|SECURITIES AND EXCHANGE COMMISSION                                                                                                                                                                                                                                                                                                                        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Washington, D.C. 20549                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                          
|FORM 10-Q                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                          
|QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)                                                                                                                                                                                                                                                                                                          
|OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                          
|For the quarterly period ended March 31, 2006                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                          
|Commission File Number 0-12958                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                          
|UNION BANKSHARES COMPANY                                                                                                                                                                                                                                                                                                                                  
|(Exact name of registrant as specified in its charter)                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                          
|Maine                                                                                                                                                                                                                                                                                                                                                     
|(State or other jurisdiction                                                                                                                                                                                                                                                                                                                              
|of incorporation of organization)                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                          
|66 Main Street, Ellsworth, Maine 04605                                                                                                                                                                                                                                                                                                                    
|(Address of principal executive offices) (Zip Code)                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                          
|(207) 667-2504                                                                                                                                                                                                                                                                                                                                            
|(Registrant's telephone number, including area code)                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                          
|Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
|                                                                                                                                                                                                                                                                                                                                                          
|Yes  [X]    No  [  ]                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                          
|Indicate by check mark whether the registrant is 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  [  ]    Non-accelerated filer  [X]                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                          
|Indicate by check mark whether the registrant is a shell holding company (as defined in Rule 12b-2 of the Exchange Act).                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                          
|Yes  [  ]    No  [X]                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                          
|As of May 2, 2006, there were 1,092,583 shares of the registrant's common stock, $12.50 par value, issued and outstanding.                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                          



UNION BANKSHARES COMPANYINDEX TO FORM 10-QPart I. Financial Information
Page #Item 1.
Financial Statements (Unaudited)Report of Independent Registered Public Accounting Firm
1Consolidated Balance Sheets -March 31, 2006 and 2005 and December 31, 2005
2Consolidated Statements of Income -Three months ended March 31, 2006 and 2005
3Consolidated Statements of Changes in Shareholders' Equity -Three months ended March 31, 2006 and 2005
4Consolidated Statements of Cash Flows -Three months ended March 31, 2006 and 2005
5Condensed Notes to Consolidated Financial Statements - March 31, 2006
6Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
9Item 3.
Quantitative and Qualitative Disclosures About Market Risk
17Item 4.
Controls and Procedures
18Part II. Other InformationItem 1.
Legal Proceedings
19Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
19Item 3.
Defaults Upon Senior Securities
19Item 4.
Submission of Matters to a Vote of Security Holders
19Item 5.
Other Information
19Item 6.
Exhibits
20Signatures
21i Part I. Financial InformationItem 1. Financial StatementsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and ShareholdersUnion Bankshares Company:We have reviewed the accompanying interim consolidated financial information of Union Bankshares Company as of March 31, 2006 and 2005, and for the three-month periods then ended. These financial statements are the responsibility of the Company's management.We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is to express an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States of America./s/ BERRY, DUNN, MCNEIL & PARKERPortland, MaineMay 9, 20061UNION BANKSHARES COMPANY AND SUBSIDIARYCONSOLIDATED BALANCE SHEETS(In thousands, except number of shares and per share data)March 31,

March 31,

December 31,2006

2005

2005(Unaudited)

(Unaudited)

(Audited)ASSETSCash and cash equivalents
$  11,061

$    7,217

$    9,725Securities, available for sale, at market
137,566

144,041

128,852Securities, held to maturity, at cost (market value $2,033, $2,346,and $2,143 at March 31, 2006, March 31, 2005 andDecember 31, 2005, respectively)
1,982

2,253

2,078Other investment securities, at cost which approximatesmarket value
9,258

9,154

9,758Loans held for sale
355

-

-Loans
363,595

328,012

355,858Less allowance for loan losses
4,283

4,268

4,248Net loans
359,312

323,744

351,610Premises, furniture and equipment, net
6,412

5,664

6,220Goodwill
6,305

6,305

6,305Bank owned life insurance
8,848

8,483

8,762Other assets
6,840

8,135

6,573Total assets
$547,939

$514,996

$529,883LIABILITIESDemand deposits
$  41,366

$  40,459

$  49,006NOW deposits
73,016

60,769

72,899Money market accounts
22,307

28,509

22,990Savings deposits
67,668

68,755

73,623Certificates of deposit
112,845

91,365

116,480Total deposits
317,202

289,857

334,998Borrowings from Federal Home Loan Bank
162,424

164,160

130,111Junior subordinated debt securities
8,248

-

-Other borrowed funds
12,991

12,633

17,584Other liabilities
6,647

7,824

6,615Total liabilities
507,512

474,474

489,308SHAREHOLDERS' EQUITYCommon stock, $12.50 par value. Authorized 10,000,000 shares,issued and outstanding 1,090,986 shares at March 31, 2006 and1,097,666 shares at December 31, 2005. Authorized 1,200,000shares, issued and outstanding 1,116,330 shares at March 31, 2005.
13,637

13,954

13,721Surplus
1,581

3,041

1,932Retained earnings
27,499

24,916

27,126Accumulated other comprehensive lossNet unrealized loss on securities available for sale, netof deferred tax asset of $772 at March 31, 2006, $496 atMarch 31, 2005 and $741 at December 31, 2005.
(1,524)

(962)

(1,438)Minimum pension liability adjustment, net of deferred taxasset of $395 at March 31, 2006, $220 at March 31, 2005 and$395 at December 31, 2005.
(766)

(427)

(766)Total shareholders' equity
40,427

40,522

40,575Total liabilities and shareholders' equity
$547,939

$514,996

$529,883See Report of Independent Registered Public Accounting Firm.The accompanying notes are an integral part of these consolidated financial statements.2UNION BANKSHARES COMPANY AND SUBSIDIARYCONSOLIDATED STATEMENTS OF INCOME(In thousands, except number of shares and per share data)Three months endedMarch 31,2006

2005(Unaudited)

(Unaudited)INTEREST AND DIVIDEND INCOMEInterest and fees on loans
$5,417

$4,403Interest and dividends on investments
1,517

1,563Total interest and dividend income
6,934

5,966INTEREST EXPENSEInterest on deposits
1,513

826Interest on borrowed funds
1,647

1,122Total interest expense
3,160

1,948Net interest income
3,774

4,018Recovery of loan losses
-

(215)Net interest income after recovery of loan losses
3,774

4,233NON-INTEREST INCOMENet gains on sales of investment securities
-

4Financial services fees and commissions
621

609Service charges and fees on deposit accounts
442

450Bankcard fees
76

61Loan fees
150

160Income from cash surrender value of life insurance
87

70Other income
2

(47)Total non-interest income
1,378

1,307NON-INTEREST EXPENSESalaries and employee benefits
2,464

2,224Net occupancy
386

408Equipment and data processing
290

322Other expense
905

817Total non-interest expense
4,045

3,771Income before income taxes
1,107

1,769Income taxes
273

545Net income
$   834

$1,224Net income per common share
$  0.76

$  1.10Cash dividends declared per common share
$  0.40

$0.40Weighted average common shares outstanding
1,096,208

1,116,247See Report of Independent Registered Public Accounting Firm. The accompanying notes are an integral part of these consolidated financial statements.3UNION BANKSHARES COMPANY AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)(In thousands, except number of shares and per share data)AccumulatedOther

TotalCommon



Retained

Comprehensive

Shareholders'Stock

Surplus

Earnings

Income (Loss)

EquityBalance at December 31, 2004

$13,937

$2,973

$24,152

$      30

$41,092Net income, three months ended March 31, 2005

-

-

1,224

-

1,224Change in net unrealized gain on availablefor sale securities, net of tax of $731

-

-

-

(1,419)

(1,419)Total comprehensive loss

-

-

1,224

(1,419)

(195)Sale of 1,992 shares of common stock

25

98

-

-

123Repurchase of 600 shares of common stock

(8)

(30)

-

-

(38)Cash dividends declared

-

-

(460)

-

(460)Balance at March 31, 2005

$13,954

$3,041

$24,916

$(1,389)

$40,522Balance at December 31, 2005

$13,721

$1,932

$27,126

$(2,204)

$40,575Net income, three months ended March 31, 2006

-

-

834

-

834Change in net unrealized loss on availablefor sale securities, net of tax of $31

-

-

-

(86)

(86)Total comprehensive income

-

-

834

(86)

748Sale of 2,204 shares of common stock

27

117

-

-

144Repurchase of 8,884 shares of common stock

(111)

(468)

-

-

(579)Cash dividends declared

-

-

(461)

-

(461)Balance at March 31, 2006

$13,637

$1,581

$27,499

$(2,290)

$40,427See Report of Independent Registered Public Accounting Firm. The accompanying notes are an integral part of these consolidated financial statements.4UNION BANKSHARES COMPANY AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in thousands, except number of shares and per share data)Three months ended March 31,2006

2005(Unaudited)

(Unaudited)NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIESNet income

$      834

$   1,224ADJUSTMENTS TO RECONCILE NET INCOME TONET CASH PROVIDED BY OPERATING ACTIVITIESAmortization of intangible assets

12

12Depreciation

154

161Net amortization of premium on investments

78

113Deferred income taxes

(47)

-Recovery of loan losses

-

(215)Net gain on sales of available for sale securities

-

(4)Originations of loans held for sale

(996)

(1047)Proceeds from sale of loans

641

1,293Net change in other assets

(383)

(126)Net change in other liabilities

183

688Net change in deferred loan origination fees

(9)

(29)Net cash provided by operating activities

467

2,070CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of available for sale securities

170

2,313Purchase of available for sale securities

(12,866)

(20,950)Proceeds from maturities and principal payments on available for sale securities

3,796

6,496Proceeds from maturities and principal payments on held to maturity securities

95

-Net change in other investments

500

(1,427)Net increase in loans to customers

(7,693)

(18,053)Net capital expenditures

(345)

(153)Net increase in cash surrender value of life insurance

(86)

(70)Net cash used by investment activities

(16,429)

(31,844)CASH FLOWS FROM FINANCING ACTIVITIESNet decrease in deposits

(17,796)

(15,125)Proceeds from long-term borrowings

-

25,000Repayment of long-term borrowings

(787)

(5,200)Net change in short-term borrowings from Federal Home Loan Bank

33,100

24,200Net change in other borrowed funds

(4,593)

(1,621)Issuance of junior subordinated debt securities

8,248

-Purchase of common stock

(579)

(38)Proceeds from stock issuance

144

123Dividends paid

(439)

(460)Net cash provided by financing activities

17,298

26,879Net increase (decrease) in cash and cash equivalents

1,336

(2,895)Cash and cash equivalents at beginning of year

9,725

10,112Cash and cash equivalents at end of period

$11,061

$   7,217See Report of Independent Registered Public Accounting Firm. The accompanying notes are an integral part of these consolidated financial statements.5Condensed Notes to Consolidated Financial StatementsNote 1. Basis of PresentationThe accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America from interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. All significant intercompany transactions and balances are eliminated in consolidation. Operating results for the quarter ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006 or other interim periods. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission.Note 2. Earnings Per ShareEarnings per common share ("EPS") is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period.Note 3. Stock Repurchase ProgramThe Stock Repurchase Program, as originally adopted on April 14, 2002, provided for the repurchase of up to 57,700 shares or up to 5% of the Company's then-outstanding common stock. On October 27, 2004, the Company amended the Stock Repurchase Program to authorize the repurchase of up to 86,550 shares or 7.5% of its outstanding common stock as of the Program's original adoption date. On February 22, 2006, the Board of Directors of the Company authorized the repurchase of 5,000 additional shares under the Stock Repurchase Program. The repurchases may be made from time to time at the discretion of management of the Company. Shares repurchased by the Company are designated as authorized but unissued stock of the Company. The Company may utilize such shares for any purpose the Board of Directors of the Company deems advisable in compliance with applicable law. As of March 31, 2006, the Company had repurchased a total of 88,613 shares of its stock since the Program's inception. The Company repurchased 8,884 shares as part of this program at an average price of $65.15 during the first quarter of 2006.Note 4. Mortgage Servicing RightsCapitalized mortgage servicing rights are recognized, in accordance with Statement of Financial Accounting Standards (SFAS) No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities", as separate assets when the Company continues to service residential real estate loans that have been sold in the secondary market. Capitalized servicing rights are included in other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.Management uses, on a quarterly basis, an independent firm which specializes in the valuation of mortgage servicing rights to determine the fair value which is recorded on the balance sheet. This includes an evaluation for impairment based upon the fair value of the rights, which can vary depending upon current interest rates and prepayment expectations, as compared to amortized cost. When the book value exceeds the fair value, a valuation allowance is recorded against these servicing assets.The following summarizes mortgage servicing rights capitalized and amortized, along with the activity in the related valuation allowance:Three months endedMarch 31,2006

2005(Dollars in thousands)Balance of loans serviced for others at March 31,

$103,060

$105,475Mortgage Servicing Rights:Balance at beginning of year

$       619

$       806Mortgage servicing rights capitalized

14

33Amortization charged against mortgage servicing income

(71)

(81)Change in valuation allowance

-

(8)Balance at end of period

$       562

$       750Valuation Allowance:Balance at beginning of year

$           4

$         13Increase in impairment reserve

-

8Balance at end of period

$           4

$         216Note 5. Core Deposit IntangibleOn August 31, 2000, the Company acquired the outstanding stock of Mid-Coast Bancorp, Inc. and its subsidiary, The Waldoboro Bank, FSB. The acquisition was accounted for under the purchase method of accounting for business combinations. The Company has an intangible asset subject to amortization related to the acquisition. The core deposit intangible is being amortized on a straight-line basis over 7 years, and reviewed for possible impairment when it is determined that events or changed circumstances may affect the underlying basis of the asset. The carrying amount is as follows:March 31,

March 31,

December 31,2006

2005

2005(Dollars in thousands)Core deposit intangible, cost

$323

$323

$323Accumulated amortization

261

214

249Core deposit intangible, net

$  62

$109

$  74Amortization expense related to the core deposit intangible amounted to $12,000 for the three months ended March 31, 2006 and March 31, 2005. The expected amortization expense is estimated to be $47,000 each year through December 31, 2006 and $27,000 in 2007.Note 6. Employee BenefitsThe Company's subsidiary sponsors a noncontributory defined benefit pension plan covering substantially all permanent full-time employees who are at least 21 years of age and have completed one year of service. Plan benefits generally are based on years of service and average compensation.The defined benefit pension plan was frozen as of May 15, 2005. As a result, all affected employees retain any benefits accumulated to the effective date, but are no longer eligible to increase their benefit. The Company made no pension plan contributions during the three month periods ended March 31, 2006 and 2005. The expected pension contribution for the Company for 2006 is $0.The Company also sponsors a postretirement benefit program that provides medical coverage and life insurance benefits to certain employees who meet minimum age and service requirements. Active employees accrue benefits over a 25-year period.Net periodic benefit cost of these plans includes the following components:Three months ended March 31,2006

2005Pension

Other

Pension

OtherBenefits

Benefits

Benefits

Benefits(Dollars in thousands)Service cost
$    -

$ 19

$      -

$ 19Interest cost
98

21

125

21Expected return on plan assets
(98)

-

(118)

-Recognized net actuarial (gain) loss
8

(3)

27

(3)Amortization of unrecognized transition obligation
-

12

-

12Amortization of prior service cost
-

-

(1)

-Net periodic benefit cost
$   8

$ 49

$   33

$ 49Note 7. ReclassificationCertain items from the prior year were reclassified in the financial statements to conform with the current year presentation. The reclassifications do not have a material impact on the balance sheet and income statement presentation.7Note 8. Trust Preferred SecuritiesOn February 17, 2006, Union Bankshares Capital Trust I (the "Trust"), a Delaware trust affiliate formed by the Company completed a private placement of $8.0 million of trust preferred securities, (liquidation amount of $1,000 per security) as part of a pooled capital securities transaction. The Trust also issued common securities totaling $248,000 to the Company. The Trust used the proceeds from the trust preferred securities and the common securities to purchase an aggregate principal amount of $8.2 million of 30-year junior subordinated deferrable interest debt securities of the Company. The Company has contributed $3.0 million of the proceeds from the issuance of the subordinated debt securities to the Bank as Tier 1 Capital to support the Bank's growth. For the first five years after issuance, the debt securities will bear interest at a Blended Rate equal to the sum of (1) the product of (a) 50% times (b) the floating three month LIBOR plus 1.42% (the "Variable Rate") plus (2) the product of (a) 50% times (b) the 5 year interest rate swap rate fixed two business days prior to closing plus 1.42% (the "Fixed Rate"). Therefore, for the first five years after issuance, the Variable Rate portion of the Blended Rate will float in relation to the floating three month LIBOR rate and the Fixed Rate portion of the Blended Rate will be fixed. The debt securities were issued pursuant to the terms on the Indenture dated as of February 17, 2006, between the Company, as Issuer, and Wells Fargo Bank, National Association, as Trustee.The debt securities obligate the Company to pay interest on their principal sum quarterly in arrears on January 7, April 7, July 7, and October 7 of each year. So long as an "Event of Default" has not occurred and is continuing under the Indenture, the Company has the right to defer payments of interest on the debt securities by extending the interest payment period on the debt securities for up to 20 consecutive quarterly periods. At March 31, 2006, the Blended Rate was 6.32%. The debt securities mature on April 7, 2036, but may be redeemed by the Company, in whole or in part, beginning on April 7, 2011, on any interest payment date. The debt securities may also be redeemed by the Company in whole or in part, within 90 days of the occurrence of certain special redemption events as defined in the Indenture. Special redemption events relate to the regulatory capital treatment of the issuance, the Trust being deemed an investment company, and the occurrence of certain tax events.The debt securities are the sole assets of the Trust. The Trust issued an aggregate principal amount of $8.0 million of capital securities with a floating interest rate corresponding to that of the debt securities to an unaffiliated pooled investment vehicle. The payments of distributions on and redemption of liquidation of the trust preferred securities issued by the Trust are guaranteed by the Company pursuant to a Guarantee Agreement dated as of February 17, 2006, executed and delivered by the Company and Wells Fargo Bank, National Association, the Guarantee Trustee, for the benefit of the holders of the trust preferred securities.Note 9. Recent Accounting DevelopmentsSFAS No. 156, "Accounting for Servicing of Financial Assets-an amendment to FASB Statement No. 140", requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. Servicing assets and servicing liabilities will subsequently be reported using the amortization method or the fair value measurement method. An entity should adopt this Statement as of the beginning of its first fiscal year that begins after September 15, 2006 with earlier application permitted with certain restrictions. The initial application of the fair value measurement method would be reported as a cumulative effect adjustment to beginning retained earnings. The Statement requires certain disclosures about the basis for measurement and regarding risks, activity, and fair value of servicing assets and of servicing liabilities. Management does not expect this SFAS to have a material impact on the Company's financial statements.8Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis reviews the consolidated financial condition of Union Bankshares Company (the "Company") at March 31, 2006 and 2005 and December 31, 2005, and the consolidated results of operations for the three months ended March 31, 2006 and 2005. This discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, filed with the Securities and Exchange Commission.Certain information discussed below is presented on a fully taxable equivalent basis. Management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis, and is particularly useful to investors in understanding and evaluating the changes and trends in the Company's results of operations.Forward Looking StatementsThis Form 10-Q contains "forward-looking statements" which may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated" and "potential." Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:*
The Company's loan portfolio includes loans with a higher risk of loss.*
If the Company's allowance for loan losses is not sufficient to cover actual loan losses, earnings could decrease.*
Changes in interest rates could adversely affect the Company's results of operations and financial condition.*
The local economy may affect future growth possibilities.*
The Company depends on its executive officers and key personnel to continue the implementation of its long-term business strategy and could be harmed by the loss of their services.*
The Company operates in a highly regulated environment, and changes in laws and regulations to which it is subject may adversely affect its results of operations.*
Competition in the Bank's primary market area may reduce its ability to attract and retain deposits and originate loans.*
If the Company fails to maintain an effective system of internal control over financial reporting, it may not be able to accurately report financial results or prevent fraud, and, as a result, investors and depositors could lose confidence in the Company's financial reporting, which could adversely affect its business, the trading price of its stock and its ability to attract additional deposits.*
The Company's Certificate of Incorporation and bylaws may prevent a transaction you may favor or limit growth opportunities, which could cause the market price of the Company's common stock to decline.*
The Company may not be able to pay dividends in the future in accordance with past practice.This list of important factors is not exclusive. Any or all of the forward looking statements in this report and in any other public statements made by the Company may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward looking statement can be guaranteed. The Company and its wholly-owned subsidiary, Union Trust Company (the "Bank"), disclaim any obligation to update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events or circumstances.Critical Accounting PoliciesManagement's discussion and analysis of the Company's financial condition are based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to the allowance for loan losses and the evaluation of mortgage servicing rights. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets that are not readily apparent from other sources. Actual results could differ from the amount derived from management's estimates and assumptions under different assumptions or conditions.Allowance for Loan Losses. Management believes the allowance for loan losses is a critical accounting policy that requires estimates and assumptions in the preparation of the consolidated financial statements. The allowance for loan losses is based on management's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio. Management believes the allowance for loan losses is a significant estimate and therefore regularly evaluates it for adequacy by taking into consideration factors such as prior loan loss experience, the character and size of the loan portfolio, business and economic9conditions and management's estimation of probable losses. The use of different estimates or assumptions could produce different provisions for loan losses.Mortgage Servicing Rights. The valuation of mortgage servicing rights is also a critical accounting policy which requires significant estimates and assumptions. Servicing assets are recognized as separate assets when servicing rights are acquired through the sale of residential mortgage loans. Capitalized servicing rights are reported in other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Management uses, on a quarterly basis, an independent firm which specializes in the valuation of mortgage servicing rights to determine the fair value which is recorded on the balance sheet. This includes an evaluation for impairment based upon the fair value of the rights, which can vary depending upon current interest rates and prepayment expectations, as compared to amortized cost. When the book value exceeds the fair value, a valuation allowance is recorded against these servicing assets.Executive OverviewNet income decreased $390,000, or 32%, for the quarter ended March 31, 2006 compared to the first quarter last year. The following were significant factors contributing to the results for the first quarter of 2006:*
Net interest income decreased $244,000, or 6%, primarily resulting from continued pressure on the Company's net interest margin, offset in part by continued growth in interest earning assets.*
Non-interest income increased $71,000, or 5%, primarily due to continued growth in financial services fees and commissions, bankcard fees, income from cash surrender value of life insurance and other income, partially offset by a decrease in loan fees and service charges and fees on deposit accounts.*
Non-interest expense increased $274,000, or 7%, primarily due to increases in salaries and employee benefits and advertising expense.*
Comparing March 31, 2006 and 2005, loans increased by $35.6 million, or 11%.*
Comparing March 31, 2006 and 2005, deposits increased by $27.3 million, or 9%.Results of OperationsNet Income. Net income for the three months ended March 31, 2006 was $834,000, a decrease of $390,000, as compared with net income of $1.2 million for the first quarter of 2005. Earnings per share were $0.76 and $1.10, respectively, for the three months ended March 31, 2006 and March 31, 2005. Annualized return on average equity ("ROE") and return on average assets ("ROA") for the first three months of the year were 8.18% and 0.62%, respectively. Annualized ROE and ROA were 11.87% and .98%, respectively, for the same period in 2005. During the first quarter of 2005, earnings were positively impacted by a reduction in the allowance for loan losses that resulted in the Company recording a net benefit of $215,000. Excluding the reduction in the allowance for loan losses annualized ROE and ROA would have been 10.42% and .86%, respectively, for the first three months ended March 31, 2005.Net Interest Income.The amount of net interest income is affected by changes in interest rates and by the volume and mix of interest earning assets and interest bearing liabilities. On a fully tax-equivalent basis, net interest income decreased by $231,000 to $3.9 million. The Company's net interest margin declined 40 basis points to 3.18% for the three months ended March 31, 2006 compared to 3.58% for the same period a year ago. The continued compression in the net interest margin can be attributed to higher deposit costs and increases in the cost of borrowings, without a proportional increase in the yields on loans and investments. The Company's interest rate spread (the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities) decreased by 49 basis points to 2.85% for the first quarter of 2006 as compared to the first quarter of 2005.10The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest income; (iv) net interest rate spread; and (v) net interest margin. For purposes of this table and the following discussion, income from interest-earning assets and net interest income are presented on a fully taxable equivalent basis and nonaccrual loans have been included in average balances only.Average Balance Sheets and Analysis of Net Interest Income(On a Tax-Equivalent Basis)Three months ended March 31,2006

2005Average



Yield/

Average



Yield/Balance

Interest

Rate

Balance

Interest

Rate(Dollars in thousands)AssetsInterest Earning Assets:Investment securities (1)
$142,110

$1,655

4.72%

$151,302

$1,686

4.52%Loans, gross (excludes loans held for sale ) (1)
359,400

5,439

6.14%

315,267

4,427

5.64%Total interest earning assets
501,510

$7,094

5.74%

466,569

$6,113

5.28%Other assets:
8,710





9,457Cash and due from banks
23,929





24,216Other assets
$534,149





$500,242LiabilitiesDeposits:NOW deposits
$  72,425

$   182

1.02%

$  64,219

$     58

0.36%Money market accounts
22,921

85

1.51%

30,118

67

0.91%Savings deposits
70,339

266

1.53%

69,841

148

0.86%Time deposits
116,531

980

3.41%

90,813

553

2.47%Total interest bearing deposits
282,216

1,513

2.18%

254,991

826

1.31%Borrowings:Federal Home Loan Bank borrowings
142,265

1,497

4.26%

139,226

1,049

3.06%Junior subordinated debt securities
3,941

59

6.11%

-

-

0.00%Other borrowed funds
14,886

91

2.49%

13,663

73

2.16%Total borrowings
161,092

1,647

4.15%

152,889

1,122

2.98%Total interest bearing liabilities
443,308

$3,160

2.89%

407,880

$1,948

1.94%Non-Interest Bearing Liabilities& Shareholders' Equity:Demand deposits
43,779





43,427Other liabilities
6,268





7,672Shareholders' equity
40,794





41,263$534,149





$500,242Net interest income (1)


$3,934





$4,165Net interest rate spread (2)




2.85%





3.34%Net interest margin (2)




3.18%





3.58%Supplemental Information:Total deposits, including demand deposits
$325,995

$1,513



$298,418

$   826Cost of total deposits




1.88%





1.12%Total funding liabilities, including demand deposits
$487,087

$3,160



$451,307

$1,948Cost of funding liabilities




2.63%





1.75%(1)
The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $160,000 and $147,000 for the three months ended March 31, 2006 and 2005, respectively.(2)
Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average costs of interest-bearing liabilities. Net interest margin represents net interest income as a percent of average interest-earning assets.11The following table presents certain information on a fully tax-equivalent basis regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume), and (iii) changes in rate/volume (change in rate multiplied by change in volume).Analysis of Changes in Interest Income and ExpenseThree months ended March 31, 2006 vs. 2005Rate/Volume

Rate

Volume

Total(Dollars in thousands)Interest Earning AssetsInvestment securities (1)
$(102)

$   76

$   (5)

$    (31)Loans, gross (excludesloans held for sale) (1) (2)
620

344

48

1,012Total interest earning assets
$ 518

$ 420

$  43

$   981Interest Bearing LiabilitiesNOW deposits
$     7

$ 103

$  14

$   124Money market accounts
(16)

45

(11)

18Savings deposits
1

115

2

118Time deposits
156

212

59

427Total deposits
148

475

64

687FHLB borrowings
23

415

10

448Junior subordinated debt securities
-

-

59

59Other borrowed funds
7

11

-

18Total borrowings
30

426

69

525Total interest bearing liabilities
$ 178

$ 901

$133

$1,212Net change in net interest income
$ 340

$(481)

$ (90)

$  (231)(1)
The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $160,000 and $147,000 for the three months ended March 31, 2006 and 2005, respectively.(2)
Loans include portfolio loans and nonaccrual loans, but unpaid interest on nonperforming loans has not been included for purposes of determining interest income.The average balance of interest-earning assets for the first three months of 2006 amounted to $501.5 million, an increase of $34.9 million, or 7%, over the same period in 2005. Average loan balances increased $44.1 million, or 14%. Average investment securities decreased by $9.2 million, or 6%, as cash flows from maturing investments were used to fund continued growth in the loan portfolio. The yield on interest-earning assets increased 46 basis points to 5.74% for the first three months in 2006, compared to 5.28% for the same period in 2005. The yield on loans increased 50 basis points from 5.64% to 6.14% and the yield on investments also increased 20 basis points to 4.72% for the three months ended March 31, 2006.The average balance of interest-bearing liabilities for the first quarter of 2006 was $443.3 million, an increase of $35.4 million, or 9%, over the same period in 2005. Average interest-bearing deposits increased $27.2 million, or 11%, to $282.2 million for the three months ended March 31, 2006 compared to the same period in 2005. Average time deposits grew by $25.7 million, or 28%, for the three months ended March 31, 2006; of this increase, $21.6 million were from brokered time certificates of deposit. Average borrowings for the three months ended March 31, 2006 were $161.1 million compared to $152.9 million for the same period in 2005, an increase of $8.2 million, or 5%. The increase in borrowings was due to the issuance of $8.2 million of junior subordinated debt securities,related to our issuance of trust preferred securities, (see Note 8 to the Condensed Notes to Consolidated Financial Statements included in Item 1). The Company has contributed $3.0 million of the proceeds from the issuance of trust preferred securities to the Bank as Tier 1 Capital to support the Bank's growth.The cost of interest-bearing liabilities, or cost of funds, increased to 2.89% during the three months ended March 31, 2006, an increase of 95 basis points over the three months ended March 31, 2005. The increase in cost of funds is, in part, attributable to a 117 basis points increase in the cost of borrowings during the first three months of 2006 compared to the same period in 2005. Interest expense on the subordinated debt securities for the three months ended March 31, 2006 was $59,000 as compared to $0 for the three months ended March 31, 2005. The cost of interest-bearing deposits also increased 87 basis points during the first three months of 2006 compared to the same period in 2005, primarily resulting from upward competitive pricing pressure on deposits, due in part to the rising interest rate environment. Additionally, the growth in deposits over the prior year was in certificates of deposit, which are typically higher costing than other core sources of funding.12Provision for Loan Losses.The provision for loan losses represents the charge to expense required to maintain an adequate level of allowance for loan losses. The process of evaluating the adequacy of the allowance for loan losses involves a high degree of management judgment, based in part on systematic methods. These methods, which are generally quantitative measures, are employed to help ensure that all relevant matters affecting loan collectibility will be consistently identified. Such methods include a loan-by-loan analysis of all impaired loans and loans under close monitoring by management for potential problems, a risk rating analysis for all commercial and commercial real estate loans and a quantitative analysis of residential real estate and consumer loans. Other factors included in the evaluation of the adequacy of the allowance for loan losses involve overall loan growth; the character and mix of the loan portfolio; current trends in nonperforming loans, delinquent loans and net charge-offs; new loan origination; local economic conditions; regulatory changes and other qualitative considerations.During the first three months of 2006, the Company did not record any provision for loan losses compared to recording a net provision benefit of $215,000 during the first three months of 2005. Asset quality remains sound with nonperforming assets of $2.2 million, or .39% of total assets at March 31, 2006 compared to $2.4 million, or .46% of total assets at December 31, 2005. The Company had net recoveries of $35,000 during the first three months of 2006 as compared to net charge-offs of $21,000 during the first three months of 2005. Total net charge offs (recoveries) as a percent of total loans was (.01%) for the three months ended March 31, 2006 compared to .01% for the three months ended March 31, 2005.Management believes that the level of allowance for loan losses at March 31, 2006, of $4.3 million, or 1.18% of total loans outstanding, is adequate. As a percentage of total loans outstanding, the allowance for loan losses, of $4.3 million was 1.30% as of March 31, 2005.Non-Interest Income.Non-interest income increased by $71,000, or 5%, to $1.4 million for the three months ended March 31, 2006 compared to the same period last year. Bankcard fees increased $15,000, or 25%, earnings on bank-owned life insurance increased $17,000, or 24%, and other income increased $49,000 over the same period last year. Partially offsetting these increases was a decline in loan fees by $10,000, or 6%, primarily due to a continued reduction in the sales volume of residential mortgage loans and related gains.Non-Interest Expense. Total non-interest expense, which consists primarily of employee compensation and benefits, occupancy costs, equipment and data processing costs and other operating expense increased $274,000, or 7%, to $4.0 million for the three months ended March 31, 2006 compared to $3.8 million for the three months ended March 31, 2005. The increase was primarily attributable to a $240,000, or 11%, increase in salaries and employee benefits costs resulting from an increase in health insurance costs and additional staffing. Other expense also increased by $88,000, or 11%, due to increases in advertising expense and professional fees.Provision for Income Taxes.For the quarters ending March 31, 2006 and March 31, 2005, the Company recorded combined federal and state income tax provisions of $273,000 and $545,000, respectively. These provisions reflect effective income tax rates of 24.7% and 30.8% for the quarters ending March 31, 2006 and March 31, 2005, respectively.Financial ConditionThe Company's total assets increased to $547.9 million at March 31, 2006, an increase of $18.1 million, or 3%, over December 31, 2005. The increase in total assets was primarily attributable to continued growth in total loans and investments.Loan Portfolio.Total loans increased by $7.7 million, or 2%, during the three months ended March 31, 2006 as compared to December 31, 2005. The increases were mainly in residential and commercial real estate, consumer and municipal loans.Between March 31, 2005 and March 31, 2006, the loan portfolio increased $35.6 million, or 11%, a direct result of continued strong origination and customer demand throughout our market areas.13The following table summarizes the composition of our loan portfolio by type of loan at the dates indicated.Loan Portfolio CompositionMarch 31, 2006

March 31, 2005

December 31, 2005Percent of



Percent of



Percent ofLoans in



Loans in



Loans inCategory to



Category to



Category toAmount

Total Loans

Amount

Total Loans

Amount

Total Loans(Dollars in thousands)Real estate:Residential
$229,476

63.2%

$205,524

62.6%

$225,648

63.4%Commercial
69,583

19.1%

61,227

18.7%

66,924

18.8%Commercial and industrial
26,611

7.3%

21,614

6.6%

27,919

7.8%Consumer
31,306

8.6%

27,234

8.3%

30,471

8.6%Municipal
6,619

1.8%

12,413

3.8%

4,896

1.4%Total
$363,595

100.0%

$328,012

100.0%

$355,858

100.0%Asset Quality.As of March 31, 2006, nonperforming assets totaled $2.2 million, an increase of $579,000 over the same period last year and a decrease of $291,000 from December 31, 2005. As a percentage of total assets, nonperforming assets at March 31, 2006 were 0.39% compared to 0.31% at March 31, 2005 and 0.46% at December 31, 2005.The following table sets forth information regarding nonperforming assets at the dates indicated.Nonperforming AssetsMarch 31,

March 31,

December 31,2006

2005

2005(Dollars in thousands)Loans accounted for on a nonaccrual basis
$1,791

$1,265

$2,256Accruing loans contractually past due 90 days or more
319

307

186Total nonperforming loans
2,110

1,572

2,442Other real estate owned
42

-

-Nonperforming securities
-

-

-Total nonperforming assets
$2,151

$1,572

$2,442Ratio of nonperforming assets to total assets
0.39%

0.31%

0.46%Ratio of nonperforming loans to total loans
0.58%

0.48%

0.69%Allowance for Loan Losses.At March 31, 2006, the allowance for loan losses totaled $4.3 million, or 1.18% of total loans as compared to $4.3 million, or 1.30% of total loans at March 31, 2005. Net charge-off (recovery) activity totaled ($35,000) for the first three months of 2006 compared to $21,000 for the same period one year ago.14The following table sets forth the breakdown of the allowance for loan losses for the periods indicated.Analysis of Allowance for Loan LossesMarch 31,2006

2005(Dollars in thousands)Total loans outstanding at the end of the period (1)
$363,595

$328,012Average loans outstanding during the period (1)
$359,400

$315,267Allowance for loan losses, beginning of the period
$    4,248

$    4,504Recovery of loan losses
-

(215)Balance before loan charge-offs
4,248

4,289Loans charged-off
122

38Less recoveries on loans charged-off
157

17Net loan (recoveries) charge-offs
(35)

21Allowance for loan losses, end of the period
$    4,283

$    4,268Ratios:Net charge-offs (recoveries) to average loans outstanding
(0.01%)

0.01%Net charge-offs (recoveries) to loans, end of period
(0.01%)

0.01%Allowance for loan losses to average loans outstanding
1.19%

1.35%Allowance for loan losses to total loans, end of period
1.18%

1.30%Allowance for loan losses to nonperforming loans
203.08%

271.50%(1)  Excludes loans held for sale.Investments. Total investments increased $8.1 million, or 6%, to $148.8 million at March 31, 2006 from December 31, 2005. At March 31, 2006, the Company's available for sale portfolio had a net unrealized loss, net of taxes, of $1.5 million, compared to a net unrealized loss, net of taxes, of $1.4 million at December 31, 2005. Management feels that the change in the net unrealized position is primarily due to a change in market rates during the period.
The following table sets forth the Company's securities at the dates indicated.March 31, 2006

March 31, 2005

December 31, 2005Amortized

Fair

Amortized

Fair

Amortized

FairCost

Value

Cost

Value

Cost

Value(Dollars in thousands)Securities available for sale:Mortgage-backed securities
$  86,611

$  84,534

$  87,823

$  86,451

$  78,531

$  76,480U.S. Treasury notes and other U.S.Government agencies
23,039

22,751

30,646

30,526

23,061

22,769Obligations of states and political subdivisions
21,473

21,601

22,167

22,297

21,646

21,939Other securities
8,739

8,680

4,863

4,767

7,793

7,664Total
$139,862

$137,566

$145,499

$144,041

$131,031

$128,852Securities held to maturity:Obligations of states and political subdivisions
$    1,982

$    2,033

$    2,253

$    2,346

$    2,078

$    2,143
Deposits.Deposits continue to represent the Company's primary source of funds for lending and investment activities. At March 31, 2006, deposits of $317.2 million were $17.8 million lower than at the end of 2005. The decrease is primarily due to normal seasonal outflows occurring since the end of the 2005.Between March 31, 2005 and March 31, 2006, total deposits increased $27.3 million or 9%.15Borrowings.Borrowings amounted to $183.7 million at March 31, 2006, an increase of $36.0 million or 24% from December 31, 2005. At March 31, 2006, borrowings consisted primarily of Federal Home Loan Bank of Boston ("FHLB") borrowings totaling $162.4 million, an increase of $32.3 million over balances as of December 31, 2005. The remaining borrowings consisted of assets sold under repurchase agreements totaling $13.0 million and junior subordinated debt securities issued in connection with our trust preferred securities offering totaling $8.2 million.Between March 31, 2005 and March 31, 2006, total borrowings increased $6.9 million, or 4%, primarily due to the issuance of $8.2 million of junior subordinated debt securities. During the same period, FHLB borrowings and assets sold under repurchase agreements decreased $1.4 million.Liquidity and Capital ResourcesLiquidity.Liquidity, as it pertains to the Company, is the ability to generate adequate amounts of cash to meet current and future financial obligations. The Company's primary sources of funds consist of deposits, borrowings, and the amortization, prepayment and maturities of loans and securities. While scheduled repayment of loans and maturities of securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by the general level of interest rates, seasonality, economic conditions and competitive factors. In addition, as an alternative source of funding to borrowings, the Bank will occasionally purchase brokered certificates of deposits. At March 31, 2006, the Bank had $16.8 million of brokered certificates of deposits outstanding. The Company did not have any brokered certificates of deposits for the comparable period of 2005.The Company, as a separately incorporated bank holding company, has no significant operations other than serving as the sole stockholder of the Bank. The Company's commitments and debt service requirement, at March 31, 2006 consist of $8.3 million of junior subordinated debt securities, including accrued interest, issued to an unconsolidated subsidiary, Union Bankshares Capital Trust I, (see Note 8 to the Condensed Notes to Consolidated Financial Statements included in Item 1). The Company has contributed $3.0 million of the proceeds from the issuance of trust preferred securities to the Bank as Tier 1 Capital to support the Bank's growth.The Company actively manages its liquidity position under the direction of the Asset/Liability Management Committee. Periodic review under prescribed policies and procedures is intended to ensure that the Company will maintain adequate levels of available funds. At March 31, 2006, the Company's liquidity position was well within policy guidelines. Management believes that the Company has adequate liquidity available to respond to current and future funding requirements.Capital Resources.The Federal Reserve Board ("FRB"), the Federal Deposit Insurance Corporation ("FDIC"), and other regulatory agencies have established capital guidelines for banks and bank holding companies. Risk-based capital guidelines issued by the federal regulatory agencies require banks to meet a minimum Tier 1 leverage capital ratio of 4.0%, a Tier 1 risk-based capital ratio of 4.0% and a total risk-based capital ratio of 8.0%.On February 17, 2006, the Company, through Union Bankshares Capital Trust I, raised additional capital from the issuance of $8.0 million of trust preferred securities, the proceeds of which were used to purchase 30-year junior subordinated deferrable interest debt securities of the Company, (see Note 8 to the Condensed Notes to Consolidated Financial Statements included in Item 1).At March 31, 2006, the Company had a Tier 1 risk-based capital ratio and a total risk-based capital ratio of 13.64% and 14.89%, respectively, as compared to 11.50% and 12.75%, respectively, at December 31, 2005. At March 31, 2006, the Company and the Bank had a Tier 1 leverage ratios of 8.25% and 7.29%, respectively, as compared to 6.83% and 6.80%, respectively, at December 31, 2005.Off-Balance Sheet Risks and CommitmentsAs of March 31, 2006 and 2005, the total of approved loan commitments outstanding, commitments under unused lines of credit and unadvanced portions of loans amounted to $74.2 million and $62.0 million, respectively. Other than the foregoing, the Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.16Contractual ObligationsThe following table is a summary of the Company's contractual obligations as of March 31, 2006 consisting of operating lease obligations and FHLB borrowings by contractual maturity.Contractual Obligations by MaturityPayment due by periodLess than



4 - 5

After 5Total

1 Year

1 - 3 Years

Years

Years(Dollars in thousands)Contractual ObligationsOperating lease obligations
$    7,133

$       322

$     544

$     550

$  5,717FHLB borrowings
162,424

113,303

38,683

10,055

383Junior subordinated debt securities
8,248

-

-

-

8,248Total
$177,805

$113,625

$39,227

$10,605

$14,348Item 3. Quantitative and Qualitative Disclosures About Market RiskMarket risk is the sensitivity of income to changes in interest rates, foreign exchange rates, commodity prices, equity prices and other market-driven rates or prices. The Company has no trading operations, and therefore is only exposed to non-trading market risk. The Company's primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company's asset/liability management process, which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out the asset/liability management policies to the Asset/Liability Committee ("ALCO"), whose members are comprised of the Bank's senior management. In this capacity ALCO develops guidelines and strategies, consistent with policies established by the Board of Directors, which monitor and coordinate the Company's interest rate sensitivity and the sources, uses and pricing of funds.Net interest income sensitivity to movements in interest rates is measured through the use of a simulation model that analyzes resulting net interest income under various interest rate scenarios established by regulators. Projected net interest income (NII) is modeled, based on a gradual shift in market interest rates ("ramped") over a 12-month period. The model is based on the actual maturity and repricing characteristics of interest rate sensitive assets and liabilities and factors in projections for activity levels by product lines of the Company. Assumptions are made as to the changing relationship between different interest rates as interest rates increase/decrease (basis risk) and the customer's ability to prepay loans and withdraw deposit balances or transfer them to a higher yielding account (option risk). The sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for NII exposure over a one-year horizon, assuming no balance sheet growth, given both a 200 basis point (bp) upward and a 200 basis point downward shift in interest rates.The following table sets forth the estimated effects on the Company's net interest income for the periods indicated and reflects such change as a percentage of projected net interest income for the subsequent 12-month period.Interest Rate Sensitivity200 Basis Point

200 Basis PointRate Increase

Rate Decrease (1)March 31, 2006

(5.34%)

2.42%March 31, 2005

(2.32%)

0.95%(1)
The March 31, 2005 period represents a gradual downward shift in market rates of 100 basis points.The results implied in the above table indicate estimated changes in simulated net interest income for the subsequent 12 months assuming a gradual shift in market rates up or down of 200 basis points across the entire yield curve. This sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape; prepayments on loans and securities; deposit decay rates; pricing decisions on loans and deposits; reinvestment/replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change.Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to: prepayment/refinancing levels likely deviating from those assumed; the potential effect of changing debt service levels on customers17with adjustable rate loans; depositor early withdrawals and product preference changes, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates.Item 4. Controls and ProceduresManagement of the Company, including the Company's President and Chief Executive Officer and the Company's Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Company's President and Chief Executive Officer and the Company's Senior Vice President and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is (i) recorded, processed, summarized and reported as and when required, and (ii) accumulated and communicated to the Company's management, including the Company's President and Chief Executive Officer and the Company's Senior Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.There have been no changes in the Company's internal control over financial reporting identified in connection with the evaluation that occurred during the Company's last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the Company's internal control over financial reporting.18Part II. Other InformationItem 1. Legal ProceedingsThere are no material legal proceedings pending, to which the Company or its subsidiaries is a party, or of which any of their property is the subject, other than ordinary routine litigation incidental to the business.Item 1A. Risk FactorsThere have been no material changes to the risk factors previously disclosed by the Company in its Annual Report on Form 10-K for the fiscal year ended December 31, 2005.Item 2. Unregistered Sales of Equity Securities and Use of ProceedsOn April 14, 2002, the Board of Directors of the Company adopted a Stock Repurchase Program, which provided for the repurchase of up to 57,700 shares, or 5%, of the Company's then-outstanding common stock. On October 27, 2004, the Board of Directors of the Company amended the Stock Repurchase Program to authorize the repurchase of up to 86,550 shares, or 7.5%, of the Company's common stock outstanding as of April 14, 2002. Originally adopted for a term of 12 months, the Stock Repurchase Program has been extended several times by the Company, and was extended on October 19, 2005 for a term of six months. On February 22, 2006 the Board of Directors of the Company authorized the repurchase of 5,000 additional shares under the Stock Repurchase Program. The repurchases may be made from time to time at the discretion of management of the Company. Shares repurchased by the Company are designated as authorized but unissued stock of the Company. The Company may utilize such shares for any purpose the Board of Directors of the Company deems advisable in compliance with applicable law. As of March 31, 2006, the Company had repurchased a total of 88,613 shares of its stock since the Program's inception.During the three months ended March 31, 2006, the Company repurchased 8,884 shares of its common stock.Total Number of Shares

Maximum Number ofPurchased as Part of

Shares that May YetTotal Number of

Average Price

Publicly Announced Plans

Be Purchased UnderPeriod
Shares Purchased

Paid per Share

or Programs

the Plans or ProgramsJanuary 1 - 31, 2006

100



$67.00



100



6,721February 1 - 28, 2006

2,850



64.30



2,850



8,871March 1 - 31, 2006

5,934



65.53



5,934



2,937TOTAL

8,884



$65.15



8,884



2,937Item 3. Defaults Upon Senior SecuritiesNoneItem 4. Submission of Matters to a Vote of Security HoldersNoneItem 5. Other InformationOn April 19, 2006 the Board of Directors of the Company adopted an amendment to the Stock Repurchase Program which authorizes the repurchase of up to an additional 54,529 shares, or 5% of the common stock of the Company outstanding as of April 10, 2006. Additionally, the Board of Directors of the Company adopted an amendment to the Stock Repurchase Program, to extend the Program, effective April 19, 2006, until such time as all shares authorized for repurchase have been repurchased.19Item 6. ExhibitsExhibit No.


Description*3.1

Amended and Restated Articles of Incorporation of Union Bankshares Company (the "Company")**3.2

Amended and Restated Bylaws of the Company***4.1

Form of Floating Rate Junior Subordinated Debt Security issued by the Company to Wells Fargo Bank, National Association, dated February 17, 2006.****10.1

Stock Purchase Plan for the employees of Union Trust Company (the "Bank")****10.2

Deferred Compensation Agreements for the Executive Officers of the Bank****10.3

Salary Continuation Agreements for the Executive Officers of the Bank***10.4

Indenture by and between the Company, as Issuer, and Wells Fargo Bank, National Association, as Trustee, dated February 17, 2006, for Floating Rate Junior Subordinated Debt Securities.***10.5

Guarantee Agreement executed and delivered by the Company and Wells Fargo Bank, National Association for the benefit of the Holders from time to time of the Capital Securities of Union Bankshares Capital Trust I*****14

Amended and Restated Code of Ethics of the Company******15

Letter from Berry, Dunn, McNeil & Parker regarding unaudited interim financial information31.1

Rule 13a-14(a)/15d-14(a) Certification of the CEO31.2

Rule 13a-14(a)/15d-14(a) Certification of the CFO32.1

Section 1350 Certification of the CEO32.2

Section 1350 Certification of the CFO*
Incorporated by reference to the Company's Quarterly Report on Form 10-Q, filed with the SEC on November 15, 2004.**
Incorporated by reference to the Company's Quarterly Report on Form 10-Q, filed with the SEC on May 16, 2005.***
Incorporated by reference to the Company's Current Report on Form 8-K, filed with the SEC on February 23, 2006.****
Incorporated by reference to the Company's Registration Statement on Form S-1, filed with the SEC on June 15, 1984, Registration No. 2-90679.*****
Incorporated by reference to the Company's Current Report on Form 8-K, filed with the SEC on January 23, 2006.******
Included as page 1 of this Quarterly Report on Form 10-Q.20SIGNATURESPursuant 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.UNION BANKSHARES COMPANYMay 15, 2006

/s/ Peter A. BlybergDate

Peter A. Blyberg, President and Chief Executive OfficerMay 15, 2006

/s/ Timothy R. MaynardDate

Timothy R. Maynard, Senior Vice President and Chief Financial Officer21Exhibit IndexExhibit No.


Description*3.1

Amended and Restated Articles of Incorporation of Union Bankshares Company (the "Company")**3.2

Amended and Restated Bylaws of the Company***4.1

Form of Floating Rate Junior Subordinated Debt Security issued by the Company to Wells Fargo Bank, National Association, dated February 17, 2006.****10.1

Stock Purchase Plan for the employees of Union Trust Company (the "Bank")****10.2

Deferred Compensation Agreements for the Executive Officers of the Bank****10.3

Salary Continuation Agreements for the Executive Officers of the Bank***10.4

Indenture by and between the Company, as Issuer, and Wells Fargo Bank, National Association, as Trustee, dated February 17, 2006, for Floating Rate Junior Subordinated Debt Securities.***10.5

Guarantee Agreement executed and delivered by the Company and Wells Fargo Bank, National Association for the benefit of the Holders from time to time of the Capital Securities of Union Bankshares Capital Trust I*****14

Amended and Restated Code of Ethics of the Company******15

Letter from Berry, Dunn, McNeil & Parker regarding unaudited interim financial information31.1

Rule 13a-14(a)/15d-14(a) Certification of the CEO31.2

Rule 13a-14(a)/15d-14(a) Certification of the CFO32.1

Section 1350 Certification of the CEO32.2

Section 1350 Certification of the CFO*
Incorporated by reference to the Company's Quarterly Report on Form 10-Q, filed with the SEC on November 15, 2004.**
Incorporated by reference to the Company's Quarterly Report on Form 10-Q, filed with the SEC on May 16, 2005.***
Incorporated by reference to the Company's Current Report on Form 8-K, filed with the SEC on February 23, 2006.****
Incorporated by reference to the Company's Registration Statement on Form S-1, filed with the SEC on June 15, 1984, Registration No. 2-90679.*****
Incorporated by reference to the Company's Current Report on Form 8-K, filed with the SEC on January 23, 2006.******
Included as page 1 of this Quarterly Report on Form 10-Q.22