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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|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



| ̈ | 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: 0-49789



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Henry County Bancshares, Inc.

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Georgia                                                        |  | 58-1485511                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

4806 N. Henry Blvd., Stockbridge, Georgia 30281

(Address of principal executive offices)

(770) 474-7293

(Issuers telephone number)

N/A

(Former name, former address and former fiscal year, if changed since
last report)



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

Indicate by check mark whether the registrant is 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.

Large
accelerated filer ̈Accelerated filer  x    Non-accelerated filer ̈

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

State the number of shares outstanding of each of the issuers classes of common equity, as of May 8, 2006: 7,151,684; $2.50 par value



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##### Table of Contents

HENRY COUNTY BANCSHARES, INC AND SUBSIDIARIES

INDEX



|         |  |                       |  |                                                                                                         |  |     
|-------- |  | --------------------- |  | ------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                       |  |                                                                                                         |  | Page
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                        
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                    |  |     
|         |  |                       | 
|         |  |                       |  | Consolidated Balance Sheets- March 31, 2006 and December 31, 2005                                       |  | 3   
|         |  |                       | 
|         |  |                       |  | Consolidated Statements of Income and Comprehensive Income - Three Months Ended March 31, 2006 and 2005 |  | 4   
|         |  |                       | 
|         |  |                       |  | Consolidated Statements of Cash Flows - Three Months Ended March 31, 2006 and 2005                      |  | 5   
|         |  |                       | 
|         |  |                       |  | Notes to Consolidated Financial Statements                                                              |  | 6-7 
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                   |  | 8-14
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                              |  | 14  
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                 |  | 15  
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                        
|         |  |                       | 
|         |  | Item 4 -              |  | Submission of Matters to a Vote of Security Holders                                                     |  | 16  
|         |  |                       | 
|         |  | Item 6 -              |  | Exhibits and Reports on Form 8-K                                                                        |  | 16  
|         |  |                       | 
|         |  |                       |  | Signatures                                                                                              |  | 17  



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##### Table of Contents

PART I - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2006 AND DECEMBER 31, 2005

(Unaudited)



|                                                                                     |  |      |             |   |      |   |             |  
|------------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                     |  | 2006 |             |   | 2005 |  
|Assets                                                                               |  |      |             |   |      |   |             |  
|Cash and due from banks                                                              |  | $    | 21,674,310  |   |      | $ | 15,950,626  |  
|Interest- bearing deposits in banks                                                  |  |      | 156,412     |   |      |   | 388,078     |  
|Federal funds sold                                                                   |  |      | 9,200,000   |   |      |   | 9,600,000   |  
|Securities available for sale, at fair value                                         |  |      | 69,291,588  |   |      |   | 70,348,924  |  
|Securities held to maturity, at cost, (fair value 2006 $292,000; 2005 $297,000)      |  |      | 291,858     |   |      |   | 295,785     |  
|Restricted equity securities, at cost                                                |  |      | 2,178,451   |   |      |   | 2,057,451   |  
|Loans held for sale                                                                  |  |      | 416,585     |   |      |   | 822,000     |  
|                                                                                     |  |     
|Loans                                                                                |  |      | 539,658,589 |   |      |   | 518,113,879 |  
|Less allowance for loan losses                                                       |  |      | 5,098,870   |   |      |   | 4,971,852   |  
|                                                                                     |  |      |             |   |      |   |             |  
|Loans, net                                                                           |  |      | 534,559,719 |   |      |   | 513,142,027 |  
|                                                                                     |  |     
|Premises and equipment                                                               |  |      | 9,049,442   |   |      |   | 9,041,588   |  
|Other assets                                                                         |  |      | 9,429,286   |   |      |   | 9,386,818   |  
|                                                                                     |  |      |             |   |      |   |             |  
|Total assets                                                                         |  | $    | 656,247,651 |   |      | $ | 631,033,297 |  
|                                                                                     |  |      |             |   |      |   |             |  
|Liabilities and Stockholders Equity                                                 |  |      |             |   |      |   |             |  
|                                                                                     |  |     
|Deposits                                                                             |  |      |             |   |      |   |             |  
|Noninterest-bearing                                                                  |  | $    | 85,226,878  |   |      | $ | 84,615,988  |  
|Interest-bearing                                                                     |  |      | 482,426,513 |   |      |   | 460,631,141 |  
|                                                                                     |  |      |             |   |      |   |             |  
|Total deposits                                                                       |  |      | 567,653,391 |   |      |   | 545,247,129 |  
|Other borrowings                                                                     |  |      | 18,991,793  |   |      |   | 19,988,352  |  
|Other liabilities                                                                    |  |      | 4,519,859   |   |      |   | 3,049,949   |  
|                                                                                     |  |      |             |   |      |   |             |  
|Total liabilities                                                                    |  |      | 591,165,043 |   |      |   | 568,285,430 |  
|                                                                                     |  |      |             |   |      |   |             |  
|Commitments and contingencies                                                        |  |      |             |   |      |   |             |  
|                                                                                     |  |     
|Stockholders equity                                                                 |  |      |             |   |      |   |             |  
|Common stock, par value $2.50; 10,000,000 shares authorized; 7,237,066 shares issued |  |      | 18,092,664  |   |      |   | 18,092,664  |  
|Surplus                                                                              |  |      | 739,560     |   |      |   | 739,560     |  
|Retained earnings                                                                    |  |      | 48,240,497  |   |      |   | 45,880,738  |  
|Accumulated other comprehensive loss                                                 |  |      | (424,499    | ) |      |   | (399,481    | )
|Treasury stock, 85,382 shares                                                        |  |      | (1,565,614  | ) |      |   | (1,565,614  | )
|                                                                                     |  |      |             |   |      |   |             |  
|Total stockholders equity                                                           |  |      | 65,082,608  |   |      |   | 62,747,867  |  
|                                                                                     |  |      |             |   |      |   |             |  
|Total liabilities and stockholders equity                                           |  | $    | 656,247,651 |   |      | $ | 631,033,297 |  
|                                                                                     |  |      |             |   |      |   |             |  

See Notes to Consolidated Financial Statements.



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HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2006 AND 2005

(Unaudited)



|                                                                    |  |                             |            |   |      |   |           |  
|------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | --------- | -
|                                                                    |  | Three Months EndedMarch 31, |           
|                                                                    |  | 2006                        |            |   | 2005 |  
|Interest income                                                     |  |                             |            |   |      |   |           |  
|Loans                                                               |  | $                           | 10,084,609 |   |      | $ | 7,740,580 |  
|Taxable securities                                                  |  |                             | 612,421    |   |      |   | 331,884   |  
|Nontaxable securities                                               |  |                             | 55,147     |   |      |   | 59,766    |  
|Deposits in banks                                                   |  |                             | 4,152      |   |      |   | 1,717     |  
|Federal funds sold                                                  |  |                             | 121,498    |   |      |   | 18,049    |  
|                                                                    |  |                             |            |   |      |   |           |  
|Total interest income                                               |  |                             | 10,877,827 |   |      |   | 8,151,996 |  
|                                                                    |  |                             |            |   |      |   |           |  
|Interest expense                                                    |  |                             |            |   |      |   |           |  
|Deposits                                                            |  |                             | 4,076,193  |   |      |   | 2,631,592 |  
|Other borrowings                                                    |  |                             | 236,330    |   |      |   | 319,812   |  
|                                                                    |  |                             |            |   |      |   |           |  
|Total interest expense                                              |  |                             | 4,312,523  |   |      |   | 2,951,404 |  
|                                                                    |  |                             |            |   |      |   |           |  
|Net interest income                                                 |  |                             | 6,565,304  |   |      |   | 5,200,592 |  
|Provision for loan losses                                           |  |                             | 146,090    |   |      |   | 161,250   |  
|                                                                    |  |                             |            |   |      |   |           |  
|Net interest income after provision for loan losses                 |  |                             | 6,419,214  |   |      |   | 5,039,342 |  
|                                                                    |  |                             |            |   |      |   |           |  
|Other operating income                                              |  |                             |            |   |      |   |           |  
|Service charges on deposit accounts                                 |  |                             | 385,151    |   |      |   | 507,781   |  
|Other service charges and fees                                      |  |                             | 295,491    |   |      |   | 275,933   |  
|Mortgage banking income                                             |  |                             | 187,659    |   |      |   | 206,482   |  
|                                                                    |  |                             |            |   |      |   |           |  
|Total other income                                                  |  |                             | 868,301    |   |      |   | 990,196   |  
|                                                                    |  |                             |            |   |      |   |           |  
|Other expenses                                                      |  |                             |            |   |      |   |           |  
|Salaries and employee benefits                                      |  |                             | 1,538,639  |   |      |   | 1,506,915 |  
|Occupancy and equipment expenses                                    |  |                             | 391,744    |   |      |   | 396,662   |  
|Other operating expenses                                            |  |                             | 519,622    |   |      |   | 631,320   |  
|                                                                    |  |                             |            |   |      |   |           |  
|Total other expenses                                                |  |                             | 2,450,005  |   |      |   | 2,534,897 |  
|                                                                    |  |                             |            |   |      |   |           |  
|Income before income taxes                                          |  |                             | 4,837,510  |   |      |   | 3,494,641 |  
|                                                                    |  |                            
|Income tax expense                                                  |  |                             | 1,762,582  |   |      |   | 1,303,426 |  
|                                                                    |  |                             |            |   |      |   |           |  
|Net income                                                          |  |                             | 3,074,928  |   |      |   | 2,191,215 |  
|                                                                    |  |                             |            |   |      |   |           |  
|Other comprehensive loss:                                           |  |                             |            |   |      |   |           |  
|Unrealized losses on securities available for sale, net of tax      |  |                             | (25,018    | ) |      |   | (213,611  | )
|                                                                    |  |                             |            |   |      |   |           |  
|Comprehensive income                                                |  | $                           | 3,049,910  |   |      | $ | 1,977,604 |  
|                                                                    |  |                             |            |   |      |   |           |  
|Earnings per share (weighted average shares outstanding- 7,151,684) |  | $                           | 0.43       |   |      | $ | 0.31      |  
|                                                                    |  |                             |            |   |      |   |           |  
|Cash dividends per share                                            |  | $                           | 0.10       |   |      | $ | 0.09      |  
|                                                                    |  |                             |            |   |      |   |           |  

See Notes to Consolidated Financial Statements.



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HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2006 AND 2005

(Unaudited)



|                                                                                  |  |      |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                  |  | 2006 |             |   | 2005 |  
|OPERATING ACTIVITIES                                                              |  |      |             |   |      |   |             |  
|Net income                                                                        |  | $    | 3,074,928   |   |      | $ | 2,191,215   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |             |   |      |   |             |  
|Depreciation                                                                      |  |      | 150,680     |   |      |   | 138,759     |  
|Net (increase) decrease in loans held for sale                                    |  |      | 405,415     |   |      |   | (1,282,950  | )
|Provision for loan losses                                                         |  |      | 146,090     |   |      |   | 161,250     |  
|Increase in interest receivable                                                   |  |      | (271,185    | ) |      |   | (1,684      | )
|Increase (decrease) in interest payable                                           |  |      | (233,283    | ) |      |   | 114,051     |  
|Net other operating activities                                                    |  |      | 1,944,798   |   |      |   | 1,095,699   |  
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |      | 5,217,443   |   |      |   | 2,416,340   |  
|                                                                                  |  |      |             |   |      |   |             |  
|INVESTING ACTIVITIES                                                              |  |      |             |   |      |   |             |  
|Purchases of securities available for sale                                        |  |      | (7,674,475  | ) |      |   |            |  
|Proceeds from maturities of securities available for sale                         |  |      | 8,693,905   |   |      |   | 1,908,064   |  
|Proceeds from maturities of securities held to maturity                           |  |      | 3,927       |   |      |   | 8,692       |  
|(Purchases) redemptions of restricted equity securities                           |  |      | (121,000    | ) |      |   | 302,022     |  
|(Increase) decrease in federal funds sold                                         |  |      | 400,000     |   |      |   | (700,000    | )
|Net (increase) decrease in interest-bearing deposits in banks                     |  |      | 231,666     |   |      |   | (237,533    | )
|Net increase in loans                                                             |  |      | (21,563,782 | ) |      |   | (16,985,178 | )
|Purchase of premises and equipment                                                |  |      | (158,534    | ) |      |   | (57,620     | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash used in investing activities                                             |  |      | (20,188,293 | ) |      |   | (15,761,553 | )
|                                                                                  |  |      |             |   |      |   |             |  
|FINANCING ACTIVITIES                                                              |  |      |             |   |      |   |             |  
|Net increase in deposits                                                          |  |      | 22,406,262  |   |      |   | 48,229,602  |  
|Net repayments of other borrowings                                                |  |      | (996,559    | ) |      |   | (22,095,557 | )
|Dividends paid                                                                    |  |      | (715,169    | ) |      |   | (643,652    | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash provided by financing activities                                         |  |      | 20,694,534  |   |      |   | 25,490,393  |  
|                                                                                  |  |      |             |   |      |   |             |  
|Net increase in cash and due from banks                                           |  |      | 5,723,684   |   |      |   | 12,145,180  |  
|                                                                                  |  |     
|Cash and due from banks, beginning of period                                      |  |      | 15,950,626  |   |      |   | 17,105,749  |  
|                                                                                  |  |      |             |   |      |   |             |  
|Cash and due from banks, end of period                                            |  | $    | 21,674,310  |   |      | $ | 29,250,929  |  
|                                                                                  |  |      |             |   |      |   |             |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                 |  |      |             |   |      |   |             |  
|Cash paid for:                                                                    |  |      |             |   |      |   |             |  
|Interest                                                                          |  | $    | 4,545,806   |   |      | $ | 2,837,353   |  
|                                                                                  |  |     
|Income taxes                                                                      |  | $    | 270,923     |   |      | $ |            |  

See Notes to Consolidated Financial Statements.



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##### Table of Contents

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

The consolidated financial information for Henry County Bancshares, Inc. (the Company) included herein is unaudited;
however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim period.

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.

NOTE 2. SUPPLEMENTAL SEGMENT INFORMATION

The Company has two reportable segments: commercial banking and mortgage loan origination. The commercial banking segment provides traditional banking services offered through the Bank. The mortgage loan origination segment provides
mortgage loan origination services offered through First Metro.

The accounting policies of the segments are the same as those described in
the footnotes to the December 31, 2005 consolidated financial statements as filed in our annual report on Form 10-K. The Company evaluates performance based on profit and loss from operations before income taxes not including nonrecurring gains
and losses.

The Company accounts for intersegment revenues and expenses as if the revenue/expense transactions were to third parties, that
is, at current market prices.

The Companys reportable segments are strategic business units that offer different products and
services. They are managed separately because each segment has different types and levels of credit and interest rate risk.



|                                           |  |                   |             |          |   |           |           |  |   |              |   |  |       |            |   |  |   |            
|------------------------------------------ |  | ----------------- | ----------- | -------- | - | --------- | --------- |  | - | ------------ | - |  | ----- | ---------- | - |  | - | -----------
|                                           |  | INDUSTRY SEGMENTS
|For the Three Months Ended March 31, 2006  |  | CommercialBanking |             | Mortgage |   |           | All Other |  |   | Eliminations |   |  | Total
|Interest income                            |  | $                 | 10,893,981  |          | $ | 3,607     |           |  | $ |             |   |  | $     | (19,761    | ) |  | $ | 10,877,827 
|Interest expense                           |  |                   | 4,316,130   |          |   | 16,154    |           |  |   |             |   |  |       | (19,761    | ) |  |   | 4,312,523  
|Net interest income (expense)              |  |                   | 6,577,851   |          |   | (12,547   | )         |  |   |             |   |  |       |           |   |  |   | 6,565,304  
|Intersegment net interest income (expense) |  |                   | 12,547      |          |   | (12,547   | )         |  |   |             |   |  |       |           |   |  |   |           
|Other revenue from external sources        |  |                   | 677,492     |          |   | 187,659   |           |  |   | 3,150        |   |  |       |           |   |  |   | 868,301    
|Intersegment other revenues                |  |                   | 6,210       |          |   | (6,210    | )         |  |   |             |   |  |       |           |   |  |   |           
|Depreciation                               |  |                   | 147,823     |          |   | 587       |           |  |   | 2,270        |   |  |       |           |   |  |   | 150,680    
|Provision for loan losses                  |  |                   | 146,090     |          |   |          |           |  |   |             |   |  |       |           |   |  |   | 146,090    
|Segment profit                             |  |                   | 4,897,820   |          |   | (38,425   | )         |  |   | (21,885      | ) |  |       |           |   |  |   | 4,837,510  
|Segment assets                             |  |                   | 657,068,502 |          |   | 1,413,756 |           |  |   | 908,526      |   |  |       | (3,143,133 | ) |  |   | 656,247,651
|Expenditures for premises and equipment    |  |                   | 158,534     |          |   |          |           |  |   |             |   |  |       |           |   |  |   | 158,534    



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##### Table of Contents

NOTE 2. SUPPLEMENTAL SEGMENT INFORMATION (Continued)



|                                           |  |                   |             |          |   |           |           |  |   |              |   |  |       |            |   |  |   |            
|------------------------------------------ |  | ----------------- | ----------- | -------- | - | --------- | --------- |  | - | ------------ | - |  | ----- | ---------- | - |  | - | -----------
|                                           |  | INDUSTRY SEGMENTS
|For the Three Months Ended March 31, 2005  |  | CommercialBanking |             | Mortgage |   |           | All Other |  |   | Eliminations |   |  | Total
|Interest income                            |  | $                 | 8,167,279   |          | $ | 3,678     |           |  | $ |             |   |  | $     | (18,961    | ) |  | $ | 8,151,996  
|Interest expense                           |  |                   | 2,955,082   |          |   | 15,283    |           |  |   |             |   |  |       | (18,961    | ) |  |   | 2,591,404  
|Net interest income (expense)              |  |                   | 5,212,197   |          |   | (11,605   | )         |  |   |             |   |  |       |           |   |  |   | 5,200,592  
|Intersegment net interest income (expense) |  |                   | 11,605      |          |   | (11,605   | )         |  |   |             |   |  |       |           |   |  |   |           
|Other revenue from external sources        |  |                   | 780,564     |          |   | 206,482   |           |  |   | 3,150        |   |  |       |           |   |  |   | 990,196    
|Intersegment other revenues                |  |                   | 3,900       |          |   | (3,900    | )         |  |   |             |   |  |       |           |   |  |   |           
|Depreciation                               |  |                   | 136,032     |          |   | 457       |           |  |   | 2,270        |   |  |       |           |   |  |   | 138,759    
|Provision for loan losses                  |  |                   | 161,250     |          |   |          |           |  |   |             |   |  |       |           |   |  |   | 161,250    
|Segment profit                             |  |                   | 3,574,933   |          |   | (44,203   | )         |  |   | (36,089      | ) |  |       |           |   |  |   | 3,494,641  
|Segment assets                             |  |                   | 600,537,424 |          |   | 2,910,332 |           |  |   | 943,085      |   |  |       | (4,701,620 | ) |  |   | 599,689,221
|Expenditures for premises and equipment    |  |                   | 57,620      |          |   |          |           |  |   |             |   |  |       |           |   |  |   | 57,620     



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##### Table of Contents

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

The following is
managements discussion and analysis of certain significant factors which have affected the financial position and operating results of the Henry County Bancshares, Inc. and its subsidiaries, The First State Bank and First Metro Mortgage Co.,
during the periods included in the accompanying consolidated financial statements.

Special Cautionary Notice Regarding Forward Looking Statements

Certain of the statements made herein under the caption Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) are forward-looking statements and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Henry County Bancshares, Inc.
to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward looking statements include statements using the words such as may, will,
anticipate, should, would, believe, contemplate, expect, estimate, continue, may, intend, or other similar words and expressions
of the future. Our actual results may differ significantly from the results we discuss in these forward-looking statements.

These forward-looking
statements involve risks and uncertainties and may not be realized due to a variety of factors, including, without limitation: the effects of future economic conditions; governmental monetary and fiscal policies, as well as legislative and
regulatory changes; the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities, and other interest-sensitive assets and liabilities; interest rate risks; the effects of
competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in
the our market area and elsewhere, including institutions operating regionally, nationally, and internationally, together with such competitors offering banking products and services by mail, telephone, computer, and the Internet.

Critical Accounting Policies

We have adopted various accounting
policies which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to the consolidated financial
statements at December 31, 2005 as filed in our annual report on Form 10-K.

Certain accounting policies involve significant judgments and assumptions
by us which have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other
factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying
values of assets and liabilities and our results of operations.

We believe the allowance for loan losses is a critical accounting policy that requires the
most significant judgments and estimates used in preparation of our consolidated financial statements. Please see the portion of this discussion that addresses our allowance for loan losses for a description of our processes and methodology for
determining our allowance for loan losses.



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Liquidity and Capital Resources

Our liquidity and capital resources are monitored on a periodic basis by management, State and Federal regulatory authorities. As determined under guidelines established by regulatory authorities and internal policy,
our liquidity ratio of 15.63% at March 31, 2006 was considered satisfactory.

At March 31, 2006, our capital ratios were in excess of the
regulatory minimum capital requirements to be classified as well-capitalized. The regulatory minimum capital requirements to be classified as well-capitalized and our actual capital ratios on a consolidated and bank-only basis are as follows:



|                           |  |              |   |  |                              |   |  |      |  
|-------------------------- |  | ------------ | - |  | ---------------------------- | - |  | ---- | -
|                           |  | Actual       |   |  | MinimumRegulatoryRequirement |  
|                           |  | Consolidated |   |  | Bank                         |   | 
|Leverage capital ratios    |  | 10.25        | % |  | 10.12                        | % |  | 4.00 | %
|Risk-based capital ratios: |  |              |   |  |                              |   |  |      |  
|Core capital               |  | 11.41        |   |  | 11.27                        |   |  | 4.00 |  
|Total capital              |  | 12.30        |   |  | 12.16                        |   |  | 8.00 |  

Off-Balance Sheet Risk

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of
credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use
the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. A summary of our commitments is as follows:



|                             |  |                |            
|---------------------------- |  | -------------- | -----------
|                             |  | March 31, 2006
|Commitments to extend credit |  | $              | 136,572,000
|Letters of credit            |  |                | 6,519,000  
|                             |  |                |            
|                             |  | $              | 143,091,000
|                             |  |                |            

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed
necessary by us upon extension of credit, is based on our credit evaluation of the customer.



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Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third
party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral is
required in instances which we deem necessary.

Financial Condition

Following is a summary of our balance sheets for the periods indicated:



|                                   |  |                        |         |                  |   |        
|---------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                   |  | March 31,2006          |         | December 31,2005
|                                   |  | (Dollars in Thousands)
|Cash and due from banks            |  | $                      | 21,674  |                  | $ | 15,951 
|Interest-bearing deposits in banks |  |                        | 156     |                  |   | 388    
|Federal funds sold                 |  |                        | 9,200   |                  |   | 9,600  
|Securities                         |  |                        | 71,762  |                  |   | 72,702 
|Loans, net                         |  |                        | 534,560 |                  |   | 513,142
|Loans held for sale                |  |                        | 417     |                  |   | 822    
|Premises and equipment             |  |                        | 9,050   |                  |   | 9,041  
|Other assets                       |  |                        | 9,429   |                  |   | 9,387  
|                                   |  |                        |         |                  |   |        
|                                   |  | $                      | 656,248 |                  | $ | 631,033
|                                   |  |                        |         |                  |   |        
|Total deposits                     |  | $                      | 567,653 |                  | $ | 545,247
|Other borrowings                   |  |                        | 18,992  |                  |   | 19,988 
|Other liabilities                  |  |                        | 4,520   |                  |   | 3,050  
|Stockholders equity               |  |                        | 65,083  |                  |   | 62,748 
|                                   |  |                        |         |                  |   |        
|                                   |  | $                      | 656,248 |                  | $ | 631,033
|                                   |  |                        |         |                  |   |        

Our assets increased by 4.00% in the first quarter of 2006. Increases of $22.4 million in deposit growth, offset
by decreases of $996 thousand in our other borrowings were primarily used to fund loan growth of $21.4 million. Our loan to deposit ratio, excluding loans held for sale, was 94% at March 31, 2006, as well as at December 31, 2005. Our total
equity has increased by $2.3 million year-to-date as net income of $3.0 million was offset by dividends paid of $715,000 and increased unrealized losses on securities available for sale, net of tax, of $25,000.



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Results of Operations For The Three Months Ended March 31, 2006 and 2005

Following is a summary of our operations for the periods indicated.



|                          |  |                             |        |      |   |      
|------------------------- |  | --------------------------- | ------ | ---- | - | -----
|                          |  | Three Months EndedMarch 31,
|                          |  | 2006                        |        | 2005
|                          |  | (Dollars in Thousands)     
|Interest income           |  | $                           | 10,878 |      | $ | 8,152
|Interest expense          |  |                             | 4,313  |      |   | 2,952
|                          |  |                             |        |      |   |      
|Net interest income       |  |                             | 6,565  |      |   | 5,200
|Provision for loan losses |  |                             | 146    |      |   | 161  
|Other income              |  |                             | 868    |      |   | 990  
|Other expense             |  |                             | 2,450  |      |   | 2,535
|                          |  |                             |        |      |   |      
|Pretax income             |  |                             | 4,837  |      |   | 3,494
|Income taxes              |  |                             | 1,762  |      |   | 1,303
|                          |  |                             |        |      |   |      
|Net income                |  | $                           | 3,075  |      | $ | 2,191
|                          |  |                             |        |      |   |      

Our net interest income has increased by $1,365,000 in the first quarter of 2006 as compared to the same period in
2005. Our net yield on average interest-earning assets increased to 4.30% in the first quarter of 2006 as compared to 3.79% for the first quarter of 2005. Our net yield on average interest-earning assets was 3.90% for the entire year of 2005. The
increase in net interest income is attributed to an increase in average outstanding loans, coupled with increases in the Prime lending rate since June of 2004. The yields earned on loans increased to 7.64% in the first quarter of 2006 as compared to
5.94% in the first quarter of 2005.

The provision for loan losses amounted to $146,090 for the first quarter of 2006 compared to $161,250 for the first
quarter of 2005 as net charge-offs were minimal. The amounts provided are due primarily to our assessment of the inherent risk in the loan portfolio. The allowance for loan losses as a percentage of total loans was .94% at March 31, 2006 and
..96% at December 31, 2005. The allowance for loan losses is maintained at a level that is deemed appropriate by management to adequately cover all known and inherent risks in the loan portfolio. Our evaluation of the loan portfolio includes a
continuing review of loan loss experience, current economic conditions which may affect the borrowers ability to repay and the underlying collateral value.



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Information with respect to nonaccrual, past due and restructured loans at
March 31, 2006 and 2005 is as follows:



|                                                                                                         |  |                        |       |      |   |      
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ---- | - | -----
|                                                                                                         |  | March 31,             
|                                                                                                         |  | 2006                   |       | 2005
|                                                                                                         |  | (Dollars in Thousands)
|Nonaccrual loans                                                                                         |  | $                      | 1,529 |      | $ | 987  
|Loans contractually past due ninety days or more as to interest or principle payments and still accruing |  |                        | 1,665 |      |   | 3,055
|Restructured loans                                                                                       |  |                        | 0     |      |   | 0    
|Potential problem loans                                                                                  |  |                        | 0     |      |   | 0    
|Interest income that would have been recorded on nonaccrual and restructured loans under original terms  |  |                        | 83    |      |   | 52   
|Interest income that was recorded on nonaccrual and restructured loans                                   |  |                        | 0     |      |   | 0    

The increase in nonaccrual loans from March 31, 2005 to March 31, 2006 is comprised primarily of one
construction loan relationship which is in the process of collection and therefore we do not anticipate incurring a loss.

Potential problem loans are
defined as loans about which we have serious doubts as to the ability of the borrower to comply with the present loan repayment terms and which may cause the loan to be placed on nonaccrual status, to become past due more than ninety days, or to be
restructured.

Our policy is to discontinue the accrual of interest income when, in the opinion of management, collection of such interest becomes
doubtful. This status is accorded interest when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected and (2) the principal or interest is more than
ninety days past due, unless the loan is both well-secured and in the process of collection. Accrual of interest on such loans is resumed when, in managements judgment, the collection of interest and principal becomes probable.

Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been included in the table above do not represent or result
from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources. These classified loans do not represent material credits about which management is aware of any
information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.



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##### Table of Contents

Information regarding certain loans and allowance for loan loss data through
March 31, 2006 and 2005 is as follows:



|                                                                              |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | Three Months EndedMarch 31, |        
|                                                                              |  | 2006                        |         |   | 2005 |  
|                                                                              |  | (Dollars in Thousands)      |        
|Average amount of loans outstanding                                           |  | $                           | 525,270 |   |      | $ | 500,523 |  
|                                                                              |  |                             |         |   |      |   |         |  
|Balance of allowance for loan losses at beginning of period                   |  | $                           | 4,972   |   |      | $ | 4,489   |  
|                                                                              |  |                             |         |   |      |   |         |  
|Loans charged off                                                             |  |                             |         |   |      |   |         |  
|Real estate                                                                   |  |                             |        |   |      |   |        |  
|Commercial                                                                    |  |                             |        |   |      |   |        |  
|Consumer installment                                                          |  |                             | 22      |   |      |   |        |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                             | 22      |   |      |   |        |  
|                                                                              |  |                             |         |   |      |   |         |  
|Loans recovered                                                               |  |                             |         |   |      |   |         |  
|Real estate                                                                   |  |                             |        |   |      |   |        |  
|Commercial                                                                    |  |                             |        |   |      |   |        |  
|Consumer installment                                                          |  |                             | 3       |   |      |   | 4       |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                             | 3       |   |      |   | 4       |  
|                                                                              |  |                             |         |   |      |   |         |  
|Net (charge-offs)/ recoveries                                                 |  |                             | (19     | ) |      |   | 4       |  
|                                                                              |  |                             |         |   |      |   |         |  
|Additions to allowance charged to operating expense during period             |  |                             | 146     |   |      |   | 161     |  
|                                                                              |  |                             |         |   |      |   |         |  
|Balance of allowance for loan losses at end of period                         |  | $                           | 5,099   |   |      | $ | 4,654   |  
|                                                                              |  |                             |         |   |      |   |         |  
|Ratio of net loans charged off during the period to average loans outstanding |  |                             |        | % |      |   |        | %
|                                                                              |  |                             |         |   |      |   |         |  

The allowance for loan losses is maintained at a level that is deemed appropriate by us to adequately cover all
known and inherent risks in the loan portfolio. Our evaluation considers significant factors relative to the credit risk and loss exposure in the loan portfolio, including past due and classified loans, historical experience, underlying collateral
values, and current economic conditions that may affect the borrowers ability to repay. The allowance for loan losses is evaluated by segmenting the loan portfolio into unclassified and classified loans. An allowance percentage is applied to
the unclassified loans to establish a general allowance for loan losses. The allowance percentage determined is based upon our experience specifically and the historical experience of the banking industry generally. The classified loans, including
impaired loans, are analyzed individually in order to establish a specific allowance for loan losses. A loan is considered impaired when it is probable that we will be unable to collect all principal and interest due in accordance with the
contractual terms of the loan agreement.



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Other operating income decreased in the first quarter of 2006 as compared to the same period in 2005 by $122,000 due
primarily to decreased service charges on deposit accounts of $123,000, as well as decreased mortgage banking income of $19,000 as a result of a lower volume in mortgage originations. These decreases were offset by a slight increase in other service
charges and fees of $20,000.

Other expenses decreased slightly in the first quarter of 2006 as compared to the same period in 2005 by $85,000. These
decreases were the result of decreased occupancy and equipment expenses of $5,000 and decreased other operating expenses of $112,000 as of March 31, 2006, offset by a modest increase of $32,000 in salaries and employee benefits. The decrease in
other operating expenses is primarily attributed to lower ATM network costs. Our efficiency ratio at March 31, 2006 was 32.96% as we continue to rank at the top of our peer group percentile in the efficiency of our operations.

We have provided for income taxes at an effective tax rate of 37% for the first quarter of 2006 as well as for the first quarter of 2005.

We are not aware of any known trends, events or uncertainties, other than the effect of events as described above, that will have or are reasonably likely to have a
material effect on our liquidity, capital resources, or operations. We are also not aware of any current recommendations by the regulatory authorities which, if they were implemented, would have such an effect.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed only to U.S. dollar interest rate
changes and accordingly, we manage exposure by considering the possible changes in the net interest margin. We do not have any trading instruments nor do we classify any portion of the investment portfolio as held for trading. We do not engage in
any hedging activities or enter into any derivative instruments with a higher degree of risk than mortgage-backed securities that are commonly pass through securities. Finally, we have no exposure to foreign currency exchange rate risk, commodity
price risk, and other market risks. Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as interest rate risk. The repricing of interest earning assets and
interest-bearing liabilities can influence the changes in net interest income. As part of our asset/liability management program, the timing of repriced assets and liabilities is referred to as Gap management. It is our policy to maintain a Gap
ratio in the one-year time horizon of .80 to 1.20.

GAP management alone is not enough to properly manage interest rate sensitivity, because interest rates
do not respond at the same speed or at the same level to market rate changes. For example, savings and money market rates are more stable than loans tied to a Prime rate and thus respond with less volatility to a market rate change.

We use a third party simulation model to monitor changes in net interest income due to changes in market rates. The model of rising, falling and stable
interest rate scenarios allow management to monitor and adjust interest rate sensitivity to minimize the impact of market rate swings. The analysis of impact on net interest margins as well as economic value of equity over a twelve-month period is
subjected to a 200 basis point increase and decrease in rate. The first quarter model reflects an increase of 21% in net interest income and a 12% increase in economic value of equity for a 200 basis point increase in rates. The same model shows a
2% decrease in net interest income and a 16% decrease in economic value of equity for a 200 basis point decrease in rates. Our investment committee monitors changes on a quarterly basis, measures the changing values based on the models
performance and determines an appropriate interest rate policy for management to follow in order to minimize the impact on earnings and market value equity in the projected rate environment.



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ITEM 4. Controls and Procedures

Within 90 days prior to the date of filing this report, we carried out an evaluation,
under the supervision and with the participation of our Chief Executive Officer and the Principal Financial and Accounting Officer, of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive
Officer and Principal Financial and Accounting Officer concluded that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information that we are required to disclose in the report we file under the
Securities Exchange Act of 1934, within the time periods specified in the SECs rules and forms. Our Chief Executive Officer and Principal Financial and Accounting Officer also concluded that our disclosure controls and procedures are effective
in timely alerting them to material information relating to our company required to be included in our periodic SEC filings. In connection with the new rules, we are in the process of further reviewing and documenting our disclosure controls and
procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes designed to enhance their effectiveness and to ensure that our system evolve with our business.

There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of this
evaluation.



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##### Table of Contents

II - OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.



| | (a) | The annual meeting of the stockholders of the Company was held on April 11, 2006.
| | --- | ---------------------------------------------------------------------------------



| | (b) | The following directors were elected at the meeting to serve for a one-year term.
| | --- | ---------------------------------------------------------------------------------

Paul J. Cates, Jr.

H.K. Elliott, Jr.

G.R. Foster, III

David H. Gill

Mary Lynn Lambert

Edwin C. Kelley, Jr.

Robert O. Linch

William C.
Strom, Jr.

Ronald M. Turpin

James C. Waggoner

The shares represented at the meeting (5,407,398 or 75.61%) voted as follows: 5,407,398 voted unanimously for
the election of the directors.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.



| | (a) | Exhibits.
| | --- | ---------



|     |  |                                                                                                                                                                                    
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.                                                         
|     | 
|31.2 |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.                                                         
|     | 
|32   |  | Certification of the Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.



| | (b) | Reports on Form 8-K.
| | --- | --------------------

None.



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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.



|                  |  |                               |  |                                              
|----------------- |  | ----------------------------- |  | ---------------------------------------------
|                  |  | HENRY COUNTY BANCSHARES, INC.
|                  |  | (Registrant)                 
|                  |  |                              
|DATE: May 8, 2006 |  | BY:                           |  | /s/ David H. Gill                            
|                  |  |                               |  | David H. Gill, President and CEO             
|                  |  |                               |  | (Principal Executive Officer)                
|                  |  |                              
|DATE: May 8, 2006 |  | BY:                           |  | /s/ Thomas L. Redding                        
|                  |  |                               |  | Thomas L. Redding, Sr. Vice President and CFO
|                  |  |                               |  | (Principal Financial and Accounting Officer) 



17