10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 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 [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 ☐ ☐ Accelerated filer ☐☐ Non-accelerated filer ☐☐ Smaller reporting company X

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

Yes [ ] No [X]

The number of shares of Common Stock outstanding as of November 14, 2013 is 1,710,121.

1

TABLE OF CONTENTS

		Page
	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012	3
	Consolidated Statements of Income for the three and nine month periods
	ended September 30, 2013 and 2012	4
	Consolidated Statements of Comprehensive Income for the three and nine month periods
	ended September 30, 2013 and 2012	5
	Consolidated Statements of Changes in Shareholders' Equity for the nine month
	period ended September 30, 2013 and 2012	5
	Consolidated Statements of Cash Flows for the nine month period ended
	September 30, 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	39
Item 4.	Controls and Procedures	41
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42

2

PART I - FINANCIAL INFORMATION

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share data)	September 30, 2013			Duecember 31, 2012
ASSETS
Cash and due from banks	$	7,679		$	9,545
Interest bearing demand deposits with other banks		16,040			34,029
Total cash and cash equivalents		23,719			43,574
Interest-bearing time deposits		5,220			-
Securities
Available-for-sale at fair value		99,816			126,287
Federal Home Loan Bank of Boston stock at cost		5,340			5,747
Loans held-for-sale		708			1,879
Loans receivable, net (allowance for loan losses: $4,656 and $4,360)		420,306			388,758
Other real estate owned		571			244
Bank premises and equipment, net		11,253			11,520
Goodwill		9,829			9,829
Intangible assets (net of accumulated amortization: $1,912 and $1,745)		631			798
Accrued interest receivable		1,823			1,818
Cash surrender value of life insurance policies		7,480			7,295
Deferred taxes		719			-
Other assets		2,066			3,064
Total Assets	$	589,481		$	600,813
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing)	$	83,892		$	98,850
Demand (interest bearing)		79,232			65,991
Money market		125,070			128,501
Savings and other		107,380			103,985
Certificates of deposit		84,295			93,888
Total deposits		479,869			491,215
Repurchase agreements		3,870			1,784
Federal Home Loan Bank of Boston advances		30,801			31,980
Deferred taxes		-			590
Accrued interest and other liabilities		3,730			3,247
Total Liabilities		518,270			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: 1,710,121 and 1,689,691		171			169
Paid-in capital		13,668			13,158
Retained earnings		41,779			40,233
Unearned Compensation - restricted stock awards		(375	)		-
Accumulated other comprehensive income (loss), net		(32	)		2,437
Total Shareholders' Equity		71,211			71,997
Total Liabilities and Shareholders' Equity	$	589,481		$	600,813

3

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three months ended						Nine months ended
Periods ended September 30, (in thousands except per   share amounts) unaudited	2013			2012			2013			2012
Interest and dividend income
Interest and fees on loans	$	4,516		$	4,500		$	13,415		$	13,678
Interest on debt securities
Taxable		418			579			1,359			1,939
Tax exempt		475			495			1,441			1,539
Other interest and dividends		22			33			58			75
Total interest and dividend income		5,431			5,607			16,273			17,231
Interest expense
Deposits		459			580			1,437			1,870
Repurchase agreements		2			3			4			21
Federal Home Loan Bank of Boston advances		311			452			935			1,398
Total interest expense		772			1,035			2,376			3,289
Net interest and dividend income		4,659			4,572			13,897			13,942
Provision for loan losses		240			330			876			690
Net interest and dividend income after provision for loan losses		4,419			4,242			13,021			13,252
Non-interest income
Trust and wealth advisory		750			683			2,299			2,173
Service charges and fees		595			559			1,687			1,628
Gains on sales of mortgage loans, net		69			568			501			1,203
Mortgage servicing, net		(37	)		(9	)		(3	)		(98	)
Gains on securities, net		-			-			-			279
Other		82			86			251			252
Total non-interest income		1,459			1,887			4,735			5,437
Non-interest expense
Salaries		1,922			1,810			5,508			5,268
Employee benefits(1)		693			597			2,140			2,244
Premises and equipment		622			603			1,789			1,799
Data processing		358			369			1,145			1,190
Professional fees		306			299			996			915
Collections and OREO(2)		74			301			305			767
FDIC insurance		111			116			350			363
Marketing and community support		99			92			326			267
Amortization of intangibles		56			56			167			167
Other		402			450			1,232			1,240
Total non-interest expense		4,643			4,693			13,958			14,220
Income before income taxes		1,235			1,436			3,798			4,469
Income tax provision		219			296			695			963
Net income	$	1,016		$	1,140		$	3,103		$	3,506
Net income available to common shareholders	$	976		$	1,094		$	2,982		$	3,328
Basic earnings per common share	$	0.57		$	0.65		$	1.75		$	1.97
Diluted earnings per common share		0.57			0.65			1.75			1.97
Common dividends per share		0.28			0.28			0.84			0.84

⁽¹⁾ Included pension plan curtailment expense of $341,000 for the nine month period ended September 30, 2012.

⁽²⁾ Included litigation expense of $193,000 and $533,000, respectively, for the three and nine month periods ended September 30, 2012.

4

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three months ended						Nine months ended
Periods ended September 30, (in thousands)	2013			2012			2013			2012
Net income	$	1,016		$	1,140		$	3,103		$	3,506
Other comprehensive (loss) income
Net unrealized (losses) gains on securities available-for-sale		(1,240	)		921			(3,741	)		2,698
Reclassification of net realized gains in net income		-			-			-			(279	)
Unrealized (losses) gains on securities available-for-sale		(1,240	)		921			(3,741	)		2,419
Income tax benefit (expense)		422			(313	)		1,272			(822	)
Unrealized (losses) gains on securities       available-for-sale, net of tax		(818	)		608			(2,469	)		1,597
Change in unrecognized pension plan costs		-			27			-			(31	)
Income tax (benefit) expense		-			(9	)		-			11
Pension plan income (loss), net of tax		-			18			-			(20	)
Other comprehensive (loss) income, net of tax		(818	)		626			(2,469	)		1,577
Comprehensive income	$	198		$	1,766		$	634		$	5,083

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

	Common Stock														Unearned			Accumulated
(dollars in thousands) unaudited		Shares			Amount		Preferred Stock		Paid-in capital			Retained earnings			Compensation- Restricted Stock Awards			other comp- rehensive income (loss)			Total share- holders' equity
Balances at December 31, 2011		1,688,731		$	169	$	16,000	$	13,134		$	38,264		$	-		$	(705	)	$	66,862
Net income for period		-			-		-		-			3,506			-			-			3,506
Other comprehensive income, net of tax		-			-		-		-			-			-			1,577			1,577
Common stock dividends paid		-			-		-		-			(1,419	)		-			-			(1,419	)
Preferred stock dividends declared		-			-		-		-			(176	)		-			-			(176	)
Issuance of common stock for director fees		960			-		-		24			-			-			-			24
Balances at September 30, 2012		1,689,691		$	169	$	16,000	$	13,158		$	40,175		$	-		$	872		$	70,374
Balances at December 31, 2012		1,689,691		$	169	$	16,000	$	13,158		$	40,233		$	-		$	2,437		$	71,997
Net income for period		-			-		-		-			3,103			-			-			3,103
Other comprehensive loss, net of tax		-			-		-		-			-			-			(2,469	)		(2,469	)
Common stock dividends declared		-			-		-		-			(1,436	)		-			-			(1,436	)
Preferred stock dividends declared		-			-		-		-			(121	)		-			-			(121	)
Issuance of restricted common stock		19,600			2		-		488			-			(490	)		-			-
Forfeiture of restricted common stock		(500	)		-				(12	)					12			-			-
Stock based compensation-restricted
stock awards		-			-		-		-			-			103			-			103
Issuance of common stock for director fees		1,330			-		-		34			-			-			-			34
Balances at September 30, 2013		1,710,121		$	171	$	16,000	$	13,668		$	41,779		$	(375	)	$	(32	)	$	71,211

5

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine months ended September 30, (in thousands) unaudited	2013			2012
Operating Activities
Net income	$	3,103		$	3,506
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation
Securities		366			464
Bank premises and equipment		642			666
Core deposit intangible		167			167
Mortgage servicing rights		298			278
Fair value adjustment on loans		24			25
Gains on calls of securities available-for-sale		-			(12	)
Gains on sales of securities available-for-sale		-			(267	)
Loss on sale/disposals of premises and equipment		34			24
Loss recognized on other real estate owned		9			24
Provision for loan losses		876			690
Decrease (increase) in loans held-for-sale		1,171			(647	)
Increase in deferred loan origination fees and costs, net		(117	)		(44	)
Mortgage servicing rights originated		(261	)		(504	)
Decrease in mortgage servicing rights impairment reserve		4			89
(Increase) decrease in interest receivable		(5	)		160
Deferred tax benefit		(37	)		(39	)
Decrease (increase) in prepaid expenses		542			(87	)
Increase in cash surrender value of life insurance policies		(185	)		(202	)
Decrease in income tax receivable		352			420
Decrease (increase) in other assets		63			(29	)
Increase in accrued expenses		436			766
Decrease in interest payable		(29	)		(53	)
Increase in other liabilities		76			47
Issuance of shares for director fees		34			24
Issuance of shares of restricted stock		103			-
Net cash provided by operating activities		7,666			5,466
Investing Activities
Redemption of Federal Home Loan Bank stock		407			285
Purchase of interest-bearing time deposit with other banks		(5,220	)		-
Proceeds from calls of securities available-for-sale		1,650			12,668
Proceeds from maturities of securities available-for-sale		20,714			16,928
Proceeds from sale of securities available-for-sale		-			2,767
Proceeds from maturities of securities held-to-maturity		-			50
Loan originations and principal collections, net		(34,040	)		(6,986	)
Recoveries of loans previously charged-off		20			37
Proceeds from sales of other real estate owned		1,353			1,745
Capital expenditures		(409	)		(286	)
Net cash (utilized) provided by investing activities		(15,525	)		27,208
Financing Activities
(Decrease) increase in deposit transaction accounts, net		(1,753	)		25,970
Decrease in time deposits, net		(9,593	)		(7,070	)
Increase (decrease) in securities sold under agreements to repurchase, net		2,086			(9,207	)
Principal payments on Federal Home Loan Bank of Boston advances		(1,179	)		(12,223	)
Common stock dividends paid		(1,436	)		(1,419	)
Preferred stock dividends paid		(121	)		(195	)
Net cash utilized by financing activities		(11,996	)		(4,144	)
Net (decrease) increase in cash and cash equivalents		(19,855	)		28,530
Cash and cash equivalents, beginning of period		43,574			36,886
Cash and cash equivalents, end of period	$	23,719		$	65,416
Cash paid during period
Interest	$	2,405		$	3,342
Income taxes		380			582
Non-cash transfers
Transfer from loans to other real estate owned		1,689			666
Transfer 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 September 30, 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 Note 3 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 July 2013, the FASB issued ASU 2013-10, “Derivatives and Hedging (Topic 815) - Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.” The amendments in this ASU permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to Treasury Obligations of the U.S. government (UST) and the London Interbank Offered Rate (LIBOR). The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments apply to all entities that elect to apply hedge accounting of the benchmark interest rate under Topic 815. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The adoption of this ASU did not have an impact on Salisbury’s results of operations or financial position.

In July 2013, the FASB issued ASU 2013-11, “Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The amendments in this ASU provide guidance for the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments in this ASU are expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments apply to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance is not expected to have an impact on Salisbury’s results of operations or financial position.

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. 

7

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 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.

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
September 30, 2013
Available-for-sale
U.S. Treasury notes	$	2,496	$	174	$	-		$	2,670
U.S. Government Agency notes		2,509		110		-			2,619
Municipal bonds		43,850		842		(2,119	)		42,573
Mortgage backed securities
U.S. Government Agencies		35,720		654		(60	)		36,314
Collateralized mortgage obligations
U.S. Government Agencies		3,807		41		-			3,848
Non-agency		8,492		423		(20	)		8,895
SBA bonds		2,260		101		-			2,361
Preferred Stock		20		516		-			536
Total securities available-for-sale	$	99,154	$	2,861	$	(2,199	)	$	99,816
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	5,340	$	-	$	-		$	5,340

8

(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 nine month period ended September 30, 2013 and sold a $2,500,000 Treasury bond available-for-sale during the nine month period ended September 30, 2012. The pre-tax gain recognized on this sale was $267,000.

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
September 30, 2013
Available-for-sale
Municipal bonds	$	20,617	$	1,497	$	1,926	$	622	$	22,543	$	2,119
Mortgage backed securities		4,689		59		42		1		4,731		60
Collateralized mortgage obligations
Non-agency		432		1		824		12		1,256		13
Total temporarily impaired securities		25,738		1,557		2,792		635		28,530		2,192
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		339		7		-		-		339		7
Total temporarily and other-than-temporarily impaired securities	$	26,077	$	1,564	$	2,792	$	635	$	28,869	$	2,199

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 whether it has the 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 September 30, 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 evaluates these securities for strategic fit and may reduce its position in these securities, although 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 September 30, 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

9

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. 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 September 30, 2013.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at September 30, 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 September 30, 2013. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it has no present intention to do so, 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:

Nine months ended September 30 (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 September 30, 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.

NOTE 3 - LOANS

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

(in thousands)	September 30, 2013			December 31, 2012
Residential 1-4 family	$	225,262		$	198,552
Residential 5+ multifamily		4,894			3,889
Construction of residential 1-4 family		1,250			2,379
Home equity credit		34,163			34,162
Residential real estate		265,569			238,982
Commercial		91,817			87,382
Construction of commercial		9,154			5,823
Commercial real estate		100,971			93,205
Farm land		4,193			4,320
Vacant land		9,168			9,926
Real estate secured		379,901			346,433
Commercial and industrial		35,837			38,094
Municipal		4,101			3,378
Consumer		3,974			4,181
Loans receivable, gross		423,813			392,086
Deferred loan origination fees and costs, net		1,149			1,032
Allowance for loan losses		(4,656	)		(4,360	)
Loans receivable, net	$	420,306		$	388,758
Loans held-for-sale
Residential 1-4 family	$	708		$	1,879

10

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
September 30, 2013
Residential 1-4 family	$	206,691	$	11,754	$	6,721	$	96	$	-	$	225,262
Residential 5+ multifamily		2,711		1,208		975		-		-		4,894
Construction of residential 1-4 family		1,250		-		-		-		-		1,250
Home equity credit		31,541		1,240		1,382		-		-		34,163
Residential real estate		242,193		14,202		9,078		96		-		265,569
Commercial		66,899		16,513		8,405		-		-		91,817
Construction of commercial		8,412		152		590		-		-		9,154
Commercial real estate		75,311		16,665		8,995		-		-		100,971
Farm land		1,611		1,436		1,146		-		-		4,193
Vacant land		5,759		293		3,116		-		-		9,168
Real estate secured		324,874		32,596		22,335		96		-		379,901
Commercial and industrial		28,149		6,675		1,013		-				35,837
Municipal		4,101		-		-		-		-		4,101
Consumer		3,854		102		18		-		-		3,974
Loans receivable, gross	$	360,978	$	39,373	$	23,366	$	96	$	-	$	423,813
(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

11

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
September 30, 2013
Residential 1-4 family	$	217,263	$	3,156	$	2,644	$	2,012	$	53	$	134	$	4,843	$	-	$	3,013
Residential 5+ multifamily		4,678		115		-		101		-		-		101		-		-
Construction of residential 1-4 family		1,250		-		-		-		-		-		-		-		-
Home equity credit		33,018		337		447		191		132		38		808		23		420
Residential real estate		256,209		3,608		3,091		2,304		185		172		5,752		23		3,433
Commercial		88,105		1,902		213		438		127		1,032		1,810		-		2,114
Construction of commercial		7,940		1,074		-		140		0		-		140		-		-
Commercial real estate		96,045		2,976		213		578		127		1,032		1,950		-		2,114
Farm land		3,782		-		27		-		384		-		411		-		384
Vacant land		5,910		120		58		7		-		3,073		3,138		-		3,072
Real estate secured		361,946		6,704		3,389		2,889		696		4,277		11,251		23		9,003
Commercial and industrial		35,346		328		30		112		-		21		163		-		140
Municipal		4,091		10		-		-		-		-		-		-		-
Consumer		3,857		89		13		15		-		-		28		-		-
Loans receivable, gross	$	405,240	$	7,131	$	3,432	$	3,016	$	696	$	4,298	$	11,442	$	23	$	9,143
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

Troubled debt restructurings occurring during the periods are as follows:

	Three months ended September 30, 2013						Nine months ended September 30, 2013
(in thousands)	Quantity		Pre-modification balance		Post-modification balance		Quantity		Pre-modification balance		Post-modification balance
Residential real estate		-	$	-	$	-		4	$	1,906	$	1,906
Commercial real estate		-		-		-		-		-		-
Commercial and industrial		-		-		-		1		91		91
Troubled debt restructurings		-	$	-	$	-		5	$	1,997	$	1,997
Rate reduction		-	$	-	$	-		2	$	1,070	$	1,070
Rate reduction and debt consolidation		-		-		-		1		91		91
Rate reduction and interest only pursuant to sale		-		-		-		1		758		758
Rate reduction and term extension		-		-		-		1		78		78
Troubled debt restructurings		-	$	-	$	-		5	$	1,997	$	1,997

No loans were modified under a troubled debt restructuring during the quarter ended September 30, 2013.

12

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

	Three months ended September 30												Nine months ended September 30
(in thousands)	Beginning balance		Provision			Charge-offs			Reco-veries		Ending balance		Beginning balance		Provision			Charge-offs			Reco-veries			Ending balance
2013 Periods
Residential	$	1,892	$	227		$	(159	)	$	-	$	1,960	$	1,934	$	259		$	(233	)	$	-		$	1,960
Commercial		1,403		58			(19	)		-		1,442		1,059		471			(94	)		6			1,442
Land		137		22			(23	)		-		136		301		56			(221	)		-			136
Real estate		3,432		307			(201	)		-		3,538		3,294		786			(548	)		6			3,538
Commercial & industrial		541		(62	)		-			-		479		499		(16	)		(4	)		-			479
Municipal		40		1			-			-		41		36		5			-			-			41
Consumer		69		8			(23	)		9		63		91		5			(47	)		14			63
Unallocated		549		(14	)		-			-		535		440		96			(1	)		-			535
Totals	$	4,631	$	240		$	(224	)	$	9	$	4,656	$	4,360	$	876		$	(600	)	$	20		$	4,656
2012 Periods
Residential	$	1,475	$	92		$	(88	)	$	-	$	1,479	$	1,478	$	226		$	(225	)	$	-		$	1,479
Commercial		1,277		(206	)		(41	)		3		1,033		1,139		(72	)		(41	)		7			1,033
Land		219		318			(224	)		-		313		410		169			(266	)		-			313
Real estate		2,971		204			(353	)		3		2,825		3,027		323			(532	)		7			2,825
Commercial & industrial		820		(23	)		-			1		798		704		114			(29	)		9			798
Municipal		27		6			-			-		33		24		9			-			-			33
Consumer		66		74			(14	)		5		131		79		92			(63	)		22			130
Unallocated		323		69			-			-		392		242		152			-			(1	)		393
Totals	$	4,207	$	330		$	(367	)	$	9	$	4,179	$	4,076	$	690		$	(624	)	$	37		$	4,179

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
September 30, 2013
Residential 1-4 family	$	219,211	$	862	$	6,051	$	647	$	225,262	$	1,509
Residential 5+ multifamily		3,934		20		960		-		4,894		20
Construction of residential 1-4 family		1,250		6		-		-		1,250		6
Home equity credit		33,672		361		491		64		34,163		425
Residential real estate		258,067		1,249		7,502		711		265,569		1,960
Commercial		86,744		973		5,073		365		91,817		1,338
Construction of commercial		9,154		104		-		-		9,154		104
Commercial real estate		95,898		1,077		5,073		365		100,971		1,442
Farm land		3,809		66		384		-		4,193		66
Vacant land		6,096		65		3,072		5		9,168		70
Real estate secured		363,870		2,457		16,031		1,081		379,901		3,538
Commercial and industrial		34,997		408		840		71		35,837		479
Municipal		4,101		41		-		-		4,101		41
Consumer		3,893		36		81		27		3,974		63
Unallocated allowance		-		535		-		-		-		535
Totals	$	406,861	$	3,477	$	16,952	$	1,179	$	423,813	$	4,656
	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		-		-		-		440
Totals	$	372,939	$	3,253	$	19,147	$	1,107	$	392,086	$	4,360

13

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

	Collectively evaluated				Individually evaluated				Total portfolio
(in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
September 30, 2013
Performing loans	$	398,638	$	2,693	$	80	$	27	$	398,718	$	2,720
Potential problem loans		8,223		249		905		122		9,128		371
Impaired loans		-		-		15,967		1,030		15,967		1,030
Unallocated allowance		-		535		-		-		-		535
Totals	$	406,861	$	3,477	$	16,952	$	1,179	$	423,813	$	4,656
December 31, 2012
Performing loans	$	364,594	$	2,567	$	121	$	52	$	364,715	$	2,619
Potential problem loans		8,345		246		2,464		131		10,809		377
Impaired loans		-		-		16,562		924		16,562		924
Unallocated allowance		-		440		-		-		-		440
Totals	$	372,939	$	3,253	$	19,147	$	1,107	$	392,086	$	4,360

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

	Impaired loans with specific allowance								Impaired loans with no specific allowance
(in thousands)	Loan balance										Loan balance
		Book		Note		Average		Specific allowance		Income recognized		Book		Note		Average		Income recognized
September 30, 2013
Residential 1-4 family	$	3,850	$	4,085	$	4,016	$	573	$	62	$	2,648	$	2,958	$	2,286	$	44
Home equity credit		87		88		104		41		1		381		387		212		2
Residential real estate		3,937		4,173		4,120		614		63		3,029		3,345		2,498		46
Commercial		3,264		3,301		2,083		365		104		1,559		1,995		2,709		26
Construction of commercial		-		-		4		-		-		-		20		10		-
Farm land		-		-		-		-		-		384		384		38		-
Vacant land		249		268		2,049		5		-		2,823		3,892		1,295		-
Real estate secured		7,450		7,742		8,256		984		167		7,795		9,636		6,550		72
Commercial and industrial		127		160		268		46		1		595		996		600		27
Consumer		-		-		-		-		-		-		-		-		-
Totals	$	7,577	$	7,902	$	8,524	$	1,030	$	168	$	8,390	$	10,632	$	7,150	$	99

	Impaired loans with specific allowance								Impaired loans with no specific allowance
(in thousands)	Loan balance										Loan balance
		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

14

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:

September 30, (in thousands)	2013		2012
Residential mortgage loans serviced for others	$	146,726	$	141,834
Fair value of mortgage servicing rights		1,550		989

Changes in mortgage servicing rights are as follows:

	Three months						Nine months
Periods ended September 30, (in thousands)	2013			2012			2013			2012
Loan Servicing Rights
Balance, beginning of period	$	1,109		$	916		$	1,076		$	772
Originated		31			197			261			503
Amortization (1)		(101	)		(115	)		(298	)		(277	)
Balance, end of period		1,039			998			1,039			998
Valuation Allowance
Balance, beginning of period		(4	)		(123	)		(38	)		(22	)
(Increase) decrease in impairment reserve (1)		(38	)		12			(4	)		(89	)
Balance, end of period		(42	)		(111	)		(42	)		(111	)
Loan servicing rights, net	$	997		$	887		$	997		$	887

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

NOTE 5 - PLEDGED ASSETS

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

(in thousands)	September 30, 2013		December 31, 2012
Securities available-for-sale (at fair value)	$	51,175	$	54,497
Loans receivable		125,000		106,457
Total pledged assets	$	176,175	$	160,954

At September 30, 2013, securities were pledged as follows: $42.0 million to secure public deposits, $9.1 million to secure repurchase agreements and $0.1 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.

15

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

	Three months						Nine months
Periods ended September 30, (in thousands)	2013			2012			2013			2012
Net income	$	1,016		$	1,140		$	3,103		$	3,506
Less: Preferred stock dividends declared		(40	)		(46	)		(121	)		(178	)
Less: Undistributed earnings allocated to participating securities		(11	)		-			(31	)		-
Net income allocated to common stock	$	965		$	1,094		$	2,951		$	3,328
Common shares issued		1,710			1,690			1,707			1,690
Less: Unvested restricted stock awards		(19	)		-			(17	)		-
Common shares outstanding used to calculate basic earnings per common share		1,691			1,690			1,690			1,690
Add: Diluted effect of unvested restricted stock awards		-			-			-			-
Common shares outstanding used to calculate diluted earnings per common share		1,691			1,690			1,690			1,690
Earnings per common share (basic and diluted)	$	0.57		$	0.65		$	1.75		$	1.97

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 September 30, 2013, 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
September 30, 2013
Total Capital (to risk-weighted assets)
Salisbury	$	65,703		16.67	%	$	31,531		8.0	%		n/a		-
Bank		55,413		13.93			31,815		8.0		$	39,768		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		60,783		15.42			15,766		4.0			n/a		-
Bank		50,493		12.70			15,907		4.0			23,861		6.0
Tier 1 Capital (to average assets)
Salisbury		60,783		10.28			23,659		4.0			n/a		-
Bank		50,493		8.60			23,485		4.0			29,357		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

16

In December 2010, the Basel Committee, a group of bank regulatory supervisors from around the world, released its final framework for strengthening international capital and liquidity regulation, now officially identified by the Basel Committee as “Basel III.” Basel III, when fully implemented by the U.S. bank regulatory agencies and fully phased-in, will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity.

In July 2013, the Federal Reserve Board, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation approved final rules to implement the Basel III capital framework. The rules will be effective on January 1, 2015 and phased-in over a multiple year period through 2019. The new capital rules call for higher quality capital with higher minimum capital level requirements. We are in the process of assessing the impact from these new regulatory requirements, and while we cannot be certain of the impact, we believe that we will exceed the requirements of adequately capitalized plus the buffer, once they become effective.

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 September 30, 2013 and June 30, 2013, 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 September 27, 2013, Salisbury declared a Series B Preferred Stock dividend of $40,000, payable on October 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.

Grants of Restricted Stock and Options

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.

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						Nine months
Periods ended September 30, (in thousands)	2013			2012			2013			2012
Service cost	$	-		$	94		$	-		$	310
Interest cost on benefit obligation		66			88			197			270
Expected return on plan assets		(67	)		(113	)		(202	)		(342	)
Amortization of net loss		1			28			5			95
Settlements and curtailments		-			-			-			341
Net periodic benefit cost	$	-		$	97		$	-		$	674

Salisbury’s 401(k) Plan expense was $183,000 and $70,000, respectively, for the three month periods ended September 30, 2013 and 2012. Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements was $14,000 and $11,000 for the three month periods ended September 30, 2013 and 2012, respectively.

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NOTE 9 -ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The components of accumulated other comprehensive (loss) income as follows:

At September 30, (in thousands)	2013			2012
Unrealized gains on securities available-for-sale, net of tax	$	437		$	2,950
Unrecognized pension plan expense, net of tax		(469	)		(2,078	)
Accumulated other comprehensive (loss) income, net	$	(32	)	$	872

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.

ASC 820-10, “Fair Value Measurements and Disclosures,” provides a framework for measuring fair value under GAAP. 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.

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.

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• 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.

19

Assets measured at fair value are as follows:

	Fair Value Measurements Using
(in thousands)		Level 1		Level 2		Level 3		Assets at fair value
September 30, 2013
Assets measured at fair value on a recurring basis
U.S. Treasury notes	$	-	$	2,670	$	-	$	2,670
U.S. Government agency notes		-		2,619		-		2,619
Municipal bonds		-		42,573		-		42,573
Mortgage-backed securities:
U.S. Government agencies		-		36,314		-		36,314
Collateralized mortgage obligations:
U.S. Government agencies		-		3,848		-		3,848
Non-agency		-		8,895		-		8,895
SBA bonds		-		2,361		-		2,361
Preferred stocks		536		-		-		536
Securities available-for-sale	$	536	$	99,280	$	-	$	99,816
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans	$	-	$	-	$	6,547	$	6,547
Other real estate owned		-		-		571		571
December 31, 2012
Assets measured 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		-		-		167
Securities available-for-sale	$	167	$	126,120	$	-	$	126,287
Assets measured 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
September 30, 2013
Financial Assets
Cash and due from banks	$	23,719	$	23,719	$	23,719	$	-	$	-
Interest-bearing time deposits		5,220		5,220		-		-		5,220
Securities available-for-sale		99,816		99,816		536		99,280		-
Federal Home Loan Bank stock		5,340		5,340		-		5,340		-
Loans held-for-sale		708		713		-		-		713
Loans receivable net		420,306		413,809		-		-		413,809
Accrued interest receivable		1,823		1,823		-		-		1,823
Financial Liabilities
Demand (non-interest-bearing)	$	83,892	$	83,892	$	-	$	-	$	83,892
Demand (interest-bearing)		79,232		79,232		-		-		79,232
Money market		125,070		125,070		-		-		125,070
Savings and other		107,380		107,380		-		-		107,380
Certificates of deposit		84,295		84,950		-		-		84,950
Deposits		479,869		480,524		-		-		480,524
FHLBB advances		30,801		33,692		-		-		33,692
Repurchase agreements		3,870		3,870		-		-		3,870
Accrued interest payable		166		166		-		-		166
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 September 30, 2013 and 2012

Overview

Net income available to common shareholders was $976,000, or $0.57 per common share, for the quarter ended September 30, 2013 (third quarter 2013), versus $1,103,000, or $0.65 per common share, for the quarter ended June 30, 2013 (second quarter 2013), and $1,094,000, or $0.65 per common share, for the quarter ended September 30, 2012 (third quarter 2012).

· Earnings per common share of $0.57 decreased $0.08, or 12.3%, as compared to $0.65 for the second quarter 2013 and third quarter 2012.

· Tax equivalent net interest income increased $25,000, or 0.5%, versus second quarter 2013, and increased $120,000, or 2.5%, versus third quarter 2012.

· Net loan charge-offs were $215,000 for third quarter 2013, versus $294,000 for second quarter 2013 and $358,000 for third quarter 2012. Provision for loan losses for the third quarter remained unchanged from the second quarter 2013 at $240,000, versus $330,000 for third quarter 2012.

· Non-interest income decreased $191,000, or 11.6%, versus second quarter 2013 and decreased $428,000, or 22.7%, versus third quarter 2012; which included $568,000 in gains on sales of mortgage loans.

· Non-interest expense increased $33,000, or 0.7%, versus second quarter 2013 and decreased $50,000, or 1.1%, versus third quarter 2012.

· Preferred stock dividends remained unchanged from the second quarter at $40,000 for third quarter 2013, and declined by $8,000 as compared with the third quarter 2012 dividend of $48,000.

· Non-performing assets increased $0.1 million, or 1.0%, to $9.7 million, or 1.7% of total assets, at September 30, 2013 versus June 30, 2013 and decreased $0.2 million versus September 30, 2012. Accruing loans receivable 30-to-89 days past due increased $0.8 million to $5.1 million, or 1.2% of gross loans receivable at September 30, 2013, versus June 30, 2013 and increased $1.9 million versus September 30, 2012.

Net Interest Income

Tax equivalent net interest income for third quarter 2013 increased $25,000, or 0.5%, versus second quarter 2013, and increased $120,000, or 2.5%, versus third quarter 2012. Average total interest bearing liabilities increased $12.6 million as compared with second quarter 2013 and decreased $2.8 million, or -0.6%, as compared with third quarter 2012. Average earning assets increased $6.7 million as compared with second quarter 2013 and decreased $6.2 million, or -1.1%, as compared with third quarter 2012. The net interest margin on a tax equivalent basis decreased 3 basis points from second quarter 2013 to 3.51% and increased 12 basis points versus third quarter 2012 from 3.39%.

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 September 30,	Average Balance				Income / Expense				Average Yield / Rate
(dollars in thousands)	2013		2012		2013		2012		2013			2012
Loans (a)(d)	$	424,897	$	383,954	$	4,581	$	4,526		4.31	%		4.71	%
Securities (c)(d)		102,361		129,945		1,131		1,324		4.42			4.08
FHLBB stock		5,340		5,747		5		7		0.38			0.51
Short term funds (b)		33,345		52,460		22		25		0.26			0.19
Total earning assets		565,943		572,106		5,739		5,882		4.05			4.11
Other assets		35,989		40,218
Total assets	$	601,932	$	612,324
Interest-bearing demand deposits	$	83,271	$	65,813		71		78		0.34			0.47
Money market accounts		132,480		136,865		84		104		0.25			0.30
Savings and other		107,665		102,039		56		67		0.20			0.26
Certificates of deposit		87,088		97,354		247		331		1.13			1.35
Total interest-bearing deposits		410,504		402,071		458		580		0.44			0.57
Repurchase agreements		3,943		3,594		2		3		0.20			0.29
FHLBB advances		30,935		42,535		312		452		3.94			4.16
Total interest-bearing liabilities		445,382		448,200		772		1,035		0.69			0.92
Demand deposits		82,573		89,225
Other liabilities		3,049		4,808
Shareholders’ equity		70,928		70,091
Total liabilities & shareholders’ equity	$	601,932	$	612,324
Net interest income					$	4,967	$	4,847
Spread on interest-bearing funds										3.36			3.19
Net interest margin (e)										3.51			3.39

23

(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 $308,000 and $275,000, respectively for 2013 and 2012 on tax-exempt securities and loans 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 September 30, (in thousands)	2013 versus 2012
Change in interest due to		Volume			Rate			Net
Interest-earning assets
Loans	$	462		$	(407	)	$	55
Securities		(293	)		100			(193	)
FHLBB stock		-			(2	)		(2	)
Short term funds		(11	)		8			(3	)
Total		158			(301	)		(143	)
Interest-bearing liabilities
Deposits		(14	)		(108	)		(122	)
Repurchase agreements		-			(1	)		(1	)
FHLBB advances		(120	)		(20	)		(140	)
Total		(134	)		(129	)		(263	)
Net change in net interest income	$	292		$	(172	)	$	120

Interest Income

Tax equivalent interest income decreased $143,000, or 2.4%, to $5.7 million for third quarter 2013 as compared with third quarter 2012.

Loan income increased $55,000, or 1.2%, primarily due to a 40 basis points decrease in the average loan yield and by a $40.9 million, or 10.7%, increase in average loans.

Tax equivalent securities income decreased $193,000, or 14.6%, for third quarter 2013 as compared with third quarter 2012, primarily due to a $27.6 million, or 21.2%, decrease in average volume due to calls, prepayments of mortgage backed securities, and the sale of an agency bond in 2012.

Interest Expense

Interest expense decreased $263,000, or 25.4%, to $0.8 million for third quarter 2013 as compared with third quarter 2012.

Interest on deposit accounts and retail repurchase agreements decreased $123,000, or 21.1%, as a result of lower average rates, down 13 basis points on deposits and 9 basis points on repurchase agreements, offset partially by an $8.4 million, or 2.1%, increase in the average balance of deposits. The lower average rate resulted from the effect of currently lower market interest rates paid on interest bearing deposits and changes in product mix.

Interest expense on FHLBB borrowings decreased $140,000 as a result of lower average borrowings, down $11.6 million, and by the average borrowing rate decrease of 22 basis points as compared with third quarter 2012. The decline in advances resulted from scheduled maturities that were not replaced with new advances and the prepayment of a $10 million FHLBB advance in fourth quarter 2012.

Provision and Allowance for Loan Losses

The provision for loan losses was $240,000 for third quarter 2013 and $330,000 for third quarter 2012. Net loan charge-offs were $215,000 and $358,000, for the respective quarters. The following table sets forth changes in the allowance for loan losses and other selected statistics:

24

	Three months						Nine months
Periods ended September 30, (dollars in thousands)	2013			2012			2013			2012
Balance, beginning of period	$	4,631		$	4,207		$	4,360		$	4,076
Provision for loan losses		240			330			876			690
Charge-offs
Real estate mortgages		(201	)		(353	)		(549	)		(532	)
Commercial & industrial		-			-			(4	)		(29	)
Consumer		(23	)		(14	)		(47	)		(63	)
Total charge-offs		(224	)		(367	)		(600	)		(624	)
Recoveries
Real estate mortgages		-			3			6			7
Commercial & industrial		-			1			-			9
Consumer		9			5			14			21
Total recoveries		9			9			20			37
Net charge-offs		(215	)		(359	)		(580	)		(587	)
Balance, end of period	$	4,656		$	4,179		$	4,656		$	4,179
Loans receivable, gross							$	423,813		$	380,508
Non-performing loans								9,166			9,229
Accruing loans past due 30-89 days								5,093			3,152
Ratio of allowance for loan losses:
to loans receivable, gross								1.10	%		1.10	%
to non-performing loans								50.80			45.28
Ratio of non-performing loans to loans receivable, gross								2.16			2.43
Ratio of accruing loans past due 30-89 days to loans receivable, gross								1.20			0.83

Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, remained unchanged at 1.10% at September 30, 2013 and September 30, 2012.

During the third quarter of 2013, non-performing loans (non-accrual loans and accruing loans past-due 90 days or more) at $9.2 million, remained stable as 2.2% of gross loans receivable at September 30, 2013 and 2.2% at June 30, 2013 versus 2.4% at September 30, 2012. Accruing loans past due 30-89 days increased $0.8 million to $5.1 million, or 1.2% of gross loans receivable from 1.0% at June 30, 2013 and 0.8% at September 30, 2012. See “Financial Condition - Loan Credit Quality” for further discussion and analysis.

25

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

September 30, 2013  (in thousands)	Collectively evaluated		Individually evaluated		Total portfolio
	Loans	Allowance	Loans	Allowance	Loans	Allowance
Performing loans	$  398,638	$   2,693	$        80	$      27	$  398,718	$  2,720
Potential problem loans	8,223	249	905	122	9,128	371
Impaired loans	-	-	15,967	1,030	15,967	1,030
Unallocated allowance	-	535	-	-	-	535
Totals	$  406,861	$  3,477	$  16,952	$  1,179	$  423,813	$  4,656
December 31, 2012  (in thousands)	Collectively evaluated		Individually evaluated		Total portfolio
	Loans	Allowance	Loans	Allowance	Loans	Allowance
Performing loans	$  364,592	$  2,567	$  121	$       52	$  364,715	$  2,619
Potential problem loans	8,345	246	2,4654	131	10,819	377
Impaired loans	-	-	16,562	924	16,562	924
Unallocated allowance	-	440	-	-	-	440
Totals	$  372,939	$  3253	$  19,147	$  1,107	$  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 September 30, 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 September 30, 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.

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Non-interest Income

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

Three months ended September 30, (dollars in thousands)	2013			2012			2013 vs. 2012
Trust and wealth advisory fees	$	750		$	683		$	67		9.81	%
Service charges and fees		595			559			36		6.44
Gains on sales of mortgage loans, net		69			568			(499	)	(87.85	)
Mortgage servicing, net		(37	)		(9	)		(28	)	(311.11	)
Gains on securities, net		-			-			-		-
Other		82			86			(4	)	(4.65	)
Total non-interest income	$	1,459		$	1,887		$	(428	)	(22.68	)%

Non-interest income decreased $191,000, or 11.6%, versus second quarter 2013 and decreased $428,000, or 22.7%, versus third quarter 2012. Trust and Wealth Advisory revenues decreased $74,000 versus second quarter 2013 and increased $67,000 versus third quarter 2012. The year-over-year revenue increase results from growth in managed assets, offset by slightly lower estate fees collected in third quarter 2013. Service charges and fees increased $20,000 versus second quarter 2013 and $36,000 versus third quarter 2012. Income from sales and servicing of mortgage loans in the third quarter decreased by $129,000 as compared to the second quarter 2013 and decreased $527,000 as compared to the third quarter 2012 due to interest rate driven fluctuations in the volume of fixed rate residential mortgage loan sales and mortgage servicing valuations. Mortgage loan sales totaled $2.2 million for third quarter 2013, $5.1 million for second quarter 2013 and $18.3 million for third quarter 2012. Third quarter 2013, second quarter 2013 and third quarter 2012 included mortgage servicing valuation (impairment) or benefit charges of ($38,000), $1,000 and $12,000, respectively. Other income includes income from bank owned life insurance and rental income.

Non-interest Expense

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

Three months ended September 30, (dollars in thousands)	2013		2012		2013 vs. 2012
Salaries	$	1,922	$	1,810	$	112		6.19	%
Employee benefits		693		597		96		16.08
Premises and equipment		622		603		19		3.15
Data processing		358		369		(11	)	(2.98	)
Professional fees		306		299		7		2.34
Collections and OREO		74		301		(227	)	(75.42	)
FDIC insurance		111		116		(5	)	(4.31	)
Marketing and community support		99		92		7		7.61
Amortization of intangible assets		56		56		-		-
Other		402		450		(48	)	(10.67	)
Non-interest expense	$	4,643	$	4,693	$	(50	)	(1.07	)%

Non-interest expense for third quarter 2013 increased $33,000 versus second quarter 2013 and decreased $50,000 versus third quarter 2012. Compensation and employee benefits increased $17,000 versus second quarter 2013, and increased $208,000 versus third quarter 2012. Year-over-year expenses include higher 401(k) expense and new compensation plan expenses implemented to compensate for the hard freeze placed on the defined benefit pension plan as of December 31, 2012. Premises and equipment increased $39,000 versus second quarter 2013 and $19,000 versus third quarter 2012, mainly due to disposed assets related to modifications of the Millerton branch. Data processing decreased $9,000 versus second quarter 2013 and $11,000 versus third quarter 2012. Professional fees decreased $3,000 versus second quarter 2013, and increased $7,000 versus third quarter 2012. Collections and OREO decreased $1,000 versus second quarter 2013, and $227,000 versus third quarter 2012 due primarily to decreased related litigation and OREO expense. Salisbury had $571,000 in foreclosed property at September 30, 2013 compared to $435,000 at June 30, 2013 and $641,000 at September 30, 2012. FDIC insurance premiums decreased $3,000 versus second quarter 2013 and $5,000 versus third quarter 2012. Remaining operating expenses decreased $7,000 versus second quarter 2013 and $41,000 versus third quarter 2012 due primarily to reductions in other administrative and operational expenses.

Income Taxes

The effective income tax rates for third quarter 2013, second quarter 2013 and third quarter 2012 were 18%, 20% and 21%, 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.

27

Salisbury did not incur Connecticut income tax in 2013 or 2012, 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.

For the nine month periods ended September 30, 2013 and 2012

Overview

Net income available to common shareholders was $2,982,000, or $1.75 per common share, for the nine month period ended September 30, 2013 (nine month period 2013), compared with $3,328,000, or $1.97 per common share, for the nine month period ended September 30, 2012 (nine month period 2012).

· Earnings per common share decreased $0.22, or 11.2%, to $1.75 versus nine month period 2012.

· Tax equivalent net interest income increased $24,000, or 0.1%, to $14.8 million, versus nine month period 2012.

· Provision for loan losses was $876,000, versus $690,000 for nine month period 2012. Net loan charge-offs were $580,000, versus $587,000 for nine month period 2012.

· Non-interest income decreased $702,000, or 12.9%, versus nine month period 2012. Nine month period 2012 included a $279,000 securities gain and gains on sales of mortgages were higher by 58.4%.

· Non-interest expense decreased $262,000, or 1.8%, versus nine month period 2012. Nine month period 2012 included a pension plan curtailment expense of $341,000 and litigation expenses of $533,000, of which $400,000 was non-recurring.

Net Interest Income

Tax equivalent net interest income for nine month period 2013 increased $24,000, or 0.2%, versus nine month period 2012. The net interest margin increased 3 basis points to 3.53% from 3.50%.

28

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.

Nine months ended September 30,	Average Balance				Income / Expense				Average Yield / Rate
(dollars in thousands)	2013		2012		2013		2012		2013			2012
Loans (a)(d)	$	414,050	$	381,429	$	13,600	$	13,750		4.38	%		4.81	%
Securities (c)(d)		109,857		139,719		3,514		4,251		4.26			4.06
FHLBB stock		5,443		5,819		16		23		0.39			0.52
Short term funds (b)		30,606		36,526		58		53		0.25			0.19
Total earning assets		559,959		563,493		17,188		18,077		4.09			4.28
Other assets		38,605		40,392
Total assets	$	598,561	$	603,885
Interest-bearing demand deposits	$	73,589	$	66,058		210		275		0.38			0.56
Money market accounts		130,829		127,991		260		324		0.27			0.34
Savings and other		106,710		99,003		162		219		0.20			0.30
Certificates of deposit		90,081		99,944		804		1,052		1.19			1.41
Total interest-bearing deposits		401,209		392,996		1,436		1,870		0.48			0.64
Repurchase agreements		2,769		6,863		4		21		0.20			0.41
FHLBB advances		31,318		44,140		936		1,398		3.94			4.16
Total interest-bearing liabilities		435,296		443,999		2,376		3,289		0.73			0.99
Demand deposits		88,023		86,420
Other liabilities		3,198		4,488
Shareholders’ equity		72,044		68,978
Total liabilities & shareholders’ equity	$	598,561	$	603,885
Net interest income					$	14,812	$	14,788
Spread on interest-bearing funds										3.36			3.29
Net interest margin (e)										3.53			3.50

(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 $915,000 and $846,000, respectively for 2013 and 2012 on tax-exempt securities and loans 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.

Nine months ended September 30, (in thousands)	2013 versus 2012
Change in interest due to		Volume			Rate			Net
Interest-earning assets
Loans	$	1,124		$	(1,274	)	$	(150	)
Securities		(932	)		195			(737	)
FHLBB stock		(1	)		(6	)		(7	)
Short term funds		(10	)		15			5
Total		181			(1,070	)		(889	)
Interest-bearing liabilities
Deposits		(50	)		(384	)		(434	)
Repurchase agreements		(9	)		(8	)		(17	)
FHLBB advances		(395	)		(67	)		(462	)
Total		(454	)		(459	)		(913	)
Net change in net interest income	$	635		$	(611	)	$	24

Interest Income

Tax equivalent interest income decreased $889,000, or 4.9%, to $17.2 million for nine month period 2013 versus nine month period 2012.

29

Loan income decreased $150,000, or 1.1%, primarily due to a 43 basis points decline in the average loan yield offset in part by a $32.6 million, or 8.6%, increase in average loans. Tax equivalent securities income decreased $737,000, or 17.3%, primarily due to a $29.9 million, or 21.4%, decrease in average volume, offset in part by a 20 basis points increase in the average yield. Changes in securities yields resulted from the effect of changes in market interest rates on securities purchases, calls of agency bonds, prepayments of mortgage backed securities and the sale of $2.5 million of US Treasury bonds in 2012. Income from short term funds increased $5,000 as a result of a 6 basis points increase in the average yield, offset in part by a $5.9 million decrease in the average balance.

Interest Expense

Interest expense decreased $913,000, or 0.3%, to $2.4 million for nine month period 2013 versus nine month period 2012.

Interest on deposit accounts and retail repurchase agreements decreased $451,000, or 23.8%, as a result of lower average rates, down 16 and 21 basis points respectively, along with an average balance decrease of $4.1 million in repurchase agreements. Lower rates were offset in part by an $8.2 million, or 2.1%, 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 $462,000 as a result of lower average borrowings, down $12.8 million due to the prepayment of a $10 million FHLBB advance in fourth quarter 2012, scheduled maturities that were not replaced with new advances and a lower average borrowing rate, down 22 basis points.

Provision and Allowance for Loan Losses

The provision for loan losses was $876,000 for nine month period 2013 and $690,000 for nine month period 2012. Net loan charge-offs were $580,000 and $587,000, for the respective periods.

Reserve coverage at September 30, 2013, as measured by the ratio of allowance for loan losses to gross loans, remained unchanged at 1.10%, as compared with 1.10% a year ago at September 30, 2012. During the first nine months of 2013, non-performing loans (non-accrual loans and accruing loans past-due 90 days or more) decreased $0.7 million to $9.2 million. Such amount represents 2.16% of gross loans receivable, a decrease from 2.4% at September 30, 2012. At September 30, 2013 accruing loans past due 30-89 days decreased $0.5 million to $5.1 million, or 1.2% of gross loans receivable from 0.8% at September 30, 2012. See “Financial Condition - Loan Credit Quality” for further discussion and analysis.

Non-interest Income

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

Nine months ended September 30, (dollars in thousands)	2013			2012			2013 vs. 2012
Trust and wealth advisory fees	$	2,299		$	2,173		$	126		5.80	%
Service charges and fees		1,687			1,628			59		3.62
Gains on sales of mortgage loans, net		501			1,203			(702	)	(58.35	)
Mortgage servicing, net		(3	)		(98	)		95		96.94
Gains on securities, net		-			279			(279	)	(100.00	)
Other		251			252			(1	)	(0.04	)
Total non-interest income	$	4,735		$	5,437		$	(702	)	(12.91	)%

Non-interest income for the nine month period 2013 decreased $702,000 versus nine month period 2012. Trust and Wealth Advisory revenues increased $126,000 from growth in managed assets, offset slightly by lower estate and tax preparation fees collected in 2013. Service charges and fees increased $59,000 due primarily to an increase in service charge fees and higher interchange fees resulting from increased volume; offset partially by reduced non-sufficient fund fees. Income from sales and servicing of mortgage loans decreased $702,000 due to increasing mortgage rates which adversely impacted demand for residential mortgages and resulted in a lower volume of loans sold. Mortgage loans sales totaled $15.9 million for nine month period 2013 and $46.8 million for nine month period 2012. Nine month period 2013 and 2012 included mortgage servicing valuation impairment charges of $4,000 and $90,000, respectively. For the nine month period 2013 no gains on securities were realized, while nine month period 2012 gains on securities resulted from the sale of $2.5 million of US Treasury bonds. 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.

Nine months ended September 30, (dollars in thousands)	2013		2012		2013 vs. 2012
Salaries	$	5,508	$	5,268	$	240		4.56	%
Employee benefits		2,140		2,244		(104	)	(4.63	)
Premises and equipment		1,789		1,799		(10	)	(0.56	)
Data processing		1,145		1,190		(45	)	(3.78	)
Professional fees		996		915		81		8.85
Collections and OREO		305		767		(462	)	(60.23	)
FDIC insurance		350		363		(13	)	(3.58	)
Marketing and community support		326		267		59		22.10
Amortization of intangible assets		167		167		-		-
Other		1,232		1,240		(8	)	(0.65	)
Non-interest expense	$	13,958	$	14,220	$	(262	)	(1.84	)%

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Non-interest expense for nine month period 2013 decreased $262,000 versus nine month period 2012. Salaries increased $240,000 due to changes in staffing levels and mix and annual salary increases. Employee benefits decreased $104,000 due primarily to lower pension plan expenses in 2013. A hard freeze was put on the defined benefit pension plan as of December 31, 2012 thereby reducing 2013 expenses and a curtailment expense of $341,000 from retiree lump-sum withdrawals was realized in 2012. These lower pension expenses were offset in part by new deferred compensation plans implemented to replace the pension plan. Premises and equipment decreased $10,000 due primarily to upgraded equipment and software purchased in 2012. The decrease was offset slightly by higher building maintenance and repairs and disposed assets related to modifications of the Millerton branch in 2013.

Data processing decreased $45,000 due primarily to lower tax preparation fees assessed in the Trust area. Professional fees increased $81,000 due primarily to higher investment management fees associated with the growth in trust and wealth advisory assets under management and increased legal fees associated with new compensation plans. Collections and OREO expense decreased $462,000 due primarily to lower litigation expenses, down $453,000, and delinquent real estate taxes, down $81,000, offset in part by higher appraisal and inspection expenses, up $84,000. Salisbury had three foreclosed properties at September 30, 2013. FDIC insurance decreased $13,000. Marketing and contributions increased $59,000 due primarily to an increase of general marketing campaigns and increased contributions to community organizations. Remaining operating expenses decreased $45,000 due to lower other administrative and operational expenses.

Income Taxes

The effective income tax rates for nine month period 2013 and nine month period 2012 were 18.30% and 21.55%, 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.

FINANCIAL CONDITION

Overview

Total assets were $589.5 million at September 30, 2013, down $11.3 million from December 31, 2012. Loans receivable, net, were $420.3 million at September 30, 2013, up $31.5 million, or 8.4%, from December 31, 2012. Non-performing assets were $9.7 million at September 30, 2013, down $0.4 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 1.10%, 1.11% and 1.10%, at September 30, 2013, December 31, 2012 and September 30, 2012, respectively. Deposits were $479.9 million, down $11.3 million from $491.2 million at December 31, 2012.

At September 30, 2013, book value and tangible book value per common share were $32.28 and $26.17, respectively. Salisbury’s Tier 1 leverage and total risk-based capital ratios were 10.28% and 16.67%, respectively, and above the “well capitalized” limits as defined by the FRB.

Securities and Short Term Funds

Year-to-date 2013, securities decreased $26.5 million to $99.8 millionas we continue to redeploy cash flow from the investment portfolio into loans. FHLBB advances decreased $1.2 million, while cash and cash-equivalents (non-time interest-bearing deposits with other banks, money market funds and federal funds sold) decreased $19.9 million to $23.7 million.

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 evaluates these securities for strategic fit and may reduce its position in these securities, although 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 September 30, 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 September 30, 2013. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it has no present intention to do so, 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.

Accumulated other comprehensive loss at September 30, 2013 of ($32,000) included net unrealized holding gains, net of tax, of $0.4 million, decrease of $2.5 million over December 2012, partially offset by unrecognized pension plan expense, net of tax, of $0.5 million.

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Loans

Net loans receivable increased $31.5 million to $420.3 million at September 30, 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)	September 30, 2013			December 31, 2012
Residential 1-4 family	$	225,262		$	198,552
Residential 5+ multifamily		4,894			3,889
Construction of residential 1-4 family		1,250			2,379
Home equity credit		34,163			34,162
Residential real estate		265,569			238,982
Commercial		91,817			87,382
Construction of commercial		9,154			5,823
Commercial real estate		100,971			93,205
Farm land		4,193			4,320
Vacant land		9,168			9,926
Real estate secured		379,901			346,433
Commercial and industrial		35,837			38,094
Municipal		4,101			3,378
Consumer		3,974			4,181
Loans receivable, gross		423,813			392,086
Deferred loan origination fees and costs, net		1,149			1,032
Allowance for loan losses		(4,656	)		(4,360	)
Loans receivable, net	$	420,306		$	388,758
Loans held-for-sale
Residential 1-4 family	$	708		$	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 nine months of 2013, non-performing assets decreased $0.4 million, and the amount of total impaired and potential problem loans decreased $2.3 million.

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

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss			Total
September 30, 2013
Residential 1-4 family	$	206,691	$	11,754	$	6,721	$	96	$	-	$		225,262
Residential 5+ multifamily		2,711		1,208		975		-		-			4,894
Construction of residential 1-4 family		1,250		-		-		-		-			1,250
Home equity credit		31,541		1,240		1,382		-		-			34,163
Residential real estate		242,193		14,202		9,078		96		-			265,569
Commercial		66,899		16,513		8,405		-		-			91,817
Construction of commercial		8,412		152		590		-		-			9,154
Commercial real estate		75,311		16,665		8,995		-		-			100,971
Farm land		1,611		1,436		1,146		-		-			4,193
Vacant land		5,759		293		3,116		-		-			9,168
Real estate secured		324,874		32,596		22,335		96		-			379,901
Commercial and industrial		28,149		6,675		1,013		-		-			35,837
Municipal		4,101		-		-		-		-			4,101
Consumer		3,854		102		18		-		-			3,974
Loans receivable, gross	$	360,978	$	39,373	$	23,366	$	96	$	-	$		423,813

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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:

	September 30, 2013												September 30, 2012
		Impaired loans												Impaired loans
Nine months ended (in thousands)		Non-accrual			Accruing			Potential problem loans			Total			Non-accrual			Accruing			Potential problem loans			Total
Loans placed on non-accrual status	$	3,671		$	(758	)	$	(1,517	)	$	1,396		$	3,858		$	(665	)	$	(1,099	)	$	2,094
Loans restored to accrual status		(902	)		385			143			(374	)		(887	)		563			23			(301	)
Loan risk rating downgrades to substandard		-			-			3,586			3,586			-			-			1,680			1,680
Loan risk rating upgrades from substandard		-			-			(1,350	)		(1,350	)		-			-			(402	)		(402	)
Loan repayments		(2,246	)		328			(2,540	)		(4,458	)		(596	)		(155	)		(301	)		(1,052	)
Loan charge-offs		(467	)		19			(4	)		(452	)		(556	)		-			-			(556	)
Increase (decrease) in TDR loans		-			884			-			884			-			2,463			(1,830	)		633
Real estate acquired in settlement of loans		(971	)		(736	)		-			(1,707	)		(666	)		-			-			(666	)
Inter-month tax advances		198			-			-			198			-			-			-			-
Increase (decrease) in loans	$	(717	)	$	122		$	(1,682	)	$	(2,277	)	$	1,153		$	2,206		$	(1,929	)	$	1,430

For year-to-date 2013 Salisbury has placed $3.7 million of loans on non-accrual status as a result of deteriorated payment and financial performance and charged-off $580,000 of loans primarily as a result of collateral deficiencies.

Salisbury has cooperative relationships with the 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 Salisbury’s reasonable 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.

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

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" possess 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)	September 30, 2013		December 31, 2012
Non-accrual loans, excluding troubled debt restructured loans	$	6,116	$	7,579
Non-accrual troubled debt restructured loans		3,027		2,280
Accruing troubled debt restructured loans		6,824		6,703
Total impaired loans	$	15,967	$	16,562
Commitments to lend additional amounts to impaired borrowers	$	-	$	-

Non-Performing Assets

Non-performing assets decreased $0.4 million to $9.7 million, or 1.6% of assets at September 30, 2013, from $10.1 million, or 1.7% of assets at December 31, 2012, and decreased $0.1 million from $9.8 million, or 1.6% of assets at September 30, 2012.

The 4% decrease in non-performing assets in the first nine months 2013 resulted primarily from $0.9 million of loans returning to accrual status, $0.5 million charged off, and $4.7 million from loan repayments and payoffs. These declines were offset in part by a $1.1 million change in 90+ past due status, a $0.2 million advance for taxes and additions of $3.7 million in new non-accrual loans and $0.7 million of OREO additions.

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The components of non-performing assets are as follows:

(in thousands)	September 30, 2013		December 31, 2012
Residential 1-4 family	$	3,013	$	3,024
Home equity credit		420		442
Commercial		2,114		2,235
Farm land		384		-
Vacant land		3,072		3,994
Real estate secured		9,003		9,695
Commercial and industrial		140		164
Consumer		-		-
Non-accruing loans		9,143		9,859
Accruing loans past due 90 days and over		23		-
Non-performing loans		9,166		9,859
Real estate acquired in settlement of loans		571		244
Non-performing assets	$	9,737	$	10,103

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

(in thousands)	September 30, 2013		December 31, 2012
Current	$	1,533	$	1,797
Past due 001-029 days		1,285		75
Past due 030-059 days		758		701
Past due 060-089 days		596		445
Past due 090-179 days		696		1,983
Past due 180 days and over		4,298		4,858
Total non-performing loans	$	9,166	$	9,859

At September 30, 2013, 16.71% 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 $0.9 million during 2013 to $9.9 million, or 2.32% of gross loans receivable at September 30, 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)	September 30, 2013		December 31, 2012
Residential 1-4 family	$	3,533	$	3,098
Commercial		2,710		2,774
Real estate secured		6,243		5,872
Commercial and industrial		581		832
Accruing troubled debt restructured loans		6,824		6,704
Residential 1-4 family		2,246		1,041
Commercial		669		1,159
Vacant land		-		-
Real estate secured		2,915		2,200
Commercial and industrial		112		80
Non-accrual troubled debt restructured loans		3,027		2,280
Troubled debt restructured loans	$	9,851	$	8,984

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

(in thousands)	September 30, 2013		December 31, 2012
Current	$	6,079	$	5,354
Past due 001-029 days		437		445
Past due 030-059 days		308		905
Accruing troubled debt restructured loans		6,824		6,704
Current		1,039		1,333
Past due 001-029 days		1,285		-
Past due 030-059 days		214		301
Past due 060-089 days		489		194
Past due 090-179 days		-		-
Past due 180 days and over		-		452
Non-accrual troubled debt restructured loans		3,027		2,280
Total troubled debt restructured loans	$	9,851	$	8,984

At September 30, 2013, 72.26% of troubled debt restructured loans were current with respect to loan payments, as compared with 74.43% at December 31, 2012.

Past Due Loans

Loans past due 30 days or more decreased $2.2 million during 2013 to $11.4 million, or 2.69% of gross loans receivable at September 30, 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)	September 30, 2013		December 31, 2012
Past due 030-059 days	$	2,674	$	4,309
Past due 060-089 days		2,420		1,317
Past due 090-179 days		23		-
Accruing loans		5,117		5,626
Past due 030-059 days		758		701
Past due 060-089 days		596		445
Past due 090-179 days		673		1,983
Past due 180 days and over		4,298		4,859
Non-accrual loans		6325		7,988
Total loans past due 30 days or greater	$	11,442	$	13,614

Potential Problem Loans

Potential problem loans decreased $1.7 million during the nine months of 2013 to $9.1 million, or 2.15% of gross loans receivable at September 30, 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)	September 30, 2013		December 31, 2012
Residential 1-4 family	$	1,620	$	3,108
Residential 5+ multifamily		975		-
Home equity credit		914		892
Residential real estate		3,509		4,000
Commercial		3,912		4,624
Construction of commercial		590		450
Commercial real estate		4,502		5,074
Farm land		762		1,180
Vacant land		45		183
Real estate secured		8,818		10,437
Commercial and Industrial		292		345
Consumer		18		28
Potential problem loans	$	9,128	$	10,810

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

(in thousands)	September 30, 2013		December 31, 2012
Current	$	7,696	$	7,992
Past due 001-029 days		175		452
Past due 030-059 days		304		2,065
Past due 060-089 days		930		301
Past due 090-179 days		23		-
Total potential problem loans	$	9,128	$	10,810

At September 30, 2013, 84.31% 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 $12.1 million during third quarter 2013 to $479.9 million at September 30, 2013, from $492.0 million at June 30, 2013, and decreased $10.3 million for year-over-year from $490.2 million at September 30, 2012. Retail repurchase agreements increased $0.9 million during third quarter 2013 to $3.9 million at September 30, 2013, compared with $3.0 million at June 30, 2013, and increased $1.0 million for year-over-year compared with $2.9 million at September 30, 2012.

Federal Home Loan Bank of Boston (FHLBB) advances decreased $0.4 million during third quarter 2013 to $30.8 million at September 30, 2013, from $31.2 million at June 30, 2013, and decreased $11.6 million for year-over-year from $42.4 million at September 30, 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.

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 September 30, 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 21.14%, down from 30.55% at December 31, 2012. Management believes Salisbury’s funding sources will meet anticipated funding needs.

Operating activities for the nine-month period ended September 30, 2013 provided net cash of $7.7 million. Investing activities utilized net cash of $15.5 million, principally from $34.0 million of net loan originations and principal collections and $5.2 million in time deposits with other banks, offset by proceeds of $22.3 million from calls and maturities of securities available-for-sale and $1.4 million proceeds from sales of other real estate owned. Financing activities utilized net cash of $12.0 million, principally due to a net decrease of $9.2 million in deposits and repurchase agreements, pay downs of FHLBB advances of $1.2 million and common and preferred stock dividends paid totaling $1.6 million.

At September 30, 2013, Salisbury had outstanding commitments to fund new loan originations of $17.4 million and unused lines of credit of $56.9 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 $71.2 million at September 30, 2013, down $0.8 million from December 31, 2012. Book value and tangible book value per common share were $32.28 and $26.17, respectively, compared with $33.14 and $26.85, respectively, at December 31, 2012. Contributing to the decrease in shareholders’ equity for year-to-date 2013 was other comprehensive loss of $2.5 million, and common and preferred stock dividends of $1.6 million which were offset partially by net income of $3.1 million and issuance of stock awards and restricted stock of $0.1 million. Accumulated other comprehensive loss consists of unrealized gains on securities available-for-sale, net of tax, of $0.4 million and unrecognized pension plan costs, net of tax, of $0.5 million.

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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 September 30, 2013 and June 30, 2013, 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 September 27, 2013, Salisbury declared a Series B Preferred Stock dividend of $40,000, payable on October 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., Chief Executive Officer and President.

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:

	Well capitalized	September 30, 2013		December 31, 2012
		Salisbury	Bank	Salisbury	Bank
Total Capital (to risk-weighted assets)	10.00%	16.67%	13.93%	16.63%	13.77%
Tier 1 Capital (to risk-weighted assets)	6.00	15.42	12.70	15.46	12.62
Tier 1 Capital (to average assets)	5.00	10.28	8.60	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.

In December 2010, the Basel Committee, a group of bank regulatory supervisors from around the world, released its final framework for strengthening international capital and liquidity regulation, now officially identified by the Basel Committee as “Basel III.” Basel III, when fully implemented by the U.S. bank regulatory agencies and fully phased-in, will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity.

In July 2013, the Federal Reserve Board, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation approved final rules to implement the Basel III capital framework. The rules will be effective on January 1, 2015 and phased-in over a multiple year period through 2019. The new capital rules call for higher quality capital with higher minimum capital level requirements. We are in the process of assessing the impact from these new regulatory requirements, and while we cannot be certain of the impact, we believe that we will exceed the requirements of adequately capitalized plus the capital conservation buffer, once they become effective.

Dividends

During the nine month period ended September 30, 2013 Salisbury paid $121,000 in Series B preferred stock dividends to the U.S. Treasury’s SBLF program, and $1,436,000 in common stock dividends.

On October 25, 2013, the Board of Directors of Salisbury declared a common stock dividend of $0.28 per common share payable on November 29, 2013 to shareholders of record on November 8, 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.

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FRB Supervisory Letter SR 09-4, February 24, 2009, revised September 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.

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 September 30, 2013 analysis, all of the simulations incorporate a static 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.

39

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 September 30, 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 25 basis points for short term rates to 111 basis points for the 10-year Treasury; and (4) Static growth with assumption sensitivity stress testing with gradually rising interest rates - gradual non-parallel upward shift in market interest rates ranging from 200 basis points for short term rates to 150 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 September 30, 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 September 30, 2013:

As of September 30, 2013	Months 1-12			Months 13-24
Immediately rising interest rates (static growth assumptions)		(14.69	)%		(7.73	)%
Immediately falling interest rates (static growth assumptions)		(1.24	)		(4.29	)
Immediately rising interest rates (static growth with assumption sensitivity stress testing)		(4.21	)		(13.72	)

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.

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 September 30, 2013 (in thousands)	Rates up 100bp			Rates up 200bp
U.S. Treasury notes	$	(76	)	$	(150	)
U.S. Government agency notes		(103	)		(265	)
Municipal bonds		(2,675	)		(5,431	)
Mortgage backed securities		(1,244	)		(2,603	)
Collateralized mortgage obligations		(370	)		(758	)
SBA pools		(8	)		(15	)
Total available-for-sale debt securities	$	(4,476	)	$	(9,222	)

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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 September 30, 2013. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective as of September 30, 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 September 30, 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.

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. 

On April 4, 2013, the Bank moved to dismiss the appeal of the Foreclosure Action for lack of subject matter jurisdiction.  The Appellate Court granted that motion on May 8, 2013.  On June 6, 2013, the Appellate Court also denied Erling Christophersen’s motion for reconsideration of its decision.  Erling Christophersen’s appeal of the order denying his Motion to Restore the First Action remains pending, and the Bank intends to vigorously oppose that appeal. Trial is scheduled to begin on January 6, 2014.

The Bank continues to proceed in its Foreclosure Action against Erling Christophersen. It has filed a motion to strike Erling Christophersen’s special defenses and set-off claims, which is fully briefed and awaits adjudication by the court.

41

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

3.1	Certificate of Incorporation of Salisbury Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of Registrant’s 1998 Registration Statement on Form S-4 filed April 23, 1998, File No.: 33-50857).
3.1.1	Amendment to Article Third of Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed March 11, 2009).

3.1.2 Certificate of Amendment to Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed March 19, 2009).

3.1.3	Certificate of Amendment to Certificate of Incorporation for the Series B Preferred Stock (incorporated by reference to Registrant’s Form 8-K filed on August 25, 2011).
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of Form 8-K filed March 19, 2009).
10.1	Amended and Restated Supplemental Retirement Plan Agreement with John F. Perotti dated January 25, 2008 (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed January 30, 2008).
10.2	Consulting and Non-Compete Agreement dated June 1, 2009 by and between Salisbury and John F. Perotti. (incorporated by reference to Exhibit 10.2 of Registrant’s 2010 Annual Report on Form 10-K filed March 31, 2011).
10.3	Letter Agreement dated March 13, 2009, including the Securities Purchase Agreement - Standard Terms, as supplemented by the letter dated March 13, 2009 relating to the American Recovery and Reinvestment Act to 2009 with the U.S. Treasury Department. (incorporated by reference to Exhibit 10.6 of Registrant’s 2010 Annual Report on Form 10-K filed March 31, 2011).
10.4	Securities Purchase Agreement dated August 25, 2011 with the U.S. Treasury Department relating to the Small Business Lending Fund (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed on August 25, 2011).
10.5	Repurchase Letter Agreement between Salisbury and the United States Department of Treasury dated August 25, 2011 (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed on August 25, 2011).
10.6	2011 Long Term Incentive Plan adopted by the Board on March 25, 2011 and approved by the shareholders at Salisbury’s 2011 Annual Meeting (incorporated by referenced to Exhibit 10.9 of Registrant’s Annual Report on Form 10-K filed March 19, 2012).

10.7 Amendment Number One to 2011 Long Term Incentive Plan dated as of January 18, 2013.

10.8 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).

10.9 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).

42

10.10 Change in Control Agreement with Donald E. White dated April 1, 2013. (incorporated by reference to Exhibit 10.3 of Form 10-Q filed May 14, 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

43

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.

November 14, 2013	by	/s/ Richard J. Cantele, Jr.
		Richard J. Cantele, Jr.,
		President and Chief Executive Officer
November 14, 2013	by	/s/ Donald E. White
		Donald E. White,
		Executive Vice President and Chief Financial Officer

EX-31.1

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.

November 14, 2013	by	/s/ Richard J. Cantele, Jr.
		Richard J. Cantele, Jr.,
		President and Chief Executive Officer

EX-31.2

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.

November 14, 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 September 30, 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.

November 14, 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

FAIR VALUE OF ASSETS AND LIABILITIES

3 Months Ended

Sep. 30, 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.

ASC 820-10, “Fair Value Measurements and Disclosures,” provides a framework for measuring fair value under GAAP. 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.

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.

Assets measured at fair value are as follows:

	Fair Value Measurements Using
(in thousands)		Level 1		Level 2		Level 3		Assets at fair value
September 30, 2013
Assets measured at fair value on a recurring basis
U.S. Treasury notes	$	-	$	2,670	$	-	$	2,670
U.S. Government agency notes		-		2,619		-		2,619
Municipal bonds		-		42,573		-		42,573
Mortgage-backed securities:
U.S. Government agencies		-		36,314		-		36,314
Collateralized mortgage obligations:
U.S. Government agencies		-		3,848		-		3,848
Non-agency		-		8,895		-		8,895
SBA bonds		-		2,361		-		2,361
Preferred stocks		536		-		-		536
Securities available-for-sale	$	536	$	99,280	$	-	$	99,816
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans	$	-	$	-	$	6,547	$	6,547
Other real estate owned		-		-		571		571
December 31, 2012
Assets measured 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		-		-		167
Securities available-for-sale	$	167	$	126,120	$	-	$	126,287
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans	$		$		$	8,434	$	8,434
Other real estate owned		-		-		244		244

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
September 30, 2013
Financial Assets
Cash and due from banks	$	23,719	$	23,719	$	23,719	$	-	$	-
Interest-bearing time deposits		5,220		5,220		-		-		5,220
Securities available-for-sale		99,816		99,816		536		99,280		-
Federal Home Loan Bank stock		5,340		5,340		-		5,340		-
Loans held-for-sale		708		713		-		-		713
Loans receivable net		420,306		413,809		-		-		413,809
Accrued interest receivable		1,823		1,823		-		-		1,823
Financial Liabilities
Demand (non-interest-bearing)	$	83,892	$	83,892	$	-	$	-	$	83,892
Demand (interest-bearing)		79,232		79,232		-		-		79,232
Money market		125,070		125,070		-		-		125,070
Savings and other		107,380		107,380		-		-		107,380
Certificates of deposit		84,295		84,950		-		-		84,950
Deposits		479,869		480,524		-		-		480,524
FHLBB advances		30,801		33,692		-		-		33,692
Repurchase agreements		3,870		3,870		-		-		3,870
Accrued interest payable		166		166		-		-		166
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

CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Interest and dividend income
Interest and fees on loans	$ 4,516	$ 4,500	$ 13,415	$ 13,678
Interest on debt securities
Taxable	418	579	1,359	1,939
Tax exempt	475	495	1,441	1,539
Other interest and dividends	22	33	58	75
Total interest and dividend income	5,431	5,607	16,273	17,231
Interest expense
Deposits	459	580	1,437	1,870
Repurchase agreements	2	3	4	21
Federal Home Loan Bank of Boston advances	311	452	935	1,398
Total interest expense	772	1,035	2,376	3,289
Net interest and dividend income	4,659	4,572	13,897	13,942
Provision for loan losses	240	330	876	690
Net interest and dividend income after provision for loan losses	4,419	4,242	13,021	13,252
Non-interest income
Trust and wealth advisory	750	683	2,299	2,173
Service charges and fees	595	559	1,687	1,628
Gains on sales of mortgage loans, net	69	568	501	1,203
Mortgage servicing, net	(37)	(9)	(3)	(98)
Gains on securities, net				279
Other	82	86	251	252
Total non-interest income	1,459	1,887	4,735	5,437
Non-interest expense
Salaries	1,922	1,810	5,508	5,268
Employee benefits	693	597	2,140	2,244
Premises and equipment	622	603	1,789	1,799
Data processing	358	369	1,145	1,190
Professional fees	306	299	996	915
Collections and OREO	74	301	305	767
FDIC insurance	111	116	350	363
Marketing and community support	99	92	326	267
Amortization of intangibles	56	56	167	167
Other	402	450	1,232	1,240
Total non-interest expense	4,643	4,693	13,958	14,220
Income before income taxes	1,235	1,436	3,798	4,469
Income tax provision	219	296	695	963
Net income	1,016	1,140	3,103	3,506
Net income available to common shareholders	$ 976	$ 1,094	$ 2,982	$ 3,328
Basic earnings per common share	$ 0.57	$ 0.65	$ 1.75	$ 1.97
Diluted earnings per common share	$ 0.57	$ 0.65	$ 1.75	$ 1.97
Common dividends per share	$ 0.28	$ 0.28	$ 0.84	$ 0.84

XML

LOANS

3 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

LOANS

NOTE 3 - LOANS

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

(in thousands)	September 30, 2013			December 31, 2012
Residential 1-4 family	$	225,262		$	198,552
Residential 5+ multifamily		4,894			3,889
Construction of residential 1-4 family		1,250			2,379
Home equity credit		34,163			34,162
Residential real estate		265,569			238,982
Commercial		91,817			87,382
Construction of commercial		9,154			5,823
Commercial real estate		100,971			93,205
Farm land		4,193			4,320
Vacant land		9,168			9,926
Real estate secured		379,901			346,433
Commercial and industrial		35,837			38,094
Municipal		4,101			3,378
Consumer		3,974			4,181
Loans receivable, gross		423,813			392,086
Deferred loan origination fees and costs, net		1,149			1,032
Allowance for loan losses		(4,656	)		(4,360	)
Loans receivable, net	$	420,306		$	388,758
Loans held-for-sale
Residential 1-4 family	$	708		$	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
September 30, 2013
Residential 1-4 family	$	206,691	$	11,754	$	6,721	$	96	$	-	$	225,262
Residential 5+ multifamily		2,711		1,208		975		-		-		4,894
Construction of residential 1-4 family		1,250		-		-		-		-		1,250
Home equity credit		31,541		1,240		1,382		-		-		34,163
Residential real estate		242,193		14,202		9,078		96		-		265,569
Commercial		66,899		16,513		8,405		-		-		91,817
Construction of commercial		8,412		152		590		-		-		9,154
Commercial real estate		75,311		16,665		8,995		-		-		100,971
Farm land		1,611		1,436		1,146		-		-		4,193
Vacant land		5,759		293		3,116		-		-		9,168
Real estate secured		324,874		32,596		22,335		96		-		379,901
Commercial and industrial		28,149		6,675		1,013		-				35,837
Municipal		4,101		-		-		-		-		4,101
Consumer		3,854		102		18		-		-		3,974
Loans receivable, gross	$	360,978	$	39,373	$	23,366	$	96	$	-	$	423,813
(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
September 30, 2013
Residential 1-4 family	$	217,263	$	3,156	$	2,644	$	2,012	$	53	$	134	$	4,843	$	-	$	3,013
Residential 5+ multifamily		4,678		115		-		101		-		-		101		-		-
Construction of residential 1-4 family		1,250		-		-		-		-		-		-		-		-
Home equity credit		33,018		337		447		191		132		38		808		23		420
Residential real estate		256,209		3,608		3,091		2,304		185		172		5,752		23		3,433
Commercial		88,105		1,902		213		438		127		1,032		1,810		-		2,114
Construction of commercial		7,940		1,074		-		140		0		-		140		-		-
Commercial real estate		96,045		2,976		213		578		127		1,032		1,950		-		2,114
Farm land		3,782		-		27		-		384		-		411		-		384
Vacant land		5,910		120		58		7		-		3,073		3,138		-		3,072
Real estate secured		361,946		6,704		3,389		2,889		696		4,277		11,251		23		9,003
Commercial and industrial		35,346		328		30		112		-		21		163		-		140
Municipal		4,091		10		-		-		-		-		-		-		-
Consumer		3,857		89		13		15		-		-		28		-		-
Loans receivable, gross	$	405,240	$	7,131	$	3,432	$	3,016	$	696	$	4,298	$	11,442	$	23	$	9,143
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

Troubled debt restructurings occurring during the periods are as follows:

	Three months ended September 30, 2013						Nine months ended September 30, 2013
(in thousands)	Quantity		Pre-modification balance		Post-modification balance		Quantity		Pre-modification balance		Post-modification balance
Residential real estate		-	$	-	$	-		4	$	1,906	$	1,906
Commercial real estate		-		-		-		-		-		-
Commercial and industrial		-		-		-		1		91		91
Troubled debt restructurings		-	$	-	$	-		5	$	1,997	$	1,997
Rate reduction		-	$	-	$	-		2	$	1,070	$	1,070
Rate reduction and debt consolidation		-		-		-		1		91		91
Rate reduction and interest only pursuant to sale		-		-		-		1		758		758
Rate reduction and term extension		-		-		-		1		78		78
Troubled debt restructurings		-	$	-	$	-		5	$	1,997	$	1,997

No loans were modified under a troubled debt restructuring during the quarter ended September 30, 2013.

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

	Three months ended September 30												Nine months ended September 30
(in thousands)	Beginning balance		Provision			Charge-offs			Reco-veries		Ending balance		Beginning balance		Provision			Charge-offs			Reco-veries			Ending balance
2013 Periods
Residential	$	1,892	$	227		$	(159	)	$	-	$	1,960	$	1,934	$	259		$	(233	)	$	-		$	1,960
Commercial		1,403		58			(19	)		-		1,442		1,059		471			(94	)		6			1,442
Land		137		22			(23	)		-		136		301		56			(221	)		-			136
Real estate		3,432		307			(201	)		-		3,538		3,294		786			(548	)		6			3,538
Commercial & industrial		541		(62	)		-			-		479		499		(16	)		(4	)		-			479
Municipal		40		1			-			-		41		36		5			-			-			41
Consumer		69		8			(23	)		9		63		91		5			(47	)		14			63
Unallocated		549		(14	)		-			-		535		440		96			(1	)		-			535
Totals	$	4,631	$	240		$	(224	)	$	9	$	4,656	$	4,360	$	876		$	(600	)	$	20		$	4,656
2012 Periods
Residential	$	1,475	$	92		$	(88	)	$	-	$	1,479	$	1,478	$	226		$	(225	)	$	-		$	1,479
Commercial		1,277		(206	)		(41	)		3		1,033		1,139		(72	)		(41	)		7			1,033
Land		219		318			(224	)		-		313		410		169			(266	)		-			313
Real estate		2,971		204			(353	)		3		2,825		3,027		323			(532	)		7			2,825
Commercial & industrial		820		(23	)		-			1		798		704		114			(29	)		9			798
Municipal		27		6			-			-		33		24		9			-			-			33
Consumer		66		74			(14	)		5		131		79		92			(63	)		22			130
Unallocated		323		69			-			-		392		242		152			-			(1	)		393
Totals	$	4,207	$	330		$	(367	)	$	9	$	4,179	$	4,076	$	690		$	(624	)	$	37		$	4,179

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
September 30, 2013
Residential 1-4 family	$	219,211	$	862	$	6,051	$	647	$	225,262	$	1,509
Residential 5+ multifamily		3,934		20		960		-		4,894		20
Construction of residential 1-4 family		1,250		6		-		-		1,250		6
Home equity credit		33,672		361		491		64		34,163		425
Residential real estate		258,067		1,249		7,502		711		265,569		1,960
Commercial		86,744		973		5,073		365		91,817		1,338
Construction of commercial		9,154		104		-		-		9,154		104
Commercial real estate		95,898		1,077		5,073		365		100,971		1,442
Farm land		3,809		66		384		-		4,193		66
Vacant land		6,096		65		3,072		5		9,168		70
Real estate secured		363,870		2,457		16,031		1,081		379,901		3,538
Commercial and industrial		34,997		408		840		71		35,837		479
Municipal		4,101		41		-		-		4,101		41
Consumer		3,893		36		81		27		3,974		63
Unallocated allowance		-		535		-		-		-		535
Totals	$	406,861	$	3,477	$	16,952	$	1,179	$	423,813	$	4,656
	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		-		-		-		440
Totals	$	372,939	$	3,253	$	19,147	$	1,107	$	392,086	$	4,360

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

	Collectively evaluated				Individually evaluated				Total portfolio
(in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
September 30, 2013
Performing loans	$	398,638	$	2,693	$	80	$	27	$	398,718	$	2,720
Potential problem loans		8,223		249		905		122		9,128		371
Impaired loans		-		-		15,967		1,030		15,967		1,030
Unallocated allowance		-		535		-		-		-		535
Totals	$	406,861	$	3,477	$	16,952	$	1,179	$	423,813	$	4,656
December 31, 2012
Performing loans	$	364,594	$	2,567	$	121	$	52	$	364,715	$	2,619
Potential problem loans		8,345		246		2,464		131		10,809		377
Impaired loans		-		-		16,562		924		16,562		924
Unallocated allowance		-		440		-		-		-		440
Totals	$	372,939	$	3,253	$	19,147	$	1,107	$	392,086	$	4,360

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

	Impaired loans with specific allowance								Impaired loans with no specific allowance
(in thousands)	Loan balance										Loan balance
		Book		Note		Average		Specific allowance		Income recognized		Book		Note		Average		Income recognized
September 30, 2013
Residential 1-4 family	$	3,850	$	4,085	$	4,016	$	573	$	62	$	2,648	$	2,958	$	2,286	$	44
Home equity credit		87		88		104		41		1		381		387		212		2
Residential real estate		3,937		4,173		4,120		614		63		3,029		3,345		2,498		46
Commercial		3,264		3,301		2,083		365		104		1,559		1,995		2,709		26
Construction of commercial		-		-		4		-		-		-		20		10		-
Farm land		-		-		-		-		-		384		384		38		-
Vacant land		249		268		2,049		5		-		2,823		3,892		1,295		-
Real estate secured		7,450		7,742		8,256		984		167		7,795		9,636		6,550		72
Commercial and industrial		127		160		268		46		1		595		996		600		27
Consumer		-		-		-		-		-		-		-		-		-
Totals	$	7,577	$	7,902	$	8,524	$	1,030	$	168	$	8,390	$	10,632	$	7,150	$	99

	Impaired loans with specific allowance								Impaired loans with no specific allowance
(in thousands)	Loan balance										Loan balance
		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

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PENSION AND OTHER BENEFITS (Tables)

3 Months Ended

Sep. 30, 2013

Compensation and Retirement Disclosure [Abstract]

Net periodic cost for insured noncontributory defined benefit retirement plan

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

	Three months						Nine months
Periods ended September 30, (in thousands)	2013			2012			2013			2012
Service cost	$	-		$	94		$	-		$	310
Interest cost on benefit obligation		66			88			197			270
Expected return on plan assets		(67	)		(113	)		(202	)		(342	)
Amortization of net loss		1			28			5			95
Settlements and curtailments		-			-			-			341
Net periodic benefit cost	$	-		$	97		$	-		$	674

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SECURITIES (Tables)

3 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Composition of securities

The composition of securities is as follows:

(in thousands)	Amortized cost (1)		Gross un- realized gains		Gross un-realized losses			Fair value
September 30, 2013
Available-for-sale
U.S. Treasury notes	$	2,496	$	174	$	-		$	2,670
U.S. Government Agency notes		2,509		110		-			2,619
Municipal bonds		43,850		842		(2,119	)		42,573
Mortgage backed securities
U.S. Government Agencies		35,720		654		(60	)		36,314
Collateralized mortgage obligations
U.S. Government Agencies		3,807		41		-			3,848
Non-agency		8,492		423		(20	)		8,895
SBA bonds		2,260		101		-			2,361
Preferred Stock		20		516		-			536
Total securities available-for-sale	$	99,154	$	2,861	$	(2,199	)	$	99,816
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	5,340	$	-	$	-		$	5,340

8

(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.

Aggregate fair value and gross unrealized loss of securities

	Less than 12 Months				12 Months or Longer				Total
(in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
September 30, 2013
Available-for-sale
Municipal bonds	$	20,617	$	1,497	$	1,926	$	622	$	22,543	$	2,119
Mortgage backed securities		4,689		59		42		1		4,731		60
Collateralized mortgage obligations
Non-agency		432		1		824		12		1,256		13
Total temporarily impaired securities		25,738		1,557		2,792		635		28,530		2,192
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		339		7		-		-		339		7
Total temporarily and other-than-temporarily impaired securities	$	26,077	$	1,564	$	2,792	$	635	$	28,869	$	2,199

Activity related to credit losses recognized in earnings

Nine months ended September 30 (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

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ACCUMULATED OTHER COMPREHENSIVE INCOME - Components of accumulated other comprehensive income (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Equity [Abstract]
Unrealized gains on securities available-for-sale, net of tax	$ 437	$ 2,950
Unrecognized pension plan expense, net of tax	(469)	(2,078)
Accumulated other comprehensive (loss) income, net	$ (32)	$ 872

XML

LOANS - Certain data with respect to impaired loans (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Impaired loans with specific allowance, Loan balance, Book
Residential 1-4 family	$ 3,850	$ 3,857
Home equity credit	87	351
Residential real estate	3,937	4,208
Commercial	3,264	1,629
Construction of commercial
Farm land
Vacant land	249	3,186
Real estate secured	7,450	9,023
Commercial and industrial	127	335
Consumer
Totals	7,577	9,358
Impaired loans with specific allowance, Loan balance, Note
Residential 1-4 family	4,085	3,925
Home equity credit	88	351
Residential real estate	4,173	4,276
Commercial	3,301	1,784
Construction of commercial
Farm land
Vacant land	268	3,387
Real estate secured	7,742	9,447
Commercial and industrial	160	368
Consumer
Totals	7,902	9,815
Impaired loans with specific allowance, Loan balance, Average
Residential 1-4 family	4,016	2,404
Home equity credit	104	146
Residential real estate	4,120	2,550
Commercial	2,083	1,925
Construction of commercial	4
Farm land
Vacant land	2,049	1,455
Real estate secured	8,256	5,930
Commercial and industrial	268	833
Consumer
Totals	8,524	6,763
Impaired loans with specific allowance, Specific allowance
Residential 1-4 family	573	578
Home equity credit	41	92
Residential real estate	614	670
Commercial	365	64
Construction of commercial
Farm land
Vacant land	5	158
Real estate secured	984	892
Commercial and industrial	46	32
Consumer
Totals	1,030	924
Impaired loans with specific allowance, Income recognized
Residential 1-4 family	62	77
Home equity credit	1
Residential real estate	63	77
Commercial	104	60
Construction of commercial
Farm land
Vacant land
Real estate secured	167	137
Commercial and industrial	1	13
Consumer
Totals	168	150
Impaired loans with no specific allowance, Loan balance, Book
Residential 1-4 family	2,648	2,263
Home equity credit	381	91
Residential real estate	3,029	2,354
Commercial	1,559	3,381
Construction of commercial
Farm land	384
Vacant land	2,823	808
Real estate secured	7,795	6,543
Commercial and industrial	595	661
Consumer
Totals	8,390	7,204
Impaired loans with no specific allowance, Loan balance, Note
Residential 1-4 family	2,958	2,460
Home equity credit	387	93
Residential real estate	3,345	2,553
Commercial	1,995	3,576
Construction of commercial	20
Farm land	384
Vacant land	3,892	1,467
Real estate secured	9,636	7,596
Commercial and industrial	996	1,063
Consumer
Totals	10,632	8,659
Impaired loans with no specific allowance, Loan balance, Average
Residential 1-4 family	2,286	1,601
Home equity credit	212	203
Residential real estate	2,498	1,804
Commercial	2,709	3,122
Construction of commercial	10
Farm land	38
Vacant land	1,295	2,358
Real estate secured	6,550	7,284
Commercial and industrial	600	854
Consumer
Totals	7,150	8,138
Impaired loans with no specific allowance, Income recognized
Residential 1-4 family	44	34
Home equity credit	2
Residential real estate	46	34
Commercial	26	82
Construction of commercial
Farm land
Vacant land		4
Real estate secured	72	120
Commercial and industrial	27	31
Consumer
Totals	$ 99	$ 151

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SECURITIES - Composition of securities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Available-for-sale
Total securities available-for-sale	$ 99,816	$ 126,287
Amortized cost (1)
Available-for-sale
U.S. Treasury notes	2,496	2,496
U.S. Government Agency notes	2,509	7,515
Municipal bonds	43,850	45,395
Mortgage backed securities, U.S. Government Agencies	35,720	47,465
Collateralized mortgage obligations, U.S. Government Agencies	3,807	5,131
Collateralized mortgage obligations, Non-agency	8,492	11,081
SBA bonds	2,260	2,781
Preferred Stock	20	20
Total securities available-for-sale	99,154	121,884
Non-marketable securities
Federal Home Loan Bank of Boston stock	5,340	5,747
Gross un-realized gains
Available-for-sale
U.S. Treasury notes	174	237
U.S. Government Agency notes	110	211
Municipal bonds	842	2,138
Mortgage backed securities, U.S. Government Agencies	654	1,284
Collateralized mortgage obligations, U.S. Government Agencies	41	66
Collateralized mortgage obligations, Non-agency	423	494
SBA bonds	101	82
Preferred Stock	516	147
Total securities available-for-sale	2,861	4,659
Non-marketable securities
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	(2,119)	(168)
Mortgage backed securities, U.S. Government Agencies	(60)	(20)
Collateralized mortgage obligations, U.S. Government Agencies
Collateralized mortgage obligations, Non-agency	(20)	(68)
SBA bonds
Preferred Stock
Total securities available-for-sale	(2,199)	(256)
Non-marketable securities
Federal Home Loan Bank of Boston stock
Fair value
Available-for-sale
U.S. Treasury notes	2,670	2,733
U.S. Government Agency notes	2,619	7,726
Municipal bonds	42,573	47,365
Mortgage backed securities, U.S. Government Agencies	36,314	48,729
Collateralized mortgage obligations, U.S. Government Agencies	3,848	5,197
Collateralized mortgage obligations, Non-agency	8,895	11,507
SBA bonds	2,361	2,863
Preferred Stock	536	167
Total securities available-for-sale	99,816	126,287
Non-marketable securities
Federal Home Loan Bank of Boston stock	$ 5,340	$ 5,747

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FAIR VALUE OF ASSETS AND LIABILITIES (Tables)

3 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Assets measured at fair value

Assets measured at fair value are as follows:

	Fair Value Measurements Using
(in thousands)		Level 1		Level 2		Level 3		Assets at fair value
September 30, 2013
Assets measured at fair value on a recurring basis
U.S. Treasury notes	$	-	$	2,670	$	-	$	2,670
U.S. Government agency notes		-		2,619		-		2,619
Municipal bonds		-		42,573		-		42,573
Mortgage-backed securities:
U.S. Government agencies		-		36,314		-		36,314
Collateralized mortgage obligations:
U.S. Government agencies		-		3,848		-		3,848
Non-agency		-		8,895		-		8,895
SBA bonds		-		2,361		-		2,361
Preferred stocks		536		-		-		536
Securities available-for-sale	$	536	$	99,280	$	-	$	99,816
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans	$	-	$	-	$	6,547	$	6,547
Other real estate owned		-		-		571		571
December 31, 2012
Assets measured 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		-		-		167
Securities available-for-sale	$	167	$	126,120	$	-	$	126,287
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans	$		$		$	8,434	$	8,434
Other real estate owned		-		-		244		244

Carrying values and estimated fair values of financial instruments

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
September 30, 2013
Financial Assets
Cash and due from banks	$	23,719	$	23,719	$	23,719	$	-	$	-
Interest-bearing time deposits		5,220		5,220		-		-		5,220
Securities available-for-sale		99,816		99,816		536		99,280		-
Federal Home Loan Bank stock		5,340		5,340		-		5,340		-
Loans held-for-sale		708		713		-		-		713
Loans receivable net		420,306		413,809		-		-		413,809
Accrued interest receivable		1,823		1,823		-		-		1,823
Financial Liabilities
Demand (non-interest-bearing)	$	83,892	$	83,892	$	-	$	-	$	83,892
Demand (interest-bearing)		79,232		79,232		-		-		79,232
Money market		125,070		125,070		-		-		125,070
Savings and other		107,380		107,380		-		-		107,380
Certificates of deposit		84,295		84,950		-		-		84,950
Deposits		479,869		480,524		-		-		480,524
FHLBB advances		30,801		33,692		-		-		33,692
Repurchase agreements		3,870		3,870		-		-		3,870
Accrued interest payable		166		166		-		-		166
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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PENSION AND OTHER BENEFITS - Net periodic cost for insured noncontributory defined benefit retirement plan (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Compensation and Retirement Disclosure [Abstract]
Service cost		$ 94		$ 310
Interest cost on benefit obligation	66	88	197	270
Expected return on plan assets	(67)	(113)	(202)	(342)
Amortization of net loss	1	28	5	95
Settlements and curtailments				341
Net periodic benefit cost		$ 97		$ 674

XML

LOANS - Troubled debt restructurings (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013
Quantity
Residential real estate		$ 4
Commercial real estate
Commercial and industrial		1
Troubled debt restructurings		5
Rate reduction		2
Rate reduction and debt consolidation		1
Rate reduction and interest only pursuant to sale		1
Rate reduction and term extension		1
Troubled debt restructurings		5
Pre-modification balance
Residential real estate		1,906
Commercial real estate
Commercial and industrial		91
Troubled debt restructurings		1,997
Rate reduction		1,070
Rate reduction and debt consolidation		91
Rate reduction and interest only pursuant to sale		758
Rate reduction and term extension		78
Troubled debt restructurings		1,997
Post-modification balance
Residential real estate		1,906
Commercial real estate
Commercial and industrial		91
Troubled debt restructurings		1,997
Rate reduction		1,070
Rate reduction and debt consolidation		91
Rate reduction and interest only pursuant to sale		758
Rate reduction and term extension		78
Troubled debt restructurings		$ 1,997

XML

MORTGAGE SERVICING RIGHTS - Changes in mortgage servicing rights (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Loan Servicing Rights
Balance, beginning of period	$ 1,109	$ 916	$ 1,076	$ 772
Originated	31	197	261	503
Amortization (1)	(101)	(115)	(298)	(277)
Balance, end of period	1,039	998	1,039	998
Valuation Allowance
Balance, beginning of period	(4)	(123)	(38)	(22)
(Increase) decrease in impairment reserve (1)	(38)	12	(4)	(89)
Balance, end of period	(42)	(111)	(42)	(111)
Loan servicing rights, net	$ 997	$ 887	$ 997	$ 887

XML

FAIR VALUE OF ASSETS AND LIABILITIES - Assets measured at fair value (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Fair Value Measurements Using, Level 1
Assets measured 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
Preferred stocks	536	167
Securities available-for-sale	536	167
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans
Other real estate owned
Fair Value Measurements Using, Level 2
Assets measured at fair value on a recurring basis
U.S. Treasury notes	2,670	2,733
U.S. Government agency notes	2,619	7,726
Municipal bonds	42,573	47,365
Mortgage-backed securities:
U.S. Government agencies	36,314	48,729
Collateralized mortgage obligations:
U.S. Government agencies	3,848	5,197
Non-agency	8,895	11,507
SBA bonds	2,361	2,863
Preferred stocks		126,120
Securities available-for-sale	99,280	126,120
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans
Other real estate owned
Fair Value Measurements Using, Level 3
Assets measured 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
Preferred stocks
Securities available-for-sale
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans	6,547	8,434
Other real estate owned	571	244
Estimated fair value
Assets measured at fair value on a recurring basis
U.S. Treasury notes	2,670	2,733
U.S. Government agency notes	2,619	7,726
Municipal bonds	42,573	47,365
Mortgage-backed securities:
U.S. Government agencies	36,314	48,729
Collateralized mortgage obligations:
U.S. Government agencies	3,848	5,197
Non-agency	8,895	11,507
SBA bonds	2,361	2,863
Preferred stocks	536	126,287
Securities available-for-sale	99,816	126,287
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans	6,547	8,434
Other real estate owned	$ 571	$ 244

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LOANS - Composition of loans receivable and loans held-for-sale (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Accounting Policies [Abstract]
Residential 1-4 family	$ 225,262	$ 198,552
Residential 5+ multifamily	4,894	3,889
Construction of residential 1-4 family	1,250	2,379
Home equity credit	34,163	34,162
Residential real estate	265,569	238,982
Commercial	91,817	87,382
Construction of commercial	9,154	5,823
Commercial real estate	100,971	93,205
Farm land	4,193	4,320
Vacant land	9,168	9,926
Real estate secured	379,901	346,433
Commercial and industrial	35,837	38,094
Municipal	4,101	3,378
Consumer	3,974	4,181
Loans receivable, gross	423,813	392,086
Deferred loan origination fees and costs, net	1,149	1,032
Allowance for loan losses	(4,656)	(4,360)
Loans receivable, net	420,306	388,758
Loans held-for-sale
Residential 1-4 family	$ 708	$ 1,879

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EARNINGS PER SHARE - Computation of earnings per share (basic and diluted) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Earnings Per Share [Abstract]
Net income	$ 1,016	$ 1,140	$ 3,103	$ 3,506
Less: Preferred stock dividends declared	(40)	(46)	(121)	(178)
Less: Undistributed earnings allocated to participating securities	(11)		(31)
Net income allocated to common stock	$ 976	$ 1,094	$ 2,982	$ 3,328
Common shares issued	1,710	1,690	1,707	1,690
Less: Unvested restricted stock awards	(19)		(17)
Common shares outstanding used to calculate basic earnings per common share	1,691	1,690	1,690	1,690
Add: Diluted effect of unvested restricted stock awards
Common shares outstanding used to calculate diluted earnings per common share	1,691	1,690	1,690	1,690
Earnings per common share (basic and diluted)	0.57	0.65	1.75	1.97

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

3 Months Ended

Sep. 30, 2013

Equity [Abstract]

Components of accumulated other comprehensive income

The components of accumulated other comprehensive (loss) income as follows:

At September 30, (in thousands)	2013			2012
Unrealized gains on securities available-for-sale, net of tax	$	437		$	2,950
Unrecognized pension plan expense, net of tax		(469	)		(2,078	)
Accumulated other comprehensive (loss) income, net	$	(32	)	$	872

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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	Unearned Compensation - Restricted Stock Awards	Accumulated other comprehensive income (loss)	Total
Balance - Beginning, Amount 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				3,506			3,506
Other comprehensive income (loss), net of tax						1,577	1,577
Common stock dividends paid				(1,419)			(1,419)
Preferred stock dividends declared				(176)			(176)
Issuance of restricted common stock, Shares							1,690
Issuance of common stock for director fee, Shares	960
Issuance of common stock for director fee, Amount			24				24
Balance - Ending, Amount at Sep. 30, 2012	169	16,000	13,158	40,175		872	70,374
Balance - Ending, Shares at Sep. 30, 2012	1,689,691
Balance - Beginning, Amount 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				3,103			3,103
Other comprehensive income (loss), net of tax						(2,469)	(2,469)
Common stock dividends declared				(1,436)			(1,436)
Preferred stock dividends declared				(121)			(121)
Issuance of restricted common stock, Shares	19,600						1,707
Issuance of restricted common stock, Amount	2		488		(490)
Forfeiture of restricted common stock, Shares	(500)
Forfeiture of restricted common stock			(12)		12
Stock based compensation-restricted stock awards					103		103
Issuance of common stock for director fee, Shares	1,330
Issuance of common stock for director fee, Amount			34				34
Balance - Ending, Amount at Sep. 30, 2013	$ 171	$ 16,000	$ 13,668	$ 41,779	$ (375)	$ (32)	$ 71,211
Balance - Ending, Shares at Sep. 30, 2013	1,710,121

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BASIS OF PRESENTATION

3 Months Ended

Sep. 30, 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 September 30, 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 Note 3 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 July 2013, the FASB issued ASU 2013-10, “Derivatives and Hedging (Topic 815) – Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.” The amendments in this ASU permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to Treasury Obligations of the U.S. government (UST) and the London Interbank Offered Rate (LIBOR). The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments apply to all entities that elect to apply hedge accounting of the benchmark interest rate under Topic 815. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The adoption of this ASU did not have an impact on Salisbury’s results of operations or financial position.

In July 2013, the FASB issued ASU 2013-11, “Income Taxes – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The amendments in this ASU provide guidance for the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments in this ASU are expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments apply to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance is not expected to have an impact on Salisbury’s results of operations or financial position.

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 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 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.

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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MORTGAGE SERVICING RIGHTS

3 Months Ended

Sep. 30, 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:

September 30, (in thousands)	2013		2012
Residential mortgage loans serviced for others	$	146,726	$	141,834
Fair value of mortgage servicing rights		1,550		989

Changes in mortgage servicing rights are as follows:

	Three months						Nine months
Periods ended September 30, (in thousands)	2013			2012			2013			2012
Loan Servicing Rights
Balance, beginning of period	$	1,109		$	916		$	1,076		$	772
Originated		31			197			261			503
Amortization (1)		(101	)		(115	)		(298	)		(277	)
Balance, end of period		1,039			998			1,039			998
Valuation Allowance
Balance, beginning of period		(4	)		(123	)		(38	)		(22	)
(Increase) decrease in impairment reserve (1)		(38	)		12			(4	)		(89	)
Balance, end of period		(42	)		(111	)		(42	)		(111	)
Loan servicing rights, net	$	997		$	887		$	997		$	887

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

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SECURITIES

3 Months Ended

Sep. 30, 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
September 30, 2013
Available-for-sale
U.S. Treasury notes	$	2,496	$	174	$	-		$	2,670
U.S. Government Agency notes		2,509		110		-			2,619
Municipal bonds		43,850		842		(2,119	)		42,573
Mortgage backed securities
U.S. Government Agencies		35,720		654		(60	)		36,314
Collateralized mortgage obligations
U.S. Government Agencies		3,807		41		-			3,848
Non-agency		8,492		423		(20	)		8,895
SBA bonds		2,260		101		-			2,361
Preferred Stock		20		516		-			536
Total securities available-for-sale	$	99,154	$	2,861	$	(2,199	)	$	99,816
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 nine month period ended September 30, 2013 and sold a $2,500,000 Treasury bond available-for-sale during the nine month period ended September 30, 2012. The pre-tax gain recognized on this sale was $267,000.

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
September 30, 2013
Available-for-sale
Municipal bonds	$	20,617	$	1,497	$	1,926	$	622	$	22,543	$	2,119
Mortgage backed securities		4,689		59		42		1		4,731		60
Collateralized mortgage obligations
Non-agency		432		1		824		12		1,256		13
Total temporarily impaired securities		25,738		1,557		2,792		635		28,530		2,192
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		339		7		-		-		339		7
Total temporarily and other-than-temporarily impaired securities	$	26,077	$	1,564	$	2,792	$	635	$	28,869	$	2,199

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 whether it has the 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 September 30, 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 evaluates these securities for strategic fit and may reduce its position in these securities, although 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 September 30, 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. 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 September 30, 2013.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at September 30, 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 September 30, 2013. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it has no present intention to do so, 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:

Nine months ended September 30 (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 September 30, 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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PLEDGED ASSETS - Securities and loans were pledged to secure public and trust deposits (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Banking and Thrift [Abstract]
Securities available-for-sale (at fair value)	$ 51,175	$ 54,497
Loans receivable	125,000	106,457
Total pledged assets	$ 176,175	$ 160,954

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SECURITIES - Aggregate fair value and gross unrealized loss of securities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Less than 12 Months, Fair Value
Available-for-sale
Municipal bonds	$ 20,617
Mortgage backed securities	4,689
Non-agency	432
Total temporarily impaired securities	25,738
Non-agency	339
Total temporarily and other-than-temporarily impaired securities	26,077
Less than 12 Months, Unrealized losses
Available-for-sale
Municipal bonds	1,497
Mortgage backed securities	59
Non-agency	1
Total temporarily impaired securities	1,557
Non-agency	7
Total temporarily and other-than-temporarily impaired securities	1,564
12 Months or Longer, Fair Value
Available-for-sale
Municipal bonds	1,926
Mortgage backed securities	42
Non-agency	824
Total temporarily impaired securities	2,792
Non-agency
Total temporarily and other-than-temporarily impaired securities	2,792
12 Months or Longer, Unrealized losses
Available-for-sale
Municipal bonds	622
Mortgage backed securities	1
Non-agency	12
Total temporarily impaired securities	635
Non-agency
Total temporarily and other-than-temporarily impaired securities	635
Total, Fair Value
Available-for-sale
Municipal bonds	22,543
Mortgage backed securities	4,731
Non-agency	1,256
Total temporarily impaired securities	28,530
Non-agency	339
Total temporarily and other-than-temporarily impaired securities	28,869
Gross un-realized gains
Available-for-sale
Municipal bonds	2,119
Mortgage backed securities	60
Non-agency	13
Total temporarily impaired securities	2,192
Non-agency	7
Total temporarily and other-than-temporarily impaired securities	$ 2,199

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LOANS - Composition of loans receivable by risk rating grade (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Residential 1-4 family	$ 225,262	$ 198,552
Residential 5+ multifamily	4,894	3,889
Construction of residential 1-4 family	1,250	2,379
Home equity credit	34,163	34,162
Residential real estate	265,569	238,982
Commercial	91,817	87,382
Construction of commercial	9,154	5,823
Commercial real estate	100,971	93,205
Farm land	4,193	4,320
Vacant land	9,168	9,926
Real estate secured	379,901	346,433
Commercial and industrial	35,837	38,094
Municipal	4,101	3,378
Consumer	3,974	4,181
Loans receivable, gross	423,813	392,086
Pass
Residential 1-4 family	206,691	180,442
Residential 5+ multifamily	2,711	2,872
Construction of residential 1-4 family	1,250	1,570
Home equity credit	31,541	30,981
Residential real estate	242,193	215,865
Commercial	66,899	64,817
Construction of commercial	8,412	5,055
Commercial real estate	75,311	69,872
Farm land	1,611	2,799
Vacant land	5,759	4,885
Real estate secured	324,874	293,421
Commercial and industrial	28,149	28,453
Municipal	4,101	3,378
Consumer	3,854	3,994
Loans receivable, gross	360,978	329,246
Special mention
Residential 1-4 family	11,754	12,442
Residential 5+ multifamily	1,208	773
Construction of residential 1-4 family
Home equity credit	1,240	1,848
Residential real estate	14,202	15,094
Commercial	16,513	13,299
Construction of commercial	152	297
Commercial real estate	16,665	13,596
Farm land	1,436	341
Vacant land	293	863
Real estate secured	32,596	29,894
Commercial and industrial	6,675	8,300
Municipal
Consumer	102	159
Loans receivable, gross	39,373	38,353
Substandard
Residential 1-4 family	6,721	5,538
Residential 5+ multifamily	975	244
Construction of residential 1-4 family		809
Home equity credit	1,382	1,333
Residential real estate	9,078	7,924
Commercial	8,405	9,266
Construction of commercial	590	471
Commercial real estate	8,995	9,737
Farm land	1,146	1,180
Vacant land	3,116	4,178
Real estate secured	22,335	23,019
Commercial and industrial	1,013	1,341
Municipal
Consumer	18	28
Loans receivable, gross	23,366	24,388
Doubtful
Residential 1-4 family	96	99
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity credit
Residential real estate	96	99
Commercial
Construction of commercial
Commercial real estate
Farm land
Vacant land
Real estate secured	96	99
Commercial and industrial
Municipal
Consumer
Loans receivable, gross	96	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	225,262	198,552
Residential 5+ multifamily	4,894	3,889
Construction of residential 1-4 family	1,250	2,379
Home equity credit	34,163	34,162
Residential real estate	265,569	238,982
Commercial	91,817	87,382
Construction of commercial	9,154	5,823
Commercial real estate	100,971	93,205
Farm land	4,193	4,320
Vacant land	9,168	9,926
Real estate secured	379,901	346,433
Commercial and industrial	35,837	38,094
Municipal	4,101	3,378
Consumer	3,974	4,181
Loans receivable, gross	$ 423,813	$ 392,086

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LOANS - Credit quality segments of loans receivable and the allowance for loan losses (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Collectively evaluated, Loans
Performing loans	$ 398,638	$ 364,594
Potential problem loans	8,223	8,345
Impaired loans
Unallocated allowance
Totals	406,861	372,939
Collectively evaluated, Allowance
Performing loans	2,693	2,567
Potential problem loans	249	246
Impaired loans
Unallocated allowance	535
Totals	3,477	2,813
Individually evaluated, Allowance
Performing loans	80	121
Potential problem loans	905	2,464
Impaired loans	15,967	16,562
Unallocated allowance
Totals	16,952	19,147
Individually evaluated, Loans
Performing loans	27	52
Potential problem loans	122	131
Impaired loans	1,030	924
Unallocated allowance		440
Totals	1,179	1,547
Total Portfolio, Loans
Performing loans	398,718	364,715
Potential problem loans	9,128	10,809
Impaired loans	15,967	16,562
Unallocated allowance
Totals	423,813	392,086
Total Portfolio, Allowance
Performing loans	2,720	2,619
Potential problem loans	371	377
Impaired loans	1,030	924
Unallocated allowance	535	440
Totals	$ 4,656	$ 4,360

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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	Sep. 30, 2013	Dec. 31, 2012
Carrying value
Financial Assets
Cash and due from banks	$ 23,719	$ 43,574
Interest-bearing time deposits	5,220
Securities available-for-sale	99,816	126,287
Federal Home Loan Bank stock	5,340	5,747
Loans held-for-sale	708	1,879
Loans receivable net	420,306	388,758
Accrued interest receivable	1,823	1,818
Financial Liabilities
Demand (non-interest-bearing)	83,892	98,850
Demand (interest-bearing)	79,232	65,991
Money market	125,070	128,501
Savings and other	107,380	103,985
Certificates of deposit	84,295	93,888
Deposits	479,869	491,215
FHLBB advances	30,801	31,980
Repurchase agreements	3,870	1,784
Accrued interest payable	166	196
Estimated fair value
Financial Assets
Cash and due from banks	23,719
Interest-bearing time deposits	5,220
Securities available-for-sale	99,816
Federal Home Loan Bank stock	5,340
Loans held-for-sale	713
Loans receivable net	413,809
Accrued interest receivable	1,823
Financial Liabilities
Demand (non-interest-bearing)	83,892
Demand (interest-bearing)	79,232
Money market	125,070
Savings and other	107,380
Certificates of deposit	84,950
Deposits	480,524
FHLBB advances	33,692
Repurchase agreements	3,870
Accrued interest payable	166
Fair Value Measurements Using, Level 1
Financial Assets
Cash and due from banks	23,719
Interest-bearing time deposits
Securities available-for-sale	536
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
Interest-bearing time deposits
Securities available-for-sale	99,280
Federal Home Loan Bank stock	5,340
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
Interest-bearing time deposits	5,220
Securities available-for-sale
Federal Home Loan Bank stock
Loans held-for-sale	713
Loans receivable net	413,809
Accrued interest receivable	1,823
Financial Liabilities
Demand (non-interest-bearing)	83,892
Demand (interest-bearing)	79,232
Money market	125,070
Savings and other	107,380
Certificates of deposit	84,950
Deposits	480,524
FHLBB advances	33,692
Repurchase agreements	3,870
Accrued interest payable	166
Estimated fair value
Financial Assets
Cash and due from banks		43,574
Interest-bearing time deposits
Securities available-for-sale		126,287
Federal Home Loan Bank stock		5,747
Loans held-for-sale		1,893
Loans receivable net		389,292
Accrued interest receivable		1,818
Financial Liabilities
Demand (non-interest-bearing)		98,850
Demand (interest-bearing)		65,991
Money market		128,501
Savings and other		103,985
Certificates of deposit		94,894
Deposits		492,221
FHLBB advances		35,363
Repurchase agreements		1,784
Accrued interest payable		196
Fair Value Measurements Using, Level 1
Financial Assets
Cash and due from banks		43,574
Interest-bearing time deposits
Securities available-for-sale		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
Interest-bearing time deposits
Securities available-for-sale		126,120
Federal Home Loan Bank stock		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
Interest-bearing time deposits
Securities available-for-sale
Federal Home Loan Bank stock
Loans held-for-sale		1,893
Loans receivable net		389,292
Accrued interest receivable		1,818
Financial Liabilities
Demand (non-interest-bearing)		98,850
Demand (interest-bearing)		65,991
Money market		128,501
Savings and other		103,985
Certificates of deposit		94,894
Deposits		492,221
FHLBB advances		35,363
Repurchase agreements		1,784
Accrued interest payable		$ 196

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SHAREHOLDERS' EQUITY (Details Narrative) (USD $)	0 Months Ended	1 Months Ended	3 Months Ended		9 Months Ended
	Sep. 27, 2013	Feb. 08, 2013	Sep. 30, 2013	Jun. 30, 2013	Sep. 30, 2013	Sep. 30, 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	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	$ 40,000				$ (121,000)	$ (176,000)
Granted shares of restricted stock to Long Term Incentive Plan		19,600
Employees in 2011 Long Term Incentive Plan		22
Shares granted to President and CEO		5,000

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
ASSETS
Loans receivable, allowance for loan losses	$ 4,656	$ 4,360
Intangible assets, net of accumulated amortization	$ 1,912	$ 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	1,710,121	1,689,691

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SHAREHOLDERS' EQUITY

3 Months Ended

Sep. 30, 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 September 30, 2013, 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
September 30, 2013
Total Capital (to risk-weighted assets)
Salisbury	$	65,703		16.67	%	$	31,531		8.0	%		n/a		-
Bank		55,413		13.93			31,815		8.0		$	39,768		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		60,783		15.42			15,766		4.0			n/a		-
Bank		50,493		12.70			15,907		4.0			23,861		6.0
Tier 1 Capital (to average assets)
Salisbury		60,783		10.28			23,659		4.0			n/a		-
Bank		50,493		8.60			23,485		4.0			29,357		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

16

In December 2010, the Basel Committee, a group of bank regulatory supervisors from around the world, released its final framework for strengthening international capital and liquidity regulation, now officially identified by the Basel Committee as “Basel III.” Basel III, when fully implemented by the U.S. bank regulatory agencies and fully phased-in, will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity.

In July 2013, the Federal Reserve Board, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation approved final rules to implement the Basel III capital framework. The rules will be effective on January 1, 2015 and phased-in over a multiple year period through 2019. The new capital rules call for higher quality capital with higher minimum capital level requirements. We are in the process of assessing the impact from these new regulatory requirements, and while we cannot be certain of the impact, we believe that we will exceed the requirements of adequately capitalized plus the buffer, once they become effective.

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 September 30, 2013 and June 30, 2013, 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 September 27, 2013, Salisbury declared a Series B Preferred Stock dividend of $40,000, payable on October 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.

Grants of Restricted Stock and Options

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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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Income Statement [Abstract]
Net income	$ 1,016	$ 1,140	$ 3,103	$ 3,506
Other comprehensive (loss) income
Net unrealized (losses) gains on securities available-for-sale	(1,240)	921	(3,741)	2,698
Reclassification of net realized gains in net income				(279)
Unrealized (losses) gains on securities available-for-sale	(1,240)	921	(3,741)	2,419
Income tax benefit (expense)	422	(313)	1,272	(822)
Unrealized (losses) gains on securities available-for-sale, net of tax	(818)	608	(2,469)	1,597
Change in unrecognized pension plan income		27		(31)
Income tax (benefit) expense		(9)		11
Pension plan income (loss), net of tax		18		(20)
Other comprehensive (loss) income, net of tax	(818)	626	(2,469)	1,577
Comprehensive income	$ 198	$ 1,766	$ 634	$ 5,083

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CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
ASSETS
Cash and due from banks	$ 7,679	$ 9,545
Interest bearing demand deposits with other banks	16,040	34,029
Total cash and cash equivalents	23,719	43,574
Interest-bearing time deposits	5,220
Securities
Available-for-sale at fair value	99,816	126,287
Federal Home Loan Bank of Boston stock at cost	5,340	5,747
Loans held-for-sale	708	1,879
Loans receivable, net (allowance for loan losses: $4,656 and $4,360)	420,306	388,758
Other real estate owned	571	244
Bank premises and equipment, net	11,253	11,520
Goodwill	9,829	9,829
Intangible assets (net of accumulated amortization: $1,912 and $1,745)	631	798
Accrued interest receivable	1,823	1,818
Cash surrender value of life insurance policies	7,480	7,295
Deferred taxes	719
Other assets	2,066	3,064
Total Assets	589,481	600,813
Deposits
Demand (non-interest bearing)	83,892	98,850
Demand (interest bearing)	79,232	65,991
Money market	125,070	128,501
Savings and other	107,380	103,985
Certificates of deposit	84,295	93,888
Total deposits	479,869	491,215
Repurchase agreements	3,870	1,784
Federal Home Loan Bank of Boston advances	30,801	31,980
Deferred taxes		590
Accrued interest and other liabilities	3,730	3,247
Total Liabilities	518,270	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: 1,710,121 and 1,689,691	171	169
Paid-in capital	13,668	13,158
Retained earnings	41,779	40,233
Unearned Compensation - restricted stock awards	(375)
Accumulated other comprehensive income (loss), net	(32)	2,437
Total Shareholders' Equity	71,211	71,997
Total Liabilities and Shareholders' Equity	$ 589,481	$ 600,813

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SECURITIES - Activity related to credit losses recognized in earnings (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Accounting Policies [Abstract]
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

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SHAREHOLDERS' EQUITY (Tables)

3 Months Ended

Sep. 30, 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
September 30, 2013
Total Capital (to risk-weighted assets)
Salisbury	$	65,703		16.67	%	$	31,531		8.0	%		n/a		-
Bank		55,413		13.93			31,815		8.0		$	39,768		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		60,783		15.42			15,766		4.0			n/a		-
Bank		50,493		12.70			15,907		4.0			23,861		6.0
Tier 1 Capital (to average assets)
Salisbury		60,783		10.28			23,659		4.0			n/a		-
Bank		50,493		8.60			23,485		4.0			29,357		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

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SHAREHOLDERS' EQUITY - Regulatory capital position and minimum capital requirements (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Actual
Salisbury, Amount	$ 65,703	$ 63,391
Salisbury, Ratio	16.67%	16.63%
Bank, Amount	55,413	53,132
Bank, Ratio	13.93%	13.77%
Salisbury, Amount	60,783	58,933
Salisbury, Ratio	15.42%	15.46%
Bank, Amount	50,493	48,674
Bank, Ratio	12.70%	12.62%
Salisbury, Amount	60,783	58,933
Salisbury, Ratio	10.28%	9.87%
Bank, Amount	50,493	48,674
Bank, Ratio	8.60%	8.15%
For Capital Adequacy Purposes
Salisbury, Amount	31,531	30,494
Salisbury, Ratio	8.00%	8.00%
Bank, Amount	31,815	30,866
Bank, Ratio	8.00%	8.00%
Salisbury, Amount	15,766	15,247
Salisbury, Ratio	4.00%	4.00%
Bank, Amount	15,907	15,432
Bank, Ratio	4.00%	4.00%
Salisbury, Amount	23,659	23,876
Salisbury, Ratio	4.00%	4.00%
Bank, Amount	23,485	23,876
Bank, Ratio	4.00%	4.00%
To be Well Capitalized Under Prompt Corrective Action Provisions
Salisbury, Amount
Salisbury, Ratio
Bank, Amount	39,768	38,582
Bank, Ratio	10.00%	10.00%
Salisbury, Amount
Salisbury, Ratio
Bank, Amount	23,861	23,149
Bank, Ratio	6.00%	6.00%
Salisbury, Amount
Salisbury, Ratio
Bank, Amount	$ 29,357	$ 29,845
Bank, Ratio	5.00%	5.00%

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MORTGAGE SERVICING RIGHTS - Loans serviced for others and fair value of mortgage servicing rights (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Accounting Policies [Abstract]
Residential mortgage loans serviced for others	$ 146,726	$ 141,834
Fair value of mortgage servicing rights	$ 1,550	$ 989

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LOANS - Changes in the allowance for loan losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Beginning balance
Residential	$ 1,892	$ 1,475	$ 1,934	$ 1,478
Commercial	1,403	1,277	1,059	1,139
Land	137	219	301	410
Real estate	3,432	2,971	3,294	3,027
Commercial & industrial	541	820	499	704
Municipal	40	27	36	24
Consumer	69	66	91	79
Unallocated	549	323	440	242
Totals	4,631	4,207	4,360	4,076
Provision
Residential	227	92	259	226
Commercial	58	(206)	471	(72)
Land	22	318	56	169
Real estate	307	204	786	323
Commercial & industrial	(62)	(23)	(16)	114
Municipal	1	6	5	9
Consumer	8	74	5	92
Unallocated	(14)	69	96	152
Totals	240	330	876	690
Charge-offs
Residential	(159)	(88)	(233)	(225)
Commercial	(19)	(41)	(94)	(41)
Land	(23)	(224)	(221)	(266)
Real estate	(201)	(353)	(548)	(532)
Commercial & industrial			(4)	(29)
Municipal
Consumer	(23)	(14)	(47)	(63)
Unallocated			(1)
Totals	(224)	(367)	(600)	(624)
Recoveries
Residential
Commercial		3	6	7
Land
Real estate		3	6	7
Commercial & industrial		1		9
Municipal
Consumer	9	5	14	22
Unallocated				(1)
Totals	9	9	20	37
Ending balance
Residential	1,960	1,479	1,960	1,479
Commercial	1,442	1,033	1,442	1,033
Land	136	313	136	313
Real estate	3,538	2,825	3,538	2,825
Commercial & industrial	479	798	479	798
Municipal	41	33	41	33
Consumer	63	131	63	130
Unallocated	535	392	535	393
Totals	$ 4,656	$ 4,179	$ 4,656	$ 4,179

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LOANS - Composition of loans receivable and the allowance for loan losses (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Residential 1-4 family	$ 225,262	$ 198,552
Residential 5+ multifamily	4,894	3,889
Construction of residential 1-4 family	1,250	2,379
Home equity credit	34,163	34,162
Residential real estate	265,569	238,982
Commercial	91,817	87,382
Construction of commercial	9,154	5,823
Commercial real estate	100,971	93,205
Farm land	4,193	4,320
Vacant land	9,168	9,926
Real estate secured	379,901	346,433
Commercial and industrial	35,837	38,094
Municipal	4,101	3,378
Consumer	3,974	4,181
Collectively evaluated, Loans
Residential 1-4 family	219,211	191,886
Residential 5+ multifamily	3,934	2,913
Construction of residential 1-4 family	1,250	2,379
Home equity credit	33,672	33,697
Residential real estate	258,067	230,875
Commercial	86,744	81,635
Construction of commercial	9,154	5,802
Commercial real estate	95,898	87,437
Farm land	3,809	4,320
Vacant land	6,096	5,795
Real estate secured	363,870	328,427
Commercial and industrial	34,997	37,073
Municipal	4,101	3,378
Consumer	3,893	4,061
Unallocated allowance
Totals	406,861	372,939
Collectively evaluated, Allowance
Residential 1-4 family	862	743
Residential 5+ multifamily	20	22
Construction of residential 1-4 family	6	10
Home equity credit	361	365
Residential real estate	1,249	1,140
Commercial	973	931
Construction of commercial	104	64
Commercial real estate	1,077	995
Farm land	66	66
Vacant land	65	70
Real estate secured	2,457	2,271
Commercial and industrial	408	467
Municipal	41	36
Consumer	36	39
Unallocated allowance	535	440
Totals	3,477	3,253
Individually evaluated, Loans
Residential 1-4 family	6,051	6,666
Residential 5+ multifamily	960	976
Construction of residential 1-4 family
Home equity credit	491	465
Residential real estate	7,502	8,107
Commercial	5,073	5,747
Construction of commercial	0	21
Commercial real estate	5,073	5,768
Farm land	384
Vacant land	3,072	4,131
Real estate secured	16,031	18,006
Commercial and industrial	840	1,021
Municipal
Consumer	81	120
Unallocated allowance
Totals	16,952	19,147
Individually evaluated, Allowance
Residential 1-4 family	647	652
Residential 5+ multifamily		50
Construction of residential 1-4 family
Home equity credit	64	92
Residential real estate	711	794
Commercial	365	64
Construction of commercial
Commercial real estate	365	64
Farm land
Vacant land	5	164
Real estate secured	1,081	1,022
Commercial and industrial	71	32
Municipal
Consumer	27	53
Unallocated allowance
Totals	1,179	1,107
Total Portfolio, Loans
Residential 1-4 family	225,262	198,552
Residential 5+ multifamily	4,894	3,889
Construction of residential 1-4 family	1,250	2,379
Home equity credit	34,163	34,162
Residential real estate	265,569	238,982
Commercial	91,817	87,382
Construction of commercial	9,154	5,823
Commercial real estate	100,971	93,205
Farm land	4,193	4,320
Vacant land	9,168	9,926
Real estate secured	379,901	346,433
Commercial and industrial	35,837	38,094
Municipal	4,101	3,378
Consumer	3,974	4,181
Unallocated allowance
Totals	423,813	392,086
Total Portfolio, Allowance
Residential 1-4 family	1,509	1,395
Residential 5+ multifamily	20	72
Construction of residential 1-4 family	6	10
Home equity credit	425	457
Residential real estate	1,960	1,934
Commercial	1,338	995
Construction of commercial	104	64
Commercial real estate	1,442	1,059
Farm land	66	66
Vacant land	70	234
Real estate secured	3,538	3,293
Commercial and industrial	479	499
Municipal	41	36
Consumer	63	92
Unallocated allowance	535	440
Totals	$ 4,656	$ 4,360

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EARNINGS PER SHARE

3 Months Ended

Sep. 30, 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:

	Three months						Nine months
Periods ended September 30, (in thousands)	2013			2012			2013			2012
Net income	$	1,016		$	1,140		$	3,103		$	3,506
Less: Preferred stock dividends declared		(40	)		(46	)		(121	)		(178	)
Less: Undistributed earnings allocated to participating securities		(11	)		-			(31	)		-
Net income allocated to common stock	$	965		$	1,094		$	2,951		$	3,328
Common shares issued		1,710			1,690			1,707			1,690
Less: Unvested restricted stock awards		(19	)		-			(17	)		-
Common shares outstanding used to calculate basic earnings per common share		1,691			1,690			1,690			1,690
Add: Diluted effect of unvested restricted stock awards		-			-			-			-
Common shares outstanding used to calculate diluted earnings per common share		1,691			1,690			1,690			1,690
Earnings per common share (basic and diluted)	$	0.57		$	0.65		$	1.75		$	1.97

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SECURITIES (Details Narrative) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2009
Accounting Policies [Abstract]
Treasury bond available-for-sale, sold		$ 2,500,000
Gain on Treasury bond sold		267,000
Recognized losses for deterioration in credit quality			$ 1,128,000

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PLEDGED ASSETS (Details Narrative) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Banking and Thrift [Abstract]
Securities pledged for public deposits	$ 42,000
Securities pledged for repurchase agreements	9,100
Securities pledged for FHLBB advances	$ 100

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ACCUMULATED OTHER COMPREHENSIVE INCOME

3 Months Ended

Sep. 30, 2013

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME

NOTE 9 -ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The components of accumulated other comprehensive (loss) income as follows:

At September 30, (in thousands)	2013			2012
Unrealized gains on securities available-for-sale, net of tax	$	437		$	2,950
Unrecognized pension plan expense, net of tax		(469	)		(2,078	)
Accumulated other comprehensive (loss) income, net	$	(32	)	$	872

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PLEDGED ASSETS

3 Months Ended

Sep. 30, 2013

Banking and Thrift [Abstract]

PLEDGED ASSETS

NOTE 5 - PLEDGED ASSETS

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

(in thousands)	September 30, 2013		December 31, 2012
Securities available-for-sale (at fair value)	$	51,175	$	54,497
Loans receivable		125,000		106,457
Total pledged assets	$	176,175	$	160,954

At September 30, 2013, securities were pledged as follows: $42.0 million to secure public deposits, $9.1 million to secure repurchase agreements and $0.1 million to secure FHLBB advances. Loans receivable were pledged to secure FHLBB advances and credit facilities.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Operating Activities
Net income	$ 3,103	$ 3,506
Amortization and depreciation
Securities	366	464
Bank premises and equipment	642	666
Core deposit intangible	167	167
Mortgage servicing rights	298	278
Fair value adjustment on loans	24	25
Gains on calls of securities available-for-sale		(12)
Gains on sales of securities available-for-sale		(267)
Loss on sale/disposals of premises and equipment	34	24
Loss recognized on other real estate owned	9	24
Provision for loan losses	876	690
Decrease (increase) in loans held-for-sale	1,171	(647)
Increase in deferred loan origination fees and costs, net	(117)	(44)
Mortgage servicing rights originated	(261)	(504)
Decrease in mortgage servicing rights impairment reserve	4	89
(Increase) decrease in interest receivable	(5)	160
Deferred tax benefit	(37)	(39)
Decrease (increase) in prepaid expenses	542	(87)
Increase in cash surrender value of life insurance policies	(185)	(202)
Decrease in income tax receivable	352	420
Decrease (increase) in other assets	63	(29)
Increase in accrued expenses	436	766
Decrease in interest payable	(29)	(53)
Increase in other liabilities	76	47
Issuance of shares for director fee	34	24
Issuance of shares of restricted stock	103
Net cash provided by operating activities	7,666	5,466
Investing Activities
Redemption of Federal Home Loan Bank stock	407	285
Purchase of interest-bearing time deposit with other banks	(5,220)
Proceeds from calls of securities available-for-sale	1,650	12,668
Proceeds from maturities of securities available-for-sale	20,714	16,928
Proceeds from sale of securities available-for-sale		2,767
Proceeds from maturities of securities held-to-maturity		50
Loan originations and principle collections, net	(34,040)	(6,986)
Recoveries of loans previously charged-off	20	37
Proceeds from sales of other real estate owned	1,353	1,745
Capital expenditures	(409)	(286)
Net cash (utilized) provided by investing activities	(15,525)	27,208
Financing Activities
(Decrease) increase in deposit transaction accounts, net	(1,753)	25,970
Decrease in time deposits, net	(9,593)	(7,070)
Increase (decrease) in securities sold under agreements to repurchase, net	2,086	(9,207)
Principal payments on Federal Home Loan Bank of Boston advances	(1,179)	(12,223)
Common stock dividends paid	(1,436)	(1,419)
Preferred stock dividends paid	(121)	(195)
Net cash utilized by financing activities	(11,996)	(4,144)
Net (decrease) increase in cash and cash equivalents	(19,855)	28,530
Cash and cash equivalents, beginning of period	43,574	36,886
Cash and cash equivalents, end of period	23,719	65,416
Cash paid during period
Interest	2,405	3,342
Income taxes	380	582
Non-cash transfers
Transfer from loans to other real estate owned	1,689	666
Transfer from other real estate owned to loans		$ (1,000)

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PENSION AND OTHER BENEFITS (Details Narrative) (USD $)	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Compensation and Retirement Disclosure [Abstract]
Salisbury 401(k) contribution expense	$ 183,000	$ 70,000
Endorsement split-dollar life insurance arrangements	$ 14,000	$ 11,000

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LOANS - Composition of loans receivable by delinquency status (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Residential 1-4 family	$ 225,262	$ 198,552
Residential 5+ multifamily	4,894	3,889
Construction of residential 1-4 family	1,250	2,379
Home equity credit	34,163	34,162
Residential real estate	265,569	238,982
Commercial	91,817	87,382
Construction of commercial	9,154	5,823
Commercial real estate	100,971	93,205
Farm land	4,193	4,320
Vacant land	9,168	9,926
Real estate secured	379,901	346,433
Commercial and industrial	35,837	38,094
Municipal	4,101	3,378
Consumer	3,974	4,181
Loans receivable, gross	423,813	392,086
Current
Residential 1-4 family	217,263	190,488
Residential 5+ multifamily	4,678	3,889
Construction of residential 1-4 family	1,250	2,379
Home equity credit	33,018	32,540
Residential real estate	256,209	229,296
Commercial	88,105	83,477
Construction of commercial	7,940	5,659
Commercial real estate	96,045	89,136
Farm land	3,782	3,898
Vacant land	5,910	5,932
Real estate secured	361,946	328,262
Commercial and industrial	35,346	37,618
Municipal	4,091	3,378
Consumer	3,857	4,034
Loans receivable, gross	405,240	373,292
Past due, 1-29 days
Residential 1-4 family	3,156	2,545
Residential 5+ multifamily	115
Construction of residential 1-4 family
Home equity credit	337	890
Residential real estate	3,608	3,435
Commercial	1,902	864
Construction of commercial	1,074
Commercial real estate	2,976	864
Farm land		422
Vacant land	120
Real estate secured	6,704	4,721
Commercial and industrial	328	351
Municipal	10
Consumer	89	108
Loans receivable, gross	7,131	5,180
Past due, 30-59 days
Residential 1-4 family	2,644	3,578
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity credit	447	113
Residential real estate	3,091	3,691
Commercial	213	1,104
Construction of commercial		164
Commercial real estate	213	1,268
Farm land	27
Vacant land	58
Real estate secured	3,389	4,959
Commercial and industrial	30	26
Municipal
Consumer	13	25
Loans receivable, gross	3,432	5,010
Past due, 60-89 days
Residential 1-4 family	2,012	639
Residential 5+ multifamily	101
Construction of residential 1-4 family
Home equity credit	191	396
Residential real estate	2,304	1,035
Commercial	438	566
Construction of commercial	140
Commercial real estate	578	566
Farm land
Vacant land	7	48
Real estate secured	2,889	1,649
Commercial and industrial	112	99
Municipal
Consumer	15	14
Loans receivable, gross	3,016	1,762
Past due, 90-179 days
Residential 1-4 family	53	1,185
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity credit	132
Residential real estate	185	1,185
Commercial	127	58
Construction of commercial	0
Commercial real estate	127	58
Farm land	384
Vacant land		740
Real estate secured	696	1,983
Commercial and industrial
Municipal
Consumer
Loans receivable, gross	696	1,983
Past due, 180 days and over
Residential 1-4 family	134	117
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity credit	38	223
Residential real estate	172	340
Commercial	1,032	1,313
Construction of commercial
Commercial real estate	1,032	1,313
Farm land
Vacant land	3,073	3,206
Real estate secured	4,277	4,859
Commercial and industrial	21
Municipal
Consumer
Loans receivable, gross	4,298	4,859
Past due, 30 days and over
Residential 1-4 family	4,843	5,519
Residential 5+ multifamily	101
Construction of residential 1-4 family
Home equity credit	808	732
Residential real estate	5,752	6,251
Commercial	1,810	3,041
Construction of commercial	140	164
Commercial real estate	1,950	3,205
Farm land	411
Vacant land	3,138	3,994
Real estate secured	11,251	13,450
Commercial and industrial	163	125
Municipal
Consumer	28	39
Loans receivable, gross	11,442	13,614
Past due, Accruing 90 days and over
Residential 1-4 family
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity credit	23
Residential real estate	23
Commercial
Construction of commercial
Commercial real estate
Farm land
Vacant land
Real estate secured	23
Commercial and industrial
Municipal
Consumer
Loans receivable, gross	23
Non-accrual
Residential 1-4 family	3,013	3,024
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity credit	420	442
Residential real estate	3,433	3,466
Commercial	2,114	2,214
Construction of commercial		21
Commercial real estate	2,114	2,235
Farm land	384
Vacant land	3,072	3,994
Real estate secured	9,003	9,695
Commercial and industrial	140	164
Municipal
Consumer
Loans receivable, gross	$ 9,143	$ 9,859

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LOANS (Tables)

3 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Composition of loans receivable and loans held-for-sale

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

(in thousands)	September 30, 2013			December 31, 2012
Residential 1-4 family	$	225,262		$	198,552
Residential 5+ multifamily		4,894			3,889
Construction of residential 1-4 family		1,250			2,379
Home equity credit		34,163			34,162
Residential real estate		265,569			238,982
Commercial		91,817			87,382
Construction of commercial		9,154			5,823
Commercial real estate		100,971			93,205
Farm land		4,193			4,320
Vacant land		9,168			9,926
Real estate secured		379,901			346,433
Commercial and industrial		35,837			38,094
Municipal		4,101			3,378
Consumer		3,974			4,181
Loans receivable, gross		423,813			392,086
Deferred loan origination fees and costs, net		1,149			1,032
Allowance for loan losses		(4,656	)		(4,360	)
Loans receivable, net	$	420,306		$	388,758
Loans held-for-sale
Residential 1-4 family	$	708		$	1,879

Composition of loans receivable by risk rating grade

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

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
September 30, 2013
Residential 1-4 family	$	206,691	$	11,754	$	6,721	$	96	$	-	$	225,262
Residential 5+ multifamily		2,711		1,208		975		-		-		4,894
Construction of residential 1-4 family		1,250		-		-		-		-		1,250
Home equity credit		31,541		1,240		1,382		-		-		34,163
Residential real estate		242,193		14,202		9,078		96		-		265,569
Commercial		66,899		16,513		8,405		-		-		91,817
Construction of commercial		8,412		152		590		-		-		9,154
Commercial real estate		75,311		16,665		8,995		-		-		100,971
Farm land		1,611		1,436		1,146		-		-		4,193
Vacant land		5,759		293		3,116		-		-		9,168
Real estate secured		324,874		32,596		22,335		96		-		379,901
Commercial and industrial		28,149		6,675		1,013		-				35,837
Municipal		4,101		-		-		-		-		4,101
Consumer		3,854		102		18		-		-		3,974
Loans receivable, gross	$	360,978	$	39,373	$	23,366	$	96	$	-	$	423,813
(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

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
September 30, 2013
Residential 1-4 family	$	217,263	$	3,156	$	2,644	$	2,012	$	53	$	134	$	4,843	$	-	$	3,013
Residential 5+ multifamily		4,678		115		-		101		-		-		101		-		-
Construction of residential 1-4 family		1,250		-		-		-		-		-		-		-		-
Home equity credit		33,018		337		447		191		132		38		808		23		420
Residential real estate		256,209		3,608		3,091		2,304		185		172		5,752		23		3,433
Commercial		88,105		1,902		213		438		127		1,032		1,810		-		2,114
Construction of commercial		7,940		1,074		-		140		0		-		140		-		-
Commercial real estate		96,045		2,976		213		578		127		1,032		1,950		-		2,114
Farm land		3,782		-		27		-		384		-		411		-		384
Vacant land		5,910		120		58		7		-		3,073		3,138		-		3,072
Real estate secured		361,946		6,704		3,389		2,889		696		4,277		11,251		23		9,003
Commercial and industrial		35,346		328		30		112		-		21		163		-		140
Municipal		4,091		10		-		-		-		-		-		-		-
Consumer		3,857		89		13		15		-		-		28		-		-
Loans receivable, gross	$	405,240	$	7,131	$	3,432	$	3,016	$	696	$	4,298	$	11,442	$	23	$	9,143
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

Troubled debt restructurings occurring during the periods are as follows:

	Three months ended September 30, 2013						Nine months ended September 30, 2013
(in thousands)	Quantity		Pre-modification balance		Post-modification balance		Quantity		Pre-modification balance		Post-modification balance
Residential real estate		-	$	-	$	-		4	$	1,906	$	1,906
Commercial real estate		-		-		-		-		-		-
Commercial and industrial		-		-		-		1		91		91
Troubled debt restructurings		-	$	-	$	-		5	$	1,997	$	1,997
Rate reduction		-	$	-	$	-		2	$	1,070	$	1,070
Rate reduction and debt consolidation		-		-		-		1		91		91
Rate reduction and interest only pursuant to sale		-		-		-		1		758		758
Rate reduction and term extension		-		-		-		1		78		78
Troubled debt restructurings		-	$	-	$	-		5	$	1,997	$	1,997

Changes in the allowance for loan losses

Changes in the allowance for loan losses are as follows:

	Three months ended September 30												Nine months ended September 30
(in thousands)	Beginning balance		Provision			Charge-offs			Reco-veries		Ending balance		Beginning balance		Provision			Charge-offs			Reco-veries			Ending balance
2013 Periods
Residential	$	1,892	$	227		$	(159	)	$	-	$	1,960	$	1,934	$	259		$	(233	)	$	-		$	1,960
Commercial		1,403		58			(19	)		-		1,442		1,059		471			(94	)		6			1,442
Land		137		22			(23	)		-		136		301		56			(221	)		-			136
Real estate		3,432		307			(201	)		-		3,538		3,294		786			(548	)		6			3,538
Commercial & industrial		541		(62	)		-			-		479		499		(16	)		(4	)		-			479
Municipal		40		1			-			-		41		36		5			-			-			41
Consumer		69		8			(23	)		9		63		91		5			(47	)		14			63
Unallocated		549		(14	)		-			-		535		440		96			(1	)		-			535
Totals	$	4,631	$	240		$	(224	)	$	9	$	4,656	$	4,360	$	876		$	(600	)	$	20		$	4,656
2012 Periods
Residential	$	1,475	$	92		$	(88	)	$	-	$	1,479	$	1,478	$	226		$	(225	)	$	-		$	1,479
Commercial		1,277		(206	)		(41	)		3		1,033		1,139		(72	)		(41	)		7			1,033
Land		219		318			(224	)		-		313		410		169			(266	)		-			313
Real estate		2,971		204			(353	)		3		2,825		3,027		323			(532	)		7			2,825
Commercial & industrial		820		(23	)		-			1		798		704		114			(29	)		9			798
Municipal		27		6			-			-		33		24		9			-			-			33
Consumer		66		74			(14	)		5		131		79		92			(63	)		22			130
Unallocated		323		69			-			-		392		242		152			-			(1	)		393
Totals	$	4,207	$	330		$	(367	)	$	9	$	4,179	$	4,076	$	690		$	(624	)	$	37		$	4,179

Composition of loans receivable and the allowance for loan losses

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
September 30, 2013
Residential 1-4 family	$	219,211	$	862	$	6,051	$	647	$	225,262	$	1,509
Residential 5+ multifamily		3,934		20		960		-		4,894		20
Construction of residential 1-4 family		1,250		6		-		-		1,250		6
Home equity credit		33,672		361		491		64		34,163		425
Residential real estate		258,067		1,249		7,502		711		265,569		1,960
Commercial		86,744		973		5,073		365		91,817		1,338
Construction of commercial		9,154		104		-		-		9,154		104
Commercial real estate		95,898		1,077		5,073		365		100,971		1,442
Farm land		3,809		66		384		-		4,193		66
Vacant land		6,096		65		3,072		5		9,168		70
Real estate secured		363,870		2,457		16,031		1,081		379,901		3,538
Commercial and industrial		34,997		408		840		71		35,837		479
Municipal		4,101		41		-		-		4,101		41
Consumer		3,893		36		81		27		3,974		63
Unallocated allowance		-		535		-		-		-		535
Totals	$	406,861	$	3,477	$	16,952	$	1,179	$	423,813	$	4,656
	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		-		-		-		440
Totals	$	372,939	$	3,253	$	19,147	$	1,107	$	392,086	$	4,360

Credit quality segments of loans receivable and allowance for loan losses

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

	Collectively evaluated				Individually evaluated				Total portfolio
(in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
September 30, 2013
Performing loans	$	398,638	$	2,693	$	80	$	27	$	398,718	$	2,720
Potential problem loans		8,223		249		905		122		9,128		371
Impaired loans		-		-		15,967		1,030		15,967		1,030
Unallocated allowance		-		535		-		-		-		535
Totals	$	406,861	$	3,477	$	16,952	$	1,179	$	423,813	$	4,656
December 31, 2012
Performing loans	$	364,594	$	2,567	$	121	$	52	$	364,715	$	2,619
Potential problem loans		8,345		246		2,464		131		10,809		377
Impaired loans		-		-		16,562		924		16,562		924
Unallocated allowance		-		440		-		-		-		440
Totals	$	372,939	$	3,253	$	19,147	$	1,107	$	392,086	$	4,360

Certain data with respect to impaired loans

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

	Impaired loans with specific allowance								Impaired loans with no specific allowance
(in thousands)	Loan balance										Loan balance
		Book		Note		Average		Specific allowance		Income recognized		Book		Note		Average		Income recognized
September 30, 2013
Residential 1-4 family	$	3,850	$	4,085	$	4,016	$	573	$	62	$	2,648	$	2,958	$	2,286	$	44
Home equity credit		87		88		104		41		1		381		387		212		2
Residential real estate		3,937		4,173		4,120		614		63		3,029		3,345		2,498		46
Commercial		3,264		3,301		2,083		365		104		1,559		1,995		2,709		26
Construction of commercial		-		-		4		-		-		-		20		10		-
Farm land		-		-		-		-		-		384		384		38		-
Vacant land		249		268		2,049		5		-		2,823		3,892		1,295		-
Real estate secured		7,450		7,742		8,256		984		167		7,795		9,636		6,550		72
Commercial and industrial		127		160		268		46		1		595		996		600		27
Consumer		-		-		-		-		-		-		-		-		-
Totals	$	7,577	$	7,902	$	8,524	$	1,030	$	168	$	8,390	$	10,632	$	7,150	$	99

	Impaired loans with specific allowance								Impaired loans with no specific allowance
(in thousands)	Loan balance										Loan balance
		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

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PENSION AND OTHER BENEFITS

3 Months Ended

Sep. 30, 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						Nine months
Periods ended September 30, (in thousands)	2013			2012			2013			2012
Service cost	$	-		$	94		$	-		$	310
Interest cost on benefit obligation		66			88			197			270
Expected return on plan assets		(67	)		(113	)		(202	)		(342	)
Amortization of net loss		1			28			5			95
Settlements and curtailments		-			-			-			341
Net periodic benefit cost	$	-		$	97		$	-		$	674

Salisbury’s 401(k) Plan expense was $183,000 and $70,000, respectively, for the three month periods ended September 30, 2013 and 2012. Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements was $14,000 and $11,000 for the three month periods ended September 30, 2013 and 2012, respectively.

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EARNINGS PER SHARE (Tables)

3 Months Ended

Sep. 30, 2013

Earnings Per Share [Abstract]

Computation of earnings per share (basic and diluted)

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

	Three months						Nine months
Periods ended September 30, (in thousands)	2013			2012			2013			2012
Net income	$	1,016		$	1,140		$	3,103		$	3,506
Less: Preferred stock dividends declared		(40	)		(46	)		(121	)		(178	)
Less: Undistributed earnings allocated to participating securities		(11	)		-			(31	)		-
Net income allocated to common stock	$	965		$	1,094		$	2,951		$	3,328
Common shares issued		1,710			1,690			1,707			1,690
Less: Unvested restricted stock awards		(19	)		-			(17	)		-
Common shares outstanding used to calculate basic earnings per common share		1,691			1,690			1,690			1,690
Add: Diluted effect of unvested restricted stock awards		-			-			-			-
Common shares outstanding used to calculate diluted earnings per common share		1,691			1,690			1,690			1,690
Earnings per common share (basic and diluted)	$	0.57		$	0.65		$	1.75		$	1.97

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MORTGAGE SERVICING RIGHTS (Tables)

3 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Loans serviced for others and fair value of mortgage servicing rights

September 30, (in thousands)	2013		2012
Residential mortgage loans serviced for others	$	146,726	$	141,834
Fair value of mortgage servicing rights		1,550		989

Changes in mortgage servicing rights

Changes in mortgage servicing rights are as follows:

	Three months						Nine months
Periods ended September 30, (in thousands)	2013			2012			2013			2012
Loan Servicing Rights
Balance, beginning of period	$	1,109		$	916		$	1,076		$	772
Originated		31			197			261			503
Amortization (1)		(101	)		(115	)		(298	)		(277	)
Balance, end of period		1,039			998			1,039			998
Valuation Allowance
Balance, beginning of period		(4	)		(123	)		(38	)		(22	)
(Increase) decrease in impairment reserve (1)		(38	)		12			(4	)		(89	)
Balance, end of period		(42	)		(111	)		(42	)		(111	)
Loan servicing rights, net	$	997		$	887		$	997		$	887

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

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Document and Entity Information	3 Months Ended
	Sep. 30, 2013	Nov. 14, 2013
Document And Entity Information
Entity Registrant Name	SALISBURY BANCORP INC
Entity Central Index Key	0001060219
Document Type	10-Q
Document Period End Date	Sep. 30, 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		1,710,121
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2013

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PLEDGED ASSETS (Tables)

3 Months Ended

Sep. 30, 2013

Banking and Thrift [Abstract]

Securities and loans were pledged to secure public and trust deposits

(in thousands)	September 30, 2013		December 31, 2012
Securities available-for-sale (at fair value)	$	51,175	$	54,497
Loans receivable		125,000		106,457
Total pledged assets	$	176,175	$	160,954