SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007
                               -------------

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from____________to____________

                         Commission file number 0-24751
                                                -------

                             Salisbury Bancorp, Inc.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

          Connecticut                                        06-1514263
-------------------------------                         -------------------
(State or Other Jurisdiction of                           (I.R.S. Employer
 Incorporation or Organization)                         Identification No.)

 5 Bissell Street   Lakeville   Connecticut                    06039
---------------------------------------------------------------------------
  (Address of principal executive offices)                   (Zip Code)

  Registrants Telephone Number, Including Area Code (860) 435-9801
                                                    --------------

      (Former Name, Former Address and Former Fiscal Year, if Changed Since
                                  Last Report)

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 company (as defined in
Rule 12b-2 of the Exchange Act).

                                    Yes [ ] No [X]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

    Indicate the number of shares outstanding of each of the issuer's classes
               of common stock, as of the latest practicable date:
         As of August 10, 2007, there were 1,685,021 shares outstanding.
                                           -----------------------------

<PAGE>

                     SALISBURY BANCORP, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS

                                                                            Page

Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements:                                                3

         Condensed Consolidated Balance Sheets -June 30, 2007
            (unaudited) and December 31, 2006                                 4

         Condensed Consolidated Statements of Income -six and three
            months ended June 30, 2007 and 2006 (unaudited)                   5

         Condensed Consolidated Statements of Cash Flows -six months
            ended June 30, 2007 and 2006 (unaudited)                          6

         Notes to Condensed Consolidated Financial Statements
            (unaudited)                                                       8

Item 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                              10

Item 3.  Quantitative and Qualitative Disclosures about Market Risk          18

Item 4.  Controls and Procedures                                             19

Part II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                   19

Item 1A. Risk Factors                                                        19

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds         19

Item 3.  Defaults Upon Senior Securities                                     19

Item 4.  Submission of Matters to a Vote of Security Holders                 19

Item 5.  Other Information                                                   19

Item 6.  Exhibits                                                            19

Signatures                                                                   19

                                        2

<PAGE>

                         Part I -- FINANCIAL INFORMATION
                          Item 1. Financial Statements

                                        3

<PAGE>

                     SALISBURY BANCORP, INC. AND SUBSIDIARY
                     --------------------------------------

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      -------------------------------------
                  (amounts in thousands, except per share data)
                       June 30, 2007 and December 31, 2006
                       -----------------------------------

<TABLE>
<CAPTION>
                                                                                     June 30,    December 31,
                                                                                      2007           2006
                                                                                   -----------   ------------
                                                                                   (unaudited)
<S>                                                                                 <C>          <C>
ASSETS
------
Cash and due from banks                                                             $  5,925       $  8,988
Interest-bearing demand deposits with other banks                                      1,025            569
Money market mutual funds                                                              1,293          1,200
Federal funds sold                                                                       200          1,000
                                                                                    --------       --------
            Cash and cash equivalents                                                  8,443         11,757
Investments in available-for-sale securities (at fair value)                         150,848        156,493
Investments in held-to-maturity securities (fair values of $73 as of
   June 30, 2007 and $75 as of December 31, 2006)                                         73             75
Federal Home Loan Bank stock, at cost                                                  5,083          4,664
Loans held-for-sale                                                                        0            304
Loans, less allowance for loan losses of $2,452 as of June 30, 2007
   and $2,474 as of December 31, 2006                                                251,487        252,464
Investment in real estate                                                                 75             75
Premises and equipment                                                                 6,626          6,135
Goodwill                                                                               9,509          9,509
Core deposit intangible                                                                1,411          1,493
Accrued interest receivable                                                            2,505          2,484
Cash surrender value of life insurance policies                                        3,615          3,555
Other assets                                                                           2,778          1,331
                                                                                    --------       --------
            Total assets                                                            $442,453       $450,339
                                                                                    ========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits:
   Noninterest-bearing                                                              $ 66,554       $ 70,502
   Interest-bearing                                                                  241,999        243,084
                                                                                    --------       --------
            Total deposits                                                           308,553        313,586
Federal Home Loan Bank advances                                                       87,217         87,093
Due to broker                                                                              0          1,580
Other liabilities                                                                      4,072          3,731
                                                                                    --------       --------
            Total liabilities                                                        399,842        405,990
                                                                                    --------       --------
Shareholders' equity:
   Common stock, par value $.10 per share; authorized 3,000,000 shares; issued
      and outstanding, 1,685,021 shares at June 30, 2007 and  1,684,181
      shares at December 31, 2006                                                        169            168
   Paid-in capital                                                                    13,130         13,100
   Retained earnings                                                                  34,576         33,603
   Accumulated other comprehensive loss                                               (5,264)        (2,522)
                                                                                    --------       --------
            Total shareholders' equity                                                42,611         44,349
                                                                                    --------       --------
            Total liabilities and shareholders' equity                              $442,453       $450,339
                                                                                    ========       ========
</TABLE>

        The accompanying notes are an integral part of these consolidated
                              financial statements.

                                        4

<PAGE>

                     SALISBURY BANCORP, INC. AND SUBSIDIARY
                     --------------------------------------

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                   -------------------------------------------

                  (amounts in thousands, except per share data)
                             June 30, 2007 and 2006
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       Six Months Ended   Three Months Ended
                                                                           June 30,            June30,
                                                                        2007      2006     2007        2006
                                                                      -------   -------   ------      ------
<S>                                                                   <C>       <C>       <C>         <C>
Interest and dividend income:
   Interest and fees on loans                                         $ 8,736   $ 7,471   $4,348      $3,843
   Interest on debt securities:
      Taxable                                                           2,757     2,562    1,326       1,294
      Tax-exempt                                                        1,111     1,057      585         562
   Dividends on equity securities                                         159       130       81          70
   Other interest                                                          34        29       20          20
                                                                      -------   -------   ------      ------
            Total interest and dividend income                         12,797    11,249    6,360       5,789
                                                                      -------   -------   ------      ------
Interest expense:
   Interest on deposits                                                 4,022     2,957    1,992       1,619
   Interest on Federal Home Loan Bank advances                          2,046     1,741    1,005         912
                                                                      -------   -------   ------      ------
         Total interest expense                                         6,068     4,698    2,997       2,531
                                                                      -------   -------   ------      ------
         Net interest and dividend income                               6,729     6,551    3,363       3,258
                                                                      -------   -------   ------      ------
Noninterest income:
   Trust and investment services income                                 1,033       935      503         450
   Loan commissions                                                        13        45        9          31
   Service charges on deposit accounts                                    361       359      181         182
   Gain (loss) on sales of available-for-sale securities, net             180        61       63         (13)
   Gain on sales of loans held-for-sale                                   167       230      102         168
   Other income                                                           485       397      257         183
                                                                      -------   -------   ------      ------
         Total noninterest income                                       2,239     2,027    1,115       1,001
                                                                      -------   -------   ------      ------
Noninterest expense:
   Salaries and employee benefits                                       3,832     3,410    1,880       1,707
   Occupancy expense                                                      380       352      189         176
   Equipment expense                                                      370       381      179         194
   Data processing                                                        638       610      301         327
   Insurance                                                               74        63       36          32
   Printing and stationery                                                144       129       80          76
   Professional fees                                                      339       180      174          90
   Legal expense                                                          126        63       71          38
   Amortization of core deposit intangible                                 82        82       41          41
   Other expense                                                          639       559      354         311
                                                                      -------   -------   ------      ------
         Total noninterest expense                                      6,624     5,829    3,305       2,992
                                                                      -------   -------   ------      ------
         Income before income taxes                                     2,344     2,749    1,173       1,267
Income taxes                                                              461       596      224         261
                                                                      -------   -------   ------      ------
         Net income                                                   $ 1,883   $ 2,153   $  949      $1,006
                                                                      =======   =======   ======      ======

Earnings per common share                                             $  1.12   $  1.28   $  .56      $  .60
                                                                      =======   =======   ======      ======
Dividends per common outstanding                                      $   .54   $   .52   $  .27      $  .26
                                                                      =======   =======   ======      ======
</TABLE>

   The accompanying notes are an integral part of these consolidated financial
                                   statements.

                                        5

<PAGE>

                     SALISBURY BANCORP, INC. AND SUBSIDIARY
                     --------------------------------------

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 -----------------------------------------------
                             (amounts in thousands)
                     Six months ended June 30, 2007 and 2006
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                             2007        2006
                                                                           --------    --------
<S>                                                                        <C>         <C>
Cash flows from operating activities:
   Net income                                                              $  1,883    $  2,153
Adjustments to reconcile net income to net cash provided by
      operating activities:
      Amortization of securities, net                                            46          67
      Gain on sales of available-for-sale securities, net                      (180)        (61)
      Change in loans held-for-sale                                             304        (117)
      Change in deferred loan costs, net                                        (56)          0
      Net decrease in mortgage servicing rights                                  53          16
      Depreciation and amortization                                             250         272
      Amortization of core deposit intangible                                    82          82
      Accretion of fair value adjustment on deposits/borrowings                 (65)        (69)
      Amortization of fair value adjustment on loans                             44          63
      Decrease in interest receivable                                           (31)        (28)
      Deferred tax benefit                                                     (433)       (187)
      Decrease in taxes receivable                                              317         280
      Decrease (increase) in prepaid expenses                                    42        (344)
      Increase in cash surrender value of insurance policies                    (60)        (60)
      Increase in income tax payable                                            157           0
      Decrease in other assets                                                  (15)          0
      Decrease in accrued expenses                                             (178)       (682)
      Increase in interest payable                                              109          43
      Increase in other liabilities                                             270          92
      Issuance of shares for Directors' fees                                     30          32
      Change in unearned income on loans                                          4         (54)
                                                                           --------    --------

Net cash provided by operating activities                                     2,573       1,498
                                                                           --------    --------
Cash flows from investing activities:
   (Purchase)/Redemption of Federal Home Loan Bank stock                       (419)        860
   Purchases of available-for-sale securities                               (37,394)    (33,644)
   Proceeds from sales of available-for-sale securities                      37,414      27,163
   Proceeds from maturities of available-for-sale securities                      0       4,900
   Proceeds from maturities of held-to-maturity securities                        2          70
   Loan originations and principal collections, net                           2,831     (12,381)
   Purchase of loans                                                         (1,886)          0
   Recoveries of loans previously charged-off                                    41          22
   Capital expenditures                                                        (739)       (125)
                                                                           --------    --------

Net cash used in investing activities                                          (150)    (13,135)
                                                                           --------    --------
</TABLE>

                                        6

<PAGE>

                     SALISBURY BANCORP, INC. AND SUBSIDIARY
                     --------------------------------------

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 -----------------------------------------------
                             (amounts in thousands)
                     Six months ended June 30, 2007 and 2006
                                   (unaudited)
                                   (continued)

<TABLE>
<CAPTION>
                                                                     2007        2006
                                                                   --------    --------
<S>                                                                <C>         <C>
Cash flows from financing activities:
   Net decrease in demand deposits, NOW and
      savings accounts                                               (5,073)     (7,443)
   Net increase in time deposits                                         40      18,609
   Federal Home Loan Bank advances                                   10,000      10,000
   Principal payments on advances from Federal Home Loan Bank       (11,208)     (9,943)
   Net change in short term advances from Federal Home Loan Bank      1,397        (594)
   Dividends paid                                                      (893)       (859)
                                                                   --------    --------

Net cash (used in) provided by financing activities                  (5,737)      9,770
                                                                   --------    --------

Net decrease in cash and cash equivalents                            (3,314)     (1,867)
Cash and cash equivalents at beginning of year                       11,757      10,204
                                                                   --------    --------
Cash and cash equivalents at end of period                         $  8,443    $  8,337
                                                                   ========    ========

Supplemental disclosures:
   Interest paid                                                   $  5,798    $  4,724
   Income taxes paid                                                    420         503
</TABLE>

   The accompanying notes are an integral part of these condensed consolidated
                              financial statements.

                                        7

<PAGE>

                     SALISBURY BANCORP, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 1 - BASIS OF PRESENTATION
------------------------------

The  accompanying   condensed  consolidated  interim  financial  statements  are
unaudited and include the accounts of Salisbury  Bancorp,  Inc. (the "Company"),
its wholly owned subsidiary  Salisbury Bank and Trust Company (the "Bank"),  and
the  Bank's   subsidiaries,   S.B.T.  Realty,  Inc.  and  SBT  Mortgage  Service
Corporation  (the  "PIC")  formed  in April  2004.  The  consolidated  financial
statements have been prepared in accordance with accounting principles generally
accepted  in  the  United  States  of  America  (GAAP)  for  interim   financial
information and with the instructions to SEC Form 10-Q. Accordingly, they do not
include  all  the  information  and  footnotes  required  by GAAP  for  complete
financial  statements.  All significant  intercompany  accounts and transactions
have been eliminated in the consolidation.  These financial  statements reflect,
in the  opinion  of  Management,  all  adjustments,  consisting  of only  normal
recurring  adjustments,  necessary  for a fair  presentation  of  the  Company's
financial  position and the results of its operations and its cash flows for the
periods presented.  Operating results for the six months ended June 30, 2007 are
not  necessarily  indicative  of the results  that may be expected  for the year
ending  December  31,  2007.  These  financial  statements  should  be  read  in
conjunction  with the financial  statements  and notes  thereto  included in the
Company's 2006 Annual Report on Form 10-K.

The year-end  condensed  balance  sheet data was derived from audited  financial
statements, but does not include all disclosures required by GAAP.

NOTE 2 - COMPREHENSIVE INCOME
-----------------------------

Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  130,  "Reporting
Comprehensive  Income,"  establishes  standards for disclosure of  comprehensive
income  which  includes  net income and any  changes  in equity  from  non-owner
sources  that are not recorded in the income  statement  (such as changes in the
net  unrealized  gains  (losses)  on  securities).   The  purpose  of  reporting
comprehensive income is to report a measure of all changes in equity that result
from recognized  transactions and other economic events of the period other than
transactions  with owners in their  capacity as owners.  The  Company's  primary
source of other  comprehensive  income is the net unrealized holding gain (loss)
on securities.

Comprehensive(loss) income

<TABLE>
<CAPTION>
                                                                 Six months ended       Three months ended
                                                                     June 30,                 June 30,
                                                                2007         2006        2007        2006
                                                             ----------   ---------   ----------   ---------
                                                             (amounts in thousands)   (amounts in thousands)
<S>                                                          <C>          <C>         <C>          <C>
Net income                                                      $ 1,883     $ 2,153      $   949     $ 1,006
Net change in unrealized holding (losses) or
   gains on securities and minimum pension
   liability adjustment, net of tax during period.               (2,742)     (1,747)      (2,356)     (2,060)
                                                                -------     -------      -------     -------
Comprehensive (loss) income                                     $  (859)    $   406      $(1,407)    $(1,054)
                                                                =======     =======      =======     =======
</TABLE>

NOTE 3 - IMPACT OF NEW ACCOUNTING STANDARDS
-------------------------------------------

In February 2006, the Financial  Accounting  Standards  Board (FASB) issued SFAS
No. 155,  "Accounting for Certain Hybrid Instruments" (SFAS 155), which permits,
but does not require,  fair value accounting for any hybrid financial instrument
that contains an embedded derivative that would otherwise require bifurcation in
accordance  with SFAS 133. The  statement  also  subjects  beneficial  interests
issued by  securitization  vehicles to the  requirements  of SFAS No.  133.  The
statement is  effective  as of January 1, 2007.  The adoption of SFAS 155 is not
expected to have a material  impact on the  Company's  financial  condition  and
results of operations.

In March  2006,  the FASB  issued  SFAS No. 156,  Accounting  for  Servicing  of
Financial  Assets- an amendment of FASB Statement No. 140 ("SFAS No. 156"). SFAS
156 requires any entity to  recognize a servicing  asset or servicing  liability
each time it undertakes  an obligation to service a financial  asset by entering
into a servicing contract in specific  situations.  Additionally,  the servicing
asset or servicing liability shall be initially measured at fair value; however,
an  entity  may elect the  "amortization  method"  or "fair  value  method"  for
subsequent  balance  sheet  reporting  periods.  SFAS 156 is  effective as of an
entity's first fiscal year beginning after September 15, 2006. Early adoption is
permitted as of the  beginning of an entity's  fiscal year,  provided the entity
has not yet issued financial statements, including

                                        8

<PAGE>

interim  financial  statements,  for any period of that fiscal year. The Company
does not expect the adoption of this statement to have a material  impact on its
financial condition, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS
157).  SFAS 157 defines fair value,  establishes a framework for measuring  fair
value  under  generally  accepted  accounting  principles  (GAAP)  and  enhances
disclosures about fair value  measurements.  SFAS 157 retains the exchange price
notion and clarifies that the exchange price is the price that would be received
for an asset or paid to  transfer  a  liability  (an exit  price) in an  orderly
transaction  between market  participants on the  measurement  date. SFAS 157 is
effective  for the  Company's  consolidated  financial  statements  for the year
beginning on January 1, 2008, with earlier adoption permitted.  The Company does
not expect  the  adoption  of this  statement  to have a material  impact on its
financial condition and results of operations.

In September  2006,  the FASB issued SFAS No. 158,  "Employer's  Accounting  for
Defined  Benefit Pension and other  Postretirement  Plans - an amendment of FASB
Statements  No. 87, 88, 106 and 132 (R)" ("SFAS 158").  SFAS 158 requires 1) the
recognition of an asset or liability for the over-funded or under-funded  status
of a defined  benefit plan, 2) the recognition of actuarial gains and losses and
prior service costs and credits in other comprehensive income, 3) measurement of
plan assets and benefit  obligations  as of the  employer's  balance sheet date,
rather than at interim measurement dates as currently allowed, and 4) disclosure
of  additional  information  concerning  actuarial  gains and  losses  and prior
service  costs  and  credits  recognized  in other  comprehensive  income.  This
statement is effective for financial  statements  with fiscal years ending after
December 15, 2006.  The Company does not believe the adoption of this  Statement
will have a material  impact on the  Company's  financial  position or result of
operations.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial  Assets and  Financial  Liabilities  including  an  amendment  of FASB
Statement  No. 115" (SFAS 159).  SFAS 159 permits  entities to choose to measure
many  financial  instruments  and certain other items at fair value that are not
currently  required to be measured at fair value.  The  objective  is to improve
financial  reporting  by providing  entities  with the  opportunity  to mitigate
volatility  in  reported   earnings  caused  by  measuring  related  assets  and
liabilities  differently  without  having  to  apply  complex  hedge  accounting
provisions.   This  Statement  also  establishes   presentation  and  disclosure
requirements  designed to facilitate  comparisons  between  entities that choose
different  measurement  attributes for similar types of assets and  liabilities.
The new  standard is effective at the  beginning  of the  Company's  fiscal year
beginning  January  1,  2008,  and early  application  may be elected in certain
circumstances.  The Company is currently  evaluating the impact the new standard
is expected to have on its financial position.

NOTE 4 - DEFINED BENEFIT PENSION PLAN
-------------------------------------

The  following  summarizes  the net periodic  benefit cost for the six and three
months ended June 30:

<TABLE>
<CAPTION>
                                                            Six Months Ended           Three Months Ended
                                                                June 30,                    June 30,
                                                            2007        2006            2007        2006
                                                         ---------------------        --------------------
<S>                                                      <C>         <C>              <C>         <C>
Components of net periodic benefit cost:
   Service cost                                          $ 218,870   $ 242,865        $ 104,780   $121,432
   Interest cost                                           171,011     163,496           82,034     81,748
   Expected return on plan assets                         (184,471)   (142,833)        (107,307)   (71,416)
   Amortization of:
      Prior service costs                                      447         447              224        224
      Actuarial loss                                        34,118      48,263           12,945     24,131
                                                         ---------   ---------        ---------   --------
   Net periodic benefit cost                             $ 239,975   $ 312,238        $  92,676   $156,119
                                                         =========   =========        =========   ========

The following  actuarial  weighted average  assumptions were used in calculating
net periodic benefit cost:

Discount rate                                                 6.00%       6.00%            6.00%       6.00%
Average wage increase                                 Graded table*  Graded table* Graded table*  Graded table*
Return on plan assets                                         7.50%       7.50             7.50%       7.50%
</TABLE>

* 5% at age 20 grading down to 3% at age 60 and beyond (roughly 3.25% on
average).

                                        9

<PAGE>

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

Business
--------

The following  provides  Management's  comments on the  financial  condition and
results of operations of Salisbury Bancorp, Inc. (the "Company"),  a Connecticut
corporation  that is the holding  company for  Salisbury  Bank and Trust Company
(the "Bank").  The Company's  sole  subsidiary is the Bank,  which has seven (7)
full service offices including a Trust and Investment  Services  Division.  Such
offices are  located in the towns of Canaan,  Lakeville,  Salisbury  and Sharon,
Connecticut and Sheffield and South Egremont,  Massachusetts.  In addition,  the
Bank opened a full service branch office in Dover Plains,  New York on August 1,
2007. The Company and Bank were formed in 1998 and 1848, respectively.  In order
to provide a strong  foundation  for building  shareholder  value and  servicing
customers,  the Company remains  committed to investing in the technological and
human resources necessary to developing new personalized  financial products and
services  to meet the  needs of  customers.  This  discussion  should be read in
conjunction  with Salisbury  Bancorp,  Inc.'s Annual Report on Form 10-K for the
year ended December 31, 2006.

RESULTS OF OPERATIONS
---------------------

Overview
--------

The Company's net income for the six months ended June 30, 2007 was  $1,883,000.
This  compares to earnings of $2,153,000  for the same period in 2006.  Earnings
per share for the six months ended June 30, 2007  totaled  $1.12 per share which
compared to earnings  per share of $1.28 for the  corresponding  period in 2006.
The decrease in earnings is primarily attributable to an increase in noninterest
expense,  specifically,  additional  staff to support new marketing  strategies,
growth and our branch  expansion  into New York State.  The Company's  assets at
June 30, 2007 totaled  $442,453,000  compared to total assets of $450,339,000 at
December 31, 2006.  Non-performing  loans  totaled  $894,000 at June 30, 2007 or
..35% of total loans outstanding.  This compares to non-performing loans totaling
$886,000 at December 31, 2006.  The Bank continues to monitor the quality of the
loan  portfolio to ensure that loan quality will not be sacrificed for growth or
otherwise  compromise the Company's  objectives.  The portfolio does not include
any sub-prime loans. The Bank's investment  portfolio is of high quality and has
no sub-prime mortgage  collateral in any securities owned.  Deposits at June 30,
2007  totaled  $308,553,000  as compared to total  deposits of  $313,586,000  at
December 31, 2006. The decrease is primarily the result of a $5,000,000 Brokered
CD that matured in March 2007 and was not replaced. The Bank and the Company are
"well capitalized". The Company's total risk based capital ratio was 15.67%; the
Tier 1 capital ratio was 14.69% and the leverage  ratio was 8.51%.  The Board of
Directors  declared a second  quarter  cash  dividend of $.27 per common  share,
which was paid on July 31, 2007 to  shareholders  of record as of June 30, 2007.
This  compared to a cash dividend of $.26 per common share that was paid for the
second  quarter of 2006.  Year-to-date  dividends  total  $.54 per common  share
outstanding for this year. This compares to total year-to-date dividends of $.52
per common share one year ago.

Critical Accounting Estimates
-----------------------------

In preparing the Company's financial statements,  management selects and applies
numerous accounting policies.  In applying these policies,  management must make
estimates and  assumptions.  The accounting  policy that is most  susceptible to
critical  estimates  and  assumptions  is the  allowance  for loan  losses.  The
determination  of an  appropriate  provision  is based on an  estimation  of the
probable amount of credit losses in the loan portfolio.  Many factors  influence
the  amount  of   estimated   loan   losses,   relating  to  both  the  specific
characteristics of the loan portfolio and general economic conditions nationally
and locally.  While management  carefully considers these factors in determining
the amount of the allowance for loan losses, future adjustments may be necessary
due to  changed  conditions,  which  could have an  adverse  impact on  reported
earnings in the future. See "Provisions and Allowance for Loan Losses."

Net Interest and Dividend Income
--------------------------------

The Company's  earnings are primarily  dependent  upon net interest and dividend
income,  and to a lesser extent  non-interest  income. Net interest and dividend
income is the difference between interest and dividends earned on the

                                       10

<PAGE>

loan and  securities  portfolio  and interest paid on deposits and advances from
the Federal Home Loan Bank.  Non-interest  income is primarily  derived from the
trust and investment  services division,  service charges and other fees related
to deposit and loan accounts and income from gains in  securities  transactions.
For the following discussion, net interest and dividend income is presented on a
fully  taxable-equivalent  ("FTE") basis. FTE interest income restates  reported
interest  income on tax exempt  securities as if such interest were taxed at the
Company's federal tax rate of 34% for all periods presented.

(amounts in thousands)
Six Months Ended June 30,                                 2007      2006
                                                       -------   -------
Total Interest and Dividend Income
(financial statements)                                 $12,797   $11,249
Tax Equivalent Adjustment                                  572       545
                                                       -------   -------
Total Interest and Dividend Income
  (on an FTE basis)                                     13,369    11,794
Total Interest Expense                                   6,068     4,698
                                                       -------   -------
Net Interest and Dividend Income-FTE                   $ 7,301   $ 7,096
                                                       =======   =======

Total interest and dividend  income on a FTE basis for the six months ended June
30, 2007,  when  compared to the same period in 2006,  increased  $1,575,000  or
13.35%.  The  increase was  primarily  attributable  to an economic  environment
experiencing an increase in interest rates when comparing the two periods.

Interest  expense  on  deposits  for  the  first  six  months  of  2007  totaled
$4,022,000, an increase of $1,065,000 or 36.02% which compared to $2,957,000 for
the same period in 2006.  This  increase  reflects an  economic  environment  of
generally higher interest rates. Although the Bank's volume of Federal Home Loan
Bank  advances  outstanding  at June 30, 2007  remained  comparable to the level
outstanding  at December  31,  2006,  during the six month period ended June 30,
2007,  interest expense on these advances  increased 17.52% to $2,046,000.  This
increase in interest  expense is attributable  to the increased  monthly average
balance of overnight  borrowings  throughout the first six months of 2007. Total
interest  expense  for the six months  ended June 30,  2007 was  $6,068,000,  an
increase of $1,370,000 or 29.16% when compared to the same period in 2006.

Overall,  net interest and dividend income (on an FTE basis) increased  $205,000
or 2.88% to  $7,301,000  for the period ended June 30, 2007 when compared to the
same period in 2006.

Noninterest Income
------------------

Noninterest  income  totaled  $2,239,000 for the six months ended June 30, 2007.
This is an  increase of $212,000  or 10.46%  compared to  noninterest  income of
$2,027,000  for  the  six  months  ended  June  30,  2006.  Gains  on  sales  of
available-for-sale  securities  increased  195.08% to $180,000 for the first six
months of 2007 compared to the  corresponding  period in 2006.  This increase is
primarily  the  result of the  movement  of market  rates  during  the  quarter.
Continuing growth of the trust and investment  services division has resulted in
an increase in trust income of $98,000 or 10.48% to $1,033,000 for the first six
months of 2007,  which  compares to $935,000 for the same period in 2006.  Other
income has remained  consistent  when  comparing the first six months of 2007 to
the same  period in 2006.  This  category of income  primarily  consists of fees
associated  with  transaction  accounts  and in  addition,  fees  related to the
origination  and  servicing of mortgage  loans and gains  related to the sale of
mortgage loans.

                                       11

<PAGE>

Noninterest Expense
-------------------

Noninterest  expense  increased  13.64%  for the  first  six  months  of 2007 as
compared  to the same  period  in 2006.  Although  there are some  increases  in
noninterest  expenses that are attributable to normal volumes of business,  much
of the overall  increases in the noninterest  expenses listed in the table below
are primarily  attributable to additional staffing,  and expenses related to the
establishment of a new branch in New York state,  which commenced  operations on
August 1, 2007.  The  components of  noninterest  expense and the changes in the
period were as follows (amounts in thousands):

                                           2007     2006    Change   % Change
-----------------------------------------------------------------------------
Salaries and employee benefits            $3,832   $3,410    $422      12.38
Occupancy expense                            380      352      28       7.95
Equipment expense                            370      381     (11)     (2.89)
Data processing                              638      610      28       4.59
Insurance                                     74       63      11      17.46
Printing and stationery                      144      129      15      11.63
Professional fees                            339      180     159      88.33
Legal expense                                126       63      63     100.00
Amortization of core deposit intangible       82       82       0          0
Other expense                                639      559      80      14.31
                                          ------   ------    ----     ------
   Total noninterest expense              $6,624   $5,829    $795      13.64
                                          ======   ======    ====

Income Taxes
------------

The income tax  provision  for the first six months of 2007 totaled  $461,000 in
comparison  to $596,000 for the same six month period in 2006.  Pretax income in
2007 was $2,344,000 and included tax exempt income totaling  $1,111,000.  Pretax
income  in  2006  was  $2,749,000  and  included  tax  exempt  income   totaling
$1,057,000.  The decrease in the income tax provision is primarily  attributable
to a decrease in taxable income.

Net Income
----------

Overall,  net income  totaled  $1,883,000 for the six months ended June 30, 2007
and represents earnings of $1.12 per average share outstanding. This compares to
net income of  $2,153,000 or $1.28 per average  share  outstanding  for the same
period in 2006.

                        THREE MONTHS ENDED JUNE 30, 2007
                 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 2006

Net Interest and Dividend Income
--------------------------------

For the following discussion, net interest and dividend income is presented on a
fully  taxable-equivalent  ("FTE") basis. FTE interest income restates  reported
interest  income on tax exempt loans and  securities  as if such  interest  were
taxed at the Company's federal tax rate of 34% for all periods presented.

(amounts in thousands)
Three Months Ended June 30                                       2007      2006
                                                               ------    ------
Total Interest and Dividend Income
(financial statements)                                        $ 6,360   $ 5,789
Tax Equivalent Adjustment                                         301       290
                                                              -------   -------
   Total Interest and Dividend Income (on an FTE basis)         6,661     6,079
Total Interest (Expense)                                       (2,997)   (2,531)
                                                              -------   -------
Net Interest and Dividend Income-FTE                          $ 3,664   $ 3,548
                                                              =======   =======

Total  interest and  dividend  income on an FTE basis for the three months ended
June 30, 2007  increased  $582,000 or 9.57% compared to the same period in 2006.
The  increase  was  primarily  attributable  to  an  economic  environment  with
generally higher interest rates. Interest expense on deposits increased $373,000
or 23.04% for the  quarter to  $1,992,000  compared to  $1,619,000  for the same
quarter  in  2006.  This  increase  is  primarily  the  result  of  an  economic
environment of increasing interest rates coupled with an increased deposit base.
The Bank's volume of

                                       12

<PAGE>

Federal  Home Loan Bank  advances  has  increased  during the three month period
ended June 30, 2007 when compared to the corresponding  period in 2006. Interest
expense on these advances has increased $93,000 or 10.20% and totaled $1,005,000
for  the  three  months  ended  June  30,  2007  compared  to  $912,000  for the
corresponding period in 2006. Total interest expense for the three months ending
June 30, 2007 was  $2,997,000  compared to total  interest  expense for the same
period in 2006 of $2,531,000,  an increase of $466,000 or 18.41%.  This increase
is a reflection  of an economic  environment  of rising  interest  rates and the
result of generally  higher  interest  rates on Federal Home Loan Bank advances.
Overall, net interest and dividend income (on a FTE basis) increased $116,000 or
3.27% to $3,664,000 for the three month period ended June 30, 2007 when compared
to the corresponding period in 2006.

Noninterest Income
------------------

Noninterest  income totaled  $1,115,000 for the three months ended June 30, 2007
as  compared  to  $1,001,000  for the three  months  ended June 30,  2006.  This
increase of $114,000 or 11.39% is primarily  attributable  to  increased  income
generated by an increase from gains in securities  transactions  and an increase
in other  income.  Income  from  the  trust  and  investment  services  division
increased  $53,000 or 11.78% to $503,000 for the second quarter of 2007 compared
to the same period in 2006. This is primarily the result of continued  growth in
assets under management. Gains on sales of available-for-sale securities totaled
$63,000  for the second  quarter of 2007.  This  compares  to losses on sales of
available-for-sale  securities of $13,000 for the corresponding  period in 2006.
This increase is primarily the result of the movement of market rates during the
quarter.  Other noninterest  income is primarily related to fees associated with
transaction  accounts  and fees  related to the  origination  and  servicing  of
mortgage loans and gains related to the sale of mortgage  loans.  The volumes of
these  transactions  are driven  primarily by consumer  demand which  results in
variances from quarter to quarter.  Year-to-date volumes however, are consistent
when comparing 2007 to 2006.

Noninterest Expense
-------------------

Noninterest expense totaled $3,305,000 for the three month period ended June 30,
2007 as  compared  to  $2,992,000  for the same  period in 2006,  an increase of
$313,000 or 10.46%.  Although there are some increases in non-interest  expenses
that are  attributable  to  normal  volumes  of  business,  much of the  overall
increases in the  non-interest  expenses listed in the table below are primarily
attributable to additional  staffing,  and expenses related to the establishment
of a new  branch in New York  state,  which  commenced  operations  on August 1,
2007.The components of noninterest expense and the changes in the period were as
follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                     2007              2006            Change         % Change
-----------------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>              <C>            <C>
Salaries and employee benefits                      $1,880            $1,707            $173            10.13
Occupancy expense                                      189               176              13             7.39
Equipment expense                                      179               194             (15)           (7.73)
Data processing                                        301               327             (26)           (7.95)
Insurance                                               36                32               4            12.50
Printing and stationery                                 80                76               4             5.26
Professional fees                                      174                90              84            93.33
Legal expense                                           71                38              33            86.84
Amortization of core deposit intangible                 41                41               0                0
Other expense                                          354               311              43            13.83
                                                    ------            ------            ----
   Total non-interest expense                       $3,305            $2,992            $313            10.46
                                                    ======            ======            ====
</TABLE>

Income Taxes
------------

The income tax  provision for the three month period ended June 30, 2007 totaled
$224,000 in comparison to $261,000 for the same three month period in 2006.  The
decrease in the income tax  provision is  attributable  to a decrease in taxable
income.

Net Income
----------

Overall,  net income  totaled  $949,000 for the three months ended June 30, 2007
and  represents  earnings  of $.56 per average  share  outstanding  share.  This
compares to net income of $1,006,000  for the same period in 2006, a decrease of
$57,000 or 5.67% and compares to earnings per share of $.60 for the 2006 period.

                                       13

<PAGE>

FINANCIAL CONDITION
-------------------

Total assets at June 30, 2007 were  $442,453,000,  compared to  $450,339,000  at
December 31, 2006, a decrease of 1.75%.  The decrease is primarily the result of
a decrease in earning assets during the period.

Securities
----------

The make up of the  securities  portfolio is diversified  among U.S.  Government
sponsored agencies,  mortgage-backed  securities and securities issued by states
of the United States and political subdivisions of the states. The portfolio has
no sub-prime mortgage collateral in any of its owned securities.  During the six
months ended June 30, 2007, the  securities  portfolio,  including  Federal Home
Loan Bank stock, decreased $5,228,000 or 3.24% to $156,004,000 from $161,232,000
at December 31, 2006.

Securities   are   classified   in   the   portfolio   as   either    securities
available-for-sale  or securities  held-to-maturity.  Almost all  securities are
classified as available-for-sale.  The securities reported as available-for-sale
are stated at fair value in the financial statements of the Company.  Unrealized
holding gains and losses on  available-for-sale  securities  (accumulated  other
comprehensive  income/loss) are not included in earnings,  but are reported as a
net  amount  (less  expected  tax) in a  separate  component  of  capital  until
realized. At June 30, 2007, the unrealized loss net of tax was $3,955,000.  This
compares to an  unrealized  loss net of tax of  $1,190,000 at December 31, 2006.
The unrealized  losses in these securities are attributable to changes in market
interest  rates.  Management  deems  the  securities  that are  currently  in an
unrealized loss position as not other than temporarily impaired.  The securities
reported as securities held-to-maturity are stated at amortized cost.

The decrease in the portfolio is also a reflection of securities  being sold and
called  during the period with the  proceeds  being used to fund loan demand and
seasonal cash flow of transaction accounts.

Lending
-------

Total loans outstanding of $253,714,000 at June 30, 2007 compares to total loans
outstanding of $254,773,000 at December 31, 2006. This decrease of $1,059,000 or
..42%  includes a January 2007  maturity of  $12,000,000  in Term Federal  Funds,
excluding this maturity,  there is an increase in loans of $10,941,000 or 4.29%.
Competition for loans remains  aggressive in the Bank's market area, however new
business  development  coupled  with an increase in loan demand  resulted in the
increase.

The following table  represents the composition of the loan portfolio  comparing
June 30, 2007 to December 31, 2006:

                                            June 30, 2007     December 31, 2006
                                            -------------     -----------------
                                                   (amounts in thousands)
Commercial, financial and agricultural         $ 17,740            $ 16,465
Real estate-construction and land
   development                                   22,650              21,169
Real estate-residential                         153,152             145,395
Real estate-commercial                           50,968              50,859
Consumer                                          8,095               8,816
Term federal funds                                    0              12,000
Other                                             1,109                  69
                                               --------            --------
                                                253,714             254,773
Deferred costs, net                                 225                 168
Unearned income                                      (1)                 (3)
Allowance for loan losses                        (2,452)             (2,474)
                                               --------            --------
Net Loans                                      $251,486            $252,464
                                               ========            ========

Provisions and Allowance for Loan Losses
----------------------------------------

Credit risk is inherent in the business of extending  loans.  The Bank  monitors
the quality of the  portfolio to ensure that loan quality will not be sacrificed
for growth or otherwise  compromise the Bank's objectives.  Because of this risk
associated with extending  loans, the Bank maintains an allowance or reserve for
loan and lease losses through

                                       14

<PAGE>

charges to  earnings.  There was no  provision  expense  for loan losses for the
first six month period of 2007 or the comparable period in 2006.

The Bank  evaluates the adequacy of the allowance no less  frequently  than on a
quarterly basis. No material changes have been made in the estimation methods or
assumptions  that the Bank uses in making this  determination  during the period
ended June 30, 2007. Such evaluations are based on assessments of credit quality
and "risk rating" of loans by senior management, which is reviewed by the Bank's
Loan  Committee  on a  regular  basis.  Loans  are  initially  risk  rated  when
originated. If there is deterioration in the credit, the risk rating is adjusted
accordingly.

The allowance also includes a component  resulting  from the  application of the
measurement  criteria of Statements of Financial  Accounting  Standards No. 114,
Accounting by Creditors for  Impairment of a Loan ("SFAS 114").  Impaired  loans
receive  individual  evaluation of the allowance  necessary on a monthly  basis.
Loans to be considered  for  impairment are defined in the Bank's Loan Policy as
commercial  loans with balances  outstanding of $100,000 or more and residential
real  estate  mortgages  with  balances  of  $300,000  or more.  Such  loans are
considered  impaired  when it is  probable  that  the  Bank  will not be able to
collect all principal and interest due according to the terms of the note.

Any such commercial loan and/or residential mortgage will be considered impaired
under any of the following circumstances:

      1.    Non-accrual status;

      2.    Loans over 90 days delinquent;

      3.    Troubled debt restructures consummated after December 31, 1994;

      4.    Loans  classified as "doubtful",  meaning that they have weaknesses,
            which  make  collection  or  liquidation  in full,  on the  basis of
            currently   existing   facts,   conditions,   and   values,   highly
            questionable and improbable.

The  individual  allowance for any impaired loan is based upon the present value
of expected future cash flows discounted at the loan's  effective  interest rate
or the  fair  value  of the  collateral  if the  loan is  collateral  dependent.
Specifically  identifiable and quantifiable  losses are immediately  charged off
against the allowance.

In addition, a risk of loss factor is applied in evaluating  categories of loans
generally as part of the  periodic  analysis of the  Allowance  for Loan Losses.
This  analysis  reviews the  allocations  of the  different  categories of loans
within the portfolio  and it considers  historical  loan losses and  delinquency
figures as well as any recent delinquency trends.

Credit card loans are separately  evaluated and given a special loan loss factor
because   management   recognizes  the  higher  risk  involved  in  such  loans.
Concentrations  of credit and local  economic  factors are also  evaluated  on a
periodic basis.  Historical average net losses by loan type are examined as well
as  trends by type.  The  Bank's  loan mix over the same  period of time is also
analyzed. A loan loss allocation is made for each type of loan multiplied by the
loan mix percentage for each loan type to produce a weighted average factor.

Nonperforming  loans,  which include all loans that are on a non-accrual  status
along  with  loans  that are 90 days or more  past due and still  accruing,  are
closely monitored by management.  At June 30, 2007,  nonperforming loans totaled
$894,000 or 0.35% of total loans outstanding of $253,714,000.  The allowance for
loan losses totaled  $2,452,000  representing  274.27% of  nonperforming  loans.
Nonperforming  loans  totaled  $964,000 or 0.38% of total loans  outstanding  of
$254,773,000  at December  31,  2006.  The  allowance  for loan  losses  totaled
$2,474,000 at December 31, 2006 and represented 256.64% of nonperforming  loans.
A total of $63,000 of loans were  charged  off by the Bank during the six months
ended June 30, 2007.  These  charged-off  loans consisted  primarily of consumer
loans. This compares to loans charged off during the six month period ended June
30, 2006 which totaled  $68,000.  A total of $41,000 of  previously  charged-off
loans was recovered during the six month period ended June 30, 2007.  Recoveries
for the same period in 2006 totaled  $22,000.  While  management  estimates loan
losses using the best  available  information,  no assurances  can be given that
future  additions to the  allowance  will not be  necessary  based on changes in
economic  and  real  estate  market  conditions,  further  information  obtained
regarding  problem loans,  identification  of additional  problem loans or other
factors.  Additionally,  future  additions to the  allowance may be necessary to
maintain adequate coverage ratios.

                                       15

<PAGE>

Deposits
--------

The Company offers a variety of deposit  accounts with a range of interest rates
and terms.  The following  table  illustrates  the  composition of the Company's
deposits at June 30, 2007 and December 31, 2006:

                                            June 30, 2007    December 31, 2006
                                           ---------------   ------------------
                                                  (amounts in thousands)

Demand                                        $ 66,554            $ 70,502
NOW                                             26,764              21,461
Money Market                                    51,763              57,015
Savings                                         43,071              44,246
Time                                           120,401             120,362
                                              --------            --------
   Total Deposits                             $308,553            $313,586
                                              ========            ========

Deposits constitute the principal funding source of the Company's assets.

Borrowings
----------

The Company  utilizes  advances  from the Federal  Home Loan Bank as part of its
operating  strategy to supplement  deposit  growth and fund its asset growth,  a
strategy that is designed to increase  interest income.  These advances are made
pursuant to various credit programs, each of which has its own interest rate and
range  of  maturities.  At  June  30,  2007,  the  Company  had  $87,217,000  in
outstanding  advances from the Federal Home Loan Bank compared to $87,093,000 at
December 31, 2006.  Management  expects that it will  continue  this strategy of
supplementing deposit growth with advances from the Federal Home Loan Bank.

Off-Balance Sheet Arrangements

In the normal course of business the Company  enters into certain  relationships
characterized as lending related off-balance sheet  arrangements.  These lending
commitments  have various  terms and are designed to  accommodate  the financial
needs  of  consumers,   businesses  and  other  entities.  Many  of  these  loan
commitments  have fixed expiration  dates or other  termination  clauses and may
require payment of a fee. Since many of these commitments are expected to expire
without being funded, the total commitment amounts do not necessarily  represent
future liquidity requirements.

Loan  commitments  have credit  risk  essentially  the same as that  involved in
extending  loans to  customers.  They are  subject  to  normal  credit  approval
procedures and policies. Collateral is obtained based on management's assessment
of the customer's  credit.  The accompanying  table summarizes the Company's off
balance sheet  lending-related  financial  instruments by remaining  maturity at
June 30, 2007:

<TABLE>
<CAPTION>
June 30, 2007
(amounts in thousands)

By remaining maturity                     Less than 1 year         1-3 years            4-5 years      After 5 years      Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                      <C>                  <C>            <C>               <C>
Off balance sheet lending-related
Financial Instruments
   Residential real estate related             $ 6,704               $   24                $48            $24,772        $31,548
   Commercial related                            7,203                1,373                                 7,635         16,211
   Consumer related                                                                                         7,865          7,865

   Standby letters of credit                                             13                                                   13
-----------------------------------------------------------------------------------------------------------------------------------
   Total                                       $13,907               $1,410                $48            $40,272        $55,637
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Interest Rate Risk
------------------

Interest rate risk is the most  significant  market risk  affecting the Company.
Interest  rate risk is defined as an exposure  to a movement  in interest  rates
that could have an adverse effect on net interest income. Net interest income is
sensitive to interest rate risk to the degree that interest bearing  liabilities
mature or reprice on a different  basis than  earning  assets.  In an attempt to
manage its  exposure  to  changes  in  interest  rates,  the  Bank's  assets and
liabilities are managed in accordance with policies  established and reviewed by
the Bank's Board of Directors.  The Bank's Asset/Liability  Management Committee
monitors asset and deposit levels, developments and trends in

                                       16

<PAGE>

interest rates,  liquidity and capital.  One of the primary financial objectives
is to manage  interest  rate risk and  control  the  sensitivity  of earnings to
changes in interest rates in order to prudently  improve net interest income and
manage the maturities and interest rate sensitivities of assets and liabilities.

To  quantify  the extent of these  risks,  both in its current  position  and in
actions it might take in the future,  interest rate risk is monitored  using gap
analysis which identifies the differences  between assets and liabilities  which
mature or reprice during specific time frames and model simulation which is used
to "rate shock" the Company's assets and liability  balances to measure how much
of the Company's net interest income is "at risk" from sudden rate changes.

An interest rate sensitivity gap is defined as the difference between the amount
of  interest-earning  assets maturing or repricing within a specific time period
and the amount of interest-bearing liabilities maturing or repricing within that
same  period.  A gap is  considered  positive  when the amount of interest  rate
sensitive  assets exceeds the amount of interest rate sensitive  liabilities.  A
gap  is  considered   negative  when  the  amount  of  interest  rate  sensitive
liabilities  exceeds the amount of interest rate sensitive  assets.  At June 30,
2007, the Company maintains a liability sensitive (negative gap) position.  This
would  suggest that during a period of  declining  interest  rates,  the Company
would be in a better position to increase net interest income.  To the contrary,
during a period of rising  interest  rates,  a  negative  gap would  result in a
decrease in interest income. The level of interest rate risk at June 30, 2007 is
within the limits approved by the Board of Directors.

Liquidity
---------

Liquidity is the ability to raise funds on a timely basis at an acceptable  cost
in  order  to meet  cash  needs.  Adequate  liquidity  is  necessary  to  handle
fluctuations in deposit levels,  to provide for customers'  credit needs, and to
take advantage of investment  opportunities  as they are presented.  The Company
manages  liquidity  primarily  with readily  marketable  investment  securities,
deposits and loan repayments. The Company's subsidiary, the Bank, is a member of
the Federal Home Loan Bank of Boston.  This enhances the  liquidity  position by
providing  a source of  available  borrowings.  At June 30, 2007 the Company had
approximately  $55,637,000 in loan commitments outstanding.  Management believes
that the current  level of  liquidity is ample to meet the  Company's  needs for
both the present and foreseeable future.

Capital
-------

At June 30,  2007,  the Company  had  $42,611,000  in  shareholders'  equity,  a
decrease  of 3.92% when  compared  to December  31,  2006  shareholders'  equity
totaling  $44,349,000.  Several  components  contributed  to  the  change  since
December 31, 2006. Earnings for the six-month period ended June 30, 2007 totaled
$1,883,000.    Securities   in   the   portfolio    that   are   classified   as
available-for-sale  are adjusted to fair value monthly and the unrealized losses
or gains are not  included in  earnings,  but are reported as a net amount (less
expected  tax)  as a  separate  component  of  capital  until  realized.  Market
fluctuations  of fair value of the  securities  portfolio  for the period ending
June  30,  2007  resulted  in  other  comprehensive  loss  net of  tax  totaling
$2,765,000.  The  application  of SFAS No. 158, as defined in Note 3 resulted in
comprehensive  income net of tax of $23,000 for the six month  period ended June
30, 2007.

A review and analysis of securities has determined that there has been no credit
deterioration and that the unrealized loss on securities  available-for-sale  is
due to the current interest rate environment and management deems the securities
to be not  other  than  temporarily  impaired.  The  Company  has  declared  two
quarterly dividends resulting in a decrease in capital of $910,000.  The Company
issued  840 new shares of common  stock  under the terms of the  Director  Stock
Retainer Plan that resulted in an increase in capital of $31,000.  Under current
regulatory  definitions,  the  Company and the Bank are  considered  to be "well
capitalized"  for  capital  adequacy  purposes.  As a result,  the Bank pays the
lowest federal  deposit  insurance  premiums  possible.  One primary  measure of
capital  adequacy for  regulatory  purposes is based on the ratio of  risk-based
capital to risk-weighted assets. This method of measuring capital adequacy helps
to establish capital  requirements that are more sensitive to the differences in
risk  associated with various assets.  It takes into account  off-balance  sheet
exposure in assessing capital adequacy and it minimizes disincentives to holding
liquid,  low-risk  assets.  At June 30, 2007, the Company had a total risk based
capital  ratio of 15.67%  compared to 15.28% at December 31,  2006.  Maintaining
strong capital is essential to bank safety and soundness. However, the effective
management of capital resources requires generating attractive returns on equity
to build value for shareholders while maintaining  appropriate levels of capital
to fund growth,  meet  regulatory  requirements  and be consistent  with prudent
industry  practices.  Management believes that the capital levels of the Company
and Bank are adequate to continue to meet the  foreseeable  capital needs of the
institutions.

                                       17

<PAGE>

Impact of Inflation and Changing Prices
---------------------------------------

The Company's  consolidated financial statements are prepared in conformity with
generally  accepted  accounting  principles  which  require the  measurement  of
financial condition and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money, over time, due to
inflation.  Unlike most  industrial  companies,  virtually all of the assets and
liabilities  of the Company are monetary and as a result,  interest rates have a
greater  impact on the  Company's  performance  than do the  effects  of general
levels of inflation, although interest rates do not necessarily move in the same
direction  or with the same  magnitude  as the  prices  of goods  and  services.
Although not a material factor in recent years,  inflation could impact earnings
in future periods.

Forward Looking Statements
--------------------------

This Form 10-Q and future  filings made by the Company with the  Securities  and
Exchange Commission,  as well as other filings,  reports and press releases made
or issued by the Company and the Bank,  and oral  statements  made by  executive
officers  of the Company and the Bank,  may include  forward-looking  statements
relating to such matters as:

(a)   assumptions  concerning future economic and business  conditions and their
      effect on the  economy in general  and on the markets in which the Company
      and the Bank do business; and

(b)   expectations for revenues and earnings for the Company and Bank.

Such forward-looking  statements are based on assumptions rather than historical
or current facts and, therefore,  are inherently  uncertain and subject to risk.
For those  statements,  the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Act of
1995.

The Company  notes that a variety of factors  could cause the actual  results or
experience  to  differ   materially  from  the  anticipated   results  or  other
expectations described or implied by such forward-looking  statements. The risks
and uncertainties  that may effect the operation,  performance,  development and
results of the Company's and Bank's business include the following:

(a)   the risk of adverse changes in business conditions in the banking industry
      generally and in the specific markets in which the Bank operates;

(b)   changes in the  legislative  and regulatory  environment  that  negatively
      impact the Company and Bank through increased operating expenses;

(c)   increased competition from other financial and non-financial institutions;

(d)   the impact of technological advances; and

(e)   other risks  detailed from time to time in the Company's  filings with the
      Securities and Exchange Commission.

Such  developments  could have an adverse impact on the Company's and the Bank's
financial position and results of operations.

       Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The main  components  of market risk for the Company are interest  rate risk and
liquidity  risk.  The Company  manages  interest  rate risk and  liquidity  risk
through an ALCO Committee  comprised of outside Directors and senior management.
The committee monitors compliance with the Bank's  Asset/Liability  Policy which
provides  guidelines  to analyze and manage the interest rate  sensitivity  gap,
which is the  difference  between  the  amount  of  assets  and the  amounts  of
liabilities  which  mature  or  reprice  during  specific  time  frames.   Model
simulation is used to measure earnings  volatility under both rising and falling
rate  scenarios.  Please refer to Interest Rate Risk and Liquidity under Item 2.
The Company's  interest rate risk and liquidity  position has not  significantly
changed from year end 2006.

                                       18

<PAGE>

                        Item 4. Controls and Procedures.

The Company's Chief  Executive  Officer and Chief  Financial  Officer  concluded
that,  based upon an  evaluation as of June 30, 2007,  the Company's  disclosure
controls and procedures are effective to ensure that information  required to be
disclosed  by the  Company  in  reports  that it  files  or  submits  under  the
Securities Exchange Act of 1934 is recorded, processed,  summarized and reported
within the time  periods  specified  in the SEC rules and forms.  During the six
month period ended June 30, 2007 there were no changes in the Company's internal
control over financial  reporting that  materially  affected,  or are reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.

                           Part II - OTHER INFORMATION

Item 1. - Legal Proceedings.  Not applicable

Item 1A. Risk Factors.  Not applicable

Item  2. -  Unregistered  Sales  of  Equity  Securities  and  Use  of  Proceeds.
Unregistered  Sales of Equity  Securities and Use of Proceeds.  On May 10, 2007,
the  Company  issued  840  shares of  common  stock to  members  of its Board of
Directors  under the terms of the Director  Stock Retainer Plan. The shares were
issued in a private transaction in reliance upon the exemption from registration
provided by Section  4(2) of the  Securities  Act of 1933,  as amended.  No cash
consideration was received upon issuance of the shares.

Item 3. - Defaults Upon Senior Securities.  Not applicable

Item 4. - Submission of Matters to a Vote of Security  Holders.  Incorporated by
reference from Form 8-K filed May 12, 2007.

Item 5. - Other Information.  Not applicable

Item 6. - Exhibits

            11  Computation of Earnings per Share.

            31.1-Rule 13a-14(a)/15d-14(a) Certification.

            31.2-Rule 13a-14(a)/15d-14(a) Certification.

            32 - Section 1350 Certifications

                             SALISBURY BANCORP, INC.

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

                                                  Salisbury Bancorp, Inc.

         Date: August 14, 2007                    by: /s/ John F. Perotti
              ----------------                        -------------------
                                                      John F. Perotti
                                                      Chief Executive Officer

         Date: August 14, 2007                    by: /s/ John F. Foley
              ----------------                        -----------------
                                                      John F. Foley
                                                      Chief Financial Officer

                                       19