U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

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

          For the quarterly period ended: September 30, 2001

     [_]  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 small business issuer 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)


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


--------------------------------------------------------------------------------
        (Former name, former address and former fiscal year, if changed
                              since last report.)

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act 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  [_]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,590,465 shares of Common Stock, par
value $.01 per share, were outstanding at October 29, 2001.


Transitional Small Business Disclosure Format (check one):  Yes [_]  No  [X]


<PAGE>


                     FIRST LITCHFIELD FINANCIAL CORPORATION

                                   FORM 10-QSB

                                      INDEX

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>                                                                                       <C>
Part I - Consolidated Financial Information

        Item 1 - Financial Statements

              Consolidated Balance Sheets - September 30, 2001 (unaudited) and
                  December 31, 2000. . . . . . . . . . . . . . . . . . . . . . . . . . .   2

              Consolidated Statements of Income  - Three months and nine
                  months ended September 30, 2001 and 2000 (unaudited). . . . . . . . . .  3

              Consolidated Statements of Comprehensive Income  -Three months
                  and nine months ended September 30, 2001 and 2000 (unaudited). . . . .   4

              Consolidated Statements of Cash Flows  -  Nine months
                 ended September 30, 2001 and 2000 (unaudited) . . . .. . . . .. . . . .   5

              Notes to Consolidated Financial Statements . . . . . . . . . . . .. . . .    6


        Item 2 - Management's Discussion and Analysis of Financial Condition
          and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .    9


Part II - Other Information

        1.  Legal Proceedings   . . . . . . . . . . . . . . . . . . . . . . . . . . . .   18

        2.  Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . . . .   18

        3.  Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . .   18

        4.  Submission of Matters to a Vote of Security Holders . . . . . . . . . . . .   18

        5.  Other Information  . . . . . . . . . . . . . . . . . . . . . . . . . . . ..   18

        6.  Exhibits and Reports on Form 8-K  . . . . . . . . . . . . . . . . . . . . .   18


Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   23
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS                                                    September 30,       December 31,
                                                                                   2001                 2000
                                                                              --------------       -------------
                                                                                (Unaudited)
ASSETS
<S>                                                                           <C>                  <C>
   Cash and due from banks                                                    $    7,075,151       $  10,897,885
                                                                              --------------       -------------
                                              CASH AND CASH EQUIVALENTS            7,075,151          10,897,885
                                                                              --------------       -------------
   Securities:
     Available for sale securities:
       US Treasuries and other securities (amortized cost $6,974,086-2001          7,254,110          27,489,496
            and $27,464,048-2000)
       Mortgage-backed securities (amortized cost $32,184,954-2001
        and $20,888,334-2000)                                                     32,564,606          20,876,332
       State & municipal securities (amortized cost $11,387,605-2001)             11,437,046                  --
       Corporate & other bonds (amortized cost $2,085,642-2001)                    2,107,798                  --
     Held to maturity securities:
       Mortgage-backed securities (market value $372,813-2001
        and $988,944-2000)                                                           364,331             982,723
                                                                              --------------       -------------
                                                       TOTAL SECURITIES           53,727,891          49,348,551
                                                                              --------------       -------------

   Federal Home Loan Bank stock, at cost                                           2,389,800           2,389,800
   Federal Reserve Bank stock, at cost                                                81,850              81,850
   Loans Receivable:
     Real estate-residential mortgage                                            119,693,715         119,214,444
     Real estate-commercial mortgage                                              26,182,842          25,437,159
     Real estate-construction                                                      4,527,176           5,427,103
     Commercial                                                                    7,962,309           8,136,115
     Installment                                                                  24,668,488          32,275,064
     Other                                                                            57,209             476,361
                                                                              --------------       -------------
                                                            TOTAL LOANS          183,091,739         190,966,246
     Net deferred loan origination costs                                           1,036,167           1,433,233
     Allowance for loan losses                                                      (932,783)           (971,891)
                                                                              --------------       --------------
                                                              NET LOANS          183,195,123         191,427,588
                                                                              --------------       -------------
   Bank premises and equipment, net                                                2,662,390           2,823,307
   Foreclosed real estate                                                            300,000             300,000
   Accrued interest receivable                                                     1,648,922           1,815,364
   Bank owned life insurance                                                       5,869,670           3,691,668
   Other assets                                                                    2,080,223           2,051,529
                                                                              --------------       -------------

                                                           TOTAL ASSETS       $  259,031,020       $ 264,827,542
                                                                              ==============       =============

LIABILITIES
   Deposits:
     Noninterest bearing:
        Demand                                                                $   39,843,463       $  36,766,207
     Interest bearing:
        Savings                                                                   38,183,771          40,827,383
        Money market                                                              49,136,722          44,568,031
        Time certificates of deposit in denominations of $100,000 or more         29,210,293          21,150,580
        Other time certificates of deposit                                        79,750,914          73,967,155
                                                                              --------------       -------------
                                                         TOTAL DEPOSITS          236,125,163         217,279,356
                                                                              --------------       -------------

   Federal Home Loan Bank advances                                                 3,000,000          28,000,000
   Collateralized borrowings                                                              --             973,986
   Deferred income taxes                                                             380,831             137,436
   Accrued expenses and other liabilities                                          1,244,979           1,417,006
                                                                              --------------       -------------
                                                      TOTAL LIABILITIES          240,750,973         247,807,784
                                                                              --------------       -------------
   Commitments & 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
     2001 - Issued - 1,677,004 shares, outstanding - 1,590,465 shares
     2000 - Issued - 1,677,004 shares, outstanding - 1,590,465 shares                 16,770              16,770
   Capital surplus                                                                11,980,943          11,980,943
   Retained earnings                                                               6,500,755           5,714,897
   Less: Treasury stock at cost-86,539 shares                                       (701,061)           (701,061)
   Accumulated other comprehensive income-net unrealized gain
     on available for sale securities (net of taxes)                                 482,640               8,209
                                                                              --------------       -------------
                                             TOTAL SHAREHOLDERS' EQUITY           18,280,047          17,019,758
                                                                              --------------       -------------
                             TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $  259,031,020       $ 264,827,542
                                                                              ==============       =============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       2

<PAGE>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

<TABLE>
<CAPTION>
                                                                Three Months                       Nine Months
                                                             Ended September 30,                Ended September 30,
                                                           2001             2000             2001              2000
                                                     -------------     -------------    -------------    --------------
INTEREST AND DIVIDEND INCOME
<S>                                                  <C>               <C>              <C>              <C>
   Interest and fees on loans                        $   3,397,084     $   3,853,751    $  10,602,293    $   11,161,247

   Interest and dividends on securities:
      Mortgage-backed                                      328,562           429,017          998,450         1,185,691
      US Treasury and other                                227,336           515,606          989,096         1,466,407
      State and municipals                                 133,096                --          151,437                --
      Corporate bonds and other                             26,625                --           31,107                --
    Deposits with banks                                          2               932               77             1,038
   Other interest income                                    41,691                --          255,522                --
                                                     -------------    --------------    -------------    --------------
                          TOTAL INTEREST INCOME          4,154,396         4,799,306       13,027,982        13,814,383
                                                     -------------    --------------    -------------    --------------

INTEREST EXPENSE
   Interest on deposits:
      Savings                                              148,818           134,107          410,554           388,798
      Money market                                         357,367           423,186        1,133,493         1,206,331
      Time certificates of deposit in denominations
          $100,000 or more                                 312,565           216,169          996,851           612,322
      Other time certificates of deposit                 1,095,886         1,034,236        3,569,276         2,899,488
                                                     -------------    --------------    -------------    --------------
                     TOTAL INTEREST ON DEPOSITS          1,914,636         1,807,698        6,110,174         5,106,939
   Interest on Federal Home Loan Bank advances               6,147           724,475          383,068         1,971,685
   Interest on borrowed money                                   --                --               --                --
                                                     -------------    --------------    -------------    --------------
                         TOTAL INTEREST EXPENSE          1,920,783         2,532,173        6,493,242         7,078,624
                                                     -------------    --------------    -------------    --------------
                            NET INTEREST INCOME          2,233,613         2,267,133        6,534,740         6,735,759
PROVISION FOR LOAN LOSSES                                   60,000            45,000          180,000           135,000
                                                     -------------    --------------    -------------    --------------
                      NET INTEREST INCOME AFTER
                      PROVISION FOR LOAN LOSSES          2,173,613         2,222,133        6,354,740         6,600,759
                                                     -------------    --------------    -------------    --------------
NONINTEREST INCOME
   Banking service charges and fees                        180,571           160,287          550,610           460,584
   Trust                                                   220,000           210,000          659,258           630,000
   Gains on sales of available for sale securities              --                --            8,642                --
   Other                                                   121,580            86,770          312,371           276,344
                                                     -------------    --------------    -------------    --------------
                       TOTAL NONINTEREST INCOME            522,151           457,057        1,530,881         1,366,928
                                                     -------------    --------------    -------------    --------------
NONINTEREST EXPENSE
   Salaries                                                849,387           817,844        2,541,237         2,401,384
   Employee benefits                                       224,867           223,047          691,109           662,852
   Net occupancy                                           116,552           110,942          368,014           337,490
   Equipment                                               100,306           122,089          323,024           360,643
   Legal fees                                               28,020            33,391          125,847           168,524
   Directors fees                                           30,200            46,476          111,257           120,680
   Computer services                                       165,454           190,377          564,991           548,830
   Supplies                                                 44,296            40,670          138,448           127,162
   Commissions, services and fees                           47,837            56,317          136,609           189,446
   Postage                                                  28,039            32,902           88,899            83,724
   Advertising                                              33,031            56,670          135,150           155,394
   OREO & non-performing loan expenses-net                   1,795             5,003           11,860             6,608
   Other                                                   245,231           278,038          898,735           837,670
                                                     -------------    --------------    -------------    --------------
                     TOTAL NONINTEREST EXPENSES          1,915,015         2,013,766        6,135,180         6,000,407
                                                     -------------    --------------    -------------    --------------

                     INCOME BEFORE INCOME TAXES            780,749           665,424        1,750,441         1,967,280
PROVISION FOR INCOME TAXES                                 190,630           234,978          487,444           692,632
                                                     -------------    --------------    -------------    --------------
                                     NET INCOME      $     590,119    $      430,446    $   1,262,997    $    1,274,648
                                                     =============    ==============    =============    ==============

INCOME PER SHARE
                     BASIC NET INCOME PER SHARE      $        0.37    $         0.27    $        0.79    $         0.80
                                                     =============    ==============    =============    ==============
                   DILUTED NET INCOME PER SHARE      $        0.37    $         0.27    $        0.78    $         0.79
                                                     =============    ==============    =============    ==============


   Dividends Per Share                               $        0.10    $         0.10    $        0.30    $         0.30
                                                     =============    ==============    =============    ==============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       3

<PAGE>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
Three months ended September 30, (Unaudited)                                        2001                2000
                                                                              ----------------     --------------
<S>                                                                           <C>                  <C>
Net income                                                                    $        590,119     $      430,446
Unrealized holding gains on securities:
       Unrealized holding gains  arising during the period, net of taxes               302,107            249,068
                                                                              ----------------     --------------

Comprehensive income                                                          $        892,226     $      679,514
                                                                              ================     ==============

<CAPTION>

Nine months ended September 30, (Unaudited)                                         2001                2000
                                                                              ----------------     --------------
<S>                                                                           <C>                  <C>
Net income                                                                    $      1,262,997     $    1,274,648
Unrealized holding gains on securities:
       Unrealized holding gains arising during the period, net of taxes                474,431            218,074
                                                                              ----------------     --------------

Comprehensive income                                                          $      1,737,428     $    1,492,722
                                                                              ================     ==============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       4

<PAGE>


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

<TABLE>
<CAPTION>
                                                                                 Nine Months Ended September 30,
                                                                                   2001                  2000
                                                                                ------------         ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                             <C>                  <C>
Net income                                                                      $  1,262,997         $  1,274,648
Adjustments to reconcile net income to net cash
  provided by operating activities:
       Amortization and accretion of premiums and discounts
          on investment securities, net                                               (7,438)             (76,614)
       Provision for loan losses                                                     180,000              135,000
       Depreciation and amortization                                                 264,400              282,819
       Gain on sale of available for sale securities                                  (8,642)                --
       Loss on sale of repossessed assets                                             54,192                 --
       Loss on disposals of bank premises and equipment                                2,579                 --
       Decrease (increase) in accrued interest receivable                            166,442             (355,908)
       Increase in other assets                                                     (474,227)            (349,667)
       Decrease (increase) in net deferred loan origination costs                    397,066             (190,675)
       Decrease in accrued expenses and other liabilities                           (172,027)             (46,270)
                                                                                ------------         ------------

           Net cash provided by operating activities                               1,665,342              673,333
                                                                                ------------         ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale mortgage-backed securities:
       Proceeds from maturities and principal payments                             5,878,468            3,019,057
       Purchases                                                                 (20,226,515)          (5,702,436)
       Proceeds from sales                                                         3,030,450                 --
Available for sale US Treasury and other investment securities:
       Proceeds from maturities and principal payments                            17,500,000            1,000,000
       Purchases                                                                        --             (5,961,570)
       Proceeds from sales                                                         3,075,234                 --
Available for sale State & Municipal, corporate and other bond investments:
       Purchases                                                                 (13,520,948)                --
Held to maturity mortgage-backed securities:
       Proceeds from maturities and principal payments                               617,877            1,383,597
Purchase of Federal Home Loan Bank Stock                                                --               (289,800)
Net decrease (increase) in loans                                                   7,463,699           (8,907,236)
Proceeds from sales of repossessed assets                                            343,551                 --
Purchase of bank premises and equipment                                             (108,518)            (161,681)
Proceeds from sale of bank premises and equipment                                      2,456                 --
Purchase of bank owned life insurance                                             (2,000,000)                --
Proceeds from the sale of foreclosed real estate                                      61,488                 --
                                                                                ------------         ------------
       Net cash provided by (used in) investing activities                         2,117,242          (15,620,069)
                                                                                ------------         ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in savings, money market and
  demand deposits                                                                  5,002,335            1,153,041
Net increase  in certificates of deposit                                          13,843,472            5,336,335
Net(decrease) increase in borrowings under Federal Home
  Loan  Bank advances                                                            (25,000,000)           3,685,000
Net (decrease) increase in collateralized borrowings                                (973,986)             130,700
Proceeds from exercise of stock options                                                 --                217,460
Dividends paid on common stock                                                      (477,139)            (451,479)
                                                                                ------------         ------------

              Net cash (used in) provided by financing activities                 (7,605,318)          10,071,057
                                                                                ------------         ------------
              Net decrease in cash and cash equivalents                           (3,822,734)          (4,875,679)
CASH AND CASH EQUIVALENTS, at beginning of period                                 10,897,885           12,800,196
                                                                                ------------         ------------

CASH AND CASH EQUIVALENTS, at end of period                                     $  7,075,151         $  7,924,517
                                                                                ============         ============

SUPPLEMENTAL INFORMATION

Cash paid during the period for:
       Interest on deposits and borrowings                                      $  6,179,475         $  7,152,908
                                                                                ============         ============
       Income taxes                                                             $    410,000         $    446,952
                                                                                ============         ============
Non cash investing and financing activities:
       Transfer of loans to other real estate owned                             $     61,488         $    300,000
                                                                                ============         ============
       Transfer of loans to repossessed assets                                  $    128,300         $    104,595
                                                                                ============         ============
       Accrued dividends declared                                               $    159,046         $    151,493
                                                                                ============         ============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       5

<PAGE>

FIRST LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   The  consolidated  balance sheet at December 31, 2000 has been derived from
     the audited financial  statements at that date, but does not include all of
     the information  and footnotes  required by generally  accepted  accounting
     principles 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 generally accepted accounting  principles 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  First  Litchfield  Financial   Corporation  (the
     "Company") and notes thereto for the fiscal year ended December 31, 2000.

     These  financial  statements  reflect,  in the opinion of  Management,  all
     adjustments,  consisting of 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 and nine months ended  September 30, 2001 are not
     necessarily  indicative of the results of  operations  that may be expected
     for all of 2001.

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 and nine month periods ended September 30, 2001 and 2000. The
     2000 information has been restated to give retroactive  effect to all stock
     dividends and stock splits for the periods presented.

<TABLE>
<CAPTION>

     For the Three Months Ended September 30, 2001

                                                             Net                                      Per Share
                                                           Income               Shares                  Amount
                                                          --------             ---------              ---------
<S>                                                       <C>                  <C>                     <C>
    Basic Net Income Per Share
      Income available to common shareholders             $590,119             1,590,465               $   .37
                                                                                                       =======

    Effect of Dilutive Securities
      Options Outstanding                                       --                23,366

    Diluted Net Income Per Share
      Income available to common shareholders             --------             ---------
      plus assumed conversions                            $590,119             1,613,831               $   .37
                                                          ========             =========               =======
</TABLE>

                                       6

<PAGE>


<TABLE>
<CAPTION>

     For the Three Months Ended September 30, 2000

                                                             Net                                      Per Share
                                                           Income               Shares                  Amount
                                                          --------             ---------              ---------
<S>                                                       <C>                  <C>                     <C>
    Basic Net Income Per Share
      Income available to common shareholders             $430,446             1,590,465               $   .27
                                                                                                       =======

    Effect of Dilutive Securities
      Options Outstanding                                       --                16,898

    Diluted Net Income Per Share
      Income available to common shareholders             --------             --------
      plus assumed conversions                            $430,446             1,607,363              $   .27
                                                          ========             =========              =======

<CAPTION>

     For the Nine Months Ended September 30, 2001

                                                             Net                                      Per Share
                                                           Income               Shares                  Amount
                                                          --------             ---------              ---------
<S>                                                       <C>                  <C>                     <C>
    Basic Net Income Per Share
      Income available to common shareholders           $1,262,997             1,590,465               $   .79
                                                                                                       =======

    Effect of Dilutive Securities
      Options Outstanding                                       --                22,523

    Diluted Net Income Per Share
      Income available to common shareholders           ----------             ---------
      plus assumed conversions                          $1,262,997             1,612,988               $   .78
                                                        ==========             =========               =======

<CAPTION>

     For the Nine Months Ended September 30, 2000

                                                             Net                                      Per Share
                                                           Income               Shares                  Amount
                                                          --------             ---------              ---------
<S>                                                       <C>                  <C>                     <C>
    Basic Net Income Per Share
      Income available to common shareholders             $1,274,648            1,584,633              $   .80
                                                                                                       =======

    Effect of Dilutive Securities
      Options Outstanding                                       --                35,615

    Diluted Net Income Per Share
      Income available to common shareholders
                                                          ----------            --------
      plus assumed conversions                            $1,274,648            1,620,248              $   .79
                                                          ==========            =========              =======
</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
                                                                                            September 30, 2001
                                                                           ------------------------------------------------------
                                                                             Before-Tax          Tax (Expense)     Net-of-Tax
                                                                                Amount              Benefit           Amount
                                                                           ---------------     ---------------    --------------
<S>                                                                        <C>                 <C>                <C>
Unrealized holding gains arising during the period                         $      457,737      $     (155,630)    $      302,107
Less: reclassification adjustment for amounts recognized in net income                 --                  --                 --
                                                                           --------------      --------------     --------------

Unrealized holding gain on available for sale securities, net of taxes     $      457,737      $     (155,630)    $      302,107
                                                                           ==============      ==============     ==============

<CAPTION>

                                                                                            September 30, 2000
                                                                           ------------------------------------------------------
                                                                             Before-Tax          Tax (Expense)      Net-of-Tax
                                                                                Amount             Benefit            Amount
                                                                           ---------------     ---------------    --------------
<S>                                                                        <C>                 <C>                <C>
Unrealized holding gains arising during the period                         $      407,976      $    (158,908)     $      249,068
Less: reclassification adjustment for amounts recognized in net income                 --                  --                 --
                                                                           --------------      ---------------    --------------

Unrealized holding gain on available for sale securities, net of taxes     $      407,976      $     (158,908)    $      249,068
                                                                           ==============      ===============    ==============

<CAPTION>

                                                                                            Nine Months Ended
                                                                                            September 30, 2001
                                                                           ------------------------------------------------------
                                                                             Before-Tax          Tax (Expense)     Net-of-Tax
                                                                                Amount              Benefit           Amount
                                                                           ---------------     ---------------    --------------
<S>                                                                        <C>                 <C>                <C>
Unrealized holding gains arising during the period                         $      726,468      $     (246,333)    $      480,135
Less: reclassification adjustment for amounts recognized in net income             (8,642)              2,938             (5,704)
                                                                           ---------------     --------------     --------------

Unrealized holding gain on available for sale securities, net of taxes     $      717,826      $     (243,395)    $      474,431
                                                                           ==============      ==============     ==============

<CAPTION>

                                                                                            September 30, 2000
                                                                           ------------------------------------------------------
                                                                             Before-Tax          Tax (Expense)      Net-of-Tax
                                                                               Amount               Benefit           Amount
                                                                           -----------         ---------------    --------------
<S>                                                                        <C>                 <C>                <C>
Unrealized holding losses arising during the period                        $       368,775     $      (150,701)   $      218,074
Less: reclassification adjustment for amounts recognized in net income                  --                  --                --
                                                                           ---------------     ---------------    --------------

Unrealized holding loss on available for sale securities, net of taxes     $       368,775     $       (150,701)  $      218,074
                                                                           ===============     =================  ==============
</TABLE>


                                       8

<PAGE>

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDIITON  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 First National Bank of
Litchfield is the Company's only subsidiary and only source of income. The Bank
has two subsidiaries, The Lincoln Corporation and Litchfield Mortgage Service
Corporation, which are Connecticut corporations. 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 purpose of Litchfield Mortgage Service Corporation is to operate
as a passive investment company in accordance with Connecticut law.

Both the Company and the Bank are headquartered in Litchfield, CT. 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 Bank Insurance Fund ("BIF"), which
is administered by the Federal Deposit Insurance Corporation (the "FDIC"). 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 six
banking locations located in the towns of Torrington, Litchfield, Washington,
Marble Dale, Goshen and Roxbury, 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.

As of September 30, 2001, the Company had total assets of $259,031,020, which
was a decrease of $5,796,522 or 2.2% from year-end 2000 assets of $264,827,542.
The decline in assets was primarily in the loan portfolio.

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 financial statements.

FINANCIAL CONDITION

Total assets as of September 30, 2001 were $259,031,020 a decrease of 2.2% from
year-end 2000 assets of $264,827,542.

Cash and cash equivalents totaled $7,075,151, which is a decrease of $3,822,734
or 35.1% from the year-end 2000 amount of $10,897,885. This decrease is
reflective of lower cash and due from bank balances maintained throughout the
year. For the nine months ended September 30, 2001, cash and cash equivalents
averaged $7,810,000.

The largest decline in assets was experienced in the loan portfolio. Net loans
totaled $183,195,123 as of September 30, 2001, a decrease of $8,232,465 or 4.3%
from the balance at December 31, 2000. The decline was nearly entirely related
to the installment loan portfolio. These loans declined by $7,606,576 or 23.6%
from year-end 2000. The decline was due to Management's decision during late
2000 to discontinue indirect consumer installment lending. The September 30,

                                       9

<PAGE>

2001 balances in other loan categories are similar to year-end 2000 balances.
Generally, both normal runoff and prepayments in other loan categories are
offset by new loan origination.

Increases in the securities portfolio offset some of the decline in loan assets.
Total securities were $53,727,891 as of September 30, 2001. This is an 8.9%
increase over the December 31, 2000 balance of $49,348,551. Growth in the
investment securities was necessitated to maintain the level of earning assets
to offset the decline in the loan portfolio. Prepayments and calls in
mortgage-backed securities and in government agency bonds were reinvested in
similar securities and into tax-exempt state and municipal securities.

The Company's investment in bank owned life insurance (Boli) increased by
$2,178,002. The purchase of additional Boli was made in order to offset the cost
of employee benefit plans.

Total liabilities decreased by $7,056,811 from December 31, 2000. Deposits
totaled $236,125,163 as of September 30, 2001, which was an increase of
$18,845,807 or 8.7% compared to the year-end 2000 balance. Increases occurred in
demand, money market and time certificates of deposit. Total demand deposits
were $39,843,463 at September 30, 2001, an increase of $3,077,256 or 8.4% from
the December 31, 2000 balance. The growth in money market deposits was
similar, increasing 10.3% or $4,568,691. Apparent customer uncertainty as to
interest rates is believed to be motivating customers toward liquid deposits.

Total time certificates of deposit increased by $13,843,472 or 14.6%, since
year-end 2000. Third quarter promotions of longer term certificates of deposit
originated approximately $5 million in new deposits. The remaining growth
however was in short term certificates. Apparent customer uncertainty towards
the economy has caused many customers to prefer the security of bank insured
deposits as opposed to other investments such as mutual funds, stocks or bonds.
However, with the overall low interest rate environment most certificates are
for shorter terms in anticipation of rising interest rates.

As of September 30, 2001, Federal Home Loan Bank advances totaled $3,000,000
which was a decrease of $25,000,000 from the year end balance. Deposit
growth was used to replace funding through Federal Home Loan Bank advances.

RESULTS OF OPERATIONS

THREE MONTHS ENDED  SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED  SEPTEMBER
30, 2000

Summary

Net interest income is the single largest source of the Company's net income.
Net interest income is determined by several factors and is defined as the
difference between interest and dividend income from earning assets, primarily
loans and investment securities, and interest expense due on deposits and
borrowed money. Although there are certain factors which can be controlled by
management policies and actions, certain other factors, such as the general
level of credit demand, FRB monetary policy and changes in tax law that are
beyond the control of management.

Net income for the third quarter of 2001 totaled $590,119, which is an increase
of $159,673 or 37.1% from third quarter 2000 earnings of $430,446. Quarterly
basic and fully diluted net income per share for 2001 were both $.37 compared to
$.27 for the same period in 2000.

                                       10

<PAGE>

Net Interest Income

Net interest  income is comprised  of the  following  for the three months ended
September 30,

                                                2001              2000
                                            ----------         ----------
Interest and dividend income                $4,154,396         $4,799,306
Tax-equivalent adjustments                      77,545             14,908
Interest expense                            (1,920,783)        (2,532,173)
                                            ----------         ----------
Net interest income - tax equivalent basis  $2,311,158         $2,282,041
                                            ==========         ==========

The following table presents the Company's average balance sheets (computed on a
daily basis), net interest income, and interest rates for the three months ended
September 30, 2001 and 2000. Average loans outstanding include nonaccruing
loans. Interest income is presented on a tax-equivalent basis which reflects a
federal tax rate of 34% for all periods presented.

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

<TABLE>
<CAPTION>
                                            Three months ended September 30, 2001
                                       -------------------------------------------------
                                                              Interest
                                           Average            Earned/           Yield/
                                           Balance             Paid              Rate
                                       ---------------     ------------         -------
Assets
Interest Earning Assets:
<S>                                    <C>                 <C>                    <C>
Loans                                  $   183,632,000     $  3,398,144           7.40%
Investment Securities                       48,804,000          792,106           6.49%
Other interest earning assets                4,795,000           41,691           3.48%
                                       ---------------     ------------
Total interest earning assets              237,231,000        4,231,941           7.14%

Allowance for loan losses                     (916,000)
Cash and due from banks                      8,150,000
Bank premises and equipment                  2,686,000
Net unrealized gain/loss on
  securities                                   342,000
Foreclosed real estate                         303,000
Other assets                                 9,053,000
                                       ---------------
Total Average Assets                   $   256,849,000
                                       ===============


Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                       $    42,822,000     $    148,818           1.39%
Money Market deposits                       47,192,000          357,367           3.03%
Time deposits                              107,040,000        1,408,451           5.26%
Borrowed funds                                 484,000            6,147           5.08%
                                       ---------------     ------------
Total interest bearing liabilities         197,538,000        1,920,783           3.89%

Demand deposits                             40,642,000
Other liabilities                              713,000
Shareholders' Equity                        17,956,000
                                       ---------------
Total liabilities and equity           $   256,849,000
                                       ===============

Net interest income - tax
  equivalent basis                                         $  2,311,158
                                                           ============
Net interest spread                                                               3.25%
Net interest margin                                                               3.90%

<CAPTION>

                                            Three months ended September 30,  2000
                                       --------------------------------------------------
                                                              Interest
                                           Average            Earned/             Yield/
                                           Balance             Paid                Rate
                                       ---------------      -----------           ------
Assets
Interest Earning Assets:
<S>                                    <C>                  <C>                   <C>
Loans                                  $   191,752,000      $  3,868,659          8.07%
Investment Securities                       57,803,000           945,555          6.54%
Other interest earning assets                        0                 0            N/A
                                       ---------------      ------------
Total interest earning assets              249,555,000         4,814,214          7.72%

Allowance for loan losses                     (996,000)
Cash and due from banks                      7,158,000
Bank premises and equipment                  2,938,000
Net unrealized gain/loss on
  securities                                  (997,000)
Foreclosed real estate                         302,000
Other assets                                 7,559,000
                                       ---------------
Total Average Assets                   $   265,519,000
                                       ===============


Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                       $    37,837,000      $    134,107          1.42%
Money Market deposits                       45,295,000           423,186          3.74%
Time deposits                               86,256,000         1,250,405          5.80%
Borrowed funds                              42,862,000           724,475          6.76%
                                       ---------------      ------------
Total interest bearing liabilities         212,250,000         2,532,173          4.77%

Demand deposits                             36,351,000
Other liabilities                              914,000
Shareholders' Equity                        16,004,000
                                       ---------------
Total liabilities and equity           $   265,519,000
                                       ===============

Net interest income - tax
  equivalent basis                                          $  2,282,041
                                                            ============
Net interest spread                                                               2.95%
Net interest margin                                                               3.66%
</TABLE>

                                       11

<PAGE>

RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>
                                                        Three months ended
                                                    9/30/01 Compared to 9/30/00
                                                     Increase (Decrease) Due to
                                             ------------------------------------------
                                              Volume           Rate            Total
                                              ------           ----            -----
Interest earned on:
<S>                                          <C>             <C>             <C>
Loans                                        $(159,234)      $(311,281)      $(470,515)
Investment securities                         (146,112)         (7,337)       (153,449)
Other interest income                           41,691               0          41,691
                                             ---------       ---------       ---------
Total interest earning assets                 (263,655)       (318,618)       (582,273)
                                             ---------       ---------       ---------

Interest paid on:
Deposits                                       278,173        (171,235)        106,938
Borrowed money                                (573,998)       (144,330)       (718,328)
                                             ---------       ---------       ---------
Total interest bearing liabilities            (295,825)       (315,565)       (611,390)
                                             ---------       ---------       ---------

Increase (decrease) in net interest income   $  32,170       $ ( 3,053)      $  29,117
                                             =========       =========       =========
</TABLE>

Of the $29,117 increase in the net interest income (on a tax equivalent basis),
a decrease of $3,053 resulted from interest rate fluctuations during 2001 and an
increase of $32,170 is attributed to the reduction of interest expenses due to
increases in deposit volume and less reliance on funding through borrowed money,
net of the impact of loan volume decreases.

Tax equivalent net interest income for the third quarter of 2001 increased
$29,117 or 1.3% from third quarter of 2000. The slight increase in net interest
income is due to the aforementioned change in the mix of funding from overnight
borrowings to deposits. Average total deposits for the third quarter of 2001
totaled $237,696,000 compared to $205,739,000 for the third quarter of 2000.
This 15.5% increase in deposits had the beneficial impact of decreasing funding
costs and totally mitigating the negative effect of declining volume and yields
on earning assets caused by the interest rate environment. The net interest
margin for the third quarter of 2001 was 3.90%, 24 basis points above that for
the same quarter of 2000.

Provision for Loan Losses

The provision for loan losses for the third quarter of the year totaled $60,000,
an increase of $15,000 from the third quarter of 2000. The increase
substantially reflected the increase in net loan chargeoffs during the nine
months ended September 30, 2001, which increased the Bank's historical loan loss
percentages.

During the third quarter of 2001, the Company recorded net charge-offs of
$31,232 compared to net charge-offs of $61,825 for the same period in 2000. The
decrease in net charge-offs relates primarily to net charge-offs during the
third quarter of 2000 in the mortgage and credit card portfolios. There were no
charge-offs in these categories during the third quarter of 2001. Loans charged
off during the third quarter of 2001 included net charge-offs of $30,542 in
installment loans made through the indirect loan program. Net charge-offs of
installment loans totaled $29,134 for the same period in 2000. (See "Allowance
for Loan Losses")

Noninterest Income

Noninterest income totaled $522,151 for the quarter ended September 30, 2001, an
increase of $65,094 or 14.2% from that earned for the same period in 2000.
Banking service charges and fees have increased by $20,284 or 12.7%. This
increase was caused by increases in fees from overdrafts, ATMs and debit cards.
Trust fees increased by $10,000 due to higher levels of trust assets and fee
increases. Third quarter other noninterest income totaled $121,580, an increase
of $34,810 from 2000. The increase was caused primarily by income relating to
increases in the cash surrender value of bank owned life insurance, which was
purchased during the second quarter of 2001. Also contributing to the increase
in other noninterest income was increased safe deposit rental income.

                                       12

<PAGE>

Noninterest Expense

For the three months ended September 30, 2001, non-interest expense totaled
$1,915,015, a decrease of $98,751 or 4.9% from the same period of 2000. The
primary cause of this decrease was the result of cost control and expense
reduction measures taken during 2001. Costs for equipment, director's fees,
legal fees and advertising experienced substantial decreases this quarter.

Also, costs for external computer services totaled $165,454 for the third
quarter of 2001, which was a decrease of $24,923 or 13.1% from the third quarter
of 2000. This decrease is due to one-time vendor rebates negotiated by
management. Other noninterest expenses totaled $245,231, which was a decrease of
$32,807 due to reduced costs for personnel agencies, and decreases in losses on
the sales of collateral and contributions.

Income Taxes

The provision for income taxes for the three month period ended September 30,
2001 totaled $190,630 which was $44,348 less than that for the same period in
2000. Although taxable income was higher for 2001, the tax benefit associated
with the Passive Investment Corporation as well as second and third quarter
investments in tax-exempt state and municipal securities, resulted in a lower
third quarter tax expense for 2001.

RESULTS OF  OPERATIONS - NINE MONTHS ENDED  SEPTEMBER  30, 2001 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 2000

Summary

Net income for the Company for the nine months ended September 30, 2001 totaled
$1,262,997, a decrease of $11,651 or less than 1% from 2000 earnings of
$1,274,648. Basic and diluted net income per share for the nine month period
were $.79 and $.78 per share respectively. These results are lower than the
basic and diluted net income per share amounts of $.80 and $.79 per share
respectively, reported for the first nine months of 2000.

Net Interest Income

Net interest income is comprised of the following for the nine months ended
September 30:

                                                  2001              2000
                                              -------------    --------------

Interest and dividend income                  $  13,027,982    $  13,814,383
Tax-equivalent adjustments                           84,808           46,660
Interest expense                                 (6,493,242)       (7,078,624)
                                              --------------   ---------------

Net interest income - tax equivalent basis    $   6,619,548    $   6,782,419
                                              =============    =============

The following table presents the Company's average balance sheets (computed on a
daily basis), net interest income, and interest rates for the nine months ended
September 30, 2001 and 2000. Average loans outstanding include nonaccruing
loans. Interest income is presented on a tax-equivalent basis which reflects a
federal tax rate of 34% for all periods presented.

                                       13

<PAGE>

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

<TABLE>
<CAPTION>
                                            Nine months ended September 30, 2001
                                       ---------------------------------------------
                                                             Interest
                                           Average           Earned/        Yield/
                                           Balance             Paid          Rate
                                       ---------------     ------------    -------
Assets
Interest Earning Assets:
<S>                                    <C>                 <C>               <C>
Loans                                  $   187,016,000     $ 10,610,616      7.56%
Investment Securities                       45,344,000        2,246,652      6.61%
Other interest earning assets                8,065,000          255,522      4.22%
                                       ---------------     ------------
Total interest earning assets              240,425,000       13,112,790      7.27%

Allowance for loan losses                     (920,000)
Cash and due from banks                      7,810,000
Bank premises and equipment                  2,742,000
Net unrealized gain/loss on
  securities                                   338,000
Foreclosed real estate                         301,000
Other assets                                 7,549,000
                                       ---------------
Total Average Assets                   $   258,245,000
                                       ===============


Liabilities and Shareholder's Equity
Interest Bearing Liabilities:
Savings deposits                       $    39,178,000     $    410,554      1.40%
Money Market deposits                       45,480,000        1,133,493      3.32%
Time deposits                              108,388,000        4,566,127      5.62%
Borrowed funds                               8,416,000          383,068      6.07%
                                       ---------------     ------------
Total interest bearing liabilities         201,462,000        6,493,242      4.30%

Demand deposits                             38,290,000
Other liabilities                              823,000
Shareholders' Equity                        17,670,000
                                       ---------------
Total liabilities and equity           $   258,245,000
                                       ===============

Net interest income - tax
   equivalent basis                                        $  6,619,548
                                                           ============
Net interest spread                                                          2.97%
Net interest margin                                                          3.67%

<CAPTION>

                                           Nine months ended September 30,  2000
                                       ----------------------------------------------
                                                             Interest
                                           Average            Earned/       Yield/
                                           Balance             Paid          Rate
                                       ---------------      -----------     ------
Assets
Interest Earning Assets:
<S>                                    <C>                  <C>               <C>
Loans                                  $   189,268,000      $ 11,207,907      7.90%
Investment Securities                       55,179,000         2,653,136      6.41%
Other interest earning assets                        0                 0        N/A
                                       ---------------      ------------
Total interest earning assets              244,447,000        13,861,043      7.56%

Allowance for loan losses                     (994,000)
Cash and due from banks                      6,542,000
Bank premises and equipment                  2,962,000
Net unrealized gain/loss on
  securities                                (1,077,000)
Foreclosed real estate                         126,000
Other assets                                 7,461,000
                                       ---------------
Total Average Assets                   $   259,467,000
                                       ===============


Liabilities and Shareholder's Equity
Interest Bearing Liabilities:
Savings deposits                       $    36,441,000      $    388,798      1.42%
Money Market deposits                       44,689,000         1,206,331      3.60%
Time deposits                               85,594,000         3,511,810      5.47%
Borrowed funds                              40,734,000         1,971,685      6.45%
                                       ---------------      ------------
Total interest bearing liabilities         207,458,000         7,078,624      4.55%

Demand deposits                             35,483,000
Other liabilities                              990,000
Shareholders' Equity                        15,536,000
                                       ---------------
Total liabilities and equity           $   259,467,000
                                       ===============

Net interest income - tax
   equivalent basis                                         $  6,782,419
                                                            ============
Net interest spread                                                           3.01%
Net interest margin                                                           3.70%

</TABLE>

RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>
                                                              Nine months ended
                                                         9/30/01 Compared to 9/30/00
                                                          Increase (Decrease) Due to
                                              ------------------------------------------------------
                                                Volume                Rate                Total
                                                ------                ----                -----

Interest earned on:
<S>                                           <C>                  <C>                  <C>
Loans                                         $  (132,121)         $  (465,170)         $  (597,291)
Investment securities                            (485,191)              78,707             (406,484)
Other interest income                             255,522                    0              255,522
                                              -----------          -----------          -----------
Total interest earning assets                    (361,790)            (386,463)            (748,253)
                                              -----------          -----------          -----------

Interest paid on:
Deposits                                          828,449              174,786            1,003,235
Borrowed money                                 (1,477,531)            (111,086)          (1,588,617)
                                              -----------          -----------          -----------
Total interest bearing liabilities               (649,082)              63,700             (585,382)
                                              -----------          -----------          -----------

Increase (decrease) in net interest income    $   287,292          $  (450,163)         $  (162,871)
                                              ===========          ===========          ===========
</TABLE>

Of the $162,871 decrease in the net interest income (on a tax equivalent basis),
a decrease of $450,163 resulted from interest rate declines during 2001 and an
increase of $287,292 is attributed to decreases in the volume of funding through
borrowed money which offset declining volumes of interest earning assets.

                                       14

<PAGE>

During the first nine months of 2001 overnight borrowings were replaced by
deposit growth which resulted in an overall less expensive cost of funding.

Tax equivalent net interest income for the first nine months of 2001 decreased
$162,871 or 2.4% from the same period in 2000. The decrease in net interest
income is due to declines in the net interest margin as well as a lower level of
earning assets. The net interest margin for the first nine months of 2001 was
3.67%, 3 basis points below the 3.70% margin for the first nine months of 2000.
As the overall level of interest rates declined during the year, rates earned on
earning assets have declined slightly more than the cost of funding. The
negative effect of this scenario was mitigated by the Bank's ability to replace
generally higher rate borrowings with deposit liabilities. Average earning
assets for the nine months ended September 30, 2001 totaled $240 million, a
decrease of $4 million from average earning assets of $244 million for the nine
months ended September 30, 2000. The decline was experienced in both the
investment and loan portfolios and is attributed to calls and runoff in both
portfolios where reinvestment alternatives were not immediate.

Provision for Loan Losses

The provision for loan losses for the first nine months of the year totaled
$180,000, an increase of $45,000 from the first nine months of 2000. Growth in
net chargeoffs, particularly in the consumer installment loans, was the primary
reason for the increased provision. The provision for loan losses is determined
quarterly and assessed along with the adequacy of the loan loss reserve.

During the first three quarters of 2001, the Company recorded net charge-offs of
$219,108 compared to net charge-offs of $133,031 for the first three quarters of
2000. The increase in net charge-offs for the first nine months of 2001 was
caused by credit losses in the consumer installment loans.

Non-interest Income

Year to date non-interest income for the nine months ended September 30, 2001
totaled $1,530,881, an increase of $163,953 from the $1,366,928 earned for the
same period in 2000. Banking service charges and fees have increased by $90,026
or 19.5% due to increases in fees from overdrafts, ATMs and debit cards. Fees
from trust services increased by $29,258 as a result of fee increases and growth
in trust assets. Other non-interest income totaled $312,371, increasing by
$36,027 over September 30, 2000 year to date income. Income from increases in
the cash surrender value of bank-owned life insurance purchased early in the
third quarter of this year, is the primary cause of this increase.

Noninterest Expense

For the nine months ended September 30, 2001, non-interest expense totaled
$6,135,180, an increase of $134,773 or 2.25% from the same period of 2000. The
largest part of this increase was in salary and benefits costs which, increased
by $168,110 due to salary adjustments and additions to staff.

Legal fees for the first nine months of 2001 totaled $125,847 which is a
decrease of $42,677 from the first nine months of 2000. Legal fees decreased
25.3%, primarily because fees for the first nine months of 2000 included
expenses associated with the Company's filing of registration statements with
the Securities and Exchange Commission (the "SEC") registering its securities
and fees

                                       15

<PAGE>


associated with the Company's initial disclosure and reporting responsibilities
as a SEC reporting company. Decreases in costs for director's fees, equipment,
consulting, advertising are the result of cost control measures implemented
during the second quarter.

Income Taxes

The provision for income taxes for the first nine months of 2001 totaled
$487,444 a decrease of $205,188 from the same period in 2000. There are three
factors contributing to this decrease. Taxable income for the first nine months
of 2001 is lower than that for the same period in 2000. During the fourth
quarter of 2000, the Bank established the Passive Investment Corporation which
reduced the Company's 2001 state tax liability. Finally, during this year the
Bank has invested in state and municipal securities which are not subject to
Federal 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 and the sale of mortgage loans in the secondary
market are available to fund short-term cash needs.

As of September 30, 2001, the Company had $41,109,831 in loan commitments and
credit lines outstanding. Since some commitments are expected to expire without
being drawn upon, the total commitment amount therefore does not necessarily
represent all future cash requirements. The funding of these commitments are
anticipated to be through deposits, loan and security amortizations and
maturities. Management is confident that the Company has sufficient liquidity to
meet its present and foreseeable needs.

                                       16

<PAGE>


CAPITAL

At September 30, 2001, total shareholders' equity was $18,280,047 compared to
$17,019,758 at December 31, 2000. From a regulatory perspective, the capital
ratios of the Company and the Bank places each entity in the "well-capitalized"
categories under applicable regulations. The various capital ratios of the
Company and the Bank are as follows as of September 30, 2001.

                                     Minimum
                                   Regulatory
                                  Capital Levels   The Company    The Bank
                                  --------------   -----------    --------
TIER 1:
  Leverage capital ratio               4%             6.93%         6.87%

  Risk-based capital ratio             4%            10.86%        10.78%

  Total risk-based capital ratio       8%            11.43%        11.35%


ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses for the periods ended September 30,
2001 and 2000 are shown below:

                                              Nine months ended September 30,
                                                   2001            2000
                                               -------------   ------------

Balance at beginning of the year               $   971,891     $ 1,014,522
Provision for loan losses                          180,000         135,000
Loans charged off                                 (269,794)       (206,023)
Recoveries of loans previously charged off          50,686          72,992
                                               -----------     -----------

Balance at end of period                       $   932,783     $ 1,016,491
                                               ===========     ===========

The following table summarizes the Bank's OREO, past due and nonaccrual loans,
and nonperforming assets as of September 30, 2001 and December 31, 2000.

                                        September 30, 2001    December 31, 2000
                                        ------------------    -----------------

Nonaccrual loans                          $     702,256       $       781,170

Other real estate owned                         300,000               300,000
                                          -------------       ---------------

Total nonperforming assets                $   1,002,256       $     1,081,170
                                          =============       ===============

Loans past due in excess of 90 days
  and accruing interest                   $       9,893       $        33,441
                                          =============       ===============

Potential Problem Loans

As of September 30, 2001, there were no potential problem loans not disclosed
above which cause management to have serious doubts as to the ability of such
borrowers to comply with their present loan repayment terms.

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 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

                                       17

<PAGE>

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. 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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings - Not applicable

Neither the Company nor the Bank is involved in any pending material legal
proceedings other than routine legal proceedings occurring in the ordinary
course of business. Such routine legal proceedings, in the aggregate, are
believed by Management to be immaterial to the Company's financial condition or
results of operations.

Item 2. Changes in 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

Item 6. Exhibits and Reports on Form 8-K

        A.   Exhibits

                                       18

<PAGE>

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.

10.1      1990 Stock Option Plan for Company's President and Chief Executive
          Officer, as amended. Exhibit is incorporated by reference to Exhibit
          10.1 set forth in the Company's Registration Statement on Form 10-SB
          as filed with the Securities and Exchange Commission on January 7,
          2000.

10.2      1994 Stock Option Plan for Officers and Outside Directors. Exhibit is
          incorporated by reference to Exhibit 10.2 set forth in the Company's
          Registration Statement on Form 10-SB as filed with the Securities and
          Exchange Commission on January 7, 2000.

10.3      Supplemental Executive Retirement Agreement between Company and Jerome
          J. Whalen. Exhibit is incorporated by reference to Exhibit 10.3 set
          forth in the Company's Registration Statement on Form 10-SB as filed
          with the Securities and Exchange Commission on January 7, 2000.

10.4      Change in Control Agreement between Jerome J. Whalen and Company.
          Exhibit is incorporated by reference to Exhibit 10.4 set forth in the
          Company's Registration Statement on Form 10-SB as filed with the
          Securities and Exchange Commission on January 7, 2000.


                                       19

<PAGE>

10.5      Change in Control Agreement between Philip G. Samponaro and Company.
          Exhibit is incorporated by reference to Exhibit 10.5 set forth in the
          Company's Registration Statement on Form 10-SB as filed with the
          Securities and Exchange Commission on January 7, 2000.

10.6      Change in Control Agreement between Carroll A. Pereira and Company.
          Exhibit is incorporated by reference to Exhibit 10.6 set forth in the
          Company's Registration Statement on Form 10-SB as filed with the
          Securities and Exchange Commission on January 7, 2000.

10.7      Change in Control Agreement between John S. Newton and Company.
          Exhibit is incorporated by reference to Exhibit 10.7 set forth in the
          Company's Registration Statement on Form 10-SB as filed with the
          Securities and Exchange Commission on January 7, 2000.

10.8      Change in Control Agreement between Revere H. Ferris and Company.
          Exhibit is incorporated by reference to Exhibit 10.8 set forth in the
          Company's Registration Statement on Form 10-SB as filed with the
          Securities and Exchange Commission on January 7, 2000.

10.9      Supplemental Employee Retirement Agreement between the Company and
          Walter Hunt. Exhibit is incorporated by reference to Exhibit 10.9 set
          forth in the Company's Registration Statement on Form 10-SB as filed
          with the Securities and Exchange Commission on January 7, 2000.

10.10     Deferred Directors' Fee Plan. Exhibit is incorporated by reference to
          Exhibit 10.10 set forth in the Company's Registration Statement on
          Form 10-SB as filed with the Securities and Exchange Commission on
          January 7, 2000.

10.11     Form of Employee Change in Control Agreement. Exhibit is incorporated
          by reference to Exhibit 10.11 set forth in the Company's Registration
          Statement on Form 10-SB as filed with the Securities and Exchange
          Commission on January 7, 2000.

10.12     Executive Supplemental Compensation Agreement dated November 21, 2000
          between the Company and Jerome J. Whalen. Exhibit is incorporated by
          reference to Exhibit 10.12 set forth in the Company's Annual Report in
          Form 10-KSB for the fiscal year ended December 31, 2000 as filed with
          the Securities and Exchange Commission on April 2, 2001.

10.13     Split Dollar Agreement with Salisbury Bank as Trustee dated November
          21, 2000. Exhibit is incorporated by reference to Exhibit 10.13 set
          forth in the Company's Annual Report in Form 10-KSB for the fiscal
          year ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.14     The Rabbi Trust Agreement with Salisbury Bank as Trustee dated
          November 21, 2000. Exhibit is incorporated by reference to Exhibit
          10.14 set forth in the Company's Annual Report in Form 10-KSB for the
          fiscal year ended December 31, 2000 as filed with the Securities and
          Exchange Commission on April 2, 2001.

10.15     The First National Bank of Litchfield Executive Incentive Retirement
          Agreement between Jerome J. Whalen and the Bank dated December 28,
          2000. Exhibit is incorporated by reference to Exhibit 10.15 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

                                       20

<PAGE>


10.16     The First National Bank of Litchfield Executive Incentive Retirement
          Agreement between Carroll A. Pereira and the Bank dated November 30,
          2000. Exhibit is incorporated by reference to Exhibit 10.16 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.17     The First National Bank of Litchfield Executive Incentive Retirement
          Agreement between Philip G. Samponaro and the Bank dated December 19,
          2000. Exhibit is incorporated by reference to Exhibit 10.17 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.18     The First National Bank of Litchfield Executive Incentive Retirement
          Agreement between Revere H. Ferris and the Bank dated November 30,
          2000. Exhibit is incorporated by reference to Exhibit 10.18 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.19     The First National Bank of Litchfield Executive Incentive Retirement
          Agreement between John S. Newton and the Bank dated December 21, 2000.
          Exhibit is incorporated by reference to Exhibit 10.19 set forth in the
          Company's Annual Report in Form 10-KSB for the fiscal year ended
          December 31, 2000 as filed with the Securities and Exchange Commission
          on April 2, 2001.

10.20     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between Charles E. Orr and the Bank dated November 29, 2000.
          Exhibit is incorporated by reference to Exhibit 10.20 set forth in the
          Company's Annual Report in Form 10-KSB for the fiscal year ended
          December 31, 2000 as filed with the Securities and Exchange Commission
          on April 2, 2001.

10.21     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between Patricia D. Werner and the Bank dated November 30,
          2000. Exhibit is incorporated by reference to Exhibit 10.21 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.22     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between Clayton L. Blick and the Bank dated December 4,
          2000. Exhibit is incorporated by reference to Exhibit 10.22 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.23     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between George M. Madsen and the Bank dated December 7,
          2000. Exhibit is incorporated by reference to Exhibit 10.23 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.24     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between William J. Sweetman and the Bank dated December 20,
          2000. Exhibit is incorporated by reference to Exhibit 10.24 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.25     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between H. Ray Underwood and the Bank dated December 20,
          2000. Exhibit is incorporated by reference to Exhibit 10.25 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.26     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between Bernice D. Fuessenich and the Bank dated December
          21, 2000. Exhibit is incorporated by reference to Exhibit 10.26 set
          forth in the Company's Annual Report in Form 10-KSB for the fiscal
          year ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

                                       21

<PAGE>

10.27     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between Thomas A. Kendall and the Bank dated December 26,
          2000. Exhibit is incorporated by reference to Exhibit 10.27 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.28     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between Ernest W. Clock and the Bank dated December 26,
          2000. Exhibit is incorporated by reference to Exhibit 10.28 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.29     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between Perley H. Grimes and the Bank dated December 27,
          2000. Exhibit is incorporated by reference to Exhibit 10.29 set forth
          in the Company's Annual Report in Form 10-KSB for the fiscal year
          ended December 31, 2000 as filed with the Securities and Exchange
          Commission on April 2, 2001.

10.30     The First National Bank of Litchfield Director Incentive Retirement
          Agreement between John H. Field and the Bank dated December 4, 2000.
          Exhibit is incorporated by reference to Exhibit 10.30 set forth in the
          Company's Annual Report in Form 10-KSB for the fiscal year ended
          December 31, 2000 as filed with the Securities and Exchange Commission
          on April 2, 2001.

21.       List of Subsidiaries of First Litchfield Financial Corporation.
          Exhibit is incorporated by reference to Exhibit 21 set forth in the
          Company's Registration Statement on Form 10-SB as filed with the
          Securities and Exchange Commission on January 7, 2000.


B.        Reports on Form 8-K

          The Company filed a Form 8-K on August 30, 2001 to report that the
          Company's Board of Directors declared a quarterly cash dividend of $
          .10 per share to be paid on October 25, 2001 to shareholders of record
          as of September 7, 2001.

                                       22

<PAGE>


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:   November 13, 2001         FIRST LITCHFIELD FINANCIAL CORPORATION


                                   By:  /s/ Jerome J. Whalen
                                         - - - - - - - - - - - - - - - - - -
                                         Jerome J. Whalen, President and
                                         Chief Executive Officer


Dated:  November 13, 2001          By:  /s/ Carroll A. Pereira
                                         - - - - - - - - - - - - - - - - - -
                                         Carroll A. Pereira, Treasurer
                                         (Principal Accounting Officer)

                                       23