----

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| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|-----------------------------------------------------------------------------------------|

| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------|

| Connecticut                              | 06-1514263                 |
|------------------------------------------|----------------------------|
| (State or other jurisdiction             | (I.R.S. Employer           |
| of incorporation or organization)        |   Identification No.) |
| 5 Bissell Street, Lakeville, CT          | 06039                      |
| (Address of principal executive offices) | (Zip code)                 |

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TABLE 

|                                     |                                                                                             | Page   |
|------------------------------------------|--------------------------------------------------------------------------------------------------|--------|
|                                     |                                                                                             |   |
|   PART I FINANCIAL INFORMATION |
|                                     |                                                                                             |   |
| Item 1.                                  | Financial Statements:                                                                            |   |
|                                     |                                                                                             |   |
|                                     | Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009 | 3      |
|                                     |                                                                                             |   |
|                                     | Consolidated Statements of Income for the three and nine month periods                           | 4      |
|                                     | ended September 30, 2010 and September 30, 2009 (unaudited)                                      |   |
|                                     |                                                                                             |   |
|                                     | Consolidated Statements of Changes in Shareholders' Equity for the nine month                    | 5      |
|                                     | periods ended September 30, 2010 and September 30, 2009 (unaudited)                         |   |
|                                     |                                                                                             |   |
|                                     | Consolidated Statements of Cash Flows for the nine month periods ended                           | 6      |
|                                     | September 30, 2010 and September 30, 2009 (unaudited)                                       |   |
|                                     |                                                                                             |   |
|                                     | Notes to Consolidated Financial Statements                                                       | 8      |
|                                     |                                                                                             |   |
| Item 2.                                  | Management's Discussion and Analysis of Financial Condition                                      | 18     |
|                                     | and Results of Operations                                                                        |   |
|                                     |                                                                                             |   |
| Item 3.                                  | Quantitative and Qualitative Disclosures About Market Risk                                  | 31     |
|                                     |                                                                                             |   |
| Item 4.                                  | Controls and Procedures                                                                          | 32     |
|                                     |                                                                                             |   |
| PART II Other Information                |
|                                     |                                                                                             |   |
| Item 1.                                  | Legal Proceedings                                                                                | 32     |
| Item 1A.                                 | Risk Factors                                                                                     | 33     |
| Item 2.                                  | Unregistered Sales of Equity Securities and Use of Proceeds                                      | 33     |
| Item 3.                                  | Defaults upon Senior Securities                                                                  | 33     |
| Item 4.                                  | Reserved                                                                                         | 33     |
| Item 5.                                  | Other Information                                                                                | 33     |
| Item 6.                                  | Exhibits                                                                                         | 33     |

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Table of Contents

Salisbury 

| (in thousands, except per share amounts) September 30, 2010 unaudited and December 31, 2009 audited |   | September 30,2010 |    |   | December 31,2009 |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------|---------|--------|------------------|--------|
| ASSETS                                                                                              |   |              |    |   |             |   |
| Cash and due from banks                                                                             |   | $                 | 6,119   |   |             | $      | 6,248 |   |
| Interest bearing demand deposits with other banks                                                   |   |              | 40,238  |   |             |   | 37,050 |   |
| Total cash and cash equivalents                                                                     |   |              | 46,357  |   |             |   | 43,298 |   |
| Interest bearing time deposits with other banks                                                     |   |              | 5,000   |   |             |   | 5,000 |   |
| Securities                                                                                          |   |              |    |   |             |   |   |   |
| Available-for-sale at fair value                                                                    |   |              | 150,351 |   |             |   | 145,031 |   |
| Held-to-maturity at amortized cost (fair value: $60 and $62)                                        |   |              | 58      |   |             |   | 62 |   |
| Federal Home Loan Bank of Boston stock at cost                                                      |   |              | 6,032   |   |             |   | 6,032 |   |
| Loans held-for-sale                                                                                 |   |              | 2,183   |   |             |   | 665 |   |
| Loans receivable, net (allowance for loan losses: $3,847 and $3,473)                                |   |              | 340,387 |   |             |   | 327,257 |   |
| Investment in real estate                                                                           |   |              | 75      |   |             |   | 75 |   |
| Other real estate owned                                                                             |   |              | -       |   |             |   | 275 |   |
| Bank premises and equipment, net                                                                    |   |              | 11,896  |   |             |   | 10,434 |   |
| Goodwill                                                                                            |   |              | 9,829   |   |             |   | 9,829 |   |
| Intangible assets (net of accumulated amortization: $1,246 and $1,079)                              |   |              | 1,298   |   |             |   | 1,464 |   |
| Accrued interest receivable                                                                         |   |              | 1,989   |   |             |   | 2,177 |   |
| Cash surrender value of life insurance policies                                                     |   |              | 3,812   |   |             |   | 3,685 |   |
| Deferred taxes                                                                                      |   |              | 1,067   |   |             |   | 3,285 |   |
| Other assets                                                                                        |   |              | 3,419   |   |             |   | 3,778 |   |
| Total Assets                                                                                        |   | $                 | 583,753 |   |             | $      | 562,347 |   |
| LIABILITIES and SHAREHOLDERS' EQUITY                                                                |   |              |    |   |             |   |   |   |
| Deposits                                                                                            |   |              |    |   |             |   |   |   |
| Demand (non-interest bearing)                                                                       |   | $                 | 73,318  |   |             | $      | 70,026 |   |
| Demand (interest bearing)                                                                           |   |              | 64,082  |   |             |   | 43,845 |   |
| Money market                                                                                        |   |              | 72,557  |   |             |   | 64,477 |   |
| Savings and other                                                                                   |   |              | 91,586  |   |             |   | 86,316 |   |
| Certificates of deposit                                                                             |   |              | 129,978 |   |             |   | 153,539 |   |
| Total deposits                                                                                      |   |              | 431,521 |   |             |   | 418,203 |   |
| Repurchase agreements                                                                               |   |              | 16,333  |   |             |   | 11,415 |   |
| Federal Home Loan Bank of Boston advances                                                           |   |              | 74,532  |   |             |   | 76,364 |   |
| Accrued interest and other liabilities                                                              |   |              | 3,937   |   |             |   | 4,010 |   |
| Total Liabilities                                                                                   |   |              | 526,323 |   |             |   | 509,992 |   |
| Commitments and contingencies                                                                       |   |              | -       |   |             |   | - |   |
| Shareholders' Equity                                                                                |   |              |    |   |             |   |   |   |
| Preferred stock - $.01 per share par value                                                          |   |              |    |   |             |   |   |   |
| Authorized: 25,000; Shares issued: 8,816;                                                           |   |              |    |   |             |   |   |   |
| Liquidation preference: $1,000 per share                                                            |   |              | 8,733   |   |             |   | 8,717 |   |
| Common stock - $.10 per share par value                                                             |   |              |    |   |             |   |   |   |
| Authorized: 3,000,000                                                                               |   |              |    |   |             |   |   |   |
| Issued: 1,687,661 and 1,686,701                                                                     |   |              | 168     |   |             |   | 168 |   |
| Common stock warrants outstanding                                                                   |   |              | 112     |   |             |   | 112 |   |
| Paid-in capital                                                                                     |   |              | 13,200  |   |             |   | 13,177 |   |
| Retained earnings                                                                                   |   |              | 35,915  |   |             |   | 35,259 |   |
| Accumulated other comprehensive loss, net                                                           |   |              | (698    | )      |             |   | (5,078 | ) |
| Total Shareholders' Equity                                                                          |   |              | 57,430  |   |             |   | 52,355 |   |
| Total Liabilities and Shareholders' Equity                                                          |   | $                 | 583,753 |   |             | $      | 562,347 |   |

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Table of Contents

CONSOLIDATED 

|                                                                          |   | Three months ended |   |   | Nine months ended |   |
|-------------------------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
| Periods ended September 30, (in thousands except per share amounts) unaudited |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| Interest income                                                               |   |               |   |   |              |   |   |   |   |   |   |   |
| Interest and fees on loans                                                    |   | $                  | 4,693  |   |              | $      | 4,643 |   |   | $ | 13,780 |   |   | $ | 13,606 |   |
| Interest on debt securities                                                   |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                       |   |               | 913    |   |              |   | 1,369 |   |   |   | 2,872 |   |   |   | 3,965 |   |
| Tax exempt                                                                    |   |               | 558    |   |              |   | 635 |   |   |   | 1,678 |   |   |   | 1,912 |   |
| Other interest                                                                |   |               | 42     |   |              |   | 56 |   |   |   | 126 |   |   |   | 67 |   |
| Total interest income                                                         |   |               | 6,206  |   |              |   | 6,703 |   |   |   | 18,456 |   |   |   | 19,550 |   |
| Interest expense                                                              |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                      |   |               | 1,061  |   |              |   | 1,433 |   |   |   | 3,385 |   |   |   | 4,428 |   |
| Repurchase agreements                                                         |   |               | 25     |   |              |   | 33 |   |   |   | 71 |   |   |   | 100 |   |
| Federal Home Loan Bank of Boston advances                                     |   |               | 765    |   |              |   | 791 |   |   |   | 2,283 |   |   |   | 2,322 |   |
| Total interest expense                                                        |   |               | 1,851  |   |              |   | 2,257 |   |   |   | 5,739 |   |   |   | 6,850 |   |
| Net interest income                                                           |   |               | 4,355  |   |              |   | 4,446 |   |   |   | 12,717 |   |   |   | 12,700 |   |
| Provision for loan losses                                                     |   |               | 180    |   |              |   | 180 |   |   |   | 620 |   |   |   | 925 |   |
| Net interest income after provision for loan losses                           |   |               | 4,175  |   |              |   | 4,266 |   |   |   | 12,097 |   |   |   | 11,775 |   |
| Non-interest income                                                           |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Trust and wealth advisory                                                     |   |               | 471    |   |              |   | 463 |   |   |   | 1,507 |   |   |   | 1,433 |   |
| Service charges and fees                                                      |   |               | 581    |   |              |   | 492 |   |   |   | 1,576 |   |   |   | 1,343 |   |
| Gains (losses) on securities, net                                             |   |               | 16     |   |              |   | - |   |   |   | 16 |   |   |   | 436 |   |
| Gains on sales of mortgage loans, net                                         |   |               | 297    |   |              |   | 83 |   |   |   | 498 |   |   |   | 387 |   |
| Mortgage servicing, net                                                       |   |               | (52    | )      |              |   | 3 |   |   |   | (28 | ) |   |   | 76 |   |
| Other                                                                         |   |               | 63     |   |              |   | 189 |   |   |   | 208 |   |   |   | 380 |   |
| Total non-interest income, excluding other-than-temporary impairment losses   |   |               | 1,376  |   |              |   | 1,230 |   |   |   | 3,777 |   |   |   | 4,055 |   |
| Other-than-temporary impairment losses on securities                     |   |               | -      |   |              |   | - |   |   |   | - |   |   |   | (2,302 | ) |
| Portion of loss recognized in other comprehensive income (before tax)         |   |               | -      |   |              |   | - |   |   |   | - |   |   |   | 1,174 |   |
| Net other-than-temporary impairment losses recognized in earnings             |   |               | -      |   |              |   | - |   |   |   | - |   |   |   | (1,128 | ) |
| Total non-interest income                                                     |   |               | 1,376  |   |              |   | 1,230 |   |   |   | 3,777 |   |   |   | 2,927 |   |
| Non-interest expense                                                          |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Salaries                                                                      |   |               | 1,803  |   |              |   | 1,840 |   |   |   | 5,085 |   |   |   | 5,048 |   |
| Employee benefits                                                             |   |               | 522    |   |              |   | 908 |   |   |   | 1,737 |   |   |   | 2,040 |   |
| Premises and equipment                                                        |   |               | 560    |   |              |   | 510 |   |   |   | 1,570 |   |   |   | 1,467 |   |
| Data processing                                                               |   |               | 308    |   |              |   | 327 |   |   |   | 1,080 |   |   |   | 1,040 |   |
| Professional fees                                                             |   |               | 403    |   |              |   | 376 |   |   |   | 1,260 |   |   |   | 1,108 |   |
| FDIC insurance                                                                |   |               | 195    |   |              |   | 208 |   |   |   | 549 |   |   |   | 741 |   |
| Marketing and community support                                               |   |               | 79     |   |              |   | 71 |   |   |   | 200 |   |   |   | 236 |   |
| Amortization of intangibles                                                   |   |               | 56     |   |              |   | 41 |   |   |   | 167 |   |   |   | 123 |   |
| Other                                                                         |   |               | 442    |   |              |   | 493 |   |   |   | 1,319 |   |   |   | 1,364 |   |
| Total non-interest expense                                                    |   |               | 4,368  |   |              |   | 4,774 |   |   |   | 12,967 |   |   |   | 13,167 |   |
| Income before income taxes                                                    |   |               | 1,183  |   |              |   | 722 |   |   |   | 2,907 |   |   |   | 1,535 |   |
| Income tax provision (benefit)                                                |   |               | 236    |   |              |   | 2 |   |   |   | 487 |   |   |   | (83 | ) |
| Net income attributable to Salisbury Bancorp, Inc.                            |   |               | 947    |   |              |   | 720 |   |   |   | 2,420 |   |   |   | 1,618 |   |
| Preferred stock dividends and accretion of preferred stock discount           |   |               | 115    |   |              |   | 115 |   |   |   | 347 |   |   |   | 250 |   |
| Net income available to common shareholders                                   |   | $                  | 832    |   |              | $      | 605 |   |   | $ | 2,073 |   |   | $ | 1,368 |   |
|                                                                          |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted earnings per share                                          |   | $                  | 0.49   |   |              | $      | 0.36 |   |   | $ | 1.23 |   |   | $ | 0.81 |   |
| Common dividends per share                                                    |   |               | 0.28   |   |              |   | 0.28 |   |   |   | 0.84 |   |   |   | 0.84 |   |

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Table of Contents

CONSOLIDATED 

|                                     |   | Common Stock |      |   |   |   |   |           |   |   |     |   |   |           |   |   |              |   |   |                                 |   |
|------------------------------------------|--------|--------------|-----------|--------|--------|--------|--------|----------------|--------|--------|----------|--------|--------|----------------|--------|--------|-------------------|--------|--------|--------------------------------------|--------|
| (dollars in thousands)                   |   | Shares       |      |   | Amount |   |   | PreferredStock |   |   | Warrants |   |   | Paid-incapital |   |   | Retained earnings |   |   | Accumulatedother comp-rehensive loss |   |   | Total share-holders' equity |   |
| Balances at December 31, 2009            |   |         | 1,686,701 |   |   | $      | 168    |           |   | $      | 8,717    |   |   | $              | 112    |   |              | $      | 13,177 |                                 |   | $ | 35,259 |   |   | $ | (5,078 | ) |   | $ | 52,355 |   |
| Net income for year                      |   |         | -         |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | -      |                                 |   |   | 2,420 |   |   |   | - |   |   |   | 2,420 |   |
| Other comprehensive income, net of tax   |   |         | -         |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | -      |                                 |   |   | - |   |   |   | 4,380 |   |   |   | 4,380 |   |
| Total comprehensive income               |   |         |      |   |   |   |   |           |   |   |     |   |   |           |   |   |              |   |   |                                 |   |   |   |   |   |   |   |   |   |   | 6,800 |   |
| Issuance of preferred stock and warrants |   |         | -         |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | -      |                                 |   |   | - |   |   |   | - |   |   |   | - |   |
| Accretion of preferred stock discount    |   |         | -         |   |   |   | -      |           |   |   | 16       |   |   |           | -      |   |              |   | -      |                                 |   |   | (16 | ) |   |   | - |   |   |   | - |   |
| Common stock dividends declared          |   |         | -         |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | -      |                                 |   |   | (1,417 | ) |   |   | - |   |   |   | (1,417 | ) |
| Preferred stock dividends paid           |   |         | -         |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | -      |                                 |   |   | (331 | ) |   |   | - |   |   |   | (331 | ) |
| Issuance of common stock for             |   |         |      |   |   |   |   |           |   |   |     |   |   |           |   |   |              |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| directors fees                           |   |         | 960       |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | 23     |                                 |   |   | - |   |   |   | - |   |   |   | 23 |   |
| Balances at September 30, 2010           |   |         | 1,687,661 |   |   | $      | 168    |           |   | $      | 8,733    |   |   | $              | 112    |   |              | $      | 13,200 |                                 |   | $ | 35,915 |   |   | $ | (698 | ) |   | $ | 57,430 |   |
|                                     |   |         |      |   |   |   |   |           |   |   |     |   |   |           |   |   |              |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances at December 31, 2008            |   |         | 1,685,861 |   |   | $      | 168    |           |   | $      | -        |   |   | $              | -      |   |              | $      | 13,158 |                                 |   | $ | 34,518 |   |   | $ | (8,905 | ) |   | $ | 38,939 |   |
| Net income for year                      |   |         | -         |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | -      |                                 |   |   | 1,618 |   |   |   | - |   |   |   | 1,618 |   |
| Other comprehensive income, net of tax   |   |         | -         |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | -      |                                 |   |   | - |   |   |   | 4,216 |   |   |   | 4,216 |   |
| Total comprehensive income               |   |         |      |   |   |   |   |           |   |   |     |   |   |           |   |   |              |   |   |                                 |   |   |   |   |   |   |   |   |   |   | 5,834 |   |
| Issuance of preferred stock and warrants |   |         | -         |   |   |   | -      |           |   |   | 8,704    |   |   |           | 112    |   |              |   | -      |                                 |   |   | - |   |   |   | - |   |   |   | 8,816 |   |
| Accretion of preferred stock discount    |   |         | -         |   |   |   | -      |           |   |   | 8        |   |   |           | -      |   |              |   | -      |                                 |   |   | (8 | ) |   |   | - |   |   |   | - |   |
| Common stock dividends declared          |   |         | -         |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | -      |                                 |   |   | (944 | ) |   |   | - |   |   |   | (944 | ) |
| Preferred stock dividends paid           |   |         | -         |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | -      |                                 |   |   | (186 | ) |   |   | - |   |   |   | (186 | ) |
| Issuance of common stock for             |   |         |      |   |   |   |   |           |   |   |     |   |   |           |   |   |              |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| directors fees                           |   |         | 840       |   |   |   | -      |           |   |   | -        |   |   |           | -      |   |              |   | 19     |                                 |   |   | - |   |   |   | - |   |   |   | 19 |   |
| Balances at September 30, 2009           |   |         | 1,686,701 |   |   | $      | 168    |           |   | $      | 8,712    |   |   | $              | 112    |   |              | $      | 13,177 |                                 |   | $ | 34,998 |   |   | $ | (4,689 | ) |   | $ | 52,478 |   |

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Table of Contents

CONSOLIDATED 

| Nine months ended September 30, (in thousands) unaudited                          |   | 2010   |    |   | 2009   |   |
|-----------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Operating Activities                                                              |   |   |    |   |   |   |
| Net income                                                                        |   | $      | 2,420   |   |   | $      | 1,618 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |   |    |   |   |   |   |   |
| (Accretion), amortization and depreciation                                        |   |   |    |   |   |   |   |   |
| Securities                                                                        |   |   | 408     |   |   |   | 392 |   |
| Bank premises and equipment                                                       |   |   | 632     |   |   |   | 535 |   |
| Core deposit intangible                                                           |   |   | 167     |   |   |   | 123 |   |
| Mortgage servicing rights                                                         |   |   | 118     |   |   |   | 127 |   |
| Fair value adjustment on loans                                                    |   |   | 33      |   |   |   | 36 |   |
| Fair value adjustment on deposits and borrowings                                  |   |   | -       |   |   |   | (54 | ) |
| (Gains) and losses                                                                |   |   |    |   |   |   |   |   |
| Sales and calls of securities available-for-sale, net                             |   |   | (16     | )      |   |   | (436 | ) |
| Write down of available-for-sale securities                                       |   |   | -       |   |   |   | 1,128 |   |
| Provision for loan losses                                                         |   |   | 620     |   |   |   | 925 |   |
| (Increase) decrease in loans held-for-sale                                        |   |   | (1,518  | )      |   |   | 1,141 |   |
| Increase in deferred loan origination fees and costs, net                         |   |   | (157    | )      |   |   | (112 | ) |
| Mortgage servicing rights originated                                              |   |   | (226    | )      |   |   | (291 | ) |
| Increase (decrease) in mortgage servicing rights impairment reserve               |   |   | 51      |   |   |   | (90 | ) |
| Increase in unearned income on loans                                              |   |   | -       |   |   |   | 6 |   |
| Decrease in interest receivable                                                   |   |   | 188     |   |   |   | 207 |   |
| Deferred tax (benefit) expense                                                    |   |   | (23     | )      |   |   | (21 | ) |
| Decrease (increase) in prepaid expenses                                           |   |   | 529     |   |   |   | (345 | ) |
| (Increase) decrease in cash surrender value of life insurance policies            |   |   | (127    | )      |   |   | 189 |   |
| Increase in income tax receivable                                                 |   |   | (291    | )      |   |   | (477 | ) |
| Decrease (increase) in other assets                                               |   |   | 103     |   |   |   | (19 | ) |
| Increase in accrued expenses                                                      |   |   | 202     |   |   |   | 115 |   |
| (Decrease) increase in interest payable                                           |   |   | (73     | )      |   |   | 72 |   |
| (Decrease) increase in other liabilities                                          |   |   | (169    | )      |   |   | 11 |   |
| Issuance of shares for directors’ fee                                       |   |   | 23      |   |   |   | 19 |   |
| Net cash provided by operating activities                                         |   |   | 2,894   |   |   |   | 4,799 |   |
| Investing Activities                                                              |   |   |    |   |   |   |   |   |
| Purchase of interest-bearing time deposits with other banks                       |   |   | -       |   |   |   | (5,000 | ) |
| Purchase of Federal Home Loan Bank stock                                          |   |   | -       |   |   |   | (570 | ) |
| Purchases of securities available-for-sale                                        |   |   | (42,987 | )      |   |   | (98,738 | ) |
| Proceeds from sales of securities available-for-sale                              |   |   | -       |   |   |   | 44,124 |   |
| Proceeds from calls of securities available-for-sale                              |   |   | 20,734  |   |   |   | 27,991 |   |
| Proceeds from maturities of securities available-for-sale                         |   |   | 23,115  |   |   |   | - |   |
| Proceeds from maturities of securities held-to-maturity                           |   |   | 4       |   |   |   | 4 |   |
| Loan originations and principle collections, net                                  |   |   | (13,373 | )      |   |   | (15,105 | ) |
| Purchases of loans                                                                |   |   | -       |   |   |   | (76 | ) |
| Recoveries of loans previously charged-off                                        |   |   | 21      |   |   |   | 25 |   |
| Proceeds from sale of other real estate owned                                     |   |   | -       |   |   |   | 205 |   |
| Capital expenditures                                                              |   |   | (2,005  | )      |   |   | (2,270 | ) |
| Net cash utilized by investing activities                                         |   | $      | (14,491 | )      |   | $      | (49,410 | ) |

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| Nine months ended September 30, (in thousands) unaudited              |   | 2010   |    |   | 2009   |   |
|-----------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Financing Activities                                                  |   |   |    |   |   |   |
| Increase in deposit transaction accounts, net                         |   | $      | 36,879  |   |   | $      | 34,284 |   |
| (Decrease) increase in time deposits, net                             |   |   | (23,561 | )      |   |   | 35,590 |   |
| Decrease in securities sold under agreements to repurchase, net       |   |   | 4,918   |   |   |   | 4,259 |   |
| Federal Home Loan Bank of Boston advances                             |   |   | -       |   |   |   | 12,000 |   |
| Principle payments on Federal Home Loan Bank of Boston advances       |   |   | (1,832  | )      |   |   | (2,215 | ) |
| Decrease in short term Federal Home Loan Bank of Boston advances, net |   |   | -       |   |   |   | (20,878 | ) |
| Proceeds from issuance of preferred and common stock                  |   |   | -       |   |   |   | 8,824 |   |
| Common stock dividends paid                                           |   |   | (1,417  | )      |   |   | (1,416 | ) |
| Preferred stock dividends paid                                        |   |   | (331    | )      |   |   | (194 | ) |
| Net cash provided by financing activities                             |   |   | 14,656  |   |   |   | 70,254 |   |
| Net increase in cash and cash equivalents                             |   |   | 3,059   |   |   |   | 25,643 |   |
| Cash and cash equivalents, beginning of period                        |   |   | 43,298  |   |   |   | 9,659 |   |
| Cash and cash equivalents, end of period                              |   | $      | 46,357  |   |   | $      | 35,302 |   |
| Cash paid during period                                               |   |   |    |   |   |   |   |   |
| Interest                                                              |   | $      | 5,815   |   |   | $      | 4,555 |   |
| Income taxes                                                          |   |   | 173     |   |   |   | 183 |   |

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NOTES 

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

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Table of Contents

| Acquisition |
|-------------|

| (in thousands)                         |   | Amortized cost (1) |    |   | Gross un- realized gains |   |   | Gross un-realized losses |   |   | Fair value |   |
|----------------------------------------|--------|-------------------------|---------|--------|-------------------------------|--------|--------|--------------------------|--------|--------|-----------------|--------|
| September 30, 2010                     |   |                    |    |   |                          |   |   |                     |   |   |            |   |
| Available-for-sale                     |   |                    |    |   |                          |   |   |                     |   |   |            |   |
| U.S. Treasury notes                    |   | $                       | 5,000   |   |                          | $      | 393    |                     |   | $      | -               |   |   | $ | 5,393 |   |
| U.S. Government Agency notes           |   |                    | 40,604  |   |                          |   | 662    |                     |   |   | -               |   |   |   | 41,266 |   |
| Municipal bonds                        |   |                    | 51,302  |   |                          |   | 599    |                     |   |   | (1,797          | )      |   |   | 50,104 |   |
| Mortgage backed securities             |   |                    |    |   |                          |   |   |                     |   |   |            |   |   |   |   |   |
| U.S. Government Agencies               |   |                    | 20,751  |   |                          |   | 597    |                     |   |   | (1              | )      |   |   | 21,347 |   |
| Collateralized mortgage obligations    |   |                    |    |   |                          |   |   |                     |   |   |            |   |   |   |   |   |
| U.S. Government Agencies               |   |                    | 4,842   |   |                          |   | 38     |                     |   |   | -               |   |   |   | 4,880 |   |
| Non-agency                             |   |                    | 20,590  |   |                          |   | 779    |                     |   |   | (629            | )      |   |   | 20,740 |   |
| SBA bonds                              |   |                    | 5,375   |   |                          |   | 74     |                     |   |   | -               |   |   |   | 5,449 |   |
| Corporate bonds                        |   |                    | 1,087   |   |                          |   | 49     |                     |   |   | -               |   |   |   | 1,136 |   |
| Preferred Stock                        |   |                    | 20      |   |                          |   | 16     |                     |   |   | -               |   |   |   | 36 |   |
| Total securities available-for-sale    |   | $                       | 149,571 |   |                          | $      | 3,207  |                     |   | $      | (2,427          | )      |   | $ | 150,351 |   |
| Held-to-maturity                       |   |                    |    |   |                          |   |   |                     |   |   |            |   |   |   |   |   |
| Mortgage backed security               |   | $                       | 58      |   |                          | $      | 2      |                     |   | $      | -               |   |   | $ | 60 |   |
| Non-marketable securities              |   |                    |    |   |                          |   |   |                     |   |   |            |   |   |   |   |   |
| Federal Home Loan Bank of Boston stock |   | $                       | 6,032   |   |                          | $      | -      |                     |   | $      | -               |   |   | $ | 6,032 |   |
| December 31, 2009                      |   |                    |    |   |                          |   |   |                     |   |   |            |   |   |   |   |   |
| Available-for-sale                     |   |                    |    |   |                          |   |   |                     |   |   |            |   |   |   |   |   |
| U.S. Treasury bills                    |   | $                       | 1,999   |   |                          | $      | 1      |                     |   | $      | -               |   |   | $ | 2,000 |   |
| U.S. Government Agency notes           |   |                    | 24,833  |   |                          |   | 125    |                     |   |   | (126            | )      |   |   | 24,832 |   |
| Municipal bonds                        |   |                    | 51,775  |   |                          |   | 113    |                     |   |   | (4,735          | )      |   |   | 47,153 |   |
| Mortgage backed securities             |   |                    |    |   |                          |   |   |                     |   |   |            |   |   |   |   |   |
| U.S. Government Agencies               |   |                    | 33,535  |   |                          |   | 535    |                     |   |   | (143            | )      |   |   | 33,927 |   |
| Collateralized mortgage obligations    |   |                    |    |   |                          |   |   |                     |   |   |            |   |   |   |   |   |
| U.S. Government Agencies               |   |                    | 5,696   |   |                          |   | -      |                     |   |   | (58             | )      |   |   | 5,638 |   |
| Non-agency                             |   |                    | 25,317  |   |                          |   | 433    |                     |   |   | (2,121          | )      |   |   | 23,629 |   |
| SBA bonds                              |   |                    | 6,581   |   |                          |   | 59     |                     |   |   | -               |   |   |   | 6,640 |   |
| Corporate bonds                        |   |                    | 1,079   |   |                          |   | 49     |                     |   |   | -               |   |   |   | 1,128 |   |
| Preferred Stock                        |   |                    | 20      |   |                          |   | 64     |                     |   |   | -               |   |   |   | 84 |   |
| Total securities available-for-sale    |   | $                       | 150,835 |   |                          | $      | 1,379  |                     |   | $      | (7,183          | )      |   | $ | 145,031 |   |
| Held-to-maturity                       |   |                    |    |   |                          |   |   |                     |   |   |            |   |   |   |   |   |
| Mortgage backed security               |   | $                       | 62      |   |                          | $      | -      |                     |   | $      | -               |   |   | $ | 62 |   |
| Non-marketable securities              |   |                    |    |   |                          |   |   |                     |   |   |            |   |   |   |   |   |
| Federal Home Loan Bank of Boston stock |   | $                       | 6,032   |   |                          | $      | -      |                     |   | $      | -               |   |   | $ | 6,032 |   |

| (1) | Net of other-than-temporary impairment write-down recognized in earnings. |
|-----|---------------------------------------------------------------------------|

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|                                      |   | Three months |   |   | Nine months |   |
|-------------------------------------------|--------|--------------|--------|--------|-------------|--------|
| Period ended September 30, (in thousands) |   | 2010         |   |   | 2009        |   |   | 2010 |   |   | 2009 |   |
| Proceeds                                  |   | $            | -      |   |        | $      | - |   |   | $ | - |   |   | $ | 22,233 |   |
| Gains realized                            |   |         | -      |   |        |   | - |   |   |   | - |   |   |   | 416 |   |
| Losses realized                           |   |         | -      |   |        |   | - |   |   |   | - |   |   |   | 8 |   |
| Net gains realized                        |   |         | -      |   |        |   | - |   |   |   | - |   |   |   | 408 |   |
| Income tax provision                      |   |         | -      |   |        |   | - |   |   |   | - |   |   |   | 139 |   |

|                                       |   | Less than 12 Months |   |   | 12 Months or Longer |   |   | Totals    |   |
|--------------------------------------------|--------|---------------------|--------|--------|---------------------|--------|--------|-----------|--------|
|   (in thousands)                      |   | FairValue           |   |   | Unrealizedlosses    |   |   | Fairvalue |   |   | Unrealizedlosses |   |   | Fairvalue |   |   | Unrealizedlosses |   |
| September 30, 2010                         |   |                |   |   |                |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale                         |   |                |   |   |                |   |   |      |   |   |   |   |   |   |   |   |   |   |
| U.S. Government Agency notes               |   | $                   | -      |   |                | $      | -      |      |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Municipal Bonds                            |   |                | -      |   |                |   | -      |      |   |   | 16,798 |   |   |   | 1,797 |   |   |   | 16,798 |   |   |   | 1,797 |   |
| Mortgage backed securities                 |   |                | 470    |   |                |   | 1      |      |   |   | - |   |   |   | - |   |   |   | 470 |   |   |   | 1 |   |
| Collateralized mortgage obligations        |   |                |   |   |                |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government Agencies                   |   |                | -      |   |                |   | -      |      |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Non-agency                                 |   |                | 36     |   |                |   | 27     |      |   |   | 8,026 |   |   |   | 602 |   |   |   | 8,062 |   |   |   | 629 |   |
| Total temporarily impaired securities      |   |                | 506    |   |                |   | 28     |      |   |   | 24,824 |   |   |   | 2,399 |   |   |   | 25,330 |   |   |   | 2,427 |   |
| Other-than-temporarily impaired securities |   |                |   |   |                |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collateralized mortgage obligations        |   |                |   |   |                |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-agency                                 |   |                | -      |   |                |   | -      |      |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total temporarily impaired and other-than- |   |                |   |   |                |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| temporarily impaired securities            |   | $                   | 506    |   |                | $      | 28     |      |   | $ | 24,824 |   |   | $ | 2,399 |   |   | $ | 25,330 |   |   | $ | 2,427 |   |

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| (in thousands)                                               |   | September 30, 2010 |   |   | December 31, 2009 |   |
|--------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
| Non-Agency CMOs                                              |   |               |   |   |              |   |
| Total OTTI losses (unrealized and realized)                  |   | $                  | -      |   |              | $      | 2,302 |   |
| Less: unrealized OTTI recognized in other comprehensive loss |   |               | -      |   |              |   | 1,174 |   |
| Net impairment losses recognized in earnings                 |   | $                  | -      |   |              | $      | 1,128 |   |

| Nine months ended September 30 (in thousands)                                                |   | 2010   |   |   | 2009   |   |
|--------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Balance, beginning of period                                                                           |   | $      | 1,128  |   |   | $      | - |   |
| Amounts related to the credit component on debt securities in which OTTI was not previously recognized |   |   | -      |   |   |   | 1,128 |   |
| Balance, end of period                                                                                 |   | $      | 1,128  |   |   | $      | 1,128 |   |

| (in thousands)                                |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-----------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
| Loans receivable, net                         |   |               |    |   |              |   |
| Real estate mortgages:                        |   |               |    |   |              |   |
| Residential                                   |   | $                  | 166,251 |   |              | $      | 163,863 |   |
| Commercial                                    |   |               | 81,379  |   |              |   | 70,066 |   |
| Construction, land & land development     |   |               | 30,519  |   |              |   | 31,011 |   |
| Home equity credit                            |   |               | 33,443  |   |              |   | 33,099 |   |
| Total mortgage loans                          |   |               | 311,592 |   |              |   | 298,039 |   |
| Commercial and industrial                     |   |               | 26,655  |   |              |   | 26,400 |   |
| Consumer                                      |   |               | 5,024   |   |              |   | 5,436 |   |
| Other                                         |   |               | 220     |   |              |   | 269 |   |
| Total loans, gross                            |   |               | 343,491 |   |              |   | 330,144 |   |
| Deferred loan origination fees and costs, net |   |               | 743     |   |              |   | 586 |   |
| Allowance for loan losses                     |   |               | (3,847  | )      |              |   | (3,473 | ) |
| Total loans, net                              |   | $                  | 340,387 |   |              | $      | 327,257 |   |
| Loans held-for-sale                           |   |               |    |   |              |   |   |   |
| Residential mortgages                         |   | $                  | 2,183   |   |              | $      | 665 |   |

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|                                       |   | Three months |   |   | Nine months |   |
|--------------------------------------------|--------|--------------|--------|--------|-------------|--------|
| Periods ended September 30, (in thousands) |   | 2010         |   |   | 2009        |   |   | 2010 |   |   | 2009 |   |
| Balance, beginning of period               |   | $            | 3,768  |   |        | $      | 3,309 |   |   | $ | 3,473 |   |   | $ | 2,724 |   |
| Provision for losses                       |   |         | 180    |   |        |   | 180 |   |   |   | 620 |   |   |   | 925 |   |
| Charge-offs                                |   |         | (109   | )      |        |   | (69 | ) |   |   | (268 | ) |   |   | (245 | ) |
| Recoveries                                 |   |         | 8      |   |        |   | 9 |   |   |   | 22 |   |   |   | 25 |   |
| Balance, end of period                     |   | $            | 3,847  |   |        | $      | 3,429 |   |   | $ | 3,847 |   |   | $ | 3,429 |   |

| (in thousands)                                 |   | September 30, 2010 |   |   | December 31, 2009 |   |
|------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
| Residential mortgage loans serviced for others |   | $                  | 78,119 |   |              | $      | 72,962 |   |
| Fair value of mortgage servicing rights        |   |               | 517    |   |              |   | 473 |   |

|                                          |   | Three months |   |   | Nine months |   |
|-----------------------------------------------|--------|--------------|--------|--------|-------------|--------|
| Periods ended September 30, (in thousands)    |   | 2010         |   |   | 2009        |   |   | 2010 |   |   | 2009 |   |
| Loan Servicing Rights                         |   |         |   |   |        |   |   |   |   |   |   |   |
| Balance, beginning of period                  |   | $            | 465    |   |        | $      | 375 |   |   | $ | 427 |   |   | $ | 227 |   |
| Originated                                    |   |         | 115    |   |        |   | 56 |   |   |   | 226 |   |   |   | 291 |   |
| Amortization (1)                              |   |         | (45    | )      |        |   | (39 | ) |   |   | (118 | ) |   |   | (126 | ) |
| Balance, end of period                        |   |         | 535    |   |        |   | 392 |   |   |   | 535 |   |   |   | 392 |   |
| Valuation Allowance                           |   |         |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Balance, beginning of period                  |   |         | (24    | )      |        |   | (29 | ) |   |   | (30 | ) |   |   | (118 | ) |
| Decrease (increase) in impairment reserve (1) |   |         | (57    | )      |        |   | 0 |   |   |   | (51 | ) |   |   | 89 |   |
| Balance, end of period                        |   |         | (81    | )      |        |   | (29 | ) |   |   | (81 | ) |   |   | (29 | ) |
| Loan servicing rights, net                    |   | $            | 454    |   |        | $      | 363 |   |   | $ | 454 |   |   | $ | 363 |   |

| (1) | Amortization expense and changes in the impairment reserve are recorded in loan servicing fee income. |
|-----|-------------------------------------------------------------------------------------------------------|

| (in thousands)                                                |   | September 30, 2010 |   |   | December 31, 2009 |   |
|---------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
| Non-accrual loans, excluding troubled debt restructured loans |   | $                  | 5,077  |   |              | $      | 5,098 |   |
| Non-accrual troubled debt restructured loans                  |   |               | 5,745  |   |              |   | 2,341 |   |
| Accruing troubled debt restructured loans                     |   |               | 4,448  |   |              |   | 4,566 |   |
| Total impaired loans                                          |   | $                  | 15,270 |   |              | $      | 12,005 |   |
| Requiring valuation allowance                                 |   | $                  | 4,613  |   |              | $      | 3,388 |   |
| Not requiring valuation allowance                             |   |               | 10,657 |   |              |   | 8,617 |   |
| Total impaired loans                                          |   | $                  | 15,270 |   |              | $      | 12,005 |   |
| Valuation allowance                                           |   | $                  | 515    |   |              | $      | 388 |   |
| Commitments to lend additional amounts to impaired borrowers  |   |               | -      |   |              |   | - |   |

----

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| (in thousands)                                |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-----------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
| Securities available-for-sale (at fair value) |   | $                  | 62,695  |   |              | $      | 63,097 |   |
| Loans receivable                              |   |               | 105,332 |   |              |   | 104,960 |   |
| Total pledged assets                          |   | $                  | 168,027 |   |              | $      | 168,057 |   |

|                                                                     |   | Three months |   |   | Nine months |   |
|--------------------------------------------------------------------------|--------|--------------|--------|--------|-------------|--------|
| Periods ended September 30, (in thousands, except per share amounts)     |   | 2010         |   |   | 2009        |   |   | 2010 |   |   | 2009 |   |
| Net income                                                               |   | $            | 947    |   |        | $      | 720 |   |   | $ | 2,420 |   |   | $ | 1,618 |   |
| Preferred stock net accretion                                            |   |         | 5      |   |        |   | 5 |   |   |   | 16 |   |   |   | 8 |   |
| Preferred stock dividends paid and accrued                               |   |         | 110    |   |        |   | 110 |   |   |   | 331 |   |   |   | 242 |   |
| Net income available to common shareholders                              |   | $            | 832    |   |        | $      | 605 |   |   | $ | 2,073 |   |   | $ | 1,368 |   |
| Weighted average common stock outstanding - basic                        |   |         | 1,686  |   |        |   | 1,686 |   |   |   | 1,686 |   |   |   | 1,686 |   |
| Weighted average common and common equivalent stock outstanding- diluted |   |         | 1,686  |   |        |   | 1,686 |   |   |   | 1,686 |   |   |   | 1,686 |   |
| Earnings per common and common equivalent share                          |   |         |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                    |   | $            | 0.49   |   |        | $      | 0.36 |   |   | $ | 1.23 |   |   | $ | 0.81 |   |
| Diluted                                                                  |   |         | 0.49   |   |        |   | 0.36 |   |   |   | 1.23 |   |   |   | 0.81 |   |

| NOTE 7 – SHAREHOLDERS’ EQUITY |
|-------------------------------------------|

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|                                     |   | Actual |   |   | For Capital Adequacy Purposes |   |   | To be Well Capitalized Under Prompt Corrective Action Provisions |   |
|------------------------------------------|--------|--------|--------|--------|-------------------------------|--------|--------|------------------------------------------------------------------|--------|
| (dollars in thousands)                   |   | Amount |   |   | Ratio                         |   |   | Amount                                                           |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| September 30, 2010                       |   |   |   |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |
| Total Capital (to risk-weighted assets)  |   |   |   |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |
| Salisbury                                |   | $      | 50,887 |   |                          |   | 13.87  | %                                                                |   | $ | 29,345 |   |   |   | 8.0 | % |   |   | n/a |   |   |   | - |   |
| Bank                                     |   |   | 41,300 |   |                          |   | 11.29  |                                                             |   |   | 29,258 |   |   |   | 8.0 |   |   | $ | 36,572 |   |   |   | 10.0 | % |
| Tier 1 Capital (to risk-weighted assets) |   |   |   |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salisbury                                |   |   | 47,001 |   |                          |   | 12.81  |                                                             |   |   | 14,672 |   |   |   | 4.0 |   |   |   | n/a |   |   |   | - |   |
| Bank                                     |   |   | 37,415 |   |                          |   | 10.23  |                                                             |   |   | 14,629 |   |   |   | 4.0 |   |   |   | 21,943 |   |   |   | 6.0 |   |
| Tier 1 Capital (to average assets)       |   |   |   |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salisbury                                |   |   | 47,001 |   |                          |   | 8.32   |                                                             |   |   | 22,599 |   |   |   | 4.0 |   |   |   | n/a |   |   |   | - |   |
| Bank                                     |   |   | 37,415 |   |                          |   | 6.62   |                                                             |   |   | 22,599 |   |   |   | 4.0 |   |   |   | 28,249 |   |   |   | 5.0 |   |
| September 30, 2009                       |   |   |   |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Capital (to risk-weighted assets)  |   |   |   |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salisbury                                |   |   | 49,840 |   |                          |   | 13.22  |                                                             |   |   | 30,150 |   |   |   | 8.0 |   |   |   | n/a |   |   |   | - |   |
| Bank                                     |   |   | 40,165 |   |                          |   | 10.68  |                                                             |   |   | 30,092 |   |   |   | 8.0 |   |   |   | 37,615 |   |   |   | 10.0 |   |
| Tier 1 Capital (to risk-weighted assets) |   |   |   |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salisbury                                |   |   | 46,319 |   |                          |   | 12.29  |                                                             |   |   | 15,075 |   |   |   | 4.0 |   |   |   | n/a |   |   |   | - |   |
| Bank                                     |   |   | 36,645 |   |                          |   | 9.74   |                                                             |   |   | 15,046 |   |   |   | 4.0 |   |   |   | 22,569 |   |   |   | 6.0 |   |
| Tier 1 Capital (to average assets)       |   |   |   |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salisbury                                |   |   | 46,319 |   |                          |   | 8.57   |                                                             |   |   | 21,631 |   |   |   | 4.0 |   |   |   | n/a |   |   |   | - |   |
| Bank                                     |   |   | 36,645 |   |                          |   | 6.78   |                                                             |   |   | 21,631 |   |   |   | 4.0 |   |   |   | 27,039 |   |   |   | 5.0 |   |

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|                                       |   | Three months |   |   | Nine months |   |
|--------------------------------------------|--------|--------------|--------|--------|-------------|--------|
| Periods ended September 30, (in thousands) |   | 2010         |   |   | 2009        |   |   | 2010 |   |   | 2009 |   |
| Service cost                               |   | $            | 87     |   |        | $      | 69 |   |   | $ | 261 |   |   | $ | 284 |   |
| Interest cost on benefit obligation        |   |         | 90     |   |        |   | 79 |   |   |   | 271 |   |   |   | 280 |   |
| Expected return on plan assets             |   |         | (99    | )      |        |   | (85 | ) |   |   | (298 | ) |   |   | (265 | ) |
| Curtailments and settlements               |   |         | -      |   |        |   | 437 |   |   |   | - |   |   |   | 437 |   |
| Amortization of net loss                   |   |         | 17     |   |        |   | 21 |   |   |   | 51 |   |   |   | 86 |   |
| Net periodic benefit cost                  |   | $            | 95     |   |        | $      | 521 |   |   | $ | 285 |   |   | $ | 822 |   |

|                                                                   |   | Three months |   |   | Nine months |   |
|------------------------------------------------------------------------|--------|--------------|--------|--------|-------------|--------|
| Periods ended September 30, (in thousands)                             |   | 2010         |   |   | 2009        |   |   | 2010 |   |   | 2009 |   |
| Net income                                                             |   | $            | 947    |   |        | $      | 720 |   |   | $ | 2,420 |   |   | $ | 1,618 |   |
| Other comprehensive income                                             |   |         |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Net unrealized gains (losses) on securities available-for-sale         |   |         | 3,291  |   |        |   | 6,527 |   |   |   | 6,600 |   |   |   | 5,575 |   |
| Reclassification of net realized (gains) losses in net income          |   |         | (16    | )      |        |   | - |   |   |   | (16 | ) |   |   | 692 |   |
| Unrealized gains (losses) on securities available-for-sale             |   |         | 3,275  |   |        |   | 6,527 |   |   |   | 6,584 |   |   |   | 6,267 |   |
| Income tax (expense) benefit                                           |   |         | (587   | )      |        |   | (2,195 | ) |   |   | (2,238 | ) |   |   | (2,108 | ) |
| Unrealized gains (losses) on securities available-for-sale, net of tax |   |         | 2,688  |   |        |   | 4,332 |   |   |   | 4,346 |   |   |   | 4,159 |   |
| Pension plan income                                                    |   |         | 17     |   |        |   | 31 |   |   |   | 52 |   |   |   | 90 |   |
| Income tax expense                                                     |   |         | (6     | )      |        |   | (17 | ) |   |   | (18 | ) |   |   | (33 | ) |
| Pension plan income, net of tax                                        |   |         | 11     |   |        |   | 14 |   |   |   | 34 |   |   |   | 57 |   |
| Other comprehensive income, net of tax                                 |   |         | 2,699  |   |        |   | 4,346 |   |   |   | 4,380 |   |   |   | 4,216 |   |
| Comprehensive income                                                   |   | $            | 3,646  |   |        | $      | 5,066 |   |   | $ | 6,800 |   |   | $ | 5,834 |   |

| (in thousands)                                                         |   | September 30, 2010 |   |   | December 31, 2009 |   |
|------------------------------------------------------------------------|--------|-------------------------|--------|--------|-------------------|--------|
| Unrealized gains (losses) on securities available-for-sale, net of tax |   | $                       | 515    |   |              | $      | (3,831 | ) |
| Unrecognized pension plan expense, net of tax                          |   |                    | (1,213 | )      |              |   | (1,247 | ) |
| Accumulated other comprehensive loss, net                              |   | $                       | (698   | )      |              | $      | (5,078 | ) |

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|                          |   |               |    |   | Fair Value Measurements at Reporting Date Using             |   |
|-------------------------------|--------|--------------------|---------|--------|-------------------------------------------------------------|--------|
| (in thousands)                |   | September 30, 2010 |    |   | Quoted prices in Active markets for Identical assetsLevel 1 |   |   | Significant other observable inputsLevel 2 |   |   | Significant unobservable inputsLevel 3 |   |
| Items Measured at Fair Value  |   |               |    |   |                                                        |   |   |   |   |   |   |   |
| Recurring basis               |   |               |    |   |                                                        |   |   |   |   |   |   |   |
| Securities available-for-sale |   | $                  | 150,351 |   |                                                        | $      | 36 |   |   | $ | 150,315 |   |   | $ | - |   |
| Non-recurring basis           |   |               |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Impaired loans                |   |               | 4,682   |   |                                                        |   | - |   |   |   | 4,682 |   |   |   | - |   |

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|                                            |   | September 30, 2010 |    |   | December 31, 2009   |   |
|-------------------------------------------------|--------|--------------------|---------|--------|---------------------|--------|
| (in thousands)                                  |   | Carryingvalue      |    |   | Estimatedfair value |   |   | Carryingvalue |   |   | Estimatedfair value |   |
| Financial Assets                                |   |               |    |   |                |   |   |   |   |   |   |   |
| Cash and due from banks                         |   | $                  | 46,357  |   |                | $      | 46,357 |   |   | $ | 43,298 |   |   | $ | 43,298 |   |
| Interest bearing time deposits with other banks |   |               | 5,000   |   |                |   | 5,000 |   |   |   | 5,000 |   |   |   | 5,000 |   |
| Securities available-for-sale                   |   |               | 150,351 |   |                |   | 150,351 |   |   |   | 145,031 |   |   |   | 145,031 |   |
| Security held-to-maturity                       |   |               | 58      |   |                |   | 59 |   |   |   | 62 |   |   |   | 62 |   |
| Federal Home Loan Bank stock                    |   |               | 6,032   |   |                |   | 6,032 |   |   |   | 6,032 |   |   |   | 6,032 |   |
| Loans held-for-sale                             |   |               | 2,183   |   |                |   | 2,199 |   |   |   | 665 |   |   |   | 670 |   |
| Loans receivable net                            |   |               | 340,387 |   |                |   | 332,445 |   |   |   | 327,257 |   |   |   | 321,882 |   |
| Accrued interest receivable                     |   |               | 1,989   |   |                |   | 1,989 |   |   |   | 2,177 |   |   |   | 2,177 |   |
| Financial Liabilities                           |   |               |    |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Demand (non-interest-bearing)                   |   | $                  | 73,318  |   |                | $      | 73,318 |   |   | $ | 70,026 |   |   | $ | 70,026 |   |
| Demand (interest-bearing)                       |   |               | 64,082  |   |                |   | 64,082 |   |   |   | 43,845 |   |   |   | 43,845 |   |
| Money market                                    |   |               | 72,557  |   |                |   | 72,557 |   |   |   | 64,477 |   |   |   | 64,477 |   |
| Savings and other                               |   |               | 91,586  |   |                |   | 91,586 |   |   |   | 86,316 |   |   |   | 86,316 |   |
| Certificates of deposit                         |   |               | 129,978 |   |                |   | 130,651 |   |   |   | 153,539 |   |   |   | 155,441 |   |
| Total deposits                                  |   |               | 431,521 |   |                |   | 432,194 |   |   |   | 418,203 |   |   |   | 420,105 |   |
| FHLBB advances                                  |   |               | 74,532  |   |                |   | 79,324 |   |   |   | 76,364 |   |   |   | 80,830 |   |
| Repurchase agreements                           |   |               | 16,333  |   |                |   | 16,333 |   |   |   | 11,415 |   |   |   | 11,415 |   |
| Accrued interest payable                        |   |               | 451     |   |                |   | 451 |   |   |   | 523 |   |   |   | 523 |   |

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| Item 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|---------|---------------------------------------------------------------------------------------|

----

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|   | · | Net interest income increased $29,000, or 0.7%, versus second quarter 2010, and decreased $91,000, or 2.0%, versus third quarter 2009. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Non-interest income increased $120,000, or 9.6%, versus second quarter 2010 and $146,000, or 11.9%, versus third quarter 2009. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|

|   | · | Provision for loan losses decreased $80,000, or 30.8%, versus second quarter 2010 and was unchanged versus third quarter 2009. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|

|   | · | Non-interest expense increased $96,000, or 2.2%, versus second quarter 2010 and decreased $406,000, or 8.5%, versus third quarter 2009. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Gross loans receivable decreased $1.7 million, or 0.5%, versus second quarter 2010 and increased $29.6 million, or 9.4%, versus third quarter 2009. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Deposits increased $7.5 million, or 1.8%, versus second quarter 2010 and $16.7 million, or 4.0%, versus third quarter 2009. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | · | Non-performing assets decreased $0.6 million to $10.9 million, or 1.9% of total assets, versus second quarter 2010 and increased $3.2 million versus December 31, 2009. Loans receivable 30 days or more past due increased $0.3 million to $8.4 million, or 2.4% of gross loans, versus second quarter 2010 and was unchanged versus December 31, 2009. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Three months ended September 30,                   |   | Average Balance |    |   | Income / Expense |   |    | Average Yield / Rate |   |
|----------------------------------------------------|--------|-----------------|---------|--------|------------------|--------|---------|----------------------|--------|
| (dollars in thousands)                             |   | 2010            |    |   | 2009             |   |    | 2010                 |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| Loans (a)                                          |   | $               | 345,855 |   |             | $      | 309,757 |                 |   | $ | 4,693 |   |   | $ | 4,643 |   |   |   | 5.42 | % |   |   | 5.98 | % |
| Securities (c)(d)                                  |   |            | 152,865 |   |             |   | 175,989 |                 |   |   | 1,730 |   |   |   | 2,298 |   |   |   | 4.35 |   |   |   | 5.06 |   |
| FHLBB stock                                        |   |            | 6,032   |   |             |   | 5,810   |                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Short term funds (b)                               |   |            | 38,200  |   |             |   | 44,786  |                 |   |   | 42 |   |   |   | 56 |   |   |   | 0.44 |   |   |   | 0.50 |   |
| Total earning assets                               |   |            | 542,952 |   |             |   | 536,342 |                 |   |   | 6,465 |   |   |   | 6,997 |   |   |   | 4.75 |   |   |   | 5.21 |   |
| Other assets                                       |   |            | 34,302  |   |             |   | 25,122  |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                       |   | $               | 577,254 |   |             | $      | 561,464 |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                   |   | $               | 61,090  |   |             | $      | 38,802  |                 |   |   | 161 |   |   |   | 85 |   |   |   | 1.04 |   |   |   | 0.87 |   |
| Money market accounts                              |   |            | 74,934  |   |             |   | 66,262  |                 |   |   | 102 |   |   |   | 102 |   |   |   | 0.54 |   |   |   | 0.61 |   |
| Savings and other                                  |   |            | 92,277  |   |             |   | 84,801  |                 |   |   | 136 |   |   |   | 158 |   |   |   | 0.58 |   |   |   | 0.74 |   |
| Certificates of deposit                            |   |            | 130,803 |   |             |   | 158,503 |                 |   |   | 662 |   |   |   | 1,088 |   |   |   | 2.07 |   |   |   | 2.79 |   |
| Total interest-bearing deposits                    |   |            | 359,104 |   |             |   | 348,368 |                 |   |   | 1,061 |   |   |   | 1,433 |   |   |   | 1.17 |   |   |   | 1.63 |   |
| Repurchase agreements                              |   |            | 13,202  |   |             |   | 14,242  |                 |   |   | 25 |   |   |   | 33 |   |   |   | 0.75 |   |   |   | 0.91 |   |
| FHLBB advances                                     |   |            | 74,673  |   |             |   | 76,909  |                 |   |   | 765 |   |   |   | 791 |   |   |   | 4.01 |   |   |   | 4.03 |   |
| Total interest-bearing liabilities                 |   |            | 446,979 |   |             |   | 439,519 |                 |   |   | 1,851 |   |   |   | 2,257 |   |   |   | 1.64 |   |   |   | 2.03 |   |
| Demand deposits                                    |   |            | 70,501  |   |             |   | 68,238  |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other liabilities                                  |   |            | 4,057   |   |             |   | 4,499   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                         |   |            | 55,717  |   |             |   | 49,208  |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities & shareholders’ equity |   | $               | 577,254 |   |             | $      | 561,464 |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                |   |            |    |   |             |   |    |                 |   | $ | 4,614 |   |   | $ | 4,740 |   |   |   |   |   |   |   |   |   |
| Spread on interest-bearing funds                   |   |            |    |   |             |   |    |                 |   |   |   |   |   |   |   |   |   |   | 3.11 |   |   |   | 3.17 |   |
| Net interest margin (e)                            |   |            |    |   |             |   |    |                 |   |   |   |   |   |   |   |   |   |   | 3.39 |   |   |   | 3.53 |   |

| (a) | Includes non-accrual loans. |
|-----|-----------------------------|

| (b) | Includes interest-bearing deposits in other banks and federal funds sold. |
|-----|---------------------------------------------------------------------------|

| (c) | Average balances of securities are based on historical cost. |
|-----|--------------------------------------------------------------|

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| (d) | Includes tax exempt income benefit of $259,000 and $294,000, respectively for 2010 and 2009 on tax-exempt securities whose income and yields are calculated on a tax-equivalent basis. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | Net interest income divided by average interest-earning assets. |
|-----|-----------------------------------------------------------------|

|   Periods ended September 30, (in thousands) |   | Three months 2010 versus 2009 |   |
|---------------------------------------------------|--------|-------------------------------|--------|
| Change in interest due to                         |   | Volume                        |   |   | Rate |   |   | Net |   |
| Interest-earning assets                           |   |                          |   |   |   |   |   |   |   |
| Loans                                             |   | $                             | 515    |   |   | $ | (465 | ) |   | $ | 50 |   |
| Securities                                        |   |                          | (282   | ) |   |   | (286 | ) |   |   | (568 | ) |
| Short term funds                                  |   |                          | (8     | ) |   |   | (6 | ) |   |   | (14 | ) |
| Total                                             |   |                          | 225    |   |   |   | (757 | ) |   |   | (532 | ) |
| Interest-bearing liabilities                      |   |                          |   |   |   |   |   |   |   |   |   |   |
| Deposits                                          |   |                          | (86    | ) |   |   | (286 | ) |   |   | (372 | ) |
| Repurchase agreements                             |   |                          | (2     | ) |   |   | (6 | ) |   |   | (8 | ) |
| FHLBB advances                                    |   |                          | (23    | ) |   |   | (3 | ) |   |   | (26 | ) |
| Total                                             |   |                          | (111   | ) |   |   | (295 | ) |   |   | (406 | ) |
| Net change in net interest income                 |   | $                             | 336    |   |   | $ | (462 | ) |   | $ | (126 | ) |

|                                                                   |   | Three months |   |   | Nine months |   |
|------------------------------------------------------------------------|--------|--------------|--------|--------|-------------|--------|
| Periods ended September 30, (dollars in thousands)                     |   | 2010         |   |   | 2009        |   |   | 2010 |   |   | 2009 |   |
| Balance, beginning of period                                           |   | $            | 3,768  |   |        | $      | 3,309 |   |   | $ | 3,473 |   |   | $ | 2,724 |   |
| Provision (benefit) or loan losses                                     |   |         | 180    |   |        |   | 180 |   |   |   | 620 |   |   |   | 925 |   |
| Charge-offs                                                            |   |         |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Real estate mortgages                                                  |   |         | (100   | )      |        |   | (57 | ) |   |   | (235 | ) |   |   | (107 | ) |
| Commercial & industrial                                            |   |         | -      |   |        |   | - |   |   |   | - |   |   |   | (75 | ) |
| Consumer                                                               |   |         | (9     | )      |        |   | (12 | ) |   |   | (33 | ) |   |   | (63 | ) |
| Total charge-offs                                                      |   |         | (109   | )      |        |   | (69 | ) |   |   | (268 | ) |   |   | (245 | ) |
| Recoveries                                                             |   |         |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Real estate mortgages                                                  |   |         | -      |   |        |   | - |   |   |   | - |   |   |   | - |   |
| Commercial & industrial                                            |   |         | -      |   |        |   | 2 |   |   |   | - |   |   |   | 6 |   |
| Consumer                                                               |   |         | 8      |   |        |   | 7 |   |   |   | 22 |   |   |   | 19 |   |
| Total recoveries                                                       |   |         | 8      |   |        |   | 9 |   |   |   | 22 |   |   |   | 25 |   |
| Net (charge-offs) recoveries                                           |   |         | (101   | )      |        |   | (60 | ) |   |   | (246 | ) |   |   | (220 | ) |
| Balance, end of period                                                 |   | $            | 3,847  |   |        | $      | 3,4329 |   |   | $ | 3,847 |   |   | $ | 3,429 |   |
| Loans receivable, gross                                                |   |         |   |   |        |   |   |   |   | $ | 343,491 |   |   | $ | 314,175 |   |
| Non-performing loans                                                   |   |         |   |   |        |   |   |   |   |   | 10,917 |   |   |   | 6,750 |   |
| Accruing loans past due 30-89 days                                     |   |         |   |   |        |   |   |   |   |   | 1,649 |   |   |   | 3,961 |   |
| Ratio of allowance for loan losses:                                    |   |         |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| to loans receivable, gross                                             |   |         |   |   |        |   |   |   |   |   | 1.12 | % |   |   | 1.09 | % |
| to non-performing loans                                                |   |         |   |   |        |   |   |   |   |   | 35.24 |   |   |   | 50.80 |   |
| Ratio of non-performing loans to loans receivable, gross               |   |         |   |   |        |   |   |   |   |   | 3.18 |   |   |   | 2.15 |   |
| Ratio of accruing loans past due 30-89 days to loans receivable, gross |   |         |   |   |        |   |   |   |   |   | 0.48 |   |   |   | 1.26 |   |

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| Three months ended September 30, (dollars in thousands)                     |   | 2010   |   |   | 2009   |   |   | 2010 vs. 2009 |   |
|-----------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------------|--------|
| Gains on securities, net                                                    |   | $      | 16     |   |   | $      | -      |          |   | $ | 16 |   |   |   | 100.00 | % |
| Trust and wealth advisory fees                                              |   |   | 471    |   |   |   | 463    |          |   |   | 8 |   |   |   | 1.73 |   |
| Service charges and fees                                                    |   |   | 581    |   |   |   | 492    |          |   |   | 89 |   |   |   | 18.09 |   |
| Gains on sales of mortgage loans, net                                       |   |   | 297    |   |   |   | 83     |          |   |   | 214 |   |   |   | 257.83 |   |
| Mortgage servicing, net                                                     |   |   | (52    | )      |   |   | 3      |          |   |   | (55 | ) |   |   | (1833.33 | ) |
| Other                                                                       |   |   | 63     |   |   |   | 189    |          |   |   | (126 | ) |   |   | (66.66 | ) |
| Total non-interest income, excluding other-than-temporary impairment losses |   |   | 1,376  |   |   |   | 1,230  |          |   |   | 146 |   |   |   | 11.87 |   |
| Net other-than-temporary impairment losses recognized in earnings           |   |   | -      |   |   |   | -      |          |   |   | - |   |   |   | 0.00 |   |
| Total non-interest income                                                   |   | $      | 1,376  |   |   | $      | 1,230  |          |   | $ | 146 |   |   |   | 11.87 |   |

----

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| Three months ended September 30, (dollars in thousands) |   | 2010   |   |   | 2009   |   |   | 2010 vs. 2009 |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------------|--------|
| Salaries                                                |   | $      | 1,803  |   |   | $      | 1,840  |          |   | $ | (37 | ) |   |   | (2.01 | )% |
| Employee benefits                                       |   |   | 522    |   |   |   | 908    |          |   |   | (386 | ) |   |   | (42.51 | ) |
| Premises and equipment                                  |   |   | 560    |   |   |   | 510    |          |   |   | 50 |   |   |   | 9.80 |   |
| Data processing                                         |   |   | 308    |   |   |   | 327    |          |   |   | (19 | ) |   |   | (5.81 | ) |
| Professional fees                                       |   |   | 403    |   |   |   | 376    |          |   |   | 27 |   |   |   | 7.18 |   |
| FDIC insurance                                          |   |   | 195    |   |   |   | 208    |          |   |   | (13 | ) |   |   | (6.25 | ) |
| Marketing and community contributions                   |   |   | 79     |   |   |   | 71     |          |   |   | 8 |   |   |   | 11.27 |   |
| Amortization of intangible assets                       |   |   | 56     |   |   |   | 41     |          |   |   | 15 |   |   |   | 36.59 |   |
| Other                                                   |   |   | 442    |   |   |   | 493    |          |   |   | (51 | ) |   |   | (10.34 | ) |
| Non-interest expense                                    |   | $      | 4,368  |   |   | $      | 4,774  |          |   | $ | (406 | ) |   |   | (8.50 | ) |

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| Nine months ended September 30,                    |   | Average Balance |    |   | Income / Expense |   |    | Average Yield / Rate |   |
|----------------------------------------------------|--------|-----------------|---------|--------|------------------|--------|---------|----------------------|--------|
| (dollars in thousands)                             |   | 2010            |    |   | 2009             |   |    | 2010                 |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| Loans (a)                                          |   | $               | 339,172 |   |             | $      | 303,447 |                 |   | $ | 13,780 |   |   | $ | 13,606 |   |   |   | 5.42 | % |   |   | 5.98 | % |
| Securities (c)(d)                                  |   |            | 156,563 |   |             |   | 168,043 |                 |   |   | 5,328 |   |   |   | 6,763 |   |   |   | 4.54 |   |   |   | 5.20 |   |
| FHLBB stock                                        |   |            | 6,032   |   |             |   | 5,541   |                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Short term funds (b)                               |   |            | 35,419  |   |             |   | 29,877  |                 |   |   | 126 |   |   |   | 67 |   |   |   | 0.48 |   |   |   | 0.30 |   |
| Total earning assets                               |   |            | 537,186 |   |             |   | 506,908 |                 |   |   | 19,234 |   |   |   | 20,436 |   |   |   | 4.78 |   |   |   | 5.38 |   |
| Other assets                                       |   |            | 33,149  |   |             |   | 24,278  |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                       |   | $               | 570,335 |   |             | $      | 531,186 |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                   |   | $               | 54,925  |   |             | $      | 30,978  |                 |   |   | 461 |   |   |   | 149 |   |   |   | 1.12 |   |   |   | 0.64 |   |
| Money market accounts                              |   |            | 72,148  |   |             |   | 65,964  |                 |   |   | 303 |   |   |   | 468 |   |   |   | 0.56 |   |   |   | 0.95 |   |
| Savings and other                                  |   |            | 89,713  |   |             |   | 79,648  |                 |   |   | 421 |   |   |   | 551 |   |   |   | 0.63 |   |   |   | 0.93 |   |
| Certificates of deposit                            |   |            | 139,952 |   |             |   | 146,491 |                 |   |   | 2,200 |   |   |   | 3,260 |   |   |   | 1.57 |   |   |   | 2.22 |   |
| Total interest-bearing deposits                    |   |            | 356,738 |   |             |   | 323,081 |                 |   |   | 3,385 |   |   |   | 4,428 |   |   |   | 1.27 |   |   |   | 1.83 |   |
| Repurchase agreements                              |   |            | 11,847  |   |             |   | 11,120  |                 |   |   | 71 |   |   |   | 100 |   |   |   | 0.80 |   |   |   | 1.20 |   |
| FHLBB advances                                     |   |            | 75,166  |   |             |   | 78,590  |                 |   |   | 2,283 |   |   |   | 2,322 |   |   |   | 4.01 |   |   |   | 3.90 |   |
| Total interest-bearing liabilities                 |   |            | 443,751 |   |             |   | 412,791 |                 |   |   | 5,739 |   |   |   | 6,850 |   |   |   | 1.73 |   |   |   | 2.21 |   |
| Demand deposits                                    |   |            | 68,526  |   |             |   | 66,189  |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other liabilities                                  |   |            | 3,821   |   |             |   | 5,508   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                         |   |            | 54,237  |   |             |   | 46,698  |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities & shareholders’ equity |   | $               | 570,335 |   |             | $      | 531,186 |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                |   |            |    |   |             |   |    |                 |   | $ | 13,495 |   |   | $ | 13,586 |   |   |   |   |   |   |   |   |   |
| Spread on interest-bearing funds                   |   |            |    |   |             |   |    |                 |   |   |   |   |   |   |   |   |   |   | 3.05 |   |   |   | 3.17 |   |
| Net interest margin (e)                            |   |            |    |   |             |   |    |                 |   |   |   |   |   |   |   |   |   |   | 3.35 |   |   |   | 3.57 |   |

| (a) | Includes non-accrual loans. |
|-----|-----------------------------|

| (b) | Includes interest-bearing deposits in other banks and federal funds sold. |
|-----|---------------------------------------------------------------------------|

| (c) | Average balances of securities are based on historical cost. |
|-----|--------------------------------------------------------------|

| (d) | Includes tax exempt income benefit of $778,000 and $886,000, respectively for 2010 and 2009 on tax-exempt securities whose income and yields are calculated on a tax-equivalent basis. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | Net interest income divided by average interest-earning assets. |
|-----|-----------------------------------------------------------------|

| Nine month periods ended September 30, (in thousands) |   | 2010 versus 2009 |   |
|-------------------------------------------------------|--------|------------------|--------|
| Change in interest due to                             |   | Volume           |   |   | Rate |   |   | Net |   |
| Interest-earning assets                               |   |             |   |   |   |   |   |   |   |
| Loans                                                 |   | $                | 1,527  |   |   | $ | (1,353 | ) |   | $ | 174 |   |
| Securities                                            |   |             | (426   | ) |   |   | (1,009 | ) |   |   | (1,435 | ) |
| Short term funds                                      |   |             | 16     |   |   |   | 43 |   |   |   | 59 |   |
| Total                                                 |   |             | 1,117  |   |   |   | (2,319 | ) |   |   | (1,202 | ) |
| Interest-bearing liabilities                          |   |             |   |   |   |   |   |   |   |   |   |   |
| Deposits                                              |   |             | 127    |   |   |   | (1,170 | ) |   |   | (1,043 | ) |
| Repurchase agreements                                 |   |             | 5      |   |   |   | (34 | ) |   |   | (29 | ) |
| FHLBB advances                                        |   |             | (103   | ) |   |   | 64 |   |   |   | (39 | ) |
| Total                                                 |   |             | 29     |   |   |   | (1,140 | ) |   |   | (1,111 | ) |
| Net change in net interest income                     |   | $                | 1,088  |   |   | $ | (1,179 | ) |   | $ | (91 | ) |

----

Table of Contents

| Nine months ended September 30, (dollars in thousands)                      |   | 2010   |   |   | 2009   |   |   | 2010 vs. 2009 |   |
|-----------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------------|--------|
| Gains on securities, net                                                    |   | $      | 16     |   |   | $      | 436    |          |   | $ | (420 | ) |   |   | (96.33 | )% |
| Trust and wealth advisory fees                                              |   |   | 1,507  |   |   |   | 1,433  |          |   |   | 74 |   |   |   | 5.16 |   |
| Service charges and fees                                                    |   |   | 1,576  |   |   |   | 1,343  |          |   |   | 233 |   |   |   | 17.35 |   |
| Gains on sales of mortgage loans, net                                       |   |   | 498    |   |   |   | 387    |          |   |   | 111 |   |   |   | 28.68 |   |
| Mortgage servicing, net                                                     |   |   | (28    | )      |   |   | 76     |          |   |   | (104 | ) |   |   | (136.84 | ) |
| Other                                                                       |   |   | 208    |   |   |   | 380    |          |   |   | (172 | ) |   |   | (45.26 | ) |
| Total non-interest income, excluding other-than-temporary impairment losses |   |   | 3,777  |   |   |   | 4,055  |          |   |   | (278 | ) |   |   | (6.86 | ) |
| Net other-than-temporary impairment losses recognized in earnings           |   |   | -      |   |   |   | (1,128 | )             |   |   | 1,128 |   |   |   | 100.00 |   |
| Total non-interest income                                                   |   | $      | 3,777  |   |   | $      | 2,927  |          |   | $ | 850 |   |   |   | 29.04 |   |

----

Table of Contents

| Nine months ended September 30, (dollars in thousands) |   | 2010   |   |   | 2009   |   |   | 2010 vs. 2009 |   |
|--------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------------|--------|
| Salaries                                               |   | $      | 5,085  |   |   | $      | 5,048  |          |   | $ | 37 |   |   |   | 0.73 | % |
| Employee benefits                                      |   |   | 1,737  |   |   |   | 2,040  |          |   |   | (303 | ) |   |   | (14.85 | ) |
| Premises and equipment                                 |   |   | 1,570  |   |   |   | 1,467  |          |   |   | 103 |   |   |   | 7.02 |   |
| Data processing                                        |   |   | 1,080  |   |   |   | 1,040  |          |   |   | 40 |   |   |   | 3.85 |   |
| Professional fees                                      |   |   | 1,260  |   |   |   | 1,108  |          |   |   | 152 |   |   |   | 13.72 |   |
| FDIC insurance                                         |   |   | 549    |   |   |   | 741    |          |   |   | (192 | ) |   |   | (25.91 | ) |
| Marketing and community contributions                  |   |   | 200    |   |   |   | 236    |          |   |   | (36 | ) |   |   | (15.25 | ) |
| Amortization of intangible assets                      |   |   | 167    |   |   |   | 123    |          |   |   | 44 |   |   |   | 35.77 |   |
| Other                                                  |   |   | 1,319  |   |   |   | 1,364  |          |   |   | (45 | ) |   |   | 3.30 |   |
| Non-interest expense                                   |   | $      | 12,967 |   |   | $      | 13,167 |          |   | $ | (200 | ) |   |   | (1.52 | ) |

----

Table of Contents

| (in thousands)                            |   | September 30, 2010 |    |   | June 30, 2010 |   |    | December 31, 2009 |   |
|-------------------------------------------|--------|--------------------|---------|--------|---------------|--------|---------|-------------------|--------|
| Loans receivable                          |   |               |    |   |          |   |    |              |   |
| Real Estate Mortgages                     |   |               |    |   |          |   |    |              |   |
| Residential                               |   | $                  | 166,251 |   |          | $      | 169,088 |              |   | $ | 163,863 |   |
| Commercial                                |   |               | 81,379  |   |          |   | 80,347  |              |   |   | 70,066 |   |
| Construction, land & land development |   |               | 30,519  |   |          |   | 28,874  |              |   |   | 31,011 |   |
| Home equity credit                        |   |               | 33,443  |   |          |   | 33,193  |              |   |   | 33,099 |   |
| Total mortgage loans                      |   |               | 311,592 |   |          |   | 311,502 |              |   |   | 298,039 |   |
| Commercial and Industrial                 |   |               | 26,655  |   |          |   | 28,255  |              |   |   | 26,400 |   |
| Consumer                                  |   |               | 5,024   |   |          |   | 5,078   |              |   |   | 5,436 |   |
| Other                                     |   |               | 220     |   |          |   | 370     |              |   |   | 269 |   |
| Total loans, gross                        |   |               | 343,491 |   |          |   | 345,205 |              |   |   | 330,144 |   |
| Deferred loan origination costs, net      |   |               | 743     |   |          |   | 693     |              |   |   | 586 |   |
| Allowance for loan losses                 |   |               | (3,847  | )      |          |   | (3,768  | )                 |   |   | (3,473 | ) |
| Loans receivable, net                     |   | $                  | 340,387 |   |          | $      | 342,130 |              |   | $ | 327,257 |   |
| Loans held-for-sale                       |   |               |    |   |          |   |    |              |   |   |   |   |
| Residential mortgages                     |   | $                  | 2,183   |   |          | $      | 513     |              |   | $ | 665 |   |

| (in thousands)                              |   | September 30, 2010 |   |   | June 30, 2010 |   |   | December 31, 2009 |   |
|---------------------------------------------|--------|--------------------|--------|--------|---------------|--------|--------|-------------------|--------|
| Real Estate Mortgages                       |   |               |   |   |          |   |   |              |   |
| Residential                                 |   | $                  | 2,064  |   |          | $      | 2,516  |              |   | $ | 765 |   |
| Commercial                                  |   |               | 4,479  |   |          |   | 4,036  |              |   |   | 2,226 |   |
| Construction, land & land development   |   |               | 3,314  |   |          |   | 3,756  |              |   |   | 3,535 |   |
| Home equity credit                          |   |               | 364    |   |          |   | 365    |              |   |   | 367 |   |
| Total mortgage loans                        |   |               | 10,221 |   |          |   | 10,673 |              |   |   | 6,893 |   |
| Commercial and Industrial                   |   |               | 601    |   |          |   | 521    |              |   |   | 546 |   |
| Non-accruing loans                          |   |               | 10,822 |   |          |   | 11,194 |              |   |   | 7,439 |   |
| Accruing loans past due 90 days or more     |   |               | 95     |   |          |   | 326    |              |   |   | 6 |   |
| Total non-performing loans                  |   |               | 10,917 |   |          |   | 11,520 |              |   |   | 7,445 |   |
| Real estate acquired in settlement of loans |   |               | -      |   |          |   | -      |              |   |   | 275 |   |
| Total non-performing assets                 |   | $                  | 10,917 |   |          | $      | 11,520 |              |   | $ | 7,720 |   |

----

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| (in thousands)             |   | September 30, 2010 |   |   | June 30, 2010 |   |   | December 31, 2009 |   |
|----------------------------|--------|--------------------|--------|--------|---------------|--------|--------|-------------------|--------|
| Current                    |   | $                  | 3,778  |   |          | $      | 3,546  |              |   | $ | 3,105 |   |
| Past due 001-029 days      |   |               | 408    |   |          |   | 728    |              |   |   | - |   |
| Past due 030-059 days      |   |               | 92     |   |          |   | -      |              |   |   | 349 |   |
| Past due 060-089 days      |   |               | 202    |   |          |   | 1,012  |              |   |   | 405 |   |
| Past due 090-179 days      |   |               | 2,019  |   |          |   | 2,515  |              |   |   | 321 |   |
| Past due 180 days and over |   |               | 4,418  |   |          |   | 3,719  |              |   |   | 3,265 |   |
| Total non-performing loans |   | $                  | 10,917 |   |          | $      | 11,520 |              |   | $ | 7,445 |   |

| (in thousands)                               |   | September 30, 2010 |   |   | June 30, 2010 |   |   | December 31, 2009 |   |
|----------------------------------------------|--------|--------------------|--------|--------|---------------|--------|--------|-------------------|--------|
| Real Estate Mortgages                        |   |               |   |   |          |   |   |              |   |
| Residential                                  |   | $                  | 417    |   |          | $      | 673    |              |   | $ | 2,708 |   |
| Commercial                                   |   |               | 1,071  |   |          |   | 1,881  |              |   |   | 1,857 |   |
| Construction, land & land development    |   |               | 2,960  |   |          |   | 2,960  |              |   |   | - |   |
| Accruing troubled debt restructured loans    |   |               | 4,448  |   |          |   | 5,514  |              |   |   | 4,565 |   |
| Real Estate Mortgages                        |   |               |   |   |          |   |   |              |   |   |   |   |
| Residential                                  |   |               | 787    |   |          |   | 1,347  |              |   |   | 176 |   |
| Commercial                                   |   |               | 4,479  |   |          |   | 4,037  |              |   |   | 2,008 |   |
| Construction, land & land development    |   |               | 26     |   |          |   | 26     |              |   |   | - |   |
| Commercial and Industrial                    |   |               | 453    |   |          |   | 458    |              |   |   | 158 |   |
| Non-accrual troubled debt restructured loans |   |               | 5,745  |   |          |   | 5,868  |              |   |   | 2,342 |   |
| Total troubled debt restructured loans       |   | $                  | 10,193 |   |          | $      | 11,382 |              |   | $ | 6,907 |   |

----

Table of Contents

| (in thousands)                               |   | September 30, 2010 |   |   | June 30, 2010 |   |   | December 31, 2009 |   |
|----------------------------------------------|--------|--------------------|--------|--------|---------------|--------|--------|-------------------|--------|
| Current                                      |   | $                  | 3,753  |   |          | $      | 5,058  |              |   | $ | 4,565 |   |
| Past due 001-029 days                        |   |               | 376    |   |          |   | 456    |              |   |   | - |   |
| Past due 030-059 days                        |   |               | 319    |   |          |   | -      |              |   |   | - |   |
| Accruing troubled debt restructured loans    |   |               | 4,448  |   |          |   | 5,514  |              |   |   | 4,565 |   |
| Current                                      |   |               | 3,230  |   |          |   | 3,244  |              |   |   | 1,992 |   |
| Past due 001-029 days                        |   |               | 402    |   |          |   | 402    |              |   |   | - |   |
| Past due 030-059 days                        |   |               | -      |   |          |   | -      |              |   |   | - |   |
| Past due 060-089 days                        |   |               | -      |   |          |   | 729    |              |   |   | 350 |   |
| Past due 090-179 days                        |   |               | 1,073  |   |          |   | 1,108  |              |   |   | - |   |
| Past due 180 days and over                   |   |               | 1,040  |   |          |   | 385    |              |   |   | - |   |
| Non-accrual troubled debt restructured loans |   |               | 5,745  |   |          |   | 5,868  |              |   |   | 2,342 |   |
| Total troubled debt restructured loans       |   | $                  | 10,193 |   |          | $      | 11,382 |              |   | $ | 6,907 |   |

| (in thousands)                          |   | September 30, 2010 |   |   | June 30, 2010 |   |   | December 31, 2009 |   |
|-----------------------------------------|--------|--------------------|--------|--------|---------------|--------|--------|-------------------|--------|
| Past due 030-059 days                   |   | $                  | 832    |   |          | $      | 686    |              |   | $ | 2,821 |   |
| Past due 060-089 days                   |   |               | 817    |   |          |   | 144    |              |   |   | 1,272 |   |
| Past due 090-179 days                   |   |               | 95     |   |          |   | 326    |              |   |   | 5 |   |
| Accruing loans                          |   |               | 1,744  |   |          |   | 1,156  |              |   |   | 4,098 |   |
| Past due 030-059 days                   |   |               | 92     |   |          |   | -      |              |   |   | 349 |   |
| Past due 060-089 days                   |   |               | 202    |   |          |   | 1,012  |              |   |   | 405 |   |
| Past due 090-179 days                   |   |               | 1,923  |   |          |   | 2,189  |              |   |   | 315 |   |
| Past due 180 days and over              |   |               | 4,419  |   |          |   | 3,719  |              |   |   | 3,265 |   |
| Non-accrual loans                       |   |               | 6,636  |   |          |   | 6,920  |              |   |   | 4,334 |   |
| Total loans past due 30 days or greater |   | $                  | 8,380  |   |          | $      | 8,076  |              |   | $ | 8,432 |   |

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Table of Contents

|                                     | Wellcapitalized | September 30, 2010 | December 31, 2009        |
|------------------------------------------|-----------------|--------------------|--------------------------|
|                                     | Salisbury       | Bank               | Salisbury                | Bank |
| Total Capital (to risk-weighted assets)  | 10.00%          | 13.87%             |    11.29% | 12.86% | 10.40% |
| Tier 1 Capital (to risk-weighted assets) | 6.00            | 12.81              | 10.23                    | 11.95 | 9.48 |
| Tier 1 Capital (to average assets)       | 5.00            | 8.32               | 6.62                     | 8.39 | 6.70 |

----

Table of Contents

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

| (b) | expectations for revenues and earnings for Salisbury and Bank. |
|-----|----------------------------------------------------------------|

| (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 impacts Salisbury and Bank through increased operating expenses; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------|

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

| (d) | the impact of technological advances; and |
|-----|-------------------------------------------|

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Table of Contents

| (e) | other risks detailed from time to time in Salisbury’s filings with the Securities and Exchange Commission. |
|-----|------------------------------------------------------------------------------------------------------------------|

| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|---------|-----------------------------------------------------------------|

| As of September 30, 2010           |   | Months 1-12 |   |   | Months 13-24 |   |
|------------------------------------|--------|-------------|--------|--------|--------------|--------|
| Immediately rising interest rates  |   |        | (7.91  | )%     |         |   | (8.91 | )% |
| Immediately falling interest rates |   |        | 0.24   |   |         |   | (2.11 | ) |
| Gradually rising interest rates    |   |        | (11.13 | )      |         |   | (12.71 | ) |

----

Table of Contents

| As of September 30, 2010 (in thousands)  |   | Rates up 100bp |   |   | Rates up 200bp |   |
|------------------------------------------|--------|----------------|--------|--------|----------------|--------|
| U.S. Treasury notes                      |   | $              | (290   | )      |           | $      | (563 | ) |
| U.S. Government agency notes             |   |           | (1,092 | )      |           |   | (2,628 | ) |
| Municipal bonds                          |   |           | (3,694 | )      |           |   | (7,706 | ) |
| Mortgage backed securities               |   |           | (345   | )      |           |   | (942 | ) |
| Collateralized mortgage obligations      |   |           | (752   | )      |           |   | (1,554 | ) |
| SBA pools                                |   |           | (17    | )      |           |   | (33 | ) |
| Total available-for-sale debt securities |   | $              | (6,190 | )      |           | $      | (13,426 | ) |

| Item 4. | CONTROLS AND PROCEDURES |
|---------|-------------------------|

| PART II. | OTHER INFORMATION |
|----------|-------------------|

| Item 1. | LEGAL PROCEEDINGS |
|---------|-------------------|

----

Table of Contents

| Item 1A. | RISK FACTORS |
|----------|--------------|

| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|---------|-------------------------------------------------------------|

|   | None |
|--------|------|

| Item 3. | DEFAULTS UPON SENIOR SECURITIES |
|---------|---------------------------------|

|   | None |
|--------|------|

| Item 4.  | RESERVED |
|---------------|----------|

| Item 5. | OTHER INFORMATION |
|---------|-------------------|

|   | None |
|--------|------|

| Item 6. | EXHIBITS |
|---------|----------|

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

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

| 32 | Section 1350 Certifications |
|----|-----------------------------|

----

Table of Contents

|                    | SALISBURY BANCORP, INC.                                             |
|-------------------------|---------------------------------------------------------------------|
|                    |                                                                |
|                    |                                                                |
| November 15, 2010  | By:      /s/  Richard J. Cantele, Jr. |
|                    | Richard J. Cantele, Jr.,                                            |
|                    | Chief Executive Officer                                             |

| November 15, 2010 | By:      /s/ B. Ian McMahon, |
|-------------------|------------------------------------------------------------|
|              | B. Ian McMahon,                                            |
|              | Chief Financial Officer                                    |

----