SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended       September 30, 2006
                              --------------------------------

                                       OR

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

For the transition period from                to
                              --------------------------------

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

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

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

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

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


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


Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer or a  non-accelerated  filer. (See definition of "accelerated
filer and large  accelerated  Filer" in Rule 12b-2 of the Exchange Act).  (Check
one):

Large Accelerated Filer [_]   Accelerated Filer [_]    Non-Accelerated Filer [X]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                           Yes [_]           No [X]


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

  Indicate the number of shares outstanding of each of the issuer's classes of
                common stock, as of the latest practicable date:
        As of November 3, 2006, there were 1,684,181 shares outstanding.
                                           ----------------------------

<PAGE>
<TABLE>
<CAPTION>

                                     SALISBURY BANCORP, INC. AND SUBSIDIARY

                                               TABLE OF CONTENTS
<S>       <C>                                                                                              <C>

Part I.   FINANCIAL INFORMATION                                                                            Page


Item 1.   Financial Statements:                                                                              3

          Condensed Consolidated Balance Sheets -September 30, 2006 (unaudited)
                                 and December 31, 2005                                                       4
          Condensed Consolidated Statements of Income -nine and three months ended September 30, 2006
                                 and 2005  (unaudited)                                                       5
          Condensed Consolidated Statements of Cash Flows -nine months ended September 30, 2006
                                 and 2005 (unaudited)                                                        6
          Notes to Condensed Consolidated Financial Statements (unaudited)                                   8

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

Item 3.   Quantitative and Qualitative Disclosures about Market Risk                                         19

Item 4.   Controls and Procedures                                                                            19


Part II.  OTHER INFORMATION

Item 1.   Legal Proceedings                                                                                  20

Item 1A.  Risk Factors                                                                                       20

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

Item 3.   Defaults Upon Senior Securities                                                                    20

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

Item 5.   Other Information                                                                                  20

Item 6.   Exhibits                                                                                           20

Signatures                                                                                                   20

</TABLE>

2
<PAGE>



                         Part I-- FINANCIAL INFORMATION
                          Item 1. Financial Statements





3

<PAGE>
<TABLE>
<CAPTION>

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

                                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                       -------------------------------------
                                   (amounts in thousands, except per share data)
                                      September 30, 2006 and December 31, 2005
                                      ----------------------------------------

                                                                                     September 30,    December 31,
                                                                                          2006            2005
                                                                                          ----            ----
<S>                                                                                          <C>             <C>
ASSETS                                                                                (unaudited)
------
Cash and due from banks                                                               $      5,804    $      8,432
Interest bearing demand deposits with other banks                                            1,171             652
Money market mutual funds                                                                    1,043           1,120
Federal funds sold                                                                             347               0
                                                                                      ------------    ------------
             Cash and cash equivalents                                                       8,365          10,204
 Investments in available-for-sale securities (at fair value)                              158,049         145,608
Investments in held-to-maturity securities (fair values of $76 as of
     September 30, 2006 and $147 as of December 31, 2005)                                       76             147
Federal Home Loan Bank stock, at cost                                                        4,553           5,413
Loans held-for-sale                                                                            150               0
Loans, less allowance for loan losses of $2,580 as of September 30, 2006
     and $2,626 as of December 31, 2005                                                    231,167         215,989
Investment in real estate                                                                       75              75
Premises and equipment                                                                       6,224           6,452
Goodwill                                                                                     9,509           9,509
Core deposit intangible                                                                      1,535           1,658
Accrued interest receivable                                                                  2,415           2,363
Cash surrender value of life insurance policies                                              3,514           3,424
Other assets                                                                                 1,797           2,080
                                                                                      ------------    ------------
             Total assets                                                             $    427,429    $    402,922
                                                                                      ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
     Noninterest-bearing                                                              $     66,232    $     63,996
     Interest-bearing                                                                      241,676         223,275
                                                                                      ------------    ------------
             Total deposits                                                                307,908         287,271
Federal Home Loan Bank advances                                                             72,322          71,016
Other liabilities                                                                            2,361           3,193
                                                                                      ------------    ------------
             Total liabilities                                                             382,591         361,480
                                                                                      ------------    ------------
Stockholders' equity:
     Common stock, par value $.10 per share; authorized 3,000,000 shares; issued
      and outstanding, 1,684,181 shares at September 30, 2006 and 1,683,341 shares
      at December 31, 2005                                                                     168             168
     Paid-in capital                                                                        13,100          13,068
     Retained earnings                                                                      33,100          31,101
     Accumulated other comprehensive loss                                                   (1,530)         (2,895)
                                                                                      ------------    ------------
             Total stockholders' equity                                                     44,838          41,442
                                                                                      ------------    ------------
             Total liabilities and stockholders' equity                               $    427,429    $    402,922
                                                                                      ============    ============

              The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

4
<PAGE>
<TABLE>
<CAPTION>

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

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

                             (amounts in thousands, except per share data)
                                      September 30, 2006 and 2005
                                              (unaudited)

                                                                 Nine Months Ended   Three Months Ended
                                                                   September 30,       September 30,
                                                                  2006      2005      2006      2005
                                                                  ----      ----      ----      ----
<S>                                                              <C>       <C>       <C>       <C>
Interest and dividend income:
     Interest and fees on loans                                  $11,471   $ 9,811   $ 3,999   $ 3,362
Interest on debt securities:
       Taxable                                                     3,967     3,497     1,405     1,258
       Tax-exempt                                                  1,652     1,857       595       575
     Dividends on equity securities                                  211       158        81        57
     Other interest                                                   60        52        31        20
                                                                 -------   -------   -------   -------
           Total interest and dividend income                     17,361    15,375     6,111     5,272
                                                                 -------   -------   -------   -------
Interest expense:
     Interest on deposits                                          4,843     2,962     1,886     1,075
     Interest on Federal Home Loan Bank advances                   2,609     2,333       868       831
                                                                 -------   -------   -------   -------
           Total interest expense                                  7,452     5,295     2,754     1,906
                                                                 -------   -------   -------   -------
           Net interest and dividend income                        9,909    10,080     3,357     3,366
Provision for loan losses                                              0       270         0        90
                                                                 -------   -------   -------   -------
          Net interest and dividend income after provision for
              loan losses                                          9,909     9,810     3,357     3,276
                                                                 -------   -------   -------   -------
Noninterest income:
     Trust department income                                       1,410     1,119       476       342
     Loan commissions                                                 80       226        35       101
     Service charges on deposit accounts                             527       470       168       167
     Gain on sales of available-for-sale securities, net             294     1,227       233       390
     Gain on sales of loans held-for-sale                            290       176        60        40
     Other income                                                    638       672       241       235
                                                                 -------   -------   -------   -------
           Total noninterest income                                3,239     3,890     1,213     1,275
                                                                 -------   -------   -------   -------
Noninterest expense:
     Salaries and employee benefits                                5,262     5,359     1,852     1,849
     Occupancy expense                                               538       524       186       175
     Equipment expense                                               586       557       205       183
     Data processing                                                 869       796       259       240
     Insurance                                                        95       111        32        36
     Printing and stationery                                         183       209        54        46
     Professional fees                                               303       223       123        89
     Legal expense                                                    94       144        31        43
     Amortization of core deposit intangible                         123       123        41        41
     Other expense                                                   877     1,013       318       366
                                                                 -------   -------   -------   -------
           Total noninterest expense                               8,930     9,059     3,101     3,068
                                                                 -------   -------   -------   -------
           Income before income taxes                              4,218     4,641     1,469     1,483
Income taxes                                                         905       873       309       352
                                                                 -------   -------   -------   -------
           Net income                                            $ 3,313   $ 3,768   $ 1,160   $ 1,131
                                                                 =======   =======   =======   =======

Earnings per common share                                        $  1.97   $  2.24   $  0.69   $  0.67
                                                                 -------   -------   -------   -------
Dividends per common share                                       $  0.78   $  0.75   $  0.26   $  0.25
                                                                 -------   -------   -------   -------

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

</TABLE>

5
<PAGE>
<TABLE>
<CAPTION>

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

                      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -----------------------------------------------
                                   (amounts in thousands)
                       Nine months ended September 30, 2006 and 2005
                                        (unaudited)
                                                                          2006        2005
                                                                          ----        ----
<S>                                                                        <C>         <C>
Cash flows from operating activities:
      Net income                                                      $  3,313    $  3,768
Adjustments to reconcile net income to net cash provided
      by operating activities:
        Amortization of securities, net                                     60         224
        Gain on sales of available-for-sale securities, net               (294)     (1,227)
        Provision for loan losses                                            0         270
        Change in loans held-for-sale                                     (150)        239
        Net decrease in mortgage servicing rights                           46           0
        Depreciation and amortization                                      406         390
        Amortization of core deposit intangible                            123         123
        Accretion of fair value adjustment on deposits & borrowings       (102)       (116)
        Amortization of fair value adjustment on loans                      88         157
        (Increase) decrease in interest receivable                         (52)        236
        Deferred tax benefit                                              (195)          0
        Decrease in taxes receivable                                       256         298
        Increase in prepaid expenses                                      (476)       (680)
        Increase in cash surrender value of insurance policies             (90)        (90)
        (Increase)decrease in other assets                                 (74)         92
        (Decrease) increase in accrued expenses                           (475)         37
        Increase in interest payable                                       111           2
        Decrease in other liabilities                                      (35)       (157)
        Issuance of shares for Directors' fees                              32          36
        Decrease in unearned income on loans                              (102)          0
                                                                      --------    --------

Net cash provided by operating activities                                2,390       3,602
                                                                      --------    --------

Cash flows from investing activities
    Sale of Federal Home Loan Bank stock                                   860           0
    Purchases of available-for-sale securities                         (61,650)    (71,775)
    Proceeds from sales of available-for-sale securities                44,268      66,688
    Proceeds from maturities of available-for-sale securities            6,797      30,872
    Proceeds from maturities of held-to-maturity securities                 71          64
    Loan originations and principal collections, net                   (15,207)     (5,872)
    Recoveries of loans previously charged-off                              43          31
    Capital expenditures                                                  (159)       (884)
                                                                      --------    --------

Net cash (used in) provided by investing activities                    (24,977)     19,124
                                                                      --------    --------

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

</TABLE>

6
<PAGE>
<TABLE>
<CAPTION>

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

                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                    -----------------------------------------------
                                 (amounts in thousands)
                     Nine months ended September 30, 2006 and 2005
                                      (unaudited)
                                      (continued)
                                                                      2006        2005
                                                                      ----        ----
<S>                                                                <C>         <C>
Cash flows from financing activities:
  Net decrease in demand deposits, NOW and savings accounts         (6,957)     (4,938)
  Net increase (decrease) in time deposits                          27,598      (9,479)
  Federal Home Loan Bank advances                                   10,000      15,987
  Principal payments on advances from Federal Home Loan Bank       (10,227)    (22,651)

  Net change in short term advances from Federal Home Loan Bank      1,631           0
  Dividends paid                                                    (1,296)     (1,249)
                                                                  --------    --------

  Net cash provided by (used in) financing activities               20,749     (22,330)
                                                                  --------    --------


Net (decrease) increase in cash and cash equivalents                (1,838)        396
Cash and cash equivalents at beginning of period                    10,204      11,678
                                                                  --------    --------
Cash and cash equivalents at end of period                        $  8,366    $ 12,074
                                                                  ========    ========

Supplemental disclosures:
  Interest paid                                                   $  7,500    $  5,293

  Income taxes paid                                                    844         615


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

7
<PAGE>

                     SALISBURY BANCORP, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

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

The  accompanying   condensed  consolidated  interim  financial  statements  are
unaudited and include the accounts of Salisbury  Bancorp,  Inc. (the "Company"),
its wholly owned subsidiary  Salisbury Bank and Trust Company (the "Bank"),  and
the  Bank's   subsidiaries,   S.B.T.  Realty,  Inc.  and  SBT  Mortgage  Service
Corporation  (the  "PIC").  The  consolidated  financial  statements  have  been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America (GAAP) for interim  financial  information and with the
instructions  to SEC  Form  10-Q.  Accordingly,  they  do not  include  all  the
information and footnotes  required by GAAP for complete  financial  statements.
All significant  intercompany  accounts and transactions have been eliminated in
the  consolidation.  These  financial  statements  reflect,  in the  opinion  of
Management,  all adjustments,  consisting of only normal recurring  adjustments,
necessary for a fair  presentation of the Company's  financial  position and the
results  of its  operations  and  its  cash  flows  for the  periods  presented.
Operating results for the three and nine months ended September 30, 2006 are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 2006. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's 2005 Annual
Report on Form 10-K.

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

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

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

<TABLE>
<CAPTION>

Comprehensive Income
                                                   Nine months ended         Three months ended
                                                      September 30,             September 30,
                                                     2006      2005            2006       2005
                                                     ----      ----            ----       ----
<S>                                                <C>       <C>              <C>       <C>
                                                 (amounts in thousands)     (amounts in thousands)

Net income                                         $ 3,313   $ 3,768          $ 1,160   $ 1,131
Net change in unrealized holding gains or losses
 on securities and minimum pension liability
  adjustment, net of tax during period               1,365      (661)           3,112      (739)
                                                   -------   -------          -------   -------
Comprehensive income                               $ 4,678   $ 3,107          $ 4,272   $   392
                                                   =======   =======          =======   =======
</TABLE>

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

"Share-Based  Payment"  ("SFAS 123R")  requires that the cost resulting from all
share-based  payment  transactions be recognized in the  consolidated  financial
statements. It establishes fair value as the measurement objective in accounting
for  share-based  payment  arrangements  and  requires  all  entities to apply a
fair-value  based  measurement  method in  accounting  for  share-based  payment
transactions with employees except for equity instruments held by employee share
ownership  plans.  This  Statement  became  effective  for the Company as of the
beginning  of the first  interim or annual  reporting  period  that began  after
December 15, 2005. The Statement is not anticipated to have a material impact on
the  Company's  financial  position  or  results of  operations  as there are no
share-based  payment  arrangements  with employees and the compensation  expense
related to the Directors Stock Retainer Plan is not anticipated to be material.

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

8
<PAGE>

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

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

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

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

<TABLE>
<CAPTION>
                                              Nine Months Ended         Three Months Ended
                                                September 30,             September 30,
                                              2006         2005         2006         2005
                                              -----------------         -----------------
<S>                                          <C>          <C>           <C>          <C>
Components of net periodic benefit cost:
   Service cost                            $ 322,526    $ 349,928    $  79,661    $ 116,643
   Interest cost                             238,733      218,119       75,237       72,706
   Expected return on plan assets           (221,699)    (200,709)     (78,866)     (66,903)
   Amortization of:
     Prior service cost                          670          670          223          224
     Transition obligation                         0        2,078            0          692
   Recognized net loss                        66,896       49,002       18,633       16,334
                                           ---------    ---------    ---------    ---------
   Net periodic benefit cost               $ 407,126    $ 419,088    $  94,888    $ 139,696
                                           =========    =========    =========    =========
<CAPTION>

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

<S>                                          <C>            <C>            <C>            <C>
   Discount rate                             6.00%          6.00%          6.00%          6.00%
   Average wage increase             Graded table*  Graded table*  Graded table*  Graded table*
    Expected return on plan assets           7.50%          7.25%          7.50%          7.25%
</TABLE>

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


9
<PAGE>


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

Business
--------

The following  provides  Management's  comments on the  financial  condition and
results of operations of Salisbury Bancorp, Inc. (the "Company"),  a Connecticut
corporation  that is the holding  company for  Salisbury  Bank and Trust Company
(the "Bank").  The Company's sole subsidiary is the Bank, which has six (6) full
service offices  including a Trust and Investment  Services  Division located in
the towns of Canaan, Lakeville,  Salisbury and Sharon, Connecticut and Sheffield
and South Egremont,  Massachusetts. The Company and Bank were formed in 1998 and
1848,  respectively.  In  order to  provide  a strong  foundation  for  building
shareholder  value and servicing  customers,  the Company  remains  committed to
investing in the technological  and human resources  necessary to developing new
personalized  financial  products  and  services  in order to better  serve both
current and future customers in the tri-state area. On October 6, 2006, the Bank
announced  that it had  entered  into a purchase  and  assumption  agreement  to
acquire  certain assets and  liabilities of a small branch of New York Community
Bank. The acquisition is subject to state and federal  regulatory  approvals and
makes it possible for the Company and the Bank to establish  additional  offices
in New York State subject to regulatory  approvals.  This  discussion  should be
read in conjunction  with Salisbury  Bancorp,  Inc.'s Annual Report on Form 10-K
for the year ended December 31, 2005.


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

Overview
--------

The  Company's  net income for the nine  months  ended  September  30,  2006 was
$3,313,000. This compares to earnings of $3,768,000 for the same period in 2005.
Earnings per share for the nine months ended  September  30, 2006 totaled  $1.97
per share that  compared  to earnings  per share of $2.24 for the  corresponding
period in 2005. The decrease in earnings is primarily attributable to a decrease
in  noninterest  income;  specifically,  reduced income from gains in securities
transactions  when  comparing  the two periods.  During the first nine months of
2006, the Company's gains on sale of  available-for-sale  securities amounted to
$294,000  as  compared  with  $1,227,000  during  the same  period  in 2005.  In
addition, the Federal Reserve Bank continued to move interest rates upward until
the third quarter of 2006 when the tightening stopped. Total noninterest expense
for the first nine months of 2006  decreased  $129,000 or 1.42% when compared to
the  corresponding  period in 2005.  This  decrease is  primarily  the result of
management's continuing efforts to control operating expenses.

The  Company's  assets at September  30, 2006 totaled  $427,429,000  compared to
total assets of  $402,922,000  at December 31,  2005.  New business  development
efforts  have  resulted  in the growth of net loans  outstanding  which  totaled
$231,167,000  at September 30, 2006. This is an increase of $15,178,000 or 7.03%
when  compared  to total  net  loans  of  $215,989,000  at  December  31,  2005.
Non-performing  loans  totaled  $1,130,000  at September 30, 2006 as compared to
non-performing  loans totaling $773,000 at December 31, 2005. Although the total
represents  an  increase of 46.18%,  the dollar  difference  is  $357,000  which
reflects  only  a  small  number  of  additional  loans  when  compared  to  the
non-performing  loan list at December  31,  2005,  and is not  considered  to be
indicative of any trend.  The Bank  continues to monitor the quality of the loan
portfolio  to ensure  that loan  quality  will not be  sacrificed  for growth or
otherwise  compromise the Company's  objectives.  Deposits at September 30, 2006
totaled  $307,908,000  as compared to total deposits of $287,271,000 at December
31, 2005. This is an increase $20,637,000 or 7.18%.  Approximately $14.5 million
of this  growth is the result of the Bank's  decision  to begin  using  brokered
deposits as part of a growth  strategy.  The  remaining  growth is primarily the
result of the Company's new business development plan. As of September 30, 2006,
the most recent  notification  from the Federal  Deposit  Insurance  Corporation
categorized the Bank as "well  capitalized"  under the regulatory  framework for
prompt  corrective  action.  The  Company's  total risk based  capital ratio was
16.36%,  the Tier 1 capital  ratio was 15.23% and the leverage  ratio was 8.46%.
The Board of Directors declared a third quarter cash dividend of $.26 per common
share,  which  was paid on  October  31,  2006 to  shareholders  of record as of
September  29, 2006.  This  compared to a cash dividend of $.25 per common share
that was paid for the third quarter of 2005.  Year-to-date  dividends total $.78
per common share for this year. This compares to total year-to-date dividends of
$.75 per common share one year ago.

10
<PAGE>


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

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


                      NINE MONTHS ENDED SEPTEMBER 30, 2006
               AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2005

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

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

(amounts in thousands)
Nine Months Ended September 30,          2006        2005
                                         ----        ----
Total Interest and Dividend Income
(financial statements)                 $ 17,361    $ 15,375
Tax Equivalent Adjustment                   851         957
                                       --------    --------
Total Interest and Dividend Income
      (on an FTE basis)                  18,212      16,332
Total Interest Expense                   (7,452)     (5,295)
                                       --------    --------
Net Interest and Dividend Income-FTE   $ 10,760    $ 11,037
                                       ========    ========

Total  interest  and  dividend  income on an FTE basis for the nine months ended
September  30,  2006,  when  compared  to the same  period  in  2005,  increased
$1,880,000 or approximately  11.51%. The increase was primarily  attributable to
an economic environment experiencing an increase in interest rates as well as an
increase in earning assets.

Interest  expense  on  deposits  for the  first  nine  months  of  2006  totaled
$4,843,000,  an increase of $1,881,000  or 63.50% as compared to $2,962,000  for
the same period in 2005.  This  increase  reflects an  economic  environment  of
generally higher interest rates as well as growth in deposits. Federal Home Loan
Bank advances increased  $1,306,000 during the nine month period ended September
30, 2006 and interest expense on these advances  increased 11.83% to $2,609,000.
This  increase  in  interest  expense  is  also   attributable  to  an  economic
environment of increasing  interest rates.  Total interest  expense for the nine
months ended  September  30, 2006 was  $7,452,000,  an increase of $2,157,000 or
40.74% when compared to the same period in 2005.

Overall,  net interest and dividend income (on an FTE basis) decreased  $277,000
or 2.51% to $10,760,000 for the period ended September 30, 2006 when compared to
the same period in 2005.


11
<PAGE>

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

Noninterest  income totaled  $3,239,000 for the nine months ended  September 30,
2006. This is a decrease of $651,000 or 16.74% compared to noninterest income of
$3,890,000  for the nine months  ended  September  30,  2005.  Gains on sales of
available-for-sale  securities  decreased  76.04% to $294,000 for the first nine
months of 2006 compared to the  corresponding  period in 2005.  This decrease is
primarily the result of the movement of market rates during the year.  The yield
curve  continued  to flatten  and was  inverted  at times  during the first nine
months  of 2006  which  limited  opportunities  to  generate  gains  on sales of
available-for-sale  securities.  It appears  that the Federal  Reserve  Bank has
ceased its  tightening  strategy as  evidenced  by their  decision  not to raise
interest rates at their last meeting.  It is anticipated that a period of easing
may  begin in 2007.  Continuing  growth of the  trust  and  investment  services
division  has  resulted in an increase in trust  income of $291,000 or 26.01% to
$1,410,000  for the first nine months of 2006,  which compares to $1,119,000 for
the same period in 2005. Other income has remained consistent when comparing the
first nine  months of 2006 to the same period in 2005.  This  category of income
primarily consists of fees associated with transaction accounts and in addition,
fees  related to the  origination  and  servicing  of  mortgage  loans and gains
related to the sale of mortgage loans.

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

Noninterest  expense  decreased  $129,000  or 1.42% for the first nine months of
2006 as compared to the same period in 2005.  Although  there are some increases
in noninterest  expenses which are  attributable  to normal volumes of business,
the overall decreases in the noninterest  expenses listed in the table below are
all  primarily  attributable  to  management's  continuing  efforts  to  control
operating expenses. The components of noninterest expense and the changes in the
period were as follows (amounts in thousands):

                                           2006     2005    Change    % Change
-------------------------------------------------------------------------------
Salaries and employee benefits            $5,262   $5,359   $  (97)     (1.8)
Occupancy expense                            538      524       14       2.7
Equipment expense                            586      557       29       5.2
Data processing                              869      796       73       9.2
Insurance                                     95      111      (16)    (14.4)
Printing and stationery                      183      209      (26)    (12.4)
Professional fees                            303      223       80      35.9
Legal expense                                 94      144      (50)    (34.7)
Amortization of core deposit intangible      123      123        0        .0
Other expense                                877    1,013     (136)    (13.4)
                                          ------   ------   ------
      Total noninterest expense           $8,930   $9,059   $ (129)     (1.4)
                                          ======   ======   ======

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

The income tax provision  for the first nine months of 2006 totaled  $905,000 in
comparison to $873,000 for the same nine month period in 2005.  Pretax income in
2006 was $4,218,000 and included tax exempt income totaling  $1,652,000.  Pretax
income  in  2005  was  $4,641,000  and  included  tax  exempt  income   totaling
$1,857,000.  The increase in the income tax provision is primarily  attributable
to an increase in taxable income.

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

Overall,  net income totaled  $3,313,000 for the nine months ended September 30,
2006 and  represents  earnings  of $1.97 per  average  share  outstanding.  This
compares to net income of $3,768,000 or $2.24 per average share  outstanding for
the same period in 2005.

12
<PAGE>

                      THREE MONTHS ENDED SEPTEMBER 30, 2006
              AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2005

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

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

(amounts in thousands)
Three Months Ended September 30                               2006       2005
                                                            -------    -------
 Total Interest and Dividend Income
(financial statements)                                      $ 6,111    $ 5,272
Tax Equivalent Adjustment                                       307        296
                                                            -------    -------
     Total Interest and Dividend Income (on an FTE basis)     6,418      5,568
Total Interest Expense                                       (2,754)    (1,906)
                                                            -------    -------
Net Interest and Dividend Income-FTE                        $ 3,664    $ 3,662
                                                            =======    =======

Total  interest and  dividend  income on an FTE basis for the three months ended
September 30, 2006 increased $850,000 or 15.27% when compared to the same period
in 2005. The increase was primarily attributable to an economic environment with
generally higher interest rates and an increase in earning assets.

Interest  expense on  deposits  increased  $811,000 or 75.44% for the quarter to
$1,886,000 compared to $1,075,000 for the same quarter in 2005. This increase is
primarily the result of an economic  environment  of increasing  interest  rates
coupled with an increased  deposit  base.  Federal Home Loan Bank  advances have
increased  slightly  during the three month period ended September 30, 2006 when
compared  to the  corresponding  period  in  2005.  Interest  expense  on  these
advances,  has  increased  $37,000 or 4.45% and totaled  $868,000  for the three
months  ended  September  30, 2006  compared to $831,000  for the  corresponding
period in 2005. Total interest expense for the three months ending September 30,
2006 was $2,754,000  compared to total  interest  expense for the same period in
2005 of  $1,906,000,  an  increase of  $848,000  or 44.49%.  This  increase is a
reflection of an economic environment of rising interest rates and the result of
generally higher interest rates on Federal Home Loan Bank advances.

Overall,  net interest and dividend income (on an FTE basis) increased $2,000 to
$3,664,000 for the three month period ended  September 30, 2006 when compared to
the  corresponding  period in 2005.  The  increase in net  interest and dividend
income-FTE in the third quarter of 2006 is partially a reflection of the Federal
Reserve Bank's decision to cease tightening efforts during the quarter.  At this
time it is anticipated  that the Federal  Reserve Bank could begin easing during
2007.

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

Noninterest  income totaled  $1,213,000 for the three months ended September 30,
2006 as compared to  $1,275,000  for the three months ended  September 30, 2005.
This decrease of $62,000 or 4.86% is  attributable  to reduced income from gains
in  securities  transactions.  Gains on sales of  available-for-sale  securities
totaled  $233,000 for the third quarter of 2006. This compares to gains on sales
of  available-for-sale  securities of $390,000 for the  corresponding  period in
2005. This decrease is primarily the result of the movement of market rates. The
yield curve remained flat which limited opportunities to generate gains on sales
of available-for-sale  securities.  However, as reported previously, the Federal
Reserve Bank  apparently  has ceased  tightening and this change has resulted in
new   opportunities   during  the  quarter  to  generate   gains  on  securities
transactions.  Loan  commissions  for the  quarter  totaled  $35,000.  This is a
decrease  when  compared  to  loan   commissions   totaling   $101,000  for  the
corresponding period in 2005. This is not a reflection of the volume of activity
in the  secondary  mortgage  market,  but is a  reflection  of  using  different
investors with products that generate lower  commissions upon sale.  Income from
the trust and  investment  services  division  increased  $134,000  or 39.18% to
$476,000 for the third quarter of 2006 compared to the same period in 2005. This
is primarily the result of continued  growth in assets under  management.  Other
noninterest  income is primarily  related to fees  associated  with  transaction
accounts and fees related to the


13
<PAGE>

origination  and  servicing of mortgage  loans and gains  related to the sale of
mortgage  loans.  The  volumes of these  transactions  are driven  primarily  by
consumer demand which results in variances from quarter to quarter. Year-to-date
volumes, however, are consistent when comparing 2006 to 2005.

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

Noninterest  expense  totaled  $3,101,000  for  the  three  month  period  ended
September  30, 2006 as compared to  $3,068,000  for the same period in 2005,  an
increase of $33,000 or 1.08%.  The  components  of  noninterest  expense and the
changes in the period were as follows (amounts in thousands):

                                           2006     2005    Change    % Change
-------------------------------------------------------------------------------
Salaries and employee benefits            $1,852   $1,849   $    3        .2
Occupancy expense                            186      175       11       6.3
Equipment expense                            205      183       22      12.0
Data processing                              259      240       19       7.9
Insurance                                     32       36       (4)     (1.1)
Printing and stationery                       54       46        8      17.4
Professional fees                            123       89       34      38.2
Legal expense                                 31       43      (12)    (27.9)
Amortization of core deposit intangible       41       41        0         0
Other expense                                318      366      (48)    (13.1)
                                          ------   ------   ------
      Total noninterest expense           $3,101   $3,068   $   33       1.1
                                          ======   ======   ======

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

The income tax  provision  for the three month period ended  September  30, 2006
totaled  $309,000 in  comparison  to $352,000 for the same three month period in
2005. The decrease in the income tax provision is  attributable to a decrease in
taxable income.

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

Overall,  net income totaled $1,160,000 for the three months ended September 30,
2006 and  represents  earnings of $.69 per common  share.  This  compares to net
income of  $1,131,000  for the same  period in 2005,  an  increase  in the third
quarter of 2006 of $29,000 or 2.56% and  compares to earnings  per share of $.67
for the third quarter of 2005.


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

Total assets at September 30, 2006 were  $427,429,000,  compared to $402,922,000
at December  31,  2005,  an increase of  approximately  6.08%.  The  increase is
primarily the result of an increase in loans and the securities portfolio during
the period that were funded by an increase in deposits.

Securities
----------

During the nine months ended  September  30,  2006,  the  securities  portfolio,
including  Federal  Home  Loan Bank  stock,  increased  $11,510,000  or 7.61% to
$162,678,000  from  $151,168,000  at  December  31,  2005.  The  make  up of the
securities  portfolio is diversified among U.S.  Government  sponsored agencies,
mortgage-backed  securities and securities issued by states of the United States
and political subdivisions of the states.

Securities   are   classified   in   the   portfolio   as   either    securities
available-for-sale  or securities  held-to-maturity.  Almost all  securities are
classified as available-for-sale.  The securities reported as available-for-sale
are stated at fair value in the financial statements of the Company.  Unrealized
holding gains and losses on  available-for-sale  securities  (accumulated  other
comprehensive  income/loss) are not included in earnings,  but are reported as a
net  amount  (less  expected  tax) in a  separate  component  of  capital  until
realized.  At September 30, 2006, the unrealized loss net of tax was $1,530,000.
This  compares to an  unrealized  loss net of tax of  $2,895,000 at December 31,
2005. The unrealized  losses in these  securities are attributable to changes in
market interest rates.  Management deems the securities that


14
<PAGE>

are  currently  in an  unrealized  loss  position as not other than  temporarily
impaired.  The securities reported as securities  held-to-maturity are stated at
amortized cost.

Lending
-------

New business  development during the first half of 2006 coupled with an increase
in  loan  demand  resulted  in  an  increase  in  total  loans   outstanding  to
$233,751,000 at September 30, 2006. This compares to total loans  outstanding of
$218,623,000  at December 31, 2005. This is an increase of $15,128,000 or 6.92%.
Competition for loans remains  aggressive in the Bank's market area,  especially
in the residential mortgage loan market.

The following table  represents the composition of the loan portfolio  comparing
September 30, 2006 to December 31, 2005:

                                         September 30, 2006    December 31, 2005
                                         ------------------    -----------------
(amounts in thousands)
Commercial, financial and agricultural       $  15,600            $  15,354
Real Estate-construction and land
     development                                17,764               18,814
Real Estate-residential                        141,008              135,619
Real Estate-commercial                          50,700               40,889
Consumer                                         8,640                7,900
Other                                               39                   47
                                             ---------            ---------
   Loans outstanding                           233,751              218,623
Unearned income                                     (4)                  (8)
Allowance for loan losses                       (2,580)              (2,626)
                                             ---------            ---------
Net Loans                                    $ 231,167            $ 215,989
                                             =========            =========

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

Net loans at September 30, 2006 increased 7.03% to $231,167,000 when compared to
net  loans  of  $215,989,000  at  December  31,  2005.  At  September  30,  2006
approximately  90% of the Bank's  loan  portfolio  was  related  to real  estate
products.  The  concentration  remained  consistent as approximately  91% of the
portfolio  was  related  to real  estate at  December  31,  2005.  There were no
material changes in the composition of the loan portfolio during this period.

Credit risk is inherent in the business of extending  loans.  The Bank  monitors
the quality of the  portfolio to ensure that loan quality will not be sacrificed
for growth or otherwise  compromise the Bank's objectives.  Because of this risk
associated  with extending  loans,  the Bank maintains an allowance for loan and
lease losses through charges to earnings. No provision to the allowance for loan
losses was warranted  during the first nine month period of 2006.  This compares
to loan loss provisions of $270,000 made during the comparable period in 2005.

The Bank  evaluates the adequacy of the allowance no less  frequently  than on a
quarterly basis. No material changes have been made in the estimation methods or
assumptions  that the Bank uses in making this  determination  during the period
ended  September 30, 2006.  Such  evaluations are based on assessments of credit
quality and "risk  rating" of loans by senior  management,  which is reviewed by
the Bank's Loan  Committee on a regular  basis.  Loans are initially  risk rated
when originated.  If there is  deterioration  in the credit,  the risk rating is
adjusted accordingly.

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

15
<PAGE>

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

      1.    Non-accrual status;
      2.    Loans over 90 days delinquent;
      3.    Troubled debt restructures consummated after December 31, 1994;
      4.    Loans  classified as "doubtful",  meaning that they have weaknesses,
            which  make  collection  or  liquidation  in full,  on the  basis of
            currently   existing   facts,   conditions,   and   values,   highly
            questionable and improbable.

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

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

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

Nonperforming  loans,  which include all loans that are on a non-accrual  status
along  with  loans  that are 90 days or more  past due and still  accruing,  are
closely  monitored by  management.  At September 30, 2006,  nonperforming  loans
totaled  $1,130,000  or 0.48% of total loans  outstanding  of  $233,751,000.  At
September  30,  2006,   the  allowance  for  loan  losses   totaled   $2,580,000
representing  228.32%  of  nonperforming  loans.   Nonperforming  loans  totaled
$773,000 or 0.35% of total loans  outstanding  of  $218,615,000  at December 31,
2005. The allowance for loan losses totaled  $2,626,000 at December 31, 2005 and
represented  339.71% of  nonperforming  loans.  A total of $89,000 of loans were
charged off by the Bank during the nine months ended  September 30, 2006.  These
charged-off loans consisted  primarily of consumer loans. This compares to loans
charged off during the nine month period ended  September 30, 2005 which totaled
$69,000. A total of $43,000 of previously charged-off loans was recovered during
the nine month period ended  September 30, 2006.  Recoveries for the same period
in 2005 totaled $31,000.  While management  estimates loan losses using the best
available  information,  no assurances can be given that future additions to the
allowance  will not be  necessary  based on changes in economic  and real estate
market  conditions,   further  information  obtained  regarding  problem  loans,
identification  of  additional  problem  loans or other  factors.  Additionally,
future additions to the allowance may be necessary to maintain adequate coverage
ratios.

Deposits
--------

The Company offers a variety of deposit  accounts with a range of interest rates
and terms.  The following  table  illustrates  the  composition of the Company's
deposits at September 30, 2006 and December 31, 2005:

                         September 30, 2006    December 31, 2005
                         ------------------    -----------------
                                 (amounts in thousands)

Demand                      $     66,233         $     63,996
NOW                               23,963               25,900
Money Market                      53,466               57,401
Savings                           48,244               51,567
Time                             116,002               88,407
                            ------------         ------------
Total Deposits              $    307,908         $    287,271
                            ============         ============

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


16
<PAGE>

Borrowings
----------

The Company  utilizes  advances  from the Federal  Home Loan Bank as part of its
operating  strategy to supplement  deposit  growth and fund its asset growth,  a
strategy that is designed to increase  interest income.  These advances are made
pursuant to various credit programs, each of which has its own interest rate and
range of  maturities.  At September  30, 2006,  the Company had  $72,322,000  in
outstanding  advances from the Federal Home Loan Bank compared to $71,016,000 at
December 31, 2005.  Management  expects that it will  continue  this strategy of
supplementing deposit growth with advances from the Federal Home Loan Bank.

Off-Balance Sheet Arrangements

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

Loan  commitments  have credit  risk  essentially  the same as that  involved in
extending  loans to  customers.  They are  subject  to  normal  credit  approval
procedures and policies. Collateral is obtained based on management's assessment
of the customer's  credit.  The accompanying  table summarizes the Company's off
balance sheet  lending-related  financial  instruments by remaining  maturity at
September 30, 2006:

September 30, 2006
(amounts in thousands)

<TABLE>
<CAPTION>
 By remaining maturity           Less than 1 year  1-3 years    4-5 years   After 5 years   Total
--------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>         <C>           <C>         <C>

Off balance sheet lending-related
Financial Instruments
    Residential real estate related     $ 8,899      $ 2,137     $     0       $26,610     $37,646
    Commercial related                   13,109          204           0         1,155      14,468
    Consumer related                                                             7,064       7,064
    Standby letters of credit                             22                                    22
--------------------------------------------------------------------------------------------------
    Total                               $22,008      $ 2,363     $     0       $34,829     $59,200
--------------------------------------------------------------------------------------------------
</TABLE>

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

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

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

An interest rate sensitivity gap is defined as the difference between the amount
of  interest-earning  assets maturing or repricing within a specific time period
and the amount of interest-bearing liabilities maturing or repricing within that
same  period.  A gap is  considered  positive  when the amount of interest  rate
sensitive  assets exceeds the amount of interest rate sensitive  liabilities.  A
gap  is  considered   negative  when  the  amount  of  interest  rate  sensitive
liabilities  exceeds the amount of interest rate sensitive  assets. At September
30, 2006, the Company maintains a liability  sensitive  (negative gap) position.
This would suggest that during a period of declining interest rates, the Company


17
<PAGE>

would be in a better position to increase net interest income.  To the contrary,
during a period of rising  interest  rates,  a  negative  gap would  result in a
decrease in interest  income.  The level of interest  rate risk at September 30,
2006 is within the limits approved by the Board of Directors.

Liquidity
---------

Liquidity is the ability to raise funds on a timely basis at an acceptable  cost
in  order  to meet  cash  needs.  Adequate  liquidity  is  necessary  to  handle
fluctuations in deposit levels,  to provide for customers'  credit needs, and to
take advantage of investment  opportunities  as they are presented.  The Company
manages  liquidity  primarily  with readily  marketable  investment  securities,
deposits and loan repayments. The Company's subsidiary, the Bank, is a member of
the Federal Home Loan Bank of Boston.  This enhances the  liquidity  position by
providing a source of available  borrowings.  At September  30, 2006 the Company
had  approximately  $59,200,000  in  loan  commitments  outstanding.  Management
believes  that the current  level of  liquidity  is ample to meet the  Company's
needs for both the present and foreseeable future.

Capital
-------

At September 30, 2006, the Company had $44,838,000 in stockholders'  equity,  an
increase  of 8.20% when  compared  to December  31,  2005  stockholders'  equity
totaling  $41,442,000.  Earnings for the nine-month  period ended  September 30,
2006 totaled $3,313,000. Market conditions resulted in a decrease in accumulated
other comprehensive loss to $1,530,000 from $2,895,000 at December 31, 2005.

A review and analysis of securities has determined that there has been no credit
deterioration and that the unrealized loss on securities  available-for-sale  is
due to the current interest rate environment and management deems the securities
to be not other than  temporarily  impaired.  The  Company  has  declared  three
quarterly  dividends  resulting  in a decrease  in capital  of  $1,313,000.  The
Company  issued 840 new shares of common stock under the terms of the  Directors
Stock  Retainer Plan that  resulted in an increase in capital of $32,000.  Under
current  regulatory  definitions,  the Company and the Bank are considered to be
"well capitalized" for capital adequacy purposes. As a result, the Bank pays the
lowest federal  deposit  insurance  premiums  possible.  One primary  measure of
capital  adequacy for  regulatory  purposes is based on the ratio of  risk-based
capital to risk-weighted assets. This method of measuring capital adequacy helps
to establish capital  requirements that are more sensitive to the differences in
risk  associated with various assets.  It takes into account  off-balance  sheet
exposure in assessing capital adequacy and it minimizes disincentives to holding
liquid,  low-risk  assets.  At September 30, 2006,  the Company had a total risk
based  capital ratio of 16.36%  compared to 15.76% at December 31, 2005.  Tier 1
capital ratio was 15.23% and the leverage  ratio was 8.46%.  Maintaining  strong
capital is  essential  to bank  safety and  soundness.  However,  the  effective
management of capital resources requires generating attractive returns on equity
to build value for shareholders while maintaining  appropriate levels of capital
to fund growth,  meet  regulatory  requirements  and be consistent  with prudent
industry  practices.  Management believes that the capital levels of the Company
and Bank are adequate to continue to meet the  foreseeable  capital needs of the
institutions.

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

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


18
<PAGE>

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

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

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

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

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

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

(a)   the risk of adverse changes in business conditions in the banking industry
      generally and in the specific markets in which the Bank operates;
(b)   changes in the  legislative  and regulatory  environment  that  negatively
      impact the Company and Bank through increased operating expenses;
(c)   increased competition from other financial and non-financial institutions;
(d)   the impact of technological advances; and
(e)   other risks  detailed from time to time in the Company's  filings with the
      Securities and Exchange Commission.

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

       Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The main  components  of market risk for the Company are interest  rate risk and
liquidity  risk.  The Company  manages  interest  rate risk and  liquidity  risk
through an ALCO Committee  comprised of outside Directors and senior management.
The committee monitors compliance with the Bank's  Asset/Liability  Policy which
provides  guidelines  to analyze and manage the interest rate  sensitivity  gap,
which is the  difference  between  the  amount  of  assets  and the  amounts  of
liabilities  which  mature  or  reprice  during  specific  time  frames.   Model
simulation is used to measure earnings  volatility under both rising and falling
rate  scenarios.  Please refer to Interest Rate Risk and Liquidity under Item 2.
The Company's  interest rate risk and liquidity  position has not  significantly
changed from year end 2005.

                        Item 4. Controls and Procedures.

The Company's Chief  Executive  Officer and Chief  Financial  Officer  concluded
that,  based  upon  an  evaluation  as of  September  30,  2006,  the  Company's
disclosure  controls and  procedures  are  effective to ensure that  information
required  to be  disclosed  by the  Company in reports  that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported  within the time periods  specified in the SEC rules and forms and that
such  information is accumulated and  communicated to the Company's  management,
including  its  Chief  Executive   Officer  and  Chief   Financial   Officer  as
appropriate, to allow timely decisions regarding required disclosure. During the
nine  month  period  ended  September  30,  2006  there  were no  changes in the
Company's


19
<PAGE>

internal  control over financial  reporting  that  materially  affected,  or are
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.





                           Part II - OTHER INFORMATION

Item 1. - Legal Proceedings.  Not applicable

Item 1A.  Risk Factors.  Not applicable

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

Item 3. - Defaults Upon Senior Securities.  Not applicable

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

Item 5. - Other Information.  Not applicable

Item 6. - Exhibits


                  11 Computation of Earnings per Share.

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

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

                  32- Section 1350 Certifications





                             SALISBURY BANCORP, INC.

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

                                                 Salisbury Bancorp, Inc.

    Date: November 6, 2006                       by:  /s/ John F. Perotti
          ----------------                            -------------------
                                                      John F. Perotti
                                                      Chief Executive Officer

    Date: November 6, 2006                       by:  /s/ John F. Foley
          ----------------                            -----------------
                                                      John F. Foley
                                                      Chief Financial Officer


20