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 September 30, 2005

                                       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 Identification No.)
  Incorporation or Organization)

  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 an accelerated filer. 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 October 31, 2005, there
                       were 1,683,341 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 -September 30,
           2005 (unaudited) and December 31, 2004                            4
        Condensed Consolidated Statements of Income -three and
           nine months ended September 30, 2005 and 2004 (unaudited)         5
        Condensed Consolidated Statements of Cash Flows -nine
           months ended September 30, 2005 and 2004 (unaudited)              6

        Notes to Condensed Consolidated Financial Statements
           (unaudited)                                                       8

Item 2. Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                        11

Item 3. Quantitative and Qualitative Disclosures about Market Risk          19

Item 4. Controls and Procedures                                             20

Part II. OTHER INFORMATION

Item 1. Legal Proceedings                                                   20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds         20

Item 3. Defaults Upon Senior Securities                                     20

Item 4. Submission of Matters to a Vote of Security Holders                 20

Item 5. Other Information                                                   20

Item 6. Exhibits                                                            20

Signatures                                                                  21

                                        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)
                    September 30, 2005 and December 31, 2004
                    ----------------------------------------

<TABLE>
<CAPTION>
                                                                                             September 30     December 31
                                                                                                 2005            2004
                                                                                             ------------     -----------
                                                                                              (unaudited)
<S>                                                                                          <C>              <C>
ASSETS
------
Cash and due from banks                                                                      $      9,686     $     7,284
Interest bearing demand deposits with other banks                                                   1,281           1,181
Money market mutual funds                                                                           1,107             942
Federal funds sold                                                                                      0           2,271
                                                                                             ------------     -----------
       Cash and cash equivalents                                                                   12,074          11,678
Investments in available-for-sale securities (at fair value)                                      151,710         178,655
Investments in held-to-maturity securities (fair values of $156,000 as of
   September 30, 2005 and $220,000 as of December 31, 2004)                                           155             218
Federal Home Loan Bank stock, at cost                                                               5,413           5,413
Loans held-for-sale                                                                                   644             375
Loans, less allowance for loan losses of $2,743,000 as of September 30, 2005 and
   $2,512,000 as of December 31, 2004                                                             206,900         201,978
Investment in real estate                                                                              75              75
Premises and equipment                                                                              6,428           5,934
Goodwill                                                                                            9,509           9,509
Core deposit intangible                                                                             1,699           1,822
Accrued interest receivable                                                                         2,017           2,257
Cash surrender value of life insurance policies                                                     3,385           3,294
Other assets                                                                                        2,260           1,893
                                                                                             ------------     -----------
       Total assets                                                                          $    402,269     $   423,101
                                                                                             ============     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
   Noninterest-bearing                                                                       $     65,475     $    65,017
   Interest-bearing                                                                               218,933         233,825
                                                                                             ------------     -----------
       Total deposits                                                                             284,408         298,842
Federal Home Loan Bank advances                                                                    72,452          79,213
Due to broker                                                                                           0           1,083
Other liabilities                                                                                   2,828           3,263
                                                                                             ------------     -----------
       Total liabilities                                                                          359,688         382,401
                                                                                             ------------     -----------
Stockholders' equity:
   Common stock, par value $.10 per share; authorized 3,000,000
      shares; issued and outstanding, 1,683,341 shares at September 30, 2005 and
      1,682,401 at December 31, 2004                                                                  168             168
   Paid-in capital                                                                                 13,068          13,032
   Retained earnings                                                                               30,729          28,223
   Accumulated other comprehensive loss                                                            (1,384)           (723)
                                                                                             ------------     -----------
       Total stockholders' equity                                                                  42,581          40,700
                                                                                             ------------     -----------
       Total liabilities and stockholders' equity                                            $    402,269     $   423,101
                                                                                             ============     ===========
</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)
                           September 30, 2005 and 2004
                                  (unaudited)

<TABLE>
<CAPTION>
                                                          Nine Months Ended   Three Months Ended
                                                             September 30        September 30
                                                            2005      2004      2005      2004
                                                          -------   -------   -------   --------
<S>                                                       <C>       <C>       <C>       <C>
Interest and dividend income:
   Interest and fees on loans                             $ 9,811   $ 6,700   $ 3,362   $  2,376
   Interest and dividends on securities:
     Taxable                                                3,497     3,253     1,258      1,134
     Tax-exempt                                             1,857     1,614       575        551
   Dividends on equity securities                             158        71        57         25
   Other interest                                              52        37        20         19
                                                          -------   -------   -------   --------
       Total interest and dividend income                  15,375    11,675     5,272      4,105
                                                          -------   -------   -------   --------
Interest expense:
   Interest on deposits                                     2,962     1,876     1,075        660
   Interest on Federal Home Loan Bank advances              2,333     2,056       831        730
                                                          -------   -------   -------   --------
       Total interest expense                               5,295     3,932     1,906      1,390
                                                          -------   -------   -------   --------
       Net interest and dividend income                    10,080     7,743     3,366      2,715
Provision for loan losses                                     270       180        90         60
                                                          -------   -------   -------   --------
       Net interest and dividend income after provision
          for loan losses                                   9,810     7,563     3,276      2,655
                                                          -------   -------   -------   --------
Noninterest income:
   Trust department income                                  1,119     1,007       342        300
   Service charges on deposit accounts                        470       463       167        157
   Gain on sales of available-for-sale securities, net      1,227     1,029       390        387
   Gain on sale of loans held-for-sale                        176       212        40         63
   Other income                                               898       627       336        217
                                                          -------   -------   -------   --------
       Total noninterest income                             3,890     3,338     1,275      1,124
                                                          -------   -------   -------   --------
Noninterest expense:
   Salaries and employee benefits                           5,359     4,142     1,849      1,620
   Occupancy expense                                          524       259       175         96
   Equipment expense                                          557       404       183        123
   Trust department expense                                   276       234        59         55
   Data processing                                            585       465       192        165
   Insurance                                                  111        87        36         29
   Printing and stationery                                    192       153        43         40
   Professional fees                                          221       187        87         72
   Legal expense                                              109        69        41          7
   Amortization of core deposit intangible                    123        56        41         22
   Other expense                                            1,002     1,266       362        756
                                                          -------   -------   -------   --------
       Total noninterest expense                            9,059     7,322     3,068      2,985
                                                          -------   -------   -------   --------
       Income before income taxes                           4,641     3,579     1,483        794
Income taxes provision (benefit)                              873       615       352         (2)
                                                          -------   -------   -------   --------
       Net income                                         $ 3,768   $ 2,964   $ 1,131   $    796
                                                          =======   =======   =======   ========

Earnings per common share                                 $  2.24   $  2.05   $   .67   $    .54
                                                          =======   =======   =======   ========
</TABLE>

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

                                        5

<PAGE>

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

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 -----------------------------------------------
                             (amounts in thousands)
                  Nine months ended September 30, 2005 and 2004
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                 2005        2004
                                                               --------    --------
<S>                                                            <C>         <C>
Cash flows from operating activities:
   Net income                                                  $  3,768    $  2,964
Adjustments to reconcile net income to net cash provided by
   operating activities:
      Amortization of securities, net                               224         231
      Gain on sales of available-for-sale securities, net        (1,227)     (1,029)
      Provision for loan losses                                     270         180
      Change in loans held-for-sale                                 239         119
      Depreciation and amortization                                 390         285
      Amortization of core deposit intangible                       123          60
      Amortization of fair value adjustments, net                    41          (4)
      Decrease (increase) in interest receivable                    236        (371)
      Increase in prepaid expenses                                 (680)       (414)
      Decrease in other assets                                        2       1,009
      Increase (decrease) in taxes payable                          298         (69)
      Increase (decrease) in accrued expenses                        37         (89)
      Increase in interest payable                                    2         100
      (Decrease)/increase in other liabilities                     (157)      1,188
                                                               --------    --------

Net cash provided by operating activities                         3,566       4,160
                                                               --------    --------

Cash flows from investing activities:
   Purchase of Federal Home Loan Bank stock                           0        (351)
   Purchases of available-for-sale securities                   (71,775)    (99,049)
   Proceeds from sales of available-for-sale securities          66,688      80,582
   Proceeds from maturities of available-for-sale securities     30,872      28,200
   Proceeds from maturities of held-to-maturity securities           64           9
   Loan originations and principal collections, net              (5,872)     (7,694)
   Recoveries of loans previously charged-off                        31          17
   Capital expenditures                                            (884)       (772)
   Cash paid to Canaan National Bancorp, Inc. shareholders            0      (6,020)
   Cash and cash equivalents acquired from Canaan National
      Bancorp, Inc. net of expenses paid of $310,000                  0       2,487
                                                               --------    --------

Net cash provided by (used in) investing activities              19,124      (2,591)
                                                               --------    --------
</TABLE>

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

                                        6

<PAGE>

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

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 -----------------------------------------------
                             (amounts in thousands)
                  Nine months ended September 30, 2005 and 2004
                                   (unaudited)
                                   (continued)

<TABLE>
<CAPTION>
                                                                  2005        2004
                                                                --------    --------
<S>                                                             <C>         <C>
Cash flows from financing activities:
   Net (decrease)/increase in demand deposits, NOW and
      savings accounts                                            (4,938)      5,892
   Net decrease in time deposits                                  (9,479)     (1,188)
   Federal Home Loan Bank advances                                15,987      34,295
   Principal payments on advances from Federal Home Loan Bank    (22,651)    (33,561)
   Dividends paid                                                 (1,249)     (1,011)
   Issuance of common stock                                           36          32
                                                                --------    --------

Net cash (used in) provided by financing activities              (22,294)      4,459
                                                                --------    --------

Net increase in cash and cash equivalents                            396       6,028
Cash and cash equivalents at beginning of year                    11,678      12,129
                                                                --------    --------
Cash and cash equivalents at end of period                      $ 12,074    $ 18,157
                                                                ========    ========

Supplemental disclosures:
   Interest paid                                                $  5,293    $  3,832
   Income taxes paid                                                 615         545
</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 nine months ended  September 30,
2005 are not necessarily  indicative of the results that may be expected for the
year ending  December 31, 2005.  These  financial  statements  should be read in
conjunction  with the financial  statements  and notes  thereto  included in the
Company's 2004 Annual Report on Form 10-K.

On September 10, 2004 Canaan  National  Bancorp,  Inc.  merged with and into the
Company.  The merger was accounted for using the purchase  method of accounting.
Accordingly,  the assets acquired and liabilities  assumed have been recorded by
the Company at their fair values at the consummation date.  Financial  statement
amounts  for  Canaan  National  Bancorp,  Inc.  are  included  in the  Company's
consolidated financial statements beginning on the acquisition date.

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 one source
of other  comprehensive  income is the net  unrealized  holding  gain  (loss) on
securities.

Comprehensive Income

<TABLE>
<CAPTION>
                                                      Nine months ended      Three months ended
                                                        September 30,           September 30,
                                                    2005           2004      2005           2004
                                                   -------       --------   -------       --------
                                                   (amounts in thousands)   (amounts in thousands)
<S>                                                <C>           <C>        <C>           <C>
Net income                                         $ 3,768       $  2,964   $ 1,131       $    796
Net change in unrealized holding losses or gains
   on securities during period                        (661)          (200)     (739)         2,928
                                                   -------       --------   -------       --------
Comprehensive income                               $ 3,107       $  2,764   $   392       $  3,724
                                                   =======       ========   =======       ========
</TABLE>

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

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities"  ("FIN  46"),  in an  effort  to  expand  upon and
strengthen  existing  accounting  guidance that  addresses when a company should
include in its financial  statements the assets,  liabilities  and activities of
another entity. In December 2003, the FASB revised  Interpretation  No. 46, also
referred  to as  Interpretation  46 (R) ("FIN  46(R)").  The  objective  of this
interpretation  is not to restrict the use of variable  interest entities but to
improve financial reporting by

                                        8

<PAGE>

companies  involved  with  variable  interest  entities.  Until now, one company
generally has included another entity in its consolidated  financial  statements
only if it controlled the entity through voting interests.  This  interpretation
changes that by requiring a variable  interest  entity to be  consolidated  by a
company  only if that  company is subject to a majority of the risk of loss from
the variable interest  entity's  activities or entitled to receive a majority of
the entity's  residual returns or both. The Company is required to apply FIN 46,
as  revised,  to all  entities  subject to it no later than the end of the first
reporting  period  ending after March 15, 2004.  However,  prior to the required
application of FIN 46, as revised,  the Company shall apply FIN 46 or FIN 46 (R)
to those entities that are considered to be  special-purpose  entities as of the
end of the first fiscal year or interim  period ending after  December 15, 2003.
The  adoption  of this  interpretation  did not have an impact on the  Company's
consolidated financial statements.

In  December  2003,  the FASB issued SFAS No. 132  (revised  2003),  "Employers'
Disclosures about Pensions and Other  Postretirement  Benefits - an amendment of
SFAS No. 87, SFAS No. 88 and SFAS No. 106" ("SFAS No. 132 (revised 2003)"). This
Statement  revises   employers'   disclosures  about  pension  plans  and  other
postretirement  benefit plans. It does not change the measurement or recognition
of those plans  required by SFAS No. 87,  "Employers'  Accounting for Pensions,"
SFAS No. 88, "Employers'  Accounting for Settlements and Curtailments of Defined
Benefit  Pension  Plans  and  for  Termination  Benefits,"  and  SFAS  No.  106,
"Employers'  Accounting for  Postretirement  Benefits Other Than Pensions." This
Statement  retains  the  disclosure  requirements  contained  in SFAS  No.  132,
"Employers' Disclosures About Pensions and Other Postretirement Benefits," which
it  replaces.  It  requires  additional  disclosures  to those  in the  original
Statement 132 about  assets,  obligations,  cash flows and net periodic  benefit
cost of defined benefit  pension plans and other defined benefit  postretirement
plans.  This Statement is effective for financial  statements  with fiscal years
ending after December 15, 2003 and interim periods  beginning after December 15,
2003. Adoption of this Statement did not have a material impact on the Company's
consolidated financial statements.

In December  2003,  the  American  Institute  of  Certified  Public  Accountants
("AICPA") issued Statement of Position 03-3 ("SOP 03-3") "Accounting for Certain
Loans or Debt  Securities  Acquired  in a  Transfer."  SOP 03-3  requires  loans
acquired  through a transfer,  such as a business  combination,  where there are
differences  in expected  cash flows and  contractual  cash flows due in part to
credit  quality,  be recognized at their fair value.  The excess of  contractual
cash flows over  expected cash flows is not to be recognized as an adjustment of
yield,  loss accrual,  or valuation  allowance.  Valuation  allowances cannot be
created nor "carried  over" in the initial  accounting  for loans  acquired in a
transfer on loans subject to SFAS 114,  "Accounting  by Creditors for Impairment
of a Loan." This SOP is effective for loans  acquired in fiscal years  beginning
after December 15, 2004,  with early adoption  encouraged.  The Company does not
believe the  adoption of SOP 03-3 will have a material  impact on the  Company's
financial position or results of operations.

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-Based
Payments"  ("SFAS  123R").  This  Statement  revises  FASB  Statement  No.  123,
"Accounting  for Stock Based  Compensation"  and  supersedes APB Opinion No. 25,
"Accounting  for Stock  Issued to  Employees,"  and its  related  implementation
guidance.  SFAS  123R  requires  that the cost  resulting  from all  share-based
payment transactions be recognized in the consolidated financial statements.  It
establishes   fair  value  as  the  measurement   objective  in  accounting  for
share-based payment arrangements and requires all entities to apply a fair-value
based measurement method in accounting for share-based payment transactions with
employees except for equity  instruments held by employee share ownership plans.
This  Statement  was  effective for the Company as of the beginning of the first
interim or annual  reporting  period that begins after June 15,  2005.  However,
since the issuance of SFAS 123R, the SEC has delayed the effective date. The new
effective  date is January 1, 2006. The Company does not believe the adoption of
this Statement will have a material impact on the Company's  financial  position
or results of operations.

                                        9

<PAGE>

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

The following  summarizes the net periodic  benefit cost for the nine months and
three months ended September 30:

<TABLE>
<CAPTION>
                                               Nine Months Ended        Three Months Ended
                                                 September 30,            September 30,
                                               2005         2004         2005        2004
                                            -----------------------   ---------------------
<S>                                         <C>          <C>          <C>         <C>
Components of net periodic benefit cost:
   Service cost                             $  349,928   $  180,701   $ 116,643   $  81,006
   Interest cost                               218,119      165,401      72,706      83,780
   Expected return on plan assets             (200,709)    (147,336)    (66,903)    (70,016)
   Amortization of:
      Prior service costs                          670       89,842         224      89,396(1)
      Transition obligation                      2,078       53,423         692      49,087(2)
      Actuarial loss                            49,002       45,701      16,334      31,693
                                            ----------   ----------   ---------   ---------
   Net periodic benefit cost                $  419,088   $  387,732   $ 139,696   $ 264,946
                                            ==========   ==========   =========   =========
</TABLE>

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

<TABLE>
<S>                     <C>            <C>            <C>            <C>
Discount rate                   6.00%          6.00%          6.00%          6.00%
Average wage increase   Graded table%  Graded table%  Graded table%  Graded table(3)
Return on plan assets           7.25%          7.25%          7.25%          7.25%
</TABLE>

(1)   Includes a one-time  charge of $89,172 to reconcile  unrecognized  amounts
      with amortization schedule.

(2)   Includes a one-time  charge of $46,921 to reconcile  unrecognized  amounts
      with amortization schedule.

(3)   5% at Age 20  grading  down  to 3% at Age  60  and  beyond  (effective  to
      approximately 3.25% on average).

                                       10

<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  which is the holding  company for Salisbury  Bank and Trust Company
(the "Bank").  The Company's sole subsidiary is the Bank, which has six (6) full
service  offices  including  a Trust  Department  located  in the towns of North
Canaan,  Lakeville,  Salisbury and Sharon,  Connecticut  and Sheffield and South
Egremont,  Massachusetts.  The  Company  and Bank were  formed in 1998 and 1848,
respectively.  In order to provide a strong foundation for building  stockholder
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, 2004.

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

Overview
--------

The  Company's  net income for the nine  months  ended  September  30,  2005 was
$3,768,000,  an  increase  of  $804,000  or 27.13%  over the same  period  ended
September  30,  2004.  Earnings per share also  increased  9.27% and amounted to
$2.24 per share as compared to $2.05  earnings per share for the same period one
year ago. The  improvement  in net income is primarily the result of an increase
in earning assets as a result of the merger with Canaan National  Bancorp,  Inc.
on September 10, 2004.

The  Company's  assets at September  30, 2005 totaled  $402,269,000  compared to
total assets of  $423,101,000  at December  31, 2004.  The decrease is primarily
attributable to a reduction in the securities  portfolio.  During the first nine
months  of 2005  total  loans  outstanding  increased  $5,153,000  or  2.52%  to
$209,643,000.  This  compares  to total loans  outstanding  of  $204,490,000  at
December  31,  2004.  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.  Nonperforming  loans totaled
$1,166,000 at September  30, 2005 as compared to  nonperforming  loans  totaling
$2,267,000  at December 31, 2004.  This  represents a decrease of  $1,101,000 or
48.57%. Deposits at September 30, 2005 totaled $284,408,000 as compared to total
deposits of $298,842,000  at December 31, 2004, a decrease of  $14,434,000.  The
decrease at quarter end is primarily attributable to seasonal cash flows.

As a result of the Company's third quarter financial  performance,  the Board of
Directors declared a third quarter cash dividend of $.25 per common share, which
was paid on October 28, 2005 to shareholders of record as of September 30, 2005.
This is the same as the cash dividend of $.25 per common share that was paid for
the first two  quarters of 2005.  Year-to-date  dividends  total $.75 per common
share for this year. This compares to total  year-to-date  dividends of $.72 per
common share one year ago. The Company's  risk based capital ratios at September
30, 2005,  which include the risk weighted  assets and capital of the Bank, were
14.57% for tier 1 capital and 15.82% for total risk based capital. The Company's
leverage  ratio was 7.87% at September 30, 2005 which  compares to 8.82% for the
corresponding period in 2004.

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 future  credit  losses in the loan  portfolio.  Many factors
influence  the  amount of future  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."

                                       11

<PAGE>

                      NINE MONTHS ENDED SEPTEMBER 30, 2005
               AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2004

Net Interest Income
-------------------

The Company's  earnings are primarily  dependent  upon net interest and dividend
income, and to a lesser extent its noninterest income from its community banking
operations.  Net interest and dividend income is the difference between interest
and dividends  earned on the 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  Department,  service  charges and other fees
related   to   deposit   and  loan   accounts   and  from   gains  on  sales  of
available-for-sale  securities.  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)
Nine Months ended September 30,          2005       2004
                                       --------   --------
Total Interest and Dividend Income
   (financial statements)              $ 15,375   $ 11,675
Tax Equivalent Adjustment                   957        831
                                       --------   --------
Total Interest and Dividend Income
   (on an FTE basis)                     16,332     12,506
Total Interest Expense                    5,295      3,932
                                       --------   --------
Net Interest and Dividend Income-FTE   $ 11,037   $  8,574
                                       ========   ========

Total  interest  and  dividend  income on an FTE basis for the nine months ended
September  30,  2005,  when  compared  to the same  period  in  2004,  increased
$3,826,000 or approximately  30.59%. The increase was primarily  attributable to
an increase in earning assets as well as an economic environment experiencing an
increase in interest rates.

Interest  expense  on  deposits  for the  first  nine  months  of  2005  totaled
$2,962,000,  an  increase of 57.89%  compared  to the same period in 2004.  This
increase is partly the result of the additional  deposit accounts resulting from
the merger with Canaan National Bancorp, Inc. in September of 2004 as well as an
economic  environment of generally higher interest rates.  Although Federal Home
Loan Bank advances  decreased  during the nine month period ended  September 30,
2005,  interest expense on these advances  increased 13.47% to $2,333,000.  This
increase in interest  expense is  attributable  to an  economic  environment  of
increasing  interest rates coupled with  generally  higher rates on Federal Home
Loan  Bank  advances  that  were  acquired  in  connection  with the  previously
mentioned merger. Total interest expense for the nine months ended September 30,
2005 was  $5,295,000,  an increase of  $1,363,000 or 34.66% when compared to the
same period in 2004.

Overall, net interest and dividend income (on an FTE basis) increased $2,463,000
or 28.73% to $11,037,000  for the period ended  September 30, 2005 when compared
to the same period in 2004.

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

Noninterest  income totaled  $3,890,000 for the nine months ended  September 30,
2005. This is an increase of $552,000 or 16.54%  compared to noninterest  income
of $3,338,000 for the nine months ended September 30, 2004. Continuing growth of
the Trust  Department has resulted in an increase in trust income of $112,000 or
11.12% to  $1,119,000  for the first  nine  months of 2005,  which  compares  to
$1,007,000  for the same  period in 2004.  Gains on sales of  available-for-sale
securities  increased  19.24% to  $1,227,000  for the first nine  months of 2005
compared  to the  corresponding  period in 2004.  Other  income is a category of
income primarily consisting of fees associated with transaction  accounts,  fees
related to the origination and servicing of mortgage loans, and gains related to
the sale of  mortgage  loans.  Other  income for the first  nine  months of 2005
totaled  $898,000.  This  represents  an  increase  of  $271,000  or 43.22% when
comparing  total  other  income of  $627,000  for the same  period  in 2004.

                                       12

<PAGE>

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

Noninterest  expense  increased  23.72%  for the  first  nine  months of 2005 as
compared to the same period in 2004. The increases in the  noninterest  expenses
listed in the table below are primarily  attributable  to the merger with Canaan
National Bancorp, Inc. with the exception of the Trust Department expense, which
reflects  additional costs associated with the continuing growth of new accounts
in  the   department.   The  decrease  in  other  expense  is  a  reflection  of
non-recurring  expenses in 2004 relating to the conversion of the Company's core
processing system. The components of noninterest  expense and the changes in the
period were as follows (amounts in thousands):

                                            2005      2004    Change   % Change
-------------------------------------------------------------------------------
Salaries and employee benefits            $ 5,359   $ 4,142  $ 1,217       29.4
Occupancy expense                             524       259      265      102.3
Equipment expense                             557       404      153       37.9
Trust department expense                      276       234       42       18.0
Data processing                               585       465      120       25.8
Insurance                                     111        87       24       27.6
Printing and stationery                       192       153       39       25.5
Professional fees                             221       187       34       18.2
Legal expense                                 109        69       40       58.0
Amortization of core deposit intangible       123        56       67      119.6
Other expense                               1,002     1,266     (264)     (20.9)
                                          -------   -------  -------   --------
   Total noninterest expense              $ 9,059   $ 7,322  $ 1,737      23.72
                                          =======   =======  =======

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

The income tax provision  for the first nine months of 2005 totaled  $873,000 in
comparison  to $615,000 for the same nine month period in 2004.  The increase is
primarily attributable to an increase in taxable income.

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

Overall,  net income totaled  $3,768,000 for the nine months ended September 30,
2005 and represents  earnings of $2.24 per share. This compares to net income of
$2,964,000  for the same period in 2004,  an increase of 27.13% and  compares to
earnings  per  share  of  $2.05  for  the  corresponding  period  in  2004.  The
improvement  in net income is  primarily  the result of an  increase  in earning
assets resulting from the merger with Canaan National Bancorp, Inc.

                      THREE MONTHS ENDED SEPTEMBER 30, 2005
              AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2004

Net Interest 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 September 30,         2005       2004
                                       --------   --------
Total Interest and Dividend Income
   (financial statements)              $  5,272   $  4,105
Tax Equivalent Adjustment                   296        284
                                       --------   --------
   Total Interest and Dividend
      Income (on an FTE basis)            5,568      4,389
Total Interest Expense                    1,906      1,390
                                       --------   --------
Net Interest and Dividend Income-FTE   $  3,662   $  2,999
                                       ========   ========

Total  interest and  dividend  income on an FTE basis for the three months ended
September 30, 2005 increased  $1,179,000 or approximately 26.86% compared to the
same period in 2004. The increase was primarily  attributable  to an increase in
earning assets as well as an economic environment with generally higher interest
rates.

                                       13

<PAGE>

Interest  expense on  deposits  increased  $415,000 or 62.88% for the quarter to
$1,075,000  compared to $660,000 for the same quarter in 2004.  This increase is
primarily the result of an economic  environment of increasing  interest  rates.
Federal Home Loan Bank advances have  increased for the three month period ended
September 30, 2005 when compared to the corresponding  period in 2004.  Interest
expense on these advances  increased $101,000 or 13.84% and totaled $831,000 for
the three months ended September 30, 2005 compared to the  corresponding  period
in 2004.  Total interest  expense for the three months ending September 30, 2005
was $1,906,000 compared to total interest expense for the same period in 2004 of
$1,390,000,  an increase of $516,000 or 37.12%. 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 that were acquired in
connection with the merger of Canaan National Bancorp, Inc. with the Company.

Overall,  net interest and dividend income (on an FTE basis) increased  $663,000
or 22.11% to $3,662,000 for the three month period ended September 30, 2005 when
compared to the corresponding period in 2004.

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

Noninterest  income totaled  $1,275,000 for the three months ended September 30,
2005 as compared to $1,124,000 for the three months ended September 30, 2004, an
increase of $151,000 or 13.43%.  Continuing  growth of the Trust  Department has
resulted in an increase in income of $42,000 or 14.0% to $342,000  for the third
quarter  of 2005  compared  to the  same  period  in  2004.  Gains  on  sales of
available-for-sale  securities totaled $390,000 for the third quarter of 2005 as
compared to $387,000  for the  corresponding  period in 2004.  This  increase is
primarily  attributable to  management's  efforts to maximize the spreads in the
portfolio.  During the  quarter  there  were  opportunities  in the market  that
resulted in taking gains on sales while  increasing  the yields in the portfolio
at the same time.

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

Noninterest  expense  totaled  $3,068,000  for  the  three  month  period  ended
September  30, 2005 as compared to  $2,985,000  for the same period in 2004,  an
increase  of $83,000 or 2.8%.  The  increases  listed in the table below are all
primarily  attributable  to the merger with Canaan  National  Bancorp,  Inc. The
decrease in other expense is attributable to  non-recurring  merger expenses and
conversion  related expenses in 2004. The components of noninterest  expense and
the changes in the period were as follows (amounts in thousands):

                                            2005      2004    Change   % Change
-------------------------------------------------------------------------------
Salaries and employee benefits            $ 1,849   $ 1,620   $  229      14.1
Occupancy expense                             175        96       79      82.3
Equipment expense                             183       123       60      48.8
Trust department expense                       59        55        4       7.3
Data processing                               192       165       27      16.4
Insurance                                      36        29        7      24.1
Printing and stationery                        43        40        3       8.0
Professional fees                              87        72       15      20.8
Legal expense                                  41         7       34     485.7
Amortization of core deposit intangible        41        22       19      86.4
Other expense                                 362       756     (394)    (52.1)
                                          -------   -------   ------    ------
   Total noninterest expense              $ 3,068   $ 2,985   $   83       2.8
                                          =======   =======   ======

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

The income tax  provision  for the three month period ended  September  30, 2005
totaled  $352,000  in  comparison  to a tax benefit of $2,000 for the same three
month period in 2004.  This is the result of an increase in taxable  income.  In
addition,  the Company formed a passive investment company. The structure of the
company  creates tax advantages  that result in a reduction of tax liability for
the Company.

                                       14

<PAGE>

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

Overall,  net income totaled $1,131,000 for the three months ended September 30,
2005 and represents  earnings of $.67 per share.  This compares to net income of
$796,000  for the same  period in 2004,  an  increase  of  $335,000 or 42.1% and
compares to earnings per share of $.54 for the corresponding period in 2004. The
improvement  in net income is  primarily  the result of an  increase  in earning
assets, and is partially offset by the current economic condition of compressing
interest spreads.

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

Total assets at September 30, 2005 were  $402,269,000,  compared to $423,101,000
at December 31, 2004, a decrease of 4.92%.  The decrease is primarily the result
of maturities, sales and calls of available-for-sale securities in the portfolio
during the period ended September 30, 2005.

Securities
----------

During the nine months ended  September  30,  2005,  the  securities  portfolio,
including  Federal  Home Loan Bank  stock,  decreased  $27,008,000  or 14.66% to
$157,278,000 from $184,286,000 at December 31, 2004. The decrease is primarily a
reflection of portfolio  securities being sold and called during the period with
the  proceeds  being  used  to  fund  loan  growth  and  reduce  total  advances
outstanding at the Federal Home Loan Bank of Boston.

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.

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 September 30, 2005, the unrealized loss net of tax was $1,384,000.
This compares to an unrealized loss net of tax of $723,000 at December 31, 2004.
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.

Lending
-------

New  business  development  during the first nine months of 2005  coupled with a
small increase in loan demand resulted in an increase in total loans outstanding
to $209,643,000 at September 30, 2005. This compares to total loans  outstanding
of  $204,490,000  at December 31,  2004.  This is an increase of  $5,153,000  or
2.52%.  Competition  for loans  remains  aggressive  in the Bank's  market area,
especially in the residential mortgage loan market.

The following table  represents the composition of the loan portfolio  comparing
September 30, 2005 to December 31, 2004:

                                         September 30, 2005   December 31, 2004
                                         ------------------   -----------------
                                                 (amounts in thousands)
Commercial, financial and agricultural   $           15,418   $          15,127
Real Estate-construction and land
   development                                       16,584              14,290
Real Estate-residential                             130,646             130,414
Real Estate-commercial                               38,613              35,487
Consumer                                              8,352               9,122
Other                                                    40                  69
                                         ------------------   -----------------
                                                    209,653             204,509
Unearned income                                         (10)                (19)
Allowance for loan losses                            (2,743)             (2,512)
                                         ------------------   -----------------
Net Loans                                $          206,900   $         201,978
                                         ==================   =================

                                       15

<PAGE>

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

Net loans at September 30, 2005 increased 2.44% to $206,900,000 when compared to
net  loans  of  $201,978,000  at  December  31,  2004.  At  September  30,  2005
approximately  89% of the Bank's  loan  portfolio  was  related  to real  estate
products.  The  concentration  remained  consistent as approximately  88% of the
portfolio  was  related  to real  estate at  December  31,  2004.  There were no
material changes in the composition of the loan portfolio during this period.

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 for loan losses
through charges to earnings.  The loan loss provision for the nine-month  period
ended  September  30, 2005 was $270,000  compared to $180,000 in the  comparable
period of 2004.

The Bank evaluates the adequacy of the allowance on a monthly 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  September 30, 2005.
Such evaluations are based on assessments of credit quality and "risk rating" of
loans by senior management, which are submitted to the Bank's Board of Directors
for  approval.  Loans are  initially  risk  rated when  originated.  If there is
deterioration in the credit, the risk rating is adjusted accordingly.

A loan is considered  impaired when, based on current information and events, it
is probable  that the Bank will be unable to collect the  scheduled  payments of
principal or interest  when due according to the  contractual  terms of the loan
agreement.  Factors  considered by management in determining  impairment include
payment status,  collateral  value, and the probability of collecting  scheduled
principal and interest  payments when due. Loans that  experience  insignificant
payment delays and payment shortfalls  generally are not classified as impaired.
Management  determines the significance of payment delays and payment shortfalls
on a case-by-case  basis,  taking into  consideration  all of the  circumstances
surrounding  the loan and the borrower,  including the length of the delay,  the
reasons for the delay, the borrower's  prior payment records,  and the amount of
the  shortfall in relation to the  principal  and interest  owed.  Impairment is
measured on a loan by loan basis for commercial and construction loans by either
the  present  value of  expected  future  cash  flows  discounted  at the loan's
effective  interest rate, the loan's  obtainable market price, or the fair value
of the collateral if the loan is collateral  dependent.  Large groups of smaller
balance   homogeneous   loans  are   collectively   evaluated  for   impairment.
Accordingly,  the Bank does not  separately  identify  individual  consumer  and
residential loans for impairment disclosures.

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.

The credit card delinquency and loss history is 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. There have been no reallocations within the allowance during the
nine months ended September 30, 2005.

At  September  30,  2005,  the  allowance  for loan losses  totaled  $2,743,000,
representing 235.25% of nonperforming loans, which totaled $1,166,000, and 1.31%
of total loans of $209,653,000. This compares to an allowance for loan losses of
$2,512,000,   representing   110.81%  of  nonperforming   loans,  which  totaled
$2,267,000,  and 1.23% of total loans of $204,509,000 at December 31, 2004. This
decrease   results  from  the  payoff  of  loans   previously   categorized   as
nonperforming  loans at  December  31,  2004.  A total of  $69,000 of loans were
charged off by the Bank during the nine months ended  September 30, 2005.  These
charged-off loans consisted  primarily of consumer loans. This compares to loans
charged off during the nine month period ended  September 30, 2004 which totaled
$38,000. A total of $31,000 of previously charged-off loans was recovered during
the nine month period ended  September 30, 2005.  Recoveries for the same period
in 2004 totaled $17,000.  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

                                       16

<PAGE>

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.

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 September 30, 2005 and December 31, 2004:

                              September 30, 2005   December 31, 2004
                              ------------------   -----------------
                                      (amounts in thousands)

Demand                        $           65,475   $          65,017
NOW                                       25,505              29,569
Money Market                              55,659              49,206
Savings                                   55,804              63,588
Time                                      81,965              91,462
                              ------------------   -----------------
Total Deposits                $          284,408   $         298,842
                              ==================   =================

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 September  30, 2005,  the Company had  $72,452,000  in
outstanding  advances from the Federal Home Loan Bank compared to $79,213,000 at
December 31, 2004.  Management  expects that it will  continue  this strategy of
supplementing  deposit  growth with  advances  from the Federal  Home Loan Bank.

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 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 September
30, 2005, the Company was slightly asset  sensitive  (positive  gap). This would
suggest that during a period of rising interest rates, the Company would be in a
better  position  to invest in higher  yielding  assets  resulting  in growth in
interest income.  To the contrary,  during a period of falling interest rates, a
positive  gap would  result  in a  decrease  in  interest  income.  The level of
interest  rate risk at September  30, 2005 is within the limits  approved by the
Board of Directors.

                                       17

<PAGE>

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 September  30, 2005 the Company
had  approximately  $53,483,000  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 September 30, 2005, the Company had $42,581,000 in stockholders'  equity,  an
increase  of 4.62% when  compared  to December  31,  2004  stockholders'  equity
totaling  $40,700,000.  Earnings for the nine-month  period ended  September 30,
2005  totaled   $3,768,000.   Market  conditions  resulted  in  an  increase  in
accumulated other comprehensive loss to $1,384,000 from $723,000 at December 31,
2004.

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  three
quarterly  dividends  resulting  in a decrease  in capital  of  $1,262,000.  The
Company  issued 940 new shares of common  stock under the terms of the  Director
Stock  Retainer Plan that  resulted in an increase in capital of $36,000.  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 deposit 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 September 30, 2005,  the Company had a risk-based
capital  ratio of 15.82%  compared to 12.13% at December 31, 2004.  At September
30, 2005, the Company's Tier 1 Leverage Capital was 14.57% as compared to 11.12%
at December 31, 2004. 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.

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 an influence in recent years,  inflation  could impact  earnings in
future periods.

                                       18

<PAGE>

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 2004.

                        Item 4. Controls and Procedures.

The Company's Chief  Executive  Officer and Chief  Financial  Officer  concluded
that,  based  upon  an  evaluation  as of  September  30,  2005,  the  Company's
disclosure  controls and procedures (as defined in Exchange Act Rules 13a-15(e))
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
accumulated,  recorded,  processed,  summarized,  reported and  communicated  to
management,  including the Company's Chief Executive  Office and Chief Financial
Officer,  as  appropriate,   and  allows  timely  decisions  regarding  required
disclosures within the time periods specified in the SEC rules and forms. During
the nine month period ended September 30, 2005 there were no material 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.

                                       19

<PAGE>

                           Part II - OTHER INFORMATION

Item 1. - Legal Proceedings. Not applicable

Item 2. - Unregistered  Sales of  Equity  Securities  and Use of  Proceeds.
          Not applicable

Item 3. - Defaults Upon Senior Securities. Not applicable

Item 4. - Submission of Matters to a Vote of Security Holders. Not applicable

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.

                                       20

<PAGE>

                            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: November 14, 2005                         by: /s/ John F. Perotti
      -----------------                             -----------------------
                                                    John F. Perotti
                                                    Chief Executive Officer

Date: November 14, 2005                         by: /s/ John F. Foley
      -----------------                             -----------------------
                                                    John F. Foley
                                                    Chief Financial Officer

                                       21