SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

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

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

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

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

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


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


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


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

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

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

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

                               Yes[_]       No [X]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

  Indicate the number of shares outstanding of each of the issuer's classes of
  common stock, as of the latest practicable date: As of August 4, 2006, there
                       were 1,684,181 shares outstanding.
                                      ------------------



                     SALISBURY BANCORP, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS




Part I. FINANCIAL INFORMATION                                               Page

Item 1. Financial Statements:                                                 3

        Condensed Consolidated Balance Sheets -June 30, 2006 (unaudited)
          and December 31, 2005                                               4

        Condensed Consolidated Statements of Income -six and three months
          ended June 30, 2006 and 2005  (unaudited)                           5

        Condensed Consolidated Statements of Cash Flows -six months ended
          June 30, 2006 and 2005 (unaudited)                                  6

        Notes to Condensed Consolidated Financial Statements (unaudited)      8

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk           19

Item 4. Controls and Procedures                                              19


Part II.OTHER INFORMATION

Item 1. Legal Proceedings                                                    19

Item 1A.Risk Factors                                                         19

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

Item 3. Defaults Upon Senior Securities                                      19

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

Item 5. Other Information                                                    19

Item 6. Exhibits                                                             19

Signatures                                                                   20


2


                         Part I-- FINANCIAL INFORMATION
                          Item 1. Financial Statements





3


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

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



                                                                                   June 30,    December 31,
                                                                                     2006         2005
                                                                                   ---------    ---------
                                                                                              
ASSETS
(unaudited)
Cash and due from banks                                                            $   7,208    $   8,432
Interest bearing demand deposits with other banks                                        305          652
Money market mutual funds                                                                824        1,120
                                                                                   ---------    ---------
         Cash and cash equivalents                                                     8,337       10,204
Investments in available-for-sale securities (at fair value)                         145,191      145,608
Investments in held-to-maturity securities (fair values of $77 as of
   June 30, 2006 and $147 as of December 31, 2005)                                        77          147
Federal Home Loan Bank stock, at cost                                                  4,553        5,413
Loans held-for-sale                                                                      117            0
Loans, less allowance for loan losses of $2,580 as of June 30, 2006
   and $2,626 as of December 31, 2005                                                228,337      215,989
Investment in real estate                                                                 75           75
Premises and equipment                                                                 6,319        6,452
Goodwill                                                                               9,509        9,509
Core deposit intangible                                                                1,576        1,658
Accrued interest receivable                                                            2,392        2,363
Cash surrender value of life insurance policies                                        3,484        3,424
Other assets                                                                           3,198        2,080
                                                                                   ---------    ---------
         Total assets                                                              $ 413,165    $ 402,922
                                                                                   =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
     Noninterest-bearing                                                           $  67,992    $  63,996
     Interest-bearing                                                                230,442      223,275
                                                                                   ---------    ---------
         Total deposits                                                              298,434      287,271
Federal Home Loan Bank advances                                                       70,413       71,016
Other liabilities                                                                      3,313        3,193
                                                                                   ---------    ---------
         Total liabilities                                                           372,160      361,480
                                                                                   ---------    ---------
Stockholders' equity:
  Common stock, par value $.10 per share;  authorized  3,000,000 shares;  issued
    and outstanding, 1,684,181 shares at June 30, 2006 and 1,683,341 shares
    at December 31, 2005                                                                 168          168
  Paid-in capital                                                                     13,100       13,068
  Retained earnings                                                                   32,379       31,101
  Accumulated other comprehensive loss                                                (4,642)      (2,895)
                                                                                   ---------    ---------
         Total stockholders' equity                                                   41,005       41,442
                                                                                   ---------    ---------
         Total liabilities and stockholders' equity                                $ 413,165    $ 402,922
                                                                                   =========    =========


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

4


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

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

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



                                                           Six Months Ended     Three Months Ended
                                                                June 30,            June 30,
                                                             2006      2005      2006       2005
                                                           -------   -------   -------    -------
                                                                                   
Interest and dividend income:
     Interest and fees on loans                            $ 7,471   $ 6,449   $ 3,843    $ 3,239
     Interest on debt securities:
          Taxable                                            2,562     2,239     1,294      1,137
          Tax-exempt                                         1,057     1,282       562        626
     Dividends on equity securities                            130       101        70         53
     Other interest                                             29        32        20         14
                                                           -------   -------   -------    -------
                      Total interest and dividend income    11,249    10,103     5,789      5,069
                                                           -------   -------   -------    -------
Interest expense:
     Interest on deposits                                    2,957     1,887     1,619        979
     Interest on Federal Home Loan Bank advances             1,741     1,502       912        765
                                                           -------   -------   -------    -------
               Total interest expense                        4,698     3,389     2,531      1,744
                                                           -------   -------   -------    -------
               Net interest and dividend income              6,551     6,714     3,258      3,325
Provision for loan losses                                        0       180         0         90
                                                           -------   -------   -------    -------
               Net interest and dividend income after
                     provision for  loan losses              6,551     6,534     3,258      3,235
                                                           -------   -------   -------    -------
Noninterest income:
     Trust department income                                   935       777       450        389
     Loan commissions                                           45       126        31         54
     Service charges on deposit accounts                       359       303       182        159
     Gain (loss) on sales of available-for-sale                 61       837       (13)       351
         securities, net
     Gain on sales of loans held-for-sale                      230       136       168         45
     Other income                                              397       436       183        228
                                                           -------   -------   -------    -------
               Total noninterest income                      2,027     2,615     1,001      1,226
                                                           -------   -------   -------    -------
Noninterest expense:
     Salaries and employee benefits                          3,410     3,510     1,707      1,702
     Occupancy expense                                         352       349       176        163
     Equipment expense                                         381       374       194        187
     Data processing                                           610       556       327        359
     Insurance                                                  63        75        32         35
     Printing and stationery                                   129       163        76        104
     Professional fees                                         180       134        90         60
     Legal expense                                              63       101        38         75
     Amortization of core deposit intangible                    82        82        41         41
     Other expense                                             559       647       311        239
                                                           -------   -------   -------    -------
               Total noninterest expense                     5,829     5,991     2,992      2,965
                                                           -------   -------   -------    -------
               Income before income taxes                    2,749     3,158     1,267      1,496
Income taxes                                                   596       521       261        188
                                                           -------   -------   -------    -------
               Net income                                  $ 2,153   $ 2,637   $ 1,006    $ 1,308
                                                           =======   =======   =======    =======

Earnings per common share                                  $  1.28   $  1.57   $   .60    $   .78
                                                           =======   =======   =======    =======
Dividends per average share outstanding                    $   .52   $   50   $   .26    $   .25
                                                           =======   =======   =======    =======



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

5


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

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 -----------------------------------------------
                             (amounts in thousands)
                     Six months ended June 30, 2006 and 2005
                                   (unaudited)



                                                                       2006        2005
                                                                     --------    --------
                                                                                
Cash flows from operating activities:
   Net income                                                        $  2,153    $  2,637
Adjustments to reconcile net income to net cash provided by
       operating activities:
         Amortization of securities, net                                   67         152
         Gain on sales of available-for-sale securities, net              (61)       (837)
         Provision for loan losses                                          0         180
         Change in loans held-for-sale                                   (117)        (23)
         Net decrease in mortgage servicing rights                         16           0
         Depreciation and amortization                                    272         245
         Amortization of core deposit intangible                           82          82
         Accretion of fair value adjustment on deposits/borrowings        (69)        (77)
         Amortization of fair value adjustment on loans                    63         107
         Increase in interest receivable                                  (28)        (44)
         Deferred tax benefit                                            (187)        (27)
         Decrease (increase) in taxes receivable                          280        (125)
         Increase in prepaid expenses                                    (344)       (899)
         Increase in cash surrender value of insurance policies           (60)        (60)
         Decrease in other assets                                           0         291
         Decrease in accrued expenses                                    (682)       (137)
         Increase in interest payable                                      43           1
         Increase in other liabilities                                     92          60
         Issuance of shares for Directors' fees                            32          36
         Decrease in unearned income on loans                             (54)          0
                                                                     --------    --------

Net cash provided by operating activities                               1,498       1,562
                                                                     --------    --------

Cash flows from investing activities:
  Redemption of Federal Home Loan Bank stock                              860           0
  Purchases of available-for-sale securities                          (33,644)    (49,235)
  Proceeds from sales of available-for-sale securities                 27,163      46,170
  Proceeds from maturities of available-for-sale securities             4,900      26,419
  Proceeds from maturities of held-to-maturity securities                  70          11
  Loan originations and principal collections, net                    (12,381)     (4,523)
  Recoveries of loans previously charged-off                               22          14
  Capital expenditures                                                   (125)       (710)
                                                                     --------    --------

Net cash (used in) provided by investing activities                   (13,135)     18,146
                                                                     --------    --------


6


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

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 -----------------------------------------------
                             (amounts in thousands)
                     Six months ended June 30, 2006 and 2005
                                   (unaudited)
                                   (continued)




                                                                     2006        2005
                                                                   --------    --------
                                                                          
Cash flows from financing activities:
   Net decrease in demand deposits, NOW and
       savings accounts                                              (7,443)     (5,780)
   Net increase (decrease) in time deposits                          18,609      (5,557)
   Federal Home Loan Bank advances                                   10,000      11,560
   Principal payments on advances from Federal Home Loan Bank        (9,943)    (20,786)
   Net change in short term advances from Federal Home Loan Bank       (594)          0
   Dividends paid                                                      (859)       (828)
                                                                   --------    --------

Net cash  provided by (used in) financing activities                  9,770     (21,391)
                                                                   --------    --------

Net decrease in cash and cash equivalents                            (1,867)     (1,683)
Cash and cash equivalents at beginning of year                       10,204      11,678
                                                                   --------    --------
Cash and cash equivalents at end of period                         $  8,337    $  9,995
                                                                   ========    ========


Supplemental disclosures:
   Interest paid                                                   $  4,724    $  3,388
   Income taxes paid                                                    503         673



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

7

                     SALISBURY BANCORP, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

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

The  accompanying   condensed  consolidated  interim  financial  statements  are
unaudited and include the accounts of Salisbury  Bancorp,  Inc. (the "Company"),
its wholly owned subsidiary  Salisbury Bank and Trust Company (the "Bank"),  and
the  Bank's   subsidiaries,   S.B.T.  Realty,  Inc.  and  SBT  Mortgage  Service
Corporation  (the  "PIC")  formed  in April  2004.  The  consolidated  financial
statements have been prepared in accordance with accounting principles generally
accepted  in  the  United  States  of  America  (GAAP)  for  interim   financial
information and with the instructions to SEC Form 10-Q. Accordingly, they do not
include  all  the  information  and  footnotes  required  by GAAP  for  complete
financial  statements.  All significant  intercompany  accounts and transactions
have been eliminated in the consolidation.  These financial  statements reflect,
in the  opinion  of  Management,  all  adjustments,  consisting  of only  normal
recurring  adjustments,  necessary  for a fair  presentation  of  the  Company's
financial  position and the results of its operations and its cash flows for the
periods presented.  Operating results for the six months ended June 30, 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 one source
of other  comprehensive  income is the net  unrealized  holding  gain  (loss) on
securities.

Comprehensive Income (Loss)



                                                      Six months ended       Three months ended
                                                           June 30,              June 30,
                                                       2006       2005        2006        2005
                                                     -------    -------      -------    -------
                                                                            
                                                   (amounts in thousands)  (amounts in thousands)

Net income                                           $ 2,153    $ 2,637      $ 1,006    $ 1,308
Net change in unrealized holding (losses) or gains
 on securities during period                          (1,747)        78       (2,060)     1,373
                                                     -------    -------      -------    -------
Comprehensive income (loss)                          $   406    $ 2,715      $(1,054)   $ 2,681
                                                     =======    =======      =======    =======


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

In December 2004, the Financial  Accounting  Standards  Board (FASB) issued SFAS
No. 123 (revised  2004),  "Share-Based  Payment"  ("SFAS 123R").  This Statement
revises FASB Statement No. 123,  "Accounting for Stock Based  Compensation"  and
supersedes APB Opinion No. 25,  "Accounting  for Stock Issued to Employees," and
its related implementation  guidance. SFAS 123R requires that the cost resulting
from all  share-based  payment  transactions  be recognized in the  consolidated
financial statements.  It establishes fair value as the measurement objective in
accounting for  share-based  payment  arrangements  and requires all entities to
apply a  fair-value  based  measurement  method in  accounting  for  share-based
payment  transactions  with  employees  except  for equity  instruments  held by
employee share ownership  plans.  This Statement is effective for the Company as
of the  beginning of the first  interim or annual  reporting  period that begins
after December 15, 2005.  The adoption of this  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 requires
any entity to recognize a servicing  asset or servicing  liability  each time it

8


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 No. 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 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.

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

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




                                              Six Months Ended         Three Months Ended
                                                  June 30,                 June 30,
                                           2006              2005    2006              2005
                                           ----------------------    ----------------------
                                                                         

Components of net periodic benefit cost:
   Service cost                            $ 242,865    $ 233,285    $ 121,432    $ 149,743
   Interest cost                             163,496      145,413       81,748       84,483
   Expected return on plan assets           (142,833)    (133,806)     (71,416)     (83,578)
  Amortization of:
      Prior service costs                        447          446          224          223
      Transition obligation                        0        1,386            0          693
      Actuarial loss                          48,263       32,668       24,131       15,256
                                           ---------    ---------    ---------    ---------
   Net periodic benefit cost               $ 312,238    $ 279,392    $ 156,119    $ 166,820
                                           =========    =========    =========    =========


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



                                                                 
Discount rate                   6.00%          6.00%          6.00%          6.00%
Average wage increase   Graded table*  Graded table*  Graded table*  Graded table*
Return on plan assets           7.25%          7.25%          7.25%          7.25%




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


9


                  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 to meet the needs of  customers.
This discussion  should be read in conjunction  with Salisbury  Bancorp,  Inc.'s
Annual Report on Form 10-K for the year ended December 31, 2005.

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

Overview
--------

The Company's net income for the six months ended June 30, 2006 was  $2,153,000.
This  compares to earnings of $2,637,000  for the same period in 2005.  Earnings
per share for the six months  ended June 30, 2006  totaled  $1.28 per share that
compared to earnings  per share of $1.57 for the  corresponding  period in 2005.
The decrease in earnings is primarily attributable to a decrease in non-interest
income; specifically,  reduced income from gains in securities transactions when
comparing  the two periods.  During the first six months of 2006,  the Company's
gains on sale of  available-for-sale  securities amounted to $61,000 as compared
with $837,000  during the same period in 2005. In addition,  the Federal Reserve
Bank has moved  interest  rates upward.  This action is raising short term rates
flattening  the yield curve.  As a result,  the cost of deposits and the cost of
borrowed  funds are  increasing at a faster pace than the earnings  yield on the
loan and securities  portfolios.  This interest rate environment  compresses the
net  interest  margins  for  financial   intermediaries  like  the  Bank.  Total
non-interest  expense  for the first six months of 2006  decreased  $162,000  or
2.70%  when  comparing  the  corresponding  period  in 2005.  This  decrease  is
primarily  the result of  managements  continuing  efforts to control  operating
expenses.

The  Company's  assets at June 30, 2006 totaled  $413,165,000  compared to total
assets of  $402,922,000 at December 31, 2005. New business  development  efforts
have resulted in growth in net loans outstanding  which totaled  $228,454,000 at
June 30,  2006.  This is an increase of  $12,464,000  or 5.77% when  compared to
total net loans of  $215,989,000  at December  31,  2005.  Non-performing  loans
totaled $771,000 at June 30, 2006 as compared to  non-performing  loans totaling
$773,000 at December 31, 2005.  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 June 30, 2006 totaled
$298,434,000 as compared to total deposits of $287,271,000 at December 31, 2005.
The  increase  is  primarily  the result of the Bank's  decision  to begin using
brokered  deposits as part of a growth  strategy.  As of June 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 16.13%; the
Tier 1 capital ratio was 15.00% and the leverage  ratio was 8.54%.  The Board of
Directors  declared a second  quarter  cash  dividend of $.26 per common  share,
which was paid on July 31, 2006 to  shareholders  of record as of June 30, 2006.
This  compared to a cash dividend of $.25 per common share that was paid for the
second  quarter of 2005.  Year-to-date  dividends  total  $.52 per common  share
outstanding for this year. This compares to total year-to-date dividends of $.50
per common share one year ago.

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

In preparing the Company's financial statements,  management selects and applies
numerous accounting policies.  In applying these policies,  management must make
estimates and  assumptions.  The accounting  policy that is most  susceptible to
critical  estimates  and  assumptions  is the  allowance  for loan  losses.  The
determination  of an

10


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."


                         SIX MONTHS ENDED JUNE 30, 2006
                  AS COMPARED TO SIX MONTHS ENDED JUNE 30, 2005

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

The Company's  earnings are primarily  dependent  upon net interest and dividend
income,  and to a lesser  extent its  non-interest  incomes.  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)
Six Months Ended June 30,                      2006      2005
                                             -------   -------
Total Interest and Dividend Income
(financial statements)                       $11,249   $10,103
Tax Equivalent Adjustment                        545       660
                                             -------   -------
Total Interest and Dividend Income
      (on an FTE basis)                       11,794    10,763
Total Interest Expense                         4,698     3,389
                                             -------   -------
Net Interest and Dividend Income-FTE         $ 7,096   $ 7,374
                                             =======   =======

Total interest and dividend income on an FTE basis for the six months ended June
30, 2006,  when  compared to the same period in 2005,  increased  $1,031,000  or
approximately  9.58%.  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  six  months  of  2006  totaled
$2,957,000, an increase of $1,070,000 or 56.70% which compared to $1,887,000 for
the same period in 2005.  This  increase  reflects an  economic  environment  of
generally higher interest rates as well as growth in deposits.  Although Federal
Home Loan Bank advances decreased less than 1% during the six month period ended
June  30,  2006,   interest  expense  on  these  advances  increased  15.91%  to
$1,741,000.  This  increase  in  interest  expense  is also  attributable  to an
economic  environment of increasing  interest rates.  Total interest expense for
the six months ended June 30, 2006 was $4,698,000,  an increase of $1,309,000 or
38.62% when compared to the same period in 2005.

Overall,  net interest and dividend income (on an FTE basis) decreased  $278,000
or 3.77% to  $7,096,000  for the period ended June 30, 2006 when compared to the
same period in 2005.

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

Noninterest  income  totaled  $2,027,000 for the six months ended June 30, 2006.
This is a decrease  of  $588,000 or 22.49%  compared  to  noninterest  income of
$2,615,000  for  the  six  months  ended  June  30,  2005.  Gains  on  sales  of
available-for-sale  securities  decreased  92.71% to  $61,000  for the first six
months of 2006 compared to the  corresponding  period in 2005.  This decrease is
primarily  the result of the movement of market  rates  during the quarter.  The
yield curve  continued to flatten and was inverted at times during the first six
months  of 2006  which  limited  opportunities  to  generate  gains  on sales of
available-for-sale  securities.  However,  continuing growth of the

11


trust and  investment  services  division  has  resulted in an increase in trust
income of $158,000 or 20.33% to $935,000 for the first six months of 2006, which
compares to $777,000 for the same period in 2005.

Other income has remained consistent when comparing the first six 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 2.7% for the first six 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            $3,410   $3,510   $ (100)     (2.8)
Occupancy expense                            352      349        3        .9
Equipment expense                            381      374        7       1.9
Data processing                              610      556       54       9.7
Insurance                                     63       75      (12)    (16.0)
Printing and stationery                      129      163      (34)    (20.9)
Professional fees                            180      134       46      34.3
Legal expense                                 63      101      (38)    (37.6)
Amortization of core deposit intangible       82       82        0         0
Other expense                                559      647      (88)    (13.6)
                                          ------   ------   ------    ------
      Total noninterest expense           $5,829   $5,991   $ (162)     (2.7)
                                          ======   ======   ======    ======

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

The income tax  provision  for the first six months of 2006 totaled  $596,000 in
comparison  to $521,000 for the same six month period in 2005.  Pretax income in
2006 was $2,749,000 and included tax exempt income totaling  $1,057,000.  Pretax
income  in  2005  was  $3,158,000  and  included  tax  exempt  income   totaling
$1,282,000.  The increase in the income tax provision is primarily  attributable
to an increase in taxable income.

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

Overall,  net income  totaled  $2,153,000 for the six months ended June 30, 2006
and represents earnings of $1.28 per average share outstanding. This compares to
net income of  $2,637,000 or $1.57 per average  share  outstanding  for the same
period in 2005.

                        THREE MONTHS ENDED JUNE 30, 2006
                 AS COMPARED TO THREE MONTHS ENDED JUNE 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 June 30                                    2006       2005
                                                            -------    -------
 Total Interest and Dividend Income
(financial statements)                                      $ 5,789    $ 5,069
Tax Equivalent Adjustment                                       290        322
                                                            -------    -------
     Total Interest and Dividend Income (on an FTE basis)     6,079      5,391
Total Interest (Expense)                                     (2,531)    (1,744)
                                                            -------    -------
Net Interest and Dividend Income-FTE                        $ 3,548    $ 3,647
                                                            =======    =======

12



Total  interest and  dividend  income on an FTE basis for the three months ended
June 30, 2006 increased  $688,000 or  approximately  12.76% 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  $640,000  or 65.37% for the
quarter to  $1,619,000  compared to $979,000 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  decreased  slightly  during the three month period ended June 30,
2006 when  compared to the  corresponding  period in 2005.  Interest  expense on
these advances however,  have increased  $147,000 or 19.22% and totaled $912,000
for  the  three  months  ended  June  30,  2006  compared  to  $765,000  for the
corresponding period in 2005. Total interest expense for the three months ending
June 30, 2006 was  $2,531,000  compared to total  interest  expense for the same
period in 2005 of $1,744,000,  an increase of $787,000 or 45.13%.  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) decreased $99,000 or
2.71% to $3,548,000 for the three month period ended June 30, 2006 when compared
to the corresponding period in 2005.

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

Noninterest  income totaled  $1,001,000 for the three months ended June 30, 2006
as  compared  to  $1,226,000  for the three  months  ended June 30,  2005.  This
decrease of $225,000 or 18.35% is primarily  attributable to reduced income from
gains  in  securities  transactions.   Losses  on  sales  of  available-for-sale
securities  totaled  $13,000 for the second  quarter of 2006.  This  compares to
gains  on  sales  of   available-for-sale   securities   of  $351,000   for  the
corresponding  period in 2005.  This  decrease  is  primarily  the result of the
movement  of market  rates  during the  quarter.  The yield curve  continued  to
flatten   which   limited   opportunities   to   generate   gains  on  sales  of
available-for-sale  securities.  However,  income from the trust and  investment
services division increased $61,000 or 15.68% to $450,000 for the second 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 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 $2,992,000 for the three month period ended June 30,
2006 as  compared  to  $2,965,000  for the same  period in 2005,  an increase of
$27,000 or 0.91%.  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            $1,707   $1,702   $    5        .3
Occupancy expense                            176      163       13       8.0
Equipment expense                            194      187        7       3.7
Data processing                              327      359      (32)     (8.9)
Insurance                                     32       35       (3)      (.9)
Printing and stationery                       76      104      (28)    (26.9)
Professional fees                             90       60       30      50.0
Legal expense                                 38       75      (37)    (49.3)
                                          ------   ------   ------    ------
Amortization of core deposit intangible       41       41        0         0
Other expense                                311      239      (72)    (30.1)
                                          ------   ------   ------    ------
      Total noninterest expense           $2,992   $2,965   $   27       91
                                          ======   ======   ======    ======

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

The income tax  provision for the three month period ended June 30, 2006 totaled
$261,000 in comparison to $188,000 for the same three month period in 2005.  The
increase in the income tax provision is  attributable  to an increase in taxable
income.

13


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

Overall,  net income totaled $1,006,000 for the three months ended June 30, 2006
and  represents  earnings  of $.60 per average  share  outstanding  share.  This
compares to net income of $1,308,000  for the same period in 2005, a decrease of
$302,000 or 23.09% and compares to earnings per share of $.78 for the period.

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

Total assets at June 30, 2006 were  $413,165,000,  compared to  $402,922,000  at
December 31, 2005, an increase of approximately 2.54%. The increase is primarily
the result of an  increase  in loans  during the period  that were  funded by an
increase in deposits.

Securities
----------

During the six months ended June 30, 2006, the securities  portfolio,  including
Federal Home Loan Bank stock,  decreased $1,347,000 or .89% to $149,821,000 from
$151,168,000  at December  31, 2005.  The decrease is primarily a reflection  of
portfolio  securities  being sold and called during the period with the proceeds
being used to fund loan growth.

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 June 30, 2006, the unrealized loss net of tax was $4,642,000.  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 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
$230,917,000  at June 30,  2006.  This  compares to total loans  outstanding  of
$218,615,000  at December 31, 2005. This is an increase of $12,302,000 or 5.63%.
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
June 30, 2006 to December 31, 2005:

                                         June 30, 2006    December 31, 2005
                                         -------------    -----------------
                                              (amounts in thousands)
Commercial, financial and agricultural     $  14,903          $  15,354
Real Estate-construction and land
     development                              17,843             18,814
Real Estate-residential                      139,692            135,619
Real Estate-commercial                        50,806             40,889
Consumer                                       7,596              7,900
Other                                             82                 47
                                           ---------          ---------
                                             230,922            218,623
Unearned income                                   (5)                (8)
Allowance for loan losses                     (2,580)            (2,626)
                                           ---------          ---------
Net Loans                                  $ 228,337          $ 215,989
                                           =========          =========


14


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

Net loans at June 30, 2006 increased 5.72% to $228,337,000  when compared to net
loans of $215,989,000 at December 31, 2005. At June 30, 2006  approximately  90%
of  the  Bank's  loan  portfolio  was  related  to  real  estate  products.  The
concentration  remained  consistent  as  approximately  89% 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 or reserve for
loan and lease  losses  through  charges  to  earnings.  There was no  provision
expense for  allowances  for loan losses for the first six month period of 2006.
This compares to a loan loss  provision of $180,000  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 June 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.

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.

15


Nonperforming  loans,  which include all loans that are on a non-accrual  status
along  with  loans  that are 90 days or more  past due and still  accruing,  are
closely monitored by management.  At June 30, 2006,  nonperforming loans totaled
$771,000 or 0.33% of total loans outstanding of $230,917,000.  The allowance for
loan losses totaled  $2,580,000  representing  334.63% 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 $68,000 of loans were  charged  off by the Bank during the six months
ended June 30, 2006.  These  charged-off  loans consisted  primarily of consumer
loans. This compares to loans charged off during the six month period ended June
30, 2005 which totaled  $33,000.  A total of $22,000 of  previously  charged-off
loans was recovered during the six month period ended June 30, 2006.  Recoveries
for the same period in 2005 totaled  $14,000.  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 June 30, 2006 and December 31, 2005:

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

Demand                     $ 67,992          $ 63,996
NOW                          23,151            25,900
Money Market                 53,034            57,401
Savings                      47,244            51,567
Time                        107,013            88,407
                           --------          --------
Total Deposits             $298,434          $287,271
                           ========          ========

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

Borrowings
----------

The Company  utilizes  advances  from the Federal  Home Loan Bank as part of its
operating  strategy to supplement  deposit  growth and fund its asset growth,  a
strategy that is designed to increase  interest income.  These advances are made
pursuant to various credit programs, each of which has its own interest rate and
range  of  maturities.  At  June  30,  2006,  the  Company  had  $70,413,000  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
June 30, 2006:

16




June 30, 2006
(amounts in thousands)

By remaining maturity                  Less than 1 year    1-3 years       4-5 years    After 5 years       Total
---------------------------------------------------------------------------------------------------------------------
                                                                                                
Off balance sheet lending-related
Financial Instruments
    Residential real estate related     $      5,094   $      2,539     $               $     33,224     $     40,857
    Commercial related                         4,478          7,233                            1,162           12,873
    Consumer related
    Standby letters of credit                                    22                                                22
---------------------------------------------------------------------------------------------------------------------

     Total                              $      9,572   $      9,794     $     34,386    $     34,386     $     53,752
---------------------------------------------------------------------------------------------------------------------


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 June 30,
2006, the Company maintains a liability sensitive (negative gap) position.  This
would  suggest that during a period of  declining  interest  rates,  the Company
would be in a better position to increase net interest income.  To the contrary,
during a period of rising  interest  rates,  a  negative  gap would  result in a
decrease in interest income. The level of interest rate risk at June 30, 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 June 30, 2006 the Company had
approximately  $53,752,000 in loan commitments outstanding.  Management believes
that the current  level of  liquidity is ample to meet the  Company's  needs for
both the present and foreseeable future.

Capital
-------

At June 30,  2006,  the Company  had  $41,005,000  in  stockholders'  equity,  a
decrease  of 1.05% when  compared  to December  31,  2005  stockholders'  equity
totaling  $41,442,000.  Earnings  for the  six-month  period ended June 30, 2006
totaled  $2,153,000.  Market  conditions  resulted in an increase in accumulated
other comprehensive loss to $4,642,000 from $2,895,000 at December 31, 2005.


17


A review and analysis of securities has determined that there has been no credit
deterioration and that the unrealized loss on securities  available-for-sale  is
due to the current interest rate environment and management deems the securities
to be not  other  than  temporarily  impaired.  The  Company  has  declared  two
quarterly dividends resulting in a decrease in capital of $875,000.  The Company
issued  840 new shares of common  stock  under the terms of the  Director  Stock
Retainer Plan that resulted in an increase in capital of $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 June 30, 2006, the Company had a total risk based
capital  ratio of 16.13%  compared to 15.76% at December 31,  2005.  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.

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.


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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 June 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.  During the six
month period ended June 30, 2006 there were no changes in the Company's internal
control over financial  reporting that  materially  affected,  or are reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.


                           Part II - OTHER INFORMATION

Item 1. - Legal Proceedings.  Not applicable

Item 1A.  Risk Factors.  Not applicable

Item  2. -  Unregistered  Sales  of  Equity  Securities  and  Use  of  Proceeds.
Unregistered  Sales of Equity  Securities and Use of Proceeds.  On May 10, 2006,
the  Company  issued  840  shares of  common  stock to  members  of its Board of
Directors  under the terms of the Director  Stock Retainer Plan. The shares were
issued in a private transaction in reliance upon the exemption from registration
provided by Section  4(2) of the  Securities  Act of 1933,  as amended.  No cash
consideration was received upon issuance of the shares.

Item 3. - Defaults Upon Senior Securities.  Not applicable

Item 4. - Submission of Matters to a Vote of Security  Holders.  Incorporated by
reference from Form 8-K filed May 12, 2006.

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


19


                             SALISBURY BANCORP, INC.

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

                                             Salisbury Bancorp, Inc.

         Date: August 11, 2006               by:  /s/ John F. Perotti
               ---------------                   --------------------
                                                   John F. Perotti
                                                   Chief Executive Officer

         Date: August 11, 2006               by:  /s/ John F. Foley
               ---------------                   ------------------
                                                   John F. Foley
                                                   Chief Financial Officer