SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

(Mark One)
|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                   For the fiscal year ended December 31, 2007

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

For the transition period from ________________to ______________

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

                             SALISBURY BANCORP, INC.
             (Exact name of Registrant as specified in its charter)

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

     5 Bissell Street, Lakeville, CT                           06039
----------------------------------------                     ----------
(Address of Principal Executive Offices)                     (Zip Code)

Registrant's telephone number, including area code: 860-435-9801
                                                    ------------


                                                                                 
Securities registered pursuant to Section 12 (b) of the Act: Common stock par value $.10 per share
                                                             -------------------------------------


Securities registered pursuant to Section 12 (g) of the Act:  None
                                                              ----

Name of exchange on which registered: American Stock Exchange
                                      -----------------------

Indicate by check mark if the  registrant  is a  well-known  seasoned  issuer as
defined in Rule 405 of the Securities Act. Yes |_| No |X|

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or 15(d) of the Act. Yes |_| No |X|

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, a  non-accelerated  filer, or a smaller  reporting  company.

Large  accelerated  filer |_| Accelerated  filer |_|  Non-accelerated  filer |_|
Smaller reporting company |X|

Indicate by check mark whether the registrant is a shell company. Yes |_| No |X|

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked price of such common  equity,  as of the
last  business day of the  registrant's  most recently  completed  second fiscal
quarter: June 29, 2007: $51,713,897.

Note.  If a  determination  as to  whether a  particular  person or entity is an
affiliate cannot be made without  involving an unreasonable  effort and expense,
the  aggregate  market value of the common stock held by  non-affiliates  may be
calculated  on the basis of  assumptions,  reasonable  under the  circumstances,
provided that the assumptions are set forth in this Form.

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

The Company had 1,685,021 shares outstanding as of March 21, 2008.

                       DOCUMENTS INCORPORATED BY REFERENCE

Incorporated by reference in Part III of this Form 10-K are portions of the
Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
May 14, 2008.



                                TABLE OF CONTENTS
                                -----------------



                                                                                    Page
                                                                                    ----
                                                                                  
Part I
     Item 1 - Business                                                                1

            (a) General Development of the Business                                   1
            (b) Financial Information about Industry Segments                         1
            (c) Narrative Description of Business                                     2
            (d) Financial Information about Geographic Areas                          6

     Item 1 A - Risk Factors- Not Applicable                                         10

     Item 1 B - Unresolved Staff Comments- Not Applicable                            10

     Item 2 -Properties                                                              10

     Item 3 - Legal Proceedings                                                      11

     Item 4 - Submission of Matters to a Vote of Security Holders                    11

Part II
     Item 5 - Market for Registrant's Common Equity, Related Shareholder Matters
               and Issuer Purchases of Equity Securities                             11

     Item 6 - Selected Financial Data- Not Applicable                                12

     Item 7 - Management's Discussion and Analysis of Financial Condition
               and Results of Operation                                              12

     Item 7A - Quantitative and Qualitative Disclosures about Market Risk            21
               Not Applicable

     Item 8 - Financial Statements and Supplementary Data                            23

     Item 9 - Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure                                              24

     Item 9A(T) - Controls and Procedures                                            24

     Item 9B - Other Information                                                     24

Part III
     Item 10 - Directors, Executive Officers and Corporate Governance                24

     Item 11 - Executive Compensation                                                25

     Item 12 - Security Ownership of Certain Beneficial Owners and Management
                and Related Shareholder Matters                                      25

     Item 13 - Certain Relationships and Related Transactions,                       25
                and Director Independence

     Item 14 - Principal Accounting Fees and Services                                25

Part IV
     Item 15 - Exhibits, Financial Statement Schedules                               26

Signatures                                                                           27




PART I

ITEM 1. BUSINESS

(a)   General Development of the Business

Salisbury Bancorp, Inc. (AMEX:SAL) (the "Company") is a Connecticut  corporation
that was formed in 1998. Its primary  activity is to act as the holding  company
for its sole  subsidiary,  the  Salisbury  Bank and Trust  Company (the "Bank"),
which  accounts  for most of the  Company's  net  income.  The Bank  assumed its
present name in 1925  following  the  acquisition  by the Robbins  Burrall Trust
Company of the Salisbury Savings Society.  The Robbins Burrall Trust Company was
incorporated in 1909 as the successor to a private  banking firm  established in
1874.  The  Salisbury  Savings  Society was  incorporated  in 1848.  The Bank is
chartered as a state bank and trust company by the State of Connecticut, and its
deposits are insured by the Federal Deposit Insurance  Corporation in accordance
with the Federal  Deposit  Insurance Act. The Bank's main office is at 5 Bissell
Street,  Lakeville,  Connecticut  06039. Its telephone number is (860) 435-9801,
and its website address is:  www.salisburybank.com.  The Company makes available
free of charge on the Bank's  website a link to its Annual Reports on Form 10-K,
Quarterly  Reports on Forms 10-Q and Current  Reports on Form 8-K promptly after
filing such reports with the Securities and Exchange  Commission  ("SEC").  Also
available on the website are the respective  Charters of the Board's  Nominating
and Governance  Committee,  Audit Committee and Human Resources and Compensation
Committee.

The Bank currently operates seven (7) full service offices, which are located in
Canaan,  Lakeville,  Salisbury  and  Sharon,  Connecticut,  South  Egremont  and
Sheffield,  Massachusetts and Dover Plains,  New York and a Trust and Investment
Services Division in Lakeville, Connecticut.

(b)   Financial Information about Industry Segments

The Company's products and services are all of a nature of a commercial bank and
trust  company.  The  Bank is a  full-service  bank  offering  a wide  range  of
commercial and personal banking services, including the following:

      Lending

Lending is a principal business of the Bank, and loans represent a large portion
of the Bank's  assets.  The  portfolio  consists  of many types of loans.  These
include residential mortgages,  home equity lines of credit, monthly installment
loans for consumers, as well as commercial loans, which include lines of credit,
short term loans,  Small Business  Administration  ("SBA") loans and real estate
loans for business customers.

The primary  lending  activity has been the  origination of first mortgage loans
for the purchase,  refinance or  construction  of residential  properties in the
Bank's  market  area.  Loans  secured by  mortgages  on a  borrower's  principal
residence are generally viewed as the least vulnerable to major economic changes
and at the same time  provide a  significant  yet  relatively  stable  source of
interest income. Presently, loans are maintained in the Bank's portfolio as well
as sold to investors on the secondary  mortgage market.  This provides customers
the opportunity to choose from a wide array of competitive mortgage products and
rate structures.

The Bank also  originates  a variety of other loans for  consumer  and  business
purposes.  Although these loans represent a smaller percentage of the total loan
portfolio,  the Bank is in the position of being a full service retail lender to
its consumers and a full service commercial lender to its business customers.

      Investments

The Company's investment portfolio is also an important component of the Balance
Sheet.  It provides a source of earnings in the form of interest and  dividends.
It also plays a role in the interest rate risk  management of the Company and it
provides a source of liquidity.

The portfolio is comprised primarily of U.S. Government sponsored agencies, U.S.
Treasury and mortgage-backed securities and securities of political subdivisions
of the states. At December 31, 2007, the portfolio totaled  $152,624,000,  which
represents  approximately  33.04% of total assets,  and it produced interest and
dividend  income of $8,115,000  for the year 2007 as compared to $7,962,000  for
2006.


                                       1


      Deposits and Borrowings

The Bank's  primary  sources of funds are  deposits,  Federal  Home Loan Bank of
Boston ("FHLBB") advances and principal payments on loans.  Although competition
for funds from non-banking  institutions remains aggressive,  the Bank continues
its efforts to build account relationships with its customers.  Deposits totaled
$317,741,000 at December 31, 2007 as compared with  $313,586,000 at December 31,
2006.

Advances  from the FHLBB  totaled  $95,011,000  at December 31, 2007 as compared
with $87,093,000 at December 31, 2006.

For  additional  information  relating  to  the  asset,  deposit  and  borrowing
components of the Company,  see Item 7, Management's  Discussion and Analysis of
Financial  Condition and Results of Operation and the accompanying  Consolidated
Financial Statements, and Notes thereto.

      Fiduciary Activities

The Bank  provides  trust,  investment  and financial  planning  services to its
customers.

The Bank has a full service Trust and Investment  Services  Division.  Among the
services offered are:  custody and agency  accounts,  estate planning and estate
settlement.  Another  service is that of serving as Guardian or  Conservator  of
estates   and   managing   the   financial    position   of   Guardianships   or
Conservatorships. Self directed IRAs and Pension plans are also offered.

      Other Services

The Company also offers safe deposit rentals,  foreign exchange,  a full menu of
electronic fund transfer services and other ancillary services to businesses and
individuals.

(c)   Narrative Description of Business

Salisbury Bancorp, Inc. is a bank holding company, which as described above, has
one subsidiary, Salisbury Bank and Trust Company (the "Bank").

The Bank is a full-service  commercial bank and its activities encompass a broad
range of services,  which include a complete menu of deposit services,  multiple
mortgage  products  and  various  other  types of loans  for both  business  and
personal needs. Full trust and investment services are also available.  The Bank
owns and operates two  subsidiaries,  SBT Realty,  Inc.,  which is  incorporated
under the laws of the State of New York, and SBT Mortgage  Service  Corporation,
which is incorporated  under the laws of the State of  Connecticut.  SBT Realty,
Inc.  holds and manages bank owned real estate  situated in New York State.  SBT
Mortgage Service Corporation, a Passive Investment Company ("PIC") was formed to
take  advantage of favorable  Connecticut  corporate tax benefits,  which result
when a Bank transfers a portion of its mortgage  portfolio to a PIC. In general,
the PIC will earn mortgage  interest  income and may dividend funds to the Bank.
In turn, those funds will be exempt from the Connecticut corporate business tax.

      Competition

The Company and the Bank encounter  competition in all phases of their business.
There are  numerous  financial  institutions  that have  offices in the areas in
which  the  Company  and  Bank  compete  in  northwestern  Connecticut,  western
Massachusetts and proximate areas of New York State.

The  offices  of the Bank are  located  in the  northwest  corner of  Litchfield
County, Connecticut,  south Berkshire County, Massachusetts and Dutchess County,
New York.  The Bank  maintains  seven (7)  banking  offices  within  these three
counties and also attracts  customers from nearby Columbia County, New York. The
Bank's market area within the four counties is served by 45 commercial banks and
savings banks.

Banks  compete  on the basis of price,  including  rates  paid on  deposits  and
charged on  borrowings,  convenience  and quality of  service.  Savings and loan
associations  are able to  compete  aggressively  with  commercial  banks in the
important area of consumer  lending.  Credit unions and small loan companies are
significant  factors in the consumer  market.  Insurance  companies,  investment
firms, credit and mortgage companies,  brokerage firms cash management accounts,
money-market  funds and retailers are all  significant  competitors  for various
types of business.  Insurance companies,  investment  counseling firms and other
businesses  and  individuals  actively  compete  with the Bank for  personal and
corporate  trust  services and  investment  counseling  services.  Many non-bank
competitors  are not subject to the extensive  regulation  described below under
"Legislation,  Regulation and  Supervision"  and in certain  respects may have a
competitive advantage over banks in providing certain services.


                                       2


In marketing its services,  the Bank  emphasizes its position as a hometown bank
with personal service, flexibility and prompt responsiveness to the needs of its
customers.  Moreover,  the Bank competes for both deposits and loans by offering
competitive  rates and  convenient  business  hours.  In addition  to  providing
banking services to customers in its primary service areas, the Bank is a member
of the automatic teller machine  networks and offers internet banking  services,
which  allow  the  Bank to  deliver  certain  financial  services  to  customers
regardless of their proximity to the primary service area of the Bank.

Connecticut  grants banking  powers for thrift  institutions  thereby  improving
their  competitive  position  with other  banks.  In addition,  the  Connecticut
Interstate  Banking  and  Branching  Act  permits  acquisitions  and  mergers of
Connecticut  banks  and bank  holding  companies  with  banks  and bank  holding
companies in other states.  Accordingly, it is possible for large super-regional
organizations  to enter many new  markets,  including  the market  served by the
Bank.  Certain  competitors,  by virtue of their size and  resources,  may enjoy
certain  efficiencies  and competitive  advantages over the Bank in the pricing,
delivery, and marketing of their products and services. It is possible that such
legislative  authority  will  increase  the  number  or the  size  of  financial
institutions competing with the Bank for deposits and loans in its market place,
although  it is  impossible  to predict  the  effect  upon  competition  of such
legislation.

      Legislation, Regulation and Supervision

General
-------

Virtually  every  aspect of the  business  of banking is subject to  regulation,
including  such  matters  as the  amount of  reserves  that must be  established
against various deposits,  the establishment of branches,  mergers,  non-banking
activities and other  operations.  Numerous laws and regulations  also set forth
special  restrictions and procedural  requirements with respect to the extension
of credit,  credit practices,  the disclosure of credit terms and discrimination
in credit transactions.

The descriptions of the statutory provisions and regulations applicable to banks
set forth below do not purport to be a complete description of such statutes and
regulations  and their  effects  on the Bank.  Proposals  to change the laws and
regulations   governing  the  banking  industry  are  frequently  introduced  in
Congress,  in the state  legislatures  and before the  various  bank  regulatory
agencies.  The  likelihood and timing of any changes and the impact such changes
might  have  on the  Bank's  future  business  and  earnings  are  difficult  to
determine.

Federal Reserve Board Regulation
--------------------------------

The Company is a registered  bank holding company under the Bank Holding Company
Act of 1956,  as amended  (the  "BHCA").  It is subject to the  supervision  and
examination  of the  Board of  Governors  of the  Federal  Reserve  System  (the
"Federal Reserve Board") and files with the Federal Reserve Board the reports as
required under the BHCA.

The BHCA generally  requires prior approval by the Federal  Reserve Board of the
acquisition by the Company of substantially  all of the assets or more than five
percent (5%) of the voting  stock of any bank.  The BHCA also allows the Federal
Reserve Board to determine (by order or by  regulation)  what  activities are so
closely  related to banking as to be a proper  incident  of  banking,  and thus,
whether  the  Company  can engage in such  activities.  The BHCA  prohibits  the
Company and the Bank from engaging in certain tie-in  arrangements in connection
with any extension of credit, sale of property or furnishing of services.

Federal  legislation  permits  adequately  capitalized bank holding companies to
venture across state lines to offer banking services  through bank  subsidiaries
to  a  wide  geographic   market.  It  is  possible  for  large   super-regional
organizations  to enter many new  markets,  including  the market  served by the
Bank,  although  it is  impossible  to assess  what impact this will have on the
Company or the Bank.

The Federal Reserve Act imposes certain restrictions on loans by the Bank to the
Company  and  certain  other  activities,  on  investments  in  their  stock  or
securities,  and on the  taking  by the  Bank of such  stock  or  securities  as
collateral security for loans to any borrower.

Under the BHCA and the  regulations of the Federal  Reserve  System  promulgated
thereunder ("Regulation Y"), no corporation may become a bank holding company as
defined  therein,  without  prior  approval of the Federal  Reserve  Board.  The
Company received the approval to become a bank holding company on June 18, 1998.
The Company will also have to secure prior approval of the Federal Reserve Board
if it  wishes  to  acquire  voting  shares  of any  other  bank,  if after  such
acquisition  it would own or control  more than five  percent (5%) of the voting
shares of such bank.  The BHCA  imposes  limitations  upon the Company as to the
types of business in which it may engage.

Regulation  Y requires  bank holding  companies  to provide the Federal  Reserve
Board with written notice before  purchasing or redeeming  equity  securities if
the gross consideration for the purchase or redemption, when aggregated with the
net  consideration  paid by the Company for all such  purchases  or  redemptions
during the preceding  twelve (12) months,  is equal to ten percent (10%) or more
of the  Company's  consolidated  net worth.  For purposes of  Regulation Y, "net
consideration"  is the  gross  consideration  paid by a  company  for all of its
equity  securities  purchased  or redeemed  during the  period,  minus the


                                       3


gross  consideration  received for all of its equity  securities sold during the
period other than as part of a new issue.  However,  a bank holding company need
not obtain  Federal  Reserve Board  approval of any equity  security  redemption
when:  (i) the bank  holding  company's  capital  ratios  exceed  the  threshold
established  for  "well-capitalized"  state member banks before and  immediately
after the redemption;  (ii) the bank holding company is well-managed;  and (iii)
the bank  holding  company  is not the  subject  of any  unresolved  supervisory
issues.

Gramm-Leach-Bliley Act
----------------------

The  Gramm-Leach-Bliley  Financial  Services  Modernization  Act  of  1999  (the
"GLBA"),  provides bank holding companies,  banks,  securities firms,  insurance
companies,  and  investment  management  firms the option of engaging in a broad
range of  financial  and  related  activities  by opting to become a  "financial
holding  company." The Company  qualified and registered as a financial  holding
company on May 3, 2000.  Financial holding companies are subject to oversight by
the Federal Reserve Board, in addition to other regulatory  agencies.  Under the
financial holding company structure, bank holding companies have greater ability
to purchase or establish  nonbank  subsidiaries  that are financial in nature or
that engage in activities  incidental or complementary to a financial  activity.
Additionally, pursuant to the GLBA, securities and insurance firms are permitted
to  purchase  full-service  banks.  While the GLBA  facilitates  the  ability of
financial  institutions  to offer a wide  range  of  financial  services,  large
financial  institutions would appear to be the beneficiaries of this Act because
many  community  banks  lack the  capital  and  management  resources  needed to
facilitate broad expansion of financial services.

Sarbanes-Oxley Act
------------------

The purpose of the  Sarbanes-Oxley  Act is to protect investors by improving the
accuracy  and  reliability  of  corporate   disclosures  made  pursuant  to  the
securities laws, and for other purposes.

The Sarbanes-Oxley Act amends the Securities  Exchange Act of 1934 to prohibit a
registered  public accounting firm from performing  specified  nonaudit services
contemporaneously  with a mandatory audit. The Sarbanes-Oxley Act also vests the
audit  committee  of  an  issuer  with   responsibility   for  the  appointment,
compensation, and oversight of any registered public accounting firm employed to
perform  audit  services.  The  Sarbanes-Oxley  Act,  among other  things,  also
requires each  committee  member to be a member of the board of directors of the
issuer, and to be otherwise independent. The Sarbanes-Oxley Act further requires
the chief  executive  officer and chief  financial  officer of an issuer to make
certain  certifications as to each annual or quarterly  report.  Pursuant to the
Sarbanes-Oxley Act the SEC has adopted rules to require:

      o     Disclosure  of  all  material  off-balance  sheet  transactions  and
            relationships  that may have a material  effect  upon the  financial
            status of an issuer; and

      o     The presentation of pro forma financial information in a manner that
            is not  misleading  and  which is  reconcilable  with the  financial
            condition  of  the  issuer  under  generally   accepted   accounting
            principles.

The  Sarbanes-Oxley  Act also prohibits  insider  transactions  in the Company's
stock during a lock out period of Company's  pension  plans,  and any profits of
such  insider  transactions  are  to  be  disgorged.  In  addition,  there  is a
prohibition of Company loans to its executives, except in certain circumstances.
The  Sarbanes-Oxley  Act also provides for mandated  internal control report and
assessment with the annual report and an attestation and a report on such report
by the Company's auditor. The SEC also requires an issuer to institute a code of
ethics  for  senior  financial  officers  of  the  Company.   Furthermore,   the
Sarbanes-Oxley Act adds a criminal penalty of fines and imprisonment of up to 10
years for securities fraud.

The Patriot Act
---------------

The terrorist  attacks in September,  2001 have impacted the financial  services
industry and led to federal  legislation that attempts to address certain issues
involving financial  institutions.  In 2001,  President Bush signed into law the
Uniting and  Strengthening  America by Providing  Appropriate  Tools Required to
Intercept and Obstruct  Terrorism Act of 2001 (the "Patriot  Act"). On March 10,
2006, the President signed  legislation  making permanent certain  provisions of
the Patriot Act.

Part of the Patriot Act is the  International  Money  Laundering  Abatement  and
Financial  Anti-Terrorism Act of 2001 ("IMLA"). IMLA authorizes the Secretary of
the Treasury,  in consultation with the heads of other government  agencies,  to
adopt special measures applicable to banks, bank holding companies, and/or other
financial  institutions.  These measures may include enhanced  recordkeeping and
reporting  requirements for certain  financial  transactions that are of primary
money laundering concern, due diligence  requirements  concerning the beneficial
ownership of certain types of accounts,  and  restrictions  or  prohibitions  on
certain types of accounts with foreign financial institutions.

Among its other  provisions,  IMLA requires each financial  institution  to: (i)
establish  an  anti-money  laundering  program;  (ii)  establish  due  diligence
policies,  procedures and controls with respect to its private banking  accounts
and correspondent  banking accounts  involving  foreign  individuals and certain
foreign banks;  and (iii) avoid  establishing,  maintaining,  administering,  or
managing  correspondent  accounts  in the United  States for, or on behalf of, a
foreign bank that does not have


                                       4


a physical  presence in any  country.  In  addition,  IMLA  contains a provision
encouraging cooperation among financial institutions, regulatory authorities and
law  enforcement   authorities   with  respect  to  individuals,   entities  and
organizations engaged in, or reasonably suspected of engaging in, terrorist acts
or money laundering activities. IMLA expands the circumstances under which funds
in a bank account may be forfeited and requires covered  financial  institutions
to respond under certain  circumstances to requests for information from federal
banking agencies within 120 hours. IMLA also amends the BHCA and the Bank Merger
Act to require the federal banking  agencies to consider the  effectiveness of a
financial  institution's  anti-money  laundering  activities  when  reviewing an
application under these acts.

State Regulation
----------------

The Company is  incorporated  in the State of Connecticut  and is subject to the
Connecticut  Business  Corporation Act and the Connecticut  Bank Holding Company
Statutes.  As a state-chartered bank and member of the Federal Deposit Insurance
Corporation ("FDIC"),  the Bank is subject to regulation both by the Connecticut
Banking  Commissioner  and the  FDIC.  Applicable  laws and  regulations  impose
restrictions and  requirements in many areas,  including  capital  requirements,
maintenance of reserves, establishment of new branch offices, mergers, making of
loans and  investments,  consumer  protection,  employment  practices  and other
matters.   Any  new  regulations  or  amendments  to  existing  regulations  may
materially  affect  the  services  offered,   expenses  incurred  and/or  income
generated by the Bank.

The Connecticut Banking Commissioner  regulates the Bank's internal organization
as well as its deposit,  lending and investment activities.  The approval of the
Connecticut Banking Commissioner is required to, among other things, open branch
offices and consummate merger transactions and other business combinations.  The
Connecticut Banking Commissioner conducts periodic examinations of the Bank. The
Connecticut banking statutes also restrict the ability of a bank to declare cash
dividends to its shareholders.

Subject to certain  limited  exceptions,  loans made to any one  obligor may not
exceed fifteen percent (15%) of the Bank's capital,  surplus,  undivided profits
and loan reserves. In addition,  under Connecticut law, the beneficial ownership
of more than ten percent  (10%) of any class of voting  securities of a bank may
not be acquired by any person or groups of persons acting in concert without the
approval of the  Connecticut  Banking  Commissioner.  In  addition,  the Bank is
subject to some supervision and regulations by the Commonwealth of Massachusetts
and the State of New York in connection with its branch offices in such states.

FDIC Regulation
---------------

The FDIC  currently  insures  the  Bank's  deposit  accounts  in an amount up to
$100,000 for each insured depositor.  In addition,  effective April 1, 2006, the
federal deposit  insurance limits on certain  retirement  accounts  increased so
that such  retirement  accounts  are  separately  insured up to  $250,000.  FDIC
insurance of deposits may be terminated by the FDIC, after notice and a hearing,
upon a finding by the FDIC that the insured institution has engaged in unsafe or
unsound  practices,  or  is  in an  unsafe  or  unsound  condition  to  continue
operations, or has violated any applicable law, regulation, rule or order of, or
condition  imposed by the FDIC. A bank's failure to meet the minimum capital and
risk-based capital  guidelines  discussed below would be considered to be unsafe
and unsound banking practices. The Bank, as a Connecticut-chartered FDIC-insured
bank,  is  regulated  by the FDIC in many of the  areas  also  regulated  by the
Connecticut  Banking  Commissioner.  The FDIC  also  conducts  its own  periodic
examinations of the Bank, and the Bank is required to submit financial and other
reports to the FDIC on a quarterly and annual basis, or as otherwise required by
the FDIC.  FDIC-insured  banks, such as the Bank, pay premium assessments to the
FDIC for the insurance of deposits.

The Bank must meet certain  minimum capital  requirements,  including a leverage
capital ratio and a risk-based  capital ratio. See "MANAGEMENT'S  DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION".

The  Community  Reinvestment  Act  ("CRA")  requires  the Bank to  identify  the
communities  served by its  offices  and to  identify  the  types of credit  the
institution  is prepared to extend  within such  communities.  The FDIC conducts
examinations  of  insured  institutions'  CRA  compliance  and  rates  banks  as
"Outstanding",    "Satisfactory",    "Needs   to   Improve"   and   "Substantial
Noncompliance".  As of its last CRA  examination,  the Bank received a rating of
"Satisfactory".  Failure to receive at least a "Satisfactory" rating may inhibit
a bank from  engaging in certain  activities,  including  acquisitions  of other
financial institutions, which require regulatory approval based, in part, on CRA
compliance  considerations.  Similarly,  failure  of the Bank to  maintain a CRA
rating of  "Satisfactory"  or  better  would  preclude  it or the  Company  from
engaging in any new financial activities pursuant to the GLBA.

Employees
---------

The Company's  current  workforce at March 14, 2008 consists of 137 employees of
whom 122 were full time and 15 were part time. The employees are not represented
by a collective bargaining unit.


                                       5


(d)   Financial Information about Geographic Areas

The Company does not have any foreign business operations or export sales of its
own. However,  it does provide financial  services  including wire transfers and
foreign currency exchange to other businesses involved in foreign trade.

STATISTICAL  DISCLOSURE  REQUIRED PURSUANT TO SECURITIES  EXCHANGE ACT, INDUSTRY
GUIDE 3

The statistical disclosures required pursuant to Industry Guide 3, not contained
in  Management's  Discussion and Analysis of Financial  Condition and Results of
Operations, are presented on the following pages of this Report on Form 10-K.

                                                                     Page(s) of
Item of Guide 3                                                      This Report
---------------                                                      -----------

I.   Distribution of Assets, Liabilities and Shareholders'
     Equity; Interest Rates and Interest Differential                     15

II.  Investment Portfolio                                                  7

III. Loan Portfolio                                                        8

IV.  Summary of Loan Loss Experience                                       9

V.   Deposits                                                             19

VI.  Return on Equity and Assets                                           8

VII. Short-Term Borrowings                                                10


                                       6


Investment Portfolio

The Company  categorizes  investments into three groups and further provides for
the  accounting  and  reporting  treatment  of each  group.  Investments  may be
classified as  held-to-maturity,  available-for-sale,  or trading. The Bank does
not purchase or hold any  investment  securities for the purpose of trading such
investments.  The  following  tables  set  forth  the  carrying  amounts  of the
investment securities as of December 31:



(dollars in thousands)                                   2007         2006         2005
                                                     ----------------------------------
                                                                      
Available-for-sale securities:
 (at fair value)
Equity securities                                    $    160     $    181     $    148
U.S. government agencies preferred stock                1,825        2,512       12,446
U.S. Treasury securities and other
   U.S. government corporations and agencies           46,859       54,146       50,516
Obligations of states and political subdivisions       56,979       45,236       41,332
Mortgage-backed securities                             41,554       54,417       41,166
                                                     ----------------------------------
                                                     $147,377     $156,492     $145,608
                                                     ==================================

Held-to-maturity securities
 (at amortized cost)
Mortgage-backed securities                           $     71     $     75     $    147
                                                     ==================================

Federal Home Loan Bank stock                         $  5,176     $  4,664     $  5,413
                                                     ==================================


For the following table, yields are not presented on a fully  taxable-equivalent
("FTE") basis.

The scheduled maturities of held-to-maturity  securities and  available-for-sale
securities  (other than equity  securities)  were as follows as of December  31,
2007:

(dollars in thousands)



                                           Maturing                Maturing                Maturing
                                           --------                --------                --------
                                           After 1       Yield     After 5       Yield     After 10        Yield      Total
                                           -------                 -------                 --------
                                           but within              but within              Years
                                           ----------              ----------              Amount
                                           5 Years                 10 Years                ------
                                           Amount                  Amount
                                           ------                  ------
                                                                                                
Held-to-maturity securities
---------------------------
(at amortized cost)
Mortgage-backed
 securities                                  $    0                 $     0                 $     71       6.36%     $     71
                                             ======                 =======                 ========                 ========
Available-for-sale securities
-----------------------------
(at fair value)
U.S. Treasury
securities
 and other U.S.
 government
 corporations and
 agencies                                    $  993       4.52%     $21,812       5.18%     $ 24,053       6.48%     $ 46,858

Obligations of states and
 political subdivisions                           0                     176       3.55%       56,803       4.29%       56,979

Mortgage-backed
 securities                                     464       4.43%         857       4.88%       40,233       5.18%       41,554
                                             ------                 -------                 --------                 --------
                                             $1,457                 $22,845                 $121,089                 $145,391
                                             ======                 =======                 ========                 ========



                                       7


Loan Portfolio Analysis by Category
(dollars in thousands)



                                                               December 31
                                      2007           2006           2005           2004           2003
                                 ---------------------------------------------------------------------
                                                                              
Commercial, financial and
   agricultural                  $  20,629      $  16,465      $  15,354      $  15,127      $   9,149
Real Estate-construction and
   land development                 28,928         21,169         18,814         14,290         15,307

Real Estate - residential          158,600        145,395        135,619        130,414         90,807
Real Estate-commercial              53,823         50,859         40,889         35,487         19,199
Consumer                             8,005          8,816          7,900          9,122          6,692
Term federal funds                       0         12,000              0              0              0
Other                                  376             69             47             69             73
                                 ---------------------------------------------------------------------
                                   270,361        254,773        218,623        204,509        141,227
Deferred costs, net                    306            168              0              0              0
Allowance for loan losses           (2,475)        (2,474)        (2,626)        (2,512)        (1,664)
Unearned income                         (1)            (3)            (8)           (19)            (0)
                                 ---------------------------------------------------------------------
     Net loans                   $ 268,191      $ 252,464      $ 215,989      $ 201,978      $ 139,563
                                 =====================================================================


There are no industry concentrations in the Bank's loan portfolio.

The following table shows the maturity of commercial, financial and agricultural
loans,  real  estate  commercial  loans  and real  estate-construction  and land
development  loans  outstanding  as of December 31, 2007.  Also provided are the
amounts  due after  one (1) year  classified  according  to the  sensitivity  to
changes in interest rates.




                                                                                    Due after
                                                                  Due in one        one year to         Due after
(dollars in thousands)                                            year or less      five years         five years
                                                                  -----------------------------------------------
                                                                                                 
Commercial, financial,
 agricultural and real estate commercial                          $   938           $14,240               $59,274
Real estate-construction and land development                      28,484               444                     0
                                                                  -----------------------------------------------
                                                                  $29,422           $14,684               $59,274
                                                                  ===============================================

Maturities after one year with:
  Fixed interest rates                                                              $ 6,218               $10,478
  Variable interest rates                                                             8,466                48,796
                                                                                    -----------------------------
                                                                                    $14,684               $59,274
                                                                                    =============================


Return on Equity and Assets

The following table summarizes  various financial ratios of the Company for each
of the last three (3) years:



                                                                      At or for the
                                                                      -------------
                                                                 Year ended December 31,
                                                                 -----------------------
                                                             2007         2006         2005
                                                             ----         ----         ----
                                                                             
Return on average total assets
 (net income divided by average total assets)                 .85%        1.02%        1.12%

Return on average shareholders' equity
 (net income divided by average shareholders' equity)        8.50%        9.83%       10.81%

Dividend payout ratio
 (total declared dividends per share
   divided by net income per share)                         47.79%       41.11%       36.90%

Equity to assets ratio
 (average shareholders' equity divided by
   average total assets)                                     9.94%       10.37%       10.38%



                                       8


Nonaccrual, Past Due and Restructured Loans

At December  31,  2007,  there were eleven (11)  nonaccrual  loans in the Bank's
portfolio,  ten of which were secured by real estate. In the month following the
month in which a  mortgage  loan  becomes 90 days past due,  the Bank  generally
stops accruing interest unless there are unusual  circumstances which warrant an
exception.  Generally  the  only  loan  types  that  the  Bank  reclassifies  to
nonaccrual are those secured by real estate or large  commercial  loans on which
substantial  collateral  exists.  Other types of loans are generally charged off
when they become 120 days or more delinquent. However, exceptions may be made as
warranted.

Nonaccrual, Past Due and Restructured Loans
(dollars in thousands)



                                                                       December 31
                                             2007           2006           2005           2004           2003
                                        ---------------------------------------------------------------------
                                                                                     
Nonaccrual                              $   1,008      $     886      $     694      $   1,739      $      75
90 days or more past due                      816             78             79            528            535
                                        ---------------------------------------------------------------------
Total nonperforming loans               $   1,824      $     964      $     773      $   2,267      $     610
                                        =====================================================================

Total nonperforming loans as per-
   centage of the loan portfolio             0.67%          0.38%          0.35%          1.11%          0.43%
Allowance for loan losses as a per-
   centage of nonperforming loans          135.69%        256.64%        339.72%        110.81%        272.79%


          Information with respect to nonaccrual and restructured loans
               at December 31, 2007, 2006 and 2005 is as follows:



(dollars in thousands)                                                       Year Ended December 31

                                                                           2007         2006         2005
                                                                       ----------------------------------
                                                                                        
Interest income that would have been recorded under original terms     $     77     $     66     $    157
Less gross interest recorded                                                 48           37          133
                                                                       ----------------------------------
Foregone interest                                                      $     29     $     29     $     24
                                                                       ==================================




Summary of Loan Loss Experience
(dollars in thousands)                                         Year Ended December 31
                                                 2007          2006         2005        2004        2003
                                              ----------------------------------------------------------
                                                                                   
Balance of the allowance for
  loan losses at beginning of year            $ 2,474       $ 2,626       $2,512      $1,664      $1,458
Charge-offs:
   Commercial, financial and
      agricultural                                 20            25            7           0          71
   Consumer                                        83           107          128          70          84
                                              ----------------------------------------------------------
       Total charge-offs                          103           132          135          70         155
                                              ----------------------------------------------------------

Recoveries:
   Commercial, financial and
       agricultural                                55             6            0           0          25
   Consumer                                        49            61           39          28          24
                                              ----------------------------------------------------------
       Total recoveries                           104            67           39          28          49
                                              ----------------------------------------------------------
Net charge-offs                                    (1)           65           96          42         106
(Benefit) provision charged to
  operations                                        0           (87)         210         250         312
Balance acquired from CNB                           0             0            0         640           0
                                              ----------------------------------------------------------
Balance at end of year                        $ 2,475       $ 2,474       $2,626      $2,512      $1,664
                                              ==========================================================
Ratio of net charge-offs
  to average loans outstanding                    .00%          .02%         .05%        .03%        .07%
Ratio of allowance for loan losses
  to year end loans                               .92%          .97%        1.20%       1.23%       1.18%



                                       9


Allocation  of the  Allowance  for Loan Losses;  Percentage  of loans by type to
total loans*
(dollars in thousands)



                                                                           December 31
                                   2007                 2006                  2005                  2004                2003
                              Amount   Percent*    Amount  Percent*    Amount      Percent*    Amount   Percent*   Amount   Percent*
                                                                                                
Commercial, financial and
 agricultural                 $  505     7.63%     $  342    6.46%     $  495        7.02%     $  613      7.40%   $  441     6.47%
Real estate construction
 and land development            118    10.70%         85    8.31%         95        8.61%         83      6.99%      112    10.82%
Real estate mortgage           1,615    78.57%      1,832   77.03%      1,761       80.74%      1,614     81.12%      749    77.94%
Consumer                         201     2.96%        173    3.46%        247        3.61%        198      4.46%      357     4.72%
Term Federal Funds                 0                                        0%          0        4.71%        0         0        0
Other loans                       36      .14%         42     .03%         28         .02%          4       .03%        5      .05%
                              ------   ------      ------  ------      ------      ------      ------    ------    ------   ------
                              $2,475   100.00%     $2,474  100.00%     $2,626      100.00%     $2,512    100.00%   $1,664   100.00%
                              ======   ======      ======  ======      ======      ======      ======    ======    ======   ======


Provisions to the  allowance  for loan losses are charged to operating  expenses
and are based on past experience,  current economic  conditions and management's
judgment of the amount necessary to cover losses inherent in the portfolio.  The
Bank records  provisions  for estimated loan losses,  which are charged  against
earnings, in the period they are established.

Short-Term Borrowings
(dollars in thousands)



                                                         December 31
                                                2007         2006          2005
                                               ---------------------------------
                                                                
Federal Home Loan Bank Advances
 Average interest rate
    At year end                                   4.74%        4.97%        4.90%
    For the year                                  4.30%        5.00%        4.69%
Average amount outstanding during the year     $87,649      $71,471      $67,793
Maximum amount outstanding at any month        $95,143      $90,403      $75,536
Amount outstanding at year end                 $95,011      $83,093      $71,016


ITEM 1A. RISK FACTORS - Not Applicable

ITEM 1B. UNRESOLVED STAFF COMMENTS - Not Applicable

ITEM 2. PROPERTIES

The Bank serves its  customers  from its seven (7) offices  which are located in
Canaan,  Lakeville,  Salisbury  and  Sharon,  Connecticut,  Sheffield  and South
Egremont,  Massachusetts and Dover Plains, New York. The Bank's trust and wealth
advisory  services  division is located in a separate  building  adjacent to the
main office of the Bank in Lakeville, Connecticut.

The Bank leases the  following  properties:  a branch  office at 51 Main Street,
South  Egremont,  Massachusetts;  a branch office at 73 Main Street,  Sheffield,
Massachusetts;  and a branch office at 5 Dover Village Plaza,  Dover Plains, New
York. The following  table includes all property owned by the Bank, but does not
include Other Real Estate Owned.

         OFFICES                                LOCATION

         Main Office                       5 Bissell Street
                                        Lakeville, Connecticut

         Trust and Wealth Advisory         19 Bissell Street
         Services division              Lakeville, Connecticut

         Salisbury Office                   18 Main Street
                                        Salisbury, Connecticut

         Sharon Office                        29 Low Road
                                          Sharon, Connecticut

         Canaan Operations                  94 Main Street
                                          Canaan, Connecticut

         Canaan Office                      100 Main Street
                                          Canaan, Connecticut


                                       10


ITEM 3. LEGAL PROCEEDINGS

Other than routine litigation incidental to its business,  there are no material
legal  proceedings  pending to which the Company,  Bank, or their properties are
subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the Company's 2007 fiscal year.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER
          MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company's  common stock is traded on The American  Stock  Exchange under the
symbol "SAL".  The following table presents the high and low sales prices of the
Company's common stock.



                                           2007 Quarters                               2006 Quarters
                              ---------------------------------------     ---------------------------------------
                               4th         3rd       2nd        1st         4th        3rd       2nd         1st
                              ---------------------------------------     ---------------------------------------
Range of Stock prices:
                                                                                   
High                          $34.95     $34.10     $36.90     $38.50     $39.25     $39.70     $39.50     $38.25
Low                           $30.75     $31.00     $32.30     $34.70     $37.50     $37.50     $35.50     $36.50


Holders

There  were  approximately  780  holders  of record of the  common  stock of the
Company as of March 14, 2008.  This number  includes  brokerage  firms and other
financial  institutions  which hold stock in their  name,  but which is actually
owned by third parties.

Dividends

Dividends are currently  declared four times a year, and the Company  expects to
follow such practice in the future. During the year 2007, the Company declared a
cash  dividend each quarter of $.27 per share.  Dividends  declared for the year
2007  totaled  $1.08 per share which  compared to total  dividends of $1.04 that
were  declared  in the year  2006.  At their  February  29,  2008  meeting,  the
Directors  of the  Company  declared a cash  dividend  of $.28 per share for the
first  quarter  of  2008.  The  dividend  will  be  paid on  April  30,  2008 to
shareholders  of record as of March 31,  2008.  Payments  of all  dividends  are
dependent upon the condition and earnings of the Company.  The Company's ability
to pay dividends is limited by the prudent banking principles  applicable to all
bank holding companies and by the provisions of Connecticut Corporate law, which
provide  that no  distribution  may be made by a  company  if,  after  giving it
effect: (1) the company would not be able to pay its debts as they become due in
the usual  course of business or (2) the  company's  total  assets would be less
than the sum of its  total  liabilities  plus  amounts  needed  to  satisfy  any
preferred stock rights. The following table presents cash dividends declared per
share for the last two years:



                                             2007 Quarters                                     2006 Quarters
                             ---------------------------------------------      -------------------------------------------
                              4th          3rd          2nd          1st         4th          3rd          2nd        1st
                             ---------------------------------------------      -------------------------------------------
                                                                                              
Cash dividends
    declared                 $0.27        $0.27        $0.27        $0.27       $0.26        $0.26        $0.26       $0.26


The dividends  paid to  shareholders  of the Company are funded  primarily  from
dividends  received by the Company  from the Bank.  Reference  should be made to
Note  13  of  the  Consolidated   Financial  Statements  for  a  description  of
restrictions on the ability of the Bank to pay dividends to the Company.

                      Equity Compensation Plan Information

The information  required by this item pursuant to Item 201(d) of Regulation S-K
regarding securities authorized for issuance under equity compensation plans (as
of December 31, 2007) is contained  in, and  incorporated  by reference  to, the
Company's  Definitive  Proxy Statement for the Annual Meeting of Shareholders to
be  held  on  May  14,  2008  under  the  Section  "Equity   Compensation   Plan
Information".


                                       11


                     Recent Sales of Unregistered Securities

The  shareholders  of the Company voted to approve the Directors  Stock Retainer
Plan (the "Plan") at the 2001 Annual Meeting of Shareholders.  The Plan provides
non-employee directors of the Company with shares of Common Stock as a component
of their compensation for services as non-employee directors. The maximum number
of shares of Common  Stock  that may be issued  pursuant  to the plan is 15,000.
Each year a grant under the Plan consists of 120 shares of Common Stock for each
non-employee  director  who served for  twelve  months and a prorated  number of
shares to reflect the number of months served for any new non-employee director.
On May 16,  2007,  840 shares were issued  pursuant to the Plan.  The next grant
date under the Plan will immediately  precede the Annual Meeting of Shareholders
which is to be held on May 14, 2008, and will be in the amount of 120 shares per
director.  All such issuances are exempt from registration  under the Securities
Act of 1933, as amended  pursuant to Section 4(2), as they are transactions by a
company not involving any public offering.

ITEM 6. SELECTED FINANCIAL DATA - Not Applicable

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS             Salisbury Bancorp, Inc.
OF FINANCIAL CONDITION AND RESULTS OF OPERATION                   and Subsidiary


Salisbury Bancorp, Inc. (the "Company"),  a Connecticut  corporation,  formed in
1998, is the holding company for Salisbury Bank and Trust Company, (the "Bank").
The Company's  sole  subsidiary is the Bank,  formed in 1848 which has seven (7)
full service offices located in the towns of North Canaan, Lakeville,  Salisbury
and Sharon, Connecticut, South Egremont and Sheffield,  Massachusetts, and Dover
Plains, New York. A full Trust and Investment  Services Division is also located
in Lakeville,  Connecticut.  The Management's Discussion and Analysis of Results
of  Operations  and  Financial  Condition  that  follows  presents  Management's
comments  on the  consolidated  operating  results of the  Company.  In order to
provide a foundation for building shareholder value and servicing customers, the
Company remains  committed to investing in the technological and human resources
necessary for developing and delivering new personalized  financial products and
services  in order to better  serve both  current  and future  customers  in the
tri-state area. The following  discussion should be read in conjunction with the
Company's  consolidated  financial  statements and the notes to the consolidated
financial  statements  that are  presented as part of this Annual Report on Form
10-K.

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

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

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

(b)   expectations for increased  revenues and earnings for the Company and Bank
      through growth resulting from acquisitions,  attraction of new deposit and
      loan customers and the introduction of new products and services.

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

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

(a)   the risk of adverse changes in business conditions in the banking industry
      generally and in the specific markets in which the Bank operates;

(b)   changes in the  legislative  and regulatory  environment  that  negatively
      impact the Company and Bank through increased operating expenses;

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

(d)   the impact of  technological  advances;  and

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

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


                                       12


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

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

RESULTS OF OPERATION
--------------------

Comparison of the Years Ended December 31, 2007 and 2006
--------------------------------------------------------

Overview
--------

The reported earnings for the Company totaled  $3,800,000 in 2007, which yielded
earnings per average share  outstanding  of $2.26.  This compares to earnings of
$4,254,000  or $2.53 per average  share  outstanding  in 2006.  The  decrease in
earnings is primarily  attributable to an increase in noninterest expense due to
additional staff to support new marketing strategies, growth, and expansion into
New York State. The Company's  assets at December 31, 2007 totaled  $461,960,000
compared to total assets of  $450,340,000  at December  31,  2006.  New business
development efforts have resulted in the growth of net loans outstanding,  which
totaled   $268,191,000  at  December  31,  2007.  This  compares  to  net  loans
outstanding of  $252,464,000 at December 31, 2006, and represents an increase of
$15,727,000 or 6.23%.  This growth was funded by an increase in deposits as well
as an increase in advances  from the Federal Home Loan Bank of Boston.  Deposits
at December 31, 2007  totaled  $317,741,000  and  compared to total  deposits of
$313,586,000  at December  31,  2006.  Advances  from the Federal Home Loan Bank
totaled  $95,011,000 at December 31, 2007,  which compared to advances  totaling
$87,093,000  at December 31, 2006.  The Bank continues to monitor the quality of
the loan portfolio to ensure that loan quality will not be sacrificed for growth
or otherwise  compromise the Company's  objectives.  Nonperforming loans totaled
$1,824,000  at December  31, 2007 as compared to  nonperforming  loans  totaling
$964,000 at December 31, 2006. While the level of nonperforming loans increased,
such loans  represent  less than one percent  (1%) of total  loans  outstanding.
Accordingly,  while the  overall  quality of the loan  portfolio  remains  high,
management  continues  to monitor the  portfolio  for trends in light of current
economic conditions.

The Bank is "well capitalized". The Bank's risk-based capital ratios at December
31,  2007 were  13.74% for Tier 1 risk based  capital  and 14.69% for total risk
based capital.  The Bank's  leverage ratio was 8.06% at December 31, 2007.  This
compares to a Tier 1 risk based capital ratio at December 31, 2006 of 13.97%,  a
total risk based  capital  ratio of 14.98% and a leverage  ratio of 8.26%.  As a
result of the Company's financial performance,  the Board of Directors increased
total  dividends  declared on the  Company's  common stock to $1.08 per share in
2007. This compares to a $1.04 per share dividend declared in 2006.

Net Interest and Dividend Income
--------------------------------

The Company earns income from two basic  sources.  The primary source is through
the management of its financial assets and liabilities and involves  functioning
as a financial  intermediary.  The Company  accepts  funds from  depositors  and
borrows  funds and either lends the funds to borrowers or invests those funds in
various types of securities. The second source is fee income, which is discussed
in the noninterest income section of this analysis.


                                       13


Net interest  income is the  difference  between the interest and fees earned on
loans,  interest and  dividends  earned on  securities  (the  Company's  earning
assets) and the interest expense paid on deposits and borrowed funds,  primarily
in the form of  advances  from the Federal  Home Loan Bank.  The amount by which
interest  income will exceed interest  expense  depends on two factors:  (1) the
volume or  balance  of  earning  assets  compared  to the  volume or  balance of
interest-bearing deposits and borrowed funds and (2) the interest rate earned on
those  interest-earning  assets  compared  with the interest  rate paid on those
interest-bearing deposits and borrowed funds. For this discussion,  net interest
income is  presented  on an FTE basis.  FTE interest  income  restates  reported
interest  income on tax exempt loans and  securities  as if such  interest  were
taxed at the  applicable  State and  Federal  income  tax rates for all  periods
presented.

(dollars in thousands)                                      December 31,
                                                        2007              2006
                                                      --------------------------
Interest and Dividend Income
(financial statements)                                $ 26,152         $ 23,730

Tax Equivalent Adjustment                                1,202            1,072
                                                      --------         --------
       Total Interest and Dividend
       Income (on an FTE basis)                         27,354           24,802

Interest Expense                                       (12,432)         (10,459)
                                                      --------         --------

Net Interest and Dividend Income-FTE                  $ 14,922         $ 14,343
                                                      ========         ========

The Company's  2007 total  interest and dividend  income on an FTE basis for the
period ended December 31, 2007  increased  $2,552,000 or 10.29% when compared to
the same period in 2006. The increase is primarily  attributable  to an increase
in earning assets as well an economic  environment  experiencing  an increase in
interest rates.

Interest  expense  on  deposits  in  2007  increased  $1,314,000  or  19.09%  to
$8,200,000  compared to $6,886,000  for the  corresponding  period in 2006.  The
increase is primarily attributable to generally higher interest rates during the
period as well as an increase in interest bearing deposits. Interest expense for
Federal  Home  Loan Bank  advances  increased  $659,000  to  $4,232,000  in 2007
compared to  $3,573,000  in 2006.  The increase was the result of an increase in
advances during the year.  Competition  remains  aggressive and interest margins
continue to be pressured,  however,  net interest and dividend  income on an FTE
basis increased $579,000 or 4.04% over 2006 and totaled $14,922,000 for the year
ended  December 31, 2007 and compared to net interest and dividend  income on an
FTE basis of $14,343,000 for the year ended December 31, 2006.

Net  interest  margin  is  net  interest  and  dividend  income  expressed  as a
percentage  of average  earning  assets.  It is used to measure  the  difference
between the  average  rate of interest  and  dividends  earned on assets and the
average rate of interest that must be paid to support those assets.  To maintain
its net  interest  margin,  the  Company  must manage the  relationship  between
interest earned and paid. The Company's 2007 net interest margin on an FTE basis
was  3.54%.  This  compares  to a net  interest  margin of 3.67%  for 2006.  The
following table reflects average balances, interest earned or paid and rates for
the two years ended  December  31,  2007 and 2006.  The  average  loan  balances
include  non-accrual  loans  and  loans  currently  past due 90 days  and  still
accruing.  Interest  earned on loans  also  includes  fees on loans such as late
charges  that are not  deemed to be  material.  Interest  earned  on tax  exempt
securities in the table is presented on an FTE basis.  A federal tax rate of 34%
was used in performing  these  calculations.  Actual tax exempt income earned in
2007 was  $2,332,000  with a yield of 4.28%.  Actual tax  exempt  income in 2006
totaled $2,080,000 with a yield of 4.41%.


                                       14


YIELD ANALYSIS
Average Balances, Interest Earned/Paid and Rates



                                                       Years Ended December 31
(dollars in thousands)                        2007                                    2006
                                            INTEREST                                INTEREST
                              AVERAGE       EARNED/        YIELD       AVERAGE       EARNED/         YIELD
                              BALANCE         PAID         RATE        BALANCE        PAID           RATE
                                                                                   
ASSETS
Interest-Earning Assets:
Loans                        $ 258,714      $17,969         6.95%     $ 229,704      $15,687         6.83%
Taxable Securities             106,775        5,783         5.42%       111,635        5,883         5.27%
Tax-Exempt Securities*          54,541        3,533         6.48%        47,215        3,152         6.68%
Federal Funds                      643           31         4.82%         1,154           56         4.85%
Other Interest-Earning           1,071           38         3.55%           703           24         3.41%
                             ----------------------                   ----------------------
Total Interest-Earning
  Assets                       421,744       27,354         6.49%       390,411       24,802         6.35%
                                            -------                                  -------
Allowance for Loan
  Losses                        (2,467)                                  (2,603)
Cash & Due From
  Banks                          6,554                                    6,949
Premises, Equipment              6,645                                    6,388
Net unrealized loss
  on AFS Securities             (3,468)                                  (4,106)
Other Assets                    20,619                                   20,348
                             ---------                                ---------
Total Average Assets         $ 449,627                                $ 417,387
                             =========                                =========

LIABILITIES AND
SHAREHOLDERS'
EQUITY
Interest-Bearing
  Liabilities:
NOW/Money Market
  Deposits                   $  80,180        1,854         2.31%     $  79,356        1,812         2.28%
Savings Deposits                47,063          814         1.73%        48,882          640         1.31%
Time Deposits                  119,052        5,532         4.65%       106,395        4,434         4.17%
Borrowed Funds                  87,649        4,232         4.83%        71,471        3,573         5.00%
                             ----------------------                   ----------------------
Total Interest-Bearing
  Liabilities                  333,944       12,432         3.72%       306,104       10,459         3.42%
                                            -------                                  -------
Demand Deposits                 66,304                                   65,151
Other Liabilities                4,673                                    2,842
Shareholders' Equity            44,706                                   43,290
                             ---------                                ---------
Total Liabilities and
  Shareholders' Equity       $ 449,627                                $ 417,387
                             =========                                =========
Net Interest Income                         $14,922                                  $14,343
                                            =======                                  =======
Net Interest Spread                                         2.77%                                    2.93%
Net Interest Margin                                         3.54%                                    3.67%


*     Presented on a fully taxable equivalent ("FTE") basis


                                       15


Volume and Rate Variance Analysis of Net Interest and Dividend Income
(Taxable equivalent basis)



(dollars in thousands)                          2007  over 2006                        2006 over 2005
                                        ---------------------------------      ---------------------------------
                                         Volume       Rate         Total        Volume       Rate         Total
                                        ---------------------------------      ---------------------------------
                                                                                       
Increase (decrease) in:
Interest and dividend income on:
   Loans                                $ 1,981      $   301      $ 2,282      $ 1,335      $ 1,032      $ 2,367
   Taxable investment securities           (256)         156         (100)         (50)         836          786
   Tax-exempt investment securities         489         (108)         381         (351)         (26)        (377)
   Other interest earning                    (1)         (10)         (11)         (26)          36
                                        -------      -------      -------      -------      -------      -------
                                                                                                              10
Total interest and dividend income      $ 2,213      $   339      $ 2,552      $   908      $ 1,878      $ 2,786
                                        -------      -------      -------      -------      -------      -------

Interest expense on:
   NOW/Money Market deposits            $    18      $    24      $    42      $   (34)     $   617      $   583
   Savings deposits                         (24)         198          174          (81)         265          184
   Time deposits                            528          570        1,098          561        1,387        1,948
   Borrowed funds                           808         (149)         659          172          220          392
                                        -------      -------      -------      -------      -------      -------
Total interest expense                  $ 1,330      $   643      $ 1,973      $   618      $ 2,489      $ 3,107
                                        -------      -------      -------      -------      -------      -------

Net interest and dividend income        $   883      $  (304)     $   579      $   290      $  (611)     $  (321)
                                        =======      =======      =======      =======      =======      =======


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

Noninterest  income totaled  $4,465,000 for the year ended December 31, 2007 and
compared to $4,583,000 for the year ended December 31, 2006.  This is a decrease
of  $118,000  or 2.57%.  Gains on sales of  available-for-sale  securities,  net
decreased $222,000 or 42.94%.  This decrease is primarily the result of movement
in market rates during the year,  which limited  opportunities to generate gains
on sales of available-for-sale  securities. Trust and investment services income
increased  $70,000 to  $2,050,000  primarily  as a result of the  efforts of new
business  development,  which has  increased  assets under  management.  Service
charges on deposit  accounts  totaled  $744,000 for 2007. This is an increase of
$37,000 or 5.23% when compared to total service charges of $707,000 in 2006. The
increase  can be  attributed  to an increase in the number of deposit  accounts.
Mortgage  refinancing  remained  active  during 2007  resulting in revenues from
gains on sales of loans  that  totaled  $317,000,  which  compares  to  revenues
totaling  $358,000  for the  corresponding  period in 2006.  Competition  in the
secondary  mortgage market continues to be very aggressive.  Other income during
fiscal 2007 totaled  $1,037,000.  This  compares to other income of $902,000 for
2006 and  represents an increase of $135,000 or 14.97%.  This category of income
primarily consists of fees associated with transaction accounts and fees related
to the origination  and servicing of mortgage loans as well as gains  reflecting
the sale of mortgage loans.

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

Overall,  noninterest  expense  increased 10.36% for the year ended December 31,
2007 as compared to the  corresponding  period in 2006.  Professional fees which
are included in noninterest expenses increased $225,000 or 31.87%. This increase
is  primarily  attributable  to the  Company's  trust  and  investment  services
division's  working  partnership  with  Bradley  Foster and  Sargent,  Inc.,  an
independent  investment advisory firm which assists in providing a broader scope
of highly personalized professional investment services to clients. In addition,
internal  audit expense  increased,  which is the result of additional  services
required due to compliance requirements of the Sarbanes-Oxley Act. Although some
increases  in  the  described  noninterest  expenses  in  the  table  below  are
attributable  to normal  volumes of business,  the largest  contribution  to the
increases in noninterest expense, including other expense, reflect non-recurring
expenses  associated  with the Bank's entry into New York State. A branch office
was established in Dover Plains,  New York,  which opened its doors for business
on August 1, 2007.

The  components  of  noninterest  expense  and the changes in the period were as
follows (amounts in thousands):



                                             2007         2006      $ Change   % Change
---------------------------------------------------------------------------------------
                                                                    
Salaries and employee benefits              $ 7,724     $ 7,151     $   573      8.01%
Occupancy expense                               802         752          50      6.65
Equipment expense                               819         787          32      4.07
Data processing                               1,194       1,134          60      5.29
Insurance                                       163         154           9      5.84
Printing and stationery                         280         240          40     16.67
Professional fees                               931         706         225     31.87
Amortization of core deposit intangible         164         164           0       .00
Other expense                                 1,437       1,157         280     24.20
                                            -------     -------     -------
      Total noninterest expense             $13,514     $12,245     $ 1,269     10.36
                                            =======     =======     =======



                                       16


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

In 2007, the Company's  income tax provision  totaled $870,000 which reflects an
effective  tax rate of  18.63%.  This  compares  to an income tax  provision  of
$1,442,000 and an effective tax rate of 25.32% for the same period in 2006. This
decrease is primarily attributable to a decrease in taxable income.

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

Overall,  net income totaled $3,800,000 for the year ended December 31, 2007 and
represents earnings per average share outstanding of $2.26. This compares to net
income of  $4,254,000  for the year ended  December  31,  2006,  which  reflects
earnings per average share outstanding of $2.53.

FINANCIAL CONDITION
Comparison of December 31, 2007 and 2006
----------------------------------------

Total assets at December 31, 2007 were $461,960,000  compared to $450,340,000 at
December 31, 2006.  This is an increase of 2.58%.  The increase is primarily the
result of an  increase  in earning  assets  that were  funded by an  increase in
deposits and advances from the Federal Home Loan Bank of Boston.

Securities Portfolio
--------------------

The Company  manages the securities  portfolio in accordance with the investment
policy  adopted by the Board of Directors.  The primary  objectives  are to earn
interest and dividend income,  provide  liquidity to meet cash flow needs and to
manage interest rate risk and  asset-quality  diversifications  to the Company's
assets. The securities  portfolio also acts as collateral for deposits of public
agencies. As of December 31, 2007, the securities  portfolio,  including Federal
Home Loan Bank of Boston stock, totaled $152,624,000. This represents a decrease
of $8,607,000 or 5.34% over year-end  2006.  This decrease  reflects a change in
asset mix as  securities  portfolio  assets were used to fund the growth in loan
demand during the year.

Securities     are     classified     in     the     portfolio     as     either
securities-available-for-sale  or  securities-held-to-maturity.  Securities  for
which the Company has the ability and positive intent to hold until maturity are
reported as held-to-maturity.  These securities are carried at cost adjusted for
amortization  of premiums and accretion of discounts.  Securities  that are held
for indefinite  periods of time and which  management  intends to use as part of
its  asset/liability  management  strategy,  or that may be sold in  response to
changes in interest  rates,  changes in  prepayment  risk,  increases in capital
requirements  or other similar  factors,  are classified as  available-for-sale.
These  securities  are stated at fair value in the  financial  statements of the
Company. Temporary differences between available-for-sale  securities' amortized
cost and fair market value (accumulated other comprehensive  income or loss when
net of tax) are not included in earnings, but are reported as a net amount (less
expected tax) in a separate component of capital until realized.  The cost basis
of  individual  securities  is written  down to estimated  fair value  through a
charge to earnings when  decreases in value below  amortized cost are considered
to be other than temporary.  At December 31, 2007, the unrealized holding losses
on available-for-sale  securities, net of taxes was $2,273,000. This compares to
an unrealized  loss net of taxes of $1,190,000 at December 31, 2006. The Company
monitors the market value fluctuations of its securities  portfolio on a monthly
basis as well as associated credit ratings to determine potential  impairment of
a security.

Federal Funds Sold
------------------

Federal funds sold at December 31, 2007 totaled $300,000.  Federal funds sold at
December  31,  2006  totaled  $1,000,000.  This  variance  represents  a  normal
operating range of funds for daily cash needs.

Lending
-------

New business development during the year coupled with an increase in loan demand
resulted in an increase in net loans outstanding to $268,191,000 at December 31,
2007, as compared to  $252,464,000  at December 31, 2006. This is an increase of
$15,727,000  or 6.23%.  Although  the largest  dollar  volumes of loan  activity
continue to be in the  residential  mortgage  area,  the  Company  offers a wide
variety of loan types and terms along with competitive pricing to customers.  At
December 31, 2006,  the  portfolio  also  included  $12,000,000  in Term federal
funds, which are short term loans to other financial institutions. The Company's
credit  function is designed to ensure  adherence  to prudent  credit  standards
despite competition for loans in the Company's market area.


                                       17


The following table  represents the composition of the loan portfolio  comparing
December 31, 2007 to December 31, 2006:



                                                    December 31, 2007     December 31, 2006
                                                    -----------------     -----------------
                                                            (amounts in thousands)
                                                                         
Commercial, financial and agricultural                   $  20,629             $  16,465
Real Estate-construction and land development               28,928                21,169
Real Estate-residential                                    158,600               145,395
Real Estate-commercial                                      53,823                50,859
Consumer                                                     8,005                 8,816
Term federal funds                                               0                12,000
Other                                                          376                    69
                                                           270,361               254,773
Deferred costs, net                                            306                   168
Unearned income                                                 (1)                   (3)
Allowance for loan losses                                   (2,475)               (2,474)
                                                         ---------             ---------
       Net  loans                                        $ 268,191             $ 252,464
                                                         =========             =========


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

Total loans  outstanding as of December 31, 2007 were  $270,361,000 and compares
to total loans outstanding of $254,773,000 at December 31, 2006. This growth can
be attributed  primarily to an increase in both  residential and commercial real
estate  loan  demand as well as the Bank's  new  business  development  program.
Approximately  90% of the Company's loan  portfolio  continues to be real estate
secured.

Credit risk is inherent in the business of extending loans. The Company monitors
the loan portfolio to ensure that loan quality will not be sacrificed for growth
or otherwise compromise the Company's objectives. Because of the risk associated
with extending loans, the Company maintains an allowance or reserve for loan and
lease losses through charges to earnings.  The Company evaluates the adequacy of
the allowance on a monthly basis.  Such  evaluations are based on assessments of
credit  quality and trends  within the  portfolio  and "risk rating" of loans by
senior  management,  which is  reviewed by the  Company's  Loan  Committee  on a
regular  basis.  Loans are  initially  risk rated when  originated.  If there is
deterioration in the credit quality, the risk rating is adjusted accordingly.

The  Allowance  for Loan and Lease  Losses  (ALLL) at December  31, 2007 totaled
$2,475,000 representing 135.69% of nonperforming loans of $1,824,000 and .92% of
total loans outstanding of $270,361,000.  This compares to an ALLL of $2,474,000
which is 256.64% of  nonperforming  loans of  $964,000  and .97% of total  loans
outstanding of $254,773,000  at December 31, 2006. A separate  component that is
evaluated is the  Allowance  for Off Balance  Sheet  Commitments,  which totaled
$34,000 as of December 31, 2007. The December 31, 2006 allowance for off balance
sheet  commitments  was $36,000.  A total of $103,000 in loans were  charged-off
during  2007  compared  to  $132,000  during  2006.   Recoveries  of  previously
charged-off loans totaled $104,000 during 2007 compared to $67,000 in recoveries
for 2006. The allowance also includes a component resulting from the application
of the measurement  criteria of Statements of Financial Accounting Standards No.
114,  Accounting  by Creditors for  Impairment of a Loan ("SFAS 114").  Impaired
loans receive  individual  evaluation  of the  allowance  necessary on a monthly
basis.  Loans to be considered  for impairment are defined in the Company's Loan
Policy as  commercial  loans with balances  outstanding  of $100,000 or more and
residential  real estate mortgages with balances of $300,000 or more. Such loans
are considered impaired when it is probable that the Company will not be able to
collect all principal and interest due according to the terms of the note.

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

      1.    Non-accrual status;

      2.    Loans over 90 days delinquent;

      3.    Troubled debt restructures consummated after December 31, 1994;

      4.    Loans  classified as "doubtful",  meaning that they have weaknesses,
            which  make  collection  or  liquidation  in full,  on the  basis of
            currently   existing   facts,   conditions,   and   values,   highly
            questionable and improbable.

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

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


                                       18


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

While management estimates loan losses using the best available information,  no
assurances  can be given that  future  additions  to the  allowance  will not be
necessary  based on changes  in  economic  and real  estate  market  conditions,
identification  of  additional  problem  loans or other  factors.  Additionally,
despite the excellent  overall quality of the loan portfolio and expectations of
the Company to continue to grow its existing portfolio,  future additions to the
allowance  may be  necessary to maintain  adequate  reserve  coverage.  Overall,
management is of the opinion that the ALLL is adequate as of December 31, 2007.

Deposits
--------

The Company offers a variety of deposit  accounts with a range of interest rates
and  terms.   Deposits  at  year-end  2007  totaled  $317,741,000   compared  to
$313,586,000   at  year-end   2006.   The  Company   continues  its  efforts  to
competitively price products and develop and maintain  relationship banking with
its  customers.  The flow of deposits  is  influenced  significantly  by general
economic  conditions,  changes in money market rates,  prevailing interest rates
and the aggressive competition from nonbanking entities.

During 2007, there was a change in the mix of deposits.  Demand, NOW and savings
balances,  which  are lower  cost core  deposits,  decreased  and were  replaced
primarily by time deposits, which, as illustrated by the table below, results in
a significant increase in interest expense.

The average  daily amount of deposits by category and the average  rates paid on
such deposits are summarized in the following table:

(dollars in thousands)           Year ended December 31
                           2007                      2006
                 -----------------------------------------------------
                  Average                  Average
                  Balance       Rate       Balance            Rate
                 -----------------------------------------------------
Demand           $   66,304               $   65,151
NOW                  24,822      .26%         25,090             .26%
Money Market         55,358     3.23%         54,266            3.22%
Savings              47,063     1.73%         48,882            1.31%
Time                119,052     4.65%        106,395            4.17%
                 ----------               ----------
                 $  312,599     2.62%     $  299,784            2.29%
                 ==========               ==========

Maturities of time  certificates of deposits of $100,000 or more  outstanding at
December 31 are summarized as follows:

(dollars in thousands)                      December 31
                                          2007         2006
                                         -------------------

Three months or less                     $ 7,603     $12,045
Over three months through six months      17,429       8,946
Over six months through one year          15,114      24,791
Over one year                             10,975       9,533
                                         -------     -------

Total                                    $51,121     $55,315
                                         =======     =======

Borrowings
----------

As part of its  operating  strategy,  the  Company  utilizes  advances  from the
Federal Home Loan Bank to supplement deposit growth and fund its asset growth, a
strategy that is designed to increase  interest income.  These advances are made
pursuant to various credit programs, each of which has its own interest rate and
range of  maturities.  At December  31,  2007,  the Company had  $95,011,000  in
outstanding  advances from the Federal Home Loan Bank compared to $87,093,000 at
December 31, 2006.  Management  expects that it will  continue  this strategy of
supplementing  deposit  growth  with  advances  from  Federal  Home Loan Bank of
Boston. (See Note 7 to the Financial Statements.)


                                       19


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

Interest rate risk is the most  significant  market risk  affecting the Company.
Interest  rate risk is defined as an exposure  to a movement  in interest  rates
that could have an adverse effect on net interest income. Net interest income is
sensitive to interest rate risk to the degree that interest bearing  liabilities
mature or reprice on a different basis than earning assets.

The Bank's  assets and  liabilities  are  managed in  accordance  with  policies
established  and  reviewed  by  the  Bank's  Board  of  Directors.   The  Bank's
Asset/Liability   Management   Committee  monitors  asset  and  deposit  levels,
developments  and trends in interest  rates,  liquidity and capital.  One of the
primary  financial  objectives  is to manage  interest rate risk and control the
sensitivity  of  earnings  to changes in  interest  rates in order to  prudently
improve  net  interest  income and  manage  the  maturities  and  interest  rate
sensitivities of assets and liabilities.

The Bank uses  asset/liability  modeling software to develop scenario  analyses,
which  measure  the impact that  changing  interest  rates have on net  interest
income.  These model simulations are projected out over a two year time horizon,
assuming  proportional  upward and downward  interest rate movements of 100, 200
and 300 basis points. Simulations are projected out in two ways:

            (1)   using the same balance sheet as the Bank had on the simulation
                  date, and

            (2)   using a growing  balance sheet based on recent growth patterns
                  and strategies.

As interest rates rise or fall, these  simulations  incorporate  expected future
lending  rates,  current and  expected  future  funding  sources  and cost,  the
possible  exercise of options,  changes in prepayment  rates,  and other factors
which may be important in determining the future growth of net interest  income.
The  rates  the  Company  earns  on its  assets  and  the  rates  it pays on its
liabilities are generally fixed for a contractual  period of time.  Imbalance in
these contractual  maturities can create significant earnings volatility because
market  interest rates change over time. In a period of rising  interest  rates,
the interest income earned on assets may not increase as rapidly as the interest
paid on liabilities. In a period of declining interest rates the interest income
earned  on  assets  may  decrease   more  rapidly  than  the  interest  paid  on
liabilities.  This would  primarily be attributed to accelerated  prepayments on
loans and securities  that are  significantly  influenced by movements in market
rates.

The net interest margin may be adversely  affected by several possible  interest
rate environments. Foremost, a continued flat or inverted yield curve may result
in shorter term market  interest rates that equal or exceed those of longer term
rates.  This  could  further  increase  the  Bank's  cost  of   interest-bearing
liabilities  that continue to outpace its yield on earning  assets  resulting in
additional net interest rate spread compression.

Liquidity
---------

Liquidity is the ability to raise funds on a timely basis at an acceptable  cost
in  order  to meet  cash  needs.  Adequate  liquidity  is  necessary  to  handle
fluctuation in deposit levels,  to provide for customers'  credit needs,  and to
take advantage of investment  opportunities  as they are presented.  The Company
manages  liquidity  primarily  with readily  marketable  investment  securities,
deposits and loan repayments. The Company's subsidiary, the Bank, is a member of
the  Federal  Home Loan Bank of Boston,  which  provides  a source of  available
borrowings for liquidity.

At  December  31,  2007,  the  Company  had  approximately  $59,318,000  in loan
commitments outstanding. Management believes that the current level of liquidity
is ample to meet the  Company's  needs  for  both the  present  and  foreseeable
future.

Capital
-------

At December  31,  2007,  the Company had  $45,564,000  in  shareholders'  equity
compared to  $44,349,000  at December 31, 2006.  This  represents an increase of
$1,215,000 or 2.74%. Several components contributed to the change since December
2006. Earnings for the year totaled $3,800,000. Securities in the portfolio that
are classified as available-for-sale  are adjusted to fair value monthly and the
unrealized  losses or gains are not included in earnings,  but are reported as a
net  amount  (less  expected  tax) as a  separate  component  of  capital  until
realized.  Market fluctuations of fair value of the securities  portfolio during
2007 resulted in other  comprehensive loss net of tax totaling  $1,082,000.  The
initial  application  of SFAS No. 158, as described  in Note 2 to the  Financial
Statements,  resulted in other  comprehensive  income, net of tax of $286,000 in
2007. The Company declared  dividends in 2007 resulting in a decrease in capital
of $1,820,000. The Company issued 840 new shares of common stock under the terms
of the Director  Stock  Retainer Plan during the second  quarter of 2007,  which
resulted in an increase in capital of $30,000.

Under  current  regulatory  definitions,  the  Bank is  considered  to be  "well
capitalized"  for  capital  adequacy  purposes.  As a result,  the Bank pays the
lowest federal deposit insurance deposit premiums possible.  One primary measure
of capital adequacy for regulatory  purposes is based on the ratio of risk-based
capital to risk weighted assets. This method of measuring capital adequacy helps
to establish capital  requirements that are sensitive to the differences in risk
associated with various assets. It


                                       20


takes into account  off-balance sheet exposure in assessing capital adequacy and
it minimizes disincentives to holding liquid, low risk assets. At year-end 2007,
the Bank had a total  risk-based  capital ratio of 14.69%  compared to 14.98% at
December 31, 2006.  Maintaining  strong  capital is essential to bank safety and
soundness.  However,  the  effective  management of capital  resources  requires
generating  attractive  returns on equity to build value for shareholders  while
maintaining  appropriate  levels of  capital  to fund  growth,  meet  regulatory
requirements  and be  consistent  with prudent  industry  practices.  Management
believes  that the  capital  ratios  of the  Company  and Bank are  adequate  to
continue to meet the foreseeable capital needs of the institution.

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

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

Off-Balance Sheet Arrangements
------------------------------

The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing  needs of its customers.  In the
opinion of management,  these off-balance  sheet  arrangements are not likely to
have a  material  effect  on  the  Company's  financial  condition,  results  of
operations, or liquidity. (See Note 11 to the Financial Statements).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
---------------------------------------------------------------------
Not Applicable.
---------------

Statement of Management's Responsibility
----------------------------------------

Management is responsible for the integrity and objectivity of the  consolidated
financial  statements  and other  information  appearing in this Form 10-K.  The
consolidated  financial  statements  were prepared in accordance with accounting
principles generally accepted in the United States of America applying estimates
and management's best judgment as required.  To fulfill their  responsibilities,
management establishes and maintains accounting systems and practices adequately
supported by internal accounting controls.  These controls include the selection
and training of management and supervisory personnel;  an organization structure
providing for  delegation of authority and  establishment  or  responsibilities;
communication of requirements for compliance with approved  accounting,  control
and  business  practices  throughout  the  organization;  business  planning and
review;  and a program of  internal  audit.  Management  believes  the  internal
accounting  controls  in  use  provide  reasonable  assurance  that  assets  are
safeguarded,  that  transactions  are executed in accordance  with  management's
authorization  and that  financial  records  are  reliable  for the  purpose  of
preparing financial  statements.  Shatswell,  MacLeod and Company, P.C. has been
engaged to provide an  independent  opinion on the fairness of the  consolidated
financial statements. Their report appears in this Annual Report on Form 10-K.

Management's Report on Internal Control Over Financial Reporting
----------------------------------------------------------------

The management of the Company is responsible  for  establishing  and maintaining
adequate internal control over financial reporting. The internal control process
has  been  designed  under  our  supervision  to  provide  reasonable  assurance
regarding the  reliability  of financial  reporting and the  preparation  of the
Company's  financial  statements for external  reporting  purposes in accordance
with accounting principles generally accepted in the United States of America.

Management  conducted  an  assessment  of the  effectiveness  of  the  Company's
internal control over financial reporting as of December 31, 2007, utilizing the
framework  established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring  Organizations of the Treadway Commission (COSO).  Based
on this  assessment,  management  has  determined  that the  Company's  internal
control over financial reporting as of December 31, 2007 is effective.

Our internal control over financial  reporting  includes policies and procedures
that (1)  pertain to the  maintenance  of  records  that  accurately  and fairly
reflect,  in reasonable  detail,  the transactions and dispositions of assets of
the Company;  (2) provide  reasonable  assurances  that:  (a)  transactions  are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
accordance with accounting principles generally accepted in the United States of
America and (b) receipts and expenditures are being made only in accordance with
authorizations  of management and the directors of the Company;  and (3) provide
reasonable   assurance   regarding  the   prevention  or  timely   detection  of
unauthorized acquisition, use, or disposition of the Company's assets that could
have a material effect on the Company's financial statements.


                                       21


This  Annual  Report  does not include an  attestation  report of the  Company's
registered  public  accounting  firm regarding  internal  control over financial
reporting.  Management's  report was not subject to attestation by the Company's
registered  public  accounting  firm pursuant to temporary rules of the SEC that
permit the Company to provide only management's report in this Annual Report.

All  internal  control  systems,  no matter  how well  designed,  have  inherent
limitations.  Therefore,  even those  systems  determined  to be  effective  can
provide  only   reasonable   assurance  with  respect  to  financial   statement
preparation   and   presentation.   Also,   projections  of  any  evaluation  of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.


/s/ John F. Perotti    /s/ Richard J. Cantele, Jr.         /s John F. Foley
-------------------    ---------------------------   ---------------------------
 John F. Perotti          Richard J. Cantele, Jr.          John F. Foley
  Chairman & CEO             President & COO         CFO, Treasurer & Secretary


                                       22


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements
------------------------------------------

Report of Independent Registered Public
  Accounting Firm, February 29, 2008....................................... F-1

Consolidated Balance Sheets at December 31, 2007 and 2006.................. F-2

Consolidated Statements of Income for the Years Ended
 December 31, 2007 and 2006................................................ F-3

Consolidated Statements of Changes in Shareholders' Equity
 for the Years Ended December 31, 2007 and 2006............................ F-4

Consolidated Statements of Cash Flows for the Years Ended
 December 31, 2007 and 2006................................................ F-5

Notes to Consolidated Financial Statements for the
 Years Ended December 31, 2007 and 2006.................................... F-7

Salisbury Bancorp, Inc. (parent company only)
 Balance Sheet at December 31, 2007 and 2006.............................. F-26

 Statements of Income for the Years Ended
  December 31, 2007 and 2006.............................................. F-27

 Statements of Cash Flows for the Years Ended
  December 31, 2007 and 2006.............................................. F-27

Quarterly Results of Operations (unaudited)............................... F-28


                                       23


               [LETTERHEAD OF SHATSWELL, MacLEOD & COMPANY, P.C.]

To the Board of Directors
Salisbury Bancorp, Inc.
Lakeville, Connecticut

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

We have audited the accompanying consolidated balance sheets of Salisbury
Bancorp, Inc. and Subsidiary as of December 31, 2007 and 2006 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows of the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Salisbury Bancorp, Inc. and Subsidiary as of December 31, 2007 and 2006, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.


                                          /s/ SHATSWELL, MacLEOD & COMPANY, P.C.

                                          SHATSWELL, MacLEOD & COMPANY, P.C.

West Peabody, Massachusetts
February 21, 2008


                                      F-1


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

                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------

                           December 31, 2007 and 2006
                           --------------------------



ASSETS                                                                                  2007               2006
------                                                                             -------------      -------------
                                                                                                
Cash and due from banks                                                            $  12,810,681      $   8,988,609
Interest-bearing demand deposits with other banks                                        726,623            568,693
Money market mutual funds                                                              1,340,891          1,199,881
Federal Funds sold                                                                       300,000          1,000,000
                                                                                   -------------      -------------
           Cash and cash equivalents                                                  15,178,195         11,757,183
Investments in available-for-sale securities (at fair value)                         147,377,154        156,492,547
Investments in held-to-maturity securities (fair values of $71,435 and $74,818
   as of December 31, 2007 and 2006, respectively)                                        70,798             74,931
Federal Home Loan Bank stock, at cost                                                  5,176,100          4,663,700
Loan held-for-sale                                                                       120,000            304,000
Loans, less allowance for loan losses of $2,474,893 and $2,474,118 as of
   December 31, 2007 and 2006, respectively                                          268,191,275        252,464,430
Investment in real estate                                                                 75,000             75,000
Premises and equipment                                                                 6,803,198          6,135,546
Goodwill                                                                               9,828,712          9,509,305
Core deposit intangible                                                                1,329,283          1,493,499
Accrued interest receivable                                                            2,538,607          2,483,547
Cash surrender value of life insurance policies                                        3,688,021          3,554,995
Other assets                                                                           1,584,055          1,330,987
                                                                                   -------------      -------------
           Total assets                                                            $ 461,960,398      $ 450,339,670
                                                                                   =============      =============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits:
   Noninterest bearing                                                             $  69,214,697      $  70,502,249
   Interest-bearing                                                                  248,526,572        243,084,032
                                                                                   -------------      -------------
           Total deposits                                                            317,741,269        313,586,281
Federal Home Loan Bank advances                                                       95,011,155         87,093,402
Due to broker 0                                                                        1,579,611
Other liabilities                                                                      3,644,376          3,731,195
                                                                                   -------------      -------------
           Total liabilities                                                         416,396,800        405,990,489
                                                                                   -------------      -------------
Shareholders' equity:
   Common stock, par value $.10 per share; authorized 3,000,000 shares;
     issued and outstanding, 1,685,021 shares in 2007
     and 1,684,181 shares in 2006                                                        168,502            168,418
   Paid-in capital                                                                    13,130,247         13,099,881
   Retained earnings                                                                  35,583,443         33,602,991
   Accumulated other comprehensive loss                                               (3,318,594)        (2,522,109)
                                                                                   -------------      -------------
           Total shareholders' equity                                                 45,563,598         44,349,181
                                                                                   -------------      -------------
           Total liabilities and shareholders' equity                              $ 461,960,398      $ 450,339,670
                                                                                   =============      =============


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


                                      F-2


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

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

                     Years Ended December 31, 2007 and 2006
                     --------------------------------------



                                                                   2007             2006
                                                               ------------     ------------
                                                                          
Interest and dividend income:
   Interest and fees on loans                                  $ 17,968,801     $ 15,686,978
   Interest on debt securities:
     Taxable                                                      5,457,879        5,604,866
     Tax-exempt                                                   2,332,374        2,079,981
    Dividends on equity securities                                  324,329          277,356
    Other interest                                                   68,762           80,412
                                                               ------------     ------------
            Total interest and dividend income                   26,152,145       23,729,593
                                                               ------------     ------------
Interest expense:
    Interest on deposits                                          8,200,214        6,885,893
    Interest on Federal Home Loan Bank advances                   4,232,221        3,573,052
                                                               ------------     ------------
            Total interest expense                               12,432,435       10,458,945
                                                               ------------     ------------
            Net interest and dividend income                     13,719,710       13,270,648
    Benefit for loan losses                                               0          (87,488)
                                                               ------------     ------------
            Net interest and dividend income after benefit
              for loan losses                                    13,719,710       13,358,136
                                                               ------------     ------------

Noninterest income:
   Trust department income                                        2,050,000        1,980,500
   Loan commissions                                                  22,131          117,298
   Service charges on deposit accounts                              743,901          707,431
   Gain on sales of available-for-sale securities, net              294,984          517,326
   Gain on sales of loans held-for-sale                             316,736          357,628
   Other income                                                   1,036,911          902,394
                                                               ------------     ------------
            Total noninterest income                              4,464,663        4,582,577
                                                               ------------     ------------
Noninterest expense:
   Salaries and employee benefits                                 7,723,691        7,150,746
   Occupancy expense                                                801,558          751,670
   Equipment expense                                                819,474          786,637
   Data processing                                                1,193,887        1,134,078
   Insurance                                                        163,024          154,562
   Printing and stationery                                          280,172          239,617
   Professional fees                                                931,352          706,100
   Amortization of core deposit intangible                          164,216          164,216
   Other expense                                                  1,436,945        1,157,534
                                                               ------------     ------------
            Total noninterest expense                            13,514,319       12,245,160
                                                               ------------     ------------
            Income before income taxes                            4,670,054        5,695,553
   Income taxes                                                     870,006        1,441,935
                                                               ------------     ------------
            Net income                                         $  3,800,048     $  4,253,618
                                                               ============     ============
   Earnings per common share                                   $       2.26     $       2.53
                                                               ============     ============


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


                                      F-3


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

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
           ----------------------------------------------------------

                     Years Ended December 31, 2007 and 2006
                     --------------------------------------



                                                    Number                                               Accumulated
                                                      of                                                    Other
                                                    Shares       Common        Paid-in       Retained   Comprehensive
                                                    Issued        Stock        Capital       Earnings        Loss           Total
                                                  ----------   -----------   -----------   -----------  -------------   -----------
                                                                                                      
Balance, December 31, 2005                         1,683,341   $   168,334   $13,068,045   $31,100,702   $(2,894,758)   $41,442,323
Comprehensive income:
   Net income                                                                                4,253,618
   Other comprehensive income, net of tax
     effect                                                                                                1,410,531
       Comprehensive income                                                                                               5,664,149
   Adjustment to initially apply SFAS No. 158,
     net of tax effect                                                                                    (1,037,882)    (1,037,882)
Issuance of 840 shares for Directors' fees               840            84        31,836                                     31,920
Dividends declared ($1.04 per share)                                                        (1,751,329)                  (1,751,329)
                                                  ----------   -----------   -----------   -----------   -----------    -----------
Balance, December 31, 2006                         1,684,181       168,418    13,099,881    33,602,991    (2,522,109)    44,349,181
Comprehensive income:
   Net income                                                                                3,800,048
   Other comprehensive loss, net of tax
     effect                                                                                                 (796,485)
       Comprehensive income                                                                                               3,003,563
Issuance of 840 shares for Directors' fees               840            84        30,366                                     30,450
Dividends declared ($1.08 per share)                                                        (1,819,596)                  (1,819,596)
                                                  ----------   -----------   -----------   -----------   -----------    -----------
Balance, December 31, 2007                         1,685,021   $   168,502   $13,130,247   $35,583,443   $(3,318,594)   $45,563,598
                                                  ==========   ===========   ===========   ===========   ===========    ===========


Reclassification disclosure for the years ended December 31:



                                                                                                             2007          2006
                                                                                                         -----------    -----------
                                                                                                                  
Unrealized holding (losses) gains on available-for-sale securities
   Net unrealized holding (losses) gains on available-for-sale securities                                $(1,344,871)   $ 2,654,494
   Reclassification adjustment for net realized gains in net income                                         (294,984)      (517,326)
                                                                                                         -----------    -----------
                                                                                                          (1,639,855)     2,137,168
Income tax benefit (expense)                                                                                 557,551       (726,637)
                                                                                                         -----------    -----------
    Unrealized holding (losses) gains on available-for-sale securities, net of tax                        (1,082,304)     1,410,531
                                                                                                         -----------    -----------
Comprehensive income - defined benefit pension plan                                                          433,058              0
   Income tax expense                                                                                       (147,239)             0
                                                                                                         -----------    -----------
   Comprehensive income - defined benefit pension plan, net of tax                                           285,819              0
                                                                                                         -----------    -----------
     Other comprehensive (loss) income, net of tax                                                       $  (796,485)   $ 1,410,531
                                                                                                         ===========    ===========


Accumulated other comprehensive loss consists of the following as of December
31:



                                                                                                             2007           2006
                                                                                                         -----------    -----------
                                                                                                                  
Net unrealized holding losses on available-for-sale securities, net of taxes                             $(2,272,627)   $(1,190,323)
Unrecognized pension plan expense - SFAS No. 158, net of taxes                                            (1,045,967)    (1,331,786)
                                                                                                         -----------    -----------
Accumulated other comprehensive loss                                                                     $(3,318,594)   $(2,522,109)
                                                                                                         ===========    ===========


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


                                      F-4


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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------

                     Years Ended December 31, 2007 and 2006
                     --------------------------------------



                                                                           2007               2006
                                                                       ------------       ------------
                                                                                    
Cash flows from operating activities:
Net income                                                             $  3,800,048       $  4,253,618
Adjustments to reconcile net income to net cash provided by
     operating activities:
   Amortization of securities, net                                           75,014             34,953
   Gain on sales of available-for-sale securities, net                     (294,984)          (517,326)
   Benefit for loan losses                                                        0            (87,488)
   Change in loans held-for-sale                                            184,000           (304,000)
   Change in deferred loan costs, net                                      (137,362)          (168,573)
   Change in unearned income on loans                                        (2,528)            (4,913)
   Net decrease in mortgage servicing rights                                110,515             78,715
   Depreciation and amortization                                            565,267            538,449
   Amortization of core deposit intangible                                  164,216            164,216
   Amortization of fair value adjustment on loans                            71,357            112,712
   Accretion of fair value adjustments on deposits and borrowings          (130,203)          (134,217)
   Increase in interest receivable                                          (64,671)          (111,012)
   Deferred tax provision                                                    34,785            396,418
   Increase in prepaid expenses                                              (4,594)        (1,031,510)
   Increase in cash surrender value of insurance policies                  (133,026)          (130,809)
   Decrease in income tax receivable                                         89,869            181,005
   Decrease (increase) in other assets                                       90,673            (91,796)
   Increase (decrease) in accrued expenses                                  102,293           (243,196)
   Increase in interest payable                                               6,794            257,975
   Increase (decrease) in other liabilities                                 216,509            (57,050)
   Issuance of shares for Directors' fees                                    30,450             31,920
                                                                       ------------       ------------

Net cash provided by operating activities                                 4,774,422          3,168,091
                                                                       ------------       ------------

Cash flows from investing activities:
   Redemption of Federal Home Loan Bank stock                                     0            860,200
   Purchases of Federal Home Loan Bank stock                               (512,400)          (110,700)
   Purchases of available-for-sale securities                           (69,642,478)       (83,058,698)
   Proceeds from sales of available-for-sale securities                  63,597,747         62,356,620
   Proceeds from maturities of available-for-sale securities             12,170,270         14,007,603
   Proceeds from maturities of held-to-maturity securities                    4,102             71,691
   Loan originations and principal collections, net                     (11,448,576)       (36,142,073)
   Purchases of loans                                                    (4,313,300)          (252,000)
   Recoveries of loans previously charged off                               103,564             67,054
   Capital expenditures                                                  (1,396,923)          (207,787)
   Cash and cash equivalents acquired from New York Community
     Bank, net of expenses paid of $119,407                                 176,653                  0
                                                                       ------------       ------------

Net cash used in investing activities                                   (11,261,341)       (42,408,090)
                                                                       ------------       ------------



                                      F-5


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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------

                     Years Ended December 31, 2007 and 2006
                     --------------------------------------
                                   (continued)



                                                                        2007               2006
                                                                    ------------      ------------
                                                                                
Cash flows from financing activities:
   Net increase (decrease) in demand deposits, NOW and
     savings accounts                                                  8,467,718        (5,638,393)
   Net (decrease) increase in time deposits                           (4,805,216)       31,957,486
   Federal Home Loan Bank advances                                    21,000,000        25,000,000
   Principal payments on Federal Home Loan Bank advances             (16,589,044)      (10,460,009)
   Net change in short-term Federal Home Loan Bank advances            3,637,000         1,668,000
   Dividends paid                                                     (1,802,527)       (1,734,277)
                                                                    ------------      ------------

Net cash provided by financing activities                              9,907,931        40,792,807
                                                                    ------------      ------------

Net increase in cash and cash equivalents                              3,421,012         1,552,808
Cash and cash equivalents at beginning of year                        11,757,183        10,204,375
                                                                    ------------      ------------
Cash and cash equivalents at end of year                            $ 15,178,195      $ 11,757,183
                                                                    ============      ============

Supplemental disclosures:
   Interest paid                                                    $ 12,559,418      $ 10,335,187
   Income taxes paid                                                     745,352           864,512

New York Community Bank Branch Acquisition:
Cash and cash equivalents acquired                                  $    296,060
                                                                    ------------
                                                                         296,060
                                                                    ------------
Deposits assumed                                                         492,486
Accrued interest payable assumed                                           3,574
                                                                    ------------
                                                                         496,060
                                                                    ------------
Net liabilities assumed                                                  200,000
Acquisition costs
                                                                         119,407
                                                                    ------------
Goodwill                                                            $    319,407
                                                                    ============


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


                                      F-6


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                     Years Ended December 31, 2007 and 2006
                     --------------------------------------

NOTE 1 - NATURE OF OPERATIONS
-----------------------------

Salisbury  Bancorp,  Inc.  (Bancorp)  is  a  Connecticut  corporation  that  was
organized on April 24, 1998 to become a holding  company,  under which Salisbury
Bank and Trust Company (Bank) operates as its wholly-owned  subsidiary.  Bancorp
and the Bank are referred to together as the (Company).

The  Bank is a state  chartered  bank  which  was  incorporated  in 1874  and is
headquartered  in  Lakeville,  Connecticut.  The Bank operates its business from
four banking  offices  located in  Connecticut,  two banking  offices located in
Massachusetts,  and one banking  office in Dover Plains,  New York.  The Bank is
engaged  principally  in the business of  attracting  deposits  from the general
public and investing  those deposits in residential  and commercial real estate,
consumer and small  business  loans.  The Bank also offers a full  complement of
trust and investment services.

NOTE 2 - ACCOUNTING POLICIES
----------------------------

The accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America and predominant
practices within the banking industry. The consolidated financial statements
were prepared using the accrual basis of accounting. The significant accounting
policies are summarized below to assist the reader in better understanding the
consolidated financial statements and other data contained herein.

      USE OF ESTIMATES:

      The  preparation  of financial  statements in conformity  with  accounting
      principles  generally  accepted in the United  States of America  requires
      management  to make  estimates  and  assumptions  that affect the reported
      amounts of assets and liabilities and disclosure of contingent  assets and
      liabilities  at the  date of the  financial  statements  and the  reported
      amounts of revenues  and  expenses  during the  reporting  period.  Actual
      results could differ from the estimates.

      BASIS OF PRESENTATION:

      The consolidated  financial statements include the accounts of the Bancorp
      and its  wholly-owned  subsidiary,  the Bank, and the Bank's  wholly-owned
      subsidiaries,  SBT Realty, Inc., and SBT Mortgage Service Corporation (the
      "PIC"). SBT Realty, Inc. holds and manages bank owned real estate situated
      in New York state. The PIC operates as a passive investment company, which
      owns and services  residential and commercial  mortgages.  All significant
      intercompany  accounts  and  transactions  have  been  eliminated  in  the
      consolidation.

      CASH AND CASH EQUIVALENTS:

      For purposes of reporting cash flows,  cash and cash  equivalents  include
      cash on hand, cash items, due from banks, interest bearing demand deposits
      with other banks, money market mutual funds and federal funds sold.

      Cash  and due from  banks  as of  December  31,  2007  and  2006  includes
      $650,000,  which is  subject  to  withdrawals  and usage  restrictions  to
      satisfy the reserve requirements of the Federal Reserve Bank.


                                      F-7


      SECURITIES:

      Investments in debt  securities are adjusted for  amortization of premiums
      and accretion of discounts to approximate  the interest  method.  Gains or
      losses  on sales of  investment  securities  are  computed  on a  specific
      identification basis.

      The  Company may  classify  debt and equity  securities  into one of three
      categories:   held-to-maturity,   available-for-sale  or  trading.   These
      security  classifications  may be modified  after  acquisition  only under
      certain specified conditions. In general,  securities may be classified as
      held-to-maturity  only if the Company has the positive  intent and ability
      to hold them to maturity.  Trading  securities are defined as those bought
      and held principally for the purpose of selling them in the near term. All
      other securities must be classified as available-for-sale.

            --    Held-to-maturity  securities  are carried at amortized cost in
                  the consolidated balance sheets.  Unrealized holding gains and
                  losses are not included in earnings or in a separate component
                  of  capital.   They  are   disclosed   in  the  notes  to  the
                  consolidated financial statements.

            --    Available-for-sale securities are carried at fair value on the
                  consolidated  balance  sheets.  Unrealized  holding  gains and
                  losses are not  included in earnings but are reported as a net
                  amount (less expected tax) in a separate  component of capital
                  until realized.

            --    Trading   securities   are   carried  at  fair  value  on  the
                  consolidated  balance  sheets.  Unrealized  holding  gains and
                  losses for trading securities are included in earnings. During
                  the two years ended  December  31, 2007 and 2006,  the Company
                  did not classify any securities as trading.

      Declines  in the fair  value of  held-to-maturity  and  available-for-sale
      securities below their cost that are deemed to be other than temporary are
      reflected in earnings as realized losses.

      LOANS:

      Loans  receivable that management has the intent and ability to hold until
      maturity or payoff,  are reported at their outstanding  principal balances
      adjusted  for any  charge-offs,  the  allowance  for loan  losses  and any
      deferred  fees or costs on  originated  loans or  unamortized  premiums or
      discounts on purchased loans.

      Interest on loans is recognized on a simple interest basis.

      Residential  real estate loans are generally  placed on nonaccrual  status
      when reaching 90 days past due or in the process of foreclosure.  Lines of
      credit  secured  by real  estate  90 days  past due or in the  process  of
      foreclosure are placed on nonaccrual  status.  Secured  consumer loans are
      written  down  to  realizable  value  and  unsecured  consumer  loans  are
      charged-off  upon  reaching 120 or 180 days past due depending on the type
      of loan.  Commercial  real estate loans and commercial  business loans and
      leases  which  are 90 days or  more  past  due  are  generally  placed  on
      nonaccrual  status,  unless  secured by  sufficient  cash or other  assets
      immediately convertible to cash. When a loan has been placed on nonaccrual
      status,  previously  accrued and uncollected  interest is reversed against
      interest  on  loans.  A loan  can  be  returned  to  accrual  status  when
      collectibility  of  principal  is  reasonably  assured  and the  loan  has
      performed for a period of time, generally six months.

      Cash  receipts  of  interest  income on  impaired  loans are  credited  to
      principal  to  the  extent   necessary  to  eliminate   doubt  as  to  the
      collectibility  of the net carrying amount of the loan. Some or all of the
      cash  receipts  of  interest  income on impaired  loans is  recognized  as
      interest income if the remaining net carrying amount of the loan is deemed
      to be  fully  collectible.  When  recognition  of  interest  income  on an
      impaired loan on a cash basis is appropriate, the amount of income that is
      recognized  is limited to that  which  would have been  accrued on the net
      carrying  amount of the


                                      F-8


      loan at the contractual interest rate. Any cash interest payments received
      in excess of the limit and not applied to reduce the net  carrying  amount
      of  the  loan  are  recorded  as  recoveries  of  charge-offs   until  the
      charge-offs are fully recovered.

      ALLOWANCE FOR LOAN LOSSES:

      The  allowance for loan losses is  established  as losses are estimated to
      have  occurred  through a provision  for loan losses  charged to earnings.
      Loan losses are charged against the allowance when management believes the
      uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
      any, are credited to the allowance.

      The  allowance  for  loan  losses  is  evaluated  on a  regular  basis  by
      management  and  is  based  upon  management's   periodic  review  of  the
      collectibility of the loans in light of historical experience,  the nature
      and volume of the loan portfolio,  adverse  situations that may affect the
      borrower's  ability  to  repay,  the  estimated  value  of any  underlying
      collateral  and  prevailing  economic   conditions.   This  evaluation  is
      inherently  subjective as it requires  estimates  that are  susceptible to
      significant revision as more information becomes available.

      A loan is  considered  impaired  when,  based on current  information  and
      events,  it is  probable  that the Bank  will be  unable  to  collect  the
      scheduled  payments of  principal  or interest  when due  according to the
      contractual terms of the loan agreement.  Factors considered by management
      in determining  impairment  include payment status,  collateral value, and
      the probability of collecting  scheduled  principal and interest  payments
      when due. Loans that experience  insignificant  payment delays and payment
      shortfalls generally are not classified as impaired. Management determines
      the   significance   of  payment  delays  and  payment   shortfalls  on  a
      case-by-case  basis,  taking into  consideration  all of the circumstances
      surrounding the loan and the borrower,  including the length of the delay,
      the reasons for the delay,  the borrower's  prior payment record,  and the
      amount of the shortfall in relation to the  principal  and interest  owed.
      Impairment  is  measured  on a loan  by  loan  basis  for  commercial  and
      construction  loans by either the present  value of  expected  future cash
      flows  discounted  at the  loan's  effective  interest  rate,  the  loan's
      obtainable  market price,  or the fair value of the collateral if the loan
      is collateral dependent.  The Bank does not separately identify individual
      consumer and  residential  loans for impairment  disclosures,  but instead
      evaluates smaller groups of homogeneous loans collectively for impairment.

      PREMISES AND EQUIPMENT:

      Premises and equipment are stated at cost, less  accumulated  depreciation
      and  amortization.  Cost  and  related  allowances  for  depreciation  and
      amortization  of premises and equipment  retired or otherwise  disposed of
      are removed from the respective accounts with any gain or loss included in
      income  or  expense.   Depreciation   and   amortization   are  calculated
      principally on the straight-line method over the estimated useful lives of
      the assets.  Estimated  lives are 3 to 99 years for  buildings and 2 to 20
      years for furniture and equipment.

      OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURES:

      Other real estate owned includes  properties  acquired through foreclosure
      and properties classified as in-substance  foreclosures in accordance with
      Statement of Financial  Accounting Standards (SFAS) No. 15, "Accounting by
      Debtors and Creditors for Troubled Debt  Restructuring."  These properties
      are carried at the lower of cost or  estimated  fair value less  estimated
      costs to sell. Any  write-down  from cost to estimated fair value required
      at the time of foreclosure or classification  as in-substance  foreclosure
      is  charged  to the  allowance  for  loan  losses.  Expenses  incurred  in
      connection  with  maintaining  these assets and subsequent  write-down are
      included in other expense.

      In accordance  with SFAS No. 114,  "Accounting by Creditors for Impairment
      of a Loan,"  the Bank  classifies  loans as  in-substance  repossessed  or
      foreclosed if the Bank or its subsidiaries receives physical possession of
      the debtor's assets regardless of whether formal  foreclosure


                                      F-9


      proceedings take place. As of December 31, 2007 and December 31, 2006, the
      Company does not have any other real estate owned.

      ADVERTISING:

      The Bank directly  expenses costs  associated with advertising as they are
      incurred.

      INCOME TAXES:

      The Company  recognizes income taxes under the asset and liability method.
      Under this method, deferred tax assets and liabilities are established for
      the temporary  differences  between the accounting basis and the tax basis
      of the Company's  assets and  liabilities  at tax rates  expected to be in
      effect when the amounts related to such temporary differences are realized
      or settled.

      FAIR VALUES OF FINANCIAL INSTRUMENTS:

      SFAS No. 107,  "Disclosures  About Fair Value of  Financial  Instruments,"
      requires that the Company disclose  estimated fair value for its financial
      instruments.  Fair value  methods and  assumptions  used by the Company in
      estimating its fair value disclosures are as follows:

      Cash and cash  equivalents:  The carrying  amounts reported in the balance
      sheets  for cash and  cash  equivalents  approximate  those  assets'  fair
      values.

      Securities  (including  mortgage-backed   securities):   Fair  values  for
      securities are based on quoted market prices,  where available.  If quoted
      market  prices are not  available,  fair values are based on quoted market
      prices of comparable instruments.

      Loans held-for-sale: Fair values of mortgage loans held-for-sale are based
      on commitments on hand from investors or prevailing market prices.

      Loans receivable: For variable-rate loans that reprice frequently and with
      no  significant  change in credit risk,  fair values are based on carrying
      values.  The fair values for other loans are  estimated  using  discounted
      cash flow analyses, using interest rates currently being offered for loans
      with similar terms to borrowers of similar credit quality.

      Accrued  interest  receivable:  The  carrying  amount of accrued  interest
      receivable approximates its fair value.

      Deposit   liabilities:   The  fair  values   disclosed  for  interest  and
      non-interest checking,  passbook savings and money market accounts are, by
      definition,  equal to the amount  payable on demand at the reporting  date
      (i.e., their carrying amounts). Fair values for fixed-rate certificates of
      deposit  are  estimated  using a  discounted  cash flow  calculation  that
      applies  interest  rates  currently  being  offered on  certificates  to a
      schedule of aggregated expected monthly maturities on time deposits.

      Federal  Home Loan Bank  Advances:  Fair values for Federal Home Loan Bank
      advances are estimated using a discounted cash flow technique that applies
      interest  rates  currently  being  offered on  advances  to a schedule  of
      aggregated expected monthly maturities on Federal Home Loan Bank advances.

      Due to broker: The carrying amount of due to broker  approximates its fair
      value.

      Off-balance sheet instruments:  The fair value of commitments to originate
      loans is  estimated  using the fees  currently  charged  to enter  similar
      agreements,  taking into account the remaining terms of the agreements and
      the present  creditworthiness of the  counterparties.  For fixed-rate loan
      commitments and the unadvanced portion of loans, fair value also considers
      the difference  between current levels of interest rates and the committed
      rates.  The fair  value of  letters  of credit is based on fees  currently
      charged for similar  agreements or on the estimated cost to terminate them
      or  otherwise  settle  the  obligation  with  the  counterparties  at  the
      reporting date.


                                      F-10


      STOCK BASED COMPENSATION:

      Bancorp has a stock-based  plan to compensate  non-employee  directors for
      their services. This plan is more fully described in Note 14. Compensation
      cost for these  services is  reflected in net income in an amount equal to
      the fair value on the date of  issuance  of the  shares of Bancorp  common
      stock issued to the directors.

      EARNINGS PER SHARE (EPS):

      Basic EPS excludes  dilution and is computed by dividing income  available
      to common  shareholders  by the  weighted-average  number of common shares
      outstanding  for the period.  Weighted  average common shares  outstanding
      were  1,684,699 in 2007 and  1,683,893  in 2006.  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.  Diluted EPS is not presented  because there were no common
      stock equivalents in the years ended December 31, 2007 and 2006.

      RECENT ACCOUNTING PRONOUNCEMENTS:

      In February 2006, the Financial  Accounting  Standards Board (FASB) issued
      SFAS No. 155,  "Accounting for Certain Hybrid Instruments" (SFAS No. 155),
      which permits, but does not require,  fair value accounting for any hybrid
      financial  instrument  that  contains  an embedded  derivative  that would
      otherwise  require  bifurcation in accordance with SFAS 133. The statement
      also subjects  beneficial  interests issued by securitization  vehicles to
      the requirements of SFAS No. 133. The statement is effective as of January
      1,  2007.  The  adoption  of SFAS No.  155 did not have an  impact  on the
      Company's financial condition and results of operations.

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

      In June  2006 the FASB  issued  Interpretation  No.  48,  "Accounting  for
      Uncertainty  in Income Taxes - an  interpretation  of FASB  Statement 109"
      ("FIN 48").  FIN 48  prescribes a recognition  threshold  and  measurement
      attribute for the financial statement recognition and measurement of a tax
      position  taken,  or  expected to be taken,  in a tax return and  provides
      guidance  on  derecognition,   classification,   interest  and  penalties,
      accounting  in  interim  periods,  disclosure  and  transition.  FIN 48 is
      effective for fiscal years beginning after December 15, 2006. The adoption
      of FIN 48 did  not  have a  material  impact  on the  Company's  financial
      statements.

      In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
      (SFAS No. 157).  SFAS No. 157 defines fair value,  establishes a framework
      for measuring fair value under generally  accepted  accounting  principles
      (GAAP) and enhances  disclosures about fair value  measurements.  SFAS No.
      157 retains the  exchange  price  notion and  clarifies  that the exchange
      price is the price that would be received for an asset or paid to transfer
      a  liability  (an exit  price) in an orderly  transaction  between  market
      participants  on the  measurement  date. SFAS No. 157 is effective for the
      Company's  consolidated  financial  statements  for the year  beginning on
      January 1, 2008,  with earlier  adoption  permitted.  The Company does not
      expect the  adoption of this  statement  to have a material  impact on its
      financial condition and results of operations.


                                      F-11


      In September 2006, the FASB ratified the consensus reached by the Emerging
      Issues  Task Force  ("EITF") on Issue No. 06-4  "Accounting  for  Deferred
      Compensation   and   Postretirement   Benefit   Aspects   of   Endorsement
      Split-Dollar Life Insurance  Arrangements," ("EITF Issue 06-4"). EITF 06-4
      requires  companies  with  an  endorsement   split-dollar  life  insurance
      arrangement to recognize a liability for future  postretirement  benefits.
      The effective date is for fiscal years  beginning after December 15, 2007,
      with earlier application permitted. Companies should recognize the effects
      of applying this issue through either (a) a change in accounting principle
      through a  cumulative  effect  adjustment  to  retained  earnings or (b) a
      change in accounting  principle through  retrospective  application to all
      periods.  The Company  does not expect the  adoption of this  statement to
      have  a  material  impact  on  its  financial  condition  and  results  of
      operations.

      In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
      Financial Assets and Financial  Liabilities including an amendment of FASB
      Statement  No.  115" (SFAS 159).  SFAS 159  permits  entities to choose to
      measure many financial  instruments  and certain other items at fair value
      that  are  not  currently  required  to be  measured  at fair  value.  The
      objective is to improve financial reporting by providing entities with the
      opportunity  to  mitigate   volatility  in  reported  earnings  caused  by
      measuring  related assets and  liabilities  differently  without having to
      apply complex hedge accounting provisions. This Statement also establishes
      presentation   and   disclosure   requirements   designed  to   facilitate
      comparisons between entities that choose different measurement  attributes
      for similar types of assets and liabilities. The new standard is effective
      at the beginning of the Company's  fiscal year beginning  January 1, 2008,
      and early application may be elected in certain circumstances. The Company
      does not expect the adoption of this  statement to have a material  impact
      on its financial condition and results of operations.


                                      F-12


NOTE 3 - INVESTMENTS IN SECURITIES
----------------------------------

Debt and equity  securities  have been  classified in the  consolidated  balance
sheets  according to management's  intent.  The amortized cost of securities and
their approximate fair values are as follows as of December 31:



                                                              Amortized             Gross           Gross
                                                                Cost              Unrealized      Unrealized           Fair
                                                                Basis                Gains          Losses             Value
                                                            -------------       -------------   -------------      -------------
                                                                                                       
Available-for-sale securities:
   December 31, 2007:
     Equity securities                                      $       3,031       $     157,453   $           0      $     160,484
     Preferred stock                                            2,975,000                   0       1,149,730          1,825,270
     Debt securities issued by the U.S. Treasury
       and other U. S. government corporations
       and agencies                                            47,224,654               4,492         370,330         46,858,816
     Debt securities issued by states of the
       United States and political subdivisions
       of the states                                           58,707,327              11,409       1,739,673         56,979,063
     Money market mutual funds                                  1,340,891                   0               0          1,340,891
     Mortgage-backed securities                                41,910,517              99,631         456,627         41,553,521
                                                            -------------       -------------   -------------      -------------
                                                              152,161,420             272,985       3,716,360        148,718,045
     Money market mutual funds included in
       cash and cash equivalents                               (1,340,891)                                            (1,340,891)
                                                            -------------       -------------   -------------      -------------
                                                            $ 150,820,529       $     272,985   $   3,716,360      $ 147,377,154
                                                            =============       =============   =============      =============

   December 31, 2006:
     Equity securities                                      $       3,031       $     178,395   $           0      $     181,426
     Preferred stock                                            2,975,000                   0         462,900          2,512,100
     Debt securities issued by the U.S. Treasury
       and other U. S. government corporations
       and agencies                                            55,323,358              23,343       1,200,395         54,146,306
     Debt securities issued by states of the
       United States and political subdivisions
       of the states                                           44,891,148             379,553          34,667         45,236,034
     Money market mutual funds                                  1,199,881                   0               0          1,199,881
     Mortgage-backed securities                                55,103,530             191,698         878,547         54,416,681
                                                            -------------       -------------   -------------      -------------
                                                              159,495,948             772,989       2,576,509        157,692,428
     Money market mutual funds included in
       cash and cash equivalents                               (1,199,881)                                            (1,199,881)
                                                            -------------       -------------   -------------      -------------
                                                            $ 158,296,067       $     772,989   $   2,576,509      $ 156,492,547
                                                            =============       =============   =============      =============

Held-to-maturity securities:
   December 31, 2007:
     Mortgage-backed securities                             $      70,798       $         637   $           0      $      71,435
                                                            =============       =============   =============      =============

   December 31, 2006:
     Mortgage-backed securities                             $      74,931       $           0   $         113      $      74,818
                                                            =============       =============   =============      =============



                                      F-13


The scheduled maturities of debt securities were as follows as of December 31,
2007:



                                                     Available-For-Sale               Held-To-Maturity
                                                     ------------------     ----------------------------------
                                                                             Amortized
                                                            Fair                Cost                 Fair
                                                            Value               Basis                Value
                                                        ------------        ------------          ------------
                                                                                         
Due after one year through five years                   $    992,952        $          0          $          0
Due after five years through ten years                    21,988,592                   0                     0
Due after ten years                                       80,856,335                   0                     0
Mortgage-backed securities                                41,553,521              70,798                71,435
                                                        ------------        ------------          ------------
                                                        $145,391,400        $     70,798          $     71,435
                                                        ============        ============          ============


During 2007,  proceeds from sales of  available-for-sale  securities amounted to
$63,597,747.  Gross  realized  gains and gross  realized  losses on those  sales
amounted to $305,726 and $10,742, respectively. During 2006, proceeds from sales
of available-for-sale  securities amounted to $62,356,620.  Gross realized gains
and gross  realized  losses on those sales  amounted to $724,286  and  $206,960,
respectively.  The tax provision applicable to these net realized gains amounted
to $100,295 and $175,891 respectively.

There were no securities of issuers whose aggregate carrying amount exceeded 10%
of shareholders' equity as of December 31, 2007.

Total carrying  amounts of $55,203,368  and  $55,251,654 of debt securities were
pledged to secure Federal Home Loan Bank advances, public deposits, treasury tax
and loans and for other  purposes as required by law as of December 31, 2007 and
2006, respectively.

The aggregate fair value and unrealized losses of securities that have been in a
continuous  unrealized  loss position for less than twelve months and for twelve
months or more, and are temporarily impaired, are as follows as of December 31:



                                                                                December 31, 2007
                                              --------------------------------------------------------------------------------------
                                                   Less than 12 Months          12 Months or Longer                 Total
                                              --------------------------    --------------------------    --------------------------
                                                  Fair        Unrealized       Fair        Unrealized        Fair         Unrealized
                                                 Value          Losses         Value         Losses          Value          Losses
                                              -----------    -----------    -----------    -----------    -----------    -----------
                                                                                                       
Preferred stock                               $         0    $         0    $ 1,825,270    $ 1,149,730    $ 1,825,270    $ 1,149,730
Debt securities issued by the U.S.
   Treasury and other U. S. government
   corporations and agencies                    8,963,668         20,009     33,518,205        350,321     42,481,873        370,330
Debt securities issued by states of the
   United States and political
   subdivisions of the states                  46,754,407      1,684,443      1,314,923         55,230     48,069,330      1,739,673
Mortgage-backed securities                      4,501,563         48,263     20,534,104        408,364     25,035,667        456,627
                                              -----------    -----------    -----------    -----------    -----------    -----------
Total temporarily impaired securities         $60,219,638    $ 1,752,715    $57,192,502    $ 1,963,645   $117,412,140    $ 3,716,360
                                              ===========    ===========    ===========    ===========   ============    ===========


                                                                                December 31, 2006
                                              --------------------------------------------------------------------------------------
                                                   Less than 12 Months          12 Months or Longer                 Total
                                              --------------------------    --------------------------    --------------------------
                                                  Fair        Unrealized       Fair        Unrealized        Fair         Unrealized
                                                 Value          Losses         Value         Losses          Value          Losses
                                              -----------    -----------    -----------    -----------    -----------    -----------
                                                                                                       
Preferred stock                               $         0    $         0    $ 2,512,100    $   462,900    $ 2,512,100    $   462,900
Debt securities issued by the U.S.
   Treasury and other U. S. government
   corporations and agencies                      792,581         57,553     49,159,124      1,142,842     49,951,705      1,200,395
Debt securities issued by states of the
   United States and political
   subdivisions of the states                   1,809,175         12,100      2,094,013         22,567      3,903,188         34,667
Mortgage-backed securities                     13,486,446         54,270     27,940,134        824,390     41,426,580        878,660
                                              -----------    -----------    -----------    -----------    -----------    -----------
Total temporarily impaired securities         $16,088,202    $   123,923    $81,705,371    $ 2,452,699    $97,793,573    $ 2,576,622
                                              ===========    ===========    ===========    ===========    ===========    ===========



                                      F-14


Securities  exhibiting  unrealized  losses are  analyzed to  determine  that the
impairments  are not  other-than-temporary  and  the  following  information  is
considered.  U.S. Government  securities are backed by the full faith and credit
of the United States and therefore bear no credit risk. U.S.  Government  agency
securities,  which have a significant impact in financial markets,  have minimal
credit risk.  Preferred stock securities are issued by the Federal Home Mortgage
Corporation,   a  U.S.  government  sponsored  or  chartered   enterprise.   All
investments  maintain a credit rating of at least investment grade by one of the
nationally recognized rating agencies.  Mortgage-backed securities are issued by
federal government  agencies or by private issuers with minimum security ratings
of AAA.  The  unrealized  losses in the above table are mainly  attributable  to
changes in market  interest  rates.  As Company  management  has the ability and
intent to hold securities until  anticipated  recovery to cost basis occurs,  no
declines are deemed to be other than temporary.

NOTE 4 - LOANS
--------------

Loans consisted of the following as of December 31:



                                                       2007               2006
                                                   -------------     -------------
                                                               
Commercial, financial and agricultural             $  20,629,467     $  16,464,762
Real estate - construction and land development       28,927,954        21,169,024
Real estate - residential                            158,599,546       145,394,844
Real estate - commercial                              53,822,693        50,859,332
Consumer                                               8,004,931         8,815,789
Term federal funds                                             0        12,000,000
Other                                                    376,257            69,367
                                                   -------------     -------------
                                                     270,360,848       254,773,118
Deferred costs, net                                      305,935           168,573
Unearned income                                             (615)           (3,143)
Allowance for loan losses                             (2,474,893)       (2,474,118)
                                                   -------------     -------------
           Net loans                               $ 268,191,275     $ 252,464,430
                                                   =============     =============


Certain  directors and executive  officers of the Company and companies in which
they have significant ownership interest were customers of the Bank during 2007.
Total loans to such persons and their  companies  amounted to  $1,218,271  as of
December 31, 2007.  During 2007,  principal  advances of $487,004  were made and
repayments totaled $334,057.

Changes in the  allowance  for loan  losses  were as follows for the years ended
December 31:



                                                        2007              2006
                                                   -------------     -------------
                                                               
Balance at beginning of period                     $   2,474,118     $   2,626,170
Benefit for loan losses                                        0           (87,488)
Recoveries of loans previously charged off               103,564            67,054
Loans charged off                                       (102,789)         (131,618)
                                                   -------------     -------------
Balance at end of period                           $   2,474,893     $   2,474,118
                                                   =============     =============


The  following  table  sets forth  information  regarding  nonaccrual  loans and
accruing loans 90 days or more overdue as of December 31:



                                                        2007              2006
                                                   -------------     -------------
                                                               
Total nonaccrual loans                             $   1,007,890     $     886,377
                                                   =============     =============

Accruing loans which are 90 days or more overdue   $     816,581     $      77,525
                                                   =============     =============


As of December  31,  2007 and 2006,  and during the years  ended,  there were no
loans that met the definition of an impaired loan in SFAS No. 114.


                                      F-15


In 2007 and  2006,  the Bank  capitalized  mortgage  servicing  rights  totaling
$59,882  and  $147,353   respectively,   and  amortized  $171,034  and  $225,732
respectively.  The balance of capitalized  mortgage servicing rights included in
other  assets  at  December  31,  2007  and  2006  was  $225,670  and  $336,185,
respectively.

Following is an analysis of the aggregate changes in the valuation allowance for
mortgage servicing rights for the years ended December 31:

                                                      2007               2006
                                                    --------           --------
Balance, beginning of year                          $  1,451           $  1,115
Additions                                              2,451             19,392
Reductions                                            (3,088)           (19,056)
                                                    --------           --------
Balance, end of year                                $    814           $  1,451
                                                    ========           ========

The fair value of the mortgage servicing rights was $562,911 and $671,145 as of
December 31, 2007 and 2006, respectively.

Loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balance of mortgage and other loans
serviced for others was $48,696,731 and $49,117,195 at December 31, 2007 and
2006, respectively.

NOTE 5 - PREMISES AND EQUIPMENT
-------------------------------

The following is a summary of premises and equipment as of December 31:

                                                      2007              2006
                                                  ------------     ------------
Land                                              $    775,844     $    775,844
Buildings                                            6,281,851        5,721,601
Furniture and equipment                              3,385,608        2,786,494
                                                  ------------     ------------
                                                    10,443,303        9,283,939
Accumulated depreciation and amortization           (3,640,105)      (3,148,393)
                                                  ------------     ------------
                                                  $  6,803,198     $  6,135,546
                                                  ============     ============

NOTE 6 - DEPOSITS
-----------------

The aggregate  amount of time deposit  accounts in  denominations of $100,000 or
more  as of  December  31,  2007  and  2006  were  $36,440,424  and  $35,777,326
respectively.

The aggregate  amount of brokered time deposits as of December 31, 2007 and 2006
was $14,681,000 and  $19,538,000,  respectively.  Brokered time deposits are not
included in time deposit accounts in denominations of $100,000 or more above.

For time deposits as of December 31, 2007,  the scheduled  maturities  for years
ended December 31, are as follows:

                2008                                     $  93,821,737
                2009                                        10,670,809
                2010                                         2,078,871
                2011                                         7,987,502
                2012                                         1,489,704
                                                         -------------
                                                         $ 116,048,623
                                                         =============

Certain directors and executive officers of the Company and companies in which
they have a significant ownership interest were customers of the Bank during
2007. Total deposits of such persons and their companies amounted to $2,075,350
and $1,372,156 as of December 31, 2007 and 2006, respectively.


                                      F-16


NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES
----------------------------------------

Advances  consist of funds  borrowed  from the Federal  Home Loan Bank of Boston
(FHLB).

Maturities of advances from the FHLB for the five fiscal years ending after
December 31, 2007, and thereafter, are summarized as follows:

              2008                                  $25,214,699
              2009                                    1,320,213
              2010                                   21,202,309
              2011                                   10,794,029
              2012                                    5,178,531
              Thereafter                             31,116,919
              Fair value adjustment                     184,455
                                                    -----------
                                                    $95,011,155
                                                    ===========

As of December 31, 2007, the following advances from the FHLB were redeemable at
par at the option of the FHLB:

           MATURITY DATE       OPTIONAL REDEMPTION DATE             AMOUNT
           -------------       ------------------------             ------
               4/27/2009   1/28/2008 and quarterly thereafter   $     500,000
               4/27/2009   1/28/2008 and quarterly thereafter         500,000
               1/25/2010   1/25/2008 and quarterly thereafter      19,000,000
                2/8/2010    2/7/2008 and quarterly thereafter         600,000
              12/15/2010   3/17/2008 and quarterly thereafter         800,000
              12/20/2010   3/20/2008 and quarterly thereafter         500,000
               2/28/2011   2/26/2008 and quarterly thereafter      10,000,000
                3/1/2011    3/3/2008 and quarterly thereafter         500,000
                3/2/2012    3/3/2008 and quarterly thereafter       5,000,000
              12/16/2013   3/17/2008 and quarterly thereafter      10,000,000
              12/12/2016   3/12/2008 and quarterly thereafter      15,000,000
               7/31/2017   1/31/2008 and quarterly thereafter       6,000,000

Amortizing  advances are repaid in equal monthly payments and are amortized from
the date of the advance to the maturity date on a direct reduction basis.

Borrowings from the FHLB are secured by a blanket lien on qualified  collateral,
consisting primarily of loans with first mortgages secured by one to four family
properties,  certain  unencumbered  investment  securities  and other  qualified
assets.

At December  31,  2007,  the interest  rates on FHLB  advances  ranged from 2.66
percent to 6.30 percent.  At December 31, 2007,  the weighted  average  interest
rate on FHLB advances was 4.74 percent.

NOTE 8 - EMPLOYEE BENEFITS
--------------------------

The  Bank  has  an  insured  noncontributory  defined  benefit  retirement  plan
available  to employees  eligible as to age and length of service.  Benefits are
based  on a  covered  employee's  final  average  compensation,  primary  social
security benefit and credited service. The Bank makes annual contributions which
meet the Employee Retirement Income Security Act minimum funding requirements.

In 2006,  the plan was amended,  effective  September  1, 2006,  to provide that
employees  hired or rehired on or after  September  1, 2006 are not  eligible to
participate in the plan.


                                      F-17


The following tables set forth  information about the plan as of December 31 and
the years then ended, using a measurement date of December 31:



                                                                   2007            2006
                                                               -----------     -----------
                                                                         
Change in projected benefit obligation:
   Benefit obligation at beginning of year                     $ 6,027,929     $ 5,495,706
   Actuarial gain                                                 (229,821)       (128,601)
   Service cost                                                    437,740         430,035
   Interest cost                                                   342,022         318,310
   Benefits paid                                                  (218,769)        (87,521)
                                                               -----------     -----------
       Benefit obligation at end of year                         6,359,101       6,027,929
                                                               -----------     -----------

Change in plan assets:
   Plan assets at estimated fair value at beginning of year      5,016,664       3,370,954
   Actual return on plan assets                                    503,050         392,231
   Contributions by employer                                       500,000       1,341,000
   Benefits paid                                                  (218,769)        (87,521)
                                                               -----------     -----------
       Fair value of plan assets at end of year                  5,800,945       5,016,664
                                                               -----------     -----------

     Funded status and recognized liability
       included in the balance sheet                           $  (558,156)    $(1,011,265)
                                                               ===========     ===========


Amounts recognized in accumulated other  comprehensive  loss, before tax effect,
consist of:

                                                        December 31,
                                                        ------------

                                                     2007          2006
                                                  ----------    ----------

Net loss                                          $1,583,889    $2,016,054
Prior service cost                                       910         1,803
                                                  ----------    ----------
                                                  $1,584,799    $2,017,857
                                                  ==========    ==========

The accumulated benefit obligation for the plan was $4,602,777 and $4,179,551 at
December 31, 2007 and 2006, respectively.

The discount rate used in determining the actuarial present value of the
projected benefit obligation was 6.0% for 2007 and 2006. The rate of increase in
future compensation levels was based on the following graded table for 2007 and
2006:

                           AGE                       RATE
                           ---                       ----
                            25                      4.75%
                            35                      4.25%
                            45                      3.75%
                            55                      3.25%
                            65                      3.00%


                                      F-18


Components of net periodic cost are as follows for the years ended December 31:



                                                                               2007          2006
                                                                            ---------     ---------
                                                                                    
Service cost                                                                $ 437,740     $ 430,035
Interest cost on benefit obligation                                           342,022       318,310
Expected return on plan assets                                               (368,942)     (295,598)
Amortization of prior service cost                                                893           893
Recognized net loss                                                            68,236        89,194
                                                                            ---------     ---------
       Net periodic benefit cost                                              479,949       542,834
                                                                            ---------     ---------

Other changes in plan assets and benefit obligations recognized in other
       comprehensive loss:
Net actuarial gain                                                           (363,929)            0
Amortization of net loss                                                      (68,236)            0
Prior service cost                                                               (893)            0
                                                                            ---------     ---------
Total recognized in other comprehensive loss                                 (433,058)            0
                                                                            ---------     ---------
Total recognized in net periodic cost and other
       comprehensive loss                                                   $  46,891     $ 542,834
                                                                            =========     =========


The  estimated  net loss and prior  service  cost that  will be  amortized  from
accumulated  other  comprehensive  loss into net periodic  benefit cost over the
year ended December 31, 2008 are $56,833 and $893, respectively.

The discount rate used to determine the net periodic  benefit cost was 6.00% for
2007 and 2006;  and the  expected  return on plan  assets was 7.50% for 2007 and
2006.

The graded  table above was also used for the rate of  compensation  increase in
determining the net periodic benefit cost in 2007 and 2006.

Pension  expense is  calculated  based upon a number of  actuarial  assumptions,
including an expected  long-term  rate of return on pension plan assets of 7.50%
for 2007. In developing the expected long-term rate of return assumption,  asset
class  return  expectations  were  evaluated  as  well  as  long-term  inflation
assumptions,   and  historical   returns  based  on  the  current  target  asset
allocations of 55% equity and 40% fixed income and 5% cash equivalents. The Bank
regularly reviews the asset allocations and periodically  rebalances investments
when considered appropriate. While all future forecasting contains some level of
estimation  error,  the  Bank  believes  that  7.50%  falls  within  a range  of
reasonable  long-term rate of return  expectations for pension plan assets.  The
Bank will continue to evaluate the  actuarial  assumptions,  including  expected
rate of return, at least annually, and will adjust as necessary.

Plan Assets:

The pension plan investments are co-managed by the Trust and Investment Services
division of the Bank and Bradley,  Foster and Sargent,  Inc. The  investments in
the plan are reviewed and approved by the Trust Committee.  The asset allocation
of the plan is a balanced  allocation.  Debt securities are timed to mature when
employees  are due to  retire.  Debt  securities  are  laddered  for  coupon and
maturity.  Equities are put in the plan to achieve a balanced  allocation and to
provide   growth  of  the   principal   portion  of  the  plan  and  to  provide
diversification.  The Trust  Committee  reviews the  policies  of the plan.  The
prudent investor rule and applicable ERISA  regulations  apply to the management
of the funds and investment selections.


                                      F-19


The Bank's pension plan asset allocations by asset category are as follows:



                                                           December 31, 2007                 December 31, 2006
                                                     ---------------------------        ---------------------------
              Asset Category                         Fair Value         Percent         Fair Value         Percent
----------------------------------------------       ----------       ----------        ----------       ----------
                                                                                                   
Equity securities                                    $3,407,281             58.7%       $2,537,994             50.6%
U.S. Government treasury and agency securities        1,252,945             21.6         1,480,289             29.5
Corporate bonds                                         122,687              2.1            23,040              0.5
Mutual funds                                            296,365              5.1           200,503              4.0
Money market mutual funds                               617,567             10.7           672,228             13.4
Certificates of deposit                                 104,100              1.8           102,610              2.0
                                                     ----------       ----------        ----------       ----------
         Total                                       $5,800,945            100.0%       $5,016,664            100.0%
                                                     ==========       ==========        ==========       ==========


There were no  securities  of the Bancorp and related  parties  included in plan
assets as of December 31, 2007 and 2006.

Based on current data and assumptions, the following benefits are expected to be
paid for each of the following five years and, in the aggregate,  the five years
thereafter:

                    2008                                  $    87,000
                    2009                                      120,000
                    2010                                      205,000
                    2011                                      216,000
                    2012                                    1,980,000
                    2013 - 2017                             2,978,000

The Bank expects to make a contribution of $500,000 in 2008.

The Bank offers a 401(k) Plan to eligible  employees.  Under the Plan,  eligible
participants   may   contribute  a  percentage  of  their  pay  subject  to  IRS
limitations. The Bank may make discretionary contributions to the Plan.

Effective  September  1, 2006,  the  401(k)  Plan was  amended  to provide  that
employees  hired  or  rehired  after  September  1,  2006  are not  eligible  to
participate  in the  plan.  The Bank has  established  a second  401(k)  Plan to
provide  a  discretionary  match  to  employees  hired or  rehired,  on or after
September 1, 2006 who satisfy certain eligibility requirements.

The Bank's contribution expense for the 401(k) Plans in the years ended December
31, 2007 and 2006 amounted to approximately  $100,000 and $93,000  respectively.
Discretionary contributions vest in full after five years.

Fifteen of the Bank's officers have a change in control agreement  ("agreement")
with the Bank. The agreements provide that if, within twelve (12) months after a
"change-in-control"  has  occurred,  the officer's  employment  terminates or is
reassigned under defined circumstances, then the Bank and/or its successor shall
pay the officer a lump sum amount equal to the officer's  most recent  aggregate
base salary paid in the twelve (12) month period  immediately  preceding  his or
her  termination or reassignment  less amounts  previously paid from the date of
"change in control."


                                      F-20


NOTE 9 - INCOME TAXES
---------------------

The components of income tax expense are as follows for the years ended December
31:

                                                       2007             2006
                                                    ----------       ----------
Current:
   Federal                                          $  774,753       $  990,839
   State                                                60,468           54,678
                                                    ----------       ----------
                                                       835,221        1,045,517
                                                    ----------       ----------
Deferred:
   Federal                                              24,785          217,852
   State                                                     0                0
   Change in valuation allowance                        10,000          178,566
                                                    ----------       ----------
                                                        34,785          396,418
                                                    ----------       ----------
Total income tax expense                            $  870,006       $1,441,935
                                                    ==========       ==========

The reasons for the differences between the statutory federal income tax rate
and the effective tax rates are summarized as follows for the years ended
December 31:

                                                            2007         2006
                                                            ----         ----
                                                            % of         %of
                                                           Income       Income
                                                           ------       ------
Federal income tax at statutory rate                        34.0%        34.0%
Increase (decrease) in tax resulting from:
   Tax-exempt income and dividends received deduction       (19.1)       (13.6)
   Other items                                               2.6          1.2
State tax, net of federal tax benefit                        0.9          0.6
Change in valuation allowance                                0.2          3.1
                                                            ----         ----
       Effective tax rates                                  18.6%        25.3%
                                                            ====         ====

The Company had gross deferred tax assets and gross deferred tax  liabilities as
follows as of December 31:



                                                                          2007               2006
                                                                      -----------        -----------
                                                                                   
Deferred tax assets:
   Allowance for loan losses                                          $   618,527        $   619,233
   Interest on non-performing loans                                        22,710             15,402
   Accrued deferred compensation                                           30,584             26,288
   Post-retirement benefits                                                22,440             22,440
   Other real estate owned property write-down                             22,100             22,101
   Capital loss carry forward                                             398,191            398,191
   Mark to market purchase accounting adjustments                               0              8,373
   Unrecognized pension expense - FASB No. 158                            538,832            686,071
   Net unrealized holding loss on available-for-sale securities         1,170,748            613,197
                                                                      -----------        -----------
           Gross deferred tax assets                                    2,824,132          2,411,296
           Valuation allowance                                           (270,166)          (260,166)
                                                                      -----------        -----------
                                                                        2,553,966          2,151,130
                                                                      -----------        -----------
Deferred tax liabilities:
   Deferred loan costs, net                                              (104,018)           (57,315)
   Goodwill and core deposit intangible asset                            (662,257)          (646,483)
   Accelerated depreciation                                              (957,538)          (985,152)
   Mark-to-market purchase accounting adjustments                         (23,204)                 0
   Mortgage servicing rights                                              (76,728)          (114,304)
   Prepaid pension                                                       (349,059)          (342,241)
                                                                      -----------        -----------
           Gross deferred tax liabilities                              (2,172,804)        (2,145,495)
                                                                      -----------        -----------
Net deferred tax asset                                                $   381,162        $     5,635
                                                                      ===========        ===========


As of  December  31,  2007,  the Company  had no  operating  loss and tax credit
carryovers for tax purposes.


                                      F-21


NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
------------------------------------------------

The Bank entered  into an agreement  with a third party in which the third party
is to provide the Bank with account processing  services and other miscellaneous
services.  Under the agreement,  the Bank is obligated to pay monthly processing
fees  through  August  5,  2010.  In the event the Bank  chooses  to cancel  the
agreement  prior to the end of the contract term a lump sum termination fee will
have to be paid.  The fee shall be  calculated as the average  monthly  billing,
exclusive of pass through  costs for the past twelve  months,  multiplied by the
number of months and any portion of a month remaining in the contract term.

Commitments to purchase  securities on a when issued basis totaled $1,410,241 at
December 31, 2007.

NOTE 11 - FINANCIAL INSTRUMENTS
-------------------------------

The Bank is a party to financial instruments with  off-balance-sheet risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial instruments include commitments to originate loans, standby letters of
credit  and  unadvanced  funds on loans.  The  instruments  involve,  to varying
degrees,  elements  of credit  risk in excess of the  amount  recognized  in the
balance sheets. The contract amounts of those instruments  reflect the extent of
involvement the Bank has in particular classes of financial instruments.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for loan  commitments  and standby letters of
credit is represented by the contractual amounts of those instruments.  The Bank
uses the same credit policies in making commitments and conditional  obligations
as it does for on-balance sheet instruments.

Commitments  to originate  loans are  agreements to lend to a customer  provided
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent  future  cash   requirements.   The  Bank  evaluates  each  customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,  if
deemed necessary by the Bank upon extension of credit,  is based on management's
credit  evaluation  of the  borrower.  Collateral  held varies,  but may include
secured interests in mortgages, accounts receivable,  inventory, property, plant
and equipment and income producing properties.

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee  the  performance  by a customer  to a third  party.  The credit  risk
involved in issuing  letters of credit is essentially  the same as that involved
in extending loan facilities to customers. As of December 31, 2007 and 2006, the
maximum  potential amount of the Bank's obligation was $12,800 for financial and
standby letters of credit.  The Bank's  outstanding  letters of credit generally
have a term of less than one year. If a letter of credit is drawn upon, the Bank
may seek  recourse  through the  customer's  underlying  line of credit.  If the
customer's  line of credit is also in default,  the Bank may take  possession of
the collateral, if any, securing the line of credit.


                                      F-22


The estimated fair values of the Bank's financial instruments,  all of which are
held or issued for purposes  other than  trading,  are as follows as of December
31:



                                                    2007                                  2006
                                       ---------------------------------------------------------------------
                                         Carrying            Fair              Carrying             Fair
                                          Amount             Value              Amount              Value
                                       ------------       ------------       ------------       ------------
                                                                                    
Financial assets:
   Cash and cash equivalents           $ 15,178,195       $ 15,178,195       $ 11,757,183       $ 11,757,183
   Available-for-sale securities        147,377,154        147,377,154        156,492,547        156,492,547
   Held-to-maturity securities               70,798             71,435             74,931             74,818
   Federal Home Loan Bank stock           5,176,100          5,176,100          4,663,700          4,663,700
   Loans held-for-sale                      120,000            121,403            304,000            307,071
   Loans, net                           268,191,275        264,217,484        252,464,430        250,312,089
   Accrued interest receivable            2,538,607          2,538,607          2,483,547          2,483,547

Financial liabilities:
   Deposits                            $317,741,269       $318,498,739       $313,586,281       $313,560,974
   FHLB advances                         95,011,155         95,183,700         87,093,402         87,478,836
   Due to broker                                  0                  0          1,579,611          1,579,611


The  carrying  amounts of  financial  instruments  shown in the above  table are
included  in the  consolidated  balance  sheets  under the  indicated  captions.
Accounting policies related to financial instruments are described in Note 2.

The amounts of financial  instrument  liabilities with off-balance  sheet credit
risk are as follows as of December 31:

                                                     2007               2006
                                                  -----------       -----------
Commitments to originate loans                    $ 9,002,416       $10,540,525
Standby letters of credit                              12,800            12,800
Unadvanced portions of loans:
   Home equity                                     26,511,813        26,599,791
   Commercial lines of credit                      10,482,619         8,642,393
   Construction                                     6,178,958         7,322,201
   Consumer                                         7,129,237         6,928,313
                                                  -----------       -----------
                                                  $59,317,843       $60,046,023
                                                  ===========       ===========

There is no material  difference  between the notional amounts and the estimated
fair values of the off-balance sheet liabilities.

NOTE 12 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
---------------------------------------------------------

Most of the Bank's business  activity is with customers  located in northwestern
Connecticut  and  nearby  New  York  and  Massachusetts   towns.  There  are  no
concentrations   of   credit   to   borrowers   that   have   similar   economic
characteristics. The majority of the Bank's loan portfolio is comprised of loans
collateralized by real estate located in northwestern Connecticut and nearby New
York and Massachusetts towns.

NOTE 13 - REGULATORY MATTERS
----------------------------

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


                                      F-23


Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company  and the Bank to  maintain  minimum  amounts and ratios (set
forth in the  table  below)  of total  and Tier 1  capital  (as  defined  in the
regulations)  to  risk-weighted  assets (as defined),  and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2007  and  2006,  that  the  Company  and the Bank  meet  all  capital  adequacy
requirements to which they are subject.

As of December 31, 2007, the most recent  notification  from the Federal Deposit
Insurance  Corporation  categorized  the  Bank as  well  capitalized  under  the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized the Bank must maintain minimum total  risk-based,  Tier 1 risk-based
and Tier 1 leverage  ratios as set forth in the  table.  The  Company's  and the
Bank's actual capital amounts and ratios are also presented in the table.

There are no  conditions  or events  since  that  notification  that  management
believes have changed the Bank's category.



                                                                                                        To Be Well
                                                                                                      Capitalized Under
                                                                              For Capital             Prompt Corrective
                                                        Actual             Adequacy Purposes          Action Provisions
                                                        ------             -----------------          -----------------
                                                  Amount      Ratio       Amount        Ratio        Amount        Ratio
                                                  ------      -----       ------        -----        ------        -----
                                                                      (Dollar amounts in thousands)
                                                                                               
As of December 31, 2007:
   Total Capital (to Risk Weighted Assets)
     Consolidated                                  $39,545    15.00%      $21,087       >8.0%          N/A
                                                                                        -
     Salisbury Bank and Trust Company               38,683    14.69        21,069       >8.0       $26,336       >10.0%
                                                                                        -                        -
   Tier 1 Capital (to Risk Weighted Assets)
     Consolidated                                   37,070    14.06        10,544       >4.0           N/A
                                                                                        -
     Salisbury Bank and Trust Company               36,174    13.74        10,534       >4.0        15,801        >6.0
                                                                                        -                         -
   Tier 1 Capital (to Average Assets)
     Consolidated                                   37,070     8.24        17,988       >4.0           N/A
                                                                                        -
     Salisbury Bank and Trust Company               36,174     8.06        17,945       >4.0        22,431        >5.0
                                                                                        -                         -
As of December 31, 2006:
   Total Capital (to Risk Weighted Assets)
     Consolidated                                  $38,030    15.28%      $19,914       >8.0%          N/A
                                                                                        -
     Salisbury Bank and Trust Company               37,295    14.98        19,929       >8.0       $24,911       >10.0%
                                                                                        -                        -
   Tier 1 Capital (to Risk Weighted Assets)
     Consolidated                                   35,555    14.28         9,957       >4.0           N/A
                                                                                        -
     Salisbury Bank and Trust Company               34,785    13.97         9,964       >4.0        14,946        >6.0
                                                                                        -                         -

   Tier 1 Capital (to Average Assets)
     Consolidated                                   35,555     8.43        16,879       >4.0           N/A
                                                                                        -
     Salisbury Bank and Trust Company               34,785     8.26        16,848       >4.0        21,060        >5.0
                                                                                        -                         -


The declaration of cash dividends is dependent on a number of factors, including
regulatory  limitations,  and the  Company's  operating  results  and  financial
condition.  The stockholders of Bancorp will be entitled to dividends only when,
and if,  declared  by the  Bancorp's  Board of  Directors  out of funds  legally
available  therefore.  The  declaration  of future  dividends will be subject to
favorable operating results, financial conditions, tax considerations, and other
factors.

Under  Connecticut law, the Bank may pay dividends only out of net profits.  The
Connecticut  Banking  Commissioner's  approval is required for dividend payments
which  exceed the current  year's net profits and  retained net profits from the
preceding two years. As of December 31, 2007, the Bank may declare  dividends to
Bancorp in an amount not to exceed $7,135,303.


                                      F-24


NOTE 14 - DIRECTORS STOCK RETAINER PLAN
---------------------------------------

At the 2001 annual  meeting  the  shareholders  of Bancorp  voted to approve the
"Directors Stock Retainer Plan of Salisbury  Bancorp,  Inc." (the "Plan").  This
Plan  provides  non-employee  directors of the Company with shares of restricted
stock of Bancorp as a component of their compensation for services as directors.
The maximum number of shares of stock that may be issued pursuant to the Plan is
15,000. The first grant date under this Plan preceded the 2002 annual meeting of
stockholders.  Each director whose term of office begins with or continues after
the date the Plan was approved by the  stockholders  is issued an "annual  stock
retainer"  consisting of 120 shares of fully vested  restricted  common stock of
Bancorp. In 2007 and 2006, 840 shares were issued under the Plan and the related
compensation expense amounted to $30,450 and $31,920 respectively.

Note 15- ACQUISITION
--------------------

On August 1, 2007, the Bank opened a full service branch office in Dover Plains,
New York. The opening of the branch  reflected  consummation on July 31, 2007 of
the purchase of a branch office in Mt. Vernon,  New York by the Bank pursuant to
the Purchase and Assumption  Agreement  dated October 3, 2006 by and between the
Bank and New York Community Bank. Such branch was relocated to Dover Plains, New
York and opened for business August 1, 2007.

The assets acquired and liabilities assumed have been recorded by the Company at
their fair values at the consummation  date.  Goodwill recorded totaled $319,407
and will be  analyzed  for  impairment  on at least an annual  basis.  Financial
statement amounts for the transaction are included in the Company's consolidated
financial statements beginning on the acquisition date. A summary is included in
the supplemental disclosure in the cash flow statement.

NOTE 16 - GOODWILL AND INTANGIBLE ASSETS
----------------------------------------

The  Company's  assets as of  December  31,  2007 and 2006  include  goodwill of
$2,357,884 relating to the purchase of a branch of a bank in 2001 and $7,151,421
of additional  goodwill from the 2004 merger with Canaan National Bancorp,  Inc.
In 2007, the Company recorded $319,407 of additional  goodwill from the purchase
of a branch of a bank in Mt. Vernon, NY.

The Company evaluated its goodwill and intangible assets as of December 31, 2007
and 2006 and found no impairment.

A summary of acquired amortizing intangible assets is as follows:



                                                               As of December 31, 2007
                                                     --------------------------------------------
                                                        Gross                               Net
                                                      Carrying       Accumulated         Carrying
                                                       Amount        Amortization         Amount
                                                     ----------       ----------       ----------
                                                                              
Core deposit intangible-branch purchase              $  888,606       $  430,064       $  458,542

Core deposit intangible-Canaan National merger        1,191,279          320,538          870,741
                                                     ----------       ----------       ----------

           Total                                     $2,079,885       $  750,602       $1,329,283
                                                     ==========       ==========       ==========


                                                                As of December 31, 2006
                                                     --------------------------------------------
                                                        Gross                               Net
                                                      Carrying       Accumulated         Carrying
                                                       Amount        Amortization         Amount
                                                     ----------       ----------       ----------
                                                                              
Core deposit intangible-branch purchase              $  888,606       $  361,709       $  526,897

Core deposit intangible-Canaan National merger        1,191,279          224,677          966,602
                                                     ----------       ----------       ----------

           Total                                     $2,079,885       $  586,386       $1,493,499
                                                     ==========       ==========       ==========



                                      F-25


Amortization expense was $164,216 for the years ending December 31, 2007 and
2006. Amortization is being calculated on a straight-line basis.

Estimated amortization expense for each of the five years succeeding 2007 is as
follows:

           2008                         $  164,216
           2009                            164,216
           2010                            164,216
           2011                            164,216
           2012                            164,216
                                        ----------
                                        $  821,080
                                        ==========

NOTE 17 - RECLASSIFICATION
--------------------------

Certain  amounts in the prior year have been  reclassified to be consistent with
the current year's statement presentation.

NOTE 18 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
--------------------------------------------------

The following  condensed  financial  statements are for Salisbury Bancorp,  Inc.
(Parent  Company Only) and should be read in conjunction  with the  Consolidated
Financial Statements of Salisbury Bancorp, Inc. and Subsidiary.

                             SALISBURY BANCORP, INC.
                             -----------------------

                              (Parent Company Only)

                                 BALANCE SHEETS
                                 --------------

                           December 31, 2007 and 2006
                           --------------------------



ASSETS                                                         2007               2006
------                                                      -----------       -----------
                                                                        
Money market mutual funds                                   $ 1,340,891       $ 1,199,881
Cash in Salisbury Bank and Trust Company                          6,316             2,494
                                                            -----------       -----------
                  Cash and cash equivalents                   1,347,207         1,202,375
Investment in subsidiary                                     44,668,437        43,579,224
Other assets                                                      2,910             5,469
                                                            -----------       -----------
           Total assets                                     $46,018,554       $44,787,068
                                                            ===========       ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Dividends payable                                           $   454,956       $   437,887
                                                            -----------       -----------
           Total liabilities                                    454,956           437,887
Total shareholders' equity                                   45,563,598        44,349,181
                                                            -----------       -----------
           Total liabilities and shareholders' equity       $46,018,554       $44,787,068
                                                            ===========       ===========



                                      F-26


                             SALISBURY BANCORP, INC.
                             -----------------------

                              (Parent Company Only)

                              STATEMENTS OF INCOME
                              --------------------

                     Years Ended December 31, 2007 and 2006
                     --------------------------------------



                                                                         2007               2006
                                                                     -----------        -----------
                                                                                  
Dividend income from subsidiary                                      $ 1,920,000        $ 1,800,000
Taxable interest on securities                                            48,487             34,435
                                                                     -----------        -----------
                                                                       1,968,487          1,834,435
                                                                     -----------        -----------

Legal expense                                                              5,485              9,984
Supplies and printing                                                        380              3,503
Other expense                                                             51,181             37,517
                                                                     -----------        -----------
                                                                          57,046             51,004
                                                                     -----------        -----------
Income before income tax benefit and equity in undistributed
   net income of subsidiary                                            1,911,441          1,783,431
Income tax benefit                                                        (2,909)            (5,469)
                                                                     -----------        -----------
Income before equity in undistributed net income of subsidiary         1,914,350          1,788,900
Equity in undistributed net income of subsidiary                       1,885,698          2,464,718
                                                                     -----------        -----------
           Net income                                                $ 3,800,048        $ 4,253,618
                                                                     ===========        ===========


                             SALISBURY BANCORP, INC.
                             -----------------------

                              (Parent Company Only)

                            STATEMENTS OF CASH FLOWS
                            ------------------------

                     Years Ended December 31, 2007 and 2006
                     --------------------------------------



                                                                         2007               2006
                                                                     -----------        -----------
                                                                                  
Cash flows from operating activities:
   Net income                                                        $ 3,800,048        $ 4,253,618
   Adjustments to reconcile net income to net cash provided
     by operating activities:
   Equity in undistributed net income of subsidiary                   (1,885,698)        (2,464,718)
   Decrease (increase) in taxes receivable                                 2,559             (3,892)
   Issuance of shares for Directors' fees                                 30,450             31,920
                                                                     -----------        -----------

   Net cash provided by operating activities                           1,947,359          1,816,928
                                                                     -----------        -----------

Cash flows from financing activities:
   Dividends paid                                                     (1,802,527)        (1,734,277)
                                                                     -----------        -----------

   Net cash used in financing activities                              (1,802,527)        (1,734,277)
                                                                     -----------        -----------

Net increase in cash and cash equivalents                                144,832             82,651
Cash and cash equivalents at beginning of year                         1,202,375          1,119,724
                                                                     -----------        -----------
Cash and cash equivalents at end of year                             $ 1,347,207        $ 1,202,375
                                                                     ===========        ===========



                                      F-27


NOTE 19 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
-----------------------------------------------------

Summarized quarterly financial data for 2007 and 2006 follows:



                                            (In thousands, except earnings per share)
                                                         2007 Quarters Ended
                                          -------------------------------------------------
                                          March 31      June 30      Sept. 30       Dec. 31
                                          --------      -------      --------       -------
                                                                        
Interest and dividend income              $ 6,437       $ 6,360       $ 6,602       $ 6,753
Interest expense                            3,071         2,997         3,167         3,197
                                          -------       -------       -------       -------
   Net interest and dividend income         3,366         3,363         3,435         3,556
Provision for loan losses                       0             0             0             0
Other income                                1,124         1,115         1,060         1,165
Other expense                               3,319         3,305         3,401         3,489
                                          -------       -------       -------       -------
   Income before income taxes               1,171         1,173         1,094         1,232
Income tax expense                            237           224           177           232
                                          -------       -------       -------       -------
   Net income                             $   934       $   949       $   917       $ 1,000
                                          =======       =======       =======       =======

Earnings per common share                 $   .55       $   .56       $   .54       $   .59
                                          =======       =======       =======       =======


                                             (In thousands, except earnings per share)
                                                         2006 Quarters Ended
                                          -------------------------------------------------
                                          March 31      June 30      Sept. 30       Dec. 31
                                          --------      -------      --------       -------
                                                                        
Interest and dividend income              $ 5,460       $ 5,789       $ 6,111       $ 6,369
Interest expense                            2,167         2,531         2,754         3,007
                                          -------       -------       -------       -------
   Net interest and dividend income         3,293         3,258         3,357         3,362
Benefit for loan losses                         0             0             0           (87)
Other income                                1,026         1,001         1,213         1,344
Other expense                               2,837         2,992         3,101         3,315
                                          -------       -------       -------       -------
   Income before income taxes               1,482         1,267         1,469         1,478
Income tax expense                            335           261           309           537
                                          -------       -------       -------       -------
   Net income                             $ 1,147       $ 1,006       $ 1,160       $   941
                                          =======       =======       =======       =======

Earnings per common share                 $   .68       $   .60       $   .69       $   .56
                                          =======       =======       =======       =======



                                      F-28


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

During the two (2) most recent fiscal  years,  the Company and the Bank have had
no changes in or disagreements  with  independent  accountants on accounting and
financial disclosure matters.

ITEM 9A(T). CONTROLS AND PROCEDURES

The Company's Chief  Executive  Officer and Chief  Financial  Officer  concluded
that,  based upon an  evaluation  as of December 31,  2007,  as required by Rule
13a-15(b) of the  Securities  Exchange  Act of 1934 (the  "Exchange  Act"),  the
Company's  disclosure  controls and procedures,  as defined in Rule 13a-15(e) of
the  Exchange  Act,  are  effective  to ensure that  information  required to be
disclosed by the Company in reports that it files or submits  under the Exchange
Act is recorded,  processed,  summarized  and  reported  within the time periods
specified  in the SEC  rules  and  forms.  Disclosure  controls  and  procedures
include,  without  limitation,  controls and procedures  designed to ensure that
information  required  to  be  disclosed  is  accumulated  and  communicated  to
management,  including its Chief Executive Officer and Chief Financial  Officer,
as appropriate to allow timely decisions regarding required  disclosure.  During
the  fourth  quarter  ended  December  31,  2007,  there  were no changes in the
Company's  internal  control  over  financial  reporting  that  have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

ITEM 9B. OTHER INFORMATION

On October 1, 2007,  the Bank, by mutual  agreement,  entered  Change of Control
Agreements (the  "Agreements")  with the following officers of the Bank: John F.
Perotti,  Richard J. Cantele,  Jr., John F. Foley,  Todd M. Clinton,  Diane E.R.
Johnstone, Joseph C. Law, Lana J. Morrison, Sharon A. Pilz, Geoffrey A. Talcott,
Melanie K. Neely, Gerard J. Baldwin,  Darrell S. Long, Elizabeth A. Summerville,
Diane Farrell and Roberta Reed (the "Executives").

The  Agreements  provide  that if following a "Change in Control" (as defined in
the  Agreements)  of the Company or the Bank,  an Executive is  terminated or is
reassigned under certain circumstances defined in the Agreements within a period
of twelve (12) months  following such Change in Control,  such Executive will be
entitled to a lump sum  payment  equal to his or her annual  compensation  based
upon the most recent  aggregate  base salary paid to the Executive in the twelve
(12) month period immediately  preceding his or her termination or reassignment.
In  addition,  for twelve  (12) months  following  a Change in Control,  certain
specified insurance benefits shall continue in effect on terms and conditions at
least as  favorable  to the  Executive as  maintained  immediately  prior to the
Change in  Control.  In no event  shall such  payments be made in an amount that
would  cause  them to be  deemed  non-deductible  to the Bank by  reason  of the
operation  of Section  280G of the  Internal  Revenue  Code.  The purpose of the
Agreements is to provide certain potential  benefits to the Executives solely in
the event of a Change in Control and do not provide a contract  for  employment.
The Agreements will expire on September 30, 2010,  provided that if a "Change in
Control"  occurs prior to September  30, 2010,  the  Agreements  shall remain in
effect for twelve (12) months after the date on which any such Change in Control
is consummated.

The Agreements were superseded by Change in Control  Agreements  dated March 28,
2008 filed on Form 8-K dated March 28, 2008.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information  regarding  Directors  and  Executive  Officers  of  the  Registrant
required by this Item  pursuant to Item 401 of  Regulation  S-K is omitted  from
this report on Form 10-K and is  contained  in the  Company's  Definitive  Proxy
Statement for the Annual Meeting of  Shareholders  to be held on May 14, 2008 to
be filed  within 120 days after the end of the fiscal year  covered by this Form
10-K, under the Sections  "Election of Directors" and "Executive  Officers," and
the information included therein is incorporated by reference.

Information  required  by this  Item  pursuant  to Item  405 of  Regulation  S-K
regarding  compliance with Section 16(a) of the Securities Exchange Act of 1934,
as amended,  is omitted  from this report on Form 10-K and is  contained  in the
Bank's  Definitive  Proxy Statement for the Annual Meeting of Shareholders to be
held on May 14,  2008 to be filed  within  120 days  after the end of the fiscal
year  covered  by this Form 10-K under the  Section  "Section  16(a)  Beneficial
Ownership  Reporting  Compliance,"  and  the  information  included  therein  is
incorporated by reference.

Information  required by this Item pursuant to Item  407(c)(3) of Regulation S-K
regarding  material  changes,  if any, to procedures by which  shareholders  may
recommend nominees to the Board, is omitted from this report on Form 10-K and is
contained in the Company's  Definitive Proxy Statement for the Annual Meeting of
Shareholders  to be held on May 14,  2008 to be filed  within 120 days after the
end of the fiscal year  covered by this Form 10-K,  under the Section  "Deadline
for Receipt of Shareholder  Proposals," and the information  included therein is
incorporated by reference.


                                       24


Information  required by this Item pursuant to Item 407(d)(4) and Item 407(d)(5)
of Regulation S-K regarding the audit  committee and audit  committee  financial
expert(s),  respectively,  is  omitted  from  this  report  on Form  10-K and is
contained in the Company's  Definitive Proxy Statement for the Annual Meeting of
Shareholders  to be held on May 14,  2008 to be filed  within 120 days after the
end of the fiscal year covered by this Form 10-K , under the Section  "Corporate
Governance," and the information included therein is incorporated by reference.

Code of Ethics
--------------

The Company has adopted a Code of Ethics  that  applies to the  Company's  Chief
Executive Officer and Chief Financial  Officer. A copy of such Code of Ethics is
available  upon  request to any person,  without  charge,  by writing to John F.
Foley, Chief Financial Officer and Secretary, Salisbury Bancorp, Inc., 5 Bissell
Street, P. O. Box 1868, Lakeville, CT 06039.

ITEM 11. EXECUTIVE COMPENSATION

Information  required  by this  Item  pursuant  to Item  402 of  Regulation  S-K
regarding  Directors and  Executive  Compensation,  including  the  Compensation
Discussion & Analysis, is omitted from this report on Form 10-K and is contained
in  the  Company's   Definitive  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders  to be held on May 14,  2008 to be filed  within 120 days after the
end of the fiscal  year  covered by this Form 10-K,  under the  Sections  "Board
Compensation" and "Executive Compensation," and the information included therein
is incorporated by reference.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
           RELATED SHAREHOLDER MATTERS

Information  required  by this  Item  pursuant  to Item  403 of  Regulation  S-K
regarding  Security  Ownership of Certain  Beneficial  Owners and  Management is
omitted  from  this  report  on Form  10-K  and is  contained  in the  Company's
Definitive  Proxy Statement for the Annual Meeting of Shareholders to be held on
May 14,  2008 to be filed  within  120 days  after  the end of the  fiscal  year
covered by this Form  10-K,  under the  Section  "Security  Ownership,"  and the
information included therein is incorporated by reference.

Information  required by this Item  pursuant to Item  201(d) of  Regulation  S-K
regarding securities  authorized for issuance under equity compensation plans is
omitted  from  this  report  on Form  10-K  and is  contained  in the  Company's
Definitive  Proxy Statement for the Annual Meeting of Shareholders to be held on
May 14,  2008 to be filed  within  120 days  after  the end of the  fiscal  year
covered  by  this  Form  10-K,  under  the  Section  "Equity  Compensation  Plan
Information," and the information included therein is incorporated by reference.

ITEM  13.  CERTAIN   RELATIONSHIPS  AND  RELATED   TRANSACTIONS,   AND  DIRECTOR
INDEPENDENCE

Information  required  by this  Item  pursuant  to Item  404 of  Regulation  S-K
regarding Certain  Relationships  and Related  Transactions is omitted from this
report on Form 10-K and is contained in the Company's Definitive Proxy Statement
for the Annual  Meeting of  Shareholders  to be held on May 14, 2008 to be filed
within  120 days  after the end of the  fiscal  year  covered by this Form 10-K,
under the Section  "Certain  Relationships  and Related  Transactions,"  and the
information included therein is incorporated by reference.

Information  required by this Item  pursuant to Item  407(a) of  Regulation  S-K
regarding the independence of directors is omitted from this report on Form 10-K
and is contained in the  Company's  Definitive  Proxy  Statement  for the Annual
Meeting of  Shareholders  to be held on May 14, 2008 to be filed within 120 days
after the end of the fiscal  year  covered by this Form 10-K,  under the Section
"Corporate  Governance," and the information included therein is incorporated by
reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information  required  by this  Item  regarding  Principal  Accounting  Fees and
Services  is  omitted  from this  report on Form  10-K and is  contained  in the
Company's  Definitive  Proxy Statement for the Annual Meeting of Shareholders to
be held on May 14, 2008 to be filed  within 120 days after the end of the fiscal
year  covered  by  this  Form  10-K,  under  the  Section   "Independent  Public
Accountants," and the information included therein is incorporated by reference.

Information required by this Item regarding  pre-approval policies for audit and
non-audit  services is omitted from this report on Form 10-K and is contained in
the Company's  Definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on May 14,  2008 to be filed  within  120 days  after  the end of the
fiscal  year  covered  by this Form 10-K,  under the  Section  "Audit  Committee
Pre-Approval  of  Audit  and  Permissible   Non-Audit  Services  of  Independent
Auditors," and the information included therein is incorporated by reference.


                                       25


PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)   The following documents are filed as part of this report on Form l0-K.

      1.    Financial Statements:

                  The  financial  statements  filed as part of this  report  are
                  listed in the index appearing at Item 8.

      2.    Financial Statement Schedules:

                  Such schedules are omitted  because they are  inapplicable  or
                  the  information  is  included in the  consolidated  financial
                  statements or notes thereto.

      3.    Exhibits Required by Item 601 of Regulation S-K:



            Exhibit No.         Description
            -----------         -----------
                             
             3.1                Certificate of Incorporation of Salisbury Bancorp, Inc. (1)
             3.2                Bylaws of Salisbury Bancorp, Inc., as amended (2)
             10                 Pension Supplement Agreement with John F. Perotti (3)
             10.2               Form of Change in Control Agreement with Executive Officers dated October 1, 2007
             10.3               Director Stock Retainer Plan (4)
             11                 Computation of Earnings per Share
             21                 Subsidiaries of the Company
             31.1               Rule 13a-15(e) Certification
             31.2               Rule 13a-15(e) Certification
             32                 Section 1350 Certifications


(1)   Exhibit  was  filed  on  April  23,  1998  as  Exhibit  3.1  to  Company's
      Registration  Statement on Form S-4 (No.  333-50857)  and is  incorporated
      herein by reference.

(2)   Exhibit was filed on February  10, 2005 as Exhibit 3.2 to  Company's  Form
      8-K/A and is incorporated herein by reference.

(3)   Exhibit  was  filed on  April  23,  1998 as  Exhibit  10 to the  Company's
      Registration  Statement on Form S-4 (No.  333-50857)  and is  incorporated
      herein by reference.


(4)   Exhibit was filed on May 8, 2002 as Exhibit 10.3 to the  Company's  Annual
      Report on Form 10-KSB for the fiscal year ended  December  31, 2002 and is
      incorporated herein by reference.


                                       26


SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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, in Lakeville, Connecticut
on March 28, 2008.

                                          SALISBURY BANCORP, INC.

                                          By: /s/ John F. Perotti
                                             -----------------------------------
                                              John F. Perotti
                                              Chairman and
                                              Chief Executive Officer

                                          By: /s/ John F. Foley
                                             -----------------------------------
                                              John F. Foley
                                              Chief Financial Officer,
                                              Treasurer and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated:

Signature                        Title                            Date
---------                        -----                            ----

 /s/ John F. Perotti             Chairman,                    March 28, 2008
-----------------------------
 (John F. Perotti)               Chief Executive Officer
                                 and Director

 /s/ Louis E. Allyn, II          Director                     March  28, 2008
-----------------------------
(Louis E. Allyn, II)

 /s/ John R. H. Blum             Director                     March  28, 2008
-----------------------------
(John R. H. Blum)

 /s/ Louise F. Brown             Director                     March 28, 2008
-----------------------------
(Louise F. Brown)

 /s/ Richard J. Cantele, Jr.     Director                     March  28, 2008
-----------------------------
(Richard J. Cantele, Jr.)

 /s/ Robert S. Drucker           Director                     March 28, 2008
-----------------------------
(Robert S. Drucker)

 /s/ Nancy F. Humphreys          Director                     March 28, 2008
-----------------------------
(Nancy F. Humphreys)

 /s/ Holly J. Nelson             Director                     March 28, 2008
-----------------------------
(Holly J. Nelson)

 /s/ Michael A. Varet            Director                     March 28, 2008
-----------------------------
(Michael A. Varet)


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