                                                     |  |                        |  |                       
|Liabilities                                                          |  |                        |  |                       
|Deposits:                                                            |  |                        |  |                       
|Noninterest-bearing                                                  |  | $             37,000   |  | $             35,308  
|Interest-bearing                                                     |  | 200,761                |  | 197,968               
|Total deposits                                                       |  | $           237,761    |  | $           233,276   
|Short term borrowings                                                |  | 4,523                  |  | 4,536                 
|Accrued interest payable                                             |  | 1,019                  |  | 875                   
|Accrued expenses and other liabilities                               |  | 1,148                  |  | 930                   
|Total liabilities                                                    |  | $           244,451    |  | $           239,617   
|                                                                     |  |                        |  |                       
|Commitments and Contingencies                                        |  |                        |  |                       
|                                                                     |  |                        |  |                       
|Stockholders' Equity                                                 |  |                        |  |                       
|Preferred stock, $0.50 par value; authorized 1,000,000 shares;       |  |                        | 
|none outstanding                                                     |  | $                    - |  | $                    -
|Common stock, $0.50 par value; authorized 10,000,000 shares;         |  |                        | 
|issued and outstanding, 2,440,750                                    |  | 1,220                  |  | 1,220                 
|Additional paid-in capital                                           |  | 49                     |  | 49                    
|Retained earnings                                                    |  | 33,362                 |  | 32,971                
|Accumulated other comprehensive income (loss), net                   |  | (873)                  |  | (781)                 
|Total stockholders' equity                                           |  | $             33,758   |  | $             33,459  
|                                                                     |  |                        |  |                       
|Total liabilities and stockholders' equity                           |  | $           278,209    |  | $           273,076   
|                                                                     |  |                        |  |                       
|                                                                     |  |                        |  |                       
|See accompanying Notes to Interim Consolidated Financial Statements. |  |                        | 



3

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CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)





|                                                   |                              |  |                        
|-------------------------------------------------- | ---------------------------- |  | -----------------------
|                                                   | Three Months Ended March 31,
|                                                   | 2006                         |  | 2005                   
|Interest and Dividend Income                       |                              |  |                        
|Loans, including fees                              | $               3,352        |  | $               3,019  
|Investment securities:                             |                              |  |                        
|Taxable                                            | 350                          |  | 307                    
|Exempt from federal income taxes                   | 118                          |  | 134                    
|Dividends                                          | 14                           |  | 6                      
|Federal Funds sold                                 | 6                            |  | 52                     
|Other                                              | 2                            |  | 7                      
|                                                   |                              |  |                        
|Total interest and dividend income                 | $               3,842        |  | $               3,525  
|                                                   |                              |  |                        
|Interest Expense                                   |                              |  |                        
|Deposits                                           | $               1,175        |  | $                  954 
|Short term borrowings                              | 52                           |  | 10                     
|Total interest expense                             | $               1,227        |  | $                  964 
|Net interest income                                | $               2,615        |  | $               2,561  
|Provision for loan losses                          | 15                           |  | 145                    
|                                                   |                              |  |                        
|Net interest income after provision                |                              |  |                        
|for loan losses                                    | $               2,600        |  | $               2,416  
|                                                   |                              |  |                        
|Noninterest Income                                 |                              |  |                        
|Service charges on deposit accounts                | $                  310       |  | $                  306 
|Net gain on sales and calls of securities          | -                            |  | -                      
|Net gain on sales of loans                         | 14                           |  | 13                     
|Net gain (loss) on sale of other real estate owned | -                            |  | (3)                    
|Income from bank owned life insurance              | 61                           |  | 60                     
|Other                                              | 108                          |  | 99                     
|Total noninterest income                           | $                  493       |  | $                   475
|                                                   |                              |  |                        
|Noninterest Expense                                |                              |  |                        
|Salaries and employee benefits                     | $               1,169        |  | $               1,102  
|Net occupancy expense                              | 120                          |  | 105                    
|Equipment expense                                  | 182                          |  | 203                    
|Other                                              | 538                          |  | 533                    
|Total noninterest expense                          | $               2,009        |  | $               1,943  
|                                                   |                              |  |                        
|Income before income taxes                         | $               1,084        |  | $                  948 
|                                                   |                              |  |                        
|Income taxes                                       | 303                          |  | 239                    
|                                                   |                              |  |                        
|Net income                                         | $                  781       |  | $                  709 
|                                                   |                              |  |                        
|Earnings per share, basic and diluted              | $                0.32        |  | $                0.29  



See accompanying Notes to Interim Consolidated Financial Statements.



4

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|                                                                 |                 |                    |                   |                   |                 |              
|---------------------------------------------------------------- | --------------- | ------------------ | ----------------- | ----------------- | --------------- | -------------
|CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY               
|Consolidated Statements of Changes in Stockholders' Equity      
|For the  Three Months Ended March 31,  2006 and 2005
(Unaudited)
|                                                                 |                 |                    |                   | Accumulated       |                 |              
|(Dollars in thousands)                                           |                 |                    |                   | Other             |                 |              
|                                                                 |                 | Additional         |                   | Compre-           | Compre-         |              
|                                                                 | Common          | Paid-In            | Retained          | hensive           | hensive         |              
|                                                                 | Stock           | Capital            | Earnings          | (Loss)            | Income          | Total        
|                                                                 |                 |                    |                   |                   |                 |              
|Balance at December 31, 2004                                     | $         1,220 | $               49 | $          31,358 | $           (174) |                 | $      32,453
|Comprehensive income:                                            |                 |                    |                   |                   |                 |              
|Net income                                                       | -               | -                  | 709               | -                 | $           709 | 709          
|Other comprehensive loss:                                        |                 |                    |                   |                   |                 |              
|Unrealized (losses) on securities available                      |                 |                    |                   |                   |                 |              
|for sale, net of deferred taxes                                  | -               | -                  | -                 | (441)             | $         (441) | (441)        
|Total comprehensive income                                       | -               | -                  | -                 | -                 | $           268 | -            
|                                                                 |                 |                    |                   |                   |                 |              
|Cash dividends                                                   | -               | -                  | (366)             | -                 |                 | (366)        
|Balance at March 31, 2005                                        | $         1,220 | $               49 | $          31,701 | $           (615) |                 | $      32,355
|                                                                 |                 |                    |                   |                   |                 |              
|Balance at December 31, 2005                                     | $         1,220 | $               49 | $          32,971 | $           (781) |                 | $      33,459
|Comprehensive income:                                            |                 |                    |                   |                   |                 |              
|Net income                                                       | -               | -                  | 781               | -                 | $           781 | 781          
|Other comprehensive income:                                      |                 |                    |                   |                   |                 |              
|Unrealized (losses) on securities available                      |                 |                    |                   |                   |                 |              
|for sale, net of deferred taxes                                  | -               | -                  | -                 | (92)              | (92)            | (92)         
|Total comprehensive income                                       | -               | -                  | -                 | -                 | $           689 | -            
|Cash dividends                                                   | -               | -                  | (390)             | -                 |                 | (390)        
|Balance at  March 31, 2006                                       | $         1,220 | $               49 | $          33,362 | $          (873)  |                 | $      33,758
|                                                                 |                 |                    |                   |                   |                 |              



See accompanying Notes to Interim Consolidated Financial Statements.



5

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|                                                                     |                            |  |                            
|-------------------------------------------------------------------- | -------------------------- |  | ---------------------------
|CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY                   
|Consolidated Statements of Cash Flows                               
|(Dollars in thousands)                                               |                            |  |                            
|(Unaudited)                                                          |                            |  |                            
|                                                                     | Three Months Ended        
|                                                                     | March 31,                 
|                                                                     | 2006                       |  | 2005                       
|Cash Flows from Operating Activities                                 |                            |  |                            
|Net income                                                           | $                     781  |  | $                     709  
|Adjustments to reconcile net income to net cash                      |                            |  |                            
|provided by operating activities:                                    |                            |  |                            
|Depreciation                                                         | 159                        |  | 174                        
|Provision for loan losses                                            | 15                         |  | 145                        
|Net (gain)loss on sales of loans                                     | (14)                       |  | (13)                       
|Origination of loans held for sale                                   | (1,002)                    |  | (959)                      
|Proceeds from sales of loans                                         | 1,062                      |  | 1,047                      
|Net (gain) loss on sale of OREO                                      | - -                        |  | 3                          
|Net amortization of securities                                       | 24                         |  | 26                         
|Changes in assets and liabilities:                                   |                            |  |                            
|Decrease (increase) in accrued interest receivable                   | 35                         |  | (71)                       
|(Increase) in other assets                                           | (50)                       |  | (461)                      
|(Increase) in OREO                                                   | - -                        |  | (182)                      
|Increase (decrease) in accrued interest payable                      | 145                        |  | (25)                       
|Increase in accrued expenses and other liabilities                   | 218                        |  | 652                        
|Net cash provided by operating activities                            | $                  1,423   |  | $                  1,045   
|Cash Flows from Investing Activities                                 |                            |  |                            
|Activity in available for sale securities:                           |                            |  |                            
|Maturities and prepayments                                           | $                  1,962   |  | $                      545 
|Purchases                                                            | - -                        |  | (1,000)                    
|(Purchase) redemption of restricted securities                       | 25                         |  | (16)                       
|Net decrease (increase) in loans                                     | (6,506)                    |  | 286                        
|Purchases of land, premises and equipment                            | (68)                       |  | (60)                       
|Proceeds from sale of other real estate owned                        | - -                        |  | 32                         
|Net cash used in investing activities                                | $                (4,587)   |  | $                     (213)
|Cash Flows from Financing Activities                                 |                            |  |                            
|Net (decrease) in deposits                                           | $                  4,484   |  | $                  (9,156) 
|Net (decrease) in short-term borrowings                              | (14)                       |  | (134)                      
|Dividends paid                                                       | (390)                      |  | 366                        
|Net cash provided (used in) financing activities                     | $                  4,080   |  | $                  (9,656) 
|Net increase (decrease) in cash and cash equivalents                 | $                     916  |  | $                  (8,824) 
|Cash and Cash Equivalents                                            |                            |  |                            
|Beginning of period                                                  | $                  9,230   |  | $                21,580    
|End of period                                                        | $                10,146    |  | $                12,756    
|Supplemental Disclosures of Cash Flow Information                    |                            |  |                            
|Cash paid during the period for:                                     |                            |  |                            
|Interest                                                             | $                  1,082   |  | $                     939  
|Income taxes                                                         | $                     225  |  | $                       - -
|Supplemental Disclosures of Noncash Investing                        |                            |  |                            
|and Financing Activities                                             |                            |  |                            
|Other real estate acquired in settlement of loans                    | - -                        |  | 182                        
|Unrealized (losses) on securities available for sale                 | $                    (138) |  | $                   (668)  
|See accompanying Notes to Interim Consolidated Financial Statements. |                            |  |                            



6

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CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY

Notes to Interim Consolidated Financial Statements

(Unaudited)





Note 1.

General



The Consolidated Balance Sheets at March 31, 2006 and December 31, 2005 and the Consolidated Statements of Income, Changes in Stockholders Equity and Cash Flows for the three months ended March 31, 2006 and 2005, prepared in accordance with instructions for Form 10-Q, do not include all of the information and footnotes required by accounting principles (GAAP) generally accepted in the United States of America for complete financial statements. However, in the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position at March 31, 2006 and the results of operations
for the three months ended March 31, 2006 and 2005.  The statements should be read in conjunction
with the Notes to Consolidated Financial Statements included in the Citizens Bancorp of Virginia, Inc. Annual Report on Form 10-K for the year ended December 31, 2005. The results of operations for
the three-month period ended March 31, 2006 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 March 31, 2006, the Bank employed 110 employees, with a resulting 108 full-time equivalent.  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 branch offices are located in Virginia.



Note 2.

Securities



Securities available for sale are summarized below:



|                       |                 |  |                   |  |                  |  |                 
|---------------------- | --------------- |  | ----------------- |  | ---------------- |  | ----------------
|                       | March 31, 2006 
|(Dollars in thousands) |                 |  | Gross             |  | Gross            |  |                 
|                       | Amortized       |  | Unrealized        |  | Unrealized       |  | Fair            
|                       | Cost            |  | Gains             |  | (Losses)         |  | Value           
|U.S. government        |                 |  |                   |  |                  |  |                 
|and federal agency     | $        19,434 |  | $             - - |  | $          (776) |  | $         18,658
|State and municipal    | 14,371          |  | 42                |  | (235)            |  | 14,178          
|Mortgage-backed        | 9,038           |  | 7                 |  | (207)            |  | 8,838           
|Corporate              | 3,610           |  | - -               |  | (154)            |  | 3,456           
|                       | $        46,453 |  | $             49  |  | $        (1,372) |  | $         45,130





7

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|                       |                   |  |                   |  |                 |  |                 
|---------------------- | ----------------- |  | ----------------- |  | --------------- |  | ----------------
|(Dollars in thousands) | December 31, 2005
|                       |                   |  | Gross             |  | Gross           |  |                 
|                       | Amortized         |  | Unrealized        |  | Unrealized      |  | Fair            
|                       | Cost              |  | Gains             |  | (Losses)        |  | Value           
|U.S. government        |                   |  |                   |  |                 |  |                 
|and federal agency     | $       19,434    |  | $             - - |  | $         (674) |  | $         18,760
|State and municipal    | 15,823            |  | 68                |  | (241)           |  | 15,649          
|Mortgage-backed        | 9,557             |  | 8                 |  | (204)           |  | 9,362           
|Corporate              | 3,625             |  | - -               |  | (142)           |  | 3,483           
|                       | $       48,439    |  | $             76  |  | $      (1,261)  |  | $         47,254





Information pertaining to securities with gross unrealized losses at March 31, 2006 and December 31, 2005, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is summarized as follows:



|                    |  |                     |  |                    |  |                |  |                 
|------------------- |  | ------------------- |  | ------------------ |  | -------------- |  | ----------------
|                    |  | Less than 12 Months |  | 12 Months or More 
|                    |  | Fair                |  | Unrealized         |  | Fair           |  | Unrealized      
|2006                |  | Value               |  | (Loss)             |  | Value          |  | (Loss)          
|                    |  | (In Thousands)     
|U.S. government     |  |                     |  |                    |  |                |  |                 
|and federal agency  |  | $             696   |  | $             (18) |  | $       17,962 |  | $          (758)
|State and municipal |  | 6,083               |  | (54)               |  | 4,564          |  | (181)           
|Mortgage-backed     |  | 3,225               |  | (62)               |  | 3,961          |  | (145)           
|Corporate           |  | 511                 |  | (21)               |  | 2,944          |  | (133)           
|Total temporarily   |  |                     |  |                    |  |                |  |                 
|impaired securities |  | $         10,515    |  | $           (155)  |  | $       29,431 |  | $        (1,217)





|                    |  |                     |  |                   |  |                |  |                 
|------------------- |  | ------------------- |  | ----------------- |  | -------------- |  | ----------------
|                    |  | Less than 12 Months |  | 12 Months or More
|                    |  | Fair                |  | Unrealized        |  | Fair           |  | Unrealized      
|2005                |  | Value               |  | (Loss)            |  | Value          |  | (Loss)          
|                    |  | (In Thousands)     
|U.S. government     |  |                     |  |                   |  |                |  |                 
|and federal agency  |  | $         3,648     |  | $            (66) |  | $       15,112 |  | $          (608)
|State and municipal |  | 6,623               |  | (93)              |  | 3,587          |  | (149)           
|Mortgage-backed     |  | 4,918               |  | (65)              |  | 4,216          |  | (139)           
|Corporate           |  | 518                 |  | (18)              |  | 2,965          |  | (123)           
|Total temporarily   |  |                     |  |                   |  |                |  |                 
|impaired securities |  | $       15,707      |  | $          (242)  |  | $       25,880 |  | $        (1,019)





8

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The unrealized losses in the investment portfolio as of March 31, 2006 are considered temporary and are a result of general market fluctuations that occur daily.  The unrealized losses are from 70 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 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 at the dates indicated:



|                                 |                |  |                   
|-------------------------------- | -------------- |  | ------------------
|(Dollars in thousands)           | March 31, 2006 |  | December 31,  2005
|Mortgage loans on real estate:   |                |  |                   
|Commercial                       | $       58,113 |  | $       54,549    
|Residential 1-4 family           | 91,893         |  | 92,158            
|Construction                     | 15,092         |  | 11,888            
|Total real estate loans          | $     165,098  |  | $     158,595     
|Commercial loans                 | 23,814         |  | 23,884            
|Consumer                         | 17,969         |  | 17,887            
|Total loans                      | $     206,881  |  | $     200,366     
|Less:  allowance for loan losses | 1,978          |  | 1,954             
|Loans, net                       | $     204,903  |  | $     198,412     



The Company had $1.8 million in non-accruing loans at March 31, 2006.



Note 4.

Allowance for Loan Losses



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



|                                           |                    |  |                     
|------------------------------------------ | ------------------ |  | --------------------
|                                           | Three Months Ended |  | Year Ended          
|                                           | March 31,
2006     |  | December 31,    2005
|Balance, beginning                         | $         1,954    |  | $         2,740     
|Provision for loan losses                  | 15                 |  | 208                 
|Loans charged off                          | (38)               |  | (1,387)             
|Recoveries of loans previously charged off | 47                 |  | 393                 
|Balance, ending                            | $         1,978    |  | $         1,954     



9

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The following is a summary of impaired loans:





|                                              |                |  |                  
|--------------------------------------------- | -------------- |  | -----------------
|(Dollars in Thousands)                        | March 31,
2006 |  | December 31, 2005
|Impaired loans with a valuation allowance     | $1,380         |  | $1,366           
|Impaired loans without a valuation allowance  | - -            |  | - -              
|Total impaired loans                          | $1,380         |  | $1,366           
|                                              |                |  |                  
|Valuation allowance related to impaired loans | $ 307          |  | $ 306            
|                                              |                |  |                  
|Average investment in impaired loans          | $1,373         |  | $1,421           
|                                              |                |  |                  
|Interest income recognized                    | $  - -         |  | $  - -           



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 $445,004 and $329,041 at March 31, 2006 and December 31, 2005, respectively.  Income on non-accrual and impaired loans under the original terms would have been approximately $56,067 and $64,016 for March 31, 2006 and March 31, 2005, respectively.



Note 5.

Earnings Per Share



The weighted average number of shares used in computing earnings per share was 2,440,750 shares for the three months ended March 31, 2006 and March 31, 2005.



Note 6.

Defined Benefit Pension Plan



The components of Net Periodic Benefit Cost for the three months ended March 31, 2006 and 2005 were as follows:



|                                   |  |                  |  |             | 
|---------------------------------- |  | ---------------- |  | ----------- | 
|(Dollars in thousands)             |  | Pension Benefits | 
|                                   |  | 2006             |  | 2005        | 
|                                   |  |                  |  |             | 
|Service cost                       |  | $         74     |  | $        53 | 
|Interest cost                      |  | 51               |  | 39          | 
|Expected return on plan assets     |  | (58)             |  | (41)        | 
|Amortization of prior service cost |  | (24)             |  | (24)        | 
|Amortization of net actuarial loss |  | 22               |  | 24          | 
|Net periodic benefit cost          |  | $         65     |  | $       51  | 



The Company made its required 2006 fiscal year contribution to the pension plan in December 2005 in the amount of $260,000 and anticipates making the 2007 contribution in December 2006.   The Company estimates this contribution to be approximately $262,000.  The pension plan has a fiscal year ending September 30, providing the Company the flexibility as to the calendar year in which it makes pension plan contributions.



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Note 7.

Recent Accounting Pronouncements



In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, "Accounting for Servicing of Financial Assets an amendment of FASB Statement 140" (Statement 156).  Statement 156 amends Statement 140 with respect to separately recognized servicing assets and liabilities.  Statement 156 requires an entity to recognize a servicing asset or liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract and requires all servicing assets and liabilities to be initially measured at fair value, if practicable. Statement 156 also permits entities to subsequently measure servicing assets and liabilities using an amortization method or fair value measurement method.  Under the
amortization method, servicing assets and liabilities are amortized in proportion
 to and over the estimated period of servicing.  Under the fair value measurement method, servicing assets are measured at fair value at
each reporting date and changes in fair value are reported in net income for the period the change occurs.



Adoption of Statement 156 is required as of the beginning of fiscal years beginning subsequent to September 15, 2006.  Earlier adoption is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued financial statements, including interim financial statements.



The Corporation does not expect the adoption of Statement 156 at the beginning of 2007 to have a material impact.







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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.



CRITICAL ACCOUNTING POLICIES



General



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



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



Allowance for Loan Losses



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



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



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,



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charge-offs  and  recoveries;  changes in underwriting  standards and risk  selection;  level of  experience,  ability and depth of lending management; and national and local economic conditions.



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



OVERVIEW AND FINANCIAL CONDITION



General



Total assets for the Company increased to $278.2 million at March 31, 2006 compared to $273.1 million at December 31, 2005, representing an increase of $5.1 million or 1.9%.   Total loans at March 31, 2006 were $204.9 million, an increase of $6.5 million from the December 31, 2005 amount of $198.4 million. Net loans as a percent of total assets were 73.7% at March 31, 2006 as compared to 72.5% at December 31, 2005.  Meanwhile, the federal funds and overnight funds positions increased $2.4 million from $585 thousand at December 31, 2005 to $2.9 million at March 31, 2006, an increase of 412.1%.



Total deposits of $237.8 million at March 31, 2006 represented an increase of $4.5 million from $233.3 million at December 31, 2005.  Total certificates of deposit at March 31, 2006 were $129.3 million, up $2.1 million from December 31, 2005.



Stockholders equity was $33.7 million at March 31, 2006 compared to $33.4 million at December 31, 2005.  The book value per common share was $13.83 at March 31, 2006 compared to $13.70 at December 31, 2005.  Net unrealized losses on available for sale securities increased $91 thousand from $781 thousand at December 31, 2005 to $873 thousand as of March 31, 2006.  On March 22, 2006, the Board of Directors approved a cash dividend of 16 cents per outstanding share for a total dividend payment of $390 thousand, and paid to shareholders on April 14, 2006.



The Company reported net income for the three months ended March 31, 2006 of $781 thousand or $.32 per share compared to $709 thousand or $.29 per share for the first three months of 2005.  Annualized returns on average assets and equity for the three months ended March 31, 2006 were 1.15% and 9.30%, respectively, compared to 1.02% and 8.63% for the same period in 2005.



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 $2.61 million for the three months ended March 31, 2006 compared to $2.56 million for the same period in 2005.  The results for the current quarter reflect the effects of ongoing increases in short-term interest rates.  The yield on earning assets and for interest-bearing liabilities for the first three months of 2006 was 6.17% and 2.43%, respectively,



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which is an increase of 59 basis points and 57 basis points, respectively, for the same period in 2005.  Management is pleased with the steady increase in low-cost deposit balances during the quarter, and it is working diligently to control the impact of higher short-term rates on retaining and attracting certificates of deposits.



Two major components of net interest income are interest income on loans and interest expense on deposits. Interest income on loans increased $333 thousand for the three months ended March 31, 2006 compared to the prior year.  Interest and dividend income on investment securities and overnight funds declined by $16 thousand for the same period, for a total change in interest income of $317 thousand.   Interest expense on deposits and short-term borrowings increased $263 thousand for the three months ended March 31, 2006.   Overall, this produced an increase of $54 thousand in the total net interest income for the period when compared to the same period in 2005.



Non-interest Income



Non-interest income increased 3.8% to $493 thousand for the first three months of 2006 compared to $475 thousand for the same period in 2005.  Below is a representation of the changes to the significant components:



|                                                   |                       |                       |         
|-------------------------------------------------- | --------------------- | --------------------- | --------
|(In thousands)                                     | Three Months Ended   
|Non-interest Income                                | March  31, 2006       | March 31, 2005        | % Change
|Service charges on deposit accounts                | $                 310 | $                 306 | 1.3%    
|Net gain on sales of loans                         | 14                    | 13                    | 7.7%    
|Net gain (loss) on sale of other real estate owned | - -                   | (3)                   | 100.0%  
|Income from bank owned life insurance              | 61                    | 60                    | 1.7%    
|Other (including ATM fees, etc.)                   | 108                   | 99                    | 9.1%    
|Total non-interest income                          | $                 493 | $                 475 | 3.8%    



·

Service charges on deposit accounts increased 1.3% or $4 thousand primarily as the result of lower overdraft fees, due in part to daily maximum limits being placed for the automatic overdraft program, and consumers moving from fee-generating products to free checking products.



·

Other operating income increased $9 thousand primarily due to an increase in ATM fees and other service fees charged.



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Non-interest Expense



Non-interest expense includes employee-related costs, occupancy and equipment expense and other overhead costs.  Total non-interest expense was $2.0 million for the first three months of 2006 compared to $1.9 million for the same period in 2005, an increase of $66 thousand.  The following table outlines the changes in significant components:



|                               |                      |                      |         
|------------------------------ | -------------------- | -------------------- | --------
|(In thousands)                 | Three Months Ended  
|Non-interest Expense           | March  31, 2006      | March 31, 2005       | % Change
|Salaries and employee benefits | $              1,169 | $              1,102 | 6.1%    
|Net occupancy expense          | 120                  | 105                  | 14.3%   
|Equipment expense              | 182                  | 203                  | (10.3)% 
|Other operating expense        | 538                  | 533                  | 0.9%    
|Total non-interest expense     | $              2,009 | $              1,943 | 3.4%    



·

Salaries and employee benefits increased $67 thousand as a result of increased salary expense attributed to additional staffing for branch expansion, cost of living increases and benefit expense increases from higher plan premiums and costs for the 401-K employer match.



·

Net occupancy expense increased $15 thousand primarily a result of depreciation expense related to the Colonial Heights branch and an increase in building repairs and maintenance.



·

Equipment expensedecreased $21 thousand primarily as a result of lower depreciation expenses, due to equipment becoming fully depreciated.



Allowance for Loan Losses



The allowance for loan losses at March 31, 2006 was $1.98 million compared to $1.95 million at December 31, 2005.  The allowance for loan losses was 0.96% of total loans outstanding at March 31, 2006 compared to .98% of total loans outstanding at December 31, 2005, a decrease of 2 basis points.  During the three months ending March 31, 2006, the Bank charged off $38 thousand in loans and a total of $47 thousand was recovered from previous write-offs, resulting in a net increase of $24 thousand to the allowance.  As a result of the current level of the allowance and the asset quality of the loan portfolio, Management did not make any additional provision to the allowance during the first three months of 2006.  However, $15 thousand was added to the allowance for possible losses anticipated from the automatic overdraft program.



Management also believes the allowance for loan losses is adequate to cover credit losses inherent in the loan portfolio at March 31, 2006.  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.



Criticized  Loans are  defined by  management  as loans which
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 March 31, 2006 and December 31, 2005 totaled  $3,068,000 and $2,297,000,  respectively.  At March 31, 2006
and December 31,  2005,  $283,000 and  $195,000,  respectively  was included in the  Allowance  for Loan Loss to cover for the possible
losses on these loans.



The Company had $1.8 million in non-accruing loans at March 31, 2006 compared to $1.3 million at March 31, 2005, an increase of $0.5 million or 38.5%.



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.  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.  The Company monitors its liquidity position



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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 March 31, 2006 and December 31, 2005 was $33.8 million and $33.5 million, respectively.  Total number of common shares outstanding at March 31, 2006 and March 31, 2005 was 2,440,750.



At March 31, 2006, the Companys Tier 1 and total risk-based capital ratios were 18.3% and 19.4%, respectively, compared to 18.8% and 19.8% at December 31, 2005.  The Companys leverage ratio was 12.5% at March 31, 2006 compared to 12.3% at December 31, 2005.  The Banks capital structure places it well above the regulatory guidelines, which affords the Company the opportunity to take advantage of business opportunities while ensuring that it has the resources to protect against risk inherent in its business.



FORWARD LOOKING STATEMENTS



Certain information contained in this discussion may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, (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 capital levels adequate to support the Companys growth;

·

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

·

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

·

successfully manage interest rate risk;

·

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

·

manage changes in interest rates and interest rate policies;

·

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

·

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

·

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

·

handle problems with technology utilized by the Company;

·

plan for changing trends in customer profiles and behavior; and

·

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



Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ



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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, 2005.  For more information, see the Companys Annual Report on Form 10-K for the year ended December 31, 2005.



Item 4.

Controls and Procedures



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



Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this quarterly report.  Based on that evaluation, 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 March 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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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 subsidiary, 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, 2005.



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



The Company did not repurchase any of its equity securities during the three months ended March 31, 2006.



Item 3.  Defaults upon Senior Securities



None



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



None



Item 5.  Other Information



None



Item 6.  Exhibits



See Exhibit Index.



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SIGNATURES



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



CITIZENS BANCORP OF VIRGINIA, INC.

(Registrant)





Date:

May 15, 2006

/s/ Joseph D. Borgerding

Joseph D. Borgerding

President and Chief Executive Officer





Date:

May 15, 2006

/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