SALISBURY BANCORP, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of
Operations of Salisbury Bancorp, Inc. ("Salisbury" or the "Company") and its
subsidiary should be read in conjunction with Salisbury's Annual Report on Form
10-K for the year ended December 31, 2021. Readers should also review other
disclosures Salisbury files from time to time with the Securities and Exchange
Commission (the "SEC").

BUSINESS
Salisbury Bancorp, Inc., a Connecticut corporation, formed in 1998, is the bank
holding company for Salisbury Bank and Trust Company (the "Bank"), a
Connecticut-chartered and Federal Deposit Insurance Corporation (the "FDIC")
insured commercial bank headquartered in Lakeville, Connecticut. Salisbury's
common stock is traded on the NASDAQ Capital Market under the symbol "SAL."
Salisbury's principal business consists of its operation and control of the
business of the Bank.

The Bank, established in 1848, currently provides commercial banking, consumer finance, retail banking, and trust and wealth advisory services through a network of fourteen banking offices and ten ATMs located to : Litchfield County, Connecticut; Dutchess, Orange and Ulster Counties, New York; and Berkshire County, Massachusetts and via its website (salisburybank.com).

Significant Accounting Policies and Estimates

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

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

Allowance for loan losses

The allowance for loan losses represents management's estimate of credit losses
inherent in the loan portfolio. Determining the amount of the allowance for loan
losses is considered a critical accounting estimate because it requires
significant judgment and the use of estimates related to the amount and timing
of expected future cash flows on impaired loans, estimated losses on pools of
homogeneous loans based on historical loss experience, and consideration of
current economic trends and conditions, all of which may be susceptible to
significant change. The loan portfolio also represents the largest asset type on
the balance sheet. A discussion of the factors driving changes in the amount of
the allowance for loan losses is included in the "Provision and Allowance for
Loan Losses" section of Management's Discussion and Analysis.

FINANCIAL CONDITION

Short-term securities and funds

During the first quarter of 2022, available-for-sale (AFS) securities increased
$13.3 million, or 6.5%, to $215.7 million as Salisbury continued to invest
excess cash balances in U.S. Treasuries, U.S. Agency bonds, municipal securities
and U.S. bank-issued subordinated debt offerings. The market value of
Salisbury's AFS portfolio was approximately 14.7% of total assets at March 31,
2022 compared with 13.2% at December 31, 2021. Cash and cash equivalents
(non-time interest-bearing deposits with other banks, money market funds and
federal funds sold) decreased $76.5 million, or 43.6% to $98.9 million.

The sharp increase in market interest rates in first quarter 2022 resulted in
inception-to-date after-tax unrealized losses in Salisbury's AFS portfolio of
$8.4 million at March 31, 2022 compared with an after-tax unrealized gain of
$0.9 million at December 31, 2021. These unrealized losses and gains are
recorded in accumulated other comprehensive income, net on Salisbury's
consolidated balance sheet. Salisbury evaluates securities for OTTI when the
fair value of a security is less than its amortized cost basis at the balance
sheet date. As part of this process, Salisbury considers its intent to sell each
debt security and whether it is more likely than not that it will be required to
sell the security before its anticipated recovery. If either of these conditions
is met, Salisbury recognizes an OTTI charge to earnings equal to the entire
difference between the security's amortized cost basis and its fair value at the
balance sheet date. For securities that meet neither of these conditions, an
analysis is performed to determine if any of these securities are at risk for
OTTI. Salisbury evaluates securities for strategic fit and may reduce its
position in securities, although it is not more likely than not that Salisbury
will be required to sell securities before recovery of their cost basis, which
may be maturity. Management does not consider any of its securities to be OTTI
at March 31, 2022.

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Loans

Net loans receivable of $1.1 billion at March 31, 2022 were essentially
unchanged from December 31, 2021. At March 31, 2022 Salisbury had PPP loans of
approximately $13.7 million on its balance sheet compared with approximately
$25.6 million at December 31, 2021. Excluding PPP loans, net loans receivable of
$1.1 billion increased $11.4 million, or 10.9% from year end 2021. The increase
primarily reflected growth in residential mortgage, commercial construction and
consumer loan balances, partially offset by lower commercial and industrial and
municipal loan balances. Salisbury continued to experience strong demand for
residential mortgage loans in first quarter 2022. Residential mortgage loan
originations were $31.9 million during first quarter 2022 compared with $41.4
million in fourth quarter 2021. Salisbury sold $5.5 million of residential loans
to FHLB Boston in first quarter 2022 compared with $4.2 million in fourth
quarter 2021, as part of the Bank's strategy to manage interest rate risk. The
ratio of gross loans to deposits for first quarter 2022 was 83.6% compared with
80.8% for fourth quarter 2021.

Asset quality

During the first three months of 2022, asset quality improved, and
non-performing assets declined $1.4 million from $4.2 million, or 0.39% of gross
loans receivable to $2.8 million, or 0.26% of gross loans receivable and total
impaired and potential problem loans declined $5.5 million from $32.8 million,
or 3.04% of gross loans receivable to $27.3 million, or 2.5% of gross loans
receivable at March 31, 2022.

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

On March 22, 2020, the federal banking agencies issued an "Interagency Statement
on Loan Modifications and Reporting for Financial Institutions Working with
Customers Affected by the Coronavirus", this guidance encourages financial
institutions to work prudently with borrowers that may be unable to meet their
contractual obligations because of the effects of the virus. The guidance goes
on to explain that the federal banking agencies conclude that short-term
modifications (e.g. six months) made on a good faith basis to borrowers who were
current as of the implementation date of the relief program are not Troubled
Debt Restructurings ("TDRs").  Section 4013 of the CARES Act addresses
modifications resulting from the pandemic and specified that virus related
modifications on loans that were current as of December 31, 2019 are not
TDRs. The Bank has applied Section 4013 guidance and implemented a loan payment
deferral program which allows residential, commercial and consumer borrowers,
who have been adversely affected by the virus and whose loans were not more than
30 days past due at December 31, 2019, to defer loan payments for up to three
months. At March 31, 2022, Salisbury did not have any outstanding loan payment
deferrals.

The CARES Act provides emergency economic relief to individuals and businesses
impacted by the virus. The CARES Act authorized the SBA to temporarily guarantee
loans under a new 7(a) loan program called the Paycheck Protection Program.

Like

a qualified SBA lender, the Bank was automatically qualified to originate loans
under the PPP. In 2020, Salisbury processed 932 PPP loans for a principal
balance of approximately $100 million primarily for existing customers. The
expected forgiveness amount is the amount of loan principal the lender
reasonably expects the borrower to spend on payroll costs, mortgage interest,
rent and utilities during the covered period after the loans are funded. On June
5, 2020, the Paycheck Protection Program Flexibility Act ("PPPFA") was signed
into law. The PPPFA increased the covered period from eight weeks to twenty-four
weeks, reduced the portion of the loan that must be spent on payroll costs from
75% to 60% and extended the term of loans that are not forgiven from two years
to five years. For PPP loans originated prior to June 5, 2020, borrowers and
lenders may mutually agree to increase the loan term to five years. The vast
majority of PPP loans processed by Salisbury have a two-year term. Management
funded these short-term loans through a combination of deposits, short-term
Federal Home Loan Bank ("FHLB") advances, and brokered deposits. Salisbury did
not participate in the Federal Reserve's Paycheck Protection Program Liquidity
Facility ("PPPLF").

On December 27, 2020 the Consolidated Appropriations Act, 2021 was signed into
law. Certain provisions of the CARES Act were modified and extended by the Act.
One of the features of the Act was the provision of $284 billion in additional
funding for the PPP program, including a second draw Paycheck Protection Program
for qualifying businesses for which there was a quarterly revenue reduction of
at least 25% compared to the same quarter in 2019. Salisbury processed another
435 customer PPP applications for loans of approximately $47 million in 2021. As
of March 31, 2022, Salisbury had approximately $14 million of PPP loans on its
balance sheet compared with approximately $26 million at December 31, 2021.

Delinquent loans

Loans past due 30 days or more increased slightly during first quarter 2022 to
$2.7 million, or 0.25% of gross loans receivable at March 31, 2022 compared with
$2.6 million, or 0.24% of gross loans receivable at December 31, 2021.

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The components of loans in arrears of 30 days or more are as follows:

(in thousands)                              March 31, 2022       December 31, 2021
Past due 30-59 days                       $          1,687     $               751
Past due 60-89 days                                    662                     590
Past due 90-179 days                                     2                       1
Past due 180 days and over                              11                      10
Accruing loans                                       2,362                   1,352
Past due 30-59 days                                      -                      14
Past due 60-89 days                                     59                       -
Past due 90-179 days                                     -                      63
Past due 180 days and over                             269                   1,213
Non-accrual loans                                      328                   1,290
Total loans past due 30 days or greater   $          2,690     $           
 2,642


Credit Risk Ratings

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

Subprime loans rated “special mention” (5) have credit deficiencies or

potential weaknesses deserving management’s attention which, if left unaddressed

not corrected may lead to a deterioration in the repayment prospects of the

ready at a later date.

Loans rated “substandard” (6) are loans for which the Bank’s position is

clearly not adequately protected by current net worth or borrower payment

ability. These loans have well-defined weaknesses based on objective evidence

and include loans that could result in future losses to the Bank if deficiencies

are uncorrected, and loans whose primary source of repayment, such as

income is diminished and the Bank must rely on the sale of collateral or other

secondary collection sources.

Risky credits rated “doubtful” (7) have the same weaknesses as sub-standards

loans with the added feature that weakness makes the collection or

complete liquidation, taking into account the current facts, conditions and values, to be highly

unlikely. The possibility of loss is high, but due to some important factors and

reasonably specific outstanding factors, which may help strengthen the loan, its

reclassification to an estimated loss is deferred until its exact status can be

determined.

Risky loans rated “loss” (8) are considered uncollectible and of such low

value that retention as assets of the Bank is unwarranted. This ranking makes

does not mean that the loan has absolutely no salvage or salvage value, but rather,

it is neither practical nor desirable to postpone the cancellation of this loan even if

partial recovery can be done in the future.


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

Credit quality segments

Salisbury classifies loans receivable into the following credit quality segments:

Impaired loans include all outstanding loans and restructured distressed debt

loans, and represent loans for which it is probable that Salisbury will not be

able to collect all amounts in principal and interest due according to the

contractual terms of loan contracts.

Unaccrued loans, a subset of impaired loans, are loans for which

interest has been discontinued because, in the opinion of management,

collection of principal or interest is unlikely.

Non-performing loans include unearned loans and past due accrued loans

90+ days which are well guaranteed, being collected and

when full collection of principal and interest is reasonably assured.

Non-performing assets include non-performing loans and acquired real estate

in payment of loans.

Distressed restructured loans are loans for which concessions such as

reduction in interest rates, other than normal market rate adjustments, or

deferral of payment of principal or interest, extension of due dates or

reduction of the principal balance or accrued interest, have been granted because of a

financial situation of the borrower. Loan restructuring is used when management

believes that granting a concession will increase the likelihood of full

or partial recovery of principal and interest.

Potential problem loans consist of sound loans to which a

   substandard credit risk rating and are not classified as impaired.


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Impaired Loans

Impaired loans include all modified loans classified as distressed debt restructurings (TDRs) and loans in non-recognition status. The components of impaired loans are as follows:

(in thousands)                                     March 31, 2022        December 31, 2021
Non-accrual loans, excluding troubled debt
restructured loans                               $          2,453      $   

2,838

Non-accrual troubled debt restructured loans                  299          

1,350

Accruing troubled debt restructured loans                   3,062          

3,609

Total impaired loans                             $          5,814      $   

7,797

Commitments to lend additional amounts to
impaired borrowers                               $              -      $                 -


Non-Performing Assets

Non-performing assets decreased $1.4 million to $2.8 million, or 0.19% of assets
at March 31, 2022, from $4.2 million, or 0.27% of assets at December 31, 2021,
and decreased $2.9 million from $5.7 million, or 0.41% of assets at March 31,
2021.

The components of non-performing assets are as follows:

(in thousands)                               March 31, 2022       December 31, 2021
Residential 1-4 family                     $            417     $               750
Residential 5+ multifamily                                -                     861
Home equity lines of credit                               -                      21
Commercial                                            1,887                   1,924
Farm land                                               420                     432
Vacant land                                               -                       -
Real estate secured                                   2,724                   3,988
Commercial and industrial                                28                     200
Consumer                                                  -                       -
Non-accrual loans                                     2,752                   4,188
Accruing loans past due 90 days and over                 13                
     11
Non-performing loans                                  2,765                   4,199
Foreclosed assets                                         -                       -
Non-performing assets                      $          2,765     $             4,199

The delinquent status of non-performing loans is as follows:

(in thousands)                 March 31, 2022       December 31, 2021
Current                      $          2,424     $             2,898
Past due 30-59 days                         -                      14
Past due 60-89 days                        59                       -
Past due 90-179 days                        2                      64
Past due 180 days and over                280                   1,223
Total non-performing loans   $          2,765     $             4,199

To March 31, 202287.67% of non-performing loans were up to date with loan repayments, compared to 69.02% at December 31, 2021.

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Restructured distressed debt loans

Troubled debt restructured loans decreased $1.6 million during first quarter
2022 to $3.4 million, or 0.31% of gross loans receivable at March 31, 2022,
compared to $5.0 million, or 0.46% of gross loans receivable at December 31,
2021. The reduction in balances primarily reflected the sale of approximately
$1.1 million of TDR loans during first quarter 2022.

The components of distressed restructured loans are as follows:

(in thousands)                                     March 31, 2022        December 31, 2021
Residential 1-4 family                           $          1,521      $             1,824
Residential 5+ multifamily                                     85                       87
Commercial                                                  1,380                    1,622
Real estate secured                                         2,986                    3,533
Commercial and industrial                                      76                       76
Accruing troubled debt restructured loans                   3,062          
         3,609
Residential 1-4 family                                         71                      256
Residential 5+ multifamily                                      -                      861
Commercial                                                    228                      233
Real estate secured                                           299                    1,350
Non-accrual troubled debt restructured loans                  299          

1,350

Troubled debt restructured loans                 $          3,361      $   

4,959

The delinquent status of the distressed debt restructured loans is as follows:

(in thousands)                                     March 31, 2022        December 31, 2021
Current                                          $          3,025      $             3,540
Past due 30-59 days                                            37                       37
Past due 60-89 days                                             -                       32
Accruing troubled debt restructured loans                   3,062          
         3,609
Current                                                       299                      414
Past due 180 days and over                                      -                      936
Non-accrual troubled debt restructured loans                  299          

1,350

Total troubled debt restructured loans           $          3,361      $   

4,959

To March 31, 202298.90% of distressed debt restructured loans were up to date with loan repayments, compared to 79.73% at December 31, 2021.

Potential Problem Loans

Potential problem loans consist of performing loans that have been assigned a
substandard credit risk rating and are not classified as impaired. Potential
problem loans decreased $3.5 million during the first quarter of 2022 to $21.5
million, or 1.99% of gross loans receivable at March 31, 2022, compared with
$25.0 million, or 2.32% of gross loans receivable at December 31, 2021. The
decrease in potential problem loans from year end 2021 primarily reflected the
sale of approximately $1.5 million of potential problem loans, internal risk
rating upgrades on approximately $1.5 million of loans and loan payments.

The components of potential problem loans are:

(in thousands)                    March 31, 2022       December 31, 2021
Residential 1-4 family          $            986     $               999
Residential 5+ multifamily                     -                     709
Home equity lines of credit                    -                       -
Residential real estate                      986                   1,708
Commercial                                18,686                  20,998
Construction of commercial                     -                       -
Commercial real estate                    18,686                  20,998
Farm land                                      -                       -
Real estate secured                       19,672                  22,706
Commercial and industrial                  1,841                   2,310
Consumer                                       2                       -
Total potential problem loans   $         21,515     $            25,016


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The delinquent status of potentially problematic loans is as follows:

(in thousands)                    March 31, 2022       December 31, 2021
Current                         $         21,484     $            24,977
Past due 30-59 days                           22                      23
Past due 60-89 days                            7                      16
Past due 90-179 days                           2                       -
Total potential problem loans   $         21,515     $            25,016


At March 31, 2022, 99.86% of potential problem loans were current with respect
to loan payments, as compared with 99.84% at December 31, 2021. Management
cannot predict the extent to which economic or other factors may impact such
borrowers' future payment capacity, and there can be no assurance that such
loans will not be placed on nonaccrual status, restructured, or require
increased provisions for loan losses.

Deposits and borrowings

Deposits decreased $45.7 million, or 3.4%, during first quarter 2022, to $1.29
billion at March 31, 2022, compared with $1.34 billion at December 31, 2021.
Retail repurchase agreements decreased $3.2 million, or 28.1%, during first
quarter 2022 to $8.2 million at March 31, 2022, compared with $11.4 million at
December 31, 2021.

The distribution of average total deposits by account type was as follows:
                                                         March 31, 2022                                     December 31, 2021
                                                                             Weighted                                            Weighted
(in thousands)                          Average Balance      Percent      Interest Rate      Average Balance      Percent      Interest Rate
Demand deposits                        $        386,894        29.65 %             0.00 %   $        366,953        29.28 %            0.00 %
Interest-bearing checking accounts              232,464        17.82               0.17              224,763        17.93              0.19
Regular savings accounts                        233,092        17.87               0.11              215,300        17.18              0.11
Money market savings                            321,198        24.62               0.16              315,469        25.17              0.17
Certificates of deposit (CD's)                  131,059        10.05       
       0.59              130,879        10.44              0.72
Total deposits                         $      1,304,707       100.00 %            0.15%     $      1,253,364       100.00 %            0.17 %



The classification of certificates of deposit by interest rate is as follows:

Interest rates      March 31, 2022       December 31, 2021
Less than 1.00%   $        108,584     $            97,099
1.00% to 1.99%              13,594                  14,919
2.00% to 2.99%               6,035                   6,493
3.00% to 3.99%                   -                     498
Total             $        128,213     $           119,009


The distribution of certificates of deposit by interest rate and maturity is as
follows:

                                                                           At March 31, 2022
                                     Less Than or
                                     Equal to One     More Than One to    More Than Two      More Than                    Percent of
Interest rates                           Year            Two Years       to Three Years     Three Years       Total         Total
Less than 1.00%                    $    86,693        $    11,745        $    3,714        $   6,432       $ 108,584         84.69 %
1.00% to 1.99%                           6,900              2,268             4,426                -          13,594         10.60 %
2.00% to 2.99%                             304              4,490             1,241                -           6,035          4.71 %
Total                              $    93,897        $    18,503        $    9,381        $   6,432       $ 128,213        100.00 %

Expected maturities of term deposit certificates in denominations of
$100,000 or more are:

                                    Within                                  

Finished

March 31, 2022 (in thousands)      3 months      3-6 months      6-12 months       1 year         Total
Certificates of deposit
$100,000 and over                 $  31,534     $    10,348     $     22,328     $  17,744     $  81,954


FHLBB advances decreased $7.2 million during the first quarter of 2022 to $0.4
million at March 31, 2022, compared with $7.7 million at December 31, 2021. The
decrease reflected the pay-off of a $6.0 million advance due in December 2022 as
well as payments on an amortized advance. Salisbury has an Irrevocable Letter of
Credit Reimbursement Agreement with the FHLBB, whereby upon the Bank's request
an irrevocable letter of credit is issued to secure municipal and certain other
transactional deposit accounts. These letters of credit are secured primarily by
residential mortgage loans. The amount of funds available from the FHLBB to the
Bank is reduced by any letters of credit outstanding. At March 31, 2022, $20.0
million of letters of credit were outstanding compared with $20.0 million at
December 31, 2021.

There were no short-term FHLBB advances during the three-month period
March 31, 2022 and 2021.

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Liquidity
Salisbury manages its liquidity position to ensure that there is sufficient
funding availability at all times to meet both anticipated and unanticipated
deposit withdrawals, loan originations and advances, securities purchases and
other operating cash outflows. Salisbury's primary sources of liquidity are
principal payments and maturities of securities and loans, short-term borrowings
through repurchase agreements and FHLBB advances, net deposit growth and funds
provided by operations. Liquidity can also be provided through sales of loans
and available-for-sale securities. At March 31, 2022, Salisbury's excess
borrowing capacity at FHLBB was approximately $251.0 million. Salisbury
maintains access to multiple sources of liquidity, including wholesale funding.
An increase in funding costs could have an adverse impact on Salisbury's net
interest margin. If an extended economic shutdown causes depositors to withdraw
their funds, Salisbury could become more dependent on more expensive sources of
funding.

Salisbury manages its liquidity in accordance with a liquidity funding policy,
and also maintains a contingency funding plan that provides for the prompt and
comprehensive response to unexpected demands for liquidity. Management believes
Salisbury's funding sources will meet anticipated funding needs.

Operating activities for the three-month period ended March 31, 2022 provided
net cash of $5.5 million. Investing activities utilized net cash of $24.5
million due to the purchase of securities available-for-sale of $145.3 million,
and $0.3 million for the purchase of fixed assets, partly offset by $102.4
million from the maturities/principal paydowns of available-for-sale (AFS)
securities net loan originations of $0.6 million and $17.7 from proceeds from
sale of securities. Financing activities utilized net cash of $57.4 million
primarily due to the decrease of savings deposits of $54.9 million, principal
payments of $1.3 million on FHLB advances, the maturity of a $6.0 million FHLB
advance and a decrease of $3.3 million in securities sold under agreements to
repurchase, partly offset by a net increase of $9.2 million in time deposit
balances.

At March 31, 2022, Salisbury had outstanding commitments to fund new loan
originations of $87.8 million and unused lines of credit of $214.7 million.
Salisbury believes that these commitments can be met in the normal course of
business. Salisbury believes that its liquidity sources will continue to provide
funding sufficient to support operating activities, loan originations and
commitments, and deposit withdrawals.



  36




RESULTS OF OPERATIONS

For periods of three months ended March 31, 2022 and 2021

PREVIEW

Net income allocated to common shareholders was $3.5 million, or $1.24 basic
earnings per common share, for the first quarter ended March 31, 2022 (first
quarter 2022), compared with $4.1 million, or $1.45 basic earnings per common
share, for the fourth quarter ended December 31, 2021 (fourth quarter 2021), and
$4.5 million, or $1.59 basic earnings per common share, for the first quarter
ended March 31, 2021 (first quarter 2021). The decrease from fourth quarter 2021
primarily reflected non-recurring fraud-related losses of $251 thousand as well
as a provision expense for loan losses of $363 thousand in first quarter 2022
compared with a net release of credit reserves of $202 thousand in fourth
quarter 2021. The decrease from first quarter 2021 primarily reflected the
non-recurring fraud-related losses and higher compensation expense in first
quarter 2022, which partially reflected higher salary expense and the deferral
of more compensation expense in the prior year first quarter due to the
processing of PPP loans.

Net interest income

Tax equivalent net interest income for first quarter 2022 decreased $36 thousand
or 0.34%, versus first quarter 2021. Average total earning assets for the first
quarter 2022 increased $154.6 million versus first quarter 2021. Average total
interest bearing deposits for the first quarter 2022 increased $83.5 million
versus first quarter 2021. The tax equivalent net interest margin for the first
quarter 2022 was 2.95% compared with 3.34% for the first quarter 2021. Excluding
PPP loans, the tax equivalent net interest margin for the first quarter 2022 was
2.86% compared with 3.16% for the first quarter 2021.

The following table shows the components of Salisbury’s fully tax-equivalent (“ETP”) net interest income and the returns on average interest-earning assets and interest-bearing liabilities.

Three months ended March 31,              Average Balance             Income / Expense          Average Yield / Rate
(dollars in thousands)                    2022            2021         2022         2021           2022          2021
Loans (a)(d)                       $ 1,079,610     $ 1,051,658     $ 10,277     $ 10,592           3.79 %        4.02 %
Securities (c)(d)                      208,140         103,062          962          640           1.85          2.48
FHLBB stock                              1,434           1,948            7            9           2.05          1.85
Short term funds (b)                   123,454         101,401           50           25           0.16          0.10
Total interest-earning assets        1,412,638       1,258,069       11,296       11,266           3.19          3.57
Other assets                            74,795          71,252
Total assets                       $ 1,487,433     $ 1,329,321
Interest-bearing demand deposits   $   232,464     $   218,425           99
         106           0.17          0.20
Money market accounts                  321,198         288,767          126          129           0.16          0.18
Savings and other                      233,092         197,526           64           56           0.11          0.11
Certificates of deposit                131,059         129,603          189          264           0.59          0.83
Total interest-bearing deposits        917,813         834,321          478
         555           0.21          0.27
Repurchase agreements                    7,146           8,453            3            3           0.14          0.15
Finance lease                            5,097           2,824           41           32           3.23          4.60
Note payable                               163             200            2            3           6.12          6.18
Subordinated debt (net of
issuance costs)                         24,480          10,156          233          119           3.81          4.68
FHLBB advances                           2,974          11,825           55           34           7.46          1.14
Total interest-bearing
liabilities                            957,673         867,779          812          746           0.34          0.35
Demand deposits                        386,884         328,372
Other liabilities                        7,036           6,839
Shareholders' equity                   135,840         126,331
Total liabilities &
shareholders' equity               $ 1,487,433     $ 1,329,321
Net interest income (d)                                            $ 10,484     $ 10,520
Spread on interest-bearing funds                                           
                       2.84          3.22
Net interest margin (e)                                                                            2.95          3.34

(a) Includes outstanding loans.

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

(c) Average security balances are based on cost.

(d) Includes the tax-exempt income benefit of $178,000 and $170,000respectively,

for 2022 and 2021 on tax-exempt securities and loans whose income and yields

are calculated on a tax equivalent basis.

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

  37



The following table shows how ETP interest varies by volume and rate.

Three months ended March 31, (in thousands)          2022 versus 2021
Change in interest due to                      Volume       Rate        Net
Loans                                        $    304     $ (619 )   $ (315 )
Securities                                        568       (246 )      322
FHLBB stock                                        (3 )        1         (2 )
Short term funds                                    8         17         25
Interest-earning assets                           877       (847 )       30
Deposits                                           58       (135 )      (77 )
Repurchase agreements                               -          -          -
Finance lease                                      23        (14 )        9
Note payable                                       (1 )        -         (1 )
Subordinated debt                                 152        (38 )      114
FHLBB advances                                    (96 )      117         21
Interest-bearing liabilities                      136        (70 )       66
Net change in net interest income            $    741     $ (777 )   $  (36
)


Interest Income

Tax equivalent interest income increased $30 thousand, or 0.3%, to $11.3 million
for first quarter 2022 as compared with first quarter 2021. Loan income as
compared to first quarter 2021 decreased $315 thousand, or 3.0%, primarily due
to a 23 basis point decrease in the average loan yield, partly offset by a $27.9
million, or 2.7%, increase in average loans. Tax equivalent securities income
increased $322 thousand, or 50.3%, for first quarter 2022 as compared with first
quarter 2021, primarily due to a $105.0 million, or 100.1%, increase in average
balances, partly offset by a 63 basis point decrease in average yield. Income on
short-term funds as compared to first quarter 2021 increased $25 thousand, or
100.0%, primarily due to a $22.1 million, or 21.7% increase in average balances
and a 6 basis point increase in the average short-term funds yields.

Interest charges

Interest expense increased $66 thousand, or 8.8%, to $812 thousand for first
quarter 2022 as compared with first quarter 2021. Interest on deposit accounts
decreased $77 thousand, or 13.9%, as a result of a 6 basis point decrease in
average deposit rates, partly offset by a $83.5 million, or 10.0%, increase in
the average balances as compared with first quarter 2021. Interest expense on
FHLBB borrowings increased $21 thousand, or 61.8%, due to a 632 basis point
increase in the average borrowings rate, partly offset by an average balance
decrease of $8.9 million, or 74.8%, as compared with first quarter 2021.
Interest expense on FHLBB borrowings for first quarter 2022 included a
non-recurring expense of approximately $30 thousand to pay off a $6 million
advance due in December 2022. Interest expense on subordinated debt increased
$114 thousand as compared to first quarter 2021 primarily due to an average
balance increase of $14.3 million, or 141.0%, partly offset by an 87 basis point
decrease in average yield.

Allowance and provision for loan losses

During first quarter 2022, the allowance for loan losses increased by the
provision for loan loss expense of $363 thousand compared with a net reserve
release of $202 thousand for fourth quarter 2021 and a provision expense of $158
thousand for first quarter 2021. Net loan charge-offs (recoveries) were $410
thousand for the first quarter 2022, $3 thousand for fourth quarter 2021 and $25
thousand for the first quarter 2021. Charge-offs for first quarter 2022 included
a write-down of $374 thousand to reduce the carrying value on $3.8 million of
non-performing and under-performing residential and commercial loans, which
Salisbury sold during the quarter, to the initial bid prices. The proceeds from
the sale of these loans subsequently increased by approximately $239 thousand
due to higher final bids. This increase was recorded as a pre-tax gain on sale
in Salisbury's consolidated statement of income.

As a result of these factors, reserve coverage, as measured by the ratio of the
allowance for loan losses to gross loans, excluding PPP loans, was 1.21% for the
first quarter 2022, versus 1.23% for the fourth quarter 2021 and 1.45% for the
first quarter 2021. Similarly, reserve coverage, as measured by the ratio of the
allowance for loan losses to non-performing loans was 467% for first quarter of
2022, versus 309% for fourth quarter of 2021 and 243% for first quarter of 2021.

The following table details the main categories of credit quality ratios:

Three months ended March 31,                                      2022     

2021

Net charge-offs (recoveries) to average loans receivable,
gross                                                             0.04 %          0.00 %
Non-performing loans to loans receivable, gross                   0.26     

0.54

Accruing loans past due 30-89 days to loans receivable,
gross                                                             0.25     

0.23

Allowance for loan losses to loans receivable, gross              1.20     

1.32

Allowance for loan losses to non-performing loans               467.27     

243.37

Non-performing assets to total assets                             0.19     
      0.41


  38




Non-performing loans (non-accrual loans plus accruing loans past-due 90 days or
more) were $2.8 million, or 0.26% of gross loans receivable at March 31, 2022 as
compared to $4.2 million, or 0.39% at December 31, 2021 and $5.7 million, or
0.54%, at March 31, 2021. Accruing loans past due 30-89 days were $2.3 million,
or 0.25% of gross loans receivable compared with $1.3 million, or 0.12% of gross
loans receivable at December 31, 2021 and $2.4 million, or 0.23% of gross loans
receivable, at March 31, 2021. See "Financial Condition - Asset Quality" above
for further discussion and analysis.

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

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

The component of the allowance for loan losses for loans collectively evaluated
for impairment is estimated by stratifying loans into segments and credit risk
ratings and then applying management's general loss allocation factors. The
general loss allocation factors are based on expected loss experience adjusted
for historical loss experience and other qualitative factors, including levels
or trends in delinquencies; trends in volume and terms of loans; effects of
changes in risk selection and underwriting standards and other changes in
lending policies, procedures and practices; experience/ability/depth of lending
management and staff; and national and local economic trends and conditions. The
qualitative factors are determined based on the various risk characteristics of
each loan segment and are risk-weighted such that higher risk loans generally
have a higher reserve percentage.

The unallocated component of the allowance is maintained to cover uncertainties
that could affect management's estimate of probable losses. It reflects the
margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating allocated and general reserves in the portfolio.
Additionally, reserves are established for off balance sheet exposures.

Determining the adequacy of the allowance and reserves at any given period is
difficult, particularly during deteriorating or uncertain economic periods, and
management must make estimates using assumptions and information that are often
subjective and changing rapidly. The review of credit exposure related to loans
is a continuing event in light of a changing economy and the dynamics of the
banking and regulatory environment. Should the economic climate deteriorate,
borrowers could experience difficulty and the level of non-performing loans,
charge-offs and delinquencies could rise, requiring increased provisions and
reserves. In management's judgment, Salisbury remains adequately reserved both
against total loans and non-performing loans at March 31, 2022.

Management's loan risk rating assignments, loss percentages and specific
reserves are subjected annually to an independent credit review by an external
firm. In addition, the Bank is examined annually on a rotational basis by one of
its two primary regulatory agencies, the FDIC and CTDOB. As an integral part of
their examination process, the FDIC and CTDOB review the adequacy and
methodology of the Bank's credit risk ratings and allowance for loan losses.

Non-interest income

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

Three months completed March, 31st(in thousands of dollars) 2022 2021

       2022 vs. 2021
Trust and wealth advisory                           $  1,241     $  1,146     $     95          8.3 %
Service charges and fees                               1,138          950          188         19.8
Mortgage banking activities, net                         355          608         (253 )      (41.6 )
Losses on CRA mutual fund                                (42 )        (16 )        (26 )      162.5
Gains on available-for-sale securities, net              210            -  
       210          n/a
BOLI income and gains                                    162          125           37         29.6
Other                                                     30           28            2          7.1
Total non-interest income                           $  3,094     $  2,841     $    253          8.9 %


Non-interest income increased $253 thousand, or 8.9% in the first quarter of
2022 versus the first quarter of 2021. Trust and wealth advisory revenues
increased $95 thousand versus first quarter 2021 primarily due to higher
asset-based fees. Assets under administration were $1.0 billion at March 31,
2022 compared with $1.1 billion at December 31, 2021 and $902.1 million at March
31, 2021. Discretionary assets under administration of $625.3 million in first
quarter 2022 decreased from $657.8 million in fourth quarter 2021 and increased
from $578.2 million in first quarter 2021 primarily due to changes in market
valuations. Non-discretionary assets under administration of $423.9 million in
first quarter 2022 declined from $425.4 million in fourth quarter 2021 and
increased from $323.9 million in first quarter 2021. The increase in
non-discretionary assets from first quarter 2021 primarily reflected the
addition of partnership assets under administration for the same client
relationship. The trust and wealth business records only a nominal annual fee on
this relationship.

  39



Service charges and fees increased $188 thousand versus first quarter 2021
primarily reflected higher deposit fees. First quarter 2022 income from mortgage
sales and servicing decreased $253 thousand due to a lower volume of sales of
residential mortgage loans to the FHLB Boston. Mortgage sales in first quarter
2022 were $5.5 million compared with $21.3 million for first quarter 2021.
Mortgage banking activities, net for first quarter 2022 also included a pre-tax
gain of $239 thousand on the sale of $3.4 million of non-performing and
under-performing commercial and residential loans.

The first quarter 2022 included net losses of $42 thousand on investments in CRA
Funds compared with net losses of $16 thousand in first quarter 2021.
Non-interest income for first quarter 2022 included a pre-tax gain on the sale
of available-for-sale ("AFS") securities of $210 thousand. Salisbury did not
recognize any gains or losses on the sale of AFS securities in the comparative
periods.

BOLI income from $162,000 increased $37,000 compared to $125,000 in the first quarter of 2021. Other income mainly includes income from rental properties.

Non-interest charges

The following table details the main categories of non-interest expenses.

Three months completed March, 31st(in thousands of dollars) 2022 2021

       2022 vs. 2021
Salaries                                            $  3,479     $  2,901     $    578         19.9 %
Employee benefits                                      1,277        1,312          (35 )       (2.7 )
Premises and equipment                                 1,104          954          150         15.7
Loss on sale of assets                                     9            -            9          n/a
Information processing and services                      685          565          120         21.2
Professional fees                                        787          711           76         10.7
Collections, OREO, and loan related                      117           84           33         39.3
FDIC insurance                                           171          145           26         17.9
Marketing and community support                          184           82          102        124.4
Amortization of core deposit intangibles                  54           71  
       (17 )      (23.9 )
Other                                                    786          434          352         81.1
Non-interest expense                                $  8,653     $  7,259     $  1,394         19.2 %


Non-interest expense for first quarter 2022 increased $1.4 million versus first
quarter 2021. Salaries expense increased $578 thousand versus first quarter
2021. The increase primarily reflected higher salary, production and incentive
accruals and significantly lower deferred loan origination expenses due to the
processing of PPP loans in first quarter 2021. Employee benefits expense
decreased $35 thousand versus first quarter 2021 primarily due to lower medical
insurance costs and deferred compensation expense. Premises and equipment
expense increased $150 thousand versus first quarter 2021 due to higher utility
costs and higher software expense. Information processing expense increased $120
thousand versus first quarter 2021 primarily due to higher core processing costs
and ATM and debit card processing fees. Professional fees increased $76 thousand
versus first quarter 2021 primarily as a result of increased consulting and
investment management fees. Loan and OREO related expenses increased $33
thousand versus first quarter 2021, mainly due to higher appraisal expenses and
mortgage recording taxes. Marketing and community support expense increased $102
thousand versus first quarter 2021 primarily due to timing of current marketing
campaigns and contributions. The increase in other expenses of $352 thousand
included two isolated instances of debit card or check cashing fraud-related
losses aggregating $251 thousand in first quarter 2022.

Income taxes

The effective income tax rates for first quarter 2022 and first quarter 2021
were 18.60% and 21.61%, respectively. The lower tax rate in the first quarter
2022 primarily reflected a higher mix of tax-exempt income from municipal bonds,
tax advantaged loans and bank-owned life insurance on a comparatively lower
level of pre-tax income.

Salisbury did not incur Connecticut income tax in 2022 (to date) or 2021, other
than minimum state income tax, as a result of a Connecticut law that permits
banks to shelter certain mortgage income from the Connecticut corporation
business tax through the use of a special purpose entity called a Passive
Investment Company or PIC. In 2004, Salisbury availed itself of this benefit by
forming a PIC, SBT Mortgage Service Corporation. Salisbury's income tax
provision reflects the full impact of the Connecticut legislation. Salisbury
does not expect to pay Connecticut state income tax, other than minimum
Connecticut state income tax, in the foreseeable future unless there is a change
in Connecticut tax law.

CAPITAL RESOURCES

Shareholders' Equity

Shareholders' equity decreased $6.5 million in first quarter to $130.1 million
at March 31, 2022 as unrealized losses in the available-for-sale securities
("AFS") portfolio of $9.3 million and common stock dividends paid of $0.9
million were partially offset by net income of $3.6 million and other activity
of $0.1 million. The unrealized losses in the AFS portfolio, which reflected the
sharp increase in market interest rates during first quarter 2022, reduced both
book value and tangible book value at March 31, 2022. Book value per common
share of $45.12 at March 31, 2022 decreased $2.61 from fourth quarter 2021 and
increased $0.40 from first quarter 2021. Tangible book value per common share of
$40.20 at March 31, 2022 decreased $2.56 from fourth quarter 2021 and increased
$0.55 from first quarter 2021.

  40




Capital Requirements

Under current regulatory definitions, the Bank meets all capital adequacy
requirements to which it is subject and the Bank is considered to be
well-capitalized. The unrealized losses in the AFS portfolio noted above do not
affect the Bank's regulatory capital ratios. As a well-capitalized financial
institution, the Bank pays lower federal deposit insurance premiums than those
banks that are not "well-capitalized." Requirements for classification as a
well-capitalized institution and for minimum capital adequacy along with the
Bank's regulatory capital ratios are as follows:

                                            March 31, 2022     December 31, 

2021

Total Capital (to risk-weighted assets)            13.98 %                14.08 %
Common Equity Tier 1 Capital                       12.80                  

12.87

Tier 1 Capital (to risk-weighted assets)           12.80                  

12.87

Tier 1 Capital (to average assets)                  9.65                  

9.42


A well-capitalized institution, which is the highest capital category for an
institution as defined by the Prompt Corrective Action regulations issued by the
FDIC and the FRB, is one which maintains a Total Risk-Based ratio of 10% or
above, a Tier 1 Risk-Based ratio of 8% or above, a Common Equity Tier 1 ratio of
6.5% or above, and a Leverage ratio of 5% or above, and is not subject to any
written order, written agreement, capital directive, or prompt corrective action
directive to meet and maintain a specific capital level. Maintaining strong
capital is essential to Salisbury and the Bank's safety and soundness. However,
the effective management of capital resources requires generating attractive
returns on equity to build value for shareholders while maintaining appropriate
levels of capital to fund growth, meet regulatory requirements and be consistent
with prudent industry practices.

The FRB's final rules implementing the Basel Committee on Banking Supervision's
capital guidelines for bank holding companies and their bank subsidiaries
include a common equity Tier 1 capital to risk-weighted assets minimum ratio of
4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, require
a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a
minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer, comprised
of common equity Tier 1 capital, is also established above the regulatory
minimum capital requirements. This capital conservation buffer began phasing in
January 1, 2016 at 0.625% of risk-weighted assets and increased each subsequent
year by an additional 0.625% until it reached its final level of 2.50% on
January 1, 2019. Strict eligibility criteria for regulatory capital instruments
were also implemented under the final rules.

As of March 31, 2022, the Company and the Bank met each of their capital
requirements and the most recent notification from the FDIC categorized the Bank
as "well-capitalized." There are no conditions or events since that notification
that management believes have changed the Bank's category.

On September 17, 2019, the Office of the Comptroller of the Currency, the FRB
and the FDIC published its final rule establishing a "Community Bank Leverage
Ratio" ("CBLR") that simplifies capital requirements for certain community
banking organizations with less than $10 billion in total consolidated assets
(such as the Bank). Under the final rule, depository institutions and their
holding companies that meet certain criteria (generally, those with limited
amounts of off-balance sheet exposures, trading assets and liabilities, mortgage
servicing assets, and temporary difference deferred tax assets) ("qualifying
community banking organizations") may elect to report the components of its Tier
1 leverage ratio as a measure of capital adequacy. A qualifying community
banking organization with a CBLR of greater than 9% that "elects to use the CBLR
framework" will not be subject to other risk-based and leverage capital
requirements and will be considered to have met the well-capitalized ratio
requirements for purposes of the agencies' Prompt Corrective Action ("PCA")
framework. Under the final rule, if a bank that has opted to use the CBLR
framework subsequently fails to satisfy one or more of the qualifying criteria,
but continues to report a leverage ratio of greater than 8 %, the bank may
continue to use the framework and will be deemed "well capitalized" for a grace
period of up to two quarters. A qualifying community banking organization will
be required to comply with the generally applicable capital rule and file the
relevant regulatory reports if the banking organization: (1) is unable to
restore compliance with all qualifying criteria during the two-quarter grace
period (including achieving compliance with the greater than 9% leverage ratio
requirement); (2) reports a leverage ratio of 8% or less; or (3) ceases to
satisfy the qualifying criteria due to consummation of a merger transaction. The
final rule became effective on January 1, 2020. The Bank would qualify for the
CBLR methodology and would also be considered to be well capitalized if it
elected to utilize such methodology. The Bank is currently evaluating the
benefits of transitioning to this simplified methodology for assessing capital
adequacy.

Share Repurchases

On March 23, 2022 Salisbury announced that its Board of Directors has renewed
its share repurchase program that was established in March 2021. The share
repurchase program provides for the potential repurchase of Salisbury's common
stock in amounts up to an aggregate of five percent (5%) of the outstanding
shares of Salisbury's common stock from time to time over a period of the next
twelve (12) months through privately negotiated transactions and/or market
purchases at appropriate prices, subject to price and market conditions on terms
determined to be in the best interests of Salisbury. However, there is no
assurance that Salisbury will complete repurchases of 5% of its outstanding
shares over the next twelve (12) months. Salisbury did not repurchase any shares
during first quarter 2022.

Stock Split
In March 2022, the Board of Directors of Salisbury approved and recommended to
shareholders an amendment to Salisbury's Certificate of Incorporation to
increase Salisbury's authorized shares of Common Stock from 5,000,000 to
10,000,000 shares, subject to shareholder approval (the "Certificate of
Amendment Proposal") at Salisbury's annual shareholder meeting on May 18, 2022.
Additionally, the Board indicated its intent to implement, subject to
shareholder approval of the Certificate of Amendment Proposal, a two for one
forward split of the shares of the Company's Common Stock as a means of
enhancing the liquidity and marketability of the Company's securities in the
best interests of shareholders. Even if the Certificate of Amendment Proposal is
approved by Salisbury's shareholders, the Board of Directors may delay or
abandon the forward stock split at any time prior to the effective time of the
forward stock split if the Board of Directors determines that the forward stock
split is no longer in the best interests of Salisbury or its shareholders. The
stock split will be effected at a date to be determined by the Board, but not
before or until receipt of shareholder approval and the effective date of the
Certificate of Amendment as filed with the Connecticut Secretary of State.
  41




Dividends

During the three-month period ended March 31, 2022, Salisbury paid $915 thousand
in dividends on common stock. On April 20, 2022, the Board of Directors of
Salisbury declared a dividend of $0.32 per common share payable on May 27, 2022
to shareholders of record on May 13, 2022.

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

FRB Supervisory Letter SR 09-4, February 24, 2009, revised December 31, 2015,
states that, as a general matter, the Board of Directors of a Bank Holding
Company ("BHC") should inform the Federal Reserve and should eliminate, defer,
or significantly reduce dividends if (1) net income available to shareholders
for the past four quarters, net of dividends previously paid during that period,
is not sufficient to fully fund the dividends; (2) the prospective rate of
earnings retention is not consistent with capital needs and overall current and
prospective financial condition; or (3) the BHC will not meet, or is in danger
of not meeting, its minimum regulatory capital adequacy ratios. Moreover, a BHC
should inform the Federal Reserve reasonably in advance of declaring or paying a
dividend that exceeds earnings for the period (e.g., quarter) for which the
dividend is being paid or that could result in a material adverse change to the
BHC capital position.

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

IMPACT OF INFLATION AND PRICE CHANGES

Salisbury's consolidated financial statements and related notes thereto
presented elsewhere in this Form 10-Q are prepared in conformity with GAAP,
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 some other types
of companies, the financial nature of Salisbury's consolidated financial
statements is more clearly affected by changes in interest rates than by
inflation. Interest rates do not necessarily fluctuate in the same direction or
in the same magnitude as the prices of goods and services. However, inflation
does affect Salisbury to some extent because, as prices increase, the money
supply grows and interest rates are affected by inflationary expectations.
Additionally, the effects of inflation on commercial and consumer customers can
have implications with respect to their borrowing needs and saving and deposit
practices. Potentially, if sustained, inflation could precipitate recessionary
trends that could affect commercial development and residential construction.
Inflation could also increase the cost of labor and products and services used
by the Bank and thereby hinder efficiencies in the Bank's ability to deliver
products and services. There is no precise method, however, to measure the
effects of inflation on Salisbury's consolidated financial statements.
Accordingly, any examination or analysis of the financial statements should take
into consideration the possible effects of inflation. Although not a material
factor in recent years, inflation could impact earnings in future periods.

FORWARD-LOOKING STATEMENTS

This Form 10-Q and future filings by Salisbury with the Security and Exchange Commissionas well as other filings, reports and press releases written or issued by Salisbury and the Bank, and the oral statements made by the officers of Salisbury and the Bank, may include forward-looking statements on matters such as:

(a) assumptions regarding future economic and business conditions and their

effect on the economy in general and on the markets in which Salisbury and

the Bank does business; and

(b) revenue and profit forecasts for Salisbury and the Bank.


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

  42



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

(a) the risk of adverse economic developments in the banking sector

generally and in the specific markets in which the Bank operates;

(b) changes in the legislative and regulatory environment that adversely impact

Salisbury and the Bank by the increase in operating expenses;

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

(d) the impact of technological advances and cybersecurity issues;

(e) fluctuations in interest rates;

(f) the effect of the COVID-19 pandemic on Salisburycommunities served by

the bank, the Connecticut State and United Statesin connection with

economy and overall financial stability;

(g) governmental and regulatory responses to the COVID-19 pandemic;

(h) the risk of adverse changes in trading conditions due to

tensions and;

(f) other risks identified from time to time in from Salisbury deposits with the

Security and Exchange Commission.

Such developments could have a negative impact on from Salisbury and the Bank’s financial condition and results of operations.

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