10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2013

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	(I.R.S. Employer
of incorporation or organization)	Identification No.)
5 Bissell Street, Lakeville, CT	06039
(Address of principal executive offices)	(Zip code)

(860) 435-9801

(Registrant's telephone number, including area code)

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 S No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes S No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer £ Accelerated filer £ Non-accelerated filer £ Smaller reporting company S

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

Yes£ No S

The number of shares of Common Stock outstanding as of May 13, 2013 is 1,709,291.

1

TABLE OF CONTENTS

	PART I FINANCIAL INFORMATION	Page
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012	3
	Consolidated Statements of Income for the three month period
	ended March 31, 2013 and 2012	4
	Consolidated Statements of Comprehensive Income for the three month period
	ended March 31, 2013 and 2012	5
	Consolidated Statements of Changes in Shareholders' Equity for the three month
	period ended March 31, 2013 and 2012	5
	Consolidated Statements of Cash Flows for the three month period ended
	March 31, 2013 and 2012	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	38

2

PART I - FINANCIAL INFORMATION

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share data)	March 31, 2013			December 31, 2012
ASSETS
Cash and due from banks	$	4,982		$	9,545
Interest bearing demand deposits with other banks		26,459			34,029
Total cash and cash equivalents		31,441			43,574
Securities
Available-for-sale at fair value		118,664			126,287
Federal Home Loan Bank of Boston stock at cost		5,340			5,747
Loans held-for-sale		710			1,879
Loans receivable, net (allowance for loan losses: $4,686 and $4,360)		406,258			388,758
Other real estate owned		712			244
Bank premises and equipment, net		11,340			11,520
Goodwill		9,829			9,829
Intangible assets (net of accumulated amortization: $1,801 and $1,745)		742			798
Accrued interest receivable		2,021			1,818
Cash surrender value of life insurance policies		7,356			7,295
Other assets		2,930			3,064
Total Assets	$	597,343		$	600,813
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing)	$	88,464		$	98,850
Demand (interest bearing)		67,714			65,991
Money market		129,832			128,501
Savings and other		109,657			103,985
Certificates of deposit		92,106			93,888
Total deposits		487,773			491,215
Repurchase agreements		2,329			1,784
Federal Home Loan Bank of Boston advances		31,574			31,980
Deferred taxes		456			590
Accrued interest and other liabilities		3,005			3,247
Total Liabilities		525,137			528,816
Commitments and contingencies		—			—
Shareholders' Equity
Preferred stock - $.01 per share par value
Authorized: 25,000; Issued: 16,000 (Series B);
Liquidation preference: $1,000 per share		16,000			16,000
Common stock - $.10 per share par value
Authorized: 3,000,000;
Issued: 1,709,291 and 1,689,691		171			169
Paid-in capital		13,646			13,158
Retained earnings		40,653			40,233
Unearned Compensation - restricted stock awards		(466	)		—
Accumulated other comprehensive income, net		2,202			2,437
Total Shareholders' Equity		72,206			71,997
Total Liabilities and Shareholders' Equity	$	597,343		$	600,813

3

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three months ended
Periods ended March 31, (in thousands except per share amounts) unaudited	2013		2012
Interest and dividend income
Interest and fees on loans	$	4,429	$	4,595
Interest on debt securities
Taxable		467		716
Tax exempt		488		534
Other interest and dividends		22		13
Total interest and dividend income		5,406		5,858
Interest expense
Deposits		490		667
Repurchase agreements		1		13
Federal Home Loan Bank of Boston advances		312		495
Total interest expense		803		1,175
Net interest and dividend income		4,603		4,683
Provision for loan losses		396		180
Net interest and dividend income after provision for loan losses		4,207		4,503
Non-interest income
Trust and wealth advisory		725		755
Service charges and fees		516		521
Gains on sales of mortgage loans, net		279		372
Mortgage servicing, net		26		(84	)
Gains on securities, net		—		12
Other		79		83
Total non-interest income		1,625		1,659
Non-interest expense
Salaries		1,750		1,710
Employee benefits		685		690
Premises and equipment		583		605
Data processing		419		402
Professional fees		380		313
Collections and OREO		157		111
FDIC insurance		125		128
Marketing and community support		122		87
Amortization of intangibles		56		56
Other		428		398
Total non-interest expense		4,705		4,500
Income before income taxes		1,127		1,662
Income tax provision		187		412
Net income	$	940	$	1,250
Net income available to common shareholders	$	900	$	1,167
Basic and diluted earnings per common share	$	0.53	$	0.69
Common dividends per share		0.28		0.28

4

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three months ended
Periods ended March 31, (in thousands)	2013			2012
Net income	$	940		$	1,250
Other comprehensive (loss) income
Net unrealized (losses) gains on securities available-for-sale		(356	)		725
Reclassification of net realized gains in net income		—			12
Unrealized (losses) gains on securities available-for-sale		(356	)		737
Income tax benefit (expense)		121			(250	)
Unrealized (losses) gains on securities available-for-sale, net of tax		(235	)		487
Pension plan income		—			36
Income tax expense		—			(12	)
Pension plan income, net of tax		—			24
Other comprehensive (loss) income, net of tax		(235	)		511
Comprehensive income	$	705		$	1,761

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

(dollars in thousands) unaudited	Common Stock    Shares      Amount				Preferred Stock		Paid-in capital		Retained earnings			Unrecognized Compensation – Restricted Stock Awards			Accumulated other comprehensive loss			Total shareholders' equity
Balances at December 31, 2011		1,688,731	$	169	$	16,000	$	13,134	$	38,264		$	—		$	(705	)	$	66,862
Net income for period		—		—		—		—		1,250			—			—			1,250
Other comprehensive income, net of tax		—		—		—		—		—			—			511			511
Common stock dividends declared		—		—		—		—		(473	)		—			—			(473	)
Preferred stock dividends declared		—		—		—		—		(83	)		—			—			(83	)
Balances March 31, 2012		1,688,731	$	169	$	16,000	$	13,134	$	38,958		$	—		$	(194	)	$	68,067
Balances at December 31, 2012		1,689,691	$	169	$	16,000	$	13,158	$	40,233		$	—		$	2,437		$	71,997
Net income for year		—		—		—		—		940			—			—			940
Other comprehensive income, net of tax		—		—		—		—		—			—			(235	)		(235	)
Common stock dividends declared		—		—		—		—		(479	)		—			—			(479	)
Preferred stock dividends declared		—		—		—		—		(41	)		—			—			(41	)
Issuance of restricted common stock		19,600		2		—		488		—			(490	)		—			—
Stock based compensation-restricted stock awards		—		—		—		—		—			24						24
Balances at March 31, 2013		1,709,291	$	171	$	16,000	$	13,646	$	40,653			$ (466	)	$	2,202		$	72,206

5

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Three months ended March 31, (in thousands) unaudited	2013			2012
Operating Activities
Net income	$	940		$	1,250
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation
Securities		155			181
Bank premises and equipment		215			225
Core deposit intangible		56			56
Mortgage servicing rights		104			77
Fair value adjustment on loans		8			8
Gains on calls of securities available-for-sale		—			(12	)
Gains on sale/disposals of premises and equipment		—			(1	)
Gain recognized on other real estate owned		(1	)		(1	)
Provision for loan losses		396			180
Decrease (increase) in loans held-for-sale		1,169			(360	)
(Increase) decrease in deferred loan origination fees and costs, net		(37	)		6
Mortgage servicing rights originated		(152	)		(180	)
(Decrease) increase in mortgage servicing rights impairment reserve		(33	)		92
Increase in interest receivable		(204	)		(663	)
Deferred tax benefit		(13	)		(13	)
Decrease (Increase) in prepaid expenses		15			(1	)
Increase in cash surrender value of life insurance policies		(61	)		(67	)
Decrease in income tax receivable		169			389
Decrease in other assets		32			6
Decrease in accrued expenses		174			300
Decrease in interest payable		(33	)		(30	)
(Decrease) increase in other liabilities		(383	)		16
Issuance of shares of restricted stock		24			—
Net cash provided by operating activities		2,540			1,458
Investing Activities
Redemption of Federal Home Loan Bank stock		408			285
Proceeds from calls of securities available-for-sale		1,200			3,820
Proceeds from maturities of securities available-for-sale		5,911			6,623
Proceeds from maturities of securities held-to-maturity		—			50
Loan originations and principle collections, net		(19,423	)		(147	)
Recoveries of loans previously charged-off		3			10
Proceeds from sale of other real estate owned		1,086			1,744
Capital expenditures		(35	)		(54	)
Net cash (utilized) provided by investing activities		(10,850	)		12,331
Financing Activities
(Decrease) increase in deposit transaction accounts, net		(1,661	)		3,725
Decrease in time deposits, net		(1,782	)		(2,345	)
Increase (decrease) in securities sold under agreements to repurchase, net		545			(1,789	)
Principal payments on Federal Home Loan Bank of Boston advances		(406	)		(11,408	)
Common stock dividends paid		(479	)		(473	)
Preferred stock dividends paid		(40	)		(62	)
Net cash utilized by financing activities		(3,823	)		(12,352	)
Net (decrease) increase in cash and cash equivalents		(12,133	)		1,437
Cash and cash equivalents, beginning of period		43,574			36,886
Cash and cash equivalents, end of period	$	31,441		$	38,323
Cash paid during period
Interest	$	948		$	1,205
Income taxes		1,285			788
Non-cash transfers
Transfer from loans to other real estate owned		1,553			—
From other real estate owned to loans		—			1,000

6

Salisbury Bancorp, Inc. and Subsidiary

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The interim (unaudited) consolidated financial statements of Salisbury Bancorp, Inc. ("Salisbury") include those of Salisbury and its wholly owned subsidiary, Salisbury Bank and Trust Company (the "Bank"). In the opinion of management, the interim unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of Salisbury and the statements of income, comprehensive income, shareholders’ equity and cash flows for the interim periods presented.

The financial statements have been prepared in accordance with generally accepted accounting principles. In preparing the financial statements, management is required to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and valuation of real estate, management obtains independent appraisals for significant properties.

Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, but which is not required for interim reporting purposes, has been condensed or omitted. Operating results for the interim period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's 2012 Annual Report on Form 10-K for the period ended December 31, 2012.

The allowance for loan losses is a significant accounting policy and is presented in the Notes to Consolidated Financial Statements and in Management’s Discussion and Analysis, which provide information on how significant assets are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan losses to be the accounting area that requires the most subjective judgments, and as such could be most subject to revision as new information becomes available.

Impact of New Accounting Pronouncements Issued

In February 2013, the FASB issued ASU 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” The objective of the amendments in this ASU is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. generally accepted accounting principles (GAAP). Examples of obligations within the scope of this ASU include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013; and should be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements within the ASU scope that exist at the beginning of an entity’s fiscal year of adoption. Salisbury anticipates that the adoption of this guidance will not have a material impact on its consolidated financial statements.

In April 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments in this ASU are being issued to clarify when an entity should apply the liquidation basis of accounting. The guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. Additionally, the amendments require disclosures about an entity’s plan for liquidation, the methods and significant assumptions used to measure assets and liabilities, the type and amount of costs and income accrued, and the expected duration of the liquidation process. The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. Salisbury anticipates that the adoption of this guidance will not have an impact on its consolidated financial statements.

In October 2012, the FASB issued ASU 2012-06, “Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution.” The amendments in this update clarify the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. For public entities, the amendments in this update are effective for fiscal years, and interim periods within those years beginning on or after December 15, 2012. The adoption of ASU 2012-06 did not have a material impact on Salisbury’s consolidated financial position, results of operations or cash flows.

7

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments in this update defer those changes in ASU 2011-05 that relate to the presentation of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. All other requirements in ASU 2011-05 are not affected by this update. The amendments are effective during interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-12 did not have a material impact on Salisbury’s consolidated financial position, results of operations or cash flows.

In December 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities.” This ASU is to enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The amendments in this ASU are effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of ASU 2011-11 did not have a material impact on Salisbury’s consolidated financial position, results of operations or cash flows.

NOTE 2 - SECURITIES

The composition of securities is as follows:

(in thousands)	Amortized cost (1)		Gross un- realized gains		Gross un-realized losses			Fair value
March 31, 2013
Available-for-sale
U.S. Treasury notes	$	2,496	$	223	$	—		$	2,719
U.S. Government Agency notes		7,514		183		—			7,697
Municipal bonds		44,235		1,883		(262	)		45,856
Mortgage backed securities
U.S. Government Agencies		42,782		1,204		(28	)		43,958
Collateralized mortgage obligations
U.S. Government Agencies		4,689		63		—			4,752
Non-agency		10,292		462		(64	)		10,690
SBA bonds		2,589		92		—			2,681
Preferred Stock		20		291		—			311
Total securities available-for-sale	$	114,617	$	4,401	$	(354	)	$	118,664
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	5,340	$	—	$	—		$	5,340

(in thousands)	Amortized cost (1)		Gross un- realized gains		Gross un-realized losses			Fair value
December 31, 2012
Available-for-sale
U.S. Treasury notes	$	2,496	$	237	$	—		$	2,733
U.S. Government Agency notes		7,515		211		—			7,726
Municipal bonds		45,395		2,138		(168	)		47,365
Mortgage backed securities
U.S. Government Agencies		47,465		1,284		(20	)		48,729
Collateralized mortgage obligations
U.S. Government Agencies		5,131		66		—			5,197
Non-agency		11,081		494		(68	)		11,507
SBA bonds		2,781		82		—			2,863
Preferred Stock		20		147		—			167
Total securities available-for-sale	$	121,884	$	4,659	$	(256	)	$	126,287
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	5,747	$	—	$	—		$	5,747

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

Salisbury did not sell any securities available-for-sale during the three month periods ended March 31, 2013 and 2012.

8

The following table summarizes, for all securities in an unrealized loss position, including debt securities for which a portion of other-than-temporary impairment has been recognized in other comprehensive income, the aggregate fair value and gross unrealized loss of securities that have been in a continuous unrealized loss position as of the date presented:

	Less than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized  losses		Fair value		Unrealized  losses		Fair value		Unrealized losses
March 31, 2013
Available-for-sale
Municipal Bonds	$	1,325	$	56	$	2,316	$	206	$	3,641	$	262
Mortgage backed securities		2,735		27		43		1		2,778		28
Collateralized mortgage obligations
Non-agency		597		2		847		17		1,444		19
Total temporarily impaired securities		4,657		85		3,206		224		7,863		309
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		459		6		1,817		39		2,276		45
Total temporarily and other-than-temporarily impaired securities	$	5,116	$	91	$	5,023	$	263	$	10,139	$	354

 Salisbury evaluates securities for Other Than Temporary Impairment (“OTTI”) where the fair value of a security is less than its amortized cost basis at the balance sheet date. As part of this process, Salisbury considers its intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, Salisbury recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For securities that meet neither of these conditions, an analysis is performed to determine if any of these securities are at risk for OTTI.

The following summarizes, by security type, the basis for evaluating if the applicable securities were OTTI at March 31, 2013.

U.S Government Agency notes, U.S. Government Agency mortgage-backed securities and U.S. Government Agency CMOs: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury does not intend to sell these securities and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity. Therefore, management does not consider these securities to be OTTI at March 31, 2013.

Municipal bonds: Contractual cash flows are performing as expected. Salisbury purchased substantially all of these securities during 2006-to-2008 as bank qualified, insured, AAA rated general obligation or revenue bonds. Salisbury’s portfolio is mostly comprised of tax-exempt general obligation bonds or public-purpose revenue bonds for schools, municipal offices, sewer infrastructure and fire houses, for small towns and municipalities across the United States. In the wake of the financial crisis, most monoline bond insurers had their ratings downgraded or withdrawn because of excessive exposure to insurance for collateralized debt obligations. Where appropriate, Salisbury performs credit underwriting reviews of issuers, including some that have had their ratings withdrawn and are insured by insurers that have had their ratings withdrawn, to assess default risk. For all completed reviews pass credit risk ratings have been assigned. Management expects to recover the entire amortized cost basis of these securities. Salisbury does not intend to sell these securities and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity. Management does not consider these securities to be OTTI at March 31, 2013.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at March 31, 2013 to assess whether any of the securities were OTTI. Salisbury uses first party provided cash flow forecasts of each security based on a variety of market driven assumptions and securitization terms, including prepayment speed, default or delinquency rate, and default severity for losses including interest, legal fees, property repairs, expenses and realtor fees, that, together with the loan amount are subtracted from collateral sales proceeds to determine severity. In 2009 Salisbury determined that five non-agency CMO securities reflected OTTI and recognized losses for deterioration in credit quality of $1,128,000. Salisbury judged the four remaining securities not to have additional OTTI and all other CMO securities not to be OTTI as of March 31, 2013. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury does not intend to sell these securities and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis.

9

The following table presents activity related to credit losses recognized into earnings on the non-agency CMOs held by Salisbury for which a portion of an OTTI charge was recognized in accumulated other comprehensive income:

Three months ended March 31 (in thousands)		2013		2012
Balance, beginning of period	$	1,128	$	1,128
Credit component on debt securities in which OTTI was not previously recognized		—		—
Balance, end of period	$	1,128	$	1,128

Federal Home Loan Bank of Boston (“FHLBB”): The Bank is a member of the FHLBB. The FHLBB is a cooperative that provides services, including funding in the form of advances, to its member banking institutions. As a requirement of membership, the Bank must own a minimum amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. No market exists for shares of the FHLBB and therefore, they are carried at par value. FHLBB stock may be redeemed at par value five years following termination of FHLBB membership, subject to limitations which may be imposed by the FHLBB or its regulator, the Federal Housing Finance Board, to maintain capital adequacy of the FHLBB. While the Bank currently has no intentions to terminate its FHLBB membership, the ability to redeem its investment in FHLBB stock would be subject to the conditions imposed by the FHLBB. In 2008, the FHLBB announced to its members that it was focusing on preserving capital in response to ongoing market volatility including the extension of a moratorium on excess stock repurchases and in 2009 announced the suspension of its quarterly dividends. In 2011, the FHLBB resumed modest quarterly cash dividends to its members and in early 2012 the FHLBB repurchased its excess stock pool. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no impairment related to the carrying amount of the Bank’s FHLBB stock as of March 31, 2013. Further deterioration of the FHLBB’s capital levels may require the Bank to deem its restricted investment in FHLBB stock to be OTTI. If evidence of impairment exists in the future, the FHLBB stock would reflect fair value using either observable or unobservable inputs. The Bank will continue to monitor its investment in FHLBB stock.

10

NOTE 3 - LOANS

The composition of loans receivable and loans held-for-sale is as follows:

(in thousands)	March 31, 2013			December 31, 2012
Residential 1-4 family	$	209,159		$	198,552
Residential 5+ multifamily		4,714			3,889
Construction of residential 1-4 family		1,395			2,379
Home equity credit		33,925			34,162
Residential real estate		249,193			238,982
Commercial		96,835			87,382
Construction of commercial		9,755			5,823
Commercial real estate		106,590			93,205
Farm land		4,282			4,320
Vacant land		7,898			9,926
Real estate secured		367,963			346,433
Commercial and industrial		33,943			38,094
Municipal		3,995			3,378
Consumer		3,975			4,181
Loans receivable, gross		409,876			392,086
Deferred loan origination fees and costs, net		1,068			1,032
Allowance for loan losses		(4,686	)		(4,360	)
Loans receivable, net	$	406,258		$	388,758
Loans held-for-sale
Residential 1-4 family	$	710		$	1,879

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in northwestern Connecticut and nearby New York and Massachusetts towns, which constitute Salisbury's service area. Salisbury offers a broad range of loan and credit facilities to borrowers in its service area, including residential mortgage loans, commercial real estate loans, construction loans, working capital loans, equipment loans, and a variety of consumer loans, including home equity lines of credit, and installment and collateral loans. All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in Salisbury’s market area.

Loan Credit Quality

The composition of loans receivable by risk rating grade is as follows:

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
March 31, 2013
Residential 1-4 family	$	189,694	$	13,344	$	6,023	$	98	$	—	$	209,159
Residential 5+ multifamily		2,354		1,142		1,218		—		—		4,714
Construction of residential 1-4 family		1,395		—		—		—		—		1,395
Home equity credit		30,881		1,368		1,676		—		—		33,925
Residential real estate		224,324		15,854		8,917		98		—		249,193
Commercial		68,196		19,679		8,960		—		—		96,835
Construction of commercial		8,989		153		613		—		—		9,755
Commercial real estate		77,185		19,832		9,573		—		—		106,590
Farm land		1,644		1,466		1,172		—		—		4,282
Vacant land		4,425		189		3,284		—		—		7,898
Real estate secured		307,578		37,341		22,946		98		—		367,963
Commercial and industrial		24,049		8,532		1,362		—		—		33,943
Municipal		3,995		—		—		—		—		3,995
Consumer		3,851		101		23		—		—		3,975
Loans receivable, gross	$	339,473	$	45,974	$	24,331	$	98	$	—	$	409,876

11

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2012
Residential 1-4 family	$	180,442	$	12,473	$	5,538	$	99	$	—	$	198,552
Residential 5+ multifamily		2,872		773		244		—		—		3,889
Construction of residential 1-4 family		1,570		—		809		—		—		2,379
Home equity credit		30,981		1,848		1,333		—		—		34,162
Residential real estate		215,865		15,094		7,924		99		—		238,982
Commercial		64,817		13,299		9,266		—		—		87,382
Construction of commercial		5,055		297		471		—		—		5,823
Commercial real estate		69,872		13,596		9,737		—		—		93,205
Farm land		2,799		341		1,180		—		—		4,320
Vacant land		4,885		863		4,178		—		—		9,926
Real estate secured		293,421		29,894		23,019		99		—		346,433
Commercial and industrial		28,453		8,300		1,341		—		—		38,094
Municipal		3,378		—		—		—		—		3,378
Consumer		3,994		159		28		—		—		4,181
Loans receivable, gross	$	329,246	$	38,353	$	24,388	$	99	$	—	$	392,086

The composition of loans receivable by delinquency status is as follows:

	Past due
(in thousands)		Current		1-29 days		30-59 days		60-89 days		90-179 days		180 days and over		30 days and over		Accruing 90 days and over		Non- accrual
March 31, 2013
Residential 1-4 family	$	199,921	$	5,445	$	549	$	2,771	$	356	$	117	$	3,793	$	165	$	2,880
Residential 5+ multifamily		4,610		—		—		104		—		—		104		—		—
Construction of residential 1-4 family		1,395		—		—		—		—		—		—		—		—
Home equity credit		33,241		153		495		36		—		—		531		—		113
Residential real estate		239,167		5,598		1,044		2,911		356		117		4,428		165		2,993
Commercial		91,560		2,817		76		1,024		424		934		2,458		198		2,043
Construction of commercial		9,592		—		21		142		—		—		163		—		21
Commercial real estate		101,152		2,817		97		1,166		424		934		2,621		198		2,064
Farm land		3,110		785		14		373		—		—		387		—		—
Vacant land		4,772		—		—		47		—		3,079		3,126		—		3,126
Real estate secured		348,201		9,200		1,155		4,497		780		4,130		10,561		363		8,182
Commercial and industrial		33,592		267		58		26		—		—		84		—		42
Municipal		3,995		—		—		—		—		—		—		—		—
Consumer		3,886		66		15		8		—		—		23		—		—
Loans receivable, gross	$	389,674	$	9,533	$	1,228	$	4,531	$	780	$	4,130	$	10,668	$	165	$	8,224
December 31, 2012
Residential 1-4 family	$	190,488	$	2,545	$	3,578	$	639	$	1,185	$	117	$	5,519	$	—	$	3,024
Residential 5+ multifamily		3,889		—		—		—		—		—		—		—		—
Construction of residential 1-4 family		2,379		—		—		—		—		—		—		—		—
Home equity credit		32,540		890		113		396		—		223		732		—		442
Residential real estate		229,296		3,435		3,691		1,035		1,185		340		6,251		—		3,466
Commercial		83,477		864		1,104		566		58		1,313		3,041		—		2,214
Construction of commercial		5,659		—		164		—		—		—		164		—		21
Commercial real estate		89,136		864		1,268		566		58		1,313		3,205		—		2,235
Farm land		3,898		422		—		—		—		—		—		—		—
Vacant land		5,932		—		—		48		740		3,206		3,994		—		3,994
Real estate secured		328,262		4,721		4,959		1,649		1,983		4,859		13,450		—		9,695
Commercial and industrial		37,618		351		26		99		—		—		125		—		164
Municipal		3,378		—		—		—		—		—		—		—		—
Consumer		4,034		108		25		14		—		—		39		—		—
Loans receivable, gross	$	373,292	$	5,180	$	5,010	$	1,762	$	1,983	$	4,859	$	13,614	$	—	$	9,859

12

Troubled Debt Restructurings

Troubled debt restructurings occurring during the periods are as follows:

	Three months ended March 31, 2013						Three months ended March 31, 2012
(in thousands)	Quantity		Pre-modification balance		Post-modification balance		Quantity		Pre-modification balance		Post-modification balance
Residential real estate		—	$	—	$	—		1	$	326	$	326
Commercial real estate		2		1,022		1,022		5		559		559
Commercial and industrial		—		—		—		—		—		—
Troubled debt restructurings		2	$	1,022	$	1,022		6	$	1,105	$	1,105
Rate reduction and term extension		2	$	1,022	$	1,022		2	$	373	$	373
Debt consolidation and term extension		—		—		—		3		706		706
Seasonal interest only concession		—		—		—		1		26		26
Troubled debt restructurings		2	$	1,022	$	1,022		6	$	1,105	$	1,105

Two loans were restructured during the quarter ended March 31, 2013 and both were current at March 31, 2013.

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

	March 31, 2013												March 31, 2012
Three months ended (in thousands)		Beginning balance		Provision			Charge-offs			Recoveries		Ending balance		Beginning balance		Provision			Charge-offs			Recoveries		Ending balance
Residential	$	1,934	$	23		$	(18	)	$	—	$	1,939	$	1,479	$	39		$	(18	)	$	—	$	1,500
Commercial		1,059		178			—			—		1,237		1,139		(79	)		—			1		1,061
Land		301		265			(38	)		—		528		410		(29	)		(42	)		—		339
Real estate		3,294		466			(56	)		—		3,704		3,028		(69	)		(60	)		1		2,900
Commercial & industrial		499		(40	)		(4	)		—		455		704		100			(29	)		3		778
Municipal		36		4			—			—		40		24		4			—			—		28
Consumer		91		(15	)		(13	)		3		66		79		59			(10	)		5		133
Unallocated		440		(19	)		—			—		421		241		86			—			—		327
Totals	$	4,360	$	396		$	(73	)	$	3	$	4,686	$	4,076	$	180		$	(99	)	$	9	$	4,166

13

The composition of loans receivable and the allowance for loan losses is as follows:

	Collectively evaluated				Individually evaluated				Total portfolio
(in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
March 31, 2013
Residential 1-4 family	$	202,490	$	794	$	6,669	$	643	$	209,159	$	1,437
Residential 5+ multifamily		3,743		21		971		50		4,714		71
Construction of residential 1-4 family		1,395		6		—		—		1,395		6
Home equity credit		33,741		424		184		1		33,925		425
Residential real estate		241,369		1,245		7,824		694		249,193		1,939
Commercial		91,276		1,045		5,559		88		96,835		1,133
Construction of commercial		9,734		104		21		—		9,755		104
Commercial real estate		101,010		1,149		5,580		88		106,590		1,237
Farm land		4,282		68		—		—		4,282		68
Vacant land		4,773		58		3,125		402		7,897		460
Real estate secured		351,434		2,520		16,529		1,184		367,962		3,704
Commercial and industrial		32,952		426		991		29		33,943		455
Municipal		3,995		40		—		—		3,995		40
Consumer		3,898		36		77		30		3,975		66
Unallocated allowance		—		—		—		—		—		421
Totals	$	392,279	$	3,022	$	17,597	$	1,243	$	409,876	$	4,686
	Collectively evaluated				Individually evaluated				Total portfolio
(in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2012
Residential 1-4 family	$	191,886	$	743	$	6,666	$	652	$	198,552	$	1,395
Residential 5+ multifamily		2,913		22		976		50		3,889		72
Construction of residential 1-4 family		2,379		10		—		—		2,379		10
Home equity credit		33,697		365		465		92		34,162		457
Residential real estate		230,875		1,140		8,107		794		238,982		1,934
Commercial		81,635		931		5,747		64		87,382		995
Construction of commercial		5,802		64		21		—		5,823		64
Commercial real estate		87,437		995		5,768		64		93,205		1,059
Farm land		4,320		66		—		—		4,320		66
Vacant land		5,795		70		4,131		164		9,926		234
Real estate secured		328,427		2,271		18,006		1,022		346,433		3,293
Commercial and industrial		37,073		467		1,021		32		38,094		499
Municipal		3,378		36		—		—		3,378		36
Consumer		4,061		39		120		53		4,181		92
Unallocated allowance		—		—		—		—		—		440
Totals	$	372,939	$	2,813	$	19,147	$	1,107	$	392,086	$	4,360

The credit quality segments of loans receivable and the allowance for loan losses are as follows:

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
March 31, 2013
Performing loans	$	382,423	$	2,687	$	77	$	30	$	382,500	$	2,717
Potential problem loans		9,856		335		2,558		86		12,414		421
Impaired loans		—		—		14,962		1,127		14,962		1,127
Unallocated allowance		—		—		—		—		—		421
Totals	$	392,279	$	3,022	$	17,597	$	1,243	$	409,876	$	4,686
December 31, 2012
Performing loans	$	364,594	$	2,567	$	121	$	52	$	364,713	$	2,619
Potential problem loans		8,345		246		2,465		131		10,810		377
Impaired loans		—		—		16,562		924		16,563		924
Unallocated allowance		—		—		—		—		—		440
Totals	$	372,939	$	2,813	$	19,148	$	1,107	$	392,086	$	4,360

14

Certain data with respect to impaired loans individually evaluated is as follows:

	Impaired loans with specific allowance										Impaired loans with no specific allowance
	Loan balance										Loan balance
(in thousands)		Book		Note		Average		Specific allowance		Income recognized		Book			Note		Average		Income recognized
March 31, 2013
Residential 1-4 family	$	3,917	$	3,998	$	3,868	$	631	$	17	$	2,073		$	2,279	$	2,161	$	10
Home equity credit		48		48		223		1		—		113			118		109		—
Residential real estate		3,965		4,046		4,091		632		17		2,186			2,396		2,270		10
Commercial		1,695		1,860		1,665		88		14		3,122			3,320		3,096		26
Vacant land		3,187		3,387		3,187		403		—		(61	)		601		527		—
Real estate secured		8,847		9,293		8,943		1,123		31		5,247			6,317		5,893		36
Commercial and industrial		227		257		257		4		3		641			1,043		669		9
Consumer		—		—		—		—		—		—			—		—		—
Totals	$	9,074	$	9,550	$	9,200	$	1,127	$	34	$	5,888		$	7,360	$	6,562	$	45

	Impaired loans with specific allowance										Impaired loans with no specific allowance
	Loan balance										Loan balance
(in thousands)		Book		Note		Average		Specific allowance		Income recognized		Book		Note		Average		Income recognized
December 31, 2012
Residential 1-4 family	$	3,857	$	3,925	$	2,404	$	578	$	77	$	2,263	$	2,460	$	1,601	$	34
Home equity credit		351		351		146		92		—		91		93		203		—
Residential real estate		4,208		4,276		2,550		670		77		2,354		2,553		1,804		34
Commercial		1,629		1,784		1,925		64		60		3,381		3,576		3,122		82
Vacant land		3,186		3,387		1,455		158		—		808		1,467		2,358		4
Real estate secured		9,023		9,447		5,930		892		137		6,543		7,596		7,284		120
Commercial and industrial		335		368		833		32		13		661		1,063		854		31
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	9,358	$	9,815	$	6,763	$	924	$	150	$	7,204	$	8,659	$	8,138	$	151

NOTE 4 - MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included in the Consolidated Balance Sheets. The balance of loans serviced for others and the fair value of mortgage servicing rights are as follows:

March 31, (in thousands)		2013		2012
Residential mortgage loans serviced for others	$	148,705	$	125,086
Fair value of mortgage servicing rights		1,739		754

Changes in mortgage servicing rights are as follows:

		Three months
Periods ended March 31, (in thousands)		2013			2012
Loan Servicing Rights
Balance, beginning of period	$	1,075		$	772
Originated		152			177
Amortization (1)		(104	)		(77	)
Balance, end of period		1,123			872
Valuation Allowance
Balance, beginning of period		(38	)		(22	)
Decrease (increase) in impairment reserve (1)		33			(92	)
Balance, end of period		(5	)		(114	)
Loan servicing rights, net	$	1,119		$	758

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

15

NOTE 5 - PLEDGED ASSETS

The following securities and loans were pledged to secure public and trust deposits, securities sold under agreements to repurchase, FHLBB advances and credit facilities available.

in thousands)	March 31, 2013		December 31, 2012
Securities available-for-sale (at fair value)	$	53,484	$	68,839
Loans receivable		115,496		132,720
Total pledged assets	$	168,980	$	201,559

At March 31, 2013, securities were pledged as follows: $43.6 million to secure public deposits, $9.7 million to secure repurchase agreements and $0.2 million to secure FHLBB advances. Loans receivable were pledged to secure FHLBB advances and credit facilities.

NOTE 6 – EARNINGS PER SHARE

The Company defines unvested share-based payment awards that contain nonforfeitable rights to dividends as participating securities that are included in computing Earnings Per Share (“EPS”) using the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. Earnings per common share are calculated by dividing earnings allocated to common stockholders by the weighted-average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

The following table sets forth the computation of earnings per share (basic and diluted) for the periods indicated:

Periods ended March 31, (in thousands, except per share amounts)	2013			2012
Net income	$	940		$	1,250
Less: Preferred stock dividends declared		(40	)		(83	)
Less: Undistributed earnings allocated to participating securities		(10	)		—
Net income allocated to common stock	$	890		$	1,167
Common shares issued		1,709			1,689
Less: Unvested restricted stock awards		(20	)		—
Common shares outstanding used to calculate basic earnings per common share		1,689			1,689
Add: Diluted effect of unvested restricted stock awards		—			—
Common shares outstanding used to calculate diluted earnings per common share		1,689			—
Earnings per common share (basic and diluted)		0.53			0.69

NOTE 7 – SHAREHOLDERS’ EQUITY

Capital Requirements

Salisbury and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional and discretionary actions by the regulators that, if undertaken, could have a direct material effect on Salisbury and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Salisbury and the Bank must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Salisbury and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require Salisbury and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as defined) to average assets (as defined) and total and Tier 1 capital (as defined) to risk-weighted assets (as defined). Management believes, as of March 31, 2013, that Salisbury and the Bank meet all of their capital adequacy requirements.

16

The Bank was classified, as of its most recent notification, as "well capitalized". The Bank's actual regulatory capital position and minimum capital requirements as defined "To Be Well Capitalized Under Prompt Corrective Action Provisions" and "For Capital Adequacy Purposes" are as follows:

	Actual					For Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2013
Total Capital (to risk-weighted assets)
Salisbury	$	64,281		16.47	%	$	31,228		8.0	%		n/a		—
Bank		54,097		13.71			31,559		8.0		$	39,449		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		59,433		15.23			15,614		4.0			n/a		—
Bank		49,248		12.48			15,780		4.0			23,669		6.0
Tier 1 Capital (to average assets)
Salisbury		59,433		10.17			23,372		4.0			n/a		—
Bank		49,248		8.43			23,372		4.0			29,215		5.0
December 31, 2012
Total Capital (to risk-weighted assets)
Salisbury	$	63,391		16.63	%	$	30,494		8.0	%		n/a		—
Bank		53,132		13.77			30,866		8.0		$	38,582		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		58,933		15.46			15,247		4.0			n/a		—
Bank		48,674		12.62			15,432		4.0			23,149		6.0
Tier 1 Capital (to average assets)
Salisbury		58,933		9.87			23,876		4.0			n/a		—
Bank		48,674		8.15			23,876		4.0			29,845		5.0

DIVIDENDS

Cash Dividends to Common Shareholders

Salisbury's ability to pay cash dividends is substantially dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut law, the Bank cannot declare a cash dividend except from net profits, defined as the remainder of all earnings from current operations. The total of all cash dividends declared by the Bank in any calendar year shall not, unless specifically approved by the Banking Commissioner, exceed the total of its net profits of that year combined with its retained net profits of the preceding two years.

Federal Reserve Board (“FRB”) Supervisory Letter SR 09-4, February 24, 2009, revised March 27, 2009, notes that, as a general matter, the Board of Directors of a Bank Holding Company (“BHC”) should inform the FRB and should eliminate, defer, or significantly reduce dividends if (1) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (2) the prospective rate of earnings retention is not consistent with capital needs and overall current and prospective financial condition; or (3) the BHC will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Moreover, a BHC should inform the FRB reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the BHC capital structure.

Preferred Stock

In August 2011, Salisbury issued to the U.S. Secretary of the Treasury (the “Treasury”) $16,000,000 of its Series B Preferred Stock under the Small Business Lending Fund (the “SBLF”) program. The SBLF program is a $30 billion fund established under the Small Business Jobs Act of 2010 to encourage lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion. The Preferred Stock qualifies as Tier 1 capital for regulatory purposes and ranks senior to the Common Stock.

The Series B Preferred Stock pays noncumulative dividends. The dividend rate on the Series B Preferred Stock for the initial quarterly dividend period ending September 30, 2011 and each of the next nine quarterly dividend periods the Series B Preferred Stock is outstanding is determined each quarter based on the increase in the Bank’s Qualified Small Business Lending. The dividend rate for the quarterly dividend periods ended March 31, 2013 and December 31, 2012, was 1.0000%. For the tenth quarterly dividend period through four and one-half years after its issuance, the dividend rate on the Series B Preferred Stock will be fixed at the rate in effect at the end of the ninth quarterly dividend period and after four and one-half years from its issuance the dividend rate will be fixed at 9 percent per annum. March 29, 2013, Salisbury declared a Series B Preferred Stock dividend of $41,000, payable on April 1, 2013. The Series B Preferred Stock is non-voting, other than voting rights on matters that could adversely affect the Series B Preferred Stock. The Series B Preferred Stock is redeemable at any time at one hundred percent of the issue price plus any accrued and unpaid dividends.

On February 8, 2013, Salisbury granted a total of 19,600 shares of restricted stock pursuant to its 2011 Long Term Incentive Plan, which was approved by shareholders at the 2011 Annual Meeting, to 22 employees, including 5,000 shares to one Named Executive Officer, Richard J. Cantele, Jr., President and Chief Executive Officer.

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NOTE 8 – PENSION AND OTHER BENEFITS

The components of net periodic cost for Salisbury’s insured noncontributory defined benefit retirement plan were as follows:

	Three months
Periods ended March 31, (in thousands)	2013			2012
Service cost	$	—		$	115
Interest cost on benefit obligation		66			93
Expected return on plan assets		(67	)		(115	)
Amortization of prior service cost		—			—
Amortization of net loss		—			36
Net periodic benefit cost	$	(1	)	$	129

Salisbury’s 401(k) Plan expense was $83,000 and $70,000, respectively, for the three month periods ended March 31, 2013 and 2012. Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements was $11,000 for the three month periods ended March 31, 2013 and 2012.

NOTE 9 –COMPREHENSIVE INCOME

The components of accumulated other comprehensive losses are as follows:

March 31, (in thousands)	2013			2012
Unrealized losses on securities available-for-sale, net of tax	$	2,671		$	1,839
Unrecognized pension plan expense, net of tax		(469	)		(2,033	)
Accumulated other comprehensive loss, net	$	2,202		$	(194	)

NOTE 10 – FAIR VALUE OF ASSETS AND LIABILITIES

Salisbury uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, other assets are recorded at fair value on a nonrecurring basis, such as loans held for sale, collateral dependent impaired loans, property acquired through foreclosure or repossession and mortgage servicing rights. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

Salisbury adopted ASC 820-10, “Fair Value Measurements and Disclosures,” which provides a framework for measuring fair value under generally accepted accounting principles, in 2008. This guidance provided Salisbury the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. However, Salisbury did not elect fair value treatment for any financial assets or liabilities upon adoption of such ASC.

In accordance with ASC 820-10, Salisbury groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Salisbury’s market assumptions. These two types of inputs have created the following fair value hierarchy

• Level 1. Quoted prices in active markets for identical assets. Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

• Level 2. Significant other observable inputs. Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from first party pricing services for identical or comparable assets or liabilities.

• Level 3. Significant unobservable inputs. Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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The following is a description of valuation methodologies for assets recorded at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy.

• Securities available-for-sale. Securities available-for-sale are recorded at fair value on a recurring basis. Level 1 securities include exchange-traded equity securities. Level 2 securities include debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes obligations of the Treasury and U.S. government-sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, municipal bonds, SBA bonds, corporate bonds and certain preferred equities. Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions. Valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending first-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

• Collateral dependent loans that are deemed to be impaired are valued based upon the fair value of the underlying collateral less costs to sell. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. Management may adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the property. Internal valuations are utilized to determine the fair value of other business assets. Collateral dependent impaired loans are categorized as Level 3.

• Other real estate owned acquired through foreclosure or repossession is adjusted to fair value less costs to sell upon transfer out of loans. Subsequently, it is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon independent market prices or appraised values of the collateral. Management adjusts appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property, and such property is categorized as Level 3.

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Assets measured at fair value are as follows:

		Fair Value Measurements Using						Assets at
(in thousands)		Level 1		Level 2		Level 3		fair value
March 31, 2013
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,719	$	—	$	2,719
U.S. Government agency notes		—		7,697		—		7,697
Municipal bonds		—		45,856		—		45,856
Mortgage-backed securities:
U.S. Government agencies		—		43,958		—		43,958
Collateralized mortgage obligations:
U.S. Government agencies		—		4,752		—		4,752
Non-agency		—		10,690		—		10,690
SBA bonds		—		2,681		—		2,681
Corporate bonds		—		—		—		—
Preferred stocks		311		—		—		311
Securities available-for-sale	$	311	$	118,353	$	—	$	118,664
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	7,947	$	7,947
Other real estate owned		—		—		712		712
December 31, 2012
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,733	$	—	$	2,733
U.S. Government agency notes		—		7,726		—		7,726
Municipal bonds		—		47,365		—		47,365
Mortgage-backed securities:
U.S. Government agencies		—		48,729		—		48,729
Collateralized mortgage obligations:
U.S. Government agencies		—		5,197		—		5,197
Non-agency		—		11,507		—		11,507
SBA bonds		—		2,863		—		2,863
Preferred stocks	$	167	$	126,120	$	—	$	126,287
Securities available-for-sale
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		8,434		8,434
Other real estate owned		—		—		244		244

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Carrying values and estimated fair values of financial instruments are as follows:

					Fair value measurements using
(in thousands)		Carrying value		Estimated fair value		Level 1		Level 2		Level 3
March 31, 2013
Financial Assets
Cash and due from banks	$	31,441	$	31,441	$	31,441	$	—	$	—
Securities available-for-sale		118,664		118,664		311		118,353		—
Federal Home Loan Bank stock		5,340		5,340		—		5,340		—
Loans held-for-sale		710		710		—		—		710
Loans receivable net		406,258		406,258		—		—		406,258
Accrued interest receivable		2,021		2,021		—		—		2,021
Financial Liabilities
Demand (non-interest-bearing)	$	88,464	$	88,464	$	—	$	—	$	88,464
Demand (interest-bearing)		67,714		67,714		—		—		67,714
Money market		129,832		129,832		—		—		129,832
Savings and other		109,657		109,657		—		—		109,657
Certificates of deposit		92,106		92,886		—		—		92,886
Deposits		487,773		488,553		—		—		488,553
FHLBB advances		31,574		35,203		—		—		35,203
Repurchase agreements		2,329		2,329		—		—		2,329
Accrued interest payable		163		163		—		—		163
December 31, 2012
Financial Assets
Cash and due from banks	$	43,574	$	43,574	$	43,574	$	—	$	—
Securities available-for-sale		126,287		126,287		167		126,120		—
Federal Home Loan Bank stock		5,747		5,747		—		5,747		—
Loans held-for-sale		1,879		1,893		—		—		1,893
Loans receivable net		388,758		389,292		—		—		389,292
Accrued interest receivable		1,818		1,818		—		—		1,818
Financial Liabilities
Demand (non-interest-bearing)	$	98,850	$	98,850	$	—	$	—	$	98,850
Demand (interest-bearing)		65,991		65,991		—		—		65,991
Money market		128,501		128,501		—		—		128,501
Savings and other		103,985		103,985		—		—		103,985
Certificates of deposit		93,888		94,894		—		—		94,894
Deposits		491,215		492,221		—		—		492,221
FHLBB advances		31,980		35,363		—		—		35,363
Repurchase agreements		1,784		1,784		—		—		1,784
Accrued interest payable		196		196		—		—		196

The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions.

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

Management's Discussion and Analysis of Financial Condition and Results of Operations of Salisbury and its subsidiary should be read in conjunction with Salisbury's Annual Report on Form 10-K for the year ended December 31, 2012.

BUSINESS

Salisbury Bancorp, Inc. ("Salisbury"), a Connecticut corporation, formed in 1998, is a bank holding company for Salisbury Bank and Trust Company ("Bank"), a Connecticut-chartered and Federal Deposit Insurance Corporation (the "FDIC") insured commercial bank headquartered in Lakeville, Connecticut. Salisbury's principal business consists of the business of the Bank. The Bank, formed in 1848, is engaged in customary banking activities, including general deposit taking and lending activities to both retail and commercial markets, and trust and wealth advisory services. The Bank conducts its banking business from eight full-service offices in the towns of Canaan, Lakeville, Salisbury and Sharon, Connecticut, South Egremont and Sheffield, Massachusetts, Millerton and Dover Plains, New York, and operates its trust and wealth advisory services from offices in Lakeville, Connecticut.

Critical Accounting Policies and Estimates

Salisbury’s consolidated financial statements follow GAAP as applied to the banking industry in which it operates. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event.

Salisbury’s significant accounting policies are presented in Note 1 of Notes to Consolidated Financial Statements in Salisbury's 2012 Annual Report on Form 10-K for the year ended December 31, 2012 and, along with this Management’s Discussion and Analysis, provide information on how significant assets are valued in the financial statements and how those values are determined. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating Salisbury’s reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

The allowance for loan losses represents management’s estimate of credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the balance sheet. Note 1 of Notes to Consolidated Financial Statements in Salisbury's 2012 Annual Report on Form 10-K for the period ended December 31, 2012 describes the methodology used to determine the allowance for loan losses. In addition, a discussion of the factors driving changes in the amount of the allowance for loan losses are included in the “Provision and Allowance for Loan Losses” section of Management’s Discussion and Analysis of this Quarterly Report.

Management evaluates goodwill and identifiable intangible assets for impairment annually using valuation techniques that involve estimates for discount rates, projected future cash flows and time period calculations, all of which are susceptible to change based on changes in economic conditions and other factors. Future events or changes in the estimates, which are used to determine the carrying value of goodwill and identifiable intangible assets or which otherwise adversely affect their value or estimated lives, could have a material adverse impact on the results of operations.

Management evaluates securities for other-than-temporary impairment giving consideration to the extent to which the fair value has been less than cost, estimates of future cash flows, delinquencies and default severity, and the intent and ability of Salisbury to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The consideration of the above factors is subjective and involves estimates and assumptions about matters that are inherently uncertain. Should actual factors and conditions differ materially from those used by management, the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements.

The determination of the obligation and expense for pension and other postretirement benefits is dependent on certain assumptions used in calculating such amounts. Key assumptions used in the actuarial valuations include the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation and health care costs.

Actual results could differ from the assumptions and market driven rates may fluctuate. Significant differences in actual experience or significant changes in the assumptions may materially affect the future pension and other postretirement obligations and expense.

22

RESULTS OF OPERATIONS

For the three month periods ended March 31, 2013 and 2012

Overview

Net income available to common shareholders was $900,000, or $0.53 per common share, for the first quarter ended March 31, 2013 (first quarter 2013), compared with $531,000, or $0.31 per common share, for the fourth quarter ended December 31, 2012 (fourth quarter 2012), and $1,167,000, or $0.69 per common share, for the first quarter ended March 31, 2012 (first quarter 2012).

• Earnings per common share of $0.53 increased $0.22 versus fourth quarter 2012, and decreased $0.16, versus first quarter 2012.

• The net interest margin increased 22 basis points versus fourth quarter 2012 and remained the same as first quarter 2012 at 3.54%.

• Tax equivalent net interest income increased $194,000, or 4%, versus fourth quarter 2012, and decreased $59,000, or 1%, versus first quarter 2012.

• Provision for loan losses was $396,000, versus $380,000 for fourth quarter 2012 and $180,000 for first quarter 2012. Net loan charge-offs were $70,000, versus $199,000 for fourth quarter 2012 and $90,000 for first quarter 2012.

• Non-interest income decreased $252,000, or 13%, versus fourth quarter 2012 and decreased $34,000, or 2%, versus first quarter 2012.

• Non-interest expense decreased $629,000, or 12%, versus fourth quarter 2012 and increased $205,000, or 5%, versus first quarter 2012.

• Net loans receivable increased $17.5 million or 4.5% during the first calendar quarter of 2013 to $406 million, which reflected an increase of $34.5 million or 9% from the end of the first quarter of 2012.

• Non-performing assets decreased $807,000, or 8%, to $9.3 million, or 1.6% of total assets, versus fourth quarter 2012 and increased $1.7 million versus first quarter 2012. Accruing loans receivable 30-to-89 days past due decreased $911,000 to $4.7 million, or 1.15% of gross loans receivable, versus fourth quarter 2012 and increased $538,000 versus first quarter 2012.

Net Interest Income

Tax equivalent net interest income for first quarter 2013 increased $194,000, or 4%, versus fourth quarter 2012, and decreased $59,000, or 1%, versus first quarter 2012. Average total interest bearing deposits increased $0.7 million versus fourth quarter 2012 and increased $5.3 million versus first quarter 2012. Average earning assets decreased $12.4 million versus fourth quarter 2012 due to the early prepayment of a $10 million FHLBB advance in fourth quarter 2012, and decreased $5.9 million versus first quarter 2012. The net interest margin increased 22 basis points versus fourth quarter 2012 and remained the same as first quarter 2012 at 3.54%.

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The following table sets forth the components of Salisbury's fully tax-equivalent (“FTE”) net interest income and yields on average interest-earning assets and interest-bearing funds.

Three months ended March 31,	Average Balance				Income / Expense				Average Yield / Rate
(dollars in thousands)	2013		2012		2013		2012		2013			2012
Loans (a)	$	403,033	$	377,704	$	4,485	$	4,595		4.46	%		4.87	%
Securities (c)(d)		118,410		149,699		1,199		1,519		4.05			4.06
FHLBB stock		5,652		5,962		5		10		0.38			0.68
Short term funds (b)		27,447		27,113		17		13		0.25			0.19
Total earning assets		554,542		560,478		5,706		6,137		4.12			4.38
Other assets		40,320		41,829
Total assets	$	594,862	$	602,307
Interest-bearing demand deposits	$	66,689	$	68,510		69		109		0.42			0.64
Money market accounts		128,691		121,869		87		114		0.27			0.37
Savings and other		105,934		95,919		52		77		0.20			0.32
Certificates of deposit		92,696		102,418		282		367		1.23			1.43
Total interest-bearing deposits		394,010		388,716		490		667		0.50			0.69
Repurchase agreements		1,856		11,119		1		13		0.23			0.47
FHLBB advances		31,709		46,963		312		495		3.93			4.22
Total interest-bearing liabilities		427,575		446,798		803		1,175		0.76			1.05
Demand deposits		87,923		83,354
Other liabilities		6,876		4,387
Shareholders’ equity		72,488		67,768
Total liabilities & shareholders’ equity	$	594,862	$	602,307
Net interest income					$	4,903	$	4,962
Spread on interest-bearing funds										3.36			3.33
Net interest margin (e)										3.54			3.54

(a) Includes non-accrual loans.

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

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

(d) Includes tax exempt income benefit of $300,000 and $279,000, respectively for 2013 and 2012 on tax-exempt securities whose income and yields are calculated on a tax-equivalent basis.

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

The following table sets forth the changes in FTE interest due to volume and rate.

Three months ended March 31, (in thousands)	2013 versus 2012
Change in interest due to		Volume			Rate			Net
Interest-earning assets
Loans	$	295		$	(405	)	$	(110	)
Securities		(317	)		(3	)		(320	)
FHLBB stock		—			(5	)		(5	)
Short term funds		—			4			4
Total		(22	)		(409	)		(431	)
Interest-bearing liabilities
Deposits		(23	)		(154	)		(177	)
Repurchase agreements		(8	)		(4	)		(12	)
FHLBB advances		(155	)		(28	)		(183	)
Total		(186	)		(186	)		(372	)
Net change in net interest income	$	164		$	(223	)	$	(59	)

Interest Income

Tax equivalent interest income decreased $431,000, or 7.0%, to $5.7 million for first quarter 2013 as compared with first quarter 2012.

Loan income decreased $110,000, or 2.4%, primarily due to a 41 basis points decline in the average loan yield offset in part by a $25.3 million, or 6.7%, increase in average loans.

Tax equivalent securities income decreased $320,000, or 21.7%, for first quarter 2013 as compared with first quarter 2012, primarily due to a $31.3 million, or 20.9%, decrease in average volume calls and sales of agency bonds and prepayments of mortgage backed securities.

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Interest Expense

Interest expense decreased $372,000, or 31.7%, to $0.8 million for first quarter 2013 as compared with first quarter 2012.

Interest on deposit accounts and retail repurchase agreements decreased $189,000, or 27.8%, as a result of lower average rates, down 19 basis points on deposits and 24 basis points on repurchase agreements. Decreased rates were offset in part by a $5.3 million, or 1.4%, increase in the average balance of deposits. The lower average rate resulted from the effect of lower market interest rates on rates paid and changes in product mix. The higher average volume resulted from deposit growth.

Interest expense on FHLBB borrowings decreased $183,000 as a result of lower average borrowings, down $15.3 million, and by the average borrowing rate decrease of 29 basis points as compared with first quarter 2012. The decline in advances resulted from scheduled maturities that were not replaced with new advances and the prepayment of a $10 million advance in December 2012.

Provision and Allowance for Loan Losses

The provision for loan losses was $396,000 for first quarter 2013 and $180,000 for first quarter 2012. Net loan charge-offs were $70,000 and $90,000, for the respective quarters. The following table sets forth changes in the allowance for loan losses and other selected statistics:

	Three months
Periods ended March 31, (dollars in thousands)	2013			2012
Balance, beginning of period	$	4,360		$	4,076
Provision for loan losses		396			180
Charge-offs
Real estate mortgages		(56	)		(60	)
Commercial & industrial		(4	)		(29	)
Consumer		(13	)		(10	)
Total charge-offs		(73	)		(99	)
Recoveries
Real estate mortgages		—			1
Commercial & industrial		—			3
Consumer		3			5
Total recoveries		3			9
Net charge-offs		(70	)		(90	)
Balance, end of period	$	4,686		$	4,166
Loans receivable, gross	$	409,876		$	374,877
Non-performing loans		8,587			7,606
Accruing loans past due 30-89 days		4,718			4,181
Ratio of allowance for loan losses:
to loans receivable, gross		1.14	%		1.11	%
to non-performing loans		54.59			54.77
Ratio of non-performing loans to loans receivable, gross		2.09			2.03
Ratio of accruing loans past due 30-89 days to loans receivable, gross		1.15			1.12

Reserve coverage at March 31, 2013, as measured by the ratio of allowance for loan losses to gross loans, improved to 1.14%, as compared with 1.11% at December 31, 2012 and 1.11% a year ago at March 31, 2012.

During the first three months of 2013, non-performing loans (non-accrual loans and accruing loans past-due 90 days or more) decreased $1.3 million to $8.6 million, or 2.09% of gross loans receivable, from 2.51% at December 31, 2012 and 2.03% at March 31, 2012 while accruing loans past due 30-89 days decreased $0.9 million to $4.7 million, or 1.15% of gross loans receivable from 1.44% at December 31, 2012 and 1.12% at March 31, 2012. See “Financial Condition – Loan Credit Quality” for further discussion and analysis.

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The credit quality segments of loans receivable and the allowance for loan losses are as follows:

	Collectively evaluated				Individually evaluated				Total portfolio
March 31, 2013  (in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
Performing loans	$	382,422	$	2,687	$	78	$	30	$	382,500	$	2,717
Potential problem loans		9,856		335		2,558		86		12,414		421
Impaired loans		—		—		14,962		1,127		14,962		1,127
Unallocated allowance		—		—		—		421		—		421
Totals	$	392,278	$	3,022	$	17,598	$	1,664	$	409,876	$	4,686
	Collectively evaluated				Individually evaluated				Total portfolio
December 31, 2012  (in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
Performing loans	$	364,592	$	2,567	$	121	$	52	$	364,713	$	2,619
Potential problem loans		8,345		246		2,465		131		10,810		377
Impaired loans		—		—		16,563		924		16,563		924
Unallocated allowance		—		—		—		440		—		440
Totals	$	372,937	$	2,813	$	19,149	$	1,547	$	392,086	$	4,360

The allowance for loan losses represents management’s estimate of the probable credit losses inherent in the loan portfolio as of the reporting date. The allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off, and is reduced by loan charge-offs. Loan charge-offs are recognized when management determines a loan or portion of a loan to be uncollectible. The allowance for loan losses is computed by segregating the portfolio into three components: (1) loans collectively evaluated for impairment: general loss allocation factors for non-impaired loans are segmented into pools of loans based on similar risk characteristics such as loan product, collateral type and loan-to-value, loan risk rating, historical loss experience, delinquency factors and other similar economic indicators, (2) loans individually evaluated for impairment: individual loss allocations for loans deemed to be impaired based on discounted cash flows or collateral value, and (3) unallocated: general loss allocations for other environmental factors.

Impaired loans and certain potential problem loans, where warranted, are individually evaluated for impairment. Impairment is measured for each individual loan, or for a borrower’s aggregate loan exposure, using either the fair value of the collateral if the loan is collateral dependent or the present value of expected future cash flows discounted at the loan’s effective interest rate. An allowance is established when the collateral value or discounted cash flows of the loan is lower than the carrying value of that loan.

The component of the allowance for loan losses for loans collectively evaluated for impairment is estimated by stratifying loans into segments and credit risk ratings and applying management’s general loss allocation factors. The general loss allocation factors are based on expected loss experience adjusted for historical loss experience and other qualitative factors, including levels/trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. The qualitative factors are determined based on the various risk characteristics of each loan segment. There were no significant changes in Salisbury’s policies or methodology pertaining to the general component of the allowance for loan losses during the quarter ended March 31, 2013.

The unallocated component of the allowance is maintained to cover uncertainties that could affect management’s estimate of probable losses. It reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

Determining the adequacy of the allowance at any given period is difficult, particularly during deteriorating or uncertain economic periods, and management must make estimates using assumptions and information that are often subjective and changing rapidly. The review of the loan portfolio is a continuing event in light of a changing economy and the dynamics of the banking and regulatory environment. Should the economic climate deteriorate, borrowers could experience difficulty and the level of non-performing loans, charge-offs and delinquencies could rise and require increased provisions. In management's judgment, Salisbury remains adequately reserved both against total loans and non-performing loans at March 31, 2013.

Management’s loan risk rating assignments, loss percentages and specific reserves are subjected annually to an independent credit review by an external firm. In addition, the bank is examined annually on a rotational process by one of its two primary regulatory agencies, the FDIC and State of Connecticut Department of Banking (“CTDOB”). As an integral part of their examination process, the FDIC and CTDOB review the Bank's credit risk ratings and allowance for loan losses. The Bank was examined by the CTDOB July 2012 and by the FDIC in July 2011.

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Non-interest income

The following table details the principal categories of non-interest income.

Three months ended March 31, (dollars in thousands)	2013		2012			2013 vs. 2012
Trust and wealth advisory fees	$	725	$	755		$	(30	)	(3.97	)%
Service charges and fees		516		521			(5	)	(0.96	)
Gains on sales of mortgage loans, net		279		372			(93	)	(25.00	)
Mortgage servicing, net		26		(84	)		110		130.95
Gains on securities, net		—		12			(12	)	(100.00	)
Other		79		83			(4	)	(4.82	)
Total non-interest income	$	1,625	$	1,659		$	(34	)	(2.05	)%

Non-interest income for first quarter 2013 decreased $252,000 versus fourth quarter 2012 and decreased $34,000 versus first quarter 2012. Trust and Wealth Advisory revenues decreased $47,000 versus fourth quarter 2012 and decreased $30,000 versus first quarter 2012. The year-over-year revenue decrease is the result of higher estate fees collected in first quarter 2012, offset by growth in managed assets. Service charges and fees decreased $45,000 versus fourth quarter 2012 and decreased $5,000 versus first quarter 2012. Income from sales and servicing of mortgage loans decreased $165,000 versus fourth quarter 2012 and increased $17,000 versus first quarter 2012 due to residential mortgage loan sales and mortgage servicing valuations. Mortgage loans sales totaled $8.7 million for first quarter 2013, $13.4 million for fourth quarter 2012 and $16.3 million for first quarter 2012. First quarter 2013, fourth quarter 2012, and first quarter 2012 included mortgage servicing valuation impairment (benefits)/charges of $(33,000), $(73,000), and $92,000, respectively. Other income includes bank owned life insurance income and rental income.

Non-interest expense

The following table details the principal categories of non-interest expense.

Three months ended March 31, (dollars in thousands)	2013		2012		2013 vs. 2012
Salaries	$	1,750	$	1,710	$	40		2.34	%
Employee benefits		685		690		(5	)	(0.72	)
Premises and equipment		583		605		(22	)	(3.64	)
Data processing		419		402		17		4.23
Professional fees		380		313		67		21.41
Collections and OREO		157		111		46		40.54
FDIC insurance		125		128		(3	)	(2.34	)
Marketing and community contributions		122		87		35		40.23
Amortization of intangible assets		56		56		—		—
Other		428		398		30		7.79
Non-interest expense	$	4,705	$	4,500	$	205		4.56	%

Non-interest expense for first quarter 2013 decreased $629,000 versus fourth quarter 2012 and increased $205,000 versus first quarter 2012. Salaries decreased $130,000 versus fourth quarter 2012 due to changes in staffing levels and mix. Employee benefits increased $17,000 versus fourth quarter 2012 due to new deferred compensation plans and an increase in the 401K Safe Harbor Plan in response to the freeze placed on the defined benefit pension plan as of December 31, 2012. Employee benefit expense for the period also reflects the current expense related to the award of 19,600 shares of restricted stock. The total expense of $490,000 will be recognized on a straight line basis over the thirty six month vesting period under which the shares were awarded on February 8, 2013. Premises and equipment decreased $26,000 versus fourth quarter 2012 and decreased $22,000 versus first quarter 2012. The current quarter’s decrease in expense was a result of seasonal maintenance, and repairs to the Lakeville branch during the fourth quarter of 2012. The year-over-year decrease was due primarily to the prior year’s one-time expense related to ADA compliance for ATMs. This favorable first quarter 2013 non-interest expense decrease was offset slightly by higher building maintenance and repairs, and weather related expenses this quarter as compared to the mild winter experienced in the Northeast during the prior quarter and year ago quarter.

Data processing increased $40,000 versus fourth quarter 2012 and $17,000 versus first quarter 2012. Professional fees increased $83,000 versus fourth quarter 2012, and $67,000 versus first quarter 2012. The increases in the current quarter were due to legal expenses and an executive search. Collections and OREO related expenses decreased $184,000 versus fourth quarter 2012 and increased $46,000 versus first quarter 2012. The decrease versus fourth quarter was mainly due to lower current quarter real estate taxes and legal collections, while the fourth quarter 2012 included a one-time loss associated with the sale of an OREO property. Other operating expenses decreased $466,000 versus fourth quarter 2012 and increased $30,000 versus first quarter 2012. The expense in the prior quarter includes a one-time prepayment expense of $450,000 as the result of the early prepayment of a $10 million FHLBB advance maturing 12/16/2013 with a 4.88% coupon. Year-over-year increases were due to rises in other administrative and operational expenses.

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Income taxes

The effective income tax rates for first quarter 2013, fourth quarter 2012 and first quarter 2012 were 16.59%, 4.33% and 24.82%, respectively. Fluctuations in the effective tax rate result from changes in the mix of taxable and tax exempt income. Salisbury’s effective tax rate is generally less than the 34% federal statutory rate due to holdings of tax-exempt municipal bonds, some tax-exempt loans and bank owned life insurance.

Salisbury did not incur Connecticut income tax in 2012 or 2011, other than minimum state income tax, as a result of its utilization of Connecticut tax legislation that permits banks to shelter certain mortgage income from the Connecticut corporation business tax through the use of a special purpose entity called a Passive Investment Company (“PIC”). In accordance with this legislation, in 2004 the Bank formed a PIC, SBT Mortgage Service Corporation. Salisbury's income tax provision reflects the full impact of the Connecticut legislation. Salisbury does not expect to pay other than minimum state income tax in the foreseeable future unless there is a change in the State of Connecticut corporate tax law.

FINANCIAL CONDITION

Overview

Total assets were $597 million at March 31, 2013, down $3 million from December 31, 2012. Loans receivable, net, were $406 million at March 31, 2013, up $17.5 million, or 4.5%, from December 31, 2012. Non-performing assets were $9.3 million at March 31, 2013, down $0.8 million from $10.1 million at December 31, 2012. Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, was 1.14%, 1.11% and 1.11%, at March 31, 2013, December 31, 2012 and March 31, 2012, respectively. Deposits were $488 million, down $3 million from $491 million at December 31, 2012.

At March 31, 2013, book value and tangible book value per common share were $32.88 and $26.70, respectively. Salisbury’s Tier 1 leverage and total risk-based capital ratios were 10.17% and 16.47%, respectively, and above the “well capitalized” limits as defined by the FRB.

Securities and Short Term Funds

During first quarter 2013, securities decreased $7.6 million to $119 million, and FHLBB advances decreased $0.4 million, while cash and cash-equivalents (interest-bearing deposits with other banks, money market funds and federal funds sold) decreased $12.1 million to $31.4 million as Salisbury slightly increased its liquidity position in light of historically low interest rates and growth in volatile deposits.

Salisbury evaluates securities for OTTI where the fair value of a security is less than its amortized cost basis at the balance sheet date. As part of this process, Salisbury considers its intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, Salisbury recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For securities that meet neither of these conditions, an analysis is performed to determine if any of these securities are at risk for OTTI.

Salisbury does not intend to sell any of its securities and it is not more likely than not that Salisbury will be required to sell any of its securities before recovery of their cost basis, which may be maturity. Therefore, management does not consider any of its securities, other than four non-agency CMO securities reflecting OTTI, to be OTTI at March 31, 2013.

In 2009 Salisbury determined that five non-agency CMO securities reflected OTTI and recognized losses for deterioration in credit quality of $1.1 million. Salisbury judged the four remaining securities not to have additional OTTI and all other CMO securities not to be OTTI as of March 31, 2013. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury does not intend to sell these securities and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis.

Accumulated other comprehensive loss at March 31, 2013 included net unrealized holding gains, net of tax, of $2.2 million, and decrease of $0.2 million over December 2012, partially offset by unrecognized pension plan expense, net of tax, of $0.5 million and $0.5 million respectively.

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Loans

Net loans receivable increased $17.5 million during first quarter 2013 to $406.3 million at March 31, 2013, compared with $388.8 million at December 31, 2012.

The composition of loans receivable and loans held-for-sale is as follows:

(in thousands)	March 31, 2013			December 31, 2012
Residential 1-4 family	$	209,159		$	198,552
Residential 5+ multifamily		4,714			3,889
Construction of residential 1-4 family		1,395			2,379
Home equity credit		33,925			34,162
Residential real estate		249,193			238,982
Commercial		96,835			87,382
Construction of commercial		9,755			5,823
Commercial real estate		106,590			93,205
Farm land		4,282			4,320
Vacant land		7,898			9,926
Real estate secured		367,963			346,433
Commercial and industrial		33,943			38,094
Municipal		3,995			3,378
Consumer		3,975			4,181
Loans receivable, gross		409,876			392,086
Deferred loan origination fees and costs, net		1,068			1,032
Allowance for loan losses		(4,686	)		(4,360	)
Loans receivable, net	$	406,258		$	388,758
Loans held-for-sale
Residential 1-4 family	$	710		$	1,879

Loan Credit Quality

The persistent weakness in the local and regional economies continues to impact the credit quality of Salisbury’s loans receivable. During first quarter 2013, while non-performing assets decreased $0.8 million, the amount of total impaired and potential problem loans remained unchanged at $27.4 million (6.7% of gross loans receivable) during first quarter 2013, compared to $27.4 million, or 7.0% of gross loans receivable at December 31, 2012, and decreased $0.3 million from $27.7 million, or 7.4% of gross loans receivable at March 31, 2012.

The composition of loans receivable by risk rating grade is as follows:

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
March 31, 2013
Residential 1-4 family	$	189,694	$	13,344	$	6,023	$	98	$	—	$	209,159
Residential 5+ multifamily		2,354		1,142		1,218		—		—		4,714
Construction of residential 1-4 family		1,395		—		—		—		—		1,395
Home equity credit		30,881		1,368		1,676		—		—		33,925
Residential real estate		224,324		15,854		8,917		98		—		249,193
Commercial		68,196		19,679		8,960		—		—		96,835
Construction of commercial		8,989		153		613		—		—		9,755
Commercial real estate		77,185		19,832		9,573		—		—		106,590
Farm land		1,644		1,466		1,172		—		—		4,282
Vacant land		4,425		189		3,284		—		—		7,898
Real estate secured		307,578		37,341		22,946		98		—		367,963
Commercial and industrial		24,049		8,532		1,362		—		—		33,943
Municipal		3,995		—		—		—		—		3,995
Consumer		3,851		101		23		—		—		3,975
Loans receivable, gross	$	339,473	$	45,974	$	24,331	$	98	$	—	$	409,876

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(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2012
Residential 1-4 family	$	180,442	$	12,473	$	5,538	$	99	$	—	$	198,552
Residential 5+ multifamily		2,872		773		244		—		—		3,889
Construction of residential 1-4 family		1,570		—		809		—		—		2,379
Home equity credit		30,981		1,848		1,333		—		—		34,162
Residential real estate		215,865		15,094		7,924		99		—		238,982
Commercial		64,817		13,299		9,266		—		—		87,382
Construction of commercial		5,055		297		471		—		—		5,823
Commercial real estate		69,872		13,596		9,737		—		—		93,205
Farm land		2,799		341		1,180		—		—		4,320
Vacant land		4,885		863		4,178		—		—		9,926
Real estate secured		293,421		29,894		23,019		99		—		346,433
Commercial and industrial		28,453		8,300		1,341		—		—		38,094
Municipal		3,378		—		—		—		—		3,378
Consumer		3,994		159		28		—		—		4,181
Loans receivable, gross	$	329,246	$	38,353	$	24,388	$	99	$	—	$	392,086

Changes in impaired and potential problem loans are as follows:

	March 31, 2013												March 31, 2012
	Impaired loans												Impaired loans
Three months ended (in thousands)		Non-accrual			Accruing			Potential problem loans			Total			Non-accrual			Accruing			Potential problem loans			Total
Loans placed on non-accrual status	$	1,016		$	—		$	(281	)	$	735		$	117		$	—		$	—		$	117
Loans restored to accrual status		(571	)		54			143			(374	)		(301	)		—			—			(301	)
Loan risk rating downgrades to substandard		—			—			2,678			2,678			—			—			1,386			1,386
Loan risk rating upgrades from substandard		—			—			0			0			—			—			(320	)		(320	)
Loan repayments		(1,206	)		652			(932	)		1,486	)		(237	)		(37	)		(133	)		(407	)
Loan charge-offs		(41	)		19			(4	)		(26	)		(84	)		—			—			(84	)
Increase (decrease) in TDR loans		0			48			0			48			36			731			(136	)		631
Real estate acquired in settlement of loans		(835	)		(736	)		—			(1,571	)		—			—			—			—
Increase (decrease) in loans	$	(1,637	)	$	37		$	1,604		$	4		$	(469	)	$	694		$	797		$	1,022

For year-to-date 2013 Salisbury has downgraded risk ratings on $2.7 million of loans, placed $1.0 million of loans on non-accrual status as a result of deteriorated payment and financial performance and charged-off $84,000 of losses primarily as a result of collateral deficiencies. Offsetting these deteriorations were loan risk rating upgrades resulting from improved performance and loan repayments.

Salisbury has cooperative relationships with the vast majority of its non-performing loan customers. Substantially all non-performing loans are collateralized with real estate and the repayment of such loans is largely dependent on the return of such loans to performing status or the liquidation of the underlying real estate collateral. Salisbury pursues the resolution of all non-performing loans through collections, restructures, voluntary liquidation of collateral by the borrower and, where necessary, legal action. When all attempts to work with a customer to return a loan to performing status, including restructuring the loan, are unsuccessful, Salisbury will initiate appropriate legal action seeking to acquire property by deed in lieu of foreclosure or through foreclosure, or to liquidate business assets.

Credit Quality Segments

Salisbury categorizes loans receivable into the following credit quality segments:

• Impaired loans consist of all non-accrual loans and troubled debt restructured loans, and represent loans for which it is probable that Salisbury will not be able to collect all principal and interest amounts due according to the contractual terms of the loan agreements.

• Non-accrual loans, a sub-set of impaired loans, are loans for which the accrual of interest has been discontinued because, in the opinion of management, full collection of principal or interest is unlikely.

• Non-performing loans consist of non-accrual loans, and accruing loans past due 90 days and over that are well collateralized, in the process of collection and where full collection of principal and interest is assured. Non-performing assets consist of non-performing loans plus real estate acquired in settlement of loans.

• Troubled debt restructured loans are loans for which concessions such as reduction of interest rates, other than normal market rate adjustments, or deferral of principal or interest payments, extension of maturity dates, or reduction of principal balance or accrued interest, have been granted due to a borrower’s financial condition. Loan restructuring is employed when management believes the granting of a concession will increase the probability of the full or partial collection of principal and interest.

• Potential problem loans consist of performing loans that have been assigned a substandard credit risk rating and that are not classified as impaired.

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Credit Risk Ratings

Salisbury assigns credit risk ratings to loans receivable in order to manage credit risk and to determine the allowance for loan losses. Credit risk ratings categorize loans by common financial and structural characteristics that measure the credit strength of a borrower. Salisbury’s rating model has eight risk rating grades, with each grade corresponding to a progressively greater risk of default. Grades 1 through 4 are pass ratings and 5 through 8 are ratings (special mention, substandard, doubtful and loss) defined by the bank’s regulatory agencies, the FDIC and CTDOB. Risk ratings are assigned to differentiate risk within the portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial position and outlook, risk profiles and the related collateral and structural positions.

• Loans risk rated as "special mention" possesses credit deficiencies or potential weaknesses deserving management’s close attention that if left uncorrected may result in deterioration of the repayment prospects for the loans at some future date.

• Loans risk rated as "substandard" are loans where the Bank’s position is clearly not protected adequately by borrower current net worth or payment capacity. These loans have well defined weaknesses based on objective evidence and include loans where future losses to the Bank may result if deficiencies are not corrected, and loans where the primary source of repayment such as income is diminished and the Bank must rely on sale of collateral or other secondary sources of collection.

• Loans risk rated as "doubtful" have the same weaknesses as substandard loans with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, to be highly improbable. The possibility of loss is high, but due to certain important and reasonably specific pending factors, which may work to strengthen the loan, its reclassification as an estimated loss is deferred until its exact status can be determined.

• Loans risk rated as "loss" are considered uncollectible and of such little value, that continuance as Bank assets is unwarranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless loan even though partial recovery may be made in the future.

Management actively reviews and tests its credit risk ratings against actual experience and engages an independent third-party to annually validate its assignment of credit risk ratings. In addition, the Bank’s loan portfolio and risk ratings are examined annually on a rotating basis by its two primary regulatory agencies, the FDIC and CTDOB.

Impaired Loans

Loans individually evaluated for impairment (impaired loans) are loans for which Salisbury does not expect to collect all contractual principal and interest in accordance with the contractual terms of the loan. Impaired loans include all modified loans classified as troubled debt restructurings (TDRs) and loans on non-accrual status. The components of impaired loans are as follows:

(in thousands)	March 31, 2013		December 31, 2012
Non-accrual loans, excluding troubled debt restructured loans	$	5,004	$	7,579
Non-accrual troubled debt restructured loans		3,220		2,280
Accruing troubled debt restructured loans		6,738		6,704
Total impaired loans	$	14,962	$	16,563
Commitments to lend additional amounts to impaired borrowers	$	—	$	—

Non-Performing Assets

Non-performing assets decreased $807,000 during first quarter 2013 to $9.3 million, or 1.6% of assets at March 31, 2013, from $10.1 million, or 1.7% of assets at December 31, 2012, and increased $1.7 million from $7.6 million, or 1.3% of assets at March 31, 2012.

The 8% decrease in non-performing assets in first quarter 2013 resulted primarily from OREO sales of $1.1 million, in addition to $0.6 million of loans returning to accrual status, and $1.2 million from loan repayments. These declines were offset in part by a $0.4 million change in 90+ past due status and additions of $1.0 million in new non-accrual loans and $0.7 million of OREO additions.

The components of non-performing assets are as follows:

(in thousands)	March 31, 2013		December 31, 2012
Residential 1-4 family	$	2,880	$	3,024
Home equity credit		113		442
Commercial		2,064		2,235
Vacant land		3,125		3,994
Real estate secured		8,182		9,695
Commercial and industrial		42		164
Consumer		—		—
Non-accruing loans		8,224		9,859
Accruing loans past due 90 days and over		363		—
Non-performing loans		8,587		9,859
Real estate acquired in settlement of loans		712		244
Non-performing assets	$	9,299	$	10,103

31

The past due status of non-performing loans is as follows:

(in thousands)	March 31, 2013		December 31, 2012
Current	$	2,622	$	1,797
Past due 001-029 days		15		75
Past due 030-059 days		62		701
Past due 060-089 days		978		445
Past due 090-179 days		780		1,983
Past due 180 days and over		4,129		4,858
Total non-performing loans	$	8,587	$	9,859

At March 31, 2013, 31.88% of non-accrual loans were current with respect to loan payments, compared with 18.23% at December 31, 2012. Loans past due 180 days include a $3.0 million loan secured by vacant land (residential building lots) where Salisbury has initiated a foreclosure action that is referred to in Item 1 of Part II, Legal Proceedings.

Troubled Debt Restructured Loans

Troubled debt restructured loans increased $1.0 million during first quarter 2013 to $10.0 million, or 2.43% of gross loans receivable at March 31, 2013, from $9.0 million, or 2.29% of gross loans receivable at December 31, 2012.

The components of troubled debt restructured loans are as follows:

(in thousands)	March 31, 2013		December 31, 2012
Residential 1-4 family	$	3,158	$	3,098
Commercial		2,754		2,774
Real estate secured		5,912		5,872
Commercial and industrial		826		832
Accruing troubled debt restructured loans		6,738		6,704
Residential 1-4 family		2,020		1,041
Commercial		1,145		1,159
Vacant land		—		—
Real estate secured		3,165		2,200
Commercial and industrial		55		80
Non-accrual troubled debt restructured loans		3,220		2,280
Troubled debt restructured loans	$	9,958	$	8,984

The past due status of troubled debt restructured loans is as follows:

(in thousands)	March 31, 2013		December 31, 2012
Current	$	5,052	$	5,354
Past due 001-029 days		1,686		445
Past due 030-059 days		—		905
Accruing troubled debt restructured loans		6,738		6,704
Current		2,522		1,333
Past due 001-029 days		—		—
Past due 030-059 days		55		301
Past due 060-089 days		145		194
Past due 090-179 days		46		—
Past due 180 days and over		452		452
Non-accrual troubled debt restructured loans		3,220		2,280
Total troubled debt restructured loans	$	9,958	$	8,984

At March 31, 2013, 76.07% of troubled debt restructured loans were current with respect to loan payments, as compared with 74.43% at December 31, 2012.

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Past Due Loans

Loans past due 30 days or more decreased $2.9 million during first quarter 2013 to $10.7 million, or 2.60% of gross loans receivable at March 31, 2013, compared with $13.6 million, or 3.47% of gross loans receivable at December 31, 2012.

The components of loans past due 30 days or greater are as follows:

(in thousands)	March 31, 2013		December 31, 2012
Past due 030-059 days	$	1,166	$	4,309
Past due 060-089 days		3,553		1,317
Past due 090-179 days		362		—
Accruing loans		5,081		5,626
Past due 030-059 days		62		701
Past due 060-089 days		978		445
Past due 090-179 days		418		1,983
Past due 180 days and over		4,130		4,859
Non-accrual loans		5,588		7,988
Total loans past due 30 days or greater	$	10,669	$	13,614

Potential Problem Loans

Potential problem loans increased $1.6 million during first quarter 2013 to $12.4 million, or 3.03% of gross loans receivable at March 31, 2013, compared with $10.8 million, or 2.76% of gross loans receivable at December 31, 2012.

The components of potential problem loans are as follows:

(in thousands)	March 31, 2013		December 31, 2012
Residential 1-4 family	$	2,932	$	3,108
Residential 5+ multifamily		975		—
Home equity credit		1,562		892
Residential real estate		5,469		4,000
Commercial		4,506		4,624
Construction of commercial		592		450
Commercial real estate		5,098		5,074
Farm land		1,172		1,180
Vacant land		158		183
Real estate secured		11,897		10,437
Commercial and Industrial		494		345
Consumer		23		28
Potential problem loans	$	12,414		10,810

The past due status of potential problem loans is as follows:

(in thousands)	March 31, 2013		December 31, 2012
Current	$	7,750	$	7,992
Past due 001-029 days		1,045		452
Past due 030-059 days		846		2,065
Past due 060-089 days		2,575		301
Past due 090-179 days		198		—
Total potential problem loans	$	12,414	$	10,810

At March 31, 2013, 62.43% of potential problem loans were current with respect to loan payments, as compared with 73.93% at December 31, 2012.

Management cannot predict the extent to which economic or other factors may impact such borrowers’ future payment capacity, and there can be no assurance that such loans will not be placed on nonaccrual status, restructured, or require increased provision for loan losses.

Deposits and Borrowings

Deposits decreased $3.4 million during first quarter 2013 to $487.8 million at March 31, 2013, from $491.2 million at December 31, 2012, and increased $15.1 million for year-over-year from $472.7 million at March 31, 2012. Retail repurchase agreements increased $0.5 million during first quarter 2013 to $2.3 million at March 31, 2013, compared with $1.8 million at December 31, 2012, and decreased $8.0 million for year-over-year compared with $10.4 million at March 31, 2012.

Federal Home Loan Bank of Boston (FHLBB) advances decreased $0.4 million during first quarter 2013 to $31.6 million at March 31, 2013, from $32.0 million at December 31, 2012, and decreased $11.6 million for year-over-year from $43.2 million at March 31, 2012. The decreases were due to amortizing payments of advances, maturities of advances that were not renewed, and the prepayment in fourth quarter 2012 of a $10.0 million advance maturing 12/16/2013 with a 4.88% coupon.

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Liquidity

Salisbury manages its liquidity position to ensure that there is sufficient funding availability at all times to meet both anticipated and unanticipated deposit withdrawals, loan originations and advances, securities purchases and other operating cash outflows. Salisbury's primary sources of liquidity are principal payments and maturities of securities and loans, short-term borrowings through repurchase agreements and FHLBB advances, net deposit growth and funds provided by operations. Liquidity can also be provided through sales of loans and available-for-sale securities.

Salisbury manages its liquidity in accordance with a liquidity funding policy, and also maintains a contingency funding plan that provide for the prompt and comprehensive response to unexpected demands for liquidity. At March 31, 2013, Salisbury's liquidity ratio, as represented by cash, short term available-for-sale securities and marketable assets to net deposits and short term unsecured liabilities, was 26.24%, down from 30.55% at December 31, 2012. Management believes Salisbury’s funding sources will meet anticipated funding needs.

Operating activities for the three-month period ended March 31, 2013 provided net cash of $2.5 million. Investing activities utilized net cash of $10.8 million, principally from $19.4 million of net loan originations and principle collections, offset by proceeds from calls and maturities of securities available-for-sale and $1.1 million proceeds from sales of other real estate owned. Financing activities utilized net cash of $3.8 million, principally due to a net decrease of $2.9 million in deposits and repurchase agreements and common and preferred stock dividends paid.

At March 31, 2013, Salisbury had outstanding commitments to fund new loan originations of $13.9 million and unused lines of credit of $52.1 million. Salisbury believes that these commitments can be met in the normal course of business. Salisbury believes that its liquidity sources will continue to provide funding sufficient to support operating activities, loan originations and commitments, and deposit withdrawals.

CAPITAL RESOURCES

Shareholders’ equity was $72.2 million at March 31, 2013, up $0.2 million from December 31, 2012. Book value and tangible book value per common share were $32.88 and $26.70, respectively, compared with $33.14 and $26.85, respectively, at December 31, 2012. Contributing to the increase in shareholders’ equity for year-to-date 2013 was net income of $940,000 and issuance of restricted stock of $490,000, less loss in other comprehensive income of $235,000, less common and preferred stock dividends of $479,000 and $41,000, respectively, and $466,000 in restricted stock unrecognized compensation. Other comprehensive income included unrealized gains on securities available-for-sale, net of tax, of $2.7 million and unrealized loss on the pension plan income, net of tax, of $0.5 million.

In August 2011, Salisbury issued to the U.S. Secretary of the Treasury (the “Treasury”) $16.0 million of its Series B Preferred Stock under the Small Business Lending Fund (the “SBLF”) program. The SBLF program is a $30 billion fund established under the Small Business Jobs Act of 2010 to encourage lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion. The Preferred Stock qualifies as Tier 1 capital for regulatory purposes and ranks senior to the Common Stock.

The Series B Preferred Stock pays noncumulative dividends. The dividend rate on the Series B Preferred Stock for the initial quarterly dividend period ending September 30, 2011 and each of the next nine quarterly dividend periods the Series B Preferred Stock is outstanding is determined each quarter based on the increase in the Bank’s Qualified Small Business Lending. The dividend rate for the quarterly dividend periods ended March 31, 2013 and December 31, 2012, was 1.0000%. For the tenth quarterly dividend period through four and one-half years after its issuance, the dividend rate on the Series B Preferred Stock will be fixed at the rate in effect at the end of the ninth quarterly dividend period and after four and one-half years from its issuance the dividend rate will be fixed at 9 percent per annum. On March 29, 2013, Salisbury declared a Series B Preferred Stock dividend of $41,000, payable on April 1, 2013. The Series B Preferred Stock is non-voting, other than voting rights on matters that could adversely affect the Series B Preferred Stock. The Series B Preferred Stock is redeemable at any time at one hundred percent of the issue price plus any accrued and unpaid dividends.

As part of the CPP, Salisbury had issued to the Treasury a 10-year Warrant to purchase 57,671 shares of Common Stock at an exercise price of $22.93 per share. The Warrant was repurchased for $205,000 on November 2, 2011.

On February 8, 2013, Salisbury granted a total of 19,600 shares of restricted stock pursuant to its 2011 Long Term Incentive Plan, which was approved by shareholders at the 2011 Annual Meeting, to 22 employees, including 5,000 shares to one Named Executive Officer, Richard J. Cantele, Jr., Chief Executive Officer and President.

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Capital Requirements

Salisbury and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Under current regulatory definitions, Salisbury and the Bank are considered to be “well capitalized” for capital adequacy purposes. As a result, the Bank pays lower federal deposit insurance premiums than banks that are not “well capitalized.” Salisbury and the Bank's regulatory capital ratios are as follows:

			March 31, 2013				December 31, 2012
	Well capitalized		Salisbury		Bank		Salisbury		Bank
Total Capital (to risk-weighted assets)	10.00	%	16.47	%	13.71	%	16.63	%	13.77	%
Tier 1 Capital (to risk-weighted assets)	6.00		15.23		12.48		15.46		12.62
Tier 1 Capital (to average assets)	5.00		10.17		8.43		9.87		8.15

A well-capitalized institution, which is the highest capital category for an institution as defined by the Prompt Corrective Action Regulations issued by the FDIC and the FRB, is one which maintains a Total Risk-Based ratio of 10% or above, a Tier 1 Risk-Based ratio of 6% or above and a Leverage ratio of 5% or above, and is not subject to any written order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level. Maintaining strong capital is essential to Salisbury’s and the Bank’s 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.

Dividends

During the three month period ended March 31, 2013 Salisbury paid $40,000 in Series B preferred stock dividends to the U.S. Treasury’s SBLF program, and $473,000 in common stock dividends.

The Board of Directors of Salisbury declared a common stock dividend of $0.28 per common share payable on May 31, 2013 to shareholders of record on May 10, 2013. Common stock dividends, when declared, will generally be paid the last Friday of February, May, August and November, although Salisbury is not obligated to pay dividends on those dates or at any other time.

Salisbury's ability to pay cash dividends is substantially dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut law the Bank cannot declare a cash dividend except from net profits, defined as the remainder of all earnings from current operations. The total of all cash dividends declared by the Bank in any calendar year shall not, unless specifically approved by the Commissioner of Banking, exceed the total of its net profits of that year combined with its retained net profits of the preceding two years.

FRB Supervisory Letter SR 09-4, February 24, 2009, revised March 27, 2009, notes that, as a general matter, the board of directors of a BHC should inform the FRB and should eliminate, defer, or significantly reduce dividends if (1) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (2) the prospective rate of earnings retention is not consistent with capital needs and overall current and prospective financial condition; or (3) the BHC will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Moreover, a BHC should inform the FRB reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the BHC capital structure.

Salisbury believes that the payment of common stock cash dividends is appropriate, provided that such payment considers Salisbury's capital needs, asset quality, and overall financial condition and does not adversely affect the financial stability of Salisbury or the Bank. The continued payment of common stock cash dividends by Salisbury will be dependent on Salisbury's and the Bank’s future core earnings, financial condition and capital needs, regulatory restrictions, and other factors deemed relevant by the Board of Directors of Salisbury.

IMPACT OF INFLATION AND CHANGING PRICES

Salisbury’s consolidated financial statements are prepared in conformity with generally accepted accounting principles that 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 Salisbury are monetary and as a result, interest rates have a greater impact on Salisbury’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 Salisbury with the Securities and Exchange Commission, as well as other filings, reports and press releases made or issued by Salisbury and the Bank, and oral statements made by executive officers of Salisbury 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 Salisbury and the Bank do business; and

(b) expectations for revenues and earnings for Salisbury and the 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, Salisbury claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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Salisbury 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 affect the operation, performance, development and results of Salisbury’s and the 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 impacts Salisbury and Bank through increased operating expenses;

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

(d) the impact of technological advances; and

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

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Salisbury manages its exposure to interest rate risk through its Asset/Liability Management Committee (“ALCO”) using risk limits and policy guidelines to manage assets and funding liabilities to produce financial results that are consistent with Salisbury’s liquidity, capital adequacy, growth, risk and profitability targets. Interest rate risk is the risk of loss to future earnings due to changes in interest rates.

The ALCO manages interest rate risk using income simulation to measure interest rate risk inherent in Salisbury’s financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 24-month horizon. In management’s March 31, 2013 analysis, all of the simulations incorporate a management’s growth assumption over the simulation horizons. Additionally, the simulations take into account the specific re-pricing, maturity and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios.

The ALCO reviews the simulation results to determine whether Salisbury’s exposure to change in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure. Salisbury’s tolerance levels for changes in net interest income in its income simulations varies depending on the magnitude of interest rate changes and level of risk-based capital. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where interest rates remain stable over the forecast horizon. The ALCO also evaluates the directional trends of net interest income, net interest margin and other financial measures over the forecast horizon for consistency with its liquidity, capital adequacy, growth, risk and profitability targets.

The ALCO uses four interest rate scenarios to evaluate interest risk exposure and may vary these interest rate scenarios to show the effect of steepening or flattening changes in yield curves as well as parallel changes in interest rates. At March 31, 2013 the ALCO used the following interest rate scenarios: (1) unchanged interest rates; (2) immediately rising interest rates – immediate non-parallel upward shift in market interest rates ranging from 300 basis points for short term rates to 300 basis points for the 10-year Treasury; (3) immediately falling interest rates – immediate non-parallel downward shift in market interest rates ranging from 20 basis points for short term rates to 50 basis points for the 10-year Treasury; and (4) gradually rising interest rates – gradual non-parallel upward shift in market interest rates ranging from 300 basis points for short term rates to 275 basis points for the 10-year Treasury. Deposit rates are assumed to shift by lesser amounts due to their relative historical insensitivity to market interest rate movements. Further, deposits are assumed to have certain minimum rate levels below which they will not fall. Income simulations do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts.

As of March 31, 2013 net interest income simulations indicated that the Bank’s exposure to changing interest rates over the simulation horizons remained within its tolerance levels. The following table sets forth the estimated change in net interest income from an unchanged interest rate scenario over the periods indicated for changes in market interest rates using the Bank’s financial instruments as of March 31, 2013:

As of March 31, 2013	Months 1-12			Months 13-24
Immediately rising interest rates (management’s growth assumptions)		(14.76	)%		(9.16	)%
Immediately falling interest rates (management’s growth assumptions)		(0.74	)		(2.90	)
Gradually rising interest rates (management’s growth assumptions)		(4.46	)		(8.82	)

The negative exposure of net interest income to immediately and gradually rising rates as compared to the unchanged rate scenario results from a faster projected rise in the cost of funds versus income from earning assets, as relatively rate-sensitive money market and time deposits re-price faster than longer duration earning assets. The negative exposure of net interest income to immediately falling rates as compared to an unchanged rate scenario results from a greater decline in earning asset yields compared to rates paid on funding liabilities, as a result of faster prepayments on existing assets and lower reinvestment rates on future loans originated and securities purchased.

While the ALCO reviews simulation assumptions and back-tests simulation results to ensure that they are reasonable and current, income simulation may not always prove to be an accurate indicator of interest rate risk or future net interest margin. Over time, the re-pricing, maturity and prepayment characteristics of financial instruments and the composition of Salisbury’s balance sheet may change to a different degree than estimated. Simulation modeling assumes Salisbury’s expectation for future balance sheet growth, which is a function of the business environment and customer behavior. Another significant simulation assumption is the sensitivity of core savings deposits to fluctuations in interest rates. Income simulation results assume that changes in both core savings deposit rates and balances are related to changes in short-term interest rates. The assumed relationship between short-term interest rate changes and core deposit rate and balance changes used in income simulation may differ from the ALCO’s estimates. Lastly, mortgage-backed securities and mortgage loans involve a level of risk that unforeseen changes in prepayment speeds may cause related cash flows to vary significantly in differing rate environments. Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value. Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income.

36

Salisbury also monitors the potential change in market value of its available-for-sale debt securities in changing interest rate environments. The purpose is to determine market value exposure that may not be captured by income simulation, but which might result in changes to Salisbury’s capital and liquidity position. Results are calculated using industry-standard analytical techniques and securities data. Available-for-sale equity securities are excluded from this analysis because the market value of such securities cannot be directly correlated with changes in interest rates. The following table summarizes the potential change in market value of available-for-sale debt securities resulting from immediate parallel rate shifts:

As of March 31, 2013 (in thousands)	Rates up 100bp			Rates up 200bp
U.S. Treasury notes	$	(90	)	$	(176	)
U.S. Government agency notes		(92	)		(231	)
Municipal bonds		(1,562	)		(3,602	)
Mortgage backed securities		(1,190	)		(2,775	)
Collateralized mortgage obligations		(436	)		(869	)
SBA pools		(7	)		(14	)
Total available-for-sale debt securities	$	(3,377	)	$	(7,667	)

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Salisbury’s management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of Salisbury’s disclosure controls and procedures as of March 31, 2013. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective as of March 31, 2013.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that the information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the Exchange Act is accumulated and communicated to management, including the principle executive officer and principle financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

In addition, based on an evaluation of its internal controls over financial reporting, no change in Salisbury’s internal control over financial reporting occurred during the quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, Salisbury’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Bank is involved in various claims and legal proceedings arising out of the ordinary course of business.

As previously disclosed, the Bank, individually and in its capacity as a former Co-Trustee of the Erling C. Christophersen Revocable Trust (the “Trust”), was named as a defendant in litigation filed in the Connecticut Complex Litigation Docket in Stamford, captioned John Christophersen v. Erling Christophersen, et al., X08-CV-08-5009597S (the “First Action”).  The Bank also was a counterclaim-defendant in related mortgage foreclosure litigation in the Connecticut Complex Litigation Docket in Stamford, captioned Salisbury Bank and Trust Company v. Erling C. Christophersen, et al., X08-CV-10-6005847-S (the “Foreclosure Action,” together with the First Action, the “Actions”).  The other parties to the Actions were John R. Christophersen; Erling C. Christophersen, individually and as Co-Trustee of the Trust; Bonnie Christophersen and Elena Dreiske, individually and as Co-Trustees of the Mildred B. Blount Testamentary Trust; People’s United Bank; Law Offices of Gary Oberst, P.C.; Rhoda Rudnick; and Hinckley Allen & Snyder LLP.

The Actions involved a dispute over title to certain real property located in Westport, Connecticut that was conveyed by Erling Christophersen, as grantor, to the Trust on or about August 8, 2007.  Subsequent to this conveyance, the Bank loaned $3,386,609 to the Trust, which was secured by a commercial mortgage in favor of the Bank on the Westport property.  This mortgage is the subject of the Foreclosure Action brought by the Bank.

37

As previously disclosed, John Christophersen initially claimed an interest in the Westport real property transferred to the Trust and sought to quiet title to the property and to recover money damages from the defendants for the alleged wrongful divestiture of his claimed interest in the property.

On June 25, 2012, the Bank and John R. Christophersen entered into a Settlement Agreement which resolved all differences between John R. Christophersen and the Bank, and resulted in the withdrawal (with prejudice) of the claims made by John R. Christophersen.  All claims against the Bank have been withdrawn and the Bank is no longer a defendant or counterclaim defendant in any litigation involving the Actions.  As an additional consequence of the Settlement Agreement, Bonnie Christophersen, Elena Dreiske and People’s United Bank are no longer parties to any of the litigation referenced above. 

On July 27, 2012, Erling Christophersen filed a Motion to Restore the First Action, and on October 15, 2012 filed a Motion to Stay the Foreclosure Action pending resolution of the Motion to Restore. The Bank opposed both motions. On February 1, 2013, the Court issued orders denying both motions. On February 14, 2013, Erling Christophersen filed a Notice of Appeal of the orders denying his Motion to Restore the First Action, and Motion to Stay the Foreclosure Action.  The Bank intends to oppose both appeals.

On February 25, 2013, Erling Christophersen filed a Motion to Stay the Foreclosure Action pending disposition of his appeal. The Bank has opposed that motion. 

On April 4, 2013, the Bank moved to dismiss the appeal of the Foreclosure Action for lack of subject matter jurisdiction; that motion is currently pending.

There are no other material pending legal proceedings, other than ordinary routine litigation incident to the registrant’s business, to which Salisbury is a party or of which any of its property is subject.

Item 1A. RISK FACTORS

Not Applicable

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

None

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. MINE SAFETY DISCLOSURES

Not Applicable

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS

10.1 Severance Agreement with Richard J. Cantele, Jr. dated February 11, 2013 (incorporated by reference to Exhibit 10.1 of Form 8-K filed February 15, 2013).

10.2 Participation Agreement of Richard J. Cantele, Jr. in the Non-Qualified Deferred Compensation Plan dated February 11, 2013 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on February 15, 2013).

10.3 Change in Control Agreement with Donald E. White dated April 1, 2013.

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

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

32 Section 1350 Certifications

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SIGNATURES

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.

May 13, 2013	by	/s/ Richard J. Cantele, Jr.
		Richard J. Cantele, Jr.,
		President and Chief Executive Officer
May 13, 2013	by	/s/ Donald E. White
		Donald E. White,
		Executive Vice President and Chief Financial Officer

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EX-10

Exhibit 10.3

CHANGE IN CONTROL AGREEMENT

by and between

SALISBURY BANK AND TRUST COMPANY

and

Donald E. White

This Change in Control Agreement (this “Agreement”) is made and entered into effective as of April 1, 2013 (the “Effective Date”), by and between Salisbury Bank and Trust Company, a Connecticut-chartered commercial bank with its principal administrative office at 5 Bissell Street, P.O. Box 1868, Lakeville, CT 06039-1868 (together with its successors and assigns, the “Bank”) and Donald E. White (“Executive”). Any reference to the “Company” hereunder shall mean Salisbury Bancorp, Inc. (together with its successors and assigns), the parent of the Bank that owns 100% of the Bank.

RECITALS

A. Executive possesses unique and valued experience with, and essential knowledge about, financial institutions and their operation and the Connecticut banking community;

B. In order to induce Executive to remain employed with the Bank, the Bank and Executive desire to set forth in writing the severance benefits that are payable to Executive as a result of Executive’s termination of employment in connection with a Change in Control of the Bank or the Company.

NOW, THEREFORE, in consideration of the mutual covenants and obligations herein contained, it is mutually agreed between the parties hereto as follows:

1. Term. This Agreement shall continue for a term commencing on the Effective Date and ending on the first anniversary of the Effective Date (the “Term”). On each annual anniversary of the Effective Date (each an “Anniversary Date”) this Agreement shall automatically renew for an additional year (each succeeding one year period shall also be referred to herein as the “Term”), unless at least thirty (30) days prior to such Anniversary Date, either party gives written notice of non-renewal to the other. If such notice of non-renewal is given as permitted hereunder, the Agreement will expire at the conclusion of such Term. Notwithstanding any provision of this Agreement to the contrary, Executive’s employment may be terminated at any time prior to the expiration of the Term, as provided in Section 2 hereof and subject to the provisions of this Agreement, including, without limitation, Sections 4, 5, 6, 9, 10, 11 and 12. Notwithstanding the foregoing, in the event that at any time during the Term of this Agreement, the Company or the Bank has entered into an agreement to effect a transaction which would be a Change in Control (as defined in Section 3 hereof), then the Term of this Agreement shall be automatically extended through the date that is twelve (12) months following the date on which the Change in Control occurs, provided, however, that if the Change in Control does not occur as contemplated, then the Agreement shall automatically renew on the next Anniversary Date, unless a notice of non-renewal is given by either party hereto in the manner set forth above.

2. At-Will Status. Notwithstanding any provision of this Agreement, Executive is employed at-will, such that Executive or the Bank may terminate Executive’s employment at any time, for any or no reason, subject to the remaining provisions of this Agreement.

3. Definitions. As used in this Agreement, the following terms shall have the meanings set forth herein.

“Cause” shall mean (i) the conviction of the Executive of a felony or of any lesser criminal offense involving moral turpitude; (ii) the willful commission by the Executive of any act that, in the judgment of the Board will likely cause substantial economic damage to the Bank or substantial injury to the business reputation of the Bank; (iii) the commission by the Executive of an act of fraud in the performance of his duties on behalf of the Bank; (iv) the continuing willful failure of the Executive to perform his duties to the Bank after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to cure such failure are given to the Executive; or (v) an order of a federal or state regulatory agency or a court of competent jurisdiction requiring the termination of the Executive’s employment by the Bank. For this purpose, no act, or failure to act, on the part of Executive shall be deemed “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive’s action or omission was in the best interests of the Bank. Without limiting the foregoing, in no event shall Executive be deemed to be acting in good faith or in the best interests of the Bank for purposes of the preceding sentence with respect to acts of omission or commission taken in contravention of any direction(s), rule(s) or requirement(s) issued, authorized, approved or ratified by the Board.

Notwithstanding the foregoing provisions, in no event shall Cause be deemed to exist unless (i) the Bank shall provide Executive with written notice making reference to this Agreement, stating that the Bank intends to terminate Executive for Cause within the meaning of this Agreement, and setting forth in reasonable detail the facts and circumstances allegedly constituting Cause, and (ii) the Bank affords Executive a period of two (2) weeks after issuance of such notice either to demonstrate, through written rebuttal, that Cause does not exist under this Section 3, or to cure the circumstances constituting such Cause; provided, however, that the determination of whether Cause exists or whether Executive has sufficiently cured any Cause, shall be made in the reasonable discretion of the Board, as evidenced by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel, to be heard before the Board). Nothing in this Section 3 shall prevent the Bank from terminating Executive for Cause prior to the issuance of the above-referenced notice or expiration of the above-referenced two (2) week rebuttal/cure period; provided however that if, upon the expiration of such two (2) week period, it is determined that facts or circumstances sufficient to constitute Cause did not (or, if applicable, do not) exist or has/have been cured, then such earlier termination of Executive by the Bank shall be deemed to be without Cause. Without limiting the foregoing, the Bank may suspend Executive, with or without pay, during the above-referenced two (2) week rebuttal/cure period, and such suspension shall not constitute either a termination of employment by the Bank under this Agreement or Good Reason for separation by Executive.

“Change in Control” shall mean (i) a change in the ownership of the Company or Bank, (ii) a change in the effective control of the Company or Bank, or (iii) a change in the ownership of a substantial portion of the assets of the Company or Bank, as described below.

A change in the ownership of a corporation occurs on the date that any one person, or more than one person acting as a group (as defined in Treasury Regulation 1.409A-3(i)(5)(v)(B)), acquires ownership of stock of the Company or Bank that, together with stock held by such person or group, constitutes more than fifty (50) percent of the total fair market value or total voting power of the stock of such corporation. For these purposes, a change in ownership will not be deemed to have occurred if no stock of the Company or Bank is outstanding.

A change in the effective control of the Company or Bank occurs on the date that either (A) any one person, or more than one person acting as a group (as defined in Treasury Regulation 1.409A-3(i)(5)(vi)(D)) acquires (or has acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company or Bank possessing thirty (30) percent or more of the total voting power of the stock of the Company or Bank, or (B) a majority of the members of the Company’s or Bank’s board of directors is replaced during any twelve (12)-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s or Bank’s board of directors prior to the date of the appointment or election, provided that this subsection “(B)” is inapplicable where a majority shareholder of the entity that experiences the change in control is another corporation.

A change in a substantial portion of the Company’s or Bank’s assets occurs on the date that any one person or more than one person acting as a group (as defined in Treasury Regulation 1.409A-3(i)(5)(vii)(C)) acquires (or has acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company or Bank that have a total gross fair market value equal to or more than forty (40) percent of the total gross fair market value of (A) all of the assets of the Company or Bank, or (B) the value of the assets being disposed of, either of which is determined without regard to any liabilities associated with such assets.

For all purposes hereunder, the definition of Change in Control shall be construed to be consistent with the requirements of Treasury Regulation 1.409A-3(i)(5), except to the extent that such regulations are superseded by subsequent guidance.

“Good Reason” shall mean any of the following circumstances if they occur without the Executive’s consent: (i) a material reduction in the Executive’s Base Salary not warranted by general across the board reductions due to economic necessity; (ii) a material reduction in the Executive’s incentive bonus and other benefits generally provided to executives generally (except due to general across the board reductions due to economic necessity); (iii) a material reduction in Executive’s authority, duties or responsibilities such that Executive no longer holds a position with Executive level responsibilities consistent with Executive’s training and experience; or (iv) the permanent relocation of Executive’s principal place of business to a location that is more than 35 miles from Executive’s workplace at the initial effective date of this Agreement; provided that for a termination to be deemed for Good Reason, Executive must give, within the ninety (90) day period commencing on the initial existence of the condition(s) constituting Good Reason, written notice of the intention to terminate for Good Reason, and, upon receipt of such notice, the Bank shall have a thirty (30) day period within which to cure such condition(s); and provided further that the Bank may waive such right to notice and opportunity to cure. In no event may facts or circumstances constituting “Good Reason” arise after the occurrence of facts or circumstances that the Bank relies upon, in whole or in material part, in terminating Executive for Cause.

4. Termination in Connection with a Change in Control. In the event of Executive’s involuntary termination of employment for reasons other than Cause (or due to Executive’s death or disability) or a voluntary termination of employment for Good Reason occurring on or after a Change in Control, Executive shall be entitled to the following:

(a) A lump sum cash payment equal to one and one-half times the Executive’s annual rate of base salary in effect on Executive’s date of termination or, if greater, Executive’s average annual base salary rate for the twelve (12) month period ending on the last day of the calendar month immediately prior to the date of such termination. Such amount shall be paid to Executive within sixty (60) days following Executive’s separation from service.

(b) Life insurance coverage and non-taxable medical and dental coverage, at no cost to Executive, that is substantially comparable (and on substantially the same terms and conditions) to the coverage maintained by the Bank for Executive immediately prior to his date of termination. Such life insurance and non-taxable medical and dental coverage shall be provided by the Bank to the Executive for 1.5 years following Executive’s separation from service, provided, however, that this sub-section is not intended to reduce the amount of time that Executive may obtain coverage at his own expense under the provision of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) and comparable state law; except that Executive’s coverage for such period shall be counted against and deducted from the maximum COBRA period. Notwithstanding anything herein to the contrary, if as the result of any change in, or interpretation of, the laws applicable to the continued welfare benefits hereunder, such benefits are deemed illegal or subject to penalties, then the Bank shall, to the extent permitted under such laws, pay to the Executive a cash lump sum payment reasonably estimated to be equal to the amount of welfare benefits (or the remainder of such amount) that the Executive is no longer permitted to receive in-kind. Such lump sum payment shall be required to be made within sixty (60) days following the Executive’s separation from service, or if later, within sixty (60) days following a determination that such payment would be illegal or subject to penalties.

(c) Unpaid compensation and benefits, and unused vacation, accrued through the date of Executive’s termination of employment. Executive shall also be entitled to be reimbursed by the Bank for final expenses that Executive reasonably and necessarily incurred on behalf of the Bank prior to Executive’s termination of employment, provided that Executive submits expense reports and supporting documentation of such expenses in accordance with the Bank’s expense reimbursement policies in effect at that time. Such reimbursement payment or payments shall be made no later than the time required by applicable law (or, if earlier, by Bank or Company policy, practice or rule), but in no event later than the sixtieth (60^th) day following Executive’s date of the termination.

(d) Notwithstanding the preceding paragraphs of this Section 5, in no event shall the aggregate payments or benefits to be made or afforded to Executive under this Agreement, either as a stand-alone benefit or when aggregated with other payments to, or for the benefit of Executive that are contingent on a Change in Control (the “Termination Benefits”) constitute an “excess parachute payment” under Section 280G of the Internal Revenue Code (“Code”) or any successor thereto, and in order to avoid such a result, Termination Benefits will be reduced, if necessary, to an amount (the “Non-Triggering Amount”), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive’s “base amount”, as determined in accordance with said Section 280G. In the event a reduction is necessary, the Executive shall be entitled to determine which benefits or payments shall be reduced or eliminated so the total parachute payments do not result in an excess parachute payment. If Executive does not make this determination within 10 business days after receiving a written request form the Bank (or by the time that benefits or payments are due hereunder, if later), the Bank may make such determination, and shall notify the Executive promptly thereof. In the event it is determined that permitting the Executive or the Bank to make the determination regarding the form or manner of reduction would violate Code Section 409A, such reduction shall be made pro rata.

5. Conditions of Severance Benefits; Effect on Executive’s Post-Employment Obligations.

(a) Notwithstanding the foregoing, in no event shall any compensation payable to the Executive pursuant to the provisions of 4(a) and (b) above that is subject to Code Section 409A be paid to the Executive unless and until the Executive has incurred a “separation from service” as defined in Code Section 409A and in regulations and guidance issued thereunder, unless such payment is required by applicable law. For purposes of this Agreement, a “separation from service” shall have occurred if the Bank and Executive reasonably anticipate that either no further services will be performed by Executive after his date of the termination (whether as an employee or as an independent contractor) or the level of further services performed is less than fifty (50) percent of the average level of bona fide services in the thirty-six (36) months immediately preceding the termination. For all purposes hereunder, the definition of separation from service shall be interpreted consistent with Treasury Regulation Section 1.409A-1(h)(ii).

(b) Executive shall receive the severance benefits set forth in Section 4(a) and 4(b) hereof only if Executive (a) executes a general release, in a form acceptable to the Bank, within sixty (60) days of the date of the termination of the Executive’s employment in accordance with the provisions of Section 4 hereof; (b) presents satisfactory evidence to the Bank that Executive has returned all Bank property; and (c) provides the Bank with a signed, written resignation of Executive’s status as an officer and/or director of the Bank and/or any holding company, subsidiary or affiliate as applicable. In the event the Bank reasonably believes that Executive has breached, or has threatened to breach, any provision of the Agreement, the Executive shall no longer be entitled to such benefits and further shall be required to reimburse all severance benefits, including payments under Section 4(a), previously made by the Bank. Such termination of benefits shall be in addition to any and all legal and equitable remedies available to the Bank, including injunctive relief. Without limiting the foregoing, Executive acknowledges and agrees that the provisions of Sections 10, 12, 14, 16, 17, and 18 of this Agreement (i) are supported by adequate consideration in addition to the severance benefits provided under Section 4(a) and 4(b) and all other amounts and things of value to which Executive would be entitled if Executive did not enter into this Agreement, and (ii) shall be enforceable notwithstanding Executive’s failure of refusal to satisfy, in whole or in part, the conditions for the severance benefits set forth under this Section 5.

6. Taxes. All payments and benefits described in this Agreement shall be subject to any and all applicable federal, state and local income, employment and other taxes, and the Bank will deduct from each payment to be made to Executive under this Agreement such amounts, if any, required to be deducted or withheld under applicable law. Executive hereby acknowledges and agrees that the Bank makes no representations or warranties regarding the tax treatment or tax consequences of any compensation, benefits or other payments under the Agreement, or under any statute, or regulation or guidance thereunder, or under any successor statute, regulation and guidance thereunder.

7. Code Section 409A. The cash severance payments under this Agreement are intended to be exempt from Section 409A of the Code under the “short term deferral” rule set forth in Treasury Regulation Section 1.409A-1(b)(4). If and to the extent this Agreement provides for a deferral of compensation subject to Section 409A of the Code, it is the intent of the parties that this Agreement, and all payments of deferred compensation subject to Code Section 409A made hereunder, shall be in compliance with such requirements and the regulations and other guidance thereunder. Notwithstanding any other provision with respect to the timing of payments under Sections 4(a), if, at the time of Executive’s separation from service, Executive is a “specified employee” (meaning a key employee as defined in Section 416(i) of the Code without regard to paragraph 5 thereof) of the Bank (or a Bank affiliate), then to the extent necessary to comply with the requirements of Code Section 409A, any payments to which Executive is entitled under Sections 4 (during the six (6) month period commencing on the Executive’s separation from service which are subject to Code Section 409A (and not otherwise exempt from its application, including, without limitation, by operation of Treasury Regulation Section 1.409A-1(n)) will be withheld until the first business day of the seventh (7^th) month following Executive’s separation from service, at which time such withheld amount shall be paid in a lump sum distribution. The Bank and Executive agree that they will negotiate in good faith and jointly execute an amendment to modify this Agreement to the extent necessary to comply with the requirements of Code Section 409A, or any successor statute, regulation and guidance thereunder.

8. Limitation on Benefits. In no event shall the Bank be obligated to make any payment pursuant to this Agreement that is prohibited by Section 18(k) of the Federal Deposit Insurance Act (codified at 12 U.S.C. §1828(k)), 12 C.F.R. Part 359, or any other applicable law.

9. No Mitigation. The Bank agrees that Executive is not required to use reasonable good faith efforts to seek other employment and to reduce any amounts payable to Executive by the Bank pursuant to this Agreement.

10. Non-Competition; Non-Solicitation; Non-Disclosure.

(a) The benefits provided to Executive under this Agreement are specifically conditioned on Executive’s covenant that, for a period of one and one-half years (1.5) following the Executive’s Separation from Service with the Bank, the Executive will not, without the written consent of the Bank, either directly or indirectly:

(i) solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of the Bank or any of its affiliates to terminate his or her employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business or other entity;

(ii) become an officer, employee, consultant, director, independent contractor, agent, sole proprietor, joint venturer, greater than 5% equity-owner or stockholder, partner or trustee of any savings bank, savings and loan association, savings and loan holding company, credit union, bank or bank holding company, insurance company or agency, any mortgage or loan broker or any other entity that has headquarters or offices within fifteen (15) miles of the locations in which the Bank or its affiliates has business operations or has filed an application for regulatory approval to establish an office as of the date of Executive’s termination; provided, however, that this restriction shall not apply if the Executive’s employment is terminated following a Change in Control; or

(iii) solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any customer of the Bank or its affiliates to terminate an existing business or commercial relationship with the Bank or its affiliates; or

(b) Executive further agrees that Executive shall not at any time or in any manner, directly or indirectly, use or disclose Confidential Information (as hereinafter defined) to any party other than the Bank either during or after Executive’s termination of employment or the termination of this Agreement for any reason, except for purposes consistent with the administration and performance of Executive’s obligations hereunder, or as required by law, provided that written notice of any legally required disclosure shall be given to the Bank promptly prior to any such disclosure and Executive shall reasonably cooperate with the Bank to protect the confidentiality thereof pursuant to applicable law or regulation. For purposes of this Agreement, the term “Confidential Information” includes any confidential or proprietary information furnished or provided by the Bank to Executive after Executive first became employed by the Bank, under this Agreement or otherwise (whether before or after the Execution Date) (and without regard to whether such information is conveyed directly or on the Bank’s behalf), or otherwise acquired by Executive as a consequence of Executive’s employment with the Bank and that is not generally known in the industry in which the Bank is engaged and that in any way relates to the products, services, purchasing, marketing, names of customers, vendors or suppliers, merchandising and selling, plans, data, specifications or any other confidential and proprietary information of the Bank or any affiliate. Any Confidential Information supplied to Executive by the Bank prior to the Execution Date shall be considered in the same manner and be subject to the same treatment as the Confidential Information made available after the execution of this Agreement. The term “Confidential Information” does not include information (i) which was already in the public domain, (ii) which is disclosed as a matter of right by a third party source after the execution of this Agreement, provided such third party source is not bound by a confidentiality agreement with the Bank or (iii) which passes into the public domain by acts other than the unauthorized acts of Executive, whether acting alone or in concert; provided, however, that any disclosure of Confidential Information may be made by Executive if the Bank expressly consents thereto in writing prior to such disclosure.

11. Exclusive Remedy. Except as expressly set forth herein or otherwise required by law, Executive shall not be entitled to any compensation, benefits, or other payments from the Bank as a result of, or in connection with, Executive’ s separation from service at any time, for any reason. The payments and benefits set forth in Sections 4 hereof shall constitute Executive’s sole and exclusive remedy for any claims, causes of action or demands arising under or in connection with this Agreement or its alleged breach, or the termination of Executive’s employment relationship with the Bank.

12. Governing Law/Interpretation. Executive and the Bank agree that this Agreement and any claims arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut, without giving effect to the principles of conflicts of laws thereof.

13. Entire Agreement. This Agreement shall constitute the sole and entire agreement between the parties with respect to the subject matter hereof, and supersedes and cancels all prior, concurrent and/or contemporaneous arrangements, understandings, promises, offers, agreements and/or discussions, including, but not limited to, those concerning employment agreements and/or severance benefits, whether written or oral, by or between the parties, regarding the subject matter hereof; provided, however, that this Agreement is not intended to, and shall not, supersede, affect, limit, modify or terminate any written agreement or arrangement between Executive and the Bank that does not relate to the subject matter hereof.

14. Assignment. Executive acknowledges that the services to be rendered hereunder are unique and personal in nature. Accordingly, Executive may not assign any rights or delegate any duties or obligations under this Agreement. The rights and obligations of the Bank under this Agreement shall automatically be assigned to the successors and assigns of the Bank (including, but not limited to, any successor in the event of a Change in Control, as well as any other entity that controls, is controlled by, or is under common control with, any such successor), and shall inure to the benefit of, and be binding upon, such successors and assigns. This Agreement shall be binding upon Executive, as well as, Executive’s heir, executors and administrators of Executive or Executive’s estate and property.

15. Notices. All notices required hereunder shall be in writing and shall be delivered in person, by facsimile or by certified or registered mail, return receipt requested, and shall be effective upon sending if by facsimile, or upon receipt if by personal delivery, or upon the fourth (4th) business day after being sent by certified or registered mail. All notices shall be addressed as follows or to such other address as the parties may later provide in writing:

if to the Bank:

Salisbury Bank and Trust Company
5 Bissell Street

Lakeville, CT 06039-1868
ATTN: Chairperson of the Board

and, if to Executive:

at the address set forth in the human resources files of the Bank.

16. Severability/Reformation. If any one or more of the provisions (or any part thereof) of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions (or any part thereof) shall not in any way be affected or impaired thereby, and this Agreement shall be construed and reformed to the maximum extent permitted by law. The language of all parts of this Agreement shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either of the parties.

17. Modification. This Agreement and the rights, remedies and obligations contained in any provision hereof, may be modified or waived only in accordance with this Section 17. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement and its terms may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by a written instrument signed by the party against whom any waiver, change, discharge or termination is sought. No modification or waiver by the Bank is effective without written consent of the Board.

18. Arbitration. Subject to the mutual agreement of the parties hereto at the time a dispute exists between such parties, any dispute, controversy or claim arising out of, or in connection with, this Agreement shall be exclusively subject to arbitration before the American Arbitration Association (“AAA”). Such arbitration shall take place in Hartford, Connecticut, before a single arbitrator in accordance with AAA’s then current National Rules for the Resolution of Employment Disputes. Judgment upon any arbitration award may be entered in any court of competent jurisdiction. All parties shall cooperate in the process of arbitration for the purpose of expediting discovery and completing the arbitration proceedings. Notwithstanding any provision in this Agreement to the contrary, nothing contained in this Section 19 or elsewhere in this Agreement shall in any way deprive the Bank of its right to obtain injunctive relief, specific performance or other legal or equitable relief in a court of competent jurisdiction for purposes of enforcing the provisions of Section 10 hereof.

19. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

20. Section Headings. The descriptive section headings herein have been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date and year first written above.

SALISBURY BANK AND TRUST COMPANY

By: ______________________________________

Richard J. Cantele, Jr.

President and Chief Executive Officer

EXECUTIVE

_________________________________________

Donald E. White

EX-31

SALISBURY BANCORP, INC.

Form 10-Q

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a)

I, Richard J. Cantele, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Salisbury Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function):

a)   all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 13, 2013	by	/s/ Richard J. Cantele, Jr.
		Richard J. Cantele, Jr.,
		President and Chief Executive Officer

EX-31

SALISBURY BANCORP, INC.

Form 10-Q

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a)

I, Donald E. White, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Salisbury Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function):

a)   all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 13, 2013	by	/s/ Donald E. White
		Donald E. White,
		Executive Vice President and Chief Financial Officer

EX-32

SALISBURY BANCORP, INC.

Form 10-Q

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Salisbury Bancorp, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard J. Cantele, Jr., President and Chief Executive Officer of the Company, and I, Donald E. White, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

May 13, 2013	by	/s/ Richard J. Cantele, Jr.	by	/s/ Donald E. White
		Richard J. Cantele, Jr.,		Donald E. White,
		President and Chief Executive Officer		Executive Vice President and Chief Financial Officer

XML

MORTGAGE SERVICING RIGHTS - Fair value of mortgage servicing rights (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Accounting Policies [Abstract]
Residential mortgage loans serviced for others	$ 148,705	$ 125,086
Fair value of mortgage servicing rights	$ 1,739	$ 754

XML

COMPREHENSIVE INCOME - Components of accumulated other comprehensive losses (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Mar. 31, 2012
Equity [Abstract]
Unrealized gains (losses) on securities available-for-sale, net of tax	$ 2,671	$ 1,839
Unrecognized pension plan expense, net of tax	(469)	(2,033)
Accumulated other comprehensive income (loss), net	$ 2,202	$ (194)

XML

PENSION AND OTHER BENEFITS - Components of net periodic cost for defined benefit retirement plan (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Compensation and Retirement Disclosure [Abstract]
Service cost		$ 115
Interest cost on benefit obligation	66	93
Expected return on plan assets	(67)	(115)
Amortization of prior service cost
Amortization of net loss		36
Net periodic benefit cost	$ (1)	$ 129

XML

LOANS - Composition of loans receivable by delinquency status (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Current
Residential 1-4 family	$ 199,921	$ 190,488
Residential 5+ multifamily	4,610	3,889
Residential 1-4 family construction	1,395	2,379
Home equity credit	33,241	32,540
Residential real estate	239,167	229,296
Commercial	91,560	83,477
Construction of commercial	9,592	5,659
Commercial real estate	101,152	89,136
Farm land	3,110	3,898
Vacant land	4,772	5,932
Real estate secured	348,201	328,262
Commercial and industrial	33,592	37,618
Municipal	3,995	3,378
Consumer	3,886	4,034
Loans receivable, gross	389,674	373,292
Past due, 1-29 days
Residential 1-4 family	5,445	2,545
Residential 5+ multifamily
Residential 1-4 family construction
Home equity credit	153	890
Residential real estate	5,598	3,435
Commercial	2,817	864
Construction of commercial
Commercial real estate	2,817	864
Farm land	785	422
Vacant land
Real estate secured	9,200	4,721
Commercial and industrial	267	351
Municipal
Consumer	66	108
Loans receivable, gross	9,533	5,180
Past due, 30-59 days
Residential 1-4 family	549	3,578
Residential 5+ multifamily
Residential 1-4 family construction
Home equity credit	495	113
Residential real estate	1,044	3,691
Commercial	76	1,104
Construction of commercial	21	164
Commercial real estate	97	1,268
Farm land	14
Vacant land
Real estate secured	1,155	4,959
Commercial and industrial	58	26
Municipal
Consumer	15	25
Loans receivable, gross	1,228	5,010
Past due, 60-89 days
Residential 1-4 family	2,771	639
Residential 5+ multifamily	104
Residential 1-4 family construction
Home equity credit	36	396
Residential real estate	2,911	1,035
Commercial	1,024	566
Construction of commercial	142
Commercial real estate	1,166	566
Farm land	373
Vacant land	47	48
Real estate secured	4,497	1,649
Commercial and industrial	26	99
Municipal
Consumer	8	14
Loans receivable, gross	4,531	1,762
Past due, 90-179 days
Residential 1-4 family	356	1,185
Residential 5+ multifamily
Residential 1-4 family construction
Home equity credit
Residential real estate	356	1,185
Commercial	424	58
Construction of commercial
Commercial real estate	424	58
Farm land
Vacant land		740
Real estate secured	780	1,983
Commercial and industrial
Municipal
Consumer
Loans receivable, gross	780	1,983
Past due, 180 days and over
Residential 1-4 family	117	117
Residential 5+ multifamily
Residential 1-4 family construction
Home equity credit		223
Residential real estate	117	340
Commercial	934	1,313
Construction of commercial
Commercial real estate	934	1,313
Farm land
Vacant land	3,079	3,206
Real estate secured	4,130	4,859
Commercial and industrial
Municipal
Consumer
Loans receivable, gross	4,130	4,859
Past due, 30 days and over
Residential 1-4 family	3,793	5,519
Residential 5+ multifamily	104
Residential 1-4 family construction
Home equity credit	531	732
Residential real estate	4,428	6,251
Commercial	2,458	3,041
Construction of commercial	163	164
Commercial real estate	2,621	3,205
Farm land	387
Vacant land	3,126	3,994
Real estate secured	10,561	13,450
Commercial and industrial	84	125
Municipal
Consumer	23	39
Loans receivable, gross	10,668	13,614
Past due, Accruing 90 days and over
Residential 1-4 family	165
Residential 5+ multifamily
Residential 1-4 family construction
Home equity credit
Residential real estate	165
Commercial	198
Construction of commercial
Commercial real estate	198
Farm land
Vacant land
Real estate secured	363
Commercial and industrial
Municipal
Consumer
Loans receivable, gross	165
Non-accrual
Residential 1-4 family	2,880	3,024
Residential 5+ multifamily
Residential 1-4 family construction
Home equity credit	113	442
Residential real estate	2,993	3,466
Commercial	2,043	2,214
Construction of commercial	21	21
Commercial real estate	2,064	2,235
Farm land
Vacant land	3,126	3,994
Real estate secured	8,182	9,695
Commercial and industrial	42	164
Municipal
Consumer
Loans receivable, gross	$ 8,224	$ 9,859

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COMPREHENSIVE INCOME (Tables)

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

Components of accumulated other comprehensive losses

March 31, (in thousands)	2013	2012
Unrealized losses on securities available-for-sale, net of tax	$ 2,671	$ 1,839
Unrecognized pension plan expense, net of tax	(469)	(2,033)
Accumulated other comprehensive loss, net	$ 2,202	$ (194)

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FAIR VALUE OF ASSETS AND LIABILITIES - Carrying values and estimated fair values of financial instruments (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Carrying value
Financial Assets
Cash and due from banks	$ 31,441	$ 43,574
Securities available-for-sale	118,664	126,287
Federal Home Loan Bank stock	5,340	5,747
Loans held-for-sale	710	1,879
Loans receivable net	406,258	388,758
Accrued interest receivable	2,021	1,818
Financial Liabilities
Demand (non-interest-bearing)	88,464	98,850
Demand (interest-bearing)	67,714	65,991
Money market	129,832	128,501
Savings and other	109,657	103,985
Certificates of deposit	92,106	93,888
Deposits	487,773	491,215
FHLBB advances	31,574	31,980
Repurchase agreements	2,329	1,784
Accrued interest payable	163	196
Estimated fair value
Financial Assets
Cash and due from banks	31,441	43,574
Securities available-for-sale	118,664	126,287
Federal Home Loan Bank stock	5,340	5,747
Loans held-for-sale	710	1,893
Loans receivable net	406,258	389,292
Accrued interest receivable	2,021	1,818
Financial Liabilities
Demand (non-interest-bearing)	88,464	98,850
Demand (interest-bearing)	67,714	65,991
Money market	129,832	128,501
Savings and other	109,657	103,985
Certificates of deposit	92,886	94,894
Deposits	488,553	492,221
FHLBB advances	35,203	35,363
Repurchase agreements	2,329	1,784
Accrued interest payable	163	196
Fair value measurements using, Level 1
Financial Assets
Cash and due from banks	31,441	43,574
Securities available-for-sale	311	167
Federal Home Loan Bank stock
Loans held-for-sale
Loans receivable net
Accrued interest receivable
Financial Liabilities
Demand (non-interest-bearing)
Demand (interest-bearing)
Money market
Savings and other
Certificates of deposit
Deposits
FHLBB advances
Repurchase agreements
Accrued interest payable
Fair value measurements using, Level 2
Financial Assets
Cash and due from banks
Securities available-for-sale	118,353	126,120
Federal Home Loan Bank stock	5,340	5,747
Loans held-for-sale
Loans receivable net
Accrued interest receivable
Financial Liabilities
Demand (non-interest-bearing)
Demand (interest-bearing)
Money market
Savings and other
Certificates of deposit
Deposits
FHLBB advances
Repurchase agreements
Accrued interest payable
Fair value measurements using, Level 3
Financial Assets
Cash and due from banks
Securities available-for-sale
Federal Home Loan Bank stock
Loans held-for-sale	710	1,893
Loans receivable net	406,258	389,292
Accrued interest receivable	2,021	1,818
Financial Liabilities
Demand (non-interest-bearing)	88,464	98,850
Demand (interest-bearing)	67,714	65,991
Money market	129,832	128,501
Savings and other	109,657	103,985
Certificates of deposit	92,886	94,894
Deposits	488,553	492,221
FHLBB advances	35,203	35,363
Repurchase agreements	2,329	1,784
Accrued interest payable	$ 163	$ 196

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PLEDGED ASSETS (Details Narrative) (USD $)	Mar. 31, 2013
Banking and Thrift [Abstract]
Securities pledged for public deposits	$ 43,600,000
Securities pledged for repurchase agreements	9,700,000
Securities pledged for FHLBB advances	$ 200,000

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LOANS - Credit quality segments of loans receivable and allowance for loan losses (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Collectively evaluated, Loans
Performing loans	$ 382,423	$ 364,594
Potential problem loans	9,856	8,345
Impaired loans
Unallocated allowance
Totals	392,279	372,939
Collectively evaluated, Allowance
Performing loans	2,687	2,567
Potential problem loans	335	246
Impaired loans
Unallocated allowance
Totals	3,022	2,813
Individually evaluated, Loans
Performing loans	77	121
Potential problem loans	2,558	2,465
Impaired loans	14,962	16,562
Unallocated allowance
Totals	17,597	19,148
Individually evaluated, Allowance
Performing loans	30	52
Potential problem loans	86	131
Impaired loans	1,127	924
Unallocated allowance
Totals	1,243	1,107
Total portfolio, Loans
Performing loans	382,500	364,713
Potential problem loans	12,414	10,810
Impaired loans	14,962	16,563
Unallocated allowance
Totals	409,876	392,086
Total portfolio, Allowance
Performing loans	2,717	2,619
Potential problem loans	421	377
Impaired loans	1,127	924
Unallocated allowance	421	440
Totals	$ 4,686	$ 4,360

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PENSION AND OTHER BENEFITS (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Compensation and Retirement Disclosure [Abstract]
Salisbury 401(k) contribution expense	$ 83,000	$ 70,000
Endorsement split-dollar life insurance arrangements	$ 11,000	$ 11,000

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SECURITIES

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

SECURITIES

NOTE 2 - SECURITIES

The composition of securities is as follows:

(in thousands)	Amortized cost (1)		Gross un- realized gains		Gross un-realized losses			Fair value
March 31, 2013
Available-for-sale
U.S. Treasury notes	$	2,496	$	223	$	—		$	2,719
U.S. Government Agency notes		7,514		183		—			7,697
Municipal bonds		44,235		1,883		(262	)		45,856
Mortgage backed securities
U.S. Government Agencies		42,782		1,204		(28	)		43,958
Collateralized mortgage obligations
U.S. Government Agencies		4,689		63		—			4,752
Non-agency		10,292		462		(64	)		10,690
SBA bonds		2,589		92		—			2,681
Preferred Stock		20		291		—			311
Total securities available-for-sale	$	114,617	$	4,401	$	(354	)	$	118,664
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	5,340	$	—	$	—		$	5,340

(in thousands)	Amortized cost (1)		Gross un- realized gains		Gross un-realized losses			Fair value
December 31, 2012
Available-for-sale
U.S. Treasury notes	$	2,496	$	237	$	—		$	2,733
U.S. Government Agency notes		7,515		211		—			7,726
Municipal bonds		45,395		2,138		(168	)		47,365
Mortgage backed securities
U.S. Government Agencies		47,465		1,284		(20	)		48,729
Collateralized mortgage obligations
U.S. Government Agencies		5,131		66		—			5,197
Non-agency		11,081		494		(68	)		11,507
SBA bonds		2,781		82		—			2,863
Preferred Stock		20		147		—			167
Total securities available-for-sale	$	121,884	$	4,659	$	(256	)	$	126,287
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	5,747	$	—	$	—		$	5,747

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

Salisbury did not sell any securities available-for-sale during the three month periods ended March 31, 2013 and 2012.

8

The following table summarizes, for all securities in an unrealized loss position, including debt securities for which a portion of other-than-temporary impairment has been recognized in other comprehensive income, the aggregate fair value and gross unrealized loss of securities that have been in a continuous unrealized loss position as of the date presented:

	Less than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized  losses		Fair value		Unrealized  losses		Fair value		Unrealized losses
March 31, 2013
Available-for-sale
Municipal Bonds	$	1,325	$	56	$	2,316	$	206	$	3,641	$	262
Mortgage backed securities		2,735		27		43		1		2,778		28
Collateralized mortgage obligations
Non-agency		597		2		847		17		1,444		19
Total temporarily impaired securities		4,657		85		3,206		224		7,863		309
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		459		6		1,817		39		2,276		45
Total temporarily and other-than-temporarily impaired securities	$	5,116	$	91	$	5,023	$	263	$	10,139	$	354

 Salisbury evaluates securities for Other Than Temporary Impairment (“OTTI”) where the fair value of a security is less than its amortized cost basis at the balance sheet date. As part of this process, Salisbury considers its intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, Salisbury recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For securities that meet neither of these conditions, an analysis is performed to determine if any of these securities are at risk for OTTI.

The following summarizes, by security type, the basis for evaluating if the applicable securities were OTTI at March 31, 2013.

U.S Government Agency notes, U.S. Government Agency mortgage-backed securities and U.S. Government Agency CMOs: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury does not intend to sell these securities and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity. Therefore, management does not consider these securities to be OTTI at March 31, 2013.

Municipal bonds: Contractual cash flows are performing as expected. Salisbury purchased substantially all of these securities during 2006-to-2008 as bank qualified, insured, AAA rated general obligation or revenue bonds. Salisbury’s portfolio is mostly comprised of tax-exempt general obligation bonds or public-purpose revenue bonds for schools, municipal offices, sewer infrastructure and fire houses, for small towns and municipalities across the United States. In the wake of the financial crisis, most monoline bond insurers had their ratings downgraded or withdrawn because of excessive exposure to insurance for collateralized debt obligations. Where appropriate, Salisbury performs credit underwriting reviews of issuers, including some that have had their ratings withdrawn and are insured by insurers that have had their ratings withdrawn, to assess default risk. For all completed reviews pass credit risk ratings have been assigned. Management expects to recover the entire amortized cost basis of these securities. Salisbury does not intend to sell these securities and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity. Management does not consider these securities to be OTTI at March 31, 2013.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at March 31, 2013 to assess whether any of the securities were OTTI. Salisbury uses first party provided cash flow forecasts of each security based on a variety of market driven assumptions and securitization terms, including prepayment speed, default or delinquency rate, and default severity for losses including interest, legal fees, property repairs, expenses and realtor fees, that, together with the loan amount are subtracted from collateral sales proceeds to determine severity. In 2009 Salisbury determined that five non-agency CMO securities reflected OTTI and recognized losses for deterioration in credit quality of $1,128,000. Salisbury judged the four remaining securities not to have additional OTTI and all other CMO securities not to be OTTI as of March 31, 2013. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury does not intend to sell these securities and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis.

9

The following table presents activity related to credit losses recognized into earnings on the non-agency CMOs held by Salisbury for which a portion of an OTTI charge was recognized in accumulated other comprehensive income:

Three months ended March 31 (in thousands)		2013		2012
Balance, beginning of period	$	1,128	$	1,128
Credit component on debt securities in which OTTI was not previously recognized		—		—
Balance, end of period	$	1,128	$	1,128

Federal Home Loan Bank of Boston (“FHLBB”): The Bank is a member of the FHLBB. The FHLBB is a cooperative that provides services, including funding in the form of advances, to its member banking institutions. As a requirement of membership, the Bank must own a minimum amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. No market exists for shares of the FHLBB and therefore, they are carried at par value. FHLBB stock may be redeemed at par value five years following termination of FHLBB membership, subject to limitations which may be imposed by the FHLBB or its regulator, the Federal Housing Finance Board, to maintain capital adequacy of the FHLBB. While the Bank currently has no intentions to terminate its FHLBB membership, the ability to redeem its investment in FHLBB stock would be subject to the conditions imposed by the FHLBB. In 2008, the FHLBB announced to its members that it was focusing on preserving capital in response to ongoing market volatility including the extension of a moratorium on excess stock repurchases and in 2009 announced the suspension of its quarterly dividends. In 2011, the FHLBB resumed modest quarterly cash dividends to its members and in early 2012 the FHLBB repurchased its excess stock pool. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no impairment related to the carrying amount of the Bank’s FHLBB stock as of March 31, 2013. Further deterioration of the FHLBB’s capital levels may require the Bank to deem its restricted investment in FHLBB stock to be OTTI. If evidence of impairment exists in the future, the FHLBB stock would reflect fair value using either observable or unobservable inputs. The Bank will continue to monitor its investment in FHLBB stock.

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EARNINGS PER SHARE - Calculation of earnings per share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Earnings Per Share [Abstract]
Net income	$ 940	$ 1,250
Less: Preferred stock dividends declared	(40)	(83)
Less: Undistributed earnings allocated to participating securities	(10)
Net income allocated to common stock	$ 900	$ 1,167
Common shares issued	1,709	1,689
Less: Unvested restricted stock awards	(20)
Common shares outstanding used to calculate basic earnings per common share	1,689	1,689
Add: Diluted effect of unvested restricted stock awards
Common shares outstanding used to calculate diluted earnings per common share	1,689
Earnings per common share (basic and diluted)	0.53	0.69

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SECURITIES - Activity related to credit losses recognized in earnings (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Accounting Policies [Abstract]
Balance, beginning of period	$ 1,128,000	$ 1,128,000
Credit component on debt securities in which OTTI was not previously recognized
Balance, end of period	$ 1,128,000	$ 1,128,000

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SECURITIES - Securities in an unrealized loss position (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013
Fair value
Available-for-sale
Municipal bonds	$ 1,325
Mortgage backed securities	2,735
Non-agency	597
Total temporarily impaired securities	4,657
Non-agency	459
Total temporarily and other-than-temporarily impaired securities	5,116
Amortized cost (1)
Available-for-sale
Municipal bonds	56
Mortgage backed securities	27
Non-agency	2
Total temporarily impaired securities	85
Non-agency	6
Total temporarily and other-than-temporarily impaired securities	91
12 Months or Longer, Fair Value
Available-for-sale
Municipal bonds	2,316
Mortgage backed securities	43
Non-agency	847
Total temporarily impaired securities	3,206
Non-agency	1,817
Total temporarily and other-than-temporarily impaired securities	5,023
12 Months or Longer, Unrealized losses
Available-for-sale
Municipal bonds	206
Mortgage backed securities	1
Non-agency	17
Total temporarily impaired securities	224
Non-agency	39
Total temporarily and other-than-temporarily impaired securities	263
Total, Fair Value
Available-for-sale
Municipal bonds	3,641
Mortgage backed securities	2,778
Non-agency	1,444
Total temporarily impaired securities	7,863
Non-agency	2,276
Total temporarily and other-than-temporarily impaired securities	10,139
Gross un-realized gains
Available-for-sale
Municipal bonds	262
Mortgage backed securities	28
Non-agency	19
Total temporarily impaired securities	309
Non-agency	45
Total temporarily and other-than-temporarily impaired securities	$ 354

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SHAREHOLDERS' EQUITY - Regulatory capital position and minimum capital requirements (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Actual
Salisbury, Amount	$ 64,281	$ 63,391
Salisbury, Ratio	16.47%	16.63%
Bank, Amount	54,097	53,132
Bank, Ratio	13.71%	13.77%
Salisbury, Amount	59,433	58,933
Salisbury, Ratio	15.23%	15.46%
Bank, Amount	49,248	48,674
Bank, Ratio	12.48%	12.62%
Salisbury, Amount	59,433	58,933
Salisbury, Ratio	10.17%	9.87%
Bank, Amount	49,248	48,674
Bank, Ratio	8.43%	8.15%
For Capital Adequacy Purposes
Salisbury, Amount	31,228	30,494
Salisbury, Ratio	8.00%	8.00%
Bank, Amount	31,559	30,866
Bank, Ratio	8.00%	8.00%
Salisbury, Amount	15,614	15,247
Salisbury, Ratio	4.00%	4.00%
Bank, Amount	15,780	15,432
Bank, Ratio	4.00%	4.00%
Salisbury, Amount	23,372	23,876
Salisbury, Ratio	4.00%	4.00%
Bank, Amount	23,372	23,876
Bank, Ratio	4.00%	4.00%
To be Well Capitalized Under Prompt Corrective Action Provisions
Salisbury, Amount
Salisbury, Ratio
Bank, Amount	39,449	38,582
Bank, Ratio	10.00%	10.00%
Salisbury, Amount
Salisbury, Ratio
Bank, Amount	23,669	23,149
Bank, Ratio	6.00%	6.00%
Salisbury, Amount
Salisbury, Ratio
Bank, Amount	$ 29,215	$ 29,845
Bank, Ratio	5.00%	5.00%

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SECURITIES (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Accounting Policies [Abstract]
Sale of securities available-for-sale
Recognized losses for deterioration in credit quality	$ 1,128,000

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LOANS - Composition of loans receivable and loans held-for-sale (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Accounting Policies [Abstract]
Residential 1-4 family	$ 209,159	$ 198,552
Residential 5+ multifamily	4,714	3,889
Construction of residential 1-4 family	1,395	2,379
Home equity credit	33,925	34,162
Residential real estate	249,193	238,982
Commercial	96,835	87,382
Construction of commercial	9,755	5,823
Commercial real estate	106,590	93,205
Farm land	4,282	4,320
Vacant land	7,898	9,926
Real estate secured	367,963	346,433
Commercial and industrial	33,943	38,094
Municipal	3,995	3,378
Consumer	3,975	4,181
Loans receivable, gross	409,876	392,086
Deferred loan origination fees and costs, net	1,068	1,032
Allowance for loan losses	(4,686)	(4,360)
Loans receivable, net	406,258	388,758
Loans held-for-sale
Residential 1-4 family	$ 710	$ 1,879

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BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

BASIS OF PRESENTATION

NOTE 1 - BASIS OF PRESENTATION

The interim (unaudited) consolidated financial statements of Salisbury Bancorp, Inc. ("Salisbury") include those of Salisbury and its wholly owned subsidiary, Salisbury Bank and Trust Company (the "Bank"). In the opinion of management, the interim unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of Salisbury and the statements of income, comprehensive income, shareholders’ equity and cash flows for the interim periods presented.

The financial statements have been prepared in accordance with generally accepted accounting principles. In preparing the financial statements, management is required to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and valuation of real estate, management obtains independent appraisals for significant properties.

Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, but which is not required for interim reporting purposes, has been condensed or omitted. Operating results for the interim period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's 2012 Annual Report on Form 10-K for the period ended December 31, 2012.

The allowance for loan losses is a significant accounting policy and is presented in the Notes to Consolidated Financial Statements and in Management’s Discussion and Analysis, which provide information on how significant assets are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan losses to be the accounting area that requires the most subjective judgments, and as such could be most subject to revision as new information becomes available.

Impact of New Accounting Pronouncements Issued

In February 2013, the FASB issued ASU 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” The objective of the amendments in this ASU is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. generally accepted accounting principles (GAAP). Examples of obligations within the scope of this ASU include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013; and should be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements within the ASU scope that exist at the beginning of an entity’s fiscal year of adoption. Salisbury anticipates that the adoption of this guidance will not have a material impact on its consolidated financial statements.

In April 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments in this ASU are being issued to clarify when an entity should apply the liquidation basis of accounting. The guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. Additionally, the amendments require disclosures about an entity’s plan for liquidation, the methods and significant assumptions used to measure assets and liabilities, the type and amount of costs and income accrued, and the expected duration of the liquidation process. The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. Salisbury anticipates that the adoption of this guidance will not have an impact on its consolidated financial statements.

In October 2012, the FASB issued ASU 2012-06, “Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution.” The amendments in this update clarify the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. For public entities, the amendments in this update are effective for fiscal years, and interim periods within those years beginning on or after December 15, 2012. The adoption of ASU 2012-06 did not have a material impact on Salisbury’s consolidated financial position, results of operations or cash flows.

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In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments in this update defer those changes in ASU 2011-05 that relate to the presentation of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. All other requirements in ASU 2011-05 are not affected by this update. The amendments are effective during interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-12 did not have a material impact on Salisbury’s consolidated financial position, results of operations or cash flows.

In December 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities.” This ASU is to enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The amendments in this ASU are effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of ASU 2011-11 did not have a material impact on Salisbury’s consolidated financial position, results of operations or cash flows.

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LOANS - Composition of loans receivable by risk rating grade (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Pass
Residential 1-4 family	$ 189,694	$ 180,442
Residential 5+ multifamily	2,354	2,872
Construction of residential 1-4 family	1,395	1,570
Home equity credit	30,881	30,981
Residential real estate	224,324	215,865
Commercial	68,196	64,817
Construction of commercial	8,989	5,055
Commercial real estate	77,185	69,872
Farm land	1,644	2,799
Vacant land	4,425	4,885
Real estate secured	307,578	293,421
Commercial and industrial	24,049	28,453
Municipal	3,995	3,378
Consumer	3,851	3,994
Loans receivable, gross	339,473	329,246
Special mention
Residential 1-4 family	13,344	12,473
Residential 5+ multifamily	1,142	773
Construction of residential 1-4 family
Home equity credit	1,368	1,848
Residential real estate	15,854	15,094
Commercial	19,679	13,299
Construction of commercial	153	297
Commercial real estate	19,832	13,596
Farm land	1,466	341
Vacant land	189	863
Real estate secured	37,341	29,894
Commercial and industrial	8,532	8,300
Municipal
Consumer	101	159
Loans receivable, gross	45,974	38,353
Substandard
Residential 1-4 family	6,023	5,538
Residential 5+ multifamily	1,218	244
Construction of residential 1-4 family		809
Home equity credit	1,676	1,333
Residential real estate	8,917	7,924
Commercial	8,960	9,266
Construction of commercial	613	471
Commercial real estate	9,573	9,737
Farm land	1,172	1,180
Vacant land	3,284	4,178
Real estate secured	22,946	23,019
Commercial and industrial	1,362	1,341
Municipal
Consumer	23	28
Loans receivable, gross	24,331	24,388
Doubtful
Residential 1-4 family	98	99
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity credit
Residential real estate	98	99
Commercial
Construction of commercial
Commercial real estate
Farm land
Vacant land
Real estate secured	98	99
Commercial and industrial
Municipal
Consumer
Loans receivable, gross	98	99
Loss
Residential 1-4 family
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity credit
Residential real estate
Commercial
Construction of commercial
Commercial real estate
Farm land
Vacant land
Real estate secured
Commercial and industrial
Municipal
Consumer
Loans receivable, gross
Total
Residential 1-4 family	209,159	198,552
Residential 5+ multifamily	4,714	3,889
Construction of residential 1-4 family	1,395	2,379
Home equity credit	33,925	34,162
Residential real estate	249,193	238,982
Commercial	96,835	87,382
Construction of commercial	9,755	5,823
Commercial real estate	106,590	93,205
Farm land	4,282	4,320
Vacant land	7,898	9,926
Real estate secured	367,963	346,433
Commercial and industrial	33,943	38,094
Municipal	3,995	3,378
Consumer	3,975	4,181
Loans receivable, gross	$ 409,876	$ 392,086

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MORTGAGE SERVICING RIGHTS - Changes in mortgage servicing rights (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Loan Servicing Rights
Balance, beginning of period	$ 1,075	$ 772
Originated	152	177
Amortization (1)	(104)	(77)
Balance, end of period	1,123	872
Valuation Allowance
Balance, beginning of period	(38)	(22)
(Decrease) increase in impairment reserve (1)	33	(92)
Balance, end of period	(5)	(114)
Loan servicing rights, net	$ 1,119	$ 758

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CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
ASSETS
Cash and due from banks	$ 4,982	$ 9,545
Interest bearing demand deposits with other banks	26,459	34,029
Total cash and cash equivalents	31,441	43,574
Securities
Available-for-sale at fair value	118,664	126,287
Federal Home Loan Bank of Boston stock at cost	5,340	5,747
Loans held-for-sale	710	1,879
Loans receivable, net (allowance for loan losses: $4,686 and $4,360)	406,258	388,758
Other real estate owned	712	244
Bank premises and equipment, net	11,340	11,520
Goodwill	9,829	9,829
Intangible assets (net of accumulated amortization: $1,801 and $1,745)	742	798
Accrued interest receivable	2,021	1,818
Cash surrender value of life insurance policies	7,356	7,295
Other assets	2,930	3,064
Total Assets	597,343	600,813
Deposits
Demand (non-interest bearing)	88,464	98,850
Demand (interest bearing)	67,714	65,991
Money market	129,832	128,501
Savings and other	109,657	103,985
Certificates of deposit	92,106	93,888
Total deposits	487,773	491,215
Repurchase agreements	2,329	1,784
Federal Home Loan Bank of Boston advances	31,574	31,980
Deferred taxes	456	590
Accrued interest and other liabilities	3,005	3,247
Total Liabilities	525,137	528,816
Commitments and contingencies
Shareholders' Equity
Preferred stock - $.01 per share par value Authorized: 25,000; Issued: 16,000 (Series B); Liquidation preference: $1,000 per share	16,000	16,000
Common stock - $.10 per share par value Authorized: 3,000,000; Issued: 1,709,291 and 1,689,691	171	169
Paid-in capital	13,646	13,158
Retained earnings	40,653	40,233
Unearned Compensation - restricted stock awards	(466)
Accumulated other comprehensive income, net	2,202	2,437
Total Shareholders' Equity	72,206	71,997
Total Liabilities and Shareholders' Equity	$ 597,343	$ 600,813

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SHAREHOLDERS' EQUITY (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Aug. 31, 2011
Equity [Abstract]
Series B preferred stock issued to U.S. Secretary on the Treasury	16,000		16,000	16,000,000
SBLF programs fund				$ 30,000,000,000
Small Business Lending Fund, maximum allowance				10,000,000,000
Small Business Lending, dividend rate	1.00%	1.00%
Small Business Lending dividend rate after four and a half years	9.00%	9.00%
Series B Preferred Stock dividend declared	$ (41,000)	$ (83,000)

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) (USD $) In Thousands, except Share data	Common Stock	Preferred Stock	Paid-in capital	Retained earnings	Unrecognized Compensation - Restricted Stock Awards	Accumulated other comprehensive loss	Total
Balance - Beginning at Dec. 31, 2011	$ 169	$ 16,000	$ 13,134	$ 38,264		$ (705)	$ 66,862
Balance - Beginning, shares at Dec. 31, 2011	1,688,731
Net income for period				1,250			1,250
Other comprehensive income, net of tax						511	511
Common stock dividends declared				(473)			(473)
Preferred stock dividends paid				(83)			(83)
Balance - Ending at Mar. 31, 2012	169	16,000	13,134	38,958		(194)	68,067
Balance - Ending, shares at Mar. 31, 2012	1,688,731
Balance - Beginning at Dec. 31, 2012	169	16,000	13,158	40,233		2,437	71,997
Balance - Beginning, shares at Dec. 31, 2012	1,689,691
Net income for period				940			940
Other comprehensive income, net of tax						(235)	(235)
Common stock dividends declared				(479)			(479)
Preferred stock dividends paid				(41)			(41)
Issuance of restricted common stock	2		488		(490)
Issuance of restricted common stock, Shares	19,600
Stock based compensation-restricted stock awards					24		24
Balance - Ending at Mar. 31, 2013	$ 171	$ 16,000	$ 13,646	$ 40,653	$ (466)	$ 2,202	$ 72,206
Balance - Ending, shares at Mar. 31, 2013	1,709,291

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LOANS - Changes in the allowance for loan losses (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Mar. 31, 2012
Beginning balance
Residential	$ 1,934	$ 1,479
Commercial	1,059	1,139
Land	301	410
Real estate	3,294	3,028
Commercial & industrial	499	704
Municipal	36	24
Consumer	91	79
Unallocated	440	241
Totals	4,360	4,076
Provision
Residential	23	39
Commercial	178	(79)
Land	265	(29)
Real estate	466	(69)
Commercial & industrial	(40)	100
Municipal	4	4
Consumer	(15)	59
Unallocated	(19)	86
Totals	396	180
Charge-offs
Residential	(18)	(18)
Commercial
Land	(38)	(42)
Real estate	(56)	(60)
Commercial & industrial	(4)	(29)
Municipal
Consumer	(13)	(10)
Unallocated
Totals	(73)	(99)
Recoveries
Residential
Commercial		1
Land
Real estate		1
Commercial & industrial		3
Municipal
Consumer	3	5
Unallocated
Totals	3	9
Ending balance
Residential	1,939	1,500
Commercial	1,237	1,061
Land	528	339
Real estate	3,704	2,900
Commercial & industrial	455	778
Municipal	40	28
Consumer	66	133
Unallocated	421	327
Totals	$ 4,686	$ 4,166

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EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Calculation of earnings per share

Periods ended March 31, (in thousands, except per share amounts)	2013	2012
Net income	$               940	$          1,250
Less: Preferred stock dividends declared	(40)	(83)
Less: Undistributed earnings allocated to participating securities	(10)	-
Net income allocated to common stock	$               890	$         1,167
Common shares issued	1,709	1,689
Less: Unvested restricted stock awards	(20)	-
Common shares outstanding used to calculate basic earnings per common share	1,689	1,689
Add: Diluted effect of unvested restricted stock awards	20	-
Common shares outstanding used to calculate diluted earnings per common share	1,709	-
Earnings per common share (basic and diluted)	0.53	0.69

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LOANS - Composition of loans receivable and the allowance for loan losses (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Collectively evaluated, Loans
Residential 1-4 family	$ 202,490	$ 191,886
Residential 5+ multifamily	3,743	2,913
Construction of residential 1-4 family	1,395	2,379
Home equity credit	33,741	33,697
Residential real estate	241,369	230,875
Commercial	91,276	81,635
Construction of commercial	9,734	5,802
Commercial real estate	101,010	87,437
Farm land	4,282	4,320
Vacant land	4,773	5,795
Real estate secured	351,434	328,427
Commercial and industrial	32,952	37,073
Municipal	3,995	3,378
Consumer	3,898	4,061
Unallocated allowance
Totals	392,279	372,939
Collectively evaluated, Allowance
Residential 1-4 family	794	743
Residential 5+ multifamily	21	22
Construction of residential 1-4 family	6	10
Home equity credit	424	365
Residential real estate	1,245	1,140
Commercial	1,045	931
Construction of commercial	104	64
Commercial real estate	1,149	995
Farm land	68	66
Vacant land	58	70
Real estate secured	2,520	2,271
Commercial and industrial	426	467
Municipal	40	36
Consumer	36	39
Unallocated allowance
Totals	3,022	2,813
Individually evaluated, Loans
Residential 1-4 family	6,669	6,666
Residential 5+ multifamily	971	976
Construction of residential 1-4 family
Home equity credit	184	465
Residential real estate	7,824	8,107
Commercial	5,559	5,747
Construction of commercial	21	21
Commercial real estate	5,580	5,768
Farm land
Vacant land	3,125	4,131
Real estate secured	16,529	18,006
Commercial and industrial	991	1,021
Municipal
Consumer	77	120
Unallocated allowance
Totals	17,597	19,147
Individually evaluated, Allowance
Residential 1-4 family	643	652
Residential 5+ multifamily	50	50
Construction of residential 1-4 family
Home equity credit	1	92
Residential real estate	694	794
Commercial	88	64
Construction of commercial
Commercial real estate	88	64
Farm land
Vacant land	402	164
Real estate secured	1,184	1,022
Commercial and industrial	29	32
Municipal
Consumer	30	53
Unallocated allowance
Totals	1,243	1,107
Total portfolio, Loans
Residential 1-4 family	209,159	198,552
Residential 5+ multifamily	4,714	3,889
Construction of residential 1-4 family	1,395	2,379
Home equity credit	33,925	34,162
Residential real estate	249,193	238,982
Commercial	96,835	87,382
Construction of commercial	9,755	5,823
Commercial real estate	106,590	93,205
Farm land	4,282	4,320
Vacant land	7,897	9,926
Real estate secured	367,962	346,433
Commercial and industrial	33,943	38,094
Municipal	3,995	3,378
Consumer	3,975	4,181
Unallocated allowance
Totals	409,876	392,086
Total portfolio, Allowance
Residential 1-4 family	1,437	1,395
Residential 5+ multifamily	71	72
Construction of residential 1-4 family	6	10
Home equity credit	425	457
Residential real estate	1,939	1,934
Commercial	1,133	995
Construction of commercial	104	64
Commercial real estate	1,237	1,059
Farm land	68	66
Vacant land	460	234
Real estate secured	3,704	3,293
Commercial and industrial	455	499
Municipal	40	36
Consumer	66	92
Unallocated allowance	421	440
Totals	$ 4,686	$ 4,360

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PENSION AND OTHER BENEFITS (Tables)

3 Months Ended

Mar. 31, 2013

Compensation and Retirement Disclosure [Abstract]

Components of net periodic cost for defined benefit retirement plan

	Three months
Periods ended March 31, (in thousands)	2013	2012
Service cost	$ -	$ 115
Interest cost on benefit obligation	66	93
Expected return on plan assets	(67)	(115)
Amortization of prior service cost	-	-
Amortization of net loss	-	36
Net periodic benefit cost	$ (1)	$ 129

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Operating Activities
Net income	$ 940	$ 1,250
Amortization and depreciation
Securities	155	181
Bank premises and equipment	215	225
Core deposit intangible	56	56
Mortgage servicing rights	104	77
Fair value adjustment on loans	8	8
Gains on calls of securities available-for-sale		(12)
Gain on sale/disposals of premises and equipment		(1)
Gain recognized on other real estate owned	(1)	(1)
Provision for loan losses	396	180
Decrease (increase) in loans held-for-sale	1,169	(360)
(Increase) decrease in deferred loan origination fees and costs, net	(37)	6
Mortgage servicing rights originated	(152)	(180)
(Decrease) increase in mortgage servicing rights impairment reserve	(33)	92
Increase in interest receivable	(204)	(663)
Deferred tax benefit	(13)	(13)
Decrease (increase) in prepaid expenses	15	(1)
Increase in cash surrender value of life insurance policies	(61)	(67)
Decrease in income tax receivable	169	389
Decrease in other assets	32	6
Decrease in accrued expenses	174	300
Decrease in interest payable	(33)	(30)
Decrease (increase) in other liabilities	(383)	16
Issuance of shares of restricted stock	24
Net cash provided by operating activities	2,540	1,458
Investing Activities
Redemption of Federal Home Loan Bank of Boston stock	408	285
Proceeds from calls of securities available-for-sale	1,200	3,820
Proceeds from maturities of securities available-for-sale	5,911	6,623
Proceeds from maturities of securities held-to-maturity		50
Loan originations and principle collections, net	(19,423)	(147)
Recoveries of loans previously charged-off	3	10
Proceeds from sale of other real estate owned	1,086	1,744
Capital expenditures	(35)	(54)
Net cash (utilized) provided by investing activities	(10,850)	12,331
Financing Activities
(Decrease) increase in deposit transaction accounts, net	(1,661)	3,725
Decrease in time deposits, net	(1,782)	(2,345)
Increase (decrease) in securities sold under agreements to repurchase, net	545	(1,789)
Principal payments on Federal Home Loan Bank of Boston advances	(406)	(11,408)
Common stock dividends paid	(479)	(473)
Preferred stock dividends paid	(40)	(62)
Net cash utilized by financing activities	(3,823)	(12,352)
Net (decrease) increase in cash and cash equivalents	(12,133)	1,437
Cash and cash equivalents, beginning of period	43,574	36,886
Cash and cash equivalents, end of period	31,441	38,323
Cash paid during period
Interest	948	1,205
Income taxes	1,285	788
Non-cash transfers
Transfer from loans to other real estate owned	1,553
From other real estate owned to loans		$ 1,000

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
ASSETS
Loans receivable, allowance for loan losses	$ 4,686	$ 4,360
Intangible assets, accumulated amortization	$ 1,801	$ 1,745
Shareholders' Equity
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, authorized	25,000	25,000
Preferred stock, issued (Series B)	16,000	16,000
Preferred stock, liquidation preference	$ 1,000	$ 1,000
Common stock, par value	$ 0.10	$ 0.10
Common stock, authorized	3,000,000	3,000,000
Common stock, issued	1,709,291	1,689,691

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FAIR VALUE OF ASSETS AND LIABILITIES

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

FAIR VALUE OF ASSETS AND LIABILITIES

NOTE 10 – FAIR VALUE OF ASSETS AND LIABILITIES

Salisbury uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, other assets are recorded at fair value on a nonrecurring basis, such as loans held for sale, collateral dependent impaired loans, property acquired through foreclosure or repossession and mortgage servicing rights. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

Salisbury adopted ASC 820-10, “Fair Value Measurements and Disclosures,” which provides a framework for measuring fair value under generally accepted accounting principles, in 2008. This guidance provided Salisbury the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. However, Salisbury did not elect fair value treatment for any financial assets or liabilities upon adoption of such ASC.

In accordance with ASC 820-10, Salisbury groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Salisbury’s market assumptions. These two types of inputs have created the following fair value hierarchy

• Level 1. Quoted prices in active markets for identical assets. Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

• Level 2. Significant other observable inputs. Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from first party pricing services for identical or comparable assets or liabilities.

• Level 3. Significant unobservable inputs. Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

18

The following is a description of valuation methodologies for assets recorded at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy.

• Securities available-for-sale. Securities available-for-sale are recorded at fair value on a recurring basis. Level 1 securities include exchange-traded equity securities. Level 2 securities include debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes obligations of the Treasury and U.S. government-sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, municipal bonds, SBA bonds, corporate bonds and certain preferred equities. Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions. Valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending first-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

• Collateral dependent loans that are deemed to be impaired are valued based upon the fair value of the underlying collateral less costs to sell. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. Management may adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the property. Internal valuations are utilized to determine the fair value of other business assets. Collateral dependent impaired loans are categorized as Level 3.

• Other real estate owned acquired through foreclosure or repossession is adjusted to fair value less costs to sell upon transfer out of loans. Subsequently, it is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon independent market prices or appraised values of the collateral. Management adjusts appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property, and such property is categorized as Level 3.

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Assets measured at fair value are as follows:

		Fair Value Measurements Using						Assets at
(in thousands)		Level 1		Level 2		Level 3		fair value
March 31, 2013
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,719	$	—	$	2,719
U.S. Government agency notes		—		7,697		—		7,697
Municipal bonds		—		45,856		—		45,856
Mortgage-backed securities:
U.S. Government agencies		—		43,958		—		43,958
Collateralized mortgage obligations:
U.S. Government agencies		—		4,752		—		4,752
Non-agency		—		10,690		—		10,690
SBA bonds		—		2,681		—		2,681
Corporate bonds		—		—		—		—
Preferred stocks		311		—		—		311
Securities available-for-sale	$	311	$	118,353	$	—	$	118,664
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	7,947	$	7,947
Other real estate owned		—		—		712		712
December 31, 2012
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,733	$	—	$	2,733
U.S. Government agency notes		—		7,726		—		7,726
Municipal bonds		—		47,365		—		47,365
Mortgage-backed securities:
U.S. Government agencies		—		48,729		—		48,729
Collateralized mortgage obligations:
U.S. Government agencies		—		5,197		—		5,197
Non-agency		—		11,507		—		11,507
SBA bonds		—		2,863		—		2,863
Preferred stocks	$	167	$	126,120	$	—	$	126,287
Securities available-for-sale
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		8,434		8,434
Other real estate owned		—		—		244		244

20

Carrying values and estimated fair values of financial instruments are as follows:

					Fair value measurements using
(in thousands)		Carrying value		Estimated fair value		Level 1		Level 2		Level 3
March 31, 2013
Financial Assets
Cash and due from banks	$	31,441	$	31,441	$	31,441	$	—	$	—
Securities available-for-sale		118,664		118,664		311		118,353		—
Federal Home Loan Bank stock		5,340		5,340		—		5,340		—
Loans held-for-sale		710		710		—		—		710
Loans receivable net		406,258		406,258		—		—		406,258
Accrued interest receivable		2,021		2,021		—		—		2,021
Financial Liabilities
Demand (non-interest-bearing)	$	88,464	$	88,464	$	—	$	—	$	88,464
Demand (interest-bearing)		67,714		67,714		—		—		67,714
Money market		129,832		129,832		—		—		129,832
Savings and other		109,657		109,657		—		—		109,657
Certificates of deposit		92,106		92,886		—		—		92,886
Deposits		487,773		488,553		—		—		488,553
FHLBB advances		31,574		35,203		—		—		35,203
Repurchase agreements		2,329		2,329		—		—		2,329
Accrued interest payable		163		163		—		—		163
December 31, 2012
Financial Assets
Cash and due from banks	$	43,574	$	43,574	$	43,574	$	—	$	—
Securities available-for-sale		126,287		126,287		167		126,120		—
Federal Home Loan Bank stock		5,747		5,747		—		5,747		—
Loans held-for-sale		1,879		1,893		—		—		1,893
Loans receivable net		388,758		389,292		—		—		389,292
Accrued interest receivable		1,818		1,818		—		—		1,818
Financial Liabilities
Demand (non-interest-bearing)	$	98,850	$	98,850	$	—	$	—	$	98,850
Demand (interest-bearing)		65,991		65,991		—		—		65,991
Money market		128,501		128,501		—		—		128,501
Savings and other		103,985		103,985		—		—		103,985
Certificates of deposit		93,888		94,894		—		—		94,894
Deposits		491,215		492,221		—		—		492,221
FHLBB advances		31,980		35,363		—		—		35,363
Repurchase agreements		1,784		1,784		—		—		1,784
Accrued interest payable		196		196		—		—		196

The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 13, 2013
Document And Entity Information
Entity Registrant Name	SALISBURY BANCORP INC
Entity Central Index Key	0001060219
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		1,709,291
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2013

XML

SECURITIES (Tables)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Composition of securities

(in thousands)	Amortized cost (1)		Gross un- realized gains		Gross un-realized losses			Fair value
March 31, 2013
Available-for-sale
U.S. Treasury notes	$	2,496	$	223	$	—		$	2,719
U.S. Government Agency notes		7,514		183		—			7,697
Municipal bonds		44,235		1,883		(262	)		45,856
Mortgage backed securities
U.S. Government Agencies		42,782		1,204		(28	)		43,958
Collateralized mortgage obligations
U.S. Government Agencies		4,689		63		—			4,752
Non-agency		10,292		462		(64	)		10,690
SBA bonds		2,589		92		—			2,681
Preferred Stock		20		291		—			311
Total securities available-for-sale	$	114,617	$	4,401	$	(354	)	$	118,664
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	5,340	$	—	$	—		$	5,340

(in thousands)	Amortized cost (1)		Gross un- realized gains		Gross un-realized losses			Fair value
December 31, 2012
Available-for-sale
U.S. Treasury notes	$	2,496	$	237	$	—		$	2,733
U.S. Government Agency notes		7,515		211		—			7,726
Municipal bonds		45,395		2,138		(168	)		47,365
Mortgage backed securities
U.S. Government Agencies		47,465		1,284		(20	)		48,729
Collateralized mortgage obligations
U.S. Government Agencies		5,131		66		—			5,197
Non-agency		11,081		494		(68	)		11,507
SBA bonds		2,781		82		—			2,863
Preferred Stock		20		147		—			167
Total securities available-for-sale	$	121,884	$	4,659	$	(256	)	$	126,287
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	5,747	$	—	$	—		$	5,747

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

Securities in an unrealized loss position

	Less than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized  losses		Fair value		Unrealized  losses		Fair value		Unrealized losses
March 31, 2013
Available-for-sale
Municipal Bonds	$	1,325	$	56	$	2,316	$	206	$	3,641	$	262
Mortgage backed securities		2,735		27		43		1		2,778		28
Collateralized mortgage obligations
Non-agency		597		2		847		17		1,444		19
Total temporarily impaired securities		4,657		85		3,206		224		7,863		309
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		459		6		1,817		39		2,276		45
Total temporarily and other-than-temporarily impaired securities	$	5,116	$	91	$	5,023	$	263	$	10,139	$	354

Activity related to credit losses recognized in earnings

Three months ended March 31 (in thousands)	2013	2012
Balance, beginning of period	$ 1,128	$ 1,128
Credit component on debt securities in which OTTI was not previously recognized	-	-
Balance, end of period	$ 1,128	$ 1,128

XML

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Interest and dividend income
Interest and fees on loans	$ 4,429	$ 4,595
Interest on debt securities
Taxable	467	716
Tax exempt	488	534
Other interest and dividends	22	13
Total interest and dividend income	5,406	5,858
Interest expense
Deposits	490	667
Repurchase agreements	1	13
Federal Home Loan Bank of Boston advances	312	495
Total interest expense	803	1,175
Net interest and dividend income	4,603	4,683
Provision for loan losses	396	180
Net interest and dividend income after provision for loan losses	4,207	4,503
Non-interest income
Trust and wealth advisory	725	755
Service charges and fees	516	521
Gains on sales of mortgage loans, net	279	372
Mortgage servicing, net	26	(84)
Gains on securities, net		12
Other	79	83
Total non-interest income	1,625	1,659
Non-interest expense
Salaries	1,750	1,710
Employee benefits	685	690
Premises and equipment	583	605
Data processing	419	402
Professional fees	380	313
Collections and OREO	157	111
FDIC insurance	125	128
Marketing and community support	122	87
Amortization of intangibles	56	56
Other	428	398
Total non-interest expense	4,705	4,500
Income before income taxes	1,127	1,662
Income tax provision	187	412
Net income	940	1,250
Net income available to common shareholders	$ 900	$ 1,167
Basic and diluted earnings per common share	$ 0.53	$ 0.69
Common dividends per share	$ 0.28	$ 0.28

XML

PLEDGED ASSETS

3 Months Ended

Mar. 31, 2013

Banking and Thrift [Abstract]

PLEDGED ASSETS

NOTE 5 - PLEDGED ASSETS

The following securities and loans were pledged to secure public and trust deposits, securities sold under agreements to repurchase, FHLBB advances and credit facilities available.

in thousands)	March 31, 2013		December 31, 2012
Securities available-for-sale (at fair value)	$	53,484	$	68,839
Loans receivable		115,496		132,720
Total pledged assets	$	168,980	$	201,559

At March 31, 2013, securities were pledged as follows: $43.6 million to secure public deposits, $9.7 million to secure repurchase agreements and $0.2 million to secure FHLBB advances. Loans receivable were pledged to secure FHLBB advances and credit facilities.

XML

MORTGAGE SERVICING RIGHTS

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

MORTGAGE SERVICING RIGHTS

NOTE 4 - MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included in the Consolidated Balance Sheets. The balance of loans serviced for others and the fair value of mortgage servicing rights are as follows:

March 31, (in thousands)		2013		2012
Residential mortgage loans serviced for others	$	148,705	$	125,086
Fair value of mortgage servicing rights		1,739		754

Changes in mortgage servicing rights are as follows:

		Three months
Periods ended March 31, (in thousands)		2013			2012
Loan Servicing Rights
Balance, beginning of period	$	1,075		$	772
Originated		152			177
Amortization (1)		(104	)		(77	)
Balance, end of period		1,123			872
Valuation Allowance
Balance, beginning of period		(38	)		(22	)
Decrease (increase) in impairment reserve (1)		33			(92	)
Balance, end of period		(5	)		(114	)
Loan servicing rights, net	$	1,119		$	758

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

XML

SHAREHOLDERS' EQUITY (Tables)

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

Regulatory capital position and minimum capital requirements

	Actual		For Capital Adequacy Purposes		To be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount	Ratio	Amount	Ratio	Amount	Ratio
March 31, 2013
Total Capital (to risk-weighted assets)
Salisbury	$ 64,281	16.47%	$ 31,228	8.0%	n/a	-
Bank	54,097	13.71	31,559	8.0	$39,449	10.0%
Tier 1 Capital (to risk-weighted assets)
Salisbury	59,433	15.23	15,614	4.0	n/a	-
Bank	49,248	12.48	15,780	4.0	23,669	6.0
Tier 1 Capital (to average assets)
Salisbury	59,433	10.17	23,372	4.0	n/a	-
Bank	49,248	8.43	23,372	4.0	29,215	5.0
December 31, 2012
Total Capital (to risk-weighted assets)
Salisbury	$ 63,391	16.63%	$ 30,494	8.0%	n/a	-
Bank	53,132	13.77	30,866	8.0	$38,582	10.0%
Tier 1 Capital (to risk-weighted assets)
Salisbury	58,933	15.46	15,247	4.0	n/a	-
Bank	48,674	12.62	15,432	4.0	23,149	6.0
Tier 1 Capital (to average assets)
Salisbury	58,933	9.87	23,876	4.0	n/a	-
Bank	48,674	8.15	23,876	4.0	29,845	5.0

XML

LOANS (Tables)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Composition of loans receivable and loans held-for-sale

(in thousands)	March 31, 2013	December 31, 2012
Residential 1-4 family	$ 209,159	$ 198,552
Residential 5+ multifamily	4,714	3,889
Construction of residential 1-4 family	1,395	2,379
Home equity credit	33,925	34,162
Residential real estate	249,193	238,982
Commercial	96,835	87,382
Construction of commercial	9,755	5,823
Commercial real estate	106,590	93,205
Farm land	4,282	4,320
Vacant land	7,898	9,926
Real estate secured	367,963	346,433
Commercial and industrial	33,943	38,094
Municipal	3,995	3,378
Consumer	3,975	4,181
Loans receivable, gross	409,876	392,086
Deferred loan origination fees and costs, net	1,068	1,032
Allowance for loan losses	(4,686)	(4,360)
Loans receivable, net	$ 406,258	$ 388,758
Loans held-for-sale
Residential 1-4 family	$ 710	$ 1,879

Composition of loans receivable by risk rating grade

(in thousands)	Pass	Special mention	Substandard	Doubtful	Loss	Total
March 31, 2013
Residential 1-4 family	$ 189,694	$ 13,344	$ 6,023	$ 98	$ -	$ 209,159
Residential 5+ multifamily	2,354	1,142	1,218	-	-	4,714
Construction of residential 1-4 family	1,395	-	-	-	-	1,395
Home equity credit	30,881	1,368	1,676	-	-	33,925
Residential real estate	224,324	15,854	8,917	98	-	249,193
Commercial	68,196	19,679	8,960	-	-	96,835
Construction of commercial	8,989	153	613	-	-	9,755
Commercial real estate	77,185	19,832	9,573	-	-	106,590
Farm land	1,644	1,466	1,172	-	-	4,282
Vacant land	4,425	189	3,284	-	-	7,898
Real estate secured	307,578	37,341	22,946	98	-	367,963
Commercial and industrial	24,049	8,532	1,362	-	-	33,943
Municipal	3,995	-	-	-	-	3,995
Consumer	3,851	101	23	-	-	3,975
Loans receivable, gross	$ 339,473	$ 45,974	$ 24,331	$ 98	$ -	$ 409,876

(in thousands)	Pass	Special mention	Substandard	Doubtful	Loss	Total
December 31, 2012
Residential 1-4 family	$ 180,442	$ 12,473	$ 5,538	$ 99	$ -	$ 198,552
Residential 5+ multifamily	2,872	773	244	-	-	3,889
Construction of residential 1-4 family	1,570	-	809	-	-	2,379
Home equity credit	30,981	1,848	1,333	-	-	34,162
Residential real estate	215,865	15,094	7,924	99	-	238,982
Commercial	64,817	13,299	9,266	-	-	87,382
Construction of commercial	5,055	297	471	-	-	5,823
Commercial real estate	69,872	13,596	9,737	-	-	93,205
Farm land	2,799	341	1,180	-	-	4,320
Vacant land	4,885	863	4,178	-	-	9,926
Real estate secured	293,421	29,894	23,019	99	-	346,433
Commercial and industrial	28,453	8,300	1,341	-	-	38,094
Municipal	3,378	-	-	-	-	3,378
Consumer	3,994	159	28	-	-	4,181
Loans receivable, gross	$ 329,246	$ 38,353	$ 24,388	$ 99	$ -	$ 392,086

Composition of loans receivable by delinquency status

(in thousands)	Current	Past due							Non- accrual
		1-29 days	30-59 days	60-89 days	90-179 days	180 days and over	30 days and over	Accruing 90 days and over
March 31, 2013
Residential 1-4 family	$ 199,921	$ 5,445	$ 549	$ 2,771	$ 356	$ 117	$ 3,793	$ 165	$ 2,880
Residential 5+ multifamily	4,610	-	-	104	-	-	104	-	-
Construction of residential 1-4 family	1,395	-	-	-	-	-	-	-	-
Home equity credit	33,241	153	495	36	-	-	531	-	113
Residential real estate	239,167	5,598	1,044	2,911	356	117	4,428	165	2,993
Commercial	91,560	2,817	76	1,024	424	934	2,458	198	2,043
Construction of commercial	9,592	-	21	142	-	-	163	-	21
Commercial real estate	101,152	2,817	97	1,166	424	934	2,621	198	2,064
Farm land	3,110	785	14	373	-	-	387	-	-
Vacant land	4,772	-	-	47	-	3,079	3,126	-	3,126
Real estate secured	348,201	9,200	1,155	4,497	780	4,130	10,561	363	8,182
Commercial and industrial	33,592	267	58	26	-	-	84	-	42
Municipal	3,995	-	-	-	-	-	-	-	-
Consumer	3,886	66	15	8	-	-	23	-	-
Loans receivable, gross	$ 389,674	$9,533	$1,228	$4,531	$780	$4,130	$10,668	$165	$8,224
December 31, 2012
Residential 1-4 family	$ 190,488	$ 2,545	$ 3,578	$ 639	$ 1,185	$ 117	$ 5,519	$ -	$ 3,024
Residential 5+ multifamily	3,889	-	-	-	-	-	-	-	-
Construction of residential 1-4 family	2,379	-	-	-	-	-	-	-	-
Home equity credit	32,540	890	113	396	-	223	732	-	442
Residential real estate	229,296	3,435	3,691	1,035	1,185	340	6,251	-	3,466
Commercial	83,477	864	1,104	566	58	1,313	3,041	-	2,214
Construction of commercial	5,659	-	164	-	-	-	164	-	21
Commercial real estate	89,136	864	1,268	566	58	1,313	3,205	-	2,235
Farm land	3,898	422	-	-	-	-	-	-	-
Vacant land	5,932	-	-	48	740	3,206	3,994	-	3,994
Real estate secured	328,262	4,721	4,959	1,649	1,983	4,859	13,450	-	9,695
Commercial and industrial	37,618	351	26	99	-	-	125	-	164
Municipal	3,378	-	-	-	-	-	-	-	-
Consumer	4,034	108	25	14	-	-	39	-	-
Loans receivable, gross	$ 373,292	$ 5,180	$ 5,010	$ 1,762	$ 1,983	$ 4,859	$ 13,614	$ -	$ 9,859

Troubled debt restructurings

	Three months ended March 31, 2013			Three months ended March 31, 2012
(in thousands)	Quantity	Pre-modification balance	Post-modification balance	Quantity	Pre-modification balance	Post-modification balance
Residential real estate	-	$ -	$ -	1	$ 326	$ 326
Commercial real estate	2	1,022	1,022	5	559	559
Commercial and industrial	-	-	-	-	-	-
Troubled debt restructurings	2	$ 1,022	$ 1,022	6	$ 1,105	$ 1,105
Rate reduction and term extension	2	$ 1,022	$ 1,022	2	$ 373	$ 373
Debt consolidation and term extension	-	-	-	3	706	706
Seasonal interest only concession	-	-	-	1	26	26
Troubled debt restructurings	2	$ 1,022	$ 1,022	6	$1,105	$ 1,105

Changes in the allowance for loan losses

Three months ended (in thousands)	March 31, 2013					March 31, 2012
	Beginning balance	Provision	Charge-offs	Reco-veries	Ending balance	Beginning balance	Provision	Charge-offs	Reco-veries	Ending balance
Residential	$ 1,934	$ 23	$ (18)	$ -	$ 1,939	$ 1,479	$ 39	$ (18)	$ -	$ 1,500
Commercial	1,059	178	-	-	1,237	1,139	(79)	-	1	1,061
Land	301	265	(38)	-	528	410	(29)	(42)	-	339
Real estate	3,294	466	(56)	-	3,704	3,028	(69)	(60)	1	2,900
Commercial & industrial	499	(40)	(4)	-	455	704	100	(29)	3	778
Municipal	36	4	-	-	40	24	4	-	-	28
Consumer	91	(15)	(13)	3	66	79	59	(10)	5	133
Unallocated	440	(19)	-	-	421	241	86	-	-	327
Totals	$ 4,360	$ 396	$ (73)	$ 3	$ 4,686	$ 4,076	$ 180	$ (99)	$ 9	$ 4,166

Composition of loans receivable and the allowance for loan losses

(in thousands)	Collectively evaluated		Individually evaluated		Total portfolio
	Loans	Allowance	Loans	Allowance	Loans	Allowance
March 31, 2013
Residential 1-4 family	$ 202,490	$ 794	$ 6,669	$ 643	$ 209,159	$ 1,437
Residential 5+ multifamily	3,743	21	971	50	4,714	71
Construction of residential 1-4 family	1,395	6	-	-	1,395	6
Home equity credit	33,741	424	184	1	33,925	425
Residential real estate	241,369	1,245	7,824	694	249,193	1,939
Commercial	91,276	1,045	5,559	88	96,835	1,133
Construction of commercial	9,734	104	21	-	9,755	104
Commercial real estate	101,010	1,149	5,580	88	106,590	1,237
Farm land	4,282	68	-	-	4,282	68
Vacant land	4,773	58	3,125	402	7,897	460
Real estate secured	351,434	2,520	16,529	1,184	367,962	3,704
Commercial and industrial	32,952	426	991	29	33,943	455
Municipal	3,995	40	-	-	3,995	40
Consumer	3,898	36	77	30	3,975	66
Unallocated allowance	-	-	-	-	-	421
Totals	$ 392,279	$ 3,022	$ 17,597	$ 1,243	$ 409,876	$ 4,686
(in thousands)	Collectively evaluated		Individually evaluated		Total portfolio
	Loans	Allowance	Loans	Allowance	Loans	Allowance
December 31, 2012
Residential 1-4 family	$ 191,886	$ 743	$ 6,666	$ 652	$ 198,552	$ 1,395
Residential 5+ multifamily	2,913	22	976	50	3,889	72
Construction of residential 1-4 family	2,379	10	-	-	2,379	10
Home equity credit	33,697	365	465	92	34,162	457
Residential real estate	230,875	1,140	8,107	794	238,982	1,934
Commercial	81,635	931	5,747	64	87,382	995
Construction of commercial	5,802	64	21	-	5,823	64
Commercial real estate	87,437	995	5,768	64	93,205	1,059
Farm land	4,320	66	-	-	4,320	66
Vacant land	5,795	70	4,131	164	9,926	234
Real estate secured	328,427	2,271	18,006	1,022	346,433	3,293
Commercial and industrial	37,073	467	1,021	32	38,094	499
Municipal	3,378	36	-	-	3,378	36
Consumer	4,061	39	120	53	4,181	92
Unallocated allowance	-	-	-	-	-	440
Totals	$ 372,939	$ 2,813	$ 19,147	$ 1,107	$ 392,086	$ 4,360

Credit quality segments of loans receivable and allowance for loan losses

(in thousands)	Collectively evaluated		Individually evaluated		Total portfolio
	Loans	Allowance	Loans	Allowance	Loans	Allowance
March 31, 2013
Performing loans	$ 382,423	$ 2,687	$ 77	$ 30	$ 382,500	$ 2,717
Potential problem loans	9,856	335	2,558	86	12,414	421
Impaired loans	-	-	14,962	1,127	14,962	1,127
Unallocated allowance	-	-	-	-	-	421
Totals	$ 392,279	$ 3,022	$ 17,597	$ 1,243	$ 409,876	$ 4,686
December 31, 2012
Performing loans	$ 364,594	$ 2,567	$ 121	$ 52	$ 364,713	$ 2,619
Potential problem loans	8,345	246	2,465	131	10,810	377
Impaired loans	-	-	16,562	924	16,563	924
Unallocated allowance	-	-	-	-	-	440
Totals	$ 372,939	$ 2,813	$ 19,148	$ 1,107	$ 392,086	$ 4,360

Certain data with respect to impaired loans

(in thousands)	Impaired loans with specific allowance					Impaired loans with no specific allowance
	Loan balance			Specific allowance	Income recognized	Loan balance			Income recognized
	Book	Note	Average			Book	Note	Average
March 31, 2013
Residential 1-4 family	$ 3,917	$3,998	$ 3,868	$ 631	$ 17	$ 2,073	$ 2,279	$ 2,161	$ 10
Home equity credit	48	48	223	1	-	113	118	109	-
Residential real estate	3,965	4,046	4,091	632	17	2,186	2,396	2,270	10
Commercial	1,695	1,860	1,665	88	14	3,122	3,320	3,096	26
Vacant land	3,187	3,387	3,187	403	-	(61)	601	527	-
Real estate secured	8,847	9,293	8,943	1,123	31	5,247	6,317	5,893	36
Commercial and industrial	227	257	257	4	3	641	1,043	669	9
Consumer	-	-	-	-	-	-	-	-	-
Totals	$ 9,074	$ 9,550	$ 9,200	$ 1,127	$ 34	$ 5,888	$ 7,360	$ 6,562	$ 45

(in thousands)	Impaired loans with specific allowance					Impaired loans with no specific allowance
	Loan balance			Specific allowance	Income recognized	Loan balance			Income recognized
	Book	Note	Average			Book	Note	Average
December 31, 2012
Residential 1-4 family	$ 3,857	$ 3,925	$ 2,404	$ 578	$ 77	$ 2,263	$ 2,460	$ 1,601	$ 34
Home equity credit	351	351	146	92	-	91	93	203	-
Residential real estate	4,208	4,276	2,550	670	77	2,354	2,553	1,804	34
Commercial	1,629	1,784	1,925	64	60	3,381	3,576	3,122	82
Vacant land	3,186	3,387	1,455	158	-	808	1,467	2,358	4
Real estate secured	9,023	9,447	5,930	892	137	6,543	7,596	7,284	120
Commercial and industrial	335	368	833	32	13	661	1,063	854	31
Consumer	-	-	-	-	-	-	-	-	-
Totals	$ 9,358	$ 9,815	$ 6,763	$ 924	$ 150	$ 7,204	$ 8,659	$ 8,138	$ 151

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PENSION AND OTHER BENEFITS

3 Months Ended

Mar. 31, 2013

Compensation and Retirement Disclosure [Abstract]

PENSION AND OTHER BENEFITS

NOTE 8 – PENSION AND OTHER BENEFITS

The components of net periodic cost for Salisbury’s insured noncontributory defined benefit retirement plan were as follows:

	Three months
Periods ended March 31, (in thousands)	2013			2012
Service cost	$	—		$	115
Interest cost on benefit obligation		66			93
Expected return on plan assets		(67	)		(115	)
Amortization of prior service cost		—			—
Amortization of net loss		—			36
Net periodic benefit cost	$	(1	)	$	129

Salisbury’s 401(k) Plan expense was $83,000 and $70,000, respectively, for the three month periods ended March 31, 2013 and 2012. Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements was $11,000 for the three month periods ended March 31, 2013 and 2012.

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 6 – EARNINGS PER SHARE

The Company defines unvested share-based payment awards that contain nonforfeitable rights to dividends as participating securities that are included in computing Earnings Per Share (“EPS”) using the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. Earnings per common share are calculated by dividing earnings allocated to common stockholders by the weighted-average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

The following table sets forth the computation of earnings per share (basic and diluted) for the periods indicated:

Periods ended March 31, (in thousands, except per share amounts)	2013			2012
Net income	$	940		$	1,250
Less: Preferred stock dividends declared		(40	)		(83	)
Less: Undistributed earnings allocated to participating securities		(10	)		—
Net income allocated to common stock	$	890		$	1,167
Common shares issued		1,709			1,689
Less: Unvested restricted stock awards		(20	)		—
Common shares outstanding used to calculate basic earnings per common share		1,689			1,689
Add: Diluted effect of unvested restricted stock awards		—			—
Common shares outstanding used to calculate diluted earnings per common share		1,689			—
Earnings per common share (basic and diluted)		0.53			0.69

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SHAREHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

SHAREHOLDERS' EQUITY

NOTE 7 – SHAREHOLDERS’ EQUITY

Capital Requirements

Salisbury and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional and discretionary actions by the regulators that, if undertaken, could have a direct material effect on Salisbury and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Salisbury and the Bank must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Salisbury and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require Salisbury and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as defined) to average assets (as defined) and total and Tier 1 capital (as defined) to risk-weighted assets (as defined). Management believes, as of March 31, 2013, that Salisbury and the Bank meet all of their capital adequacy requirements.

16

The Bank was classified, as of its most recent notification, as "well capitalized". The Bank's actual regulatory capital position and minimum capital requirements as defined "To Be Well Capitalized Under Prompt Corrective Action Provisions" and "For Capital Adequacy Purposes" are as follows:

	Actual					For Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2013
Total Capital (to risk-weighted assets)
Salisbury	$	64,281		16.47	%	$	31,228		8.0	%		n/a		—
Bank		54,097		13.71			31,559		8.0		$	39,449		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		59,433		15.23			15,614		4.0			n/a		—
Bank		49,248		12.48			15,780		4.0			23,669		6.0
Tier 1 Capital (to average assets)
Salisbury		59,433		10.17			23,372		4.0			n/a		—
Bank		49,248		8.43			23,372		4.0			29,215		5.0
December 31, 2012
Total Capital (to risk-weighted assets)
Salisbury	$	63,391		16.63	%	$	30,494		8.0	%		n/a		—
Bank		53,132		13.77			30,866		8.0		$	38,582		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		58,933		15.46			15,247		4.0			n/a		—
Bank		48,674		12.62			15,432		4.0			23,149		6.0
Tier 1 Capital (to average assets)
Salisbury		58,933		9.87			23,876		4.0			n/a		—
Bank		48,674		8.15			23,876		4.0			29,845		5.0

DIVIDENDS

Cash Dividends to Common Shareholders

Salisbury's ability to pay cash dividends is substantially dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut law, the Bank cannot declare a cash dividend except from net profits, defined as the remainder of all earnings from current operations. The total of all cash dividends declared by the Bank in any calendar year shall not, unless specifically approved by the Banking Commissioner, exceed the total of its net profits of that year combined with its retained net profits of the preceding two years.

Federal Reserve Board (“FRB”) Supervisory Letter SR 09-4, February 24, 2009, revised March 27, 2009, notes that, as a general matter, the Board of Directors of a Bank Holding Company (“BHC”) should inform the FRB and should eliminate, defer, or significantly reduce dividends if (1) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (2) the prospective rate of earnings retention is not consistent with capital needs and overall current and prospective financial condition; or (3) the BHC will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Moreover, a BHC should inform the FRB reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the BHC capital structure.

Preferred Stock

In August 2011, Salisbury issued to the U.S. Secretary of the Treasury (the “Treasury”) $16,000,000 of its Series B Preferred Stock under the Small Business Lending Fund (the “SBLF”) program. The SBLF program is a $30 billion fund established under the Small Business Jobs Act of 2010 to encourage lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion. The Preferred Stock qualifies as Tier 1 capital for regulatory purposes and ranks senior to the Common Stock.

The Series B Preferred Stock pays noncumulative dividends. The dividend rate on the Series B Preferred Stock for the initial quarterly dividend period ending September 30, 2011 and each of the next nine quarterly dividend periods the Series B Preferred Stock is outstanding is determined each quarter based on the increase in the Bank’s Qualified Small Business Lending. The dividend rate for the quarterly dividend periods ended March 31, 2013 and December 31, 2012, was 1.0000%. For the tenth quarterly dividend period through four and one-half years after its issuance, the dividend rate on the Series B Preferred Stock will be fixed at the rate in effect at the end of the ninth quarterly dividend period and after four and one-half years from its issuance the dividend rate will be fixed at 9 percent per annum. March 29, 2013, Salisbury declared a Series B Preferred Stock dividend of $41,000, payable on April 1, 2013. The Series B Preferred Stock is non-voting, other than voting rights on matters that could adversely affect the Series B Preferred Stock. The Series B Preferred Stock is redeemable at any time at one hundred percent of the issue price plus any accrued and unpaid dividends.

On February 8, 2013, Salisbury granted a total of 19,600 shares of restricted stock pursuant to its 2011 Long Term Incentive Plan, which was approved by shareholders at the 2011 Annual Meeting, to 22 employees, including 5,000 shares to one Named Executive Officer, Richard J. Cantele, Jr., President and Chief Executive Officer.

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COMPREHENSIVE INCOME

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

COMPREHENSIVE INCOME

NOTE 9 –COMPREHENSIVE INCOME

The components of accumulated other comprehensive losses are as follows:

March 31, (in thousands)	2013			2012
Unrealized losses on securities available-for-sale, net of tax	$	2,671		$	1,839
Unrecognized pension plan expense, net of tax		(469	)		(2,033	)
Accumulated other comprehensive loss, net	$	2,202		$	(194	)

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LOANS - Troubled debt restructurings (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Quantity
Residential real estate		$ 1
Commercial real estate	2	5
Commercial and industrial
Troubled debt restructurings	2	6
Rate reduction and term extension	2	2
Debt consolidation and term extension		3
Seasonal interest only concession		1
Troubled debt restructurings	2	6
Pre-modification balance
Residential real estate		326
Commercial real estate	1,022	559
Commercial and industrial
Troubled debt restructurings	1,022	1,105
Rate reduction and term extension	1,022	373
Debt consolidation and term extension		706
Seasonal interest only concession		26
Troubled debt restructurings	1,022	1,105
Post-modification balance
Residential real estate		326
Commercial real estate	1,022	559
Commercial and industrial
Troubled debt restructurings	1,022	1,105
Rate reduction and term extension	1,022	373
Debt consolidation and term extension		706
Seasonal interest only concession		26
Troubled debt restructurings	$ 1,022	$ 1,105

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PLEDGED ASSETS (Tables)

3 Months Ended

Mar. 31, 2013

Banking and Thrift [Abstract]

Securities and loans were pledged to secure public and trust deposits

in thousands)	March 31, 2013	December 31, 2012
Securities available-for-sale (at fair value)	$ 53,484	$ 68,839
Loans receivable	115,496	132,720
Total pledged assets	$ 168,980	$ 201,559

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FAIR VALUE OF ASSETS AND LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Assets measured at fair value

		Fair Value Measurements Using						Assets at
(in thousands)		Level 1		Level 2		Level 3		fair value
March 31, 2013
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,719	$	—	$	2,719
U.S. Government agency notes		—		7,697		—		7,697
Municipal bonds		—		45,856		—		45,856
Mortgage-backed securities:
U.S. Government agencies		—		43,958		—		43,958
Collateralized mortgage obligations:
U.S. Government agencies		—		4,752		—		4,752
Non-agency		—		10,690		—		10,690
SBA bonds		—		2,681		—		2,681
Corporate bonds		—		—		—		—
Preferred stocks		311		—		—		311
Securities available-for-sale	$	311	$	118,353	$	—	$	118,664
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	7,947	$	7,947
Other real estate owned		—		—		712		712
December 31, 2012
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,733	$	—	$	2,733
U.S. Government agency notes		—		7,726		—		7,726
Municipal bonds		—		47,365		—		47,365
Mortgage-backed securities:
U.S. Government agencies		—		48,729		—		48,729
Collateralized mortgage obligations:
U.S. Government agencies		—		5,197		—		5,197
Non-agency		—		11,507		—		11,507
SBA bonds		—		2,863		—		2,863
Preferred stocks	$	167	$	126,120	$	—	$	126,287
Securities available-for-sale
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		8,434		8,434
Other real estate owned		—		—		244		244

20

Carrying values and estimated fair values of financial instruments

					Fair value measurements using
(in thousands)		Carrying value		Estimated fair value		Level 1		Level 2		Level 3
March 31, 2013
Financial Assets
Cash and due from banks	$	31,441	$	31,441	$	31,441	$	—	$	—
Securities available-for-sale		118,664		118,664		311		118,353		—
Federal Home Loan Bank stock		5,340		5,340		—		5,340		—
Loans held-for-sale		710		710		—		—		710
Loans receivable net		406,258		406,258		—		—		406,258
Accrued interest receivable		2,021		2,021		—		—		2,021
Financial Liabilities
Demand (non-interest-bearing)	$	88,464	$	88,464	$	—	$	—	$	88,464
Demand (interest-bearing)		67,714		67,714		—		—		67,714
Money market		129,832		129,832		—		—		129,832
Savings and other		109,657		109,657		—		—		109,657
Certificates of deposit		92,106		92,886		—		—		92,886
Deposits		487,773		488,553		—		—		488,553
FHLBB advances		31,574		35,203		—		—		35,203
Repurchase agreements		2,329		2,329		—		—		2,329
Accrued interest payable		163		163		—		—		163
December 31, 2012
Financial Assets
Cash and due from banks	$	43,574	$	43,574	$	43,574	$	—	$	—
Securities available-for-sale		126,287		126,287		167		126,120		—
Federal Home Loan Bank stock		5,747		5,747		—		5,747		—
Loans held-for-sale		1,879		1,893		—		—		1,893
Loans receivable net		388,758		389,292		—		—		389,292
Accrued interest receivable		1,818		1,818		—		—		1,818
Financial Liabilities
Demand (non-interest-bearing)	$	98,850	$	98,850	$	—	$	—	$	98,850
Demand (interest-bearing)		65,991		65,991		—		—		65,991
Money market		128,501		128,501		—		—		128,501
Savings and other		103,985		103,985		—		—		103,985
Certificates of deposit		93,888		94,894		—		—		94,894
Deposits		491,215		492,221		—		—		492,221
FHLBB advances		31,980		35,363		—		—		35,363
Repurchase agreements		1,784		1,784		—		—		1,784
Accrued interest payable		196		196		—		—		196

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FAIR VALUE OF ASSETS AND LIABILITIES - Assets measured at fair value (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Fair Value Measurements Using, Level 1
Assets at fair value on a recurring basis
U.S. Treasury notes
U.S. Government agency notes
Municipal bonds
Mortgage-backed securities:
U.S. Government agencies
Collateralized mortgage obligations:
U.S. Government agencies
Non-agency
SBA bonds
Corporate bonds
Preferred stocks	311	167
Securities available-for-sale	311
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans
Other real estate owned
Fair Value Measurements Using, Level 2
Assets at fair value on a recurring basis
U.S. Treasury notes	2,719	2,733
U.S. Government agency notes	7,697	7,726
Municipal bonds	45,856	47,365
Mortgage-backed securities:
U.S. Government agencies	43,958	48,729
Collateralized mortgage obligations:
U.S. Government agencies	4,752	5,197
Non-agency	10,690	11,507
SBA bonds	2,681	2,863
Corporate bonds
Preferred stocks		126,120
Securities available-for-sale	118,353
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans
Other real estate owned
Fair Value Measurements Using, Level 3
Assets at fair value on a recurring basis
U.S. Treasury notes
U.S. Government agency notes
Municipal bonds
Mortgage-backed securities:
U.S. Government agencies
Collateralized mortgage obligations:
U.S. Government agencies
Non-agency
SBA bonds
Corporate bonds
Preferred stocks
Securities available-for-sale
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	7,947	8,434
Other real estate owned	712	244
Assets at fair value
Assets at fair value on a recurring basis
U.S. Treasury notes	2,719	2,733
U.S. Government agency notes	7,697	7,726
Municipal bonds	45,856	47,365
Mortgage-backed securities:
U.S. Government agencies	43,958	48,729
Collateralized mortgage obligations:
U.S. Government agencies	4,752	5,197
Non-agency	10,690	11,507
SBA bonds	2,681	2,863
Corporate bonds
Preferred stocks	311	126,287
Securities available-for-sale	188,664
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	7,947	8,434
Other real estate owned	$ 712	$ 244

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PLEDGED ASSETS - Securities and loans were pledged to secure public and trust deposits (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Banking and Thrift [Abstract]
Securities available-for-sale (at fair value)	$ 53,484	$ 68,839
Loans receivable	115,496	132,720
Total pledged assets	$ 168,980	$ 201,559

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Income Statement [Abstract]
Net income	$ 940	$ 1,250
Other comprehensive (loss) income
Net unrealized (losses) gains on securities available-for-sale	(356)	725
Reclassification of net realized gains in net income		12
Unrealized (losses) gains on securities available-for-sale	(356)	737
Income tax benefit (expense)	121	(250)
Unrealized (losses) gains on securities available-for-sale, net of tax	(235)	487
Pension plan income		36
Income tax expense		(12)
Pension plan income, net of tax		24
Other comprehensive (loss) income, net of tax	(235)	511
Comprehensive income	$ 705	$ 1,761

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LOANS

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

LOANS

NOTE 3 - LOANS

The composition of loans receivable and loans held-for-sale is as follows:

(in thousands)	March 31, 2013			December 31, 2012
Residential 1-4 family	$	209,159		$	198,552
Residential 5+ multifamily		4,714			3,889
Construction of residential 1-4 family		1,395			2,379
Home equity credit		33,925			34,162
Residential real estate		249,193			238,982
Commercial		96,835			87,382
Construction of commercial		9,755			5,823
Commercial real estate		106,590			93,205
Farm land		4,282			4,320
Vacant land		7,898			9,926
Real estate secured		367,963			346,433
Commercial and industrial		33,943			38,094
Municipal		3,995			3,378
Consumer		3,975			4,181
Loans receivable, gross		409,876			392,086
Deferred loan origination fees and costs, net		1,068			1,032
Allowance for loan losses		(4,686	)		(4,360	)
Loans receivable, net	$	406,258		$	388,758
Loans held-for-sale
Residential 1-4 family	$	710		$	1,879

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in northwestern Connecticut and nearby New York and Massachusetts towns, which constitute Salisbury's service area. Salisbury offers a broad range of loan and credit facilities to borrowers in its service area, including residential mortgage loans, commercial real estate loans, construction loans, working capital loans, equipment loans, and a variety of consumer loans, including home equity lines of credit, and installment and collateral loans. All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in Salisbury’s market area.

Loan Credit Quality

The composition of loans receivable by risk rating grade is as follows:

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
March 31, 2013
Residential 1-4 family	$	189,694	$	13,344	$	6,023	$	98	$	—	$	209,159
Residential 5+ multifamily		2,354		1,142		1,218		—		—		4,714
Construction of residential 1-4 family		1,395		—		—		—		—		1,395
Home equity credit		30,881		1,368		1,676		—		—		33,925
Residential real estate		224,324		15,854		8,917		98		—		249,193
Commercial		68,196		19,679		8,960		—		—		96,835
Construction of commercial		8,989		153		613		—		—		9,755
Commercial real estate		77,185		19,832		9,573		—		—		106,590
Farm land		1,644		1,466		1,172		—		—		4,282
Vacant land		4,425		189		3,284		—		—		7,898
Real estate secured		307,578		37,341		22,946		98		—		367,963
Commercial and industrial		24,049		8,532		1,362		—		—		33,943
Municipal		3,995		—		—		—		—		3,995
Consumer		3,851		101		23		—		—		3,975
Loans receivable, gross	$	339,473	$	45,974	$	24,331	$	98	$	—	$	409,876

11

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2012
Residential 1-4 family	$	180,442	$	12,473	$	5,538	$	99	$	—	$	198,552
Residential 5+ multifamily		2,872		773		244		—		—		3,889
Construction of residential 1-4 family		1,570		—		809		—		—		2,379
Home equity credit		30,981		1,848		1,333		—		—		34,162
Residential real estate		215,865		15,094		7,924		99		—		238,982
Commercial		64,817		13,299		9,266		—		—		87,382
Construction of commercial		5,055		297		471		—		—		5,823
Commercial real estate		69,872		13,596		9,737		—		—		93,205
Farm land		2,799		341		1,180		—		—		4,320
Vacant land		4,885		863		4,178		—		—		9,926
Real estate secured		293,421		29,894		23,019		99		—		346,433
Commercial and industrial		28,453		8,300		1,341		—		—		38,094
Municipal		3,378		—		—		—		—		3,378
Consumer		3,994		159		28		—		—		4,181
Loans receivable, gross	$	329,246	$	38,353	$	24,388	$	99	$	—	$	392,086

The composition of loans receivable by delinquency status is as follows:

	Past due
(in thousands)		Current		1-29 days		30-59 days		60-89 days		90-179 days		180 days and over		30 days and over		Accruing 90 days and over		Non- accrual
March 31, 2013
Residential 1-4 family	$	199,921	$	5,445	$	549	$	2,771	$	356	$	117	$	3,793	$	165	$	2,880
Residential 5+ multifamily		4,610		—		—		104		—		—		104		—		—
Construction of residential 1-4 family		1,395		—		—		—		—		—		—		—		—
Home equity credit		33,241		153		495		36		—		—		531		—		113
Residential real estate		239,167		5,598		1,044		2,911		356		117		4,428		165		2,993
Commercial		91,560		2,817		76		1,024		424		934		2,458		198		2,043
Construction of commercial		9,592		—		21		142		—		—		163		—		21
Commercial real estate		101,152		2,817		97		1,166		424		934		2,621		198		2,064
Farm land		3,110		785		14		373		—		—		387		—		—
Vacant land		4,772		—		—		47		—		3,079		3,126		—		3,126
Real estate secured		348,201		9,200		1,155		4,497		780		4,130		10,561		363		8,182
Commercial and industrial		33,592		267		58		26		—		—		84		—		42
Municipal		3,995		—		—		—		—		—		—		—		—
Consumer		3,886		66		15		8		—		—		23		—		—
Loans receivable, gross	$	389,674	$	9,533	$	1,228	$	4,531	$	780	$	4,130	$	10,668	$	165	$	8,224
December 31, 2012
Residential 1-4 family	$	190,488	$	2,545	$	3,578	$	639	$	1,185	$	117	$	5,519	$	—	$	3,024
Residential 5+ multifamily		3,889		—		—		—		—		—		—		—		—
Construction of residential 1-4 family		2,379		—		—		—		—		—		—		—		—
Home equity credit		32,540		890		113		396		—		223		732		—		442
Residential real estate		229,296		3,435		3,691		1,035		1,185		340		6,251		—		3,466
Commercial		83,477		864		1,104		566		58		1,313		3,041		—		2,214
Construction of commercial		5,659		—		164		—		—		—		164		—		21
Commercial real estate		89,136		864		1,268		566		58		1,313		3,205		—		2,235
Farm land		3,898		422		—		—		—		—		—		—		—
Vacant land		5,932		—		—		48		740		3,206		3,994		—		3,994
Real estate secured		328,262		4,721		4,959		1,649		1,983		4,859		13,450		—		9,695
Commercial and industrial		37,618		351		26		99		—		—		125		—		164
Municipal		3,378		—		—		—		—		—		—		—		—
Consumer		4,034		108		25		14		—		—		39		—		—
Loans receivable, gross	$	373,292	$	5,180	$	5,010	$	1,762	$	1,983	$	4,859	$	13,614	$	—	$	9,859

12

Troubled Debt Restructurings

Troubled debt restructurings occurring during the periods are as follows:

	Three months ended March 31, 2013						Three months ended March 31, 2012
(in thousands)	Quantity		Pre-modification balance		Post-modification balance		Quantity		Pre-modification balance		Post-modification balance
Residential real estate		—	$	—	$	—		1	$	326	$	326
Commercial real estate		2		1,022		1,022		5		559		559
Commercial and industrial		—		—		—		—		—		—
Troubled debt restructurings		2	$	1,022	$	1,022		6	$	1,105	$	1,105
Rate reduction and term extension		2	$	1,022	$	1,022		2	$	373	$	373
Debt consolidation and term extension		—		—		—		3		706		706
Seasonal interest only concession		—		—		—		1		26		26
Troubled debt restructurings		2	$	1,022	$	1,022		6	$	1,105	$	1,105

Two loans were restructured during the quarter ended March 31, 2013 and both were current at March 31, 2013.

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

	March 31, 2013												March 31, 2012
Three months ended (in thousands)		Beginning balance		Provision			Charge-offs			Recoveries		Ending balance		Beginning balance		Provision			Charge-offs			Recoveries		Ending balance
Residential	$	1,934	$	23		$	(18	)	$	—	$	1,939	$	1,479	$	39		$	(18	)	$	—	$	1,500
Commercial		1,059		178			—			—		1,237		1,139		(79	)		—			1		1,061
Land		301		265			(38	)		—		528		410		(29	)		(42	)		—		339
Real estate		3,294		466			(56	)		—		3,704		3,028		(69	)		(60	)		1		2,900
Commercial & industrial		499		(40	)		(4	)		—		455		704		100			(29	)		3		778
Municipal		36		4			—			—		40		24		4			—			—		28
Consumer		91		(15	)		(13	)		3		66		79		59			(10	)		5		133
Unallocated		440		(19	)		—			—		421		241		86			—			—		327
Totals	$	4,360	$	396		$	(73	)	$	3	$	4,686	$	4,076	$	180		$	(99	)	$	9	$	4,166

13

The composition of loans receivable and the allowance for loan losses is as follows:

	Collectively evaluated				Individually evaluated				Total portfolio
(in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
March 31, 2013
Residential 1-4 family	$	202,490	$	794	$	6,669	$	643	$	209,159	$	1,437
Residential 5+ multifamily		3,743		21		971		50		4,714		71
Construction of residential 1-4 family		1,395		6		—		—		1,395		6
Home equity credit		33,741		424		184		1		33,925		425
Residential real estate		241,369		1,245		7,824		694		249,193		1,939
Commercial		91,276		1,045		5,559		88		96,835		1,133
Construction of commercial		9,734		104		21		—		9,755		104
Commercial real estate		101,010		1,149		5,580		88		106,590		1,237
Farm land		4,282		68		—		—		4,282		68
Vacant land		4,773		58		3,125		402		7,897		460
Real estate secured		351,434		2,520		16,529		1,184		367,962		3,704
Commercial and industrial		32,952		426		991		29		33,943		455
Municipal		3,995		40		—		—		3,995		40
Consumer		3,898		36		77		30		3,975		66
Unallocated allowance		—		—		—		—		—		421
Totals	$	392,279	$	3,022	$	17,597	$	1,243	$	409,876	$	4,686
	Collectively evaluated				Individually evaluated				Total portfolio
(in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2012
Residential 1-4 family	$	191,886	$	743	$	6,666	$	652	$	198,552	$	1,395
Residential 5+ multifamily		2,913		22		976		50		3,889		72
Construction of residential 1-4 family		2,379		10		—		—		2,379		10
Home equity credit		33,697		365		465		92		34,162		457
Residential real estate		230,875		1,140		8,107		794		238,982		1,934
Commercial		81,635		931		5,747		64		87,382		995
Construction of commercial		5,802		64		21		—		5,823		64
Commercial real estate		87,437		995		5,768		64		93,205		1,059
Farm land		4,320		66		—		—		4,320		66
Vacant land		5,795		70		4,131		164		9,926		234
Real estate secured		328,427		2,271		18,006		1,022		346,433		3,293
Commercial and industrial		37,073		467		1,021		32		38,094		499
Municipal		3,378		36		—		—		3,378		36
Consumer		4,061		39		120		53		4,181		92
Unallocated allowance		—		—		—		—		—		440
Totals	$	372,939	$	2,813	$	19,147	$	1,107	$	392,086	$	4,360

The credit quality segments of loans receivable and the allowance for loan losses are as follows:

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
March 31, 2013
Performing loans	$	382,423	$	2,687	$	77	$	30	$	382,500	$	2,717
Potential problem loans		9,856		335		2,558		86		12,414		421
Impaired loans		—		—		14,962		1,127		14,962		1,127
Unallocated allowance		—		—		—		—		—		421
Totals	$	392,279	$	3,022	$	17,597	$	1,243	$	409,876	$	4,686
December 31, 2012
Performing loans	$	364,594	$	2,567	$	121	$	52	$	364,713	$	2,619
Potential problem loans		8,345		246		2,465		131		10,810		377
Impaired loans		—		—		16,562		924		16,563		924
Unallocated allowance		—		—		—		—		—		440
Totals	$	372,939	$	2,813	$	19,148	$	1,107	$	392,086	$	4,360

14

Certain data with respect to impaired loans individually evaluated is as follows:

	Impaired loans with specific allowance										Impaired loans with no specific allowance
	Loan balance										Loan balance
(in thousands)		Book		Note		Average		Specific allowance		Income recognized		Book			Note		Average		Income recognized
March 31, 2013
Residential 1-4 family	$	3,917	$	3,998	$	3,868	$	631	$	17	$	2,073		$	2,279	$	2,161	$	10
Home equity credit		48		48		223		1		—		113			118		109		—
Residential real estate		3,965		4,046		4,091		632		17		2,186			2,396		2,270		10
Commercial		1,695		1,860		1,665		88		14		3,122			3,320		3,096		26
Vacant land		3,187		3,387		3,187		403		—		(61	)		601		527		—
Real estate secured		8,847		9,293		8,943		1,123		31		5,247			6,317		5,893		36
Commercial and industrial		227		257		257		4		3		641			1,043		669		9
Consumer		—		—		—		—		—		—			—		—		—
Totals	$	9,074	$	9,550	$	9,200	$	1,127	$	34	$	5,888		$	7,360	$	6,562	$	45

	Impaired loans with specific allowance										Impaired loans with no specific allowance
	Loan balance										Loan balance
(in thousands)		Book		Note		Average		Specific allowance		Income recognized		Book		Note		Average		Income recognized
December 31, 2012
Residential 1-4 family	$	3,857	$	3,925	$	2,404	$	578	$	77	$	2,263	$	2,460	$	1,601	$	34
Home equity credit		351		351		146		92		—		91		93		203		—
Residential real estate		4,208		4,276		2,550		670		77		2,354		2,553		1,804		34
Commercial		1,629		1,784		1,925		64		60		3,381		3,576		3,122		82
Vacant land		3,186		3,387		1,455		158		—		808		1,467		2,358		4
Real estate secured		9,023		9,447		5,930		892		137		6,543		7,596		7,284		120
Commercial and industrial		335		368		833		32		13		661		1,063		854		31
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	9,358	$	9,815	$	6,763	$	924	$	150	$	7,204	$	8,659	$	8,138	$	151

XML

SECURITIES - Composition of securities (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Available-for-sale
Total securities available-for-sale	$ 118,664	$ 126,287
Amortized cost (1)
Available-for-sale
U.S. Treasury notes	2,496	2,496
U.S. Government Agency notes	7,514	7,515
Municipal bonds	44,235	45,395
Mortgage backed securities, U.S. Government Agencies	42,782	47,465
Collateralized mortgage obligations, U.S. Government Agencies	4,689	5,131
Non-agency	10,292	11,081
SBA bonds	2,589	2,781
Preferred Stock	20	20
Total securities available-for-sale	114,617	121,884
Federal Home Loan Bank of Boston stock	5,340	5,747
Gross un-realized gains
Available-for-sale
U.S. Treasury notes	223	237
U.S. Government Agency notes	183	211
Municipal bonds	1,883	2,138
Mortgage backed securities, U.S. Government Agencies	1,204	1,284
Collateralized mortgage obligations, U.S. Government Agencies	63	66
Non-agency	462	494
SBA bonds	92	82
Preferred Stock	291	147
Total securities available-for-sale	4,401	4,659
Federal Home Loan Bank of Boston stock
Gross un-realized losses
Available-for-sale
U.S. Treasury notes
U.S. Government Agency notes
Municipal bonds	(262)	(168)
Mortgage backed securities, U.S. Government Agencies	(28)	(20)
Collateralized mortgage obligations, U.S. Government Agencies
Non-agency	(64)	(68)
SBA bonds
Preferred Stock
Total securities available-for-sale	(354)	(256)
Federal Home Loan Bank of Boston stock
Fair value
Available-for-sale
U.S. Treasury notes	2,719	2,733
U.S. Government Agency notes	7,697	7,726
Municipal bonds	45,856	47,365
Mortgage backed securities, U.S. Government Agencies	43,958	48,729
Collateralized mortgage obligations, U.S. Government Agencies	4,752	5,197
Non-agency	10,690	11,507
SBA bonds	2,681	2,863
Preferred Stock	311	167
Total securities available-for-sale	118,664	126,287
Federal Home Loan Bank of Boston stock	$ 5,340	$ 5,747

XML

LOANS - Certain data with respect to impaired loans (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Impaired loans with specific allowance, Loan balance, Book
Residential 1-4 family	$ 3,917	$ 3,857
Home equity credit	48	351
Residential real estate	3,965	4,208
Commercial	1,695	1,629
Vacant land	3,187	3,186
Real estate secured	8,847	9,023
Commercial and industrial	227	335
Consumer
Totals	9,074	9,358
Impaired loans with specific allowance, Loan balance, Note
Residential 1-4 family	3,998	3,925
Home equity credit	48	351
Residential real estate	4,046	4,276
Commercial	1,860	1,784
Vacant land	3,387	3,387
Real estate secured	9,293	9,447
Commercial and industrial	257	368
Consumer
Totals	9,550	9,815
Impaired loans with specific allowance, Loan balance, Average
Residential 1-4 family	3,868	2,404
Home equity credit	223	146
Residential real estate	4,091	2,550
Commercial	1,665	1,925
Vacant land	3,187	1,455
Real estate secured	8,943	5,930
Commercial and industrial	257	833
Consumer
Totals	9,200	6,763
Impaired loans with specific allowance, Specific allowance
Residential 1-4 family	631	578
Home equity credit	1	92
Residential real estate	632	670
Commercial	88	64
Vacant land	403	158
Real estate secured	1,123	892
Commercial and industrial	4	32
Consumer
Totals	1,127	924
Impaired loans with specific allowance, Income recognized
Residential 1-4 family	17	77
Home equity credit
Residential real estate	17	77
Commercial	14	60
Vacant land
Real estate secured	31	137
Commercial and industrial	3	13
Consumer
Totals	34	150
Impaired loans with no specific allowance, Loan balance, Book
Residential 1-4 family	2,073	2,263
Home equity credit	113	91
Residential real estate	2,186	2,354
Commercial	3,122	3,381
Vacant land	(61)	808
Real estate secured	5,247	6,543
Commercial and industrial	641	661
Consumer
Totals	5,888	7,204
Impaired loans with no specific allowance, Loan balance, Note
Residential 1-4 family	2,279	2,460
Home equity credit	118	93
Residential real estate	2,396	2,553
Commercial	3,320	3,576
Vacant land	601	1,467
Real estate secured	6,317	7,596
Commercial and industrial	1,043	1,063
Consumer
Totals	7,360	8,659
Impaired loans with no specific allowance, Loan balance, Average
Residential 1-4 family	2,161	1,601
Home equity credit	109	203
Residential real estate	2,270	1,804
Commercial	3,096	3,122
Vacant land	527	2,358
Real estate secured	5,893	7,284
Commercial and industrial	669	854
Consumer
Totals	6,562	8,138
Impaired loans with no specific allowance, Income recognized
Residential 1-4 family	10	34
Home equity credit
Residential real estate	10	34
Commercial	26	82
Vacant land		4
Real estate secured	36	120
Commercial and industrial	9	31
Consumer
Totals	$ 45	$ 151

XML

MORTGAGE SERVICING RIGHTS (Tables)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Fair value of mortgage servicing rights

March 31, (in thousands)	2013	2012
Residential mortgage loans serviced for others	$ 148,705	$ 125,086
Fair value of mortgage servicing rights	1,739	754

Changes in mortgage servicing rights

	Three months
Periods ended March 31, (in thousands)	2013	2012
Loan Servicing Rights
Balance, beginning of period	$ 1,075	$ 772
Originated	152	177
Amortization (1)	(104)	(77)
Balance, end of period	1,123	872
Valuation Allowance
Balance, beginning of period	(38)	(22)
Decrease (increase) in impairment reserve (1)	33	(92)
Balance, end of period	(5)	(114)
Loan servicing rights, net	$ 1,119	$ 758