UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                 For the Quarterly period ended: March 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: 0-28815

                     FIRST LITCHFIELD FINANCIAL CORPORATION
             (Exact name of Registrant as specified in its Charter)


           Delaware                                        06-1241321
           --------                                        ----------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation of organization)                           Identification No.)

   13 North Street, Litchfield, CT                            06759
   -------------------------------                            -----
(Address of principal executive offices)                   (Zip Code)

       Registrant's telephone number, including area code: (860) 567-8752

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 past 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.
                                 Yes [X] No [_]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):
Large accelerated filer [_]   Accelerated filer [_]   Non-accelerated filer [X]

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

                                 Yes [_] No [X]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common equity,  as of the latest  practicable  date:  2,257,546 shares of Common
Stock, par value $.01 per share, were outstanding at May 8, 2007.

                                       1
<page>

                     FIRST LITCHFIELD FINANCIAL CORPORATION
                                    FORM 10-Q
                                      INDEX

Page
Part I - Financial Information

Item 1 - Financial Statements

        Consolidated Balance Sheets - March 31, 2007 (unaudited) and
        December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . .  3

        Consolidated Statements of Income - Three months ended
        March 31, 2007 and 2006 (unaudited). . . . . . . . . . . . . . . . . . 4

        Consolidated Statements of Comprehensive Income - Three months ended
        March 31, 2007 and 2006 (unaudited) . . . . . . . . . . . . . . . . .  5

        Consolidated Statements of Cash Flows - Three months ended
        March 31, 2007 and 2006 (unaudited)  . . . . . . . . . . . . . . . . . 6

        Notes to Consolidated Financial Statements (unaudited) . . . . . . . . 7


        Item 2 - Management's Discussion and Analysis of Financial Condition
          and Results of Operations  . . . . . . . . . . . . . . . . . . . .  13

        Item 3 - Quantitative and Qualitative Disclosures about Market Risk.  21

        Item 4 - Controls and Procedures. . . . . . . . . . . . . . . . . . . 21


Part II - Other Information

        Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . .  22

        Item 1A - Risk Factors . . . . . . . . . . . . . . . . . . . . . . .  22

        Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds  22

        Item 3 - Defaults Upon Senior Securities  . . . . . . . . . . . . . . 22

        Item 4 - Submission of Matters to a Vote of Security Holders . . . .  22

        Item 5 - Other Information  . . . . . . . . . . . . . . . . . . . . . 22

        Item 6 - Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24

                                       2
<page>
<table>
<caption>



FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS                                                     March 31,        December 31,
                                                                                   2007             2006
                                                                              --------------    --------------

                                                                                <c>               <c>
                                                                               (Unaudited)

ASSETS
    Cash and due from banks                                                   $   14,094,001    $   21,501,240
    Interest - bearing due from banks                                              7,572,155         7,696,397
                                                                              --------------    --------------
                                              CASH AND CASH EQUIVALENTS           21,666,156        29,197,637
                                                                              --------------    --------------
   Securities:
     Available for sale securities, at fair value                                140,677,705       147,780,275
     Held to maturity securities (fair value $37,478-2007 and $39,974-2006)           37,858            40,516
                                                                              --------------    --------------
                                                       TOTAL SECURITIES          140,715,563       147,820,791
                                                                              --------------    --------------

   Federal Home Loan Bank stock, at cost                                           4,542,300         4,443,400
   Federal Reserve Bank stock, at cost                                               225,850           225,850
   Other restricted stock, at cost                                                    80,000            80,000

   Loans held for sale                                                               539,000         1,042,183

   Loan and lease receivables, net of allowance for loan and lease
                 losses of  $2,161,433 -2007, $2,106,100 -2006
                                                   NET LOANS AND LEASES          300,916,105       293,900,025

   Premises and equipment, net                                                     7,468,653         7,440,316
   Deferred income taxes                                                           1,949,248         2,173,033
   Accrued interest receivable                                                     2,656,483         2,598,726
   Cash surrender value of insurance                                               9,735,461         9,636,461
   Other assets                                                                    3,330,266         2,673,935
                                                                              --------------    --------------

                                                           TOTAL ASSETS       $  493,825,085    $  501,232,357
                                                                              ==============    ==============

LIABILITIES
   Deposits:
     Noninterest bearing                                                      $   70,122,438    $   68,501,750
     Interest bearing                                                            273,069,389       264,927,124
                                                                              --------------    --------------
                                                         TOTAL DEPOSITS          343,191,827       333,428,874
                                                                              --------------    --------------

   Federal Home Loan Bank advances                                                71,000,000        67,000,000
   Repurchase agreements with financial institutions                              28,550,000        47,200,000
   Repurchase agreements with customers                                           10,115,448        12,206,023
   Junior subordinated debt issued by unconsolidated trust                        10,104,000        10,104,000
   Capital lease obligation                                                        1,096,459         1,100,644
   Accrued expenses and other liabilities                                          2,968,621         3,936,622
                                                                              --------------    --------------

                                                      TOTAL LIABILITIES          467,026,355       474,976,163
                                                                              --------------    --------------
   Minority interest                                                                  50,000            50,000
   Commitments and contingencies                                                          --                --

SHAREHOLDERS' EQUITY
   Preferred stock $.00001 par value; 1,000,000 shares authorized,
   no shares outstanding
   Common stock $.01 par value
     Authorized - 5,000,000 shares
     2007 - Issued - 2,375,978 shares, outstanding - 2,257,546 shares
     2006 - Issued - 2,372,434 shares, outstanding - 2,254,002 shares                 23,760            23,724
   Capital surplus                                                                25,883,692        25,840,623
   Retained earnings                                                               4,018,241         3,953,216
   Less: Treasury stock at cost- 118,432 shares                                     (794,756)         (794,756)
   Accumulated other comprehensive loss, net of taxes                             (2,382,207)       (2,816,613)
                                                                              --------------    --------------
                                             TOTAL SHAREHOLDERS' EQUITY           26,748,730        26,206,194
                                                                              --------------    --------------

                             TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $  493,825,085    $  501,232,357
                                                                              ==============    ==============
</table>

See Notes to Consolidated Financial Statements.

                                       3
<page>
<table>
<caption>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,                                                  2007           2006
                                                                          -----------    -----------

                                                                           <c>            <c>
INTEREST AND DIVIDEND INCOME
   Interest and fees on loans and leases                                  $ 4,943,848    $ 3,824,615
                                                                          -----------    -----------

   Interest and dividends on securities:
      Mortgage-backed securities                                              680,984        860,993
      US Treasury and other securities                                        557,773        714,595
      State and municipal securities                                          338,394        369,210
      Corporate bonds and other securities                                    185,195        106,402
                                                                          -----------    -----------
           Total interest on securities                                     1,762,346      2,051,200
   Other interest income                                                      170,635          1,394
                                                                          -----------    -----------
                                     TOTAL INTEREST AND DIVIDEND INCOME     6,876,829      5,877,209
                                                                          -----------    -----------

INTEREST EXPENSE
   Interest on deposits:
      Savings                                                                 179,289         24,628
      Money market                                                            498,583        302,286
      Time certificates of deposit                                          1,715,731        755,580
                                                                          -----------    -----------
                                             TOTAL INTEREST ON DEPOSITS     2,393,603      1,082,494
   Interest on Federal Home Loan Bank advances                                681,699        673,836
   Interest on repurchase agreements                                          407,391        729,545
   Interest on subordinated debt                                              197,621        129,527
   Interest on capital lease obligation                                        14,565             --
                                                                          -----------    -----------
                                                 TOTAL INTEREST EXPENSE     3,694,879      2,615,402
                                                                          -----------    -----------
                                                    NET INTEREST INCOME     3,181,950      3,261,807
PROVISION FOR LOAN AND LEASE LOSSES                                           105,000        105,000
                                                                          -----------    -----------
                                              NET INTEREST INCOME AFTER
                                                     PROVISION FOR LOAN
                                                       AND LEASE LOSSES     3,076,950      3,156,807
                                                                          -----------    -----------
NONINTEREST INCOME
   Banking service charges and fees                                           311,232        266,979
   Trust                                                                      329,589        259,976
   Losses on available for sale securities                                    (14,350)            --
   Other                                                                      168,101        140,540
                                                                          -----------    -----------
                                               TOTAL NONINTEREST INCOME       794,572        667,495
                                                                          -----------    -----------
NONINTEREST EXPENSE
   Salaries                                                                 1,603,815      1,229,096
   Employee benefits                                                          426,948        424,608
   Net occupancy                                                              275,058        220,675
   Equipment                                                                  168,521        119,806
   Legal fees                                                                  44,725         50,978
   Directors fees                                                              56,175         40,525
   Computer services                                                          261,158        224,846
   Supplies                                                                    42,793         39,785
   Commissions, services and fees                                              85,516        144,491
   Postage                                                                     41,946         38,255
   Advertising                                                                 64,014        104,417
   Other                                                                      386,237        458,767
                                                                          -----------    -----------
                                              TOTAL NONINTEREST EXPENSE     3,456,906      3,096,249
                                                                          -----------    -----------

                                             INCOME BEFORE INCOME TAXES       414,616        728,053
PROVISION FOR INCOME TAXES                                                     11,722        104,693
                                                                          -----------    -----------
                                                             NET INCOME   $   402,894    $   623,360
                                                                          ===========    ===========

INCOME PER SHARE
                                             BASIC NET INCOME PER SHARE   $       .18    $       .28
                                                                          ===========    ===========
                                           DILUTED NET INCOME PER SHARE   $       .18    $       .28
                                                                          ===========    ===========
   DIVIDENDS PER SHARE                                                    $       .15    $       .15
                                                                          ===========    ===========
</table>

See Notes to Consolidated Financial Statements

                                       4
<page>
<table>
<caption>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three months ended March 31,                                                           2007          2006
                                                                                   -----------   -----------

                                                                                <c>           <c>

Net income                                                                         $   402,894   $   623,360
Unrealized holding gains (losses) on securities:
       Unrealized holding gains (losses) arising during the period, net of taxes       434,406    (1,219,779)
                                                                                   -----------   -----------

Comprehensive income (loss)                                                        $   837,300   $  (596,419)
                                                                                   ===========   ===========
</table>



See Notes to Consolidated Financial Statements.


                                       5
<page>
<table>
<caption>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Three months ended March 31,                                               2007            2006
                                                                       ------------    ------------

                                                                         <c>             <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                             $    402,894    $    623,360
Adjustments to reconcile net income to net cash used in
  operating activities:
       Amortization and accretion of premiums and discounts
          on investment securities, net                                      50,980          51,221
       Provision for loan losses                                            105,000         105,000
       Depreciation and amortization                                        173,263         110,315
       Losses on available for sale securities                               14,350              --
       Loans originated for sale                                         (1,126,000)             --
       Proceeds from sales of loans held for sale                         1,635,732              --
       Gains on sales of loans held for sale                                 (6,549)             --
       Increase in accrued interest receivable                              (57,757)       (309,275)
       (Decrease) increase in other assets                                 (593,700)        478,938
       Increase in cash surrender value of insurance                        (99,000)       (102,500)
       Decrease (increase) in deferred loan origination costs                 6,624          (2,101)
       Decrease in accrued expenses and other liabilities                  (967,770)     (3,919,749)
                                                                       ------------    ------------

           Net cash used in operating activities                           (461,933)     (2,964,791)
                                                                       ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
       Proceeds from maturities and principal payments                    2,709,781       3,665,102
       Purchases                                                                 --      (1,460,865)
       Proceeds from sales                                                4,985,650              --
Held to maturity mortgage-backed securities:
       Proceeds from maturities and principal payments                        2,658           1,395
Purchase of restricted stock                                               (109,400)        (30,000)
Redemption of restricted stock                                               10,500              --
Net increase in loans and leases                                         (7,190,335)     (4,299,716)
Purchase of premises and equipment                                         (201,600)       (470,217)
                                                                       ------------    ------------

       Net cash provided by (used in) investing activities                  207,254      (2,594,301)
                                                                       ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in savings, money market and demand deposits     14,831,787     (17,645,359)
Net (decrease) increase in certificates of deposit                       (5,068,834)     17,316,108
Net decrease in short term Federal Home Loan Bank advances               (1,000,000)    (12,313,000)
Proceeds from Federal Home Loan Bank advances                            20,000,000       7,000,000
Repayments on Federal Home Loan Bank advances                           (15,000,000)     (3,000,000)
Net decrease in repurchase agreements with financial institutions       (18,650,000)     (4,000,000)
Net (decrease) increase in repurchase agreements with customers          (2,090,575)     10,761,196
Principal payments on capital lease obligation                               (4,185)             --
Proceeds from the exercise of stock options                                  28,706              --
Tax benefit of stock options exercised                                       14,399              --
Dividends paid on common stock                                             (338,100)       (320,456)
                                                                       ------------    ------------

       Net cash used in financing activities                             (7,276,802)     (2,201,511)
                                                                       ------------    ------------

       Net decrease in cash and cash equivalents                         (7,531,481)     (7,760,603)

CASH AND CASH EQUIVALENTS, at beginning of period                        29,197,637      18,711,537
                                                                       ------------    ------------

CASH AND CASH EQUIVALENTS, at end of period                            $ 21,666,156    $ 10,950,934
                                                                       ============    ============

SUPPLEMENTAL INFORMATION

Cash paid during the period for:
       Interest on deposits and borrowings                             $  3,773,391    $  2,739,039
                                                                       ============    ============
       Income taxes                                                    $        500    $        400
                                                                       ============    ============

Non cash investing and financing activities:
       Accrued dividends declared                                      $    337,869    $    320,456
                                                                       ============    ============
       Transfer of loans and leases to repossessed assets              $     62,631    $         --
                                                                       ============    ============
</table>

See Notes to Consolidated Financial Statements.

                                       6
<page>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   The  consolidated  balance sheet at December 31, 2006 has been derived from
     the audited financial  statements at that date, but does not include all of
     the information and footnotes required by accounting  principles  generally
     accepted in the United States of America for complete financial statements.

2.   The accompanying  unaudited  consolidated  financial statements and related
     notes  have been  prepared  pursuant  to the rules and  regulations  of the
     Securities and Exchange  Commission.  Accordingly,  certain information and
     footnote  disclosures normally included in financial statements prepared in
     accordance  with  accounting  principles  generally  accepted in the United
     States of America have been omitted pursuant to such rules and regulations.
     The accompanying  financial  statements and related notes should be read in
     conjunction with the audited financial  statements of the Company and notes
     thereto for the fiscal year ended December 31, 2006.

     These  financial  statements  reflect,  in the opinion of  Management,  all
     adjustments, consisting of only normal recurring adjustments, necessary for
     a fair presentation of the Company's  financial position and the results of
     its operations and its cash flows for the periods presented. The results of
     operations  for the three months  ended March 31, 2007 are not  necessarily
     indicative  of the results of  operations  that may be expected  for all of
     2007.

3.   The  Company is  required  to present  basic  income per share and  diluted
     income  per share in its  statements  of  income.  Basic  income  per share
     amounts are computed by dividing net income by the weighted  average number
     of common shares outstanding.  Diluted income per share assumes exercise of
     all potential common stock in weighted average shares  outstanding,  unless
     the  effect is  antidilutive.  The  Company is also  required  to provide a
     reconciliation  of the numerator and denominator used in the computation of
     both basic and diluted income per share.

     The following is information  about the computation of net income per share
     for the  three  month  periods  ended  March 31,  2007 and  2006.  The 2006
     information  has been  restated  to give  retroactive  effect  to all stock
     dividends.

<table>
<caption>
                                                          Three Months Ended
                                                            March 31, 2007
                                                ------------------------------------
                                                   Net                    Per Share
                                                   Income      Shares       Amount
                                                ----------   ----------   ----------

                                             <c>           <c>         <c>
    Basic Net Income Per Share
      Income available to common shareholders   $  402,894    2,255,892   $      .18
                                                                          ==========
    Effect of Dilutive Securities
      Options Outstanding                               --        4,703
    Diluted Net Income Per Share
      Income available to common shareholders
                                                ----------   ----------
      plus assumed conversions                  $  402,894    2,260,595   $      .18
                                                ==========   ==========   ==========
<caption>
                                                          Three Months Ended
                                                            March 31, 2006
                                                ------------------------------------
                                                   Net                    Per Share
                                                   Income      Shares       Amount
                                                ----------   ----------   ----------

                                             <c>           <c>         <c>
    Basic Net Income Per Share
      Income available to common shareholders   $  623,360    2,243,188   $      .28
                                                                          ==========
    Effect of Dilutive Securities
      Options Outstanding                               --       12,123
    Diluted Net Income Per Share
      Income available to common shareholders
                                                ----------   ----------
      plus assumed conversions                  $  623,360    2,255,311   $      .28
                                                ==========   ==========   ==========
</table>

                                       7
<page>

4.   Other  comprehensive  income,  which is  comprised  solely of the change in
     unrealized  gains  and  losses  on  available  for sale  securities,  is as
     follows:

<table>
<caption>

                                                                                      Three Months Ended
                                                                                        March 31, 2007
                                                                          ------------------------------------------
                                                                            Before-Tax        Tax         Net-of-Tax
                                                                              Amount         Effect         Amount
                                                                           -----------    -----------    -----------

                                                                             <c>            <c>             <c>
Unrealized holding gains arising during the period                         $   643,841    $  (218,906)   $   424,935
Add: reclassification adjustment for amounts recognized in net income           14,350         (4,879)         9,471
                                                                           -----------    -----------    -----------

Unrealized holding gains on available for sale securities, net of taxes    $   658,191    $  (223,785)   $   434,406
                                                                           ===========    ===========    ===========

<caption>

                                                                                      Three Months Ended
                                                                                        March 31, 2006
                                                                          ------------------------------------------
                                                                            Before-Tax        Tax         Net-of-Tax
                                                                              Amount         Effect         Amount
                                                                           -----------    -----------    -----------

                                                                             <c>            <c>             <c>
Unrealized holding losses arising during the period                        $(1,848,150)   $   628,371    $(1,219,779)
Less: reclassification adjustment for amounts recognized in net income              --             --             --
                                                                           -----------    -----------    -----------

Unrealized holding losses on available for sale securities, net of taxes   $(1,848,150)   $   628,371    $(1,219,779)
                                                                           ===========    ===========    ===========
</table>

5.   The Bank has a  noncontributory  defined  benefit pension plan (the "Plan")
     that covers  substantially  all  employees  who have  completed one year of
     service  and have  attained  age 21.  The  benefits  are  based on years of
     service  and the  employee's  compensation  during  the last five  years of
     employment. The Bank's funding policy was to contribute amounts to the Plan
     sufficient  to meet  the  minimum  funding  requirements  set  forth in the
     Employee  Retirement  Income  Security  Act of 1974,  plus such  additional
     amounts as the Bank may determine to be appropriate  from time to time. The
     actuarial  information has been calculated  using the projected unit credit
     method.  During the first  quarter of 2005,  the  Bank's  pension  plan was
     curtailed  as the Bank's  Board of  Directors  approved  the  cessation  of
     benefit  accruals under the Plan effective April 30, 2005.  Because of this
     action,  commencing  with the Plan year  beginning  November 15,  2005,  no
     further contributions will be made by the Bank.

     Components  of net  periodic  benefit cost for the three months ended March
     31:

                                         2007        2006
                                       --------    --------
     Service cost                      $     --    $     --
     Interest cost                       46,042      48,290
     Expected return on plan assets     (50,062)    (53,715)
     Amortization of unrealized loss     16,952      17,455
                                       --------    --------
     Net periodic benefit cost         $ 12,932    $ 12,030
                                       ========    ========

6.   The Bank is a member of the Federal Home Loan Bank of Boston (the "FHLBB").
     As a member of the  FHLBB,  the Bank has  access to a  preapproved  line of
     credit of up to 2% of its total assets and the capacity to borrow up to 30%
     of its total assets.  In accordance  with an agreement with the FHLBB,  the
     Bank is required to maintain qualified collateral,  as defined in the FHLBB
     Statement  of  Products  Policy,  free and  clear  of  liens,  pledges  and
     encumbrances  for  the  advances.  FHLBB  stock  and  certain  loans  which
     aggregate  approximately  100%  of the  outstanding  advance  are  used  as
     collateral.  Federal  Home Loan Bank  advances  as of March 31, 2007 are as
     follows:

                      due 7/16/07       $   4,500,000 @ 2.59%
                      due 8/27/07           5,000,000 @ 3.76%
                      due 7/18/08           4,500,000 @ 3.27%
                      due 8/19/09           7,000,000 @ 5.296%VAR

                                       8
<page>

                      due 6/24/10           5,000,000 @ 4.15%
                      due 5/29/12           5,000,000 @ 4.32%
                      due 9/04/12           5,000,000 @ 4.38%
                      due 5/05/16          10,000,000 @ 4.53%, callable 5/7/07
                      due 3/08/17          15,000,000 @ 3.99%, callable 6/8/07
                      due 3/23/17          10,000,000 @ 4.29%, callable 3/23/09
                                        -------------
                        Total           $  71,000,000
                                        =============

     As of March 31, 2007, the Bank had borrowings under  repurchase  agreements
     with financial  institutions  totaling  $28,550,000.  This amount  includes
     borrowings:

                      due 10/27/07      $   7,000,000  @ 3.26%
                      due  4/26/08          7,000,000  @ 4.19%
                      due  7/28/08          5,000,000  @ 3.25%
                      due  7/31/08          5,000,000  @ 3.27%
                      due  2/25/09          4,550,000  @ 3.20%
                                        -------------
                        Total           $  28,550,000
                                        =============

7.   A  reconciliation  of the  anticipated  income  tax  expense  (computed  by
     applying the Federal  statutory income tax rate of 34% to the income before
     taxes) to the provision  for income taxes as reported in the  statements of
     income is as follows:

For the three months ended March 31,

<table>
<caption>
                                                                   2007               2006
                                                            ----------------    -----------------

                                                         <c>          <c>    <c>           <c>
     Provision for income taxes at statutory Federal rate   $ 140,969    34%    $ 247,538     34%
     Increase (decrease) resulting from:
        Tax exempt income                                    (149,349)  (36)     (160,740)   (22)
        Nondeductible interest expense                         14,832     4        12,459      2
        Other                                                   5,270     1         5,436      0
                                                            ---------------     ----------------
     Provision for income taxes                             $  11,722     3%    $ 104,693     14%
                                                            ===============     ================
</table>

8.   The amortized cost, gross  unrealized  gains,  gross unrealized  losses and
     approximate fair values of securities which are classified as available for
     sale and held to maturity at March 31,  2007 and  December  31, 2006 are as
     follows:

<table>
<caption>

AVAILABLE FOR SALE                                             March 31, 2007
                                        -----------------------------------------------------------
                                                          Gross           Gross
                                         Amortized      Unrealized      Unrealized          Fair
                                            Cost          Gains           Losses           Value
                                        ------------   ------------    ------------    ------------

                                       <c>               <c>             <c>          <c>
Debt Securities:
   U.S. Treasury securities             $  4,010,384   $      4,170    $    (11,118)   $  4,003,436
    U.S. Government Agency securities     33,992,187             --        (971,789)     33,020,398
    State and Municipal Obligations       31,192,045        360,041         (59,253)     31,492,833
   Corporate and Other Bonds              11,274,960        116,290              --      11,391,250
                                        ------------   ------------    ------------    ------------
                                          80,469,576        480,501      (1,042,160)     79,907,917
                                        ------------   ------------    ------------    ------------


Mortgage-Backed Securities:
   GNMA                                      923,566          1,294          (7,969)        916,891
   FNMA                                   45,301,558         88,263      (1,492,430)     43,897,391
   FHLMC                                  14,439,828         32,457        (470,093)     14,002,192
                                        ------------   ------------    ------------    ------------
                                          60,664,952        122,014      (1,970,492)     58,816,474
                                        ------------   ------------    ------------    ------------

Marketable Equity Securities               2,000,000             --         (46,686)      1,953,314
                                        ------------   ------------    ------------    ------------

Total available for sale securities     $143,134,528   $    602,515    $ (3,059,338)   $140,677,705
                                        ============   ============    ============    ============
</table>

                                       9
<page>
<table>
<caption>

AVAILABLE FOR SALE                                               December 31, 2006
                                             -----------------------------------------------------------
                                                                Gross          Gross
                                              Amortized      Unrealized      Unrealized         Fair
                                                 Cost           Gains          Losses           Value
                                             ------------   ------------    ------------    ------------

                                         <c>               <c>             <c>          <c>
     Debt Securities:
        U.S. Treasury securities             $  4,011,499   $         --    $    (19,624)   $  3,991,875
         U.S. Government Agency securities     38,991,992             --      (1,190,389)     37,801,603
         State and Municipal obligations       31,193,318        381,930         (43,720)     31,531,528
        Corporate and Other bonds              11,274,073         67,326         (14,649)     11,326,750
                                             ------------   ------------    ------------    ------------

                                               85,470,882        449,256      (1,268,382)     84,651,756
                                             ------------   ------------    ------------    ------------

     Mortgage-Backed Securities:
        GNMA                                    1,060,592             --         (18,763)      1,041,829
        FNMA                                   47,084,763         78,779      (1,790,692)     45,372,850
        FHLMC                                  15,279,052         33,758        (546,682)     14,766,128
                                             ------------   ------------    ------------    ------------
                                               63,424,407        112,537      (2,356,137)     61,180,807
                                             ------------   ------------    ------------    ------------

     Marketable Equity Securities               2,000,000             --         (52,288)      1,947,712
                                             ------------   ------------    ------------    ------------

     Total available for sale securities     $150,895,289   $    561,793    $ (3,676,807)   $147,780,275
                                             ============   ============    ============    ============
</table>
<table>
<caption>

HELD TO MATURITY                                     March 31, 2007
                                   --------------------------------------------------
                                                  Gross        Gross
                                    Amortized   Unrealized   Unrealized       Fair
                                      Cost        Gains        Losses        Value
                                   ----------   ----------   ----------    ----------

                                <c>          <c>          <c>           <c>
     Mortgage-Backed Securities:
     GNMA                          $   37,858   $       --   $     (380)   $   37,478
                                   ==========   ==========   ==========    ==========
<caption>

HELD TO MATURITY                                   December 31, 2006
                                   --------------------------------------------------
                                                  Gross        Gross
                                    Amortized   Unrealized   Unrealized       Fair
                                      Cost        Gains        Losses        Value
                                   ----------   ----------   ----------    ----------

                                <c>          <c>          <c>           <c>
     Mortgage-Backed Securities:
     GNMA                          $   40,516   $       --   $     (542)   $   39,974
                                   ==========   ==========   ==========    ==========

</table>

     At March 31, 2007,  gross  unrealized  holding losses on available for sale
     and held to maturity securities totaled $3,059,718.  Of the securities with
     unrealized  losses,  there were  forty-five  securities that have been in a
     continuous  unrealized loss position for a period of twelve months or more.
     The unrealized losses on these securities  totaled  $3,015,959 at March 31,
     2007.  Management  does not believe that any of the  unrealized  losses are
     other than temporary as they relate  primarily to debt and  mortgage-backed
     securities  issued  by  U.S.  Government  and  U.S.  Government   sponsored
     agencies,  and are due to changes in the  interest  rate  environment.  The
     Company has both the intent and the ability to hold these  securities until
     maturity or until the fair value fully  recovers.  In addition,  management
     considers the issuers of the  securities to be  financially  sound and that
     the Company will receive all contractual  principal and interest related to
     these  investments.  As a result,  it is anticipated  that these unrealized
     losses  will not have a negative  impact on future  earnings or a permanent
     effect on capital.  However,  management  periodically evaluates investment
     alternatives to properly  manage the overall  balance sheet.  The timing of
     sales and reinvestments is based on various factors, including management's
     evaluation of interest rate risks and liquidity needs.

                                       10
<page>

9.   A summary  of the Bank's  loan and lease  portfolio  at March 31,  2007 and
     December 31, 2006 is as follows:

                                                    2007             2006
                                               -------------    -------------
     Real estate--residential mortgage         $ 182,706,465    $ 177,082,143
     Real estate--commercial mortgage             53,236,755       53,318,351
     Real estate--construction                    30,289,259       30,605,787
     Commercial                                   25,196,297       26,949,985
     Installment                                   7,100,721        7,167,980
     Leases                                        3,779,441               --
     Other                                           107,983          171,752
                                               -------------    -------------
                      TOTAL LOANS AND LEASES     302,416,921      295,295,998
     Net deferred loan origination costs             381,801          375,177
     Premiums on purchased loans                     278,816          334,950
     Allowance for loan and lease losses          (2,161,433)      (2,106,100)
                                               -------------    -------------
                      NET LOANS AND LEASES     $ 300,916,105    $ 293,900,025
                                               =============    =============

10.  A summary of the Bank's deposits at March 31, 2007 and December 31, 2006 is
     as follows:

                                                       2007            2006
                                                   ---------------------------
     Noninterest bearing:
         Demand                                    $ 70,122,438   $ 68,501,750
                                                   ------------   ------------
     Interest bearing:
         Savings                                     53,700,725     45,304,667
         Money market                                75,894,976     71,079,935
         Time certificates of deposit in
           denominations of $100,000 or more         65,277,468     72,781,087
         Other time certificates of deposit          78,196,220     75,761,435
                                                   ------------   ------------
              Total Interest bearing deposits       273,069,389    264,927,124
                                                   ------------   ------------
                                 TOTAL DEPOSITS    $343,191,827   $333,428,874
                                                   ============   ============

      Included  in  deposits  as of March 31,  2007 and  December  31,  2006 are
      approximately  $14,649,000  and  $25,323,000,  respectively,  of  brokered
      deposits which have varying maturities through September 2008.

11.  Beginning  in  2007,  with  First  Litchfield  Leasing   Corporation  fully
     operational,  the  Company  has two  operating  segments  for  purposes  of
     reporting  business line results.  These segments are Community Banking and
     Leasing.  The  Community  Banking  segment is defined as all the  operating
     results of The First  National Bank of Litchfield.  The Leasing  segment is
     defined as the results of First  Litchfield  Leasing  Corporation.  Because
     First Litchfield Leasing Corporation is a new subsidiary, methodologies and
     organizational  hierarchies  are newly  developed  and will be  subject  to
     periodic review and revision.  The following presents the operating results
     and total assets for the segments of First Litchfield Financial Corporation
     as of March 31, 2007.

                                                 Three Months Ended
                                                   March 31, 2007
                                     -------------------------------------------

                                       Community                    Consolidated
                                        Banking        Leasing          Total
                                     -------------------------------------------

Net interest income                  $  3,146,434   $     35,516    $  3,181,950
Provision for credit losses                76,654         28,346         105,000
                                     ------------   ------------    ------------

Net interest income after provision     3,069,780          7,170       3,076,950
Noninterest income                        794,572             --         794,572
Noninterest expense                     3,375,920         80,986       3,456,906
                                     ------------   ------------    ------------

Income (loss) before income taxes         488,432        (73,816)        414,616
Income tax provision (benefit)             36,819        (25,097)         11,722
                                     ------------   ------------    ------------

Net income (loss)                    $    451,613   $    (48,719)   $    402,894
                                     ============   ============    ============


Total assets as of March 31, 2007    $489,730,085   $  4,095,000    $493,825,085
                                     ============   ============    ============

                                       11
<page>

12.  Recent Accounting Pronouncements
     In February 2007, the Financial  Accounting  Standards  Board (FASB) issued
     Statement of Financial  Accounting  Standards (SFAS) No.159, The Fair Value
     Option for  Financial  Assets and  Financial  Liabilities  --  Including an
     amendment of FASB Statement No. 155 (SFAS 159). SFAS 159 provides companies
     with an option to report selected  financial assets and liabilities at fair
     value. SFAS 159 is effective for us beginning  January 1, 2008.  Management
     is  evaluating  the  impact of the  adoption  of SFAS 159 on the  Company's
     financial position and results of operations.

     In September 2006, the FASB issued SFAS No.158,  Employers'  Accounting for
     Defined  Benefit Pension and Other  Postretirement  Plans - an amendment of
     FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158). SFAS 158 requires an
     employer to recognize  the  overfunded or  underfunded  status of a defined
     benefit postretirement plan as an asset or a liability in its balance sheet
     and to  recognize  changes in that  funded  status in the year in which the
     changes occur through accumulated other  comprehensive  income. The Company
     adopted the recognition  provisions of this standard effective December 31,
     2006.  SFAS 158 also requires an employer to measure the funded status of a
     plan  as  of  the  employer's   year-end   reporting  date.  The  Company's
     non-contributory  pension plan was frozen in May of 2005.  The  measurement
     date  provisions  of SFAS 158 are  effective  for the  Company for the year
     ending  December 31, 2008.  Management  does not expect the adoption of the
     measurement  date  provisions of SFAS 158 to have a material  impact on the
     Company's financial position or results of operations.

     In June 2006, the FASB issued FASB Interpretation  (FIN) No. 48, Accounting
     for Uncertainty in Income Taxes - an  Interpretation  of FASB Statement No.
     109 (FIN 48). FIN 48 clarifies the  accounting  for  uncertainty  in income
     taxes recognized in an entity's financial  statements and provides guidance
     on the recognition,  de-recognition  and measurement of benefits related to
     an entity's  uncertain  income tax  positions.  The Company  adopted FIN 48
     effective  January 1,  2007;  prior to that date,  the  Company  recognized
     liabilities for uncertain tax positions when  disallowance was probable and
     the related amount was  estimable.  The adoption of FIN 48 had no impact to
     the Company's  financial  statements.  Management  had  determined  that in
     addition to  recognizing  liabilities  for  uncertain tax positions had any
     existed,  it would  also  accrue a  liability  for  related  penalties  and
     interest.



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

GENERAL

First Litchfield Financial  Corporation (the "Company"),  a Delaware corporation
formed in 1988, is the one-bank  holding  company for The First National Bank of
Litchfield  (the "Bank"),  a national bank supervised and examined by the Office
of the  Comptroller  of the  Currency  (the  "OCC").  The Bank is the  Company's
primary subsidiary and only source of income.  The Bank has three  subsidiaries,
The Lincoln Corporation and Litchfield Mortgage Service  Corporation,  which are
Connecticut  corporations,  and First  Litchfield  Leasing,  which is a Delaware
corporation.  The purpose of The Lincoln Corporation is to hold property such as
real estate,  personal property,  securities,  or other assets,  acquired by the
Bank through  foreclosure or otherwise to compromise a doubtful claim or collect
a debt  previously  contracted.  The

                                       12
<page>

purpose of Litchfield  Mortgage  Service  Corporation is to operate as a passive
investment  company in  accordance  with  Connecticut  law. The purpose of First
Litchfield  Leasing is to provide  equipment  financing and leasing  products to
complement the Bank's array of commercial products.

Both the Company and the Bank are headquartered in Litchfield,  Connecticut. The
Bank is a full-service  commercial bank serving both  individuals and businesses
generally  within  Litchfield  County  Connecticut.  Deposits  are insured up to
specific  limits of the Federal Deposit  Insurance Act by the Deposit  Insurance
Fund, which is administered by the Federal Deposit  Insurance  Corporation.  The
Bank's lending  activities  include loans secured by residential  and commercial
mortgages.  Other  loan  products  include  consumer  and  business  installment
lending,  as well as other  secured and  nonsecured  lending.  The Bank has nine
banking  locations  located  in the  towns of  Canton,  Torrington,  Litchfield,
Washington,  Marble Dale, Goshen, Roxbury and New Milford, Connecticut. In 1975,
the Bank was  granted  Trust  powers by the OCC.  The  Bank's  Trust  Department
provides trust and fiduciary  services to individuals,  nonprofit  organizations
and  commercial  customers.  Additionally,  the Bank  offers  nondeposit  retail
investment  products such as mutual funds,  annuities and insurance  through its
relationship with Infinex Investments, Inc.

On June 26, 2003, the Company formed First Litchfield  Statutory Trust I for the
purpose of issuing  trust  preferred  securities  and  investing the proceeds in
subordinated  debentures issued by the Company,  and on June 26, 2003, the first
series of trust preferred  securities were issued.  During the second quarter of
2006, the Company formed a second  statutory trust,  First Litchfield  Statutory
Trust II ("Trust II").  The Company owns 100% of Trust II's common stock.  Trust
II exists for the sole purpose of issuing  trust  securities  and  investing the
proceeds in subordinated  debentures issued by the Company.  In June 2006, Trust
II issued its first series of trust preferred securities.

As of March 31, 2007, the Company had total assets of $493,825,085,  which was a
decrease of  approximately  $7.4 million or 1.5% from year-end 2006 total assets
of  $501,232,357.  The decrease in assets resulted mainly from decreases in cash
and due from banks and decreases within the securities  portfolio.  The decrease
in assets enabled the Company to decrease its level of wholesale funding.

The following  discussion and analysis of the Company's  consolidated  financial
condition  and  results of  operations  should be read in  conjunction  with the
consolidated  financial  statements  and  notes  to the  consolidated  financial
statements.

FINANCIAL CONDITION

Total assets as of March 31, 2007 were $493,825,085, a decrease of $7,407,272 or
1.5% from year-end 2006 total assets of $501,232,357.

The  decrease in assets was due to the  completion  of the fourth  quarter  2006
de-leveraging  strategy. In December, low yielding securities were sold with the
purpose of reducing expensive  wholesale  borrowings to improve future earnings.
Although the sale of the securities was completed in December, the completion of
the strategy did not occur until 2007 when the  wholesale  borrowings  were paid
off.

                                       13
<page>

Consistent  with  management's  intent to improve the yield on earning assets by
shifting the mix of earning assets from the  securities  portfolio into the loan
and lease portfolio, net loans and leases increased $7,016,080 over the year-end
2006  amount.  Net loans and leases as of March 31, 2007 were  $300,916,105,  as
compared to the year-end 2006 level of  $293,900,025.  First quarter 2007 growth
was in residential  mortgage loans and in leases. The residential  mortgage loan
portfolio  totaled  $182,706,465,  which  was an  increase  of  $5,624,322  from
year-end  2006.  Growth in these  mortgage  products was primarily in fixed rate
loans.  Commercial  mortgage loans totaled  $53,236,755  remaining  within 1% of
their  year-end  balance and were 17.6% of total  loans.  During the first three
months of 2007,  the Bank added a new product,  leases,  to the loan  portfolio.
First Litchfield Leasing Corporation,  is a newly operational  subsidiary of the
Bank, offers equipment financing  opportunities  through middle market equipment
leasing, in amounts ranging from $150,000 to $1,500,000. Management believes the
addition of the  leasing  products  complements  the Bank's  commercial  lending
product line. Leases, net of unearned income, were $3,779,441 at March 31, 2007.

As of March 31, 2007, the securities portfolio totaled $140,715,563,  which is a
4.8%  decrease  from the year-end  2006  balance.  The decrease in the portfolio
resulted   primarily  from  principal   payments  received  on   mortgage-backed
securities  during the first  quarter.  In an effort to reposition the Company's
balance sheet in order to maximize earning asset yield,  management has utilized
the cash flows from these payments to fund loan growth.

Cash and cash equivalents totaled $21,666,156, which is a decrease of $7,531,481
or 25.8% from year-end 2006. This decrease was due to funds temporarily invested
in interest bearing  correspondent  bank balances at year-end as a result of the
balance sheet restructuring in December. During the first quarter of 2007, these
funds  were  used to  reduce  wholesale  borrowings.  As of March  31,  2007 and
December 31, 2006, there were no investments in Federal Funds Sold.

Total  liabilities were  $467,026,355 as of March 31, 2007, which was a decrease
of $7,949,808 from total  liabilities of $474,976,163 as of year-end 2006. Total
deposits  increased  by  $9,762,953,  or 2.9% from their  year-end  levels.  All
categories of retail deposits  increased over their respective  year-end levels.
Most notably,  increases were experienced in savings  deposits,  which increased
$8,396,058,  or 18.5%,  due to higher  municipal NOW and IOLTA  deposits.  Money
market  deposits  increased  by  $4,815,041,  or  6.8%,  due  to  growth  in the
relationship  money  market  deposit  product.  Much of the  increase  in retail
deposits is  attributed to the Bank's  expansion due to its new branches  opened
during 2006. Because of the retail deposit growth, Management was able to reduce
the amount of brokered certificates of deposit with financial  institutions from
the December 31, 2006 level of $22,500,000 to $12,000,000 as of March 31, 2007.

As of March 31, 2007,  repurchase agreements with customers totaled $10,115,448,
which was a decrease of $2,090,575 from the year-end 2006 balance. Because these
accounts  represent  overnight  investments  by commercial  and  municipal  cash
management  customers,  fluctuations  in the  balances  of  these  accounts  are
reflective of the temporary  nature of these funds.  During the first quarter of
2007,  advances under Federal Home Loan Bank borrowings  increased by $4,000,000
while   repurchase   agreements   with  financial   institutions   decreased  by
$18,650,000. The Company's fourth quarter 2006 de-leveraging strategy as well as
the deposit  growth  enabled it to reduce the net wholesale  borrowing  level by
$14,650,000.  Management considers interest rate levels, the yield curve and the
Company's  current  and  future  liquidity  needs  in  determining  the  funding
structures utilized by the Bank.

                                       14
<page>

RESULTS OF OPERATIONS

Summary

Net income for the Company for the first quarter of 2007 totaled $402,894. These
earnings  are $220,466 or 35.4% below  earnings  for the first  quarter of 2006,
which totaled $623,360. Basic and diluted income per share for the first quarter
of 2007 were both $.18,  compared to basic and diluted  income per share of $.28
for the first  quarter of 2006.  Decline in net income is due  primarily  to the
increase in non-interest expenses related to the Company's 2006 branch expansion
as well as to the a decrease in net interest income caused by the compression of
our interest rate spread and increase in funding costs. For the first quarter of
2007,  the return on average  equity for the Company  totaled 5.90%  compared to
9.61% earned for the first quarter of 2006.

Net Interest Income

Net interest  income is the single  largest  source of the Company's net income.
Net interest income is defined as the difference  between  interest and dividend
income from earning  assets,  primarily  loans and  investment  securities,  and
interest expense on deposits and borrowed money.  Interest income is the product
of the average balances  outstanding on loans,  securities and  interest-bearing
deposit  accounts  multiplied by their  effective  yields.  Interest  expense is
similarly  calculated as the result of the average balances of  interest-bearing
deposits and borrowed funds multiplied by the average rates paid on those funds.
Other  components  of  operating  income  are the  provision  for  loan  losses,
noninterest income such as service charges and trust fees,  noninterest expenses
and income taxes.

Net interest  income is comprised  of the  following  for the three months ended
March 31,

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

Interest and dividend income     $ 6,876,829    $ 5,877,209
Tax-equivalent adjustments (1)       152,815        171,865
Interest expense                  (3,694,879)    (2,615,402)
                                 -----------    -----------
Net interest income              $ 3,334,765    $ 3,433,672
                                 ===========    ===========

(1)  Interest  income is presented on a  tax-equivalent  basis which  reflects a
federal tax rate of 34% for all periods presented.

                                       15
<page>

The  following  table  presents the  Company's  average  balance  sheet  amounts
(computed on a daily  basis),  net interest  income,  interest  rates,  interest
spread and net  interest  margin for the three  months  ended March 31, 2007 and
2006. Average loans outstanding include nonaccruing loans.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL

<table>
<caption>
                                             Three months ended March 31, 2007            Three months ended March 31, 2006
                                       -------------------------------------------    -------------------------------------------
                                                           Interest                                      Interest
                                          Average           Earned/       Yield/         Average          Earned/        Yield/
                                          Balance            Paid          Rate          Balance           Paid           Rate
                                       -------------    -------------   ----------    -------------    -------------   ----------

                                      <c>                <c>               <c>       <c>                <c>               <c>
Assets
Interest Earning Assets:
Loans and leases                       $ 298,993,000    $   4,944,583         6.61%   $ 243,702,000    $   3,824,959         6.28%
Investment Securities                    154,106,000        1,914,426         4.97%     190,676,000        2,222,721         4.66%
Other interest earning assets             12,538,000          170,635         5.44%         450,000            1,394         1.24%
                                       -------------    -------------                 -------------    -------------

Total interest earning assets            465,637,000        7,029,644         6.04%     434,828,000        6,049,074         5.56%
                                                        -------------   ----------                     -------------   ----------

Allowance for loan and
  lease losses                            (2,131,000)                                    (1,800,000)
Cash and due from banks                   17,922,000                                     14,283,000
Premises and equipment                     7,282,000                                      4,489,000
Net unrealized loss on
  securities                              (2,883,000)                                    (4,506,000)
Other assets                              17,258,000                                     16,055,000
                                       -------------                                  -------------

Total Average Assets                   $ 503,085,000                                  $ 463,349,000
                                       =============                                  =============



Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                       $  54,681,000          179,289         1.31%   $  47,083,000           24,628          .21%
Money Market deposits                     73,166,000          498,583         2.73%      75,026,000          302,286         1.61%
Time deposits                            149,319,000        1,715,731         4.60%      91,730,000          755,580         3.29%
Borrowed funds                           127,166,000        1,301,276         4.09%     160,700,000        1,532,908         3.82%
                                       -------------    -------------                 -------------    -------------

Total interest bearing liabilities       404,332,000        3,694,879         3.66%     374,539,000        2,615,402         2.79%
                                                        -------------   ----------                     -------------   ----------

Demand deposits                           67,355,000                                     60,620,000
Other liabilities                          4,063,000                                      2,231,000
Shareholders' Equity                      27,335,000                                     25,959,000
                                       -------------                                  -------------

Total liabilities and equity           $ 503,085,000                                  $ 463,349,000
                                       =============                                  =============

Net interest income                                     $   3,334,765                                  $   3,433,672
                                                        =============                                  ============
Net interest spread                                                           2.38%                                          2.77%
                                                                        ==========                                     ==========
Net interest margin                                                           2.86%                                          3.16%
                                                                        ==========                                     ==========
</table>

RATE/VOLUME ANALYSIS
The following table, which is presented on a tax-equivalent  basis, reflects the
changes for the three  months  ended  March 31, 2007 when  compared to the three
months  ended March 31, 2006 in net  interest  income  arising  from  changes in
interest  rates and from asset and liability  volume mix. The change in interest
attributable  to both rate and volume has been  allocated  to the changes in the
rate and the volume on a pro rata basis.

                                       16
<page>
<table>
<caption>
                                                    3/31/07 Compared to 3/31/06
                                                    Increase (Decrease) Due to

                                               Volume           Rate          Total
                                             -----------    -----------    -----------

                                             <c>             <c>           <c>
Interest earned on:
Loans and leases                             $   905,465    $   214,159    $ 1,119,624
Investment securities                           (447,157)       138,862       (308,295)
Other interest income                            150,259         18,982        169,241
                                             -----------    -----------    -----------
Total interest earning assets                    608,567        372,003        980,570
                                             -----------    -----------    -----------

Interest paid on:
Deposits                                         387,454        923,655      1,311,109
Borrowed money                                  (337,134)       105,502       (231,632)
                                             -----------    -----------    -----------

Total interest bearing liabilities                50,320      1,029,157      1,079,477
                                             -----------    -----------    -----------

Increase (decrease) in net interest income   $   558,247    $  (657,154)   $   (98,907)
                                             ===========    ===========    ===========
</table>

Tax-equivalent  net  interest  income  for the  first  quarter  of 2007  totaled
$3,334,765, a decrease of $98,907 or 2.9% from the first quarter of 2006. Of the
decrease in net interest income,  $657,154 is due to the erosion of net interest
spread,  while the effect of increased  volume of earning  assets over  interest
bearing liabilities offset this decrease by $558,247.

The net interest  spread  decreased by 39 basis points from the first quarter of
2006.  Funding  costs  increased  by 87 basis  points while the yield on earning
assets  increased by 48 basis points.  Competition  for retail  deposits was the
primary driver of the increased  overall  funding costs.  The total rate paid on
all interest  bearing  deposits for the first quarter of 2007 was 3.87%,  up 185
basis points  compared to the first quarter 2006 cost of 2.02%.  A  considerably
less than comparable increase in the yield on earning assets occurred due to the
flatness  of the yield curve and overall  competitiveness  in the local  lending
arena.   Average   earning   assets  for  the  first  quarter  of  2007  totaled
$465,637,000,  $30,809,000  or 7.1% greater than average  earning assets for the
first  quarter of 2006 which  totaled  $434,828,000.  This  increase  in earning
assets,  specifically  in loans,  net of  increased  volume of interest  bearing
liabilities, contributed to an additional $558,247 in net interest income.

Provision for Loan and Lease Losses

The  provision  for loan and lease losses for the first  quarter of 2007 totaled
$105,000,  which is the same as the provision for the first quarter of 2006. The
provision for loan and lease losses is determined  quarterly and assessed  along
with the adequacy of the loan and lease loss  reserve.  (See  discussion  of the
Allowance for Loan and Lease Losses.)

During the first  quarter of 2007,  the  Company  recorded  net  charge-offs  of
$49,667 compared to first quarter 2006 net recoveries of $3,750. While there was
an increase in charge-offs from the prior year, such level of charge-offs is not
considered  by  management  to be  indicative  of any trend as the  increase  in
charge-off activity is primarily attributable to consumer automobile loans which
the Bank purchased in 2006.

Noninterest Income

Noninterest  income for the first quarter of 2007 totaled  $794,572,  increasing
$127,077,  or 19% from the first  quarter 2006 income of $667,495.  Trust income
increased $69,613, or 26.8% from the first quarter of 2006. This increase is the
result of an increased  volume of investments  under  management as well as from
estate  settlement fees.  Income from banking service charges and fees increased
by  $44,253,  or 16.6% from the first  quarter  of 2006.  This  increase  is due
primarily to higher levels of deposit  overdraft and service  charges and master
money interchange fees. Other noninterest income totaled $168,101,  which was an
increase of $27,561,  or 19.6% from the first quarter of 2006.  This increase is
mostly related to increased revenue from the Bank's retail investment products.

Noninterest Expense

First quarter 2007 noninterest expense totaled $3,456,906,  increasing 11.6%, or
$360,657  from the  first  quarter  2006  expense  of  $3,096,249.  Much of this
increase is related to the increase in salaries.  Salaries and benefits  expense
increased by $377,059,  due mostly to staffing for the branch  facilities opened
during  2006 as well as key  management  personnel  added  during the last year.
Occupancy  and  equipment  costs  reflect   increases  due  to  the  new  branch
facilities. Computer services expense totaled $261,158, which was an increase of
$36,312,  or 16.1% over  first  quarter  2006  expenses.  Most of this  increase
related to the first quarter 2007 change in the Bank's core processor  provider.
It is  anticipated  that cost
                                       17
<page>

savings  related to the  conversion  is expected  be  realized  later this year.
Advertising expense totaled $64,014,  which was a $40,403 or 38.7% decrease from
the first quarter of 2006.  Costs related to the previous  year's branch opening
and deposit promotions are reflected in higher 2006 costs. Commissions, services
and fees expense totaled $85,516  compared to 2006 costs $144,491.  The decrease
from the prior year  relates  primarily  to one time costs  incurred in 2006 for
core processor due diligence services.  Additionally,  director's fees increased
38% due to increased number of directors on the Board.

Other  noninterest  expenses  totaled $386,237 which is a decrease of $72,530 or
15.8% from the first  quarter of 2006.  The majority of the decrease is a result
of lower  2007  costs  for exam and  audit  fees as they  relate  to  regulatory
reporting and the Company's plans for implementing  Sarbanes Oxley  initiatives.
Also  contributing  to  the  decrease  were  costs  for  computer  software  and
technology  consulting  which are  anticipated  to be reduced in 2007 due to the
change in the core processor.

Income Taxes

The first quarter 2007  provision for income taxes totaled  $11,722,  which is a
decrease  of $92,971 or 88.8% from the first  quarter of 2006.  The  decrease in
income  tax  expense in the first  quarter of 2007 is due to the lower  level of
taxable  income.  Pretax  income  totaled  $414,616 in the first quarter of 2007
which was 43% lower than that for the first quarter of 2006.  Additionally,  the
Company's  effective  tax  rate  of  3%  for  the  first  quarter  of  2007  was
considerably  lower than the  effective tax rate of 14% for the first quarter of
2006. The decrease in the effective tax rate is due to a proportionately  higher
level of non-taxable income from both state and municipal investments as well as
that  from  bank  owned  life   insurance.   The  Company's   adoption  of  FASB
Interpretation  No. 48 ("FIN 48"),  "Accounting for Uncertainty in Income Taxes"
in 2007 had no effect on the Company's provision for income taxes.

LIQUIDITY

Management's  objective  is to ensure  continuous  ability to meet cash needs as
they arise.  Such needs may occur from time to time as a result of  fluctuations
in loan  demand  and the level of total  deposits.  Accordingly,  the Bank has a
liquidity  policy that provides  flexibility  to meet cash needs.  The liquidity
objective is achieved through the maintenance of readily  marketable  investment
securities as well as a balanced flow of asset maturities and prudent pricing on
loan and deposit products.

The Bank is a member of the Federal Home Loan Bank system, which provides credit
to its  member  banks.  This  enhances  the  liquidity  position  of the Bank by
providing a source of  available  overnight  as well as  short-term  borrowings.
Additionally, federal funds, borrowings through the use of repurchase agreements
and the sale of mortgage  loans in the  secondary  market are  available to fund
short term cash needs. (See note 6 to the Consolidated  Financial Statements for
information on Federal Home Loan Bank borrowings and repurchase agreements.)

As of March 31,  2007,  the Company had  $105,478,176  in loan  commitments  and
credit  lines  outstanding.  Because  some  commitments  are  expected to expire
without  being  drawn upon,  the total  commitment  amount does not  necessarily
represent all future cash  requirements.  The funding of these  commitments  are
anticipated  to be met through  deposits,  loan and security  amortizations  and
maturities.  Management  believes  liquidity is adequate to meet its present and
foreseeable needs.

CAPITAL

At March 31,  2007,  total  shareholders'  equity was  $26,748,730  compared  to
$26,206,194  at December 31, 2006.  From a regulatory  perspective,  the capital
ratios of the Company  and the Bank place each

                                       18
<page>

entity in the "well-capitalized"  categories under applicable  regulations.  The
various  capital  ratios of the  Company and the Bank are as follows as of March
31, 2007:

                                             Minimum
                                          Regulatory
                                      Capital Levels    The Company    The Bank
                                      --------------    -----------    --------
TIER 1:
  Leverage capital ratio                          4%          7.72%       7.09%

  Risk-based capital ratio                        4%         12.48%      11.46%

  Total risk-based capital ratio                  8%         13.17%      12.15%

ALLOWANCE FOR LOAN AND LEASE LOSSES AND CRITICAL ACCOUNTING POLICIES

In the ordinary course of business,  the Bank has made a number of estimates and
assumptions  relating  to the  reporting  results of  operations  and  financial
condition in preparing its financial  statements in conformity  with  accounting
principles  generally  accepted in the United States of America.  Actual results
could differ significantly from those estimates under different  assumptions and
conditions.  The Company believes the following  discussion addresses the Bank's
only critical  accounting policy,  which is the policy that is most important to
the portrayal of the Bank's  financial  results and requires  management's  most
difficult,  subjective and complex  judgments,  often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.

The Bank makes  provisions  for loan and lease  losses on a  quarterly  basis as
determined by a continuing  assessment of the adequacy of the allowance for loan
and lease  losses.  The Bank  performs an ongoing  review of loans and leases in
accordance  with an  individual  loan and lease rating  system to determine  the
required  allowance  for loan and lease losses at any given date.  The review of
loans and  leases  is  performed  to  estimate  potential  exposure  to  losses.
Management's judgment in determining the adequacy of the allowance is inherently
subjective  and is  based  on an  evaluation  of the  known  and  inherent  risk
characteristics  and size of the loan and lease  portfolios,  the  assessment of
current  economic and real estate  market  conditions,  estimates of the current
value of underlying collateral,  past loan and lease loss experience,  review of
regulatory  authority  examination reports and evaluations of impaired loans and
leases, and other relevant factors. Loans and leases, including those considered
impaired,  are charged  against  the  allowance  for loan and lease  losses when
management  believes that the  uncollectibility  of principal is confirmed.  Any
subsequent  recoveries  are credited to the  allowance for loan and lease losses
when received.  In connection with the  determination  of the allowance for loan
and lease losses and the valuation of foreclosed real estate, management obtains
independent appraisals for significant properties, when considered necessary.

The allowance  consists of specific,  general and  unallocated  components.  The
specific  component  relates to loans and leases that are  classified  as either
doubtful,  substandard  or special  mention.  For such loans and leases that are
also  classified as impaired,  an allowance is  established  when the discounted
cash flows (or collateral value or observable market price) of the impaired loan
or lease is lower than the  carrying  value of that loan or lease.  The  general
component covers non-classified loans and leases and is based on historical loss
experience  adjusted  for  qualitative  factors.  An  unallocated  component  is
maintained to cover  uncertainties  that could affect  management's  estimate or
probable losses. The unallocated  component of the allowance reflects the margin
of imprecision inherent in the underlying assumptions.

There were no material  changes in loan or lease  concentration or loan or lease
quality that had a significant effect on the allowance for loan and lease losses
calculation  at March 31, 2007. In addition,  there were no material  changes in
the estimation methods and assumptions used in the Company's

                                       19
<page>

allowance  for loan and lease  losses  calculation,  and there were no  material
reallocations  of the  allowance  among  different  parts  of the  loan or lease
portfolio.

At March 31, 2007,  the  allowance  for loan and lease losses was  equivalent to
128%  of  total   non-performing   assets  as   compared   with  140%  of  total
non-performing assets at December 31, 2006. As of March 31, 2007, non-performing
assets  were  $1,672,201  and  represented  0.56% of  total  loans  and  leases.
Similarly, as of December 31, 2006, non-performing assets totaled $1,504,551 and
represented 0.51% of total loans and leases. The ratio of the allowance for such
loan and lease  losses to total loans and leases at March 31, 2007 and  December
31, 2006 was 0.71% for both periods.

Changes in the  allowance  for loan and lease losses for the periods ended March
31, 2007 and 2006 are as shown below:

For the three months ended March 31,             2007           2006
                                             -----------    -----------

Balance at beginning of the year             $ 2,106,100    $ 1,759,611
Provision for loan and lease losses              105,000        105,000
Loans charged-off                                (51,140)        (1,798)
Recoveries of loans previously charged-off         1,473          5,548
                                             -----------    -----------

Balance at end of period                     $ 2,161,433    $ 1,868,361
                                             ===========    ===========

The following table  summarizes the Bank's OREO,  past due and nonaccrual  loans
and leases, and nonperforming assets as of March 31, 2007 and December 31, 2006.

<table>
<caption>
                                                     March 31, 2007   December 31, 2006
                                                     --------------   -----------------

                                                  <c>               <c>

Nonaccrual loans and leases                          $     1,672,201   $     1,504,551

Other real estate owned                                           --                --
                                                     ---------------   ---------------

Total nonperforming assets                           $     1,672,201   $     1,504,551
                                                     ===============   ===============

Loans and leases past due in excess of 90 days and
  accruing interest                                  $        12,436   $           343
                                                     ===============   ===============
</table>

POTENTIAL PROBLEM LOANS

As of March 31,  2007,  there  were no  potential  problem  loans or leases  not
disclosed above, which cause management to have serious doubts as to the ability
of such borrowers to comply with their present loan or lease repayment terms.


OFF BALANCE SHEET ARRANGEMENTS

The Company 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 such
as letters of credit.  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 operation, or liquidity.

At March 31,  2007,  there have been no  significant  changes  in the  Company's
off-balance sheet arrangements from December 31, 2006.

FORWARD-LOOKING STATEMENTS

This Quarterly 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

                                       20
<page>

Bank, and oral  statements  made by executive  officers of the Company and 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,  attractions 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 Reform
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 affect the operations,  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  nonfinancial  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  and the Bank's  financial  position  and
results of operation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The main components of market risk for the Company are equity price risk, credit
risk, interest rate risk and liquidity risk.

The  Company  manages  interest  rate risk and  liquidity  risk  through an ALCO
Committee  comprised of senior  management  and other  officers.  The  committee
monitors  compliance  with the  Bank's  Asset/Liability  Policy  which  provides
guidelines to analyze and manage gap, which is the difference between the amount
of assets and the amounts of liabilities which mature or reprice during specific
time frames. The Company manages its interest-rate risk sensitivity  through the
use of a simulation  model that projects the impact of rate shocks,  rate cycles
and rate forecast estimates on net interest income.  These simulations take into
consideration factors such as maturities, reinvestment rates, prepayment speeds,
repricing  limits  and other  factors.  The  results  of these  simulations  are
compared to earnings  tolerance  limits set forth in the Bank's  Asset/Liability
Policy.

ITEM 4.  CONTROLS AND PROCEDURES

The Company  maintains  disclosure  controls and procedures that are designed to
ensure that information  required to be disclosed in the Company's  Exchange Act
report is recorded,  processed,  summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated  to the Company's  management,  including its Chief  Executive
Officer and Chief Financial Officer,  as appropriate,  to allow timely decisions
regarding  required  disclosure  based closely on the  definition of "disclosure
controls and  procedures"  in Rule  13a-15(e).  In designing and  evaluating the
disclosure controls and procedures,  management recognized that any controls and
procedures,  no  matter  how  well  designed  and  operated,  can  provide  only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit of
possible controls and procedures.

As of the end of the period covered by this report,  the Company  carried out an
evaluation,  under the supervision and with the  participation  of the Company's
management,  including the Company's Chief

                                       21
<page>

Executive   Officer  and  the  Company's   Chief  Financial   Officer,   of  the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures.  Based on the foregoing,  the Company's Chief Executive  Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective.

There are no changes in the Company's internal control over financial  reporting
that  occurred  during the Company's  first quarter of 2007 that has  materially
affected,  or is reasonably likely to materially  affect, the Company's internal
control over financial reporting.



PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

Neither the Company nor the Bank (or any of their properties) are the subject of
any material  pending legal  proceedings  other than routine  litigation that is
incidental to their business.


Item 1A. Risk Factors. Not applicable

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
         Not applicable

Item 3.  Defaults Upon Senior Securities. Not applicable

Item 4.  Submission of Matters to a Vote of Security Holders. Not applicable

Item 5.  Other Information . Not applicable


                                       22
<page>


Item 6. Exhibits


                                  EXHIBIT INDEX

Exhibit
   No.      Exhibit
--------    -------

3.1         Certificate  of   Incorporation   of  First   Litchfield   Financial
            Corporation,  as amended.  Exhibit is  incorporated  by reference to
            Exhibit 3.1 set forth in the  Company's  Registration  Statement  on
            Form 10-SB as filed with the Securities  and Exchange  Commission on
            January 7, 2000.

3.2         Bylaws  of  First  Litchfield  Financial  Corporation,  as  amended.
            Exhibit is incorporated by reference to Exhibit 3.2 set forth in the
            Company's  Registration  Statement  on Form  10-SB as filed with the
            Securities and Exchange Commission on January 7, 2000.

4.          Specimen  Common  Stock  Certificate.  Exhibit  is  incorporated  by
            reference  to  Exhibit  4. set forth in the  Company's  Registration
            Statement  on Form 10-SB as filed with the  Securities  and Exchange
            Commission on January 7, 2000.

21.         List of  Subsidiaries  of First  Litchfield  Financial  Corporation.
            Exhibit is  incorporated by reference to Exhibit 21 set forth in the
            Company's  10-K for the year ended  December  31, 2006 as filed with
            the Securities and Exchange Commission on April 2, 2007.

31.1        Rule 13a-14(a)/15-14(a) Certification of the Chief Executive Officer
            of the Company.

31.2        Rule 13a-14(a)/15-14(a) Certification of the Chief Financial Officer
            of the Company.

32.0        Certification of the Chief Executive Officer and the Chief Financial
            Officer of the Company,  pursuant to 18 U.S.C.  ss.1350,  as adopted
            pursuant to section 906 of the Sarbanes-Oxley Act of 2002.


                                       23
<page>

                                   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.



Dated:  May 14, 2007                       FIRST LITCHFIELD FINANCIAL
                                           CORPORATION


                                           By:   /s/ Joseph J. Greco
                                               ------------------------------
                                               Joseph J. Greco, President and
                                               Chief Executive Officer



Dated:  May 14, 2007                       By: /s/ Carroll A. Pereira
                                               ------------------------------
                                               Carroll A. Pereira
                                               Principal Financial and
                                               Accounting Officer


                                       24