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

                                    FORM 10-Q

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

                  For the Quarterly period ended: June 30, 2007

[_]   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 or 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

           For the transition period from ___________ to ___________.

                         Commission File Number: 0-28815

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


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

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

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

Indicate  by check  mark  whether  the  Registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the past 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.
                                 Yes [X]    No [_]

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

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

                                 Yes [_]    No [X]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common equity,  as of the latest  practicable  date:  2,257,748 shares of Common
Stock, par value $.01 per share, were outstanding at August 8, 2007.

                                       1
<page>

                     FIRST LITCHFIELD FINANCIAL CORPORATION
                                    FORM 10-Q
                                      INDEX

                                                                            Page
                                                                            ----
Part I - Financial Information

Item 1 - Financial Statements

       Consolidated Balance Sheets - June 30, 2007 and December 31, 2006
        (unaudited) .......................................................    3

       Consolidated Statements of Income - Three and six months ended
        June 30, 2007 and 2006 (unaudited) ................................    4

       Consolidated Statements of Comprehensive Income - Six months ended
        June 30, 2007 and 2006 (unaudited) ................................    5

       Consolidated Statements of Cash Flows - Six months ended
        June 30, 2007 and 2006 (unaudited) ................................    6

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


       Item 2 - Management's Discussion and Analysis of Financial Condition
       and Results of Operations ..........................................   15

       Item 3 - Quantitative and Qualitative Disclosures about Market Risk    26

       Item 4 - Controls and Procedures ...................................   26


Part II - Other Information

       Item 1 - Legal Proceedings .........................................   27

       Item 1A - Risk Factors .............................................   27

       Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds   27

       Item 3 - Defaults Upon Senior Securities ...........................   27

       Item 4 - Submission of Matters to a Vote of Security Holders .......   27

       Item 5 - Other Information .........................................   29

       Item 6 - Exhibits ..................................................   30

Signatures ................................................................   31

                                       2
<page>
<table>
<caption>

                                        Part 1 - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS
-----------------------------

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS                                                      June 30,        December 31,
                                                                                   2007              2006
                                                                               -------------    -------------
                                                                                (Unaudited)

                                                                                <c>              <c>

ASSETS
    Cash and due from banks                                                    $   9,564,595    $  21,501,240
    Interest - bearing due from banks                                              5,156,207        7,696,397
                                                                               -------------    -------------
                                              CASH AND CASH EQUIVALENTS           14,720,802       29,197,637
                                                                               -------------    -------------
   Securities:
     Available for sale securities, at fair value                                136,012,705      147,780,275
     Held to maturity securities (fair value $36,070-2007 and $39,974-2006)           36,695           40,516
                                                                               -------------    -------------

                                                       TOTAL SECURITIES          136,049,400      147,820,791
                                                                               -------------    -------------

   Federal Home Loan Bank stock, at cost                                           4,613,600        4,443,400
   Federal Reserve Bank stock, at cost                                               225,850          225,850
   Other restricted stock, at cost                                                    95,000           80,000

   Loans held for sale                                                             1,301,000        1,042,183

   Loan and lease receivables, net of allowance for loan and lease
                 losses of  $2,123,020 -2007, $2,106,100 -2006
                                                   NET LOANS AND LEASES          306,854,855      293,900,025

   Premises and equipment, net                                                     7,915,502        7,440,316
   Deferred income taxes                                                           1,762,363        2,173,033
   Accrued interest receivable                                                     2,662,363        2,598,726
   Cash surrender value of insurance                                               9,824,377        9,636,461
   Other assets                                                                    3,830,288        2,673,935
                                                                               -------------    -------------

                                                           TOTAL ASSETS        $ 489,918,782    $ 501,232,357
                                                                               =============    =============

LIABILITIES
   Deposits:
     Noninterest bearing                                                       $  72,753,534    $  68,501,750
     Interest bearing                                                            260,535,268      264,927,124
                                                                               -------------    -------------
                                                         TOTAL DEPOSITS          333,288,802      333,428,874
                                                                               -------------    -------------

   Federal Home Loan Bank advances                                                77,155,000       67,000,000
   Repurchase agreements with financial institutions                              28,550,000       47,200,000
   Repurchase agreements with customers                                            8,823,209       12,206,023
   Junior subordinated debt issued by unconsolidated trusts                       10,104,000       10,104,000
   Capital lease obligation                                                        1,092,219        1,100,644
   Accrued expenses and other liabilities                                          5,080,826        3,936,622
                                                                               -------------    -------------

                                                      TOTAL LIABILITIES          464,094,056      474,976,163
                                                                               -------------    -------------
   Minority interest                                                                  50,000           50,000
   Commitments and contingencies                                                          --               --

SHAREHOLDERS' EQUITY
   Preferred stock $.00001 par value; 1,000,000 shares authorized, no shares
   outstanding Common stock $.01 par value
     Authorized - 5,000,000 shares
     2007 - Issued - 2,376,180 shares, outstanding - 2,257,748 shares
     2006 - Issued - 2,372,434 shares, outstanding - 2,254,002 shares                 23,772           23,724
   Capital surplus                                                                25,898,162       25,840,623
   Retained earnings                                                               4,261,345        3,953,216
   Less: Treasury stock at cost- 118,432 shares                                     (794,756)        (794,756)
   Accumulated other comprehensive loss, net of taxes                             (3,613,797)      (2,816,613)
                                                                               -------------    -------------
                                             TOTAL SHAREHOLDERS' EQUITY           25,774,726       26,206,194
                                                                               -------------    -------------

                             TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $ 489,918,782    $ 501,232,357
                                                                               =============    =============

See Notes to Consolidated Financial Statements.

                                                      3
</table>
<page>
<table>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

                                                            Three Months Ended June 30,      Six Months Ended June 30,
                                                               2007             2006           2007             2006
                                                           ------------    ------------    ------------    ------------

                                                             <c>             <c>             <c>             <c>
INTEREST AND DIVIDEND INCOME
   Interest and fees on loans and leases                   $  5,221,275    $  4,081,705    $ 10,165,123    $  7,906,320

   Interest and dividends on securities:
      Mortgage-backed                                           653,247         830,888       1,334,231       1,691,881
      US Treasury and other                                     540,976         725,156       1,098,749       1,439,751
      State & municipal securities                              338,416         368,057         676,810         737,267
      Corporate bonds & other securities                        185,131         168,632         370,326         275,034
   Other interest income                                         28,814          10,481         199,449          11,875
                                                           ------------    ------------    ------------    ------------
     TOTAL INTEREST AND DIVIDEND INCOME                       6,967,859       6,184,919      13,844,688      12,062,128
                                                           ------------    ------------    ------------    ------------

INTEREST EXPENSE
   Interest on deposits:
      Savings                                                   150,791          25,008         330,080          49,636
      Money market                                              551,250         359,224       1,049,833         661,510
      Time certificates of deposit in denominations
          $100,000 or more                                      708,093         204,507       1,562,631         427,836
      Other time certificates of deposit                        872,119         779,678       1,733,312       1,311,929
                                                           ------------    ------------    ------------    ------------
                              TOTAL INTEREST ON DEPOSITS      2,282,253       1,368,417       4,675,856       2,450,911
   Interest on Federal Home Loan Bank advances                  845,447         648,045       1,527,146       1,321,881
   Interest on repurchase agreements                            326,096         820,065         733,487       1,549,610
   Interest on subordinated debt                                198,275         148,378         395,896         277,905
   Interest on capital lease obligation                          14,510              --          29,075              --
                                                           ------------    ------------    ------------    ------------
                                  TOTAL INTEREST EXPENSE      3,666,581       2,984,905       7,361,460       5,600,307
                                                           ------------    ------------    ------------    ------------
                                     NET INTEREST INCOME      3,301,278       3,200,014       6,483,228       6,461,821
PROVISION FOR LOAN  AND LEASE LOSSES                                 --         105,000         105,000         210,000
                                                           ------------    ------------    ------------    ------------
                               NET INTEREST INCOME AFTER
                                  PROVISION FOR LOAN AND
                                            LEASE LOSSES      3,301,278       3,095,014       6,378,228       6,251,821
                                                           ------------    ------------    ------------    ------------
NONINTEREST INCOME
   Banking service charges and fees                             335,434         291,444         646,666         558,423
   Trust                                                        340,647         281,896         670,236         541,872
   Losses on the sales of available for sale securities              --         (17,633)        (14,350)        (17,633)
   Other                                                        150,718         148,770         318,819         289,310
                                                           ------------    ------------    ------------    ------------
                                TOTAL NONINTEREST INCOME        826,799         704,477       1,621,371       1,371,972
                                                           ------------    ------------    ------------    ------------
NONINTEREST EXPENSE
   Salaries                                                   1,530,909       1,330,910       3,134,724       2,560,006
   Employee benefits                                            382,119         305,313         809,067         729,921
   Net occupancy                                                261,855         235,580         536,913         456,255
   Equipment                                                    167,535         115,274         336,056         235,080
   Legal fees                                                    86,526          95,864         131,251         146,842
   Directors fees                                                52,278          33,825         108,453          74,350
   Computer services                                            196,213         250,658         457,371         475,504
   Supplies                                                      41,786          43,725          84,579          83,510
   Commissions, services and fees                               144,738         116,660         230,254         261,151
   Postage                                                       25,168          33,754          67,114          72,009
   Advertising                                                  105,902         228,311         169,916         332,728
   Other                                                        457,070         493,658         843,307         952,425
                                                           ------------    ------------    ------------    ------------
                              TOTAL NONINTEREST EXPENSES      3,452,099       3,283,532       6,909,005       6,379,781
                                                           ------------    ------------    ------------    ------------
                              INCOME BEFORE INCOME TAXES        675,978         515,959       1,090,594       1,244,012
PROVISION FOR INCOME TAXES                                       94,212          40,516         105,934         145,209
                                                           ------------    ------------    ------------    ------------
                                              NET INCOME   $    581,766    $    475,443    $    984,660    $  1,098,803
                                                           ============    ============    ============    ============
INCOME PER SHARE
                              BASIC NET INCOME PER SHARE   $       0.26    $       0.21    $       0.44    $       0.49
                                                           ============    ============    ============    ============
                            DILUTED NET INCOME PER SHARE   $       0.26    $       0.21    $       0.44    $       0.49
                                                           ============    ============    ============    ============

   Dividends Per Share                                     $       0.15    $       0.15    $       0.30    $       0.30
                                                           ============    ============    ============    ============


                                                              4
</table>
<page>
<table>
<caption>


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

Three months ended June 30,                                                    2007           2006
                                                                           -----------    -----------

                                                                        <c>            <c>

Net income                                                                 $   581,766    $   475,443
Unrealized holding losses on securities:
       Unrealized holding losses arising during the period, net of taxes    (1,231,590)    (1,065,351)
                                                                           -----------    -----------

Comprehensive loss                                                         $  (649,824)   $  (589,908)
                                                                           ===========    ===========

<caption>

Six months ended June 30,                                                      2007           2006
                                                                           -----------    -----------

                                                                        <c>            <c>
Net income                                                                 $   984,660    $ 1,098,803
Unrealized holding losses on securities:
       Unrealized holding losses arising during the period, net of taxes      (797,184)    (2,285,131)
                                                                           -----------    -----------

Comprehensive income (loss)                                                $   187,476    $(1,186,328)
                                                                           ===========    ===========




See Notes to Consolidated Financial Statements.

</table>


                                                      5
<page>
<table>
<caption>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)
                                                                                 Six Months Ended June 30,
                                                                                   2007            2006
                                                                               ------------    ------------

                                                                                 <c>             <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                     $    984,660    $  1,098,803
Adjustments to reconcile net income to net cash provided by (used in)
  operating activities:
       Amortization and accretion of premiums and discounts
          on investment securities, net                                              96,598         113,570
       Provision for loan and lease losses                                          105,000         210,000
       Depreciation and amortization                                                361,876         225,102
       Losses on sales of available for sale securities                              14,350          17,633
       Loans originated for sale                                                 (2,682,000)             --
       Proceeds from sale of loans held for sale                                  2,432,858              --
       Gains on sales of loans held for sale                                         (9,675)             --
       Gain on disposal of premises and equipment                                        --            (100)
       Increase in accrued interest receivable                                      (63,637)       (260,294)
       Increase in other assets                                                    (316,377)       (228,279)
       Increase in cash surrender value of insurance                               (187,916)       (186,418)
       Increase in deferred loan origination costs                                  (14,959)        (15,516)
       Increase (decrease) in accrued expenses and other liabilities              1,143,642      (3,671,165)
                                                                               ------------    ------------

           Net cash provided by (used in) operating activities                    1,864,420      (2,696,664)
                                                                               ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
       Proceeds from maturities and principal payments                            5,463,118       7,289,510
       Purchases                                                                         --     (10,862,401)
       Proceeds from sales                                                        4,985,650       2,706,878
Held to maturity mortgage-backed securities:
       Proceeds from maturities and principal payments                                3,821           4,117
Purchase of restricted stock                                                        (15,000)        (30,000)
Redemption of Federal Home Loan Bank stock                                           10,500              --
Purchase of Federal Home Loan Bank stock                                           (180,700)             --
Investment in First Litchfield Statutory Trust II                                        --         (93,000)
Net increase in loans  and leases                                               (13,126,888)    (25,684,148)
Purchase of loans                                                                        --      (3,472,995)
Proceeds from the sale of premises and equipment                                         --             100
Purchase of premises and equipment                                                 (837,062)       (762,873)
                                                                               ------------    ------------

       Net cash used in investing activities                                     (3,656,561)    (30,904,812)
                                                                               ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in savings, money market and
  demand deposits                                                                14,186,803      (6,063,325)
Net (decrease) increase in certificates of deposit                              (14,326,875)     31,296,434
Proceeds from Federal Home Loan Bank advances                                    67,000,000      17,000,000
Repayments on Federal Home Loan Bank advances                                   (60,000,000)    (10,000,000)
Net  increase (decrease) in Federal Home Loan Bank overnight borrowings           3,155,000     (13,216,000)
Net (decrease) increase in repurchase agreements with financial institutions    (18,650,000)      7,000,000
Net (decrease) increase in repurchase agreements with customers                  (3,382,814)      3,637,819
Proceeds from issuance of subordinated debt                                              --       3,093,000
Principal payments on capital lease obligation                                       (8,425)             --
Proceeds from the exercise of stock options                                          38,419           8,744
Tax benefit of stock options exercised                                               19,168           7,557
Dividends paid on common stock                                                     (675,970)       (640,912)
                                                                               ------------    ------------

       Net cash (used in) provided by financing activities                      (12,644,694)     32,123,317
                                                                               ------------    ------------

       Net decrease in cash and cash equivalents                                (14,476,835)     (1,478,159)
CASH AND CASH EQUIVALENTS, at beginning of period                                29,197,637      18,711,537
                                                                               ------------    ------------

CASH AND CASH EQUIVALENTS, at end of period                                    $ 14,720,802    $ 17,233,378
                                                                               ============    ============

SUPPLEMENTAL INFORMATION Cash paid during the period for:
       Interest on deposits and borrowings                                     $  7,286,943    $  5,675,524
                                                                               ============    ============
       Income taxes                                                            $        500    $    900,400
                                                                               ============    ============
Non-cash investing and financing activities:
       Transfer of loans to repossessed  assets                                $     82,017    $         --
                                                                               ============    ============
       Accrued dividends declared                                              $    337,912    $    330,990
                                                                               ============    ============
       Treasury stock contributed to the ESOP                                  $         --    $     67,592
                                                                               ============    ============

See Notes to Consolidated Financial Statements.

                                                      6
</table>
<page>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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

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

      These  financial  statements  reflect,  in the opinion of Management,  all
      adjustments,  consisting of only normal recurring  adjustments,  necessary
      for a fair  presentation  of the  Company's  financial  position  and  the
      results of its  operations  and its cash flows for the periods  presented.
      The results of operations for the three and six months ended June 30, 2007
      are not  necessarily  indicative of the results of operations  that may be
      expected for all of 2007.

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

      The following is information about the computation of net income per share
      for the three and six month periods ended June 30, 2007 and 2006. The 2006
      information  has been  restated  to give  retroactive  effect to all stock
      dividends for the periods presented.

<table>
<caption>
                                                           Three Months Ended
                                                             June 30, 2007
                                                  ------------------------------------
                                                     Net                    Per Share
                                                    Income       Shares       Amount
                                                  ----------   ----------   ----------

                                               <c>           <c>         <c>
      Basic Net Income Per Share
        Income available to common shareholders   $  581,766    2,256,987   $      .26
                                                                            ==========

      Effect of Dilutive Securities
        Options Outstanding                               --        3,764

      Diluted Net Income Per Share
        Income available to common shareholders
                                                  ----------   ----------
        plus assumed conversions                  $  581,766    2,260,751   $      .26
                                                  ==========   ==========   ==========

<caption>
                                                           Three Months Ended
                                                             June 30, 2006
                                                  ------------------------------------
                                                     Net                    Per Share
                                                    Income       Shares       Amount
                                                  ----------   ----------   ----------

                                               <c>           <c>         <c>
      Basic Net Income Per Share
        Income available to common shareholders   $  475,443    2,244,859   $      .21
                                                                            ==========

      Effect of Dilutive Securities
        Options Outstanding                               --       12,260

      Diluted Net Income Per Share
        Income available to common shareholders
                                                  ----------   ----------
        plus assumed conversions                  $  475,443    2,257,119   $      .21
                                                  ==========   ==========   ==========

                                       7
<page>
<caption>
                                                            Six Months Ended
                                                             June 30, 2007
                                                  ------------------------------------
                                                     Net                    Per Share
                                                    Income       Shares       Amount
                                                  ----------   ----------   ----------

                                               <c>           <c>         <c>
      Basic Net Income Per Share
        Income available to common shareholders   $  984,660    2,256,439   $      .44
                                                                            ==========

      Effect of Dilutive Securities
        Options Outstanding                               --        4,234

      Diluted Net Income Per Share
        Income available to common shareholders
                                                  ----------   ----------
        plus assumed conversions                  $  984,660    2,260,673   $      .44
                                                  ==========   ==========   ==========

<caption>
                                                            Six Months Ended
                                                             June 30, 2006
                                                  ------------------------------------
                                                     Net                    Per Share
                                                    Income       Shares       Amount
                                                  ----------   ----------   ----------

                                               <c>           <c>         <c>
      Basic Net Income Per Share
        Income available to common shareholders   $1,098,803    2,244,023   $      .49
                                                                            ==========

      Effect of Dilutive Securities
        Options Outstanding                               --       12,191

      Diluted Net Income Per Share
        Income available to common shareholders
                                                  ----------   ----------
        plus assumed conversions                  $1,098,803    2,256,214   $      .49
                                                  ==========   ==========   ==========
</table>

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
                                                                                          June 30, 2007
                                                                           -------------------------------------------

                                                                            Before-Tax         Tax         Net-of-Tax
                                                                              Amount          Effect         Amount
                                                                           ------------    ------------   ------------

                                                                        <c>             <c>            <c>
Unrealized holding losses arising during the period                        $ (1,866,045)   $    634,455   $ (1,231,590)
Add: reclassification adjustment for amounts recognized in net income                --              --             --
                                                                           ------------    ------------   ------------

Unrealized holding losses on available for sale securities, net of taxes   $ (1,866,045)   $    634,455   $ (1,231,590)
                                                                           ============    ============   ============

<caption>
                                                                                       Three Months Ended
                                                                                          June 30, 2006
                                                                           -------------------------------------------

                                                                            Before-Tax         Tax         Net-of-Tax
                                                                              Amount          Effect         Amount
                                                                           ------------    ------------   ------------

                                                                        <c>             <c>            <c>

Unrealized holding losses arising during the period                        $ (1,631,801)   $    554,812    $ (1,076,989)
Add: reclassification adjustment for amounts recognized in net income            17,633          (5,995)         11,638
                                                                           ------------    ------------    ------------

Unrealized holding losses on available for sale securities, net of taxes   $ (1,614,168)   $    548,817    $ (1,065,351)
                                                                           ============    ============    ============

<caption>
                                                                                        Six Months Ended
                                                                                          June 30, 2007
                                                                           -------------------------------------------

                                                                            Before-Tax         Tax         Net-of-Tax
                                                                              Amount          Effect         Amount
                                                                           ------------    ------------   ------------

                                                                        <c>             <c>            <c>

Unrealized holding losses arising during the period                        $ (1,222,204)   $    415,549    $   (806,655)
Add: reclassification adjustment for amounts recognized in net income            14,350          (4,879)          9,471
                                                                           ------------    ------------    ------------

Unrealized holding losses on available for sale securities, net of taxes   $ (1,207,854)   $    410,670    $   (797,184)
                                                                           ============    ============    ============


                                       8
<page>

<caption>
                                                                                        Six Months Ended
                                                                                          June 30, 2006
                                                                           -------------------------------------------

                                                                            Before-Tax         Tax         Net-of-Tax
                                                                              Amount          Effect         Amount
                                                                           ------------    ------------   ------------

                                                                        <c>             <c>            <c>

Unrealized holding losses arising during the period                      $ (3,479,952)   $  1,183,183    $ (2,296,769)
Add: reclassification adjustment for amounts recognized in net income          17,633          (5,995)         11,638
                                                                         ------------    ------------    ------------

Unrealized holding loss on available for sale securities, net of taxes   $ (3,462,319)   $  1,177,188    $ (2,285,131)
                                                                         ============    ============    ============
</table>

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

Components of net periodic benefit cost for the three months ended June 30:

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

      Components of net periodic benefit cost for the six months ended June 30:

                                           2007         2006
                                        ---------    ---------
      Service cost                      $      --    $      --
      Interest cost                        92,084       96,580
      Expected return on plan assets     (100,124)    (107,430)
      Amortization of unrealized loss      33,904       34,910
                                        ---------    ---------
      Net periodic benefit cost         $  25,864    $  24,060
                                        =========    =========

      The Company adopted SFAS No. 158 at December 31, 2006 and, as a result, an
      adjustment  to  record  the  Company's   unfunded  pension   liability  of
      $1,152,582 was made to decrease prepaid pension costs and increase accrued
      expenses  and other  liabilities.  This amount,  net of deferred  taxes of
      $391,878,  was incorrectly  recorded as a component of other comprehensive
      income  of  $760,704  for  2006.   The  Company   intends  to  revise  the
      presentation  of the  Other  Comprehensive  Income  in its next  form 10-K
      filing for the year ended  December  31,  2007.  A summary of the  amounts
      reported for the year ended December 31, 2006 is as follows:

                                                As Reported     As Revised
                                                -----------    -----------
      Comprehensive Income:
          Net income                            $ 1,408,903    $ 1,408,903
          Unrealized holding gain on
             available for sale securities,
             net of taxes                           734,250        734,250

                                       9
<page>

          Adjustment to unfunded pension
              liability to adopt SFAS No. 158      (760,704)            --
                                                -----------    -----------
        Comprehensive Income                    $ 1,382,449    $ 2,143,153
                                                ===========    ===========

       Note S - Total other comprehensive
          (loss) income                         ($   26,454)   $   734,250
                                                ===========    ===========

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

              due 7/01/07      $    4,155,000 @ 5.52%
              due 7/13/07          10,000,000 @ 5.29%
              due 7/16/07           4,500,000 @ 2.59%
              due 8/27/07           5,000,000 @ 3.76%
              due 7/18/08           4,500,000 @ 3.27%
              due 8/19/09           7,000,000 @ 5.30%VAR
              due 6/24/10           5,000,000 @ 4.15%
              due 5/29/12           5,000,000 @ 4.32%
              due 9/04/12           5,000,000 @ 4.38%
              due 5/02/14           7,000,000 @ 4.59%, callable 5/2/10
              due 5/05/16          10,000,000 @ 4.53%, callable 8/7/07
              due 3/23/17          10,000,000 @ 4.29%, callable 3/23/09
                               --------------
                 Total         $   77,155,000
                               ==============

     As of June 30, 2007, the Bank had borrowings  under  repurchase  agreements
     with financial  institutions  totaling  $28,550,000.  This amount  includes
     borrowings:

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

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

<table>
<caption>
                                                             For the three months ended June 30,
                                                                 2007                       2006
                                                       ----------------------     ----------------------

                                                       <c>               <c>      <c>               <c>
Provision for income taxes at statutory Federal rate   $ 229,833           34%    $ 175,426           34%
Increase (decrease) resulting from:
   Tax exempt income                                    (145,860)         (21)     (154,029)         (30)
   Nondeductible interest expense                         14,982            2        13,767            3
   Other                                                  (4,743)          (1)        5,352            1
                                                       ----------------------     ----------------------
Provision for income taxes                             $  94,212           14%    $  40,516            8%
                                                       ======================     ======================
</table>

                                       10
<page>
<table>
<caption>

                                                                 For the six months ended June 30,
                                                                 2007                       2006
                                                       ----------------------     ----------------------

                                                    <c>                 <c>    <c>                 <c>
Provision for income taxes at statutory Federal rate   $ 370,802           34%    $ 422,964           34%
Increase (decrease) resulting from:
   Tax exempt income                                    (295,209)         (27)     (314,689)         (25)
   Nondeductible interest expense                         29,814            3        26,226            2
   Other                                                     527            0        10,708            1
                                                       ----------------------     ----------------------
Provision for income taxes                             $ 105,934           10%    $ 145,209           12%
                                                       ======================     ======================
</table>

8.   The amortized cost, gross  unrealized  gains,  gross unrealized  losses and
     approximate fair values of securities which are classified as available for
     sale and held to  maturity at June 30,  2007 and  December  31, 2006 are as
     follows:

<table>
<caption>
AVAILABLE FOR SALE                                            June 30, 2007
                                        -----------------------------------------------------------
                                                          Gross           Gross
                                          Amortized     Unrealized      Unrealized         Fair
                                            Cost          Gains           Losses           Value
                                        ------------   ------------    ------------    ------------

                                       <c>               <c>            <c>           <c>
Debt Securities:
   U.S. Treasury securities             $  4,009,270   $         --    $    (21,301)   $  3,987,969
    U.S. Government Agency securities     33,992,381             --      (1,512,540)     32,479,841
    State and Municipal Obligations       31,190,795        123,786        (279,033)     31,035,548
   Corporate and Other Bonds              11,276,001         78,999              --      11,355,000
                                        ------------   ------------    ------------    ------------

                                          80,468,447        202,785      (1,812,874)     78,858,358
                                        ------------   ------------    ------------    ------------


Mortgage-Backed Securities:
   GNMA                                      820,663             --         (13,471)        807,192
   FNMA                                   43,372,826         12,228      (2,035,402)     41,349,652
   FHLMC                                  13,673,637             --        (593,968)     13,079,669
                                        ------------   ------------    ------------    ------------
                                          57,867,126         12,228      (2,642,841)     55,236,513
                                        ------------   ------------    ------------    ------------

Marketable Equity Securities               2,000,000             --         (82,166)      1,917,834
                                        ------------   ------------    ------------    ------------

Total available for sale securities     $140,335,573   $    215,013    $ (4,537,881)   $136,012,705
                                        ============   ============    ============    ============
<caption>
AVAILABLE FOR SALE                                         December 31, 2006
                                        -----------------------------------------------------------
                                                          Gross           Gross
                                          Amortized     Unrealized      Unrealized         Fair
                                            Cost          Gains           Losses           Value
                                        ------------   ------------    ------------    ------------

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

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

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

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

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

                                       11
<page>
<table>
<caption>

HELD TO MATURITY                                     June 30, 2007
                              ----------------------------------------------------------
                                                Gross          Gross
                                Amortized     Unrealized     Unrealized         Fair
                                  Cost          Gains          Losses           Value
                              ------------   ------------   ------------    ------------

                           <c>            <c>            <c>             <c>
Mortgage-Backed Securities:
GNMA                          $     36,695   $         --   $       (625)   $     36,070
                              ============   ============   ============    ============

<caption>

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

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

     At June 30, 2007, gross unrealized holding losses on available for sale and
     held to maturity  securities  totaled  $4,538,506.  Of the securities  with
     unrealized  losses,  there were forty-three  securities that have been in a
     continuous  unrealized loss position for a period of twelve months or more.
     The unrealized  losses on these securities  totaled  $4,139,345 at June 30,
     2007.  Management  does not believe that any of the  unrealized  losses are
     other than temporary as they relate  primarily to debt and  mortgage-backed
     securities  issued  by  U.S.  Government  and  U.S.  Government   sponsored
     agencies,  and are due to changes in the  interest  rate  environment.  The
     Company has both the intent and the ability to hold these  securities until
     maturity or until the fair value fully  recovers.  In addition,  Management
     considers the issuers of the  securities to be  financially  sound and that
     the Company will receive all contractual  principal and interest related to
     these  investments.  As a result,  it is anticipated  that these unrealized
     losses  will not have a negative  impact on future  earnings or a permanent
     effect on capital.  However,  Management  periodically evaluates investment
     alternatives to properly  manage the overall  balance sheet.  The timing of
     sales and reinvestments is based on various factors, including Management's
     evaluation of interest rate risks and liquidity needs.

9.    A summary  of the Bank's  loan and lease  portfolio  at June 30,  2007 and
      December 31, 2006 is as follows:

                                                  2007            2006
                                             -------------    -------------
   Real estate-residential mortgage          $ 184,228,354    $ 177,082,143
   Real estate-commercial mortgage              54,613,465       53,318,351
   Real estate-construction                     28,741,253       30,605,787
   Commercial                                   27,296,518       26,949,985
   Leases                                        6,737,213               --
   Installment                                   6,673,474        7,167,980
   Other                                            59,694          171,752
                                             -------------    -------------
                    TOTAL LOANS AND LEASES     308,349,971      295,295,998
   Net deferred loan origination costs             390,136          375,177
   Premiums on purchased loans                     237,768          334,950
   Allowance for loan and lease losses          (2,123,020)      (2,106,100)
                                             -------------    -------------
                    NET LOANS AND LEASES     $ 306,854,855    $ 293,900,025
                                             =============    =============

                                       12
<page>

10.   A summary of the Bank's deposits at June 30, 2007 and December 31, 2006 is
      as follows:

                                                       2007           2006
                                                   ------------   ------------
Noninterest bearing:
    Demand                                         $ 72,753,534   $ 68,501,750
                                                   ------------   ------------
Interest bearing:
    Savings                                          48,072,663     45,304,667
    Money market                                     78,246,958     71,079,935
    Time certificates of deposit in
      denominations of $100,000 or more              56,544,185     72,781,087
    Other time certificates of  deposit              77,671,462     75,761,435
                                                   ------------   ------------
         Total Interest bearing deposits            260,535,268    264,927,124
                                                   ------------   ------------
                                  TOTAL DEPOSITS   $333,288,802   $333,428,874
                                                   ============   ============

      Included  in  deposits  as of June 30,  2007  and  December  31,  2006 are
      approximately  $8,875,000  and  $25,323,000,   respectively,  of  brokered
      deposits which have varying maturities through September 2007.

11.   Beginning  in  2007,  with  First  Litchfield  Leasing  Corporation  fully
      operational,  the  Company  has two  operating  segments  for  purposes of
      reporting business line results.  These segments are Community Banking and
      Leasing.  The  Community  Banking  segment is defined as all the operating
      results of The First National Bank of Litchfield.  The Leasing  segment is
      defined as the results of First Litchfield  Leasing  Corporation.  Because
      First Litchfield  Leasing  Corporation is a new subsidiary,  methodologies
      and organizational  hierarchies are newly developed and will be subject to
      periodic review and revision. The following presents the operating results
      and  total  assets  for  the  segments  of  First   Litchfield   Financial
      Corporation for the three and six months ended June 30, 2007.

<table>
<caption>
                                                                       Three Months Ended
                                                                          June 30, 2007
                                                        -----------------------------------------------
                                                          Community                       Consolidated
                                                           Banking          Leasing           Total
                                                        -------------    -------------    -------------

                                                         <c>                 <c>           <c>
Net interest income                                     $   3,258,305    $      42,973    $   3,301,278
Provision for credit losses                                   (22,183)          22,183               --
                                                        -------------    -------------    -------------

Net interest income after provision for credit losses       3,280,488           20,790        3,301,278
Noninterest income                                            826,799               --          826,799
Noninterest expense                                         3,365,541           86,558        3,452,099
                                                        -------------    -------------    -------------

Income (loss) before income taxes                             741,746          (65,768)         675,978
Income tax provision (benefit)                                117,002          (22,790)          94,212
                                                        -------------    -------------    -------------

Net income (loss)                                       $     624,744    $     (42,978)   $     581,766
                                                        =============    =============    =============
<caption>
                                                                         Six Months Ended
                                                                          June 30, 2007
                                                        -----------------------------------------------
                                                          Community                       Consolidated
                                                           Banking          Leasing           Total
                                                        -------------    -------------    -------------

                                                     <c>              <c>              <c>
Net interest income                                     $   6,404,739    $      78,489    $   6,483,228
Provision for credit losses                                    54,471           50,529          105,000
                                                        -------------    -------------    -------------
Net interest income after provision for credit losses       6,350,268           27,960        6,378,228
Noninterest income                                          1,621,371               --        1,621,371
Noninterest expense                                         6,741,461          167,544        6,909,005
                                                        -------------    -------------    -------------

Income (loss) before income taxes                           1,230,178         (139,584)       1,090,594
Income tax provision (benefit)                                153,821          (47,887)         105,934
                                                        -------------    -------------    -------------
Net income (loss)                                       $   1,076,357    $     (91,697)   $     984,660
                                                        =============    =============    =============

Total assets as of June 30, 2007                        $ 482,392,240    $   7,526,542    $ 489,918,782
                                                        =============    =============    =============
</table>

                                       13
<page>

12.  Recent Accounting Pronouncements

     In September 2006, the Financial  Accounting  Standards Board (FASB) issued
     Statement of Financial  Accountings  Standard  (SFAS) No. 157,  "Fair Value
     Measurements"  ("SFAS  157"),  which  defines  fair  value,  establishes  a
     framework  for  measuring  fair  value  in  generally  accepted  accounting
     principles and expands disclosures about fair value measurements.  SFAS 157
     is effective for fiscal years  beginning  after November 15, 2007 and, with
     certain  exceptions which are not believed to be applicable to the Company,
     is to be applied  prospectively.  Earlier application is permitted provided
     that the reporting  entity has not yet issued  interim or annual  financial
     statements  for that fiscal year.  The Company did not elect to early adopt
     SFAS 157 and is currently  evaluating  the impact that the adoption of SFAS
     157 will have on its consolidated financial statements.

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

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

     In June 2006, the FASB issued FASB Interpretation  (FIN) No. 48, Accounting
     for Uncertainty in Income Taxes - an  Interpretation  of FASB Statement No.
     109 (FIN 48). FIN 48 clarifies the  accounting  for  uncertainty  in income
     taxes recognized in an entity's financial  statements and provides guidance
     on the recognition,  de-recognition  and measurement of benefits related to
     an entity's  uncertain  income tax  positions.  The Company  adopted FIN 48
     effective  January 1,  2007;  prior to that date,  the  Company  recognized
     liabilities for uncertain tax positions when  disallowance was probable and
     the related amount was  estimable.  The adoption of FIN 48 had no impact to
     the Company's financial statements.  If such amounts are recorded in future
     periods,  the Company  will present any related  interest and  penalties as
     part of the provision for income taxes.

                                       14
<page>


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

GENERAL

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

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

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

As of June 30, 2007, the Company had total assets of  $489,918,782,  which was a
decrease of approximately  $11.3 million or 2.3% from year-end 2006 total assets
of  $501,232,357.  The decrease in assets resulted mainly from decreases in cash
and due from banks and decreases within the securities  portfolio.  The decrease
in assets  enabled  the  Company  to  decrease  its level of  wholesale  funding
throughout the first six months of the year.

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

                                       15
<page>

FINANCIAL CONDITION

Total assets as of June 30, 2007 were $489,918,782, a decrease of $11,313,575 or
2.3% from year-end 2006 total assets of $501,232,357.

The  decrease in assets was due to the  completion  of the fourth  quarter  2006
de-leveraging  strategy  whereby  low  yielding  securities  were  sold with the
purpose of reducing expensive  wholesale  borrowings to improve future earnings.
Although the sale of the securities was completed in December, the completion of
the strategy did not occur until 2007 when the  wholesale  borrowings  were paid
off. Additionally, as part of Management's strategy to optimize the net interest
margin,  during  2007 cash  flows not needed  for the loan  portfolio  have been
utilized to pay down  wholesale  funding,  and have  resulted in the decrease of
assets.

Consistent  with  Management's  intent to improve the yield on earning assets by
shifting the mix of earning assets from the  securities  portfolio into the loan
and lease  portfolio,  net  loans  and  leases  increased  $12,954,830  over the
year-end  2006  amount.   Net  loans  and  leases  as  of  June  30,  2007  were
$306,854,855,  as compared to the year-end  2006 level of  $293,900,025.  Growth
during the first six months of 2007 was mainly in residential mortgage loans and
in leases. The residential mortgage loan portfolio totaled  $184,228,354,  which
was an increase of  $7,146,211  from  year-end  2006.  Growth in these  mortgage
products was primarily in fixed rate loans.  Commercial  mortgage  loans totaled
$54,613,465  increasing 2.4% over their year-end balance and were 17.7% of total
loans. During 2007, the Bank added a new product, leases, to the loan portfolio.
First Litchfield  Leasing  Corporation,  a newly  operational  subsidiary of the
Bank, offers equipment financing  opportunities  through middle market equipment
leasing, in amounts ranging from $150,000 to $1,500,000. Management believes the
addition of the  leasing  products  complements  the Bank's  commercial  lending
product line. Lease receivables were $6,737,213 at June 30, 2007.

As of June 30, 2007, the securities portfolio totaled $136,049,400,  which is an
8.0%  decrease  from the year-end  2006  balance.  The decrease in the portfolio
resulted  from  sales of  securities  during  the first  quarter as well as from
principal  payments  received  on  mortgage-backed  securities  during the first
quarter.  In an effort to  reposition  the  Company's  balance sheet in order to
maximize earning asset yield,  Management has utilized the cash flows from these
payments to fund loan growth.

Cash  and  cash  equivalents  totaled  $14,720,802,   which  is  a  decrease  of
$14,476,835  or  49.6%  from  year-end  2006.  This  decrease  was due to  funds
temporarily invested in interest bearing correspondent bank balances at year-end
as a result of the balance sheet restructuring in December.  As of June 30, 2007
and December 31, 2006, there were no investments in Federal Funds Sold.

Total liabilities were $464,094,056 as of June 30, 2007, which was a decrease of
$10,882,107  from total  liabilities of $474,976,163 as of year-end 2006.  Total
deposits  decreased by $140,072,  or .04% from their year-end  levels.  Brokered
certificates of deposit with financial  institutions decreased from the December
31, 2006 level of  $22,500,000 to $6,000,000 as of June 30, 2007. All categories
of retail  deposits  increased  over  their  respective  year-end  levels.  This
increase is  attributed to the Bank's  expansion due to its new branches  opened
during  2006  as well as to an  increasing  emphasis  on  commercial  and  small
business accounts. Demand deposits as of June 30, 2007 totaled $72,753,534 which
was an increase of $4,251,784 or 6.2%.  Savings deposits  increased  $2,767,996,
due to higher  municipal NOW deposits and  increased  Health  Savings  accounts.
Money market deposits  increased by $7,167,023,  or 10.1%,  due to growth in the
relationship  money market deposit  product and higher balances in deposits held
for the Bank's trust customers.

                                       16
<page>

As of June 30, 2007,  repurchase  agreements with customers totaled  $8,823,209,
which was a decrease of $3,382,814 from the year-end 2006 balance. Because these
accounts  represent  overnight  investments  by commercial  and  municipal  cash
management  customers,  fluctuations  in the  balances  of  these  accounts  are
reflective  of the  temporary  nature of these  funds.  During the first half of
2007, advances under Federal Home Loan Bank borrowings  increased by $10,155,000
while   repurchase   agreements   with  financial   institutions   decreased  by
$18,650,000.  The de-leveraging strategy, deposit growth and the decrease in the
investment portfolio,  enabled the Company to reduce the net wholesale borrowing
level  by  $8,500,000  and  overall  wholesale   funding,   including   brokered
certificate of deposit with financial institutions,  by $25,000,000.  Management
considers  interest rate levels,  the yield curve and the Company's  current and
future  liquidity  needs in determining the funding  structures  utilized by the
Bank.



RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE MONTHS ENDED JUNE 30, 2006

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 on deposits and borrowed
money.   Although  there  are  certain   factors  which  can  be  controlled  by
Management's  policies and actions,  certain  other factors  exist,  such as the
general level of credit  demand,  Federal  Reserve Board  monetary  policy,  and
changes in tax law that are beyond the control of Management.

Net income for the second calendar quarter of 2007 totaled $581,766, which is an
increase of $106,323 or 22.4% from second  quarter  2006  earnings of  $475,443.
Quarterly  basic and  diluted  net  income per share for 2007 were both $.26 per
share, compared to $.21 per basic and diluted share for the same period in 2006.

Net Interest Income

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

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

Interest and dividend income                 $ 6,967,859    $ 6,184,919
Tax-equivalent adjustments                       152,495        169,165
Interest expense                              (3,666,581)    (2,984,905)
                                             -----------    -----------

Net interest income (tax equivalent basis)   $ 3,453,773    $ 3,369,179
                                             ===========    ===========

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
June 30, 2007 and 2006.  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.

                                       17
<page>

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

<table>
<caption>
                                              Three months ended June 30, 2007                Three months ended June 30, 2006
                                       --------------------------------------------    --------------------------------------------
                                                          Interest                                        Interest
                                          Average          Earned/        Yield/          Average          Earned/         Yield/
                                          Balance           Paid           Rate           Balance           Paid            Rate
                                       -------------    -------------   -----------    -------------    -------------   -----------

                                      <c>                <c>                <c>       <c>                <c>                <c>
Assets
Interest Earning Assets:
Loans and leases                       $ 307,243,000    $   5,222,038          6.80%   $ 255,826,000    $   4,082,117          6.38%
Investment securities                    146,742,000        1,869,502          5.10%     191,186,000        2,261,486          4.73%
Other interest earning assets              2,744,000           28,814          4.20%       1,894,000           10,481          2.21%
                                       -------------    -------------                  -------------    -------------

Total interest earning assets            456,729,000        7,120,354          6.24%     448,906,000        6,354,084          5.66%
                                                        -------------   -----------                     -------------   -----------

Allowance for loan  and
  lease losses                            (2,137,000)                                     (1,908,000)

Cash and due from banks                   10,820,000                                      13,807,000
Bank premises and equipment                7,816,000                                       4,677,000
Net unrealized loss on
  securities                              (2,783,000)                                     (6,396,000)
Other assets                              16,914,000                                      17,223,000
                                       -------------                                   -------------

Total Average Assets                   $ 487,359,000                                   $ 476,309,000
                                       =============                                   =============

Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                       $  50,493,000          150,791          1.19%   $  45,223,000           25,008          0.22%
Money Market deposits                     74,980,000          551,250          2.94%      73,180,000          359,224          1.96%
Time deposits                            136,211,000        1,580,212          4.64%     105,928,000          984,185          3.72%
Borrowed funds                           124,306,000        1,384,328          4.45%     159,024,000        1,616,488          4.07%
                                       -------------    -------------                  -------------    -------------

Total interest bearing liabilities       385,990,000        3,666,581          3.80%     383,355,000        2,984,905          3.11%
                                                        -------------   -----------                     -------------   -----------

Demand deposits                           70,063,000                                      66,332,000
Other liabilities                          5,109,000                                       1,549,000
Shareholders' Equity                      26,197,000                                      25,073,000
                                       -------------                                   -------------

Total liabilities and equity           $ 487,359,000                                   $ 476,309,000
                                       =============                                   =============

Net interest income                                     $   3,453,773                                   $   3,369,179
                                                        =============                                   =============
Net interest spread                                                            2.44%                                           2.55%
Net interest margin                                                            3.02%                                           3.00%

</table>
<table>
<caption>
RATE/VOLUME ANALYSIS
                                                          Three months ended
                                                      6/30/07 Compared to 6/30/06
                                                       Increase (Decrease) Due to

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

                                             <c>             <c>           <c>
Interest earned on
Loans and leases                             $   860,815    $   279,106    $ 1,139,921
Investment securities                           (556,137)       163,153       (391,984)
Other interest income                              6,110         12,223         18,333
                                             -----------    -----------    -----------
Total interest earning assets                    310,788        455,482        766,270
                                             -----------    -----------    -----------

Interest paid on:
Deposits                                         255,197        658,639        913,836
Borrowed money                                  (376,368)       144,208       (232,160)
                                             -----------    -----------    -----------
Total interest bearing liabilities              (121,171)       802,847        681,676
                                             -----------    -----------    -----------


Increase (decrease) in net interest income   $   431,959    $  (347,365)   $    84,594
                                             ===========    ===========    ===========
</table>

Tax-equivalent  net  interest  income for the second  quarter of 2007  increased
$84,594 or 2.5% from the second quarter of 2006. Of the $84,594  increase in the
net interest income, $431,959 was due mainly to

                                       18
<page>

increased  income  attributable to higher levels of earning  assets.  Offsetting
this  increase was a decrease in net  interest  income of $347,365 due mainly to
increased funding costs.

Average  earning assets for the second quarter of 2007 totaled $457 million,  an
overall  increase of $8 million from the second  quarter of 2006.  Average loans
and leases  increased by $51 million or 20.1%.  The  increase in earning  assets
resulted in additional tax equivalent  interest income of $310,788.  The funding
of this  growth  was  through  deposits  and  cash  flows  from  the  investment
portfolio.  This  funding,  also  enabled the  decrease  in  borrowed  money and
resultant decrease in overall interest expense by $121,171.

The net interest margin for the second quarter of 2007 was 3.02%, an increase of
2 basis points from the second quarter of 2006. The increase in the net interest
margin is  attributable a higher  proportion of funding  through demand deposits
during  the  second  quarter of 2007 as  compared  to the same  quarter in 2006.
Specifically,  demand  deposits  totaled  18.2% of deposit  and  borrowed  money
funding for the second  quarter of 2007 as compared to 17.3% for same quarter in
2006.  The net interest  spread for the second  quarter of 2007  decreased  from
2.55% to 2.44% from the second quarter of 2006 reflecting that the cost of funds
rose at a faster rate than the yield on earning  assets.  Funding  costs totaled
3.80% for the second quarter of 2007, an increase of 69 basis points compared to
funding costs of 3.11% for the second quarter of 2006. In comparison,  the yield
on earning  assets for the second  quarter of 2007 totaled  6.24%,  which was an
increase of only 58 basis  points  over the  earning  asset yield for the second
quarter of 2006. The flattened yield curve  experienced  over the last two years
continues to challenge the efforts to improve return on earning asset growth.

Provisions for Loan and Lease Losses

There was no provision for loan and lease losses for the second quarter of 2007.
The  provision  for loan and lease losses is  determined  quarterly and assessed
along with the adequacy of the loan and lease loss allowance. Specifically, this
decision was based on the current  review of the  portfolio  and its  underlying
collateral, as well as current market and economic conditions.  (See page 24 for
a discussion of the Allowance for Loan and Lease Losses.)

During the second  quarter of 2007,  the Company  recorded  net  charge-offs  of
$38,413 compared to net charge-offs of $3,384 for the same period in 2006. While
there  was an  increase  in  charge-offs  from the  prior  year,  such  level of
charge-offs is not  considered by Management to be indicative of any trend.  The
increase in charge-off activity is primarily associated with consumer automobile
loans purchased during 2006.

Noninterest Income

Noninterest income for the second quarter of 2007 totaled $826,799,  an increase
of $122,322 or 17.4% from the  $704,477  earned for the second  quarter of 2006,
due to increases in trust income and banking service  charges and fees.  Banking
service  charges and fees for the second  quarter of 2007 totaled  $335,434,  an
increase  of $43,990 or 15.1% from fees  earned for the second  quarter of 2006.
This increase was due to increased fees from deposit  overdrafts and uncollected
funds,  interchange fees and non-customer ATM fees. Trust fees totaled $340,647,
which was $58,751 or 20.8% above the second quarter 2006 level.  The increase in
trust fees is due to higher levels of asset management  fees. Other  noninterest
income  totaled  $150,718,  which was similar to the amount earned in the second
quarter  of 2006.  Sales of  available  for sale  securities  during  the second
quarter of 2006 were effectuated for the purpose of increasing  future income on
the portfolio as well as decreasing the interest rate risk. These sales resulted
in a loss of $17,633 for the quarter.  There was no similar  transaction for the
second quarter of 2007.

                                       19
<page>

Noninterest Expense

For  the  three  months  ended  June  30,  2007,   noninterest  expense  totaled
$3,452,099,  an increase  of  $168,567 or 5.1% from the similar  period in 2006.
Much of this  increase is related to the  increase  in  salaries.  Salaries  and
benefits  expense  increased by $276,805,  due mostly to staffing for the branch
facilities  opened during 2006 as well as key management  personnel added during
the last year.  Occupancy and equipment  costs reflect  increases due to the new
branch  facilities.  Offsetting the increased  salaries,  benefits and occupancy
costs, the cost of computer services,  advertising and legal fees decreased from
prior year. Computer services expense totaled $196,213,  which was a decrease of
$54,445,  or 21.7% from second  quarter  2006  expenses.  This  decrease was the
result of the  Bank's  change in core  processor  providers  made early in 2007.
Advertising  expense  totaled  $105,902,  which was a $122,409 or 53.6% decrease
from the second  quarter of 2006.  Costs  related to the previous  year's branch
opening and deposit  promotions  are reflected in higher 2006 costs.  Legal fees
for the second  quarter of 2007 totaled  $86,526  which was a decrease of $9,338
from the second quarter of 2006. Commissions, services and fees expenses totaled
$144,738  which is an  increase  of $28,078 or 24.1% from the second  quarter of
2006. Costs incurred for loan servicing resulted in most of the increase.  Other
noninterest expense totaled $457,070 for the quarter,  which was $36,588 or 7.4%
below 2006 costs.  The  majority of the decrease is a result of lower 2007 costs
for general insurance expense and regulatory  assessments.  Also contributing to
the  decrease  were cost  savings  for  courier  expense as a result of the core
processor change.

Income Taxes

For the three month period ended June 30, 2007,  the  provision for income taxes
totaled  $94,212,  which is an  increase of 132.5% from the same period in 2006.
This  increase is due to the level of pretax  income  which was up by 31.0% from
the second quarter of 2006. Additionally,  due to a lower ratio of tax-exempt to
pretax income, the effective tax rate for the second quarter of 2007 was 14%, as
compared to the second quarter 2006 effective tax rate of 8%.


RESULTS OF  OPERATIONS - SIX MONTHS  ENDED JUNE 30, 2007  COMPARED TO SIX MONTHS
ENDED JUNE 30, 2006

Summary

Net  income for the  Company  for the six months  ended  June 30,  2007  totaled
$984,660,  decreasing $114,143 or 10.4% from 2006 earnings of $1,098,803.  Basic
and diluted net income per share for the six month period were $0.44, per share,
which are below the 2006  levels of $0.49 for basic and  diluted  net income per
share.

Net Interest Income

Net interest  income is comprised of the following for the six months ended June
30,

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

   Interest and dividend income                 $ 13,844,688    $ 12,062,128
   Tax-equivalent adjustments                        305,310         341,030
   Interest expense                               (7,361,460)     (5,600,307)
                                                ------------    ------------

   Net interest income (tax equivalent basis)   $  6,788,538    $  6,802,851
                                                ============    ============

                                       20
<page>

The following table presents the Company's average balance sheets (computed on a
daily basis),  net interest income,  and interest rates for the six months ended
June 30, 2007 and 2006.  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>
                                               Six months ended June 30, 2007               Six months ended June 30, 2006
                                       -------------------------------------------    -------------------------------------------
                                                          Interest                                        Interest
                                          Average          Earned/        Yield/          Average          Earned/       Yield/
                                          Balance           Paid           Rate           Balance           Paid          Rate
                                       -------------    -------------   ----------    -------------    -------------   ----------

                                      <c>                <c>                <c>       <c>                <c>                <c>

Assets
Interest Earning Assets:
Loans and Leases                       $ 303,118,000    $  10,166,621         6.71%   $ 249,764,000    $   7,907,076         6.33%
Investment Securities                    150,424,000        3,783,928         5.03%     190,931,000        4,484,207         4.70%
Other interest earning assets              7,641,000          199,449         5.22%       1,172,000           11,875         2.03%
                                       -------------    -------------                 -------------    -------------

Total interest earning assets            461,183,000       14,149,998         6.14%     441,867,000       12,403,158         5.61%
                                                        -------------   ----------                     -------------   ----------

Allowance for loan and
  lease losses                            (2,134,000)                                    (1,854,000)
Cash and due from banks                   14,371,000                                     14,045,000
Bank premises and equipment                7,549,000                                      4,583,000
Net unrealized loss on
  securities                              (2,833,000)                                    (5,451,000)
Foreclosed real estate                            --                                             --
Other assets                              17,086,000                                     16,639,000
                                       -------------                                  -------------

Total Average Assets                   $ 495,222,000                                  $ 469,829,000
                                       =============                                  =============


Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                       $  52,587,000          330,080         1.26%   $  46,153,000           49,636         0.22%
Money Market deposits                     74,073,000        1,049,833         2.83%      74,103,000          661,510         1.79%
Time deposits                            142,765,000        3,295,943         4.62%      98,829,000        1,739,765         3.52%
Borrowed funds                           125,736,000        2,685,604         4.27%     159,862,000        3,149,396         3.94%
                                       -------------    -------------                 -------------    -------------

Total interest bearing liabilities       395,161,000        7,361,460         3.73%     378,947,000        5,600,307         2.96%
                                                        -------------   ----------                     -------------   ----------

Demand deposits                           68,709,000                                     63,476,000
Other liabilities                          4,586,000                                      1,890,000
Shareholders' Equity                      26,766,000                                     25,516,000
                                       -------------                                  -------------

Total liabilities and equity           $ 495,222,000                                  $ 469,829,000
                                       =============                                  =============

Net interest income                                     $   6,788,538                                  $   6,802,851
                                                        =============                                  =============
Net interest spread                                                           2.41%                                          2.65%
Net interest margin                                                           2.94%                                          3.08%

</table>
<table>
<caption>

RATE/VOLUME ANALYSIS
                                                        Six months ended
                                                   6/30/07 Compared to 6/30/06
                                                   Increase (Decrease) Due to

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

                                          <c>               <c>           <c>
Interest earned on:
Loans and leases                            $ 1,767,642    $   491,903    $ 2,259,545
Investment securities                        (1,001,992)       301,713       (700,279)
Other interest income                           145,908         41,666        187,574
                                            -----------    -----------    -----------
Total interest earning assets                   911,558        835,282      1,746,840
                                            -----------    -----------    -----------

Interest paid on:
Deposits                                        654,490      1,570,455      2,224,945
Borrowed money                                 (712,895)       249,103       (463,792)
                                            -----------    -----------    -----------
Total interest bearing liabilities              (58,405)     1,819,558      1,761,153
                                            -----------    -----------    -----------

Increase (decrease)in net interest income   $   969,963    $  (984,276)   $   (14,313)
                                            ===========    ===========    ===========
</table>

                                       21
<page>

Tax  equivalent  net  interest  income for the first six months of 2007  totaled
$6,788,538,  which was a decrease  of  $14,313  or 0.2% from the same  period in
2006.  The $14,313  decrease in net interest  income is  reflective of decreased
income of $984,276 resulting from the decrease in net interest spread. Increased
volume of earning  assets,  net of the  increase in volume of  interest  bearing
liabilities,  contributed  $969,963  in net  interest  income,  offsetting  this
decrease.

Earning  assets for the first half of 2007  increased  by over $19  million,  or
4.4%.  Earning asset growth was in the loan and lease  portfolio which increased
by $53 million or 21.4% over the previous  year.  The increase in earning assets
was funded by  deposit  growth and cash flow  reinvestment  from the  investment
portfolio.

The  decline in net  interest  income is  reflective  of the  erosion of the net
interest margin. The net interest margin (net interest income divided by average
earning assets) was 2.94% for the six-month  period ended June 30, 2007. The net
interest  margin  decreased 14 basis points from the margin of 3.08% for the six
months  ended June 30, 2006.  The  continuation  of the flat and inverted  yield
curve is the cause of the decline in net  interest  margin.  Over the past year,
funding costs have increased 77 basis points, from 2.96% to 3.73%.  However, the
tax-equivalent  yield on earning  assets has only  increased 53 basis points for
the same period. It is anticipated that continued emphasis on deposit growth and
cost  efficient  funding  should help to protect  earnings  from further  margin
erosion.


Provisions for Loan and Lease Losses
The provision for loan and lease losses for the first six months of 2007 totaled
$105,000,  which was half of the provision for the first six months of 2006. The
provision for loan and lease losses is determined  quarterly and assessed  along
with the  adequacy  of the  allowance  for loan and lease  losses.  Based on the
current  review of the portfolio and its  underlying  collateral,  as well as to
current market and economic conditions,  Management  determined that the reduced
2007 provision is adequate to cover exposure to losses.

During the first six months of 2007,  the Company  recorded net  charge-offs  of
$88,080  compared to net  recoveries of $367 for the first half of 2006. The net
charge-offs  for 2007 relate  mostly to losses from  consumer  automobile  loans
which the Bank  purchased  in 2006 and is not  considered  by  Management  to be
indicative of any trend.

Noninterest Income

Year to date  noninterest  income as of June 30,  2007  totaled  $1,621,371,  up
$249,399,  or  18.2%,  from  noninterest  income  from the same  period in 2006.
Banking service charges and fees totaled $646,666, increasing $88,243, or 15.8%,
from the  previous  year.  The  increase  in  service  charge  income  is due to
increased fee income from deposit  overdraft and uncollected  fees,  credit card
interchange  income and non-customer ATM fees. Trust fee income totaled $670,236
which represents an increase of $128,364, or 23.7%, from the first six months of
2006.  This increase is due to fees from  investment  management  services.  The
Company's team of local trust and investment  professionals offers an attractive
array of investment management and wealth management services for high net worth
individuals.  Other noninterest  income totaled $318,819 which is an increase of
$29,509,  or 10.2%,  from the first six  months of 2006.  This  increase  is due
mostly increased income from revenue from the Bank's retail investment products.
During the first six months of 2007 and 2006,  the Bank  recorded  losses on the
sales of available  for sale  securities  of $14,350 and $17,633,  respectively.
These  sales  were  made for the  purpose  of  reducing  interest  rate risk and
positioning earning assets for future profitability.

                                       22
<page>

Noninterest Expense

Six-month  noninterest  expense  as of June 30,  2007  totaled  $6,909,005,  and
represented  an increase  of  $529,224,  or 8.3%,  from the same period of 2006.
Staffing,  occupancy and  equipment  costs  particularly  as they relate the new
branches  opened  during  2006,  resulted  in  these  increases.   Decreases  in
advertising costs were reflective of 2006 branch promotions.

Other  noninterest  expenses  totaled  $843,307 which was a decrease of $109,118
from the first six months of 2006.  The  majority of the decrease is a result of
lower 2007 costs for exam and audit fees as they relate to regulatory  reporting
and the  Company's  plans for  implementing  Sarbanes  Oxley  initiatives.  Also
contributing  to the decrease  were costs for computer  software and  technology
consulting  which are anticipated to be reduced in 2007 due to the change in the
core processor.

Income Taxes

The  provision  for  income  taxes  for the first  six  months  of 2007  totaled
$105,934,  a decrease  of $39,275  or 27.0%  from the same  period in 2006.  The
decrease  in income  tax  expense  in the first six (6) months of 2007 is due to
lower taxable  income  levels due both to lower pretax  earnings as well as to a
higher  proportion of non-taxable to taxable income.  The effective tax rate for
the first six months of 2007 was 10% compared to 12% for the first six months of
2006.

LIQUIDITY

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

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

As of June 30, 2007, the Company had $109,756,168 in loan and lease  commitments
and credit lines  outstanding.  Because some  commitments are expected to expire
without  being  drawn upon,  the total  commitment  amount does not  necessarily
represent all future cash  requirements.  The funding of these  commitments  are
anticipated  to  be  met  through  deposits,  loan  and  security  paydowns  and
maturities.  Management  believes  liquidity is adequate to meet its present and
foreseeable needs.

                                       23
<page>

CAPITAL

At June 30,  2007,  total  shareholders'  equity  was  $25,774,726  compared  to
$26,206,194  at December 31, 2006.  From a regulatory  perspective,  the capital
ratios of the Company  and the Bank place 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 June 30, 2007:

                                            Minimum
                                         Regulatory
                                     Capital Levels    The Company    The Bank
                                     --------------    -----------    --------
TIER 1:
  Leverage capital ratio                         4%          8.03%       7.35%

  Risk-based capital ratio                       4%         12.46%      11.43%

  Total risk-based capital ratio                 8%         13.13%      12.11%


ALLOWANCE FOR LOAN AND LEASE LOSSES AND CRITICAL ACCOUNTING POLICIES

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

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

The allowance  consists of specific,  general and  unallocated  components.  The
specific  component  relates to loans and leases that are  classified  as either
doubtful,  substandard  or special  mention.  For such loans and leases that are
also  classified as impaired,  an allowance is  established  when the discounted
cash flows (or collateral value or observable market price) of the impaired loan
or lease is lower than the  carrying  value of that loan or lease.  The  general
component covers non-classified loans and leases and is based on historical loss
experience  adjusted  for  qualitative  factors.  An  unallocated  component  is
maintained to

                                       24
<page>

cover uncertainties that could affect Management's  estimate or probable losses.
The  unallocated  component of the allowance  reflects the margin of imprecision
inherent in the underlying assumptions.

There were no material  changes in loan or lease  concentration or loan or lease
quality that had a significant effect on the allowance for loan and lease losses
calculation at June 30, 2007. In addition, there were no material changes in the
estimation methods and assumptions used in the Company's  allowance for loan and
lease  losses  calculation,  and there  were no  material  reallocations  of the
allowance among different parts of the loan or lease portfolio.

At June 30, 2007, the allowance for loan and lease losses was equivalent to 165%
of total  non-performing  assets as compared  with 140% of total  non-performing
assets at December 31, 2006.  As of June 30,  2007,  non-performing  assets were
$1,286,904 and  represented  0.42% of total loans and leases.  Similarly,  as of
December 31, 2006,  non-performing  assets totaled  $1,504,551  and  represented
0.51% of total loans and leases.  The ratio of the  allowance  for such loan and
lease  losses to total loans and leases at June 30, 2007 and  December  31, 2006
was 0.69% and 0.71% respectively.

Changes in the  allowance  for loan and lease losses for the periods  ended June
30, 2007 and 2006 are as shown below:


For the six months ended June 30,               2007            2006
                                             -----------    -----------

Balance at beginning of the year             $ 2,106,100    $ 1,759,611
Provision for loan and lease losses              105,000        210,000
Loans charged-off                                (94,713)        (8,812)
Recoveries of loans previously charged-off         6,633          9,179
                                             -----------    -----------

Balance at end of period                     $ 2,123,020    $ 1,989,978
                                             ===========    ===========

The following table  summarizes the Bank's other real estate owned (OREO),  past
due and nonaccrual  loans and leases,  and  nonperforming  assets as of June 30,
2007 and December 31, 2006.

<table>
<caption>
                                                       June 30, 2007       December 31, 2006
                                                      ---------------      -----------------


                                                   <c>                   <c>
Nonaccrual loans and leases                           $     1,286,904       $     1,504,551

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

Total nonperforming assets                            $     1,286,904       $     1,504,551
                                                      ===============       ===============

Loans and leases past due in excess of 90 days and
  accruing interest                                   $        16,446       $           343
                                                      ===============       ===============
</table>

POTENTIAL PROBLEM LOANS

As of June 30,  2007,  there  were no  potential  problem  loans or  leases  not
disclosed above, which cause Management to have serious doubts as to the ability
of such borrowers to comply with their present loan or lease repayment terms.

OFF BALANCE SHEET ARRANGEMENTS

The Company is a party to financial  instruments with off-balance  sheet risk in
the normal course of business to meet the financing  needs of its customers such
as letters of credit.  In the opinion of  Management,  these  off-balance  sheet
arrangements are not likely to have a material effect on the Company's financial
condition, results of operation, or liquidity.

                                       25
<page>

At June 30,  2007,  there  have been no  significant  changes  in the  Company's
off-balance sheet arrangements from December 31, 2006.

FORWARD-LOOKING STATEMENTS

This Quarterly Report and future filings made by the Company with the Securities
and Exchange  Commission,  as well as other filings,  reports and press releases
made or  issued  by the  Company  and the  Bank,  and  oral  statements  made by
executive  officers  of  the  Company  and  Bank,  may  include  forward-looking
statements  relating  to  such  matters  as (a)  assumptions  concerning  future
economic and business  conditions and their effect on the economy in general and
on the  markets  in  which  the  Company  and  the  Bank  do  business,  and (b)
expectations  for  increased  revenues  and  earnings  for the  Company and Bank
through growth resulting from acquisitions,  attractions of new deposit and loan
customers   and  the   introduction   of  new   products  and   services.   Such
forward-looking  statements are based on assumptions  rather than  historical or
current facts and, therefore,  are inherently uncertain and subject to risk. For
those  statements,  the  Company  claims the  protection  of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.

The Company  notes that a variety of factors  could cause the actual  results or
experience  to  differ   materially  from  the  anticipated   results  or  other
expectations described or implied by such forward-looking  statements. The risks
and uncertainties that may affect the operations,  performance,  development and
results of the Company's and Bank's business include the following: (a) the risk
of adverse changes in business  conditions in the banking industry generally and
in the  specific  markets  in  which  the  Bank  operates;  (b)  changes  in the
legislative and regulatory  environment  that negatively  impact the Company and
Bank through increased operating expenses;  (c) increased competition from other
financial  and  nonfinancial  institutions;  (d)  the  impact  of  technological
advances;  and (e)  other  risks  detailed  from  time to time in the  Company's
filings with the Securities and Exchange  Commission.  Such  developments  could
have an adverse  impact on the Company  and the Bank's  financial  position  and
results of operation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

ITEM 4.  CONTROLS AND PROCEDURES

The Company  maintains  disclosure  controls and procedures that are designed to
ensure that information  required to be disclosed in the Company's  Exchange Act
report is recorded,  processed,  summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated  to the Company's  Management,  including its Chief  Executive
Officer and Chief Financial Officer,  as appropriate,  to allow timely decisions
regarding  required  disclosure  based

                                       26
<page>

closely on the  definition  of  "disclosure  controls  and  procedures"  in Rule
13a-15(e).  In designing and evaluating the disclosure  controls and procedures,
Management  recognized  that any  controls  and  procedures,  no matter how well
designed and operated,  can provide only  reasonable  assurance of achieving the
desired control objectives, and Management necessarily was required to apply its
judgment in evaluating the cost-benefit of possible controls and procedures.

As of the end of the period covered by this report,  the Company  carried out an
evaluation,  under the supervision and with the  participation  of the Company's
Management,  including the Company's Chief  Executive  Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's  disclosure  controls  and  procedures.  Based on the  foregoing,  the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective.

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


PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

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


Item 1A.  Risk Factors.  Not applicable

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

Item 3.  Defaults Upon Senior Securities.   Not applicable

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

The Annual Meeting of Shareholders  of First  Litchfield  Financial  Corporation
(the "Company") was held on Wednesday, May 16, 2007.


      1.    Election of Directors.
            ---------------------

            The vote for re-electing each of the four (4) Directors listed below
to serve for a term of three (3) years is as follows:

                                                                    Withholding
                                                     For             Authority

George M. Madsen      Number of Shares:           1,743,024             45,782
                                                 ----------         ----------
                      Percentage of
                      Shares Voted:                   77.21%              2.03%
                                                 ----------         ----------
                      Percentage of Shares
                      Entitled to Vote:               97.44%              2.56%
                                                 ----------         ----------

                                       27
<page>

                                                                    Withholding
                                                     For             Authority

Alan B. Magary        Number of Shares:           1,739,533             49,273
                                                 ----------         ----------
                      Percentage of
                      Shares Voted:                   77.05%              2.18%
                                                 ----------         ----------
                      Percentage of Shares
                      Entitled to Vote:               97.25%              2.75%
                                                 ----------         ----------

                                                                    Withholding
                                                     For             Authority

William J. Sweetman   Number of Shares:           1,733,911             54,895
                                                 ----------         ----------
                      Percentage of
                      Shares Voted:                   76.81%              2.43%
                                                 ----------         ----------
                      Percentage of Shares
                      Entitled to Vote:               96.93%              3.07%
                                                 ----------         ----------

                                                                    Withholding
                                                     For             Authority


Patricia D. Werner    Number of Shares:           1,757,740             31,066
                                                 ----------         ----------
                      Percentage of
                      Shares Voted:                   77.86%              1.38%
                                                 ----------         ----------
                      Percentage of Shares
                      Entitled to Vote:               98.26%              1.74%
                                                 ----------         ----------

              The  vote  for  re-electing  the one (1) Director  listed below to
serve for a term of two (2) years is as follows:

                                                                    Withholding
                                                     For             Authority


Gregory S. Oneglia    Number of Shares:           1,743,618             45,188
                                                 ----------         ----------
                      Percentage of
                      Shares Voted:                   77.24%              2.00%
                                                 ----------         ----------
                      Percentage of Shares
                      Entitled to Vote:               97.47%              2.53%
                                                 ----------         ----------

Continuing  as  Directors  with  terms to expire at the 2008  Annual  Meeting of
Shareholders are: Kathleen A. Kelley, H. Ray Underwood,  Patrick J. Boland, John
A.  Brighenti and Richard E. Pugh.  Continuing as Directors with terms to expire
at the 2009 Annual  Meeting of  Shareholders  are:  Joseph J.  Greco,  Perley H.
Grimes, Jr. and Charles E. Orr.

                                       28
<page>

         2.   Appointment of Auditors.

         Votes cast "FOR," "AGAINST" and "ABSTAIN" on the proposal to ratify the
appointment  of McGladrey & Pullen,  LLP to act as  independent  auditors of the
current fiscal year were as follows:

      "FOR APPROVAL"             "AGAINST APPROVAL"            "ABSTAIN"

         1,743,603                    35,888                     9,315
   --------------------        --------------------        --------------------
          Number                      Number                     Number

          77.23%                       1.59%                      0.41%
   --------------------        --------------------        --------------------
                      (Percent of shares entitled to vote)

          97.47%                       2.01%                      0.52%
   --------------------        --------------------        --------------------
                (Percent of shares actually voted at the meeting)

         3.   Adoption of the Company's 2007 Restricted Stock Plan.

         Votes cast "FOR,"  "AGAINST" and "ABSTAIN" on the proposal to adopt the
Company's 2007 Restricted Stock Plan are as follows:


                                                                    BROKER
  "FOR APPROVAL"      "AGAINST APPROVAL"       "ABSTAIN"           NON-VOTES

    1,240,390              106,185              34,688              407,543
-----------------    --------------------    ------------         ------------
     Number                 Number              Number

     54.94%                  4.70%              1.54%
-----------------    --------------------    ------------
            (Percent of shares entitled to vote)

     89.80%                  7.69%              2.51%
-----------------    --------------------    ------------
     (Percent of shares actually voted at the meeting)


Item 5.  Other Information. Not applicable

                                       29
<page>

Item 6. Exhibits

                                  EXHIBIT INDEX

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

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

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

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

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

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

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

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


                                       30
<page>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



Dated:  August 13, 2007                     FIRST LITCHFIELD FINANCIAL
                                            CORPORATION


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



Dated:  August 13, 2007                     By:  /s/ Carroll A. Pereira
                                                 --------------------------
                                                 Carroll A. Pereira
                                                 Principal Financial and
                                                 Accounting Officer


                                       31