|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 September 30, 2005                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                          
|Commission File Number 2-90679                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                          
|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 an accelerated filer (as defined in Exchange Act Rule 12b-2)                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                          
|Yes [   ]    No [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 November 10, 2005, there were 1,101,345 shares of the registrant's common stock, $12.50 par value, issued and outstanding.                                                                                                                                                                                                                          
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|                                                                                                                                                                                                                                                                                                                                                          



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 -September 30, 2005 and 2004 and December 31, 2004
2Consolidated Statements of Income -Three and nine months ended September 30, 2005 and 2004
3Consolidated Statements of Changes in Shareholders' Equity -Nine months ended September 30, 2005 and 2004
4Consolidated Statements of Cash Flows -Nine months ended September 30, 2005 and 2004
5Condensed Notes to Consolidated Financial Statements - September 30, 2005
6Item 2.  Management's Discussion and Analysis of Financial Condition and Results ofOperations
9Item 3.  Quantitative and Qualitative Disclosures About Market Risk
16Item 4.  Controls and Procedures
17Part II.   Other InformationItem 1.  Legal Proceedings
18Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
18Item 3.  Defaults Upon Senior Securities
18Item 4.  Submission of Matters to a Vote of Security Holders
18Item 5.  Other Information
18Item 6.  Exhibits
19Signatures
20i 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 September 30, 2005 and 2004, and for the three and nine-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, MaineOctober 25, 20051UNION BANKSHARES COMPANY AND SUBSIDIARYCONSOLIDATED BALANCE SHEETS(Dollars in thousands, except number of shares and per share data)September 30,

September 30,

December 31,2005

2004

2004(Unaudited)

(Unaudited)

(Audited)ASSETSCash and cash equivalents
$
15,625

$
11,589

$
10,112Securities, available for sale, at market

128,530


135,474


134,157Securities, held to maturity, at cost (market value $2,239, $2,613,and $2,384 at September 30, 2005, September 30, 2004 andDecember 31, 2004, respectively)

2,150


2,477


2,255Other investment securities, at cost which approximatesmarket value

9,758


7,727


7,727Loans held for sale

897


204


246Loans

354,801


304,741


309,951Less: allowance for loan losses

4,243


4,485


4,504Net loans

350,558


300,256


305,447Premises, furniture and equipment, net

6,037


5,731


5,672Goodwill

6,305


6,305


6,305Bank owned life insurance

8,638


8,305


8,413Other assets

8,009


8,472


8,021Total assets
$
536,507

$
486,540

$
488,355LIABILITIESDemand deposits
$
50,180

$
47,074

$
46,314NOW deposits

77,179


66,904


66,913Money market accounts

23,384


31,625


30,858Savings deposits

69,544


72,437


70,921Certificates of deposit

114,325


91,285


89,976Total deposits

334,612


309,325


304,982Borrowings from Federal Home Loan Bank

132,047


112,307


120,160Other borrowed funds

20,449


15,166


14,254Other liabilities

8,400


7,181


7,867Total liabilities

495,508


443,979


447,263SHAREHOLDERS' EQUITYCommon stock, $12.50 par value.  Authorized 10,000,000 shares,issued 1,104,317 shares at September 30, 2005.  Authorized1,200,000 shares, issued 1,142,466 shares at September 30,2004, and 1,114,938 shares at December 31, 2004.

13,804


14,281


13,937Surplus

2,316


4,005


2,973Retained earnings

26,489


23,406


24,152Accumulated other comprehensive income (loss):Net unrealized gain (loss) on securities available for sale, netof deferred tax asset of $368 at September 30, 2005 anddeferred tax liabilities of $448 at September 30, 2004 and$235 at December 31, 2004.

(714)


869


457Minimum pension liability adjustment, net of deferred taxasset of $461 at September 30, 2005, $0 at September 30,2004 and $220 at December 31, 2004.

(896)


-


(427)Total shareholders' equity

40,999


42,561


41,092Total liabilities and shareholders' equity
$
536,507

$
486,540

$
488,355
Share and per share data have been adjusted to reflect the 2-for-1 stock split in the form of a 100% stock dividend paid on March 21, 2005 to shareholders of record on February 18, 2005.See 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(Dollars in thousands, except number of shares and per share data)Three months ended

Nine months endedSeptember 30,

September 30,2005

2004

2005

2004(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)INTEREST AND DIVIDEND INCOMEInterest and fees on loans
$
5,061

$
4,207

$
14,224

$
12,264Interest and dividends on investments

1,476


1,437


4,617


4,093Total interest and dividend income

6,537


5,644


18,841


16,357INTEREST EXPENSEInterest on deposit

1,125


693


2,824


2,017Interest on borrowed funds

1,416


886


3,998


2,420Total interest expense

2,541


1,579


6,822


4,437Net interest income

3,996


4,065


12,019


11,920Provision for (recovery of) loan losses

-


38


(215)


198Net interest income after provision for(recovery of) loan losses

3,996


4,027


12,234


11,722NON-INTEREST INCOMENet gain on sale of securities

-


-


4


237Financial services fees and commissions

588


499


1,766


1,454Service charges and fees on deposit accounts

502


507


1,453


1,315Bankcard fees

90


68


225


158Loan fees

189


223


590


694Income from cash surrender value of life insurance

83


88


225


264Other income

(5)


13


(4)


272Total non-interest income

1,447


1,398


4,259


4,394NON-INTEREST EXPENSESalaries and employee benefits

2,286


2,218


6,733


6,649Net occupancy

374


381


1,163


1,143Equipment and data processing

291


316


955


907Other expense

790


710


2,415


2,074Total non-interest expense

3,741


3,625


11,266


10,773Income before income taxes

1,702


1,800


5,227


5,343Income taxes

508


549


1,557


1,622Net income
$
1,194

$
1,251

$
3,670

$
3,721Net income per common share
$
1.08

$
1.09

$
3.30

$
3.25Cash dividends declared per common share
$
0.40

$
0.325

$
1.20

$
0.95Weighted average common shares outstanding
1,105,055


1,142,802


1,112,446


1,143,829
Share and per share data have been adjusted to reflect the 2-for-1 stock split in the form of a 100% stock dividend paid on March 21, 2005 to shareholders of record on February 18, 2005.See 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)(Dollars in thousands, except number of shares and per share data)AccumulatedOther

TotalCommon



Treasury

Retained

Comprehensive

Shareholders'Stock

Surplus

Stock

Earnings

Income (Loss)

EquityBalance at December 31, 2003
$
14,560

$
4,056

$
(803)

$
21,396

$
1,543

$
40,752Net income, nine months endedSeptember 30, 2004

-


-


-


3,721


-


3,721Change in net unrealized gain on available forsale securities, net of tax of $(346)

-


-


-


-


(674)


(674)Total comprehensive income (loss)

-


-


-


3,721


(674)


3,047Sale of 4,158 shares of treasury stock

-


1


185


-


-


186Repurchase of 7,946 shares of treasury stock

-


-


(366)


-


-


(366)Retirement of treasury stock

(288)


(80)


984


(616)


-


-Sale of 1,692 shares of common stock

21


71


-


-


-


92Repurchase of 1,000 shares of common stock

(12)


(43)


-


-


-


(55)Cash dividend declared

-


-


-


(1,095)


-


(1,095)Balance at September 30, 2004
$
14,281

$
4,005

$
-

$
23,406

$
869

$
42,561Balance at December 31, 2004
$
13,937

$
2,973

$
-

$
24,152

$
30

$
41,092Net income, nine months endedSeptember 30, 2005

-


-


-


3,670


-


3,670Change in net unrealized (loss) on availablefor sale securities, net of tax of $(603)

-


-


-


-


(1,171)


(1,171)Minimum pension liability adjustmentnet of tax of $(241)

-


-


-


-


(469)


(469)Total comprehensive income (loss)

-


-


-


3,670


(1,640)


2,030Sale of 4,762 shares of common stock

60


272


-


-


-


332Repurchase of 15,383 shares ofcommon stock

(193)


(929)


-


-


-


(1,122)Cash dividends declared

-


-


-


(1,333)


-


(1,333)Balance at September 30, 2005
$
13,804

$
2,316

$
-

$
26,489

$
(1,610)

$
40,999
Share and per share data have been adjusted to reflect the 2-for-1 stock split in the form of a 100% stock dividend paid on March 21, 2005 to shareholders of record on February 18, 2005.See 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)Nine months endedSeptember 30,2005

2004(Unaudited)

(Unaudited)Net cash flows provided by operating activities:Net Income
$
3,670

$
3,721Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization

528


505Provision for (recovery of) loan losses

(215)


198Donation of building

55


-Net securities gains

(4)


(237)Net increase in other assets

(23)


(266)Net increase in other liabilities

667


268Net amortization of premium on investments

328


409Net increase in deferred loan origination fees

(73)


(137)Origination of loans held for sale

(6,833)


(6,496)Proceeds from loans held for sale

6,182


7,229Net cash provided by operating activities

4,282


5,194Cash flows from investing activities:Purchase of securities available for sale

(20,949)


(43,805)Proceeds from sales of securities available for sale

2,313


19,857Proceeds from calls or maturities of securities available for sale

22,170


16,717Proceeds from maturities of securities held to maturity

100


385Increase in other investments

(2,031)


(1,869)Net increase in loans to customers

(44,823)


(18,323)Capital expenditures

(913)


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

(225)


(264)Net cash used in investing activities

(44,358)


(27,684)Cash flows from financing activities:Net increase in other borrowed funds

6,195


2,464Proceeds from long-term borrowings

25,000


20,000Repayment of long-term borrowings

(8,913)


(4,570)Net change in short-term borrowings

(4,200)


(8,150)Net increase in deposits

29,630


10,871Purchase of common stock

(1,122)


(421)Proceeds from stock issuance

332


278Dividends paid

(1,333)


(1,095)Net cash provided by financing activities

45,589


19,377Net increase (decrease) in cash and cash equivalents

5,513


(3,113)Cash and cash equivalents at beginning of year

10,112


14,702Cash and cash equivalents at end of period
$
15,625

$
11,589Supplemental schedule of cash flow informationInterest paid
$
6,656

$
4,452Income taxes paid

1,358


1,394Supplemental schedule of noncash investing and financing activitiesChanges in other comprehensive income:Net decrease required by Statement of Financial Accounting StandardsNo. 115 "Accounting for Certain Investment in Debt and Equity Securities"
$
(1,774)

$
(1,020)Deferred income tax asset thereon

603


346Decrease required by Statement of Financial Accounting Standards No. 87"Employers' Accounting for Pensions"

(710)


-Deferred income tax asset thereon

241


-
See 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 September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005 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, 2004 filed with the Securities and Exchange Commission.Note 2. Common StockOn February 9, 2005, the Company's Board of Directors declared a two-for-one stock split of the Company's common stock payable in the form of a 100% stock dividend to shareholders of record on February 18, 2005, with a payment date of March 21, 2005. All share and per share data included in the consolidated financial statements and elsewhere in this report have been restated to reflect the stock split.Note 3. 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.EPS data and weighted average shares outstanding have been adjusted to reflect the two-for-one stock split in the form of a 100% stock dividend paid on March 21, 2005, to shareholders of record on February 18, 2005.Note 4. Treasury StockA revision to the Maine Business Corporation Act requires that stock reacquired by a corporation be classified as "authorized but unissued," effectively eliminating a corporation's ability to hold stock in treasury. In order to recognize the effect of the revision, the Company retired its treasury stock as of June 30, 2004, which reduced the common stock portion of shareholders' equity by $288,000, surplus by $80,000 and retained earnings by $616,000.Note 5. Stock Repurchase PlanOn April 14, 2002, the Board of Directors voted to authorize the Company to purchase up to 57,700 shares or approximately 5% of its outstanding common stock. On October 27, 2004, the stock repurchase plan was amended to allow the Company to purchase up to 86,550 shares or approximately 7.5% of its outstanding common stock. The authority may be exercised from time to time and in such amounts as market conditions warrant. As of September 30, 2005, a total of 71,715 shares have been repurchased since the plan's inception on April 14, 2002. The Company repurchased 12,283 shares as part of this plan at an average price of $73.01 during the third quarter of 2005.Note 6. Mortgage Servicing RightsCapitalized mortgage servicing rights are recognized in accordance with 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.6The following summarizes mortgage servicing rights capitalized and amortized, along with the activity in the related valuation allowance:
Nine months endedSeptember 30,2005

2004(Dollars in thousands)Balance of loans serviced for others at September 30,
$
102,741

$
108,256Mortgage Servicing Rights:Balance at beginning of year
$
806

$
590Mortgage servicing rights capitalized

81


371Amortization charged against mortgage servicing income

(231)


(290)Change in valuation allowance

(5)


116Balance at end of period
$
651

$
787Valuation Allowance:Balance at beginning of year
$
13

$
200Increase in impairment reserve

19


5Reduction of impairment reserve

(14)


(120)Balance at end of period
$
18

$
85Note 7. 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:September 30,

September 30,

December 31,2005

2004

2004(Dollars in thousands)Core deposit intangible, cost
$
323

$
323

$
323Accumulated amortization

237


191


202Core deposit intangible, net
$
86

$
132

$
121Amortization expense related to the core deposit intangible amounted to $35,000 for the nine months ended September 30, 2005 and September 30, 2004. The expected amortization expense is estimated to be $47,000 each year through December 31, 2006 and $27,000 in 2007.Note 8. 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 and nine month periods ended September 30, 2005. The expected pension contribution for the Company for 2005 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.7Net periodic benefit cost of these plans includes the following components:Three months ended September 30,2005

2004Pension

Other

Pension

OtherBenefits

Benefits

Benefits

Benefits(Dollars in thousands)Service cost
$
-

$
19

$
117

$
18Interest cost

95


21


114


24Expected return on plan assets

(112)


-


(115)


-Recognized net actuarial (gain) loss

10


(3)


26


-Amortization of unrecognized transition obligation

-


12


-


11Amortization of prior service cost

-


-


-


-Net periodic benefit cost
$
(7)

$
49

$
142

$
53Nine months ended September 30,2005

2004Pension

Other

Pension

OtherBenefits

Benefits

Benefits

Benefits(Dollars in thousands)Service cost
$
-

$
57

$
351

$
54Interest cost

331


63


342


72Expected return on plan assets

(341)


-


(345)


-Recognized net actuarial (gain) loss

58


(9)


78


-Amortization of unrecognized transition obligation

(1)


36


-


35Amortization of prior service cost

-


-


(2)


-Net periodic benefit cost
$
47

$
147

$
424

$
161Note 9. 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.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 September 30, 2005 and 2004 and December 31, 2004, and the consolidated results of operations for the three and nine months ended September 30, 2005 and 2004. 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 ending December 31, 2004, 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 strength of the United States economy in general and the strength of the local economies in which we operate;*
Changes in deposit flows, demand for mortgages and other loans, real estate values, and competition;*
Changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;*
Changes in accounting principles, policies, or guidelines; and*
Other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services.This list of important factors is not exclusive. 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, that may be made from time to time by or on their behalf.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 economic conditions 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.9Executive OverviewNet income decreased $57,000, or 5%, for the quarter ended September 30, 2005 compared to the third quarter last year. The following were significant factors contributing to the results for the third quarter of 2005:*
Net interest income after the provision for loan losses decreased $31,000, or 1%, 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 $49,000, or 4%, primarily due to continued growth in financial services fees and commissions and increases in deposit account and bankcard fees, partially offset by a decrease in mortgage origination and servicing income as a result of a reduction in mortgage activity and sales volume of residential mortgage loans and a decrease in loan fees.*
Non-interest expense increased $116,000, or 3%, due primarily to expenses related to upgrading equipment and facilities, additional corporate and other professional fees, credit card program expenses, and the reversal of reserves in 2004 related to the valuation of mortgage servicing rights.*
Total loans increased by $50 million, or 16%, at September 30, 2005 compared to September 30, 2004.*
Total deposits increased by $25 million, or 8%, at September 30, 2005 compared to September 30, 2004.Results of OperationsNet Income. Net income for the nine months ended September 30, 2005 was $3.7 million, a decrease of $51,000 from the same period in 2004. Earnings per share were $3.30 and $3.25, respectively, for the nine months ended September 30, 2005 and September 30, 2004. Annualized return on average equity ("ROE") and return on average assets ("ROA") for the first nine months of the year were 11.95% and .95%, respectively. Annualized ROE and ROA were 12.01% and 1.07%, respectively, for the same period in 2004.Net income for the three months ended September 30, 2005 decreased $57,000 or 5% compared with the same period last year.  Earnings per share were $1.08 compared to $1.09 per share for the same period in the prior year.  Annualized ROE and ROA were 11.61% and .90%, respectively for the third quarter of 2005 compared to 12.13% and 1.04% for the same period in 2004.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.  Net interest income for the nine months ended September 30, 2005 totaled $12.0 million, an increase of $99,000 over net interest income for the nine months ended September 30, 2004. Due to growth in the municipal loan and investment portfolios, net interest income on a fully tax-equivalent basis increased by $307,000 to $12.6 million in comparison to the same period last year. The Company's net interest margin declined 36 basis points to 3.46% for the nine months ended September 30, 2005 compared to 3.82% for the same period a year ago as the cost of funds continued to reprice upward at a faster pace than yields on earning assets.The increase in net interest income for the first nine months of 2005 was mainly the result of an increase in income from interest-earning assets. Average interest earning assets increased by $54 million, or 13%, as of September 30, 2005. The yield on interest-earning assets increased 15 basis points to 5.35% for the first nine months in 2005, compared to 5.20% for the same period in 2004. Average loan balances increased $42.0 million, or 14%, for the nine months ended September 30, 2005 compared to the same period last year. The yield on loans increased 8 basis points from 5.66% to 5.74% reflecting increases in market rates. The yield on investments also increased by 25 basis points to 4.50% for the nine months ended September 30, 2005. The average balance of securities increased by $11.9 million or 9% compared with the same period in the prior year.The cost of interest-bearing liabilities, or cost of funds, increased to 2.15% during the nine months ended September 30, 2005, an increase of 57 basis points over the nine months ended September 30, 2004. The increase in cost of funds is primarily attributable to a 65 basis points increase in the cost of borrowings during the first nine months of 2005 compared to the same period in 2004. A 53 basis points increase in the cost of funds for time deposits also contributed to an increase in the total cost of interest bearing liabilities during the current period.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)Nine months ended September 30,2005

2004Average



Yield/

Average



Yield/Balance

Interest

Rate

Balance

Interest

Rate(Dollars in thousands)AssetsInterest Earning Assets:Investment securities (1)
$
149,354

$
5,026

4.50%

$
137,419

$
4,372

4.25%Loans, gross (excludes loans held for sale ) (1)

332,886


14,353

5.74%


290,907


12,315

5.66%Total interest earning assets

482,240

$
19,379

5.35%


428,326

$
16,687

5.20%Other assets:Cash and due from banks

10,265







10,568Other assets

18,276







17,976$
510,781






$
456,870LiabilitiesInterest Bearing Liabilities:NOW deposits
$
64,664

$
215

0.44%

$
62,977

$
99

0.20%Money market accounts

27,092


186

0.92%


34,457


211

0.82%Savings deposits

67,261


448

0.89%


55,334


174

0.42%Time deposits

98,474


1,975

2.68%


95,304


1,533

2.15%Borrowings

166,297


3,998

3.21%


126,460


2,420

2.56%Total interest bearing liabilities

423,788

$
6,822

2.15%


374,532

$
4,437

1.58%Non-Interest Bearing Liabilities& Shareholders' Equity:Demand deposits

44,973







40,842Other liabilities

7,480







6,830Shareholders' equity

34,540







34,666$
510,781






$
456,870Net interest income (1)



$
12,557






$
12,250Net interest rate spread (2)






3.20%







3.62%Net interest margin (2)






3.46%







3.82%
(1)
The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $538,000 and $330,000 for the nine months ended September 30, 2005 and 2004, 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 Expense
Nine months ended September 30, 2005 vs. 2004Rate/Volume

Rate

Volume

Total(Dollars in thousands)Interest Earning AssetsInvestment securities (1)
$
380

$
253

$
21

$
654Loans, gross (excludesloans held for sale) (1) (2)

1,852


163


23


2,038Total interest earning assets
$
2,232

$
416

$
44

$
2,692Interest Bearing LiabilitiesNOW deposits
$
3

$
113

$
-

$
116Money market accounts

(45)


26


(6)


(25)Savings deposits

38


194


42


274Time deposits

51


376


15


442Borrowings

763


613


202


1,578Total interest bearing liabilities
$
810

$
1,322

$
253

$
2,385Net change in net interest income
$
1,422

$
(906)

$
(209)

$
307
(1)
The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $538,000 and $330,000 for the nine months ended September 30, 2005 and 2004, 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.Provision for Loan Losses.The provision for loan losses represents the charge to expense that is 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 nine months of 2005, the Company recorded a reduction in the allowance for loan losses resulting in a net provision benefit of $215,000 as compared to provision expense of $198,000 for the first nine months of 2004. Asset quality remains sound with nonperforming assets of $2.4 million, or .45% of total assets, at September 30, 2005 compared to .30% of total assets at December 31, 2004. Total net charge offs as a percent of total loans was .01% for the nine months ended September 30, 2005 compared to .02% for the nine months ended September 30, 2004. Due to continuing strong asset quality, no provision for loan losses was recorded in the third quarter of 2005 compared to $38,000 during the third quarter of 2004.Management believes that the level of allowance for loan losses at September 30, 2005, of $4.2 million, or 1.20% of total loans outstanding, is adequate. As a percentage of total loans outstanding, the allowance for loan losses, of $4.5 million was 1.47% as of September 30, 2004.Non-Interest Income.Non-interest income decreased by $135,000, or 3%, to $4.3 million for the nine months ended September 30, 2005 compared to the same period last year. Mortgage origination activity continued to slow during the nine months ended September 30, 2005, resulting in a $104,000, or 15%, decline in loan fees compared to the same period last year. Other income also decreased by $276,000 for the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004, primarily due to a considerable reduction in sales volume of residential mortgage loans and the amortization of mortgage servicing rights. Security gains also decreased $233,000 during the first nine months of 2005 compared to the same period a year ago. Partially12offsetting these declines was a $312,000, or 21%, increase in financial services fees and commissions, largely due to an increase in assets under management, an increase in market values of these assets during the period, and an increase in trust fees during the first quarter of 2005.  Service charges and fees on deposit accounts increased $138,000, or 10%, principally due to increased activity in the overdraft privilege product during the first nine months of 2005. Bankcard fees also increased by $67,000, or 42%, for the nine months ended September 30, 2005 compared to the same period a year ago.Total non-interest income increased $49,000, or 4%, during the third quarter of 2005 compared to the third quarter of 2004. Income from financial services fees and commissions increased $89,000, or 18%, resulting from an increase in assets under management and an increase in trust fees. Bankcard income also increased $22,000, or 32%, during the three months ended September 30, 2005 compared to the same period last year. Loan fees decreased $34,000, or 15%, from a year ago directly resulting from a continued decline in loan originations. Other income also declined by $18,000.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 $493,000, or 4.6%, to $11.3 million for the nine months ended September 30, 2005 compared to $10.8 million for the nine months ended September 30, 2004. The increase was primarily attributable to additional expense related to the upgrade of equipment and facilities, increased corporate and professional fees, and increases in bankcard expense. Also contributing to the change from 2004 is the reversal of reserves related to the valuation of mortgage servicing rights, totaling $115,000 during the first nine months of 2004.Non-interest expense was $3.7 million in the third quarter of 2005 compared to $3.6 million for the third quarter of 2004, an increase of $116,000 or 3%. The increase was mainly the result of additional costs associated with the upgrade of equipment and facilities, bankcard expense and advertising and the reversal of reserves related to the valuation of mortgage servicing rights.Financial ConditionThe Company's total assets increased to $536.5 million at September 30, 2005, an increase of $48.2 million, or 10%, over December 31, 2004. The increase in total assets was primarily attributable to continued growth in total loans.Loan Portfolio.Total loans increased by $44.9 million, or 14%, during the nine months ended September 30, 2005 as compared to December 31, 2004. The increases were mainly in municipal, residential real estate and commercial real estate which increased $10.2 million, $17.1 million and $5.4 million, respectively. Consumer loans also increased by $6.1 million during the first nine months of 2005, primarily due to a continued increase in home equity lines of credit.Between September 30, 2004 and September 30, 2005, the loan portfolio increased $50.1 million, or 16%, a direct result of continued strong origination and customer demand throughout our market areas.The following table summarizes the composition of our loan portfolio by type of loan at the dates indicated.
Loan Portfolio CompositionSeptember 30, 2005

September 30, 2004

December 31, 2004Percent



Percent



Percentof



of



ofLoans in



Loans in



Loans inCategory



Category



Categoryto Total



to Total



to TotalAmount

Loans

Amount

Loans

Amount

Loans(Dollars in thousands)Real estate:Residential
$
218,807

61.6%

$
196,198

64.4%

$
201,669

65.0%Commercial

64,241

18.1%


58,923

19.3%


58,834

19.0%Commercial and industrial

27,870

7.9%


21,616

7.1%


21,906

7.1%Consumer

29,484

8.3%


22,601

7.4%


23,340

7.5%Municipal

14,399

4.1%


5,403

1.8%


4,202

1.4%Total
$
354,801

100.0%

$
304,741

100.0%

$
309,951

100.0%
Asset Quality.As of September 30, 2005, nonperforming assets totaled $2.4 million, an increase of $1.2 million over the same date last year and an increase of $954,000 from December 31, 2004. As a percentage of total assets, nonperforming assets at September 30, 2005 were .45% compared to .26% at September 30, 2004.13The following table sets forth information regarding nonperforming assets at the dates indicated.Nonperforming Assets
September 30,

September 30,

December 31,2005

2004

2004(Dollars in thousands)Loans accounted for on a nonaccrual basis
$
2,073

$
990

$
1,145Accruing loans contractually past due 90 days or more

344


263


318Total nonperforming loans

2,417


1,253


1,463Other real estate owned

-


-


-Nonperforming securities

-


-


-Total nonperforming assets
$
2,417

$
1,253

$
1,463Ratio of nonperforming assets to total assets

0.45%


0.26%


0.30%Ratio of nonperforming loans to total loans

0.68%


0.41%


0.47%
Allowance for Loan Losses.At September 30, 2005, the allowance for loan losses totaled $4.2 million, or 1.20% of total loans as compared to $4.5 million, or 1.47% of total loans at September 30, 2004. Net charge-off activity totaled $46,000 for the first nine months of 2005 compared to $52,000 for the same period one year ago.The following table sets forth the breakdown of the allowance for loan losses for the periods indicated.Analysis of Allowance for Loan Losses
September 30,2005

2004(Dollars in thousands)Total loans outstanding at the end of the period (1)
$
354,801

$
304,741Average loans outstanding during the period (1)
$
332,861

$
290,763Allowance for loan losses, beginning of the period
$
4,504

$
4,339Provision for (recovery of) loan losses

(215)


198Balance before loan charge-offs

4,289


4,537Loans charged-off

217


238Less recoveries on loans charged-off

171


186Net loan charge-offs

46


52Allowance for loan losses, end of the period
$
4,243

$
4,485Ratios:

0.01%


0.02%Net charge-offs to average loans outstanding

0.01%


0.02%Net charge-offs to loans, end of period

1.27%


1.54%Allowance for loan losses to average loans outstanding

1.20%


1.47%Allowance for loan losses to total loans, end of period

175.55%


357.94%Allowance for loan losses to nonperforming loans(1)
Excludes loans held for sale.Investments. Total investments decreased $3.7 million, or 3%, to $140.4 million at September 30, 2005 from December 31, 2004, as cash flows from the securities portfolio were used to offset seasonal deposit outflows and to fund loan growth.  At September 30, 2005, the Company's available for sale portfolio had a net unrealized loss, net of taxes, of $714,000, compared to a net unrealized gain, net of taxes, of $457,000 at December 31, 2004. Management feels that the change in the net unrealized position is primarily due to a change in market rates during the period.14The following table sets forth the Company's securities at the dates indicated.
September 30, 2005

September 30, 2004

December 31, 2004Amortized

Fair

Amortized

Fair

Amortized

FairCost

Value

Cost

Value

Cost

Value(Dollars in thousands)Securities available for sale:Mortgage-backed securities
$
76,502

$
75,273

$
85,431

$
85,561

$
87,131
$
87,037U.S. Treasury notes and other U.S.Government agencies

26,586


26,401


29,710


30,183


28,689

28,870Obligations of states and politicalsubdivisions

21,710


22,151


11,761


12,468


11,758

12,406Other securities

4,815


4,705


7,255


7,262


5,887

5,844Total
$
129,613

$
128,530

$
134,157

$
135,474

$
133,465
$
134,157Securities held to maturity:Obligations of states and politicalsubdivisions
$
2,150

$
2,239

$
2,477

$
2,613

$
2,255
$
2,384
Deposits.Deposits continue to represent the Company's primary source of funds for lending and investment activities. At September 30, 2005, deposits of $334.6 million were $29.6 million higher than December 31, 2004. The increase is primarily due to an increase in certificates of deposit of $24.3 million, or 27%, during the first nine months of 2005. The increase in certificates of deposit was largely the result of the Company utilizing brokered certificates of deposit as a funding source when the market for these funds was favorable compared to other funding alternatives.Between September 30, 2004 and September 30, 2005, total deposits increased $25.3 million or 8%. Certificates of deposit increased $23.0 million; transaction accounts, consisting of demand deposits and NOW accounts, increased $13.4 million; savings accounts decreased $2.9 million and money market accounts decreased $8.2 million.Borrowings.Borrowings amounted to $152.5 million at September 30, 2005, an increase of $18.1 million or 13% from December 31, 2004 and were used to supplement deposits as a source of liquidity and to provide funding for continued growth in earning assets. At September 30, 2005, borrowings consisted primarily of Federal Home Loan Bank of Boston ("FHLB") borrowings totaling $132.0 million, an increase of $11.9 million over balances as of December 31, 2004. The remaining borrowings consisted primarily of assets sold under repurchase agreements. These borrowings totaled $20.4 million at September 30, 2005, an increase of $6.2 million from year end 2004.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.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 September 30, 2005, 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%.  At September 30, 2005, the Company and the Bank exceeded all of their regulatory capital requirements.Off-Balance Sheet Risks and CommitmentsAs of September 30, 2005 and 2004, the total of approved loan commitments outstanding, commitments under unused lines of credit and unadvanced portions of loans amounted to $74.9 million and $58.0 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.15Contractual ObligationsThe following table is a summary of the Company's contractual obligations as of September 30, 2005 consisting of operating lease obligations and FHLB borrowings by contractual maturity date for the next five years.
Contractual Obligations by MaturityPayment due by periodLess than



4 - 5

After 5Total

1 Year

1 - 3 Years

Years

YearsContractual Obligations

(Dollars in thousands)Operating lease obligations

$
1,300

$
220

$
204

$
183

$
693FHLB borrowings


132,047


64,855


56,490


5,264


5,438Total

$
133,347

$
65,075

$
56,694

$
5,447

$
6,131
Item 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 DecreaseSeptember 30, 2005

(0.73%)

(0.42%)September 30, 2004

(0.17%)

(0.66%)1The 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.___________________1
The September 30, 2004 period represents a gradual downward shift in market rates of 100 basis points.16Also, 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 customers with 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.17Part II.  Other InformationItem 1.  Legal ProceedingsNoneItem 2.  Unregistered Sales of Equity Securities and Use of ProceedsDuring the three months ended September 30, 2005, the Company repurchased 12,283 shares of its common stock.
Total Numberof SharesPurchased as

MaximumPart of

Number of SharesTotal



Publicly

that May Yet BeNumber of

Average Price

Announced

Purchased UnderShares

Paid per

Plans or

the Plans orPeriod

Purchased

Share

Programs

ProgramsJuly 1 - 31, 2005

10,300

$
73.01

10,300

16,818August 1 - 31, 2005

1,775


73.23

1,775

15,043September 1 - 30, 2005

208


71.00

208

14,835TOTAL

12,283

$
73.01

12,283

14,835
Item 3.  Defaults Upon Senior SecuritiesNoneItem 4.  Submission of Matters to a Vote of Security HoldersNoneItem 5.  Other InformationOn October 19, 2005, the Board of Directors of the Company approved an amendment to the Company's bylaws setting the number of Directors on the Board at 14.18Item 6. ExhibitsExhibit No.

Description3.1

Amended and Restated Articles of Incorporation of Union Bankshares Company**3.2

Amended and Restated Bylaws of Union Bankshares Company*10.1

Stock Purchase Plan for the employees of Union Trust Company*10.2

Deferred Compensation Agreements for the Executive Officers of Union Trust Company*10.3

Salary Continuation Agreements for the Executive Officers of Union Trust Company31

Rule 13a-14(a)/15d-14(a) Certifications32

Section 1350 Certifications*
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 Quarterly Report on Form 10-Q, filed with the SEC on May 16, 2005.19SIGNATURESPursuant 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 COMPANYNovember 14, 2005

/s/ Peter A. BlybergDate

Peter A. Blyberg, President and Chief Executive OfficerNovember 14, 2005

/s/ Timothy R. MaynardDate

Timothy R. Maynard, Senior Vice President and Chief Financial Officer20Exhibit IndexExhibit No.

Description3.1

Amended and Restated Articles of Incorporation of Union Bankshares Company**3.2

Amended and Restated Bylaws of Union Bankshares Company*10.1

Stock Purchase Plan for the employees of Union Trust Company*10.2

Deferred Compensation Agreements for the Executive Officers of Union Trust Company*10.3

Salary Continuation Agreements for the Executive Officers of Union Trust Company31

Rule 13a-14(a)/15d-14(a) Certifications32

Section 1350 Certifications*
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 Quarterly Report on Form 10-Q, filed with the SEC on May 16, 2005.21