10-Q/A

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

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

For the quarterly period ended June 30, 2011

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

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 [X] 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 [X] 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 o Accelerated filer o Non-accelerated filer o Smaller reporting company ý

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

Yes [  ] No [X]

The number of shares of Common Stock outstanding as of August 1, 2011, is 1,688,731.

EXPLANATORY NOTE

This Form 10-Q/A amends the Quarterly Report on Form 10-Q of Salisbury Bancorp, Inc. ("Salisbury") for the quarter ended June 30, 2011 ("Form 10-Q"), as filed with the SEC on August 15, 2011, for the sole purpose of furnishing the Interactive Data Files as Exhibit 101. Exhibit 101 provides the consolidated financial statements and related notes from the Form 10-Q formatted in XBRL (eXtensible Business Reporting Language). No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.

Item 6. EXHIBITS

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

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

32 Section 1350 Certifications*

101.INS	XBRL Instance Document **
101.SCH	XBRL Taxonomy Extension Schema **
101.CAL	XBRL Taxonomy Extension Calculation Linkbase **
101.DEF	XBRL Taxonomy Extension Definition Linkbase **
101.LAB	XBRL Taxonomy Extension Label Linkbase **
101.PRE	XBRL Taxonomy Extension Presentation Linkbase **

*  Previously filed

**  Furnished, not filed, herewith

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.

September 2, 2011	by    /s/ Richard J. Cantele, Jr.
	Richard J. Cantele, Jr.,
	Chief Executive Officer
September 2, 2011	by    /s/ B. Ian McMahon
	B. Ian McMahon,
	Chief Financial Officer

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Consolidated Balance Sheets (unaudited) (Parenthetical) (USD $) In Thousands, except Share data	Jun. 30, 2011	Dec. 31, 2010
Balance Sheet [Abstract]
Securities held-to-maturity at amortized cost - fair value	$ 54	$ 58
Loans receivable, net - allowance for loan losses	3,979	3,920
Intangible assets, net - accumulated amortization	$ 1,412	$ 1,301
Preferred stock par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock authorized (in shares)	25,000	25,000
Preferred stock issued (in shares)	8,816	8,816
Preferred stock liquidation preference (in dollars per share)	$ 1,000	$ 1,000
Common stock par value (in dollars per share)	$ 0.10	$ 0.10
Common stock authorized (in shares)	3,000,000	3,000,000
Common stock issued (in shares)	1,688,731	1,687,661

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Consolidated Statements of Income (unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Interest and dividend income
Interest and fees on loans	$ 4,695	$ 4,601	$ 9,359	$ 9,088
Interest on debt securities
Taxable	733	1,033	1,516	1,959
Tax exempt	554	559	1,108	1,119
Other interest and dividends	38	38	75	84
Total interest and dividend income	6,020	6,231	12,058	12,250
Interest expense
Deposits	829	1,125	1,700	2,324
Repurchase agreements	12	19	27	46
Federal Home Loan Bank of Boston advances	562	761	1,207	1,518
Total interest expense	1,403	1,905	2,934	3,888
Net interest income	4,617	4,326	9,124	8,362
Provision for loan losses	350	260	680	440
Net interest and dividend income after provision for loan losses	4,267	4,066	8,444	7,922
Non-interest income
Trust and wealth advisory	596	491	1,263	1,036
Service charges and fees	522	499	1,022	952
Gains on sales of mortgage loans, net	59	122	192	164
Mortgage servicing, net	(5)	27	26	60
Gains on securities, net	0	1	11	1
Other	58	89	117	146
Total non-interest income	1,230	1,229	2,631	2,359
Non-interest expense
Salaries	1,657	1,668	3,386	3,239
Employee benefits	650	586	1,283	1,216
Premises and equipment	568	495	1,151	1,011
Data processing	285	363	662	772
Professional fees	300	455	577	857
Collections and OREO	243	21	367	43
FDIC insurance	182	182	405	354
Marketing and community support	92	59	160	121
Amortization of intangibles	56	56	111	111
Other	399	360	754	833
Total non-interest expense	4,432	4,245	8,856	8,557
Income before income taxes	1,065	1,050	2,219	1,724
Income tax provision	183	172	394	251
Net income	882	878	1,825	1,473
Net income available to common shareholders	$ 766	$ 763	$ 1,594	$ 1,243
Basic and diluted earnings per share (in dollars per share)	$ 0.45	$ 0.45	$ 0.94	$ 0.74
Common dividends per share (in dollars per share)	$ 0.28	$ 0.28	$ 0.56	$ 0.56

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Document And Entity Information (USD $)	6 Months Ended
	Jun. 30, 2011	Aug. 01, 2011	Jun. 30, 2010
Entity Registrant Name	SALISBURY BANCORP INC
Entity Central Index Key	0001060219
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 37,345,253
Entity Common Stock, Shares Outstanding		1,688,731
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011

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Earnings Per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share [Abstract]

Earnings Per Share

NOTE 6 – EARNINGS PER SHARE

The calculation of earnings per share is as follows:

	Three months				Six months
Periods ended June 30, (in thousands, except per share amounts)	2011		2010		2011		2010
Net income	$	882	$	878	$	1,825	$	1,473
Preferred stock net accretion		6		5		11		10
Preferred stock dividends paid		110		110		220		220
Net income available to common shareholders	$	766	$	763	$	1,594	$	1,243
Weighted average common stock outstanding – basic		1,689		1,687		1,688		1,687
Weighted average common and common equivalent stock outstanding- diluted		1,689		1,687		1,689		1,687
Earnings per common and common equivalent share
Basic	$	0.45	$	0.45	$	0.94	$	0.74
Diluted		0.45		0.45		0.94		0.74

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Securities

6 Months Ended

Jun. 30, 2011

Securities [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
June 30, 2011
Available-for-sale
U.S. Treasury notes	$	4,999	$	373	$	-		$	5,372
U.S. Government Agency notes		22,573		422		-			22,995
Municipal bonds		51,388		459		(3,062	)		48,785
Mortgage backed securities
U.S. Government Agencies		30,895		938		(1	)		31,832
Collateralized mortgage obligations
U.S. Government Agencies		8,052		41		-			8,093
Non-agency		16,624		499		(282	)		16,841
SBA bonds		4,062		80		-			4,142
Corporate bonds		1,095		28		-			1,123
Preferred Stock		20		204		-			224
Total securities available-for-sale	$	139,708	$	3,044	$	(3,345	)	$	139,407
Held-to-maturity
Mortgage backed security	$	53	$	1	$	-		$	54
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	6,032	$	-	$	-		$	6,032
December 31, 2010
Available-for-sale
U.S. Treasury notes	$	4,999	$	197	$	-		$	5,196
U.S. Government Agency notes		41,590		380		(92	)		41,878
Municipal bonds		51,330		139		(5,371	)		46,098
Mortgage backed securities
U.S. Government Agencies		19,190		566		(20	)		19,736
Collateralized mortgage obligations
U.S. Government Agencies		9,283		29		(1	)		9,311
Non-agency		19,002		714		(599	)		19,117
SBA bonds		4,831		70		-			4,901
Corporate bonds		1,089		41		-			1,130
Preferred Stock		20		35		-			55
Total securities available-for-sale	$	151,334	$	2,171	$	(6,083	)	$	147,422
Held-to-maturity
Mortgage backed security	$	56	$	2	$	-		$	58
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	6,032	$	-	$	-		$	6,032

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

Salisbury did not sell any securities available-for-sale during the three month periods ended June 30, 2011 and 2010.

Included in non-agency Collateralized Mortgage Obligations (“CMOs”) are eight securities issued by Wells Fargo with an aggregate amortized cost basis and fair value of $5,671,000 and $5,867,000, respectively, that exceeded 10% of shareholders' equity as of June 30, 2011.

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
June 30, 2011
Available-for-sale
U.S. Government Agency notes	$	-	$	-	$	-	$	-	$	-	$	-
Municipal Bonds		14,410		630		15,321		2,432		29,731		3,062
Mortgage backed securities		58		1		-		-		58		1
Collateralized mortgage obligations
U.S. Government Agencies		-		-		-		-		-		-
Non-agency		1,004		15		2,068		151		3,072		166
Total temporarily impaired securities		15,472		646		17,389		2,583		32,861		3,229
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		3,186		71		750		45		3,936		116
Total temporarily impaired and other-than-
temporarily impaired securities	$	18,658	$	717	$	18,139	$	2,628	$	36,797	$	3,345

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 June 30, 2011.

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 June 30, 2011.

Municipal bonds: Contractual cash flows are performing as expected. The decline in fair values at June 30, 2011 as compared with December 31, 2010, is primarily due to an increase in interest rates and risk premium spreads for municipal bonds in 2011 compared to 2010. Late in 2010 and continuing into 2011 the municipal bond market experienced significant price declines as uncertainty about the health of local and state government finances caused investors to exit the market. 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. Salisbury has performed credit underwriting reviews of certain issuers, including those that have had their ratings withdrawn and those that are insured by insurers that have had their ratings withdrawn, to assess their default risk. For all completed reviews pass credit risk ratings have been assigned. Management believes that unrealized losses on its municipal bonds are a function of interest rate movements and changes in investor spreads for credit sensitive securities. 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 June 30, 2011.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at June 30, 2011 to assess whether any of the securities were OTTI. Salisbury uses third 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 these five securities not to have additional OTTI and all other CMO securities not to be OTTI as of June 30, 2011. 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.

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:

Six months ended June 30 (in thousands)	2011		2010
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 is 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. On February 22, 2011, the FHLBB announced the resumption of modest quarterly cash dividends to its members through 2011 and on June 27, 2011 the FHLBB announced that its excess stock pool will be discontinued effective June 28, 2011, and designating December 28, 2011, as the required stock purchase date. 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 June 30, 2011. 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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Pension and Other Benefits

6 Months Ended

Jun. 30, 2011

Pension and Other Benefits [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						Six months
Periods ended June 30, (in thousands)	2011			2010			2011			2010
Service cost	$	95		$	74		$	191		$	174
Interest cost on benefit obligation		93			89			187			180
Expected return on plan assets		(106	)		(98	)		(212	)		(198	)
Amortization of prior service cost		-			-			-			-
Amortization of net loss		17			16			33			34
Net periodic benefit cost	$	99		$	81		$	199		$	190

Salisbury's 401(k) Plan contribution expense was $96,000 and $41,000, respectively, for the three month periods ended June 30, 2011 and 2010. Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements was $12,000 and $12,000, respectively, for the three month periods ended June 30, 2011 and 2010.

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Comprehensive Income

6 Months Ended

Jun. 30, 2011

Comprehensive Income [Abstract]

Comprehensive Income

NOTE 9 - COMPREHENSIVE INCOME

Comprehensive income includes net income and any changes in equity from non-owner sources that are not recorded in the income statement (such as changes in net unrealized gains (losses) on securities).  The purpose of reporting comprehensive income is to report a measure of all changes in equity of an enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners.

The components of comprehensive income are as follows:

	Three months						Six months
Periods ended June 30, (in thousands)	2011			2010			2011			2010
Net income	$	882		$	878		$	1,825		$	1,473
Other comprehensive income
Net unrealized gains on securities available-for-sale		2,762			1,570			3,600			2,545
Reclassification of net realized gains in net income		-			1			11			1
Unrealized gains on securities available-for-sale		2,762			1,571			3,611			2,546
Income tax expense		(939	)		(534	)		(1,228	)		(866	)
Unrealized gains on securities available-for-sale, net of tax		1,823			1,037			2,383			1,680
Pension plan income		17			17			33			35
Income tax expense		(6	)		(6	)		(11	)		(12	)
Pension plan income, net of tax		11			11			22			23
Other comprehensive income, net of tax		1,834			1,048			2,405			1,703
Comprehensive income	$	2,716		$	1,926		$	4,230		$	3,176

The components of accumulated other comprehensive losses are as follows:

June 30, (in thousands)	2011			2010
Unrealized losses on securities available-for-sale, net of tax	$	(199	)	$	(2,151	)
Unrecognized pension plan expense, net of tax		(1,165	)		(1,224	)
Accumulated other comprehensive loss, net	$	(1,364	)	$	(3,375	)

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Shareholders' Equity

6 Months Ended

Jun. 30, 2011

Shareholders' 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 June 30, 2011, that Salisbury and the Bank meet all of their capital adequacy requirements.

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
June 30, 2011
Total Capital (to risk-weighted assets)
Salisbury	$	52,605		13.93	%	$	30,207		8.0	%		n/a		-
Bank		43,002		11.19			30,754		8.0		$	38,443		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		48,513		12.85			15,104		4.0			n/a		-
Bank		38,910		10.12			15,377		4.0			23,066		6.0
Tier 1 Capital (to average assets)
Salisbury		48,513		8.45			23,407		4.0			n/a		-
Bank		38,910		6.79			23,361		4.0			29,201		5.0
June 30, 2010
Total Capital (to risk-weighted assets)
Salisbury	$	50,393		13.39	%	$	30,108		8.0	%		n/a		-
Bank		40,817		10.88			30,042		8.0		$	37,553		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		46,582		12.38			15,054		4.0			n/a		-
Bank		37,006		9.86			15,613		4.0			23,420		6.0
Tier 1 Capital (to average assets)
Salisbury		46,582		8.35			22,318		4.0			n/a		-
Bank		37,006		6.63			22,318		4.0			27,898		5.0

Restrictions on Cash Dividends to Common Shareholders

Salisbury's ability to pay cash dividends is 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 Federal Reserve 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 Federal Reserve 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.

Further restrictions on cash dividends are imposed on Salisbury because of Salisbury's participation in the United States Treasury Department's (“Treasury”) Troubled Asset Relief Program's Capital Purchase Program (the “CPP”). These preclude the payment of any common stock cash dividends if Salisbury is not paying the preferred stock dividend.  Additionally, the common stock dividend may not be increased without prior approval from the Treasury for the first three years Salisbury is a CPP participant unless all CPP preferred shares are redeemed or transferred to third parties.

Preferred Stock

In March 2009, Salisbury issued to the Treasury $8,816,000 of Preferred Stock under the CPP.

The Preferred Stock qualifies as Tier 1 capital for regulatory purposes and ranks senior to the Common Stock. The Preferred Stock pays a cumulative dividend of 5 percent per annum for the first five years it is outstanding and thereafter at a rate of 9 percent per annum. The Preferred Stock is non-voting, other than voting rights on matters that could adversely affect the Preferred Stock. The Preferred Stock is redeemable at one hundred percent of the issue price plus any accrued and unpaid dividends.

As part of the CPP, Salisbury 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. If the Warrant were fully exercised, Salisbury estimates that the ownership percentage of the current shareholders would be diluted by approximately 3.3% percent.

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Consolidated Statements of Cash Flows (unaudited) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Operating Activities
Net income	$ 1,825	$ 1,473
(Accretion), amortization and depreciation
Securities	163	305
Bank premises and equipment	414	396
Core deposit intangible	111	111
Mortgage servicing rights	114	74
Fair value adjustment on loans	22	22
Gain of calls of securities available-for-sale	(11)	(1)
Write down of other real estate owned	163	0
Provision for loan losses	680	440
Decrease in loans held-for-sale	1,038	152
Increase in deferred loan origination fees and costs, net	(116)	(44)
Mortgage servicing rights originated	(106)	(112)
Decrease (increase) in mortgage servicing rights impairment reserve	15	(5)
Decrease (increase) in interest receivable	45	(74)
Deferred tax benefit	(27)	(42)
Decrease in prepaid expenses	391	415
Increase in cash surrender value of life insurance policies	(80)	(84)
Decrease (increase) in income tax receivable	715	(194)
Decrease in other assets	17	40
(Decrease) increase in accrued expenses	(29)	46
Decrease in interest payable	(128)	(85)
(Decrease) increase in other liabilities	(613)	130
Issuance of shares for directors' fee	27	23
Net cash provided by operating activities	4,631	2,986
Investing Activities
Proceeds from maturities of interest-bearing time deposits	5,000	0
Purchases of securities available-for-sale	(15,034)	(37,987)
Proceeds from calls of securities available-for-sale	19,000	12,190
Proceeds from maturities of securities available-for-sale	7,507	17,645
Proceeds from maturities of securities held-to-maturity	3	3
Loan originations and principle collections, net	(13,326)	(15,029)
Recoveries of loans previously charged-off	22	14
Proceeds from sale of other real estate owned	308	0
Capital expenditures	(467)	(1,416)
Net cash provided (utilized) by investing activities	3,013	(24,580)
Financing Activities
Increase in deposit transaction accounts, net	44,058	27,560
Decrease in time deposits, net	(15,318)	(21,772)
Decrease in securities sold under agreements to repurchase, net	(831)	(3,295)
Principal payments on Federal Home Loan Bank of Boston advances	(17,352)	(1,418)
Common stock dividends paid	(945)	(945)
Preferred stock dividends paid	(220)	(220)
Net cash provided (utilized) by financing activities	9,392	(90)
Net increase (decrease) in cash and cash equivalents	17,036	(21,684)
Cash and cash equivalents, beginning of period	26,908	43,298
Cash and cash equivalents, end of period	43,944	21,614
Cash paid during period
Interest	3,062	3,973
Income taxes	449	79
Non-cash transfers
Transfer from loans to other real estate owned	$ 321	$ 0

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Loans

6 Months Ended

Jun. 30, 2011

Loans [Abstract]

Loans

NOTE 3 - LOANS

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

(in thousands)	June 30, 2011			December 31, 2010
Residential 1-4 family	$	182,764		$	173,931
Residential 5+ multifamily		3,068			2,889
Construction of residential 1-4 family		8,046			8,949
Home equity credit		33,657			34,164
Residential real estate		227,535			219,933
Commercial		79,976			75,495
Construction of commercial		4,502			7,312
Commercial real estate		84,478			82,807
Farm land		5,767			5,690
Vacant land		12,687			12,979
Real estate secured		330,467			321,409
Commercial and industrial		30,060			25,123
Municipal		2,768			4,338
Consumer		4,599			4,677
Loans receivable, gross		367,894			355,547
Deferred loan origination fees and costs, net		939			822
Allowance for loan losses		(3,979	)		(3,920	)
Loans receivable, net	$	364,854		$	352,449
Loans held-for-sale
Residential 1-4 family	$	146		$	1,184

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 mortgage loan and consumer loan 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.

Credit Quality

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

June 30, 2011 (in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
Residential 1-4 family	$	163,345	$	13,210	$	6,209	$	-	$	-	$	182,764
Residential 5+ multifamily		2,538		530		-		-		-		3,068
Construction of residential 1-4 family		3,971		416		3,659		-		-		8,046
Home equity credit		30,960		1,465		1,232		-		-		33,657
Residential real estate		200,814		15,621		11,100		-		-		227,535
Commercial		60,896		6,101		12,979		-		-		79,976
Construction of commercial		3,840		191		471		-		-		4,502
Commercial real estate		64,736		6,292		13,450		-		-		84,478
Farm land		3,139		1,779		849		-		-		5,767
Vacant land		7,603		894		4,190		-		-		12,687
Real estate secured		276,292		24,586		29,589		-		-		330,467
Commercial and industrial		20,030		8,315		1,715		-		-		30,060
Municipal		2,768		-		-		-		-		2,768
Consumer		4,330		196		73		-		-		4,599
Loans receivable, gross	$	303,420	$	33,097	$	31,377	$	-	$	-	$	367,894

Credit quality segments of loans receivable by risk rating grade are as follows:

June 30, 2011 (in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
Performing loans	$	303,151	$	33,097	$	-	$	-	$	-	$	336,248
Potential problem loans		-		-		15,154		-		-		15,154
Troubled debt restructurings – accruing		269		-		1,661		-		-		1,930
Troubled debt restructuring - non-accrual		-		-		7,691		-		-		7,691
All other non-accrual loans		-		-		6,871		-		-		6,871
Impaired loans		269		-		16,223		-		-		16,492
Loans receivable, gross	$	303,420	$	33,097	$	31,377	$	-	$	-	$	367,894

Potential problem loans are performing loans risk rated substandard that are not classified as impaired. Impaired loans are 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.

The components of impaired loans are as follows:

(in thousands)	June 30, 2011		December 31, 2010
Troubled debt restructurings – accruing	$	1,930	$	5,330
Troubled debt restructuring - non-accrual		7,691		4,254
All other non-accrual loans		6,871		5,791
Impaired loans	$	16,492	$	15,375
Commitments to lend additional amounts to impaired borrowers	$	-	$	-

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

June 30, 2011 (in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
Current	$	301,609	$	30,228	$	20,121	$	-	$	-	$	351,958
Past due 001-029		1,726		1,950		3,571		-		-		7,247
Past due 030-059		69		731		376		-		-		1,176
Past due 060-089		16		188		925		-		-		1,129
Past due 090-179		-		-		1,038		-		-		1,038
Past due 180+		-		-		5,346		-		-		5,346
Loans receivable, gross	$	303,420	$	33,097	$	31,377	$	-	$	-	$	367,894

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

			Past due
June 30, 2011 (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
Residential 1-4 family	$	176,930	$	3,748	$	445	$	303	$	504	$	834	$	2,086	$	-	$	6,288
Residential 5+ multifamily		2,794		-		274		-		-		-		274		-		-
Residential 1-4 family construction		8,046		-		-		-		-		-		-		-		-
Home equity credit		32,850		645		37		86		14		24		161		-		200
Residential real estate		220,620		4,393		756		389		518		858		2,521		-		6,488
Commercial		76,815		1,717		283		125		495		541		1,444		-		3,134
Construction of commercial		4,482		21		-		-		-		-		-		-		-
Commercial real estate		81,297		1,738		283		125		495		541		1,444		-		3,134
Farm land		5,334		433		-		-		-		-		-		-		-
Vacant land		8,645		16		64		565		-		3,397		4,026		-		3,933
Real estate secured		315,896		6,580		1,103		1,079		1,013		4,796		7,991		-		13,555
Commercial and industrial		28,842		590		20		34		25		550		629		-		1,008
Municipal		2,768		-		-		-		-		-		-		-		-
Consumer		4,452		77		53		16		-		-		69		-		-
Loans receivable, gross	$	351,958	$	7,247	$	1,176	$	1,129	$	1,038	$	5,346	$	8,689	$	-	$	14,563

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

	Three months ended June 30												Six months ended June 30
(in thousands)	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
2011 Periods
Residential	$	1,462	$	139		$	(20	)	$	2	$	1,583	$	1,504	$	197		$	(121	)	$	3	$	1,583
Commercial		1,343		(9	)		(96	)		-		1,238		1,132		282			(175	)		-		1,239
Land		296		(25	)		-			-		271		392		(42	)		(79	)		-		271
Real estate		3,101		105			(116	)		2		3,092		3,028		437			(375	)		3		3,093
Commercial & industrial		531		79			(89	)		-		521		541		69			(89	)		-		521
Municipal		55		(27	)		-			-		28		51		(23	)		-			-		28
Consumer		167		70			(159	)		13		91		164		86			(179	)		19		92
Unallocated		124		123			-			-		247		136		111			-			-		245
Totals	$	3,978	$	350		$	(364	)	$	15	$	3,979	$	3,920	$	680		$	(643	)	$	22	$	3,979
2010 Periods
Totals	$	3,649	$	260		$	(149	)	$	8	$	3,768	$	3,473	$	440		$	(159	)	$	14	$	3,768

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

	Collectively evaluated				Individually evaluated				Total portfolio
June 30, 2011 (in thousands)	Loan balance		Allowance		Loan balance		Allowance		Loan balance		Allowance
Residential 1-4 family	$	177,466	$	749	$	5,299	$	427	$	182,764	$	1,176
Residential 5+ multifamily		3,068		20		-		-		3,068		20
Construction of residential 1-4 family		4,387		16		3,659		-		8,046		16
Home equity credit		33,418		371		239		-		33,657		371
Residential real estate		218,339		1,156		9,197		427		227,535		1,583
Commercial		71,895		908		8,081		280		79,976		1,188
Construction of commercial		4,502		51		-		-		4,502		51
Commercial real estate		76,397		959		8,081		280		84,478		1,239
Farm land		5,767		56		-		-		5,767		56
Vacant land		8,599		101		4,088		114		12,687		215
Real estate secured		309,102		2,272		21,366		821		330,467		3,093
Commercial and industrial		28,623		390		1,437		131		30,060		521
Municipal		2,768		28		-		-		2,768		28
Consumer		4,476		46		122		46		4,599		92
Unallocated allowance		-		-		-		-		-		245
Totals	$	344,969	$	2,736	$	22,925	$	998	$	367,894	$	3,979

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

	Collectively evaluated				Individually evaluated				Total portfolio
June 30, 2011 (in thousands)	Loan balance		Allowance		Loan balance		Allowance		Loan balance		Allowance
Performing loans	$	335,708	$	2,386	$	540	$	46	$	336,247	$	2,432
Potential problem loans		9,261		350		5,893		462		15,155		812
Impaired loans		-		-		16,492		490		16,492		490
Unallocated allowance		-		-		-		-		-		245
Totals	$	344,969	$	2,736	$	22,925	$	998	$	367,894	$	3,979

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

	Impaired loans with specific allowance										Impaired loans with no specific allowance
June 30, 2011	Loan balance						Specific		Income		Loan balance						Income
(in thousands)	Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
Residential 1-4 family	$	889	$	922	$	1,473	$	142	$	9	$	5,400	$	5,459	$	4,453	$	42
Home equity credit		-		-		-		-		-		200		203		265		1
Residential real estate		889		922		1,473		142		9		5,600		5,662		4,718		43
Commercial		2,671		2,790		2,657		154		61		2,123		2,581		2,137		14
Vacant land		669		774		735		64		-		3,263		3,627		3,215		-
Real estate secured		4,229		4,486		4,865		360		70		10,986		11,870		10,070		57
Commercial and industrial		154		155		333		130		2		1,123		1,744		778		1
Consumer		-		-		-		-		-		-		143		29		-
Totals	$	4,383	$	4,641	$	5,198	$	490	$	72	$	12,109	$	13,757	$	10,877	$	58

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Mortgage Servicing Rights

6 Months Ended

Jun. 30, 2011

Mortgage Servicing Rights [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:

June 30, (in thousands)	2011		2010
Residential mortgage loans serviced for others	$	101,584	$	78,119
Fair value of mortgage servicing rights		760		517

Changes in mortgage servicing rights are as follows:

	Three months						Six months
Periods ended June 30, (in thousands)	2011			2010			2011			2010
Loan Servicing Rights
Balance, beginning of period	$	701		$	424		$	683		$	427
Originated		29			84			105			112
Amortization (1)		(56	)		(43	)		(114	)		(74	)
Balance, end of period		674			465			674			465
Valuation Allowance
Balance, beginning of period		(8	)		(28	)		(10	)		(30	)
(Increase) decrease in impairment reserve (1)		(17	)		4			(15	)		6
Balance, end of period		(25	)		(24	)		(25	)		(24	)
Loan servicing rights, net	$	649		$	441		$	649		$	441

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

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Pledged Assets

6 Months Ended

Jun. 30, 2011

Pledged Assets [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)	June 30, 2011		December 31, 2010
Securities available-for-sale (at fair value)	$	61,388	$	62,764
Loans receivable		118,290		114,424
Total pledged assets	$	179,678	$	177,188

At June 30, 2011, securities were pledged as follows: $46.2 million to secure public deposits and Treasury Tax and Loan deposits, $12.4 million to secure repurchase agreements and $2.8 million to secure FHLBB advances. Loans receivable were pledged to secure FHLBB advances and credit facilities.

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Consolidated Statements of Changes in Shareholders' Equity (unaudited) (USD $) In Thousands, except Share data	Common Stock [Member]	Preferred Stock [Member]	Warrants Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balances at Dec. 31, 2009	$ 168	$ 8,717	$ 112	$ 13,177	$ 35,259	$ (5,078)	$ 52,355
Balances (in shares) at Dec. 31, 2009	1,686,701	0	0	0	0	0
Net income for period	0	0	0	0	1,473	0	1,473
Other comprehensive income, net of tax	0	0	0	0	0	1,703	1,703
Total comprehensive income							3,176
Amortization (accretion) of preferred stock	0	10	0	0	(10)	0	0
Common stock dividends paid	0	0	0	0	(945)	0	(945)
Preferred stock dividends paid	0	0	0	0	(220)	0	(220)
Issuance of common stock for director fees	0	0	0	23	0	0	23
Issuance of common stock for director fees (in shares)	960	0	0	0	0	0
Balances at Jun. 30, 2010	168	8,727	112	13,200	35,557	(3,375)	54,389
Balances (in shares) at Jun. 30, 2010	1,687,661	0	0	0	0	0
Balances at Dec. 31, 2010	168	8,738	112	13,200	36,567	(3,769)	55,016
Balances (in shares) at Dec. 31, 2010	1,687,661	0	0	0	0	0
Net income for period	0	0	0	0	1,825	0	1,825
Other comprehensive income, net of tax	0	0	0	0	0	2,405	2,405
Total comprehensive income							4,230
Amortization (accretion) of preferred stock	0	11	0	0	(11)	0	0
Common stock dividends paid	0	0	0	0	(945)	0	(945)
Preferred stock dividends paid	0	0	0	0	(220)	0	(220)
Issuance of common stock for director fees	1	0	0	27	0	0	28
Issuance of common stock for director fees (in shares)	1,070	0	0	0	0	0
Balances at Jun. 30, 2011	$ 169	$ 8,749	$ 112	$ 13,227	$ 37,216	$ (1,364)	$ 58,109
Balances (in shares) at Jun. 30, 2011	1,688,731	0	0	0	0	0

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Basis of Presentation

6 Months Ended

Jun. 30, 2011

Basis of Presentation [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, 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 June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.  The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's 2010 Annual Report on Form 10-K for the period ended December 31, 2010.

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 June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.”  The objective of this ASU is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  Under this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  An entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  An entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.  The amendments in this ASU should be applied retrospectively.  For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards.”  The amendments in this ASU explain how to measure fair value.  They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting.  The amendments in this ASU are to be applied prospectively.  For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011.

In April 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-02, “A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” This ASU provides additional guidance or clarification to help creditors determine whether a restructuring constitutes a troubled debt restructuring. For public entities, the amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.  As a result of applying these amendments, an entity may identify receivables that are newly considered impaired, and should measure impairment on those receivables prospectively for the first interim or annual period beginning on or after June 15, 2011.  Additional disclosures are also required under this ASU. Salisbury does not expect this ASU to have a significant impact on its financial position or results of operations.

In April 2011, the FASB issued ASU 2011-03, “Reconsideration of Effective Control for Repurchase Agreements.”  The objective of this ASU is to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity.  This ASU prescribes when an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements.  The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011.  Early adoption is not permitted.

In December 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-28, “Intangibles - Goodwill and Other.”  This ASU addresses when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts.  For public entities, the amendments in this ASU are effective for fiscal years and interim periods beginning after December 15, 2010.

In December 2010, the FASB issued ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.”  This ASU addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations.  This ASU is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”  This ASU is created to provide financial statement users with greater transparency about an entity's allowance for credit losses and the credit quality of its financing receivables.  This ASU is intended to provide additional information to assist financial statement users in assessing the entity's credit risk exposures and evaluating the adequacy of its allowance for credit losses.  The amendments in this ASU are effective as of the end of a reporting period for interim and annual reporting periods ending on or after December 15, 2010.  The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.

In April 2010, the FASB issued ASU 2010-18, “Effect of a Loan Modification When the Loan is Part of a Pool That is Accounted for as a Single Asset.”  As a result of this ASU, modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity continues to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change.  The amendments in this ASU are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010, with the amendments to be applied prospectively.  This ASU did not have a significant impact on Salisbury's financial position or results of operations.

In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements.”  The ASU requires disclosing the amounts of significant transfers in and out of Level 1 and 2 of the fair value hierarchy and describing the reasons for the transfers.  The disclosures are effective for reporting periods beginning after December 15, 2009.  Salisbury adopted ASU 2010-06 as of January 1, 2010.  The required disclosures are included in Note 10, “Fair Value Measurements,” to the consolidated Financial Statements. Additionally, disclosures of the gross purchases, sales, issuances and settlements activity in the Level 3 of the fair value measurement hierarchy are effective for interim and annual reporting periods beginning after December 15, 2010.

In March 2010, the FASB issued ASU 2010-11, “Scope Exception Related to Embedded Credit Derivatives.”  The ASU clarifies that certain embedded derivatives, such as those contained in certain securitizations, CDOs and structured notes, should be considered embedded credit derivatives subject to potential bifurcation and separate fair value accounting. The ASU allows any beneficial interest issued by a securitization vehicle to be accounted for under the fair value option at transition. The requirements are effective July 1, 2010.  This standard did not have a significant impact on Salisbury's financial position or results of operations.

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Fair Value of Assets and Liabilities

6 Months Ended

Jun. 30, 2011

Fair Value of Assets and Liabilities [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 permitted 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.  Salisbury did not elect fair value treatment for any financial assets or liabilities upon adoption.

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 third 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, and 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.

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 U.S. 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 third-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.

Assets measured at fair value are as follows:

	Fair value measurements using						Assets at
(in thousands)	Level 1		Level 2		Level 3		fair value
June 30, 2011
Assets at fair value on a recurring basis
Securities available-for-sale	$	224	$	139,183	$	-	$	139,407
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		-		-		3,894		3,894
Other real estate owned		-		-		400		400

Changes in Level 3 assets measured at fair value are as follows:

(in thousands)	Securities  available-for- sale		Collateral dependent  impaired Loans			Other real estate owned			Level 3 assets at fair value
Balance, December 31, 2010	$	-	$	4,768		$	557		$	5,325
Gains and losses (realized/unrealized)
Included in earnings		-		-			-			-
Included in other comprehensive income		-		-			-			-
Principal pay-downs of securities, net of accretion		-		-			-			-
Write-down of other real estate owned							(157	)		(157	)
Transfers in and/or out of Level 3		-		(874	)		-			(874	)
Balance, June 30, 2011	$	-	$	3,894		$	400		$	4,294
Amount of total gains or losses for the period
attributable to the change in unrealized gains or losses
Relating to assets still held at the reporting date	$	-	$	-		$	-		$	-

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

	June 30, 2011				December 31, 2010
(in thousands)	Carrying Value		Estimated fair value		Carrying Value		Estimated fair value
Financial Assets
Cash and due from banks	$	43,944	$	43,944	$	26,908	$	26,908
Interest bearing time deposits with other banks		-		-		5,000		5,000
Securities available-for-sale		139,407		139,407		147,422		147,422
Security held-to-maturity		53		54		56		58
Federal Home Loan Bank stock		6,032		6,032		6,032		6,032
Loans held-for-sale		146		147		1,184		1,193
Loans receivable net		364,854		364,992		352,449		351,628
Accrued interest receivable		2,086		2,086		2,132		2,132
Financial Liabilities
Demand (non-interest-bearing)		78,985		78,985		71,565		71,565
Demand (interest-bearing)		63,651		63,651		63,258		63,258
Money market		113,316		113,316		77,089		77,089
Savings and other		93,341		93,341		93,324		93,324
Certificates of deposit		109,736		109,750		125,053		125,172
Deposits		459,029		459,043		430,289		430,408
FHLBB advances		55,460		60,341		72,812		78,317
Repurchase agreements		12,359		12,359		13,190		13,190
Accrued interest payable		307		307		435		435

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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Consolidated Balance Sheets (unaudited) (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
ASSETS
Cash and due from banks	$ 7,570	$ 6,694
Interest bearing demand deposits with other banks	36,374	20,214
Total cash and cash equivalents	43,944	26,908
Interest bearing time deposits with other banks	0	5,000
Securities
Available-for-sale at fair value	139,407	147,422
Held-to-maturity at amortized cost (fair value: $54 and $58)	53	56
Federal Home Loan Bank of Boston stock at cost	6,032	6,032
Loans held-for-sale	146	1,184
Loans receivable, net (allowance for loan losses: $3,979 and $3,920)	364,854	352,449
Investment in real estate	75	75
Other real estate owned	452	610
Bank premises and equipment, net	12,307	12,190
Goodwill	9,829	9,829
Intangible assets (net of accumulated amortization: $1,412 and $1,301)	1,131	1,242
Accrued interest receivable	2,086	2,132
Cash surrender value of life insurance policies	3,934	3,854
Deferred taxes	1,328	2,540
Other assets	2,737	3,947
Total Assets	588,315	575,470
Deposits
Demand (non-interest bearing)	78,985	71,565
Demand (interest bearing)	63,651	63,258
Money market	113,316	77,089
Savings and other	93,341	93,324
Certificates of deposit	109,736	125,053
Total deposits	459,029	430,289
Repurchase agreements	12,359	13,190
Federal Home Loan Bank of Boston advances	55,460	72,812
Accrued interest and other liabilities	3,358	4,163
Total Liabilities	530,206	520,454
Commitments and contingencies	0	0
Shareholders' Equity
Preferred stock - $.01 per share par value Authorized: 25,000; Shares issued: 8,816; Liquidation preference: $1,000 per share	8,749	8,738
Common stock - $.10 per share par value Authorized: 3,000,000; Issued: 1,688,731 and 1,687,661	169	168
Common stock warrants outstanding	112	112
Paid-in capital	13,227	13,200
Retained earnings	37,216	36,567
Accumulated other comprehensive loss, net	(1,364)	(3,769)
Total Shareholders' Equity	58,109	55,016
Total Liabilities and Shareholders' Equity	$ 588,315	$ 575,470